UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-KSB

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
          THE SECURITIES EXCHANGE ACT OF 1934

              For the Fiscal Year Ended: December 31, 1998

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934

              For the Transition Period From ____ to ____
              
                  ---------------------------------------------
                         Commission File Number: 0-24109



                        SYNTHONICS TECHNOLOGIES, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


    UTAH                                                   87-0302620
------------------------------                          -----------------------
State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                            Identification No.)

31324 Via Colinas, Suite 106, Westlake Village, CA             91362
----------------------------------------------------    ------------------------
(Address of principal executive offices)                      Zip Code)


                                 (818) 707-6000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

     Securities Registrant pursuant to Section 12(b) of the Act:   None

     Securities registered pursuant to Section 12(g) of the Act:   
          
                          Common Stock, $0.01 Par Value
                          -----------------------------
                                (Title of Class)

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 12 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days. 
Yes [X] No [ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B is contained  in this form,  and no  disclosure  will be
contained  to the  best  of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     The issuer's revenues for the year ended December 31, 1998 were $512,217.

     The aggregate market value of the voting stock held by non-affiliates as of
$6,750,582,  computed based on the average of the bid and ask prices reported on
the OTC Bulletin Board, was $0.375.

     The number of shares  outstanding  of the  registrant's  common stock as of
December 31, 1998 was 19,951,279.

     Documents Incorporated by Reference:    None

     Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]

<PAGE>
                          SYNTHONICS TECHNOLOGIES, INC.

                                    FORM 10-KSB

                   For The Fiscal Year Ended December 31, 1998

                                      INDEX

                                                                          Page
                                     PART I

Item 1. Description of Business .........................................  1

Item 2. Description of Properties .......................................  8

Item 3. Legal Proceedings ...............................................  8 

Item 4. Submission of Matters to a Vote of Security Holders .............  9 


                                     PART II

Item 5. Market for Common Equity and Related  
        Stockholder Matters .............................................. 9

Item 6. Management Discussion and Analysis or Plan of Operation .......... 10

Item 7. Financial Statements ............................................. 12

Item 8. Changes in and Disagreements With Accountants on Accounting 
        and Financial Disclosures ........................................ 30

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control
        Persons; Compliance with Section 16(a) of the Exchange Act ....... 30

Item 10. Executive Compensation .......................................... 33

Item 11. Security Ownership of Certain Beneficial Owners and Management .. 35

Item 12. Certain Relationships and Related Transactions .................. 36

Item 13. Exhibits and Reports on Form 8-K ................................ 36

Signatures ..............................................................  40

                                       i


<PAGE>
                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

     General
     -------

     Synthonics Technologies,  Inc. (the "Company") provides both software tools
and  services  that  enable  the  creation  of  photo-realistic,  affordable  3D
graphical  content that is comprised of very small computer file sizes.  Ideally
suited for any application requiring Internet transfer of 3D content,  there are
no other  solutions  available that provide a comparable  cost/benefit  ratio in
meeting  3D  content  requirements  for  markets  such as  E-Commerce,  Distance
Learning, and Patient Medical Consultation.

     Virtually  all efforts to date by the Company  have been  focused on market
research,  technology  concept  definition,  technology  design,  and technology
validation.  The Company  embarked on the  commercialization  of its proprietary
technology during mid-1998.

     Synthonics Technologies, Inc., was organized under the laws of the State of
Utah on March 27, 1974, under the name "Columbine  Financial  Corporation."  The
Company  was  incorporated  for the  purpose  of  engaging  in the  real  estate
development  business in the State of Utah. No business  activities were engaged
in and the  company  became  inactive  and  remained  so until  1978 when it was
reactivated and commenced business in the State of California for the purpose of
originating  loans  on  swimming  pools  construction,   primarily  in  Southern
California. The loan origination business operations ceased in 1991. The Company
was  reclassified as a development  stage company and began seeking new business
opportunities believed to hold a potential profit.

     In  May,  1995  Synthonics  Incorporated,  a  California  Corporation,  was
acquired by the Company, then known as Columbine Financial Corporation by way of
a stock exchange  providing 4.5 shares of Columbine stock for every one share of
Synthonics  Incorporated  stock.  The  acquisition was completed in August 1995.
Columbine  Financial  Corporation was dormant,  but still fully  registered as a
public corporation at the time of the merger.  Synthonics  Incorporated  pursued
this merger as a method of  guaranteeing a means to enter into public trading of
its stock as soon as it was determined to be  strategically  desirable.  At this
time,  public  trading has  resumed.  A Form 211  pursuant  to Rule  15c-211 was
prepared and submitted by its market maker in order to resume trading.

     On  September  16,  1996,  the  Company  changed  its  name to  "Synthonics
Technologies,  Inc.  On  November 4, 1996,  the  Company  qualified  itself as a
foreign corporation in the State of California.

     Synthonics  Incorporated,  a  California  Corporation  (now a wholly  owned
subsidiary  of the Company) was founded in August 1993.  Its primary focus since
its founding has been to develop technology that will have an extremely positive
impact on any industry  where  success can be enhanced by improving  measurement
accuracy,   eliminating   dangerous   environments,   extending   human   vision
capabilities, or replacing animation with realism.

     Strategy
     --------

     The  operating   strategy  being  employed  by  Synthonics  was  chosen  to
facilitate  rapid  growth  while  optimizing  the use of  resources  within  the
Company. This strategic approach is also designed to result in maximum growth of
shareholder value. Simply stated,  Synthonics' operating objective is to rapidly
deploy  its  technological  advantage  into  many  diverse  markets  in order to
entrench  itself as the  standard  for  accurate  and  affordable  3D  graphical
content.  The  Company  has  identified  E-Commerce,   Architectural,   Distance
Learning,  and Accident/Crime  Scene Recreation as the primary target markets as
these will  benefit most from  affordable,  accurate,  and Internet  friendly 3D
graphical content.

                                     Page 1
<PAGE>
     In order to accomplish this mission,  Synthonics has embarked on a strategy
that provides the  marketplace  with the option of acquiring  either the content
generation tools through  strategic  partner  affiliations or the content itself
directly from  Synthonics.  Although  preferring to be a software tool provider,
the  Company  discovered,  while  doing its market  research,  that a very large
market exists for  completed,  but  customized,  3D graphical  content.  It also
determined  that by providing  content  directly it could reach several  markets
sooner,   thereby  validating  the  utility  of  the  technology  in  a  shorter
time-frame.  The Company believes that it will attract  strategic  partners in a
quicker  fashion by virtue of its ability to  demonstrate  market demand for its
patented technology.

     Synthonics  expects to receive most of its revenues  from the  licensing of
its software  tools and by the creation of 3D graphical  content for direct sale
to  end-users.  The Company's  primary goal is to provide 3D content  generation
tools  through  strategic  alliances  with brand name  software  tool  providers
currently  supplying the markets  listed above.  These  include  companies  that
provide Animation,  Multimedia Authoring, CAD, 3D Visualization,  Configuration,
and 3D Clip-Art  software.  By entering the market in this  fashion,  Synthonics
takes advantage of the  distribution  channel access already  established by its
strategic partner and it can remain focused on its core strengths --- technology
and business  development.  In some cases, it may be advantageous for Synthonics
to form a joint venture with its strategic partners.  This approach was taken by
the Company as it positioned  itself to service the Medical  Market.  Synthonics
could not find a suitable  product to align itself with,  so it chose to partner
with medical  professionals  to form  Acuscape  International,  Inc.  Synthonics
supplies  this  venture  with  technology  (via a license  agreement)  while its
partners  provide the management  expertise and capital  required to develop the
business.

     The secondary  focus of the business  model is to create and provide actual
3D graphical content. Synthonics determined that its ability to secure strategic
partners  quickly was  directly  related to an  established  credibility  in the
marketplace.  A decision to supply 3D content was selected as the most effective
approach to  accomplish  this  objective.  The museum market was selected as the
target of this direct  approach  due to the vast  market size and the  outspoken
need  on  behalf  of the  museum  industry  to  extend  the  benefits  of  their
collections  to  audiences  around the world.  Further,  the Company  decided to
target the prestigious  Smithsonian Institution as its initial customer in order
to leverage this  relationship  both inside and outside the museum industry.  To
implement this capability,  Synthonics  formed a wholly owned subsidiary  called
Christopher Raphael, Inc.

     Products and Services
     ---------------------

     Licensable  Software -- Thus far,  Synthonics  has developed a portfolio of
software  tools that can be used  separately  or  collectively  to  dramatically
reduce the cost of generating  photo-realistic  3D graphical  content.  Overall,
Synthonics  refers to this portfolio as Rapid Virtual  Reality(TM).  These tools
are available via a custom  license with  Synthonics.  Each license will provide
revenues  to the  Company in the form of  royalties,  maintenance  support,  and
unique capability development (if applicable). Current customers who have signed
license agreements include Evans & Sutherland, Acuscape International,  American
Digital Imaging and  KnowledgeLINK.  A brief  description of each tool available
for licensing is included below:

          3D Model  Generator  -- A tool  that  enables  the  construction  of a
          wireframe and the  photo-rendering of same starting with as few as two
          photographs  of an  object or  environment.  The  output  files can be
          exported to different formats including DXF, 3DS, and VRML 97.

          Single Object Viewer -- A tool that enables real time examination of a
          3D digital model  constructed by the 3D Model  Generator tool (above).
          The object can be viewed  from any  perspective,  sized to fit viewing
          need, measured, and converted to an anaglyph for stereoscopic viewing.

                                     Page 2
<PAGE>
          Multi-Object  Viewer  -- A tool that  enables  several  objects  to be
          present in the viewer at the same time. Thus, entire  environments can
          be altered or examined. Scenes can be rearranged, objects can be added
          or subtracted from a scene, or objects can be altered within a scene.

          Camera  Parameter  Tracking -- A tool that  precisely  determines  the
          position,  in free  space,  of the image  capture  device  (camera  or
          camcorder) in six degrees of freedom (x-axis,  y-axis,  z-axis,  tilt,
          rotation,  & azimuth)  with only the focal  length  and a three  point
          calibration target as input.  Knowing this information is essential to
          the accurate  projection of the third  dimension  from a 2D flat image
          such as a photograph.

          Morphing Editor -- A tool that enables very rapid wireframe generation
          by morphing a  "standard"  wireframe of similar  shape by  introducing
          several landmark data points to the editor.  Thus difficult shapes can
          be  altered  instantaneously  from the  standard  to create  custom 3D
          digital models containing all the "one-of-a-kind" traits of the object
          of concern.

          Optical  Tape  Measure  -- A  tool  that  enables  extremely  accurate
          measurements   of  complex   shapes  in  very  little  time  by  using
          photogrammetry.  Overcomes  the  problems  of  access  to  an  object,
          mobility  of an  object,  complexity  of shape,  and  firmness  of the
          surface  of  the  object  which  are  inherent  to  all  sophisticated
          measurement  devices,  including laser scanners,  optical comparators,
          mechanical digitizers, and survey range finding equipment.

          Anaglyph   Generation  --  A  tool  that  enables  a  pair  of  stereo
          photographs  to be quickly  converted to an anaglyph which allows full
          depth perception  viewing with the assist of red and blue glasses worn
          by the  viewer.  The  images  can be  output to  devices  as simple as
          red/blue glasses or as sophisticated as total immersion headsets.

          3D Stereo Movie Maker -- A tool that enables  stereo video  capture to
          be  quickly  converted  to a series of  anaglyphs  that play as a full
          depth  movie  with  the  assist  of red and blue  glasses  worn by the
          viewer.  The images  can be output to  devices  as simple as  red/blue
          glasses or as sophisticated as total immersion headsets.

          File Converter -- A tool that provides file format conversion  between
          Synthonics' tools and popular software tool formats.

          M-PEG  Converter -- A tool that enables an efficient means of reducing
          movie film file sizes.

     3D Content  Creation - Synthonics has installed the in-house  capability to
create custom 3D digital models of objects and  environments for those customers
that need this type content but have no intent on incorporating a model building
capability.  Synthonics uses its own proprietary  software to produce the custom
3D graphical content. DVDs, CD-ROMs, websites, interactive kiosks, or individual
3D models are all within the  capability of  Synthonics as it has  established a
network of sub-contractors to provide much of these services. These services are
quoted on a contract basis and the terms vary depending on the customer's needs.
To date,  customers  of this service  include the  Smithsonian  Institution  and
Centro Alameda, Inc.

     Packaged   Software  -  Synthonics  also  has  packaged  software  products
available as products.  These are products that consumers can purchase  directly
from the Company or through authorized distributors.  Each of these products and
their current status are described below:

          The Smithsonian  Museum  Collection - Synthonics  produced this CD-ROM
          for the Smithsonian and now receives a percentage of revenue from each
          CD-ROM sold.  The CD contains  over one hundred  hours of  interactive
          viewing enjoyment and is categorized as "family  edutainment".  The CD
          is   currently   available   through   all   Smithsonian   Institution
          distribution  channels  and  the  Company  is now  negotiating  with a
          national   distributor  to  take  the  CD  into  traditional  consumer
          channels.

                                     Page 3
<PAGE>
          Webmaster's  3D  Link - This  product  enables  easy  inclusion  of 3D
          interactive content on any existing website. The package includes a 3D
          viewer, a virtual  showroom or gallery,  and custom 3D digital models.
          This product is available directly from the Company.

          3D Maker - This product  enables the easy  creation of anaglyphs  from
          two  photographs.  This product will be available for purchase  during
          the second quarter of 1999.

          Optical  Architect - This product enables the creation of a 3D digital
          replication of any type building from simple photographs. This product
          will be available for purchase during the third quarter of 1999.

     The competitive advantage provided by all Synthonics' products and services
is the  ability to produce  photo-realistic  3D content at a cost far below that
required for traditional  process creation.  In addition,  the file sizes are so
small that the 3D content can easily be transferred  over the Internet making it
ideal for E-Commerce and Distance Learning applications as well as many others.

     Patents 
     -------

     Synthonics  believes  its  technology  to be  unique  in its  approach  and
application. The Company is dedicated to the protection of its trade secrets and
source code through tight security,  the advancement of the technology,  and the
establishment of strong patent protection. Therefore, the Company has retained a
prominent  legal firm to develop  and submit  patent  applications  for  several
technologies that the Company views as patentable.  To date the Company has been
granted six U.S. Patents. A brief description is included below:

<TABLE>
<CAPTION>
U.S. Patent #       Title                              Issue Date          Description
-------------       ------------------------           ----------          -----------     
<S>                 <C>                                <C>                 <C>                 
#5,661,518          Methods and apparatus              August 26, 1997     Anaglyph generating technique that
                    for the creation and                                   minimizes eye strain and color loss.
                    transmission of 3D images                              Technique for aligning two images for
                                                                           stereo viewing.

#5,699,444          Methods and apparatus for using    December 16, 1997   Able to precisely locate camera
                    image data to determine camera                         within six degrees of freedom
                    location and orientation                               (x-axis, y-axis, z-axis, tilt,
                                                                           rotation, and azimuth) in free 
                                                                           space with only a 3 point calibration  
                                                                           target and knowledge of the camera 
                                                                           focal length.  Greatly  reduces the 
                                                                           cost of 3D content generation.

#5,742,291          Method and apparatus for           April 21, 1998      Technique for morphing a baseline 3D
                    creation of three-dimensional                          wireframe into a new shape.  Greatly
                    images                                                 speeds up the process of generating
                                                                           unique 3D wire frames.

#5,742,330          Methods and apparatus for the      April 21, 1998      Technique for minimizing disturbances
                    creation and transmission of                           and to compensate for underexposure
                    3-dimensional images                                   when transmitting 3D color television
                                                                           images.  Will benefit high definition
                                                                           transmissions.

#5,748,199          Method and apparatus for           May 5, 1998         Technique for constructing wire
                    converting a two-dimensional                           frames of object from frames of 2D
                    motion picture into a                                  movie film and then
                    three-dimensional motion picture                       photo-realistically rendering.
                                                                          
                                                                           Enables original blockbuster
                                                                           2D movies to be converted to 3D 
                                                                           virtual  reality  experiences  without
                                                                           re-shooting movie.

#5,793,372          Methods and apparatus for          August 11, 1998     Technique that accurately and rapidly
                    rapidly rendering                                      aligns the photo-texture on the 3D
                    photo-realistic surfaces on                            wire frame.  Enables inexpensive,
                    3-dimensional wire frames                              realistic appearing 3D graphical
                    automatically using user defined                       content to be generated.
                    points
</TABLE>

                                     Page 4
<PAGE>
     Several   additional   patent   applications  are  currently  pending  both
internationally  and in the United  States.  Although  the Company  believes its
patent position to be strong,  the extent, to which patents provide a commercial
advantage or inhibit the development of competing products varies.

     Employees
     ---------          

     At February 28, 1999, the Company had six full time employees, none of whom
are covered by a collective  bargaining  agreement.  The Company  considers  its
relationship with its employees to be good.

     Research and Development
     ------------------------

     The Company  invests  significantly  in the development of products for new
applications.  Only  patent  related  costs are  capitalized.  All other  costs,
including  salaries and wages of employees included in research and development,
are expensed as incurred. Most of the Company's research and development efforts
are in  connection  with  the  advancement  of  its  Rapid  Virtual  Reality(TM)
technology.

     Raw Materials
     -------------

     As a software development company, Synthonics has no significant dependence
on raw materials.  For the Smithsonian  CD-ROM, the product does include package
materials comprised of paper goods, red/blue glasses and a plastic disk. All are
standard materials readily available from multiple sources.

     Risk Factors
     ------------

     Forward Looking Statements.  When used in this Registration Statement,  the
words or phrases "will likely result",  "are expected to", "will continue",  "is
anticipated",  "estimate",  "projected", "intends to" or similar expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including but not limited to market conditions,
competition,  factors  affecting the  Company's  ability to implement its growth
strategy,  the  Company's  dependence  on  future  financing,   fluctuations  in
operating   results,   the  Company's  ability  to  sustain  levels  of  growth,
diversification of the Company's  business,  contingent risks, state and federal
regulation and licensing  requirements,  and  environmental  concerns that could
cause the Company's  actual results to differ  materially  from those  presently
anticipated or projected.  Such factors,  which are discussed in "Risk Factors,"
"Business" and "Management's  Discussion and Analysis of Financial Condition and
Results of Operations" and the notes to consolidated financial statements, could
affect the Company's financial  performance and could cause the Company's actual
results for future periods to differ  materially from any opinions or statements
expressed with respect to future periods in this  Registration  Statement.  As a
result  all  parties  are  cautioned  not to place  undue  reliance  on any such
forward-looking statements,  which speak only as of the date made. The Company's
independent   accountants   have  not  examined  or  compiled  the  accompanying
forward-looking  statements  and  accordingly  do not provide any assurance with
respect to such statements.

     The  Company's  present and  proposed  business  operations  will be highly
speculative  and  subject  to the same  types of  risks  inherent  in any new or
unproven venture,  as well as risk factors particular to the industries in which
it will  operate,  and will  include,  among other  things,  those types of risk
factors outlined below.

     Developmental  Stage Company.  The Company was only recently  organized and
has only a limited  operating  history.  Although the Company and the  Company's
operating  subsidiaries do have limited operating  experience,  they too must be
deemed to be developmental stage companies.  Taken together, the Company and its
subsidiaries must be considered to be in an early formative stage.  There can be
no assurance that the Company's  business plans will prove  successful,  or that
the Company or its wholly-owned subsidiaries will be able to operate profitably.

     Competition.  There are numerous corporations,  firms and individuals which
are engaged in the type of business activities in which the Company is presently
engaged.  Many of those entities are more experienced and possess  substantially
greater  financial,  technical and personnel  resources  than the Company or its
subsidiaries.  While the  Company  hopes to be  competitive  with other  similar
companies, there can be no assurance that such will be the case.

                                     Page 5
<PAGE>
     Limited and Volatile Market for Common Stock. The Company's common stock is
quoted on the OTC  Bulletin  Board of the  National  Association  of  Securities
Dealers, Inc. (the "NASD") under the symbol "SNNT",  however, there is a limited
and  thinly  traded  trading  market  for the  common  stock and there can be no
assurance that an active market will ever develop or be  maintained.  Any market
price for shares of common  stock of the Company is likely to be very  volatile,
and numerous  factors  beyond the control of the Company may have a  significant
effect. In addition, the stock markets generally have experienced,  and continue
to  experience,  extreme price and volume  fluctuations  which have affected the
market price of many small capital companies and which have often been unrelated
to  the  operating   performance   of  these   companies.   These  broad  market
fluctuations,  as  well  as  general  economic  and  political  conditions,  may
adversely  affect the market price of the  Company's  common stock in any market
that may develop.

     Year 2000 Issues.  
     ----------------

     The Year 2000 presents concerns for business and consumer computing.  Aside
from the well-known problems with the use of certain 2-digit date formats as the
year changes from 1999 to 2000,  the Year 2000 is a special case leap year,  and
dates such as 9/9/99 were used by certain  organizations for special  functions.
The  problem  exists  for  many  kinds  of  software  and  hardware,   including
mainframes,  mini-computers,  PCs, and embedded systems. The consequences of the
Year 2000 issue may include systems failures and business process interruption.

     Even though none of the Company's  products use dates,  and therefore there
are no Year 2000 issues over which the Company has direct  control,  the Company
is continuing to test its products and gather and produce  information about the
Company impacted by the Year 2000 transition.

     The Year 2000 issue also affects the Company's  internal  systems,  such as
billing and word  processing.  The Company is  assessing  the  readiness  of its
systems  for  handling  the Year  2000,  and has  started  the  remediation  and
certification  process.  Although assessment,  testing, and remediation is still
underway,  management  currently  believes  that all  material  systems  will be
compliant  by the Year  2000 and that the  cost to  address  the  issues  is not
material.  Nevertheless,  the  Company  will be  creating  contigency  plans for
critical processes that rely on internal systems.
 
     Given that the Company's products operate on certain hardware platforms and
within certain software  operating  systems and  environments,  the Company must
rely upon the efforts of the hardware and software vendors and  manufacturers to
be in the vanguard with respect to OS and Platform  issues  relating to the Year
2000 compliance. The Company is undertaking steps to identify and assess whether
hardware and software vendors and manufacturers have brought their products into
Year 2000 compliance, or if any of its customers, suppliers or service providers
will be so affected.  The Company will with its key vendors,  distributors,  and
direct  resellers to avoid any business  interruptions  in 2000.  Failure of the
Company's  software resulting from a hardware or software vendor to be Year 2000
compliant, or that of its customers, suppliers or service providers could have a
material  adverse  impact on the  Company's  business,  financial  condition and
result of operations.

                                     Page 6
<PAGE>
     Risks of "Penny  Stock."  The  Company's  common  stock may be deemed to be
"penny  stock"  as  that  term is  defined  in Reg.  Section  240.3a51-1  of the
Securities and Exchange Commission.  Penny stocks are stocks (i) with a price of
less than five  dollars  per share;  (ii) that are not traded on a  "recognized"
national  exchange;  (iii) whose  prices are not quoted on the NASDAQ  automated
quotation system  (NASDAQ-listed  stocks must still meet requirement (i) above);
or (iv) of an issuer with net  tangible  assets less than  US$2,000,000  (if the
issuer  has  been  in  continuous   operation  for  at  least  three  years)  or
US$5,000,000  (if in continuous  operation  for less than three years),  or with
average annual revenues of less than US$6,000,000 for the last three years.
                                  
     Section 15(g) of the 1934 Act and Reg. Section  240.15g-2 of the Commission
require  broker-dealers  dealing in penny stocks to provide potential  investors
with a document  disclosing  the risks of penny  stocks and to obtain a manually
signed  and  dated  written  receipt  of  the  document  before   effecting  any
transaction in a penny stock for the investor's account.  Potential investors in
the  Company's  common  stock  are  urged to  obtain  and read  such  disclosure
carefully before purchasing any shares that are deemed to be "penny stock."

     Moreover,  Reg. Section 240.15g-9 of the Commission requires broker-dealers
in penny stocks to approve the account of any investor for  transactions in such
stocks before selling any penny stock to that investor.  This procedure requires
the broker-dealer to (i) obtain from the investor information  concerning his or
her financial situation,  investment experience and investment objectives;  (ii)
reasonably  determine,  based on that  information,  that  transactions in penny
stocks are  suitable  for the  investor  and that the  investor  has  sufficient
knowledge and experience as to be reasonably  capable of evaluating the risks of
penny stock  transactions;  (iii) provide the investor with a written  statement
setting forth the basis on which the  broker-dealer  made the  determination  in
(ii) above;  and (iv) receive a signed and dated copy of such statement from the
investor,  confirming  that it  accurately  reflects  the  investor's  financial
situation,  investment  experience and investment  objectives.  Compliance  with
these  requirements  may make it more  difficult  for investors in the Company's
common stock to resell their shares to third parties or to otherwise  dispose of
them.

     Dependence  on Key  Employees.  Historically,  the Company has been heavily
dependent  on the  ability of its  founder,  Dr.  Charles S. Palm as well as its
President,  F. Michael Budd, to contribute  essential  technical and  management
experience.  In  the  event  of  future  growth  in  administration,  marketing,
manufacturing and customer support  functions,  the Company may have to increase
the depth and  experience  of its  management  team by adding new  members.  The
Company's success will depend to a large degree upon the active participation of
its key officers and employees.  Loss of services of any of the current officers
and directors  could have a significant  adverse  effect on the  operations  and
prospects  of the  Company.  There can be no  assurance  that it will be able to
employ  qualified  persons on acceptable  terms to replace  officers that become
unavailable.  

     Future Capital  Requirements;  Uncertainty of Future Funding. The Company's
plan of operation calls for additional  capital to facilitate growth and support
its long-term  development and marketing programs. It is likely that the Company
would need to seek  additional  financing  through  subsequent  future public or
private sales of its securities,  including equity  securities.  The Company may
also seek funding for the  development  and  marketing  of its products  through
strategic  partnerships and other arrangements with investment  partners.  There
can be no assurance, however, that such collaborative arrangements or additional
funds will be available when needed,  or on terms acceptable to the Company,  if
at all. Any such  additional  financing  may result in  significant  dilution to
existing stockholders.  If adequate funds are not available,  the Company may be
required to curtail one or more of its future programs.

                                     Page 7
<PAGE>
     Intense Competition and Rapid  Technological  Change. The industry in which
the Company operates is highly competitive, rapidly growing and the Company will
have to compete with a multitude of similar companies,  possessing substantially
greater  financial,  personnel,  technological  and marketing  resources.  It is
particularly  difficult  for small  independent  companies  to compete with such
major companies for recording artists,  radio air time and floor space for their
releases  in retail  outlets.  The  Company is not a  significant  factor in the
industry. There is no assurance that the Company will be able to compete in such
an environment.
             
ITEM 2. DESCRIPTION OF PROPERTY

     The Company does not own any real property.  The Company currently occupies
approximately  2,430 square feet of space where it maintains its  administrative
and  development  offices  which are  located at 31324 Via  Colinas,  Suite 106,
Westlake Village,  California 91362. The Company leases this space from Westlake
Village  Industrial Park.  Westlake Village Industrial Park is not affiliated in
any way  with  the  Company  and the  terms  of the  lease  were  negotiated  at
arms-length.  The current  lease expires on August 31, 1999.  Synthonics  has an
option to renew the lease for one year.

ITEM 3. LEGAL PROCEEDINGS

     The company was  involved in  litigation  in the  calendar  year 1997.  The
company was a party Plaintiff in the matter of Synthonics, Inc. v. 3rd Dimension
Technologies,  Inc. and Affiliated  Defendants,  Los Angeles Superior Court Case
no.  LC-041882.  This matter was  concluded  favorably to the company.  All time
frames for appeal or new trial have  exhausted.  The judgment has become  final.
This matter  involved the company  prosecuting  an action  against 3rd Dimension
Technologies,  Inc. to protect the company's patent,  trademark and trade secret
interests in its three  dimensional  computer  software.  The relevant facts and
procedural history is as follows.

     The  action  grew out of a license  agreement  between  Synthonics  and 3rd
Dimension Technologies wherein 3rd Dimension was granted the right to distribute
Synthonics three-dimensional software known as 3D Expres and Express Mapper. The
software  programs perform three  dimensional  model creations and are used in a
number of industries,  including medical and dental practices,  aerial surveying
and mapping and the motion picture industry for animation  purposes.  Synthonics
maintains patents and copyright protection on all of their technologies.

     In February of 1997,  during a routine  check of the  Internet,  Synthonics
discovered numerous consumers were registering  complaints against 3rd Dimension
Technologies  for  various  business  practices.   Also,   consumers  registered
technical  complaints  regarding the software obtained from the distributor that
were unique to the programs  being  distributed  by 3rd Dimension  Technologies.
Further investigation by Synthonics found 3rd Dimension  Technologies  attempted
to fabricate the programs  creating  unauthorized  duplications  of the computer
software.  Synthonics immediately terminated the license agreement and conducted
an audit of the distributor.

                                     Page 8
<PAGE>
     To protect its property  rights in the  technologies  being violated by 3rd
Dimension  Technologies,  Synthonics  filed a four  count  civil  action  in the
Superior Court for the County of Los Angeles on July 23, 1997;  alleging  Breach
of Contract, Accounting for misappropriated gains in the unlawful duplication of
computer software,  Violations of California Business & Professions Code Section
17200,  fraudulent and unfair business practices and  Misappropriation  of Trade
Secrets.  On July 28, 1997 a temporary  Restraining Order was issued against 3rd
Dimension Technologies and all of their individual officers,  directors,  agents
and  employees  enjoining the same from copying,  duplicating  and  distributing
Synthonics  3D Expres  and  Express  Mapper  computer  software,  or  copying or
duplicating any technology  contained in the software.  The  Restraining  Orders
were confirmed into a Preliminary  Injunction  with  identical  prohibitions  on
September 5, 1997.  On January 8, 1998 a final  judgment was entered in favor of
Synthonics  and against 3rd  Dimension  Technologies  in the amount of $300,000.
Additionally,  the  trial  court  granted a  permanent  injunction  against  3rd
Dimension and all of its agents, servants, officers,  shareholders,  affiliates,
employees  and all those  individuals  or  entities  acting in concert  with 3rd
Dimension from copying,  duplicating and distributing Synthonics,  Inc. computer
software  or  the  technology  contained  in the  software.  The  injunction  is
enforceable with the contempt powers of the Superior Court. As stated above, the
judgment has become final. All illegal  competition and violations of Synthonics
rights  in its  computer  software  have been  halted.  The  entities  illegally
competing have been closed down. Finally, and most important to Synthonics,  the
integrity of the software was preserved.

     With the exception of the legal proceedings set forth above, the Company is
not presently a party to any  litigation,  claim,  or assessment.  Further,  the
Company is  unaware of any  unasserted  claim or  assessment,  which will have a
material effect on the financial position or future operations of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter  was  submitted  during the  fourth  quarter  of the fiscal  year
covered by this report to a vote of security  holders,  through the solicitation
of proxies, or otherwise.

                                    PART II.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

     The Company's  Common Stock is listed and traded on the OTC Bulletin  Board
under the symbol "SNNT".  There has been relatively  limited trading activity in
the Company's stock since inception. The following table represents the high and
low closing prices for the Company's Common Stock for each quarter of the fiscal
year ended December 31, 1998.

<TABLE>
<CAPTION>
          Fiscal 1999                   High           Low
          -----------------------------------------------------------
          <S>                           <C>            <C>    
          First Quarter                 $0.969         $0.469
          Second Quarter                $0.875         $0.531
          Third Quarter                 $0.938         $0.375
          Fourth Quarter                $0.689         $0.313         
</TABLE>

     There were  approximately  603  holders of record of the  Company's  Common
Stock and one holder of record of the Company's  Preferred  Stock as of December
31, 1998.

     The Company has never  declared or paid any cash  dividend on its shares of
Common Stock.

     Recent Sales of Unregistered Securities
     ---------------------------------------
     During the fiscal year ended December 31, 1998,  Synthonics  sold 1,742,892
shares of Common Stock to  approximately  36 purchasers,  with gross proceeds of
$652,271.  The Company  believes  all such sales were  exempt from  registration
under the  Securities  Act of 1933 by reason of Section 4 (2) and  Regulation  D
thereunder.  In addition,  holders of 40,000 shares of the  Company's  Preferred
Stock chose to exercise their conversion option for a total of 615,200 shares of
the Company's Common Stock.

                                     Page 9
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION RESULTS

     General
     -------          

     As of  December  31,  1998,  the  Company  had an  accumulated  deficit  of
$5,997,101.  It can be expected that the future operating  results will continue
to be subject to many of the problems,  expenses,  delays and risks  inherent in
the establishment of a new business enterprise, many of which the Company cannot
control.

     The Company has  formulated  its  business  plans and  strategies  based on
certain assumptions of the Company's management regarding the size of the market
for the  products  which  the  Company  will be able  to  offer,  the  Company's
anticipated share of the market,  and the estimated prices for and acceptance of
the Company's products.  The Company continues to believe its business plans and
the  assumptions  upon which they are based are valid.  Although these plans and
assumptions  are  based on the best  estimates  of  management,  there can be no
assurance  that these  assessments  will  prove to be  correct.  No  independent
marketing studies have been conducted on behalf of or otherwise  obtained by the
Company,  nor are any such studies planned.  Any future success that the Company
might enjoy will depend upon many factors, including factors which may be beyond
the  control of the Company or which  cannot be  predicted  at this time.  These
factors may  include  product  obsolescence,  increased  levels of  competition,
including the entry of additional  competitors and increased success by existing
competitors,  changes in general  economic  conditions,  increases  in operating
costs  including  cost of supplies,  personnel and  equipment,  reduced  margins
caused by competitive  pressures and other factors,  and changes in governmental
regulation imposed under federal, state or local laws.

     The Company's  operating results may vary significantly due to a variety of
factors including changing customers profiles,  the introduction of new products
by the Company or its competitors,  the timing of the Company's  advertising and
promotional  campaigns,   pricing  pressures,   general  economic  and  industry
conditions that affect customer demand, and other factors.

     Operation Results
     -----------------

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

     NET SALES  increased 18.5% for the year ended December 31, 1998 to $512,217
from  $417,574  for the year ended  December  31,1997.  The increase in sales is
mainly  attributed to the sale of the  Smithsonian  CD-ROM  released  during the
fourth quarter.  Synthonics  benefited from  significant  "pipeline fill" of the
distribution channel during the end of 1998. Due primarily to the launch of this
CD-ROM, sales during the fourth quarter amounted to $332,270. Other sales during
the year are a result of a 3D content  generation  contract with Centro Alameda,
Inc.  and  License  Agreements  with both  KnowledgeLINK  and  American  Digital
Imaging.

     GROSS  PROFIT  decreased  20.3%  in the year  ended  December  31,  1998 to
$121,662  from  $152,724 in the twelve  months ended  December  31, 1997.  Gross
profit as a percentage of sales also  decreased to 23.8% for the year just ended
as compared to 36.6% for the prior year. The decrease in percentage gross profit
is due to the  terms of the  Company's  contract  to  produce  a CD-ROM  for the
Smithsonian Institution. This contract required Synthonics to initially fund all
costs to develop  and  produce  the  CD-ROM.  In return for  funding the CD-ROM,
Synthonics receives 100% of the initial sales revenues until its development and
production costs are recovered.  After recovery,  Synthonics and the Smithsonian
share the revenues on a 50/50 basis on sales  through  Smithsonian  channels and
75/25 on sales through all other channels.  Due to these terms,  the Company has
expensed  all the  development  and  production  costs  during  1998  while only
generating a portion of the off-setting sales during the same time period.  This
condition is the major  contributor to the decrease in gross profit for the year
ended December 31, 1998 as compared to the year ended December 31, 1997.

                                     Page 10
<PAGE>
     OPERATING  EXPENSE  increased to $1,731,859 for the year ended December 31,
1998 from  $1,694,408  for the year ended  December  31,  1997.  The increase in
expenses is all attributed to the inclusion of Christopher Raphael,  Inc. for an
entire year in Synthonics' consolidated results for 1998 versus only one quarter
in 1997. The Company's  acquisition of Christopher  Raphael,  Inc. was effective
October  1, 1997.  Due to  expense  reductions  in both G&A  ($114,050)  and R&D
($320,156),  the  increase  in expenses  during 1998 was only 2.2%,  despite the
addition of $447,073 in expense associated with Christopher Raphael, Inc.

     As a result of the foregoing  factors,  the Company  recorded a NET LOSS of
$1,662,270  or $0.09 per share for the year ended  December 31, 1998 as compared
to a NET LOSS of $1,541,684  or $0.10 per share for the year ended  December 31,
1997.

     Liquidity and Capital Resources
     -------------------------------

     The  Company's  primary  needs  for funds are to  provide  working  capital
associated  with  forecasted  growth in sales  volume.  Specifically,  funds are
required  to promote the  Smithsonian  CD-ROM and to  complete  the  programming
effort yet required  for both the  Acuscape  and Evans & Sutherland  products as
well as specific  application  utility  products the Company will be introducing
over the next  several  quarters.  Additionally,  funds are  required to promote
future business  development by creating  customer  specific pilot projects that
demonstrate the benefits derived by utilizing  Synthonics'  technology with that
of the potential customer.  Working capital for the year ended December 31, 1998
was funded  primarily  through  the sale of equity,  private  borrowing  and the
collection of accounts receivable.

     Net cash provided by financing  activities  for the year ended December 31,
1998 was $1,464,833 compared to $1,175,260 for the year ended December 31, 1997.
During 1998, $850,000 was provided through the issuance of convertible notes and
$688,833   was   provided   through  the  sale  of  equity  and  other   capital
contributions.  The  convertible  notes  are  all due in  May,  1999  and may be
converted  to the  Company's  Common  Stock at a  conversion  price of $0.20 per
share. These amounts were offset in 1998 by the repayment of an outstanding note
($50,000) and the issuance of Preferred Stock dividends ($24,000).  For the year
ended  December  31,  1997,  $50,000  was  provided  through  the  issuance of a
convertible note and $1,125,260 was provided through the sale of equity.

     CAUTIONARY FORWARD - LOOKING STATEMENT
     --------------------------------------

     Statements  included  in  this  Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of  Operations,  and in future  filings by the
Company with the  Securities  and Exchange  Commission,  in the Company's  press
releases  and in  oral  statements  made  with  the  approval  of an  authorized
executive officer which are not historical or current facts are "forward-looking
statements"  made  pursuant  to  the  safe  harbor  provisions  of  the  Private
Securities  Litigation  Reform Act of 1995 and are subject to certain  risks and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
historical  earnings and those presently  anticipated or projected.  The Company
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking statements,  which speak only as of the date made. The following
important  factors,  among others, in some cases have affected and in the future
could affect the Company's  actual results and could cause the Company's  actual
financial   performance  to  differ   materially  from  that  expressed  in  any
forward-looking   statement:  (i)  the  extremely  competitive  conditions  that
currently exist in the three dimensional  software  development  marketplace are
expected to continue,  placing further pressure on pricing which could adversely
impact  sales  and  erode  profit  margins;  (ii)  many of the  Company's  major
competitors in its channels of distribution have significantly greater financial
resources  than the Company;  and (iii) the inability to carry out marketing and
sales plans would have a materially adverse impact on the Company's projections.
The  foregoing  list  should not be  construed  as  exhaustive  and the  Company
disclaims any obligation  subsequently to revise any forward-looking  statements
to  reflect  events or  circumstances  after the date of such  statements  or to
reflect the occurrence of anticipated or unanticipated events.

                                     Page 11
<PAGE>
ITEM 7.   FINANCIAL STATEMENTS

                          SYNTHONICS TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                          Audited Financial Statements
                     December 31, 1998 and December 31, 1997
<TABLE>
     <S>                                                                 <C>
     Independent Auditors' Report ...................................... 13
     Consolidated Balance Sheet ........................................ 14
     Consolidated Statements of Operations ............................. 16
     Consolidated Statements of Stockholders' Equity ................... 17
     Consolidated Statements of Cash Flows ............................. 20
     Notes to the Financial Statement .................................. 22
</TABLE>

                                     Page 12
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

The Board of Directors
Synthonics Technologies, Inc. and Subsidiaries
Westlake Village, California


We have  audited the  accompanying  consolidated  balance  sheets of  Synthonics
Technologies,  Inc. and  Subsidiaries  as of December 31, 1998 and 1997, and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash flows for the years  ended  December  31,  1998,  1997 and 1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Synthonics Technologies, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the  consolidated  results of their  operations and their cash flows for the
years ended  December 31, 1998,  1997 and 1996,  in  conformity  with  generally
accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue as a going  concern.  As discussed in Note 10 to the
consolidated  financial statements,  the Company has incurred significant losses
which have  resulted in an  accumulated  deficit and a deficit in  stockholders=
equity,  raising  substantial  doubt  about its  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 10. The  consolidated  financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.


Jones, Jensen & Company
Salt Lake City, Utah
January 25, 1999

                                     Page 13
<PAGE>

                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                     ASSETS
    
                                                           December 31,   
                                                  -----------------------------
                                                      1998            1997
                                                  -------------  --------------
<S>                                               <C>            <C>
CURRENT ASSETS
                                                                 
  Cash and cash equivalents                       $  271,665     $  311,610    
  Accounts receivable, net (Note 1)                   15,117          8,332    
  Accounts receivable, related (Note 1)               31,620             -
  Prepaid expenses                                        -           2,667    
                                                  -------------  --------------

     Total Current Assets                            318,402        322,609    
                                                  -------------  --------------

PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2)          79,855        124,534    
                                                  -------------  --------------

OTHER ASSETS

  Organization costs, net of accumulated
   amortization of $1,378 and $1,195 (Note 1)             -             183    
  Goodwill (Note 1)                                       -          48,092    
  Intangibles (Note 3)                               188,348        144,591    
  Deposits                                            13,947         15,083    
                                                  -------------  --------------

     Total Other Assets                              202,295        207,949    
                                                  -------------  --------------

     TOTAL ASSETS                                 $  600,552     $  655,092    
                                                  =============  ==============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 14
<PAGE>

                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                     Consolidated Balance Sheet (Continued)

<TABLE>
<CAPTION>
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                                    
                                                           December 31,   
                                                  -----------------------------
                                                      1998            1997
                                                  -------------  --------------
<S>                                               <C>            <C>
CURRENT LIABILITIES
    
  Accounts payable                                $  302,796      $ 126,034    
  Accounts payable, related (Note 5)                  47,366             -
  Accrued salaries (Note 5)                               -          99,299    
  Other accrued expenses                              14,187         22,166    
  Notes payable (Note 6)                             850,000        100,000    
                                                  -------------  --------------
    
     Total Current Liabilities                     1,214,349        347,499    
                                                  -------------  --------------

LONG TERMS DEBT

  Notes payable (Note 6)                                  -              -  
                                                  -------------  --------------   
     Total Long-Term Debt                                 -              -
                                                  -------------  --------------       

     Total Liabilities                             1,214,349        347,449  
                                                  -------------  --------------
     
COMMITMENTS AND CONTINGENCIES (Note 4)

STOCKHOLDERS' EQUITY

  Preferred stock; 550,000 shares authorized
   of $10.00 par value, 10,000 and 50,000 shares
   issued and outstanding, respectively             100,000         500,000
  Common stock; 50,000,000 shares authorized
   of $0.01 par value, 19,951,279 and 17,823,387 
   shares issued and outstanding, respectively      199,513         178,234    
  Additional paid-in capital                      5,083,791       3,961,790    
  Accumulated deficit                            (5,997,101)     (4,332,431)   
                                                  -------------  --------------

     Total Stockholders' Equity (Deficit)          (613,797)        307,593    
                                                  -------------  --------------

     TOTAL LIABILITIES AND STOCKHOLDERS'          $ 600,552      $  655,092    
     EQUITY (DEFICIT)                             =============  ==============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 15
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                               For the Years Ended                                                 
                                                                   December 31,   
                                                  -------------------------------------------
                                                      1998            1997          1996
                                                  -------------  -------------  -------------   
<S>                                               <C>            <C>            <C>   
REVENUE
    
   Net sales                                      $   512,217    $  417,574     $  208,224      
   Cost of goods sold                                 390,555       264,850         53,816 
                                                  -------------  -------------  -------------

     Gross Profit                                     121,662       152,724        154,408 
                                                  -------------  -------------  -------------

EXPENSES

   Research and development                           432,858       753,014        368,593
   Production Costs                                   447,073            -              - 
   General and administrative                         716,365       830,415        690,779 
   Depreciation and amortization                      135,563       110,979         32,918 
                                                  -------------  -------------  -------------

     Total Expenses                                 1,731,859     1,694,408      1,092,290 
                                                  -------------  -------------  -------------

     Loss From Operations                          (1,610,197)   (1,541,684)     ( 937,882)
                                                  -------------  -------------  -------------

OTHER INCOME (EXPENSE)

   Other income                                            -          2,104            971 
   Interest income                                      9,446         6,603          2,304 
   Interest expense                                   (59,459)       (9,142)        (7,229) 
   Bad debt expense                                   ( 2,060)      (34,780)        (8,376) 
                                                  -------------  -------------  -------------

     Total Other Income (Expense)                     (52,073)      (35,215)       (12,330) 
                                                  -------------  -------------  -------------

Loss before provision for income taxes             (1,662,270)   (1,576,899)      (950,212)

Provision for income taxes (Note 8)                     2,400         1,700            800 
                                                  -------------  -------------  -------------

NET LOSS                                          $(1,664,670)   $(1,578,599)   $ (951,012)
                                                  =============  =============  =============

BASIC LOSS PER SHARE                              $     (0.09)   $     (0.10)   $    (0.07)
                                                  =============  =============  =============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING      19,135,167     16,398,006     13,614,080
                                                  =============  =============  =============

FULLY DILUTED LOSS PER SHARE                      $     (0.06)   $     (0.07)   $    (0.05)
                                                  =============  =============  =============


FULLY DILUTED WEIGHTED AVERAGE 
NUMBER OF SHARES OUTSTANDING                       25,890,159     22,814,006     18,296,290
                                                  =============  =============  =============
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 16

<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
            Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>

                                  Preferred Stock               Common Stock              Additional
                              ----------------------        ----------------------        Paid-In        Accumulated
                              Shares        Amount          Shares         Amount         Capital        Deficit
                              ---------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>            <C>            <C>            <C>
Balance, December 31, 1995      -            $   -          13,332,942     $133,329       $1,392,822     $(1,802,820)

Common stock issued
for cash at prices
ranging from $0.22
to $1.00 per share              -                -           2,515,500       25,155        1,027,523              -

Common stock issued
for services rendered
at $0.18 per share              -                -             275,000        2,750           45,830              -

Common stock issued in 
lieu of debt and
equipment at $0.50 per share    -                -             105,000        1,050           51,450              -

Cancellation of common stock    -                -            (326,409)      (3,264)           3,264              -

Contribution to capital for the
 purchase of stock warrants
 and options                    -                -                   -           -           570,500              -

Net loss for the year ended
December 31, 1996               -                -                   -           -                -         (951,012)
                              ---------------------------------------------------------------------------------------

Balance, December 31, 1996      -            $   -          15,902,033     $159,020       $3,091,389     $(2,753,832)
                    
Common stock issued upon 
exercise of warrants            -                -             167,000        1,670           (1,670)             -

Common stock issued upon 
exercise of warrants at
$0.70 per share                 -                -             350,000        3,500          241,500              -

Common stock issued upon 
exercise of options at
$0.22 per share                 -                -             688,500        6,885          144,862              -

Common stock issued to 
acquire Christopher  Raphael, 
Inc. at $0.52 per share         -                -              10,000          100            5,100              -

Common stock issued to 
replace original shares of 
Synthonics, Inc. recorded at 
predecessor cost                -                -             179,700        1,797           (1,797)             -

Common stock issued for 
services rendered at 
$1.00 per share                 -                -              25,154          252           24,903              -
                              ---------------------------------------------------------------------------------------

Balance Forward                 -            $   -          17,322,387     $173,224       $3,504,287     $(2,753,832)               
                              ---------------------------------------------------------------------------------------
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 17

<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

<TABLE>
<CAPTION>
                    
                                  Preferred Stock               Common Stock              Additional
                              ----------------------        ----------------------        Paid-In        Accumulated
                              Shares        Amount          Shares         Amount         Capital        Deficit
                              ---------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>            <C>            <C>            <C>
Balance Forward                 -            $   -          17,322,387     $173,224       $3,504,287     $(2,753,832)    
         
Common stock issued in
exchange for the forfeiture 
of 750,000 stock options        -                -             501,000        5,010          243,990              -

Preferred stock issued for 
cash at 10.00 per share       50,000          500,000               -            -                -               -

Stock offering costs            -                -                  -            -           (50,620)             -

Additional capital contributed  -                -                  -            -           279,133              -

Dividends declared              -                -                  -            -           (15,000)             -

Net loss for the year ended
December 31, 1997               -                -                  -            -                -       (1,578,599)
                              ---------------------------------------------------------------------------------------

Balance, December 31, 1997    50,000         $500,000       17,823,387     $178,234       $3,961,790     $(4,332,431)

Common stock issued for cash
at $0.65 per share              -                -             550,002        5,500          352,000              -
               
Common stock issued in lieu 
of debt at $0.71 per share      -                -              70,000          700           49,300              -

Common stock issued for 
services rendered at $0.66
per share                       -                -              34,815          348           22,630              -

Conversion of preferred shares 
to common shares             (40,000)        (400,000)         615,200        6,152          393,848              -

Common stock issued upon 
exercise of warrants at
$0.20 per share                 -                -             420,000        4,200           79,800              -

Common stock issued upon 
exercise of warrants            -                -             167,000        1,670           (1,670)             -

Dividends declared              -                -                  -            -           (24,000)             -

Stock offering costs            -                -                  -            -           (30,176)             -

Common stock issued upon 
exercise of warrants at
$0.75 per share                 -                -             250,000        2,500          185,000              -

Common stock issued in lieu 
of debt at $0.25 per share      -                -              17,875          179            4,290              -
                              ---------------------------------------------------------------------------------------

Balance Forward               10,000         $100,000       19,948,279     $199,483       $4,992,812     $(4,332,431)
                              ---------------------------------------------------------------------------------------

</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 18

<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

<TABLE>
<CAPTION>
                    
                                  Preferred Stock               Common Stock              Additional
                              ----------------------        ----------------------        Paid-In        Accumulated
                              Shares        Amount          Shares         Amount         Capital        Deficit
                              ---------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>            <C>            <C>            <C>
Balance Forward               10,000         $100,000       19,948,279     $199,483       $4,992,812     $(4,332,431)

Common stock issued in lieu 
of debt at $0.33 per share      -                -               3,000           30              970              -
   
Additional capital contributed  -                -                 -             -            90,009              - 
         
Net loss for the year ended
December 31, 1998               -                -                 -             -                -       (1,664,670)
                              ---------------------------------------------------------------------------------------
Balance, December 31, 1998    10,000         $100,000       19,951,279     $199,513       $5,083,791     $(5,997,101)
                              =======================================================================================
</TABLE>

                                    Page 19
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                               For the Years Ended
                                                    
                                                                   December 31,   
                                                  -------------------------------------------
                                                      1998            1997          1996
                                                  -------------  -------------  -------------   
<S>                                               <C>            <C>            <C>   
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                       $(1,664,670)   $(1,578,599)   $(951,012) 
   Adjustments to reconcile net loss
     to net cash used by operating
     activities:
   Depreciation and amortization                      135,563        110,979       32,918 
   Stock issued for services                           22,978        274,155       48,580 
   Changes in assets and liabilities:
  (Increase) decrease in accounts receivable
    and accounts receivable-related                   (38,405)       (7,244)       24,922 
   (Increase) decrease in prepaid expenses
     and deposits                                       3,803          1,505       (2,797) 
   (Increase) decrease in inventory                       -            4,296       (4,296) 
   Increase (decrease) in accounts payable            182,231        (39,327)       8,434  
   Increase (decrease) in accounts
     payable - related                                 47,366            -        (62,500)  
   Increase (decrease) in accrued expenses           (107,278)       (10,157)       4,680   
                                                  -------------  -------------  -------------

   Net Cash Used by Operating Activities           (1,418,412)    (1,244,392)    (901,071) 
                                                  -------------  -------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Sale of fixed assets                                 3,605            -             -  
   Purchase of fixed assets                            (7,562)       (18,530)     (77,893) 
   Patent costs                                       (82,409)      (126,459)          -  
                                                  -------------  -------------  -------------

   Net Cash Used by Investing Activities              (86,366)      (144,989)     (77,893) 
                                                  -------------  -------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Principle payments on notes payable                (50,000)           -       (127,500) 
   Cash received from notes payable                   850,000         50,000           -  
   Capital contributions                               90,009        279,133      570,500  
   Dividends paid                                     (24,000)           -             -
   Issuance of common and preferred stock             598,824        846,127    1,052,678  
                                                  -------------  -------------  -------------

   Net Cash Provided by Financing
     Activities                                     1,464,833      1,175,260    1,495,678  
                                                  -------------  -------------  -------------

NET INCREASE (DECREASE) IN CASH                       (39,945)      (214,121)     516,714  

CASH AT BEGINNING OF YEAR                             311,610        525,731        9,017  
                                                  -------------  -------------  -------------

CASH AT END OF YEAR                               $   271,665        311,610    $ 525,731    
                                                  =============  =============  =============

</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 20

<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Continued)

<TABLE>
<CAPTION>
                                                               For the Years Ended
                                                                   December 31,   
                                                  -------------------------------------------
                                                      1998            1997          1996
                                                  -------------  -------------  -------------   
<S>                                               <C>            <C>            <C>   
SUPPLEMENTAL CASH FLOW INFORMATION

CASH PAID FOR:
 
  Interest                                        $    47,709    $     9,142    $   7,229  
  Income Taxes                                    $     2,400    $       900    $     800  

NON CASH FINANCING ACTIVITIES

  Stock issued for services                       $    22,978    $   274,155    $  48,580  
  Stock issued in conversion of debt
    to common stock                               $    55,469    $        -     $  45,000  
  Stock issued for equipment                      $        -     $        -     $   7,500  
  Stock issued for acquisition of subsidiary      $        -     $     5,200    $      -  

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 21
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a. Organization

          The  consolidated   financial   statements   presented  are  those  of
          Synthonics Technologies, Inc. (STI) and its wholly-owned subsidiaries,
          Synthonics  Incorporated  (Synthonics) and Christopher  Raphael,  Inc.
          (CRI). Collectively, they are referred to herein as the "Company". STI
          was  incorporated  on March  27,  1974  under the laws of the State of
          Utah.  Effective  May 19,  1995,  STI issued  9,983,301  shares of its
          common stock in exchange for 98% of the issued and outstanding  common
          stock of  Synthonics.  During 1997,  STI issued an additional  179,700
          shares of its common stock for the remaining 2%. In 1996,  STI changed
          its name to Synthonics Technologies, Inc.

          Synthonics was incorporated on August 26, 1993 under the state laws of
          California.   Synthonics  was  organized  to  engage  in  the  design,
          development    and    marketing    of     computer-interactive     and
          computer-automated image analysis software and hardware products. With
          the  acquisition  of  Synthonics,  STI  continued  to  engage in these
          activities.

          At the time of the  acquisition  of  Synthonics,  STI was  essentially
          inactive,  with no operations and minimal  assets.  Additionally,  the
          exchange  of STI's  common  stock for the common  stock of  Synthonics
          resulted in the former stockholders of Synthonics obtaining control of
          STI.   Accordingly,   Synthonics  became  the  continuing  entity  for
          accounting  purposes,  and  the  transaction  was  accounted  for as a
          recapitalization  of  Synthonics  with no  adjustment  to the basis of
          Synthonic's  assets  acquired  or  liabilities   assumed.   For  legal
          purposes, STI was the surviving entity.

          On October 1, 1997,  STI  purchased  CRI for $5,200 by issuing  10,000
          shares of its  common  stock in  exchange  for 100% of the  issued and
          outstanding  stock of CRI.  The common  stock issued was valued at its
          trading price of $0.52 per share. The acquisition was accounted for as
          a purchase.  Initially,  goodwill was recorded which  consisted of the
          excess of the  purchase  price over the fair value of the net tangible
          assets of CRI. The goodwill is amortized over a two year period.

          CRI  was  incorporated  on June  17,  1997  under  the  state  laws of
          California.  CRI was organized as a graphic design and print brokerage
          firm.

          b. Accounting Methods

          The  Company's  financial  statements  are prepared  using the accrual
          method of accounting. The Company has elected a December 31, year end.

          c. Cash and Cash Equivalents

          Cash equivalents  include  short-term,  highly liquid investments with
          maturities of three months or less at the time of acquisition.

The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 22
<PAGE>

                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
       
          d. Basic Loss Per Share

          The  computations  of loss per share of common  stock are based on the
          weighted average number of common shares outstanding during the period
          of the consolidated  financial  statements.  Common stock equivalents,
          consisting  of warrants  and  employee  stock  options,  have not been
          included in the  calculation as their effect is  antidilutive  for the
          periods presented. stock warrants and stock options have been included
          in the fully diluted loss per share.

          e.  Change in Accounting Principle

          The Company adopted Statement of Financial Accounting Standards (SFAS)
          No. 128, "Earnings Per Share" during the year ended December 31, 1998.
          In accordance  with SFAS No. 128,  diluted  earnings per share must be
          calculated  when  an  entity  has  convertible  securities,  warrants,
          options,  and other securities that represent potential common shares.
          The purpose of  calculating  diluted  earnings  (loss) per share is to
          show (on a pro forma basis) per share earnings or losses  assuming the
          exercise or  conversion  of all  securities  that are  exercisable  or
          convertible  into  common  stock and that would  either  dilute or not
          affect  basis EPS.  As  permitted  by SFAS No.  128,  the  Company has
          retroactively  applied the  provisions of this new standard by showing
          the fully diluted loss per common share for all years presented.

          f. Computer Software Development

          The Company records all costs incurred to establish the  technological
          feasibility  of  its  computer   software  products  as  research  and
          development expenses

          g. Property and Equipment

          Property  and  equipment  is recorded  at cost.  Major  additions  and
          improvement  are  capitalized.   The  cost  and  related   accumulated
          depreciation  of  equipment  retired  or sold  are  removed  from  the
          accounts and any differences between the undepreciated  amount and the
          proceeds  from  the  sale  are  recorded  as  gain  or loss on sale of
          equipment.  Depreciation  is computed using the  straight-line  method
          over a period of five years.

          h. Organization Costs

          Organization  costs are recorded at cost and are  amortized  using the
          straight-line method over a period of five years. Amortization expense
          for the years ended  December 31, 1998,  1997 and 1996 was $183,  $275
          and $0, respectively.

          
The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 23

<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued))

          i. Accounts Receivable

          Accounts  receivable  are  shown  net of the  allowance  for  doubtful
          accounts.

          j. Provision For Taxes

          At December 31, 1998, the Company has net operating loss carryforwards
          of approximately  $6,000,000 that may be offset against future taxable
          income  through  2013.  No  tax  benefit  has  been  reported  in  the
          consolidated  financial  statements because the Company believes there
          is a 50% or greater chance the net operating loss  carryforwards  will
          not be  used.  Accordingly,  the  potential  tax  benefits  of the net
          operating loss  carryforwards  are offset by a valuation  allowance of
          the same amount.

          k. Principles of Consolidation

          The  consolidated  financial  statements  include  those of Synthonics
          Technologies,  Inc.  and  its  wholly-owned  subsidiaries,  Synthonics
          Incorporated and Christopher Raphael, Inc.

          All  material   intercompany   accounts  and  transactions  have  been
          eliminated.

          l. Uninsured Cash Balances

          The Company  maintains its corporate  cash balances at various  banks.
          Corporate  cash  accounts  at banks are  insured by the FDIC for up to
          $100,000.  Amounts  in excess of  insured  limits  were  approximately
          $171,665 and $142,377 at December 31, 1998 and 1997, respectively.

          m. Estimates

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from those estimates.

          n. Goodwill

          Goodwill  consists of the excess of the  purchase  price over the fair
          value  of net  tangible  assets  of the  purchased  subsidiary  and is
          amortized  on the  straight-line  method over a two year  period.  The
          Company  periodically  reviews  goodwill for impairment.  Amortization
          expense on the  goodwill for the years ended  December 31, 1998,  1997
          and 1996 was $48,092, $48,092 and $-0-, respectively.

          o. Advertising

          The Company follows the policy of charging the costs of advertising to
          expense as incurred.


The  accompanying  notes are an integral  part of these  consolidated  financial
statements

                                     Page 24
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>                                        
                                                           December 31,   
                                                  -----------------------------
                                                      1998            1997
                                                  -------------  --------------
          <S>                                     <C>            <C>
          Computer equipment                      $  171,742     $  168,057    
          Furniture and fixtures                      18,061         17,789    
          Photographic equipment                      55,122         55,122     
                                                  -------------  --------------

                                                     244,925        240,968    
          Accumulated depreciation                  (165,070)      (116,434)   
                                                  -------------  --------------

          Net property and equipment              $   79,855     $  124,534    
                                                  =============  ==============
</TABLE>

          Depreciation  expense for the years ended December 31, 1998,  1997 and
          1996 was $48,636, $35,746 and $23,842, respectively.

NOTE 3 - INTANGIBLES

          Intangible costs incurred are as follows:

<TABLE>
<CAPTION>                                       
                                                           December 31,   
                                                  -----------------------------
                                                      1998            1997
                                                  -------------  --------------
          <S>                                     <C>            <C>
          Trademarks                              $    1,484     $   1,484    
          Patents                                    269,084       186,675    
                                                  -------------  --------------
                                                     270,568       188,159    

               Less accumulated amortization         (82,220)      (43,568)   
                                                  -------------  --------------

                   Total                          $  188,348     $ 144,591    
                                                  =============  ==============
</TABLE>

          The  patent  costs  that have been  capitalized  relate to legal  fees
          incurred  to  develop  and  secure  the  Company's  patents on the 3-D
          technology.  The patents are recorded at cost and are amortized  using
          the straight-line method over a period of seven years.
 
          Amortization  expense for the years ended December 31, 1998,  1997 and
          1996 was $38,652, $26,866 and $9,076, respectively.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

          During 1998,  the Company  entered into two separate  operating  lease
          agreements for various equipment.  The lease terms expire beginning in
          May 2001 and ending June 2001.  The monthly rental payment for the two
          leases combined is $443.

          During 1997, the Company  entered into three separate  operating lease
          agreements  for various  computer  equipment.  The lease terms  expire
          beginning  in  November  1999 and ending  November  2000.  The monthly
          rental payment for all three leases combined is $2,668.

          The Company entered into a lease  agreement for its office  facilities
          effective  September 1, 1996 and expiring August 31, 1999. The monthly
          rental payment is $2,497.

                                     Page 25
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)

          Minimum  future  lease  payments on all the leases as of December  31,
          1998 are as follows:

<TABLE>
<CAPTION>

          Year Ended
          December 31,                       Amount
          ----------------------------------------------
          <S>                                <C>
          1999                               $50,429
          2000                                13,382
          2001                                 2,260
          2002                                   -
          2003                                   -  
          2004 and thereafter                    -
          -----------------------------------------------
                        Total                $66,071
                                             ============
</TABLE>

          The Company also has entered into  employment  agreements with certain
          officers  of the  Company.  The  Company  has  agreed to pay its Chief
          Executive  Officer and Chief Technical Officer a base annual salary of
          $240,000,  each,  beginning on July 1, 1996 and ending on December 31,
          2000.  The  Company  has  also  agreed  to pay its  Vice-President  of
          Marketing and Sales a base annual salary of $60,000 plus  commissions.
          During 1998, the Company's Board of Directors  approved a reduction in
          these  salaries for the entire 1998 year due to a cash  shortage.  The
          Company's  Board of Directors may also authorize  bonuses on an-ad hoc
          basis.

          On January 8, 1998,  a default  judgement  was granted in favor of the
          Company  for breach of a license  agreement  and  misappropriation  of
          trade secrets.  The Company was awarded  damages from the defendant in
          the amount of $300,000. It is unlikely, however, that the Company will
          receive any amount from the judgement.

NOTE 5 - RELATED PARTY TRANSACTIONS

          As of December  31, 1998 and 1997,  the Company owed $-0- and $99,299,
          respectively,  to  certain of its  officers  and  shareholders.  These
          amounts  represent  accrued  wages.  During 1998, the $99,299 debt was
          forgiven  by the officer and was  recorded as  contributed  capital at
          December 31, 1998. In addition,  a previously  forgiven debt of $9,290
          was paid out during  1998  resulting  in a  reduction  of  contributed
          capital at December  31, 1998.  The Company also owed certain  related
          parties   $47,366  and  $-0-  as  of  December   31,  1998  and  1997,
          respectively, for costs incurred on the Company's behalf.

                                     Page 26
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 6 - NOTES PAYABLE

          Notes payable consisted of the following:

<TABLE>
<CAPTION>
                                         
                                                           December 31,   
                                                  -----------------------------
                                                      1998            1997
                                                  -------------  --------------
          <S>                                     <C>            <C>
          Note payable  to a  corporation,
          principal  and  7.50%  interest
          originally due April 1, 1997.
          Secured by 70,000 shares of common
          stock and 70,000 warrants to
          purchase common stock.                  $        -     $  50,000   

          Notes payable to various individuals,  
          interest at 13% per annum,
          principle and interest due May 15, 
          1999 (payable in cash or stock at 
          $0.20 per share, at the option of 
          the lender), unsecured.                      300,000          -

          Notes payable to various individuals,   
          interest at 10% due semi-annually,  
          principle due in May 1999 (payable  
          in cash or stock at $0.20 per share, 
          at the option of the Company),
          unsecured.                                   550,000          -

          Unsecured bank line-of-credit at 11.5%
          interest, interest paid monthly, 
          principle amount due December, 1998               -       50,000
                                                  -------------  --------------

          Total Notes Payable                          850,000     100,000
          Less: Current Portion                       (850,000)   (100,000)
                                                  -------------  --------------

          Long-Term Notes Payable                 $         -    $      -     
                                                  =============  ==============
</TABLE>

          The aggregate principal maturities of notes payable are as follows:

                       Year Ended
                       December 31,                 Amount       
                       ------------               -------------
                         1999 ..................  $    850,000
                         2000 ..................            -
                         2001 ..................            -
                         2002 ..................            -
                         2003 ..................            -
                         2004 and thereafter ...            -     
                                                  -------------
                         Total                    $    850,000
                                                  =============


                                     Page 27
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS
          
          a. Stock "Rights" and Warrants

          In connection with its acquisition of Synthonics, the Company acquired
          from  Synthonics  stockholders,   warrants  and  "rights"  to  acquire
          1,369,190 shares of Synthonics common stock. In exchange,  the Company
          granted the exchanging  stockholders warrants and "rights" to purchase
          6,161,355  shares of the  Company's  common  stock.  1,950,500  of the
          2,124,000 stock purchase  warrants were exercised during 1996 at $0.27
          per share and the remaining  173,500 warrants  expired  unexercised on
          February 15, 1996. There were 2,597,355  uncertificated  "rights" with
          an exercise price of $0.11 per share outstanding at December 31, 1997.
          562,500 expired January 1, 1998 and 2,034,855 expire May 31, 1999.

          During 1996,  337,000  warrants were  purchased at $1.00 per share for
          $337,000.  168,500 of the warrants  were "A" warrants and 168,500 were
          "B"  warrants.  They were  redeemable  at 50% of the average price the
          month before being  exercised.  The "A" warrants were exercised during
          June 1997 and the "B" warrants were exercised during June 1998.

          As of December 31, 1998,  there were  948,602  additional  outstanding
          warrants  at  prices  ranging  from  $0.20 to $0.75 per  share.  These
          warrants are to be exercised from March 1999 through March 2002.

          b. Common Stock Options

          During 1996,  certain of the  Company's  officers  were granted  stock
          options for a total of 600,000 restricted common shares of the Company
          at $1.00  per  share in  return  for  their  forgiveness  of  deferred
          compensation  debt in the  amount  of  $236,500.  During  1997,  these
          officers were granted  additional  stock  options to purchase  588,290
          shares of  restricted  common  stock at $1.00 per share in return  for
          their  forgiveness  of  deferred  compensation  debt in the  amount of
          $279,133.  The Company  also  issued  501,000  shares of common  stock
          during 1997 in exchange  for the  forfeiture  of 750,000  common stock
          options.  450,000  of those  stock  options  were  valued at $0.22 per
          option and the  remaining  300,000  stock options were valued at $0.50
          per  option.  The  amounts  are  recorded  as  contributed  capital at
          December  31, 1996 and 1997.  The options can be exercised in total or
          in part prior to December  31, 2001 and 2002.  During  1998,  officers
          were granted  additional stock options to purchase 1,212,979 shares of
          restricted common stock at $0.53 per share.

          The total  amount of  outstanding  stock  options  of the  Company  at
          December 31, 1998 is  summarized  as follows: 

<TABLE>
<CAPTION>

          Shares         Exercise Price      Exercised By
          ------------------------------------------------
          <S>            <C>                 <C>
          2,034,855      $     0.22          May 1999
          1,200,000      $     0.50          July 2006
          2,121,290      $     1.00          December 1999 - December 2002
            825,000      $     0.75          October 2002
          1,212,979      $     0.53          December 2003
</TABLE>
                                
          c. Stock Option and Management Cash Incentive Plans

          At the annual  shareholders=  meeting in April 1998, the  shareholders
          approved a Stock Option Plan and a  Management  Cash  Incentive  Plan.
          Management   believes   that  these  plans  will  help   increase  the
          productivity and efficiency of the officers and employees involved.

                                  Page 28
<PAGE>
                 SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 1998 and 1997

NOTE 8 - PROVISION FOR INCOME TAXES

          The provision for income taxes for the years ended  December 31, 1998,
          1997 and 1996, consists of the following:

                                              For the Years Ended
                                                   December 31,   
                                   -------------------------------------------
                                        1998            1997          1996
                                   -------------  -------------  -------------
          State Franchise Taxes    $     2,400    $    1,700     $     800   
                                   =============  =============  =============


NOTE 9 - PREFERRED STOCK

          At December 31,  1997,  the Company had 50,000  outstanding  shares of
          cumulative  convertible  preferred stock.  During 1998,  40,000 of the
          shares were converted  early into 615,200 shares of common stock.  The
          early  conversion  was at a 15.38  shares  of  common  to 1  share  of
          preferred   conversion   rate,  as  an  incentive  for  the  preferred
          shareholders  to give up their  future  dividends  from the  preferred
          stock.  Thus, at December 31, 1998, the Company has 10,000 outstanding
          shares  of  cumulative  convertible  preferred  stock.  The  remaining
          preferred  stock is  convertible at the option of the holder into five
          shares  of the  Company's  common  stock for each  share of  preferred
          stock,  are  non-voting,  and  feature  a 12%  annual  dividend,  paid
          quarterly.  Accrued  dividends  as of December  31, 1998 and 1997 were
          $-0- and $15,000, respectively.

NOTE 10 - GOING CONCERN

          The Company's  consolidated  financial  statements  are prepared using
          generally accepted accounting principles applicable to a going concern
          which  contemplates  the  realization  of assets  and  liquidation  of
          liabilities  in  the  normal  course  of  business.  The  Company  has
          historically  incurred  significant  losses which have  resulted in an
          accumulated  deficit of  $5,997,101  at December 31, 1998 which raises
          substantial  doubt about the Company's  ability to continue as a going
          concern.  The accompanying  consolidated  financial  statements do not
          include   any   adjustments   relating  to  the   recoverability   and
          classification   of  asset   carrying   amounts   or  the  amount  and
          classification  of  liabilities  that might result from the outcome of
          this uncertainty.  It is the intent of management to create additional
          revenues  through  the  development  and sales of its  image  analysis
          software and to rely upon additional  equity  financing if required to
          sustain operations until revenues are adequate to cover the costs.

                                     Page 29
<PAGE>
ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

          Not applicable.

                                    PART III.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16 (a) OF THE EXCHANGE ACT

     See Item 11 for  information on the  beneficial  ownership of the Company's
securities.

     The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name                     Age       Position            Term      Served Since
--------------------------------------------------------------------------------
<S>                      <C>       <C>                 <C>       <C>
F. Michael Budd          52        President, CEO      3 Years   1995
                                   Director

Charles S. Palm          55        Chief Technology    3 Years   1995
                                   Officer, Secretary,
                                   Director

LeRoy K. Speirs          75        Chairman of Board   3 Years   1978

Ronald S. Speirs         47        Director            2 Years   1996

Timothy G. Paulson       52        Director            2 Years   1997

Thomas K. Carpenter      57        Director            2 Years   1997

Joseph R. Maher          38        VP Marketing        1 Year    1997
                                   & Sales, Director

David L. Stewart         55        Director            1 Year    1995

</TABLE>

     Each of the persons  listed in the above table  possesses  sole  investment
power and sole voting  power over the shares set forth in the table  included in
Item 11.

     There are no arrangements or understandings between any of the directors or
executive  officers,  or any other person or person  pursuant to which they were
selected as directors and/or officers.

     F. Michael Budd is a founder of Synthonics,  Incorporated. He holds a BS in
Industrial Engineering from the General Motors Institute in Flint, Michigan, and
an MBA from the  University  of  Detroit  in 1973.  Mr.  Budd has had a long and
distinguished  career in the  administration  of engineering  and  manufacturing
facilities,  including 30 years of  increasing  management  responsibility  with
General Motors Corporation,  Rockwell International, ITT Corporation, and Harman
International.  During his career, Mr. Budd has orchestrated successful mergers,
acquisitions,  divestitures,  expansions,  and start-ups for the companies  with
whom he has been  affiliated.  He has  successfully  managed business units with
revenues  up to $500  million,  more than 7,000  employees,  and with  locations
around the world.  Although  he is most  noted for his  "turnaround"  management
capabilities  that convert  marginal or losing  operations  into strong positive
cash-flow  operations,  Mr. Budd has been equally  successful  with new start-up
endeavors.  Mr. Budd has been associated with the Company since its inception as
a director and shareholder.

                                    Page 30
<PAGE>
     Dr. Charles S. Palm, the "father" of Synthonics'  technology,  is a founder
of Synthonics,  Incorporated.  He received a Ph.D. in Engineering  Sciences from
the University of Florida in 1975.  Prior to joining the Company,  he co-founded
Colorocs  Corporation  in Atlanta,  Georgia.  Colorocs  developed  and  marketed
full-color copier and full-color laser printers that were marketed under several
different  Brand names (such as Sharp and Savin)  worldwide.  Dr. Palm  received
nine patents  related to  electro-photographic  technologies  used in his copier
designs.  He was a member of the management  team that took Colorocs  through an
initial  public  offering in 1986.  Dr. Palm  supervised the Lunar Laser Ranging
Experiment at the  University  of Texas  McDonald  Observatory  between 1975 and
1977.  While in that  capacity,  he  modified a gigawatt  laser  system  used to
measure  the  distance  from the  Earth to the moon  within an  accuracy  of 1.5
inches.  Dr.  Palm  has led or been  part of  teams  that  have  developed  many
important  inventions  during his career.  Besides those mentioned above, he was
very  instrumental  in the  development  of a  device  that  was  used by the US
Department  of  Defense,  for nearly two  decades,  to track  submerged  Russian
submarines from satellite stereo photos of the ocean's surface.

     Joseph R. Maher, combines sales, marketing,  and promotional expertise with
a broad financial  background.  Mr. Maher has been  responsible for the founding
and the senior level management of a variety of successful companies, both local
and  national in scope.  These  include  the  publishing  of consumer  and trade
magazines,  producing  live  entertainment  for corporate  and private  clients,
directing the sales effort of the top  out-placement  firm in the United States,
and spearheading the growth and capital fund raising for several  for-profit and
non-profit  corporations.  Mr.  Maher was the founder  and owner of  Christopher
Raphael Marketing Design which was acquired by Synthonics during 1997.

     LeRoy K. Speirs has been a successful  entrepreneur  throughout  his entire
adult  life with a number of  different  companies  in  endeavors  as diverse as
opening a bookstore upon returning from World War II to the founding of Contract
Insurance Underwriters located in Pasadena,  California, which was a credit life
managing general agency, that grew to be the third-largest  independent producer
of credit life  insurance in  California.  He was a founder of the Brigham Young
University Center for  Entrepreneurship in the Marriott School of Management and
recently  received the  prestigious  Honorary  Alumni Award (a life  achievement
award) from Brigham Young University.

     Ronald S.  Speirs,  was  awarded BS and MS degrees in  Computer  Integrated
Manufacturing by Brigham Young University in 1986/1987.  Mr. Speirs was a Senior
Industrial  Engineer in Advanced  Manufacturing  Technologies  for Allied Signal
Aerospace for five years,  and is currently an independent  computer  consultant
and project facilitator for various high-tech enterprises.

     David L.  Stewart,  Esq.,  is a patent  attorney and partner in the firm of
McDermott,  Will and  Emory in  Alexandria,  Virginia.  He holds a  Bachelor  of
Science degree in physics from California  State University at Los Angeles and a
Juris  Doctor  degree  from  George  Washington  University  in the  District of
Columbia.  Mr. Stewart was a Ph.D. candidate in information technology at George
Mason   University  in  Fairfax,   Virginia.   He  also  served  four  years  as
Administrative Patent Judge  (Examiner-in-Chief)  at the Board of Patent Appeals
and Interferences, United States Patent and Trademark Office.

     Thomas  K.  Carpenter  is  an  experienced  executive  with  extensive  P&L
responsibility   and  a  heavy  involvement  in  operational,   technical,   and
marketing/sales responsibilities.  Mr. Carpenter has gained particular expertise
with software tools and  applications  within  industrial,  retail,  government,
distribution,  and  medical  marketplaces.  Known as a  persuasive,  high energy
problem solver,  he has demonstrated  successes in both start-up and turn around
situations.  Mr. Carpenter, a veteran of the software industry, is playing a key
role for the Company in the formation  and execution of its operating  strategy.
Mr.  Carpenter  is  currently a member of the Board of Directors or the Board of
Advisors for three other companies all involved in the software industry.

     Timothy G. Paulson has been a Corporate Vice President and the Treasurer of
Litton Industries,  Inc. since 1994. With Litton since 1970, Mr. Paulson started
his career as a staff auditor and has  progressed  through  several senior level
management positions prior to being appointed its Treasurer.  He also earned his
Certified Public Accountant status in 1974. As a key member of management during
Litton's rise to prominence as a premier  defense  contractor,  Mr. Paulson will
provide expert oversight  guidance as Synthonics grows into a prominent software
tool provider.

                                    Page 31
<PAGE>
     Directorships
     -------------

     No  Director  of the  Company  or  person  nominated  or chosen to become a
Director holds any other  directorship in any company with a class of securities
registered  pursuant  to  section  12 of  the  Exchange  Act or  subject  to the
requirements of section 15(d) of such Act or any other company  registered as an
investment company under the Investment Company Act of 1940.

     Identity of Significant Employees
     ---------------------------------

     The Company has no employees  who are not executive  officers,  but who are
expected to make a significant  contribution  to the Company's  business.  It is
expected that current  members of management  and the Board of Directors will be
the only persons whose activities will be material to the Company's  operations.
Members of management  are the only persons who may be deemed to be promoters of
the Company

     Family Relationships
     --------------------

     The Chairman of the Board, LeRoy K. Speirs is the father of director Ronald
S. Speirs. Other than the father - son relationship of Messrs.  Speirs, there is
no family relationship between any director or executive officer of the Company.

     Involvement in Certain Legal Proceedings
     ----------------------------------------

     During  the past five  years,  no  present  or former  director,  executive
officer or person nominated to become a director or an executive  officer of the
Company:

          (1) was a general partner or executive officer of any business against
          which any  bankruptcy  petition  was filed,  either at the time of the
          bankruptcy or two years prior to that time;

          (2) was  convicted  in a  criminal  proceeding  or named  subject to a
          pending criminal  proceeding  (excluding  traffic violations and other
          minor offenses);

          (3) was  subject to any order,  judgment or decree,  not  subsequently
          reversed,   suspended   or   vacated,   of  any  court  of   competent
          jurisdiction,   permanently   or   temporarily   enjoining,   barring,
          suspending  or  otherwise  limiting  his  involvement  in any  type of
          business, securities or banking activities; or

          (4)  was  found  by a  court  of  competent  jurisdiction  (in a civil
          action),  the  Securities  and Exchange  Commission  or the  Commodity
          Futures  Trading  Commission  to have  violated  a  federal  or  state
          securities or commodities law, and the judgment has not been reversed,
          suspended or vacated.

     Section 16(a) Beneficial Ownership Reporting Compliance 
     -------------------------------------------------------

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive  officers,  and persons who own more than ten percent of
the Company's Common Stock, to file with the Securities and Exchange  Commission
initial reports of ownership and reports of changes of ownership of Common Stock
of the Company.  Officers,  directors and greater than ten percent  stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

     To the  Company's  knowledge,  with respect to the year ended  December 31,
1998,  all Section 16(a) filing  requirements  applicable to each person who, at
any time  during the fiscal  year  ended  December  31,  1998,  was an  officer,
director and greater than ten percent beneficial owner, were complied with, with
the exception of the Annuual  Statement of Changes in  Beneficial  Ownership for
the following  officers and directors,  which were filed 4 days late: F. Michael
Budd,  Charles S. Palm, LeRoy K. Speirs,  Ronald S. Speirs,  Timothy G. Paulson,
Thomas K. Carpenter, Joseph R. Maher, and David L. Stewart.

                                    Page 32
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

     Annual Compensation
     -------------------

     The aggregate annual  remuneration,  during the fiscal year ending December
31, 1998,  of the three highest paid persons who are Officers of the Company was
as follows:

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                           ---------------------------
                                                                       
                                   ------------------------------------------------------------------------------
                                             Annual Compensation                Long Term Compensation                       
                                   ------------------------------------------------------------------------------              
                                                                                Awards         Payouts
                                   ------------------------------------------------------------------------------
                                                                                Securities               All
                                                       Other                    Underlying               Other
Name and                 Year or                       Annual    Restricted     Options/       LTIP      Compen-
Principal                Period    Salary    Bonus     Compen-   Stock          SAR's          Payouts   sation
Position                 Ended     ($)       ($)       sation)   Awards         (#)            ($)       ($)
                                                       ($)       ($)
(a)                      (b)       (c)       (d)       (e)       (f)            (g)            (h)       (i)
-----------------------------------------------------------------------------------------------------------------
<S>                      <C>       <C>       <C>       <C>       <C>            <C>            <C>       <C>
F. Michael Budd,     
President and CEO        1998      $ 45,000  $0        $0      $0               720,465        $0        $0

Charles S. Palm     
Secretary and Chief
Technical Officer        1998      $ 75,000  $0        $0      $0               385,142        $0        $0

Joseph R. Maher     
Vice President of
Marketing and Sales      1998      $101,500  $0        $0      $0                78,195        $0        $0

</TABLE>

     In 1998, the Directors of the Company  adopted a resolution for fiscal year
1998 to reduce the  compensation of each of its Executive  Officers in an effort
to reduce cash needs  during  1998.  The totals in the table  above  reflect the
reduced compensation amounts approved by the Company's Directors.

     Employment Contracts
     --------------------

     F. Michael Budd the CEO and President of the Company and a director and Dr.
Charles S. Palm, the Chief Technical  Officer and a director of the Company each
have employment contracts with the Company.  Each of these employment agreements
provide for an annual base salary of $240,000 per year. Each of these employment
agreements  begin on July 1, 1996 and end on December 31,  2,000.  Each contract
contains an Incentive  Stock Option for 750,000 shares of common stock, of which
Mr. Budd has exercised  300,000 shares from the option that he holds. The option
price per share is $0.50 and the  750,000  shares  vest over a four year  period
with all shares being vested by July 1, 2000.

     Joseph  R.  Maher  has an  employment  contract  with  the  Company.  It is
effective until September 30, 2001. Mr. Maher's compensation  includes a $60,000
annual base salary plus  commissions.  His contract  also  contains an Incentive
Stock option for 750,000  shares of common stock.  The option price per share is
$1.00 and the 750,000 shares vest over a three year period.  The total number of
shares that vest is dependent on the overall performance of Christopher Raphael,
Inc., but cannot exceed a total of 750,000 shares.
     
                                     Page 33
<PAGE>
     Stock Options
     -------------                     

     At the Annual  Meeting of  Shareholders  in April  1998,  the  shareholders
approved the 1998 Stock Option Plan (the "1998 Plan").  The 1998 Plan allows the
Company to attract and retain  employees  and  directors  of the Company and its
subsidiaries and to provide such persons with incentives and awards for superior
performance.  The 1998 Plan is  administered  by the Board of  Directors  of the
Company,  which has broad flexibility in designing stock-based  incentives.  The
Board of  Directors  determines  the  number of shares  granted  and the  option
exercise  price,  but such price may not be less than one hundred percent of the
fair market value of Common Stock on the grant date.
 
     The following  tables reflect  certain  information,  with respect to stock
options granted to certain executive officers and directors during fiscal 1998.
 
                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
                    ---------------------------------------
 
<TABLE>
<CAPTION>                                                                                       
                                        NUMBER OF      % OF TOTAL                         
                                        SECURITIES     OPTIONS                           
                                        UNDERLYING     GRANTED TO     EXERCISE              
                                        OPTIONS        EMPLOYEES      OR BASE               
                                        GRANTED        IN FISCAL      PRICE     EXPIRATION 
NAME                                       (#)         YEAR(%)        ($/SH)       DATE    
-------------------------------         ----------     ----------     --------- ----------
<S>                                     <C>            <C>            <C>       <C>       
F. Michael Budd ...............         720,465        60.05%         $0.53     12/31/98
Charles S. Palm ...............         385,142        31.24%         $0.53     12/31/03               
LeRoy K. Speirs ...............               0        0.00%          N/A       N/A              
Ronald S. Speirs ..............               0        0.00%          N/A       N/A  
Timothy G. Paulson ............               0        0.00%          N/A       N/A              
Thomas K. Carpenter ...........          29,177        2.37%          $0.53     12/31/03
Joseph R. Maher ...............          78,195        6.34%          $0.53     12/31/03
David L. Stewart ..............               0        0.00%          N/A       N/A        
</TABLE>
 
     The  following  tables  reflect  certain  information,  with respect to the
exercise of stock options by certain executive officers during fiscal 1998.

            AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
                              FY-END OPTION VALUES
            -------------------------------------------------------   
<TABLE>
<CAPTION>
                                                                      NUMBER OF
                                                                      SECURITIES          VALUE OF
                                                                      UNDERLYING          UNEXERCISED
                                                                      UNEXERCISED         IN-THE-MONEY
                                                                      OPTIONS AT          OPTIONS AT
                                                                      FY-END(#)           FY-END($)
                                        SHARES         VALUE          ---------------     -------------------
                                        ACQUIRED ON    REALIZED       EXERCISABLE/        EXERCISABLE/
NAME                                    EXERCISE(#)     ($)           UNEXERCISABLE       UNEXERCISABLE
-------------------------------         -----------    --------       ---------------     -------------------
<S>                                     <C>            <C>            <C>                 <C>
F. Michael Budd ...............         0              0              1,549,325           0
Charles S. Palm ...............         0              0              2,861,832           279,788
LeRoy K. Speirs ...............         0              0                200,000           0   
Ronald S. Speirs ..............         0              0                200,000           0
Timothy G. Paulson ............         0              0                 90,000           0
Thomas K. Carpenter ...........         0              0                209,177           0
Joseph R. Maher ...............         0              0                858,195           0
David L. Stewart ..............         0              0                100,000           0
</TABLE>
          
                                    Page 34
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Security Ownership of Certain Beneficial Owners
     -----------------------------------------------

     The following  table sets forth  security  ownership  information as of the
close of business on December  31, 1998,  for any person or group,  known by the
Company to own more than five percent (5%) of the Company's voting securities.

<TABLE>
<CAPTION>

Title of            Name of                   Amount of          Percent of
Class               Beneficial Owner          Ownership          Class
-------------------------------------------------------------------------------
<S>                 <C>                       <C>                <C>
Common Stock        F. Michael Budd           1,130,750           5.7%
                    743 Cedar Point Pl.
                    Westlake Village, CA 91362
</TABLE>

     F.  Michael Budd has sole  investment  power and sole voting power over the
shares set forth in the above table.  There are no other  shareholders  known to
the Company who beneficially own at least 5% of its stock.

     Security Ownership of Management
     --------------------------------
     The following  table sets forth  security  ownership  information as of the
close of business on December 31, 1998, for any director,  executive  officer or
group of the Company's voting securities:

<TABLE>
<CAPTION>
Title of            Name of                   Amount of          Percent of
Class               Beneficial Owner          Ownership          Class
-------------------------------------------------------------------------------
<S>                 <C>                       <C>                <C>
Common Stock        LeRoy K. Speirs             200,334          1.0%
                    312 West Palm Dr.
                    Arcadia, CA 91007

Common Stock        F. Michael Budd           1,130,334          5.7%
                    743 Cedar Point Pl.
                    Westlake Village, CA 91362

Common Stock        Charles S. Palm             428,751          2.1%
                    31324 Via Colinas
                    Suite 106
                    Westlake Village, CA 91362

Common Stock        David L. Stewart              8,892          0.0%
                    99 Canal Center Plaza
                    Suite 300
                    Alexandria, Virginia 22314

Common Stock        Ronald Speirs                50,000          0.3%
                    1632 S. Pacific Coast Hwy.
                    #455
                    Redondo Beach, CA 90277

Common Stock        Joseph R. Maher             110,000          0.6%
                    1336 N. Moorpark Rd.
                    #161
                    Thousand Oaks, CA 91360

Common Stock        Thomas K. Carpenter               0          0.0%
                    29 Via Falerno
                    Laguna Hills, CA 92656

Common Stock        Timothy G. Paulson           20,000          0.1%
                    21240 Burbank Blvd.
                    Woodland Hills, CA 91367

Common Stock        All Directors & Officers
                    as a Group (8 Persons)     1,948,727         9.8%
                    -----------------------------------------------------------                    
</TABLE>

                                    Page 35
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During the year ended December 31, 1998, the Company was the recipient of a
$100,000  loan from F.  Michael  Budd.  The terms of this loan are  identical to
those made to all  participants  of a Note Offering made during May, 1998.  From
this Offering, a total of $550,000 was borrowed by the Company to use as working
capital.  The term of the loan is for one year and it pays 10% annual  interest.
The Company has the option to repay the loan principle  either in cash or in its
restricted  Common  Stock  at a  conversion  price  of  $0.20  per  share.  Each
participant  also received a Warrant to purchase a pro-rated number of shares of
the Company's  restricted  Common Stock at an exercise price of $0.20 per share.
Mr. Budd's Warrant  associated  with his loan to the Company allows the purchase
of up to 120,000 shares.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) List of Exhibits  attached or  incorporated  by referenced  pursuant to
Item 601 of Regulation S-B.

               (3)  Articles of Incorporation and By-Laws.

                    3.1 Articles of  Incorporation  of the  Registrant  filed on
                    March 27, 1994, (incorporated by reference to Exhibit 3.1 of
                    the Registrant's  Registration Statement on Form 10-SB dated
                    April 28, 1998; Commission File No. 0-24109).
                                
                    3.2 Restated  Articles of  Incorporation  of the  Registrant
                    dated May 18,  1995,  (incorporated  by reference to Exhibit
                    3.2 of the Registrant's Registration Statement on Form 10-SB
                    dated April 28, 1998; Commission File No. 0-24109).

                    3.3 Articles of Amendment  to Articles of  Incorporation  of
                    the Registrant,  filed on September 16, 1996,  (incorporated
                    by reference to Exhibit 3.3 of the Registrant's Registration
                    Statement  on Form 10-SB  dated April 28,  1998;  Commission
                    File No. 0-24109).
      
                    3.4  Statement  of  Designation  of Foreign  Corporation  in
                    California   filed  November  4,  1996,   (incorporated   by
                    reference  to Exhibit 3.4 of the  Registrant's  Registration
                    Statement  on Form 10-SB  dated April 28,  1998;  Commission
                    File No. 0-24109).

                    3.5  Certificate  of Amendment to Articles of  Incorporation
                    filed  September  6, 1997,  (incorporated  by  reference  to
                    Exhibit 3.5 of the  Registrant's  Registration  Statement on
                    Form  10-SB  dated  April  28,  1998;  Commission  File  No.
                    0-24109).

                    3.6 Amended and  Restated  Articles of  Incorporation  filed
                    April 23, 1998, (incorporated by reference to Exhibit 3.6 of
                    the Registrant's  Registration Statement on Form 10-SB dated
                    April 28, 1998; Commission File No. 0-24109).

                    3.7 By-Laws of the Registrant  (incorporated by reference to
                    Exhibit 3.7 of the  Registrant's  Registration  Statement on
                    Form  10-SB  dated  April  28,  1998;  Commission  File  No.
                    0-24109).

               (4)  Instruments defining the rights of holders.

                    4.1  Statement  of Rights,  Preferences  and  Privileges  of
                    Common and Preferred Stock of the Registrant as of September
                    6, 1997,  (incorporated  by  reference to Exhibit 4.1 of the
                    Registrant's  Registration  Statement  on Form  10-SB  dated
                    April 28, 1998; Commission File No. 0-24109).

                                     Page 36
<PAGE>             
               (10) Material Contracts

                    10.1  Management  Cash  Incentive  Plan   (incorporated   by
                    reference to Exhibit 10.1 of the  Registrant's  Registration
                    Statement  on Form 10-SB  dated April 28,  1998;  Commission
                    File No. 0-24109).

                    10.2 1998 Stock  Option Plan  (incorporated  by reference to
                    Exhibit 10.2 of the Registrant's  Registration  Statement on
                    Form  10-SB  dated  April  28,  1998;  Commission  File  No.
                    0-24109).

                    10.3 Acuscape License  Agreement  (incorporated by reference
                    to Exhibit 10.3 of the  Registrant's  Amendment No. 1 to the
                    Registration  Statement  on Form 10-SB  filed on November 6,
                    1998; Commission File No. 0-24109).

                                
                    10.4  Smithsonian  License  Agreement  dated October 2, 1997
                    (incorporated   by   reference   to  Exhibit   10.4  of  the
                    Registrant's  Amendment No. 1 to the Registration  Statement
                    on Form 10-SB filed on November 6, 1998; Commission File No.
                    0-24109).

                    10.5  Amendment  No.  1  to  Smithsonian  License  Agreement
                    (incorporated   by   reference   to  Exhibit   10.5  of  the
                    Registrant's  Amendment No. 1 to the Registration  Statement
                    on Form 10-SB filed on November 6, 1998; Commission File No.
                    0-24109).  

                    10.6 Centro Alameda Inc.  Contract  Agreement dated December
                    19, 1997  (incorporated  by reference to Exhibit 10.6 of the
                    Registrant's  Amendment No. 1 to the Registration  Statement
                    on Form 10-SB filed on November 6, 1998; Commission File No.
                    0-24109).  

                    10.7   Knowledge   LINK   Strategic    Alliance    Agreement
                    (incorporated   by   reference   to  Exhibit   10.7  of  the
                    Registrant's  Amendment No. 1 to the Registration  Statement
                    on Form 10-SB filed on November 6, 1998; Commission File No.
                    0-24109).  

                    10.8  Synthonics  Technologies - Industrial  Lease Agreement
                    (incorporated   by   reference   to  Exhibit   10.8  of  the
                    Registrant's  Amendment No. 1 to the Registration  Statement
                    on Form 10-SB filed on November 6, 1998; Commission File No.
                    0-24109).  

                    10.9 Joseph Maher - Industrial Lease Agreement (incorporated
                    by reference to Exhibit 10.9 of the  Registrant's  Amendment
                    No. 1 to the  Registration  Statement on Form 10-SB filed on
                    November 6, 1998;  Commission File No. 0-24109).  

                    10.10 Dell Financial Lease No.  004591649-001  (incorporated
                    by reference to Exhibit 10.10 of the Registrant's  Amendment
                    No. 1 to the  Registration  Statement on Form 10-SB filed on
                    November 6, 1998;  Commission File No. 0-24109).  

                    10.11 Dell Financial Lease No.  004591649-002  (incorporated
                    by reference to Exhibit 10.11 of the Registrant's  Amendment
                    No. 1 to the  Registration  Statement on Form 10-SB filed on
                    November  6,  1998;  Commission  File  No.  0-24109).  

                    10.12 Americorp Financial Inc. - Lease 6976-2  (incorporated
                    by reference to Exhibit 10.12 of the Registrant's  Amendment
                    No. 1 to the  Registration  Statement on Form 10-SB filed on
                    November 6, 1998; Commission File No. 0-24109).

                    10.13   Sanwa   Leasing   Corporation   -  Lease   Agreement
                    (incorporated   by  reference   to  Exhibit   10.13  of  the
                    Registrant's  Amendment No. 1 to the Registration  Statement
                    on Form 10-SB filed on November 6, 1998; Commission File No.
                    0-24109).

                                     Page 37

<PAGE>
                    10.14 AT & T Equipment  Lease - 003866952  (incorporated  by
                    reference to Exhibit 10.14 of the Registrant's Amendment No.
                    1 to the  Registration  Statement  on Form  10-SB  filed  on
                    November 6, 1998; Commission File No. 0-24109).

                    10.15 AT & T Equipment  Lease - 003871854  (incorporated  by
                    reference to Exhibit 10.15 of the Registrant's Amendment No.
                    1 to the  Registration  Statement  on Form  10-SB  filed  on
                    November 6, 1998;  Commission  File No.  0-24109).  

                    10.16 F. Michael Budd Employment Agreement  (incorporated by
                    reference to Exhibit 10.16 of the Registrant's Amendment No.
                    1 to the  Registration  Statement  on Form  10-SB  filed  on
                    November  6,  1998;  Commission  File  No.  0-24109).  

                    10.17 Charles S. Palm Employment Agreement  (incorporated by
                    reference to Exhibit 10.3 of the Registrant's  Amendment No.
                    1 to the  Registration  Statement  on Form  10-SB  filed  on
                    November 6, 1998; Commission File No. 0-24109).  

                    10.18 First Colony Life Insurance  Policy  (incorporated  by
                    reference to Exhibit 10.18 of the Registrant's Amendment No.
                    1 to the  Registration  Statement  on Form  10-SB  filed  on
                    November  6,  1998;  Commission  File  No.  0-24109).   

                    10.19  Software  Remarketing   Agreement  between  Synhonics
                    Technologies,   Inc.   and  Evans  &   Sutherland   Computer
                    Corporation.

               (27) Financial Data Schedule

                    27.1. Financial Data Schedule (submitted  electronically for
                    SEC information only).

     (b) There were no other reports on Form 8-K filed during the quarter of the
period covered.


                                     Page 38

<PAGE>
     
     The following Exhibit Index sets forth the Exhibit attached hereto

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
     Exhibit                  Description
     -------------------------------------------------------------------------
     <S>                      <C>        
     Exhibit 10.19            Software Remarketing Agreement between 
                              Synthonics Technologies,  Inc. and Evans &
                              Sutherland Computer Corporation.

</TABLE>

                                     Page 39
<PAGE>
                                   
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.

                                             SYNTHONICS TECHNOLOGIES, INC.
                                                  A Utah Corporation



Dated: March 9, 1999                         /s/   F. Michael  Budd
                                             ---------------------------------
                                             By:  F. Michael Budd
                                             Its: President
                                                  Chief Executive Officer 
                                                  and principal Financial 
                                                  and Accounting Officer


                                     Page 40