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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-25736
SYNCRONYS SOFTCORP
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEVADA 33-0653223
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3958 INCE BOULEVARD 90232
CULVER CITY, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
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 2, 1998 there were 24,260,768 shares of the Issuer's Common
Stock, $.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TOTAL PAGES IN THIS REPORT: 13
NO EXHIBITS ARE FILED WITH THIS REPORT
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SYNCRONYS SOFTCORP
FORM 10-QSB
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Item 1. Financial Statements.......................................................... 3
Balance Sheet................................................................. 3
Statements of Operations
Three months ended December 31, 1996 and 1997................................. 4
Six months ended December 31, 1996 and 1997................................... 5
Statements of Cash Flows
Six months ended December 31, 1996 and 1997................................... 6
Notes to Financial Statements................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 8
PART II
OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings............................................................. 12
Item 5. Other Information............................................................. 13
Item 6. Exhibits and Reports on Form 8-K.............................................. 13
Signatures.................................................................... 14
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNCRONYS SOFTCORP
BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
ASSETS
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<S> <C>
Current assets:
Cash and cash equivalents.................................................... $ 1,244,414
Trade accounts receivable, net............................................... 1,117,427
Inventories, net............................................................. 294,394
Other receivables............................................................ 146,060
Prepaid expenses and other current assets.................................... 60,000
------------
Total current assets................................................. 2,862,295
Property and equipment, at cost, net........................................... 131,964
Unamortized debt issuance costs, excluding current portion..................... 31,110
Amounts due from related parties, principally officers......................... 79,500
------------
$ 3,104,869
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable....................................................... $ 2,260,185
Accrued expenses............................................................. 478,082
Product recall liability..................................................... 59,382
Deferred revenue............................................................. 201,939
Loans payable................................................................ 1,015,822
------------
Total current liabilities............................................ 4,015,410
------------
Convertible debentures......................................................... 313,432
Stockholders' equity (deficit):
Preferred stock, $.0001 par value. Authorized 10,000,000 shares; 2,000 shares
of Series A Convertible issued and outstanding............................ 2
Common stock, $.0001 par value. Authorized 75,000,000 shares; 24,085,804
shares issued and outstanding............................................. 2,409
Additional paid in capital................................................... 20,630,883
Accumulated deficit.......................................................... (21,857,267)
------------
Total stockholders' equity (deficit)................................. (1,223,973)
------------
$ 3,104,869
============
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net revenues...................................................... $ 606,020 $(1,558,042)
Cost of revenues.................................................. 133,618 47,587
----------- -----------
Gross profit (loss)..................................... 472,402 (1,605,629)
----------- -----------
Operating expenses:
Research and development........................................ 741,820 173,066
Marketing and selling........................................... 1,082,731 584,587
General and administrative...................................... 719,066 582,185
----------- -----------
Total operating expenses................................ 2,543,617 1,339,838
----------- -----------
Operating profit (loss)................................. (2,071,215) (2,945,467)
Other income (expense):
Amortization of discount on convertible debentures charged to
interest expense............................................. -- (375,017)
Income from insurance settlement................................ 750,000
Other........................................................... (271,127) (458,250)
----------- -----------
Total other income (expense)............................ 478,873 (833,267)
----------- -----------
Income (loss) before income taxes....................... (1,592,342) (3,778,734)
=========== ===========
Income taxes...................................................... -- --
----------- -----------
Net income (loss)....................................... $(1,592,342) $(3,778,734)
=========== ===========
Net earnings (loss) per share..................................... $ (.09) $ (.16)
=========== ===========
Weighted average number of common shares used in computation of
net earnings (loss) per share................................... 17,233,344 24,085,804
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
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Net revenues...................................................... $ 733,212 $ 1,023,780
Cost of revenues.................................................. 145,578 415,014
---------- ----------
Gross profit................................................. 587,634 608,766
---------- ----------
Operating expenses:
Research and development........................................ 1,209,385 426,748
Marketing and selling........................................... 1,532,632 1,578,707
General and administrative...................................... 1,201,206 1,031,782
---------- ----------
Total operating expenses..................................... 3,943,223 3,037,237
---------- ----------
Operating profit (loss)...................................... (3,355,589) (2,428,471)
Other income (expense):
Amortization of discount on convertible debentures charged to
interest expense............................................. (621,862) (433,098)
Income from insurance settlement................................ 750,000 --
Other........................................................... (575,113) (529,212)
---------- ----------
Total other income (expense)................................. (446,975) (962,310)
---------- ----------
Income (loss) before income taxes............................ (3,802,564) (3,390,781)
Income taxes...................................................... -- --
---------- ----------
Net income (loss)............................................ $(3,802,564) $(3,390,781)
========== ==========
Net earnings (loss) per share..................................... $ (.22) $ (.14)
========== ==========
Weighted average number of common shares used in computation of
net earnings (loss) per share................................... 17,233,344 24,085,804
========== ==========
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
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Cash flows from operating activities:
Net income (loss)............................................. $(3,802,564) $(3,390,781)
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...................................... 621,862 433,098
Depreciation and amortization.............................. 158,783 499,497
Accrued interest........................................... 593,684 105,960
Non-cash expense related to the issuance of stock
options.................................................. 195,518 --
Other...................................................... (157,962) --
Changes in operating assets and liabilities:
Trade accounts receivable.................................. (48,338) 1,986,099
Other receivables.......................................... 2,242,236 74,228
Income tax refund receivable............................... 336,373 --
Inventories................................................ (153,093) 607,763
Prepaid expenses and other current assets.................. (193,958) 144,608
Note receivable............................................ 48,890 --
Trade accounts payable..................................... 126,481 238,476
Accrued expenses........................................... (2,930,978) (1,367,953)
Product recall liability................................... (2,516,601) (25,618)
Deferred revenue........................................... -- (2,323,061)
----------- -----------
Net cash provided (used) in operating activities...... (5,479,667) (3,017,684)
----------- -----------
Net cash used in investing activities -- capital expenditures... (22,037) (24,172)
----------- -----------
Net cash provided in financing activities:
Proceeds provided from loan payable........................... -- 1,000,000
Issuance of common and preferred stock, net................... -- 1,887,148
----------- -----------
Net cash provided by financing activities.................. 2,887,148
----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... (5,501,704) (154,708)
Cash and cash equivalents at beginning of period................ 10,027,386 1,399,122
----------- -----------
Cash and cash equivalents at end of period...................... $ 4,525,682 $ 1,244,414
=========== ===========
Supplemental disclosure of non-cash activities:
Convertible debentures including accrued interest and
unamortized debt issuance costs converted to equity
during period............................................ $ 3,892,395
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1996 AND 1997
(1) BASIS OF PRESENTATION
The condensed financial statements of Syncronys Softcorp (the "Company")
for the three months ended December 31, 1996 and 1997 are unaudited and reflect
all adjustments, consisting of normal recurring adjustments as well as
additional adjustments, which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods presented. These
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for its fiscal year ended June 30, 1997. The results of operations for
the three months ended December 31, 1997 are not necessarily indicative of the
results for the entire year ending June 30, 1998.
(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 quarter ended December 31, 1997, as their inclusion would be anti-
dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following information should be read in conjunction with the financial
statements and the notes thereto, as well as the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" from
the Company's Annual Report on 10-KSB for its fiscal year ended June 30, 1997.
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, licenses and publishes software products, primarily
in the business utility category, designed to make PC's operate more
efficiently, effectively and securely. The Company currently has 12 products in
the marketplace and others in the development pipeline. Products currently in
the market are: (1) RAM Charger 3.0 which adds dynamic memory allocation for the
MacIntosh System 7.x; (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, a Windows 95 security program that enables users to lock data,
secure e-mail and search for intruders; (4) Burn It!, a file deletion utility
for Windows 95 and MacIntosh System 7x; (5) & (6) CD-Speedster (PC)and
CD-Speedster (Mac), CD-ROM caching programs for Windows 95 and 3.1x, and
MacIntosh System 7x, respectively; (7) Windrenalin, an acceleration launch
program for Windows 95; (8) SoftRAM3, a program that monitors system
performance, accelerates CD-ROM data access and undertakes dynamic RAM
compression for Windows 3.1x; (9) Utility Belt, a bundled product consisting of
eight Windows 95 utility software programs, six of which were licensed from
other software publishers; (10) EyeCatcher, a Windows 95 program that turns a PC
or PC-adapted video camera into a motion-detection security system providing
instant, real-time fax, e-mail and telephone "alert" delivery and/or replay of
recorded images triggered by custom pre-programmed cues or timing; (11) BigDisk,
a disk utility for Windows 95 that allows the PC to read all its hard drives as
one big drive and (12) Zipper, a powerful, yet easy-to-use ZIP archive
management utility for Windows 95 and Windows NT 4.0.
Utility Belt shipped at the end of June 1997. Eye Catcher and BigDisk both
shipped during the first quarter of fiscal year 1998 and Zipper shipped during
the second quarter of fiscal year 1998.
Entering fiscal 1998, Syncronys' business model has been refined so that
most of its new products are to be licensed on a royalty basis from outside
development firms to provide a steady stream of leading-edge software products
to capitalize on the Company's strong sales and marketing capabilities. This is
also intended to produce a substantial competitive advantage by allowing the
Company to: (1) access the most innovative and sophisticated software of
independent developers worldwide; (2) respond more quickly to rapidly
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changing trends in the industry by selecting advanced software technology that
is ready for timely introduction and; (3) greatly reduce development cost and
risk.
Syncronys in the second half of the 1997 fiscal year began to enter certain
overseas markets in Europe and Asia and believes these markets offer
considerable potential for incremental sales. Additionally, Syncronys expects to
begin to market its software technology to original equipment manufacturers and
corporate markets in fiscal 1998, two markets in which it has not historically
participated and which offer significant potential for incremental sales with
existing, or moderately adapted, technology which it already owns or licenses.
FLUCTUATIONS IN OPERATING RESULTS
The Company generally believes that its operating results for any quarter
are not necessarily indicative of results for any future period. The Company has
in the past experienced fluctuations in its quarterly operating results and
expects such fluctuations to continue, to varying and unpredictable degrees, in
the future. Factors that contribute to fluctuations in the Company's quarterly
operating results include the timing of new product introductions, competitive
offerings, product shipments, product returns, promotional programs, seasonality
and general economic conditions. In addition, quarterly operating results are
affected by changes in market acceptance and sales of existing products.
Historically, seasonality has not been a significant factor for the Company.
Moreover, because the Company generally ships its software products within
a short period after receipt of an order, it typically does not maintain a
material backlog of unfilled orders. As a result, revenues in any quarter or
other period are substantially dependent upon orders booked in that period.
Orders booked during any particular period are substantially dependent upon
numerous factors, including the scheduled release of new products and product
enhancements and updates by the Company and its competitors; the release or
anticipated release of complementary products by other software suppliers;
market acceptance of such products, enhancements and updates; delays in customer
orders in anticipation of industry developments and numerous other factors, many
of which are beyond the Company's control.
Accordingly, the Company's revenues are difficult to forecast and may vary
significantly from quarter to quarter. In addition the Company's expense levels
for each quarter are, to a significant extent, fixed in advance based upon the
Company's expectation as to the net revenues to be generated during that
quarter. The Company therefore is generally unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in net revenues.
Further as a result of these factors any delay in product introductions, whether
due to internal delays or delays caused by third party difficulties, or any
significant shortfall in demand in relation to the Company's expectations, would
have an almost immediate adverse impact on the Company's operating results and
on its ability to maintain profitability in a quarter.
While the Company's expenses are, to a significant extent, fixed in
advance, the Company is making efforts to adjust spending in relation to net
revenues until such time, if any, that new products are released and such new
products and/or current products gain market acceptance. However, there can be
no assurance that new products will be released by the Company, or if released
that such releases will be on a timely basis; or that any products will achieve
any degree of market acceptance or that such acceptance will be sustained for
any significant period; or that they will be profitable, or that profitability,
if any, can be sustained. Failure to complete new products on a timely basis, or
lack of demand for products upon completion and distribution, would have a
severe material adverse effect upon the Company.
RESULTS OF OPERATIONS
NET REVENUES
<TABLE>
<CAPTION>
INCREASE
FY 1997 (DECREASE) FY 1998
-------- ---------- -----------
<S> <C> <C> <C>
Net Revenues
First Six Months...................................... $733,212 40% $ 1,023,780
Second Quarter........................................ $606,020 (>100%) $(1,558,042)
</TABLE>
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During FY 1998, the Company's revenues increased because of new product
releases including Utility Belt, BigDisk, Eye Catcher and Zipper. Net Revenues
for the second quarter of FY 1998 were negative because of substantial
additional reserves for sales returns, allowances, and price protections due to
lower than anticipated sell-through results. Also, sales for the second quarter
of FY 1998 were less than the first quarter of FY 1998 due to the release of
only one product, Zipper.
COST OF REVENUES
<TABLE>
<CAPTION>
INCREASE
FY 1997 (DECREASE) FY 1998
-------- ---------- --------
<S> <C> <C> <C>
Cost of Revenues
First Six Months......................................... $145,578 >100% $415,014
Percentage of Net Revenues............................... 20% 41%
Second Quarter........................................... $133,618 (65%) $ 47,588
22% >100%
</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 41% during FY 1998, from 20% in FY 1997, due to the
additional reserves (see Net Revenues above). The overall decrease in the cost
of revenues during the second quarter of FY 1998 is directly attributable to the
decrease in net revenues.
RESEARCH AND DEVELOPMENT EXPENSES
<TABLE>
<CAPTION>
FY 1997 (DECREASE) FY 1998
---------- ---------- --------
<S> <C> <C> <C>
Research and Development Expenses
First Six Months....................................... $1,209,385 (65%) $426,748
Percentage of Net Revenues............................. >100% 42%
Second Quarter......................................... $ 741,820 (77%) $173,066
>100% >100%
</TABLE>
Research and development expenses as a percentage of net revenues decreased
to 42% during the first six months of FY 1998 because of an increase in net
revenues. The decrease in Research and development expenses during the second
quarter of FY 1998 is directly attributable to the decrease in revenues.
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
1998, 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 1997 or 1998 have been borne
directly by the Company's customers.
MARKETING AND SELLING EXPENSES
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<CAPTION>
INCREASE
FY 1997 (DECREASE) FY 1998
---------- ---------- ----------
<S> <C> <C> <C>
Marketing and Selling Expenses
First Six Months...................................... $1,532,632 3% $1,578,707
Percentage of Net Revenues............................ >100% >100%
Second Quarter........................................ $1,082,731 (46%) $ 584,587
>100% >100%
</TABLE>
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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 remained flat for the
first six months of FY 1998 as compared to the first six months of FY 1997.
Marketing and selling expenses were significantly less during the second quarter
of FY 1998, due to the decrease in revenues for the period.
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
FY 1997 (DECREASE) FY 1998
---------- ---------- ----------
<S> <C> <C> <C>
General and Administrative Expenses
First Six Months.......................................... $1,201,206 (15%) $1,031,782
Percentage of Net Revenues................................ >100% >100%
Second Quarter............................................ $ 719,066 (19%) $ 582,185
>100% >100%
</TABLE>
General and administrative expenses decreased during the first six months
and second quarter of FY 1998 due primarily to cost control measures. 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 the expected net revenues.
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
FY 1997 (DECREASE) FY 1998
--------- ---------- ---------
<S> <C> <C> <C>
Other Income (Expense), Net
First Six Months........................................ $(446,975) (>100%) $(962,310)
Second Quarter.......................................... $ 478,873 (>100%) $(833,267)
</TABLE>
Other income and expense for the first six months of FY 1998 consists
primarily of (1) the amortization of the related debt issuance costs (2) loss on
disposal of the Company's subsidiary, Veritas Technology Solutions, Ltd. and (3)
accrued interest on convertible debentures.
NET INCOME (LOSS)
For the reasons outlined above the Company realized a net loss of
$3,390,781 during the first six months of FY 1998 as compared to a net loss
of $3,802,564 during the first six months of FY 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1997 was $1,244,414. Cash used in
operating activities during the first six months of FY 1998 was $3,017,684. The
Company has used 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's $1,000,000 loan is due and payable on February 15, 1998. The
Company is currently renegotiating the terms of the agreement to extend the
payment date.
The Company has deferred revenues of $201,939 at December 31, 1997 for
products under guidelines of Statement of Financial Accounting Standards No. 48,
"Revenue Recognition when Right of Return Exists". Management believes that
potential return rates and price protection reserves for its products were not
yet reasonably estimable based upon information available to the Company at the
time the products were initially shipped. The deferred revenue billed is
included in trade accounts receivable at December 31, 1997. The Company may
recognize as revenue the deferred revenue for its products in future quarters of
FY 1998 as information with respect to potential returns and/or price protection
requirements, if any, becomes available.
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 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 that any such terms or
conditions
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of any such financing would be favorable to the Company. Should there be any
significant delays in the release of new products or should the Company's
working capital needs otherwise exceed its resources, the adverse consequences
would be severe. Both the management 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 the products already in retail distribution, the Company has
other new products under development.
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 favorable relations with vendors of PC platform, operating
system and peripheral equipment to enable it to develop and market competitive
software products.
The Company depends on the successful development of new products,
including both new titles and the adaptation of existing titles to new platforms
and technologies, in order 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.
The length of time required to develop the Company's in-house products and
product upgrades typically ranges from six to 24 months, as is common in the
software industry. The Company has, as is common in the industry, experienced
delays in the planned release of new products or product upgrades from one to 12
months as a result of development completion delays, 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 miss an important selling season and the
Company's expected return on its investment in the product could be materially
delayed or diminished.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
SETTLED MATTERS
In 1996, the Company was contacted by the Florida Attorney General's Office
which initiated a civil investigation relating to the SoftRAM product line. The
Company cooperated with this inquiry and subsequently, the Company made a
payment of $125,000 to the Florida Legal Affairs Revolving Trust Fund in full
settlement of the matter. The Company has been informed that the settlement
agreement has been approved by the Florida Attorney General's office and is
awaiting the Florida Attorney General's execution and return of that agreement.
PENDING MATTERS
In April 1997, the New York Attorney General's Office sent two letters
inquiring whether the Company could substantiate advertising claims made with
respect to its Windrenalin and CD Speedster products. The Company has responded
to such inquiries and follow-up inquiries and believes that the performance of
its Windrenalin and CD Speedster products supports the advertising claims. There
can be no assurance, however, that this matter will be resolved, or if resolved,
will be resolved in a matter favorable to the Company.
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In September 1997, the Company and an officer (Daniel G. Taylor) were named
as defendants in an action commenced by PowerPro Software, Inc. in the
California Superior Court for the County of Santa Clara seeking compensatory and
consequential damages, punitive and exemplary damages, interest, declaratory
relief as to royalties and vesting of options and mandatory relief arising from
a software license agreement between it and the Company. The Company is of the
view that this action is without merit and intends to vigorously defend it.
On October 30, 1997, the Company was named as a defendant in an action
commenced by BINDCO Corporation ("BINDCO") in the California Superior Court for
the County of San Mateo seeking compensatory and punitive damages, interest,
attorneys fees and other costs relating to purchase orders and invoices issued
between the Company and BINDCO. The company is reviewing the charges alleged in
this action and intends to vigorously defend it.
ITEM 5. OTHER INFORMATION.
DISPOSAL OF SUBSIDIARY SOFTWARE DEVELOPMENT COMPANY
During the second quarter the Company disposed of its subsidiary,
Syncronys, Israel. Formerly known as Veritas Technology Solutions, Ltd. This
represented a one-time loss of approximately $440,000 that has been fully
recognized in this quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None filed with this report
(b) Reports filed on Form 8-K: During the second quarter of FY 1998, the
Company filed one report on Form 8-K: Change In Registrant's Certifying
Accountant.
13
<PAGE> 14
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 13, 1998 /s/ RAINER POERTNER
--------------------------------------
Rainer Poertner
Chief Executive Officer
14
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