SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
AMENDMENT NO. 2 TO FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT")
For the Fiscal Year Ended June 30, 1998
[ ] TRANSITION REPORT UNDER 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
(Name of small business issuer in its charter)
Colorado 84-1045715
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Amendment
No. 2 to Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $0 .
The aggregate market value of the voting common equity held by
non-affiliates of the registrant as of October 9, 1998 was $56,932,186 based on
13,801,742 shares at a price of $4.125.
State the number of shares outstanding of $.003 par value Common Stock of
the registrant at October 9, 1998: 14,589,518.
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement for the 1998 Annual Meeting of Shareholders of the
registrant is incorporated by reference into Part III of Form 10-KSB.
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PART I
ITEM 1. BUSINESS
General
Synaptix Systems Corporation, formerly known as Basic Natural
Resources, Inc. (the "Company"), was incorporated in the State of Colorado in
December 1986 under the name Euram Capital Corporation and became a public
company in August 1987. By June 30, 1995, the Company had divested itself of all
of its assets and had ceased operations.
In December, 1996, approximately 90% of the issued and outstanding
shares of stock of the Company were acquired by Alan W. Harvey, its President
and CEO, in connection with the acquisition of assets of Swallen Investments
Corp., a company engaged in the development and marketing of computer software
equipment (the "Software Assets"). The Software Assets included the rights to an
incomplete software code related to EAGLE, a wireless communication software
program under development. Although the Company anticipated that it would be
able to provide related systems integration and networking services in
connection with the license of the Software Assets, the Company lacked the
resources and funding to develop the Software Assets and to deliver the product
to market in a timely manner. For that reason, and in connection with a
management change in March 1998, the Company sold the Software Assets to
Mobilelink Communications, Inc. ("Mobile"). 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. If gross sales do not exceed $200,000
within 24 months from the closing date of the transaction, then the Software
Assets will be returned to the Company.
Also as a result of the management change in March 1998, the Company
was 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. To that end, in March 1998, the Company entered into
an agreement to purchase Frontier Services, Inc., an oilfield service company
engaged in the high pressure testing of tubular pipe, pipelines and valve
assemblies in the oil and gas industry. That acquisition is expected to be
consummated by October 25, 1998. In addition, in July 1998, the Company
acquired, in exchange solely for shares of the Company's voting stock, all of
the stock of CobolTexas Inc., a company that has a software product that uses
on-line technology to solve the Year 2000 technology (Y2K) problems for COBOL
and PL1 software users. Finally, the Company entered into a letter of intent
dated September 23, 1998 to acquire all the outstanding stock of ChemWay
Systems, Inc., a corporation that blends and packages chemicals for the
automotive aftermarket. Management believes that each of these companies is
uniquely suited to management's business plan 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, and believes that these
acquisitions will generate sufficient revenues and provide an asset base for
continued growth.
In May 1998, an Assumed Name Certificate for Synaptix Systems
Corporation was filed with the Office of the Secretary of State of the State of
Texas, to enable the Company to conduct business under the name Affiliated
Resources Corporation. A proposal will be made for approval of a change of the
Company's name to Affiliated Resources Corporation at the 1998 Annual Meeting of
Shareholders.
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Management plans to expand the Company through acquisitions,
principally in exchange for stock of the Company. Management is confident that
current discussions with investors will yield additional capital to complete its
proposed acquisitions and provide sufficient working capital for future
operations.
Patents, Trademarks, Licenses
As of June 30, 1998, the Company's fiscal year end, the only asset of
the Company was its rights under the Asset Purchase Agreement in connection with
the sale of its Software Assets. 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 March 1998, Mobile transferred the Software Assets to
Titan Wireless. As of June 30, 1998, Titan Wireless had not completed the
development of the Software Assets. In the event gross sales do not equal
$200,000 by March 26, 2000, the Software Assets will be returned to Synaptix.
The Company has been, and will continue to be, required to disclose its
trade secrets and proprietary know-how not only to employees and consultants,
but also to potential corporate partners, collaborators, and contract
manufacturers. There can be no assurance that any confidentiality agreements
that the Company may enter into with such persons will not be breached, that the
Company would have adequate remedies for any breach, or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by competitors.
Financing and Working Capital
At June 30, 1998, the Company had an equity deficit of $657,652, and a
negative working capital balance of $541,222. The Company expects to generate
revenues during the fourth quarter of 1998 for services 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 its
acquisition strategy, and to consummate the acquisitions currently under
contract. Management believes that sufficient capital will be raised to fund
future operations, and that these acquisitions will generate sufficient revenues
to operate independently and provide an asset base for continued growth. There
is no assurance that the Company will be successful in raising equity and
continuing as a going concern.
Employees
The Company employed three full-time employees as of June 30, 1998. Of
these, two were employed in management, and one was employed in clerical
administration. The Company has also entered into an agreement with four
individuals to provide contract services in connection with marketing and
providing services for the Company's software program. The loss to the Company
of the services of the management personnel could have a material adverse effect
upon the Company's future operations. The Company's success also may depend on
its ability to attract and retain other qualified technical and management
personnel. The Company competes for such persons with other companies, academic
institutions, government entities, and other organizations, most of which have
substantially greater capital resources and facilities than the Company. There
can be no assurance that the Company will be successful in recruiting or
retaining personnel of the requisite caliber or in adequate numbers to enable it
to conduct its business as proposed. Furthermore, the Company's possible future
expansion into activities requiring additional expertise in marketing will place
increased demands on the Company's resources and management skills. The Company
believes that its ability to recruit and retain highly skilled and experienced
technical, sales and management personnel has been, and will continue to be,
critical to its ability to protect its proprietary and trade secret information.
The Company believes other factors,
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such as the technical expertise and knowledge of the Company's management and
technical personnel, and the timeliness and quality of support services provided
by the Company, to be more significant in maintaining the Company's competitive
position. The Company's lack of working capital increases the risk that key
employees will be attracted to other business opportunities.
ITEM 2. DESCRIPTION OF PROPERTY
The Company does not own any real property and currently leases its
existing office facilities. In October 1998, the Company relocated its corporate
offices to Houston, Texas, and leased approximately 1,600 square feet of
administrative office space. The lease is for a term of 13 months, and will
expire on October 31, 1999. In addition, the Company entered into a lease of
executive offices in Brecksville, Ohio, covering approximately 800 square feet.
This lease is for a term of one year and will expire on September 30, 1999.
ITEM 3. 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, except for a claim that was made by
a individual that was formerly employed by an unrelated company. The Company
does not believe that this claim has merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the year ended June 30, 1998.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded on the NASDAQ OTC
Electronic Bulletin Board under the symbol "SYTS". The Company's common stock
commenced trading on June 6, 1997, but had not traded for the period December
31, 1993 through June 5, 1997. As of October 9, 1998, there were approximately
212 beneficial owners of the Company's common stock The following table sets
forth, for the quarterly periods indicated, the range of high and low closing
prices for the Company's common stock, as reported by the NASDAQ OTC Electronic
Bulletin Board.
High Low
1997
March 31, 1997 $0.00 $.00
June 30, 1997 2.875 .00
September 30, 1997 3.25 2.25
December 31, 1997 4.00 1.125
1998 High Low
- ---- ---- ---
March 31, 1998 3.125 1.00
June 30, 1998 1.9375 .875
September 30, 1998 4.25 1.75
The closing price of the Company's common stock on October 9, 1998 was
$4.125.
During its fiscal year ended June 30, 1998, 20,000 shares were issued
at $.80 per share to Randolph Jones, an outside investor. No underwriter was
involved in the sales. These shares of Common Stock were sold in transactions
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, because of the private nature of the sales.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on the
Common Stock. The payment of dividends in the future will depend on the
Company's earnings, if any, capital requirements, operating and financial
position and general business conditions. The Company intends to retain any
future earnings for reinvestment in its business and does not intend to pay cash
dividends in the foreseeable future. The Company has not entered into any
agreement which restricts its ability to pay dividends on its Common Stock in
the future.
See "Management's Discussion and Analysis and Results of Operations."
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
financial statements included elsewhere herein. Except for the historical
information contained herein, the matters discussed in this Annual Report are
forward-looking statements that involve a number of risks and uncertainties.
There are certain important factors and risks, including the rapid change in
hardware and software technology, market conditions, the anticipation of growth
of certain market segments and the positioning of the Company's products and
services in those segments, the timing of the product announcements, the release
of new or enhanced products, the introduction of competitive products and
services by existing or new competitors and the significant risks associated
with the acquisition of new products, product rights, technologies, businesses,
the management of growth, the Company's ability to attract and retain highly
skilled technical, managerial and sales and marketing personnel, and the other
risks detailed from time to time in the Company's SEC reports, including reports
on Form 10-KSB and Form 10-QSB, that could cause results to differ materially
from those anticipated by the statements made herein.
Introduction
For the fiscal year ended June 30, 1998, the Company had been engaged
in the development of computer software equipment. 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, 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 June 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 Frontier Services, Inc. and
Chem-Way Systems, Inc. and provide sufficient working capital for operations and
future acquisitions. Management believes that each of these companies is
uniquely suited to management's business strategy 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, and believes that these
acquisitions will generate sufficient revenues and provide an asset base for
continued growth.
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Disposition of Assets
The Company had anticipated that it would be able to provide related
systems integration and networking services in connection with the license of
the Software Assets, but the Company lacked the resources and funding to develop
the Software Assets and deliver the product to market in a timely manner. For
that reason, and in connection with a management change in March 1998, the
Company sold the Software Assets to Mobile. In consideration for the sale of
these assets, 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 within 24 months from
the closing date of the transaction, then the Software Assets will be returned
to the Company. In March 1998, Mobile transferred the Software Assets to Titan
Wireless. As of June 30, 1998, Mobile had not completed the development of the
Software Assets.
The following discussion is included to describe the Company's
financial position and results of operations for the year ended June 30, 1998
and 1997, respectively. The financial statements and notes thereto contain
detailed information that should be referred to in conjunction with this
discussion.
Results of Operations
Comparison of Fiscal Year Ended June 30, 1998 to Fiscal Year Ended June 30, 1997
Costs and expenses for the fiscal year ended June 30, 1998 increased
significantly compared to the fiscal year ended June 30, 1997. The Company
recorded a net loss of $1,928,080 or a ($ .14) loss per share for the fiscal
year ended June 30, 1998, compared with a net loss of $348,225, or a ($.14) loss
per share for the fiscal year ended June 30, 1997. The Company incurred expenses
in the amount of $837,667 related to general and administrative costs associated
with the development of the Company's Software Assets, which were sold to Mobile
in March, 1998. A significant portion of the loss was associated with salaries
expense was a result of prior management granting an option at a price less than
market to a director who has since resigned. During the fiscal year ended June
30, 1998, the Company also issued stock under its stock compensation plan, in
lieu of compensation, thereby reducing debt.
Revenues
The Company did not record any meaningful revenues for the fiscal years
ended June 30, 1998 or 1997. During this time, the Company borrowed funds to pay
for working capital expenditures and certain loans were forgiven as of June 30,
1998. 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 March 1998, it entered into an agreement to purchase all of
the stock of Frontier Services, Inc., and 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
7
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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 $2,074,494 and $408,775 for
the fiscal years ended June 30, 1998 and 1997, respectively, an increase of
approximately $1,666,000. The increase was primarily attributable to expenses
incurred for administrative, legal, accounting expenses and other expenses
associated with the development of the Company's Software Assets.
Loss from Operations
The Company had an operating loss of $2,074,494 for the fiscal year
ended June 30, 1998, compared with a loss of $404,065 for the fiscal year ended
June 30, 1997. The net loss for the fiscal year ended June 30, 1998 was
attributable to an increase in administrative and legal expenses, in addition to
an increase in salaries expense, as a result of a grant of stock options at a
price less than market, to a director, who has since resigned.
Other Expense
The Company incurred $150,593 in other expenses for the fiscal year
ended June 30, 1998, compared to $20,000 for the fiscal year ended June 30,
1997. The increase in fiscal 1998 was the result of a loss on the disposal of
assets and the settlement of litigation.
Income Taxes
The Company had no income tax expense. As of June 30, 1998, the Company
had net operating loss carryfowards of approximately $5,332,000. 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 $1,928,080 for the fiscal year ended June
30, 1998, compared with a net loss of $348,225 for fiscal year ended June 30,
1997. The net loss incurred in 1998 would have been greater than $1,928,080 had
certain shareholders and others not forgiven $297,007 in advances and loans to
the Company.
Liquidity and Capital Resources
As of June 30, 1998, the Company had a working capital deficiency of
approximately $541,222, compared to a working capital deficiency of
approximately $91,952 at June 30, 1997. Subsequent to June 30, 1998, the
Company's working capital deficiency has continued to increase. The cash balance
at June 30, 1998 was approximately $500 and at June 30, 1997, was $1,000.
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Cash used for operations during the fiscal year ended June 30, 1998 was
$445,589, compared to $58,993 for the fiscal year ended June 30, 1997. Cash used
in investing activities during the fiscal year ended June 30, 1998 was $7,952,
compared to $22,658, for the fiscal year ended June 30, 1997. Cash provided by
financing activities during the fiscal year ended June 30, 1998 totaled
$453,007, which included proceeds from private offerings.
ITEM 7. FINANCIAL STATEMENTS
The reports of the Company's Independent Public Accountants, Financial
Statements and Notes to Financial Statements appear herein as noted below:
Page
Independent Auditor's Reports...........................................10 & 11
Balance Sheets, June 30, 1998 and 1997..................................12
Statements of Operations for the Years
ended June 30, 1998 and 1997.......................................13
Statements of Changes in Stockholders'
Equity (Deficit) for the Years ended June 30, 1998
and 1997...........................................................14
Statements of Cash Flows for the Years
ended June 30, 1998 and 1997.......................................15
Notes to Financial Statements.......................................... 16
9
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Independent Auditors' Report
Board of Directors and Stockholders
Synaptix Systems Corporation
(dba Affiliated Resources Corporation)
Houston, Texas
We have audited the accompanying Balance Sheet of Synaptix Systems Corporation
(dba Affiliated Resources Corporation) as of June 30, 1998, and the related
Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the
year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synaptix Systems Corporation
(dba Affiliated Resources Corporation) as of June 30, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital and stockholders' deficit. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WEINSTEIN SPIRA & COMPANY, P.C.
Houston, Texas
October 9, 1998
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SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH 84101
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE: (801) 575-8297
UTAH ASSOCIATION OF FACSIMILE: (801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
The Stockholders and
The Board of Directors
Synaptix Systems Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Synaptix Systems Corporation
(a development stage company) as of June 30, 1997, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
year ended June 30, 1997. 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 audit.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synaptix Systems Corporation (a
development stage company) as of June 30, 1997 and the results of its operations
and its cash flows for the year ended June 30, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company has a working capital deficiency of $90,713 as of June 30, 1997, and has
incurred accumulated losses of $5,175,147 at that date. The Company's ability to
generate sufficient cash flows to meet its obligations and sustain its
operations cannot be determined at this time. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
October 7, 1997
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SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1998 1997
-------------------------- --------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 455 $ 989
Prepaid expenses 72,770
-------------------------- --------------------------
Total Current Assets 455 73,759
Property and Equipment, net of accumulated
depreciation of $1,434 in 1998 23,570 100,873
-------------------------- --------------------------
$ 24,025 $ 174,632
========================== ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Accounts payable and accrued liabilities $ 541,677 $ 165,711
------------------------- -------------------------
Total Current Liabilities 541,677 165,711
Long-term debt 140,000
-------------------------- --------------------------
681,677 165,711
------------------------- -------------------------
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, 13,742,492 and 15,473,700
shares issued and outstanding at June 30, 1998
and 1997, respectively 41,227 46,421
Additional paid-in capital 8,306,628 5,337,647
Accumulated deficit (7,103,227) (5,175,147)
Unamortized stock compensation (1,902,280)
Stock subscription receivable (200,000)
------------------------- -------------------------
(657,652) 8,921
------------------------- -------------------------
$ 24,025 $ 174,632
========================= =========================
</TABLE>
See accompanying notes to financial statements.
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SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
June 30,
1998 1997
------------------------ ----------------------
<S> <C> <C>
Revenues $ 0 $ 4,710
Selling, General and Administrative Expenses 2,074,494 408,775
------------------------ ----------------------
Loss from Operations (2,074,494) (404,065)
Other Income (Expense)
Settlement of litigation (86,000) (20,000)
Debt forgiveness 297,007 75,840
Loss on disposal of property and equipment (64,593)
------------------------ ----------------------
146,414 55,840
------------------------ ----------------------
Net Loss $ (1,928,080) $ (348,225)
======================== ======================
Net Loss Per Share $ (0.14) $ (0.14)
======================== ======================
Weighted Average Shares Outstanding 13,602,778 2,506,606
======================== ======================
</TABLE>
See accompanying notes to financial statements.
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SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Additional Unamortized Stock
Common Stock Preferred Stock Paid-In Accumulated Stock Subscription
Shares Amount Shares Amount Capital Deficit Compensation Receivable Total
---------- -------- --------- --------- ---------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
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 for stock
subscription 2,000,000 6,000 194,000 $ (200,000)
Sale of common
stock 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)
---------- -------- --------- --------- ---------- ----------- ------------- ------------ ----------
Balance -
June 30, 1997 15,473,700 46,421 5,337,647 (5,175,147) (200,000) 8,921
Sale of common
stock for
cash 20,000 60 15,940 16,000
Issuance of
common stock
for services 248,792 746 312,441 313,187
Cancellation of
stock
subscription (2,000,000) (6,000) (194,000) 200,000
Issuance of common
stock options
for services 2,834,600 $ (1,902,280) 932,320
Net loss (1,928,080) (1,928,080)
---------- -------- --------- --------- ---------- ----------- ------------- ------------ ----------
Balance -
June 30, 1998 13,742,492 $ 41,227 $ $8,306,628 $(7,103,227)$ (1,902,280) $ $(657,652)
========== ========= ========= ========= ========== =========== ============= ============ ==========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------------- ----------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $ (1,928,080) $ (348,225)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense 20,662
Loss on disposal of assets 64,593
Stock issued for services 313,187
Non-cash compensation expense 932,320
Stock issued for expenses 251,403
Debt forgiveness (297,007) (75,840)
Changes in assets and liabilities:
Prepaid expenses 72,770 (21,695)
Accounts payable and accrued liabilities 375,966 135,364
------------------------- ----------------------
Net Cash Used in Operating Activities (445,589) (58,993)
Cash Flows From Investing Activities:
Purchase of equipment (7,952) (22,658)
------------------------- ----------------------
Net Cash Used in Investing Activities (7,952) (22,658)
Cash Flows From Financing Activities:
Proceeds from debt 437,007 62,640
Sale of common stock 16,000 20,000
------------------------- ----------------------
Net Cash Provided by Financing Activities 453,007 82,640
------------------------- ----------------------
Net Increase (Decrease) in Cash Equivalents (534) 989
Cash and Cash Equivalents at Beginning of Year 989
------------------------- ----------------------
Cash and Cash Equivalents at End of Year $ 455 $ 989
========================= ======================
</TABLE>
Supplemental Operating Activities:
In 1997, 312,500 shares of stock were issued for prepaid expenses of $34,825.
Supplemental Investing Activities:
In 1997, 3,000,000 shares of stock were issued for $75,878 of equipment.
In 1997, $2,338 of equipment was obtained by entering into a capital lease in
the amount of $2,338.
See accompanying notes to financial statements.
15
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 and 1997
Note 1 - Organization and Summary of Significant Accounting Policies
The Company issues financial statements on the accrual method of
accounting in accordance with generally accepted accounting
principles. Accounting principles followed by the Company and the
methods of applying those principles which materially affect the
determination of financial position, results of operations and cash
flows are summarized below:
Organization
Synaptix Systems Corporation (the Company) was incorporated in Colorado
on December 31, 1986 as Euram Capital Corporation. In 1990, the Company
changed its name to Basic Natural Resources, Inc. and in 1997 the name
was changed to Synaptix Systems Corporation. In May 1998, an Assumed
Name Certificate was filed with the State of Texas to enable the
Company to conduct business under the name Affiliated Resources
Corporation.
As of June 30, 1998, the Company had no assets or operating business.
The Company intends 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.
Cash and Cash Equivalents
The Company considers all investments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are carried at cost and are depreciated using
estimated service lives, which range from three to five years.
Depreciation is computed using the straight-line method. Repairs and
maintenance costs are charged against income and betterments are
capitalized as additions to the related assets.
Unamortized Stock Compensation
The Company accounts for stock-based compensation under APB Opinion 25.
Total compensation cost recognized for stock options granted to
employees is the difference between the quoted market price of the
stock at the grant date less the amount the employee is required to
pay. The cost is charged to expense over the periods in which the
employee performs the related services. Costs related to future periods
are recorded as unamortized stock compensation and deducted from
stockholders' equity (deficit).
Loss Per Share
The computation of loss per share is based on the weighted average
number of shares outstanding during the period.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Under this method, deferred income taxes are recorded to
reflect the tax consequences in future years of temporary differences
between the tax basis of the assets and liabilities and their financial
amounts at year end. The Company provides a valuation allowance to
reduce deferred tax assets to their estimated net realizable value.
16
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
Note 1 - Organization and Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2 - Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company had a working capital deficit of
$541,222 and $91,952 at June 30, 1998 and 1997, respectively and has accumulated
operating losses of $7,103,227 as of June 30, 1998.
The Company plans to grow its continuing operations by expansion through
acquisitions. These acquisitions will be financed primarily through the issuance
of common stock. The Company purchased CobolTexas, Inc. in July 1998, has
entered into an agreement to purchase all of the stock of Frontier Services,
Inc., and has recently executed a letter of intent to purchase all of the stock
of Chem-Way, Inc. Each of these companies is uniquely suited to management's
business strategy of acquiring companies, and it is management's belief that
these acquisitions will generate sufficient revenues and provide an asset base
for continued growth. Management is confident that current discussions with
investors will yield additional capital to complete the proposed acquisitions
and provide sufficient working capital for future operations. However, there is
no assurance that the Company will be successful in raising equity and
continuing as a going concern.
Note 3 - Acquisitions and Dispositions
On May 15, 1997, the Company issued 3,000,000 shares of its restricted common
stock to acquire many fixed assets, software products, and rights from Swallen
Investments Corp. ("Swallen"). Prior to the items being owned by Swallen, the
items had been owned by Synaptix, Inc.("Synaptix Texas"), a Texas entity
controlled by Alan W. Harvey, the Company's President at the time of the
acquisition. The transaction was valued at $78,203, which represented the
approximate historical cost of the assets and rights when held by Synaptix
Texas.
In March 1998, the Company sold the software assets and other property and
equipment to Titan Wireless for a five percent interest in Titan's gross sales
of the software assets. A loss of $64,593 was recorded in the 1998 Statement of
Operations for the transaction.
Note 4 - Long-Term Debt
Long-term debt as of June 30, 1998 was as follows:
8% Unsecured note payable to a corporation,
interest and principal due November, 2002 $ 100,000
8% Unsecured note payable to a corporation,
interest and principal due April, 2001 40,000
-------------
$ 140,000
=============
Long-term debt is payable in the future as follows:
June 30,
2001 $ 40,000
2003 100,000
-------------
$ 140,000
=============
17
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
Note 5 - Stockholders' Equity (Deficit)
In fiscal 1997 the Company effected a one-for-sixty reverse split of its common
stock and increased the par value per share from $.00005 to $.003. All share and
per share amounts in the accompanying financial statements and notes have been
adjusted to reflect the stock split.
Preferred Stock
The Company has 10,000,000 shares of $1.00 par value voting Preferred Stock
authorized for issuance.
The Voting Preferred Shares are callable and redeemable at the option of the
Company. In addition to the cash redemption price of $1.00 per share, holders of
the Voting Preferred Shares are entitled to two shares of Common Stock for each
of the Voting Preferred Shares redeemed. Holders of the Voting Preferred Shares
are entitled to vote on all matters to be voted upon by the shareholders, have a
liquidation preference of $1.00 per share before any winding-up of the Company,
and are entitled to such dividend as may be declared by the Board of Directors.
The Voting Preferred Shares have no preemptive rights or sinking fund
provisions. During fiscal 1997, the Company canceled all 174,865 outstanding
shares of Series A Voting Preferred Stock by issuing 174,865 shares of Common
Stock. The Preferred Stock shareholders waived all of the other rights
associated with the Preferred Stock.
Common Stock
During the year ended June 30, 1997, the Company issued 174,865 shares of common
stock to retire 174,865 shares of Preferred Stock, and sold or issued 15,259,167
shares of common stock for $20,000 cash, $251,403 of expenses, $110,703 of
assets, and $200,000 in the form of promissory notes for subscribed stock.
During the year ended June 30, 1998, the 2,000,000 shares of subscribed stock
were cancelled.
During the year ended June 30, 1998, 248,792 shares of stock valued at $313,187
were issued for salaries and services. Another 20,000 shares of common stock
were sold for $16,000 cash.
Note 6 - Stock Options
During fiscal 1997, the Company established an incentive stock option and
non-statutory stock option plan. 4,000,000 shares of common stock were
registered. During fiscal 1997, Mr. Alan W. Harvey exercised 3,000,000 options
at $.005 per share.
The Company also established an employee stock compensation plan and registered
4,000,000 shares of its common stock. During fiscal 1997, 3,750,000 shares were
issued.
During 1998, the Company granted 2,220,000 options for past and future
compensation. Compensation expense recorded during 1998 related to these options
was $932,320. Unamortized future compensation of $1,902,280 will be amortized
straight-line over five years.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- ----------------------------------------
Stock Price Stock Price
Options Per Share Options Per Share
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Beginning of period 62,000 $ .15
Granted 2,220,000 .15 - .50 3,062,000 $ .005 - .15
Exercised (3,000,000) .005
------------------- ------------------- ------------------- -------------------
End of period 2,282,000 $ .15 - $.50 62,000 $ .15
=================== =================== =================== ===================
Exercisable at June 30 2,282,000 $ .15 - $.50 62,000 $ .15
=================== =================== =================== ===================
</TABLE>
1998 1997
-------------------- ------------
Weighted-average fair value of options
granted during the year $ 1.59 $ .00
18
<PAGE>
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
Note 6 - Stock Options (Continued)
The fair value of the options at date of grant was estimated using the
Black-Scholes Model with the following weighted-average assumptions:
1998 1997
-------------------- ------------
Risk-free interest rate 5.64% 5.86%
Expected life 4.98 years 1.04 years
Expected volatility 114% 114%
Expected dividends None None
Had the Company elected to apply Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock- Based Compensation," using the fair value based
method, the Company's net loss and loss per share would have been increased to
the proforma amounts indicated below:
1998 1997
------------- ---------------------
Net loss as reported $ (1,928,080) $ (348,225)
Net loss proforma $ (1,971,688) $ (348,225)
Basic loss per share as reported $ (0.14) $ (0.14)
Basic loss proforma $ (0.14) $ (0.14)
Note 7 - Income Taxes
At June 30, 1998 and 1997, the Company had net operating loss carryforwards
available to offset future taxable income of approximately $5,332,000 and
$3,404,000, respectively. These amounts expire during the years 2012 through
2013. The Company most likely will not be able to utilize the carryover incurred
prior to fiscal 1997 due to change of ownership and the requirement for the
continuation of the same type of business.
Note 8 - Operating Leases
The Company leases office space under an operating lease on a month to month
basis.
Rental expense for the Company for the years ended June 30, 1998 and 1997, was
$40,611 and $46,223, respectively.
Note 9 - Related Party Transactions
During the year ended June 30, 1997, the Company's President, or entities
controlled by him, received 5,967,500 shares of the Company's common stock for
$20,000 cash and services valued at $7,402.
During the years ended June 30, 1998 and 1997, debt in the amount of $297,007
and $75,840, respectively, was forgiven by related parties. The amount
represents cash given to the Company.
Note 10 - Subsequent Event
Effective July 8, 1998, the Company acquired all of the outstanding stock of
CobolTexas Inc. in exchange for 641,026 shares of Company common stock. The
acquisition will be accounted for as a pooling of interests.
19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company appointed the firm of Weinstein Spira & Company , P.C.,
Five Greenway Plaza, Suite 2200, Houston, Texas 77046, as its Independent
Accountants, effective as of July 14, 1998. Smith & Company., Inc., the
Company's Independent Accountants for more than the past two years, who are
located in Salt Lake City, Utah, resigned effective as of August 3, 1998. There
were no disagreements between the Company and its accountants.
The report of Smith & Company. on the financial statements of the
Company for each of the two fiscal years in the period ended June 30, 1997, did
not contain any adverse opinion or disclaimer of opinion , but was modified for
a going concern paragraph.
During the Company's most recent two fiscal years and all subsequent
interim periods preceding the change in auditors, there was no disagreement with
Smith & Company. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which if not resolved to
the satisfaction of Smith & Company., would have caused them to make a reference
to the subject matter of the disagreements in connection with their report; nor
has Smith & Company. ever presented a written report, or otherwise communicated
in writing to the Company or its Board of Directors the existence of any
"disagreement" or "reportable event" within the meaning of Item 304 of
Regulation S-K.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
Set forth below is certain information concerning the nominees for
election as director of the Company at the Meeting, including all positions and
offices with the Company held by each such person, the business experience of
each during at leas6 the past five years, and the age of each nominee on
November 16, 1998.
Peter C. Vanucci, 50, was elected to serve as Chairman of the Board and
Chief Executive Officer of the Company effective as of February 15, 1998. Since
1990, Mr. Vanucci held the position of President and a Director of Wexford,
Inc., a corporation specializing in business and property evaluation, ad valorem
tax consulting, real estate development and financial consulting.
Edward S. Fleming, 43, has held the position of President since May
1998, and was first elected a director in December 1996. Prior to that time, Mr.
Fleming held the positions of Acting President beginning in October 1997, in
addition to his position as Vice President and Chief Financial Officer, to which
he was elected in December 1996. From 1993 to the present, Mr. Fleming has held
the position of Geologic Science Advisor to the Astronaut Office, Johnson Space
Center, and was primarily responsible for the planning, coordination and
evaluation of military and civilian manned space observations of the Earth,
including the management of all Army personnel assigned to the Space Center. He
has an extensive background in systems administration of the SUN and UNIX
programs, as well as experience in a wide variety of sophisticated remote
sensing software packages. Prior to 1993, Mr. Fleming held a succession of
various leadership positions of national and military prominence while serving
as an officer in the United States Army for more than 20 years.
Edward F. Feighan, 50, was elected to serve as a director in August
1998. Mr. Feighan is currently the managing Partner of Alliance, Limited, a
Cleveland, Ohio based firm specializing in mergers and acquisitions and merchant
banking services. From November 1996 to December 1997, Mr. Feighan served as the
founding President, CEO and director of Century Business Services, Inc.
("Century"). Throughout most of 1998, Mr. Feighan served as Senior Vice
President of Century, and he continues to provide consulting services to
Century. From 1993 to 1996, Mr. Feighan was a principal in Alliance Holding
Corporation, a privately owned specialty insurance business "Alliance" which
provided niche market insurance underwriting for businesses nationwide. Alliance
merged its operating entities into Century in 1996. Mr. Feighan served 20
consecutive years in elected office beginning in 1972. He served as a State
Representative for six years, a Cuyahoga County Commissioner for four years, and
as a member of the United States House of Representatives for 10 years.
Congressman Feighan has been recognized as a leading authority on foreign policy
and international trade and finance.
20
<PAGE>
J. Thomas McManamon, 54, was elected to serve as a director in May
1998. Mr. McManamon has held the position of Director of the Science,
Engineering, Mathematics and Aerospace Academy for the Cuyahoga Community
College since January 1995. From 1992 to 1995, Mr. McManamon was a Financial
Consultant with the firm of Butcher & Singer.
No director serves as a member of the Board of Directors of any other
company with a class of securities registered under the Securities Act of 1934,
as amended, or which is registered as an investment company under the Investment
Company Act of 1940.
Meetings of the Board of Directors
During the last fiscal year, the Board of Directors of the Company
which consisted of three directors, held seven meetings, Each director attended
at least 75% of the meetings of the board of directors..
Standing Committees.
In October 1998, the board voted to establish three standing committees
consisting of an Audit Committee, an Executive Committee and a Compensation
Committee.
The Audit Committee, which is composed of Messrs. Feighan and McManamom
meets with key management and the independent public accountants to review the
internal controls of the Company and to review its financial reporting. The
Audit Committee also recommends to the Board of Directors the appointment of the
independent public accountants to serve as auditors in examining the financial
statements of the Company. The Audit Committee is charged with the
responsibility of reviewing and overseeing all material transactions and
material proposed transactions between the Company and one or more of its
directors or executive officers, or their affiliates, with a view to assuring
that all such transactions will be (a) on terms no less favorable to the Company
than would be available with unaffiliated third parties and (b) ratified by a
majority of independent directors who have no interest in such transactions.
The Executive Committee, which is composed of Messrs. Feighan and
Vanucci, has the authority to exercise all powers of the Board of Directors in
the management of the business and affairs of the Company during intervals
between meetings of the board of directors, except that it has no authority to
propose amendments to the Restated Certificate of Incorporation, adopt an
agreement of merger or consolidation, recommend to the shareholders the sale,
lease or exchange of all or substantially all of the Company's assets or its
dissolution, or amend the Bylaws.
The Compensation Committee, which is composed of Messrs. Feighan,
McManamon and Vanucci (a) makes recommendations to the Board of Directors
concerning the election of the Company's officers, (b) reviews the employee
compensation and benefit plans and sets the compensation for officers of the
Company, (c) awards bonuses to officers of the Company, (d) assumes
responsibility for all broad-based compensation and benefit programs of the
Company and (e) administers the Employee Stock Option Plan.
Compensation of Directors
In October 1997, two persons then serving as Company directors were
granted options to purchase the Common Stock of the Company at an option price
of $.20 per share. Mr. Fleming was granted an option to purchase up to 350,000
shares of Common Stock, and Mr. Mark F. Walz was granted an option to purchase
up to 200,000 shares of Common Stock. The grant of 200,000 shares of Common
Stock to Mr. Walz was in consideration for services rendered as a non-employee
director for the period December 1996 through October 1997. Mr. Walz resigned in
February 1998. In May, 1998, Mr. Fleming was granted an additional option to
purchase up to 150,000 shares of Common Stock at an option price of $.50 per
share.
Non-employee directors will be reimbursed for reasonable expenses
incurred in connection with attendance at any meetings of the board of directors
of the Company.
21
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table set forth certain information regarding the
executive officers of the Company. Each officer serves at the pleasure of the
board of directors.
<TABLE>
<CAPTION>
Year Named to
Name Age Position Held with Company Present Position
- ---- --- -------------------------- ----------------
<S> <C> <C> <C>
Peter C. Vanucci 50 Chairman and Chief Executive Officer March 1998
Edward S. Fleming 43 President October 1997
Virginia M. Lazar(1) 47 Executive Vice President and Corporate May 1998
Secretary
Alan W. Harvey(2) 38 Chairman, President and Chief Executive December 1996 to October
Officer 1997
</TABLE>
(1) From January 1996 until her election as an officer of the Company in
May 1998, Ms. Lazar was the President of Corporate Administrative
Services, Inc., a corporation engaged in providing consulting and
administrative services to public companies. For the prior 17 years,
Ms. Lazar was employed by Petrominerals Corporation and, since 1987,
held the position of Corporate Secretary of that Corporation.
(2) Mr. Harvey was elected to serve as Chairman of the Board, President and
Chief Executive Officer effective as of December 23, 1996, and resigned
as a director and officer of the Company on October 17, 1997.
Summary Compensation Table
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, the Company's
executive officers during the fiscal year ended June 30, 1998 and for the period
through October 31,1998.
Annual Compensation
<TABLE>
<CAPTION>
Name and Principal Other Annual All other
Position Year Salary Bonus Compensation Compensation
($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Peter C. Vanucci 1998 57,292(1) - - -
Chairman and Chief - - -
Executive Officer
Edward S. Fleming 1998 - - - -
President(2)
Virginia M. Lazar 1998 41,250(3) - - -
Executive Vice President
and Corporate Secretary
Alan W. Harvey 1997 14,385(4) - - -
Chairman, President and
Chief Executive Officer
Samuel M. Skipper, 1996 43,348(5) - - -
Chief Executive Officer
and President(5)
</TABLE>
22
<PAGE>
(1) Mr. Vanucci has accrued his salary for the fiscal year ended June 30,
1998 and for the subsequent period through November 1, 1998. Mr.
Vanucci was granted an option to purchase up to 1,000,000 shares of the
Company's common stock at a price of $.50 per share in May 1998.
(2) Mr. Fleming is not a full-time employee, and therefore, no salary is
being accrued for him at this time. Mr. Fleming was granted an option
to purchase up to 350,000 shares of the Company's common stock at a
price of $.20 per share in October 1997, and was granted an additional
option to purchase up to 150,000 shares of the Company's common stock
at a price of $.50 per share in May 1998.
(3) Ms. Lazar has accrued her salary for the fiscal year ended June 30,
1998, and for the subsequent period through November 1, 1998. Ms. Lazar
was granted an option to purchase up to 500,000 shares of the Company's
common stock at a price of $.50 per share in May 1998.
(4) Mr. Harvey terminated his employment in October 1997. Mr. Harvey's
salary is for the period July 1, 1997 through October 31, 1997.
(5) Mr. Skipper served as Chairman of the Board, President and Chief
Executive Officer for the period August 1995 through December 23, 1996.
Incentive Stock Option Plan and Non-Statutory Stock Option Plan
The Company has adopted an Incentive Stock Option Plan and a
Non-Statutory Stock Option Plan (together, the "Option Plan"), under which the
Company may award stock options to employees, including non-employee directors
of the Company. The company intends to make such awards to employees in order to
induce qualified persons to accept employment with the Company, and to reward
key personnel of the Company in lieu of cash bonuses. A total of seven million
shares of the Company's Common Stock have been reserved for issuance pursuant to
the Option Plan. During the fiscal year ended June 30, 1998, a total of two
million two hundred thousand shares were granted to employees and directors.
Five million two hundred thousand of the seven million shares available under
the Plan have been issued.
Employee Stock Compensation Plan
The Company has adopted an Employee Stock Compensation Plan (the
"Compensation Plan"), which provides that the Company may issue stock awards to
employees, including consultants who have provided bona fide services to the
Company not connected to any financing activities. The Company intends to make
such awards to employees and consultants for services rendered on behalf of the
Company, in lieu of cash payments otherwise owing to these individuals, and to
make future employment with the Company, and to reward key personnel of the
Company in lieu of cash bonuses. During the fiscal year ended June 30, 1998, the
Company issued 250,000 shares of the Company's Common Stock to employees,
including 96,750 shares to Ms. Lazar who is an executive officer, pursuant to
this plan for services rendered and in repayment of expenses.
Other Compensation of Executive Officers
During fiscal 1998, the Company provided travel and entertainment
expenses to its executive officers and key employees. The aggregate amount of
such compensation, as to any executive officer or key employee, did not exceed
the lesser of $25,000 or 10% of the cash compensation paid to such executive
officer or key employee, nor did the aggregate amount of such other compensation
exceed 10% of the cash compensation paid to all executive officers or key
employees as a group.
23
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the grant of
options under the Company's 1997 Non-Statutory Stock Option Plan and Incentive
Stock Option Plan during the fiscal year ended June 30, 1998, and subsequent to
fiscal year end.
<TABLE>
<CAPTION>
Number of
Securities Percent of total
underlying options granted Market
options to employees in Exercise or Price on Expiration Grant Date
Name granted fiscal year base price Grant Date Date Value(1)
------------- ------------------- --------------- ---------- ------------- --------------
(#) (%) ($/Share) ($/Share)
<S> <C> <C> <C> <C> <C> <C>
Peter C. Vanucci 1,000,000 43% .50 1.00 5/1/2002 1,000,000
Edward S. Fleming 350,000 22% .20 3.50 5/1/2002 1,225,000
150,000 .50 1.00 5/1/2002 350,000
Virginia M. Lazar 500,000 22% .50 1.00 5/1/2002 500,000
Edward F. Feighan 100,000 4% .50 3.00 5/1/2002 300,000
Mark F. Walz 200,000 9% .20 3.50 5/1/2002 700,000
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and FYE Option Values
<TABLE>
<CAPTION>
Number of securities Value of unexercised
Shares underlying unexercised in-the-money options
acquired Value options at fiscal year-end at fiscal year-end
Name on Exercise Realized Exercisable/unexercisable Exercisable/unexercisable
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Mark F. Walz 50,000(1) 134,375 150,000 243,750
</TABLE>
(1) The options shown were exercised in July 1998.
24
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 3, 1998 by
each person or entity known to the Company to own beneficially 5% or more.
Unless otherwise indicated in the footnote below, each person has sole voting
and dispositive power over the shares indicated.
<TABLE>
<CAPTION>
Amount and Percent of Total
Name and Address of Nature of Percent of Outstanding
Title of Class Beneficial Owner Beneficial Interest Class Voting Securities
- ------------------ ------------------------- ------------------- ------------ --------------------
<S> <C> <C> <C> <C>
$.003 par value Peter C. Vanucci(1) 1,000,000(D) 6.9% 6.9%
common stock 8221 Brecksville Road
Bldg. 3, Suite 207
Brecksville, Ohio 44141
$.003 par value Flinders Finance Company 1,303,928 8.9% 8.9%
common stock P. O. Box 1360
League City, Texas 77548
$.003 par value Virginia M. Lazar(2) 596,750 4.1% 4.1%
common stock 3050 Post Oak Blvd.
Suite 1080
Houston, Texas 77056
$.003 par value Edward S. Fleming(3) 500,000 3.4% 3.4%
common stock 3050 Post Oak Blvd.
Suite 1080
Houston, Texas 77056
$.003 par value Edward F. Feighan(4) 150,000 1.0% 1.0%
common stock 3050 Post Oak Blvd.
Suite 1080
Houston, Texas 77056
$.003 par value Tropicana International, Inc. 750,000 5.1% 5.1%
common stock 957 Nasa Road 1 - Suite 113
Houston, Texas 77058
$.003 par value Youngstown Worldwide Ltd. 750,000 5.1% 5.1%
common stock 403 Nasa Road 1 - Suite 293
Webster, Texas 77598
$.003 par value Mark F. Walz(5) 200,000 1.0% 1.0%
common stock 13131 Almeda Road
Houston, Texas 77045
All executive officers 2,146,750 14.7% 14.7%
and directors as a
group(4)
</TABLE>
(1) Consists of an option to purchase up to 1,000,000 shares of the Company's
Common Stock at $.50 per share.
(2) Includes an option to purchase up to 500,000 shares of the Company's common
stock at $.50 per share.
(3) Consists of an option to purchase up to 350,000 shares of the Company's
Common Stock at $.20 per share and an option to purchase an additional
150,000 shares at a price of $.50 per share.
(4) Includes an option to purchase up to 100,000 shares of the Company's Common
Stock at $.50 per share.
(5) Includes an option to purchase up to 150,000 shares of the Company's Common
Stock at $.20 per share.
25
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since December 1996, Corporate Administrative Services, Inc. has
rendered services to the Company in connection with corporate securities
compliance and corporate governance. Ms. Lazar, as the former President of
Corporate Administrative Services, Inc., received compensation from the Company
in the form of 96,750 shares of Company Common Stock for services rendered. In
addition, that corporation forgave fees due and payable in the amount of $80,000
for the fiscal year ended June 30, 1998.
No executive officer, director, stockholder known to the Company to
own, beneficially or of record, more than 5% of the Company's Common Stock, or
any member of the immediate family of any of those persons has engaged since the
beginning of the Company's last fiscal year, or proposes to engage in the
future, in any transaction or series of similar transactions with the Company,
directly or indirectly through a separate entity, in which the amount involved
exceeded or will exceed $60,000.
No director of the Company has served or currently serves as a partner
or executive officer of any investment banking firm that performed services for
the Company during the last fiscal year or that the Company proposes to have
perform services during the current year. The Company knows of no other
relationship between any director and the Company substantially similar in
nature and scope to those described above.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons holding more than 10% of a
registered class of the Company's equity securities to file with the SEC initial
reports of ownership, reports of changes in ownership and annual reports of
ownership of Common Stock and other equity securities of the Company. Such
directors, officers and stockholders are also required to furnish the company
with copies of all such filed reports.
Based on a review of the copies of such reports furnished to the
Company, the Company believes that all Section 16(a) reporting requirements were
timely fulfilled during 1998, except that Mr. Vanucci filed two months late his
initial report on Form 3 reporting his election as a director and executive
officer in February 1998, Mr. Harvey failed to file his terminating Form 4 or 5
upon his resignation as an executive officer and director in October 1997, and
Mr. McManamon did not timely file his initial report on Form 3 upon his election
as a director in May 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
1. Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the fiscal
year ended June 30, 1998 and subsequent thereto:
A Form 8-K was filed on August 3, 1998 announcing the
acquisition of assets from CobolTexas Inc., and a Change in
Registrant's Accountants.
2. Exhibits
Exhibit
Number Description
2 Asset Purchase Agreement by and between Swallen Investments
Corp. and Synaptix Systems Corporation, dated May, 1997(1) 2.1
Asset Purchase Agreement by and between Synaptix Systems
Corporation, a Colorado corporation, and Mobilelink
Communications, Inc. ("Mobile"), a Nevada corporation, dated
March 26, 1998(2) 2.2 Modification Agreement by and between
Synaptix Systems Corporation, a Colorado corporation, and
Mobilelink Communications, Inc., a Nevada corporation.
26
<PAGE>
Exhibit
Number Description
2.3 Purchase and Sale Agreement for Purchase of Stock of Frontier Services,
Inc. By and between Dickie McGehee and Denise McGehee, Sellers, and
Synaptix Systems Corporation, dated March 12, 1998(2)
3.1 Amendment to Articles of Incorporation(3)
3.2 Bylaws(4)
4.1 Statement of Series Shares(4)
4.2 Form of Warrant Agent Agreement and Form of Warrant Certificate(5)
4.3 Option Agreement by and between Peter C. Vanucci and Synaptix Systems
Corporation, dated May 20, 1998(2)
4.4 Option Agreement by and between Virginia M. Lazar and Synaptix Systems
Corporation, dated May 20, 1998(2)
4.5 Option Agreement by and between Edward S. Fleming and Synaptix Systems
Corporation, dated May 20, 1998(2)
4.6 Form of Class A and Class B Common Stock Purchase Warrants(6)
10.1 Synaptix Systems Corporation 1997 Incentive and Non-Statutory Stock Option
Plan(6)
10.2 Form of Synaptix Systems Corporation Employee Stock Option Agreement(6)
10.3 Synaptix Systems Corporation 1997 Employee Stock Compensation Plan(7)
10.4 Promissory Note by and between Synaptix Systems Corporation and Emerald
Investments, dated November 1997.
10.5 Promissory Note between Synaptix Systems Corporation and Dickie and Denise
McGehee in the amount of $3,024,000, dated March 12, 1998(2)
10.6 Promissory Note by and between Synaptix Systems Corporation and Merity
International Inc., dated April 1998
10.7 Synaptix Systems Corporation PROJECT EAGLE Development Team Agreement.(9)
10.8 Employment Agreements(8)
10.9 Settlement agreement and release by and between Synaptix Systems
Corporation and Alan W. Harvey(8)
10.10Settlement Agreement and Release by and between Synaptix Systems
Corporation and certain employees(9) 17 Letter of resignation of Mark F.
Walz(9)
27 Financial Data Schedule
(1) Incorporated herein by reference in Registrant's Quarterly Report on Form
10-QSB for the quarterly period ended March 31, 1997.
(2) Incorporated herein by reference in Registrant's Quarterly Report on Form
10-QSB for the quarterly period ended March 31, 1998.
(3) Incorporated herein by reference in Registrant's Report on Form 14A, dated
November 3, 1997.
(4) Incorporated herein by reference in Registrant's Report on Form 14A, dated
December 30 , 1996.
(5) Incorporated herein by reference in Registrant's Registration Statement on
Form S-18 (No. 33-15097-D), dated August 7, 1987.
(6) Incorporated herein by reference in Form S-8 Registration, dated May 12,
1997.
(7) Incorporated herein by reference in Form S-8 Registration, dated May 9,
1997.
(8) Incorporated herein by reference to Registrant's Annual Report on Form
10-KSB dated October 31, 1997.
(9) Incorporated herein by reference to Registrant's Quarterly Report on Form
10-QSB for the quarterly period ended December 31, 1997.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
SYNAPTIX SYSTEMS CORPORATION
(Registrant)
By: /s/ Peter C. Vanucci
Peter C. Vanucci
Chairman and Chief Executive Officer
Dated: November 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in their capacities indicated and on the dates indicated.
Name Title Date
/s/ Peter C. Vanucci Chairman, Chief Executive November 16, 1998
- ---------------------- Officer & Director
Peter C. Vanucci
/s/ Edward S. Fleming President & Director November 16, 1998
- -----------------------
Edward S. Fleming
/s/ Edward F. Feighan Director November 16, 1998
- ----------------------
Edward F. Feighan
/s/ J. Thomas McManamon Director November 16, 1998
- -----------------------
J. Thomas McManamon
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Synaptix Systems Corporation June 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> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 455
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 455
<PP&E> 25,004
<DEPRECIATION> (1,434)
<TOTAL-ASSETS> 24,025
<CURRENT-LIABILITIES> 541,677
<BONDS> 0
0
0
<COMMON> 41,227
<OTHER-SE> (698,879)
<TOTAL-LIABILITY-AND-EQUITY> 24,025
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<OTHER-EXPENSES> 2,074,494
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<INCOME-PRETAX> (1,928,080)
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<NET-INCOME> (1,928,080)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
