<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: MARCH 31, 1997
Commission file number 0-25736
SYNCRONYS SOFTCORP
(Name of Small Business Issuer as specified in Its Charter)
NEVADA 33-0653223
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3958 INCE BOULEVARD
CULVER CITY, CA 90232
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (310) 842-9203
Indicate by check mark whether the Issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
-- --
As of May 8, 1997 there were 19,739,551 shares of the Issuer's Common Stock,
$.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
-- --
TOTAL PAGES IN THIS REPORT: 14
NO EXHIBITS ARE FILED WITH THIS REPORT
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SYNCRONYS SOFTCORP
FORM 10-QSB
Table of Contents
PART I
FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS......................................................................3
Balance Sheet........................................................................3
Statement of Operations
Three months ended March 31, 1996 and 1997........................................4
Nine months ended March 31, 1996 and 1997.........................................5
Statement of Cash Flows
Nine months ended March 31, 1996 and 1997.........................................6
Notes to Financial Statements........................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................................8
PART II
OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS.........................................................................13
ITEM 2. CHANGES IN SECURITIES.....................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................14
SIGNATURES...........................................................................14
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNCRONYS SOFTCORP
Balance Sheet (unaudited)
March 31, 1997
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 3,513,378
Trade accounts receivable, net 3,155,237
Inventories 252,839
Prepaid expenses and other current assets 617,774
------------
Total current assets 7,539,228
Property and equipment, at cost, net 165,683
Note receivable, excluding current portion 48,890
Unamortized debt issuance costs, excluding 313,597
current portion
Goodwill, less accumulated amortization 380,000
Amounts due from related parties, principally 114,000
shareholders
------------
$ 8,561,398
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Trade accounts payable $ 1,577,839
Accrued expenses 2,690,655
Product recall liability 400,000
------------
Total current liabilities 4,668,494
------------
Convertible debentures 8,141,071
Stockholders' deficiency:
Common stock, $.0001 par value. Authorized
75,000,000 shares; issued and outstanding 1,931
19,307,892 shares
Additional paid in capital 10,806,655
Preferred stock, $.0001 par value. Authorized
10,000,000 shares; zero shares issued and
outstanding.
Accumulated deficit (15,056,753)
------------
(4,248,167)
Total stockholders' deficiency
------------
$ 8,561,398
============
</TABLE>
See accompanying notes to financial statements
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SYNCRONYS SOFTCORP
Statements of Operations (unaudited)
Three Months Ended March 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Net revenues $ 388,191 3,231,415
Cost of revenues 24,205 881,083
------------ -----------
Gross profit 363,986 2,350,332
------------ -----------
Operating expenses:
Research and development 354,817 527,367
Marketing and selling 741,418 878,145
General and administrative 1,535,075 705,215
Nonrecurring charge - recall 1,700,000 --
------------ -----------
Total operating expenses 4,331,310 2,110,727
------------ -----------
Operating (loss) profit (3,967,324) 239,605
Other income and expenses:
Interest income -- 39,042
Interest expense -- (178,201)
Other, net 219,424 290,422
------------ -----------
Total other income 219,424 151,263
------------ -----------
(Loss) income before income taxes (3,747,900) 390,868
Income tax (benefit) expense (777,615) --
------------ -----------
Net (loss) income $ (2,970,285) 390,868
============ ===========
Net (loss) earnings per share $ (.21) .02
============ ===========
Weighted average number of common shares and
common share equivalents used in computation
of net (loss) earnings per share 13,825,773 19,307,892
============ ===========
</TABLE>
See accompanying notes to financial statements
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SYNCRONYS SOFTCORP
Statements of Operations (unaudited)
Nine Months Ended March 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Net revenues $ 13,708,179 3,964,627
Cost of revenues 1,713,163 1,026,661
------------ -----------
Gross profit 11,995,016 2,937,966
------------ -----------
Operating expenses:
Research and development 933,160 1,736,752
Marketing and selling 6,263,529 2,410,777
General and administrative 2,660,667 1,906,421
Nonrecurring charge - recall 4,200,000 --
------------ -----------
Total operating expenses 14,057,356 6,053,950
------------ -----------
Operating loss (2,062,340) (3,115,984)
Other income and expenses:
Interest income -- 193,457
Interest expense -- (771,885)
Amortization of discount on convertible
debentures -- (621,862)
charged to interest expense
Income from insurance settlement -- 750,000
Other, net 273,001 154,578
------------ -----------
Total other income (expense) 273,001 (295,712)
------------ -----------
Loss before income taxes (1,789,339) (3,411,696)
Income tax expense -- --
------------ -----------
Net Loss $ (1,789,339) (3,411,696)
============ ===========
Net Loss per share $ (.13) (.18)
============ ===========
Weighted average number of common shares and
common share equivalents used in computation
of net loss per share 13,825,773 19,307,892
============ ===========
</TABLE>
See accompanying notes to financial statements
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SYNCRONYS SOFTCORP
Statements of Cash Flows (unaudited)
Nine Months Ended March 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,789,339) $ (3,411,696)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization of discount on convertible debentures
charged to interest expense -- 621,862
Depreciation and amortization 53,400 241,035
Accrued interest on debentures -- 771,886
Non-cash expense related to the issuance of stock options -- 238,670
Gain on sale of subsidiary (202,616) --
Decrease in deferred tax assets 190,395 --
Changes in operating assets and liabilities:
Trade accounts receivable 2,061,468 (3,026,810)
Other receivables -- 2,276,736
Income tax refund receivable -- 903,112
Inventories (299,767) (252,839)
Prepaid expenses and other current assets (204,879) (46,085)
Trade accounts payable 1,172,836 537,368
Accrued expenses 1,188,763 (2,351,543)
Product recall liability -- (2,961,757)
Taxes payable (724,994) --
----------- ------------
Net cash provided by (used in) operating activities 1,445,267 (6,460,061)
----------- ------------
Net cash (used in) provided by investing activities:
Capital expenditures (125,189) (53,947)
----------- ------------
Net cash used in financing activities:
Principal payments on long-term debt (93,681) --
----------- ------------
Net increase (decrease) in cash and cash equivalents 1,226,397 (6,514,008)
Cash and cash equivalents at beginning of period 705,966 10,027,386
----------- ------------
Cash and cash equivalents at end of period $ 1,932,363 $ 3,513,378
=========== ============
Supplementary disclosures of cash flow information:
Cash paid during the period for income taxes $ 1,015,647 --
Cash paid during the period for interest -- --
Supplemental disclosure of non-cash activities:
Convertible debentures including accrued interest and
unamortized debt issuance costs converted to
equity during period -- $ 5,216,344
Acquisition of Veritas Technology Solutions Ltd. - a stock for
stock purchase recorded at the fair market value of shares
issued on the date of issuance -- 400,000
</TABLE>
See accompanying notes to financial statements
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SYNCRONYS SOFTCORP
Notes to Financial Statements (unaudited)
March 31, 1996 and 1997
(1) BASIS OF PRESENTATION
The condensed financial statements of Syncronys Softcorp (the "Company")
for the three months and nine months ended March 31, 1996 and 1997 are
unaudited and reflect all adjustments, consisting of normal recurring
adjustments as well as additional adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for the
interim periods presented. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB/A for its fiscal
year ended June 30, 1996. The results of operations for the three months
and nine months ended March 31, 1997 are not necessarily indicative of the
results for the entire year ending June 30, 1997.
(2) NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is based on the weighted average number of
common and common equivalent shares outstanding during each period. Common
stock equivalents and convertible debentures have been excluded from the
computation for the three months and nine months ended March 31, 1996, and
the nine months ended March 31, 1997, loss periods, as their inclusion
would be anti-dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following information should be read in conjunction with the
financial statements and the notes thereto, as well as the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" from the Company's Annual Report on 10-KSB/A for its fiscal year
ended June 30, 1996. The analysis set forth below is provided pursuant to
applicable Securities and Exchange Commission regulations and is not intended to
serve as a basis for projections of future events.
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS FORM 10-QSB ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS
AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S DEPENDENCE ON THE
TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF PRODUCTS, THE IMPACT
OF COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY OF THE COMPANY TO
REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED CAPITAL, THE EFFECT OF
CHANGING ECONOMIC CONDITIONS, RISKS IN TECHNOLOGY DEVELOPMENT AND THE EFFECTS OF
OUTSTANDING LITIGATION. OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS INCLUDE THE
RISKS AND UNCERTAINTIES DETAILED IN THE COMPANY'S MOST RECENT FORM 10-KSB AND
ITS OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
OVERVIEW
The Company develops and markets software products. Products currently
in retail distribution are: (1) RAM Charger 3.0 which provides a performance
boost for the Mac operating system through intelligent and more efficient memory
utilization and dynamic memory allocation; (2) MacAccess 2.0 which enables PCs
to read, write and format Mac floppy discs and most common removable media in
Windows 3.1x and 95; (3) WinKrypt, an advanced Windows 95 security suite
allowing the user to lock data, secure e-mail and search for intruders; (4) Burn
It!, an enhanced file deletion utility for Windows 95 and MacIntosh System 7x
that overwrites the sector multiple times effectively barring its retrieval; (5)
& (6) CD-Speedster (PC) and CD-Speedster (Mac) which increase speed and
performance of CD-ROMs under Windows 95 and 3.1x, and under MacIntosh System 7x
by incorporating proprietary caching technology; (7) Windrenalin HD, a patented
software product that adds instant hard drive acceleration to PCs operating
under Windows 95; and (8) SoftRAM3.0, a system performance utility designed to
accelerate CD-ROM data access, compress data in RAM and monitor system
performance for Windows 95 and 3.1x. RAM Charger 3.0 and MacAccess 2.0 began
shipping late in the first quarter of FY 1997. WinKrypt, and Burn It! began
shipping in November 1996. CD-Speedster (PC) and CD-Speedster (Mac) began
shipping in January 1997. Windrenalin HD and SoftRAM3.0 began shipping in late
February 1997.
In order to focus its resources on the release and development of the
products discussed above, the Company postponed the previously targeted release
dates of EyeCatcher, a Windows 95 program that turns a video or PC camera into a
motion-detection security system providing instant, real-time fax and e-mail
"alert" delivery and/ or replay of recorded images triggered by custom
pre-programmed cues or timing. While EyeCatcher is currently in the advance
stages of development, the Company is not currently able to target a precise
release date for EyeCatcher. Certain of the Company's distributors and several
software retailers have already indicated a willingness to stock EyeCatcher when
and if available. However, there can be no assurance that EyeCatcher or other
new products will be released by the Company or if released, that such release
will be on a timely basis; or that any product will achieve any significant
degree of market acceptance or that such acceptance, if attained, will be
sustained for any significant period; or that any such product will be
profitable or that profitability, if any, will be sustained. Failure to complete
on a timely basis, or lack of demand for products upon completion and
distribution, would have a material adverse effect upon the
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Company and such adverse effect would be severe (see "Liquidity and Capital
Resources", below). As well, the Company's success depends in part on its
ability to respond promptly to market feedback and provide adequate technical
support and service to customers and there can be no assurance that the Company
will be successful in so responding.
BACKGROUND
Although the Company has been in existence since 1986, its current
operations have been in place only since its merger with Seamless in May 1995.
Accordingly, the Company is still in many respects subject to many of the risks
and uncertainties inherent to a new enterprise.
The Company released SoftRAM for Windows 3.1x in late May of 1995, and
SoftRAM95 for Windows 95 and 3.1x in August of 1995. This program was designed
to increase the Random Access Memory ("RAM") that a personal computer ("PC") can
make available to Windows applications through proprietary memory compression
technology which allocates a PC's physical RAM in a manner that optimizes space
and speed. A significant portion of the Company's net revenues were derived from
SoftRAM during FY 1996 (approximately 96%). However, the Company announced on
October 20, 1995 that it had identified a problem with SoftRAM95, the net result
of which is that RAM compression was not being delivered to the Windows 95
operating system. The Company also announced a comprehensive consumer program
which included refunds, extended toll-free customer assistance and a program to
re-sticker all product in the retail channel informing consumers that SoftRAM95
was suitable for Windows 3.1x only. As this stickering program did not result in
complete coverage of all inventory, on December 18, 1995, the Company decided to
avoid any potential consumer confusion and/or liability and initiated the recall
of SoftRAM95 from the retail channel. A new version of SoftRAM, SoftRAM3.0, a
system performance utility designed to accelerate CD-ROM data access, compress
data in RAM and monitor system performance for Windows 95 and Windows 3.1x was
released in late February 1997. There can be no assurance that SoftRAM3.0 will
achieve any degree of market acceptance or that such acceptance, if attained,
will be sustained for any significant period.
FLUCTUATIONS IN OPERATING RESULTS
The Company generally believes that its operating results for any
quarter are not necessarily indicative of results for any future period. The
Company has in the past experienced fluctuations in its quarterly operating
results and expects such fluctuations to continue, to varying and unpredictable
degrees, in the future. Factors that contribute to fluctuations in the Company's
quarterly operating results include the timing of new product introductions,
competitive offerings, product shipments, product returns, promotional programs,
seasonality and general economic conditions. In addition, quarterly operating
results are affected by changes in market acceptance and sales of existing
products. Historically, seasonality has not been a significant factor for the
Company.
Moreover, because the Company generally ships its software products
within a short period after receipt of an order, it typically does not maintain
a material backlog of unfilled orders. As a result, revenues in any quarter or
other period are substantially dependent upon orders booked in that period.
Orders booked during any particular period are substantially dependent upon
numerous factors, including the scheduled release of new products and product
enhancements and updates by the Company and its competitors; the release or
anticipated release of complementary products by other software suppliers;
market acceptance of such products, enhancements and updates; delays in customer
orders in anticipation of industry developments and numerous other factors, many
of which are beyond the Company's control.
Accordingly, the Company's revenues are difficult to forecast and may
vary significantly from quarter to quarter. In addition the Company's expense
levels for each quarter are, to a significant extent, fixed in advance based
upon the Company's expectation as to the net revenues to be generated during
that quarter. The Company therefore is generally unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in net revenues.
Further as a result of these factors any delay in product introductions, whether
due to internal delays or delays caused by third party difficulties, or any
significant shortfall in demand in relation to the Company's expectations, would
have an almost immediate adverse impact on the Company's operating results and
on its ability to maintain profitability in a quarter.
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However, while the Company's expenses are, to a significant extent,
fixed in advance, the Company is making efforts to adjust spending in relation
to net revenues until such time, if any, that new products are released and such
new products and/or current products gain market acceptance. However, there can
be no assurance that new products will be released by the Company, or if
released that such release will be on a timely basis; or that any products will
achieve any degree of market acceptance or that such acceptance will be
sustained for any significant period; or that they will be profitable or
profitability, if any, can be sustained. Failure to complete on a timely basis,
or lack of demand for products upon completion and distribution, would have a
material adverse effect upon the Company and such adverse effect would be
severe.
RESULTS OF OPERATIONS
The Company generated a profit in the third quarter of FY 1997
contrasted with significant operating losses generated in the first and second
quarters of FY 1997. These operating results are discussed in detail below.
Net Revenues
<TABLE>
<CAPTION>
(Decrease)
FY 1996 Increase FY 1997
------- ---------- ----------
<S> <C> <C> <C>
Net Revenues First Nine Months $13,708,179 (71)% $3,964,627
Third Quarter 388,191 >100% 3,231,415
</TABLE>
During FY 1996, the Company derived substantially all of its software
revenues from sales of SoftRAM and SoftRAM95 to software distributors, computer
superstores and mass merchandisers in North America. Revenues during the first
nine months of FY 1996 were primarily attributable to the introduction of
SoftRAM which began shipping in May of 1995 and SoftRAM95 which began shipping
in August 1995. Revenues for the first nine months of FY 1997 were derived
primarily in the third quarter as the Company released four of its current
offering of eight products during the third quarter, of which sales of
Windrenalin HD accounted for a majority. CD-Speedster (PC) and CD-Speedster
(Mac) began shipping in January 1997. Windrenalin HD and SoftRAM3.0 began
shipping in late February 1997. Two products were released late in the first
quarter (RAM Charger 3.0 and MacAccess 2.0) and two products in November 1996
(WinKrypt and Burn It!) - the first products released since the Company's recall
of SoftRAM95 (see "Overview", above). The Company anticipates recognizing
relatively little revenues as compared to the prior year until such time, if
any, as these new products gain market acceptance.
Cost of Revenues
<TABLE>
<CAPTION>
(Decrease)
FY 1996 Increase FY 1997
------- -------- -------
<S> <C> <C> <C>
Cost of Revenues First Nine Months $1,713,163 (40)% $1,026,661
Percent of Net Revenues 13% 26%
Third Quarter $ 24,205 >100% $ 881,083
6% 27
</TABLE>
Cost of revenues consists of direct manufacturing costs and royalty
expenses for the Company's software products. Cost of revenues as a percentage
of net revenues increased to 26% during the first nine months of FY 1997, from
13% in the same period of FY 1996, due primarily to royalty expenses associated
with certain of the Company's software products. No royalty expenses were
incurred during FY 1996. The overall decrease in the cost of revenues during the
first nine months of FY 1997 is directly attributable to the decrease in net
revenues.
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Research and Development Expenses
<TABLE>
<CAPTION>
FY 1996 Increase FY 1997
------- -------- -------
<S> <C> <C> <C>
R & D Expenses First Nine Months $ 933,160 86% $1,736,752
Percent of Net Revenues 7% 44%
Third Quarter $ 354,817 49% $ 527,367
91% 16%
</TABLE>
Research and development expenses increased from $933,160 during the
first nine months of FY 1996 to $1,736,752 during the first nine months of FY
1997. This increase is primarily attributable to expenses associated with the
development of several new products and to the increase in the number of
research and development projects. Research and development expenses increased
as a percentage of net revenues during the first nine months, as compared to the
prior year, due to the decrease in revenues for the period and increased amounts
expended for research and development. The Company expects research and
development expenses will be maintained near the current dollar level for the
balance of FY 1997 due to the number of research and development staff and
projects and the acquisition of Veritas Technology Solutions Ltd.
In accordance with Statement of Financial Accounting Standards No. 86
(FASB 86), the Company examines the software development costs after
technological feasibility has been established to determine if the amounts are
significant enough to require capitalization. Through the end of the third
quarter of FY 1997, these amounts have not been deemed significant, and
substantially all software development costs have been expensed in the period
incurred. None of the Company's research and development costs for FY 1996 or
1997 have been borne directly by the Company's customers.
Marketing and Selling Expenses
<TABLE>
<CAPTION>
(Decrease)
FY 1996 Increase FY 1997
-------- --------- -------
<S> <C> <C> <C>
M & S Expenses First Nine Months $6,263,529 (62)% $2,410,777
Percent of Net Revenues 46% 61%
Third Quarter $ 741,418 18% $ 878,145
>100% 27%
</TABLE>
Marketing and selling expenses are comprised mainly of salaries and
commissions, advertising and promotions, trade shows, and customer service and
technical support expenses. Marketing and selling expenses were significantly
higher during the first nine months of FY 1996 as compared to the first nine
months of FY 1997 due primarily to expenses associated with the introduction of
SoftRAM95 in August of 1995 and related marketing expenses throughout the
period. Marketing and selling expenses increased as a percentage of net revenues
during the first nine months of FY 1997, as compared to the prior year, due to
the decrease in revenues for the period. The Company anticipates that
significant marketing and selling expenses will be required to support the
launch of new products during the balance of FY 1997 and that these expenses
will continue to increase as a percentage of net revenues until such time, if
any that the Company's new products gain market acceptance and are able to
generate sufficient revenues to offset any such increase.
General and Administrative Expenses
<TABLE>
<CAPTION>
FY 1996 (Decrease) FY 1997
------- ---------- -------
<S> <C> <C> <C>
G & A Expenses First Nine Months $2,660,667 (28)% $ 1,906,421
Percent of Net Revenues 19% 48%
Third Quarter $1,535,075 (54)% $ 705,215
>100% 22%
</TABLE>
General and administrative expenses decreased during the first nine
months of FY 1997 as compared to the prior year due primarily to a reduction in
legal fees for the period which was partially offset by increases in direct and
indirect expenses required to support the increase in research and development
projects, the facilities expansion and the increased number of support and
management staff. General and administrative expenses increased as a percentage
of net revenues during the first nine months of FY 1997, as compared to the
prior year, due to the decrease in revenues for the period. Although the
Company's general and administrative expenses are to a
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significant extent fixed in advance, the Company is making efforts to adjust
spending in relation to net revenues until such time, if any, that new products
are released and gain market acceptance.
Other Income (Expense), net
<TABLE>
<CAPTION>
FY 1996 (Decrease) FY 1997
------- ---------- -------
<S> <C> <C> <C>
Other Income (Expense), First Nine Months $273,001 >(100)% $(295,712)
net
Third Quarter 219,424 (31)% 151,263
</TABLE>
Other income and expense for the first nine months of FY 1997 consists
primarily of interest income, an insurance settlement and the unutilized prior
period expense accrual, which were offset by accrued interest on convertible
debentures, the amortization of the related debt issuance costs and a non-cash
charge to interest expense related to the issuance of convertible debentures.
Other income and expense for the first nine months of FY 1996 consists
principally of interest income which more than offset interest expense for the
period.
Net Income (Loss)
For the reasons outlined above the Company realized a $3,411,696 net loss during
the first nine months of FY 1997 as compared to a net loss of $1,789,339 during
the first nine months of FY 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $6,514,008 from June 30, 1996 to
March 31, 1997 due primarily to the cash used in operating activities for the
nine month period of $6,460,061. Over the same period, the Company's working
capital decreased by only $2,314,470 (from $5,185,204 at June 30, 1996 to
$2,870,734 at March 31, 1997) due primarily to the offsetting effects of the
decrease in current liabilities. The Company uses its working capital to finance
ongoing operations and the development and marketing of its software products.
Additionally, the Company evaluates from time to time acquisitions of products
or companies that could complement the Company's business, expand its product
line, or augment its revenues and cash flows. The Company has no plans,
commitments or agreements with respect to any such transactions as of the date
of this report.
The Company's success and ongoing financial viability is contingent
upon its selling of its products and the related generation of cash flows. The
Company is currently generating revenue and generally receives cash from sales
60 to 90 days after shipping its product. Management believes that its existing
cash and working capital balances will be sufficient to meet its working capital
needs for the balance of FY 1997, however, there can be no assurance in this
regard. Thereafter, the Company will need substantial additional capital. If the
Company's plans or assumptions change, if its assumptions prove to be
inaccurate, if it consummates investments or acquisitions in addition to those
currently contemplated or if it experiences unanticipated costs or competitive
pressures, the Company may be required to seek additional capital sooner than
currently anticipated. The Company evaluates its liquidity and capital needs on
a continuous basis and based on the Company's requirements and capital market
conditions may, from time to time, raise working capital through additional debt
or equity financing. There is no assurance that such financing will be available
in the future to meet additional capital needs of the Company, or as to the
terms or conditions of any such financing that is available. Should there be any
significant lack of acceptance in the marketplace for the Company's products or
if the Company's working capital needs otherwise exceed its resources, the
adverse consequences would be severe. The generation of the Company's current
growth and the expansion of the Company's current business involve significant
financial risk and require significant capital investment.
PRODUCT DEVELOPMENT
In addition to RAM Charger 3.0, MacAccess 2.0, WinKrypt, Burn It!,
CD-Speedster (PC) & CD-Speedster(Mac), Windrenalin HD and SoftRAM3.0 already in
retail distribution, the Company has other new products under development
including EyeCatcher (see "Overview" above, for descriptions of these products).
The Company believes continued investment in research and development
to develop state-of-the-art technology for incorporation into its products is
required if it is to remain competitive in the marketplace. As
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well, the Company must also maintain good relations with PC platform, operating
system and peripheral equipment vendors to enable it to develop competitive
software products.
The Company depends on the successful development of new products,
including new titles and the adaptation of existing titles to new platforms and
technologies, to expand its product offerings and to augment revenues from
products that have declined in revenue prospects. The Company also depends on
upgrades of existing products to lengthen the life cycle of such products.
Finally, the Company must continually anticipate and adapt its products to
emerging personal computer platforms and environments. If the Company's products
become outdated and lose market share, or if new products or existing product
upgrades are not introduced when planned or do not achieve the revenues
anticipated by the Company, the Company's operating results could be materially
adversely affected.
Exclusive of licensing agreements and acquisitions, the length of time
required to develop the Company's products and product upgrades typically ranges
from nine to 24 months, as is common in the software industry. In the past, the
Company has experienced delays in the planned release of new products or product
upgrades from one to 15 months as a result of completing development, product
testing and quality assurance. There can be no assurance that such delays from
the planned product release dates will not occur in the future. Additionally,
there can be no assurance that the Company will be able to release new products
on schedule or that such new products, if released, will achieve market
acceptance. If a product's release is delayed, it may lose market position and
the Company's expected return on its investment in the product could be
materially delayed or diminished.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
SETTLED ACTIONS
The Florida Attorney General's Office initiated a civil investigation
relating to the SoftRAM products and served a subpoena requesting documents and
information from the Company. The Company has been in contact and working with
that office in an effort to resolve any concerns about SoftRAM. THE FLORIDA
ATTORNEY GENERAL'S OFFICE AND THE COMPANY HAVE ENTERED INTO A SETTLEMENT IN THIS
MATTER. PURSUANT TO THE TERMS OF THE SETTLEMENT WITHOUT ANY ADMISSION OF
LIABILITY WHATSOEVER, THE COMPANY MADE A $125,000 PAYMENT TO THE FLORIDA LEGAL
AFFAIRS REVOLVING TRUST FUND (THE PAYMENT WAS MADE IN JULY 1996 AND THE RELATED
EXPENSE WAS RECOGNIZED IN FY 1996 UNDER NONRECURRING CHARGE - PRODUCT RECALL)
AND AGREED TO MAKE NO MISLEADING STATEMENTS REGARDING SOFTRAM AND SOFTRAM95. THE
PARTIES ARE CURRENTLY FINALIZING THE SETTLEMENT PAPERS.
PENDING ACTIONS
The Company and certain current or former directors and officers of
the Company (Daniel G. Taylor, Rainer Poertner, Wendell Brown and Kevin O'Neill)
have been named as defendants in a complaint for declaratory relief filed on
October 1, 1996 in United States District Court for the Central District of
California by Agricultural Excess & Surplus Insurance Company ("AESIC"). The
complaint seeks a declaration that AESIC is not obligated under its directors
and officers' insurance policy to indemnify any of the defendants for any
amounts incurred with the Marshall, Martin, Carnal, Levy, O'Seep, Seigel and
Marotto matters. AESIC also seeks a declaration that it is entitled to recoup
all amounts expended to fund the settlement of the Marshall litigation. (See the
Company's Annual Report on 10-KSB for its fiscal year end June 30, 1996 "Item
3 - Legal Proceedings" for a detailed discussion of each of these matters).
The Company intends to defend the above action vigorously and has
filed a counterclaim for bad faith against AESIC and a third party complaint
against the brokers. The Company cannot predict the
13 of 14
<PAGE> 14
financial impact of the costs of this litigation with any certainty, but
believes that such costs could be substantial.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 1997 under the Company's 1995 Stock
Option Plan (the "Plan") the Company granted incentive stock options to purchase
an aggregate number of 35,000 shares of Common Stock to employees. All options
granted under the Plan during the quarter ended March 31, 1997 have been granted
at exercise prices equal to the fair market value at the date of grant with
vesting provisions at varying intervals through March 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None filed with this report
(b) Reports filed on Form 8-K: None filed by the Company during the quarter
for which this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SYNCRONYS SOFTCORP
(REGISTRANT)
Date: May 15, 1997 /s/ Barbara Velline
-------------------
Barbara Velline
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, THE CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,513,378
<SECURITIES> 0
<RECEIVABLES> 3,155,237
<ALLOWANCES> 0
<INVENTORY> 252,839
<CURRENT-ASSETS> 7,539,228
<PP&E> 165,683
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,561,398
<CURRENT-LIABILITIES> 4,668,494
<BONDS> 8,141,071
0
0
<COMMON> 1,931
<OTHER-SE> (4,250,098)
<TOTAL-LIABILITY-AND-EQUITY> 8,561,398
<SALES> 3,964,627
<TOTAL-REVENUES> 3,964,627
<CGS> 1,026,661
<TOTAL-COSTS> 6,053,950
<OTHER-EXPENSES> 295,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,411,696)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,411,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,411,696)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
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