UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-22969
SYNAPTX WORLDWIDE, INC.
(Exact Name of Small Business Issuer as specified in its charter)
Utah 87-0375342
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
168 E. Highland Avenue, Suite 300, Elgin, IL 60120
(Address of Principal Executive Offices)
Registrant's telephone no., including area code:(847)622-0200
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Outstanding as of
Class June 30, 1998
Common Stock, $ .001 par value 5,951,947
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TABLE OF CONTENTS
Heading Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Consolidated Balance Sheets - May 31,
1998 and August 31, 1997 4
Consolidated Statements of Operations -
three months ended May 31, 1998 and 1997 5
Consolidated Statements of Operations -
nine months ended May 31, 1998 and 1997 6
Consolidated Statements of Cash Flows -
nine months ended May 31, 1998 and 1997 7
Notes to Condensed Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis
and Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Condensed Consolidated Financial Statements for
the three and nine month periods ended May 31, 1998 and 1997 have been prepared
by the Company.
3
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SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1998 AND AUGUST 31, 1997
MAY 31, 1998 AUGUST 31, 1997
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
CASH $ 122,478 $ 58,265
ACCOUNTS RECEIVABLE 814,173 1,001,638
PREPAID EXPENSES AND DEPOSITS 94,088 44,662
------------ ------------
TOTAL CURRENT ASSETS 1,030,739 1,104,565
PROPERTY AND EQUIPMENT 380,828 254,990
LESS ACCUMULATED DEPRECIATION (138,897) (69,041)
------------ ------------
NET PROPERTY AND EQUIPMENT 241,931 185,949
COSTS IN EXCESS OF NET ASSETS ACQUIRED
(NET OF ACCUMULATED AMORTIZATION
OF $279,903 AND $129,372) 2,409,601 1,631,673
OTHER ASSETS 246,729 60,998
------------ ------------
TOTAL ASSETS $ 3,929,000 $ 2,983,185
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 914,458 $ 679,477
ACCRUED EXPENSES AND TAXES 224,975 199,644
NOTES PAYABLE 293,680 295,482
CURRENT PORTION OF LONG-TERM DEBT 206,000 8,120
DEFERRED REVENUE 148,427 414,700
------------ ------------
TOTAL CURRENT LIABILITIES 1,787,540 1,597,423
LONG-TERM DEBT, NET OF CURRENT PORTION 268,474 21,200
COMMITMENTS - -
STOCKHOLDERS' EQUITY
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, 5,737,661 AND
5,193,660 ISSUED AND OUTSTANDING 5,738 5,194
ADDITIONAL PAID IN CAPITAL 3,320,819 2,052,977
DEFICIT (1,453,708) (693,609)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,872,986 1,364,562
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,929,000 $ 2,983,185
============ ===========
4
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SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1998 AND 1997
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Net sales and revenues:
Marketing services and production $ 858,159 $ 847,214
Commission income 573,189 -
Executive placement fees 40,100 70,106
----------- -----------
Total revenues 1,471,448 917,320
Cost of sales and revenues 1,272,244 568,826
----------- -----------
Gross profit 199,204 348,494
Selling, general and administrative expenses 474,889 453,022
Depreciation and amortization 72,825 51,153
----------- -----------
Loss from operations (348,510) (155,681)
Interest expense 13,761 3,801
----------- -----------
Net loss (362,271) (159,481)
Cumulative convertible preferred stock
dividend requirements 10,200 -
----------- -----------
Net loss applicable to common shareholders $ (372,471) $ (159,481)
=========== ==========
Weighted average shares outstanding 5,604,947 5,082,926
Basic and diluted net loss per share $ (0.07) $ (0.03)
=========== ===========
5
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SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 1998 AND 1997
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Net sales and revenues:
Marketing services and production $ 3,089,139 $ 2,398,622
Commission income 1,285,313 -
Executive placement fees 77,430 70,106
----------- -----------
Total revenues 4,451,882 2,468,728
Cost of sales and revenues 3,546,102 1,704,752
----------- -----------
Gross profit 905,780 763,976
Selling, general and administrative expenses 1,412,805 1,059,045
Depreciation and amortization 216,515 132,698
----------- -----------
Loss from operations (723,540) (427,767)
Interest expense 36,558 35,343
----------- -----------
Net loss (760,098) (463,110)
Cumulative convertible preferred stock
dividend requirements 17,000 -
----------- -----------
Net loss applicable to common shareholders $ (777,098) $ (463,110)
=========== ===========
Weighted average shares outstanding 5,398,846 4,029,062
=========== ===========
Basic and diluted net loss per share $ (0.14) $ (0.11)
=========== ============
6
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SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1998 AND 1997
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Net cash used in operating activities (301,352) (589,893)
Cash flows from investing activities
Additions to property, plant and equipment (95,690) (73,607)
Cash acquired from acquisitions 33,452 -
Additions to other assets (184,051) (17,000)
----------- -----------
Net cash used in investing activities (246,289) (90,607)
Cash from financing activities
Reductions in bank lines of credit (1,802) (18,000)
Additions to long-term debt 141,874 -
Additions to (reductions in) short-term debt 72,880 (82,558)
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 398,902 758,338
----------- -----------
Cash provided by financing activities 611,854 680,780
----------- -----------
Net increase in cash 64,213 280
Cash at beginning of period $ 58,265 $ -
----------- -----------
Cash at end of period $ 122,478 $ 280
=========== ===========
7
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SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
statement of results for the interim periods. The accompanying financial
statements include estimated amounts and disclosures based on management's
assumptions about future events. Actual results may differ from those estimates.
The results of operations for the interim periods are not necessarily indicative
of the results to be expected for the full year. Basic and diluted earnings per
share are the same due to the anti-dilutive nature of the options.
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make information presented not misleading.
These financial statements should be read in conjunction with the financial
statements included in the Company's Form 10-SB/A for the fiscal year ended
August 31, 1997, as filed with the Securities and Exchange Commission and
available under the EDGAR reporting system or from the Company.
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. In addition to the net loss of $760,098 for the nine-month
period ended May 31, 1998, as included herein, for the years ended August 31,
1997 and 1996 the Company realized net losses of $602,555 and $72,541,
respectively. For the ten months ended August 31, 1995 (initial period of
operation), the Company experienced a net loss of $18,513. At May 31, 1998, the
Company has a working capital deficit of $756,801, supported by positive
stockholders' equity of $1,872,986.
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 additional private equity placement plus the
refinancing and expansion of outstanding debt, there can be no assurance that
the Company will be able to secure financing when needed or obtain such terms
satisfactory to the Company, if at all, or raise any additional equity
investment. Failure to secure such financing or raise additional equity
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 foreclose on the assets of
the Company, which will be prior to the interests of the holders of Preferred
Stock and Common Stock.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
8
<PAGE>
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NOTE 2. PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The subsidiaries consist of Synaptx
Access, Inc. ("Access"), acquired in June, 1996, Synaptx Impulse, Inc.
("Impulse"), acquired in October, 1996, ORAYCOM, Inc. ("ORAYCOM"), acquired in
June, 1997 and WG Controls, Inc. ("WG"), acquired in January, 1998. Upon
consolidation, significant intercompany accounts, transactions and profits are
eliminated.
NOTE 3 . ACQUISITION
On January 5, 1998, the Company acquired WG Controls, Inc., an Illinois
Corporation, 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.
Dividends on the preferred stock are $40,800 annually. As of February 28, 1998,
cumulative unpaid dividends are approximately $6,800.
The acquisition is being accounted for using the purchase method of accounting.
The total initial cost of the acquisition is approximately $ 1,100,000, which
exceeded the fair value of the net assets being acquired by approximately
$928,500. The excess is being amortized on the straight-line method over twenty
years.
Additionally, pursuant to the terms of the acquisition, the former shareholders
of WG 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 WG beginning January 1, 1998
through December 31, 1999. The additional consideration is specified as fixed
amounts for the attainment of specified annual "commission revenues" and
"earnings" for the subsequent calendar years ending December 31, 1998 and 1999.
If WG meets the specified "commission revenues" and "earnings" amounts the
additional consideration could amount to $1,000,000. The additional
consideration, if any, would be added to the cost in excess of net assets
acquired and will be amortized on the straight-line method over the remaining
life of the twenty year amortization period, described above.
WG 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 RELTEC, Thomas & Betts and Johanson in addition to approximately 15
other clients. Revenues represent the earning of commissions on its customers'
sales.
If the acquisition had occurred on September 1, 1997, management estimates that
on an unaudited, pro forma basis, the following would have been reported on a
consolidated basis for the nine months ended May 31, 1998:
Revenues $ 4,811,168
Net loss $ (790,502)
Basic and diluted net loss per share $ (0.14)
9
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NOTE 4. PRIVATE PLACEMENTS
On October 22, 1997, the Board of Directors authorized a second private
placement of up to $2,000,000 in either shares of the Company's common stock at
$2.30 per share or of units at $3.00 per unit consisting of one share of the
Company's common stock and a warrant to purchase an additional share of the
Company's common stock at $2.30 per share with an exercisable life of five
years. The period of this offering extended through February 28, 1998. Through
February 28, 1998, 43,000 shares of the Company's common stock plus stock
warrants representing the right to purchase 30,000 shares of the Company's
common stock at $2.30 per share have been issued resulting in proceeds of
$119,900, all received prior to February 28, 1998, the date the offering was
discontinued.
On May 14, 1998, the Board of Directors authorized a third private placement of
up to 600,000 shares of the Company's common stock at $1.75 per share. The
period of this offering was set at May 18, 1998 and subsequently extended to
June 30, 1998. Through May 31, 1998, subscriptions representing 141,500 shares
of the Company's common stock have been received of which payment for 131,500
shares have been collected, resulting in proceeds of $230,125.
Because of the close proximity of this offering to the second private placement
which ended February 28th, the Board of Directors also authorized the issuance
of additional common stock to reflect the differential between the $2.30 per
share purchase price in the second private placement and $1.75 per share
purchase price in the third private placement. As a result, 13,516 shares of
common stock were authorized to be issued. Furthermore, those shareholders who
elected the issuance of units at $3.00 per unit were given the option to convert
their stock warrants to common stock at the $1.75 per share price. Of the 30,000
shares representing stock warrants, all elected to terminate their stock
warrants for an additional 12,000 shares.
Additionally three vendors verbally agreed to accept 5,770 shares of the
Company's common stock in lieu of $10,020 due them. Accordingly, the Board of
Directors authorized issuance. Subsequent to May 31st, two have sent in their
acceptances of these terms representing 5,370 shares of common stock or $9,350.
NOTE 5. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest was approximately $31,700 and $32,600 for the nine month
periods ended May 31, 1998 and 1997, respectively.
On October 1, 1996 the Company purchased all of the capital stock of Maxwell
Partners, Inc. (N/K/A Synaptx Impulse, Inc.), for $ 690,000 utilizing the
Company's $.001 par value common stock. On January 5, 1998 the Company purchased
all of the capital stock of WG Controls, Inc. for approximately $1,100,000
utilizing common stock, preferred stock, and future cash payouts. (See note 3).
In conjunction with these acquisitions, liabilities assumed were as follows:
Nine Months Ended
------------------
May 31, 1998 May 31, 1997
------------ ------------
Fair value of assets acquired $ 1,126,776 $ 1,895,026
Cash acquired 33,452 -
Value of stock issued (869,621) (690,000)
--------------- -------------
Liabilities assumed $ 290,607 $ 1,205,026
=============== =============
10
<PAGE>
NOTE 6. Subsequent Events
On June 1, 1998, the Company acquired Primus Marketing Associates, Inc., a
Minnesota Corporation, ("Primus") for 214,286 shares of the Company's $.001 par
value common stock. The total initial cost of the acquisition is approximately
$375,000 which is anticipated to exceed the fair value of net assets acquired by
$232,000. The excess will be amortized on the straight-line method over ten
years.
Additionally, pursuant to the terms of the acquisition, the former shareholders
of Primus 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 Primus beginning
June 1, 1998 through August 31, 1999. The additional consideration is specified
as fixed amounts for the attainment of specified "commission revenues" and
"earnings" for the fiscal years ending August 31, 1998 and 1999. If Primus meets
the specified "commission revenues" and "earnings" amounts the additional
consideration could amount to $375,000. The additional consideration, if any,
would be added to the cost in excess of net assets acquired and amortized on the
straight-line method over the remaining life of the ten year amortization
period.
Primus is a sales representative firm based in Minnesota (approximately 15 miles
from Minneapolis) that provides field sales and business development support for
specified product lines and/or territories for clients under contract who
include ABB, Reltec, Alcoa Fujikara, and AMP in addition to approximately 15
other clients. Revenues represent the earning of commissions on its customers'
sales.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a fully integrated service provider of consulting, marketing,
sales advice and implementation strategies serving customers in the
telecommunications and information industries. The Company operates in one
business segment. The Company's fiscal year ends August 31.
OVERVIEW
- --------
The Company plans marketing programs and develops sales and marketing literature
for print and electronic media for which consulting fees are charged and
production revenues are generated. It also represents certain product lines of
customers serving the telecommunications (both voice and data networking) and
cable TV industries as sales representatives for which commission income is
being earned. Additionally the Company places executives in positions at
telecommunications clients, primarily in sales and marketing positions, for
which executive placement fees are being realized as revenues based upon an
agreed upon percentage of salary and other compensation of the individuals so
hired.
The Company's objective is to use its knowledge of and its sales and marketing
resources focused on the telecommunications industry to acquire and improve
software developers and service providers. Targeted acquisition candidates would
potentially include companies that have demonstrated the ability to envision,
design and commercialize unique telecommunications services or software. Once
such an entity is acquired, the Company will direct its sales, marketing and
managerial resources toward achieving increased revenues and earnings. To date,
the Company has only acquired companies that support its core services of
consulting, marketing and sales. They will be the foundation to help create the
potential revenues and earnings growth for target acquirees.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing, conduct an additional private placement,
and attain profitable operations. In addition, the Company's ability to continue
as a going concern must be considered in light of the problems, expenses and
complications frequently encountered by entrance into established markets and
the competitive environment in which the Company operates.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the percentage relationship to total revenues of
principal items contained in the Company's Condensed Consolidated Statements of
Operations for the three and nine month periods ended May 31, 1998 and 1997. It
should be noted that percentages discussed throughout this analysis are stated
on an approximate basis.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
---------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net sales and revenues ......................... 100% 100% 100% 100%
Cost of sales .................................. 86% 62% 80% 69%
--- --- --- ---
Gross Profit.................................... 14% 38% 20% 31%
Selling, general and administrative expenses.... 37% 55% 36% 49%
--- --- --- ---
Operating loss.................................. (23%) (17%) (16%) (18%)
Interest expense................................ 1% 0% 1% 1%
-- -- -- --
Net loss........................................ (24%) (17%) (17)% (19)%
==== ===== ==== =====
</TABLE>
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NET SALES AND REVENUES
- ----------------------
The Company's net sales and revenues increased by $554,128 or 60%, from $917,320
for the three months ended May 31, 1997 ("3Q/97") to $1,471,448 for the three
months ended May 31, 1998 ("3Q/98"). The increase was attributable to increases
of $10,945 from Marketing Services and Production, $573,189 from Commission
Income, offset by a decrease of $30,006 from Executive Placement Fees. The
increase, which is nearly fully attributable to Commission Income, is due to
3Q/98 figures having a full three months of activity of ORAYCOM and WG, while
3Q/97 revenues included no activity for ORAYCOM or WG.
For the nine month period ended May 31, 1998, the Company's net sales and
revenues increased by $1,983,154 or 80%, from $2,468,728 for the nine months
ended May 31, 1997 to $4,451,882 for the nine months ended May 31, 1998. The
increase was attributable to increases of $690,517 from Marketing Services and
Production, $1,285,313 from Commission Income, and $7,324 from Executive
Placement Fees. The increases are primarily due to the nine months ended May 31,
1998 figures having a full nine months of activity for ORAYCOM and Impulse and
five months of revenue for WG, while the comparable period in the prior year
included no activity for ORAYCOM or WG and only eight months of activity for
Impulse.
COST OF SALES
- -------------
Cost of sales and revenues increased by $703,418 in 3Q/98, or 124%, from
$568,826 in 3Q/97 to $1,272,244 in 3Q/98. The increase was primarily due to
3Q/98 results having a full three months of activity of ORAYCOM and WG, while
3Q/97 revenues included no activity for ORAYCOM or WG.
Cost of sales and revenues increased by $1,841,349 or 108% from $1,704,752 in
the nine months ended May 31, 1997 to $3,546,102 in the nine months ended May
31, 1998. The increase was primarily due to the nine months ended May 31, 1998
figures having a full nine months of activity of Impulse and ORAYCOM and five
months of activity for WG, while the comparable period in the prior year
included no activity for ORAYCOM or WG and only eight months of activity for
Impulse.
GROSS PROFIT
- ------------
The Company's gross profit margin, was 38% and 14% for 3Q/97 and 3Q/98,
respectively. The decrease in gross profit margin of 24 points in 3Q/98 is
partly attributable to a shift in the mix from higher margin, in-house,
professional services to more externally supported database services with a
corresponding lower gross margin. Database services represented approximately 0%
and 24% of 3Q/97 and 3Q/98 revenues, respectively. Additionally, 3Q/98 includes
three months of activity for ORAYCOM and WG, while the comparable period in the
prior year had no activity from sales representative firms that typically
operate on lower margins than the other business units.
The Company's gross profit margin, was 31% and 20% for the nine months ended May
31, 1997 and 1998, respectively. The decrease in gross profit margin of 11
points in the nine months ended May 31, 1998 is partly attributable to a shift
in the mix from higher margin, in-house, professional services to more
externally supported database services with a corresponding lower gross margin.
Database services represented approximately 0% and 21% of revenues for the nine
months ended May 31, 1997 and 1998, respectively. Additionally, the nine months
ended May 31, 1998 includes nine months of activity for ORAYCOM and Impulse and
five months of activity for WG, while the comparable period in the prior year
had no activity from sales representative firms that typically operate on lower
margins than the other business units, and only eight months of activity of
Impulse.
13
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses, including depreciation and
amortization, increased by $43,539 in 3Q/98 or 9%, from $504,175 in 3Q/97 to
$547,714 in 3Q/98. The increase was primarily due to 3Q/98 results having a full
three months of activity of Impulse, Access, ORAYCOM, and WG, while 3Q/97
figures included no activity for ORAYCOM or WG. Goodwill amortization increased
by $21,399 and depreciation increased by $273 over the prior period primarily
due to the acquisitions of ORAYCOM and WG which had three months of activity as
compared to none in the prior period.
Selling, general and administrative expenses, including depreciation and
amortization, increased by $437,577 or 37%, from $1,191,743 in the nine months
ended May 31, 1997 to $1,629,320 in the nine months ended May 31, 1998. The
increase was primarily due to the nine months ended May 31, 1998 having a full
nine months of activity of Impulse, ORAYCOM and WG, while the comparable period
in the prior year included no activity for ORAYCOM or WG and only eight months
of activity for Impulse. Goodwill amortization increased by $64,098 and
depreciation increased by $19,719 over the prior period due to the acquisitions
of ORAYCOM and WG as well as an additional month of activity for Impulse in the
current period as compared to the prior period.
INTEREST EXPENSE
- ----------------
Interest expense increased by $9,960 in 3Q/98 or 262%, from $3,801 in 3Q/97 to
$13,761 in 3Q/98. This increase is attributable to additional borrowings on bank
lines of credit as well as interest accrued on notes payable to related parties.
Interest expense increased by $1,215 or 4%, from $35,343 in the nine months
ended May 31, 1997 to $36,558 in the nine months ended May 31, 1998. This
increase is attributable to additional borrowings on bank lines of credit as
well as interest accrued on notes payable to related parties, offset by the
prior year's inclusion of $14,000 of interest attributable to amortization of
stock warrants issued at an exercise price below fair market value.
NET OPERATING LOSS
- ------------------
The Company has accumulated approximately $1,100,000 of net operating loss
carryforwards as of May 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 carry forwards 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 three months or the nine months ended May 31, 1998 because there is a
50% or greater chance that the carryforward will not be utilized. Accordingly,
the potential tax benefit of the loss carryforward is offset by a valuation
allowance of the same amount.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's principal cash requirements are for operating expenses, including
employee costs, outside consultants such as independent contractors who provide
design, copywriting and professional marketing and sales consulting services,
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 have raised $1,119,968 of net
proceeds, $761,821 of which was received prior to August 31, 1997, plus cash
derived from operations. The Company is investigating various sources for
additional financing, including both equity infusion and debt facility
arrangements. There is no assurance that the Company will consummate any
additional financing or that any additional financing will not be dilutive to
shareholders.
14
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Nine Months Ended May 31, 1998
Cash increased $64,213 from $58,265 at the beginning of the period to $122,478
at the end of the period. Net cash used in operations was $301,352 attributable
to the net loss of $760,099, a decrease in deferred revenue of $266,273, a
decrease in accrued expenses and taxes of $25,851, and an increase in other
assets of $34,568, offset by non-cash expense items (depreciation and
amortization) of $216,515, a decrease in accounts receivable of $342,968, and an
increase in accounts payable of $225,956.
Net cash used in investing activities was $246,289 attributable to cash acquired
in acquisitions of $33,452, offset by additions to fixed assets of $95,690 and
additions to other long-term assets of $184,051 consisting primarily of prepaid
non-compete agreements.
Net cash provided by financing activities was $611,854 attributable to proceeds
from issuance of common stock of $398,902, additions to long-term debt of
$141,874, and additions to short-term debt of $72,880 offset by reductions in
bank lines of credit of $1,802.
Nine Months Ended May 31, 1997
Cash balances increased by $280 from $0 at the beginning of the period to $280
at the end of the period. Net cash used in operations was $589,893 attributable
to the net loss of $463,111, a decrease in accounts receivable of $253,244, and
an increase in other current assets of 17,456, offset by non-cash expense items
(depreciation and amortization) of $132,698, a net increase in accounts payable
and accrued expenses of $1,220, and an increase in deferred revenue of $10,000.
Net cash used in investing activities was $90,607, attributable to additions
to fixed assets of $73,607 and additions to other long-term assets of $17,000.
Net cash provided by financing activities was $680,780, attributable to proceeds
from the issuance of common stock of approximately $758,338, a decrease in
restricted cash of $10,000, a decrease in deferred placement costs of $5,000, a
decrease in amounts advanced to Impulse, realized upon acquisition of $50,000,
offset by reductions in the bank lines of credit and other long term debt of
$100,558, a decrease in the liability to private placement subscribers of
$10,000 , and a decrease in amounts due to officers of $32,000.
INFLATION
- ---------
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
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 in or implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its debt obligations and to
provide for working capital needs from operating revenues, and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission.
15
<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) For information regarding placements by the Company of its equity
securities in transactions exempt from the registration provisions of
the Securities Act of 1933, as amended, reference is made to Note 4
to the notes to the financial statements herein. All such placements
were exempt from registration pursuant to Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following were filed with form 8-K and are incorporated herein by
reference.
(b) No reports were filed on Form 8-K during this quarter.
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: July 15, 1998 By /s/ Ronald L. Weindruch
---------------------------
RONALD L. WEINDRUCH, President
and Chief Executive Officer
Date: July 15, 1998 By /s/ Richard E. Hanik
---------------------------
RICHARD E. HANIK
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SYNAPTX WORLDWIDE, INC. FORM 10-QSB FOR THE PERIOD ENDED MAY 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 122
<SECURITIES> 0
<RECEIVABLES> 814
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,031
<PP&E> 381
<DEPRECIATION> (139)
<TOTAL-ASSETS> 3,929
<CURRENT-LIABILITIES> 1,788
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 1,867
<TOTAL-LIABILITY-AND-EQUITY> 3,929
<SALES> 1,471
<TOTAL-REVENUES> 1,471
<CGS> 1,272
<TOTAL-COSTS> 1,272
<OTHER-EXPENSES> 547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> (362)
<INCOME-TAX> 0
<INCOME-CONTINUING> (362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
