1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
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 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.
Transitional Small Business Disclosure Format (check one): Yes__ No X
<PAGE>
2
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.
<PAGE>
3
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
<PAGE>
4
1998
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."
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
<PAGE>
5
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.
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
<PAGE>
6
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 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.
<PAGE>
7
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.
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..............................................8 & 9
Balance Sheets, June 30, 1998 and 1997 .........................11
Statements of Operations for the Years ended June 30, 1998 and 1997...........12
Statements of Changes in Stockholders' Equity (Deficit) for the Years
ended June 30, 1998 and 1997.................................................13
Statements of Cash Flows for the Years ended June 30, 1998 and 1997...........14
Notes to Financial Statements.................................................15
<PAGE>
8
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
<PAGE>
9
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
<PAGE>
10
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.
<PAGE>
11
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.
<PAGE>
12
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 Subscript.
Shares Amount Shares Amount Capital Deficit Compensation Receivable Total
--------- -------- -------- --------- ---------- ----------- ----------- ---------- ---------
Balance -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
stock 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.
<PAGE>
13
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.
<PAGE>
14
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.
<PAGE>
15
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
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.
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.
<PAGE>
16
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
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
===========
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.
<PAGE>
17
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
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:
1998 1997
Stock Price Stock Price
Options Per Share Options Per Share
--------- ----------- ---------- -----------
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
========= =========== ========== ===========
1998 1997
------------ ------------
Weighted-average fair value
of options granted during
the year $ 1.59 $ .00
<PAGE>
18
SYNAPTIX SYSTEMS CORPORATION
(dba AFFILIATED RESOURCES CORPORATION)
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 and 1997
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.
<PAGE>
19
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
The information called for in Item 9 is incorporated by reference from
information under the captions "Election of Directors" and "Executive Officers"
in the Company's definitive proxy statement, which involves the election of
directors, to be filed pursuant to Regulation 14A no later than 120 days after
the close of its fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The information called for in Item 10 is incorporated by reference
under the caption "Executive Compensation" in the Company's definitive proxy
statement, which involves the election of directors, to be filed pursuant to
Regulation 14A no later than 120 days after the close of its fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for in Item 11 is incorporated by reference from
information under the captions "Principal Shareholders" and "Security Ownership
of Management: in the Company's definitive proxy statement, which involves the
election of directors, to be filed pursuant to Regulation 14A no later than 120
days after the close of its fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for in Item 12 is incorporated by reference from
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement, which involves the election of
directors, to be filed pursuant to Regulation 14A no later than 120 days after
the close of its fiscal year.
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.
<PAGE>
20
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
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.
<PAGE>
21
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: October 14, 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 October 13, 1998
Peter C. Vanucci Officer & Director
/s/ Edward S. Fleming President & Director October 13, 1998
Edward S. Fleming
/s/ Edward F. Feighan Director October 13, 1998
Edward F. Feighan
/s/ J. Thomas McManamon Director October 13, 1998
J. Thomas McManamon
<PAGE>
22
MODIFICATION AGREEMENT
WHEREAS, on March 26, 1998 SYNAPTIX SYSTEMS CORPORATION, a Colorado
corporation ("Synaptix") and MOBILELINK COMMUNICATIONS, INC., a Nevada
corporation ("Mobile") entered into that certain Asset Purchase Agreement,
attached hereto as Exhibit "A" (the "Synaptix Agreement"), for the purchase by
Mobile and sale by Synaptix of certain assets (the "Acquired Assets"); and
WHEREAS, on March 1998 Mobile and TITAN RESOURCES, INC., a New York
corporation ("Titan"), entered into that certain Asset Purchase
Agreement, attached hereto as Exhibit "B" (the Titan Agreement"), for
the purchase by Titan and sale by Mobile of those same Acquired Assets;
and
WHEREAS, pursuant to Section 1.3.1 of the Titan Agreement Titan
transferred those same Acquired
Assets to TITAN WIRELESS, INC. ("Wireless"); and
WHEREAS, all the parties desire to clarify Synaptix' continuing
interest in the Acquired Assets; NOW THEREFORE, in consideration of
Synaptix' withdrawal of its claim for royalties resulting from the
Titan Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties
hereby enter into this Modification Agreement for the purpose of
clarifying Synaptix' continuing interest in the Acquired Assets and for
such other purposes as specifically set forth herein, as follows:
I . Modification of the Titan Agreement. The Titan Agreement is
hereby modified as follows:
a. Deleting Section 1.6 in its entirety and substituting it
with the following: In addition to the issuance of shares of TITAN to
MOBILE described in Section 1.3.1 above, Subsidiary shall pay to
AFFILIATED RESOURCES CORPORATION f/k/a SYNAPTIX SYSTEMS CORPORATION, a
Colorado corporation ("Synaptix"), an amount equal to five percent (5%)
of all gross sales of licenses to the Intellectual Property (as defined
by Subsidiary's independent certified public accountants in accordance
with generally accepted accounting principles), which payment shall be
made within thirty days from the end of each calendar quarter beginning
with the quarter ended June 30, 1998. Subsidiary, Titan, and Mobile,
jointly and severally, expressly guarantee all such payments to
Synaptix. In the event that the gross sales of licenses, as determined
above, do not equal at least $200,000.00 within twenty-four months from
<PAGE>
23
March 26, 1998, then the Acquired Assets shall be returned to Synaptix,
and Subsidiary, Titan, and Mobile shall take all steps and execute such
documents as are required to return title to the Acquired Assets to
Synaptix. b. Adding the following immediately preceding the first word
"MOBILE" after the heading in Section
2. 1. 1: "Except as set forth in Section 2. 1. I.A below," and continuing with
the remainder of Section 2. 1.1 as written.
C. Adding the following immediately following Section 2. 1. 1:
2. 1. 1. Rovaltv Interest of Synaptix. TITAN and MOBILE expressly
acknowledge that, pursuant
to that certain Asset Purchase Agreement by and between Synaptix and
Mobile dated March 26, 1998, and as set forth more fully in Section 1.6
(as amended) herein, Synaptix has retained a royalty interest in the
Intellectual Property and a reversionary interest in the Acquired
Assets, and that the Acquired Assets and the Intellectual Property are
burdened by that interest.
d. Deleting Article III in its entirety.
2. Modification of the Synaptix Agreement. The Synaptix Agreement is
hereby modified as follows:
a. Deleting Section 1.3 in its entirety and substituting
it with the following:
In consideration for the sale by SYNAPTIX of the Acquired Assets,
MOBILE or its duly authorized assignee shall pay to AFFILIATED
RESOURCES CORPORATION f/k/a SYNAPTIX SYSTEMS CORPORATION, a Colorado
corporation ("Synaptix"), an amount equal to five percent (5%) of all
gross sales of licenses to the Intellectual Property (as defined by
Mobile's independent certified public accountants in accordance with
generally accepted accounting principles), which payment shall be made
within thirty days from the end of each calendar quarter beginning
with the quarter ended June 30, 1998. Provided, however, that if the
gross sales of licenses, as determined above, do not equal at least
$200,000.00 within twenty-four months from March 26, 1998, then the
Acquired Assets shall be returned to Synaptix, and Mobile shall take
all steps and execute such documents as are required to return title
to the Acquired Assets to Synaptix. Mobile expressly guarantees all
such payments to Synaptix, whether by MOBILE, by its duly authorized
assignee, or by any subsequent assignee, whether authorized or not. b.
Deleting the first word "No" at the beginning of Section 6.6, and by
adding the following at the beginning of Section 6.6, immediately
following the heading: "Synaptix and Mobile expressly acknowledge that
Mobile intends to assign this agreement to Titan Resources, Inc., a
New York corporation. Except as expressly set forth herein, no" and
then continuing with the remainder of Section 6.6 as written.
<PAGE>
24
3 . Except as specifically set forth above, the Titan Agreement
and the Synaptix Agreement remain as originally executed.
4. This Modification Agreement is entered into and agreed to by all
parties to both the Synaptix Agreement and the Titan Agreement, and is
entered into for the express purpose of clarifying the continuing
interest of Synaptix in the Intellectual Property and in the Acquired
Assets.
5. This Modification Agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all in
the aggregate shall constitute but one Modification Agreement.
IN WITNESS WHEREOF, the parties have caused this a e executed by
their duly authorized representatives as of the 28th day of August,
1998.
AFFILIATED RESOURCES CORPORATION
d/b/a SYNAPTIX SYSTEMS CORPORATION
By: Virginia M. Lazar
Its: Executive Vice President & Corporate Secretary
STATE OF TEXAS
COUNTY OF HARRIS
Before me, the undersigned Notary Public personally appeared Virginia M.
Lazar who deposed and said that she is the Executive Vice President &
Secretary of Affiliated Resources Corporation f/k/a Synaptix Systems
Corporation and as such is duly authorized to bind this Company by this
document. Subscribed this 28th day of August, 1998.
[SEAL] Notary Public
Diane Johnson
Notary Public State of Texas
Comm. Expires 11-14-2000
<PAGE>
25
MOBILELINK COMMUNICATIONS, INC.
By: Mikel Barnwell
Its: President
STATE OF TEXAS
COUNTY OF HARRIS
<PAGE>
26
Before me, the undersigned Notary Public personally appeared, Mikel
Barnwell, who deposed and said that he is the President of Mobilelink
Communications, Inc. and as such is duly authorized to bind said company by this
document. Subscribed this 28TH day of August, 1998.
[SEAL] Notary Public
Diane Johnson
Notary Public State of Texas
Comm. Expires 11-14-2000
TITAN RESOURCES, INC.
By: Mikel Barnwell
Its: Chief Financial Officer
STATE OF TEXAS
COUNTY OF HARRIS
Before me, the undersigned Notary Public personally appeared, Mikel
Barnwell, who deposed and said that he is the Chief Financial Officer of Titan
Resources, Inc., and as such is duly authorized to bind said company by this
document. Subscribed this 28TH day of August, 1998.
[SEAL] Notary Public
Diane Johnson
Notary Public State of Texas
Comm. Expires 11-14-2000
<PAGE>
27
TITAN WIRELESS, INC.
By: Alan W. Harvey
Its: President
STATE OF TEXAS
COUNTY OF HARRIS
Before me, the undersigned Notary Public personally appeared, Alan W.
Harvey, who deposed and said that he is the President of Titan Wireless, Inc.,
and as such is duly authorized to bind said company by this document. Subscribed
this 28TH day of August, 1998.
[SEAL] Notary Public
Diane Johnson
Notary Public State of Texas
Comm. Expires 11-14-2000
<PAGE>
28
PROMISSORY NOTE
$100,000 November, 1997
FOR VALUE RECEIVED, without grace, in the manner, on the dates, and in the
amounts stipulated, the undersigned,
SYNAPTIX SYSTEMS CORPORATION
d/b/a Affiliated Resources Corporation
PROMISES TO PAY TO THE ORDER OF
EMERALD INVESTMENTS
the sum of One Hundred Thousand ($100,000) Dollars in lawful money of the United
States of America, and to pay interest on the unpaid sum from the date of the
Note until maturity at the rate of 8.0% per annum, payable as stipulated.
This Note is payable as follows:
Principal and interest are due at the end of the Note, which is
for a period of sixty (60) months or six (6) years.
This Note was made for the cash consideration of One Hundred Thousand
($100,000) Dollars.
It is agreed that time is of the essence of this agreement, and that in
the event of default in the payment when due, the holder of this Note may
declare the entirety of the Note immediately due and payable without notice, and
failure to exercise this option shall not constitute a waiver on the part of the
holder of the right to exercise it at any other time. In the event, and by
mutual agreement between the parties, this note may be called within an earlier
date of five (5) years.
The undersigned hereby agrees to pay all expenses incurred, including an
additional 10% on the amount of principal and interest due as attorney's fees,
all of which shall become a part of the principal, if this Note is placed in the
hands of an attorney for collection, or if collected by suit or through the
probate, bankruptcy or any other legal proceedings.
Each maker, surety and endorser waives demand, grace, notice, presentment
for payment, and protest and agrees and consents that this Note and the liens
securing its payment, may be renewed, and the time of payment extended without
notice, and without releasing any of the parties.
By:
Chris Harless
<PAGE>
29
PROMISSORY NOTE
$40,000 April, 1998
FOR VALUE RECEIVED, without grace, in the manner, on the dates, and in the
amounts stipulated, the undersigned,
SYNAPTIX SYSTEMS CORPORATION
d/b/a Affiliated Resources Corporation
PROMISES TO PAY TO THE ORDER OF
MERITY INTERNATIONAL CORPORATION
the sum of Forty Thousand ($40,000) Dollars in lawful money of the United States
of America, and to pay interest on the unpaid sum from the date of the Note
until maturity at the rate of 8.0% per annum, payable as stipulated.
This Note is payable as follows:
Principal and interest are due at the end of the Note, which is
for a period of thirty-six (36) months or three (3) years.
This Note was made for the cash consideration of Forty Thousand ($40,000)
Dollars.
It is agreed that time is of the essence of this agreement, and that in
the event of default in the payment when due, the holder of this Note may
declare the entirety of the Note immediately due and payable without notice, and
failure to exercise this option shall not constitute a waiver on the part of the
holder of the right to exercise it at any other time. In the event, and by
mutual agreement between the parties, this note may be called within an earlier
date of three (3) years.
The undersigned hereby agrees to pay all expenses incurred, including an
additional 10% on the amount of principal and interest due as attorney's fees,
all of which shall become a part of the principal, if this Note is placed in the
hands of an attorney for collection, or if collected by suit or through the
probate, bankruptcy or any other legal proceedings.
Each maker, surety and endorser waives demand, grace, notice, presentment
for payment, and protest and agrees and consents that this Note and the liens
securing its payment, may be renewed, and the time of payment extended without
notice, and without releasing any of the parties.
By:
Maxwell Shepherd
<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
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,074,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,928,080)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,074,494)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,928,080)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
