SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- -------
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number: 33-15097-D
AFFILIATED RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1045715
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 Post Oak Boulevard
Suite 1080, Houston, Texas 77056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 355-8940
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $.003 Par Value 16,547,743
(Shares outstanding as of July 16, 1999)
Transitional Small Business Disclosure Format (Check One) Yes No X
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<PAGE>
AFFILIATED RESOURCES CORPORATION
QUARTERLY REPORT ON FORM 10-QSB FOR THE INTERIM
PERIOD ENDED March 31, 1999
TABLE OF CONTENTS
Page
Number
Part I. Financial Information
Item I. Financial Statements
Balance Sheets at March 31, 1999 and December 31, 1998............... 1
Statements of Operations for the Three Months Ended March 31,
1999 and 1998.........................................................3
Statements of Cash Flows for the Three Months Ended March 31,
1999 and 1998.........................................................4
Notes to Financial Statements........................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................6
Part I I Other Information
Item 1. Legal Proceedings.....................................................9
Item 7. Reports on Form 8-K..................................................10
Signatures..................................................10
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AFFILIATED RESOURCES CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------------- ---------------------
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 24,484 $ 144,123
Accounts receivable - trade 59,368
Inventory 833,608 966,584
Prepaid expenses 11,190 18,699
-------------------- ---------------------
Total Current Assets 928,650 1,129,406
-------------------- ---------------------
Property and Equipment
Land 41,000 41,000
Buildings 1,064,000 1,064,000
Warehouse equipment 2,425,531 2,450,000
Office equipment and furniture 82,265 76,552
Vehicles 39,784 39,784
Leasehold improvements 9,925 7,277
-------------------- ---------------------
3,662,505 3,678,613
Less: Accumulated depreciation 67,268 5,300
-------------------- ---------------------
3,595,237 3,673,313
Goodwill, net of accumulated amortization of $57,031 and $-0- at 3,364,892 3,421,923
March 31, 1999 and December 31, 1998, respectively
Deposits 3,201 3,201
-------------------- ---------------------
$ 7,891,980 $ 8,227,843
===================== =====================
LIABILITIES
Current Liabilities
Current maturities of long-term debt $ 253,469 $ 236,624
Accounts payable 1,415,432 1,430,057
Accrued expenses 408,510 352,330
Advance payable 23,000 23,000
-------------------- ---------------------
Total Current Liabilities 2,100,411 2,042,011
</TABLE>
See accompanying notes to consolidated financial
statements.
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Long-Term Debt 140,000 141,846
-------------------- ---------------------
2,240,411 2,183,857
-------------------- ---------------------
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,
16,531,743, and 16,451,743 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively 49,595 49,355
Additional Paid-In Capital 15,520,240 15,320,480
Accumulated Deficit (8,285,897) (7,630,070)
Unamortized Stock Compensation (1,632,369) (1,695,779)
-------------------- ---------------------
5,651,569 6,043,986
-------------------- ---------------------
$ 7,891,980 $ 8,227,843
==================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
2
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AFFILIATED RESOURCES CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
-------------------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 182,513
Cost of Revenues 273,891
Gross Margin (91,378)
Selling, general and administrative expenses 344,950 $ 91,290
Depreciation and amortization expenses 118,999
Operating expenses 97,432
-------------------- --------------------
561,381
Loss from Operations (652,759) (91,290)
Interest expense (3,068)
-------------------- --------------------
Net Loss $ (655,827) $ (91,290)
==================== ====================
Net Loss Per Share $ (.04) $ (.01)
==================== ====================
Weighted Average Shares Outstanding
16,491,743 15,629,596
==================== ====================
</TABLE>
See accompanying notes to consolidated financial
statements.
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<PAGE>
AFFILIATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
-------------------- ---------------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $ (655,827) $ (91,290)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 118,999 7,491
Non-cash compensation expense 63,410 78,125
Changes in assets and liabilities:
Accounts receivable (59,368)
Inventory 132,976
Prepaid expenses 7,509 6,233
Accounts payable and accrued liabilities 41,554 (1,069)
-------------------- ---------------------
Net Cash Used in Operating Activities (350,747) (510)
Cash Flows From Investing Activities:
Purchase of equipment (8,361)
Proceeds from sale of equipment 24,469
-------------------- ---------------------
Net Cash Provided by Investing Activities 16,108
Cash Flows From Financing Activities:
Proceeds from debt 15,000 1,654
Payments of debt (2,164)
Sale of common stock 200,000
-------------------- ---------------------
Net Cash Provided by (Used in) Financing Activities 215,000 (510)
-------------------- ---------------------
Net Decrease in Cash Equivalents (119,639) (1,020)
Cash and Cash Equivalents at Beginning of Period 144,123 2,583
-------------------- ---------------------
Cash and Cash Equivalents at End of Period $ 24,484 $ 1,563
==================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
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AFFILIATED RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
Note 1 - Basis of Presentation
The consolidated financial statements of Affiliated Resources Corporation
(formerly Synaptix Systems Corporation) (the "Company") included herein are
unaudited for all periods ended March 31, 1999 and 1998. They reflect all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to fairly depict the results for the periods
presented. Certain information and note disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission. It is suggested that these financial
statements be read in conjunction with the audited financial statements for the
years ended June 30, 1998 and the six months ended December 31, 1998, which are
included in the Company's annual report. The Company believes that the
disclosures made herein are adequate to make the information presented not
misleading.
Note 2 - Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are based on the average number
of common shares and dilutive common share equivalents outstanding for the three
months ended March 31, 1999 and 1998.
Note 3 - Acquisitions
Effective December 29, 1998, the Company acquired from Evans Systems, Inc., all
of the outstanding stock of ChemWay Systems, Inc., which is engaged in the
business of producing, packaging and marketing automotive after-market chemical
products. The purchase price of $6,000,000 consisted of 1,500,000 shares of
common stock valued at $4 per share. The acquisition has been accounted for as a
purchase, and the operations are included in the accompanying consolidated
financial statements from the date of acquisition.
The Purchase Agreement requires the Company to fulfill certain obligations,
including funding of $1,500,000 to satisfy creditors of ChemWay and providing
working capital for current operations and repayment of a $232,500 note payable
to Chase Bank. The Company has pledged all of the assets of ChemWay Systems,
Inc. to secure the obligations.
Effective July 8, 1998, the Company acquired all of the outstanding stock of
CobolTexas, Inc. in exchange for 641,026 shares of common stock, which is
contractually restricted. The acquisition is accounted for as a pooling of
interests and recorded at the net book value of CobolTexas, Inc. There were no
operations of CobolTexas, Inc. prior to the acquisition. CobolTexas, Inc. is
engaged in the remediation of computer systems involving the year 2000 problems.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended, and is subject to the
safe harbors created by those sections. These forward- looking statements are
subject to significant risks and uncertainties, including those identified in
the section of this Form 10-QSB and in the Company's Annual Report on Form
10-KSB, filed with the SEC on August 9, 1999, which may cause actual results to
differ materially from those discussed in such forward-looking statement. The
forward-looking statements within this Form 10-QSB are identified by words such
as "believes," "anticipates," "expects," "intends," "may" and other similar
expressions. However, these words are not the exclusive means of identifying
such statements. In addition, any statements which refer to expectations,
projections or other characterizations of future events or circumstances are
forward looking statements. The Company undertakes no obligation to publicly
release the results of any revisions, to these forward-looking statements which
may be made to reflect events or circumstances occurring subsequent to the
filing of this Form 10-QSB with the Securities and Exchange Commission. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission, including its Form 10-KSB, that attempt to
advise interested parties of the risks and factors that may affect the Company's
business.
Introduction
During the six months ended December 31, 1998, the Company acquired
CobolTexas Inc., in exchange solely for shares of the Company's voting stock,
all of the stock of CobolTexas Inc. CobolTexas owns a software product that uses
on-line technology to solve the Year 2000 technology (Y2K) problems for COBOL
and PL1 software users. CobolTexas is primarily exploring business as a
subcontractor or licensor to software remediation companies. The focus has been
on those companies who are currently negotiating with domestic and international
organizations and governments to enter into contracts for services to be
rendered in connection with solutions to year 2000 problems. Under this
scenario, the CobolTexas email response systems which uses on-line technology to
identify and create year 2000 solutions over the Internet for both Cobol and PL1
software becomes an analysis tool of the remediation company. Although to date
no sales have materialized, management feels that this approach provides the
best alternative for use of the product, while at the same time reducing
potential liability.
On December 30, 1998 the Company acquired all the outstanding stock of
ChemWay Systems, Inc., a corporation that blends and packages chemicals for the
automotive aftermarket. The Company commenced operations of ChemWay on January
7, 1999, and during the first quarter of 1999, ChemWay's facilities became fully
operational with respect to providing customers with a full line of its
products. Additionally, ChemWay is aggressively pursuing new product lines and
marketing alliances to expand to a national market. While this process has been
severely hampered by a lack
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<PAGE>
of adequate working capital, ChemWay has begun to generate sales and is shipping
product. The Company raised approximately $1,005,000 in a private placement
during the fiscal year ended December 31, 1998, $754,385 of which was used to
pay ChemWay debt and other costs assumed pursuant to the Purchase Agreement. The
Purchase Agreement for the acquisition, as amended through the date of this
filing, requires the Company to fulfill certain covenants including, but not
limited to, (i) receiving at least $1,500,000 in additional proceeds from the
sale of Common Stock in a private placement, and (ii) paying the mortgage
indebtedness on the ChemWay's commercial industrial facility described below
(which amounted to $232,500 plus principal and interest at December 31,1998). As
of this filing, the Company had not fulfilled the obligations but believes that
it will be able to fulfill its obligations on a timely basis. Various of the
Company's obligations under the Purchase Agreement are secured by a pledge of
substantially all of the fixed assets of ChemWay.
Management is continuing in its endeavor to identify acquisition candidates
that it believes will be suited to management's business plan to generate
sufficient revenues and provide an asset base for continued growth. When
evaluating acquisitions, the ability to use leverage in order to reduce the
issuance of stock, will be a significant factor, especially in the near term.
Management's business strategy is to focus on the acquisition of those companies
whose product or service is technically innovative or market proven, 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.
Based on management's evaluation of business opportunities and discussions
with investors, it has been decided to focus the Company's expansion activities
on those companies, products or services which are related to or can make use of
ChemWay products or services. This endeavor may involve expanded retail and
promotional opportunities. Management is confident that, based on current
discussions with investors, the new focus of the Company will provide the basis
for sufficient capital for operations and planned acquisitions.
Results of Operations
Analysis of Three Months ended March 31, 1999 Compared to Three Months
ended March 31, 1998
The following discussion is included to describe the Company's financial
position and results of operations for the three months ended March 31, 1999 and
1998, respectively. The financial statements and notes thereto contain detailed
information that should be referred to in conjunction with this discussion.
Revenues/Cost of Revenues
The Company recorded revenues of $182,513 for the three months ended March
31, 1999, compared with $0 for 1998. Revenues were generated from the sale of
ChemWay products. Cost of Revenues was disproportionately high due to
manufacturing inefficiencies resulting from the start up of operations and lower
than optimal production rates.
7
<PAGE>
General and Administrative Expenses
General and administrative expenses were $344,950 and $91,290 for the three
months ended March 31, 1999 and 1998, respectively, an increase of $253,660.
These increases were mainly attributable to salaries and compensation paid by
stock, as well as professional fees related primarily to the acquisition of
ChemWay and the start up of its operations.
Income Taxes
The Company had no income tax expense. As of March 31, 1999, the Company
had net operating loss carryfowards of approximately $6,400,000. The utilization
of net operating carryforwards will be severely 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 $655,827 ($.04 per share) for the three
months ended March 31, 1999, compared with a net loss of $91,920 ($.01 per
share) for the same period in 1998. The net loss for the three months ended
March 31, 1999 was attributable to an increase in administrative and operating
expenses. This increase in expenditures was planned under the Company's
operating plan following the acquisition of the ChemWay subsidiary in 1998. The
plan anticipated that ChemWay would require a start up period leading to full
operational capability before revenues would be realized. Also, the plan
anticipates that unit cost of production will decrease as a result of
efficiencies gained through increased production and volume purchase of raw
materials.
Liquidity and Capital Resources
At March 31, 1999, the Company maintained a negative liquidity position
which is evidenced by a current ratio of .44 to 1. Management will continue to
restructure the Company and seek to increase the Company's current ratio and
liquidity, and generate capital to provide for future operations and expansion.
At March 31, 1999, the Company had a working capital deficiency of
$1,171,761, compared to a working capital deficiency of $804,360 at March 31,
1998. The cash balance at March 31, 1999 was approximately $24,484 and at March
31, 1998 was approximately $1,563.
Cash used by operations totaled $350,747 (largely attributable to operating
losses at the start up of ChemWay operations) for the three months ended March
31, 1999, compared to $510 for the same period in 1998. Cash used in investing
activities for the three months ended March 31, 1999 was approximately $16,108.
Cash provided by financing activities during the three months ended March 31,
1999 totaled $215,000, which included the proceeds from the sale of stock.
8
<PAGE>
Financial Condition
Based on management's evaluation of business opportunities and discussions
with investors, it has been decided to focus the Company's expansion activities
on those companies, products or services which are related to or can make use of
ChemWay products or services. This endeavor may involve expanded retail and
promotional opportunities. Management is confident that, based on current
discussions with investors and lenders, the new focus of the Company will
provide the basis for sufficient capital for operations and planned
acquisitions. 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.
Depreciation and amortization Expenses
Depreciation and amortization was $118,999 compared to $0 for the same
period in 1998. This was attributable mainly to the acquisition of ChemWay and
the start up of its operations.
Operating Expenses
Operating expenses were $97,432 comparted to $0 for the same period in
1998. This was attributable mainly to ChemWay operations.
Loss from Operations
The Company had an operating loss of $652,759 for the three months ended
March 31, 1999 and $91,290 for the same period in 1998. The loss for the period
ended March 31, 1999 was the result of general and administrative costs as
described above and a significantly higher cost of revenues due to manufacturing
inefficiencies during the start up of operations and the inability to take
advantage of volume discounts on the purchase of raw materials.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. To management's knowledge, the
Company is not currently involved in any legal proceedings and is not aware of
any legal proceeding threatened against it, except for a claim that was made by
an individual that was formerly employed by an unrelated company. The Company
does not believe that this claim has merit.
At the time of the acquisition of ChemWay, a number of vendor claims
had been incurred in the normal course of business. Since the acquisition of
ChemWay, several of the items have been paid and the Company believes that the
final disposition of the items will not have a materially adverse effect upon
the financial statements of the Company.
9
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Item 7. Exhibits and Reports on Form 8-K
A. Exhibits
None.
B. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AFFILIATED RESOURCES CORPORATION
Dated: September 29, 1999 By: Peter C. Vanucci
---------------------------------------
Peter C. Vanucci, Chairman and CEO
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Affiliated Resources Corporation March 31, 1999 financial statements
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000817125
<NAME> Affiliated Resources Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 24,484
<SECURITIES> 0
<RECEIVABLES> 59,368
<ALLOWANCES> 0
<INVENTORY> 833,608
<CURRENT-ASSETS> 928,650
<PP&E> 3,662,505
<DEPRECIATION> (67,268)
<TOTAL-ASSETS> 7,891,980
<CURRENT-LIABILITIES> 2,100,411
<BONDS> 0
0
0
<COMMON> 49,595
<OTHER-SE> 5,601,974
<TOTAL-LIABILITY-AND-EQUITY> 7,891,980
<SALES> 182,513
<TOTAL-REVENUES> 182,513
<CGS> 273,891
<TOTAL-COSTS> 273,891
<OTHER-EXPENSES> 561,381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,068
<INCOME-PRETAX> (655,827)
<INCOME-TAX> 0
<INCOME-CONTINUING> (655,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (655,827)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
