SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 0-20777
XIONICS DOCUMENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3186685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 BLANCHARD ROAD, BURLINGTON, MA 01803
(Address of principal executive offices) (Zip Code)
(781) 229-7000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year, if changed since last report)
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 .
- --
At May 12, 1998, there were 12,177,378 shares of the Company's $.01 par
value common stock issued, with 11,953,315 shares outstanding.
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XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets--March 31, 1998 and June 30, 1997.................... 3
Statements of Operations--Nine Months Ended March 31, 1998 and
1997 and Three Months Ended March 31, 1998 and 1997............... 4
Statements of Cash Flows--Nine Months Ended March 31, 1998
and 1997.......................................................... 5
Notes to Condensed Consolidated Financial Statements.................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 9
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds............................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders..................... 12
ITEM 6. Exhibits and Reports on Form 8K......................................... 12
Signatures.............................................................. 13
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<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $15,191,896 $20,843,911
Accounts receivable, less reserves of approximately $251,000 and
$119,000 at March 31, 1998 and June 30, 1997, respectively 5,588,766 5,445,913
Contract receivable 9,298,384 7,411,288
Other receivables 23,834 -
Inventories 1,436,316 1,026,980
Prepaid expenses and other current assets 882,577 1,370,908
------------ -----------
Total Current Assets 32,421,773 36,099,000
Property and Equipment, net 2,826,478 2,836,669
Deferred tax asset 1,030,000 930,000
Acquired intangibles, net of accumulated amortization of
approximately $818,000
and $782,000 at March 31, 1998 and June 30, 1997, respectively 604,012 420,833
Other assets 790,927 2,312,611
------------ -----------
$37,673,190 $42,599,113
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $2,233,538 $1,965,055
Accrued payroll 111,154 694,354
Accrued expenses 2,706,883 3,356,819
Note payable, current portion 569,912 -
Deferred revenue 1,142,157 1,305,033
------------ ------------
Total Current Liabilities 6,763,644 7,321,261
Note payable, net of current portion 575,000 -
Stockholders' equity:
Preferred Stock, $.01 par value--
Authorized--10,000,000 shares
Issued and outstanding--none - -
Common Stock
Authorized--40,000,000 shares
Issued--12,118,006 and 11,831,762 shares at March 31, 1998
and June 30, 1997, respectively
Outstanding--11,893,943 and 11,607,699 shares at March 31, 121,180 118,317
1998 and June 30, 1997, respectively
Additional paid-in capital 46,232,376 45,815,462
Treasury stock, at cost--224,063 shares of Common Stock at
March 31, 1998 and June 30, 1997, respectively (151,246) (151,246)
Accumulated deficit (15,867,764) (10,504,681)
Total stockholders' equity ------------ ------------
30,334,546 35,277,852
------------ ------------
$37,673,190 $42,599,113
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
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<TABLE>
<CAPTION>
XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net revenue $8,852,171 $9,829,322 $27,006,218 $27,774,829
Cost of revenue 2,973,597 2,039,152 7,980,521 5,625,357
------------ ------------ ------------ -------------
Gross profit 5,878,574 7,790,170 19,025,697 22,149,472
Operating expenses:
Research and development 4,917,610 3,873,718 11,926,454 11,157,965
Selling, general and administrative 2,432,084 2,355,648 6,987,369 6,926,814
Charge for purchased research and - 5,400,000 2,000,000 5,400,000
development
Non-recurring charge - - 3,944,312 -
------------ ------------ ------------ -------------
Loss from operations (1,471,120) (3,839,196) (5,832,438) (1,335,307)
Other income, net 185,534 325,551 670,472 600,950
------------ ------------ ------------ -------------
Loss before provision (benefit) for income taxes (1,285,586) (3,513,645) (5,161,966) (734,357)
Provision (benefit) for income taxes 58,452 (514,667) 201,117 38,190
------------ ------------ ------------ -------------
Net loss $(1,344,038) $(2,998,978) $(5,363,083) $(772,547)
============ ============ ============ =============
Loss per common and common equivalent share (Note 3)
Basic net loss per share $(0.11) $(0.28) $(0.46) $(0.08)
============= ============= ============= =============
Diluted net loss per share $(0.11) $(0.28) $(0.46) $(0.08)
============= ============= ============= =============
Weighted average common and common equivalent
shares outstanding
Basic 11,862,147 10,630,541 11,779,060 9,542,882
============= ============= ============= =============
Diluted 11,862,147 10,630,541 11,779,060 9,542,882
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
March 31, March 31,
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(5,363,083) $(772,547)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-recurring charge 3,944,312 -
Charge for purchased research and development 2,000,000 -
Depreciation and amortization 1,121,784 823,045
Deferred taxes (100,000) -
Changes in assets and liabilities--
Accounts receivable (142,853) (2,194,478)
Contract receivable (1,887,096) (7,056,439)
Other receivables (23,834) -
Inventories (409,336) (217,069)
Prepaid expenses and other current assets 488,331 (366,136)
Accounts payable 243,875 (296,614)
Accrued payroll (632,824) -
Accrued expenses (1,553,662) 2,580,930
Deferred revenue (162,876) 320,684
------------ ------------
Net cash used in operating activities (2,477,262) (7,178,624)
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (1,075,760) (1,278,115)
Increase in other assets (1,438,454) (1,541,967)
Cash paid for Seaport, net of cash acquired (902,468) -
Decrease in short-term investments - 644,613
------------ ------------
Net cash used in investing activities (3,416,682) (2,175,469)
------------ ------------
Cash flows from financing activities:
Repayment of term loans (9,838) (886,833)
Repayment of note payable to stockholder - (2,094,000)
Proceeds from exercise of stock options 103,808 62,710
Proceeds from employee stock purchase plan 147,959 -
Reissuance of treasury stock - 50
Sale of Common Stock, net of issuance costs - 30,685,000
Reclassification of deferred offering costs - 926,439
------------ ------------
Net cash provided by financing activities 241,929 28,693,366
------------ ------------
Net (decrease) increase in cash and cash equivalents (5,652,015) 19,339,273
Cash and cash equivalents, beginning of period 20,843,911 2,115,859
------------ ------------
Cash and cash equivalents, end of period $15,191,896 $21,455,132
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ $ 135,631
180
============ ============
Cash paid for income taxes $ $ 150,142
15,146
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Xionics Document
Technologies, Inc. and subsidiaries (the Company) presented herein have been
prepared pursuant to the rules of the Securities and Exchange Commission for
quarterly reports on Form 10-Q and do not include all of the information and
note disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended June 30, 1997,
included in the Company's annual report on Form 10-K.
The condensed consolidated financial statements and notes herein are
unaudited, but in the opinion of management, include all the adjustments
(consisting only of normal, recurring adjustments) necessary to present fairly
the consolidated financial position, results of operations and cash flows of
the Company and its subsidiaries.
The results of operations for the interim periods shown herein are not
necessarily indicative of the results to be expected for any future interim
period or for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements reflect the
application of certain accounting policies described in this and other notes to
these condensed consolidated financial statements.
(a) Principles of Consolidation
The accompanying condensed consolidated financial statements reflect the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.
(b) Contract Receivable
The Company had an outstanding contract receivable of $9,298,384 and
$7,411,288 at March 31, 1998 and June 30, 1997, respectively, from a
significant customer. The contract receivable represents an agreement entered
into by the Company and the customer whereby the Company licensed certain of
its page description technology, including its version of the PostScript page
description language, to the customer. This contract requires that the Company
perform customer support in configuring its technology to the customer
specifications. The Company follows contract accounting in recognizing revenue
on this contract using the percentage of completion method.
(c) Inventories
Inventories, which include material, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:
MARCH 31, 1998 JUNE 30, 1997
Raw materials $898,555 $523,295
Finished Goods 537,760 503,685
------------ ------------
$1,436,316 $1,026,980
=========== ===========
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XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
(d) Property and Equipment
The Company records property and equipment at cost and provides for
depreciation and amortization on a straight-line basis over the estimated
useful lives of the assets, as follows:
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<CAPTION>
ESTIMATED
USEFUL LIFE MARCH 31, 1998 JUNE 30, 1997
-------------- -------------
<S> <C> <C> <C>
Asset Classification
Computer equipment 3-5 Years $4,238,983 $ 3,284,246
Furniture and fixtures 3-7 Years 1,119,861 1,057,440
Machinery and equipment 3-5 Years 365,585 306,983
----------- -----------
5,724,429 4,648,669
Less-Accumulated depreciation and amortization (2,897,951) (1,812,000)
---------- -----------
$2,826,478 $ 2,836,669
(e) Noncash Investing and Financing Activities
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
Supplemental disclosure of noncash transactions
Acquisition of property and equipment under capital
lease $ --- $ 140,037
============ ============
Issuance of note payable related to the Seaport
acquisition $ 1,155,000 $ ---
============ ============
Conversion of Class C Redeemable Convertible
Preferred Stock to Common Stock $ --- $ 8,231,410
============ ============
Conversion of Class A Convertible Preferred Stock to
Common Stock $ --- $ 3,606,658
============ ============
Conversion of Class A Common Stock to Common Stock
$ --- $ 13,861
============ ============
Conversion of Class B Common Stock to Common Stock
$ --- $ 5,589
============ ============
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3. LOSS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", replaces the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
calculated by dividing net income or loss by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of stock options and warrants that could share in the
earnings of the Company. Diluted income per common share is computed using the
weighted average number of common and common equivalent shares outstanding
during each period. For those periods where a net loss is reported, stock
options and warrants are not considered; as their effect would be
anti-dilutive.
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XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. LOSS PER SHARE (CONT.)
Basic and diluted loss per share, as required by SFAS No. 128, are as
follows:
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<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- --------------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net loss $(1,344,038) $(2,998,978) $(5,363,083) $(772,547)
============= ============= ============ ===========
Basic weighted average shares outstanding 11,862,147 10,630,541 11,779,060 9,542,882
Weighted average common equivalent - - - -
shares ------------- ------------- ------------ -----------
Diluted weighted average shares 11,862,147 10,630,541 11,779,060 9,542,882
outstanding ============= ============= ============ ===========
Basic loss per share $(0.11) $(0.28) $(0.46) $(0.08)
============= ============= ============ ===========
Diluted loss per share $(0.11) $(0.28) $(0.46) $(0.08)
============= ============= ============ ===========
</TABLE>
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XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including without limitation statements
regarding the anticipated shipment date of the Company's products, as well as
customers' products containing the Company's products (including without
limitation the XipChip 1.5 ASIC) and the development of and demand for the
Company's future products. Investors are cautioned that forward-looking
statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to various risks and uncertainties, including,
without limitation: (i) the possibility of termination of the Company's
relationship with Hewlett-Packard Company, from which the Company derives a
significant portion of its revenue from the supply of software and related
technology and support; (ii) the Company's dependence for its revenue upon the
success of its customers in developing and selling their own products, which
incorporate the Company's technology, to end users; (iii) the phasing out of
the Company's royalty payments from Lexmark International Group, Inc. and other
long-term revenue streams; (iv) the Company's dependence on its relationships
with a relatively small number of significant customers; (v) the difficulties
and risks associated with the development and timely introduction of new
products, such as the Company's embedded technology for multifunction
peripheral devices, and the market acceptance of those products; (vi) the
difficulties and risks associated with competing in a market characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions, and in which the market success of entities providing
embedded software products for office devices has historically been largely
determined by their success in becoming one of the industry's standards; (vii)
the Company's dependence for the success of its MFP-oriented products upon
broad market acceptance of devices of this type, and upon its OEM customers'
ability to develop and market MFPs that meet market demands for functionality,
performance, speed, and network connectivity; (viii) the pressures of intense
competition from the Company's competitors, including Adobe Systems
Incorporated and others with significantly greater resources and name
recognition than the Company; (ix) the possibility of increased competition
from Adobe, in particular; (x) the difficulties and risks associated with
effective management of the Company's growth; and (xi) the difficulties of
hiring, especially engineers, in the Massachusetts job market. In addition, the
market price of the Company's common stock could be subject to significant
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, announcements of technological innovations or new products
by the Company or its competitors and other events or factors. Further, the
stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market price of the stock of
many technology companies. These fluctuations, as well as general economic and
market conditions, may materially and adversely affect the market price of the
Company's common stock. Because of these and other factors, past financial
performance should not be considered an indicator of future performance. Any
and all forward-looking statements contained herein represent the Company's
judgment as of the date of this Quarterly Report on Form 10-Q, and the Company
cautions readers not to place undue reliance on such statements. Additional
information concerning certain risks and uncertainties that would cause actual
results to differ materially from those projected or suggested in the
forward-looking statements is contained in the Company's filings with the
Securities and Exchange Commission, including those risks and uncertainties
discussed in the Company's annual report on Form 10-K dated September 29, 1997
and its Final Prospectus dated September 26, 1996, in the section entitled
"Risk Factors." The forward-looking statements contained herein represent the
Company's judgment as of the date of this Quarterly Report on Form 10-Q, and
the Company cautions readers not to place undue reliance on such statements.
OVERVIEW
Xionics Document Technologies, Inc. designs, develops and markets advanced
embedded systems technology for use in mainstream office devices such as
printers, copiers, scanners and multifunction devices. The Company derives its
revenue primarily from sales of its printer software products, which include
revenue from software licenses, royalties, engineering services and
maintenance, and from sales of its image acceleration products. Software
license revenue consists of the Company's charges for licensed source code,
which may include initial non-refundable fees that are recognized as revenue
upon the shipment of the source code, provided there are no significant vendor
<PAGE>
obligations. Royalty revenue is generally earned as a percentage of net revenue
from unit sales by licensees of products that incorporate the Company's
software, and is generally recognized as earned in the Company's financial
statements in the quarter in which amounts due to the Company have been
determined using estimates based upon historical payments. Engineering services
revenue is derived from fees paid for porting of the Company's software to
customer-specific device controllers. Payments under maintenance contracts are
due at the beginning of the contract; however, revenue is recognized ratably
over the term of the contract, which is typically twelve months.
RESULTS OF OPERATIONS
FOR THE QUARTERS AND NINE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Net revenue for the three months ended March 31, 1998 decreased 10% to
$8.9 million compared to $9.8 million for the three months ended March 31,
1997. Net revenue for the nine months ended March 31, 1998, decreased 3% to
$27.0 million compared to $27.8 million for the nine months ended March 31,
1997. The decreases in both the three and nine month periods resulted primarily
from: 1) reduced royalty revenue, primarily the reduction of royalties earned
from Lexmark, as the Lexmark printers in which Xionics software was deployed
reach the end of their economic life. The decline in royalty revenue is
anticipated to stabilize, with the potential for increasing revenue as new
printers from customers which have licensed the Company's software begin to be
deployed; and, 2) lower revenue from the Company's imaging products,
specifically due to reduced shipments of the XipPrint printer accelerator
products, which were impacted by the introduction of the HP LaserJet 4000 laser
printer, that now includes the print performance that XipPrint provides as an
add-on accelerator to HP and other printers. These decreases were partially
offset by revenue received on the sale of manufactured controller boards and
the sale of the XipChip, the Company's integrated processor chip for
multifunction peripherals (MFP's). Most of the revenue from the sale of
controller boards is from one customer and includes the service fees for design
and set up of the manufacturing process through a third party manufacturer and
primarily the sale of the controller board. In this particular contract the
Company has contractual responsibility for fulfilling the Customer's orders and
therefore includes the sale of the controller boards as revenue, which have low
margins. The Company intends to continue to provide manufacturing services as a
fee-based service to its customers. However, the Company will seek to structure
future contracts so that the Company is not responsible for the fulfillment of
the customer's board orders and therefore only the fee for the service and not
the sale of the board will be included in net revenue.
Gross profit for the three months ended March 31, 1998 decreased 25% to
$5.9 million from $7.8 million for the three months ended March 31, 1997. Gross
margin decreased to 66% for the three months ended March 31, 1998 compared to
79% for the three months ended March 31, 1997. Gross profit for the nine months
ended March 31, 1998 decreased 14% to $19.0 million from $22.1 million for the
nine months ended March 31, 1997. Gross margin decreased to 70% for the nine
months ended March 31, 1998 compared to 80% for the nine months ended March 31,
1997. The decreases in both the gross profit and gross margin percentage in the
three and nine month periods were attributable primarily to the lower revenue
and, in the case of the gross margin, the decline in royalty revenue and
revenue on imaging products that have a significantly higher margin than
revenue earned on the sale of manufactured boards, which partially offset the
net revenue decline.
Research and development expenses increased by 27% to $4.9 million for the
three months ended March 31, 1998 from $3.9 million for the three months ended
March 31, 1997. Research and development expenses increased by 7% to $11.9
million for the nine months ended March 31, 1997 from $11.2 million for the
nine months ended March 31, 1997. For both the three and nine month periods the
higher expense level resulted primarily from increased expenditures relating to
the Company's multifunction peripheral product ("MFP"), which is currently in
development. A version of the MFP is also under development under a contract to
Ricoh. Because of commitments under this contract, the Company expects to
continue to dedicate significant engineering resources and a higher level of
expenditures to the development of the MFP in order to meet its commitments
under this contract. As a percentage of revenue, research and development
expenses increased to 56% for the three months ended March 31, 1998 compared to
39% for the three months ended March 31, 1997 and increased to 44% for the nine
months ended March 31, 1998 compared to 40% for the nine months ended March 31,
1997. The increases in research and development expenses as a percentage of
revenue were principally the result of these increased expenditures and the
drop in net revenue during the periods.
Selling, general and administrative expenses remained relatively constant
during the quarter and nine months ended March 31, 1998 compared to the
comparable periods.
<PAGE>
Charge for Purchased Research and Development. On August 13, 1997, the
Company completed the acquisition of Seaport Imaging (Seaport), San Jose, CA
a leading developer of image processing software and hardware for production
scanning and the document imaging market (the Seaport acquisition). The
Company acquired all the outstanding shares of Seaport in a $2.46 million
transaction. The Company paid $1.1 million in cash at closing and the balance
is evidenced by a promissory note. The Seaport acquisitioin resulted in a
charge of $2 million for purchase in-process research and development cost.
This amount represents the value of acquired in-process research and
development projects as determined by an independent appraisal. The
development of these projects had not yet reached technological feasibility
and the technology had no alternative future use. The technology acquired in
the Seaport acquisition has required substantial additional development.
Non-recurring charge. During the second quarter ended December 31, 1997,
the Company recorded a non-recurring charge of approximately $3.9 million.
Included in the charge is a write-down of intangible assets to net realizable
value of $3.0 million and a $.9 million provision for lease costs of excess
facilities. The Company determined that, due to changes in market conditions
related to certain products, certain intangible assets were impaired. Included
in the charge is a lease loss accrual of $.9 million which consists of costs
related to excess facilities at the company's current facility in Burlington,
MA, and abandoned space at the Company's office in the United Kingdom.
During the three month period ended March 31, 1998, other income net
decreased by $140,000, or 43%, compared to the three month period ended March
31, 1997. This decrease resulted primarily from reduced cash and cash
equivalents balances due to acquisitions. Included in other income is interest
expense and other income, which increased by $70,000, or 12%, during the nine
month period ended March 31, 1998, compared to the nine month period ended
March 31, 1997. The increase resulted primarily from increased cash and cash
equivalents balances as a result of receiving proceeds from the Company's
September 26, 1996 initial public offering.
The Company did not provide any income tax benefits on the operating
losses incurred during the three and nine month periods ended March 31, 1998,
however, the provision provided in each of the periods represents foreign and
other minimum taxes which do not benefit from the operating losses. These
foreign and minimum taxes for the 1998 period are comparable with the 1997
periods. The Company recorded a $515,000 benefit for income taxes for the three
month period ended March 31, 1997, primarily resulting from the recognition of
a portion of the Company's deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents of $15.2
million compared to $20.8 million at June 30, 1997. This decrease is primarily
due to uses of cash for operating activities, computer equipment purchases, and
for the August 1997 acquisition of Seaport Imaging.
At present, the Company has available a $4.0 million working capital
revolving line of credit and a $2.0 million term loan facility with a bank,
both of which are secured by substantially all assets of the Company. The
working capital line of credit terminates on December 1, 1998, and no term loan
will be made after December 1, 1998. Under the loan facilities, the Company is
required to comply with certain restrictive covenants, with which the Company
was in compliance as of March 31, 1998. The interest rate for the working
capital line of credit is the bank's prime rate; the interest for the term loan
facility is the bank's prime rate plus 0.5%. As of March 31, 1998, there were
no outstanding borrowings under the working capital line of credit and term
loan facility. Under the terms of the working capital and term loan facilities,
the Company is prohibited from declaring or paying dividends on its Common
Stock. While the Company may in the future use private placements or public
offerings of its securities as a source of liquidity, it has no present
intention to do so.
The Company believes that its existing cash and cash equivalent balances,
together with available borrowings under its lines of credit, will be
sufficient to finance the Company's operations for at least the next 12 months.
In the event the Company acquires one or more businesses or products, the
Company's capital requirements could increase substantially, and there can be
no assurance that additional capital will be available on terms acceptable to
the Company, if at all.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 1998, the Company sold 41,860 shares of
unregistered common stock in reliance on exemptions available under Securities
and Exchange Commission Rule 701, pursuant to the exercise of employee stock
options granted under the Company's 1995 and 1996 Stock Option Plans (the
"Plans") prior to the effectiveness of the Company's registration statement on
Form S-8 covering the Plans, filed November 4, 1996. The average exercise price
for the shares was $0.72, and the total consideration received by the Company
for the sale of such stock was $30,136. Use of proceeds is as disclosed in the
Company's Annual Report on Form 10-K filed with the Commission on September 29,
1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 30, 1998, the Company filed a report on Form 8-K
reporting the resignation of Robert E. Gilkes as Chairman of the
Board of Directors and as a director, and the appointment of
Paul R. Low as Chairman of the Board of Directors.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THE REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
XIONICS DOCUMENT TECHNOLOGIES, INC.
NAME TITLE DATE
/S/ PETER J. SIMONE President and Chief Executive May 13, 1998
- ------------------------ Officer
PETER J. SIMONE
/S/ ROBERT L. LENTZ Senior Vice President and Chief May 13, 1998
- ------------------------ Financial Officer
ROBERT L. LENTZ
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<PERIOD-END> MAR-31-1998
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<SECURITIES> 5,839,883
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