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, 2000
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 X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $.003 Par Value 18,955,243
(Shares outstanding as of
March 31, 2000)
Transitional Small Business Disclosure Format (Check One) Yes No X
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AFFILIATED RESOURCES CORPORATION
QUARTERLY REPORT ON FORM 10-QSB FOR THE INTERIM
PERIOD ENDED March 31, 2000
TABLE OF CONTENTS
Page
Number
Part I. Financial Information
Item I. Financial Statements
Balance Sheets at March 31, 2000 and December 31, 1999...............1
Statements of Operations for the Three months Ended March 31,
2000 and 1999........................................................3
Statements of Cash Flows for the Three months Ended March 31,
2000 and 1999........................................................4
Notes to Financial Statements.......................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................6
Part II. Other Information
Item 1. Legal Proceedings....................................................8
Item 6. Reports on Form 8-K..................................................9
Signatures...........................................................9
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------------- ---------------------
(Unaudited) (Audited)
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 10,496 $ 8,490
Accounts receivable 9,825 6,900
Inventory 581,335 606,100
Prepaid expenses 6,046 7,823
-------------------- ---------------------
Total Current Assets 607,702 629,313
-------------------- ---------------------
Property and Equipment
Land 41,000 41,000
Buildings 744,000 744,000
Warehouse equipment 2,423,348 2,423,348
Office equipment and furniture 76,344 76,344
Vehicles 39,784 39,784
Leasehold improvements 334,125 334,125
Oil and gas properties 51,000 51,000
--------------------- ---------------------
3,709,601 3,709,601
Less: Accumulated depreciation 319,232 257,232
-------------------- ----------------------
3,390,369 3,452,369
Goodwill, net of accumulated amortization of $286,349 and $228,128
at March 31, 2000 and December 31, 1999, respectively 3,206,325 3,264,546
Deposits 3,201 3,201
-------------------- ---------------------
$ 7,207,597 $ 7,349,429
==================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
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<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------------- ---------------------
(Unaudited) (Audited)
LIABILITIES
Current Liabilities
<S> <C> <C>
Notes Payable $ 200,000 $ 395,000
Current maturities of long-term debt 10,794 9,300
Accounts payable:
Trade 1,175,162 1,220,953
Related Parties 111,510 106,888
Accrued expenses 667,612 626,236
Advances payable 40,000 40,000
-------------------- ---------------------
Total Current Liabilities 2,205,078 2,398,377
Long-Term Debt 835,978 343,561
-------------------- ---------------------
3,041,056 2,741,938
--------------------- ---------------------
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value, 10,000,000 shares
authorized, no shares outstanding
Common Stock, $.003 par value,
25,000,000 shares authorized, 18,955,243 and
17,947,743 shares issued and outstanding at March
31, 2000 and December 31, 1999, respectively 56,866 53,843
Additional Paid-In Capital 17,159,457 16,957,480
Accumulated Deficit (10,790,164) (10,031,466)
Unamortized Stock Compensation (2,253,618) (2,366,366)
Treasury Stock, 641,026 shares at cost (6,000) (6,000)
--------------------- ----------------------
4,166,541 4,607,491
-------------------- ---------------------
$ 7,207,597 $ 7,349,429
===================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
--------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 74,630 $ 182,513
Cost of Revenues 28,592 273,891
-------------------- -------------------
Gross Margin 46,038 (91,378)
Selling, general and administrative expenses 556,852 344,950
Depreciation and amortization expenses 120,221 118,999
Operating expenses 109,111 97,432
-------------------- -------------------
786,184 561,381
-------------------- -------------------
Loss from Operations (740,146) (652,759)
Other Income (Expense)
Interest expense (18,552) (3,068)
--------------------- --------------------
Net Loss $ (758,698) $ (655,827)
==================== ====================
Net Loss Per Share $ (.04) $ (.04)
===================== ====================
Weighted Average Shares Outstanding 18,110,939 16,491,743
==================== ====================
</TABLE>
See accompanying notes to consolidated financial
statements.
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
Three months Three months
Ended Ended
March 31, March 31,
2000 1999
--------------------- ---------------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $ (758,698) $ (655,827)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense 120,221 118,999
Non-cash compensation expense 112,748 63,410
Changes in assets and liabilities:
Accounts receivable (2,925) (59,368)
Inventory 24,765 132,976
Prepaid expenses 1,777 7,509
Accounts payable and accrued liabilities 207 41,554
-------------------- ---------------------
Net Cash Used in Operating Activities (501,905) (305,747)
Cash Flows From Investing Activities:
Purchase of equipment 0 (8,361)
Proceeds from sale of equipment 0 24,469
-------------------- ---------------------
Net Cash Provided (Required) by Investing Activities 0 16,108
Cash Flows From Financing Activities:
Proceeds from debt 510,000 15,000
Payments of debt (211,089)
Sale of common stock 205,000 200,000
-------------------- ---------------------
Net Cash Provided by Financing Activities 503,911 215,000
-------------------- ---------------------
Net Increase (Decrease) in Cash Equivalents 2,006 (119,639)
Cash and Cash Equivalents at Beginning of Period 8,490 144,123
-------------------- ---------------------
Cash and Cash Equivalents at End of Period $ 10,496 $ 24,484
==================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
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AFFILIATED RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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, 2000 and 1999. 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
year ended December 31, 1999, which is 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, 2000 and 1999.
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 May 18, 2000, 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
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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
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
operationally capable of 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 of adequate working capital. ChemWay has begun to generate
sales and is shipping product. The Company raised approximately $1,005,000 in
private placements during the fiscal year ended December 31, 1999, $754,385 of
which was used to pay ChemWay debt and other costs assumed pursuant to the
Purchase Agreement. In March 2000, ChemWay secured a mortgage in the amount of
$510,000 on its Cottonwood property in order to retire the first mortgage on the
property and thereby fulfill a covenant of the Purchase Agreement.
In June 1999, the Board determined to refocus the Company's efforts to
grow the ChemWay operation as well as seek additional opportunities to provide
immediate revenue and asset enhancement. By December 1999, the Company had
finalized negotiations with Michael R. Bradle to acquire an interest in Seneca
Energy Partners, L.P., and for Mr. Bradle to serve as the President, Chief
Operating Officer and a director of the Company. In order to create a
comprehensive business plan and facilitate planned expansion, in February 2000,
the Company hired Mr. Barry Goverman as Senior Vice President and Chief
Communications Officer and Ms. Catherine A. Tamme as Vice President and Chief
Financial Officer. With the additional management in place, the Company believes
it will be able to more aggressively pursue 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 and compatible
with current operations, and whose market penetration can be significantly
expanded through enhanced marketing or additional capitalization.
Results of Operations
Analysis of Three Months ended March 31, 2000 Compared to the Three
Months ended March 31, 1999
The following discussion is included to describe the Company's
financial position and results of operations for the three months ended March
31, 2000 and 1999, respectively. The financial statements and notes thereto
contain detailed information that should be referred to in conjunction with this
discussion.
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Revenues
The Company recorded revenues of $74,630 for the three months ended
March 31, 2000, compared with $182,513 for the same period in1999. The decrease
in revenues is due in large part to a limited availability of working capital.
General and Administrative Expenses
General and administrative expenses were $556,852 and $344,950 for the
three months ended March 31, 2000 and 1999, respectively. Depreciation and
amortization was $120,221 and Operating expenses were $109,111 compared to
$118,999 and $97,432 for the same period in 1999. These increases were mainly
attributable to salaries, compensation paid by stock, professional fees, and
travel expenses related primarily to the repositioning of ChemWay.
Loss from Operations
The Company had an operating loss of $758,698 for the three months
ended March 31, 2000 and $655,827 for the same period in 1999. The loss for the
period ended March 31, 2000 was the result of general and administrative costs
as described above.
Income Taxes
The Company had no income tax expense. As of March 31, 2000, the
Company had net operating loss carryfowards of approximately $9,000,000. 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 $758,698 ($.04 per share) for the three
months ended March 31, 2000, compared with a net loss of $655,827 ($.04 per
share) for the same period in 1999. The net loss for the three months ended
March 31, 2000 was attributable to an increase in administrative and operating
expenses, along with limited revenues. This increase in expenditures was planned
under the Company's operating plan following the acquisition of the ChemWay
subsidiary in 1999. The plan anticipated that ChemWay would require a start up
and restructuring period leading to full operational capability before revenues
would be realized.
Liquidity and Capital Resources
At March 31, 2000, the Company maintained a negative liquidity position
which is evidenced by a current ratio of .28 to 1. Management will continue to
restructure the Company and seek to increase the Company's current ratio and
liquidity, and generate capital which would provide cash flow for future
operations and expansion.
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At March 31, 2000, the Company had a working capital deficiency of
$1,597,376, compared to a working capital deficiency of $1,171,761 at March 31,
1999. The cash balance at March 31, 2000 was approximately $10,496 and at March
31, 1999 was $24,484.
Cash used by operations totaled $501,905 (largely attributable to
increased activity involved in the repositioning of ChemWay) for the three
months ended March 31, 2000, compared to $305,747 for the same period in 1999.
No cash was generated by investing activities for the three months ended March
31, 2000. Cash provided by financing activities during the three months ended
March 31, 2000 totaled $503,911, which included the proceeds from the sale of
stock.
Financial Condition
Management plans to expand the Company by introducing new products and
by developing strategic marketing alliances to promote its existing products in
the national market. In addition, expansion will also be achieved through
selected, related industry, acquisitions using leverage, stock of the Company,
or a combination of both. Management is confident that current discussion with
investors will yield additional capital to pursue acquisitions and 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.
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.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None.
B. Reports on Form 8-K
None.
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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: May 31, 2000 By: /s/ Peter C. Vanucci
-------------------------
Peter C. Vanucci, Chairman and CEO
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