SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: September 30, 1999; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to __________
Commission File Number: 0-24109
SYNTHONICS TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
UTAH 87-0302620
- ------------------------------ -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31324 Via Colinas, Suite 106, Westlake Village, CA 91362
- ---------------------------------------------------- ------------------------
(Address of principal executive offices) Zip Code)
(818) 707-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
On September 30, 1999 there were 27,621,679 shares of the registrant's
Common Stock, $0.01 par value, issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
This Form 10-QSB has 27 pages, the Exhibit Index is located at page 27.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements included herein have been prepared by the Company,
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of September 30, 1999 and the results of its operations and changes
in its financial position from inception through September 30, 1999 have been
made. The results of operations for such interim period is not necessarily
indicative of the results to be expected for the entire year.
Index to Financial Statements
Page
----
Independent Accountant's Report ......................................... 3
Consolidated Balance Sheets ............................................. 4
Consolidated Statements of Operations ................................... 6
Consolidated Statements of Stockholders' Equity (Deficit) ............... 7
Consolidated Statements of Cash Flows ................................... 9
Notes to the Consolidated Financial Statements .......................... 11
All other schedules are not submitted because they are not applicable or
not required or because the information is included in the financial statements
or notes thereto.
2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Synthonics Technologies, Inc. and Subsidiaries
Westlake Village, California
The accompanying consolidated balance sheet of Synthonics Technologies, Inc. and
Subsidiaries as of September 30, 1999 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the three months
and nine months ended September 30, 1999 and 1998 were not audited by us and,
accordingly, we do not express an opinion on them. The accompanying balance
sheet as of December 31, 1998 was audited by us and we expressed an unqualified
opinion on it in our report dated January 25, 1999.
Jones, Jensen & Company
Salt Lake City, Utah
October 19, 1999
3
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,231 $ 271,665
Accounts receivable, net (Note 1) 10,255 15,117
Accounts receivable, related (Note 1) 31,620 31,620
-------------- --------------
Total Current Assets 54,106 318,402
-------------- --------------
PROPERTY AND EQUIPMENT (Net) (Note 2) 44,053 79,855
-------------- --------------
OTHER ASSETS
Deposits 11,867 13,947
Intangibles, net (Note 3) 178,833 188,348
-------------- --------------
Total Other Assets 190,700 202,295
-------------- --------------
TOTAL ASSETS $ 288,859 $ 600,552
============== ==============
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
4
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 232,568 $ 302,796
Accounts payable, related (Note 5) 38,754 47,366
Accrued expenses 14,065 14,187
Notes payable (Note 6) - 850,000
-------------- --------------
Total Current Liabilities 285,387 1,214,349
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 550,000 shares authorized of
$10.00 par value, 10,000 and 10,000 shares
issued and outstanding, respectively 100,000 100,000
Common stock; 50,000,000 shares authorized
of $0.01 par value, 27,621,679 and 19,951,279
shares issued and outstanding, respectively 276,217 199,513
Additional paid-in capital 6,158,995 5,083,791
Accumulated deficit (6,531,740) (5,997,101)
-------------- --------------
Total Stockholders' Equity (Deficit) 3,472 (613,797)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY (DEFICIT) $ 288,859 $ 600,552
============== ==============
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
5
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended Sepember 30,
----------------------- ------------------------
1999 1998 1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Net sales $ 19,682 $ - $ 144,648 $ 179,947
Cost of goods sold 7,983 - 80,021 105,740
--------- --------- --------- -----------
Gross Profit 11,699 - 64,627 74,207
--------- --------- --------- -----------
EXPENSES
Research and development 107,965 153,538 198,318 326,261
Production costs 42,664 270,432 76,346 594,390
General and administrative 47,571 259,530 217,145 654,024
Bad debt expense 7,710 - 7,710 -
Depreciation and amortization 22,635 31,596 66,854 83,842
--------- --------- --------- -----------
Total Expenses 228,545 715,096 566,373 1,658,517
--------- --------- --------- -----------
Loss From Operations (216,846) (715,096) (501,746) (1,548,310)
--------- --------- --------- -----------
OTHER INCOME (EXPENSE)
Other income 626 - 626 -
Interest income 1,264 3,305 2,224 6,326
Interest expense (205) (15,001) (35,743) (29,992)
--------- --------- --------- -----------
Total Other Income (Expense) 1,685 (11,696) (32,893) (23,666)
--------- --------- --------- -----------
NET LOSS $(215,161) $(726,792) $(534,639) $(1,607,976)
========= ========= ========= ===========
BASIC LOSS PER SHARE $ (0.01) $ (0.04) $ (0.02) $ (0.08)
========= ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
6
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ---------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 50,000 $500,000 17,823,387 $178,234 $3,961,790 $(4,332,431)
Common stock issued for cash
at $0.65 per share - - 550,002 5,500 352,000 -
Common stock issued in lieu
of debt at $0.71 per share - - 70,000 700 49,300 -
Common stock issued for
services rendered at $0.66
per share - - 34,815 348 22,630 -
Conversion of preferred shares
to common shares (40,000) (400,000) 615,200 6,152 393,848 -
Common stock issued upon
exercise of warrants at
$0.20 per share - - 420,000 4,200 79,800 -
Common stock issued upon
exercise of warrants - - 167,000 1,670 (1,670) -
Dividends declared - - - - (24,000) -
Stock offering costs - - - - (30,176) -
Common stock issued upon
exercise of warrants at
$0.75 per share - - 250,000 2,500 185,000 -
Common stock issued in lieu
of debt at $0.25 per share - - 17,875 179 4,290 -
Common stock issued in lieu
of debt at $0.33 per share - - 3,000 30 970 -
Addi+tional capital contributed - - - - 90,009 -
Net loss for the year ended
December 31, 1998 - - - - - (1,664,670)
---------------------------------------------------------------------------------------
Balance, December 31, 1998 10,000 100,000 19,951,279 199,513 5,083,791 (5,997,101)
---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
7
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)(Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ---------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 10,000 100,000 19,951,279 199,513 5,083,791 (5,997,101)
Common stock issued in lieu
of debt at $0.25 per share
(unaudited) - - 10,400 104 2,496 -
Dividends declared on preferred
(unaudited) - - - - (3,000) -
Common stock issued in lieu of
debt at $0.20 per share
(unaudited) - - 2,875,000 28,750 546,250 -
Common stock issued in lieu of
debt at $0.15 per share
(unaudited) - - 2,130,000 21,300 298,200 -
Common stock issued upon exercise
of warrants at $0.20 per share
(unaudited) - - 120,000 1,200 22,800 -
Common stock issued for cash at
$0.10 per share (unaudited) - - 2,535,000 25,350 228,150 -
Stock offering costs - - - - (13,692) -
Net loss for the Nine months
ended September 30, 1999
(unaudited) - - - - - (534,639)
---------------------------------------------------------------------------------------
Balance, September 30, 1999
(unaudited) 10,000 $100,000 27,621,679 $ 276,217 $ 6,158,995 $(6,531,740)
=======================================================================================
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
8
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended Sepember 30,
----------------------- ------------------------
1999 1998 1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(215,161) $(726,792) $(534,639) $(1,607,976)
Adjustments to reconcile net loss to
net cash used by operating activities:
Common stock issued for services - - - 22,978
Depreciation and amortization 22,635 31,596 66,854 83,842
(Increase) decrease in accounts
receivable 35,862 118,842 4,862 (30,294)
(Increase) decrease in deposits - - 2,080 -
Increase (decrease) in accounts
payable and accounts payable - related (11,242) 46,584 (76,241) 14,820
Increase (decrease) in accrued
expenses 3,087 96,489 44,378 292,381
--------- --------- --------- -----------
Net Cash (Used) by Operating Activities (164,819) (433,281) (492,706) (1,224,249)
--------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets - - 211 -
Patent costs - (37,625) (20,632) (61,011)
Purchase of fixed assets (1,115) (2,009) (1,115) (7,521)
--------- --------- --------- -----------
Net Cash (Used) by Investing Activities (1,115) (39,634) (21,536) (68,532)
--------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - - - 550,000
Principal payments on notes payable - (15,000) - (45,000)
Dividends paid (3,000) (3,000) (9,000) (21,000)
Common stock issued for cash 3,500 211,500 263,808 598,824
--------- --------- --------- -----------
Net Cash Provided by
Financing Activities 500 193,500 254,808 1,082,824
--------- --------- --------- -----------
NET INCREASE (DECREASE) IN CASH (165,434) (279,415) (259,434) (209,957)
CASH, BEGINNING OF PERIOD 177,665 381,068 271,665 311,610
--------- --------- --------- -----------
CASH, END OF PERIOD $ 12,231 $ 101,653 $ 12,231 $ 101,653
========= ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
9
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended Sepember 30,
----------------------- ------------------------
1999 1998 1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 143 $ 15,001 $ 344 $ 29,992
Income Taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for services $ - $ - $ - $ 22,978
Common stock issued in lieu of debt $ - $ 4,469 $ 897,100 $ 54,469
The accompanying notes are an integral part of these consolidated financial statement.
</TABLE>
10
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated
Financial Statements September 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of Synthonics
Technologies, Inc.(STI) and its wholly-owned subsidiaries, Synthonics
Incorporated (Synthonics) and Christopher Raphael, Inc. (CRI).
Collectively, they are referred to herein as the "Company". STI was
incorporated on March 27, 1974 under the laws of the State of Utah.
Effective May 19, 1995, STI issued 9,983,301 shares of its common stock in
exchange for 98% of the issued and outstanding common stock of Synthonics.
During 1997, STI issued an additional 179,700 shares of its common stock
for the remaining 2%. In 1996, STI changed its name to Synthonics
Technologies, Inc.
Synthonics was incorporated on August 26, 1993 under the state laws of
California. Synthonics was organized to engage in the design, development
and marketing of computer-interactive and computer-automated image analysis
software and hardware products. With the acquisition of Synthonics, STI
continued to engage in these activities.
At the time of the acquisition of Synthonics, STI was essentially inactive,
with no operations and minimal assets. Additionally, the exchange of STI's
common stock for the common stock of Synthonics resulted in the former
stockholders of Synthonics obtaining control of STI. Accordingly,
Synthonics became the continuing entity for accounting purposes, and the
transaction was accounted for as a recapitalization of Synthonics with no
adjustment to the basis of Synthonic's assets acquired or liabilities
assumed. For legal purposes, STI was the surviving entity.
On October 1, 1997, STI purchased CRI for $5,200 by issuing 10,000 shares
of its common stock in exchange for 100% of the issued and outstanding
stock of CRI. The common stock issued was valued at its trading price of
$0.52 per share. The acquisition was accounted for as a purchase.
Initially, goodwill was recorded which consisted of the excess of the
purchase price over the fair value of the net tangible assets of CRI. The
goodwill was amortized over a two year period.
CRI was incorporated on June 17, 1997 under the state laws of California.
CRI was organized as a graphic design and print brokerage firm.
b. Accounting Methods
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has elected a December 31, year
end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
11
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Basic Loss Per Share
The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of
the consolidated financial statements. Common stock equivalents, consisting
of warrants and employee stock options, have not been included in the
calculation as their effect is antidilutive for the periods presented.
e. Computer Software Development
The Company records all costs incurred to establish the technological
feasibility of its computer software products as research and development
expenses.
f. Property and Equipment
Property and equipment is recorded at cost. Major additions and improvement
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between
the undepreciated amount and the proceeds from the sale are recorded as
gain or loss on sale of equipment. Depreciation is computed using the
straight-line method over a period of five years.
g. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts.
h. Provision For Taxes
At September 30, 1999, the Company has net operating loss carryforwards of
approximately $6,500,000 that may be offset against future taxable income
through 2014. No tax benefit has been reported in the consolidated
financial statements because the Company believes there is a 50% or greater
chance the net operating loss carryforwards will not be used. Accordingly,
the potential tax benefits of the net operating loss carryforwards are
offset by a valuation allowance of the same amount.
i. Principles of Consolidation
The consolidated financial statements include those of Synthonics
Technologies, Inc. and its wholly-owned subsidiaries, Synthonics
Incorporated and Christopher Raphael, Inc.
All material intercompany accounts and transactions have been eliminated
12
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Uninsured Cash Balances
The Company maintains its corporate cash balances at various banks.
Corporate cash accounts at banks are insured by the FDIC for up to
$100,000. Amounts in excess of insured limits were approximately $-0- and
$171,665 at September 30, 1999 and December 31, 1998, respectively.
k. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
l. Goodwill
Goodwill consists of the excess of the purchase price over the fair value
of net tangible assets of the purchased subsidiary and is amortized on the
straight-line method over a two year period. The Company periodically
reviews goodwill for impairment. Amortization expense on the goodwill for
the nine months ended September 30, 1999 and 1998 was $-0-and $36,069,
respectively.
m. Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
n. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements include all of
the adjustments which, in the opinion of management, are necessary for a
fair presentation. Such adjustments are of a normal, recurring nature.
NOTE 2 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following: September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Computer equipment $ 171,742 $ 171,742
Furniture and fixtures 17,850 18,061
Photographic equipment 56,237 55,122
------------- ------------
245,829 244,925
Accumulated depreciation (201,776) (165,070)
------------- ------------
Net property and equipment $ 44,053 $ 79,855
============= =====-=======
</TABLE>
Depreciation expense for the nine months ended September 30, 1999 and 1998
was $36,706 and $31,890 respectively.
13
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - INTANGIBLES
<TABLE>
<CAPTION>
Intangible costs incurred are as follows: September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Trademarks $ 1,484 $ 1,484
Patents 289,716 269,084
------------- ------------
291,200 270,568
Less accumulated amortization (112,367) (82,220)
Total $ 178,833 $ 188,348
</TABLE>
The patent costs that have been capitalized relate to legal fees incurred
to develop and secure the Company's patents on the 3-D technology. The patents
are recorded at cost and are amortized using the straight-line method over a
period of seven years.
Amortization expense for the nine months ended September 30, 1999 and 1998
was $30,147 and $15,700, respectively.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
During 1998, the Company entered into two separate operating lease
agreements for various equipment. The lease terms expire beginning in May
2001 and ending June 2001. The monthly rental payment for the two leases
combined is $443.
During 1997, the Company entered into three separate operating lease
agreements for various computer equipment. The lease terms expire beginning
in November 1999 and ending November 2000. The monthly rental payment for
all three leases combined is $2,668.
The Company entered into a lease agreement for its office facilities
effective September 1, 1996 and expiring August 31, 2000. The monthly
rental payment is $2,618.
Minimum future lease payments on all the leases as of December 31, 1998 are
as follows:
Year Ended
December 31, Amount
------------ -------
1999 $60,901
2000 34,326
2001 2,260
2002 -
2003 -
2004 and thereafter -
Total $97,487
The Company also has entered into employment agreements with certain
officers of the Company. The Company has agreed to pay its Chief Executive
Officer and Chief Technical Officer a base annual salary of $240,000, each,
beginning on July 1, 1996 and ending on December 31, 2000. During 1998, the
Company's Board of Directors approved a reduction in these salaries for the
entire 1998 year due to a cash shortage. The Board of Directors also
approved a reduction in the salaries for the nine SYNTHONICS TECHNOLOGIES,
INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements
14
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
September 30, 1999 and December 31, 1998 months ended September 30, 1999
due to the cash shortage. The Company's Board of Directors may also
authorize bonuses on an-ad hoc basis.
On January 8, 1998, a default judgment was granted in favor of the Company
for breach of a license agreement and misappropriation of trade secrets.
The Company was awarded damages from the defendant in the amount of
$300,000. It is unlikely, however, that the Company will receive any amount
from the judgment.
NOTE 5 - RELATED PARTY TRANSACTIONS
During 1998, $99,299 of debt was forgiven by an officer and was recorded as
contributed capital at December 31, 1998. In addition, a previously
forgiven debt of $9,290 was paid out during 1998 resulting in a reduction
of contributed capital at December 31, 1998. The Company also owed certain
related parties $38,754 and $47,366 as of September 30, 1999 and December
31, 1998, respectively, for costs incurred on the Company's behalf.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Notes payable to various individuals,
interest at 13% per annum,
principle and interest due May 15,
1999 (payable in cash or stock at
$0.15 per share, at the option of
the Company), unsecured. $ - $ 300,000
Notes payable to various individuals,
interest at 10% due semi-annually,
principle due in May 1999 (payable
in cash or stock at $0.20 per share,
at the option of the Company),
unsecured. - 550,000
-------------- --------------
Total Notes Payable - 850,000
Less: Current Portion - (850,000)
-------------- --------------
Long-Term Notes Payable $ - $ -
============== ==============
</TABLE>
15
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS
a. Stock "Rights" and Warrants
In connection with its acquisition of Synthonics, the Company acquired from
Synthonics stockholders, warrants and "rights" to acquire 1,369,190 shares
of Synthonics common stock. In exchange, the Company granted the exchanging
stockholders warrants and "rights" to purchase 6,161,355 shares of the
Company's common stock. 1,950,500 of the 2,124,000 stock purchase warrants
were exercised during 1996 at $0.27 per share and the remaining 173,500
warrants expired unexercised on February 15, 1996. There were 2,597,355
uncertificated "rights" with an exercise price of $0.11 per share
outstanding at December 31, 1997. 562,500 expired January 1, 1998 and
2,034,855 expired May 31, 1999.
During 1996, 337,000 warrants were purchased at $1.00 per share for
$337,000. 168,500 of the warrants were "A" warrants and 168,500 were "B"
warrants. They were redeemable at 50% of the average price the month before
being exercised. The "A" warrants were exercised during June 1997 and the
"B" warrants were exercised during June 1998.
During the nine months ended September 30, 1999, additional warrants to
purchase 389,714 shares were granted with an exercise price of $0.11 per
share. These additional warrants expire in March 2004. In addition, during
the nine months ended September 30, 1999, warrants to purchase 120,000
shares were exercised at $0.20 per share.
As of September 30, 1999, there were 565,714 additional outstanding
warrants at prices ranging from $0.11 to $2.00 per share. These warrants
are to be exercised from May 2000 through March 2004.
b. Common Stock Options
During 1996, certain of the Company's officers were granted stock options
for a total of 600,000 restricted common shares of the Company at $1.00 per
share in return for their forgiveness of deferred compensation debt in the
amount of $236,500. During 1997, these officers were granted additional
stock options to purchase 588,290 shares of restricted common stock at
$1.00 per share in return for their forgiveness of deferred compensation
debt in the amount of $279,133. The Company also issued 501,000 shares of
common stock during 1997 in exchange for the forfeiture of 750,000 common
stock options. 450,000 of those stock options were valued at $0.22 per
option and the remaining 300,000 stock options were valued at $0.50 per
option. The amounts are recorded as contributed capital at December 31,
1996 and 1997. The options can be exercised in total or in part prior to
December 31, 2001 and 2002. During 1998, officers were granted additional
stock options to purchase 1,212,979 shares of restricted common stock at
$0.53 per share. During the nine months ended September 30, 1999,
additional stock options to purchase 3,385,291 shares of restricted stock
were granted exercisable at prices ranging from $0.10 to $0.20 per share.
During the nine months ended September 30, 1999, stock options to purchase
2,034,855 shares of common stock expired unexercised.
The total amount of outstanding stock options of the Company at September
30, 1999 is summarized as follows:
Shares Exercise Price Exercised By
----------------------------------------------------------------
153,000 $1.00 December 1, 1999
1,448,445 $0.10 March 2, 2000
600,000 $1.00 December 31, 2001
40,906 $0.66 June 30, 2002
16
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS (Continued)
Shares Exercise Price Exercised By
----------------------------------------------------------------
825,000 $0.75 October 31, 2002
588,290 $1.00 December 31, 2002
250,000 $1.00 September 30, 2003
1,212,979 $0.53 December 31, 2003
30,000 $1.00 December 31, 2003
474,134 $0.20 April 30, 2004
1,115,000 $0.20 June 24, 2004
306,806 $0.13 June 30, 2004
1,200,000 $0.50 July 1, 2006
On July 28, 1999, the Board of Directors of the Company rescinded the
previously adopted resolution to reprice its outstanding stock options and
warrants. Therefore, the option exercise prices and maturity dates have
been restated according to the original issuance.
c. Stock Option and Management Cash Incentive Plans
At the annual shareholders' meeting in April 1998, the shareholders
approved a Stock Option Plan and a Management Cash Incentive Plan.
Management believes that these plans will help increase the productivity
and efficiency of the officers and employees involved.
NOTE 8 - PREFERRED STOCK
At December 31, 1997, the Company had 50,000 outstanding shares of
cumulative convertible preferred stock. During 1998, 40,000 of the shares
were converted early into 615,200 shares of common stock. The early
conversion was at a 15.38 shares of common to 1 share of preferred
conversion rate, as an incentive for the preferred shareholders to give up
their future dividends from the preferred stock. Thus, at September 30,
1999 and December 31, 1998, the Company has 10,000 outstanding shares of
cumulative convertible preferred stock. The remaining preferred stock is
convertible at the option of the holder into five shares of the Company's
common stock for each share of preferred stock, are non-voting, and feature
a 12% annual dividend, paid quarterly. Accrued dividends as of September
30, 1999 and December 31, 1998 were $9,000 and $-0-, respectively.
NOTE 9 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has historically incurred
significant losses which have resulted in an accumulated deficit of
$5,997,101 at December 31, 1998 which raises substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result from the outcome
of this uncertainty. It is the intent of management to create additional
revenues through the development and sales of its image analysis software
and to rely upon additional equity financing if required to sustain
operations until revenues are adequate to cover the costs.
17
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 10 - SUBSEQUENT EVENTS
On October 1, 1999, the Board of Directors of the Company granted stock
options to purchase a total of 2,679,575 shares of restricted common stock.
2,534,855 of the options are exercisable at $0.10 per share through
September 30, 2003 and the remaining 144,720 options are exercisable at
$0.07 per share through September 30, 2004.
On October 12, 1999, 800,000 shares of common stock were issued through the
exercise of options at $0.10 per share for $80,000 cash.
18
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read together with the
Annual Report of Synthonics, Consolidated Financial Statements of Synthonics and
the notes to the Consolidated Financial Statements included elsewhere in this
Form 10-QSB.
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of Synthonics for the nine months ended September 30, 1999 and September 30,
1998. Except for historical information, the matters discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward looking statements that involve risks and uncertainties
and are based upon judgments concerning various factors that are beyond our
control. Actual results could differ materially from those projected in the
forward-looking Statements as a result of, among other things, the factors
described below under the caption "Cautionary Statements and Risk Factors."
Overview
- --------
During the past two years, we have pursued a strategy of packaging our
patented 3D technology into software tools that can be licensed to other brand
name software distributors as enhancements to their own software products. To
date, this strategy has produced disappointing financial results, and we are now
in the process of re-focusing our market direction to one of providing Internet
3D electronic-commerce, or e-commerce, solutions. We believe that our 3D
technology provides attractive capabilities to consumers wanting to purchase
products on-line. In particular, we believe that product comparisons and
evaluations can be made simpler and more effectively by using our 3D technology.
We are in the process of overhauling our infrastructure, creating marketing
demos, pursuing strategic alliances, and pursuing capital funding to support
this new initiative.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998.
NET SALES decreased 19.6% or the nine months ended September 30, 1999 to
$144,648 from $179,947 for the nine months ended September 30, 1998. The
majority of sales during the nine months ended September 30, 1999 were from
ongoing revenue contracts. Sales of the Smithsonian CD-ROM were $78,882. In
addition, $40,000 in sales were generated during this period from the Company's
agreement to license its new software product called Picture Modeler. The
balance of sales during the first nine months of fiscal 1999 was derived from 3D
content creation services rendered. During the first nine months of fiscal 1998,
the Company provided content creation and software development services to two
customers accounting for the majority of its sales in that time period.
GROSS PROFIT decreased 12.9% in the nine months ended September 30, 1999 to
$64,627 from $74,207 in the nine months ended September 30, 1998. This decrease
in the gross profit for the first nine months of fiscal 1999 can be attributed
to the reduction in sales for the same time period. Gross profit as a percentage
of sales increased to 44.7% for the first nine months of fiscal 1999 as compared
to 41.2% for the first nine months of fiscal 1998.
OPERATING EXPENSES decreased to $566,373 for the nine months ended
September 30, 1999 from $1,658,517 for the nine months ended September 30, 1998.
The decrease in operating expense is primarily due to a decrease in staffing
during the first three quarters of fiscal 1999. Overall, the reduction in
operating expenses reflect the Company's efforts to consolidate and cut costs
while it attempts to redefine its overall strategy from that of a 3D software
tools provider to that of an Internet 3D e-commerce solution provider.
PRODUCTION COSTS for the nine month period ended September 30, 1999 were
$76,346 or 52.7% of sales as compared to $594,390 or 330.3% of sales for the
nine months ended September 30, 1998. Production costs decreased due to the fact
that during the first nine months of 1998, the Company had additional costs
related to the preparation of the Smithsonian CD-ROM for its release in October
1998. During the first nine months of 1999, production costs have been primarily
associated with the 3D content creation services provided to the Smithsonian
Institution and the development of the first product for the Company's Internet
solution initiative.
19
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES totaled $217,145 and $654,024 for the
nine months ended September 30, 1999 and 1998, respectively. The decrease in
expense reflects the cost reduction effort underway with the re-focusing of the
Company to that of an Internet e-commerce solution provider.
RESEARCH AND DEVELOPMENT EXPENSES totaled $198,318 and $326,261 for the
nine month periods ended September 30, 1999 and 1998, respectively. The decrease
is primarily the result of a reduction in development required for the products
being prepared for the Company's joint venture affiliate, Acuscape
International, Inc. Expenditures on research and development are expected to
increase in future periods, particularly in connection with the Company's shift
in strategy to electronic commerce solutions and the investigation and/or
development of additional product lines.
We wrote off $7,710 of uncollectible receivables during the first nine
months of 1999. No write-offs of receivables occurred during the first nine
months of 1998.
As a result of the foregoing factors, we had a net loss of $534,639 for the
nine months ended September 30, 1999 as compared to a net loss of $1,607,976 for
the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for funds are to provide working capital
associated with forecasted growth in sales volume. Specifically, funds are
required to complete the products necessary for the Company's Internet
initiative. Additionally, funds are required to promote future business
development. Working capital for the nine months ended September 30, 1999 was
funded primarily through the sale of equity and the collection of accounts
receivable.
Net cash used in operating activities during the nine months ended
September 30, 1999 was primarily attributable to a net loss of $534,639. Net
cash used in investing activities in the nine months ended September 30, 1999
was due primarily to costs associated with patent filings. Net cash provided by
financing activities for the nine months ended September 30, 1999 was $254,808
compared to $1,082,824 during the nine months ended September 30, 1998. In May
1999 a warrant was exercised for 120,000 shares of Common Stock at $0.20 per
share providing $24,000 in cash, and in June 1999, we closed a private placement
of 2,500,000 shares of our Common Stock, which were issued to two investors. The
private placement raised aggregate proceeds of $250,000, offset by $13,692 of
selling expenses and $9,000 for dividends paid to Preferred Stock shareholders.
In May of 1999, we had notes payable in the amount of $850,000 come due. We
chose to exercise our option, per the terms of the notes, to issue Common Stock
in lieu of cash in order to pay off the principal and the majority of
outstanding interest associated with these notes. In doing so, we issued a total
of 5,005,000 shares of our Common Stock to the holders of these notes.
At present, our anticipated capital commitments are primarily for the
expenditures associated with the overhauling of our infrastructure, creating of
marketing demonstrations, pursuing strategic alliances, and pursuing capital
funding. We estimate that our current cash balance is not sufficient to meet our
needs through the fourth quarter of fiscal 1999. Based on our current operating
plan, we anticipate that further capital will be required during the next twelve
months to satisfy our expected increased working capital and research and
development requirements for the new products. We are currently exploring
alternatives to fulfill our financing requirements. No assurance can be given
that additional financing will be available when needed or that, if available,
it will be on terms favorable to our stock holders and us. If needed funds are
not available, we may be required to curtail our operations, which could have a
material adverse effect on our business, operating results and financial
condition. There can be no assurance that our working capital requirements
during this period will not exceed its available resources or that these funds
will be sufficient to meet the Company's longer-term cash requirements for
operations.
20
<PAGE>
CAUTIONARY FORWARD - LOOKING STATEMENT
- --------------------------------------
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (i) the extremely competitive conditions that
currently exist in the three dimensional software development marketplace are
expected to continue, placing further pressure on pricing which could adversely
impact sales and erode profit margins; (ii) many of the Company's major
competitors in its channels of distribution have significantly greater financial
resources than the Company; and (iii) the inability to carry out marketing and
sales plans would have a materially adverse impact on the Company's projections.
The foregoing list should not be construed as exhaustive and the Company
disclaims any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
YEAR 2000 ISSUES
- ----------------
The Year 2000 presents concerns for business and consumer computing. Aside
from the well-known problems with the use of certain 2-digit date formats as the
year changes from 1999 to 2000, the Year 2000 is a special case leap year, and
dates such as 9/9/99 were used by certain organizations for special functions.
The problem exists for many kinds of software and hardware, including
mainframes, mini-computers, PCs, and embedded systems. The consequences of the
Year 2000 issue may include systems failures and business process
interruption.Even though none of the Company's products use dates, and therefore
there are no Year 2000 issues over which the Company has direct control, the
Company is continuing to test its products and gather and produce information
about the Company impacted by the Year 2000 transition.
The Year 2000 issue also affects the Company's internal systems, such as
billing and word processing. The Company is assessing the readiness of its
systems for handling the Year 2000, and has started the remediation and
certification process. Although assessment, testing, and remediation is still
underway, management currently believes that all material systems will be
compliant by the Year 2000 and that the cost to address the issues is not
material. Nevertheless, the Company will be creating contingency plans for
critical processes that rely on internal systems.
Given that the Company's products operate on certain hardware platforms and
within certain software operating systems and environments, the Company must
rely upon the efforts of the hardware and software vendors and manufacturers to
be in the vanguard with respect to OS and Platform issues relating to the Year
2000 compliance. The Company is undertaking steps to identify and assess whether
hardware and software vendors and manufacturers have brought their products into
Year 2000 compliance, or if any of its customers, suppliers or service providers
will be so affected. The Company will with its key vendors, distributors, and
direct resellers to avoid any business interruptions in 2000. Failure of the
Company's software resulting from a hardware or software vendor to be Year 2000
compliant, or that of its customers, suppliers or service providers could have a
material adverse impact on the Company's business, financial condition and
result of operations.
RISK FACTORS
- ------------
Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ materially
from those projected or forecast appear in the statements below. In addition to
other information contained in this document, readers should carefully consider
the following cautionary statements and risk factors:
21
<PAGE>
IF WE ARE UNABLE TO RAISE SUFFICIENT CAPITAL. Our future success depends
largely on the ability to secure outside capital funding. Required product
concept demos, product development, technology advancement, employee recruitment
and hiring, and related essential operating expenses are all dependent on new
and substantial capital funding being secured. We cannot be certain that
additional financing will be available at the time we need additional funds or
that, if available, it can be obtained on terms that we deem favorable. If
adequate capital funding cannot be secured, we will have to curtail operations
and our business will be adversely affected. Additionally, the sale of stock to
raise additional funds may dilute our stockholders.
WE HAVE A LIMITED RELEVANT OPERATING HISTORY UPON WHICH TO EVALUATE THE
LIKELIHOOD OF OUR SUCCESS. Factors such as the risks, expenses and difficulties
frequently encountered in the operation and expansion of a relatively new
business and the development and marketing of new products must be considered in
evaluating the likelihood of success of our company.
WE HAVE A HISTORY OF LOSSES AND ACCUMULATED DEFICIT AND THIS TREND OF
LOSSES MAY CONTINUE IN THE FUTURE. For the period January 1, 1999 to September
30, 1999 we incurred a net loss of $534,639. For the fiscal year ended December
31, 1998 we had a net loss of $1,664,670. At September 30, 1999 our accumulated
deficit was $6,531,740. Our ability to obtain and sustain profitability will
depend, in part, upon the successful development and marketing of our existing
products and technologies and the successful and timely introduction of new
products.
OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM COPYING BY
OTHERS. Our future success and ability to compete depends in part upon our
proprietary technology. We rely on trademark, trade secret, patent laws, and
copyright laws to protect our technology, and require all employees and
third-party developers to sign nondisclosure agreements. We cannot be certain,
however, that these precautions will provide meaningful protection from
competition or that competitors will not be able to develop similar or superior
technology independently. We do not copy-protect our software, so it may be
possible for unauthorized third parties to copy our products or to reverse
engineer or otherwise obtain and use information that we regard as proprietary.
Our customers may take inadequate precautions to protect our proprietary
information. If we must pursue litigation in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others, we may not prevail and
will likely make substantial expenditures and divert valuable resources. In
addition, many foreign countries' laws may not protect us from improper use of
our proprietary technologies overseas. We may not have adequate remedies if our
proprietary rights are breached or our trade secrets are disclosed.
IF WE DO NOT ACHIEVE COMMERCIAL ACCEPTANCE OF OUR INTERNET 3D E-COMMERCE
SOLUTION PRODUCTS. We are currently re-focusing the Company to provide 3D
e-commerce solutions for the Internet that take advantage of our patented 3D
technology. We believe both consumers and businesses, participating in
e-commerce on the Internet, will benefit substantially from the products that we
will develop therefore creating market demand for these products. In designing
our products for e-commerce on the Internet, we will have to make certain
assumptions about consumer preferences, retailers needs, and the availability of
anticipated Internet related technology advances. Inaccurate assumptions on our
behalf, for any of these categories, will likely downgrade market acceptance of
our Internet 3D e-commerce solution products. If market acceptance of these
products is less than we have forecasted, future results of the company will be
adversely affected.
IF EMERGING TECHNOLOGIES PROVIDE ALTERNATIVES WITH EQUAL OR BETTER BENEFITS
OF OUR TECHNOLOGY. We believe that our current level of 3D technology for the
creation of 3D content provides businesses and consumers with benefits that are
unavailable from competitive technologies. We can only make this evaluation
against other products that have been released and available for public
consumption. Our competitive analysis cannot evaluate products that are
currently under development by other companies. The explosive growth of
e-commerce over the Internet is sufficient incentive for many companies to
invest in technologies that may provide products that offer similar or better
consumer and business benefits than will our products. It is essential that we
execute our Internet e-commerce solution strategy very quickly in order to stay
ahead of the competition's product offerings in this marketplace. Our time to
market with our future products is dependent on our ability to raise adequate
capital funding as described above.
22
<PAGE>
IF WE ARE UNABLE TO IDENTIFY AND SECURE REQUIRED RESOURCES. Our future
results depend largely on our ability to identify and secure resources
including:
* Technical staff
* Business development staff
* Strategic partners
* Outside contractors
We will have to rapidly expand our capabilities, once capital funding is
secured, in order to successfully pursue our Internet e-commerce solution market
strategy. Our capabilities will be expanded by combining internal staffing with
the formation of strategic partnerships and with the selection of outside
contractors such as software program developers. If we are either unable to
identify or to secure these resources in a timely fashion, our future results
will be adversely affected.
IF WE ARE UNABLE TO RETAIN AND UTILIZED KEY PERSONNEL. As an early stage
company, we are particularly dependent on a limited number of individuals to
execute our business plan. At present, all our officers and directors fall in to
the category of key individuals as each is counted upon for contributions to our
success. We have employment contracts with our Chief Executive Officer, F.
Michael Budd, and our Chief Technical Officer, Charles S. Palm, our only full
time officers. We have been unable to pay either of these employees the
compensation amounts called for in their employment contracts during the past
several fiscal quarters. Each employment contract can be terminated with thirty
days notice to the Company. If either of these individuals were to terminate
employment in the near future, it will have an adverse affect on our financial
performance. Our directors are all individuals who are employed full time by
other, non-competing, companies. As such, involvement of these directors in the
day-to-day running of the business is not practical due to conflicts of interest
for their time. At any given time, any of our directors may be unavailable to us
due to the demands of their employers and this may have an adverse affect on the
financial results of the business.
IF WE ARE UNABLE TO MANAGE OUR EXPANSION AND GROWTH. We are planning to
expand the business very rapidly in order to entrench ourselves in, what we
believe is a very lucrative e-commerce market. Effectively managing this
expansion will be very complex and require the addition of key management
personnel as well as the incorporation of management support systems. Either the
failure to identify and attract key managers or the delayed incorporation of
required management support systems will adversely affect our future financial
results. The successful recruitment of key managers and the timely installation
of management support systems are both largely dependent on our efforts to
secure adequate capital funding that is discussed above.
IF WE ARE UNABLE TO ADEQUATELY ADDRESS INTERNET DOWNLOAD ISSUES. We will be
supplying 3D e-commerce solutions over the Internet. A major element of these
future product solutions will be to require downloads of several 3D data files
to consumers' sites. In order to be successful in this regard, we must be able
to offer download times that do not detract from the e-commerce experience. We
believe that our technology offers the best alternative available in terms of 3D
file sizes. However, we have no assurances that this advantage will be adequate
in the eyes of a consumer. We have no control over the modem type used by a
consumer, the time of day a consumer will be accessing the Internet, the
capacity of the consumer's Internet Service Provider (ISP), or the rate to which
expanded bandwidth solutions will be practically available to consumers. Each of
these can have a negative affect on the length of the download time. We are
attempting to consider all these issues in the design of our 3D e-commerce
solution products but we cannot assure that they will be adequately addressed.
If consumers conclude that the download times are not sufficiently offset by the
benefits provided, our future financial results will be adversely affected.
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
During the period covered by this report there are no legal proceedings
against the Company and the Company is unaware of any unasserted claim or
assessment which will have a material effect on the financial position or future
operations of the Company.
23
<PAGE>
Item 2. Changes in Securities.
Recent Sale of Securities.
-------------------------
(a) Investment by accredited Investors. On August 2, 1999, the Company sold
35,000 shares of its Common Stock pursuant to Rule 506 of the Securities Act of
1933 to an accredited investor for total cash consideration of $3,500.
(b) Exercise of Option by Argoquest 7, LLC. On October 12, 1999, Argoquest
7, LLC, exercised an option to purchase 800,000 shares of Common Stock at a
price of $0.10 per share for total cash consideration received by the Company of
$80,000. At the time of exercise, Argoquest 7, LLC was an acredited investor.
Item 3. Defaults Upon Senior Securities.
For the last three quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999 the Company has failed to pay the quarterly dividends on the
Preferred Stock in the amount of total $3,000 per quarter bringing the total
amount in arrears to $9,000.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits attached or incorporated by referenced pursuant to
Item 601 of Regulation S-B.
(3) Articles of Incorporation and By-Laws.
3.1 Articles of Incorporation of the Registrant filed on March
27, 1994, (incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form 10-SB dated April 28,
1998; Commission File No. 0-24109).
3.2 Restated Articles of Incorporation of the Registrant dated
May 18, 1995, (incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form 10-SB dated April 28,
1998; Commission File No. 0-24109).
3.3 Articles of Amendment to Articles of Incorporation of the
Registrant, filed on September 16, 1996, (incorporated by
reference to Exhibit 3.3 of the Registrant's Registration
Statement on Form 10-SB dated April 28, 1998; Commission File No.
0-24109).
3.4 Statement of Designation of Foreign Corporation in California
filed November 4, 1996, (incorporated by reference to Exhibit 3.4
of the Registrant's Registration Statement on Form 10-SB dated
April 28, 1998; Commission File No. 0-24109).
3.5 Certificate of Amendment to Articles of Incorporation filed
September 6, 1997, (incorporated by reference to Exhibit 3.5 of
the Registrant's Registration Statement on Form 10-SB dated April
28, 1998; Commission File No. 0-24109).
24
<PAGE>
3.6 Amended and Restated Articles of Incorporation filed April
23, 1998, (incorporated by reference to Exhibit 3.6 of the
Registrant's Registration Statement on Form 10-SB dated April 28,
1998; Commission File No. 0-24109).
3.6(a) Restated Articles of Incorporation dated effective as of
April 22, 1999, (incorporated by reference to Exhibit 3.6(a) of
the Quarterly Report on Form 10-QSB filed on May 13, 1999.
3.7 By-Laws of the Registrant (incorporated by reference to
Exhibit 3.7 of the Registrant's Registration Statement on Form
10-SB dated April 28, 1998; Commission File No. 0-24109).
(4) Instruments defining the rights of holders.
4.1 Statement of Rights, Preferences and Privileges of Common and
Preferred Stock of the Registrant as of September 6, 1997,
(incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form 10-SB dated April 28, 1998;
Commission File No. 0-24109).
(10) Material Contracts
10.1 Management Cash Incentive Plan (incorporated by reference to
Exhibit 10.1 of the Registrant's Registration Statement on Form
10-SB dated April 28, 1998; Commission File No. 0-24109).
10.2 1998 Stock Option Plan (incorporated by reference to Exhibit
10.2 of the Registrant's Registration Statement on Form 10-SB
dated April 28, 1998; Commission File No. 0-24109).
10.3 Acuscape License Agreement (incorporated by reference to
Exhibit 10.3 of the Registrant's Amendment No. 1 to the
Registration Statement on Form 10-SB filed on November 6, 1998;
Commission File No. 0-24109).
10.4 Smithsonian License Agreement dated October 2, 1997
(incorporated by reference to Exhibit 10.4 of the Registrant's
Amendment No. 1 to the Registration Statement on Form 10-SB filed
on November 6, 1998; Commission File No. 0-24109).
10.5 Amendment No. 1 to Smithsonian License Agreement
(incorporated by reference to Exhibit 10.5 of the Registrant's
Amendment No. 1 to the Registration Statement on Form 10-SB filed
on November 6, 1998; Commission File No. 0-24109).
10.6 Centro Alameda Inc. Contract Agreement dated December 19,
1997 (incorporated by reference to Exhibit 10.6 of the
Registrant's Amendment No. 1 to the Registration Statement on
Form 10-SB filed on November 6, 1998; Commission File No.
0-24109).
10.7 Knowledge LINK Strategic Alliance Agreement (incorporated by
reference to Exhibit 10.7 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.8 Synthonics Technologies - Industrial Lease Agreement
(incorporated by reference to Exhibit 10.8 of the Registrant's
Amendment No. 1 to the Registration Statement on Form 10-SB filed
on November 6, 1998; Commission File No. 0-24109).
10.9 Joseph Maher - Industrial Lease Agreement (incorporated by
reference to Exhibit 10.9 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
25
<PAGE>
10.10 Dell Financial Lease No. 004591649-001 (incorporated by
reference to Exhibit 10.10 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.11 Dell Financial Lease No. 004591649-002 (incorporated by
reference to Exhibit 10.11 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.12 Americorp Financial Inc. - Lease 6976-2 (incorporated by
reference to Exhibit 10.12 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.13 Sanwa Leasing Corporation - Lease Agreement (incorporated
by reference to Exhibit 10.13 of the Registrant's Amendment No. 1
to the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.14 AT & T Equipment Lease - 003866952 (incorporated by
reference to Exhibit 10.14 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.15 AT & T Equipment Lease - 003871854 (incorporated by
reference to Exhibit 10.15 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.16 F. Michael Budd Employment Agreement (incorporated by
reference to Exhibit 10.16 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.17 Charles S. Palm Employment Agreement (incorporated by
reference to Exhibit 10.3 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.18 First Colony Life Insurance Policy (incorporated by
reference to Exhibit 10.18 of the Registrant's Amendment No. 1 to
the Registration Statement on Form 10-SB filed on November 6,
1998; Commission File No. 0-24109).
10.19 Software Remarketing Agreement between Synhonics
Technologies, Inc. and Evans & Sutherland Computer Corporation
(incorporated by reference to Exhibit 10.19 of the Annual Report
on Form 10-KSB filed on March 11, 1999.
10.20 Engagement Letter between the Company and Averil &
Associates dated April 1, 1999, (incorporated by reference to
Exhibit 10.20 of the Quarterly Report on Form 10-QSB filed on
August 13, 1999.
10.21 Equity Agreement between the Company and Alex Sandel dated
June 2, 1999, attached hereto. (incorporated by reference to
Exhibit 10.21 of the Quarterly Report on Form 10-QSB filed on
August 13, 1999.
(27) Financial Data Schedule
27.1. Financial Data Schedule (submitted electronically for SEC
information only).
(b) There were no other reports on Form 8-K filed during the period covered
by this report.
26
<PAGE>
The following Exhibit Index sets forth the Exhibit attached hereto.
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
None
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
SYNTHONICS TECHNOLOGIES, INC.
A Utah Corporation
Dated: November 12, 1999 /s/ F. Michael Budd
----------------------------------
By: F. Michael Budd
Its: President,
Chief Executive Officer and
Principal Financial and
Accounting Officer
27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,231
<SECURITIES> 0
<RECEIVABLES> 41,875
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,106
<PP&E> 245,829
<DEPRECIATION> (201,776)
<TOTAL-ASSETS> 288,859
<CURRENT-LIABILITIES> 285,387
<BONDS> 0
0
100,000
<COMMON> 276,217
<OTHER-SE> (375,745)
<TOTAL-LIABILITY-AND-EQUITY> 288,859
<SALES> 144,648
<TOTAL-REVENUES> 144,648
<CGS> 80,021
<TOTAL-COSTS> 566,373
<OTHER-EXPENSES> (32,893)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (35,743)
<INCOME-PRETAX> (534,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (534,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (534,639)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
