UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (date of earliest event reported): January 5, 1998
SYNAPTX WORLDWIDE, INC.
(Exact name of Registrant as Specified in its Charter)
UTAH 0-22969 87-0375342
- ---- ------- ----------
(State or Other (Commission (IRS Employer
Jurisdiction) File Number) Identification Number
168 East Highland Avenue, Suite 300, Elgin, IL 60120-5507
Registrant's Telephone Number, Including Area Code: (847) 622-0200
--------------
<PAGE>
FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
This report includes the financial statements previously
discussed in the Company's form 10-QSB covering the quarter ended
November 30, 1997, accordingly reference is made to that filing (No.
0-22969) for matters incorporated by reference.
Effective January 1, 1998, Synaptx Worldwide, Inc. (the
"Company") through its wholly owned subsidiary, Synaptx Controls, Inc.
entered into an Agreement and Plan of Merger ("Agreement") with
Shareholders of WG Controls, Inc., an Illinois Corporation, ("WGC")
related to the acquisition by the Company of one hundred percent
(100%) of the issued and outstanding shares of capital stock of WGC.
In reliance upon and pursuant to the basic terms of the Agreement, the
Company and James Gleason, Shirley Gleason, Michael Concialdi and
James Gammon, the shareholders of WGC (collectively the "WGC
Shareholders" and individually the "WGC Shareholder") executed the
Agreement whereby WGC Shareholders exchanged all of their right, title
and interest and obligations in their WGC Common Stock to the Company.
The Agreement provided for the purchase by Synaptx Worldwide, Inc. of
all the issued and outstanding capital stock of WGC Common Stock 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. Additionally, on closing, the
Agreement called for the payment of $250,000 to key employees related
to noncompetition agreements.
The cumulative convertible 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 calls for the
137,143 preferred shares to be converted into .67362 shares of the
Company's common stock or 92,383 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.
In order to secure the cash required at the closing to complete
this acquisition, the Company sold to accredited investors $74,900 of
Synaptx Common Stock and secured financing, also from accredited
investors, of $80,100 in long-term notes. The Company intends to make
payments on the $270,000 future payments due to WGC Shareholders from
funds derived from the Company's operations.
Additionally, pursuant to the terms of the acquisition, the
former shareholders of WGC may earn additional purchase price
consideration in the form of additional common stock of the Company.
The additional consideration is specified as fixed amounts for the
attainment of specified annual icommission revenuesi and iearningsi
for the subsequent twelve month periods ending December 31, 1998 and
1999. If WGC meets the specified icommission revenuesi and iearningsi
amounts for both twelve month periods, the additional consideration
could amount to $1,000,000. The additional consideration, if any,
would be added to the costs in excess of net assets acquired and will
<PAGE>
be amortized on the straight-line method over the remaining life of
the 20 year amortization period associated with these costs.
WG Controls, Inc. is a sales representative firm based in
Illinois (approximately fifteen miles northwest of Chicago) 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. WGC has been active for the past 37 years. WGC's operations
consist of sales representatives who sell to private network, public
telephone network, cable operating companies and alternate access
provider communication markets. WGC currently represents RELTEC,
Thomas & Bettes and Johanson in addition to approximately 13 other
clients ("Clients" or singular "Client"). Employing eleven (11) people
and operating out of leased office space in both Arlington Heights,
Illinois and Milwaukee, Wisconsin, WGCis employees are based in
strategic territories to meet their customersi needs, serving Illinois
and Wisconsin. Revenues represent the earning of commissions on its
customersi sales. These commissions range primarily from 3.5% up to
10%, depending on the sophistication of the customersi products and
services represented.
Currently, WG Controls is generating commission revenues of
approximately $80,000 to $90,000 per month. Management of the Company
believes that contractual relations, which allow for termination by
either party with minimal notification periods (standard in the
industry), with its existing Clients are in good standing.
Furthermore, management believes that the opportunity of providing a
national Client sales representation focus will allow for increased
geographic service scope with existing Clients and an opportunity of
adding additional Clients.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
1. Consolidated financial statements of WG Controls, Inc.
and subsidiary as of December 31, 1997 and 1996
(audited)
(b) Pro forma financial information.
1. Pro forma condensed consolidated statements of
operations of Synaptx Worldwide, Inc. for the year
ended August 31, 1997 (unaudited)
2. Pro forma condensed consolidated balance sheets as of
November 30, 1997 and the pro forma condensed
consolidated statements of operations of Synaptx
Worldwide, Inc. for the three months ended November 30.
1997 (unaudited)
(c) Exhibits included herewith:
Exhibit 10.1 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 was
filed as Exhibit 10.1 to a report on Form 10-QSB (No.
<PAGE>
0-22969) and the same is incorporated herein by
reference.
Exhibit 10.2 Employment Agreement - James Gleason was filed as
Exhibit 10.2 to a report on Form 10-QSB (No. 0-22969)
and the same is incorporated herein by reference.
<PAGE>
INDEPENDENT AUDITORS' REPORT
WG CONTROLS, INC. AND SUBSIDIARY
ARLINGTON HEIGHTS, ILLINOIS
We have audited the accompanying consolidated balance sheets of WG
Controls, Inc. and subsidiary as of December 31, 1997 and 1996 and the
related consolidated statements of income and retained earnings 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of WG Controls, Inc. and subsidiary at December 31, 1997 and 1996, and
the results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Chicago, Illinois
March 10, 1998
<PAGE>
WG CONTROLS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
---- ----
CURRENT ASSETS:
Cash $ 33,452 $ 56,786
Accounts receivable 155,503 148,627
Prepaid expenses and deposits 14,858 19,637
--------- ---------
Total current assets 203,813 225,050
EQUIPMENT 71,280 61,160
Less accumulated depreciation (45,004) (34,563)
--------- ---------
Net equipment 26,276 26,597
OTHER ASSETS 1,680 2,920
--------- ---------
TOTAL ASSETS $ 231,769 $ 254,567
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,025 $ 2,947
Accrued expenses and taxes 51,182 34,230
--------- ---------
Total current liabilities 60,207 37,177
--------- ---------
TOTAL LIABILITIES 60,207 37,177
--------- ---------
COMMITMENTS -- --
STOCKHOLDERS' EQUITY
Common stock; no par value; 5,000 shares
authorized, 5,000 issued and outstanding 10,000 10,000
Retained earnings 161,562 207,390
--------- ---------
Total stockholders' equity 171,562 217,390
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 231,769 $ 254,567
========= =========
See accompanying summary of accounting policies and notes to
consolidated financial statements
<PAGE>
WG CONTROLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
COMMISSIONS EARNED $ 1,180,488 $ 896,456
COST OF SERVICES 947,843 665,230
----------- -----------
GROSS PROFIT 232,645 231,226
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 188,671 151,285
DEPRECIATION 10,441 8,449
----------- -----------
NET INCOME 33,533 71,492
RETAINED EARNINGS, AT BEGINNING OF YEAR 207,390 267,898
DISTRIBUTIONS (79,361) (132,000)
----------- -----------
RETAINED EARNINGS, AT END OF YEAR $ 161,562 $ 207,390
=========== ===========
See accompanying summary of accounting policies and notes to
consolidated financial statements
<PAGE>
WG CONTROLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 33,533 $ 71,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,441 8,449
Changes in assets and liabilities net of
assets acquired:
Increase in accounts receivable (6,876) (7,077)
Decrease (increase) in other current assets 4,779 (434)
Increase (decrease) in accounts payable 6,078 (2,370)
Increase in accrued expenses and taxes 16,952 8,224
--------- ---------
Net cash provided by operating activities 64,907 78,284
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment (10,120) (5,025)
--------- ---------
Net cash used in investing activities (10,120) (5,025)
CASH FROM FINANCING ACTIVITIES
Distributions to shareholders (79,361) (132,000)
Decrease in other assets 1,240 518
--------- ---------
Net cash used in financing activities (78,121) (131,482)
--------- ---------
NET DECREASE IN CASH (23,334) (58,223)
Cash at beginning of year 56,786 115,009
--------- ---------
CASH AT END OF YEAR $ 33,452 $ 56,786
========= =========
See accompanying summary of accounting policies and notes to
consolidated financial statements
<PAGE>
WG CONTROLS, INC. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
WG Controls, Inc. (the "Company"), founded in 1962, is a sales
representative firm based in Arlington Heights, Illinois. The
Company also maintains a sales office in Milwaukee, Wisconsin.
The Company provides field sales and business development support
for specified product lines and/or territories for clients under
contract. Clients include telecommunications (both voice and data
networking), electronics, and cable TV original equipment
manufacturers, commonly referred to as OEM's, located primarily
in the midwestern United States. These clients pay a negotiated
commission on all sales associated with the contracted coverage.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and WG Telecom, Inc., a wholly owned subsidiary located
in Arlington Heights, Illinois. Upon consolidation, significant
intercompany accounts, transactions and profits are eliminated.
REVENUE RECOGNITION
Revenues consist of commissions earned on the sales of
manufacturers' goods to end use customers or distributors.
Commissions are earned as a percentage of sales made and
generally range from 3.5% up to 10% depending on the volume of
goods being sold and the complexity of the product. Revenue is
generally recognized when sales take place which precedes the
actual collection of the commission by approximately sixty days.
Therefore, approximately two months of estimated commissions
earned but not collected are recorded as accounts receivable.
EQUIPMENT
Equipment, consisting entirely of office equipment is stated at
cost. Depreciation is computed over the estimated useful lives of
the assets, ranging from thirty-six to sixty months, using the
straight line method.
INCOME TAXES
The Company, with the consent of its shareholders, elected to be
taxed as an "S" corporation in compliance with elections under
the Internal Revenue Code. In lieu of corporation income taxes,
the shareholders of an "S" corporation are taxed on their
proportionate share of the company's taxable income. Accordingly,
no liability or provision for federal income taxes is included in
the accompanying financial statements nor are any deferred taxes
provided for timing differences between income tax and financial
reporting prior to December 31, 1997.
Since the acquisition date, the Company's results are included
with the Synaptx Worldwide, Inc.'s results and will be reflected
<PAGE>
in a consolidated federal income tax return. (See Note 1).
ESTIMATES
The accompanying financial statements include estimated amounts
and disclosures based on management's assumptions about future
events. Actual results may differ from those estimates.
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of accounts
receivable. The carrying values reflected in the balance sheet
reasonably approximate the fair values for accounts receivable
and payable.
ADVERTISING COSTS
Advertising and promotion costs, which are included in selling,
general and administrative expenses, are expensed as incurred.
Advertising and promotion costs amounted to approximately $900
and $800 in the years ended December 31, 1997 and 1996,
respectively.
<PAGE>
WG CONTROLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACQUISITION
On January 1, 1998 the shareholders of the Company consummated an
exchange of all the outstanding common stock of the Company for
285,715 shares of common stock of Synaptx Worldwide, Inc.
("Synaptx"), 137,143 shares of Series A convertible preferred
stock, and $270,000 payable over a three year period. The Company
became a subsidiary of Synaptx. In addition, Synaptx agreed to
issue to the shareholders of the Company a maximum of $1,000,000
of Synaptx common stock over two years if certain pre-defined
revenue and income targets are met for the years ended December
31, 1998 and 1999.
In conjunction with the acquisition, the Company entered into
employment agreements with its president and two other key employees
for terms ranging from three to five years. The agreements shall be
automatically renewed for successive one year terms unless canceled
by either party at least thirty days prior to the then current term's
expiration. The agreements call for annual salaries ranging from
$84,000 to $150,000. The president's agreement also calls for a
commission of 5% on all commission revenues generated within
the region he manages. Additionally each of the agreements contains
an additional cash bonus payable in the first year ranging from
$7,500 to $60,000.
NOTE 2. SIGNIFICANT CUSTOMERS
For the year ended December 31, 1997, five customers accounted
for 12.8%, 10.5%, 13.8%, 16.8% and 18.6%, respectively, of total
commission revenues. For the year ended December 31, 1996, three
customers accounted for 21.5%, 13.8% and 13.5%, respectively,
of total commission revenues. These customers represent 0%,
9.1%, 6.9%, 12.3%, and 32.4%, respectively, of total accounts
receivable at December 31, 1997 and 21.4%, 5.7%, and 8.9%,
respectively, of total accounts receivable at December 31,
1996. During 1997, the Company cancelled its relationship with
the customer representing 12.8% of revenues and 0% of accounts
receivable.
NOTE 3. OPERATING LEASE COMMITMENTS
The Company occupies its main office space under a lease expiring
December 31, 1998. The original lease expired on December 31,
1997, at which time an amendment was entered into extending the
lease for an additional year. The Company occupies office space
in Milwaukee under a month-to-month lease agreement with the
right to terminate the agreement with a sixty day notice. Rentals
are subject to annual escalation charges based upon increases in
operating expenses and real estate taxes.
As of December 31, 1997, the Company's future minimum lease
payments under operating leases are $20,800, all due in the year
<PAGE>
ended December 31, 1998. Rent expense amounted to approximately
$24,300 and $19,200 for 1997 and 1996, respectively.
NOTE 4. EMPLOYEE BENEFIT PLANS
The Company sponsors a SEP/IRA plan for all eligible employees.
Participants may make contributions from their gross pay, limited
to $9,500 of the employee's compensation, as defined. The Company
does not provide a matching contribution.
NOTE 5. EMPLOYEE COMMISSIONS
The Company has historically sponsored an incentive commission
plan for all eligible employees contingent upon predetermined
sales and expense targets. Employees had earned $37,985 and
$34,230 at December 31, 1997 and 1996, respectively, which is
included in accrued expenses.
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Pro Forma Consolidated Financial Statement
Year Ended August 31, 1997
The following unaudited pro forma consolidated statements of
operations for the year ended August 31, 1997 give effect to the
acquisition of WG Controls, Inc. which was made as of January 1, 1998.
The acquisition was accounted for using the purchase method of
accounting. Accordingly, the results of operations of the acquired
entity have not been reflected in the Company's statement of
operations since the acquisition date was subsequent to the Company's
fiscal year end. The pro forma information has been prepared as if the
acquisition occurred on September 1, 1996 and is based on historic
financial statements of Synaptx Worldwide, Inc. from September 1, 1996
to August 31, 1997 and WG Controls, Inc. and subsidiary from October
1, 1996 to September 30, 1997.
The unaudited pro forma statements of operations have been
prepared by management based upon the financial statements of Synaptx
Worldwide, Inc. and the acquired entity. These pro forma results may
not be indicative of the results that actually would have occurred if
the combination had been in effect since inception or which may be
obtained in the future.
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Condensed Pro Forma Statements of Operations
Year Ended August 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Synaptx WG Pro forma
Worldwide Controls, Adjustments Pro forma
Inc. Inc. Increase Consoli-
(Decrease) dation
<S> <C> <C> <C> <C>
REVENUES $ 3,601,124 $ 1,132,792 $ - $ 4,733,916
COST OF REVENUES 2,571,467 909,799 (54,300) 3,426,966
----------- ----------- ------------ -----------
GROSS PROFIT 1,029,657 222,993 54,300 1,306,950
----------- ----------- ------------ -----------
EXPENSES
Selling, general
& administrative 1,384,481 181,168 50,000 1,615,649
Depreciation 67,915 9,743 77,658
Amortization 129,372 - 46,800 176,172
Interest expense (income), net 50,444 (197) 13,200 63,447
----------- ----------- ------------ -----------
Total expenses 1,632,212 190,714 110,000 1,932,926
----------- ----------- ------------ -----------
NET (LOSS) INCOME $ (602,555) $ 32,279 $ (55,700) $ (625,976)
=========== ===========
Cumulative convertible preferred
stock dividend requirements (40,800) (40,800)
------------ -----------
Net loss applicable to common shareholders $ (96,500) $ (666,776)
=========== ===========
Weighted Average Shares
Outstanding 4,339,640 285,715 4,625,355
=========== =========== ===========
NET LOSS PER SHARE OF
COMMON STOCK $ (0.14) $ (0.14)
=========== ===========
</TABLE>
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Note to Condensed Pro Forma Financial Statement
-----------------------------------------------
Effective January 1, 1998, the Company acquired all of the
outstanding stock of WG Controls, Inc. (the "Acquiree") whose
principal operations are as 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, commonly referred
to as OEMs, located primarily in the north central section of the
United States. The acquisition was consummated for 285,715 shares of
Synaptx common stock, 137,143 shares of Synaptx 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, with a fair value at the
acquisition date of approximately $1,100,000. Additionally, on
closing, the Agreement called for the payment of $250,000 to key
employees related to noncompetition agreements which benefit
post-acquisition date periods.
The transaction was recorded under the purchase method of
accounting. The total cost of the acquisition was approximately
$1,100,000, which exceeded the fair value of assets acquired by
approximately $928,500. This amount is being amortized over twenty
years.
Pro forma adjustments related to the acquisition of the Acquiree
include (1) the reduction of cost of revenues related to employee
commissions and salaries to reflect amounts contractually obligated
under employment agreements with key employees of $54,300, (2) the
amortization of the noncompete agreements entered into with key
employees of $50,000, (3) amortization of the cost in excess of fair
value of assets acquired of $46,800, (4) the amortization of imputed
interest on future purchase price payments of $13,200 and (5) the
impact of required dividends of $40,800 for the cumulative convertible
preferred stock issued.
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Pro Forma Consolidated Financial Statements
Three Months Ended November 30, 1997
The following unaudited pro forma consolidated condensed balance
sheets as of November 30, 1997 and statements of operations for the
three months ended November 30, 1997 give effect to the acquisition of
WG Controls, Inc. which was made as of January 1, 1998. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired entity have not
been reflected in the Company's financial statements since the
acquisition date was subsequent to the Company's quarter end results.
The pro forma balance sheet information represents Synaptx Worldwide,
Inc. and subsidiaries as of November 30, 1997 and WG Controls, Inc.
and subsidiary as of the acquisition date balance sheet, December 31,
1997. The pro forma operating results has been prepared as if the
acquisition occurred on September 1, 1997 and is based on historic
financial statements of Synaptx Worldwide, Inc. from September 1 to
November 30, 1997 and WG Controls, Inc. and subsidiary from October 1
to December 31, 1997.
The unaudited pro forma consolidated statements of operations,
and consolidated balance sheets have been prepared by management based
upon the financial statements of Synaptx Worldwide, Inc. and the
acquired entity. These pro forma results may not be indicative of the
results that actually would have occurred if the combination had been
in effect since inception or which may be obtained in the future.
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Condensed Pro Forma Balance Sheets
As of November 30, 1997
(Unaudited)
Synaptx WG Pro forma
Worldwide Controls, Adjustments Pro forma
Inc. Inc. Increase Consoli-
(Decrease) dation
ASSETS
Cash $ 68,802 $ 33,452 $ - $ 102,254
Accounts receivable 950,363 155,503 1,105,866
Prepaid expenses and deposits 42,392 14,858 50,000 107,250
---------- -------- ---------- ----------
Total current assets 1,061,557 203,813 50,000 1,315,370
----------- -------- ---------- ----------
Property and equipment 277,349 71,280 (45,004) 303,625
Less accumulated depreciation (88,850) (45,004) 45,004 (88,850)
---------- -------- ---------- ----------
Net property and equipment 188,499 26,276 - 214,775
---------- -------- ---------- ----------
Costs in excess of
net assets acquired 1,587,391 - 928,459 2,515,850
Other assets 83,264 1,680 200,000 284,944
---------- -------- ---------- ----------
Total assets $2,920,711 $231,769 $1,178,459 $4,330,939
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 640,349 $ 9,025 $ 250,000 $ 899,374
Accrued expenses and taxes 294,071 51,182 345,253
Notes payable 261,702 261,702
Current portion of long-term debt 7,934 125,000 132,934
Deferred revenue 309,000 - - 309,000
--------- -------- ---------- ---------
Total current liabilities 1,513,056 60,207 375,000 1,948,263
Long-term debt,
net of current portion 20,200 - 105,400 125,600
Commitments - - - -
---------- -------- ---------- ---------
Preferred stock; 10,000,000 authorized,
137,143 issued - - 137 137
Common stock; 25,000,000 authorized,
5,494,375 issued 5,209 10,000 (9,714) 5,495
Additional paid-in capital 2,081,395 - 869,198 2,950,593
Retained earnings (699,149) 161,562 (161,562) (699,149)
---------- -------- --------- ---------
Total stockholders' equity 1,387,455 171,562 698,059 2,257,076
---------- -------- --------- ---------
Total liabilities and equity $2,920,711 $231,769 $1,178,459 $4,330,939
========== ======== ========== ==========
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Condensed Pro Forma Statements of Operations
Three Months Ended November 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Synaptx WG Pro forma Pro forma
Worldwide Controls, Adjustments Consoli-
Inc. Inc. Increase dation
<S> <C> <C> <C> <C>
REVENUES $1,502,853 $274,286 $ - $1,777,139
COST OF REVENUES 1,028,206 220,308 (13,600) 1,234,914
---------- -------- ---------- ----------
GROSS PROFIT 474,647 53,978 13,600 542,225
---------- -------- ---------- ----------
EXPENSES:
Selling, general &
administrative 407,540 53,475 12,500 473,515
Depreciation 18,309 2,214 20,523
Amortization 44,282 - 11,700 55,982
Interest expense (income), net 10,056 293 3,300 13,649
---------- -------- ---------- ----------
Total Expenses 480,187 55,982 27,500 563,669
---------- -------- ---------- ----------
NET LOSS $ (5,540) $ (2,004) $ (13,900) $ (21,444)
========== ========
Cumulative convertible preferred
stock dividend requirements (10,200) (10,200)
---------- ----------
Net loss applicable to common shareholders $ (24,100) $ (31,644)
========== ==========
Weighted Average Shares
Outstanding 5,201,160 285,715 5,486,875
========== ========== ==========
NET (LOSS) PER SHARE OF
COMMON STOCK $ (0.00) $ (0.01)
========== ==========
</TABLE>
<PAGE>
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Note to Condensed Pro Forma Financial Statements
------------------------------------------------
Effective January 1, 1998, the Company acquired all of the
outstanding stock of WG Controls, Inc. (the "Acquiree") whose
principal operations are as 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, commonly referred
to as OEMs, located primarily in the north central section of the
United States. The acquisition was consummated for 285,715 shares of
Synaptx common stock, 137,143 shares of Synaptx 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, with a fair value at the
acquisition date of approximately $1,100,000. Additionally, on
closing, the Agreement called for the payment of $250,000 to key
employees related to noncompetition agreements which benefit
post-acquisition date periods.
The transaction was recorded under the purchase method of
accounting. The total cost of the acquisition was approximately
$1,100,000, which exceeded the fair value of assets acquired by
approximately $928,500. This amount is being amortized over twenty
years.
Pro forma adjustments related to the acquisition of the
Acquiree as recorded in the consolidated condensed pro forma balance
sheets include (1) the recording of the current portion of the
noncompete agreements with key employees paid at closing of $50,000,
(2) the restatement of fixed assets to estimated fair market value (3)
the recording of costs in excess of net assets acquired of $928,459,
(4) the recording of the long-term portion of the noncompete
agreements with key employees paid at closing of $200,000, (5) the
recording of the liability due at closing for the noncompete
agreements with key employees of $250,000, (6) the recording of the
purchase price liability of $270,000 net of imputed interest of
$39,600 or $230,400 with $125,000 recorded as current portion of
long-term debt and $105,400 recorded as long-term debt, (9) the
recording of entries to reflect the acquisition on the stockholders'
equity including the issuance of both the Company's cumulative
convertible preferred stock and common stock at their respective par
values with the excess over par going to additional paid-in capital
net of the elimination of Acquiree common stock and retained earnings
to reflect the purchase accounting treatment of the acquisition.
Pro forma adjustments related to the acquisition of the Acquiree as
recorded in the consolidated condensed pro forma statements of income
include (1) the reduction of cost of revenues related to employee
commissions and salaries to reflect amounts contractually obligated
under employment agreements with key employees of $13,600, (2) the
amortization of the noncompete agreements entered into with key
employees of $12,500, (3) amortization of costs in excess of fair
value of assets acquired of $11,700, (4) the amortization of imputed
interest on future purchase price payments of $3,300 and (5) the
impact of required dividends of $10,200 for the cumulative convertible
preferred stock issued.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SYNAPTX WORLDWIDE, INC.
Date: March 23, 1998 /s/ Ronald L. Weindruch
RONALD L. WEINDRUCH, President and
Chief Executive Officer
Date: March 23, 1998 /s/ Richard E. Hanik
RICHARD E. HANIK,
Chief Financial Officer
