UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 1, 1998
SYNAPTX WORLDWIDE, INC.
(Exact name of Registrant as Specified in its Charter)
UTAH 0-22969 87-0375342
(State or Other (Commission (IRS Employer
Jurisdiction) File Number) Identification Number)
168 East Highland Avenue, Suite 300, Elgin, IL 60120-5507
Registrant's Telephone Number, Including Area Code:(847) 622-0200
FORM 8-K
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 1, 1998, Synaptx Worldwide, Inc. (the "Company") entered into
an Agreement and Plan of Merger ("Agreement") with the Shareholders of Primus
Marketing Associates, Inc., a Minnesota Corporation ("Primus"), related to the
acquisition by the Company of one hundred percent (100%) of the issued and
outstanding shares of capital stock of Primus in exchange for 214,286 shares
of the Company's common stock, $.001 par value (the "Common Stock").
Additionally, the former shareholders of Primus may earn additional
Common Stock of the Company upon the attainment by Primus of specified annual
"commission revenues" and "earnings" for the two subsequent twelve month
periods. If Primus meets the specified "commission revenues" and "earnings"
amounts for both twelve month periods, the additional consideration could
amount to $375,000 divided by the market price at the time of issuance. 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 associated with these costs.
Primus is a sales representative firm based in Minnetonka, Minnesota
that provides field sales and business development support for specified product
lines and/or territories for clients under contract which include
telecommunications (both voice and data networking), electric utility, and cable
TV original equipment manufacturers, commonly referred to as OEMs, located
primarily in the north central section of the United States. Primus has been
active for the past eleven years. Primus's operations consist of sales
representatives who sell to the private network, public telephone network, cable
operating companies and alternate access provider communication markets. Primus
currently represents RELTEC, Alcoa Fujikara, Amp and Raytheon in addition to
approximately 20 other clients. Primus currently has nine employees.
Commissions earned by Primus range from 3% up to 8%, depending on the
sophistication of the customers' products and services represented.
Currently, Primus is generating average monthly commission revenues
of approximately $75,000 - $85,000. Management of the Company believes that
contractual relations by Primus with its existing clients, which allow for
termination by either party with minimal notification periods (standard in the
industry), are in good standing. Furthermore, management believes that the
opportunity of providing a national client sales representation focus will
allow for increased geographic service scope with existing Clients and an
opportunity of adding additional Clients.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
1. Financial statements of Primus Marketing Associates,
Inc. as of and for the twelve months ended May 31, 1998
(audited)
(b) Pro forma financial information
1. Pro forma condensed consolidated statement of
operations of Synaptx Worldwide, Inc. for
the year ended August 31, 1997
2. Pro forma condensed consolidated balance sheet as of May
31, 1998 and the proforma condensed consolidated statement
of operations of Synaptx Worldwide, Inc. for the nine
months ended May 31, 1998
3. (c) Exhibits included herewith:
10.1 Agreement and Plan of Stock for Stock Exchange,
dated June 1, 1998, between Synaptx Worldwide, Inc.
(the "Company") and John Primus and Jannine Primus.
10.2 Employment Agreement, dated June 1, 1998, between
Primus Marketing Associates, Inc. and John E. Primus.
10.3 Non-compete Agreement, dated June 1, 1998, between
the Company and John E. Primus.
10.4 Non-compete Agreement, dated June 1, 1998, between
the Company and Jannine Primus.
INDEPENDENT AUDITORS' REPORT
PRIMUS MARKETING ASSOCIATES, INC.
MINNETONKA, MINNESOTA
We have audited the accompanying balance sheet of Primus Marketing Associates,
Inc. as of May 31, 1998 and the related statements of operations and retained
earnings 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 Primus Marketing Associates,
Inc. as of May 31, 1998, and the results of their operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Chicago, Illinois
August 10, 1998
PRIMUS MARKETING ASSOCIATES, INC.
BALANCE SHEET
AS OF MAY 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 625
Accounts receivable 118,386
---------
Total current assets 119,011
EQUIPMENT 141,055
Less accumulated depreciation (78,562)
---------
Net equipment 62,493
TOTAL ASSETS $ 181,504
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,216
Current portion of long term debt 3,180
Accrued expenses and taxes 33,533
---------
Total current liabilities 49,929
Long-term debt 6,126
---------
TOTAL LIABILITIES 56,055
COMMITMENTS -
STOCKHOLDERS' EQUITY
Common stock; $.01 par value; 100,000 shares
authorized, 200 issued and outstanding 2
Additional paid in capital 39,842
Retained earnings 85,605
---------
Total stockholders' equity 125,448
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,504
=========
See accompanying summary of accounting policies and
notes to financial statements.
PRIMUS MARKETING ASSOCIATES, INC
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED MAY 31, 1998
Commissions earned $ 1,066,161
Cost of services 837,116
-----------
Gross Profit 229,045
Selling, general and administrative expenses 238,176
Depreciation 27,435
-----------
Net loss (36,566)
Retained earnings, at beginning of year 239,275
Distributions (117,104)
Retained earnings, at end of year $ 85,605
===========
See accompanying summary of accounting policies and
notes to financial statements.
PRIMUS MARKETING ASSOCIATES, INC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (36,566)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 27,435
Loss on disposal of fixed assets 8,418
Changes in assets and liabilities net of assets acquired:
Decrease in accounts receivable 53,906
Decrease in other current assets 5,891
Decrease in accounts payable (2,786)
Decrease in accrued expenses and taxes (14,536)
---------
Net cash provided by operating activities 41,762
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed asset additions (46,163)
Proceeds from sale of fixed assets 56,420
---------
Net cash from investing activities 10,257
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to shareholders (117,104)
Reductions in short-term debt (11,425)
Reductions in long-term debt (15,401)
---------
Net cash used in financing activities (143,930)
---------
NET DECREASE IN CASH (91,911)
Cash at beginning of year 92,536
---------
CASH AT END OF YEAR $ 625
=========
See accompanying summary of accounting policies and
notes to financial statements.
PRIMUS MARKETING ASSOCIATES, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
Primus Marketing Associates, Inc. (the "Company"), founded in April,
1987, is a sales representative firm based in Minnetonka, Minnesota. The
Company also maintains a sales office in Bismarck, North Dakota. 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),
cable TV, and electric utility original equipment manufacturers, commonly
referred to as OEM's, located primarily in the upper north central 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 3.0% up to 8%,
depending on the sophistication of the customers' products and services
represented. Revenue is 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 are recorded as accounts receivable.
FIXED ASSETS
Fixed assets, consisting of office equipment and automobiles, are stated
at cost. Depreciation is computed over the estimated useful lives of the
assets, ranging from five to seven years, using the straight line method.
INCOME TAXES
The Company, with the consent of its shareholders, elected to be taxed as
an "S" corporation in compliance with elections under the Internal
Revenue Code. In lieu of corporation income taxes, the shareholders of an
"S" corporation are taxed on their 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 temporary differences between the tax bases
of assets and liabilities and their financial reporting amounts at
year-end.
Since the acquisition date, the Company's results are included with
Synaptx Worldwide, Inc.'s results and will be reflected in a 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 and payable.
PRIMUS MARKETING ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACQUISITION
On June 1, 1998 the shareholders of the Company consummated an exchange
of all the outstanding common stock of the Company for 214,286 shares of
common stock of Synaptx Worldwide, Inc. ("Synaptx"). In addition, Synaptx
agreed to issue to the shareholders of the Company a maximum of $375,000
of Synaptx common stock over two years if certain pre-defined revenue and
income targets are met for the subsequent two years.
In conjunction with the acquisition, Synaptx entered into a thirty-five
month employment agreement with the Company's president. The agreement
shall be automatically renewed for two 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.
The agreement also calls for additional commission based on revenues and
profitability.
NOTE 2. SIGNIFICANT CUSTOMERS
For the year ended May 31, 1998, two customers accounted for 33.3%, and
29.2% respectively of total commissions earned. These customers represent
approximately 28.5% and 27.6% respectively, of total accounts receivable
at May 31, 1998.
NOTE 3. OPERATING LEASE COMMITMENTS
The Company occupies its main office space under a lease expiring
February 28, 2001. Rentals are subject to annual escalation charges based
upon increases in operating expenses and real estate taxes.
The Company also leases automobiles under operating leases for the use of
its salespersons. The leases range from thirty-six to forty-eight months
at which time the Company has a purchase option.
As of May 31, 1998, the Company's future minimum lease payments under
operating leases are as follows:
Year ended May 31, 1999 $ 47,980
Year ended May 31, 2000 43,116
Year ended May 31, 2001 25,759
Year ended May 31, 2002 318
---------
Total future minimum
lease payments $ 117,173
=========
Office rent expense amounted to approximately $ 20,442 for the year ended
May 31, 1998, and auto lease expense amounted to approximately $18,475
for the year ended May 31, 1998.
NOTE 4. SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the year for interest was $ 1,600 for the year ended May 31,
1998.
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Financial Statement
Year Ended August 31, 1997
The following unaudited pro forma condensed consolidated statement of
operations for the year ended August 31, 1997 give effect to the acquisition of
Primus Marketing Associates, Inc. which was made as of June 1, 1998. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired entity have not been
reflected in the Company's statement of operations since the acquisition date
was subsequent to the Company's fiscal year end. The pro forma information has
been prepared as if the acquisition occurred on September 1, 1996 and is based
on historic financial statements of Synaptx Worldwide, Inc. from September 1,
1996 to August 31, 1997 and Primus Marketing Associates, Inc. from September 1,
1996 to August 31, 1997.
The unaudited pro forma statement of operations has been prepared by
management based upon the financial statements of Synaptx Worldwide, Inc. and
the acquired entity. 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 Condensed Pro Forma Statement of Operations
Year Ended August 31, 1997
(Unaudited)
Synaptx Primus Pro forma
Worldwide Marketing Adjustments Pro forma
Inc. Associates Increase Consoli-
Inc. (Decrease) dation
REVENUES $ 3,601,124 $ 1,190,496 $ -- $ 4,791,620
COST OF REVENUES 2,571,467 913,817 25,500 3,510,784
----------- ----------- ----------- -----------
GROSS PROFIT 1,029,657 276,679 25,500 1,280,836
----------- ----------- ----------- -----------
EXPENSES
Selling, general
& administrative 1,384,481 228,050 1,612,531
Depreciation 67,915 24,083 91,998
Amortization 129,372 -- 27,329 156,701
Interest expense, net 50,444 -- 50,444
----------- ----------- ----------- -----------
Total expenses 1,632,212 252,133 27,329 1,911,674
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (602,555) $ 24,546 $ (52,829) $ (630,838)
=========== =========== =========== ===========
Weighted Average Shares
Outstanding 4,339,640 214,286 4,553,926
=========== =========== ===========
NET LOSS PER SHARE OF
COMMON STOCK $ (0.14) $ (0.14)
=========== ===========
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Note to Condensed Pro Forma Financial Statement
-----------------------------------------------
On June 1, 1998, Synaptx Worldwide, Inc. (the "Company") entered into
an Agreement and Plan of Merger ("Agreement") with Shareholders of Primus
Marketing Associates, Inc., Inc., a Minnesota Corporation, ("Primus") related to
the acquisition by the Company of one hundred percent (100%) of the issued and
outstanding shares of capital stock of Primus. In reliance upon and pursuant to
the basic terms of the Agreement, the Company and John Primus and Janine Primus,
the shareholders of Primus (collectively the "Primus Shareholders" and
individually the "Primus Shareholder") executed the Agreement whereby Primus
Shareholders exchanged all of their right, title and interest and obligations in
their Primus Common Stock to the Company. The Agreement provided for the
purchase by Synaptx Worldwide, Inc. of all the issued and outstanding capital
stock of Primus Common Stock for 214,286 shares of the Company's $ .001 par
value common stock.
The transaction was recorded under the purchase method of accounting.
The total cost of the acquisition was approximately $ 375,000, which exceeded
the fair value of assets acquired by approximately $ 273,000. This amount is
being amortized over ten years.
Pro forma adjustments related to the acquisition of the Acquiree
include (1) the increase in cost of revenues related to employee commissions and
salaries to reflect amounts contractually obligated under an employment
agreement with the President, and (2) amortization of the cost in excess of fair
value of assets acquired of $27,329.
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Financial Statements
Nine Months Ended May 31, 1998
The following unaudited pro forma condensed consolidated balance sheet
as of May 31, 1998 and statement of operations for the nine months ended May 31,
1998 give effect to the acquisition of Primus Marketing Associates, Inc. which
was made as of June 1, 1998. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the results of operations of the
acquired entity have not been reflected in the Company's financial statements
since the acquisition date was subsequent to the Company's quarter end results.
The pro forma balance sheet information represents Synaptx Worldwide, Inc. and
subsidiaries as of May 31, 1998 and Primus Marketing Associates, Inc. as of the
acquisition date balance sheet, June 1, 1998. The pro forma operating results
have been prepared as if the acquisition occurred on September 1, 1997 and is
based on historic financial statements of Synaptx Worldwide, Inc. from September
1, 1997 to May 31, 1998 and, Primus Marketing Associates, Inc. from September 1,
1997 to May 31, 1998.
The unaudited pro forma consolidated balance sheets and statements of
operations, have been prepared by management based upon the financial statements
of Synaptx Worldwide, Inc. and the acquired entity. 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 Condensed Pro Forma Balance Sheets
As of May 31, 1998
(Unaudited)
Synaptx Primus Pro forma
Worldwide Marketing Adjustments Pro forma
Inc. Associates Increase Consoli-
Inc. (Decrease) dation
ASSETS
Cash $ 122,478 $ 625 $ -- $ 123,103
Accounts receivable 814,173 118,386 932,559
Prepaid expenses and deposits 94,088 -- 94,088
----------- ----------- ----------- -----------
Total current assets 1,030,739 119,011 -- 1,149,750
----------- ----------- ----------- -----------
Property and equipment 380,828 141,055 (102,331) 419,552
Less accumulated depreciation (138,897) (102,331) 102,331 (138,897)
----------- ----------- ----------- -----------
Net property and equipment 241,931 38,724 -- 280,655
----------- ----------- ----------- -----------
Costs in excess of
net assets acquired 2,409,601 -- 273,281 2,682,882
Other assets 246,729 -- -- 246,729
----------- ----------- ----------- -----------
Total assets $ 3,929,000 $ 157,735 $ 273,281 $ 4,360,016
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 914,458 $ 13,216 $ 927,674
Accrued expenses and taxes 224,975 33,533 258,508
Notes payable 293,680 293,680
Current portion of long-term debt 206,000 3,180 209,180
Deferred revenue 148,427 -- -- 148,427
----------- ----------- ----------- -----------
Total current liabilities 1,787,540 49,929 -- 1,837,469
Long-term debt,
net of current portion 268,474 6,086 -- 274,560
Commitments -- -- -- --
Preferred stock 137 -- 137
Common stock 5,738 2 212 5,952
Additional paid-in capital 3,320,819 39,842 334,945 3,695,606
Retained earnings (1,453,708) 61,876 (61,876) (1,453,708)
----------- ----------- ----------- -----------
Total stockholders' equity 1,872,986 101,720 273,281 2,247,987
----------- ----------- ----------- -----------
Total liabilities and equity $ 3,929,000 $ 157,735 $ 273,281 $ 4,360,016
=========== =========== =========== ===========
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Condensed Pro Forma Statements of Operations
Nine Months Ended May 31, 1998
(Unaudited)
Primus Pro forma
Synaptx Marketing Adjustments Pro forma
Worldwide Associates, Increase Consoli-
Inc. Inc. (Decrease) dation
REVENUES $ 4,451,882 $ 751,563 $ -- $ 5,203,445
COST OF REVENUES 3,546,102 625,039 (27,500) 4,143,641
----------- ----------- ----------- -----------
GROSS PROFIT 905,780 126,524 27,500 1,059,804
----------- ----------- ----------- -----------
EXPENSES:
Selling, general &
administrative 1,412,805 186,647 (17,500) 1,581,952
Depreciation 65,984 25,900 -- 91,884
Amortization 150,531 -- 20,500 171,031
Interest expense, net 36,558 1,116 -- 37,674
----------- ----------- ----------- -----------
Total Expenses 1,665,878 213,663 3,000 1,882,541
----------- ----------- ----------- -----------
NET LOSS $ (760,098) $ (87,139) $ 24,500 $ (822,737)
Cumulative convertible preferred
stock dividend requirements 17,000 17,000
----------- -----------
Net loss applicable to
common shareholders $ (777,098) $ (839,737)
=========== ===========
Weighted Average Shares
Outstanding 5,398,846 214,286 5,613,132
=========== =========== ===========
NET (LOSS) PER SHARE OF
COMMON STOCK $ (0.14) $ (0.15)
=========== ===========
SYNAPTX WORLDWIDE, INC. AND SUBSIDIARIES
Note to Condensed Pro Forma Financial Statements
------------------------------------------------
On June 1, 1998, Synaptx Worldwide, Inc. (the "Company") entered into
an Agreement and Plan of Merger ("Agreement") with Shareholders of Primus
Marketing Associates, Inc., a Minnesota Corporation, ("Primus") related to the
acquisition by the Company of one hundred percent (100%) of the issued and
outstanding shares of capital stock of Primus. In reliance upon and pursuant to
the basic terms of the Agreement, the Company and John Primus and Janine Primus,
the shareholders of Primus (collectively the "Primus Shareholders" and
individually the "Primus Shareholder") executed the Agreement whereby Primus
Shareholders exchanged all of their right, title and interest and obligations in
their Primus Common Stock to the Company. The Agreement provided for the
purchase by Synaptx Worldwide, Inc. of all the issued and outstanding capital
stock of Primus Common Stock for 214,286 shares of the Company's $ .001 par
value common stock.
The transaction was recorded under the purchase method of accounting.
The total cost of the acquisition was approximately $ 375,000, which exceeded
the fair value of assets acquired by approximately $ 273,000. This amount is
being amortized over ten years.
Pro forma adjustments related to the acquisition of Primus
recorded in the consolidated condensed pro forma balance sheets include (1) the
restatement of fixed assets to estimated fair market value (2) the recording of
costs in excess of net assets acquired of $273,281 (3) the recording of entries
to reflect the acquisition of the stockholders' equity including the issuance of
the common stock at par value with the excess over par going to additional
paid-in capital net of the elimination of Primus common stock and retained
earnings to reflect the purchase accounting treatment of the acquisition.
Pro forma adjustments related to the acquisition of Primus as
recorded in the consolidated condensed pro forma statement of operations include
(1) the reduction of cost of revenues related to employee commissions and
salaries to reflect amounts contractually obligated under employment agreements
with key employees of $27,500, (2) amortization of costs in excess of fair value
of assets acquired of $20,500, and (3) the reduction of non-recurring selling,
general, and administrative expenses related to professional fees incurred by
Primus as a result of the Synaptx transaction of $17,500.
As of May 31, 1998, Synaptx Worldwide, Inc. had 5,737,661 shares of
common stock outstanding. The acquisition of Primus resulted in the issuance of
214,286 shares for a total of 5,951,947 shares outstanding on a pro-forma basis.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SYNAPTX WORLDWIDE, INC.
Date: August 14, 1998 /s/ Richard E. Hanik
-----------------------------------------------
RICHARD E. HANIK, Chief Financial Officer
EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 Agreement and Plan of Stock for Stock Exchange,
dated June 1, 1998, between Synaptx Worldwide, Inc.
(the "Company") and John Primus and Jannine Primus.
10.2 Employment Agreement, dated June 1, 1998, between
Primus Marketing Associates, Inc. and John E. Primus.
10.3 Non-compete Agreement, dated June 1, 1998, between
the Company and John E. Primus.
10.4 Non-compete Agreement, dated June 1, 1998, between
the Company and Jannine Primus.