<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
---------------
Amendment No. 2
---------------
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: 16
NO EXHIBITS ARE FILED WITH THIS REPORT
1 of 17
<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
EXPLANATORY NOTE
- ----------------
This 10-QSB/A is being filed to amend the report on Form 10-QSB for
the period ended December 31, 1996 (the "Original Report") and to report the
restatement of certain financial information included in the Original Report.
In March 1997, the Securities and Exchange Commission issued a new
interpretation (the "Interpretation") for the accounting for convertible
preferred stock and convertible debt instruments issued with provisions
providing for conversion into common stock at a discount from the market price
of the common stock. The Interpretation provides that assured incremental yield
embedded in the conversion terms' discount from fair market value should be
accounted for as an additional interest expense in the case of convertible debt
and as a dividend to preferred shareholders in the case of convertible preferred
stock. Accordingly, the Company has restated its consolidated financial
statements for the year ended June 30, 1996 and for each of the two unaudited
quarters ended December 31, 1996. At December 31, 1996, compliance with the
Interpretation resulted in a non-cash charge to interest expense of $621,862,
and accounted for a $0.03 increase in the Company's loss per share for the six
months then ended.
The Company believes that all material adjustments to the Company's
previously reported financial statements necessary for compliance with the
Interpretation have been recorded. This 10-QSB/A includes only the changes
necessary to reflect the restatement of the financial statements included in the
Original Report, and does not address any other developments subsequent to the
date of the Original Report. For a discussion of other developments subsequent
to the date of the Original Report, including, but not limited to pending
litigation, registration of the Company's 1995 Stock Option Plan, changes in
management and acquisitions and licensing deals, see the Company's most recent
reports and other filings with the Securities and Exchange Commission.
2 of 17
<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 9,469,443
Preferred stock, $.0001 par value. Authorized
10,000,000 shares; zero shares issued and
outstanding.
Accumulated deficit (15,447,621)
------------
Total stockholders' deficiency (5,976,455)
------------
$ 7,542,738
============
</TABLE>
See accompanying notes to financial statements
3 of 17
<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 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
4 of 17
<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)
Amortization of discount on convertible
debentures charged to interest expense - (621,862)
Income from insurance settlement - 750,000
Other, net 7,044 (135,844)
----------- ----------
Total other income (expense) 53,577 (446,975)
----------- ----------
Income (loss) before income taxes 1,958,561 (3,802,564)
Income tax expense 777,615 -
----------- ----------
Net income (loss) $ 1,180,946 (3,802,564)
=========== ==========
Net earnings (loss) per share $ .08 (.22)
=========== ==========
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
5 of 17
<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 $(3,802,564)
Adjustments to reconcile net income (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 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
6 of 17
<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 common 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.
7 of 17
<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.
8 of 17
<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.
9 of 17
<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 FY 1996 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.
10 of 17
<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
>100% >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.
11 of 17
<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>
(Decrease)
FY 1996 Increase FY 1997
------- --------- --------
<S> <C> <C> <C> <C>
Other Income (Expense), First Six Months $53,577 >(100)% $(446,975)
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, the amortization of the
related debt issuance costs and a $621,862 non-cash charge to interest expense
related to the issuance of convertible debentures. 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 $3,802,564 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).
12 of 17
<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.
13 of 17
<PAGE> 14
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.
14 of 17
<PAGE> 15
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.
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.
15 of 17
<PAGE> 16
ITEM 2. CHANGES IN SECURITIES
During the quarter ended December 31, 1996 under the Company's 1995
Stock Option Plan (the "Plan") the Company granted incentive stock options to
purchase an aggregate number of 190,000 shares of Common Stock to several
employees and an officer and non-qualified stock options to purchase an
aggregate number of 140,000 shares of Common Stock to consultants to the Company
and an officer. All options granted under the Plan during the quarter ended
December 31, 1996 have been granted at exercise prices equal to the fair market
value at the date of grant with vesting provisions at varying intervals through
December 31, 1998.
Additionally, during the quarter ended December 31, 1996 the Company
granted 205,000 options to non-employees in exchange for certain product
licensing agreements and services. All options granted have been granted at
exercise prices equal to the fair market value at the date of grant with
vesting provisions varying through December 2001 based primarily on the
attainment of various contractual performance factors.
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 (formerly known as SuperFassst!), 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 -
Incorporated by reference to the Issuer's Form 10-QSB/A-1 filed May 5,
1997. (Portions of Exhibit 10.1 have been omitted pursuant to a request
for confidential treatment.)
(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.
16 of 17
<PAGE> 17
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
17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENTS OF OPERATIONS AND BALANCE SHEET AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,525,682
<SECURITIES> 0
<RECEIVABLES> 743,504
<ALLOWANCES> 0
<INVENTORY> 153,093
<CURRENT-ASSETS> 6,322,844
<PP&E> 122,115
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,542,738
<CURRENT-LIABILITIES> 4,123,328
<BONDS> 9,395,865
0
0
<COMMON> 1,723
<OTHER-SE> (5,978,178)
<TOTAL-LIABILITY-AND-EQUITY> (7,542,738)
<SALES> 733,212
<TOTAL-REVENUES> 733,212
<CGS> 145,578
<TOTAL-COSTS> 3,943,223
<OTHER-EXPENSES> 446,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,802,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,802,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,802,564)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
