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 JUNE 30, 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: 000-31175
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 22,795,243
(SHARES OUTSTANDING AS OF
JUNE 30, 2000)
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES NO X
-----
1
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AFFILIATED RESOURCES CORPORATION
QUARTERLY REPORT ON FORM 10-QSB FOR THE INTERIM
PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Balance Sheets at June 30, 2000 and December 31, 1999 1
Statements of Operations for the Six months Ended June 30, 2000 and 1999 3
Statement of Operations for the Three Months Ended June 30, 2000
and 1999 4
Statements of Cash Flows for the Six months Ended June 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Reports on Form 8-K 10
Signatures 10
2
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, December 31,
2000 1999
----------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 7,883 $ 8,490
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 10,922 6,900
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532,060 606,100
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 2,543 7,823
----------- -------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . 553,408 629,313
----------- -------------
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. . . . . . . . . . . . . . . . . . . 77,155 76,344
Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,784 39,784
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . 334,818 334,125
Oil and gas properties . . . . . . . . . . . . . . . . . . . . . 51,000 51,000
----------- -------------
3,711,105 3,709,601
Less: Accumulated depreciation. . . . . . . . . . . . . . . . . . . 381,775 257,232
----------- -------------
3,329,330 3,452,369
----------- -------------
GOODWILL, net of accumulated amortization of $344,572 and $228,128
at June 30, 2000 and December 31, 1999, respectively. . . . . . . . 3,148,102 3,264,546
DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,201 3,201
----------- -------------
$ 7,034,041 $ 7,349,429
=========== =============
</TABLE>
3
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<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, December 31,
2000 1999
------------- --------------
(Unaudited) (Audited)
LIABILITIES
CURRENT LIABILITIES
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200,000 $ 395,000
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . 9,632 9,300
Accounts payable:
Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281,650 1,220,953
Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,101 106,888
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832,185 626,236
Advances payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 40,000
------------- -------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,426,568 2,398,377
LONG-TERM DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639,848 343,561
------------- -------------
3,066,416 2,741,938
------------- --------------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $1 par value, 10,000,000 shares authorized, no shares outstanding
COMMON STOCK, $.003 par value, 50,000,000 shares authorized,
22,795,243 and 17,947,743 shares issued and outstanding at June 30,
2000 and December 31, 1999, respectively. . . . . . . . . . . . . . . . . . . . . . . 68,386 53,843
ADDITIONAL PAID-IN CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,035,937 16,957,480
ACCUMULATED DEFICIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,003,900) (10,031,466)
UNAMORTIZED STOCK COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,126,798) (2,366,366)
TREASURY STOCK, 641,026 shares at cost. . . . . . . . . . . . . . . . . . . . . . . . (6,000) (6,000)
------------- -------------
3,967,625 4,607,491
------------- --------------
$ 7,034,041 $ 7,349,429
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements
4
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE For the
SIX MONTHS Six Months
ENDED Ended
JUNE 30, June 30,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
REVENUES. . . . . . . . . . . . . . . . . . . $ 174,469 587,903
Cost of Revenues. . . . . . . . . . . . . . . 63,766 720,431
------------ ------------
GROSS MARGIN. . . . . . . . . . . . . . . . . 110,703 (132,528 )
Selling, general and administrative expenses. 1,606,371 $ 1,040,710
Depreciation and amortization expenses. . . . 240,986 356,998
Operating expenses. . . . . . . . . . . . . . 198,023 336,869
------------ ------------
2,045,380 1,734,577
------------ ------------
Loss from Operations. . . . . . . . . . . . . (1,972,434) (1,867,105)
OTHER INCOME (EXPENSE)
Interest expense. . . . . . . . . . . . . . . (37,557) (21,418)
------------ ------------
NET LOSS. . . . . . . . . . . . . . . . . . . $(1,972,434) $(1,888,523)
============ ============
Net Loss Per Share. . . . . . . . . . . . . . $ (.10) $ (.11)
============ ============
Weighted Average Shares Outstanding . . . . . 19,363,183 16,508,936
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE For the
THREE MONTHS Three Months
ENDED Ended
JUNE 30, June 30,
2000 1999
-------------- --------------
(Unaudited) (Unaudited)
REVENUES. . . . . . . . . . . . . . . . . . . $ 99,839 405,390
Cost of Revenues. . . . . . . . . . . . . . . 35,174 446,540
-------------- --------------
GROSS MARGIN. . . . . . . . . . . . . . . . . 64,665 (41,150)
Selling, general and administrative expenses. 1,049,519 $ 695,760
Depreciation and amortization expenses. . . . 120,765 237,999
Operating expenses. . . . . . . . . . . . . . 88,912 239,437
-------------- --------------
1,259,196 1,173,196
-------------- --------------
Loss from Operations. . . . . . . . . . . . . (1,194,531) (1,214,346)
OTHER INCOME (EXPENSE)
Interest expense. . . . . . . . . . . . . . . (19,205) (18,350)
-------------- --------------
NET LOSS. . . . . . . . . . . . . . . . . . . $ (1,213,736) $ (1,232,696)
============== ==============
Net Loss Per Share. . . . . . . . . . . . . . $ (.06) $ (.04)
============== ==============
Weighted Average Shares Outstanding . . . . . 20,292,880 16,491,743
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
6
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AFFILIATED RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE For the
SIX MONTHS Six months
ENDED Ended
JUNE 30, June 30,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,972,434) $(1,232,696)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense. . . . . . . . . . . 240,987 237,999
Non-cash compensation expense . . . . . . . . . . . . . . 239,568 190,230
Non-cash consulting expense . . . . . . . . . . . . . . . 606,500
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . (4,022) (51,985)
Inventory. . . . . . . . . . . . . . . . . . . . . . . 74,040 183,548
Prepaid expenses. . . . . . . . . . . . . . . . . . . . 5,280 9,181
Accounts payable and accrued liabilities. . . . . . . . 252,659 126,608
------------ ------------
Net Cash Used in Operating Activities. . . . . . . . (557,422) (537,115)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment . . . . . . . . . . . . . . . . . . . . (1,504) (20,302)
Proceeds from sale of equipment.. . . . . . . . . . . . . . . 0 24,469
------------ ------------
Net Cash Provided (Required) by Investing Activities . . (1,504) 4,167
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . 510,000 210,000
Payments of debt . . . . . . . . . . . . . . . . . . . . . . (213,381) (15,672)
Sale of common stock . . . . . . . . . . . . . . . . . . . . 261,700 208,000
------------ ------------
Net Cash Provided by Financing Activities. . . . . . . . 558,319 402,620
------------ ------------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS. . . . . . . . . . . (607) (130,620)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . 8,490 144,123
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . $ 7,883 $ 13,503
============ ============
Non-Cash investing and financing activities:
Common stock issued for payment of note and
interest payable. . . . . . . . . . . . . . . . . . . . . 199,800
Common stock isued for advances payable. . . . . . . . . . . . 25,000
</TABLE>
See accompanying notes to consolidated financial statements
7
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AFFILIATED RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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 six months ended June 30, 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 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.
8
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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.
In May 2000 the Company signed an agreement with International Investment
Banking, Inc. to facilitate investment banking and capitalization needs. The
prior month (April 2000) the Company signed an agreement with Stockbroker
Presentations, Inc. to handle investor relations and the dissemination of
information concerning the Company's stock.
9
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RESULTS OF OPERATIONS
ANALYSIS OF SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1999
The following discussion is included to describe the Company's financial
position and results of operations for the six months ended June 30, 2000 and
1999, respectively. The financial statements and notes thereto contain detailed
information that should be referred to in conjunction with this discussion.
REVENUES
The Company recorded revenues of $110,703 for the six months ended June 30,
2000, compared with $405,390 for the same period in 1999. 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 $1,606,371 and $1,040,710 for the
six months ended June 30, 2000 and 1999, respectively.
Depreciation and amortization was $240,986 and Operating expenses were
$198,023 compared to $356,998 and $336,869 for the same period in 1999. These
decreases were mainly attributable to decreased salaries, professional fees and
travel and entertainment expenses.
LOSS FROM OPERATIONS
The Company had an operating loss of $1,972,434 for the six months ended
June 30, 2000 and $1,867,105 for the same period in 1999. The loss for the
period ended June 30, 2000 was more than the previous year as a result of the
increase in general and administrative costs as described above.
INCOME TAXES
The Company had no income tax expense. As of June 30, 2000, the Company had net
operating loss carryfowards of approximately $9,600,000. 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 $1,972,434 ($.10 per share) for the six months
ended June 30, 2000, compared with a net loss of $1,888,523 ($.04 per share) for
the same period in 1999. The net loss for the six months ended June 30, 2000
was more than the previous year as a result of increased administrative and
operating expenses.
10
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company maintained a negative liquidity position
which is evidenced by a current ratio of .23 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.
At June 30, 2000, the Company had a working capital deficiency of
$1,873,160, compared to a working capital deficiency of $1,506,751 at June 30,
1999. The cash balance at June 30, 2000 was $7,883 and at June 30, 1999 was
$13,503.
Cash used by operations totaled $557,422 for the six months ended June 30,
2000, compared to $537,115 for the same period in 1999. Cash generated by
investing activities totaled $1,504 for the six months ended June 30, 2000,
compared to $4,167 for the same period in 1999. Cash provided by financing
activities during the six months ended June 30, 2000 totaled $558,319, 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 believes 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. There is 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.
There is a lawsuit filed June 23, 2000, in the Judicial District Court of
Harris County, Texas, by an employee claiming breach of contract. Management
feels there is no merit to this claim.
There is a lawsuit filed July 26, 2000, in the District Court of Matagorda
County, Texas, received subsequent to June 30, 2000, management has only
preliminarily reviewed the claim and at this time has not had the time to
determine the merit or materiality of the claim.
11
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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
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Consulting Agreement by and between Stockbroker Presentations,
Inc. and Affiliated Resources Corporation, dated April 26,
2000.
10.1.1 Addenda "A" to the Consulting Agreement by and between
Stockbroker Presentations, Inc. and Affiliated Resources
Corporation dated April 26, 2000.
10.2 Investment Banking Engagement Agreement by and between
International Investment Banking, Inc. and Affiliated
Resources, Dated May 3, 2000.
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: August 21, 2000 By: /s/ Peter C. Vanucci
----------------------------
Peter C. Vanucci, Chairman and CEO
12
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