<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: DECEMBER 31, 1996
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 February 7, 1997 there were 19,260,401 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: 32
EXHIBITS ARE INDEXED AT PAGE 16
<PAGE> 2
SYNCRONYS SOFTCORP
FORM 10-QSB
Table of Contents
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Operations
Three months ended December 31, 1995 and 1996 . . . . 4
Six months ended December 31, 1995 and 1996 . . . . . 5
Statement of Cash Flows
Six months ended December 31, 1995 and 1996 . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 17
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<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNCRONYS SOFTCORP
Balance Sheet (unaudited)
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,525,682
Trade accounts receivable, net 176,765
Income tax refund receivable 566,739
Inventories 153,093
Prepaid expenses and other current assets 900,565
-------------
Total current assets 6,322,844
Property and equipment, at cost, net 122,115
Note receivable, excluding current portion 97,780
Unamortized debt issuance costs, excluding current portion 451,499
Goodwill 400,000
Amounts due from related parties, principally shareholders 148,500
-------------
$ 7,542,738
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Trade accounts payable $ 1,166,952
Accrued expenses 2,111,220
Product recall liability 845,156
-------------
Total current liabilities 4,123,328
-------------
Convertible debentures 9,395,865
Stockholders' deficiency:
Common stock, $.0001 par value. Authorized
75,000,000 shares; issued and outstanding
17,233,344 shares 1,723
Additional paid in capital 7,548,988
Accumulated deficit (13,527,166)
-------------
Total stockholders' deficiency (5,976,455)
-------------
$ 7,542,738
=============
</TABLE>
See accompanying notes to financial statements
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<PAGE> 4
SYNCRONYS SOFTCORP
Statements of Operations (unaudited)
Three Months Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net revenues $ 2,776,814 606,020
Cost of revenues 384,783 133,618
------------- -------------
Gross profit 2,392,031 472,402
------------- -------------
Operating expenses:
Research and development 353,940 741,820
Marketing and selling 3,725,745 1,082,731
General and administrative 766,200 719,066
Nonrecurring Charge - Recall 2,500,000 -
------------- -------------
Total operating expenses 7,345,885 2,543,617
------------- -------------
Operating loss (4,953,854) (2,071,215)
Other income and expenses:
Interest income 41,660 74,803
Interest expense (840) (261,822)
Income from insurance settlement - 750,000
Other, net - (84,108)
------------- -------------
Total other income and expenses 40,820 478,873
------------- -------------
Loss before income taxes (4,913,034) (1,592,342)
Income tax (benefit) expense (1,971,023) -
------------- -------------
Net loss $ (2,942,011) (1,592,342)
============= =============
Net loss per share $ (.21) (.09)
============= =============
Weighted average number of common shares and common share
equivalents used in computation of net loss per share.
14,411,159 17,233,344
============= =============
</TABLE>
See accompanying notes to financial statements
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<PAGE> 5
SYNCRONYS SOFTCORP
Statements of Operations (unaudited)
Six Months Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net revenues $ 13,319,988 733,212
Cost of revenues 1,688,958 145,578
------------- -------------
Gross profit 11,631,030 587,634
------------- -------------
Operating expenses:
Research and development 578,343 1,209,385
Marketing and selling 5,522,111 1,532,632
General and administrative 1,125,592 1,201,206
Nonrecurring Charge - Recall 2,500,000 -
------------- -------------
Total operating expenses 9,726,046 3,943,223
------------- -------------
Operating income (loss) 1,904,984 (3,355,589)
Other income and expenses:
Interest income 48,058 154,415
Interest expense (1,525) (593,684)
Income from insurance settlement - 750,000
Other, net 7,044 (135,844)
------------- -------------
Total other income and expenses 53,577 174,887
------------- -------------
Income (loss) before income taxes 1,958,561 (3,180,702)
Income tax expense 777,615 -
------------- -------------
Net income (loss) $ 1,180,946 (3,180,702)
============= ==============
Net earnings (loss) per share $ .08 (.19)
============= ==============
Weighted average number of common shares and common share
equivalents used in computation of net earnings(loss)
per share. 14,411,159 17,233,344
============= ==============
</TABLE>
See accompanying notes to financial statements
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<PAGE> 6
SYNCRONYS SOFTCORP
Statements of Cash Flows (unaudited)
Six Months Ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,180,946 $ (3,180,702)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 51,647 158,783
Accrued interest on debentures - 593,684
Non-cash expense related to the issuance of stock options - 195,518
Other - (157,962)
Changes in operating assets and liabilities:
Trade accounts receivable 1,146,782 (48,338)
Other receivables - 2,242,236
Income tax refund receivable - 336,373
Inventories (299,767) (153,093)
Prepaid expenses and other current assets (278,698) (193,958)
Note receivable - 48,890
Trade accounts payable 909,365 126,481
Accrued expenses (1,407,596) (2,930,978)
Product recall liability 2,500,000 (2,516,601)
Taxes payable (416,994) -
------------- -------------
Net cash provided (used) in operating activities 3,385,685 (5,479,667)
------------- -------------
Net cash (used) provided by investing activities:
Capital expenditures (195,480) (22,037)
------------- -------------
Net cash used in financing activities:
Principal payments on long-term debt (10,156) -
------------- -------------
Net increase (decrease) in cash and cash equivalents 3,180,049 (5,501,704)
Cash and cash equivalents at beginning of period 705,966 10,027,386
------------- -------------
Cash and cash equivalents at end of period $ 3,886,015 $ 4,525,682
============= =============
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 - $ 3,892,395
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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<PAGE> 7
SYNCRONYS SOFTCORP
Notes to Financial Statements (unaudited)
December 31, 1995 and 1996
(1) BASIS OF PRESENTATION
The condensed financial statements of Syncronys Softcorp (the
"Company") for the six months ended December 31, 1995 and 1996 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 for its fiscal year ended June 30, 1996. The results of
operations for the three months and six months ended December 31, 1996
are not necessarily indicative of the results for the entire year
ending June 30, 1997.
(2) NET EARNINGS (LOSS) PER SHARE
Net earnings per share is based on the weighted average number of
common and commmon equivalent shares outstanding during each period.
Common stock equivalents and convertible debentures have been excluded
from the computation for the three and six months ended December 31,
1996, loss periods, as their inclusion would be anti-dilutive.
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<PAGE> 8
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 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; and (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. 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.
The following products are scheduled for introduction and shipping
before the end of the third fiscal quarter: Windrenalin HD, a patented
software product that adds instant hard drive acceleration to PCs operating
under Windows 95; and 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. In order to focus its resources on the
release and development of the products discussed above, the Company has
postponed until the spring the release date 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. There can
be no assurance that these new products will be released by the Company or if
released, that such release will be on a timely basis.
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<PAGE> 9
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.
The Company's development team is working on a new version of SoftRAM,
to be known as SoftRAM3.0, a system performance utility which is designed to
accelerate CD-ROM data access, compress data in RAM and monitor system
performance for Windows 95 and Windows 3.1x (see "Product Development", below).
However, there can be no assurance that SoftRAM3.0 or other new products will
be released by the Company on a timely basis or that, if released, these
products will achieve any significant degree of market acceptance, or that such
acceptance, if attained, will be sustained for any significant period.
Failure to complete or lack of demand for SoftRAM3.0 or other new products
would have a material adverse effect upon the Company and such adverse effect
would be severe (see "Liquidity and Capital Resources", below).
FLUCTUATIONS IN OPERATING RESULTS
The Company generated a significant operating loss in the first and
second quarters of FY 1997 and expects to generate ongoing losses, until such
time, if any, new products are released and accepted in the marketplace. 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 such new 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. Although 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 gain market acceptance. As well, the Company's
success will depend 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.
Failure to complete new products on a timely basis or if new products do not
achieve a significant degree of market acceptance, would have adverse
consequences upon the Company which could be severe.
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 and the Company generally believes
that its operating results for any quarter are not necessarily indicative of
results for any future period.
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<PAGE> 10
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.
RESULTS OF OPERATIONS
Net Revenues
<TABLE>
<CAPTION>
FY 1996 (Decrease) FY 1997
------- ---------- --------
<S> <C> <C> <C> <C>
Net Revenues First Six Months $ 13,319,988 (94)% $ 733,212
Second Quarter 2,776,814 (78)% 606,020
</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
six 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 six months of FY 1997 were negligible as
the Company released two products late in 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, new products
are released and gain market acceptance.
Cost of Revenues
<TABLE>
<CAPTION>
FY 1996 (Decrease) FY 1997
-------- --------- --------
<S> <C> <C> <C> <C>
Cost of Revenues First Six Months $ 1,688,958 (91)% $145,578
Percent of Net Revenues 13% 20%
Second Quarter $ 384,783 (65)% $133,618
14% 22%
</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 20% during FY 1997, from 13% in FY 1996, due
primarily to royalty expenses associated with certain of the Company's software
products. No royalty expenses were incurred during FY1996. The overall
decrease in the cost of revenues during the first six months of FY 1997 is
directly attributable to the decrease in net revenues.
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<PAGE> 11
Research and Development Expenses
<TABLE>
<CAPTION>
FY 1996 Increase FY 1997
------- -------- -------
<S> <C> <C> <C> <C>
R & D Expenses First Six Months $ 578,343 >100% $1,209,385
Percent of Net Revenues 4% >100%
Second Quarter $ 353,940 >100% $ 741,820
13% >100%
</TABLE>
Research and development expenses increased from $578,343 during the
first six months of FY 1996 to $1,209,385 during the first six 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 six months, as compared to the
prior year, due to the decrease in revenues for the period. The Company
expects research and development expenses will be maintained near the current
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.
(see "Part II - Other Information - Item 5." below for further information).
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 second
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>
FY 1996 (Decrease) FY 1997
-------- --------- -------
<S> <C> <C> <C> <C>
M & S Expenses First Six Months $ 5,522,111 (72)% $ 1,532,632
Percent of Net Revenues 41% >100%
Second Quarter $ 3,725,745 (71)% $ 1,082,731
134% >100%
</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 six months of FY 1996 as compared to the first six
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 six 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.
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<PAGE> 12
General and Administrative Expenses
<TABLE>
<CAPTION>
Increase
FY 1996 (Decrease) FY 1997
------- ---------- -------
<S> <C> <C> <C> <C>
G & A Expenses First Six Months $ 1,125,592 7% $ 1,201,206
Percent of Net Revenues 8% >100%
Second Quarter $ 766,200 (6)% $ 719,066
28% >100%
</TABLE>
General and administrative expenses increased in FY 1997 due primarily
to increases in direct and indirect expenses required to support the increase
in research and development projects, via 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 six 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 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 Increase FY 1997
------- --------- -------
<S> <C> <C> <C> <C>
Other Income (Expense), First Six Months $ 53,577 >100% $ 174,887
net
Second Quarter 40,820 >100% 478,873
</TABLE>
Other income and expense for the first six months of FY 1997 consists
primarily of interest income and an insurance settlement, which were partially
offset by accrued interest on convertible debentures and the amortization of
the related debt issuance costs. Other income and expense for the first six
months of FY 1996 consists largely of interest income and expense.
Net Income (Loss)
For the reasons outlined above the Company realized a $3,180,702 net loss
during the first six months of FY 1997 as compared to net income of $1,180,946
during the first six months of FY 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $5,501,704 from June 30, 1996 to
December 31, 1996 due primarily to the cash used in operating activities for
the six month period of $5,479,667. Over the same period, the Company's
working capital decreased by only $2,363,826 (from $4,563,342 at June 30, 1996
to $2,199,516 at December 31, 1996) 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 other than those discussed below (see "Part II - Other
Information - Item 5." for further information).
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<PAGE> 13
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 relatively little revenue and related cash
flows and anticipates this trend will continue until such time, if any, new
products are released and accepted in the marketplace. 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. The Company generally
receives cash from sales 60 to 90 days after shipping its product. Should the
receipt of cash from the release of new products exceed this six month period
the adverse consequences would be severe. 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 delays in the release of new
products, or lack of acceptance in the marketplace for such products if
released, or 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! and
CD-Speedster (PC) & CD-Speedster(Mac) already in retail distribution, the
Company has also developed and licensed several other new products including
Windrenalin HD, SoftRAM3.0 and EyeCatcher (see "Overview" above, for
descriptions of these products).
Windrenalin HD and SoftRAM3.0 are scheduled for release before the end
of the third fiscal quarter. The Company has targeted a spring release date
for EyeCatcher. No assurance can be made as to when, or if at all, these
products will be released into distribution channels. The Company has not met
previously announced release dates and targets for SoftRAM3.0. The Company has
completed the Windows 3.1 component of SoftRAM3.0 and posted it as a patch file
on its website for previous SoftRAM and SoftRAM95 (W3.1) users only. However,
the Windows 95 component of the product has not yet been fully tested and
verified by external sources. Accordingly, there can be no assurance as to
when, or if at all, SoftRAM3.0 will be released into distribution channels.
Certain of the Company's distributors and several software retailers have
already indicated a willingness to stock Windrenalin HD, SoftRAM3.0 and
EyeCatcher when and if available.
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 significant degree of market acceptance or that
such acceptance, if attained, will be sustained for any significant period; or
that such products will be profitable or that profitability, if any, will be
sustained. As well, the Company's success will depend 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. Failure to complete on a timely basis, or lack of
demand for new products upon completion and distribution, would have a material
adverse effect upon the Company and such adverse effect would be severe.
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 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.
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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 introduced in prior years 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
SETTLED ACTIONS
The Company and certain current or former directors and officers of
the Company (Daniel G. Taylor, Rainer Poertner, Wendell Brown and Kevin P.
O'Neill) were named as defendants in a putative class action lawsuit commenced
by Julie Marshall on December 14, 1995 in the United States District Court,
Central District of California, Western Division. In Ms. Marshall's complaint,
the putative plaintiff class on whose behalf the action is brought was
described as all persons who purchased Syncronys common stock between June 1,
1995 and December 7, 1995, inclusive, and suffered damages as a result thereof
which is estimated in the complaint to be hundreds of persons. Excluded from
the putative class were the named defendants, members of the immediate families
of each defendant, any entity in which any defendant has a controlling
interest, and the legal representatives, heirs, successors, predecessors in
interest, or assigns of any of the defendants. Ms. Marshall contended that the
individual defendants engaged in various forms of misconduct in violation of
the Securities Exchange Act of 1934 and a Rule of the Securities Exchange
Commission promulgated thereunder, including misrepresenting the readiness and
abilities of Syncronys' products, in order to inflate the market price of
Syncronys common stock, which resulted in the putative class members purchase
of Syncronys common stock at artificially inflated prices. For herself and the
putative plaintiff class, Ms. Marshall sought damages of an unspecified amount,
injunctive relief and the costs and expenses of litigation including attorney's
fees. THE COMPANY HAS ENTERED INTO A SETTLEMENT IN THIS CASE, WHICH THE COURT
APPROVED JANUARY 27, 1997. PURSUANT TO THE TERMS OF THE SETTLEMENT WITHOUT ANY
ADMISSION OF LIABILITY WHATSOEVER, THE DEFENDANTS PAID $3.25 MILLION IN FULL
SATISFACTION OF THE ACTION, INCLUSIVE OF ATTORNEYS FEES AND ALL COSTS
ASSOCIATED WITH THE ADMINISTRATION OF THE SETTLEMENT. THE COMPANY'S PRIMARY
DIRECTOR'S AND OFFICER'S INSURANCE CARRIER CONTRIBUTED $2 MILLION TO THE
SETTLEMENT. THE COMPANY'S EXCESS DIRECTOR'S AND OFFICER'S INSURANCE CARRIER
CONTRIBUTED $1.25 MILLION TO THE SETTLEMENT, BUT HAS PRESERVED ITS COVERAGE
DEFENSES AND BROUGHT A DECLARATORY ACTION AGAINST THE COMPANY ON OCTOBER 1,
1996 TO RECOVER ITS CONTRIBUTIONS (SEE "PENDING LITIGATION" BELOW).
PRELIMINARILY 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 BEEN ENGAGED IN SETTLEMENT
DISCUSSIONS. THE PARTIES ARE CONTINUING WORK ON THE SETTLEMENT.
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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 (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). AESIC also seeks a declaration that it
is entitled to recoup all amounts expended to fund the settlement of the
Marshall litigation (see " Settled Actions" above).
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 financial impact of the
costs of this litigation with any certainty, but believes that such costs could
be substantial.
ITEM 5. OTHER INFORMATION.
ACQUISITION OF SOFTWARE DEVELOPMENT COMPANY
On December 5, 1996, the Company issued 400,000 shares of its Common
stock, $.0001 par value, pursuant to Regulation S to the shareholders of
Veritas Technology Solutions Ltd. ("Veritas"), an Israeli software developer
whose development expertise and product roster is complimentary to the
Company's development and marketing strengths. The shares were issued as
consideration for the acquisition of 100% of the shares outstanding of Veritas
pursuant to a Share Exchange Agreement among the Company, Veritas and the
shareholders of Veritas. Pursuant to the terms of the agreement, half of the
shares issued in conjunction with the acquisition may not be sold prior to
January 27, 1998.
The Company accounted for this transaction as a purchase. The fair
value of the shares on the date of issuance were recorded as goodwill subject
to the Company's full evaluation of the assets acquired, and will be amortized
over no more than a five year period. Final closing of this transaction took
place on January 27, 1997. There can be no assurance that the Company will
generate revenues or profits as a result of this acquisition.
LICENSING AGREEMENT WITH ACCELERATION SOFTWARE
The Company has recently entered into a licensing agreement with
Acceleration Software International Corporation ("Acceleration Software") to
publish and market Windrenalin HD, a patented software product that adds
instant hard drive acceleration to PCs operating under Windows 95. Under the
terms of the agreement the Company has guaranteed cumulative minimum royalty
payments to Acceleration Software of $850,000 by May of 1998, of which the
Company has advanced $250,000. There can be no assurance that the Company will
generate revenues or profits as a result of this licensing agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index to Exhibits: 10.1 - Agreement dated December 8, 1996 among
Syncronys Softcorp and Acceleration Software International Corporation
- page 18
(b) Reports filed on Form 8-K: During the second quarter of FY1997 the Company
filed one report on Form 8-K dated December 19, 1996, to report under
Item 9 the sales of equity securities pursuant to Regulation S in
conjunction with the acquisition of Veritas Technology Solutions Ltd., an
Israeli corporation.
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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: February 14, 1996 /s/ Barbara Velline
Barbara Velline
Chief Financial Officer
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SOFTWARE LICENSE & DISTRIBUTION AGREEMENT
This Agreement is made as of the 8th day of December, 1996
BETWEEN: SYNCRONYS SOFTCORP, a Nevada corporation with its principal
place of business at 3958 Ince Boulevard, Culver City, CA,
90232
("Distributor")
AND: ACCELERATION SOFTWARE INTERNATIONAL CORPORATION, a Washington
corporation with its principal place of business at 1223 NW
Finn Hill Road Poulsbo, WA 98370
("Developer")
WITNESS THAT WHEREAS Developer has developed a Windows 95 software program
entitled "SuperFassst!" which Distributor wishes to distribute pursuant to the
terms of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and the mutual agreements and covenants herein contained (the receipt and
adequacy of such consideration is hereby mutually acknowledged by each party),
the parties hereby covenant and agree as follows:
SECTION 1. DEFINITIONS
1.01 "SOFTWARE" shall mean an object copy of the hard drive accelerator
called SuperFassst! for Windows '95 on a CD-ROM (or other media if available)
packaged for retail sale to end users, in retail packaging to be approved by
Developer in accordance with Section 2.06, together with modifications,
revisions and error corrections which Developer shall make available to
Distributor from time to time.
1.02 "END USER" shall mean any third party which obtains a copy of the
Software to fulfill its own computer aided instruction or tool needs.
1.03 "SALE" OR "SELLING" OR "PURCHASE" OR "PURCHASING" of Software or a
copy of the Software shall mean, with respect to the intellectual property
rights related to such Software, the grant or acquisition, respectively, of a
license to use the Software. With respect to tangible property, such terms
shall be accorded their common meanings. In either case, such terms shall (i)
include all sales, licenses, transfers or other dispositions for value, (ii)
include use by Distributor, and (iii) be deemed a sale not later than when
recorded as such on the books or records of Distributor which are maintained
for financial statement purposes.
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1.04 "SITE LICENSES" shall mean licensing software for multiple computers
or multiple users. It is intended that the industry standard usage of selling
software to corporations using site, enterprise, server, seat or
processor-based licenses and similar transactions be incorporated into the
definition of Site Licenses.
1.05 "OEM BUNDLING" shall mean licensing software for resale only in
combination with one or more other items, typically hardware. It is intended
that the industry standard usage of selling software via OEM licensing,
bundling and similar transactions be incorporated into the definition of OEM
Bundling.
1.06 "DIRECT MARKETING" shall mean the promotion and selling of software
directly to End Users without using a reseller, specifically using the
Internet, online sales, and direct mail. It is intended that the industry
standard usage of direct marketing be incorporated into the definition of
Direct Marketing.
1.07 "RETAIL CHANNEL" shall mean all resellers who purchase the Software
for ultimate sale to an individual and specifically excludes Site Licenses, OEM
Bundling and Direct Marketing.
SECTION 2. APPOINTMENT AND AUTHORITY OF DISTRIBUTOR
2.01 GRANT OF LICENSE. Developer hereby grants to Distributor a license to
distribute and market (a) the English language version of the Software into the
Retail Channel on an exclusive basis and Direct Marketing on a non-exclusive
basis for the United States and Canada, (b) if Distributor achieves the "Launch
Plan" described in Section 2.02, the English and German language version of the
Software into the Retail Channel on an exclusive basis and Direct Marketing on
a nonexclusive basis in Germany, and (c) the English language version of the
Software into the Retail Channel and Direct Marketing on a non-exclusive basis
for the rest of the world except for France, Poland and Japan (the "License").
Distributor may in its discretion from time to time sub-license, transfer or
assign in whole or part an interest in the license in sub-sections (b) and (c)
above, to any other person for the purposes of increasing distribution and
sales of the Software outside of United States and Canada; provided however,
that any such sub-license, transfer or assignment shall be subject to
Developer's rights contained in this Agreement and shall not in any way relieve
Distributor of its obligations to Developer hereunder.
2.02 LAUNCH PLAN. Distributor will use its best efforts to market and sell
the Software in a manner to maximize the sales potential of the Software. If
Distributor has at least [omitted portion submitted for confidential treatment]
copies of the Software placed in the Retail Channel in the United States and
Canada with retailers which represent not less than 70% of computer software
retail sales as determined by PC Data within three months following the
Commencement Date (as defined in Section 10.01), the "Launch Plan" will be
deemed to have been met, and Distributor will have the rights in Germany
described in Section 2.01(b). Distributor
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acknowledges that EU trade rules prohibit absolute exclusivity, but if the
Launch Plan is met, Developer will not appoint any other distributor of the
Software in the Retail Channel for Germany.
2.03 RESERVATIONS FROM GRANT.
(a) Developer reserves all rights not specifically granted in Section 2.01,
including, without limitation, all rights to OEM Bundling and Site Licenses and
non-exclusive rights to Direct Marketing, as well as any and all rights to
Developer products other than the Software. All OEM Bundling, Site Licenses
and Direct Marketing undertaken by the Developer shall use the name
SuperFassst! (or others names that are different from the name selected by
Distributor). The version of the Software available on a large scale via OEM
Bundling will not be at a higher revision level than the version available in
retail updated by free Internet upgrades. Developer shall release major new
revisions not less than six (6) months apart.
(b) In the event that Distributor cannot resolve the pre-existing liabilities
of Ballard Synergy Corporation to Computer City and Micro Central (in an
arrangement approved by Developer) for amounts not more than $ [omitted portion
submitted for confidential treatment] in cash payments plus not more than $
[omitted portion submitted for confidential treatment] in Developer's foregone
revenues (e.g., product credit) before February 15, 1997, Developer retains the
right to distribute to Computer City and Micro Central not more than 8,000
units of a premium priced retail version of the Software combined with other
software, whose distribution price shall not be less than $ [omitted portion
submitted for confidential treatment]. Such distribution by the Developer
shall be done in a way to minimize any negative impact on the sales and
marketing of the Software.
2.04 MARKET DATA. Distributor shall, where available, provide Developer
with (a) quarterly Software sales numbers through distributors, resellers,
sales representatives and End Users (b) marketing and merchandising programs
completed and planned, (c) any other information of benefit to Developer in
cooperating with Distributor and developing modifications to the Software or
new products.
2.05 MINIMUM PERFORMANCE REQUIREMENTS. Distributor shall purchase a
minimum of [omitted portion submitted for confidential treatment] copies of the
Software from Developer during the six (6) month period following the
Commencement Date, defined in Section 10.01, and [omitted portion submitted for
confidential treatment] copies for each subsequent six (6) month period, during
the term of this Agreement.
2.06 DISTRIBUTOR RESPONSIBILITIES. Distributor shall, at its cost, produce
retail packaging, media label artwork, user's manuals, localization of non-code
resources to German if German language rights are granted as per 2.01(b), and
sales and
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marketing materials for the Software and shall use its best efforts to pursue
aggressive sales and marketing to realize the maximum sales potential for the
Software. All such packaging and materials shall be provided to Developer for
its review and approval, such approval not to be unreasonably withheld or
delayed. Failure by Developer to approve or disapprove a component within seven
(7) business days shall be deemed to be approval for that component. For
SuperFassst! the parties have agreed at minimum that (a) Distributor shall not
use "SuperFassst!" as the product name, but rather will use a different name of
its choice, (b) reference to the "SuperFassst! Technology" will appear in
reasonable prominence on the front of the box, (c) Developer's corporate logo
and "created by" attribution will appear in reasonable prominence on the back
of the box and (d) the appropriate legal trademark and copyright notices will
appear in fine print on the box.
2.07 DISTRIBUTOR REPRESENTATIONS. Distributor represents to Developer that
it has full right and authority to enter into this Agreement and to perform its
obligations under this Agreement. This Agreement and Distributor's performance
hereunder, do not conflict with or cause a breach under any agreement, license
or other instrument, or law, rule, order or regulation to which the Distributor
is bound or subject.
SECTION 3. PRODUCTION OF SOFTWARE
3.01 PRODUCTION. Developer shall, at its cost and at a facility of its
selection, reproduce the executable code of Software on a electronic media
(with media label artwork provided per Section 2.06) in a form suitable for use
in retail packaging and shall deliver same to location(s) specified by
Distributor. Developer shall use its best efforts to make available a
reasonably secure floppy based version of the Software. The parties agree to
fully cooperate to minimize delivery costs and production costs, such
production costs shall not exceed $ [omitted portion submitted for confidential
treatment] per media. Under no circumstances shall Distributor replicate or
otherwise duplicate Software, on CD-ROM discs or otherwise, or obtain such
replicated or duplicated Software from any source other than Developer.
Possession by Distributor of a "Gold Disc" or other medium commonly used to
replicate or duplicate software shall not be construed as evidence that
Distributor has any right to replicate or duplicate Software.
3.02 ORDERS. Distributor will place written purchase orders with the
Developer for the Software with at least five (5) days production lead time and
shipping instructions and shall pay for such orders, including shipping and any
other associated charges in accordance with Section 6.03.
3.03 SOFTWARE RETURNS. Distributor shall have the right not more than once
per month to return Software media to the Developer for credit (up to a monthly
maximum of half of the average monthly volume of Software media delivered to
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Distributor for the previous three months) who shall issue to Distributor an
RMA for such returns. This Section 3.03 together with Section 7.01 are
Distributor's sole and exclusive return rights.
SECTION 4. END USER RESTRICTIONS
Distributor shall distribute the Software only in its original, unopened
packages and subject to a "shrink-wrap" or other appropriate license agreement,
which shall be subject to approval by Developer, such approval not to be
unreasonably withheld or delayed.
SECTION 5. RESTRICTIONS ON DISTRIBUTOR
Distributor agrees not to reverse assemble, decompile, or otherwise attempt to
derive source code from the Software, modify the Software or translate the
software. Distributor further agrees to comply with all laws, foreign and
domestic in connection with the marketing and selling of the Software.
SECTION 6. PAYMENT
6.01 PAYMENT AMOUNT. Distributor shall pay Developer an amount equal to
[omitted portion submitted for confidential treatment] % of the Gross Revenues
realized by Distributor for the sale of the Software ("Payment Amount"). Gross
Revenues shall mean the amount booked less returns as per Section 3.03 and
7.01, less return reserve in accordance with GAAP (the current amount is
approximately 10% to 15% of units) and such return reserve will be utilized
before the returns allowed in Section 3.03 and 7.01, less freight out and less
industry standard cash discounts not to exceed 3%. Both parties agree on an
initial Payment Amount of at least [omitted portion submitted for confidential
treatment] dollars per unit of Software delivered to Distributor, less the
returns specified in 3.03 and 7.01. Distributor will notify Developer of any
price changes, however any pricing reduction shall be agreed to in writing by
both parties, acting reasonably to maximize long term revenues. The Payment
Amount is in addition to reimbursement to Developer of the cost of the Software
media and shipping charges.
6.02 ADVANCE PAYMENT. Distributor shall, no later than December 20, 1996,
pay Developer a non-refundable two hundred and fifty thousand dollars
($250,000) as an advance against the Payment Amount and reimbursement for the
cost of the Software media.
6.03 ON-GOING PAYMENTS. Upon depletion of the Advance Payment, the
Distributor shall pay the Developer in respect of the Payment Amount and the
cost of the Software media $ [omitted portion submitted for confidential
treatment] per CD-ROM disc (or other media) delivered to the Distributor net 15
days with the balance due net 75 days. In the event that the Distributor fails
to pay net 15 more
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than three times in any given year or is ever more than 30 days late, then
Developer shall have the option to change terms to COD rather than net 15 days.
6.04 RECONCILIATIONS AND AUDIT. Distributor shall maintain accurate books
and records pertaining to the production and distribution of Software.
Distributor shall provide an account reconciliation within thirty (30) days
after the end of each calendar quarter, for the sales made during such quarter.
Each reconciliation shall be accompanied by a detailed statement showing the
basis on which such payment was calculated. Upon fifteen days notice by
Developer, Distributor shall provide access to its books and records during
ordinary business hours to an independent certified public accounting firm,
retained by Developer on a non-contingency basis to review Distributor's books
to verify such calculations. Such verification shall occur no more than twice
annually. Such verification shall be at Developer's expense, unless the
verification reflects an underpayment of seven and a half percent (7.5%) or
more of the amount that should have been paid for the period audited, in which
case Distributor shall bear the expense of such audit. Interest of one and
one-half percent (1.5%) per month shall be paid on payments not timely made.
6.05 TRANSACTIONS WITH AFFILIATES. All transactions by Distributor with
Affiliates shall be at fair market prices for comparable transactions between
unrelated parties, including a reasonable profit on such transactions.
6.06 LETTER OF CREDIT. Distributor shall, not later than December 20,
1996, provide Developer with a formal letter of credit (in a form acceptable to
Developer, such acceptance not to be unreasonably withheld or delayed) drawn on
a major US Bank in the amount of six hundred thousand dollars ($600,000). The
Developer may, ninety (90) days after the first anniversary of the Commencement
Date, draw down an amount equal to the difference between eight-hundred fifty
thousand dollars ($850,000) and the actual Payment Amounts paid to Developer,
provided that the principal amount of the Letter of Credit may be reduced in
accordance with Section 9.05.
6.07 DISTRIBUTOR OPTIONS. Prior to December 20, 1996, Distributor shall
grant Developer or its designees [omitted portion submitted for confidential
treatment] options on terms not less favorable than provided in Distributor's
stock option plan, to purchase Distributor's common stock at the closing bid
price as of the date hereof which shall vest and be exercisable as follows:
(a) [omitted portion submitted for confidential treatment] options
upon achieving aggregate unit sales of the Software equal to
or in excess of 62,500 units;
(b) an additional [omitted portion submitted for confidential
treatment] options upon achieving aggregate unit sales of the
Software equal to or in excess of 125,000 units;
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(c) an additional [omitted portion submitted for confidential
treatment] options upon achieving aggregate unit sales of the
Software equal to or in excess of 187,500 units;
(d) an addition [omitted portion submitted for confidential
treatment] options upon achieving aggregate unit sales of the
Software equal to or in excess of 250,000 units;
(e) an additional [omitted portion submitted for confidential
treatment] options upon achieving aggregate unit sales of the
Software equal to or in excess of 350,000 units; and
(f) an additional [omitted portion submitted for confidential
treatment] options upon achieving aggregate unit sales of the
Software equal to or in excess of 450,000 units; and
6.08 BUNDLED TRANSACTIONS. Where Software is bundled with another software
product, the portion of the gross revenues attributed to the Software shall be
based upon and apportioned in accordance with the retail prices of the
constituent parts of the bundle. In no event will Distributor or any of its
resellers bundle the Software with other products (whether "hard" bundled or
"soft" bundled and whether with software or hardware) without Developer's prior
written consent.
SECTION 7. DEVELOPER'S WARRANTY
7.01 WARRANTY. Developer warrants that the media on which the Software is
delivered will be free of defects in material and workmanship for a period of
ninety (90) days from delivery to Distributor. Software that an end user
returns (accompanied by a Distributor certification for each shipment) will be
treated as defective media. As the sole remedy for this warranty, Developer
shall either replace the defective media or repay the full amount it received
for the Software plus shipping charges to the Distributor at Distributor's
option. This Section 7.01 together with Section 3.03 are Distributor's sole and
exclusive return rights.
7.02 LIMITATION OF LIABILITY AND REMEDIES. EXCEPT AS SET FORTH IN THIS
AGREEMENT, DEVELOPER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
AND SPECIFICALLY EXCLUDES ANY WARRANTY THAT THE SOFTWARE IS FIT FOR ANY
PARTICULAR PURPOSE AND FURTHER SPECIFICALLY EXCLUDES ANY IMPLIED WARRANTIES OF
MERCHANTABILITY. THE STATED WARRANTIES, COVENANTS AND REMEDIES SET FORTH IN
THIS AGREEMENT ARE IN LIEU OF ALL OTHER OBLIGATIONS OR LIABILITIES ON THE PART
OF DEVELOPER FOR DAMAGES OR OTHER RELIEF, INCLUDING, BUT NOT LIMITED TO,
SPECIAL, INDIRECT
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OR CONSEQUENTIAL DAMAGES THAT IN ANY WAY ARISE OUT OF OR IN CONNECTION WITH THE
USE AND/OR THE PERFORMANCE OF THE SOFTWARE. IN NO EVENT EXCEPT FOR (A) FRAUD
BY THE DEVELOPER, (B) FAILURE, REFUSAL OR INABILITY OF THE DEVELOPER TO PROVIDE
THE SOFTWARE MEDIA AND (C) THE INDEMNIFICATION OBLIGATIONS OF SECTION 13, SHALL
THE LIABILITY OF DEVELOPER TO DISTRIBUTOR PURSUANT TO THIS AGREEMENT EXCEED THE
AMOUNT RECEIVED BY DEVELOPER FROM DISTRIBUTOR WITH RESPECT TO THE SOFTWARE.
SECTION 8. ADDITIONAL OBLIGATIONS OF DISTRIBUTOR
8.01 PROMOTION OF SOFTWARE OR TECHNOLOGY. Distributor shall, at its own
expense, vigorously promote the distribution of the Software. Such promotion
shall include, but shall not be limited to, advertising the Software in
publications, participating in trade shows, establishing appropriate
distribution channels and merchandising programs, and directly soliciting
orders from customers for Software. Developer shall provide Distributor with
500 copies of the Software per year free of charge for NFR and promotional
purposes.
8.02 COMPETITIVE SALES. During the term of this Agreement and for three
months after termination, Distributor shall not market or sell any product
directly competitive with the current version of the Software or a significant
subset thereof. In addition, during the term of this Agreement and for twelve
months after termination, Distributor shall not use the tradename of the
Software or artwork uniquely associated with the Software to market or sell any
software product directly competitive with the current version of the Software
or a significant subset thereof.
SECTION 9. ADDITIONAL OBLIGATIONS OF DEVELOPER
9.01 NEW DEVELOPMENTS. Developer shall provide Distributor reasonable
notice of new developments in connection with the Software.
9.02 MARKETING ASSISTANCE. Developer shall provide Distributor with market
data which is obtained by Developer and relates to the Software and which may
benefit Distributor in distributing the Software.
9.03 TECHNICAL ACCEPTANCE. Developer shall at its sole expense be
responsible for running industry standard quality assurance tests on
SuperFassst! prior to providing it to Distributor for release. Developer shall
fully cooperate with Distributor in its due diligence approval of SuperFassst!
and the behavior of the underlying technology, ("Technical Acceptance"). For
the initial release, Technical Acceptance shall be deemed to have been
satisfied upon Developer's receipt of the Advance Payment described in 6.02 and
the Software shall also be deemed to be Technically Superior. For future
formal releases, Technical Acceptance shall be deemed to have been satisfied
upon reasonable agreement between the parties.
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9.04 USERS MANUAL. Distributor shall at its sole expense, but with the
reasonable cooperation and input of Developer, be responsible for preparing the
users manual for the Software. Developer shall provide Distributor with the
electronic form of the current SuperFassst! user manual.
9.05 TECHNICAL SUPERIORITY. Developer shall maintain the Technical
Superiority of SuperFassst! Software and its underlying technology. Technical
Superiority shall mean not less than 25% performance improvement over Windows
95 and its subsequent releases ("OS Competitor") and/or competitive software
products ("Product Competitor") on tests proposed by Developer and accepted by
an independent testing laboratory (to be mutually agreed by the parties, acting
reasonably). As soon as practicable after release of a new OS Competitor or
Product Competitor, the then current version of the Software and such product
shall be provided to an independent testing laboratory. In the event that the
Software is determined by that testing laboratory not to be Technically
Superior, then Developer shall have forty-five (45) days to deliver to
Distributor a version of the Software which is Technically Superior or
otherwise delivers mutually agreed to added functionality to restore the
leadership positioning of the Software in the Retail Channel, failing which the
sole recourse is to reduce the principal amount of the Letter of Credit
referred to in Section 6.06 by either (a) equal to the Payment Amount referred
to in Section 6.01 multiplied by the unit sell through of the Product
Competitor as reported in PC Data or (b) $500 per day from the release date of
the OS Competitor as reported in PC Data, such reductions shall stop after the
first anniversary of the Commencement Date.
9.06 SUPPORT. Developer shall at its sole expense be responsible for
providing reasonable professional end-user technical support for the Software
with access by way of toll-free phone, fax, mail and e-mail. Developer shall at
its sole expense be responsible for correcting bugs or providing reasonable
workarounds for the Software as and when the need arises. Distributor shall
give Developer notice of all Software "bugs" promptly upon discovery and, in
the case of Fatal or Severe bugs, within forty-eight (48) hours after
discovery.
9.07 PERFORMANCE VALIDATION. Developer shall provide Distributor detailed
benchmark procedures and results to characterize the performance of the
Software across a wide spectrum of computers. Technical descriptions of the
black box behavior of the Software will be provided in a white paper sanitized
of proprietary information to convey the expected performance behavior of the
Software.
9.08 DEVELOPER REPRESENTATIONS. Developer represents to Distributor that
it has full right and authority to enter into this Agreement. This Agreement
and Developer's performance hereunder, do not conflict with or cause a breach
under any agreement, license or other instrument, or law, rule, order or
regulation to which the Developer is bound or subject. Developer further
represents to Distributor that it has
PAGE 9
<PAGE> 10
good and valid title to the Software code and to grant the License, free and
clear of any claims, encumbrance, rights and obligations.
9.09 GOLD MASTER ESCROW. Developer shall from time to time place a true,
correct and complete gold master copy of the executable code of the Software
and all major revisions thereto with Data Base, Inc. as escrow agent, in
accordance with an industry standard escrow agreement approved by Distributor,
such approval not be unreasonably withheld or delayed. In the event that the
Developer goes into bankruptcy or insolvency and as a result thereafter fails,
refuses or is unable to provide the Software media to the Distributor in
accordance with orders placed by Distributor under Section 3 and does not cure
such failure within 20 days after notice by Distributor specifying the failure
and specifically stating that Distributor intends to obtain the Software from
the escrow agent, Developer hereby irrevocably directs such escrow agent to
deliver such gold master copy of the Software to the Distributor who shall use
such copy exclusively for use in accordance with the Agreement.
9.10 PRODUCT LIABILITY INSURANCE. Developer shall obtain (and during the
term of this Agreement shall maintain) product liability insurance with respect
to Software limited by $1,000,000 per occurrence and a maximum of $3,000,000
liability. Developer will name Distributor as an Additional Insured on such
policy and will utilize such insurance against any product liability claim with
respect to the Software. Distributor agrees to provide Developer with notice
of any such claim as promptly as possible and in any event within the time
periods required of an Additional Insured in accordance with the policy.
SECTION 10. TERM, RENEWAL AND TERMINATION
10.01 TERM. The License shall be for a term of three (3) years from the
earlier of (a) the date of first availability of the Software at any reseller
or (b) February 15, 1997 (the "Commencement Date") unless terminated earlier
under the provisions of this Agreement. This term shall automatically renew
for two (2) additional one (1) year periods provided Distributor has met the
Minimum Performance Requirements set forth in Section 2.05. Failure by
Distributor to meet the Minimum Performance Requirements shall not constitute a
breach of this Agreement. Failure of Distributor to obtain written approval of
the Letter of Credit described in 6.06 prior to December 20, 1996 shall give
Developer the option to terminate this Agreement.
10.02 CONVERSION TO NON-EXCLUSIVE DISTRIBUTORSHIP. In the event Distributor
fails to meet Minimum Performance Requirements of Section 2.05, Developer shall
have the option to make the License completely non-exclusive; provided
Distributor is notified at least three months before the Software will be
available in the Retail Channel via another party, such notice can be given
during the Distributor's exclusive period if reasonable projections indicate
likely failure to meet the Minimum Performance Requirements. In the event an
alternate source of the Software is in
PAGE 10
<PAGE> 11
the Retail Channel before the first anniversary of the Commencement Date, the
principal amount of the Letter of Credit (under Section 6.06) shall be reduced
by an amount equal to the Payment Amount referred to in Section 6.01 multiplied
by the unit sell through of such Software as reported in PC Data.
10.03 BREACH AND TERMINATION. Prior to terminating this Agreement,
requesting arbitration, filing suit or taking similar action upon a breach of
this Agreement by either party, the non-breaching party shall give the
breaching party notice of the basis for asserting such breach. If the
breaching party fails to cure such breach within thirty (30) days, and the
breach is a material breach, the non-breaching party may terminate this
Agreement. If the breach is the non-payment of any amounts due under this
Agreement, the breach shall be deemed to be a material breach, and the
breaching party shall have fifteen (15) days to cure such breach. Sections
8.02, 11, 12, 13 and 14 shall survive termination or expiration of this
Agreement for any reason.
10.04 WAIVER OF LIABILITY ON TERMINATION. Should this Agreement or any
portion thereof lawfully expire, terminate or not be renewed, neither party
will be liable to the other because of such event for reimbursement of costs or
expenses or for damages on account of the loss of prospective profits,
anticipated sales, goodwill or on account of expenditures, inventory,
investments, leases or commitment in connection with the business of Developer
or Distributor, or for any other reason whatsoever flowing from such event.
Such event shall not, however, relieve either party of any obligation incurred
before termination or of liability for breach of any of the provisions of this
Agreement. The parties hereby specifically waive, to the maximum extent
permitted by law, any claims for compensation damages arising out of the lawful
termination or expiration of this Agreement in accordance with its terms.
SECTION 11. PROPERTY RIGHTS
Distributor agrees that Developer owns all right, title and interest in the
Software now or hereafter subject to this Agreement, and in all patents,
trademarks, trade names, inventions, copyrights, know-how, trade secrets, and
any other proprietary information relating to the design, operation or
maintenance of the Software, all technology contained therein and the
SuperFassst! trademarks, and advertising, sales, marketing materials and
artwork that Developer creates in connection with the Software. The use by
Distributor of any of these property rights is authorized only for the purposes
set forth in this Agreement, and upon termination of this Agreement for any
reason such authorization shall cease except to the extent necessary for
Distributor to provide maintenance to its existing customers for the Software.
Software source code shall be disclosed by Developer to Distributor only in
Developer's sole discretion. Distributor shall own and at all times continue
to own copyright, trademarks and other intellectual property rights to such
names as
PAGE 11
<PAGE> 12
Distributor shall market SuperFassst! under and to all other advertising, sales
and marketing materials and artwork that Distributor creates in connection with
the Software.
SECTION 12. INDEMNIFICATION OF DEVELOPER
Distributor warrants that it will not make any false or misleading statements
to any End User or potential End User and also that it will not make any
representation or warranty to any customer outside the End User license
agreement. Distributor agrees, at its own expense, to defend and indemnify
Developer, if necessary, against any actions, liabilities, costs, damages,
claims, losses and expenses (including but not limited to attorney's fees)
arising out of Distributor's breach of this warranty. Distributor agrees to
provide Developer with notice of any such claim as promptly as possible.
SECTION 13. INDEMNIFICATION OF DISTRIBUTOR
Developer agrees to defend, indemnify and hold Distributor harmless from and
against any and all claims, demands, liabilities, actions, judgments, and
expenses, including attorney's fees and expenses reasonably incurred by,
against or of Distributor, arising out of any breach of Section 9.08 or any
product liability claim with respect to the Software. Distributor agrees to
provide Developer with notice of any such claim as promptly as possible.
SECTION 14. CONFIDENTIALITY
14.01 DEFINITION. "Confidential Information" shall mean any information,
idea, technology, know-how, invention, algorithm, data, process, technique,
program, computer software, computer code and related documentation,
work-in-process, future development, engineering, manufacturing, marketing,
business, technical, financial or personal matter relating to the parties,
their research, development, present or future products, sales, customers,
employees, opportunities, market, or business, whether in oral, written,
graphic or electronic form, that is treated as confidential by the respective
parties and identified as such at the time of disclosure to the other party. In
addition, the material terms and conditions of this Agreement shall be treated
as Confidential Information.
14.02 MAINTAINING CONFIDENCE. Developer and Distributor, their respective
officers, employees, agents, representatives, and permitted assigns shall hold
in confidence Confidential Information belonging to the other; and shall use
such Confidential Information only during the term of this Agreement and only
as expressly permitted herein. The material terms and conditions of this
Agreement shall be considered Confidential Information. Each party may disclose
such Confidential Information belonging to the other to its employees with a
need to know, provided that such employees are bound to maintain the
confidentiality of
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<PAGE> 13
such Confidential Information. Non-disclosure obligation shall not apply to
such information if the party can document (a) has entered the public domain
and is generally available to the public as a result of no act or omission of
the party or its employees or agents, (b) is lawfully received by the party
from third parties without restriction and without breach of any duty of non
disclosure by any such third party, or (c) is developed independently by the
party without reference to the Confidential Information. The parties shall use
reasonable efforts to identify and prevent any unauthorized use or disclosure
of Confidential Information, and shall advise each other in the event one party
learns or has reason to believe that any person has violated or intends to
violate the terms of this Agreement, and will cooperate in seeking injunctive
relief against such person.
SECTION 15. GENERAL
15.01 NO ASSIGNMENT. Subject to the provisions of Section 2.01 herein,
neither party may assign all or any part of its interest in or to this
Agreement without the written consent of the other party and any purported
assignment without such consent shall be void.
15.02 EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
15.03 NOTICES. All notices, requests, demands or directions relating to this
Agreement shall be in writing and delivered via courier addressed to the
appropriate party at the address of such party as set out below, or to such
other addresses as may be specified by one party to the other parties by notice
in writing. Any notice, request, demand, direction authorization or other
communication given shall be deemed to have been received by the party to whom
it was given on the third business day following the sending thereof by
courier.
If to Developer: Acceleration Software International Corporation
1223 NW Finn Hill Road
Poulsbo, WA 98370, United States
If to Distributor: Syncronys Softcorp
3958 Ince Blvd.
Culver City, CA 90232, United States
15.04 ARBITRATION, JURISDICTION AND VENUE. Any controversy or claim between
the parties arising out of or relating to this Agreement or any alleged breach
thereof shall be resolved by arbitration conducted in greater Seattle,
Washington in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect by a single arbitrator knowledgeable
about the development, distribution and licensing of computer software. Either
party may
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<PAGE> 14
submit such controversy or claim for arbitration by giving written notice. The
arbitrator shall apply the law of the State of California as more fully set
forth in Section 15.05. The decision of the arbitrator, including, without
limitation, with respect to specific performance of this Agreement shall be
final and binding upon the parties. The parties may seek from the court a
provisional remedy in connection with an arbitrable controversy or claim and
such application to the court shall not waive any right of arbitration. The
prevailing party in any such arbitration shall be entitled to recover from the
non prevailing party in addition to all other relief, all reasonable costs and
expenses, including, without limitation, attorneys fees and expert witness
fees, actually incurred by such party in connection with such arbitration. Each
of the parties, by executing this Agreement, unconditionally submits to the
jurisdiction of the courts of the State of Washington and of the United States
with respect to the enforcement of this provision or any arbitration award
hereunder and agrees to accept service of process in California.
15.05 CHOICE OF LAW. This Agreement shall be governed by and construed under
the laws of the State of California without regard to conflict of laws
principles or the U.N. Convention on Contracts for the International Sale of
Goods.
15.06 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, whether written
or oral, made between the parties hereto, and there do not exist any
representations, warranties, terms or conditions, expressed or implied,
statutory or otherwise, and no agreements collateral hereto, other than as
expressly set forth or referred to in this Agreement.
15.07 INUREMENT. This Agreement and each of the terms and provisions hereof
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns.
15.08 SEVERABILITY. If any one or more of the provisions contained in this
Agreement should be invalid, illegal or unenforceable in any respect in any
jurisdiction, the validity, legality and enforceability of such provision or
provisions shall not in any way be affected or impaired thereby in any other
jurisdiction and the validity, legality and enforceability of the remaining
provisions contained herein shall not in anyway be affected or impaired
thereby.
15.09 FURTHER ASSURANCES. The parties hereto shall with reasonable diligence
do all such things and provide all such reasonable assurances as may be
required to consummate the transactions contemplated hereby, and each party
hereto shall provide such further documents or instruments required by the
other party as may be reasonably necessary or desirable to effect the purpose
of this Agreement and carry out its provisions.
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<PAGE> 15
15.10 NO JOINT VENTURE. Neither party hereto shall use the name, trademark or
other identification of the other party in any manner except as authorized by
the other party. Nothing contained herein shall be construed to (a) give
either party the power to direct or control the day-to-day activities of the
other or (b) constitute the parties as partners, joint ventures, co-owners or
otherwise as participants in a joint or common undertaking. All financial
obligations associated with each party's business is the sole and exclusive
responsibility of that party. Distributor shall not constitute, and shall take
no action which would cause it to be treated as, a "permanent establishment" of
Developer within the meaning of the tax laws of any country.
IN WITNESS WHEREOF, the parties have entered into this Agreement effective as
of the date provided above.
SYNCRONYS SOFTCORP
___________________________________________________
Per: Daniel G. Taylor, EVP - Marketing
ACCELERATION SOFTWARE INTERNATIONAL CORPORATION
___________________________________________________
Per: Clint L. Ballard, C.E.O.
PAGE 15
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
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<SECURITIES> 0
<RECEIVABLES> 743,504
<ALLOWANCES> 0
<INVENTORY> 153,093
<CURRENT-ASSETS> 6,322,844
<PP&E> 122,115
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<TOTAL-ASSETS> 7,542,738
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<BONDS> 9,395,865
0
0
<COMMON> 1,723
<OTHER-SE> (5,978,178)
<TOTAL-LIABILITY-AND-EQUITY> (5,976,455)
<SALES> 733,212
<TOTAL-REVENUES> 733,212
<CGS> 145,578
<TOTAL-COSTS> 3,943,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 593,684
<INCOME-PRETAX> (3,180,702)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,180,702)
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