-----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, Wfbjs7pyKwCVCrBZsnJkFyk93au5hhanEoChWElqZjIkJz5Kxxja+q0Hl9D5Qb8G ISnsRwf+CM3NIp/KTzSIqg== 0001013799-97-000063.txt : 19980102 0001013799-97-000063.hdr.sgml : 19980102 ACCESSION NUMBER: 0001013799-97-000063 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19971231 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 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-22969 FILM NUMBER: 97747597 BUSINESS ADDRESS: STREET 1: 385 AIRPORT ROAD STREET 2: SUITE A CITY: ELGIN STATE: IL ZIP: 60123 BUSINESS PHONE: 8476220200 MAIL ADDRESS: STREET 1: 385 AIRPORT ROAD STREET 2: SUITE A CITY: ELGIN STATE: IL ZIP: 60123 10SB12G/A 1 As filed with the Securities and Exchange Commission on December 31, 1997 Registration No. O-22969 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Amendment No. 1 FORM 10-SB/A GENERAL FORM FOR REGISTRANTS OF SECURITIES OF SMALL BUSINESS ISSUERS Under Section 12(b) or (g) of the Securities Exchange Act of 1934 SYNAPTX WORLDWIDE, INC. (Name of Small Business Issuer in its charter) Utah 87-0375342 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 385 Airport Road, Suite A, Elgin, Illinois 60123 (Address of principal executive officers) (Zip Code) Issuer s telephone number: (847) 622-0200 Securities to be registered under Section 12(b) of the Act: Title of each class Name of each exchange on which to be so registered each class is to be registered N/A N/A Securities to be registered under Section 12(g) of the Act: Common Stock, par value $.001 per share (Title of Class) SYNAPTX WORLDWIDE, INC. FORM 10-SO TABLE OF CONTENTS PAGE PART I ITEM 1. Description of Business. . . . . . . . . . . . 3 ITEM 2. Management s Discussion and Analysis or Plan of Operation. . . . . . . . . . . . . . 12 ITEM 3. Description of Property. . . . . . . . . . . . 20 ITEM 4. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . 20 ITEM 5. Directors, Executive Officers, Promoters and Control Persons. . . . . . . . . . . . . 22 ITEM 6. Executive Compensation . . . . . . . . . . . . 25 ITEM 7. Certain Relationships and Related Transactions 28 ITEM 8. Description of Securities. . . . . . . . . . . 30 PART II ITEM 1. Market Price of and Dividends on Registrant s Common Equity and Other Shareholder Matters. 31 ITEM 2. Legal Proceedings. . . . . . . . . . . . . . . 33 ITEM 3. Changes in and Disagreements with Accountants. 33 ITEM 4. Recent Sales of Unregistered Securities. . . . 34 ITEM 5. Indemnification of Directors and Officers. . . 35 PART F/S Financial Statements . . . . . . . . . . . . . . . . . . 36 PART III ITEM 1. Index to Exhibits. . . . . . . . . . . . . . . S-1 ITEM 2. Description of Exhibits. . . . . . . . . . . . S-1 Signatures . . . . . . . . . . . . . . . . . . . . . . . S-2 PART I Registration Summary The following summary is qualified in its entirety by the more detailed information and the financial statements including the notes thereto, appearing elsewhere in this Registration Statement . Except as otherwise indicated, the information in this Registration Statement reflects the recapitalization of the Company (as more fully explained below) whereby through a reverse merger, the Company s pre-merger shareholders common stock reflects a 1 for 1.75 stock split of the Common Stock in February, 1997 and in connection with the merger agreement with Worldwide Applied Telecom Technologies, Inc., a Delaware Corporation, ( WWATT ), the WWATT pre-merger shareholders of its Common Stock received 3,600,000 shares of the Company s common stock for the 3,271,000 shares of WWATT Common Stock issued and outstanding, representing a stock dividend of 10.058086% as of the merger date, March 12, 1997. ITEM 1. Description of Business Synaptx Worldwide, Inc. ("Synaptx" or the "Company") provides consulting service, marketing, sales and search assistance within the telecommunications industry. The Company is developing a national telecommunications sales representative organization by hiring qualified sales representatives, or by acquiring successful regional sales representative organizations. Synaptx also intends to make additional acquisitions of existing telecommunications companies exhibiting the potential for growth as equipment manufacturers and software providers needing developed marketing channels. Except for the three acquisitions consummated, as described below, and the two letters of intent, also described below, the Company has no agreements or understandings regarding such possible future acquisitions and has no agreements or commitments to obtain any additional financing. There can be no assurance that financing for any future acquisitions will be available on terms acceptable to the Company or that any future acquisitions will be consummated. The Company was incorporated on June 25, 1981 under the laws of the State of Utah as Calico Gold Properties, Inc. and initially engaged in the acquisition and development of mineral resource prospects. The Company engaged in limited mining operations and subsequently ceased its operations and became inactive for several years. In 1995, the Company began to actively investigate and seek mergers with or acquisitions of operating businesses. In 1996, the Company changed its name to In-Touch Interactive Multimedia, Inc. in connection with a previously planned merger that was never consummated. On February 10, 1997, the Company entered into a merger agreement (the "Merger") with WWATT. Pursuant to the terms of the Merger, the Company effected a reverse stock split of its outstanding shares of common stock on a one (1) share for one and three-fourths (1.75) shares, and exchanged 3,600,000 shares of authorized but previously unissued shares of the Company's common stock for all the previously issued and outstanding shares of WWATT. An additional 790,000 shares of the Company's common stock were issued for services related to the Merger. As a result of the Merger, WWATT was merged with and into the Company with the Company being the surviving corporation, and the Company changed its corporate name to Synaptx Worldwide, Inc. The aforementioned actions were approved by the Company's shareholders at the Special Meeting of Shareholders held March 12, 1997. Prior to the Merger, there was no affiliation between the Company and WWATT, nor between the officers, directors or principal shareholders of the two respective entities. For accounting purposes, the transaction has been treated as a recapitalization of WWATT, or a reverse merger, with WWATT being treated as the acquirer. Business Development: WWATT was initially conceived and organized on November 3, 1995, with the intent to provide a vehicle to acquire emerging high technology companies in the telecommunications industry. As a result of its Merger with WWATT, the Company is presently committed to the acquisition and development of sales representative organizations and telecommunications equipment manufacturers and software providers. Acquisition candidates will typically be undercapitalized, existing companies that already have developed products or services that offer growth potential. WWATT completed two acquisitions prior to the Merger, North American Telco/Cable Representatives, Inc. ("NATCRI"), an independent network of senior executives possessing professional relationships in the telecommunications industry, and Maxwell Partners, Inc. ("Maxwell"), an integrated marketing consulting firm that works exclusively with telecommunications and information industry clients. Management believes that NATCRI and Maxwell provide the Company with the marketing and sales support necessary to provide potential future acquisitions with needed marketing channels for their products and/or services. As a result of the Merger, NATCRI and Maxwell became subsidiaries of the Company. Synaptx Access, Inc. (F/K/A North American Telco/Cable Representatives, Inc.) North American Telco/Cable Representatives, Inc. which has changed its name to Synaptx Access, Inc. (hereinafter referred to as "Access") is an independent network of former senior executives ( Executive Associates ) whose existing professional relationships in the telecommunications industry provide the Company with potential access to industry decision makers. Access was incorporated in Florida in November 1994 with the dual objectives of increasing sales for smaller manufacturers and software providers to the telecommunications industry and enabling larger network providers and manufacturers to utilize the products and services of smaller firms in a time-efficient manner. WWATT issued 490,000 shares of its common stock for the acquisition of Access on June 3, 1996, which shares were converted into 539,285 shares of the Company s common stock as a result of the Merger. The acquisition was treated as a pooling of interests. Access has developed a multi-level sales strategy to overcome the challenge of selling to larger organizations that are being downsized and in which decisions are made by only a very few senior executives. Access Executive Associates are expected to orchestrate meetings with industry decision makers, arrange executive introductions, and trigger assignment of a targeted company s representative to review proposed products for approval and purchase. Companies where Access Executive Associates have worked or with whom they have existing relationships include equipment manufacturers such as Lucent, Nortel (formerly Northern Telecom), Siemens, and L.M. Ericcson; service providers such as the regional Bell operating companies (RBOCs), AT&T, MCI, Sprint, GTE and other independent telephone companies; competitive access providers and long distance resellers; and wireless service providers such as Air Touch, Cellular One, and Skytel. In order to complement the efforts of its Executive Associates, Access will strive to develop a national sales representative organization that will target public and private network providers, utilities, and original equipment manufacturers. Success will depend on the hiring of qualified sales representatives or through the possible acquisition of regional sales representative firms that typically employ five to ten employees ( Representatives ). Leads will be generated, qualified, and tracked through a centralized database. By taking advantage of senior Executive Associates and Representatives contacts, management anticipates that Access will generate a base of new sales opportunities for the companies it represents ( Access Principals ) whose products and/or services Executive Associates and Representatives will promote and sell. Access holds annual sales meetings of its Executive Associates where existing and potential Access Principals present their companies product lines, marketing plans, and sales strategies to the Access Executive Associates. Access is pursuing a growth strategy to potentially build a nationwide sales representative organization by the end of its 1998 fiscal year. By using its existing network of Executive Associate contacts, Access intends to approach other equipment manufacturers with proposals to represent their products to larger customers. In addition to its sales activities, Access Executive Associates will investigate, through their professional network contacts, a variety of executive recruiting opportunities. Access accepts search assignments on a contingency basis, charging clients a percentage of a new hire s first-year compensation. Candidates submitted for client consideration are identified in one of two ways. In the first scenario, a client may ask Access to fill a specific position. In this case, the firm contacts members of its Executive Associates network and alerts them to the client s need. Alternatively, Access keeps on file and continually updates a database of resumes from individuals interested in exploring new professional opportunities. Candidates for a specific position may well be found from within this collection. During the second half of its fiscal year ended August 31, 1997, Synaptx placed six (6) candidates and generated $180,241 in search revenues. Synaptx Impulse, Inc. (F/K/A Maxwell Partners, Inc.) Maxwell Partners, Inc. which has changed its name to Synaptx Impulse, Inc. (hereinafter referred to as "Impulse"), was the Company's second acquisition, consummated in October 1996, Impulse is an integrated marketing consulting firm that works with telecommunications and information industry clients. Founded in 1990, its core services include strategic and market planning, new product launch planning, distribution channel analysis and design, communications program planning and implementation, and event and trade show management. Past and present clients include AT&T, Lucent Technologies, Ameritech, BellSouth, SBC Corporation, GTE, Sprint, Motorola, Microsoft, Nortel, Rochester Telephone, SNET, SPSS, Reltec and Century Telephone. WWATT issued 690,000 shares of its common stock for the acquisition of Impulse on October 1, 1996, which shares were converted into 759,400 shares of the Company s common stock as a result of the Merger. The acquisition was treated as a purchase. Access and Impulse will combine to provide the Company's potential future acquisitions with marketing and sales support. Management of Access has a network of professional relationships to facilitate sales of its sister companies' products, and Impulse can assist these same companies in developing marketing strategies, distribution channels, and lead- generating communications programs. ORAYCOM, Inc. On June 1, 1997, the Company made its first acquisition of a telecommunications sales representative company, ORAYCOM, Inc. located in Carrollton, Texas ("ORAYCOM"). ORAYCOM was acquired with 142,858 shares of Synaptx common stock. ORAYCOM will operate as a subsidiary of Access. ORAYCOM is a sales representative to the private network, public telephone network, cable operating companies and alternate access provider communication markets. ORAYCOM currently represents RELTEC and Thomas & Betts in addition to other clients. For additional information on this acquisition, see the August 31, 1997 financial statements, footnote 2 in Part F/S. Employing seven (7) people and operating out of leased office space in Carrollton, Texas, ORAYCOM s employees are based in strategic territories to meet their customers needs, serving North and Southeast Texas, Oklahoma, Arkansas, Arizona, New Mexico, Nevada and Southern California. Revenues represent the earning of commissions on its customers (i.e., Access Principals) sales. These commissions range from 3.5% up to 8%, depending on the sophistication of the customers products and services represented. The Company intends to make additional acquisitions as financing and business conditions warrant, although there can be no assurance that the Company will be able to finalize any future acquisitions. The Company intends to make its acquisitions with Synaptx securities, employing tax-free exchanges for the stock of the to-be-acquired companies. Contingent earn-out payments of the additional common stock may be earned on growth-oriented revenue and profit hurdles. Marketing and Business Strategy The Company's primary objective is to acquire emerging high technology companies in the telecommunications industry that have limited market access, represented by low market share and/or limited geographic scope. The Company will provide marketing assistance, access to industry decision makers, an experienced sales team, management expertise, financial direction and executive recruiting services in an effort to build revenues and profits. Because such companies typically service a sharply defined niche market, they will generally function more as OEM suppliers than direct competitors to major equipment manufacturers. The Company's objective is to strengthen each acquisition's income statement and balance sheet to the point where it can operate as a self-sustaining subsidiary. Toward this end, the Company has set the following objectives: (a) Acquire high technology companies and help them to maximize their performance; (b) Achieve industry status and recognition as a growth facilitator for small and emerging high technology companies within the telecommunications industry; (c)Build the Company into a significant participant in the telecommunications industry; and (d) Optimize return on investment for stockholders. The Company's strategy is designed to enable its future subsidiaries to either sell directly to network providers or through larger manufacturers on an original equipment manufacturer (OEM) basis. In some cases, the Company may have the flexibility to distribute its products through large suppliers that are burdened with proprietary rather than open standards based products. To maintain and improve its competitive position, the Company seeks to acquire companies that develop and introduce, on a timely and cost-effective basis, new products and product features that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of its customers. In striving toward its business objectives, the Company intends to implement the following key strategies: (a) Acquire firms that are cash flow positive or have the potential to generate positive cash flows within the first year following acquisition. (b) Build, through new employee hires and acquisitions, a national telecommunications sales representative organization targeting public and private network providers, utilities, and original equipment manufacturers; (c) Identify and acquire small telecommunications suppliers with unique, proven product lines that have demonstrated uneven sales success; (d) Use the Company's expertise to sell products in wider geographic areas and broader market areas to increase revenue; (e) Establish relationships that may potentially lead to international import and export opportunities; (f) Establish and operate acquired companies as independent profit centers, with all intracompany transactions handled on an arm's length basis; and (g) Raise performance of subsidiaries to predetermined levels where they can become self-sustaining businesses. The above are the stated future goals of the Company, however there can be no assurance that the Company will be able to make future material acquisitions or that it will ever achieve its expressed goals. Management believes that the cost of building a distribution network is equal to or greater than the cost of developing a product. As a result, many small technology companies do not allocate sufficient resources to develop distribution channels and thus fail to realize their full potential. The Company intends to seek out suppliers that possess proven technology but have been unable to realize their full potential because of limited sales and marketing skills and/or their inability to raise capital. The Company's management group and advisors have experience in the management of suppliers to the telecommunications industry. Moreover, the Company plans to capitalize on the current trend in downsizing in larger companies by offering products that replace labor or perform functions that are likely to be outsourced. Potential New Acquisitions and Product Lines The dynamics of the telecommunications industry will dictate the types of products Synaptx will seek to acquire in the future. Primary targets will be products that facilitate management of elements within decentralized, distributed telecommunications networks and the environments in which they operate. Synaptx will seek out technology that brings value to its customers in terms of quality improvements or cost reductions. Synaptx intends to focus on acquiring companies that compete in any of the following product-market segments: (a) Advanced intelligent network software and hardware platforms; (b) Emerging broadband transmission technologies (e.g. xDSL); (c) Wireless transmission and switching technologies, especially PCS systems; (d) Network management technologies (software and hardware); (e) Convergent billing systems that accommodate wireline and wireless, local and long distance in a single system; (f) Customer care systems (especially expert software systems); (g) Products that maintain the environment in which network elements are housed such as central office enclosures, outside plant cabinets, cement vaults, and next generation termination devices; and (h) Products with features that include testing and early warning of network component failures. Management believes that increasing market competition demands that new products address the issues of product creation, product delivery, and product assurance in both public and private networks. Synaptx will strive to address the needs of emerging companies and the needs of existing companies that continue to use embedded legacy maintenance systems. Synaptx will focus on products that have the ability to respond to a demanding and changing customer base. Application flexibility will be a critical product attribute. In addition to product-oriented acquisitions, the Company will also endeavor to build through new employees and acquisitions a nationwide sales representative organization by the end of 1998. It is anticipated that acquired firms will be local or regional in scope, will generally employ five to ten representatives, and will bring with them established product lines that support the Company s strategic direction. The Company anticipates making future acquisitions by primarily using its capital stock. If necessary, the Company plans to finance or seek outside financing for potential requirements of cash. Although the Company is currently exploring additional acquisition opportunities, the Company has no agreements regarding such possible future acquisitions and has no agreement or commitments to obtain any additional financing. There can be no assurances that financing for any future acquisitions will be available on terms acceptable to the Company or at all, or that any future acquisitions will be consummated. On May 16, 1997, the Company signed a letter of intent ("letter agreement") to acquire a Chicago-based sales representative organization. Under the proposed terms of the letter agreement the Company would purchase all of the outstanding capital stock and pay $2,000,000 in stock and cash. Additionally, the proposed terms called for an earn-out of additional stock over the next two years based on the acquiree achieving certain defined revenues and earnings before income taxes targets. Employment agreements would also be entered into with the three key managers of the business. Although the letter agreement has expired, negotiations are still in place. At this time, no definitive agreements have been entered into, and there can be no assurance that the acquisition will be finalized. On May 13, 1997, the Company signed a letter of intent ("letter of intent") to acquire a Minneapolis-based sales representative organization. Under the proposed terms of this letter of intent, the Company would purchase all of the outstanding capital stock. The letter of intent also calls for the development of mutually agreeable employment agreements with the principals of the business. Although the letter of intent has expired, negotiations are still in place. At this time, no specific terms or definitive agreements have been entered into, and there can be no assurance that the acquisition will be finalized. Competition The telecommunications industry is highly competitive and characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions, and rapid changes in customer requirements. Synaptx's competitors will vary from market to market depending upon which companies are acquired and become Synaptx subsidiaries. Principal competitive factors affecting the market for subsidiary products include product reputation, quality, performance, price, professional service, and customer support. Features such as adaptability, scalability, ability to integrate with other products, functionality, and ease of use are key product differentiators. Synaptx intends to empower its subsidiary companies to compete by using the Access sales team and Impulse s integrated marketing expertise. Facilities The Company's principal place of business is located at 385 Airport Road, Suite A, Elgin, Illinois 60123, and consists of approximately 8,800 square feet of office space. This facility is subject to a lease which expires on January 31, 1998. Impulse also leases office space in Atlanta, Georgia consisting of 2,733 square feet of space, with a lease expiration date of June 30, 1998. On August 1, 1997, Impulse signed a lease for office space in downtown Elgin, Illinois (a northwest Chicago suburb), covering approximately 19,760 square feet of space. The lease extends for seven (7) years, commencing January 1, 1998 with occupancy planned for early January of approximately 15,000 square feet with the remaining area left unfinished for future expansion, as needed. Monthly rents start at $10,597 and have a fixed escalation of approximately three and one-half percent (3.5%) per year on each anniversary date of the lease. On a straight-line basis, the monthly cost of the lease is approximately $12,000. This facility is considered adequate to support the future office space needs for Impulse and Access and the projected sales representative organization to be acquired to serve the upper Midwest. ORAYCOM s office facility covers 2,000 square feet of space with the lease term extending to July 31, 2002. Litigation The Company is not a party to any material pending legal proceedings and no such action by, or to the best of its knowledge, against the Company has been threatened. Employees As of November 1, 1997 the Company employed 30 full-time and 3 part-time individuals, consisting of 3 executive officers, 24 professional and sales representatives, and 6 office staff personnel. In addition to its full-time employees, the Company uses the services of certain consultants, writers and design professionals on a contract basis. Management presently anticipates hiring additional employees as business warrants and as funds become available. ITEM 2. Management s Discussion and Analysis or Plan of Operation The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in the Form 10-SB/A. Overview The Company is a fully integrated service provider of consulting, marketing, sales advice and implementation strategies serving customers in the telecommunications industry. These services include planning marketing programs and developing of sales and marketing literature for print and electronic media for which consulting fees are charged and production revenues are generated, representing certain product lines of customers serving the telecommunications industry as sales representatives whereby commission revenues are being earned, and executive placements of telecommunications industry personnel, primarily for sales and marketing positions, are being made for which executive placement fees are being realized as revenues based on an agreed upon percentage of the salary and other compensation of individuals hired by our clients. The Company operates in one business segment. The Company s fiscal year is August 31. Unless otherwise noted, references to fiscal 1996 or 1997 relate to the fiscal years ended August 31, 1996 and 1997, respectively. The Company s objective is to use its knowledge of the telecommunications industry to acquire and improve equipment manufacturers and software developers. Targeted acquisition candidates would include companies that have demonstrated an ability to envision, design and commercialize unique products. 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 currently provides consulting services, marketing support services and the development of collateral marketing materials, and sales channel advice. Additionally, the Company has entered the employment search business charging fees for individuals hired by client companies based on a negotiated percentage of the new employee s total first year recurring compensation. Revenues of the Company consist of fees for professional services which are estimated in advance, quoted, negotiated and then formalized via contract or purchase order. These professional fees are therefore structured as fixed price arrangements which in accordance with the Company s terms and conditions can be and are regularly billed in advance. Because these billings often precede the work being performed, revenues are only recognized as work is performed. Accordingly, any excess of professional fee billings over professional fees earned are reflected as a current liability, that is, deferred revenue. Additionally, the Company bills for collateral material production and the placement of ads which are marked-up based on industry standards. These revenues are recorded when the item is produced. Cost of sales and revenues consist primarily of the cost of labor in providing professional services representing salaries and benefits for employees and direct costs for outside independent professionals, copywriters and designers (sometimes referred to herein as freelancers ). Production and ad placement costs represent amounts invoiced from suppliers. If the vendor has not provided an invoice at the time of revenue recognition, such costs are accrued at the estimated cost for which the production or ads were billed. Selling, general and administrative expenses consist primarily of marketing and administration expenses which include salaries, benefits and associated taxes, rent and other general office expenses. The Company s ability to continue as a going concern is contingent upon its ability to secure additional financing, complete a secondary 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, for fiscal years ended August 31, 1997 and 1996, certain items from the Company s Consolidated Statements of Operations expressed as a percentage of net sales. Results for the fiscal years ended 1997 and 1996 include the consolidated operations of Synaptx and Access (utilizing pooling of interests accounting) while the results include eleven months of Impulse operations subsequent to its October 1, 1996 acquisition date and three months of ORAYCOM operations subsequent to its June 1, 1997 acquisition date, which are not reflected in prior periods since the acquisitions are presented under the purchase method of accounting. Fiscal Years Ended August 31, 1997 1996 Net Sales and Revenues 100.0% 100.0% Cost of Sales 71.4% 86.9% Gross Profit 28.6% 13.1% Selling, general and administrative expenses 43.9% 61.2% Operating loss (15.3%) (48.1%) Interest expense (1.4%) - Net loss (16.7%) (48.1%) Year Ended August 31, 1997 Compared to Year Ended August 31, 1996 The Company s net sales and revenues increased by $3,455,471 or 2,372%, from $145,653 for the fiscal year ended August 31, 1996 ( 1996") to $3,601,124 for the fiscal year ended August 31, 1997 ( 1997"). The acquisition of the Impulse subsidiary in October, 1996 resulted in the addition of marketing services and production revenues of $3,155,053 in 1997 or 91.3% of the increase. Production revenues reflect charges for printing (including the cost of paper), photography, hiring of models, advertising placed in various media for which Impulse is able to add a mark-up for negotiating and monitoring the vendors who provide such services. Standard industry mark-up rates are normally used for these services. Marketing services and production revenues were primarily derived from telecommunications industry customers of which three represented 21%, 21% and 34%, respectively, of total revenues. Executive placement fee revenues began in the third quarter of 1997, adding $180,241, or 5.2 % of the increase, from this new revenue source. Most of the remaining increase resulted from the acquisition of ORAYCOM in June, 1997 which added $119,005 of commission income, or 3.4% of the increase. Cost of sales and revenues increased by $2,444,906 in 1997, or 1,932%, from $126,561 in 1996 to $2,571,467 in 1997. The acquisition of the Impulse subsidiary in October, 1996, results in the addition of cost of revenues for marketing services and production revenues of $2,252,403. The Search business added $33,869 to cost of revenues for Executive placement fees. Most of the remaining increase resulted from the acquisition of ORAYCOM in June, 1997 which added $153,558 to cost of revenues for commission income. As a percentage of net sales and revenues, cost of sales and revenues decreased from 86.9% in 1996 to 71.4% in 1997. The Company s gross profit margin, was 28.6% and 13.1% for 1997 and 1996, respectively. The increase in gross profit margin of 15.5 points in 1997 is attributable to the gross margin on marketing services and production from the Impulse acquisition which generated a 28.6% gross margin and executive placement fees which generated an 81.2% gross margin. These higher gross margin additional activities were offset by a 29.0% negative gross margin from the ORAYCOM acquisition. Selling, general and administrative expenses, including depreciation and amortization, increased by $1,490,135 in 1997 or 1,626%, from $91,633 in 1996 to $1,581,768 in 1997. The acquisition of Impulse results in the addition to selling, general and administrative expenses of $1,011,399. The acquisition of ORAYCOM resulted in the addition to selling, general and administrative expenses of $20,703. As a percentage of net sales and revenues, selling, general and administrative expenses, including depreciation and amortization, decreased from 62.9% for 1996 to 43.9% for 1997. Net interest expense increased from none for the year 1996 to $50,444 or 1.4% of net sales and revenues for 1997. The increase in interest expense includes $36,666 from the acquisition of the Impulse subsidiary whose operations are included herein for the eleven months since its October 1, 1996 purchase date. The bank line of credit and note supporting this interest expense bear interest at the bank s internal rate which approximated 11% during the period. Additionally, $1,533 of interest expense resulted from the acquisition of the ORAYCOM subsidiary whose operations are included herein for the three months from its June 1, 1997 acquisition date. The bank line of credit supporting part of this interest expense bears interest at 13.25% and capital leases supporting the remainder bears interest from 14.00% to 26.75%. The remaining $12,245 results primarily from noncash interest expense incurred by Synaptx for warrants issued below fair market value supporting a short-term note borrowing of $40,000 for the period August 30, 1996 through December 3, 1996 bearing interest at 15.00% annually. This note was repaid by the due date. Net Operating Loss The Company has accumulated approximately $500,000 of net operating loss carryforwards as of August 31, 1997, 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 2012. 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 years ended August 31, 1997 or 1996 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 selling, general and administrative expenses, primarily outside consultants such as independent contractors who provide design, copywriting and professional marketing and sales consulting services, employee costs, 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 plus cash derived from operations. The Company is investigating various sources for additional financing, including both equity infusion and debt facility arrangements. During the year ended August 31, 1996, the Company acquired Access for 541,842 shares of common stock. The transaction was accounted for as a pooling of interests, therefore the financial statements have been restated to include the accounts of Access for the twelve months ended August 31, 1996. For the year ended August 31, 1996, cash decreased from $11,342 at the beginning of the year to none at the end of the year. Net cash provided by operations was $11,658 mainly attributable to non-cash expense items (depreciation and rent) of $4,100 and an increase in accounts payable and accrued expenses of approximately $90,000 offset by the net loss of $72,541 and the increase in accounts receivable of approximately $10,000. Net cash used in financing activities was $23,000 primarily attributable to an advance of $50,000 to Maxwell Partners, subsequently acquired and renamed Synaptx Impulse, plus an increase in deferred placement costs of $5,000, and offset by an advance of $32,000 from an officer. During the year ended August 31, 1997, the Company s results included the acquired Impulse subsidiary, for eleven months, starting from October 1, 1996, the Impulse acquisition date. Impulse was acquired for 759,401 shares of the Company s common stock. Also, during the year ended August 31, 1997, the Company s results included the acquired ORAYCOM subsidiary, for three months, starting from June 1, 1997, the ORAYCOM acquisition date. ORAYCOM was acquired for 142,858 shares of the Company s common stock. For the year ended August 31, 1997, cash increased from none at the beginning of the year to $58,265 at the end of the year. Net cash used in operating activities was $445,674 due mainly to the net loss of $602,555, offset by non-cash depreciation and amortization expenses of $197,287, and a net increase in non-cash working capital items of approximately $40,000. This net increase resulted from the Company's revenue growth for the year ended August 31, 1997 requiring financing for increased accounts receivable of $396,760, resulting primarily from the Impulse acquisition's revenue growth. Additionally, the Company reduced accrued expenses and taxes by $281,803 and increased other current assets by $17,896. Offsetting these uses of cash were the utilization of vendors as a financing source exhibited by an increase in accounts payable of $391,353 and an increase in deferred revenues of $264,700, representing work billed in advance of performance in accordance with contractual terms and conditions. Net cash used in investing activities was $177,456 attributable to fixed asset additions of $75,607, cash paid for acquisitions of $43,231, and additions to other long-term assets of $58,618. Cash provided by financing activities was $681,395 due primarily to net proceeds from stock issuance of $769,321, a $50,000 decrease in advances to Synaptx Impulse, offset by reductions in both long-term debt of $100,908 (resulting from acquisitions accounted for under the purchase method of accounting) and advances from an officer of $32,000. In March, 1997, the Company raised $753,993 from the net proceeds of its private placement offering of 1,430,800 shares of the Company s common stock of which 898,074 shares were issued. Additionally, in June, 1997 the Company raised $7,828 from the issuance of 3,591 shares of common stock related to a stock rights offering allowing existing shareholders to purchase one share of common stock for every three shares held. The Company has a revolving line-of-credit with a bank for $250,000, due to expire May 1, 1998. Furthermore, the Company also has a $26,107 term note with a maturity date of December 30, 1997. This term note was subsequently extended to March 1, 1998. Borrowings under the line-of-credit and the outstanding principal and interest on the note are collateralized by substantially all of the Company's assets and bear interest at the bank's floating interest rate (currently 10.99%). The line-of-credit and the note are further secured by commercial guaranties of two of the shareholders and Synaptx. The Company s current expansion plans are primarily related to the acquisition of sales representative organizations with the goal of creating the first nationwide telecommunications sales representative channel of distribution. Furthermore, acquisition targets are being identified and preliminary discussions have ensued for the potential acquisition of telecommunications hardware and service providers. These possible acquisitions are expected to be consummated primarily for Synaptx stock. However, part of these acquisitions can be expected to require the use of cash for noncompete agreements with key employees and possibly past performance liabilities to the selling shareholders. Management anticipates that cash needed to finance possible acquisitions in the near term will be generated from operations which are expected to begin generating cash from operations beginning in the first quarter of fiscal 1998 and from additional private placement financing. There can be no assurance that such financing can be obtained. On August 1, 1997, Impulse signed a lease for office space in downtown Elgin, Illinois (a northwest Chicago suburb), covering approximately 19,760 square feet of space. The lease extends for seven (7) years, commencing January 1, 1998 with occupancy planned for early January of approximately 15,000 square feet with the remaining area left unfinished for future expansion, as needed. Monthly rents start at $10,597 and have a fixed escalation of approximately three and one-half percent (3.5%) per year on each anniversary date of the lease. This facility is considered adequate to support the future office space needs for Impulse and Access and the projected sales representative organization to be acquired to serve the upper Midwest. The estimated cost of relocation of $70,000 is expected to be financed from current operations. Recent Accounting Pronouncements In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share. The new standard simplifies the methods for computing earnings per share and requires the preparation of two new amounts, basic and diluted earnings per share. When the Company adopts SFAS No. 128, it expects to report the following restated amounts for the fiscal periods: Basic $ (0.14) $ (0.04) Diluted $ (0.14) $ (0.04) In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income . The new standard discusses how to report and display comprehensive income and its components. This standard is effective for years beginning after December 15, 1997. When the company adopts this statement, it is not expected to have a material impact on the presentation of the Company s financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information . This standard requires enterprises to report information about operating segments, their products and services, geographic areas, and major customers. This standard is effective for years beginning after December 15, 1997. When the company adopts this statement, it is not expected to have a material impact on the presentation of the Company s financial statements. Inflation In the opinion of management, inflation has not had a material effect on the operations of the Company. Risk Factors and Cautionary Statements This Registration Statement contains certain forward- looking statements. 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 meet its cash and working capital needs, the ability of the Company to complete material acquisitions of operating companies, and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission. ITEM 3. Description of Property The information required by this Item 3, Description of Property, is set forth in Item 1, Description of Business, of this Form 10-SB/A. ITEM 4. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information, to the best of the Company s knowledge, as of November 17, 1997, with respect to each person known by the Company to own beneficially more than 5% of the outstanding Common Stock, each director and all directors and officers as a group. Name and Address Amount and Nature of Percent of Beneficial Owner Beneficial Ownership(1) of Class(2) Ronald L. Weindruch * 1,669,218(3) 32.00% 385 Airport Road Suite A Elgin, IL 60123 D. Mike Maxwell * 561,667(4) 10.59% 385 Airport Road Suite A Elgin, IL 60123 Richard E. Hanik * 77,416(5) 1.48% 385 Airport Road Suite A Elgin, IL 60123 William N. Kashul, Sr. * 77,042(6) 1.46% 385 Airport Road Suite A Elgin, IL 60123 Peter B. Atwal * 16,509(7) 0.32% 385 Airport Road Suite A Elgin, IL 60123 Jerome Rhattigan 269,643 5.18% 1612 Bridgewater Drive Heathrow, FL 32746 Aegir International Investments, Inc.(8) 266,692 5.12% P.O. Box HMI387 Hamilton, Bermuda HMFX All directors and executive officers as a 2,401,852(9) 45.85% group(5 persons in group) * Director and/or executive officer Note: Unless otherwise indicated in the footnotes below, the Company has been advised that each person above has sole voting power over the shares indicated above. (1) Share amounts include, where indicated, Common Stock issuable upon the exercise of certain stock options and stock warrants held by the Company's directors and executive officers at exercise prices ranging from $0.0909 to $0.9995 per share which are exercisable within sixty days. (2) Based upon 5,208,660 shares of common stock outstanding on November 17, 1997. Percentage ownership is calculated separately for each person on the basis of the actual number of outstanding shares as of November 17, 1997 and assumes the exercise of certain stock options held by such person (but not by anyone else) exercisable within sixty days. (3) Includes 44,024 shares of stock held in the names of Mr. Weindruch s children. Includes 7,337 shares which may be acquired by Mr. Weindruch pursuant to the exercise of stock purchase options exercisable within sixty days at the average exercise price of $0.9995 per share. (4) Includes 400,062 shares held by Mr. Maxwell s wife and 66,036 shares held by Mr. Maxwell s children and their spouses, as to which Mr. Maxwell disclaims any beneficial ownership. Also includes 7,337 shares which may be acquired by Mr. Maxwell pursuant to the exercise of stock purchase options exercisable within sixty days at the average exercise price of $0.9995 per share, 3,669 shares which may be purchased by Mr. Maxwell s wife pursuant to the exercise of stock purchase options exercisable within 60 days at the average exercise price of $0.9086 per share, 2,019 shares which may be purchased by Mr. Maxwell s daughter- in-law pursuant to the exercise of stock purchase options exercisable within 60 days at the average exercise price of $0.9086 per share, and 82,544 shares which may be acquired by Mr. Maxwell pursuant to the exercise of stock purchase warrants exercisable within sixty days at the average exercise price of $0.9086 per share. (5) Includes 5,000 shares held in the names of Mr. Hanik s children. Also includes 7,337 shares which may be acquired by Mr. Hanik pursuant to the exercise of stock purchase options exercisable within sixty days at the average exercise price of $0.9086 per share. (6) Includes 77,042 shares which may be acquired by Mr. Kashul pursuant to the exercise of stock purchase options exercisable within sixty days at the average exercise price of $0.3245 per share. (7) Includes 16,509 shares which may be acquired by Mr. Atwal pursuant to the exercise of stock purchase options exercisable within sixty days at the average exercise price of $0.9086 per share. (8) To the best knowledge of the Company, Aegir International Investment, Inc. is 99% owned by Harbor Finance, Ltd., a Bermuda company which is the nominee of a Bermuda law firm which acts as nominee for the beneficial interest of a client(s). (9) Includes 203,794 shares which are issuable upon the exercise of certain stock options and stock warrants held by the Company s directors and executive officers at exercise prices ranging from $0.0909 to $0.9995 per share, representing an average exercise price of $0.6943 per share, which are exercisable within sixty days. ITEM 5. Directors, Executive Officers, Promoters and Control Persons Executive Officers and Directors The executive officers and directors of the Company are as follows: Name Age Position Ronald L. Weindruch. . . 50 President, C.E.O. and Director William N. Kashul, Sr. 64 Director D. Mike Maxwell. . . . . 57 Executive Vice President and Director Peter B. Atwal . . . . . 41 Director Richard E. Hanik . . . . 50 Secretary, Treasurer and C.F.O. All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. The Company has not compensated its directors for service on the Board of Directors or any committee thereof, but directors are reimbursed for expenses incurred for attendance at meetings of the Board of Directors and any committee of the Board of Directors. Officers are appointed annually by the Board of Directors and each executive officer serves at the discretion of the Board of Directors. The Company does not have any standing committees. None of the officers and/or directors of the Company are officers or directors of any other publicly traded corporation, nor have any of the directors and/or officers, nor have any of the affiliates or promoters of the Company filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or the subject or any order, judgment, or decree involving the violation of any state or federal securities laws within the past five years. The business experience of each of the persons listed above during the past five years is as follows: Ronald L. Weindruch is the founder, Chairman and Chief Executive Officer of Synaptx as well as the founder of Access. Mr. Weindruch is the former Chairman of the Sanford Airport Authority in Sanford, Florida. Prior to founding Access in 1994, he held a variety of senior management positions with Siemens, including senior vice-president of operations at Siemens Stromberg- Carlson. Prior to beginning with Siemens in 1984, Mr. Weindruch served as director of marketing for the Nortel (formerly Northern Telecom) DMS 100 switching system and was also group director of business development for Nortel's digital switching group. Mr. Weindruch holds an M.B.A. degree from George Washington University and a B.S. degree from the University of Illinois. D. Mike Maxwell is Executive Vice President of Synaptx. He founded Impulse in 1991 which was acquired by WWATT on October 1, 1996. Additionally, he has founded Pet Care, Inc., Paw Island Limited Partnership, and the National Cellular SAFETALK Center, Inc. He has over twenty years of marketing and sales experience in the telecommunications industry, with expertise in marketing services, market plan development and execution, marketing and sales training, sales planning and management. Mr. Maxwell has been in the marketing services business since 1984 when he was named vice president of sales for Warner-Little Text, a consumer telecommunications and enhanced subscriber services subsidiary of Warner Communications. Prior to joining Warner-Little Text, he was the director of marketing for Consolidated Communications, a diversified communications company. Mr. Maxwell has served as chairman of the marketing committee of the U.S. Telephone Association and is an active member of the International Engineering Consortium's Executive Advisory Council for the Business and Marketing Institute. Mr. Maxwell holds a B.A. degree from Eastern Illinois University. William N. Kashul, Sr. is President of Kashul Consulting, Inc., a Chicago-based telecommunications consulting firm. Prior to forming his firm in 1994, Mr. Kashul was a regional vice president of Strategic Account Development, North America, for Northern Telecom, Inc. Mr. Kashul began his telecommunications career in the U.S. Army in 1953. He joined BTE Automated Electric as an engineer in 1956 and went to ITT Kellogg as a project engineer in 1959. He joined Stromberg-Carlson as a senior sales engineer in 1967 before going to Northern Telecom in 1972. Mr. Kashul is a member of the International Engineering Consortium's Executive Advisory Council and holds an M.B.A. from the University of Chicago. Peter B. Atwal has over twenty-two years experience in the telecommunications and data communications industry and has worked in research and development, switching systems and operations support systems. Mr. Atwal is the Chief Technology Officer for ISR Global Telecom, a network management provider. In this capacity, he is responsible for development of TMN Toolkit products, turnkey projects for service platforms, interworking units and network and element management solutions based on TMN principles and standards. Mr. Atwal previously worked as a research and development manager for Siemens, and as a consultant for Logica, Inc. Mr. Atwal holds a BSC degree in computer science from London University. Richard E. Hanik is Chief Financial Officer, Secretary and Treasurer of Synaptx. In 1994 he joined Impulse which was acquired on October 1, 1996, and was appointed C.F.O. following WWATT s acquisition of Impulse. Prior to joining Impulse, Mr. Hanik had 11 years of telecommunications business development and financial experience with Ameritech, in their cellular and paging operations. While at Ameritech, Mr. Hanik was instrumental in their acquisition of numerous paging businesses and developed the initial financial system when cellular operations first began in October, 1983. Prior to that he spent four years as an Audit Manager with Deloitte & Touche. Mr. Hanik also held various financial positions at Chemetron Corporation, then a Fortune 500 company, including Division Controller and Internal Audit Director. Prior to Chemetron, he served as Controller of the Illinois Housing Development Authority and started his career as an auditor with Arthur Andersen & Co. Mr. Hanik is a member of the American Institute of Certified Public Accountants and the Illinois Society of CPAs, and holds a B.A. degree from DePaul University. ITEM 6. Executive Compensation Employee Stock Option Plan The Board of Directors and a majority of the shareholders of the Company have approved and adopted the Company s 1996 Stock Option Plan (the Plan ). The purpose of the Plan is to encourage stock ownership by management employees of the Company, to provide an additional incentive for those employees to contribute to the success of the Company and to provide the Company with the opportunity to use stock options as a means of recruiting new managerial personnel where appropriate. The Plan authorizes the grant of options which qualify as incentive stock options under Section 422A of the Internal Revenue Code ( qualified options ), as well as stock options which do not qualify under that section of the Code ( nonqualified options ). The Plan is administered by the Board of Directors of the Company. The Board is authorized to select the individual employees to receive options under the Plan, the number of shares subject to each option, the option term and other matters specified in the Plan. The Plan provides that the exercise price of any option may not be less than 100% of the fair market value of the Company s stock at the date of grant. Options must be granted within ten years from the date the Plan was approved by the Company s shareholders. A maximum of 1,450,000 shares of the Company s common stock are authorized for issuance pursuant to options granted under the Plan, subject to adjustments to prevent dilution or enlargement of rights of participants in certain circumstances. As of November 17, 1997 there were 636,371 stock options issued and outstanding under the Plan of which 289,218 are exercisable at an option price per share ranging from $0.09086 to $3.36 per share and with expiration dates from October, 1998 through November 2002. In addition to the shares of the Company's common stock available under the Plan, the Company has also issued nonqualified stock options outside of the Plan. In July 1996, nonqualified options to purchase 33,018 shares of the Company's common stock at an option price of $0.9086 per share were issued to the outside members of the Board of Directors for their services. In October 1996, one of the outside directors was granted nonqualified options to purchase 55,030 shares of the Company's common stock at an option price of $0.0909 per share for his services in identifying the Impulse acquisition. As of November 17, 1997, all 88,048 of the nonqualified options are outstanding and exercisable. Profit Sharing Plan The Company s subsidiary, Synaptx Impulse, Inc., sponsors a qualified employee savings plan (commonly referred to as a 401K plan ) for all eligible employees, including all the officers of the Company. Participants may make contributions from their gross pay (limited to 15% of the employee s compensation, as defined), with Synaptx Impulse, Inc. matching such contributions (subject to certain limitations) at the rate of 25% of the first 6% of each participant s contribution. No other deferred compensation plan is currently in place. The Company s subsidiary, ORAYCOM, Inc., sponsors a SEP/IRA plan for all eligible employees. Participants may make contributions from their gross pay (limited to $9,500 of the employee s compensation, as defined). ORAYCOM does not provide a matching contribution. It is anticipated that the ORAYCOM employees will be phased into an overall Synaptx Worldwide corporate 401k plan in the near term. Compensation The following table sets forth all compensation actually paid or accrued by the Company for services rendered to the Company for the years ended August 31, 1995, 1996 and 1997 to the Company s Chief Executive Officer and Executive Vice President. No other executive officer of the Company has earned a salary greater than $100,000 annually for any of the periods depicted. Summary Compensation Table Other All Annual Other Name and Compen- Compen- Principal Position Year Salary Bonus sation sation(1) Ronald L. Weindruch, 1995 $ -0- $ -0- $ -0- $ 21,200 President, C.E.O. 1996 $ 18,000 $ -0- $ -0- $110,500 1997 $108,000 $ -0- $ -0- $126,000 D. Mike Maxwell, 1995 $ -0- $ -0- $ -0- $ -0- Executive Vice 1996 $ -0- $ -0- $ -0- $ -0- President 1997 $130,500 $ -0- $ -0- $ -0- (1) Consulting and commission income. Employment Agreements The Company has entered into an employment agreement with its President and CEO which currently provides for an annual salary of $122,500 per year. This agreement also provides for an increase in compensation to $144,000 per year when the consolidated sales and revenues run rate defined as three consecutive months reaches $15 million annually, a bonus based on Company s performance as defined by the Board of Directors and other incentives upon achieving certain other performance hurdles. The term of this employment agreement expires August 31, 1998 but automatically renews on an annual basis, unless acted upon by the Board. If the employee is terminated without cause, the Company is liable for three years of regular compensation if this termination takes place during the initial term and two years of regular compensation if after the initial term. The Executive Vice President of the Company has an employment agreement with a subsidiary of the Company which expires on August 31, 1998 but has an automatic annual renewal provision. This agreement provides for an annual salary of $137,500 and a bonus based on the subsidiary s performance (as defined by the subsidiary s Board of Directors) not to exceed 33% of base compensation. If the employee is terminated without cause, the Company is liable for three years of regular compensation if this termination takes place during the initial term and two years of regular compensation if after the initial term. In conjunction with the acquisition of ORAYCOM, Inc. on June 1, 1997, an employment agreement was entered into between the Company and ORAYCOM's founder and president, O. Ray Strickland. Among other things, the agreement provides for annual compensation of $120,000 per year and a commission of 5% on all commission revenues generated within the Southwest U.S. territories that he manages. This employment agreement extends through June 1, 2000. The Company, through its subsidiaries, has six other employment agreements, including one with the remaining officer of the Company. Four of these agreements provide for annual salaries ranging from $74,500 to $97,500 and expire on December 31, 1997 with the exception of one agreement which expires on August 31, 1998. If the employee is terminated without cause during the term of their agreement, the Company is liable for nine months of regular compensation. The remaining two agreements were entered into as of November 1, 1997 and provide for annual salaries of $84,000 and $96,000, respectively, and expire on September 30, 2000. If either of these employees are terminated without cause during the term of their agreements, the Company is liable for six months of regular compensation. All of these employment agreements provide for automatic renewal. The aggregate commitment for future salaries, excluding bonuses, under these employment agreements is approximately $1,291,000. The following amounts apply to each of the fiscal years ending August 31: 1998-$706,000, 1999-$300,000, 2000- $270,000, and 2001-$15,000. ITEM 7. Certain Relationships and Related Transactions During the Company's last two fiscal years, there have been no transactions between the Company and any officer, director, nominee for election as director, or any shareholder owning greater than five percent (5%) of the Company's outstanding shares, nor any member of the above referenced individuals' immediate family, except as set forth below. On January 23, 1997, prior to the Merger and pursuant to a written agreement with Williams Investment Company, the Company, then known as In-Touch Interactive Multimedia, Inc. ("In-Touch"), issued an aggregate of 85,716 shares of common stock to three persons in exchange for various services rendered to In-Touch, including assisting In-Touch in its search for and investigation of potential acquisition and merger candidates. The shares were issued in exchange for services rendered to the Company and, because at the time of issuance the Company was not engaged in any business activity and had no assets, the shares were valued at par value because the common stock was not being actively traded and par value was deemed the best estimation of fair market value of the In-Touch common stock as determined by In-Touch prior to the Merger. On February 10, 1997, the Company entered into the Merger. Pursuant to the terms of the Merger, the Company effected a reverse stock split of its outstanding shares of common stock on a one (1) share for one and three-fourths (1.75) shares, and exchanged 3,600,000 shares of authorized but previously unissued shares of the Company's common stock (post-split) for all the previously issued and outstanding shares of WWATT. The shares were issued on a proportionate basis to the existing shareholders of WWATT. Among those receiving shares pursuant to the Merger were: Ronald L. Weindruch (Director and Officer), 1,661,881 shares; D. Mike Maxwell (Director and Officer), 466,098 shares; Richard E. Hanik (Officer), 70,079 shares; and Jerome Rhattigan, 269,643 shares. An additional 790,000 shares of the Company's common stock was issued pursuant to an agreement with Solutions Partnership, Inc. for services related to the Merger. As a result of the Merger, WWATT was merged with and into the Company with the Company being the surviving corporation, and the Company changed its corporate name to Synaptx Worldwide, Inc. The aforementioned actions were approved by the Company's shareholders at the Special Meeting of Shareholders held February 10, 1997. For accounting purposes, the transaction has been treated as a recapitalization of the Company, or reverse merger. At the time of the transaction, the Company had only nominal assets and there was no substantive trading market for its securities. Therefore, the value of the transaction and the number of shares issued thereby was determined by mutual negotiation among the parties. Ronald L. Weindruch, the Synaptx Chairman of the Board of Directors, who is also its President & C.E.O., received 269,642 shares of the Company s common stock which is equal to 50% of the common stock issued in the exchange for Access stock, for his 50% ownership in Access. Also, this individual provides a significant amount of the services benefiting Access. He was paid or an accrual was made for services provided and expenses incurred, as follows: Total incurred for: August 31, 1997 August 31, 1996 Consulting and commission expenses $ 111,400 $ 111,500 Expense reimbursement $ 46,500 $38,000 Accrued expenses: Consulting and commission expenses 34,800 20,200 Expense reimbursements 12,800 2,700 Additionally, this majority shareholder of WWATT had, as of August 31, 1996, advanced funds to a company in the form of a noninterest-bearing loan in the amount of $32,000. The Company has repaid the loan. The Company through its acquisition of Impulse is also acting as guarantor of personal notes to a bank of an officer of the Company and his wife, a shareholder. These notes, as of August 31, 1997, total $438,400 which includes $257,100 under a mortgage note secured by real estate. The Company believes that the current fair market value of such real estate is sufficient to cover the principal amounts associated with these mortgage notes. The officer and the shareholder are current in their payments. On December 8, 1997 this guaranty was subsequently reduced to $130,920, which bears interest at 10.99% and is due on October 17, 2001. The remaining balance being guaranteed by the Company is subordinated to the mortgage on the above described property. ITEM 8. Description of Securities Common Stock The Company is authorized to issue 25,000,000 shares of common stock, par value $.001 per share, of which 5,208,660 shares are issued and outstanding as of November 17, 1997. All shares of common stock have equal rights and privileges with respect to voting, liquidation and dividend rights. Each share of common stock entitles the holder thereof to (i) one non-cumulative vote for each share held of record on all matters submitted to a vote of the stockholders; (ii) to participate equally and to receive any and all such dividends as may be declared by the Board of Directors out of funds legally available thereof; and (iii) to participate pro rata in any distribution of assets available for distribution upon liquidation of the Company. Stockholders of the Company have no preemptive rights to acquire additional shares of common stock or any other securities. All outstanding shares of common stock are non-assessable. Preferred Stock The Company is also authorized to issue 10,000,000 shares of preferred stock , par value One-Tenth of a Cent ($.001) per share, which shares of preferred stock may be issued in various series with terms, rights, voting privileges and preferences to be determined at the discretion of the Board of Directors at the time of issuance. All fully paid shares of preferred stock of the Company shall not be liable to call or assessment. No shares of Preferred Stock have been issued or are currently outstanding. Warrants to Purchase Common Stock The Company also authorized the issuance of 200,006 warrant certificates to purchase shares of common stock of the Company. The warrant certificates allow for the purchase of one (1) share of common stock for every one warrant certificate. The warrants were issued as follows: Number of Exercise Date Expiration Warrant Price Issued Date Certificates Range 9/1/96 8/31/2001 88,048 $ 0.45431 to $ 0.90861 2/7/97 2/6/2002 111,958 $ 0.90861 to $ 1.36292 The Warrant Agreement provides for adjustments to the number of warrant certificates to prevent dilution of warrant holders under certain circumstances. PART II ITEM 1. Market Price of And Dividends on the Registrant s Common Equity and Other Shareholder Matters Prior to the filing of this registration statement, no shares of the Company s Common Stock have been registered with the Securities and Exchange Commission (the "Commission") or any state securities agency of authority. The Company s Common Stock is being traded on a limited basis in the over-the-counter market and quotations are published on the OTC Bulletin Board under the symbol "SYTX", and in the National Quotation Bureau, Inc. "pink sheets" under Synaptx Worldwide, Inc. Inclusion on the OTC Bulletin Board permits price quotations for the Company's shares to be published by such service. The following table sets forth the range of high and low bid prices of the Common Stock for each calendar quarterly period as reported by the National Quotation Bureau, Inc. ( NQB ). Because no meaningful trading market existed for the Company s common stock prior to March 1997, historical price information is set forth below commencing the first calendar quarter of 1997. Prices reported by the NQB represent prices between dealers, do not include retail markups, markdowns or commissions and do not represent actual transactions. Calendar year 1997 High Low First Quarter (1) (1) Second Quarter (1) (1) Third Quarter $ 2.00 $ 2.00 Fourth Quarter(2) $ 3.50 $ 1.50 _________________ (1) The price information above was obtained from the NQB. Although the Company is aware that its shares did trade on a limited basis during the first and second calendar quarters commencing in March 1997, the NQB did not have any meaningful price information for those periods and thus none is presented. (2) Through November 30, 1997. The ability of an individual shareholder to trade their shares in a particular state may be subject to various rules and regulations of that state. A number of states require that an issuer's securities be registered in their state or appropriately exempted from registration before the securities are permitted to trade in that state. Presently, the Company has no plans to register its securities in any particular state. Further, most likely the Company's shares will be subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act. The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the issuer's net tangible assets; or exempted from the definition by the Commission. If the Company's shares are deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker- dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker- dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker-dealers to trade and/or maintain a market in the Company's common stock and may affect the ability of shareholders to sell their shares. As of November 17, 1997 there were 150 holders of record of the Company's common stock, which figure does not take into account those shareholders whose certificates are held in the name of broker-dealers. Because of the sparse trading of the Company's securities and the absence of a current bid and ask quotation, no trading history is presented herein. As of the date hereof, the Company has issued and outstanding 5,208,660 shares of common stock. Of this total, 657,211 shares were issued in transactions more than two years ago. The remaining 4,551,449 shares were issued on or after March 12, 1997. Thus, 657,211 shares of the Company's outstanding common stock may be sold or otherwise transferred without restriction pursuant to the terms of Rule 144 ("Rule 144") of the Securities Act of 1933, as amended (the "Act"), unless held by an affiliate or controlling shareholder of the Company. Of these shares, the Company has identified no shares as being held by affiliates of the Company. The 4,551,449 shares issued on or after March 12, 1997 and/or presently held by affiliates or controlling shareholders of the Company may be sold pursuant to Rule 144, subject to the volume and other limitations set forth under Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares of the Company for at least one year, including any person who may be deemed to be an "affiliate" of the Company (as the term "affiliate" is defined under the Act), is entitled to sell, within any three-month period, an amount of shares that does not exceed the greater of (i) the average weekly trading volume in the Company's common stock during the four calendar weeks preceding such sale or (ii) 1% of the shares then outstanding. A person who is not deemed to be an "affiliate" of the Company and who has held restricted shares for at least three years would be entitled to sell such shares without regard to the resale limitations of Rule 144. Dividend Policy The Company has not declared or paid cash dividends or made distributions in the past, and the Company does not anticipate that it will pay cash dividends or make distributions in the foreseeable future. The Company currently intends to retain and invest future earnings to finance its operations. ITEM 2. Legal Proceedings There are presently no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of its property is subject and, to the best of its knowledge, no such actions against the Company are contemplated or threatened. ITEM 3. Changes in and Disagreements With Accountants There have been no changes in or disagreements with accountants. ITEM 4. Recent Sales of Unregistered Securities The Company's predecessor, WWATT, issued restricted shares of WWATT common stock starting March 1, 1996. Additionally, shares were issued to consummate the purchases of Access, Impulse and ORAYCOM, Inc. on June 3, 1996, October 1, 1996 and June 1, 1997, respectively. Beginning June 10, 1996, WWATT began offering a private placement which was consummated March 12, 1997 with sales to 40 accredited investors. All the above transactions were adjusted in a stock dividend upon the recapitalization of WWATT into Synaptx for which 3,600,000 shares of Synaptx common stock were issued. Additionally, 790,000 shares of Synaptx common stock were issued to one person, for providing services related to the recapitalization of WWATT into Synaptx. On January 23, 1997 pursuant to a written agreement, the Company issued an aggregate of 85,716 shares of common stock to a total of three individuals in exchange for various services rendered to the Company, including assisting the Company in its search for and investigation of potential acquisition and merger candidates. These shares were issued in reliance on the exemption from registration provided by Rule 701 promulgated under the Securities Act of 1933, as amended (the "Act"), and certificates representing the shares bear an appropriate restrictive legend. On June 3, 1997 the Board of Directors of Synaptx authorized a stock rights offering whereby every shareholder of record as of May 28, 1997 of Synaptx common stock could purchase one (1) share of common stock for every three (3) shares held at a price of $2.18 per share. As a result, an offering of 1,682,403 shares were so offered of which 3,591 were exercised by an aggregate of five shareholders as of June 30, 1997, the expiration date. On October 2, 1997, an existing shareholder and the President of the Company s wholly-owned subsidiary, ORAYCOM, Inc. purchased 15,000 shares of the Company s common stock at $2.00 per share which approximated the then existing fair market value of the Company's common stock as determined by the Board of Directors. 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 extends through November 21, 1997 with the President of the Company authorized to extend this offer, which he did for 60 more days until January 21, 1998. No shares have been sold as of the date hereof. With respect to the issuance and/or sale of the aforementioned shares except for those issued on January 23, 1997, the Company relied on the exemption from registration provided by Sections 4(2) and 4(6) of the Securities Act of 1933, as amended (the "Act"). The Company has also made available to purchasers of its common stock its business plan and/or Private Placement Memorandum. All of the shares issued to the aforementioned persons bore restrictive legends preventing their transfer except in accordance with the Act and the regulations promulgated thereunder. In addition, stop transfer instructions pertaining to these shares have been lodged with the Company s transfer agent. ITEM 5. Indemnification of Directors and Officers As permitted by the provisions of the Utah Revised Business Corporation Act (the "Utah Act"), the Company has the power to indemnify an individual made a party to a proceeding because they are or were a director, against liability incurred in the proceeding, if such individual acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Company and, in a criminal proceeding, where they had no reasonable cause to believe their conduct was unlawful. Indemnification under this provision is limited to reasonable expenses incurred in connection with the proceeding. The Company must indemnify a director or officer who is successful, on the merits or otherwise, in the defense of any proceeding or in defense of any claim, issue, or matter in the proceeding, to which they are a party to because they are or were a director or officer of the Company, against reasonable expenses incurred by them in connection with the proceeding or claim with respect to which they have been successful. The Company s Articles of Incorporation empower the Board of Directors to indemnify its officers, directors, agents, or employees against any loss or damage sustained when acting in good faith in the performance of their corporate duties. The Company may pay for or reimburse reasonable expenses incurred by a director, officer employee, fiduciary or agent of the Company who is a party to a proceeding in advance of final disposition of the proceeding provided the individual furnishes the Company with a written affirmation that their conduct was in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the Company, and undertake to repay the advance if it is ultimately determined that they did not meet such standard of conduct. Also pursuant to the Utah Act, a corporation may set forth in its articles of incorporation, by-laws or by resolution, a provision eliminating or limiting in certain circumstances, liability of a director to the corporation or its shareholders for monetary damages for any action taken or any failure to take action as a director. This provision does not eliminate or limit the liability of a director (i) for the amount of a financial benefit received by a director to which they are not entitled; (ii) an intentional infliction of harm on the corporation or its shareholders; (iii) for liability for a violation of Section 16-10a-842 of the Utah Act (relating to the distributions made in violation of the Utah Act); and (iv) an intentional violation of criminal law. To date, the Company has not adopted such a provision in its Articles of Incorporation, By-Laws, or by resolution. A corporation may not eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. The Utah Act also permits a corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees, fiduciaries or agents. Transfer Agent The Company has designated Interstate Transfer Co., 56 West 400 South, Suite 260, Salt Lake City, Utah 84101, as its transfer agent. PART F/S The financial statements for Synaptx Worldwide, Inc. for the fiscal years ended August 31, 1997 and 1996 have been audited to the extent indicated in their report (which contains an explanatory paragraph regarding the Company s ability to continue as a going concern) by BDO Seidman, LLP, independent certified public accountants, and have been prepared in accordance with generally accepted accounting principles and pursuant to Regulation S-B as promulgated by the Securities and Exchange Commission and are included herein in response to Item 15 of this Form 10-SB/A. The financial statements for Synaptx Impulse, Inc. for the fiscal year ended August 31, 1996 have been audited to the extent indicated in their report by BDO Seidman, LLP, independent certified public accountants, and have been prepared in accordance with generally accepted accounting principals. The financial statements for ORAYCOM, Inc. for the nine months ended May 31, 1997 have been audited to the extent indicated in their report by BDO Seidman, LLP, independent certified public accountants, and have been prepared in accordance with generally accepted accounting principals. Index to Financial Statements Synaptx Worldwide, Inc. and Subsidiary (f/k/a/ Worldwide Applied Telecom Technology, Inc.) Independent Auditors' Report F-2 Consolidated Balance Sheets as of August 31, 1997 and 1996 F-3 Consolidated Statements of Operations for the Years Ended August 31, 1997 and 1996 F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended August 31, 1997 and 1996 F-5 Consolidated Statements of Cash Flows for the Years Ended August 31, 1997 and 1996 F-6 Notes to Consolidated Financial Statements F-7 Consolidated Pro Forma Financial Information Introduction to the Unaudited Pro Forma Consolidated Financial Information for the Year Ended August 31, 1997 F-22 Consolidated Pro Forma Statement of Operations for the Year Ended August 31, 1997 F-23 Notes to Pro Forma Consolidated Financial Statements F-24 Acquisitions Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.) Independent Auditors' Report F-25 Balance Sheet as of August 31, 1996 F-26 - F-27 Statement of Operations for the Year Ended August 31, 1996 F-28 Statement of Stockholders' Deficit for the Year Ended August 31, 1996 F-29 Statement of Cash Flows for the Year Ended August 31, 1996 F-30 Notes to Financial Statements F-31 ORAYCOM, Inc. Independent Auditors' Report F-38 Balance Sheet as of May 31, 1997 F-39 Statement of Operations for the Nine Months Ended May 31, 1997 F-40 Statement of Stockholder's Equity for the Nine Months Ended May 31, 1997 F-41 Statement of Cash Flows for the Nine Months Ended May 31, 1997 F-42 Notes to Financial Statements F-43 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Synaptx Worldwide, Inc. Elgin, Illinois We have audited the accompanying consolidated balance sheets of Synaptx Worldwide, Inc. and subsidiaries as of August 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Synaptx Worldwide, Inc. and subsidiaries at August 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO SEIDMAN, LLP Chicago, Illinois November 21, 1997 Synaptx Worldwide, Inc. and Subsidiaries Consolidated Balance Sheets August 31, 1997 and 1996 1997 1996 ASSETS Current assets: Cash $ 58,265 $ - Accounts receivable 1,001,638 36,792 Prepaid expenses and deposits 44,662 - Total current assets 1,104,565 36,792 Property and equipment 254,990 13,100 Less accumulated depreciation (69,041) (1,600) Net property and equipment 185,949 11,500 Costs in excess of net assets acquired (net of accumulated amortization of $129,372) 1,631,673 - Restricted cash - 10,000 Due from Maxwell Partners - 50,000 Deferred placement cost - 5,000 Other assets 60,998 - Total assets $ 2,983,185 $ 113,292 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 679,477 $ 56,746 Accrued expenses and taxes 199,644 60,000 Notes payable 295,482 - Current portion of long-term debt 8,120 - Due to officer - 32,000 Deferred revenue 414,700 - Total current liabilities 1,597,423 148,746 Liability to private placement subscribers - 10,000 Long-term debt, net of current portion 21,200 - Commitments - - Stockholders' equity (deficit) Preferred stock; $.001 par value; 10,000,000 shares authorized, none issued - - Common stock; $.001 par value; 25,000,000 shares authorized, 5,193,660 and 1,937,022 issued and outstanding 5,194 1,936 Additional paid in capital 2,052,977 43,664 Deficit (693,609) (91,054) Total stockholders' equity (deficit) 1,364,562 (45,454) Total liabilities and stockholders' equity (deficit) $ 2,983,185 $ 113,292 Synaptx Worldwide, Inc. and Subsidiaries Consolidated Statements of Operations For the Years Ended August 31, 1997 and 1996 1997 1996 Net sales and revenues: Marketing services and production $ 3,301,878 $ 145,653 Commission income 119,005 - Executive placement fees 180,241 - Total revenues 3,601,124 145,653 Cost of sales and revenues 2,571,467 126,561 Gross profit 1,029,657 19,092 Selling, general and administrative expenses 1,384,481 90,033 Depreciation and Amortization 197,287 1,600 Loss from operations (552,111) (72,541) Interest expense 50,444 - Net loss $ (602,555) $ (72,541) Weighted average shares outstanding 4,339,640 1,937,022 Net loss per share $ (0.14) $ (0.04) Synaptx Worldwide, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) For the Two Years Ended August 31, 1997 and 1996 Additional Common Stock Paid-in Shares Par Value Capital Deficit Total Balances, August 31, 1995 539,285 $ 539 $ 29,461 $ (18,513) $ 11,487 Shares issued for assets 1,397,737 1,397 11,703 - 13,100 Expenses incurred for the Company by the President - - 2,500 - 2,500 Net loss for the year - - - (72,541) (72,541) Balances, August 31, 1996 1,937,022 1,936 43,664 (91,054) (45,454) Shares issued for business acquisitions 902,259 902 1,189,098 - 1,190,000 Sale of common stock-net 901,665 902 760,919 - 761,821 Shares issued for assets 5,503 6 4,994 - 5,000 Reverse Merger into Public Shell 1,447,211 1,448 (4,698) - (3,250) Discount on options tied to acquisition - - 45,000 - 45,000 Discount on stock warrants tied to debt - - 14,000 - 14,000 Net loss for the year - - - (602,555) (602,555) Balances, August 31, 1997 5,193,660 $5,194 $ 2,052,977 $(693,609) $1,364,562 Synaptx Worldwide, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended August 31, 1997 and 1996 1997 1996 Cash flows from operating activities Net loss $ (602,555) $ (72,541) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 67,915 1,600 Non cash rent expense - 2,500 Amortization 129,372 - Changes in assets and liabilities net of assets acquired: Increase in accounts receivable (396,760) (9,791) Decrease in other current assets (17,896) - Increase in accounts payable 391,353 29,890 (Decrease) increase in accrued expenses and taxes (281,803) 60,000 Increase in deferred revenue 264,700 - Net cash (used in) provided by operating activities (445,674) 11,658 Cash flows from investing activities Additions to property, plant and equipment (75,607) - Cash paid for acquisitions (43,231) - Additions to other assets (58,618) - Net cash used in investing activities (177,456) - Cash from financing activities (Reductions in) bank lines of credit (10,018) - Additions to (Reductions in) long-term debt-net (100,908) - Decrease (Increase) in restricted cash 10,000 (10,000) (Decrease) Increase in liability to private placement subscribers (10,000) 10,000 Decrease (Increase) in deferred placement costs 5,000 (5,000) Decrease (Increase) in due from Maxwell Partner 50,000 (50,000) (Decrease) Increase in due to officer (32,000) 32,000 Issuance of common stock-net 769,321 - Cash provided by (used in) financing activities 681,395 (23,000) Net increase (decrease) in cash 58,265 (11,342) Cash at beginning of year - 11,342 Cash at end of year $ 58,265 $ - Synaptx Worldwide, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Summary of Accounting Policies Operations and Basis of Reporting Synaptx Worldwide, Inc., formerly known as Worldwide Applied Telecom Technology, Inc. (the Company ), is a holding company incorporated in the State of Utah. The Company has three wholly owned subsidiaries, Synaptx Access, Inc. (F/K/A North American Telco Cable Representatives, Inc.) ( Access ), which was incorporated in Florida, Synaptx Impulse, Inc. (F/K/A Maxwell Partners, Inc.) ( Impulse ), which was incorporated in Illinois, and ORAYCOM, Inc. ( ORAYCOM ), which was incorporated in Texas. (Note 2). The consolidated financial statements of the Company (incorporated on November 3, 1995) are reporting the Company's initial results for the ten months ended August 31, 1996 and for the full year ended August 31, 1997. Access is a consulting and sales representative firm based in Florida that provides telecommunications and information industry companies with consulting, field sales and business development support. Clients are located throughout the United States. Access was acquired in June, 1996 and was accounted for as a pooling of interests. Access' revenues are primarily from telecommunications companies. Accordingly, all fiscal year ended August 31, 1996 revenues and all receivables at August 31, 1996 are related to these customers. (See Note 2) Impulse is a Chicago, Illinois and Atlanta, Georgia based marketing and advertising agency serving primarily the telecommunications and information industries throughout the United States. The firm employs industry professionals with expertise in market research, strategic and market planning, marketing communications, sales training and management, graphic design, database marketing, and web site information systems development. Eleven months of Impulse revenues from its October 1, 1996 acquisition date are included in fiscal year ended August 31, 1997 results. (See Note 2) ORAYCOM, Inc. is a sales representative firm based in Texas that provides field sales and business development support for specified product lines and/or territories for clients under contract who include cable TV and telecommunications (both voice and data networking) original equipment manufacturers, commonly referred to as OEMs, located primarily in the southwestern United States. These clients pay a negotiated commission on all sales associated with the contracted coverage. Three months of ORAYCOM revenues from its June 1, 1997 acquisition date are included in fiscal year ended August 31, 1997 results (See Note 2) 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. For the ten months ended August 31, 1995 (initial period of operation), the Company experienced a net loss of $18,513, For the years ending August 31, 1996 and 1997 the Company realized net losses of $72,541 and $602,555, respectively. At August 31, 1997, the Company has a working capital deficit of $492,858, supported by positive stockholders equity of $1,364,562. 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 a secondary private 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 complete its secondary private placement. Failure to secure such financing or complete its secondary private placement may result 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 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. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, (Note 2). Upon consolidation, significant intercompany accounts, transactions and profits are eliminated. Revenue Recognition Professional fees, production billings, commission income and executive placement fees represent the principal sources of revenue of the Company. Professional fee revenues are generally recognized when fees are earned based on work performed. Production revenues are recorded as billed with costs accrued for vendor invoices not yet received. Commission revenues are recorded as sales are consummated. Executive placement fees are recognized when an individual recommended is hired by the client. Deferred Revenue Impulse often receives prepayments for professional services to be rendered. This revenue is deferred and as the services are provided, a proportionate share of the deferred revenue is recognized as income. Property and Equipment; Depreciation Property and equipment are stated at cost and depreciated over their estimated useful lives of three to five years using the straight-line method. Cost in Excess of Net Assets Acquired The excess of cost over fair value of net assets of businesses acquired is being amortized on a straight-line basis over ten years. Income Taxes Prior to the business combination on June 3, 1996, the Company's wholly owned subsidiary, Access, with the consent of its shareholders, elected to be taxed as an "S" corporation in compliance with elections under the Internal Revenue Code. Accordingly, no liability or provision for federal income taxes is included in the accompanying financial statements, nor are any deferred taxes provided for timing differences between income tax and financial reporting for the stub period prior to the merger. Since the acquisition date, Access' results are included with the Company's results. (See Note 5) Estimates The accompanying financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those estimates. Recent Accounting Pronouncements In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." The new standard simplifies the standards for computing earnings per share and requires presentation of two new amounts: basic and diluted earnings per share. The Company will adopt this standard when it reports its operating results for the second quarter ending February 28, 1998. When the Company adopts SFAS No. 128, it expects to report the following restated amounts for the fiscal years ended August 31, as follows: 1997 1996 Basic $ (0.14) $(0.04) Diluted $ (0.14) $(0.04) In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income . The new standard discusses how to report and display comprehensive income and its components. This standard is effective for years beginning after December 15, 1997. When the company adopts this statement, it is not expected to have a material impact on the presentation of the Company s financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information . This standard requires enterprises to report information about operating segments, their products and services, geographic areas, and major customers. This standard is effective for years beginning after December 15, 1997. When the company adopts this statement, it is not expected to have a material impact on the presentation of the Company s financial statements. Financial Instruments Financial instruments which potentially subject the Company to concentrations of risk consist principally of temporary cash investments and accounts receivable. The Company invests its temporary cash balances in financial instruments of highly rated financial institutions with maturities of less than three months. The carrying values reflected in the balance sheets reasonably approximate the fair values for cash, accounts receivable, payables and debt. Net Loss Per Share Net loss per share is based on the weighted average number of shares of common stock outstanding during each year. Stock Dividend In February 1997, the Company declared a 10.058% stock dividend. All share and per share data have been adjusted to reflect the stock dividend. Business Reorganization - Reverse Merger On February 10, 1997, the Company entered into a merger agreement (the "Merger") with Worldwide Applied Telecom Technology, Inc., a Delaware corporation, ("WWATT"). Pursuant to the terms of the Merger, the Company effected a reverse stock split of its outstanding shares of common stock on a one (1) share for one and three-fourths (1.75) shares, and exchanged 3,600,000 shares of authorized but previously unissued shares of the Company's common stock for all the previously issued and outstanding shares of WWATT. An additional 790,000 shares of the Company's common stock was issued for services related to the Merger. As a result of the Merger, WWATT was merged with and into the Company with the Company being the surviving corporation, and the Company changed its corporate name to Synaptx Worldwide, Inc. The aforementioned actions were approved by the Company's shareholders at the Special Meeting of Shareholders held March 12, 1997. Prior to the Merger, there was no affiliation between the Company and WWATT, nor between the officers, directors or principal shareholders of the two respective entities. For accounting purposes, the transaction has been treated as a recapitalization of the Company, or reverse merger. Subsequent to the acquisition, all of the Company s activities have been restated to the prior business endeavors of WWATT. Had the merger taken place on September 1, 1995, the pro forma inclusion of Synaptx s operating results would not have had a significant effect on the consolidated revenues and net loss of the Company. NOTE 2. Business Combinations - - Access On June 3, 1996, the Company entered into a definitive agreement with the shareholders holding all of the issued and outstanding common stock of Access. These shareholders agreed to exchange all of their outstanding common stock for 539,285 shares of common stock of the Company. The acquisition was accounted for as a pooling of interests and, accordingly, the accompanying financial information has been restated to include the accounts of Access for all periods presented. Results of the separate entities for the periods preceding the acquisition are as follows: September 1, 1995 through May 31, 1996 Revenues: The Company $ - Access 105,773 $ 105,773 Net loss: The Company 37,713 Access 18,999 $ 56,612 - - Impulse On July 13, 1996, the Company signed a definitive agreement to exchange 759,400 shares of its common stock for all of the existing outstanding common stock of Impulse. The exchange of common stock was consummated on October 1, 1996. The acquisition was accounted for using the purchase method of accounting. Impulse is primarily engaged in marketing to the telecommunications and information industries. The results of operations of Impulse are included in the accompanying financial statements for the eleven months from October 1, 1996 to August 31, 1997 for the fiscal year ended August 31, 1997. The total cost of the acquisition was approximately $1,304,000, which included the fair value of the net liabilities assumed from Impulse. The excess will be amortized on the straight-line method over ten years. - - ORAYCOM On June 1, 1997, the Company signed a definitive agreement and consummated an exchange of 142,858 shares of its common stock for all of the existing outstanding common stock of ORAYCOM. In addition, the Company is potentially liable for contingent consideration (see below). The acquisition was accounted for using the purchase method of accounting. ORAYCOM is primarily engaged in representing clients primarily in the telecommunications (both voice and data networking) and cable TV industries for which ORAYCOM is paid commissions based on contractually agreed upon rates for products/services sold. The results of operations of ORAYCOM are included in the accompanying financial statements for the three months from June 1, 1997 to August 31, 1997 for the fiscal year ended August 31, 1997. The total cost of the acquisition was approximately $500,000, which exceeded the fair value of the net assets of ORAYCOM by approximately $414,000. The excess will be amortized on the straight-line method over ten years. Additionally, pursuant to the terms of the acquisition, the former shareholder of ORAYCOM 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 ORAYCOM beginning June 1, 1997 through August 31, 1999. The additional consideration is specified as fixed amounts for monthly attainment of specified commission revenues and earnings through August 31, 1997 which were not met by ORAYCOM, thus no additional consideration was earned, and for the attainment of specified annual commission revenues and earnings for the subsequent fiscal years ending August 31, 1998 and 1999. If ORAYCOM meets the specified commission revenues and earnings amounts for the fiscal years ending August 31, 1998 and 1999, the additional consideration could amount to $350,000. The additional consideration, if any, would be added to the costs in excess of net assets acquired and will be amortized on the straight-line method over the remaining life of the 10 year amortization period, described above. As of November 1, 1997, ORAYCOM has not achieved results which would warrant any issuance of additional consideration. If the acquisitions of Impulse and ORAYCOM had occurred on September 1, 1995, management estimates that, on an unaudited pro forma basis, the following would have been reported on a consolidated basis for the years ended August 31: (Unaudited) 1997 1996 Revenues $4,217,423 $3,473,336 Net loss (805,405) (315,434) Loss per share $ (0.18) $ (0.11) Note 3. Property and Equipment Major classes of property and equipment consist of the following: 1997 1996 Leasehold improvements $ 7,708 $ - Furniture and fixtures 73,650 9,400 Computer equipment 173,632 3,700 254,990 13,100 Less accumulated depreciation 69,041 1,600 Net property and equipment $ 185,949 $ 11,500 NOTE 4. Notes Payable and Capital Lease Obligations Description % Rate Payment Terms 1997 1996 Line of 10.99 Due on demand $250,000 $ -0- Credit or May 1, 1998, see (a) below Term Note 10.99 Due December 30, 26,107 $ -0- 1997, see (a) below Line of 13.25 Due on demand, see 19,375 -0- Credit (b) below Term Note 5.00 Due June, 1997, see 590 -0- (c) below Capital Lease 14.00 to 26.75 Various, see Note 7 28,730 -0- Shareholder None Due on demand, see Loan Note 11 -0- 32,000 Total 324,802 32,000 Less current maturities 303,602 32,000 Long-term portion $ 21,200 $ -0- a) The notes payable consist of borrowings under a revolving line-of-credit with a bank which was assumed when Impulse was acquired. Borrowings under the line-of-credit, which is payable on demand or due May 1, 1998, are collateralized by substantially all of Impulse's assets and bear interest at the bank's internal rate (10.99% at August 31, 1997 and 1996). The total line balance is limited to no more than 65% of accounts receivable less than 90 days old. The line is secured by commercial guaranties of two of the shareholders and Synaptx. The Company also added a term loan with the same bank with which the line of credit exists when Impulse was acquired. This loan is collateralized by substantially all of Impulse's assets and bears interest at the bank's internal rate of 10.99% at August 31, 1997 and 1996. The loan is due December 30, 1997. The Company has guaranteed the personal and commercial debt of a certain shareholder and a Director (who are husband and wife) of the Company with this bank totaling $438,426 and $521,927 at August 31, 1997 and 1996, respectively. This guaranty was subsequently reduced to $130,920. (b) The notes payable also consist of unsecured borrowings under a revolving line-of-credit with a bank which was assumed when ORAYCOM was acquired. Borrowings under the line-of- credit, which is payable on demand, bear interest at the bank's internal rate (approximately 13.25% at August 31, 1997). The total line balance is limited to $20,000. (c) Notes payable also consist of a note payable assumed when ORAYCOM was acquired. The note was issued in exchange for furniture and equipment. The note bears interest at 5% per annum. Subsequent to August 31, 1997, the note was repaid. NOTE 5. Income Taxes With the consent of its stockholders, Access elected to be taxed as an "S" corporation pursuant to the Internal Revenue Code through June 3, 1996. Under this arrangement, the stockholders will include the taxable income (loss) of the Company in their individual tax returns. As of June 3, 1996, Access became a "C" corporation. Both Impulse and ORAYCOM also became C corporations as of their respective acquisition dates. A deferred tax asset was created as a result of the estimated future tax consequences of temporary differences between the financial statement and tax basis of assets given the provisions of the enacted tax laws. A valuation allowance has been established to fully reserve for this deferred tax asset. As of August 31, 1997, the Company has a net operating loss carryforward of approximately $500,000 which expires at various dates through 2012. NOTE 6. Employee Benefit Plans Impulse sponsors a qualified employee savings plan for all eligible employees. Participants may make contributions from their gross pay (limited to 15% of the employee s compensation, as defined), with Impulse matching such contributions (subject to certain limitations) at the rate of 25% of the first 6% of each participant s contribution. Employer matching contributions to the plan were approximately $6,000 and $7,000 for the years ended August 31, 1997 and 1996, respectively. ORAYCOM sponsors a SEP/IRA plan for all eligible employees. Participants may make contributions from their gross pay (limited to $9,500 of the employee s compensation, as defined). ORAYCOM does not provide a matching contribution. It is anticipated that the ORAYCOM employees will be phased into an overall Synaptx Worldwide corporate 401k plan in the near future. NOTE 7. Lease Obligations A subsidiary leases certain office furniture and equipment under capital lease agreements. The original principal amount of these capital leases was $36,987. The leases require monthly installments of $1,112, which includes interest ranging from 14.0% to 26.75%. The leases which have either 36 or 60 month terms terminate between May, 1998 and June 2002. The capital leases are secured by the underlying furniture and equipment. The following is a schedule by years of future minimum lease payments required under the leases together with their present value as of August 31, 1997: Year ending August 31, Amount 1998 $12,364 1999 10,985 2000 9,592 2001 5,411 2002 4,058 Total minimum lease payments $42,410 Less amount representing interest (13,680) Present value of minimum lease payments $28,730 The Company also leases both office space and equipment under operating leases which expire at various dates. Impulse occupies office space in Elgin, Illinois under a lease expiring January 31, 1998. Rentals are subject to annual escalation charges based upon increases in operating expenses and real estate taxes. Impulse signed a lease effective January 1, 1998 to rent new office space at a different location in Elgin. The lease term extends to December 2004. Monthly rents start at $10,598 and have a fixed escalation of approximately three-and-one-half percent per year. A security deposit of $21,194 has been paid to the landlord. The estimated cost of relocation of $70,000 is expected to be financed from current operations. On August 1, 1997 the Company entered into a standby letter of credit with its bank for $50,000 with an expiration date of March 1, 1998. The purpose of the credit is to secure relocation of the Company to its new leased premises. The beneficiary is the landlord. The credit accrues interest at 12%. The balance at August 31, 1997 was $-0-. In September 1996, Impulse entered into an agreement to lease office space in Atlanta, Georgia. The lease extends through June 1998. ORAYCOM occupies office space under a lease expiring July 2002. An amendment to the lease was entered into on July 8, 1997 for additional space. Rentals are subject to annual escalation charges based upon increases in operating expenses and real estate taxes. As of August 31, 1997, the Company s future minimum lease payments under operating leases are as follows: Year ending August 31, Amount 1998 $ 274,400 1999 216,400 2000 192,000 2001 174,500 2002 168,300 2003 & beyond 356,400 Total minimum rent commitments $ 1,382,000 Total rental expense for the Company s facilities and equipment was approximately $211,800 and $2,500 for the years ended August 31, 1997 and 1996, respectively. NOTE 8. Private Placements From July 1996 through March 1997, the Company sold 898,074 shares (post stock dividend, 816,000 pre-dividend) of the Company's common stock at $1 per pre-dividend share in a private placement which resulted in net proceeds of $753,993. The private placement required that a minimum of $500,000 be raised. At August 31, 1996, $10,000 was received towards the purchase of 10,000 shares. Accordingly, this cash was considered restricted and a liability was established for the subscribed shares. Placement costs of $5,000 were incurred as of August 31, 1996. These costs were offset against the proceeds when the private placement closed in March, 1997. On June 3, 1997 the Board of Directors of Synaptx authorized a stock rights offering whereby every shareholder of record as of May 28, 1997 of Synaptx common stock could purchase one (1) share for every three (3) shares held at a price of $2.18 per share. As a result, an offering of 1,682,403 shares were so offered of which 3,591 were exercised as of June 30, 1997, the expiration date. 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 extends through November 21, 1997 with the President of the Company authorized to extend this offer which he did for 60 more days until January 21, 1998. NOTE 9. Stock Incentive Plan The Company has a stock incentive plan (the "Plan") adopted by the Board of Directors on September 27, 1996 and approved by the stockholders on January 17, 1997. The Plan has been subsequently amended by the Board of Directors with approval by a majority of the then existing shareholders on October 22, 1997 to increase the number of issuable shares under the Plan and clarify the basis for determining fair market value of shares in conjunction with setting the exercise price of options at issuance. The Plan provides for the issuance of both qualified and nonqualified incentive stock options at an exercise price approximating the fair market value of the Company's stock at the date of grant (or 110% of such fair market value in the case of substantial stockholders). A total of 1,450,000 shares of the Company's common stock have been reserved pursuant to the Plan. As of August 31, 1996, there were no options outstanding under the Plan. Transactions during the fiscal year ended August 31, 1997 are summarized as follows: Number of Price per Weighted Weighted Shares Share Average Average Price per Remaining Share Life-Years Outstanding as of August 31, 1996 - - - - Granted 343,192 $ .09- $ 0.933 3.00 $ 2.18 Exercised - - Cancelled 15,137 $ .91 $ 0.909 Outstanding as of August 31, 1997 328,055 $ .09- $ 0.934 3.00 $ 2.18 Exercisable as of August 31, 1996 - Exercisable as of August 31, 1997 168,038 $ 0.747 2.33 In July and October 1996, the Company granted nonqualified options (included above) to purchase 33,018 and 55,030 shares of common stock, respectively. The option prices were $.91 and $.09, respectively. All these options remain outstanding and are exercisable. On November 1, 1997, the Company issued stock options to officers, directors and certain employees allowing for the purchase of 318,500 shares of the Company s common stock under the Plan expiring November 1, 2002 at exercise prices from $3.36 to $3.70 per share. Of the authorized shares available under the Plan, 813,629 remain available for issuance. The Company applies APB No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for options granted to employees. Under APB Opinion 25, because the exercise price of the options equals the market price of the underlying stock on the measurement date, no compensation expense is recognized. The weighted-average grant-date fair value of stock options granted to employees and independent contractors and directors during the year and the weighted-average significant assumptions used to determine those fair values, using a modified Black-Sholes option pricing model, and the pro forma effect on earnings of the fair value accounting for employee stock options under Statement of Financial Accounting Standards No. 123 are as follows: 1997 Grant-date fair value per share $ 3.76 Significant assumptions (weighted-average): Risk-free interest rate at grant date 6.00% Expected stock price volatility 42.03% Expected dividend payout - Expected option life-years(a) 3.00 Net loss: As reported $(602,555) Pro forma $(960,000) Net loss per share: As reported $ (0.14) Pro forma $ (0.22) (a) The expected option life is based on the exercise of options by their contractual expiration dates assuming that all options are so exercised since the Company has no historical option exercise patterns on which to base an alternative scenario. The Company has issued 200,006 warrants to various individuals. The exercise prices of the warrants range from $.45 to $1.36, with a weighted average price per share of $0.834. The warrants are exercisable and expire in August 2001 and February 2002, with an expected remaining life of 3.69 years, see (a), above. In accordance with FASB 123, as described above, the grant date fair market value of the shares associated with these warrants is $ 3.98 and their additional impact on the net loss would raise the pro forma net loss to approximately $(1,590,000) and the pro forma net loss per share to $(0.37). NOTE 10. Employment Agreements The Company has employment agreements with nine employees, including all three of its officers which expire at various dates through September 30, 2000. The aggregate commitment for future salaries, excluding bonuses, under these employment agreements is approximately $1,291,000. The following amounts apply to each of the fiscal years ending August 31, as follow: 1998-$706,000, 1999-$300,000, 2000-$270,000, and 2001-$15,000. These agreements shall be automatically renewed for successive one-year terms unless canceled by either party at least 30 days prior to the current term's expiration. The agreements also contain severance provisions from nine months and up to three years in case of early termination without cause. NOTE 11. Related Party Transactions The largest shareholder of the Company who is also the Chairman of the Board of Directors and the President of the Company received 269,642 shares (50% of the Company's common stock issued in the exchange of stock) for his 50% ownership in Access. Also, this individual provides a significant amount of the services to Access. For the years ended August 31, he was paid or an accrual was made for services provided and expenses incurred, as follows: 1997 1996 Total payments for the years ended Consulting and commissions expenses $111,400 $111,500 Expense reimbursements 46,500 38,000 Accounts payable at August 31 Consulting and commissions expenses 34,800 20,200 Expense reimbursements 12,800 2,700 In 1996, this shareholder advanced funds of $32,000 to the Company in the form of a noninterest-bearing loan. One of the members of the Board of Directors is also the founder / chief technology officer of the most significant customer of 1996. This director like all other outside directors also was granted options to purchase 5,529 shares of the Company's common stock subsequent to year end. See Note 9. Another member of the Board of Directors is the president of a corporation which is an executive affiliate of the Company for which he is eligible to receive fees for consulting services and commissions for sales generated for Access clients. For the fiscal years ended August 31, 1997 and 1996, he received consulting fees of $8,750 and $-0-, respectively. Additionally, he was reimbursed $3,126 and $-0- for expenses for the same years then ended. NOTE 12. Significant Customers A substantial portion of the Company's revenues is generated from relatively few customers. Two multi - divisional customers in the telecommunications industry accounted for approximately 21% and 34% of sales in the year ended August 31, 1997, although no individual division accounted for more than 4% or 16% of the Company s total sales, respectively. A third customer accounted for 21% of total sales. Receivables from these three customers represented approximately 14%, 65%, and 2% of total receivables at August 31, 1997, respectively. Two different customers also from the telecommunications industry represented 55% and 18% of sales in the year ended August 31, 1996. Receivables from these customers represented approximately 14% and 37% of total receivables at August 31, 1996, respectively. Note 13. Commitments In May 1997, the Company entered into letters of intent to acquire two telecommunications sales representative organizations serving the upper Midwest and Northwest United States. Though no definitive agreements have been entered into, both acquisitions would be primarily for capital stock. Note 14. Supplemental Cash Flow Disclosures During the years ended August 31, 1997 and 1996, the Company issued 5,503 and 1,397,737 shares of its common stock in exchange for fixed assets with a value of $5,000 and $13,100, respectively. Cash paid during the year for interest was $39,200 and $-0- for the years ended August 31, 1997 and 1996, respectively. During fiscal year 1997, the Company purchased all of the capital stock of Maxwell Partners, Inc., and ORAYCOM, Inc. for $690,000 and $500,000, respectively. In conjunction with the acquisition, liabilities assumed were as follows: 1997 1996 Fair value of assets acquired $ 2,453,834 $ - Cash paid (43,231) $ - Value of Stock issued (1,190,000) - Liabilities assumed $ 1,220,603 - SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES Pro Forma Consolidated Financial Statement Year Ended August 31, 1997 The following unaudited pro forma consolidated statement of operations for the year ended August 31, 1997 gives effect to the acquisitions of Synaptx Impulse, Inc. (F/K/A Maxwell Partners, Inc.) which was made as of October 1, 1996 and of ORAYCOM, Inc. which was made as of June 1, 1997. The acquisitions were accounted for using the purchase method of accounting. Accordingly, the results of operations of the acquired entities have been reflected since their acquisition dates. The pro forma information has been prepared as if the acquisitions occurred on September 1, 1996 and is based on historical financial statements of Synaptx Worldwide, Inc., Synaptx Impulse, Inc. and ORAYCOM, Inc. from September 1, 1996 to the respective acquisition dates. The unaudited pro forma statement of operations has been prepared by management based upon the financial statements of Synaptx Worldwide, Inc. and the acquired entities. These pro forma results may not be indicative of the results that actually would have occurred if the combination had been in effect since inception or which may be obtained in the future. SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES Consolidated Pro Forma Statements of Operations Year Ended August 31, 1997 (Unaudited) Pro Forma Pro forma Synaptx Synaptx ORAYCOM Adjustment Consoli- Worldwide, Inc. Impulse, Inc. Inc. Increase dation (Decrease) Revenues $ 3,601,124 $ 164,193 $452,106 $4,217,423 COST OF REVENUES 2,571,467 213,368 392,957 3,177,792 GROSS PROFIT 1,029,657 (49,175) 59,149 1,039,631 EXPENSES: Selling, general & administrative 1,384,405 87,956 62,753 1,535,114 Depreciation 67,915 6,000 3,858 77,773 Amortization 129,448 - 41,948 171,396 Interest Expense - Net 50,444 8,479 1,830 60,753 Total Expenses 1,632,212 102,435 68,441 41,948 1,845,036 NET (LOSS) $(602,555) $(151,610) $(9,292) $(41,948) $(805,405) Weighted average shares outstanding 4,339,640 170,427 4,518,067 NET (LOSS) PER SHARE OF COMMON STOCK $ (0.14) $ (0.18) See accompanying notes to pro forma financial statements SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES Notes to Pro Forma Financial Statement NOTE 1. Synaptx Impulse, Inc. Effective October 1, 1996, the Company acquired all of the outstanding stock of Synaptx Impulse, Inc. (F/K/A Maxwell Partners, Inc.,) whose principal operations consist of strategic and market planning, new product launch planning, distribution channel analysis and design, communications program planning and implementation, and event and trade show management primarily for clients in the telecommunications industry. The acquisition was consummated for 759,400 shares of Synaptx common stock, with a fair value at the acquisition date of $690,000. The transaction was recorded under the purchase method of accounting. The total cost of the acquisition was approximately $1,304,000, which exceeded the fair value of assets acquired by approximately $1,300,000. Pro forma adjustment related to the acquisition of Impulse include an adjustment for amortization of the cost in excess of fair value of net assets acquired of $10,823. NOTE 2. ORAYCOM, Inc. Effective June 1, 1997, the Company acquired all of the outstanding stock of ORAYCOM, Inc. ORAYCOM is engaged in representing clients primarily in the telecommunications (both voice and data networking) and cable TV industries for which ORAYCOM is paid commissions based on contractually agreed upon rates for products and services sold. The acquisition was consummated for 142,858 shares of Synaptx common stock, with a fair value at the acquisition date of $500,000. The transaction was recorded under the purchase method of accounting. The total cost of the acquisition was approximately $500,000, which exceeded the fair value of assets acquired by approximately $414,000. Pro forma adjustment related to the acquisition of ORAYCOM include an adjustment for amortization of the cost in excess of fair value of net assets acquired of $31,125. Independent Auditors' Report Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.) Chicago, Illinois We have audited the accompanying balance sheet of Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.) as of August 31, 1996 and the related statements of operations, stockholders' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.) at August 31, 1996 and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Chicago, Illinois April 23, 1997 Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Balance Sheet As of August 31, 1996 Assets Current Assets Cash $ 38 Investment in related party 15,000 Accounts receivable 469,481 Other receivables 1,058 Prepaid expenses and other 12,023 Total Current Assets 497,600 Property and Equipment, less accumulated depreciation and amortization(Note 1) 122,516 $620,116 Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Balance Sheet As of August 31, 1996 Liabilities and Stockholders' Deficit Current Liabilities Accounts payable $ 436,632 Accrued expenses 25,213 Due to related parties (Note 2) 33,250 Due to Synaptx Worldwide (Note 10) 50,000 Notes payable to bank (Note 4) 294,000 Notes payable to shareholders (Note 2) 40,675 Capital lease obligation - current portion (Note 5) 23,306 Deferred revenue 75,000 Total Current Liabilities 978,076 Capital Lease Obligation - Long-Term (Note 5) 2,173 Total Liabilities 980,249 Shareholders' Deficit Common stock, no par - 100,000 shares authorized - 15,150 shares issued and outstanding (Note 8) 35,000 Deficit (395,133) (360,133) $ 620,116 See accompanying summary of accounting policies and notes to financial statements. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Statement of Operations For the Year ended August 31, 1996 Revenues $2,900,084 Expenses Operating 1,173,011 Direct labor 779,606 Selling, general and administrative (Notes 6 and 7) 982,270 Total expenses 2,934,887 Operating loss (34,803) Other Income (Expense) Write-off of related party advances (Note 2) (53,000) Interest income 4,707 Interest expense (40,136) Miscellaneous 1,500 Total other expense (86,929) Net Loss $(121,732) See accompanying summary of accounting policies and notes to financial statements. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Statement of Stockholders' Deficit For the Year Ended August 31, 1996 Retained Subscrip- Common Earnings tion Shares Stock (Deficit) Receivable Total Balance, at September 1, 1995 15,150 $ 35,000 $(219,336) $(34,000) $(218,336) Net loss - - (121,732) - (121,732) Distributions to shareholders - - (54,065) - (54,065) Payment on subscription receivable - - - 34,000 34,000 Balance, at August 31, 1996 15,150 $ 35,000 $(395,133) $ - $(360,133) See accompanying summary of accounting policies and notes to financial statements. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Statement of Cash Flows For the Year ended August 31, 1996 Cash Flows From Operating Activities Net loss $ (121,732) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 65,000 Changes in assets and liabilities Increase in accounts receivable (43,610) Decrease in due from related parties 112,250 Decrease in other receivables 4,747 Decrease in prepaid expenses and other 26,083 Increase in accounts payable 3,916 Increase in accrued expenses 16,010 Increase in due to related parties 33,250 Increase in due to Synaptx Worldwide 50,000 (Decrease) in deferred revenue (160,000) Net cash used in operating activities (14,086) Cash Flows From Investing Activities Capital expenditures (3,553) Investment in related party (15,000) Net cash used in investing activities (18,553) Cash Flows From Financing Activities Contributions by shareholders 34,000 Distributions to shareholders (54,065) Payments on capital lease obligation (22,933) Payments on shareholder loans (99,325) Increase in line-of-credit, net 174,000 Net cash provided by financing activities 31,677 Net Decrease in Cash $ (962) Cash, at beginning of year 1,000 Cash, at end of year $ 38 Supplemental Disclosure of Cash Flow Information Interest paid $ 39,297 See accompanying summary of accounting policies and notes to financial statements. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Summary of Accounting Policies Nature of Operations Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.) (the "Company") is a Chicago, Illinois based marketing and advertising agency serving the telecommunications and information industries throughout the continental United States. The firm employs industry professionals with expertise in market research, strategic and market planning, marketing communications, sales training and management, database marketing and graphic design. Revenue Recognition Professional fees and production billings represent the principal sources of revenue derived from customers. Professional fees revenue is generally recognized when fees are earned based on work performed. Production revenues are recorded as billed with costs accrued for vendor invoices not yet received. Salaries and other company costs are expensed as incurred. Deferred Revenue The Company often receives prepayments for professional services to be rendered. This revenue is deferred and as the services are provided, a proportionate share of the deferred revenue is recognized into income. Investments During the fiscal year 1996, the Company purchased a 12.5% interest in Paw Island, a related party of the Company. This investment is accounted for using the cost method. Subsequent to year end, this investment was distributed to the individual shareholders of the Company. Property and Equipment Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using accelerated methods. Income Taxes The Company elected "S" corporation status when it was incorporated and, accordingly, it is not a tax- paying entity for federal income tax purposes. Its stockholders have consented to include the losses of the Company in their individual federal tax returns. Estimates The accompanying financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those estimates. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Summary of Accounting Policies Financial Instruments Financial instruments which potentially subject the Company to concentrations of risk consist principally of accounts receivable. The accounts receivable are from major corporations located throughout the United States and the associated credit risks are limited. The carrying values reflected in the balance sheet at August 31, 1996 reasonably approximate the fair values for accounts receivable and payable. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Notes to Financial Statements 1.Property and Equipment Major classes of property and equipment consist of the following: August 31, 1996 Leasehold improvements $ 10,506 Furniture and fixtures 228,365 Computer equipment 92,752 Vehicle 20,782 352,405 Less accumulated depreciation 229,889 Net property and equipment $ 122,516 2.Related Party Transactions The Company has notes payable to shareholders totaling $40,675 for the year ended August 31, 1996. These notes are payable on demand or December 28, 1999 and bear interest at 7.48%. For the last few years, the Company has performed marketing work for, and subleased rental space to, two related entities in which the majority shareholder has an equity interest. Revenues of $2,577 were derived from sales to related entities in the year ended August 31, 1996. In addition, the Company advanced these two entities funds from time to time. Cash advances of $44,700 were made to these related entities in the year ended August 31, 1996. It has been determined that the majority of these amounts are deemed uncollectible. As such, write- offs of $53,000 are reflected in the year ended August 31, 1996. In the future, the Company will no longer undertake such transactions. The Company also has $33,250 due to a related party at August 31, 1996 for amounts advanced. Rent charged to these affiliates for sublet office space was $5,835 for the year ended August 31, 1996. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Notes to Financial Statements During 1996, the Company paid commissions of $37,500 to the Company of one of the members of the board of directors of Synaptx Worldwide for the sale of equipment to a major customer. 3.Significant Customers A substantial portion of the Company's revenues is generated from relatively few customers. Two customers accounted for approximately 28% and 27% of sales in the year ended August 31, 1996. Receivables from these customers represented approximately 14% and 15% of total receivables at August 31, 1996, respectively. 4.Notes Payable to Bank The notes payable consist of borrowings under a revolving line-of-credit with the bank. Borrowings under the line-of-credit, which is payable on demand or due May 1, 1998, are collateralized by substantially all of the Company's assets and bear interest at the bank's internal rate (10.99% at August 31, 1996). The total line balance is limited to no more than 65% of accounts receivable less than 90 days old. The line is secured by commercial guaranties of two of the shareholders and Synaptx Worldwide. As of August 31, 1996, the balances due under this line are $171,300. The Company also has a term loan with a balance of $122,700 at August 31, 1996. This loan is collateralized by substantially all of the Company's assets and bears interest at the bank's internal rate of 10.99% at August 31, 1996. The loan is due May 31, 1997. The Company has also guaranteed the personal debt of shareholders of the Company totaling $447,921 at August 31, 1996. In addition, the Company has guaranteed the debt of a related entity totaling $74,006 at August 31, 1996. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Notes to Financial Statements 5.Capital Leases In 1994, the Company entered into a capital lease for various equipment and furniture. The total principal amount of this capital lease was $63,996. The lease requires monthly installments of $2,208, which includes interest at 19.44%, until November 1997. The capital lease is secured by the related furniture and equipment. The following is a schedule by years of future minimum payments required under the lease together with its present value as of August 31, 1996: Year ending August 31, Amount 1997 $ 26,508 1998 2,208 Total minimum lease payments 28,716 Less amount representing interest 3,237 Present value of minimum lease payments $ 25,479 6.Employee Benefit Plans The Company sponsors a qualified employee savings plan for all eligible employees. Participants may make contributions from their gross pay (limited to 15% of the employee's compensation, as defined), with the Company matching such contributions (subject to certain limitations) at the rate of 25% of the first 6% of each participant's contribution. Employer matching contributions to the plan were approximately $7,000 for the year ended August 31, 1996. The Company sponsored an incentive plan for the period December 1, 1995 through November 30, 1996. The incentive plan is contingent upon the profits generated by the Company that exceed $40,000 and performance objectives. Likewise, losses generated will result in no funds contributed to the incentive pool. Allocations of the fund are based upon employee eligibility and individual incen- tives. No contributions were made to the incentive plan as of August 31, 1996. 7.Lease Commitments The Company occupies their premises under a lease expiring January 31, 1998. An amendment to the lease was entered on August 30, 1994 for additional space. Rentals are subject to annual escalation charges based upon increases in operating expenses and real estate taxes. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Notes to Financial Statements As of August 31, 1996, the Company's future minimum lease payments under operating leases are as follows: Year ending August 31, Amount 1997 $ 131,220 1998 54,675 Total minimum rent commitments $ 185,895 Rental expense for the Company's facilities amounted to approximately $121,035 for the year ended August 31, 1996. In September 1996, the Company entered into an agreement to lease office space in Atlanta, Georgia. The lease extends through June 1998. The aggregate minimum rental commitment for this period would be approximately $69,000. In February 1997, the Company signed a letter of intent to build out and rent new office space at a different location. The proposed lease would extend for seven years commencing in December 1997. The aggregate minimum rental commitment for this period would be approximately $1,146,000. A payment of $2,000 of the total required deposit of $25,000 has been made and serves as the second month's rent and security deposit. 8.Common Stock In January 1995, the Company's authorized shares of common stock were increased from 1,000 shares to 100,000 shares. An additional 15,050 shares of common stock were issued to selected employees of the Company. 9.Employment Agreements In July 1996, the Company entered into employment agreements with its chief financial officer and president which extend through December 31, 1997. The agreements shall be automatically renewed for successive one-year terms unless cancelled by either party at least 30 days prior to the current term's expiration. The agreements provide for an aggregate annual salary of $225,000 and a discretionary bonus not to exceed 33% of the employee's regular compensation for each quarter. If the employee is terminated without cause, the Company is liable for three years of regular compensation if this termination takes place during the initial term and two years of regular compensation if after the initial term. Synaptx Impulse, Inc. (f/k/a/ Maxwell Partners, Inc.) Notes to Financial Statements In July 1996, the Company also entered employment agreements with three of the Company's shareholders which extend through December 31, 1997. The terms are the same as the aforementioned agreements with an annual salary of $72,000 per shareholder. If the employee is terminated without cause during the initial term of their agreement, the Company is liable for nine months of regular compensation. 10.Acquisition On July 13, 1996, the Company signed a definitive agreement to exchange all the outstanding common stock of the Company for 690,000 shares of common stock of Synaptx Worldwide, Inc. The exchange of common stock was consummated on October 1, 1996. As of August 31, 1996, Synaptx Worldwide, Inc. had advanced $50,000 to the Company in the form of a noninterest-bearing advance. Independent Auditors' Report To the Board of Directors Oraycom, Inc. Carrollton, Texas We have audited the accompanying balance sheet of Oraycom, Inc. as of May 31, 1997 and the related statements of operations, stockholder's equity and cash flows for the nine months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oraycom, Inc. at May 31, 1997 and the results of its operations and cash flows for the nine months then ended, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Chicago, Illinois November 21, 1997 ORAYCOM, Inc. Balance Sheet As of May 31, 1997 ASSETS Current assets: Cash $ - Accounts receivable 124,772 Prepaid expenses and deposits 1,095 Total current assets 125,867 Equipment 28,722 Less accumulated depreciation (10,564) Net equipment 18,158 Other assets 2,380 Total assets $ 146,405 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank line of credit $ 12,500 Accounts payable 5,682 Accrued expenses and taxes 27,876 Short-term debt 590 Capital lease obligations, current 5,320 Total current liabilities 51,967 Long-term portion of capital lease obligations 8,610 Total Liabilities 60,577 Commitments - Stockholder's equity Common stock; $.01 par value; 1,000,000 shares authorized, 70,000 issued and outstanding 700 Additional paid-in capital 300 Retained earnings 84,828 Total stockholder's equity 85,828 Total liabilities and stockholder's equity $ 146,405 See accompanying summary of accounting policies and notes to financial statements ORAYCOM, Inc. Statement of Operations For the Nine Months Ended May 31, 1997 Commissions earned $ 452,106 Cost of services 392,957 Gross Profit 59,149 Selling, general and administrative expenses 62,753 Depreciation 3,858 Loss from operations (7,462) Interest expense 1,830 Net loss $ (9,292) See accompanying summary of accounting policies and notes to financial statements ORAYCOM, Inc. Statement of Stockholder's Equity For the Nine Months Ended May 31, 1997 Additional Common Stock Paid-in Retained Shares Par Value Capital Earnings Total Balance, August 31, 1996 70,000 $ 700 $ 300 $ 94,120 $ 95,120 Net loss for the period - - - (9,292) (9,292) Balance, May 31, 1997 70,000 $ 700 $ 300 $ 84,828 $ 85,828 See accompanying summary of accounting policies and notes to financial statements ORAYCOM, Inc. Statement of Cash Flows For the Nine Months Ended May 31, 1997 Cash flows from operating activities Net loss $ (9,292) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 3,858 Changes in assets and liabilities net of assets acquired: Increase in accounts receivable (28,313) Increase in other current assets (867) Increase in accounts payable 4,137 Increase in accrued expenses and taxes 23,545 Net cash used in operating activities (6,932) Cash flows from investing activities Additions to equipment (2,685) Net cash used in investing activities (2,685) Cash from financing activities Borrowings on bank line of credit 12,500 Principal payments on long-term debt (16,980) Cash used in financing activities (4,480) Net decrease in cash (14,097) Cash at beginning of year 14,097 Cash at end of year $ - See accompanying summary of accounting policies and notes to financial statements ORAYCOM, Inc. Summary of Accounting Policies Nature of Operations ORAYCOM, Inc. (the "Company") is a sales representative firm based in Texas. The Company provides field sales and business development support for specified product lines and/or territories for clients under contract. Clients include telecommunications (both voice and data networking) and cable TV original equipment manufacturers, commonly referred to as OEM s, located primarily in the southwestern United States. These clients pay a negotiated commission on all sales associated with the contracted coverage. Revenue Recognition Revenues consist of commissions earned on the sales of manufacturers goods to end use customers or distributors. Commissions are earned as a percentage of sales made and generally range from three percent up to twelve percent depending on the volume of goods being sold and the complexity of the product. Revenue is generally recognized when sales take place which precedes the actual collection of the commission by approximately sixty days. Therefore, approximately two months of estimated commissions earned but not collected is recorded as accounts receivable. Equipment Equipment, consisting entirely of office equipment is stated at cost. Depreciation is computed over the estimated useful lives of the assets, ranging from thirty-six to sixty months, using the straight line method. Income Taxes The Company, with the consent of its sole shareholder, elected to be taxed as an "S" corporation in compliance with elections under the Internal Revenue Code. In lieu of corporation income taxes, the shareholder of an "S" corporation is taxed on his proportionate share of the company's taxable income. Accordingly, no liability or provision for federal income taxes is included in the accompanying financial statements nor are any deferred taxes provided for timing differences between income tax and financial reporting prior to May 31, 1997. Since the acquisition date, ORAYCOM s results are included with the Synaptx Worldwide, Inc. s results as reflected in a planned consolidated federal income tax return. (See Note 1). Estimates The accompanying financial statements include estimated amounts and disclosures based on management's assumptions about future events. Actual results may differ from those estimates. Financial Instruments Financial instruments which potentially subject the Company to concentrations of risk consist principally of accounts receivable. The carrying values reflected in the balance sheet reasonably approximate the fair values for accounts receivable, payable, and debt. ORAYCOM, Inc. Notes to Financial Statements Note 1. Acquisition On June 1, 1997 the sole shareholder of the Company consummated an exchange of all the outstanding common stock of the Company for 142,858 shares of common stock of Synaptx Worldwide, Inc. ( Synaptx ). The Company became a subsidiary of Synaptx. In conjunction with the acquisition, the Company entered into an employment agreement with its president for a three year term. The agreement shall be automatically renewed for successive one year terms unless canceled by either party at least thirty days prior to the then current term s expiration. The agreement calls for an annual salary of $120,000 plus a commission of 5% on all commission revenues generated within the Southwest U.S. territories that he manages. Note 2. Significant Customers A substantial portion of the Company's revenue is generated from relatively few customers. Three customers accounted for approximately 41%, 36% and 15% of revenues in the period ended May 31, 1997. It is anticipated that these percentages will decrease as the number of manufacturers represented grows. These customers represented approximately 23%, 44% and 33% respectively, of accounts receivable as of May 31, 1997. The customer representing 15% of revenues and 33% of receivables terminated its relationship with the Company effective May 31, 1997. The Company anticipates replacing this customer with a similar manufacturer s line. Note 3. Notes Payable Notes payable consist of a note to the former employer of the President and sole shareholder of the Company. This note was issued in exchange for furniture and equipment at the time of the Company s inception, September, 1994. The original amount of the note was $20,000 at 5% per annum for 36 months. Prior to the acquisition date a significant principal pre-payment was made. The remaining balance of $590 was repaid subsequent to year end. Note 4. Line of Credit The Company has an unsecured revolving line-of-credit with a bank. The maximum amount available is $20,000. Borrowings under the line-of- credit, which is payable on demand, bear interest at the bank s internal rate (approximately 13.25% at May 31, 1997). As of May 31, 1997, the outstanding balance is $12,500. Note 5. Capital Leases The Company leases certain office furniture and equipment under capital leases. The total principal amount of these capital leases is $18,645. The leases require monthly installments of $662, which includes interest ranging from 14% to 26.75%. The leases which have either 36 or 60 month terms terminate between May, 1998 and June, 2002. The capital leases are secured by the underlying furniture and equipment. The following is a schedule of future minimum lease payments required under the leases together with their present value as of May 31, 1997: Amount Year ending May 31, 1998 $ 7,938 Year ending May 31, 1999 5,574 Year ending May 31, 2000 5,574 Total minimum lease payments $19,086 Less amount representing interest 5,156 Present value of minimum lease payments $ 13,930 Note 6. Operating Lease Commitments The Company occupies office space under a lease expiring July 31, 2002. An amendment to the lease was entered into on July 8, 1997 for additional space. Rentals are subject to annual escalation charges based upon increases in operating expenses and real estate taxes. Additionally, the Company leases automobiles for use by its sales force. These leases dated between March 17, 1995 and May 1, 1997 vary in term from twenty-four to forty-eight months. As of May 31, 1997, the Company s future minimum lease payments under operating leases are as follows: Amount Year ending May 31, 1998 $ 64,184 Year ending May 31, 1999 55,004 Year ending May 31, 2000 42,524 Year ending May 31, 2001 31,266 Year ending May 31, 2002 25,987 Total minimum operating lease commitments $218,965 Note 7. Employee Benefit Plans The Company sponsors a SEP/IRA plan for all eligible employees. Participants may make contributions from their gross pay, limited to $9,500 of the employee s compensation, as defined. The Company does not provide a matching contribution. The Company has historically sponsored an incentive plan for all eligible employees contingent upon predetermined sales and earnings goals. As of May 31, 1997, employees had earned bonuses equal to 25% of annual pay, or a total of $34,687 for the first five months of calendar 1997, one half of which or $17,344 was paid. The remaining balance is included in accrued expenses and taxes. Note 8. Supplemental Disclosures of Cash Flow Information Cash paid for interest was $ 1,830 for the nine months ended May 31, 1997. PART III ITEM 1. Index to Exhibits The following exhibits are filed with this Registration Statement: Exhibit No. Exhibit Name 2.1* Merger Agreement and Plan of Reorganization. 3.1(i)* Articles of Incorporation and all amendments thereto ("P") 3.2(ii)* By-Laws of Registrant ("P") 4.1* Specimen of Common Stock Certificate ("P") 10.1* Lease Agreement on Registrant s principal place of business ("P") 10.2* Purchase Agreement of Synaptx Access, Inc. f.k.a. North American Telco / Cable Representatives, Inc. 10.3* Purchase Agreement for Synaptx Impulse, Inc., f.k.a. Maxwell Partners, Inc. 10.4* Purchase Agreement for ORAYCOM, Inc. 10.5* Employment Agreement for Ronald L. Weindruch 10.6* Employment Agreement for D. Mike Maxwell 10.7 New Lease Agreement on Principal Place of Business 21.1* Subsidiaries 27. Financial Data Schedule ________________ * Previously filed 2. Description of Exhibits See Item I above. SIGNATURES In accordance with Section 12 of the Securities and Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly organized. SYNAPTX WORLDWIDE, INC. (Registrant) By: /S/ Ronald L. Weindruch (Signature) Date: December 31, 1997 RONALD L. WEINDRUCH President EX-10.7 2 NEW LEASE AGREEMENT HIGHLAND LOFTS OFFICE LEASE 1. BASIC LEASE PROVISIONS (a) BUILDING: HIGHLAND LOFTS 168 East Highland Ave. Elgin, Illinois 60120 (b) LANDLORD AND ADDRESS: MARKUR DEVELOPMENT CORP., Agent P.O. Box 671 Elgin, Illinois 60121 (c) TENANT AND CURRENT ADDRESS: Prior to Commencement of Lease: After Commencement of Lease: Synaptx Impulse, Inc. Synaptx Impulse, Inc. (f/k/a Maxwell Partners, Inc.) (f/k/a Maxwell Partners, Inc.) 385 Airport Road, Suite A 168 E. Highland Ave., Suite 300 Elgin, IL 60123 Elgin, IL 60121 (d) DATE OF LEASE:. August 1, 1997. (e) LEASE TERM: 7 years (f) COMMENCEMENT OF TERM: January 1, 1998. (g) EXPIRATION DATE OF TERM: December 3 1, 2004. (h) BASE RENT, subject to adjustment as provided herein: The Base Rent for the purpose of this Lease shall be determined as follows: Months Lease Year Total Per Month 1-12 1 $10,597.00 13-24 2 $10,975.53 25-36 3 $11,370.93 37-48 4 $11,766.13 49-60 5 $12,177.80 61-72 6 $12,603.13 73-84 7 $13,041.22 Lessor agrees that the Base Rent for the first month of the Lease Tenn shall be abated. However, in the event that this Lease is terminated before expiration of the full term by a default of the Tenant, then the rent hereby abated shall be deemed reinstituted and immediately due and payable. (i) MEASURABLE AREA OF THE PREMISES: 91,672 Measurable Square Feet (j) RENTABLE AREA OF THE BUILDING: 67, 865 Rentable Square Feet (k) RENTABLE AREA OF THE DEMISED PREMISES: 19,760 Rentable Square Feet (l) GOOD FAITH DEPOSIT: Twenty One Thousand One Hundred Ninety Four ($21,194.00) Dollars of which $17,000.00 has been paid and balance is due by September 1, 1997. The failure to make any such payment shall be deemed an event of default hereunder. All of said funds shall be held as the Security Deposit until the termination of this Lease, whether by expiration of its term or otherwise. (m) ------------------------------------- (n) SECURITY FOR IMPROVEMENTS Simultaneously with the execution of this Tenant will deliver a bank irrevocable demand letter of credit ("LC") in favor of Landlord as beneficiary thereunder in the original amount of Fifty Thousand ($50,000.00) Dollars. The issuer, form and substance of the LC shall be subject to Landlord's reasonable approval consistent with the terms and conditions stated herein. The LC, including any extensions or renewals shall be released if and when the Tenant occupies the demised premises on or before January 31, 1998, and the Demised Premises are completed for occupancy on or before January 31, 1998. Any demand under the LC shall be accompanied by a certification signed by an officer of MARKUR DEVELOPMENT CORP. as agent for the Landlord that: the Tenant has not occupied the premises by January 31, 1998 and that all or a portion of said amount remains unpaid. All funds received by Landlord shall be deemed to apply to the Tenant's obligations under this Lease. 2. PREMISES. Landlord hereby leases to Tenant, and Tenant accepts the demised premises (hereinafter known as "demised premises' or "premises'), being the entire third (3rd) floor of the building having the common address of 168 East Highland Avenue, Elgin, IL (Building" or "Complete, as applicable) and described in the plan attached hereto as Exhibit "N' in the Building described in Subsection l(a) for the term and upon the conditions provided in the Lease, to be occupied and used by the Tenant for general offices and any other lawful purpose and no other purpose, subject to the agreements herein contained. Landlord agrees that unless Tenant shall consent thereto in writing in advance of the creation of such other tenancy, during the Term of this Landlord will not rent any portion of the remainder of the Building for any of the following uses: massage parlors; pediatric ob/gyn doctors; music or dance instruction; betting and gambling facilities; Laundromat or dry cleaner with plant on premises; day care facilities; business employing hazardous chemicals; taverns / bars which derive 65% of income from the sale of alcoholic beverages, 3. TERM, The term of this Lease shall commence on the date specified in Subsection l(f) (the "Commencement Date") and shall expire on the date specified in Subsection I (g) (the "Expiration Date!') unless sooner terminated as otherwise provided in this Lease. 4. RENT. The Tenant shall pay Base Rent and as specified in Subsection 1(h) to Landlord as identified or to such other person or at such other place as Landlord may direct in writing, monthly in advance on or before the first day of each month of the term except that the Tenant shall pay the second such monthly installment on the execution hereof as part of the Good Faith deposit in Subsection 10). If the term commences other than on the first day of a month or ends other than on the last day of the month, the Base Rent for the third month shall be prorated, and this prorated rent for the portion of the third month in which the term commences shall be paid on the first day of the third month of this lease term. All such base rent shall be paid without any set- off or deduction whatsoever. Unpaid base rent shall bear interest at the rate set forth in Subsection 27(f), from the date due until paid. Time is of the essence of this Lease. 5. SERVICES. The Landlord, as long as the Tenant is not in default under any of the covenants of this Lease, shall furnish: (a) Heating, Ventilating and Air Conditioning ("HVAC") Equipment when necessary to provide a temperature condition required for comfortable occupancy of the demised premises under normal business operations, daily from 7:00 A.M. to 8:00 P.M. and on Saturdays from 8:00 A.M. to 1:00 P.M., Sundays and holidays excepted. Tenant at its own cost and discretion will have control of certain HVAC Equipment including Library area and will not be subject to "set basic' environmental controls. For the purpose of this Lease the following shall be deemed to be adequate for comfortable occupancy: Summer 76' Fahrenheit with maximum 50% humidity Winter 70' Fahrenheit with minimum 25% humidity Wherever heat generating machines or equipment are used by Tenant in the demised premises which affect the temperature, otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air-conditioning units in the demised premises and the expense of installation shall be paid by Tenant. The expense resulting from the operation and maintenance of the supplementary air conditioning system shall be paid by the Tenant to the Landlord as additional rent at reasonable rates fixed by Landlord. The Landlord agrees to furnish heat to the demised premises, as required by law, on business days from 7:00 AM. to 8:00 P.M., Saturdays from 8:00 A.M. to 1:00 P.M., Sundays and holidays excepted. If Tenant requests Landlord to supply heat or air conditioning at times other than such hours, then upon at least 24 hours advance notice to Landlord, Landlord will supply the necessary heat or air conditioning at rates set by Landlord; (b) Cold water in common with other tenants for drinking, lavatory and toilet purposes drawn through fixtures installed by the Landlord, or by Tenant in the demised premises with Landlord's written consent, and hot water in common with other tenants for lavatory purposes from regular Building supply. Tenant shall pay Landlord as additional rent at rates fixed by Landlord and based upon Landlord's reasonable computation of any additional consumption based upon Tenant's activities for water furnished for any other purpose. The Tenant shall not waste or permit the waste of water. If the Tenant fails to pay within ten (10) days the Landlord's proper charges for water, the Landlord, upon not less than ten (10) days' notice, may, in addition to any other remedy provided in this Lease, discontinue furnishing that service and no such discontinuance shall be deemed an eviction or disturbance of Tenant's use of the demised premises or render Landlord liable for damages or relieve Tenant's use of the demised premises or render Landlord liable for damages or relieve Tenant from any obligation; (c) Janitor service and customary cleaning in and about the Building is allowed daily, Saturdays, Sundays and holidays excepted. The Tenant shall provide any janitor services or cleaning for the demised premises but subject to the Landlord's written consent and then only subject to supervision of Landlord and at Tenant's sole responsibility and by janitor or cleaning contractor or employees at all times satisfactory to Landlord. The Landlord will designate the location for depositing of Tenant's refuse. The Tenant will provide for the removal of any wastes reasonably deemed by Landlord to be in excess of normal and customary for such business purpose. Tenant will separate recyclable or other wastes if required by local ordinance. (d) Landlord will provide Tenant with after hours security passes for use of the elevators. Passenger elevator service in common with Landlord and other tenants, daily from 7:00 A.M. to 8:00 P.M., Saturdays from 8:00 A.M. to 1:00 P.M., Sundays and holidays excepted, and freight elevator service in common with Landlord and other tenants, daily from 8:00 A.M. to 5:00 P.M., Saturdays, Sundays and holiday excepted. Such normal elevator service, passenger or freight, if furnished at other times shall be optional with Landlord, which approval shall not be withheld and shall never be deemed a continuing obligation. The Landlord, however, shall provide limited passenger elevator service daily at all times such normal passenger service is not furnished. Operatorless automatic elevator service shall be deemed "elevator service" within the meaning of this paragraph. The passenger elevator shall be used for passenger only and freight elevator for all other purposes. (e) Window washing of all windows on the exterior walls of the Building located in the demised premises, both inside and out, at such times as shall be required in the Landlord's sole judgment; but such washing shall not be required more than once every six months. (f) It is understood that the parking areas are not maintained or under the control of the Landlord. Tenant shall be granted the right to use seventeen (17) of the fifty (50) covered spaces in the adjacent parking lot which is owned by the City of Elgin. Tenant recognizes and acknowledges that such use has been made available for approximately three (3) years from the time of Lease Commencement. All such parking privileges may be subject to reasonable regulations of the City or Landlord. Tenant acknowledges that Landlord has no control over such parking privileges which are under the authority of the City. (g) All electricity used in the premises shall be separately metered and the Tenant shall pay electric bills directly to the local electric utility company. Maintenance of fighting fixtures and replacement of lamps shall be furnished by Landlord at Tenant's expense, but not less than once per month, upon request of Tenant. (h) The Landlord does not warrant that any of the services above mentioned will be free from interruptions caused by war, insurrection, civil commotion, riots, acts of God or the enemy, governmental action, repairs, renewals, improvements, alternations, strikes, lockouts, picketing, whether legal or illegal, accidents, inability of the Landlord to obtain fuel or supplies or any other cause or causes beyond the reasonable control of the Landlord. Any such interruption of service shall never be deemed an eviction or disturbance of the Tenant's use and possession of the premises or any part thereof, or render the Landlord liable to the Tenant for damages, or relieve the Tenant from performance of the Tenant's obligations under this Lease, except that Landlord will forfeit base rent and any additional rent during such period where occupancy is disrupted for more than three (3) days. (i) Tenant is granted the right to install signage in the building lobby and listing signage on the face of the building. Landlord will assist Tenant in gaining necessary approval from the City. All of such signage shall be subject to Landlord's written approval which shall not be unreasonably denied or delayed. 6. CONDITION OF PREMISES. The Tenant's taking possession shall be conclusive evidence as against the Tenant that the demised premises were in good order and satisfactory condition when the Tenant took possession. No promise of the Landlord to alter, remodel, decorate, clean or improve the demised premises, the Building or the Complex and no representation respecting the condition of the demised premises, the Building or the Complex have been made by the Landlord to the Tenant, unless the same is contained herein, or made a part hereof, or in a written document signed by Landlord or its Agent. This Lease does not grant any rights to air over property. 7. FAILURE TO GIVE POSSESSION. If the Landlord shall be unable to give possession of the demised premises on the date of the commencement of the term hereof by reason of any of the following: (i) the Landlord has not completed its preparation of the demised premises, (ii) the Landlord is unable to give possession of the demised premises by reason of the holding over or retention of possession of any tenant, tenants or occupants, or (ii) for any other reason, Landlord shall not be subject to any liability for the failure to give possession on said date. In the event that the Landlord is unable to deliver the demised premises for either of the reasons listed as (i) or (ii) in the preceding sentence beyond December 31, 1997, then Landlord shall pay Tenant the latter's actual damages therefore, but only if attributable to an act or omission of the Landlord. Under such circumstances the rent reserved and covenanted to be paid herein shall not commence until the demised premises are available for occupancy by Tenant, and no such failure to give possession on the date of commencement of the term hereof shall affect the validity of this Lease or the obligations of the Tenant hereunder, nor shall the same be construed to extend the term of this Lease. If the demised premises are ready for occupancy prior to the date of the commencement of the term hereof and Tenant occupies the premises prior to said date, Tenant shall pay rental including amounts stated in Section 5 for the period of occupancy prior to the date of the commencement of the term hereof at the proportionate rental to the rent reserved herein. The said demised premises shall not be deemed to be unready for Tenant's occupancy or incomplete if only minor or insubstantial details of construction, decoration or mechanical adjustments remain to be done in the demised premises or any part thereof, or if special work, changes, alterations or additions required or made by Tenant in the layout or finish of the demised premises or any part thereof or shall be caused in whole or in part by Tenant through the delay of Tenant in submitting plans, supplying information, approving plans, specifications or estimates, giving authorizations or otherwise or shall be caused in whole or in part by delay and/or default on the part of Tenant and/or its subtenant or subtenants. In the event of any dispute as to whether the premises are ready for Tenant's occupancy, the decision of Landlord's architect shall be final and binding on the parties. 8. USE OF PREMISES. The Tenant shall occupy and use the demised premises during the term for the purpose above specified in Section 2 and none other; (a) The Tenant will not make or permit to be made any use of the demised premises which conflicts with exclusive rights granted to any other tenant or which directly or indirectly is forbidden by public law, ordinance or governmental regulation or which may be dangerous to persons or property, or which may invalidate or increase the premium cost of any policy of insurance carried on the Building or covering its operations; the Tenant shall not do, or pen-nit to be done, any act or thing upon the demised premises which will be in conflict with fire insurance policies covering the Building of which the demised premises form a part. Landlord will notify Tenant of any such exclusive rights, use of premise when granted to other tenants within ten (10) days after such leases are executed. The Tenant, at its sole expense, shall comply with all rules, regulations or requirements of the local Inspection and Rating Bureau, or any other similar body, and shall not do, or permit anything to be done upon said premises, or bring or keep anything thereon in violation of rules, regulations or requirements of the Fire Department, local Inspection and Rating Bureau, Fire Insurance Rating Organization or other authority having jurisdiction and then only in such quantity and manner of storage as not to increase the rate of fire insurance application to the Building, (b) any sign installed in the demised premises shall be installed by Landlord at Tenant's cost and in such manner, character and style as Landlord may approve in writing, which approval shall not unreasonably be withheld. (c) the Tenant shall not advertise the business, profession or activities of the Tenant conducted in the Building in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining to such business, profession or activities, and shall not use the name of the Building or complex for any purpose other than that of business address of the Tenant, and shall never use any picture or likeness of the Building or Complex in any circulars, notices, advertisements or correspondence without the Landlord's express consent in writing nor in any way do anything to defame, demean or call the Building, its managers, Landlords or tenants into disrepute, bad taste or vulgarity; (d) the Tenant or the Landlord shall not obstruct, or use for storage, or for any purpose other than ingress and egress the sidewalks, entrances, passages, courts, corridors, vestibules, halls, elevators and stairways of the Building; (e) no bicycle or other vehicle, no dog or other animal or bird shall be brought or permitted to be in the Building or any part thereof, (f) the Tenant or the Landlord shall not make or permit any noise or odor that is objectionable to other occupants of the Building to emanate from the demised premises, and shall not create or maintain a nuisance thereon, and shall not disturb, solicit or canvass any occupant of the Building or Complex, and shall not do any act tending to injure the reputation of the Building or Complex. Tenant shall not prepare or cook any food upon the demised premises without Landlord's written approval; (g) the Tenant shall not install any musical instrument or equipment in the Building, or any antennas, aerial wires or other equipment inside or outside the Building, without, in each and every instance, prior approval in writing by the Landlord. The use thereof, if permitted, shall be subject to control by the Landlord to the end that others shall not be disturbed or annoyed (h) the Tenant shall not waste water by tying, wedging or otherwise fastening open any faucet; (i) no additional locks or similar devices shall be attached to any door. No keys for any door other than those provided by the Landlord shall be made. If more than two keys for one lock are desired by the Tenant, the Landlord may provide the same upon payment by the Tenant. Upon termination of this Lease or of the Tenant's possession, the Tenant shall surrender all keys to the demised premises and shall make known to the Landlord the explanation of all combination locks of safes, cabinets and vaults of any such items remaining in the demised premises as well as any security codes needed for emergency access; (j) the Tenant shall be responsible for the locking of doors in and to the demised premises. Any damage resulting from neglect of this clause shall be paid for by Tenant; (k) the Landlord shall at the Tenant's expense, install and maintain all conduit and cable between (i) the Ameritech Demarcation Board in the Building and (ii) an agreed point of entry in the demised premises. Alternatively, Landlord may authorize a third party contractor to provide this service on an exclusive basis for the Building, in which case the Tenant shall pay such contractor directly for such installation and maintenance. The Tenant acknowledges that making building cabling the responsibility of a single party is reasonable and necessary to achieve security, efficiency, coordination and accountability. Whether building cabling is undertaken by the Landlord or an exclusive contractor, the Tenant agrees that neither the Landlord nor the contractor shall be liable for any loss, cost or damage suffered by the Tenant as a result of cabling installation and maintenance except to the extent caused by the negligence or willful misconduct of the party doing such work and that any such claim shall be limited to bodily injury, death or physical damage to property, the Tenant hereby waiving and releasing any claim for consequential damages resulting from an interruption of service, except that Landlord will make building access available on a 24 hours a day basis in case of disruption of service. (1) shades, draperies or other forms of inside window covering must be of such shape, color and material as approved and installed by the Landlord and shall remain in space at the termination of the lease; (m) the Tenant shall not overload any floor. Safes, furniture and all large articles shall be brought through the Building and into the demised premises at such times and in such manner as the Landlord shall direct and at the Tenant's sole risk and responsibility. The Tenant shall list all furniture, equipment and similar articles to be removed from the Building, and the list must be approved by the Landlord before building employees will permit any article to be removed; (n) unless the Landlord gives advance written consent in each and every instance, the Tenant shall not install or operate any steam or internal combustion engine, boiler, machinery, refrigerating or heating device or air-conditioning apparatus in or about the demised premises, or carry on any mechanical business therein, or use the demised premises for housing accommodations or lodging or sleeping purposes, or do any cooking therein or install or permit the installation of any vending machines, (except for a refrigerator of less than 15 cu ft, a vending machine and a microwave oven in the employee break room) or use any illumination other than electric light, or use or permit to be brought into the Building any inflammable oils or fluids such as gasoline, kerosene, naphtha and benzene, or any explosive or other articles hazardous to persons or property including firearms or other weapons; (o) the Tenant shall not place or allow anything to be against or near the glass or partitions, doors or windows of the demised premises which may diminish the light in, or be unsightly from the exterior of the Building, public halls or corridors; (p) the Tenant shall not install in the demised premises any equipment which uses an unusual amount of electricity without the advance written consent of the Landlord. "Unusual amount of electricity" shall mean any one or all of the following: (1) use of a lighting system which requires more electricity than the standard lighting fixtures provided in the Building by the Landlord; (2) the electrical load of electrical equipment (other than lighting) used in the premises exceeding an average of two watts per square foot of the premises; (3) electricity which is not at a nominal 120 volts; (4) electrical circuits with a capacity exceeding 20 amperes; (5) electricity used for equipment and/or accessories not normal for ordinary office use. If Landlord consents to such use of an unusual amount of electricity, the Tenant shall ascertain from the Landlord the maximum amount of electrical current which can safely be used in the demised premises, taking into account the capacity of the electric wiring in the Building and the demised premises and the needs of the other tenants in the Building and shall not use more than such safe capacity. The Landlord's consent to the installation of electric equipment shall not relieve the Tenant from the obligation not to use more electricity than such safe capacity; (q) in addition to all other liabilities for breach of any covenant of this Section 8, the Tenant shall pay to the Landlord all damages caused by such breach and shall also pay to the Landlord as additional rent an amount equal to any increase in insurance premium or premiums caused by such breach. Any violation of this Section 8 may be restrained by injunction. The Tenant shall be liable to the Landlord for all damages resulting from violation of any of the provisions of this Section 8. The Landlord shall have the right to make such reasonable rules and regulations as the Landlord or its agent may from time to time adopt on such reasonable notice to be given as the Landlord may elect. Nothing in this Lease shall be construed to impose upon the Landlord any duty or obligation to enforce provisions of this Section 8 or any rules and regulations hereafter adopted, or the terms, covenants or conditions of any other lease as against any other tenant, and the Landlord shall not be liable to the Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. 9. CARE AND MAINTENANCE. Subject to the provisions of Section 13, the Tenant shall, at the Tenant's own expense, keep the demised premises in good order, condition and repair during the term. If the Tenant does not make repairs promptly and adequately, the Landlord may, but need not, make repairs, and the Tenant shall promptly pay the cost thereof The Tenant shall pay the Landlord for overtime and for any other expense incurred in the event repairs, alterations, decorating or other work in the demised premises are not made during ordinary business hours at the Tenant's request. 10. ALTERATIONS. There shall be no painting or decorating, carpet installation, or erection of any partitions, any alterations in or additions to the demised premises or any nailing, boring or screwing into the ceilings, walls or floors, without the Landlord's prior written consent in each and every instance which shall not be unreasonably withheld. All such work shall be performed by or under the direction of Landlord, but at the cost of Tenant. The Landlord's decision to refuse such consent shall be conclusive. All additions, decorations, fixtures, hardware, non-trade fixtures and all improvements, temporary or permanent, in or upon the demised premises, whether placed there by the Tenant or by the Landlord, shall, unless the Landlord requests their removal, become the Landlord's property (Tenant will supply Landlord with a Schedule of such items to be included, within 60 days after occupancy by Tenant) and shall remain upon the demised premises at the termination of this Lease by lapse of time or otherwise without compensation or allowance or credit to the Tenant. If, upon the Landlord's request for removal, the Tenant does not remove said additions, decorations, fixtures, hardware, non-trade fixtures and improvements, the Landlord may remove the same and the Tenant shall pay the cost of such removal to the Landlord upon demand. 11. ACCESS TO PREMISE:. The Tenant shall permit the Landlord to erect, use and maintain pipes, ducts, wiring and conduits in an through the demised premises. The Landlord and Landlord's agents shall have the right to enter upon the premises, to inspect the same, to perform janitorial and cleaning services and to make such decorations, repairs, alterations, improvements or additions to the common areas of the premises, the Building or the Complex as the Landlord may deem necessary or desirable, and the Landlord shall be allowed to take all material into and upon said demised premises that may be required therefor without the same constituting an eviction of the Tenant in whole or in part and the rent reserved shall in no way abate (except as provided in Section 12) while said decorations, repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of business of the Tenant, or otherwise, except that to the extent feasible, work that is disruptive to tenant's business due to noise, dirt, dust, fumes and the like shall be scheduled and performed during non-business hours. If the Tenant shall not be personally present to open and permit an entry into said demised premises, at any time, when for any reason an entry therein shall be necessary or permissible, the Landlord or Landlord's agent may enter the same by a master key, or may forcibly enter the same, without rendering the Landlord or such agents liable therefore (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting the obligations and covenants of this Lease. Nothing herein contained, however, shall be deemed or construed to impose upon the Landlord any obligations, responsibility or liability whatsoever, for the care, supervision or repair of the Building, the Complex or any part thereof, other than as herein provided. The Landlord shall also have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability to the Tenant therefor, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets or public parts of the Building, and to close entrances, doors, corridors, elevators or other facilities. The Landlord shall not be liable to the Tenant for any expense, injury, loss or damage resulting from work done in or upon, or the use of, any adjacent or nearby building, land, street or alley. 12. UNTENANTABILITY. If 50% of the demised premises or 25% or more of the Rentable Area of the Building is made untenantable by fire water damage or other casualty, Landlord may elect: (a) to terminate this Lease as of the date of the fire or casualty by notice to the Tenant within sixty (60) days after that date, or (b) proceed with all due diligence to repair, restore or rehabilitate the Building or the demised premises, in which event this Lease shall not terminate. In the event the Lease is not terminated pursuant to this provision, rent shall abate on a per them basis during the period of untenantability. In the event of the termination of this Lease pursuant to this section, rent shall be apportioned on a per them basis and paid to the date of the fire or other casualty. In the event that the demised premises are partially damaged by fire or other casualty but are not made wholly untenantable, then Landlord shall, except during the last year of the term hereof, proceed with all due diligence to repair and restore the demised premises in a good and workmanlike manner and the rent shall abate in proportion to the nonusability of the demised premises during the period of untenantability which repairs shall be subject to Tenant's reasonable approval. If a portion of the demised premises are made untenantable as aforesaid during the last year of the term hereof, Landlord or Tenant shall have the right to terminate this Lease as of the date of the fire or other casualty by giving written notice thereof to the other within thirty (3 0) days after the date of fire or other casualty, in which event, the rent shall be apportioned on a per them basis and paid to the date of such fire or other casualty. In the event the premises or the Building is damaged by fire or other casualty resulting from the act or neglect of Tenant, its agents, contractors, employees or invitees, Tenant shall not be released from any of its obligations hereunder including, without limitation, its duty to repair the premises and its liability to Landlord for damages caused by such fire or other casualty and its duty to pay rent, which rent shall not be abated. Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance coverage, whether carried by Landlord or Tenant, for damage to alterations, additions, improvements or decorations provided by Landlord at Landlord's expense either directly or through an allowance to Tenant (whether by rent abatement or otherwise). Notwithstanding anything to the contrary herein set forth, Landlord shall have no duty pursuant to this Section 12 to repair or restore any portion of the alterations, additions or improvements in the premises or the decorations thereto except to the extent that such alterations, additions, improvements and decorations were provided by Landlord, at Landlord's cost, at the beginning of the term or during the term of this lease if the aggregate cost thereof exceeded $1,000.00. 13. INSURANCE. (a) The Landlord shall maintain insurance covering the Complex (including Landlord's Work in the Premises) against loss, damage or destruction by fire and the perils specified in the standard extended coverage endorsement. (b) Tenant, at Tenant's expense, shall purchase and maintain insurance during the entire term of the Lease for the benefit of Tenant and Landlord (as their interest may appear) with terms, coverage and in companies satisfactory to Landlord. Tenant agrees to adjust the amounts or type of coverage set forth herein if the customs or standards in the office leasing community change during the term of this Lease, but initially Tenant shall maintain the following coverage in the following amounts: (i) Commercial General Liability Insurance on an occurrence basis with a minimum limit of liability in an amount of $1,000,000 for bodily injury, personal injury, or death to any one person and $1,000,000 for bodily injury, personal injury or death to more than one person, and $1,000,000 with respect to damage to property including water and sprinkler damage for each occurrence; (ii) insurance against fire, with extended coverage and vandalism and malicious mischief endorsements, in an amount adequate to cover the full replacement value of all leasehold improvements, Tenant's personal property, machinery, equipment, moveable partitions, office furniture, trade fixtures, and wall and floor coverings in the premises. Such insurance shall be written on an "all risks" of physical loss or damage basis, for the full replacement cost value of the covered items and in amounts that meet any coinsurance clauses of the policies of insurance; and (iii) Workmen's Compensation insurance in not less than the statutory amounts outlined by the State of Illinois. (c) The policy referred to in Subsection 13(b) (i) shall name Landlord, the beneficiaries of Landlord and their respective agents and employees as additional insureds and shall not provide for deductible amounts in excess of $1,000.00. Each policy referred to in Subsection 14 (b) shall be issued by one or more responsible insurance companies reasonably satisfactory to Landlord and shall contain the endorsement that such insurance may not be canceled or amended without thirty (30) days' prior written notice to Landlord and its beneficiaries. (d) Tenant shall deliver to Landlord certificates of insurance of all policies and renewals thereof to be maintained by Tenant hereunder, not less than ten (10) days prior to the commencement of the term and not less than ten (10) days prior to the expiration date of each policy. 14. SUBROGATION. The parties hereto agree to use good faith efforts to have any and all fire, extended coverage or any and all material damage insurance which may be carried endorsed with a subrogation clause providing substantially as follows: "This insurance shall not be invalidated should the insured waive in writing prior to a loss any or all fight to recovery against any party for loss occurring to the property described herein"- and each party hereto hereby waives all claims for recovery from the other party for any loss or damage to any of its property insured under valid and collectible insurance policies to the extent of any recovery collectible under such insurance such to the limitation that this waiver shall apply only when it is either permitted or, by the use of such good faith efforts could have been so permitted by the applicable policy of insurance. 15. EMINENT DOMAIN: if the Building, or a substantial part of the demised premises, shall be lawfully taken or condemned for any public or quasi-public use or purpose, or conveyed under threat of such condemnation, the term of this Lease shall end upon, and not before, the date of the taking of possession by the condemning authority. Tenant has the right to assert any claim(s) available under applicable law. Current rent shall be apportioned as of the date of such termination. If any part of the Building, other than the demised premises or any part of the Building not constituting a substantial part of the demised premises, shall so be taken or condemned, or if the grade of any street or alley adjacent to the Building is changed by any competent authority and such taking or change of grade makes it necessary or desirable to substantially remodel or restore the Building, the Landlord shall have the right to cancel this Lease upon not less than ninety (90) days notice prior to the date of cancellation designated in the notice. No money or other consideration shall be payable by the Landlord to the Tenant for the right of cancellation, and the Tenant shall have no right to share in the condemnation award or in any judgment for damages caused by the change of grade. 16. ASSIGNMENT-SUBLETTING. (a) Tenant shall not assign, hypothecate, mortgage, encumber, or convey this Lease or any interest under it; allow any transfer thereof or any lien upon Tenant's interest by operation of law or otherwise; sublet the whole or any part of the demised premises; or permit the use of the demised premises by anyone other than Tenant and its employees, independent freelance contractors, Tenant's parent company employees or employees of any of its subsidiaries, so long as under Tenant's supervision utilized for a similar use. If Tenant is a corporation, any dissolution, merger, consolidation or reorganization of Tenants, parent company or the sale or transfer of a controlling percentage of the capital stock of Tenant, whether by a single transaction or event or by cumulative transactions or events shall be deemed an assignment of this Lease, and shall be subject to the restrictions set forth above. If Tenant is a partnership, a withdrawal or change, voluntary, involuntary or by operation of law, of any partner or partners owning 5 1% or more of the partnership interest, whether by a single transaction or event or by cumulative transactions or events, or the dissolution of the partnership shall be deemed an assignment of the Lease and shall be subject to the restrictions set forth above. (b) Tenant shall not sublet the whole or any part of the premises without Landlord's prior written consent. In the event Tenant intends to sublease all or any portion of the premises, Tenant shall take the following actions: (i) Tenant shall first notify Landlord in writing of its intention to sublet prior to any advertising of same, hiring of brokers or contacting of potential subtenants. Such notice shall identify the space proposed to be sublet, which space must be a legally leasable unit in compliance with all applicable ordinances and codes, and shall state the date on which Tenant requests that the sublet commence, which date shall be no less than one hundred eighty (180) days from the date of Tenant's notice. (ii) Landlord shall have thirty (30) days following the receipt of such notice to notify Tenant whether it elects to recapture the space Tenant has proposed to sublet. Landlord's failure to send such notice within such thirty (30) day period shall be deemed to mean Landlord has not elected to recapture the space. (iii) In the event the Landlord elects to recapture the space, it shall notify Tenant of its intent by service of a written notice of cancellation terminating that portion of the Lease covering the space Landlord has chosen to recapture, which may include all or any lesser portion of the space Tenant has proposed to sublet. In such event Landlord agrees that the space not recaptured by Landlord shall be a legally leasable unit. Landlord and Tenant shall pay 50% of all costs of any construction necessary to accomplish the division of the space. The termination of the Lease as to the recaptured space shall be effective on the date specified by the Tenant in its notice pursuant to Subsection 16 (i) and (ii). (iv) In the event that Landlord elects to recapture any proposed sublet space under these provisions, the Base Rent, Rentable Area of the Premises and Measurable Area of the Premises as provided in Section I above shall be adjusted as of the termination date designated in the cancellation notice, referred to in the first sentence of the preceding sub-paragraph (iii) above and this Lease as so amended shall continue thereafter in full force and effect. (v) In the event that the Landlord elects not to recapture part or all of the proposed sublet space, Landlord shall so notify Tenant as set forth in (ii) above. Provided Tenant is not in default under the Lease and has fully complied with the terms of this Section 16, Tenant may then proceed to contact potential subtenants and shall have the option to sublet the non-recaptured space in accordance with the following provisions: (A) Tenant shall bear all costs and expenses associated with the subletting including, without limitation, any and all costs and expenses incurred by Landlord (if any). (B) Upon locating a suitable potential subtenant, Tenant shall notify Landlord in writing. Such notice shall state the name and address of the proposed subtenant and shall include a true and complete copy of the proposed sublease. Tenant shall also deliver to Landlord copies of all financial statements, credit reports and other such information in its possessions relating to the prospective subtenant. At Landlord's request, Tenant shall promptly secure and deliver any additional information Landlord deems necessary in order to evaluate the potential subtenant. (C) Landlord shall have fifteen (15) days from the date of its receipt of the last information provided by Tenant on the proposed subtenant during which to evaluate such subtenant and decide whether to consent to the sublease. Landlord shall notify Tenant of its decision in writing, and, in the event that Landlord does not consent to the sublease, its notice thereof to Tenant shall include an explanation of its reasons for denying consent. In the event that Landlord consents to the sublease, Tenant may execute the sublease and collect all rents due thereunder subject to the provisions of subparagraph (D) below and subject to the subtenant's agreement to comply with all the terms of this Lease as they apply to the sublet space. (D) Following the execution of any sublease to which Landlord has consented and throughout the term thereof, Tenant shall pay Landlord fifty percent (50%) of all amounts received by Tenant in connection with subletting in excess of the rent for the sublet space Tenant is obligated to pay Landlord hereunder, but only after Tenant has recaptured its incremental costs and expenses associated with affecting the sublease including any construction costs. (E) The use for which the premises or any part thereof may be sublet shall be only for lawful office use which is in keeping with the general character of the Building and Complex, which is not extra-hazardous on account of fire and which does not conflict with exclusive rights granted to any other tenant. (F) The granting consent by Landlord to Tenant for subletting of the premises or any part thereof shall not release Tenant from direct and primary liability under this Lease for the performance of all of the covenants, duties and obligations of Tenant hereunder, and Landlord shall retain its rights to enforce the provisions of this Lease against Tenant or any subtenant without demand upon or proceeding in any way against any other person. Consent to a particular sublease shall not be deemed a consent to any other or subsequent transaction. 17. WAIVER OF CLAIMS AND INDEMNITY. To the extent permitted by law, the Tenant releases the Landlord, its beneficiaries, and their respective agents and servants from, and waives all claims for, damage to person or property sustained by the Tenant or any occupant of the Building, Complex or premises resulting from the Building, Complex or premises or any part of either or any equipment or appurtenance becoming out of repair, or resulting from any accident in or about the Building or Complex, or resulting directly or indirectly from any act or neglect of any tenant or occupant of the Building or Complex or of any other person, including Landlord's agents and servants excluding willful acts or gross negligence of Landlord, its servants or agents. This Section 17 shall apply especially, but not exclusively, to the flooding of basements or other subsurface areas, and to damage caused by refrigerators, sprinkling devices, air-conditioning apparatus, water, snow, frost, steam excessive heat or cold, falling plaster, broken glass, sewage, gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures, and shall apply equally whether any such damage results from the act or neglect of the Landlord or of other tenants, occupants or servants in the Building or Complex or of any other person, and whether such damage be caused or result from any thing or circumstance above mentioned or referred to, or any other thing or circumstance whether of a like nature or of a wholly different nature excluding willful acts or gross negligence of Landlord, its servants or agents. If any such damage, whether to the demised premises or to the Building or Complex or any part thereof, or whether to the Landlord or to other tenants in the Building or Complex, results from any willful or gross negligence of the Tenant, its employees, agents, invitees and customers, the Tenant shall be liable therefor and the Landlord may, at the Landlord's option, repair such damage and the Tenant shall, upon demand by Landlord, reimburse the Landlord forthwith for the total cost of such repairs. The Tenant shall not be liable for any damage caused by its act or neglect if the Landlord or a tenant has recovered the full amount of the damage from insurance and the insurance company has waived its right of subrogation against the Tenant. All property belonging to the Tenant or any occupant of the premises that is in the Building, the Complex or the premises shall be there at the risk of the Tenant or other person only, and the Landlord shall not be liable for damage thereto or theft or misappropriation thereof. Tenant agrees to indemnify and save the Landlord, its beneficiaries, and their respective agents and employees harmless against any and all claims, demands, costs and expenses, including reasonable attorney's fees for the defense thereof, arising from Tenant's occupancy of the demised premises or from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or from any act or negligence of Tenant, its agents, servants, employees or invitees, in or about the demised premises. in case of any action or proceeding brought against Landlord, its beneficiaries, or their respective agents or employees by reason of any such claim, upon notice from Landlord, Tenant covenants to defend such action or proceeding by counsel reasonably satisfactory to Landlord. Landlord agrees to indemnify and save the Tenant, its beneficiaries, and their respective agents and employees harmless against any and all claims, demands, costs and expenses, including reasonable attorney's fees for the defense thereof, arising from Landlord's ownership of the demised premises or from any breach or default on the part of Landlord in the performance of any covenant or agreement on the part of Landlord to be performed pursuant to the terms of this Lease, or from any act or negligence of Landlord, its agents, servants, employees or invitees, in or about the demised premises. In case of any action or proceeding brought against Tenant, its beneficiaries, or their respective agents or employees by reason of any such claim, upon notice from Tenant, Landlord covenants to defend such action or proceeding by counsel reasonably satisfactory to Tenant. 18. MORTGAGE-GROUND LEASE. Landlord may execute and deliver a mortgage or trust deed in the nature of a mortgage, both sometimes hereinafter referred to as "Mortgage" against the Building, the Complex or any interest thereon, and may sell and lease back the underlying land on which the Building is situated, or which forms a part of the Complex. This Lease and the rights of Tenants hereunder shall be and are hereby made expressly subject and subordinate at all times to any such Mortgage and/or ground lease, now or hereafter existing and all amendments, modifications and renewals thereof and extensions, consolidations or replacements thereof, and to all advances made or hereafter to be made upon the security thereof. Tenant agrees to execute and deliver such further instruments subordinating this Lease to said mortgage or ground lease as may be requested in writing by Landlord from time to time. So long as Tenant's rights to continued use of demised premises pursuant to this Lease, are not adversely affected. Should any Mortgage affecting the Building or Complex be foreclosed or if any ground or underlying lease be terminated: (a) The liability of the mortgagee, trustee or purchaser at such foreclosure sale or the liability of a subsequent Landlord designated as Landlord under this Lease shall exist only so long as trustee, mortgagee, purchaser or Landlord is the owner of the Building or Complex and such liability shall not continue or survive after further transfer of ownership. (b) Upon request of the mortgagee or trustee, Tenant will attorn, as Tenant under this Lease, to the purchaser at any foreclosure sale thereunder, or if any ground or underlying lease be terminated for any reason, Tenant will attorn as Tenant under this Lease to the ground lessor under the ground lease and will execute such instruments as may be necessary or appropriate to evidence such atonement. Tenant covenants and agrees to give any mortgagee and/or trust deed holder, by Certified or Registered Mail, a copy of any notice of default served upon the Landlord, provided that prior to such notice Tenant has been notified in writing, (by way of notice of assignment of rents and leases, or otherwise) of the address of such mortgagee and/or trust deed holder with specific reference made to this Section 18 of this lease which shall be repeated in such letter. Tenant further covenants and agrees that if Landlord shall have failed to cure any default within thirty (30) days after Tenant gives notice of the default, the mortgagee and/or trust deed holder shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days, any mortgagee and/or trust deed holder has commenced and is diligently pursuing the remedies to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event the Lease shall not be terminated while such remedies are being so diligently pursued. 19. CERTAIN RIGHTS RESERVED BY THE LANDLORD. The Landlord reserves and may exercise the following rights without affecting Tenant's obligations hereunder: (a) to change the name or street address of the Building or Complex; (b) to install and maintain a sign or signs on the interior or exterior of the Building or Complex; (c) to have access for the Landlord and other tenants of the Building to any mail chutes located on the demised premises according to the rules of the United States Post Office; (d) to designate all sources furnishing sign painting and lettering, unless Landlord maintains all toilets within Base Rent, lamps and bulbs used on the demised premises, (e) to decorate, remodel, repair, alter or otherwise prepare the demised premises for reoccupancy if Tenant vacates the demised premises prior to the expiration of the term; (f) to retain at all time pass keys to the demised premises; (g) to grant to anyone the exclusive right to conduct any particular business or undertaking in the Building or Complex with the exception of Paragraph 2; (h) to exhibit the demised premises to others upon commercially reasonable allowance notice; (i) to close the Building after regular working hours and on the legal holidays subject, however, to Tenant's right to admittance, under such reasonable regulations as Landlord may prescribe from time to time, which may include by way of example but not of limitation, that persons entering or leaving the Building identify themselves to a watchman by registration or otherwise and that said persons establish their right to enter or leave the Building; 0) to approve the weight, size and location of safes or other heavy equipment or articles, which articles may be moved in, about, or out of the Building or premises only at such times and in such manner as Landlord shall direct and in all events, however, at Tenant's sole risk and responsibility; (k) to take any and all measures, including inspections, repairs, alterations, decorations, additions and improvements to the premises, the Building or to the Complex, as may be necessary or desirable for the safety, protection or preservation of the demised premises, the Building or the Complex or the Landlord's interest, or as may be necessary or desirable in the operation of the Building or Complex. The Landlord may enter upon the demised premises and may exercise any or all of the foregoing rights hereby reserved without being deemed guilty of an eviction or disturbance of the Tenant's use or possession and without being liable in any manner to the Tenant and without abatement of rent or affecting any of the Tenant's obligations hereunder, subject to Landlord's reasonable notice thereof 20. HOLDING OVER. If the Tenant retains possession of the demised premises or any part thereof after the termination of the term or any extension thereof, by lapse of time or otherwise, the Tenant shall pay the Landlord the monthly rent, at double the rate payable for the month immediately preceding said holding over (including amounts for Taxes and Expenses, as applicable), computed on a per month basis, for each month or part thereof (without reduction for any such partial month) that the Tenant thus remains in possession, and in addition thereto, Tenant shall pay the Landlord all damages in excess of said rent, taxes and expenses as included in this Section, consequential as well as direct, sustained by reason of the Tenant's retention of possession. Alternatively, at the election of Landlord expressed in a written notice to the Tenant and not otherwise, such retention of possession shall constitute a renewal of this Lease for one (1) year, on the same terms and conditions, except that the rent shall be the greater of market or 125% of the latest rent plus all adjustments applicable for such year in accordance with Section 5 hereof The provisions of this paragraph do not exclude Landlord's rights or re-entry or any other right hereunder. 21. LANDLORD'S REMEDIES. All rights and remedies of the Landlord herein enumerated shall be cumulative, and none shall exclude any other right or remedy allowed by law. (a) If any involuntary action or proceeding under any section or section of any bankruptcy act in any court or tribunal shall adjudge or declare Tenant insolvent or unable to pay Tenant's debts, or if any voluntary petition or similar proceeding under any section of any bankruptcy act shall be filed by Tenant in any court or tribunal to declare Tenant insolvent or unable to pay Tenant's debts, then and in any such event Landlord may, if Landlord so elects but not otherwise, and with or without notice of such election, and with or without entry or other action by Landlord, forthwith terminate this Lease, and notwithstanding any other provision of this Lease, Landlord shall forthwith upon such termination be entitled to recover damages in an amount equal to the then present value of the Base Rent specified in Section I of this Lease, as adjusted, pursuant to Section 5, for the residue of the stated term thereof, less the present value of the fair rental value of the premises for the residue of the stated term. (b) If the Tenant defaults in the payment of rent, and the Tenant does not cure the default within five (5) days after demand for payment of such rent or if the Tenant defaults in the prompt and full performance of any other provisions of this Lease, and the Tenant does not cure the default within twenty (20) days after written demand by the Landlord that the default be cured (unless the default involves a hazardous condition, which shall be cured forthwith) or if the leasehold interest of the Tenant be levied upon or be attached by process of law, or if the Tenant makes an assignment for the benefit of creditors or admits its inability to pay its debts, or if a receiver be appointed for any property of the Tenant, or if the Tenant abandons the premises, then and in any such event the Landlord may, if the Landlord so elects but not otherwise, and with or without notice of such election, and with or without any demand whatsoever, either forthwith terminate this Lease and the Tenant's right to possession of the premises, or without terminating this Lease, forthwith terminate the Tenant's right to possession of the premises. (c) Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of the Tenant's right to possession without termination of the Lease, the Tenant shall surrender possession and vacate the premises immediately, and deliver possession thereof to the Landlord, and hereby grants to the Landlord full and free license to enter into and upon the premises in such event with or without process of law and to repossess the premises and to expel or remove the Tenant and any others who may be occupying or be within the premises and to remove any and all property therefrom; using force as may be necessary, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without relinquishing the Landlord's right to rent or any other right given to the Landlord hereunder or by operation of law. (d) If the Tenant abandons the premises or otherwise entitles the Landlord so to elect, and the Landlord elects to terminate the Tenant's right to possession only, without terminating the Lease, the Landlord may, at the Landlord's option, enter into the premises, remove the Tenant's sign and other evidences' of Tenant and take and hold possession thereof as in Subsection (c) of this Section 21 provided, without such entry and possession terminating the Lease or releasing the Tenant, in whole or in part, from the Tenant's obligation to pay the rent hereunder for the full term, and in any such case the Tenant shall pay forthwith the Base Rent specified in Section I of this Lease as adjusted in accordance with Section 5, for the residue of the stated term plus any other sums then due hereunder less the present value of the fair rental value of the demised premises for such period. In the alternative, upon and after entry into possession without termination of the Lease, the Landlord shall use its best efforts to relet the premises or any part thereof for the account of the Tenant to any person, firm or corporation for such rent for such time and upon such terms as the Landlord in the Landlord's sole discretion shall determine, and the Landlord shall not be required to observe any instruction given by the Tenant about such reletting. In any such case, the Landlord may make repairs, alterations and additions in or to the premises, and redecorate the same to the extent deemed by the Landlord necessary or desirable, and the Tenant shall, upon demand, pay the cost thereof, together with the Landlord's expenses of the reletting. If the consideration collected by the Landlord upon any such reletting for the Tenant's account is not sufficient to pay monthly the full amount of the rent reserved in this Lease, together with the costs of repairs, alterations, additions, redecorating and the Landlord's expenses, the Tenant shall pay to the Landlord the amount of each monthly deficiency upon demand. If the Landlord, in attempting to mitigate the damages caused by Tenant's removal from the premises, leases to another entity ("New Lease") for longer than the remainder of the term of this Lease, the rental for the remainder of the term of this Lease for purposes of this Section shall be deemed to be the average rental payments under the New Lease for the remainder of the term of this Lease. "Average rental payments under the New Lease" shall be deemed to mean rental payments (net of abatements and rent credits) under the New Lease, after deducting the costs of leasing the demised premises, including, but not limited to, expenses incurred in repairing, altering or redecorating the premises, broker's costs, and attorney's fees in connection with the New Lease, divided by the number of months in the New Lease. All rentals and other costs under the New Lease shall be discounted to the due dates of payments due under this Lease, at the prime rate then in existence at The First National Bank of Chicago or bank of similar size if The First National Bank of Chicago is no longer in existence at the time this provision becomes operational. Notwithstanding anything in this subsection to the contrary, in no event shall Landlord be required to pay Tenant any excess of the rent it receives under the New Lease over the rent hereunder. (e) The Tenant hereby constitutes and irrevocably appoints any attorney of any court to be the true and lawful attorney of the Tenant, and, in the name, place and stead of the Tenant, to appear for and on behalf of the Tenant in any court of record at any time, and from time to time, after default hereunder in any suit or suits brought against the Tenant for the enforcement of any rights hereunder by the Landlord, to waive the issuance and service of process and trial by jury, and, from time to time, to confess judgment or judgments in favor of the Landlord and against the Tenant for any rent and interest thereon due hereunder by the Tenant to the Landlord, for costs of suit and for a reasonable attorney's fee in favor of the Landlord to be fixed by the court, and to release all errors that may occur or intervene in such proceedings, including the issuance of execution upon any such judgment, and to stipulate that no appeal shall be prosecuted from such judgment or judgments, or that no proceedings in chancery or otherwise shall be filed or prosecuted to interfere in any way with the operation of such judgment or judgments or of any execution issued thereon or with any supplemental proceedings taken by the Landlord to collect the amount of any such judgment or judgments, and to consent that execution on any judgment or decree in favor of the Landlord against the Tenant may issue forthwith. (f) Any and all property which may be removed from the premises by the Landlord pursuant to the authority of the Lease or of law, to which the Tenant is or may be entitled, may be handled, removed or stored by the Landlord at the risk, cost and expense of the Tenant, and the Landlord shall in no event be responsible for the value, preservation or safekeeping thereof The Tenant shall pay to the Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in the Landlord's possession or under the Landlord's control. Any such property of the Tenant not retaken from storage by the Tenant within thirty (30) days after the end of the term, however terminated, shall be conclusively presumed to have been conveyed by the Tenant to the Landlord under this Lease as a bill of sale without further payment or credit by the Landlord to the Tenant. (g) Tenant hereby grants to Landlord a first lien upon the interest of Tenant under this Lease to secure the payment of moneys due under this Lease, which lien may be enforced in equity; and Landlord shall be entitled as a matter of right to have a receiver appointed to take possession of the demised premises and relet the same under order of court. In addition to any statutory lien for rent in Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a continuing security interest for all rentals and other sums of money becoming due hereunder from Tenant upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contracts rights, chattel paper and other personal property of Tenant situated on the Premises, and such property shall not be removed therefrom without the consent of Landlord until all arrearages in rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided herein or by law including without limitation the right to sell the property described in this Article at public or private sale upon five (5) days' notice to Tenant. Tenant hereby agrees to execute such financing statements and other documents necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Any statutory lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto. (h) The Tenant shall pay upon demand all the Landlord's costs, charges and expenses, including the fees of counsel, agents and others retained by the Landlord in any litigation, negotiation or transaction in which the Tenant causes the Landlord, without the Landlord's fault, to become involved or concerned specifically including, without limitation, any litigation required by Landlord to enforce its rights or remedies pursuant to this Lease. 22. DEFAULT UNDER OTHER LEASE. If the term of any lease, other than this Lease, made by the Tenant for any demised premises in the Building or Complex shall be terminated or terminable after the making of this Lease because of any default by the Tenant under such other lease, such fact shall empower the Landlord, at the Landlord's sole option, to terminate this Lease by notice to the Tenant. 23. SURRENDER OF POSSESSION. Upon the expiration or other termination of the term of this Lease, Tenant shall quit and surrender to Landlord the premises, broom clean, in good order and condition, ordinary wear excepted, and Tenant shall remove all of its property. Landlord shall remove all telephone and other communication cable from the plenum areas, wall cavities and rises at Tenant's expense. If the Tenant does not remove its property of every kind and description from the demised premises prior to the end of the term, however ended, the Tenant shall be conclusively presumed to have conveyed the same to the Landlord under this Lease as a bill of sale without further payment or credit by the Landlord to the Tenant and the Landlord may remove the same and the Tenant shall pay the cost of such removal to the Landlord upon demand. Not later than sixty (60) days before this Lease terminates or Tenant vacates the premises, Tenant shall give Landlord written notice of its intended departure and shall schedule a joint inspection with Landlord -of the premises in preparation for Tenant's vacating of the premises. At such joint inspection, Landlord shall prepare a list of the following items for Tenant to resolve before vacating the premises: 1) repairs and restorations that will need to be made to the premises before vacating, if any; 2) equipment and/or fixtures that may be removed, and a procedure that must be followed in order to remove such items from the Building, which may include a "check out" procedure with an employee of Landlord at the Building; 3) equipment and/or fixtures that may not be removed from the premises because they rightfully belong to Landlord. Tenant shall have ten (10) days after receipt of said list from Landlord to notify Landlord of any discrepancies it notes on said Est. If Tenant does not so notify Landlord, said list shall be binding on Tenant, and shall be binding upon Landlord except to the extent that, because of hidden problems, Landlord could not reasonably ascertain whether certain repairs and/or restoration would be needed until vacating of the premises. In any event, if Tenant fails to arrange such joint inspection, any list of needed restoration or repairs prepared by Landlord as a result of Landlord's inspection at or after Tenant's vacating the premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the term of this Lease. 24. NOTICES. Notices shall be in writing. (a) Notices shall be effectively served by Landlord upon Tenant if addressed to Tenant's President, General Manager, or Chief Financial Officer in any one of the following manners: (i) By delivery to Tenant, or a representative of Tenant; or (ii) By forwarding through Certified or Registered Mail, postage prepaid, to Tenant at the address shown in Subsection l(c), in which case the time of mailing shall be the time of notice. (b) Notices shall be effectively served by Tenant upon Landlord when addressed to Landlord and served either: (i) Upon an officer of Landlord; or (ii) ----------------- (iii) By forwarding through Certified or Registered Mail, postage prepaid, to Landlord at the address shown in Subsection l(b). The addresses for notices shall be those addresses shown in Section I or if notified in writing of another address by either party, at such latter address. light, (subject to Tenant's reasonable approval) upon thirty (30) days written notice, to relocate Tenant to another location in the Complex at no cost or expense to Tenant and upon the condition that the new premises designated by Landlord shall be substantially as desirable as the demised premises with respect to layout and location and shall not be smaller in area than the demised premises. 26. GOOD FAITH DEPOSIT. Tenant agrees to deposit with Landlord, upon the execution of this Lease, the sum set forth in Subsection I (I) above as security for the full and faithful performance by Tenant of each and every term, provision, covenant, and condition of this Lease. Landlord shall have no obligation to segregate the amount so deposited from its other funds. If Tenant defaults in respect to any of the terms, provisions, covenants and conditions of this Lease including, but not limited to, payment of the Adjusted Monthly Base Rent, Landlord may use, apply, or retain the whole or any part of the security so deposited for the payment of any such rent in default, or for any other sum which the Landlord may expend or be required to expend by reason of Tenant's default including, without limitation, any damages or deficiency in the reletting of the demised premises, whether such damages or deficiency shall have accrued before or after any re-entry by Landlord. If any of the deposit shall be so used, applied or retained by Landlord at any time or from time to time, Tenant shall promptly, in each such instance, on written demand therefor by Landlord, pay to Landlord such additional sum as may be necessary to restore the deposit to the original amount set forth in Subsection 1(m). If Tenant shall fully and faithfully comply with all the terms, provisions, covenants, and conditions of this Lease, the deposit, or any balance thereof, shall be returned to Tenant after the following: (a) the time fixed as the expiration of the term of this Lease; (b) the removal of Tenant from the demised premises; (c) the surrender of the demised premises by Tenant to Landlord in accordance with this Lease; and (d) the time required for any other charges due pursuant to the Lease to have been computed by Landlord and paid by Tenant. Except as otherwise required by law, Tenant shall not be entitled to any interest on the aforesaid deposit. If the absence of evidence satisfactory to Landlord of an assignment of the right to receive the deposit or the remaining balance thereof, Landlord may return the deposit to the original Tenant, regardless of one or more assignments of this Lease. If Tenant receives notice of sale of the Building or Complex and a notice to atorn to the new Landlord, it shall look solely to the new Landlord for return of the deposit. 27. MISCELLANEOUS. (a) No receipt of money by the Landlord from the Tenant after the termination of this Lease or after the service of any notice or after the commencement of any suit, or after final judgment for possession of the demised premises shall reinstate, continue or extend the term of this Lease or affect any such notice, demand or suit. (b) No waiver of any default of the Tenant hereunder shall be implied from any omission by the Landlord to take any action on account of such default if such default persists or be repeated, and no express waiver shall affect any default other than the default specified in the express waiver and that only for the time and to the extent therein stated. (c) The words "Landlord" and "Tenant", wherever used in this Lease shall be construed to mean plural where necessary, and the necessary grammatical changes required to make the provisions hereof apply either to corporations or individuals, men or women, shall in all cases be assumed as though in each case fully expressed. (d) Each provision hereof shall extend to and shall, as the case may require, bind and inure to the benefit of the Landlord and the Tenant and their respective heirs, legal representative, successors and assigns in the event this Lease has been assigned with the express written consent of the Landlord. (e) Submission of this instrument for examination does not constitute a reservation of or option for the premises. The instrument does not become effective as a lease or otherwise until executed and delivered by both Landlord and Tenant. (f) All amounts (unless otherwise provided herein, and other than the Adjusted Monthly Base Rent, which shall be due as hereinbefore provided) owed by the Tenant to the Landlord hereunder shall be deemed additional rent and be paid within ten (10) days from the date the Landlord renders statements of account therefor. All such amounts (including Adjusted Monthly Base Rent and additional rent) shall bear interest from the date due until the date paid at the rate of 2% above the prime rate of interest of The First National Bank of Chicago in effect on the date of payment, or at the maximum legal rate of interest, allowed by law, if such maximum legal rate is applicable and lower. (g) All riders attached to this Lease and initialed by the Landlord and the Tenant are hereby made a part of this Lease as though inserted in this Lease. (h) The headings of sections are for convenience only and do not limit or construe the contents of the sections. (i) If the Tenant shall occupy the premises prior to the beginning of the term of this Lease with the Landlord's consent, all the provisions of this Lease shall be in full force and effect as soon as the Tenant occupies the premises. (j) Should any mortgage, leasehold or otherwise, require a modification or modifications of this Lease, which modification or modifications will not bring about any increased cost or expense to Tenant or in any other way substantially change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified. (k) The Tenant represents that the Tenant has dealt directly with and only with NONE as broker in connection with this Lease, and that insofar as the Tenant knows no other broker negotiated this Lease or is entitled to any commission in connection therewith. Tenant indemnifies and holds Landlord, its beneficiaries, and their respective agents and employees harmless from all claims of any other broker or brokers who claim to have dealt with Tenant in connection with Lease. (1) The Tenant agrees that from time to time upon not less than ten (10) days prior request by the Landlord, the Tenant will deliver to the Landlord a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and identifying the modifications), (b) the dates to which the rent and other charges have been paid, and (c) that so far as the person making the certificate knows, the Landlord is not in default under any provisions of this Lease. (m) The Landlord's title is and always shall be paramount to the title of the Tenant, and nothing herein contained shall empower the Tenant to do any act which can, shall or may encumber such title. (n) The laws of the State in which the demised premises are located shall govern the validity, performance and enforcement of this Lease. (o) If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Lease shall be valid and enforced to the fullest extent permitted by law. (p) Landlord and Tenant agree that to the extent permitted by law, each shall and hereby does waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease. (q) There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. (r) In the event the original Landlord hereunder, or any successor Landlord of the Complex, shall sell or convey the Complex, all liabilities and obligations on the part of the original Landlord, or such successor Landlord, under this Lease accruing thereafter shall be terminated, and thereupon all such liabilities and obligations shall be binding upon the new Landlord. Tenant agrees to atorn to each such new Landlord. (s) The term "Landlord", as used in this Lease, means DEVELOPMENT, CORP., agent and the legal entity which owns the beneficial interest in Harris Bank & Trust Company of Barrington Trust No. 11-521 1, which holds legal title to the Complex, and any liability or obligation of Landlord under this Lease shall be limited to its assets held in such trust and no Landlord of the beneficial interest in such trust shall be individually or personally liable for any claim arising out of this Lease. Only upon execution of this Lease shall the Lease of May 29, 1997, be rendered null and void. IN WITNESS WHEREOF, the parties hereto have executed this Lease the date first above written. LANDLORD MARKUR DEVELOPMENT, CORP., as Agent for the owners of the beneficial interest in Harris Bank Bar By: Its: President ATTEST By: Its: Executive Vice President TENANT By Its President ATTEST By Its Chief Financial Officer EXHIBIT A BUILD OUT FOR SYNAPTX IMPULSE 1) Build out private office denoted on the Rienke Office Interior Plan dated 1/7/97. Included are office shown as "Board Room", War Room #1, War Room #2, and War Room #3. 2) Build out room denoted as library on 1/7/97 ROI Plan including individually controlled HVAC system. 3) A partition wall will be built from approximate point J-7 to F-7 with one man door to be located by tenant. The area from line 7 to line 8, 9, & 10 shall be unfinished space with minimal code required lighting and heating equipment only. Floors, walls, and ceiling to be painted in a single color. 4) Supply and install six (6) power poles to service a maximum of 25 to 30 office cubes. Each pole will contain three (3) electrical circuits and a one-inch data conduit. 5) All hardwood maple flooring will be ground, sanded, and sealed with a varnish. It is understood with the age of the flooring distressed marks may still be evident upon completion. 6) Recondition and reinstall in existing locations 75 of the large round light fixtures, painted in a single color to be chosen by tenant and landlord. 7) Repaint existing tin ceiling in a single flat latex enamel color to be chosen by tenant and landlord. 8) All brick walls and wood timbers to be sandblasted and cleaned. 9) Bathroom will be built out as per the plan by Direct Design dated 4/17/97. EX-27 3 ART. 5 FDS FOR FORM 10-SB
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 YEAR AUG-31-1997 AUG-31-1997 58,265 0 1,001,638 0 0 1,104,565 254,990 69,041 2,983,185 1,597,423 21,200 0 0 5,194 2,052,977 2,983,185 3,301,878 3,601,124 2,571,467 2,571,467 1,581,768 0 50,444 (602,555) 0 (602,555) 0 0 0 (602,555) (.14) (.14)
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