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, 1998
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)
3050 Post Oak Boulevard
Suite 1080, Houston Texas 77056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 355-8940
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 14,523,518
(Shares outstanding as of November 18, 1998)
Transitional Small Business Disclosure Format (Check One) Yes No X
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SYNAPTIX SYSTEMS CORPORATION AND SUBSIDIARY
(dba AFFILIATED RESOURCES CORPORATION)
QUARTERLY REPORT ON FORM 10-QSB FOR THE INTERIM
PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
Number
Part I. Financial Information
Item I. Financial Statements
Balance Sheets at September 30, 1998
and June 30, 1998......................................... 3
Statements of Operations for the Three
Months Ended September 30, 1998 and 1997...................4
Statements of Cash Flows for the Three
Months Ended September 30, 1998 and 1997...................5
Notes to Financial Statements..............................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............6
Part II. Other Information
Item 1. Legal Proceedings...........................................9
Item 6. Exhibits and Reports on Form 8-K............................9
Signatures..................................................9
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SYNAPTIX SYSTEMS CORPORATION AND SUBSIDIARY
(dba AFFILIATED RESOURCES CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
(Unaudited) (Audited)
----------------- -----------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,542 $ 455
Receivables and other 21,330 0
----------------- -----------------
Total Current Assets 22,872 455
PROPERTY, PLANT, & EQUIPMENT 34,186 23,570
----------------- -----------------
Total Assets $ 57,058 $ 24,025
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued liabilities $ 532,641 $ 541,677
---------------- ----------------
Total Current Liabilities 532,641 541,677
Long-term debt 163,000 140,000
----------------- -----------------
Total Liabilities 695,641 681,677
Stockholders' Equity (Deficit):
Preferred Stock, $1 par value, 10,000,000 shares authorized; no shares
outstanding
Common Stock - $.003 par value, 25,000,000 shares authorized,
14,483,518 and 13,742,492 shares issued and outstanding
at September 30, 1998 and at June 30, 1998, respectively 43,450 41,227
Additional paid-in capital 8,414,405 8,306,628
Accumulated deficit (7,289,271) (7,103,227)
Unamortized stock compensation (1,807,167) (1,902,280)
----------------- -----------------
Total Stockholders' Equity (Deficit) (638,583) (657,652)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 57,058 $ 24,025
================= =================
</TABLE>
See Accompanying Notes to the Financial Statements.
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SYNAPTIX SYSTEMS CORPORATION AND SUBSIDIARY
(dba AFFILIATED RESOURCES CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
(Unaudited) (Unaudited)
----------------- -----------------
<S> <C> <C>
REVENUES $ 0 $ 0
Cost and Expenses: 186,044 221,900
----------------- -----------------
Total Costs and Expenses 186,044 221,900
----------------- -----------------
Income (loss) from Continuing Operations: (186,044) (221,900)
----------------- ------------------
Income tax expense (benefit) 0 0
----------------- -----------------
Net Income (Loss) $ (186,044) (221,900)
================= -----------------
Income (Loss) Per Share $ (.01) $ (.01)
================= =================
Weighted Average shares outstanding for the period 14,236,509 15,487,033
================= =================
</TABLE>
See Accompanying Notes to the Financial Statements.
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SYNAPTIX SYSTEMS CORPORATION AND SUBSIDIARY
(dba AFFILIATED RESOURCES CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
----------------- -----------------
CASH FLOWS OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (186,044) $ (221,900)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 1,179 7,216
Non-cash compensation expense 95,113 0
Changes in Current Assets and Liabilities:
Prepaid expenses 0 26,327
Receivables and other (21,330) 0
Accounts payable and accrued expenses (9,036) 20,886
----------------- -----------------
Net Cash Used by Operating Activities (120,118) (167,471)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (11,795) (7,975)
----------------- -----------------
Net Cash Used by Investing Activities (11,795) (7,975)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 110,000 16,000
Loans 86,000 161,002
Loan repayments (63,000) (174)
----------------- -----------------
Net Cash Provided by Financing Activities 133,000 176,828
----------------- -----------------
Net Increase in Cash 1,087 1,382
CASH AT BEGINNING OF YEAR 455 989
----------------- -----------------
CASH AT END OF PERIOD $ 1,542 $ 2,371
================= =================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 651 $ 46
Income taxes paid 0 0
----------------- -----------------
$ 651 46
================= =================
</TABLE>
During the quarter ended September 30, 1998, the Company issued 641,026
shares of its restricted common stock to acquire CobolTexas, Inc. as a
wholly-owned subsidiary.
See Accompanying Notes to the Financial Statements.
5
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SYNAPTIX SYSTEMS CORPORATION AND SUBSIDIARY
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. Basis of Presentation
The financial statements of Synaptix Systems Corporation (the
"Company"), included herein, are unaudited for all periods ended September 30,
1998 and 1997. 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, 1998 and 1997, 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 outstanding for the three months ended September 30,
1998 and 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company had been engaged in the development of computer software
equipment during the fiscal year ended June 30, 1998. The Company had
anticipated that it would be able to provide related systems integration and
networking services in connection with the license of its corporate software
products that had been purchased from Swallen Investments Corp. in December
1996. In connection with a management change that occurred in March, the Company
sold the Software Assets to Mobile Link Communications Inc. ("Mobile"), because
it did not have the resources and funding to develop the Software Assets and to
deliver the product to market in a timely manner. The Company retained a five
percent interest in Mobile's gross sales of the Software Assets, beginning with
the fiscal quarter ending June 30, 1998. In the event that gross sales do not
exceed $200,000 by March 2000, the Software Assets will be returned to the
Company. As a result of the management change in March, the Company is being
repositioned to focus on the acquisition of those companies whose product or
service is technically innovative and market proven, but whose market
penetration can be significantly expanded through enhanced marketing or
additional capitalization.
As of September 30, 1998, and subsequent thereto, the Company has had a
working capital deficiency. CobolTexas Inc. is currently negotiating with
domestic and international organizations and governments to enter into contracts
for services to be rendered in connection with its email response system that
uses on-line technology and enables businesses, government and organizations to
solve the year 2000 problems for COBOL and PL1 software over the Internet.
Management is confident that current discussions with investors will yield
additional capital to complete the acquisition of ChemWay Systems, Inc. and
provide sufficient working capital for operations and future acquisitions.
Management believes that ChemWay is uniquely suited to management's business
strategy to focus on the acquisition of those
6
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companies whose product or service is technically innovative and market proven,
but whose market penetration can be significantly expanded through enhanced
marketing or additional capitalization, and believes that acquisitions will
generate sufficient revenues and provide an asset base for continued growth.
Results of Operations
Analysis of Three Months ended September 30, 1998 Compared to Three Months
ended September 30, 1997
Costs and expenses for the three months ended September 30, 1998
decreased significantly compared to the same period in 1997. The Company
recorded a net loss of $186,044, or a ($.01) loss per share for the three months
ended September 30, 1998, compared with a net loss of $221,900, or a ($.01) loss
per share for the same period in 1997. The Company incurred expenses in the
amount of $186,044 related to general and administrative costs, which includes
$95,113 for the amortization of deferred compensation cost and $41,750 of
compensation expense accrued to officers.
Revenues
The Company did not record any meaningful revenues for the fiscal
quarter ended September 30, 1998 or 1997. During this time, the Company received
investor funds to pay for working capital expenditures. The Company plans to
develop its continuing operations by expansion through acquisition. The proposed
acquisitions will be financed primarily through the issuance of common stock. In
July 1998, the Company purchased CobolTexas Inc. In September 1998 it entered
into a letter of intent to purchase all of the outstanding stock of Chem Way
Systems, Inc. Each of these companies is uniquely suited to management's
business strategy in acquiring companies, and it is management's belief that
these acquisitions will generate sufficient revenues and provide an asset base
for continued growth.
Financial Condition
The Company is focusing on the acquisition of those companies whose
product or service is technically innovative and market proven, but whose market
penetration can be significantly expanded through enhanced marketing or
additional capitalization, 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.
Management is confident that current discussions with investors will yield
additional capital to complete the acquisition strategy identified herein, in
addition to potential acquisitions it is considering at this time, and will
provide sufficient working capital for future operations. There can be no
assurance that the Company will be able to raise sufficient additional capital
to achieve these objectives or meet its working capital needs.
General and Administrative Expenses
General and administrative expenses were $186,044 and $221,900 for the
three months ended September 30, 1998 and 1997, respectively, a decrease of
$35,856. This decrease was attributable to fewer expenses incurred for
administrative, legal, accounting expenses and the discontinuance of expenses
associated with the development of its software.
7
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Loss from Operations
The Company had an operating loss of $186,044 for the three months
ended September 30, 1998 and $221,900 for the same period in 1997. The net loss
for the three months ended September 30, 1998 was attributable to general
administrative and legal and accounting expenses, and also includes $95,113 for
the amortization of deferred compensation cost. 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.
Income Taxes
The Company had no income tax expense. As of September 30, 1998, the
Company had net operating loss carryfowards of approximately $5,476,000. 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 $186,044 for the three months ended
September 30, 1998, compared with a net loss of $221,900 for the same period in
1997. The net loss for the three months ended September 30, 1997 was
attributable to an increase in administrative operating expenses. These
increases in expenditures in administrative expenses were anticipated under the
Company's operating plan following the acquisition of the software products. The
net loss for the three months ended September 30, 1998 was mainly due to the
amortization of deferred compensation expense and accrual of compensation to
officers.
Liquidity and Capital Resources
There were no recorded revenues for the three months ended September
30, 1998. At September 30, 1998, the Company maintained a negative liquidity
position which is evidenced by a current ratio of .04 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, 1998, the Company had a working capital deficiency of
$509,769, compared to a working capital deficiency of $297,668 at September 30,
1997. Subsequent to September 30, 1998, the Company's working capital deficiency
has continued to increase. The cash balance at September 30, 1998 was
approximately $1,542, and at September 30, 1997, was approximately $2,371.
Cash used by operations totaled $120,118 for the three months ended
September 30, 1998, compared to $167,471 for the same period in 1997. Cash used
in investing activities for the three months ended September 30, 1998 was
approximately $11,795 (approximately $7,975 in 1997). Cash provided by financing
activities during the three months ended September 30, 1998 totaled $133,000
($176,828 in 1997), which included the proceeds from the sale of stock and the
borrowing of funds.
8
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 5. Other Information
Subsequent to September 30, 1998, it was mutually agreed by
the Company and Frontier Services, Inc., that the acquisition
of Frontier Services, Inc. would not be consummated, and all
discussions have terminated.
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 August 3, 1998 announcing the
acquisition of CobolTexas, Inc. The 8-K also
announced the dismissal of the prior independent
auditors and the appointment of new auditors.
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, 1998 By: /s/ Peter C. Vanucci
---------------------------------------
Peter C. Vanucci
Chairman & Chief Executive Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from Synaptix Systems Corporation September 30, 1998 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-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,542
<SECURITIES> 0
<RECEIVABLES> 20,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,872
<PP&E> 36,799
<DEPRECIATION> (2,613)
<TOTAL-ASSETS> 57,058
<CURRENT-LIABILITIES> 532,641
<BONDS> 0
0
0
<COMMON> 43,450
<OTHER-SE> (682,033)
<TOTAL-LIABILITY-AND-EQUITY> 57,058
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 186,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 651
<INCOME-PRETAX> (186,044)
<INCOME-TAX> 0
<INCOME-CONTINUING> (186,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,044)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
