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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1998
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 May 13, 1998 there were 25,360,768 shares of the Issuer's Common
Stock, $.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TOTAL PAGES IN THIS REPORT: 14
NO EXHIBITS ARE FILED WITH THIS REPORT
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SYNCRONYS SOFTCORP
FORM 10-QSB
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements........................................ 3
Balance Sheet............................................... 3
Statements of Operations
Three months ended March 31, 1997 and 1998.................. 4
Nine months ended March 31, 1997 and 1998................... 5
Statements of Cash Flows
Nine months ended March 31, 1997 and 1998................... 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 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)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1998
------------
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 542,014
Trade accounts receivable, net............................ 231,637
Inventories, net.......................................... 250,372
Other receivables, net.................................... 296,060
Prepaid expenses and other current assets................. 199,115
------------
Total current assets.............................. 1,519,198
Property and equipment, at cost, net........................ 118,785
Amounts due from related parties, principally officers...... 79,500
------------
$ 1,717,483
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable.................................... $ 2,580,876
Accrued expenses.......................................... 1,195,401
Loan payable.............................................. 1,043,521
------------
Total current liabilities......................... 4,819,798
------------
Convertible debentures...................................... 120,077
Stockholders' deficit:
Preferred stock, $.001 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; 25,360,768 shares issued and outstanding....... 2,536
Additional paid in capital................................ 21,050,756
Accumulated deficit....................................... (24,275,686)
------------
Total stockholders' deficit....................... (3,222,392)
------------
$ 1,717,483
============
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net revenues................................................ $ 3,231,415 $ (309,106)
Cost of revenues............................................ 881,083 58,693
----------- -----------
Gross profit (loss)............................... 2,350,332 (367,799)
----------- -----------
Operating expenses:
Research and development.................................. 527,367 135,638
Marketing and selling..................................... 878,145 1,072,270
General and administrative................................ 705,215 788,176
----------- -----------
Total operating expenses.......................... 2,110,727 1,996,084
----------- -----------
Operating profit (loss)........................... 239,605 (2,363,883)
Other income (expense):
Interest income........................................... 39,042 9,394
Interest expense.......................................... (178,201) (34,344)
Amortization of discount on convertible debentures charged
to interest expense.................................... -- (31,110)
Other..................................................... 290,422 1,524
----------- -----------
Total other income (expense)...................... 151,263 (54,536)
----------- -----------
Income (loss) before income taxes................. 390,868 (2,418,419)
Income taxes................................................ -- --
----------- -----------
Net income (loss)................................. $ 390,868 $(2,418,419)
=========== ===========
Basic and diluted net earnings (loss) per share............. $ .02 $ (.09)
=========== ===========
Number of common shares used in computation of net earnings
(loss) per share.......................................... 19,307,892 25,360,768
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net revenues................................................ $ 3,964,627 $ 714,674
Cost of revenues............................................ 1,026,661 473,707
----------- -----------
Gross profit................................................ 2,937,966 240,967
----------- -----------
Operating expenses:
Research and development.................................. 1,736,752 562,386
Marketing and selling..................................... 2,410,777 2,650,977
General and administrative................................ 1,906,421 1,819,958
----------- -----------
Total operating expenses.......................... 6,053,950 5,033,321
----------- -----------
Operating loss.................................... (3,115,984) (4,792,354)
Other income (expense):
Interest income........................................... 193,457 42,913
Interest expense.......................................... (771,885) (140,304)
Amortization of discount on convertible debentures charged
to interest expense.................................... (621,862) (464,208)
Income from insurance settlement.......................... 750,000 --
Write-off of investment in Veritas Technology Solutions,
Ltd.................................................... -- (456,771)
Other..................................................... 154,578 1,524
----------- -----------
Total other expense............................... (295,712) (1,016,846)
----------- -----------
Loss before income taxes.......................... (3,411,696) (5,809,200)
Income taxes................................................ -- --
----------- -----------
Net loss.......................................... $(3,411,696) $(5,809,200)
=========== ===========
Basic and diluted net loss per share........................ $ (.18) $ (.23)
=========== ===========
Number of common shares used in computation of net loss per
share..................................................... 19,307,892 25,360,768
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,411,696) $(5,809,200)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of discount on convertible debentures
charged to interest expense........................... 621,862 464,208
Depreciation and amortization.......................... 241,035 54,801
Accrued interest....................................... 771,886 140,304
Non-cash expense related to the issuance of stock
options............................................... 238,670 --
Write-off of investment in Veritas Technology
Solutions, Ltd........................................ -- 456,771
Changes in operating assets and liabilities:
Trade accounts receivable.............................. (3,026,810) 2,871,889
Other receivables...................................... 2,276,736 (75,772)
Income tax refund receivable........................... 903,112 --
Inventories............................................ (252,839) 651,785
Prepaid expenses and other current assets.............. (46,085) 5,493
Trade accounts payable................................. 537,368 559,167
Accrued expenses....................................... (2,351,543) (650,635)
Product recall liability............................... (2,961,757) (85,000)
Deferred revenue....................................... -- (2,525,000)
----------- -----------
Net cash used in operating activities............. (6,460,061) (3,941,189)
----------- -----------
Net cash used in investing activities -- capital
expenditures.............................................. (53,947) (23,067)
----------- -----------
Net cash provided by financing activities:
Proceeds provided from loan payable....................... -- 1,000,000
Issuance of common stock, net............................. -- 2,107,148
----------- -----------
Net cash provided by financing activities.............. -- 3,107,148
----------- -----------
Net decrease in cash and cash equivalents......... (6,514,008) (857,108)
Cash and cash equivalents at beginning of period............ 10,027,386 1,399,122
----------- -----------
Cash and cash equivalents at end of period.................. $ 3,513,378 $ 542,014
=========== ===========
Supplemental disclosure of non-cash activities:
Convertible debentures including accrued interest
converted to equity during period................... $ 5,216,344 $ 1,634,178
Acquisition of Veritas Technology Solutions Ltd. -- a
stock for stock purchase recorded at the fair market
value of shares issued on the date of issuance...... 400,000 --
</TABLE>
See accompanying notes to financial statements.
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SYNCRONYS SOFTCORP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997 AND 1998
1. BASIS OF PRESENTATION
The accompanying interim financial statements of Syncronys Softcorp (the
"Company") at March 31, 1998 and for the three and nine months ended March 31,
1997 and 1998 are unaudited and reflect all adjustments, consisting of normal
recurring adjustments as well as additional adjustments, principally the
write-off of $832,984 of accounts receivable that may not be collected due to
sales returns and price protection allowed, which adjustments are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. Certain information and footnote disclosures have
been either condensed or omitted in accordance with the rules and regulations of
the United States Securities and Exchange Commission. 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 and nine
months ended March 31, 1998 are not necessarily indicative of the results for
the entire year ending June 30, 1998.
2. BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE
Basic and diluted net earnings (loss) per share is based on the number of
common shares outstanding during each period. Common stock equivalents and
convertible debentures have been excluded from the computation for the quarters
ended March 31, 1998 and 1997, as their inclusion would be anti-dilutive.
3. LEGAL PROCEEDINGS
Part II of this report includes discussion of legal proceedings pertinent
to these financial statements.
4. ABILITY TO CONTINUE AS A GOING CONCERN
The Company's auditors issued a report on the financial statements for the
year ended June 30, 1997 which contained an explanatory paragraph referencing
their concerns over the Company's ability to continue as a going concern. As
discussed in note 2 to those financial statements, the Company has suffered
recurring losses from operations, generated negative cash flows, and has a
stockholders' deficiency at June 30, 1997. These matters raise substantial doubt
about the entity's ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
5. SALE OF SUBSIDIARY
The Company disposed of Veritas Technology Solutions, Ltd. ("Veritas"), its
wholly-owned development subsidiary in December 1997, by conveying its
shareholding to the former shareholders of Veritas. The write-off of this
investment resulted in an expense of $456,771.
6. YEAR 2000
The Company already has installed Year 2000 compliant software. The Company
presently believes that the Year 2000 issue will not pose operational problems.
However, Year 2000 issues could have a significant impact on the Company's
operations and its financial results if unforeseen needs or problems arise.
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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 licenses, develops and publishes software products. Products
currently in the market are: BigDisk, a disk utility program for Windows 95 that
manages multiple hard and logical drives; Zipper, a disk utility program for
Windows 95 and NT that zips and unzips files and email attachments; Windrenalin,
a disk utility program for Windows 95 that accelerates the launching of
applications; and EyeCatcher, a motion-detection program for Windows 95 that
detects and records activity and communicates that activity via fax, email and
telephone "alerts". The Company has sunset all of its remaining products. These
products include MacIntosh or PC/MacIntosh compatability products (RAM Charger,
CD-Speedster-Mac and MacAccess), encryption/security products (WinKrypt and Burn
It!), performance/monitoring products (CD-Speedster-PC and SoftRAM3) and
compilation products (Utility Belt).
The Company's development model is to license technology from independent
development firms on a royalty basis. A number of products are currently under
development under this model. The Company believes that this model provides it
with competitive advantages of enabling the Company to reduce development costs,
access a broader range of independent developers worldwide, and be more
responsive to rapidly changing industry trends. This model, however, could
result in lower profit margins due to payment of royalties to independent
development firms.
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
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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>
FY 1997 (DECREASE) FY 1998
---------- ---------- ---------
<S> <C> <C> <C> <C>
Net Revenues............... First Nine Months $3,964,627 (82)% $ 714,674
Third Quarter 3,231,415 >(100)% (309,106)
</TABLE>
During FY 1998, the Company's revenues decreased due to lower overall
volume, despite new product releases, which included Utility Belt, BigDisk,
EyeCatcher and Zipper. Net Revenues for the third quarter of FY 1998 were
negative because of substantial additional reserves for sales returns,
allowances, and price protection due to lower than anticipated sell-through
results.
Cost of Revenues
<TABLE>
<CAPTION>
FY 1997 (DECREASE) FY 1998
---------- ---------- --------
<S> <C> <C> <C> <C>
Cost of Revenues.............. First Nine Months $1,026,661 (54)% $473,707
Percentage of Net Revenues.... 26% 66%
Third Quarter 881,083 (93)% 58,693
27% n/a
</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 66% during FY 1998, from 26% in FY 1997, due to the
additional reserves (see Net Revenues above). The overall decrease in the cost
of revenues during the third quarter of FY 1998 is directly attributable to the
decrease in revenues.
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Research and Development Expenses
<TABLE>
<CAPTION>
FY 1997 (DECREASE) FY 1998
---------- ---------- --------
<S> <C> <C> <C> <C>
Research and Development
Expenses.................... First Nine Months $1,736,752 (68)% $562,386
Percentage of Net Revenues.... 44% 79%
Third Quarter 527,367 (74)% 135,638
16% n/a
</TABLE>
Research and development expenditures decreased significantly during the
first nine months and third quarter of FY 1998 compared with the same periods
during FY 1997. This is attributable to cost control measures and the Company's
development model of licensing technology from independent development firms on
a royalty basis.
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 whether the amounts are
significant enough to require capitalization. Through the end of the third
quarter of FY 1998, these amounts have not been deemed significant, and
substantially all software development costs have been expensed in the periods
incurred. None of the Company's research and development costs for FY 1997 or
1998 has been borne directly by the Company's customers.
Marketing and Selling Expenses
<TABLE>
<CAPTION>
FY 1997 INCREASE FY 1998
---------- -------- ----------
<S> <C> <C> <C> <C>
Marketing and Selling First Nine Months $2,410,777 10% $2,650,977
Expenses......................
Percentage of Net Revenues...... 61% >100%
Third Quarter 878,145 22% 1,072,270
27% n/a
</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 increased during both
the first nine months and third quarter of FY 1998, despite the positive effects
of the cost control measures that have been put in place, because of the
increased costs of upgrading the Company's marketing organization and, in the
third quarter of FY 1998, the introduction of a cash rebate program for a recent
product. It is not anticipated that cash rebates will be a recurring business
practice.
General and Administrative Expenses
<TABLE>
<CAPTION>
INCREASE
FY 1997 (DECREASE) FY 1998
---------- ---------- ----------
<S> <C> <C> <C> <C>
General and Administrative
Expenses.................. First Nine Months $1,906,421 (5)% $1,819,958
Percentage of Net
Revenues.................. 48% >100%
Third Quarter 705,215 12% 788,176
22% n/a
</TABLE>
General and administrative expenses remained relatively constant during the
first nine months and third quarter of FY 1998 compared with the same periods in
FY 1997. Although the Company's general and administrative expenses are to a
significant extent fixed in advance, the Company is continuing its efforts to
adjust spending in relation to the expected net revenues.
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Other Income (Expense), Net
<TABLE>
<CAPTION>
FY 1997 (DECREASE) FY 1998
--------- ---------- -----------
<S> <C> <C> <C> <C>
Other Income (Expense),
Net..................... First Nine Months $(295,712) >(100)% $(1,016,846)
Third Quarter 151,263 >(100)% (54,536)
</TABLE>
Other income and expense for the first nine 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. Other income and expense for the
third quarter of FY 1998 consists primarily of the amortization of the related
debt issuance costs and accrued interest on convertible debentures.
Net Loss
For the reasons outlined above, the Company realized a net loss of
$5,809,200 during the first nine months of FY 1998 as compared to a net loss of
$3,411,696 during the first nine months of FY 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 1998 was $542,014. Cash used in
operating activities during the first nine months of FY 1998 was $3,941,189. 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 has been extended and is currently due and
payable on September 30, 1998.
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 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
The Company's development model is to license technology from independent
development firms on a royalty basis. A number of products are currently under
development under this model. This model could result in lower profit margins
due to the payment of royalties to independent development firms. Further, there
can be no assurance that the Company will release any of the products currently
under development or that, if released, that such release will be on a timely
basis. Nor can there be any assurance that any products will achieve any
significant degree of market acceptance or that such acceptance, if attained,
will be sustained for any significant period. 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. There can be no
assurance that a market will develop for the Company's products, or that, if a
market does develop, that such products will be profitable or that
profitability, if attained, can be sustained. Failure to complete on a timely
basis, or lack of demand for existing or new products upon completion and
distribution, would have a material adverse effect upon the Company and such
adverse effect would be severe.
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 to expand its product offerings and to augment
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revenues from products introduced in prior years that have declined in revenue
prospects. The Company also depends on upgrades of its current products to
lengthen their respective life cycles. As well, the Company must also maintain
good relations with PC platform, operating system and peripheral equipment
vendors to enable it to develop and market competitive software 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 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, and 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. There can be no assurance that any of the Company's new
products will be free from defects, or that any such defects will not result in
a material adverse effect upon the Company's business, operating results and
financial condition.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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-PC products. The Company has
responded to such inquiries and believes that the performance of these products
supports its advertising claims. There can be no assurance, however, that this
matter will be resolved, or if resolved, will be resolved in a manner favorable
to the Company.
In September 1997, the Company and an officer were named as defendants in
an action commenced by PowerPro Software, Inc. ("PowerPro") 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. This action was settled
in February 1998, pursuant to which the Company paid PowerPro $15,000 and the
parties agreed to a royalty accounting.
In October 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 filed a counterclaim for damages
against Bindco. The parties entered into a settlement agreement which the
Company was unable to perform. Bindco is seeking leave to amend its complaint to
claim damages for breach of that agreement. The parties are currently in
settlement negotiations. There can be no assurance, however, that this matter
will be resolved, or if resolved, will be resolved in a manner favorable to the
Company.
In February 1998, the Company was named as a defendant in an action
commenced by CMP Media Inc. ("CMP") in the Superior Court of California, County
of Los Angeles Central District for payment of invoices between the Company and
CMP together with interest, attorneys fees and other costs. This action was
settled in May 1998, pursuant to which the Company will pay CMP approximately
$178,000 over twelve months, which liability has been accrued.
12
<PAGE> 13
In February 1998, the Company was named as a defendant in an action
commenced by International Data Group, Inc. ("IDG") in the Superior Court of
California, County of Los Angeles Central District for payment of invoices
between the Company and IDG together with interest, attorneys fees and other
costs. This action was settled in May 1998, pursuant to which the Company will
pay IDG approximately $228,000 over twelve months, which liability has been
accrued.
In March 1998, the Company was named as a defendant in an action commenced
by Network Associates, Inc. ("NAI") in the California Superior Court for the
County of Los Angeles seeking damages, interest, attorneys fees and other costs
relating to royalties on NAI products included within the Utility Belt
compilation product published by the Company. The parties have agreed in
prinicple to a settlement and are currently finalizing settlement papers. The
terms of this settlement provide that Syncronys will pay NAI $150,000 over three
months, which liability has been accrued.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
None filed with this report.
(b) REPORTS FILED ON FORM 8-K:
None filed with this report.
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)
/s/ RAINER POERTNER
--------------------------------------
Rainer Poertner
Chief Executive Officer
Date: May 15, 1998
14
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