-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JIU7jqBTs+Rmr3N8YNGe4ZpxZFhsPzbjKBpMc7AlxdIWj06oijZAAdxaI7J4Lc/M nLdOCLISTIG8C9yiX0SiMg== 0000950120-98-000137.txt : 19980414 0000950120-98-000137.hdr.sgml : 19980414 ACCESSION NUMBER: 0000950120-98-000137 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980413 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNAPTX WORLDWIDE INC CENTRAL INDEX KEY: 0001043933 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 870375342 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22969 FILM NUMBER: 98592532 BUSINESS ADDRESS: STREET 1: 168 E HIGHLAND AVENUE STREET 2: SUITE 300 CITY: ELGIN STATE: IL ZIP: 60120 BUSINESS PHONE: 8476220200 MAIL ADDRESS: STREET 1: 168 EAST HIGHLAND AVENUE STREET 2: SUITE 300 CITY: ELGIN STATE: IL ZIP: 60120 10QSB 1 FORM 10-QSB OF SYNAPTX WORLDWIDE, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10 - QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended February 28, 1998 OR [ ] 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 0-22969 SYNAPTX WORLDWIDE, INC. (Exact Name of Small Business Issuer as specified in its charter) Utah 87-0375342 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 168 E. Highland Avenue, Suite 300, Elgin, IL 60120 (Address of Principal Executive Offices) Registrant's telephone no., including area code: (847) 622-0200 (Issuers telephone number) 385 Airport Road, Suite A, Elgin, IL 60123 (Former name, former address, and former fiscal year if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 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 equity, as of the latest practicable date. Outstanding as of Class March 31, 1998 Common Stock, $ .001 par value 5,537,375 1 TABLE OF CONTENTS Heading Page ------- ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 3 Consolidated Balance Sheets - February 28, 1998 and August 31, 1997 4 Consolidated Statements of Operations - three months ended February 28, 1998 and 1997 5 Consolidated Statements of Operations - six months ended February 28, 1998 and 1997 6 Consolidated Statements of Cash Flows - six months ended February 28, 1998 and 1997 7 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis and Results of Operations 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 15 2 PART I ITEM 1. FINANCIAL STATEMENTS The following unaudited Condensed Consolidated Financial Statements for the three and six month periods ended February 28, 1998 and 1997 have been prepared by the Company. 3 SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF FEBRUARY 28, 1998 AND AUGUST 31, 1997 FEBRUARY 28, 1998 AUGUST 31, 1997 (UNAUDITED) (AUDITED) ----------------- -------------- ASSETS CURRENT ASSETS: Cash $ 122,064 $ 58,265 Accounts receivable 920,448 1,001,638 Prepaid expenses and deposits 93,096 44,662 ---------- ---------- Total current assets 1,135,608 1,104,565 PROPERTY AND EQUIPMENT 333,563 254,990 Less accumulated depreciation (116,508) (69,041) ---------- ---------- Net property and equipment 217,055 185,949 COSTS IN EXCESS OF NET ASSETS ACQUIRED (net of accumulated amortization of $268,876 and $129,372) 2,463,859 1,631,673 OTHER ASSETS 274,198 60,998 ---------- ---------- TOTAL ASSETS $4,090,720 $2,983,185 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 923,336 $ 679,477 Accrued expenses and taxes 346,649 199,644 Notes payable 294,173 295,482 Current portion of long-term debt 131,283 8,120 Deferred revenue 144,000 414,700 ---------- ---------- Total current liabilities 1,839,441 1,597,423 LONG-TERM DEBT, NET OF CURRENT PORTION 266,900 21,200 COMMITMENTS -- -- STOCKHOLDERS' EQUITY Cumulative, convertible preferred stock; $.001 par value; 10,000,000 shares authorized, 137,143 issued and outstanding 137 -- Common stock; $.001 par value; 25,000,000 shares authorized, 5,537,375 and 5,193,660 issued and outstanding 5,538 5,194 Additional paid in capital 3,070,140 2,052,977 Deficit (1,091,436) (693,609) ---------- ---------- Total stockholders' equity 1,984,379 1,364,562 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,090,720 $2,983,185 ========== ========== 4 SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997 1998 1997 (UNAUDITED) (UNAUDITED) --------- --------- NET SALES AND REVENUES: Marketing services and production $1,008,547 $ 958,482 Commission income 447,033 -- Executive placement fees 22,000 -- ---------- ---------- Total revenues 1,477,580 958,482 COST OF SALES AND REVENUES 1,245,653 696,637 ---------- ---------- GROSS PROFIT 231,927 261,845 Selling, general and administrative expenses 530,376 357,062 Depreciation and amortization 81,099 49,415 ---------- ---------- LOSS FROM OPERATIONS (379,548) (144,632) Interest expense 12,741 8,449 ---------- ---------- NET LOSS (392,289) (153,081) Cumulative convertible preferred stock dividend requirements 6,800 -- ---------- ---------- Net loss applicable to common shareholders $ (399,089) $ (153,081) ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING 5,377,518 4,107,753 BASIC AND DILUTED NET LOSS PER SHARE $ (0.07) $ (0.04) ========== ========== 5 SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997 1998 1997 (UNAUDITED) (UNAUDITED) --------- --------- NET SALES AND REVENUES: Marketing services and production $2,230,980 $1,551,408 Commission income 712,123 -- Executive placement fees 37,330 -- ---------- ---------- Total revenues 2,980,433 1,551,408 COST OF SALES AND REVENUES 2,273,858 1,135,927 ---------- ---------- GROSS PROFIT 706,575 415,481 Selling, general and administrative expenses 937,916 606,023 Depreciation and amortization 143,690 81,545 ---------- ---------- LOSS FROM OPERATIONS (375,031) (272,087) Interest expense 22,796 31,542 ---------- ---------- NET LOSS (397,827) (303,629) CUMULATIVE CONVERTIBLE PREFERRED STOCK DIVIDEND REQUIREMENTS 6,800 -- ---------- ---------- NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (404,627) $ (303,629) ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING 5,300,864 3,572,304 ========== ========== BASIC AND DILUTED NET LOSS PER SHARE $ (0.08) $ (0.09) ========== ========== 6 SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997 1998 1997 (UNAUDITED) (UNAUDITED) --------- --------- Net cash provided by (used in) operating activities 8,987 (321,787) CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (52,297) (63,782) Cash acquired from acquisitions 33,452 -- Additions to other assets (211,520) (13,257) ---------- ---------- Net cash used in investing activities (230,364) (77,039) CASH FROM FINANCING ACTIVITIES (Reductions in) bank lines of credit (1,309) (127,000) Additions to long term debt 140,300 -- Reductions in short term debt (1,837) (80,406) Decrease in restricted cash -- 10,000 Decrease in liability to private placement subscribers -- (10,000) Decrease in deferred placement costs -- 5,000 Decrease in due from Impulse -- 50,000 Increase in due to officer -- 9,700 Issuance of common stock-net 148,023 666,213 ---------- ---------- Cash provided by financing activities 285,176 523,507 ---------- ---------- NET INCREASE IN CASH 63,799 124,681 Cash at beginning of period $ 58,265 $ -- ---------- ---------- CASH AT END OF PERIOD $ 122,064 $ 124,681 ========== ========== 7 SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED NOTE 1. BASIS OF PRESENTATION The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of results for the interim periods. The accompanying financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Basic and diluted earnings per share are the same due to the anti-dilutive nature of the options. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make information presented not misleading. These financial statements should be read in conjunction with the financial statements included in the Company's Form 10-SB/A for the fiscal year ended August 31, 1997, as filed with the Securities and Exchange Commission and available under the EDGAR reporting system or from the Company. The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has experienced recurring losses from operations as a result of its investment in personnel necessary to achieve its operating plan which is long-range in nature. In addition to the net loss of $397,827 for the six-month period ended February 28, 1998, as included herein, for the years ended August 31, 1997 and 1996 the Company realized net losses of $602,555 and $72,541, respectively. For the ten months ended August 31, 1995 (initial period of operation), the Company experienced a net loss of $18,513. At February 28, 1998, the Company has a working capital deficit of $703,833, supported by positive stockholders' equity of $1,984,379. The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates. Although the Company is pursuing an additional private equity placement plus the refinancing and expansion of outstanding debt, there can be no assurance that the Company will be able to secure financing when needed or obtain such terms satisfactory to the Company, if at all, or raise any additional equity investment. Failure to secure such financing or raise additional equity investment may result 8 in the Company rapidly depleting its available funds and not being able to comply with its payment obligations under its bank loans. In addition, if the Company is unable to meet its obligations under its credit agreements, such creditors shall have the right to foreclose on the assets of the Company, which will be prior to the interests of the holders of Preferred Stock and Common Stock. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern. NOTE 2. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The subsidiaries consist of Synaptx Access, Inc. ("Access"), acquired in June, 1996, Synaptx Impulse, Inc. ("Impulse"), acquired in October, 1996, ORAYCOM, Inc. ("ORAYCOM"), acquired in June, 1997 and WG Controls, Inc. ("WG"), acquired in January, 1998. Upon consolidation, significant intercompany accounts, transactions and profits are eliminated. NOTE 3. ACQUISITION On January 5, 1998, the Company acquired WG Controls, Inc., an Illinois Corporation, for 285,715 shares of the Company's $.001 par value common stock, 137,143 shares of the Company's $.001, Series A, cumulative, convertible preferred stock and $270,000 in cash payable as follows: $125,000 on the first anniversary date of the Agreement, $125,000 on the second anniversary date of the Agreement, and $20,000 on the third anniversary date of the Agreement. Dividends on the preferred stock are $40,800 annually. As of February 28, 1998, cumulative unpaid dividends are approximately $6,800. The acquisition is being accounted for using the purchase method of accounting. The total initial cost of the acquisition is approximately $ 1,100,000, which exceeded the fair value of the net assets being acquired by approximately $928,500. The excess is being amortized on the straight- line method over twenty years. Additionally, pursuant to the terms of the acquisition, the former shareholders of WG may earn additional purchase price consideration in the form of additional common stock of the Company based on the attainment of both "commission revenues" and "earnings" above specified levels by WG beginning January 1, 1998 through December 31, 1999. The additional consideration is specified as fixed amounts for the attainment of specified annual "commission revenues" and "earnings" for the subsequent calendar years ending December 31, 1998 and 1999. If WG meets the specified "commission revenues" and "earnings" amounts the additional consideration could amount to $1,000,000. The additional consideration, if any, would be added to the cost in excess of net assets acquired and will be amortized on the straight-line method over the remaining life of the twenty year amortization period, described above. WG is a sales representative firm based in Illinois (approximately fifteen miles northwest of Chicago) that provides field sales and business development support for specified product lines and/or territories for clients under contract who include RELTEC, Thomas & Betts and Johanson in addition to approximately 15 other clients. Revenues represent the earning of commissions on its customers' sales. 9 If the acquisition had occurred on September 1, 1997, management estimates that on an unaudited, pro forma basis, the following would have been reported on a consolidated basis for the periods ended February 28, 1998: Three Months Six Months ------------ ------------ Revenues $ 1,562,580 $ 3,339,719 Net loss $ (406,789) $ (428,231) Basic and diluted net loss per share $ (0.07) $ (0.08) NOTE 4. PRIVATE PLACEMENTS On October 22, 1997, the Board of Directors authorized a second private placement of up to $2,000,000 in either shares of the Company's common stock at $2.30 per share or of units at $3.00 per unit consisting of one share of the Company's common stock and a warrant to purchase an additional share of the Company's common stock at $2.30 per share with an exercisable life of five years. The period of this offering extended through February 28, 1998. Through February 28, 1998, 43,000 shares of the Company's common stock plus stock warrants representing the right to purchase 30,000 shares of the Company's common stock at $2.30 per share have been issued resulting in proceeds of $89,900, all received prior to February 28, 1998, the date the offering was discontinued. NOTE 5. SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid for interest was approximately $19,700 and $18,500 for the six month periods ended February 28, 1998 and 1997, respectively. On October 1, 1996 the Company purchased all of the capital stock of Maxwell Partners, Inc. (N/K/A Synaptx Impulse, Inc.), for $690,000 utilizing the Company's $.001 par value common stock. On January 5, 1998 the Company purchased all of the capital stock of WG Controls, Inc. for approximately $1,100,000 utilizing common stock, preferred stock, and future cash payouts. (See note 3). In conjunction with these acquisitions, liabilities assumed were as follows: Six Months Ended ---------------- February 28, 1998 February 28, 1997 ----------------- ----------------- Fair value of assets acquired $ 1,126,776 $ 1,895,026 Cash acquired 33,452 - Value of stock issued (869,621) (690,000) ----------- ------------ Liabilities assumed $ 290,607 $ 1,205,026 =========== ============ 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is a fully integrated service provider of consulting, marketing, sales advice and implementation strategies serving customers in the telecommunications and information industries. The Company operates in one business segment. The Company's fiscal year ends August 31. OVERVIEW -------- The Company plans marketing programs and develops sales and marketing literature for print and electronic media for which consulting fees are charged and production revenues are generated. It also represents certain product lines of customers serving the telecommunications (both voice and data networking) and cable TV industries as sales representatives for which commission income is being earned. Additionally the Company places executives in positions at telecommunications clients, primarily in sales and marketing positions, for which executive placement fees are being realized as revenues based upon an agreed upon percentage of salary and other compensation of the individuals so hired. The Company's objective is to use its knowledge of and its sales and marketing resources focused on the telecommunications industry to acquire and improve equipment manufacturers and software developers. Targeted acquisition candidates would potentially include companies that have demonstrated the ability to envision, design and commercialize unique telecommunications products and services. Once such an entity is acquired, the Company will direct its sales, marketing and managerial resources toward achieving increased revenues and earnings. To date, the Company has only acquired companies that support its core services of consulting, marketing and sales. They will be the foundation to help create the potential revenues and earnings growth for target acquirees. The Company's ability to continue as a going concern is contingent upon its ability to secure additional financing, conduct an additional private placement, and attain profitable operations. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates. RESULTS OF OPERATIONS --------------------- The following table sets forth the percentage relationship to total revenues of principal items contained in the Company's Condensed Consolidated Statements of Operations for the three and six month periods ended February 28, 1998 and 1997. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis. Three Months Ended Six Months Ended February 28, February 28, 1998 1997 1998 1997 --------------- --------------- (unaudited) Net sales and revenues . . . . . 100% 100% 100% 100% Cost of sales . . . . 84% 73% 76% 73% --- --- --- --- Gross Profit . . . . . 16% 27% 24% 27% Selling, general and administrative expenses . . . . . 41% 42% 36% 45% --- --- --- --- Operating loss . . . . (25%) (15%) (12%) (18%) Interest expense . . . 1% 1% 1% 2% --- --- --- --- Net loss . . . . . . . (26%) (16%) (13)% (20)% === === === === 11 NET SALES AND REVENUES ---------------------- The Company's net sales and revenues increased by $519,098 or 54%, from $958,482 for the three months ended February 28, 1997 ("2Q/97") to $1,477,580 for the three months ended February 28, 1998 ("2Q/98"). The increase was attributable to increases of $50,065 from Marketing Services and Production, $447,033 from Commission Income, and $22,000 from Executive Placement Fees. The increases are primarily due to 2Q/98 figures having a full three months of activity of ORAYCOM and two months of activity for WG, while 2Q/97 revenues included no activity for ORAYCOM, or WG. For the six month period ended February 28, 1998, the Company's net sales and revenues increased by $1,429,025 or 92%, from $1,551,408 for the six months ended February 28, 1997 to $2,980,433 for the six months ended February 28, 1998. The increase was attributable to increases of $679,572 from Marketing Services and Production, $712,123 from Commission Income, and $37,330 from Executive Placement Fees. The increases are primarily due to the six months ended February 28, 1998 figures having a full six months of activity for ORAYCOM and Impulse and two months of revenue for WG, while the comparable period in the prior year included no activity for ORAYCOM or WG and only five months of activity for Impulse. COST OF SALES ------------- Cost of sales and revenues increased by $549,016 in 2Q/98, or 79%, from $696,637 in 2Q/97 to $1,245,653 in 2Q/98. The increase was primarily due to 2Q/98 figures having a full three months of activity of Synaptx Impulse ("Impulse"), Synaptx Access ("Access"), and ORAYCOM and two months of revenue for WG, while 2Q/97 revenues included no activity for ORAYCOM, or WG. Cost of sales and revenues increased by $1,137,931 or 100% from $1,135,927 in the six months ending February 28, 1997 to $2,273,858 on the six months ending February 28, 1998. The increase was primarily due to the six months ending February 28, 1998 figures having a full six months of activity of Impulse and ORAYCOM and two months of activity for WG, while the comparable period in the prior year included no activity for ORAYCOM or WG and only five months of activity for Impulse. GROSS PROFIT ------------ The Company's gross profit margin, was 27% and 16% for 2Q/97 and 2Q/98, respectively. The decrease in gross profit margin of 11 points in 2Q/98 is partly attributable to a shift in the mix from higher margin, in-house, professional services to more externally supported database services with a corresponding lower gross margin. Additionally, 2Q/98 includes three months of activity for ORAYCOM and two months of activity for WG, while the comparable period in the prior year had no activity from sales representative firms that typically operate on lower margins than the other business units. The Company's gross profit margin, was 27% and 24% for the six months ending February 28, 1997 and 1998, respectively. The decrease in gross profit margin of 3 points in the six months ending February 28, 1998 is partly attributable to a shift in the mix from higher margin, in-house, professional services to more externally supported database services with a corresponding lower gross margin. Additionally, the six months ending February 28, 1998 includes six months of activity for ORAYCOM and Impulse and two months of activity for WG, while the comparable period in the prior year had no activity from sales representative firms that 12 typically operate on lower margins than the other business units, and only five months of activity of Impulse. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -------------------------------------------- Selling, general and administrative expenses, including depreciation and amortization, increased by $204,998 in 2Q/98 or 50%, from $406,477 in 2Q/97 to $611,475 in 2Q/98. The increase was primarily due to 2Q/98 figures having a full three months of activity of Impulse, Access, and ORAYCOM, and two months of activity for WG, while 2Q/97 figures included no activity for ORAYCOM or WG. Goodwill amortization increased by approximately $20,000 and depreciation increased by approximately $12,000 over the prior period primarily due to the acquisitions of ORAYCOM, which had three months of activity as compared to none in the prior period, and WG, which had two months of activity as compared to none in the prior period. Selling, general and administrative expenses, including depreciation and amortization, increased by $394,038 or 57%, from $687,568 in the six months ending February 28, 1997 to $1,081,606 in the six months ending February 28, 1998. The increase was primarily due to the six months ending February 28, 1998 having a full six months of activity of Impulse, Access, and ORAYCOM, and two months of activity for WG, while the comparable period in the prior year included no activity for ORAYCOM or WG and only five months of activity for Impulse. Goodwill amortization increased by approximately $43,000 and depreciation increased by approximately $20,000 over the prior period due to the acquisitions of ORAYCOM and WG as well as an additional month of activity for Impulse in the current period as compared to the prior period. INTEREST EXPENSE ---------------- Interest expense increased by $4,292 in 2Q/98 or 51%, from $8,449 in 2Q/97 to $12,741 in 2Q/98. This increase is attributable to additional borrowings on bank lines of credit as well as interest accrued on notes payable to related parties. Interest expense decreased by $8,746 or 28%, from $31,542 in the six months ending February 28, 1997 to $22,796 in the six months ended February 28, 1998. This decrease is attributable to the prior year including $14,000 of interest attributable to amortization of stock warrants issued at an exercise price below fair market value. This decrease is offset by an increase attributable to additional borrowings on bank lines of credit as well as interest accrued on notes payable to related parties. NET OPERATING LOSS ------------------ The Company has accumulated approximately $800,000 of net operating loss carryforwards as of February 28, 1998, which may be offset against taxable income and income taxes in future years. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. The carry forwards expire in the year 2013. In the event of certain changes in control of the Company, there will be an annual limitation on the amount of net operating loss carryforwards which can be used. No tax benefit has been reported in the financial statements for the three months or the six months ended February 28, 1998 because there is a 50% or greater chance that the carryforward will not be utilized. Accordingly, the potential tax benefit of the loss carryforward is offset by a valuation allowance of the same amount. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Company's principal cash requirements are for operating expenses, including employee costs, outside consultants such as 13 independent contractors who provide design, copywriting and professional marketing and sales consulting services, funding of accounts receivable, capital expenditures and funding of acquisitions. The Company's primary sources of cash have been from an initial private placement of the Company's common stock which raised $753,993 of net proceeds, a stock rights offering to then existing shareholders which raised $7,828, a private placement to an existing employee of the Company which raised $30,000 and a secondary private placement which has raised $89,900, plus cash derived from operations. The Company is investigating various sources for additional financing, including both equity infusion and debt facility arrangements. There is no assurance that the Company will consummate any additional financing or that any additional financing will not be dilutive to shareholders. Six Months Ended February 28, 1998 Cash increased $63,799 from $58,265 at the beginning of the period to $122,064 at the end of the period. Net cash provided by operations was $8,987 mainly attributable to non-cash expense items (depreciation and amortization) of $143,690 and a net increase in accounts payable and accrued expenses of $330,658 and a decrease in accounts receivable of $236,693, offset by the net loss of $397,827, a decrease in deferred revenue of $270,700 and an increase in other current assets of $33,527. Net cash used in investing activities was $230,364 attributable to cash acquired in acquisitions of $33,452, offset by additions to fixed assets of $52,297 and additions to other long term assets of $211,520. Net cash provided by financing activities was $285,176 attributable to proceeds from issuance of common stock of $148,023 and additions to long term debt of $140,300 offset by reductions in bank lines of credit of $1,309 and other short term debt of $1,837. Six Months Ended February 28, 1997 Cash balances increased by $124,681 from $0 at the beginning of the period to $124,681 at the end of the period. Net cash used in operations was $321,787 attributable to the net loss of $303,629, an increase in accounts receivable of $84,391, a net decrease in accounts payable and accrued expenses of $18,225, and a decrease in deferred revenue of $12,500, offset by non-cash expense items (depreciation and amortization) of $81,545, and a decrease in other current assets of $15,413. Net cash used in investing activities was $77,039, attributable to additions to fixed assets of $63,782 and additions to other long-term assets of $13,257. Net cash provided by financing activities was $523,507, attributable to proceeds from the issuance of common stock of approximately $666,213, a decrease in restricted cash of $10,000, a decrease in deferred placement costs of $5,000, a decrease in amounts advanced to Impulse, realized upon acquisition of $50,000, and an increase in amounts due to officers of $9,700, offset by reductions in the bank lines of credit and other long term debt of $207,406 and a decrease in the liability to private placement subscribers of $10,000. INFLATION --------- In the opinion of management, inflation has not had a material effect on the operations of the Company. 14 RISK FACTORS AND CAUTIONARY STATEMENTS -------------------------------------- Forward-looking statements in this report are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company wishes to advise readers that actual results may differ substantially from such forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements, including, but not limited to, the following: the ability of the Company to provide for its debt obligations and to provide for working capital needs from operating revenues, and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission. PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following were filed with form 8-K and are incorporated herein by reference. (b) No reports were filed on Form 8-K during this quarter. The Form 8-K related to the acquisition of WG Controls, Inc. was subsequently filed on March 23, 1998. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNAPTX WORLDWIDE, INC. Date: April 13, 1998 By /s/ Ronald L. Weindruch --------------------------------- RONALD L. WEINDRUCH, President and Chief Executive Officer Date: April 13, 1998 By /s/ Richard E. Hanik --------------------------------- RICHARD E. HANIK Chief Financial Officer 15 EXHIBIT INDEX Exhibit Description ------- ----------- 27 Financial Data Schedule EX-27 2 ART 5 FDS FOR 2ND QTR 10-QSB
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNAPTX WORLDWIDE, INC. FORM 10-QSB FOR THE PERIOD ENDED FEBRUARY 28, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS AUG-31-1998 FEB-28-1998 122 0 920 0 0 1,136 334 (117) 4,091 1,839 0 0 0 6 1,978 4,091 1,478 1,478 1,246 1,246 624 0 13 (392) 0 (392) 0 0 0 (392) (.07) (.07)
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