SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- -------
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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: 33-15097-D
SYNAPTIX SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-10457105
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2450 South Shore Boulevard
Suite 210, Houston Texas 77573
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (281) 334-0405
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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
stock as of the latest practicable date.
Common Stock, $.003 Par Value 15,493,700
(Shares outstanding as of September 30, 1997)
Transitional Small Business Disclosure Format (Check One) Yes No [X]
1
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(A Development Stage Company)
QUARTERLY REPORT ON FORM 10-QSB FOR THE INTERIM
PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
Number
Part I. Financial Information
Item I. Financial Statements
Balance Sheets at September 30, 1997 and June 30, 1997............... 3
Statements of Operations for the Three Months Ended September 30,
1997 and 1996.........................................................4
Statements of Changes in Stockholders' Deficit for the Year Ended
June 30, 1997 and Three Months Ended September 30, 1997...............5
Statements of Cash Flows for the Three Months Ended September 30,
1997 and 1996.........................................................6
Notes to Financial Statements........................................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................7
Part II.Other Information
Item 1. Legal Proceedings....................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signatures...........................................................12
2
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
(Unaudited) (Audited)
----------------- -----------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,371 $ 989
Prepaid expenses 46,443 72,770
----------------- -----------------
Total Current Assets 48,814 73,759
PROPERTY, PLANT, & EQUIPMENT 101,632 100,873
----------------- -----------------
Total Assets $ 150,446 $ 174,632
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities $ 184,259 $ 163,373
Loans payable - related parties 161,002 0
Current portion of lease 1,221 1,099
----------------- -----------------
Total Current Liabilities 346,482 164,472
Long-term lease 943 1,239
----------------- -----------------
Total Liabilities 347,425 165,711
Stockholders' Equity (Deficit):
Preferred Stock - $1 par value 10,000,000 shares authorized;
0 shares of Series A Voting Preferred Stock
outstanding at September 30, 1997 and June 30, 1997 0 0
Common Stock - $.003 par value, 25,000,000 shares authorized;
15,493,700 shares issued and outstanding at September 30, 1997
and 15,473,700 shares issued and outstanding at June 30, 1997 46,481 46,421
Additional paid-in capital 5,353,587 5,337,647
Retained earnings (deficit) (5,397,047) (5,175,147)
Stock subscription receivable (200,000) (200,000)
----------------- -----------------
Total Stockholders' Equity (Deficit) (196,979) 8,921
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 150,446 $ 174,632
================= =================
</TABLE>
See Accompanying Notes to the Financial Statements.
3
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
REVENUES $ 0 $ 0
Cost and Expenses: 221,900 0
----------------- -----------------
Total Costs and Expenses 221,900 0
----------------- -----------------
Income (loss) from Continuing Operations: (221,900) 0
Income tax expense (benefit) 0 0
----------------- -----------------
Net Income (Loss) $ (221,900) $ 0
================= =================
Income (Loss) Per Share $ (.01) $ .00
================= =================
</TABLE>
See Accompanying Notes to the Financial Statements.
4
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For Year Ended June 30,1997 (audited) and
For the Three Months Ended September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Total
Additional Retained Stockholders'
Common Preferred Paid-In Earnings Equity
Shares Amount Shares Amount Capital (Deficit) (Deficit)
---------- ----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1996 39,668 $ 119 174,865 $ 174,865 $ 4,610,729 $(4,826,922) $ (41,209)
Sale of restricted common stock
for cash 1,217,500 3,652 3,652
Issuance of restricted common
stock for expenses 58,334 175 20,825 21,000
Issuance of common stock for
preferred shares 174,865 525 (174,865) (174,865) 174,340
Sale of common stock (Regulation
S) for stock subscription 2,000,000 6,000 194,000
Sale of common stock (S-8) for
cash and services 6,750,000 20,250 251,500 271,750
Sale of restricted common stock
for cash, assets, and expenses 2,250,000 6,750 27,000 33,750
Issuance of restricted common
stock for assets and expenses 3,000,000 9,000 69,203 78,203
Cancellation of restricted stock (16,667) (50) (9,950) (10,000)
Net loss (348,225) (348,225)
---------- ----------- ---------- ----------- ----------- ----------- ----------
BALANCES AT JUNE 30, 1997 15,473,700 46,421 0 0 5,337,647 (5,175,147) 8,921
Sale of restricted common stock
for cash 20,000 60 15,940 16,000
Net loss (221,900) (221,900)
---------- ----------- ---------- ----------- ----------- ----------- ----------
BALANCES AT SEPTEMBER 30,
1997 15,493,700 $ 46,481 0 $ 0 $ 5,353,587 $(5,397,047) $ (196,979)
========== =========== ========== =========== =========== =========== ==========
</TABLE>
See Accompanying Notes to the Financial Statements.
5
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
------------------ ------------------
CASH FLOWS OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (221,900) $ 0
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 7,216 0
Changes in Assets and Liabilities:
Prepaid expenses 26,327 0
Accounts payable and accrued expenses 20,886 0
------------------ ------------------
Net Cash Used by Operating Activities (167,471) 0
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (7,975) 0
------------------ ------------------
Net Cash Used by Investing Activities (7,975) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 16,000 0
Loans 161,002 0
Loan repayments (174) 0
------------------ ------------------
Net Cash Provided by Financing Activities 176,828 0
------------------ ------------------
Net Increase in Cash 1,382 0
CASH AT BEGINNING OF YEAR 989 0
------------------ ------------------
CASH AT END OF PERIOD $ 2,371 $ 0
================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 46 $ 0
Income taxes paid 0 0
------------------ ------------------
$ 46 $ 0
================== ==================
</TABLE>
See Accompanying Notes to the Financial Statements.
6
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Basis of Presentation
The financial statements of Synaptix Systems Corporation (the
"Company"), included herein, are unaudited for all periods ended September 30,
1997 and 1996. They reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary to fairly depict
the results for the periods presented. Certain information and note disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission. It is suggested that
these financial statements be read in conjunction with the audited financial
statements for the years ended June 30, 1997 and 1996, which are included in the
Company's annual report. The Company believes that the disclosures made herein
are adequate to make the information presented not misleading.
2. Earnings per Common and Common Equivalent Share
Earnings per common and common equivalent share is based on the average number
of common shares and dilutive common share equivalents outstanding for the three
months ended September 30, 1997 and 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended, and is subject to the
safe harbors created by those sections. These forward- looking statements are
subject to significant risks and uncertainties, including those identified in
the section of this Form 10-QSB and in the Company's Annual Report on Form
10-KSB, filed with the SEC on November 4, 1997, which may cause actual results
to differ materially from those discussed in such forward-looking statement. The
forward-looking statements within this Form 10-QSB are identified by words such
as "believes," "anticipates," "expects," "intends," "may" and other similar
expressions. However, these words are not the exclusive means of identifying
such statements. In addition, any statements which refer to expectations,
projections or other characterizations of future events or circumstances are
forward looking statements. The Company undertakes no obligation to publicly
release the results of any revisions, to these forward-looking statements which
may be made to reflect events or circumstances occurring subsequent to the
filing of this Form 10-QSB with the Securities and Exchange Commission. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission, including its Form 10-KSB, that attempt to
advise interested parties of the risks and factors that may affect the Company's
business.
7
<PAGE>
The Company had a working capital deficiency at September 30, 1997, and
subsequent thereto, and is uncertain of its ability to raise sufficient working
capital. The Company plans to seek additional financing to obtain necessary
working capital to complete development of its Software and to commence
production and marketing, but there can be no assurance that such funding will
occur.
Introduction
Synaptix is a development stage company. Certain of the Company's
software products are directed to the retail consumer market, and certain of the
Company's software products are directed to the corporate market. With respect
to the Company's corporate software products, the Company anticipates that it
will be able to provide related systems integration and networking services in
connection with the license of its corporate software products. These system
integration services will include consulting and training to systems integrators
and large corporate end users and the installation of hardware on which to
implement the Company's software's products. The following discussion is
included to describe the Company's financial position and results of operations
for each of the two years for the quarter ended September 30, 1997. The
financial statements and notes thereto contain detailed information that should
be referred to in conjunction with this discussion.
Results of Operations
Analysis of Three Months ended September 30, 1997 Compared to Three Months
ended September 30, 1996
Costs and expenses for the three months ended September 30, 1997
increased significantly compared to the same period in 1996. The Company
recorded a net loss of $221,900, or a ($.01) loss per share for the three months
ended September 30, 1997, compared with a net loss of $0, or a ($.00) loss per
share for the same period in 1996. The Company incurred expenses in the amount
of $221,900 related to general and administrative costs associated with the
development of its software. The Company was non-operational for the three
months ended September 30, 1996.
Revenues
The Company did not record any revenues for the three months ended
September 30, 1997 or 1996, respectively. During these periods, the Company
borrowed funds to pay for working capital expenditures. The Company plans to
seek additional financing to obtain necessary working capital to complete
development of its software and to commence production and marketing. Management
anticipates that the Company's funding requirements will be in the range of $3
to $5 million over the next 12 months. The Company may seek such financing from
venture capital sources or from a subsequent public issuance of stock.
Financial Condition
The Company is currently in a development stage, and the information,
financial statements and notes to the financial statements have been prepared on
the premise that it will be successful in raising additional capital and
continue as a going concern. The Company intends to rely on further equity
offerings and loans to generate sufficient working capital over the next 12
months to complete the Eagle project and introduce it to the market. The Company
anticipates that working capital expenditures, including costs of the
development of its new computer program code-named Eagle,
8
<PAGE>
will be approximately $1.2 million during fiscal 1998. There can be no assurance
that the Company will be able to raise sufficient additional capital to achieve
these objectives.
General and Administrative Expenses
General and administrative expenses were $221,900 and $0 for the three
months ended September 30, 1997 and 1996, respectively, an increase of $221,900.
This increase was attributable to expenses incurred for administrative, legal,
accounting expenses and expenses associated with the development of its
software.
Loss from Operations
The Company had an operating loss of $221,900 for the three months
ended September 30, 1997 and $0 for the same period in 1996. The loss for the
period ended September 30, 1997, was the result of operating expenses incurred
in the development and production of the Eagle software product, in addition to
general and administrative costs.
The Company expects that operating results will fluctuate as a result
of a number of factors, including: whether the Company will continue as a going
concern, the timing of new product and service introductions by the Company, as
well as by its competitors, changes in the Company's level of operating
expenses, including the Company's expenditures for software product development
and promotional programs, the size and timing of customer orders for its
products and services, development, production or quality problems on the part
of the Company, competition in the computer software market and the general
state of the global and national economies. The market demand for commercial
software products and services can be significantly affected by uncertain
economic cycles. Many of the factors that may affect the Company's operating
results and demand for products and services based on its technologies cannot be
predicted, may not exhibit a consistent trend, or are substantially beyond the
Company's control. Fluctuations in operating results can also be expected to
result in volatility in the price of the Company's common stock.
Income Taxes
The Company had no income tax expense. As of September 30, 1997, the
Company had net operating loss carryfowards of approximately $3,625,900. The
utilization of net operating carryforwards will be limited as determined
pursuant to applicable provisions of the Internal Revenue Code and U. S.
Treasury regulations thereunder.
Net Loss
The Company had a net loss of $221,900 for the three months ended
September 30, 1997, compared with a net loss of $0 for the same period in 1996.
The net loss for the three months ended September 30, 1997 was attributable to
an increase in administrative operating expenses. These increase in expenditures
in administrative expenses were anticipated under the Company's operating plan
following the acquisition of the software products.
9
<PAGE>
Liquidity and Capital Resources
There were no recorded revenues for the three months ended September
30, 1997. At September 30, 1997, the Company maintained a negative liquidity
position which is evidenced by a current ratio of .14 to 1. The Company has no
major capital commitments at the present time. Management continues to
restructure the Company in order to increase the Company's current ratio and
liquidity, and generate capital which would provide cash flow for future
expansion.
At September 30, 1997, the Company had a working capital deficiency of
$297,668, compared to a working capital deficiency of $41,209 at September 30,
1996. Subsequent to September 30, 1997, the Company's working capital deficiency
has continued to increase. The cash balance at September 30, 1997 was
approximately $2,371, and at September 30, 1996, was approximately $0.
Cash used by operations totaled $167,471 for the three months ended
September 30, 1997, compared to $0 for the same period in 1996. Cash used in
investing activities for the three months ended September 30, 1997 was
approximately $7,975. Cash provided by financing activities during the three
months ended September 30, 1997 totaled $176,828, which included the proceeds
from the sale of stock and the borrowing of funds.
The Company holds promissory notes from investors in the amount of
$200,000 which are due and payable on November 15, 1997. These funds will be
used for working capital purposes in connection with existing obligations of the
Company, and future expenses to be incurred in the research and development of
the Eagle software product, and for general corporate purposes. There is no
assurance that the Company will obtain adequate financing or access to capital
to continue as a going concern.
Analysis of Three Months ended September 30, 1996 Compared to Three Months
ended September 30, 1995
During the three months ended September 30, 1996, the Company had no
active operations, $0 in cash, a working capital deficit of $41,209, and
accumulated losses of $4,826,922. The Company was considering entering into the
computer technology industry, and a management change. The Company continued to
seek acquisition and merger candidates with an emphasis in the area of computer
related technologies. Management believed that an acquisition of this nature
would provide an opportunity to enhance shareholder value.
Liquidity and Capital Resources
At September 30, 1996, and 1995, respectively, the Company maintained a
negative liquidity position. The Company had ceased all operations and was
looking for an acquisition candidate.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. To management's knowledge, the
Company is not currently involved in any legal proceedings and is not aware of
any legal proceeding threatened against it.
A former legal firm employed by the Company is in the process of
obtaining a default judgment against the Company for unpaid fees of about
$12,000. The $12,000 is reflected in accounts payable, and management is in the
process of settling this matter.
Certain shareholders of the Company are also shareholders of Synaptix
Systems Corporation ("Synaptix Florida"), a Florida corporation not affiliated
with the Company. Synaptix Florida was formed in 1996 by Alan Harvey, the former
president of the Company, with the intention of acquiring the Old Synaptix
assets and developing the software. Funds were raised by Synaptix Florida from
third-party investors for this purpose, although to the Company's best knowledge
Synaptix Florida never entered into any actual agreement to acquire the Old
Synaptix assets from the owner.
In December 1996, Mr. Harvey acquired control of the Company and
contracted with Swallen Investment Corp. to acquire the Old Synaptix assets. Mr.
Harvey, in his personal capacity, represented to certain Synaptix Florida
shareholders that they would receive stock in the Company in place of their
Synaptix Florida shares; these representations and the existence of Synaptix
Florida were not disclosed to the Board of Directors by Mr. Harvey until June,
1997. At that time, the Company wrote to the shareholders of Synaptix Florida to
inquire as to their interest in exchanging their shares for Company stock, in
anticipation of a projected merger of the two companies. No offer to exchange
shares was made at that time. Since that date, the Company learned that Synaptix
Florida had substantial undisclosed liabilities and has abandoned plans to merge
the companies. The Company has not issued any shares of its stock to any
Synaptix Florida shareholders in exchange for any Synaptix Florida shares.
Synaptix Florida is not currently conducting any operations. Alan
Harvey remains the president of that company. The funds raised by Synaptix
Florida apparently were expended in anticipation of acquisition of the assets.
Mr. Harvey has alleged, on behalf of Synaptix Florida, that some portion of
these funds were loaned or otherwise contributed to the Company. The Company
cannot confirm any such loans or contributions of funds from Synaptix Florida.
The Company has determined that potential claims by Synaptix Florida or
its shareholders could be asserted against Alan Harvey, and potentially against
the Company as well, in connection with the Company's acquisition of the Old
Synaptix assets and the alleged loans or contribution of Synaptix Florida funds
to the Company, although the Company does not believe that any such claim would
be upheld as against it. In order to settle any such claims, Mr. Arley L.
Harvey, Alan Harvey's father, has agreed to have Variable Resources, Inc., a
company controlled by Arley L. Harvey, acquire all rights to any derivative
claims from the shareholders of Synaptix Florida in exchange for shares of the
Company's stock held by Variable Resources, and to provide the Company with a
complete release. In addition, in September, 1997, the Company entered into a
separate Release Agreement with Synaptix Florida, settling all claims for
alleged loans or
11
<PAGE>
contributions of funds to the Company and providing for a general release of
claims between the two companies. As a result of these actions, Management does
not believe that these potential claims will have any material adverse effect
upon the Company.
Item 5. Other Information
Following the resignation of Alan W. Harvey, the Company was in the
process of identifying new officers for appointment to the positions of Chairman
and Chief Executive Officer. On November 7, 1997, Matthew Hutchins and Daniel A.
Gillett were appointed to the positions of Chairman and Chief Executive Officer,
respectively.
Mr. Hutchins and Mr. Gillett were also elected to serve as members of the
Board, and are standing as nominees for election at the Company's 1997 Annual
Meeting of Shareholders to be held on December 16, 1997.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None
B. Reports on Form 8-K
A Form 8-K was filed on October 30, 1997 announcing
the resignation of Alan W. Harvey as a director and
officer of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SYNAPTIX SYSTEMS CORPORATION
Dated: November 19, 1997 By: /s/ Edward S. Fleming
----------------------
Edward S. Fleming , Acting President
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Synaptix Systems Corporation September 30, 1997 financial
statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000817125
<NAME> Synaptix Systems Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 2,371
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,814
<PP&E> 108,848
<DEPRECIATION> (7,216)
<TOTAL-ASSETS> 150,446
<CURRENT-LIABILITIES> 346,482
<BONDS> 0
0
0
<COMMON> 46,481
<OTHER-SE> (243,460)
<TOTAL-LIABILITY-AND-EQUITY> 150,446
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 221,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (221,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (221,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221,900)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
