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: June 30, 2000; 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)
Delaware 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 June 30, 2000 there were 28,561,679 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 29 pages, the Exhibit Index is located at page 28.
<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 June 30, 2000 and the results of its operations and changes in its
financial position from inception through June 30, 2000 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
----
Consolidated Balance Sheets ............................................... 3
Consolidated Statements of Operations ..................................... 5
Consolidated Statements of Stockholders' Equity (Deficit) ................. 6
Consolidated Statements of Cash Flows ..................................... 7
Notes to the Consolidated Financial Statements ............................ 9
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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Page 2
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 16,239 $ 294,583
Accounts receivable, net 1,316 302
Accounts receivable, related (Note 2) - 31,620
----------------- -----------------
Total Current Assets 17,555 326,505
----------------- -----------------
PROPERTY AND EQUIPMENT (Net) (Note 3) 16,302 34,444
----------------- -----------------
OTHER ASSETS
Deferred financing costs (Note 7) 82,441 82,441
Deposits 4,495 4,495
Intangibles, net (Note 4) 162,878 181,314
----------------- -----------------
Total Other Assets 249,814 268,250
----------------- -----------------
TOTAL ASSETS $ 283,671 $ 629,199
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 561,739 $ 215,534
Accounts payable, related (Note 6) 181,733 195,661
Unearned revenue 50,000 -
Accrued expenses 20,605 14,440
------------ ------------
Total Current Liabilities 814,077 925,635
------------ ------------
NON-CURRENT LIABILITIES
Convertible notes payable (Note 7) 500,000 500,000
------------ ------------
Total Non-Current Liabilities 500,000 500,000
------------ ------------
Total Liabilities 1,314,077 925,635
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, Class A; $10.00 par value,
550,000 shares authorized, 10,000 shares
issued and outstanding 100,000 100,000
Preferred stock, Class B; $0.01 par value, 20,000,000
shares authorized, no shares issued and outstanding - -
Common stock; 100,000,000 shares authorized
of $0.01 par value, 28,561,679 and 19,951,279
shares issued and outstanding, respectively 285,617 284,217
Additional paid-in capital 6,334,492 6,299,725
Accumulated deficit (7,750,515) (6,980,378)
------------ ------------
Total Stockholders' Equity (Deficit) (1,030,406) (296,436)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 283,671 $ 629,199
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Net sales $ 8,277 $ 62,474 $ 51,027 $ 124,966
------------ ------------ ------------ ------------
Total Revenue 8,277 62,474 51,027 124,966
------------ ------------ ------------ ------------
EXPENSES
Cost of goods sold 7,338 30,058 14,746 72,038
Research and development 164,167 46,779 307,912 90,353
Production costs 7,000 12,312 19,022 33,682
General and administrative 82,588 57,732 410,906 169,574
Bad debt expense 31,620 - 31,620 -
Depreciation and amortization 16,306 22,320 36,578 44,219
------------ ------------ ------------ ------------
Total Expenses 309,019 169,201 820,784 409,866
------------ ------------ ------------ ------------
Loss From Operations (300,742) (106,727) (769,757) (284,900)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 8 9 875 960
Interest expense (1,054) (11,993) (1,255) (35,538)
------------ ------------ ------------ ------------
Total Other Income (Expense) (1,046) (11,984) (380) (34,578)
------------ ------------ ------------ ------------
NET LOSS (301,788) (118,711) (770,137) (319,478)
DIVIDENDS ON PREFERRED
STOCK 3,000 3,000 6,000 6,000
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS $ (304,788) $ (121,711) $ (776,137) $ (325,478)
============ ============ ============ ============
BASIC LOSS PER SHARE $ (0.01) $ (0.01) $ (0.03) $ (0.02)
============ ============ ============ ============
FULLY DILUTED LOSS PER SHARE $ (0.01) $ (0.01) $ (0.03) $ (0.02)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<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, 1998 10,000 $ 100,000 19,951,279 $ 199,513 $ 5,083,791 $(5,997,101)
Common stock issued in lieu of debt
at $0.18 per share - - 5,015,400 50,154 846,946 -
Common stock issued for cash at
$0.10 per share, net of stock offering
costs at $13,692 - - 2,535,000 25,350 214,188 -
Common stock issued upon exercise
of options and warrants - - 920,000 9,200 94,800 -
Compensation expense for options
issued for services rendered - - - - 72,000 -
Dividends declared on preferred
stock at $1.20 per share - - - - (12,000) -
Net loss for the year ending
December 31, 1999 - - - - - (983,277)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 10,000 100,000 28,421,679 284,217 6,299,725 (6,980,378)
Common stock issued at $0.05
per share upon exercise of warrants
(unaudited) - - 140,000 1,400 5,600 -
Dividends declared on preferred
stock (unaudited) - - - - (6,000) -
Additional capital contributed (unaudited) - - - - 35,167 -
Net loss for the six months ended
June 30, 2000 (unaudited) - - - - - (770,137)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 (unaudited) 10,000 $ 100,000 28,561,679 $ 285,617 $ 6,334,492 $(7,750,515)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (301,788) $ (118,711) $ (770,137) $ (319,478)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 16,306 22,320 36,578 44,219
Bad debt expense 31,620 - 31,620 -
(Increase) decrease in accounts
receivable 9,136 (9,523) (1,014) (31,000)
(Increase) decrease in deposits - - - 2,080
Increase (decrease) in accounts
payable and accounts payable - related 153,687 19,367 332,277 (64,999)
Increase (decrease) in unearned revenue 50,000 - 50,000 -
Increase (decrease) in accrued
expenses 6,165 14,791 6,165 41,291
------------ ------------ ------------ ------------
Net Cash (Used) by Operating Activities (34,874) (71,756) (314,511) (327,887)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets - - - 211
Patent costs - (8,846) - (20,632)
------------ ------------ ------------ ------------
Net Cash (Used) by Investing Activities - (8,846) - (20,421)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends declared (3,000) (3,000) (6,000) (6,000)
Additional capital contributed 35,167 - 35,167 -
Common stock issued for cash 7,000 260,308 7,000 260,308
------------ ------------ ------------ ------------
Net Cash Provided by
Financing Activities 39,167 257,308 36,167 254,308
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 4,293 176,706 (278,344) (94,000)
CASH, BEGINNING OF PERIOD 11,946 959 294,583 271,665
------------ ------------ ------------ ------------
CASH, END OF PERIOD $ 16,239 $ 177,665 $ 16,239 $ 177,665
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 1,054 $ 156 $ 1,255 $ 201
Income Taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued in lieu of debt $ - $ 894,500 $ - $ 897,100
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
a. Organization
Synthonics Technologies, Inc. (STI) was incorporated on March 27,
1974 under the state laws of Utah and was reincorporated in the
state of Delaware in December 1999. STI engages in the design,
development and marketing of computer-interactive and
computer-automated image analysis software and hardware products.
The consolidated financial statements presented are those of STI
and its wholly-owned subsidiaries, Synthonics Incorporated
(Synthonics) and Christopher Raphael, Inc. (CRI). All material
intercompany accounts and transactions have been eliminated.
On October 1, 1997, STI purchased CRI, a general design and print
brokerage company, 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 on the date of acquisition of $0.52 per share. The
acquisition was accounted for as a purchase. The Company recorded
$98,184 as the excess of the purchase price over the fair value of
the net tangible assets of CRI. The excess was amortized over a
two year period resulting in amortization expense in the amounts
of $-0-, $48,092 and $48,092 for the years ended December 31,
1999, 1998 and 1997, respectively.
b. 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 while
accumulating minimal offsetting realizable assets, which raises
substantial doubt about the Company's ability to continue as a
going concern. The continued losses have resulted in an
accumulated deficit of $7,750,515 at June 30, 2000. 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 resulting 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 obtain
additional equity or debt financing, if required, to sustain
operations until revenues are adequate to cover the costs.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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.
9
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions affecting the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
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. Cash and cash equivalents consist of cash on hand,
cash held in money market funds and demand deposit accounts. The
carrying amount reported in the consolidated balance sheet for
cash and cash equivalents approximates its fair value.
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. No amounts in excess of insured limits were
maintained in any accounts by the Company as of June 30, 2000.
d. Concentration of Credit Risk and Major Customers
Revenues are derived from sales to customers primarily located in
the United States. The Company generally does not require
collateral from customers. Credit losses have been within
management's expectations.
e. Computer Software Development Costs
Costs related to the research and development of new software
products and enhancements to existing software products are
expensed as incurred until technological feasibility of the
product has been established, at which time such costs are
capitalized, subject to expected recoverability. To date, the
Company has not capitalized any development costs related to its
software product since the time between technological feasibility
and general release of a product and related costs during that
period have not been significant. Costs to obtain or maintain
patents for the Company's 3-D software technology are recorded as
intangible assets. The costs are principally outside legal costs
and are amortized over 7 years.
f. Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed on a straight- line basis over a period of five years.
10
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Investments in Affiliates
Investments in affiliates owned more than 20% but not in excess of
50%, where the Company is not deemed able to exercise controlling
influence, are recorded under the equity method. Under the equity
method, investments are carried at acquisition costs and adjusted
for the proportionate share of the affiliates' earnings or losses.
In 1996, the Company entered into a joint venture agreement with a
few individuals to form Acuscape. Acuscape was formed to combine
the proprietary technologies of the parties involved to develop
and offer software products to the medical and dental professions.
Acuscape was started with capital obtained from outside parties
and contributions of proprietary technologies by the founding
parties. The Company obtained an approximately 25% interest in
Acuscape for its contributed technologies, which has not been
valued by the Company due to the uncertainty of future benefits.
Additionally, the Company is to receive a 3% royalty on gross
revenues generated by Acuscape if and when such revenues are
generated. The Company has recorded no losses related to its
investment in Acuscape as the Company's investment is already
recorded at zero and there are no future funding requirements. At
June 30, 2000 and December 31, 1999, the Company has a receivable
recorded from Acuscape in the amount of $-0- and $31,620,
respectively, related to research and development work performed
for Acuscape.
h. Long-Lived Assets
Long-lived assets, include, among others, costs in excess of fair
value of assets acquired, intangible assets, investments in
affiliates, joint venture investments and fixed assets. These
assets are reviewed periodically to determine if the related
carrying values are impaired. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of these assets. If indicators of impairment are
present, or if long-lived assets are expected to be disposed of,
impairment losses are recorded. Any impairment is charged to
expense in the period in which the impairment is incurred.
i. Revenue Recognition
Revenues are derived primarily from the sale of packaged products
including the Company's software. Revenues are recognized when the
products are shipped and collectibility is assured in these
instances, as the Company has no further commitments to support or
upgrade the software included in these packaged products.
Revenues are also derived from software licenses. The Company
recognizes revenues from software licenses upon persuasive
evidence of an arrangement, delivery of software to a customer,
determination that there are no significant post-delivery
obligations and collection of a fixed and determinable license fee
is considered probable.
11
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Stock-Based Compensation and Other Equity Instruments
The Company accounts for employee and director stock option grants
using the intrinsic value method. Generally, the exercise price of
the Company's employee and director stock option grants equal or
exceed the market price of the underlying stock on the date of
grant and no compensation expense is recognized. If the option
price is less than fair value, the Company records compensation
expense over the vesting period of the option. The Company has
also awarded stock options vesting upon the achievement of certain
milestones. Such options are accounted for as variable stock
options and as such deferred compensation is recorded in an amount
equal to the difference between the fair market value of the
common stock on the date of determination less the option exercise
price and is adjusted from period to period to reflect changes in
the market value of the common stock until the milestone is
achieved (but only after achievement of the milestone is
determined to be probable). No deferred compensation amounts or
expense have been recorded for these variable stock options as of
June 30, 2000 as the fair value of the common stock is not
significantly different than the exercise price.
The Company also has granted and continues to grant options and
warrants to various consultants of the Company. These options and
warrants are generally in lieu of cash compensation and, as such,
compensation expense is recorded related to these grants. The
compensation for these options and warrants is determined as the
fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measured. The
compensation expense is recorded over the period the services are
performed, which is generally the vesting period.
k. Income Taxes
The Company uses the liability method to record income taxes.
l. Basic Net Loss Per Common Share
Basic loss per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted loss per share
reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted
to common stock. Common stock equivalents from all stock options,
warrants and convertible securities for all years presented have
been excluded from this computation as their effect is
antidilutive.
Basic loss per common share is computed by dividing the net loss
by the weighted average of shares outstanding during the periods
presented. Since the effect of the assumed exercise of common
stock options, warrants and other convertible securities for all
periods presented was antidilutive, basic and diluted loss per
common share as presented on the consolidated statements of
operations are the same. Dilutive securities amounted to
28,561,679 at June 30, 2000.
12
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Computer equipment $ 174,369 $ 174,369
Furniture and fixtures 17,850 17,850
Photographic equipment 56,237 56,237
------------ ------------
248,456 248,456
Less: accumulated depreciation (232,154) (214,012)
------------ ------------
Net property and equipment $ 16,302 $ 34,444
============ ============
NOTE 4 - INTANGIBLES
Intangibles costs incurred are as follows:
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
Trademarks $ 1,484 $ 1,484
Patents 304,909 302,598
------------ ------------
306,393 304,082
Less: accumulated amortization (143,515) (122,768)
------------ ------------
Total $ 162,878 $ 181,314
============ ============
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a. Leases
The Company is party to leases and other operating commitments,
principally for facilities and equipment. Under the terms of
certain of the leases, the Company is required to pay additional
expenses such as maintenance, taxes, insurance, and other
operating costs. Certain leases contain renewal or purchase
options and certain leases provide for rental increases based on
defined formulas.
Future minimum payments by year and in the aggregate for
non-cancelable operating leases with initial or remaining terms of
one year or more consisted of the following at December 31, 1999:
2000 $ 29,980
2001 3,739
-----------
Total minimum lease payments $ 33,719
===========
</TABLE>
13
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
b. Employment Contracts
The Company has entered into employment agreement 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. The Company had also agreed to pay its Vice- President
of Marketing and Sales, who resigned in April 1999, a base annual
salary of $60,000 plus commissions. During 1999 and 1998, the
Company's Board of Directors approved a reduction in these
salaries for the entire 1999 and 1998 years due to a cash
shortage. The Company's Board of Directors may also authorize
bonuses on an ad hoc basis.
c. Other Matters
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, the Company
will receive any amount from the judgment due to the poor
financial condition of the other party and no income has been
recognized for this judgment.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of June 30, 2000, the Company owed $112,500 to certain of its
officers and employees. These amounts represent accrued wages. As
of December 31, 1999, the Company owed $65,000 to certain of its
officers and shareholders. These amounts represent accrued wages.
During 1998, $99,299 in 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 $132 and
$130,661 as of June 30, 2000 and December 31, 1999, respectively,
for costs incurred on the Company's behalf.
During 1998, the Company obtained operating funds from a related
party in exchange for a $10.71 royalty on future sales of up to
7,000 units on a CD product. As of December 31, 1999, the Company
had completed the sale of the 7,000 CD units and had paid the
related party a total of $38,556. At June 30, 2000, the Company
has $36,444 in accounts payable - related for the remaining
obligation under this agreement.
14
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 6 - RELATED PARTY TRANSACTIONS (Continued)
During 1998, the Company entered into an agreement with a related
party whereby the related party funded the production of 50,000
CD's in exchange for a royalty upon future sales of 28,000 CD's.
The agreement provides for $3.455 to be paid to the related party
for every CD unit sold for up to 6,000 units and $6.91 to be paid
to the related party for every CD unit for the remaining units. As
of June 30, 2000, the Company had completed the sale of the 10,726
CD units and had paid the related party a total of $20,730, with a
royalty obligation remaining on 17,274 units at $6.91 per unit. At
June 30, 2000, the Company has $32,657 in accounts payable -
related for their obligations under this agreement on units sold
which had not been paid as of that date.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
In December 1999, the Company entered into a Convertible
Subordinated Promissory Note Agreement (Convertible Note) with
Future Media Productions, Inc. (Future Media), a company owned by
a related party, in the amount of $500,000. Interest accrues
beginning at the first annual anniversary date of the Convertible
Note at Future Media's borrowing rate. Future Media, at its
option, may convert the Convertible Note into 11,518,096 shares of
the Company's common stock within twelve months of the issuance
date; otherwise, the Convertible Note and all accrued and unpaid
interest is due on December 22, 2001. The Convertible Note is
subordinated to any current or future indebtedness, or Senior
Indebtedness as defined in the agreement, of the Company. The
Company recorded $82,441 as deferred financing costs for amounts
paid, or to be paid, to an investment adviser who assisted in
obtaining the financing. These deferred financing costs will be
amortized into interest expense over the term of the Convertible
Note or, upon conversion of the note, included as a reduction of
paid-in capital.
The Convertible Note agreement also provides the Company with up
to 2.0 million replicated and packaged CDs without charge from
Future Media and requires Future Media to establish, operate and
fund a catalog subsidiary or division to develop and produce 3D
interactive digital catalogs licensing the Company's technology.
The Company will retain certain rights from catalog endeavors
whereas Future Media will retain replication and packaging
revenues from the catalog business. The Company has not recorded
any amounts for the replication, packaging and other services to
be performed, and will not record any amounts for these services
until such services are rendered or upon conversion of the
Convertible Note. Upon performance of the services or conversion
of the Convertible Note, the Company will account for such
services as a contribution to capital for the fair market value of
the services performed or to be performed.
15
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 8 - STOCK OPTIONS, WARRANTS AND RIGHTS
a. Common Stock Options
The Company has two stock-based compensation plans, the 1998 Plan
and the 1999 Plan. Under the Company's stock-based compensation
plans, employees, outside directors and consultants are able to
participate in the Company's future performance through the awards
of incentive and non-qualified stock options and stock purchase
rights. The total number of shares reserved and available for
grant and issuance pursuant to the 1998 Plan and 1999 Plan is
2,500,000 and 10,000,000, respectively. Each stock option is
exercisable pursuant to the vesting schedule set forth in the
stock option agreement granting such stock option. Unless the
Board of Directors or a stock option agreement provides a shorter
period, each stock option may be exercisable until December 31,
2009, the term of the option. No stock option shall be exercisable
after the expiration of its option term. The exercise price of the
option shall be 100% of the fair market value of a share of the
Company's common stock on the date the stock option is granted,
provided the option price granted to any owner of 10% or more of
the total combined voting power of the Company shall be 110% of
such fair market value. The aggregate fair market value of the
Company's common stock with respect to which stock options are
exercisable for the first time by an optionee during any calendar
year shall not exceed $100,000.
In June 1999, in accordance with a private placement of common
stock to an investor, the Company granted the investor stock
options to purchase 1,448,445 shares of common stock at $0.10 per
share. At June 30, 2000, 800,000 of these options had been
exercised and 648,445 remain outstanding, which expire within
ninety days of a $1,000,000 capital raise by the Company.
In September 1999, the Company issued 1,030,298 stock options,
which immediately vested, to certain former employees, founders
and officers at an exercise price of $0.10 per share in
recognition of past services. The fair value of these grants was
determined to be $0.07 per share and as a result the Company
recorded compensation expense of $72,000 for the year ended
December 31, 1999.
During 1997, certain of the Company's officers were granted 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 owed to them 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. Of
the stock options forfeited, 450,000 were valued at $0.22 per
option, the market value of the shares at that time, and the
remaining 300,000 were valued at $0.50 per option, the market
value of the shares at that time. The amounts are recorded as
contributed capital at December 31, 1997.
16
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 8 - STOCK OPTIONS, WARRANTS AND RIGHTS (Continued)
The following table summarizes all stock option activity:
<TABLE>
<CAPTION>
Weighted
Average
Number of Price per Exercise
Shares Share Price
------------ ------------ ------------
<S> <C> <C> <C>
Balances at December 31, 1998 7,435,030 $0.22 - 1.00 $ 0.60
Options granted 6,023,960 0.07 - 0.20 0.13
Options exercised (800,000) 0.10 0.10
Options canceled (2,687,855) 0.22 - 1.00 0.41
------------ ------------ ------------
Balances at December 31, 1999 9,971,135 0.07 - 1.00 0.42
Options granted 4,890,000 0.26 - 0.41 0.28
Options exercised - - -
Options canceled (137,500) 0.20 0.20
------------ ------------ ------------
Balances at June 30, 2000 14,723,635 $0.07 - 1.00 $ 0.32
============ ============ ============
The following table summarizes information concerning outstanding
and exercisable options as of June 30, 2000:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted -
as of Remaining Average as of Average
Range of June 30, Contractual Exercise June 30, Exercise
Exercise Price 2000 Life (In Years) Price 2000 Price
---------------- ------------- --------------- --------- ------------ ------------
$0.07 - 0.10 3,328,020 3.1 $ 0.10 3,328,020 $ 0.10
0.13 - 0.20 1,758,440 4.1 0.19 1,098,440 0.18
0.26 - 0.41 4,890,000 4.1 0.28 4,455,000 0.28
0.50 - 0.66 2,453,885 4.9 0.52 2,153,885 0.52
0.75 - 1.00 2,293,290 2.2 0.91 2,248,290 0.92
---------------- ------------- --------------- --------- ------------ ------------
14,723,635 3.7 $ 0.32 13,283,635 $ 0.30
============= =============== ========= ============ ============
</TABLE>
17
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 8 - STOCK OPTIONS, WARRANTS AND RIGHTS (Continued)
The Company's policy is to disclose the proforma effect on
operations of using the fair value method of valuing stock
options. The fair value method of valuing stock options is based
on the use of an option-pricing model. This model considers
volatility, a risk free interest rate and an estimated life of the
option. The Company used a zero expected dividend yield, expected
stock price volatility of 266%, a risk free interest rate of 5.5%
and estimated lives of two to five years. These assumptions
resulted in a weighted average fair value of $0.13 for stock
options granted in the year ended December 31, 1999. The proforma
effect of using the fair value method would be to increase the
consolidated net loss to $1,504,935, or $0.06 per common share, in
the year ended December 31, 1999.
b. Stock "Rights" and Warrants
In connection with the Convertible Note placement and a private
placement during 1999, the Company issued to a financial adviser
warrants to purchase 2,667,349 shares of common stock at $0.11 per
share. In accordance with an agreement with this adviser, the
Company committed to continue to issue warrants to purchase shares
of the Company's common stock to this adviser at $0.11 per share
to allow the adviser to maintain a 5% equity interest in the
Company on a fully diluted basis. Future issuances of these
warrants are contingent upon the adviser continuing to find
funding for the Company.
In connection with its acquisition of a predecessor company, the
Company acquired from the predecessor company's stockholders,
warrants and "rights" to acquire 1,369,190 shares of the
predecessor company's 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. Of the
2,124,000 stock purchase warrants granted, 1,950,500 were
exercised during 1996 and the remaining 173,500 warrants expired
unexercised in 1996. There were 2,597,355 uncertificated "rights"
with an exercise price of $0.11 per share outstanding at December
31, 1997, of which 562,500 expired January 1, 1998 and 2,034,855
expired May 31, 1999.
During 1996, 337,000 warrants to purchase shares of the Company's
common stock were sold at $1.00 per warrant 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 of the Company's
common stock during the month before being exercised. The "A"
warrants were exercised during June 1997 and the "B" warrants were
exercised during June 1998.
As of June 30, 2000, the total number of warrants outstanding was
2,843,349 with exercise prices ranging from $0.11 to $2.00 per
share and expiration dates from May 2000 through March 2004.
18
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 9 - PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31,
1999, 1998 and 1997, consists of the following:
1999 1998 1997
---------- ---------- ----------
State Franchise Taxes $ 6,665 $ 2,400 $ 1,700
At December 31, 1999, the Company has net operating loss
carryforwards for federal income tax purposes of $5,705,869 which
expire in the years 2004 to 2019. The Company also has state net
operating loss carryforwards of $2,473,069 which expire in the
years 2003 to 2004. No tax benefit has been reported in the
consolidated financial statements because the Company does not
have a history of profitable operations. Accordingly, the
potential tax benefits of these net operating loss carryforwards
have been offset by a valuation allowance of the same amount.
NOTE 10 - PREFERRED STOCK
At December 31, 1997, the Company had 50,000 outstanding shares
of Class A 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 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 December 31, 1999 and 1998, the Company
has 10,000 outstanding shares of Class A cumulative convertible
preferred stock. The remaining Class A 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.
The Class A cumulative convertible preferred stock may be
redeemed at the option of the Company after December 31, 1998 at
$10.50 per share. The accrued dividends unpaid as of December 31,
1999 and 1998 were $12,000 and $-0-, respectively.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and cash equivalents: the carrying amount approximates fair
value.
Accounts receivable and accounts payable: the carrying amount
approximates fair value.
Debt: The fair value of the Company's convertible notes payable
is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types
of borrowing arrangements. At December 31, 1999, the fair value
of the convertible notes payable was $450,000.
19
<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 six months ended June 30, 2000 and June 30, 1999. 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
--------
Synthonics Technologies, Inc. has been a pioneer in developing desktop
photogrammetry technology since the inception of Synthonics Incorporated (a
wholly owned subsidiary of Synthonics Technologies, Inc.) in August 1993.
Photogrammetry is the art and science of making measurements from photographs.
The Company's patented technologies are capable of "extracting" real objects
from common photographs and re-creating those objects as dimensionally-accurate,
photorealistic, 3D computer graphic models. The Company's core competency is
related to creating 3D content for computer graphic presentations.
Business Model
--------------
Since late 1994, the Company's business model has been associated with
licensing custom implementations of its 3D content-creation technology to
various marketing and sales partners. The Company is a technology development
company, more than it is a marketing and sales company. Management has long
realized that the Company could not cost-effectively develop internal marketing
expertise to address all of the diverse markets available to the technology.
Marketing 3D models and application software to the medical industry requires
personnel with a different background and a different set of skills than those
of personnel marketing 3D products to the apparel industry. The Company prefers
to find qualified marketing partners rather than try to build expertise within
the Company structure.
To date, the Company has formed business alliances with Acuscape, Inc., a
privately held medical imaging company, the Smithsonian Institution in
Washington, DC and Evan & Sutherland, a publicly held corporation that was
instrumental in the early-stage development of modern computer graphics.
Licensing and strategic alliance discussions and negotiations with other
independent organizations are ongoing and in various stages of development in
the areas of (a) Internet e-commerce of apparel items, (b) Internet e-commerce
of home furnishing items, (c) collaboration on interactive 3D viewers for
conventional-connectivity Internet browser applications, (d) fire-protections
and insurance applications for commercial real estate, and (e) development of
new technologies for use in Wireless Mobile Internet "m-commerce" (Mobile
commerce) applications with emphasis on "push" technologies used in wireless
broadcast advertising.
The Acuscape alliance is the business relationship preferred by the
Company. (See "Investments in Affiliates" in the "Notes to Consolidated
Financial Statements" section of this Form 10-QSB). In this type of alliance,
the Company licenses certain intellectual properties to a start-up business
partner on a "conditionally exclusive" basis in exchange for an equity position
in the new company and a modest royalty stream from revenues. Successful
performance of the new company is measured in terms of its ability to develop an
adequate royalty stream for the Company. If the new company is not successful,
as measured by royalty payment schedules, then the exclusivity of technology
license lapses and the Company is free to enter into new agreements with other
entities.
20
<PAGE>
Currently, the Company is seeking multiple marketing partners to address
various vertical markets in the rapidly developing e-commerce and Internet
sectors and for the emerging "wireless Internet" market.
In order to better understand commercial potential associated with the
Company's technology and the Company's performance to date, it is first
necessary to understand (a) the broad scope of applications that can be
addressed by the Company's technology and (b) certain limitations imposed by
computer processing and data delivery infrastructure elements.
Commercial Potential
--------------------
3D computer graphic models have utility in a broad range of applications,
including science, medicine, education, entertainment and retail sales.
Scientific and medical applications require dimensional accuracy. Educational
and entertainment applications require interactive features with moving parts.
Retail sales applications require photographic realism and small files sizes. In
each case, there is a universal requirement for low production costs. All of
these requirements are met routinely through the use of Company's technology.
There are virtually no limits to the size, shape, type or complexity of
real life object that can be converted to a 3D computer graphic model using the
Company's technology. Objects ranging in size from ants to aircraft carriers are
easily modeled using the Company's patented techniques. In a grand sense, the
Company's technology is capable of "digitizing the world" for use in computer
graphic presentations. Thus, the Company's business potential may arguably be
viewed as extremely large and limited, in part, by the Company's ability to form
financially successful business alliances that adequately address diverse
markets.
Business Performance
--------------------
In assessing the Company's business performance, it is important to
understand certain constraints to growth that have been imposed by PC processing
power and data delivery technologies, technologies that are outside of Company
control or influence. 3D graphics require both (a) high-performance PC
processors to view the interactive 3D graphic content and (b) broadband
communication links to distribute the 3D content to remote computers quickly and
efficiently.
Management believes that today's PC processing power is generally adequate
for viewing the Company's 3D graphic content. However, it further believes that
the problem of distribution of 3D graphics over the Internet is just now finding
a viable solution through the use of various data streaming techniques and the
deployment of various high-bandwidth Internet delivery systems, such as
home-based Digital Subscriber Lines (DSL), cable modems and satellite download
links.
In 1993 and 1994, the Company saw a limited demand for 3D content, coming
primarily from scientific and engineering business sectors. During these years
the demand for Computer Aided Design (CAD) wireframe models was low and the
demand for the Company's patented phototextured 3D models for computer animation
was low to modest.
From 1995 to 1998, the Company saw an increase in demand for 3D content,
coming from educational, entertainment, and architectural sectors. The
pioneering work with the Smithsonian Institution (interactive CD tour of
museums), Acuscape (medical imaging) , and Evans & Sutherland (architecture and
urban planning) took place or was initiated during these years. The Company
expanded the use of industry-specific generic primitive structures to lower
production costs and shorten 3D content creation times, thus making 3D graphic
content generation more competitive with traditional CAD techniques. Toward the
end of this period, the Company was beginning to demonstrate the commercially
competitive nature of its technology.
In 1999, the Company experienced the initiation of interest in 3D content
coming from Internet and other e-commerce related sectors. Marketing concepts
demonstrated through the Company's e-commerce apparel initiative has received a
strong positive response from "e-tailers" who wish to market their wares
electronically via the Internet. The primary obstacle to industry acceptance of
the Company's Internet e-commerce concepts has been associated with excessive
file download times over relatively slow modem connections to the Internet. In
the first quarter of year 2000, the Company successfully demonstrated a ten-fold
improvement in download times (from 60 seconds per model to approximately 6
seconds per model) by employing model optimization techniques and utilizing
various data streaming techniques. In the second quarter of year 2000, the
21
<PAGE>
Company supplied "Internet-friendly" 3D models to several different companies
for marketing evaluation and business development purposes. (At the time of this
10QSB submission, Synthonics 3D models can be viewed at the web pages linked to
the following Internet URLs:
http://www.limitedtoo.com/shop/index.asp and http://www.jigsoft.com/.)
In a forward-looking statement (see "Forward-Looking Statements"),
Management believes the demand for 3D content has just begun and will continue
to increase to commercially viable levels in the years 2000 and beyond, with
emphasis shifting toward "mobile wireless Internet", "m-commerce" and "portable
appliance" applications in the year 2001 and beyond. The major technology
element supporting the Company's projected growth in demand for 3D content is
the proliferation of high speed broadband communication channels via many forms,
including (a) cable modems, (b) DSL (digital subscriber lines) telephone
connections, (c) download-only and two-way satellite based Internet
communication links, and (d) broadband land-based tower and space satellite
"data push" broadcasting, such as "digital radio". The deployment of Internet
appliances in automobiles, is expected to provide an additional boost in the
demand for interactive 3D content.
Continued Business Losses
--------------------------
Since the inception of Synthonics Incorporated, a wholly-owned subsidiary
formed in 1993, the Company has been required to demonstrate its technological
capabilities in addressing various and diverse markets. This activity has been
costly but necessary in order to prove the viability of the Company's
technology. These activities have yielded only modest revenues to date and have
not reached levels that provide the Company with a self-sustaining revenue
stream.
Management has raised and spent over $7M developing and demonstrating the
Company's technology since August 1993. Management believes it may be necessary
to raise and spend up to an addition $4M over the next two years before reaching
a point of sustainable profitability, with some of the projected expenditure
going toward the development of demonstrations for "wireless Internet"
applications.
Even though the business potential for 3D graphic content is great, the
risk of being able to maintain development and growth to exploit the anticipated
potential is equally great.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999.
---------------------------------------------------------------------------
NET SALES decreased 59.2% for the six months ended June 30, 2000 to $51,027
from $124,966 for the six months ended June 30, 1999. The majority of sales
during the six months ended June 30, 2000 were from ongoing revenues related to
sales of the Smithsonian CD-ROM. [The Company actually had $50,000 more income
for the three months ended June 30, 2000 than indicated in "Net Sales" line item
as a result of non-refundable advanced royalty payments from licensing
activities. However, Generally Accepted Accounting Principles ("GAAP") rules do
not allow that additional income to be listed as sales revenue for the current
reporting period. Had the additional license-related revenue been tallied as
current reporting period sales revenues, the Net Sales for the six months ended
June 30, 2000 would have decreased only 19.2% from the same period in 1999.]
GROSS PROFIT (defined as Net Sales minus Cost of Goods Sold, and not a line
item in the Consolidated Statements of Operations Report) for the six months
ended June 30, 2000 decrease by 31.5% to $36,281 from $52,928 for the six months
ended June 30, 1999. [Had GAAP allowed the additional $50,000 license-related
revenue to have been tallied as current reporting period sales revenues, the
GROSS PROFIT would have increased by 63% for the six months ended June 30, 2000
to $86,281 from $52,928 for the six months ended June 30, 1999.]
GROSS PROFIT as a percent of NET SALES (defined as GROSS PROFIT divided by
NET SALES, and not shown as a line item in the Consolidated Statements of
Operations) increased by 67.9% for the six months ended June 30, 2000 to 71.1%
from 42.4% for the six months ended June 30, 1999.
22
<PAGE>
OPERATING EXPENSES increased 100.3% to $820,784 for the six months ended
June 30, 2000 from $409,866 for the six months ended June 30, 1999. The increase
in operating expense is primarily due to an increase in staffing during the
first quarter of fiscal 2000 while pursuing the Internet e-commerce apparel
initiative. The initiative was curtailed due to a lack of development funding
during the second quarter of fiscal 2000, immediately following major changes in
management personnel and management structure.
Production costs decreased by 43.5% to $19,022 for the six months ended
June 30, 2000 from $33,682 for the six months ended June 30, 1999. The Company
was operating more in a development mode while addressing the e-commerce
initiative than in a production mode for the first five months of the current
reporting period.
General and administrative expenses totaled $410,906 and $169,574 for the
six months ended June 30, 2000 and 1999, respectively. The increase in expense
reflects additional costs incurred as a result of activities associated with the
Company's Internet e-commerce initiative in apparel and the fact that upper
management personnel did not reduce salary levels in favor of receiving stock
options in the year 2000 as they had in 1999.
Research and development expenses totaled $307,912 and $90,353 for the six
months ended June 30, 2000 and 1999, respectively. The increase is primarily the
result of increased expenditures associated with the Company's Internet
e-commerce initiative in apparel, as incurred during the first five months of
the current reporting period.
The Company incurred a one-time BAD DEBT EXPENSE in the amount of $31,620
in June of year 2000. The debt was a receivable billing associated with certain
object code development done for Acuscape, Inc. in 1997. Acuscape disputed the
bill because the overall project, of which the Company's object code was one
component, was never completed and the project was eventually abandoned in favor
of other technological developments. Company management felt the cost of
reviving old code to complete the project was more costly than the amount due
and therefore decided to expense the debt. The forgiveness of the Acuscape
receivable was done in conjunction with a renegotiation of the Acuscape license
agreement, an event that brought forward to the Company's benefit a
non-refundable royalty payment of $50,000.
As a result of the foregoing factors, we had a net loss of $770,137 for the
six months ended June 30, 2000 as compared to a net loss of $319,478 for the six
months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's primary needs for funds are to provide working capital
associated with (a) management of increased license activity, (b) legal, and R&D
expenses associated with developing new patents and other intellectual
properties, (c) growth in sales of products via the Internet and (d) litigation
expenses. Working capital for the six months ended June 30, 1999 was funded
primarily through the sale of equity, receipt of advanced royalty payments and
the collection of accounts receivable.
Net cash used in operating activities during the six months ended June 30,
1999 was primarily attributable to a net loss of $720,137. Net cash provided by
financing activities for the six months ended June 30, 2000 was $36,167 compared
to $254,308 during the six months ended June 30, 1999. In June 2000 two warrants
were exercised for 120,000 shares of Common Stock at $0.05 per share providing
$6,000 in cash, and in June 2000 a stock option was exercised at $0.05 per share
providing $1,000 in billed financial services.
On June 19, 2000, Future Media Productions, Inc. ("Future Media") initiated
legal proceedings against the Company by filing a Complaint For Damages For
Breach of Written Contract in the Superior Court of the State of California in
and for the Count of Los Angeles Central District, Case No. BC232013, claiming
the Company was in default on an alleged Note in the amount of $500,000, in part
as a result of an alleged admission of Company insolvency based on a "Operating
Cash Shortfall Warning" disclosure made in the Company's 10QSBA for the three
months ended March 31, 2000 submitted on June 01, 2000. Future Media attempted
to force premature repayment of an alleged Convertible Note in the amount of
$500,000, the principal of which otherwise would not have been due until
23
<PAGE>
December 2001. The Company's defense to the Future Media litigation has, as of
June 30, 2000, cost the Company in excess of approximately $14,000 in legal
fees. The Company expects to encounter additional legal costs associated with
defending against the actions initiated by Future Media and further expects
additional legal costs associated with pursuing a cross-complaint against Future
Media in which the Company is seeking damages in excess of $12,000,000. The
litigation defense and cross-complaint action filed by the Company against
Future Media and others subsequent to June 30, 2000 will have some impact on the
Company's financial status in subsequent reporting periods the magnitude of
which cannot be predicted at the time of this submission. [Investors should
review (a) the Company's characterization of debt as disclosed in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Risk Factors", of the previous 10QSB/A filed on June 06, 2000 for
the fiscal quarter ended March 31, 2000, (b) "Risk Factors" in this 10QSB
submission and (c) "Part II, Other Information, Item 1. Legal Proceedings" in
this 10QSB submission for more detail information relating to the litigation.]
At present, our anticipated capital requirements are primarily for
servicing existing debt, litigation expenses, and maintaining office facilities.
Subject to negotiations with existing creditors to settle our existing debt, we
estimate that the Company's current cash balance is sufficient to meet the
Company's needs through the third quarter of fiscal 2000. Based on committed and
pending license and royalty payments, Company management is confident that there
will be sufficient available cash to meet the Company's needs through the end of
the current fiscal year.
On May 25, 2000, the Company's Board of Directors approved a plan to
increase the Company's cash reserves by bringing cash forward from option
holders and warrant holders. Under a temporary plan, options and warrants could
be exercised at a discount to the stated exercise price associated with the
options and warrants on a case-by-case basis. On the same date, the Board also
approved a temporary plan that allowed management to offer stock options to
creditors as an inducement to settle existing debt. Under these plans, Company
Management expects to improve the Company's cash-to-debt position by more than
$300,000. The impact on existing shareholders will be two-fold: (1) options and
warrants that might have been exercised at a higher price at a future date may
now be exercised at a discount in the immediate future, thus increasing cash
immediately available to meet operating expenses at the cost of foregoing an
opportunity for greater cash infusion at a future date, and (2) any options
issued as part of a plan to reduce debt may ultimately lead to further
shareholder dilution if the options are actually exercised.
Based on our current operating plan, we anticipate that modest amounts of
further capital will be required during the next twelve months to reduce
existing debt, pay for expected increased litigation expenses and to complete
the preliminary development work for initial demonstrations of the Company's
"Wireless Mobil Internet" capabilities.
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 stockholders and us. If needed funds are not available, we may be required
to further 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.
24
<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
----------------
Synthonics products have successfully transitioned to the year 2000. We did
not incur any significant expenses during 1999 in conjunction with remediating
our systems. We are not aware of any material problems resulting from Year 2000
issues, either with our products, internal systems, or the products and services
of third parties. We will continue to monitor our mission critical computer
applications and those of our suppliers and vendors throughout the year 2000 to
ensure any latent Year 2000 matters arising are addressed promptly.
Effective March 31, 2000 the Company decided to permanently discontinue its
public web pages containing Year 2000 Readiness information regarding Synthonics
and its products.
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:
RISK OF BANKRUPTCY. The Company wishes to fully disclose elements that
adequately define risks associated with potential voluntary and involuntary
bankruptcy proceedings. The Company has a long history (since August 1993) of
being under-funded, unable to demonstrate a sustainable revenue stream from
sales and on many occasions has operated from a position of debt with
insufficient funds or other liquid assets to meet a demand for payment of debt.
Currently, as a result of (a) a significant effort to demonstrate the Company's
ability to address the Internet e-commerce market, (b) reincorporate in
Delaware, and (c) taking other costly measures to improve the "investment
profile" of the Company in the eyes of potential institutional investors and
other accredited investors, the Company has incurred considerable current and
short-term debt in excess of approximately $750,000 and an additional alleged
$500,000 of longer term debt as of June 30, 2000. This is the largest potential
debt figure (approximately $1,250,000) incurred by the Company since August
1993.
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<PAGE>
Currently, Company debt is characterized by Management into four debt
categories: (i) insider-related debt (unpaid salaries and other debt associated
with officers, directors, former officers and former directors who are now, or
have been in the recent past, familiar with the Company's financial condition),
(ii) negotiable corporate and corporate-affiliate debt (certain unpaid
advertising fees due current business partners, and certain public relations
fees owed to current shareholders), (iii) current operating debt (unpaid
consultant programmer fees, manufacturing fees, normal short-term operational
debt for services and supplies, and other non-corporate and non-affiliate
operational debt, and (iv) disputed debt.
Management feels that a majority of the full potential debt, approximately
$776,054, is "disputed debt" and approximately $423,000 of the Company's total
debt is undisputed. Of the undisputed debt, Management feels that approximately
$235,000 is "friendly debt" and $187,000 cannot be characterized clearly as
"friendly debt". Of the $187,000 of undisputed, potentially non-"friendly debt",
approximately $71,000 requires payment within the next fiscal quarter that ends
September 31, 2000.
"Disputed debt", as used here, is characterized primarily as debt
associated with former insiders and former affiliates, whose billing and loan
debt is currently disputed and the subject of current litigation.
"Friendly debt", as used here, is characterized as being owed to creditors
that have, or have had in the recent past, an affiliate relationship with the
Company and that have little to gain by pressing for immediate debt
reconciliation. This type of debt also potentially "negotiable debt".
"Negotiable debt", as used here, is characterized as being owed to
creditors that have extended credit and carried the debt for a relatively long
period of time in the past, knowing of the Company's poor liquidity condition
and further knowing that they have little to gain by pressing for immediate debt
reconciliation. Negotiable debt can sometimes be restructured as partial payment
with equity and extended to a longer term debt structure.
The Company's risk of insolvency can be viewed in two slightly different
ways, depending on the definition of "insolvency". One definition of insolvency
is (1) "unable to pay debts as they fall due in the usual course of business"
and another is (2) "having liabilities in excess of a reasonable market value of
assets held".
By the first definition, the Company is only insolvent if it cannot
negotiate payment of its debts as they fall due. Payment may be made in cash or
some other financial instrument. Under this definition, the Company has been at
risk of being made insolvent by creditors, almost from its inception, yet it has
never technically been in a state of insolvency.
By the second definition, Management feels that the Company is a long way
from being insolvent, since the market value of the Company's assets are
arguably estimated to be $22,000,000 (nine patents, ownership in other business
entities, valuations of contracts and agreements) and the total maximum
liabilities are conservatively placed at $1,198,000.
In June 2000, and again subsequently in August 2000, one previously assumed
"friendly" creditor and former insider attempted, unsuccessfully, to claim the
Company was insolvent for purposed of forcing early repayment on an alleged Note
that had never been authenticated in a legal sense. (See "Item 1. Legal
Proceedings" in this report.) This is the first case of any creditor taking a
hostile action against the Company, but the Company cannot guarantee that other
instances of hostility will not arise in the future. Until the Company debt is
completely eliminated, there will always a potential for some creditor to take
aggressive steps in an attempt to collect debt.
Management expects to be able to work out of its current debt profile over
the course of the next nine months, and thus work out of any inherent bankruptcy
threat, but it cannot guarantee that it will be successful in that endeavor.
Investors should consider the risk of both voluntary bankruptcy and involuntary
bankruptcy proceedings as a major element of their investment decision.
26
<PAGE>
IF WE ARE UNABLE TO RAISE SUFFICIENT CAPITAL. Our future success depends
largely on the ability to secure outside capital funding. 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, 2000 to June 30,
2000 we incurred a net loss of $720,137. For the fiscal year ended December 31,
1999 we had a net loss of $983,277. Taking into consideration the fact that the
e-commerce initiative was curtailed heavily in April 2000, the rate of net loss
for the six months ended June 30, 2000 had increased by approximately 76% over
the rate of net loss for the fiscal year ended December 31, 1999, thus
indicating the extent of the impact that the e-commerce ramp-up had on overall
operations during the first part of fiscal year 2000. At June 30, 2000 our
accumulated deficit was $6,980,378. Our ability to obtain and sustain
profitability will depend, in part, upon the successful development and
marketing of our existing products, licensing our technologies to independent
companies 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
THAN 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.
27
<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
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 UTILIZE 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 an employment contract with our Chief Executive Officer,
Charles S. Palm that expires on December 31, 2000. We have been unable to pay
Dr. Palm the compensation amount called for in his employment contract during
the past several years. If Dr. Palm were to terminate his employment in the near
future, or if he elected not to extend his employment agreement with the Company
into the year 2001 and beyond, it may have an adverse affect on our financial
performance.
If we are unable to manage our expansion and growth. We are planning to
expand the business licensing activities in order to entrench ourselves in, what
we believe is a very lucrative e-commerce market. Effectively managing this
expansion could be 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 personnel or the delayed incorporation of required
management support systems will adversely affect our future financial results.
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.
28
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
On June 19, 2000, Future Media Productions, Inc. ("FMPI") initiated legal
proceedings against the Company by filing a Complaint For Damages For Breach of
Written Contract in the Superior Court of the State of California in and for the
Count of Los Angeles Central District, Case No. BC232013, claiming the Company
was in default on an alleged Note in the amount of $500,000, in part as a result
of an alleged admission of Company insolvency based on a "Operating Cash
Shortfall Warning" disclosure made in the Company's 10QSBA for the three months
ended March 31, 2000 and submitted to the Securities and Exchange Commission
("SEC") on June 01, 2000.
On or about June 27, 2000, the Company was informed that FMPI had filed an
application for an Ex Parte Writ of Attachment to be applied against the
Company's assets in an attempt to secure immediate repayment for an alleged
$500,000 Note that, if valid, would not have come due until December 2001. The
Company successfully defended against such an attachment of assets in the Los
Angeles Superior Court on June 28, 2000. However, the court did impose a
Temporary Protective Order ("TPO") on the Company restricting the use of assets
for a period of 40 days to allow time for a formal hearing on the matter to
occur. The TPO expired on August 08, 2000.
On or about August 07, 2000 the Company was informed that FMPI intended to
file a second application for an Ex Parte Writ of Attachment, based on the same
alleged Note as mentioned above. The Company successfully defended against the
second such attempt at attachment of assets in the Los Angeles Superior Court on
August 09, 2000. The court did not apply any additional TPO action against the
Company. A full hearing on the FMPI Writ of Attachment litigation is scheduled
for August 21, 2000, when both sides will present all evidence related to the
case.
Management feels the litigation initiated by FMPI against the Company is
unfounded, vexatious in nature and represents a malicious and oppressive attempt
by former insiders to drive the Company into a state of insolvency. The Company
responded to the litigation brought by FMPI with (a) an Answer to the original
complaint against the Company and (b) a Cross-complaint filed against FMPI for
damages suffered by the Company in an amount in excess of $12,000,000. At the
time of the submission of this report, there has been no date set for a hearing
on the Company's Cross-complaint against FMPI.
Item 2. Changes in Securities.
Not Required.
Item 3. Defaults Upon Senior Securities.
For the last six quarters ended March 31, 1999, June 30, 1999, September
30, 1999, December 31, 1999, March 31, 2000 and June 30, 2000 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 $18,000.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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<PAGE>
Item 5. Other Information.
Subsequent events
-----------------
Delay in Scheduling the Annual Shareholders Meeting
--------------------------------------------------------
Several events, disclosed above, and the advanced notice to shareholders
requirement caused the Board of Directors to delay in setting a date for the
Annual Shareholder's Meeting that is normally held in April or May of each
calendar year. The events most responsible for causing the delay in meeting were
the late completion of the independent audit of the Company's financial
statements for the 10KSB 1999 filing, a series of resignations from the
Company's Board of Directors, and a series of vexatious litigation-related
events perpetrated against the Company by a former insider (See Item 1: Legal
Proceedings in this report).
Renegotiated License Agreement with Acuscape
--------------------------------------------
The Company is an approximately 25% shareholder in the privately held
medical diagnostics and medical imaging company, Acuscape, Inc. of Glendora, CA.
In June 2000, the Company renegotiated an intellectual property "field of use"
license agreement with Acuscape that provided Acuscape with a better defined
field of use in medical fields and gave Acuscape access to source code that
expresses the utility of the intellectual properties contained in certain
Company patents. Acuscape will use the source code as a starting point for
developing new products under the new license agreement. Prior to renegotiating
the license agreement, Acuscape had access only to dated object code programs.
The Company entered into the previous license agreement with Acuscape prior to
receiving any patents from the U. S. Patent and Trademark Office and was
therefore precluded from licensing full access to intellectual properties owned
by the Company. At the time of renegotiating the Acuscape license, a previous
debt of approximately $32,000 owed to the Company by Acuscape, and in dispute
due to a contested state of completion on product delivered to Acuscape by the
Company, was forgiven by the Company. As consideration for renegotiating the
license agreement, Acuscape made an advanced payment on royalties due in the
amount of $50,000 and pledged to make another advance payment on royalties due
in the amount of $50,000 by December 31, 2000. A copy of the Acuscape License
Agreement is include as an attachment to this report.
30
<PAGE>
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).
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 10.20
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).
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<PAGE>
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).
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).
32
<PAGE>
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, (incorporated by reference to Exhibit 10.21 of
the Quarterly Report on Form 10-QSB filed on August 13,
1999.
10.22 Subscription Agreement for Convertible Note of Synthonics
Technologies, Inc., dated December 22, 1999. (incorporated
by reference to Exhibit 10.22 of the Annual Report on Form
10-KSB for the year ended December 31, 1999.
10.23 Convertible Subordinated Promissory Note of Synthonics
Technologies, Inc., dated December 22, 1999. (incorporated
by reference to Exhibit 10.22 of the Annual Report on Form
10-KSB for the year ended December 31, 1999.
10.24 License Agreement with Acuscape International, Inc.
(27) Financial Data Schedule
27.1.Financial Data Schedule (submitted electronically for
SEC information only).
(b) The Registrant filed a Form 8-K on February 1, 2000. There were no
other reports on Form 8-K filed during the quarter of the period covered.
The following Exhibit Index sets forth the Exhibits attached hereto
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
10.24 License Agreement with Acuscape International, Inc.
33
<PAGE>
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 Delaware Corporation
Dated: August 16, 2000 /s/ Charles S. Palm
---------------------
By: Charles S.Palm
Its: President and Chief Executive Officer
34
