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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 0-27038
VISIONEER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-3156479
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
34800 CAMPUS DRIVE
FREMONT, CA 94555
(510) 608-0300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ].
The number of shares of the registrant's Common Stock, $0.001 par value,
outstanding as of October 31, 1997 was 19,633,318.
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VISIONEER, INC.
FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
INDEX
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<CAPTION>
PAGE
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Balance Sheets at September 30, 1997 and December 31, 1996........
b) Condensed Statements of Operations for the three month and nine month
periods ended September 30, 1997 and September 30, 1996........................
c) Condensed Statements of Cash Flows for the nine month periods ended
September 30, 1997 and September 30, 1996...................................
d) Notes to Condensed Financial Statements.....................................
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................
PART II: OTHER INFORMATION
Item 1. Legal Proceedings..............................................................
Item 2. Changes in Securities..........................................................
Item 3. Defaults Upon Senior Securities................................................
Item 4. Submission of Matters to a Vote of Security Holders............................
Item 5. Other Information..............................................................
Item 6. Exhibits and Reports on Form 8-K...............................................
Signatures...............................................................................
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PART 1
FINANCIAL INFORMATION
ITEM. FINANCIAL STATEMENTS
VISIONEER, INC.
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
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ASSETS
Current assets:
Cash and cash equivalents........................................ $ 12,793 $ 22,391
Short-term investments........................................... 1,502 8,747
Restricted cash.................................................. 62 62
Accounts receivable, less allowances of $4,750 and $3,931........ 11,403 10,780
Inventory........................................................ 2,918 4,508
Prepaid expenses and other current assets........................ 1,082 911
------------- ------------
Total current assets..................................... 29,760 47,399
------------- ------------
Property and equipment, net........................................ 2,809 4,158
Other assets....................................................... 155 228
------------- ------------
$ 32,724 $ 51,785
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 12,660 $ 11,449
Deferrred revenue................................................ 2,252 334
Accrued sales and marketing incentives........................... 1,825 2,474
Accrued payable to sub-contractors............................... 2,100 1,100
Accrued liabilities.............................................. 3,266 3,235
------------- ------------
Total current liabilities................................ 22,103 18,592
------------- ------------
Long-term liabilities............................................ 125 --
------------- ------------
Stockholders' equity:
Common stock, $0001 par value; 50,000,000 shares authorized at
September 30, 1997 and December 31, 1996; 19,695,171 and
19,202,609 shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively........................... 19 19
Additional paid-in-capital....................................... 87,690 86,951
Deferred compensation relating to stock options.................. (175) (250)
Notes receivable from stockholders............................... (337) (329)
Accumulated deficit.............................................. (76,701) (53,198)
------------- ------------
Total stockholders' equity............................... 10,496 33,193
------------- ------------
$ 32,724 $ 51,785
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VISIONEER, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
1997 1996 1997 1996
------- ------- -------- --------
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Revenues:
Product revenues.................................... $15,626 $10,259 $ 32,712 $ 31,468
Royalty and other revenues.......................... 1,851 1,819 5,246 8,599
------- ------- -------- --------
Total net revenues.......................... 17,477 12,078 37,958 40,067
------- ------- -------- --------
Cost of revenues:
Cost of product revenues............................ 11,788 9,506 36,666 27,081
Cost of royalty revenues............................ 272 188 564 1,088
------- ------- -------- --------
Total cost of revenues...................... 12,060 9,694 37,230 28,169
------- ------- -------- --------
Gross profit.......................................... 5,417 2,384 728 11,898
------- ------- -------- --------
Operating expenses:
Research and development............................ 1,573 3,191 6,977 8,210
Selling, general and administrative................. 4,745 6,802 17,417 18,801
Restructuring charge................................ -- -- 675 --
------- ------- -------- --------
Total operating expenses.................... 6,318 9,993 25,069 27,011
------- ------- -------- --------
Operating loss........................................ (901) (7,609) (24,341) (15,113)
Interest income....................................... 232 585 879 1,858
Interest expense...................................... (7) (20) (41) (53)
------- ------- -------- --------
Net loss.............................................. $ (676) $(7,044) $(23,503) $(13,308)
======= ======= ======== ========
Net loss per share.................................... $ (0.03) $ (0.37) $ (1.21) $ (0.70)
======= ======= ======== ========
Weighted average common shares and equivalents........ 19,405 19,207 19,490 19,061
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VISIONEER, INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................. $(23,503) $(13,308)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization................................... 1,883 1,393
Accounts receivable allowances.................................. 819 (77)
Other........................................................... 67 75
Changes in assets and liabilities:
Accounts receivable........................................... (1,442) 3,834
Inventory..................................................... 1,590 (4,191)
Prepaid expenses and other current assets..................... (171) (303)
Other assets.................................................. 73 (111)
Accounts payable.............................................. 1,211 (2,116)
Deferred revenue.............................................. 1,918 (1,192)
Accrued sales and marketing incentives........................ (649) 501
Accrued payable to sub-contractors............................ 1,000 361
Other accrued liabilities..................................... 156 1,135
-------- --------
Net cash used in operating activities................................ (17,048) (13,999)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of short-term investments.................... 7,245 (7,449)
Capital expenditures for property and equipment.................... (534) (2,306)
-------- --------
Net cash provided by (used in) investing activities.................. 6,711 (9,755)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net........................ 739 7,620
Payments on capitalized lease obligations.......................... -- (182)
-------- --------
Net cash provided by financing activities............................ 739 7,438
-------- --------
Net decrease in cash and cash equivalents............................ (9,598) (16,316)
Cash and cash equivalents at beginning of period..................... 22,391 39,909
-------- --------
Cash and cash equivalents at end of period................. $ 12,793 $ 23,593
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VISIONEER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements of Visioneer,
Inc. (the "Company" or "Visioneer") have been prepared in accordance with
generally accepted accounting principles. In the opinion of management, these
interim condensed financial statements reflect all adjustments, consisting of
normal recurring adjustments necessary to present fairly the financial position,
results of operations, and cash flows at September 30, 1997, and for other
periods presented. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and
related footnotes prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. The accompanying financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996.
The results for the quarter ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997, or any future period.
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 on the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
The Company's fiscal year ends on the Sunday closest to December 31.
Accordingly, fiscal 1997 will end December 28, 1997 and will contain 52 weeks,
fiscal 1996 ended December 29, 1996 and also contained 52 weeks. The Company
reports quarterly results on thirteen-week quarterly periods, each ending on the
Sunday closest to month-end. For purposes of presentation, the Company has
indicated its accounting year as ending December 31 and its interim quarterly
periods as ending on the respective calendar month-end.
NOTE 2. BALANCE SHEET COMPONENTS:
Inventory consists of the following (in thousands):
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SEPTEMBER 30, DECEMBER 31,
1997 1996
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Raw materials...................................... $ -- $1,433
Work-in-process.................................... 324 1,453
Finished goods..................................... 2,594 1,622
------ ------
$ 2,918 $4,508
====== ======
</TABLE>
During the nine month period ended September 30, 1997, and primarily in the
three month period ended March 31, 1997, the Company recorded net inventory
reserves and write-offs of approximately $3.9 million. In addition, during the
same period, the Company recorded $5.0 million of reserves in connection with
the cancellation of certain purchase commitments.
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VISIONEER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Property, plant and equipment, net, consists of the following (in
thousands):
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SEPTEMBER 30, DECEMBER 31,
1997 1996
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Machinery and equipment............................ $ 3,586 $5,129
Software........................................... 1,363 1,259
Leasehold improvements............................. 281 368
Furniture and fixtures............................. 688 607
------ ------
5,918 7,363
Accumulated depreciation and amortization.......... (3,109) (3,205)
------ ------
$ 2,809 $4,158
====== ======
</TABLE>
NOTE 3. NET LOSS PER SHARE:
Net loss per share data is based upon the weighted average number of
outstanding shares of common stock. Common stock equivalents, which include
stock options and warrants (using the treasury stock method), are excluded as
their effect is anti-dilutive.
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for the Company's year ending December 31, 1997. The Statement
redefines earnings per share under generally accepted accounting principles.
Under the new standard, primary earnings per share is replaced by basic earnings
per share and fully diluted earnings per share is replaced by diluted earnings
per share. If the Company had adopted this Statement on January 1, 1996 it would
not have had a material impact on the reported loss per share for the three and
nine month periods ended September 30, 1997 and 1996.
NOTE 5. LITIGATION AND PATENT INFRINGEMENT CLAIMS:
On November 1, 1996, Millennium, L.P. ("Millennium"), a Cayman Island
limited partnership, filed an infringement action against Compaq alleging that
Compaq's scanner keyboard system, which utilizes certain technology that is
licensed from the Company, and used in its products, infringes certain patent
claims. The Company indemnified Compaq with respect to the claims that
Millennium had asserted against Compaq to the extent required by the Company's
OEM agreement with Compaq. On September 17, 1997, Millennium and the Company
entered into a Settlement and License Agreement pursuant to which the Company
licensed the patents held by Millennium and the litigation was settled. The
payments to Millennium, called for by the settlement, had been fully accrued in
previous periods.
NOTE 6. DEBT:
On June 26, 1997, the Company obtained a $7.5 million line of credit from a
bank. The facility, which expires on June 25, 1998, bears an interest rate of
0.25% over the Prime Rate. The agreement provides for borrowings up to the
lesser of 70% of eligible domestic accounts receivables and 60% of eligible
distributor accounts receivables or $7.5 million. Under the terms of the
agreement, the Company can use the line of credit to obtain letters of credit of
up to $2.0 million. On September 30, 1997, the agreement was modified to
increase the letter of credit sub-limit to $6 million. The line of credit is
collateralized by a security interest in substantially all of the Company's
current and future tangible and intangible assets. The terms of the agreement
require, among other terms, a minimum ratio of current assets to current
liabilities, a maximum ratio of indebtedness to tangible net worth and maximum
quarterly losses. At September 30, 1997 the Company had no outstanding bank
borrowings.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I -- Item 1 of this
Quarterly Report and the audited financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the year ended December 31, 1996 contained in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1996.
Except for the historical information contained herein, the matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and, in particular,
the factors described under "Additional Factors That May Affect Future Results,"
and those mentioned in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996 under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OVERVIEW
Visioneer designs, develops and markets intelligent paper input systems and
image management software. The Company introduced its first color sheet fed
product, the PaperPort Strobe, in the second quarter of 1997, and its first line
of flatbed scanners, the PaperPort 3000 and PaperPort 6000, in the third quarter
of 1997. The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The success of the Company will
depend on its ability to adopt certain product cost reduction measures, thereby
improving its gross margins, implement certain expense reduction measures while
generating sales of PaperPort products significantly in excess of sales during
the past several quarters, introduce new products and enhancements to existing
products which respond to customer needs, attain market acceptance and
effectively compete against other products. This in turn will depend in part on
the ability of the Company to convince end users to adopt paper management
systems for the desktop and to educate end users about the benefits of the
Company's products. There can be no assurance that the Company will be
successful in reducing its costs and expenses, nor is there any assurance that
the market for paper input systems will develop or that the Company will achieve
broad market acceptance of its products. The Company has incurred annual net
losses since inception. There can be no assurance that the Company will be able
to attain profitability during any particular period or in the near future. As
of September 30, 1997, the Company had an accumulated deficit of $76.7 million.
Although the Company had, in the past, experienced revenue growth during several
quarters, the growth rates have neither been consistent nor sustainable and are
not indicative of future operating results.
7
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RESULTS OF OPERATIONS
The following table presents, as a percentage of total net revenues,
certain selected financial data for the three month and nine month periods ended
September 30, 1997 and September 30, 1996.
VISIONEER, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
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<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996
----- ----- ----- -----
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Revenues:
Product revenues............................ 89.4% 84.9% 86.2% 78.5%
Royalty and other revenues.................. 10.6% 15.1% 13.8% 21.5%
----- ----- ----- -----
Total net revenues.................. 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of revenues:
Cost of product revenues.................... 67.4% 78.7% 96.6% 67.6%
Cost of royalty and other revenues.......... 1.6% 1.6% 1.5% 2.7%
----- ----- ----- -----
Total cost of revenues.............. 69.0% 80.3% 98.1% 70.3%
----- ----- ----- -----
Gross profit.................................. 31.0% 19.7% 1.9% 29.7%
----- ----- ----- -----
Operating expenses:
Research and development.................... 9.0% 26.4% 18.3% 20.5%
Selling, general and administrative......... 27.2% 56.3% 45.9% 46.9%
Restructuring charge........................ 0.0% 0.0% 1.8% 0.0%
----- ----- ----- -----
Total operating expenses............ 36.2% 82.7% 66.0% 67.4%
----- ----- ----- -----
Operating loss................................ (5.2%) (63.0%) (64.1%) (37.7%)
Interest income............................... 1.3% 4.8% 2.3% 4.6%
Interest expense.............................. (0.0%) (0.2%) (0.1%) (0.1%)
----- ----- ----- -----
Net loss...................................... (3.9%) (58.3%) (61.9%) (33.2%)
===== ===== ===== =====
</TABLE>
TOTAL NET REVENUES
Total net revenues increased 45% to $17.5 million for the three month
period ended September 30, 1997 from $12.1 million for the comparable period in
1996. The increase was attributable primarily to significant increases in
branded product sales. Overall scanner unit sales increased 96% between the
comparable three month periods, benefiting from a full quarter's shipment of
PaperPort Strobe, continued demand for grayscale products, and the September
introduction of the Company's new line of color flatbed scanners, the PaperPort
3000 and PaperPort 6000. Some of the sales of PaperPort Strobe and PaperPort
3000 and 6000 was attributed to initial distributor and reseller inventory
stocking orders. In complying with the Company's revenue recognition policy
regarding new product introductions, the Company has deferred recognition of
revenue for a portion of these product shipments until the normal sell-thru rate
can be determined. Scanner revenue growth of 44% did not match unit sales growth
as overall average selling prices of scanners continued their downward trend.
Contributing to the increase in total net revenues for the comparable three
month periods, was a significant increase in software revenues as a result of
the introduction of PaperPort Deluxe software in the first quarter of 1997. Net
software revenues increased 381% for the three month period ended September 30,
1997 from the comparable period in 1996, accounting for approximately 13% of
total net revenues. Royalty revenue was essentially unchanged, remaining at
approximately $1.8 million for the two periods.
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Total net revenues for the nine month period ended September 30, 1997
decreased 5% to $38.0 million from $40.1 million for the comparable period in
1996. The decrease was attributable to several factors. First, retail scanner
unit shipments were down significantly in the three month period ended March 31,
1997 from the same period in 1996, because the sheet-fed scanner market
transitioned from grayscale to color much more rapidly than the Company had
anticipated, and the corporate market was not developing as quickly as the
Company had expected. Second, revenues were adversely impacted by several
scanner price reductions as the Company had to respond to competitive pricing
actions. Third, while royalties from the Company's OEM partners remained
relatively flat for the three month period ended September 30, 1997 compared to
the same period in 1996, OEM royalties declined significantly during the three
month period ended March 31, 1997 compared to the same period in 1996, because
Hewlett-Packard stopped purchasing the Company's product in the second quarter
of 1996 and the Company and Compaq mutually agreed to terminate the OEM
licensing agreement in the first quarter of 1997.
Total net revenues from international sales were approximately 8% of total
net revenues for the three month period ended September 30, 1997 as compared to
12% for the same period in 1996. Total net revenues from international sales for
the nine month periods ended September 30, 1997 and September 30, 1996 remained
relatively flat at approximately 10% of total net revenues. The recent decline
in international sales was a direct result of the Company's decision to
restructure its international sales and marketing operations. In April 1997, the
Company terminated its local sales operations for Europe and the Asia-Pacific
regions and began focusing on distribution partners who have established sales
outlets and local country expertise. The strategy is designed to minimize
expenses and maximize profitability for the regions. However, in the near term,
until the strategy is fully implemented, it is unlikely that the Company will be
able to sustain the same level of revenues from international sales as it has
experienced in the previous several quarters.
Pursuant to the software licensing agreement with Hewlett-Packard, the
three month period ended September 30, 1997 was the last period in which
Hewlett-Packard was required to make a minimum quarterly payment of $1.5 million
to the Company. Under the terms of the agreement, Hewlett-Packard will continue
to pay per unit royalties to the Company for every Hewlett-Packard product
shipped with the Company's software. The Company expects royalty revenues from
Hewlett-Packard for future periods to decrease significantly, the extent of
which is uncertain. If the Company is not able to replace the anticipated loss
in revenue for Hewlett-Packard with other equivalent royalty revenue from other
OEMs, the Company's future net revenues and gross margin will be adversely
impacted.
The introduction of major new products and enhancements of existing
products, are expected to have a significant impact on the Company's quarterly
and annual revenues. As is characteristic of the initial stages of personal
computer product life cycles, the Company expects that sales volumes of any new
product may increase in the first few months following introduction due to the
purchase of initial inventory by the Company's distribution channels.
Thereafter, revenues may decline or stabilize until the end of a product life
cycle, at which time revenues are likely to decline significantly. Many
competitors have entered the market in the last 24 months and although they
helped to establish market demand for paper input products, they also have
applied significant pricing pressures to which the Company has had to respond.
Due to the inherent uncertainties of product development and new product
introductions, the Company cannot accurately predict the exact quarter in which
a new product or version will be ready to ship. Any delay in the scheduled
release of major new products would have a material adverse impact on the
Company's total net revenues and operating results.
The Company has experienced and may continue to experience significant
fluctuations in revenues and operating results from quarter to quarter and from
year to year due to a combination of factors, many of which are outside of the
Company's direct control. These factors include development of the paper input
systems market, demand for the Company's products, the Company's success in
developing, introducing and shipping new products and product enhancements, the
market acceptance of such products, the Company's ability to respond to new
product introductions and price reductions by its competitors, which the Company
expects will continue through the foreseeable future, the timing, cancellation
or rescheduling of significant orders, the purchasing patterns and potential
product returns from the Company's distribution channels, the Company's
relationships with its OEM partners and distributors, the performance of the
Company's contract manufactur-
9
<PAGE> 11
ers and component suppliers, the availability of key components and changes in
the cost of materials for the Company's products, the Company's ability to
attract, retain and motivate qualified personnel, the timing and amount of
research and development and selling, general and administrative expenditures,
and general economic conditions.
In particular, the Company recently introduced the PaperPort Strobe, the
Company's first color sheet fed product, and the PaperPort 3000 and PaperPort
6000, the Company's first line of flatbed color scanners. There can be no
assurance that the market will accept such products, that the Company will not
experience significant levels of returns of such products as a result of
manufacturing or engineering problems associated with new product development,
or that the Company will not experience a significant decrease in revenues, or
higher rates of return of its older products as a result of such new product
introductions.
TOTAL COST OF REVENUES
Total cost of revenues as a percentage of total net revenues was 69% for
the three month period ended September 30, 1997 compared to 80% for the
comparable period in 1996. The improvement resulted primarily from fixed costs
spread over increased unit shipments, various cost reduction programs, and
favorable impact from sale of certain grayscale products for which lower of cost
or market reserves had been taken in prior quarters.
Total cost of revenues as a percentage of total net revenues was 98% for
the nine month period ended September 30, 1997 compared to 70% for the
comparable period in 1996. The increase was a result of significant charges
taken in the three month period ended March 31, 1997 for inventory write-offs,
increased reserves relating to excess and obsolete inventory, and cancellation
of certain purchase commitments relating to grayscale scanner products.
A substantial portion of the total manufacturing cost of the PaperPort is
represented by various components, particularly PCBAs, a contact image sensor
array and the Company's proprietary ASIC. Prices and availability of these
components can fluctuate significantly. Because the market for paper input
systems and, in particular, the Company's products, is new and rapidly evolving,
the Company's ability to forecast its demand for finished goods and key
components was and still is limited and involves a substantial amount of risk.
The market's transition to color scanners has been much faster than originally
anticipated by the Company and the Company's corporate marketing strategy has
not developed as quickly as originally expected. Based on these factors, the
Company recorded charges of approximately $9.5 million to cover estimated
cancellation charges and to increase inventory related reserves in the three
month period ended March 31, 1997. Due to variations in product mix, planned and
unplanned pricing actions, and manufacturing related costs associated with
future product transitions, the Company anticipates quarterly fluctuations and
continued pressure on its cost of revenues and gross margins for the balance of
1997, which will have a material adverse effect on the financial condition and
results of operations of the Company. The Company is currently pursuing several
product cost reduction projects, which the Company expects will help counteract
margin erosion common to the peripherals market. However, there can be no
assurance that the Company will be successful in these efforts, nor that if
these efforts are successful, that they will be sufficient to allow the Company
to compete effectively in the scanner market.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 51% in absolute dollars to $1.6
million in the three month period ended September 30, 1997 from $3.2 million in
the comparable period in 1996, while decreasing as a percentage of total net
revenues to 9% from 26%. Research and development expenses decreased 15% in
absolute dollars to $7.0 million in the nine month period ended September 30,
1997 from $8.2 million in the comparable period in 1996. The decreases in
spending were the result of a reduction in engineering employees and consultants
and reduced project spending. At September 30, 1997 the Company employed 30
full-time employees and 7 consultants in research and development compared to 54
employees and 18 consultants at September 30, 1996. The reduction was part of a
company-wide restructuring plan implemented in May 1997. The Company believes
that the continued development of new products and the enhancement of existing
10
<PAGE> 12
products is essential to its success, and will continue to invest in activities
which it believes are essential to the success of the Company. To date, the
Company has not capitalized any development costs and does not anticipate
capitalizing any such costs in the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND RESTRUCTURING CHARGE
Selling, general and administrative expenses decreased 30% in absolute
dollars to $4.7 million in the three month period ended September 30, 1997 from
$6.8 million in the comparable period in 1996. As a percentage of total net
revenues, selling, general and administrative expenses decreased to 27% from
56%. Selling, general and administrative expenses decreased 7% in absolute
dollars to $17.4 million in the nine month period ended September 30, 1997 from
$18.8 million in the comparable period in 1996. The decrease was primarily
attributable to the Company's adoption of a strategy to focus on its core
domestic scanner and software products. As a result, the Company completed a
restructuring plan of all its organizations in May, including a decrease of
approximately 40% of total employee and consultant headcount and a significant
reduction in variable sales and marketing expenditures. A one-time restructuring
charge of $675,000 was recorded in the three month period ended June 30, 1997,
representing severance paid to terminated employees and contractors and other
related expenses. Although the spending cuts were designed to decrease the
Company's on-going operating expenses, there can be no assurance that the
spending cuts will not adversely affect future revenue levels, which would have
an adverse affect on the Company's financial condition and future operating
results. Although the Company has adopted rigid spending controls, selling,
general and administrative expenses may fluctuate from quarter to quarter, in
absolute terms, depending on a variety of factors, including the timing of the
introduction of any new products, expansion of the Company's distribution
channels, general advertising not related to product introductions and a new
international sales and marketing strategy.
OTHER INCOME, NET
Other income, net consists primarily of interest earned on cash equivalents
and short-term investments. Other income, net was $225,000 for the three month
period ended September 30, 1997 compared to $565,000 for the three month period
ended September 30, 1996. Other income, net was $838,000 for the nine month
period ended September 30, 1997, compared to $1.8 million for the comparable
period in 1996. These decreases were the result of a decrease in interest income
from decreased cash equivalents and short-term investments, as a consequence of
the Company's operational losses over the last several quarters.
TAXATION
The Company had no tax provision during the nine month period ended
September 30, 1997 and 1996 due to the net loss incurred. The Company did not
record a tax benefit of operating losses for the first nine months of 1996 and
1997 due to the uncertainty of their realization.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments totaled
$14.4 million at September 30, 1997 compared to $31.2 million at December 31,
1996. The $16.8 million decrease was primarily used to fund $17.0 million in
operating activities for the first nine months of 1997. The negative cash flows
from operating activities was attributed to a net loss of $23.5 million, offset
by non-cash charges and changes in working capital. Cash used for operating
activities in the first nine months of 1996 was $14.0 million, of which $13.3
million was used to fund net losses and a net decrease in non-cash charges and
working capital of $691,000.
Cash provided by investing activities for the nine month period ended
September 30, 1997 was $6.7 million, primarily from net sales of short-term
investments. Cash used in investing activities for the nine month period ended
September was $9.8 million, of which $7.4 million was associated with net
purchases of short-term investments and transfers to restricted cash, and $2.3
million was used for capital expenditures.
Cash provided by financing activities for the nine months ended September
30, 1997 was $739,000, primarily from the issuance of new Common Stock in
connection with the Company's employee stock purchase plan. Cash provided by
financing activities was $7.4 million for the nine month period ended
11
<PAGE> 13
September 30, 1996. The majority of the cash was the result of the exercise of
the over-allotment option granted to the underwriters in the December 1995
initial public offering.
As the Company introduces and ramps up production of its new products in
subsequent quarters, its investment in inventory and accounts receivable will
continue to represent a significant portion of working capital. In June 1997,
the Company negotiated a $7.5 million line of credit to provide an additional
source of liquidity. The Company believes that its existing sources of
liquidity, including current cash balances and its line of credit, will provide
adequate cash to fund its operations for at least the next twelve months.
Thereafter, if cash generated by operations is insufficient to satisfy the
Company's liquidity requirements, the Company may be required to sell additional
equity or debt securities. The sale of additional equity or convertible debt
securities would result in additional dilution to the Company's stockholders.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company intends to take advantage of the "Safe Harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that the following important factors, as well as other
factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future
quarters to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company in this report.
DEPENDENCE ON DEVELOPING MARKET; PRODUCT CONCENTRATION
The market for paper input systems and, in particular, for the Company's
PaperPort products, is new and rapidly evolving. The Company currently derives
substantially all of its revenues from its PaperPort products and expects that
revenues from these products will continue to account for a substantial portion
of all of its revenues for the foreseeable future. Broad market acceptance of
PaperPort products is critical to the Company's future success. This success
will depend in part on the ability of the Company, its distributors and other
suppliers of paper input scanners to convince end users to adopt paper input
systems for the desktop, and the Company's ability to educate end users about
the benefits of its products. This success will also depend in part on the
Company's ability to offer competitive hardware and software features in its
PaperPort products in a limited period of time.
DIFFICULTIES AND RISKS ASSOCIATED WITH NEW PRODUCT INTRODUCTION AND
DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology and frequent new product introductions. The Company's success will
depend to a substantial degree upon its ability to develop and introduce in a
timely fashion new products and enhancements to its existing products that meet
changing customer requirements and emerging industry standards, including the
Company's recent introduction of its color scanner products, the PaperPort
Strobe, PaperPort 3000 and PaperPort 6000. The development of new,
technologically-advanced products and product enhancements is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends, including with respect to
PaperPort Strobe and PaperPort 3000 and 6000, the Company's belief of
significant market demand for color sheet-fed and flatbed scanner products,
respectively. There can be no assurance that the Company will be able to
identify, develop, manufacture, market or support new products and product
enhancements successfully, that any new products or product enhancements will
gain market acceptance, or that the Company will be able to respond effectively
to technological changes, emerging industry standards or product announcements
by competitors. New product announcements by the Company could cause customers
to defer purchasing existing products or cause the Company to lower prices of
its older products, resulting in distributors claiming price protection credits
or returning such products to the Company. Any of these events could have a
material adverse effect on the Company's business, operating results and
financial condition.
The introduction of major new products and enhancements of existing
products, such as PaperPort Deluxe, introduced in the first quarter of 1997, and
PaperPort Strobe, introduced in the second quarter of 1997, and PaperPort 3000
and PaperPort 6000, introduced in the third quarter, has had and will continue
to
12
<PAGE> 14
have a significant impact on the Company's quarterly and annual revenues. As is
characteristic of the initial stages of personal computer product life cycles,
the Company expects that sales volumes of any new product may increase in the
first few months following introduction due to the purchase of initial inventory
by the Company's distributors. Thereafter, revenues may decline or stabilize
until the end of a product life cycle, at which time revenues are likely to
decline significantly. To this extent, the Company feels that the level of sales
of PaperPort Deluxe and PaperPort Strobe, in the final quarter of 1997, may not
match initial sales figures experienced in the first nine months of 1997.
The Company must successfully manage the transition to new products and new
versions of existing products. At the end of a product life cycle the Company
may experience higher rates of return of its older products and may have to
lower the prices of such products, which would result in increased price
protection charges and could have a material adverse impact on the Company's net
revenues and operating results. The Company experienced higher than normal rates
of return of its grayscale scanner products in the first nine months of 1997 and
incurred significant price protection charges in connection with the Company's
release of its new color scanner, the PaperPort Strobe. Due to the inherent
uncertainties of product development and new product introductions, the Company
cannot accurately predict the exact timing in which a new product or version
will be ready to ship. Any delay in the scheduled release of major new products
would have a material adverse impact on the Company's net revenues and operating
results.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced and may continue to experience significant
fluctuations in revenues and operating results from quarter to quarter and from
year to year due to a combination of factors, many of which are outside of the
Company's direct control. These factors include development of the paper
management systems market, demand for the Company's products, the Company's
success in developing, introducing and shipping new products and product
enhancements, the market acceptance of such products, the Company's ability to
respond to new product introductions and price reductions by its competitors,
which the Company expects will continue for the foreseeable future, the timing,
cancellation or rescheduling of significant orders, the purchasing patterns and
potential product returns from the Company's distribution channels, the
Company's relationships with its OEM partners and distributors, the performance
of the Company's contract manufacturers and component suppliers, the
availability of key components and changes in the cost of materials for the
Company's products, the Company's ability to attract, retain and motivate
qualified personnel, the timing and amount of research and development and
selling, general and administrative expenditures, and general economic
conditions.
Revenues and operating results in any quarter depend on the volume, timing
and ability to fulfill customer orders, the receipt of which is difficult to
forecast. A significant portion of the Company's operating expenses is
relatively fixed in advance, based in large part on the Company's forecasts of
future sales. If sales are below expectations in any given period, the adverse
effect of a shortfall in sales on the Company's operating results may be
magnified by the Company's inability to adjust operating expenses to compensate
for such shortfall. Accordingly, any significant shortfall in revenues relative
to the Company's expectations would have an immediate material adverse impact on
the Company's business, operating results and financial condition. The Company
may also be required to reduce prices in response to competition or increase
spending to pursue new product or market opportunities. In the event of
significant additional price competition in the market for the Company's
products, which is expected, the Company will be required to decrease costs at
least proportionately and will be at a significant disadvantage compared to
competitors with substantially greater resources, which could more readily
withstand an extended period of downward pricing pressure. The Company realizes
substantially more revenue from the sale of its branded products than from its
royalty arrangements. However, the effect on gross profit and net income from
any shifts in product mix is uncertain and depends on the Company's ability to
control its costs.
Due to all of the foregoing factors, it is likely that at some point in the
future the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected. Accordingly, the Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by
13
<PAGE> 15
companies participating in new and rapidly evolving markets. There can be no
assurance that the Company will be successful in addressing such risks.
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company has an independent contract manufacturing agreement with
Flextronics. Until the second quarter of 1996, Flextronics had accounted for
nearly all of the Company's material procurement, assembly, system integration,
testing and quality assurance. Commencing in the second quarter of 1996, the
Company began contracting the manufacture of the PaperPort ix, the scanner
keyboard, with NMB Technologies, Inc. ("NMB"). In May 1997, the Company entered
into an independent contract manufacturing agreement with NMB to manufacture the
PaperPort Strobe. In the third quarter of 1997, the Company began contracting
the manufacture of PaperPort 3000 and PaperPort 6000 flatbed scanners with
Avision Labs, Inc. ("Avision"), on a purchase order basis. All manufacturing
partners are located in the Far East, and therefore, the Company is exposed to
the political and economic risks associated with doing business in this region,
which could have a material adverse effect on the Company's business, operating
results and financial condition. Furthermore, commencement of production of
products at new or existing facilities involves certain start-up risks, such as
those associated with the procurement of materials and training of production
personnel, which may result in delays and quality issues. The unanticipated loss
of Flextronics, NMB or Avision as manufacturing partners could cause delays in
the Company's ability to fulfill orders while the Company identifies a
replacement manufacturer. Such an event would have a material adverse effect on
the Company's business, operation results and financial condition.
The Company's manufacturing policies are designed to take advantage of
lower manufacturing costs overseas, which may, in certain instances, result in
excess or insufficient inventory, or inappropriate mix of component inventory,
if orders do not match forecasts. To date, the Company's inventory reflects
purchases made based on forecasted sales, however, there can be no assurance
that actual sales will match sales forecasts. To the extent the Company has
excess inventory, the Company may experience inventory write-downs or may have
to lower prices of its products which would result in substantial price
protection charges and a negative impact on gross margins. In this regard, the
Company did experience a significant excess inventory situation during the
quarter ended March 31, 1997, and did record significant inventory write-down
and price protection charges. Although the Company has made significant progress
in reducing its inventory risk over the last several months, there can be no
assurance that the Company will be successful in its continuing efforts and will
not experience a similar adverse excess inventory situation.
DEPENDENCE ON DISTRIBUTORS
To date, the Company has derived a substantial portion of its revenues from
sales through its independent distributors and resellers. Although the Company
has established several strategic OEM partnerships, the Company expects that
sales through its independent distributors and resellers will continue to
account for a substantial portion of its revenues for the foreseeable future.
Sales to the top four independent distributors in the first nine months of 1997
accounted for 36% of the Company's net revenues compared to 41% for the
comparable period of 1996. The Company anticipates that its dependence on any
one independent distributor or reseller will continue to decrease in the future
because of its efforts to expand its distribution channels. The Company's
agreements with its distributors and resellers are not exclusive, and each of
the Company's distributors and resellers can cease marketing the Company's
products with limited notice and with little or no penalty. There can be no
assurance that the Company's independent distributors and resellers will
continue to offer the Company's products or that the Company will be able to
recruit additional or replacement distributors or resellers. The loss of one or
more of the Company's major distributors or resellers would have a material
adverse effect on the Company's business, operating results and financial
condition. Many of the Company's distributors and resellers offer competitive
products manufactured by third parties. There can be no assurance that the
Company's distributors or resellers will give priority to the marketing of the
Company's products as compared to competitors' products. Any reduction or delay
in sales of the Company's products by its distributors and resellers would have
a material adverse effect on the Company's business, operating results and
financial condition.
14
<PAGE> 16
INTENSELY COMPETITIVE MARKET
The computer and peripherals industry has been characterized by ongoing
rapid price erosion and resulting pressure on gross margins. For example, the
suggested retail price of PaperPort Vx, when it was introduced in November 1995,
was $369, the suggested retail price as of July 1, 1997 is $179. The Company
expects that, based on historical trends in the computer and peripherals
industry and, in particular, on the Company's recent observations and
experiences in the paper management systems market, prices will continue to
decline in the future and that competitors will offer products which meet or
exceed performance and capabilities of the Company's products. The Company
intends to introduce new hardware designs, software products, software upgrades,
accessory products and new software features, in part, to respond to anticipated
competitive price pressures and new product introductions. If prices fall faster
than expected by the Company, or if the Company reduces its prices in order to
become or remain competitive or for any other reason, the Company may be unable
to respond with significant cost reductions and its gross margin could be
materially adversely affected. In addition, the Company's gross margin will
depend in part on other factors outside of the Company's control, including the
availability and prices of key components, the success of the Company's product
transition, competition, the timing and amount of royalties received under its
OEM arrangements and general economic conditions. Fluctuations in gross margin
could have a material adverse effect on the Company's financial condition and
operating results.
15
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 1, 1996, Millennium, L.P. ("Millennium"), a Cayman Island
limited partnership, filed an infringement action against Compaq alleging that
Compaq's scanner keyboard system, which utilizes certain technology that is
licensed from the Company, and used in its products, infringes certain patent
claims. The Company indemnified Compaq with respect to the claims that
Millennium had asserted against Compaq to the extent required by the Company's
OEM agreement with Compaq. On September 17, 1997, Millennium and the Company
entered into a Settlement and License Agreement pursuant to which the Company
licensed the patents held by Millennium and the litigation was settled. The
payments to Millennium, called for by the settlement, had been fully accrued in
previous periods.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on October 3, 1997.
There were present at the meeting, in person or represented by proxy, holders of
17,618,076 shares of Common Stock, which represented approximately 90% of the
outstanding shares of Common Stock. The matters voted on at the meeting and the
votes cast were as follows:
1. All Management's nominees for directors were elected as listed below:
<TABLE>
<CAPTION>
NAME OF NOMINEE VOTES CAST
---------------------------------------------- -----------------------
<S> <C> <C>
J. Larry Smart For: 17,289,353
Against: 0
Abstain: 328,723
William J. Harding For: 17,441,287
Against: 0
Abstain: 176,789
Jeffrey Heimbuck For: 17,439,137
Against: 0
Abstain: 178,939
David F. Marquardt For: 17,393,872
Against: 0
Abstain: 224,204
Vincent Worms For: 17,440,887
Against: 0
Abstain: 177,189
</TABLE>
2. The approval of an amendment to the Company's 1993 Incentive Stock
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 1,000,000 shares to an aggregate of 3,870,000
shares. There were 8,870,420 Common Shares voting in favor, 1,015,198
Common Shares voting against, 24,250 Common Shares abstaining, and
7,708,208 Common Shares recorded as broker non-votes.
3. The approval of an amendment to the Company's 1995 Employee Stock
Purchase Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 400,000 shares to an aggregate of 700,000
shares. There were 11,852,676 Common Shares voting in favor, 555,883
17
<PAGE> 18
Common Shares voting against, 31,350 Common Shares abstaining, and
5,178,167 Common Shares recorded as broker non-votes.
4. The approval of an amendment to the Company's 1995 Directors' Stock
Option Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 120,000 shares to an aggregate of 320,000
shares. There were 11,666,341 Common Shares voting in favor, 730,222
Common Shares voting against, 43,346 Common Shares abstaining, and
5,178,167 Common Shares recorded as broker non-votes.
5. The approval of the grant of an option to purchase 5,000 shares of the
Company's Common Stock at an exercise price of $3.50 per share to
Jeffrey Heimbuck, a director of the Company. There were 11,599,350
Common Shares voting in favor, 582,205 Common Shares voting against,
45,234 Common Shares abstaining, and 5,391,287 Common Shares recorded as
broker non-votes.
6. The ratification of the reappointment of Price Waterhouse LLP as the
Company's Independent Accountants for the fiscal year ending December
28, 1997. There were 17,491,296 Common Shares voting in favor, 89,495
Common Shares voting against, and 42,285 Common Shares abstaining.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------
<S> <C>
10.31 Amendment No. 1 dated September 30, 1997 to Loan and Security Agreement
dated June 26, 1997 between the Registrant and Silicon Valley Bank
27.1 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this Report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on November 12, 1997.
VISIONEER, INC.
By: /s/ GEOFFREY C. DARBY
--------------------------------------
Geoffrey C. Darby
Vice President of Finance and
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ------------------------------------------------------- -------------
<C> <S> <C>
10.31 Amendment No. 1 dated September 30, 1997 to Loan and
Security Agreement dated June 26, 1997 between the
Registrant and Silicon Valley Bank.....................
27.1 Financial Data Schedule................................
</TABLE>
<PAGE> 1
Exhibit 10.31
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of September 30,
1997, by and between Visioneer, Inc. ("Borrower") whose address is 34800 Campus
Drive, Fremont, CA 94555, and Silicon Valley Bank ("Bank") whose address is 3003
Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other
indebtedness which may be owing by Borrower to Bank, Borrower is
indebted to Bank pursuant to, among other documents, a Loan and
Security Agreement, dated June 26, 1997 as may be amended from
time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original
principal amount of Seven Million Five Hundred Thousand Dollars
($7,500.000.00) (the "Revolving Facility"). Defined terms used
but not otherwise defined herein shall have the same meanings as
in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to
Bank shall be referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTEE. Repayrnent of
the Indebtedness is secured by the Collateral as described in the
Loan Agreement and a Collateral Assignment, Patent Mortgage and
Security Agreement dated June 26, 1997.
Hereinafter, the above described security documents and
guarantees, together with all other documents securing repayment
of the Indebtedness shall be referred to as the "Security
Documents". Hereinafter, the Security Documents, together with
all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. Subsection (a) of Section 2.1.1 entitled "Letters of
Credit" is hereby amended to increase the dollar amount
provided therein to Six Million Dollars ($6,000,000.00).
2. Subsection (a) of the defined term Eligible Accounts is
hereby amended to read. in its entirety, as follows:
(a) Accounts which are more than sixty (60) days past the
original due date or more than one hundred twenty (120)
days past the invoice date for such Account;
3. Subsection (b) of the defined term Eligible Accounts is
hereby amended to read. in its entirety, as follows:
(b) Accounts with respect to any account debtor, forty
percent (40%) of whose Accounts the account debtor has
failed to pay within the terms required for an Eligible
Account set forth in the immediately preceding paragraph;
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness,
6. CQNTINUJNG VALIDITY. Borrower (and each guarantor and pledgor signing below)
understands and agrees that in modifying the existing Indebtedness, Bank is
relying upon Borrower's representations, warranties and agreements, as set forth
in the Existing Loan Documents. Except as expressly modified pursuant to this
Loan Modification Agreement, the terms of the Existing Loan Documents reflect
unchanged and in full force and effect.
20
<PAGE> 2
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents. unless the party is expressly released by Bank in writing. No
maker, endorser. or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this paragraph apply not only to this Loan
Modification Agreement, but also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
VISIONEER, INC. SILICON VALLEY BANK
By: /s/ Dennis Jang By: /s/ Patrick J. McCarthy
------------------------------------ ---------------------------------
Name: Dennis Jang Name: Patrick J. McCarthy
---------------------------------- -------------------------------
Title: Director of Finance & Accounting Title: Vice President
--------------------------------- ------------------------------
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET, CONDENSED STATEMENT OF OPERATIONS AND CONDENSED
STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,793
<SECURITIES> 1,564
<RECEIVABLES> 16,153
<ALLOWANCES> 4,750
<INVENTORY> 2,918
<CURRENT-ASSETS> 29,760
<PP&E> 5,918
<DEPRECIATION> 3,109
<TOTAL-ASSETS> 32,724
<CURRENT-LIABILITIES> 22,103
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 10,477
<TOTAL-LIABILITY-AND-EQUITY> 32,724
<SALES> 32,712
<TOTAL-REVENUES> 37,958
<CGS> 36,666
<TOTAL-COSTS> 37,230
<OTHER-EXPENSES> 25,069
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (838)
<INCOME-PRETAX> (23,503)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,503)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,503)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
