<PAGE>
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
04-2751102
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
101 EDGEWATER DRIVE, WAKEFIELD, MA 01880-1291
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 245-4100
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
COMMON STOCK $.03 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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 [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. YES [X] NO [ ]
THE AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES ON MAY 31,
1995 WAS $2,844,304.
As of May 31, 1995, the registrant had 8,653,397 shares of Xyvision, Inc.
Common Stock, $.03 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
(March 31, 1995) are incorporated by reference in Part III.
1
<PAGE>
PART I
Business
GENERAL
Xvyision, Inc. ("Xyvision" or the "Company") develops, markets, and
supports advanced software for document management, publishing, and prepress
applications. The Company combines its software with standard computer
hardware, selected third-party software, and support services to create
tightly integrated systems to improve productivity and strategic position.
Xyvision markets and supports its software worldwide.
Xyvision offers two products -- Parlance Publisher(Trademark) and Parlance
Document Manager(Trademark) ("PDM") -- as the core technologies in systems
for document management and publishing applications ("Xyvision Publishing
Systems"). These systems are used to automate the production of reference
books, journals, catalogs, directories, financial and legal materials, and
technical manuals.
Xyvision's color electronic prepress applications ("Contex Prepress
Systems") are based on Xyvision's Contex(Trademark) product line. Contex
Prepress Systems are marketed primarily to commercial trade shops, printers,
and prepress service organizations, as well as to consumer goods companies,
advanced design firms, and packaging manufacturers.
OVERVIEW
During the fiscal year ended March 31, 1995, ("fiscal 1995") Xyvision
continued its strategy of focusing on the following tasks: (i) marketing its
new technologies, (ii) broadening geographic distribution and expanding
indirect channels to the market, (iii) controlling expenses, and (iv)
restructuring the Company's financial position. The Company continued to
place growing emphasis on marketing and enhancing its new technologies and
broadening geographic distribution.
Xyvision released an enhanced version of its compound document management
software, Parlance Document Manager (PDM 2.2), in the fourth quarter of
fiscal 1995. In keeping with Xyvision's strategy of increasing channels to
market, this release included the PDM Portal, which enables system
integrators to integrate PDM to external processes and systems through an
open API (Application Programming Interface). This functionality expedites
the development and integration process for third parties and simplifies the
process for incorporating new data types, such as audio, video, and
animation.
New PDM customers in fiscal 1995 include the Australian Government
Publishing Services, Gulfstream Aerospace, American Society for Testing and
Materials (ASTM), Tweddle Litho, Cummins Engine (U.K.), Koninklijke Vermande
B.V. (Holland), and Warren, Gorham and Lamont. In addition, Xyvision formed a
strategic alliance with ISSC Publishing & Consulting Services, an IBM
subsidiary, to co-market Xyvision products. Xyvision also received several
orders for system expansion from existing PDM customers and believes Parlance
Document Manager is an important factor in sustaining Company profitability.
Xyvision released version 4.1 of its high-speed batch and interactive
composition system, Xyvision Parlance Publisher (XPP), in the second quarter
of fiscal 1995. This release included multiple language support, expanded
graphics handling, OPI (Open Prepress Interface) support, and a
Quark(Registered Trademark) to Xyvision toolkit option. Xyvision also
integrated Adobe(Trademark) Illustrator(Trademark), Photoshop(Trademark), and
Acrobat(Trademark) for UNIX with Parlance Publisher and has signed an
agreement with Adobe Systems to market these products. In addition, the
Company signed an agreement with Exoterica Corporation to distribute its
OmniMark(Trademark) software for translation of SGML coded information into
and out of XPP format. Core product development combined with strategic
technology alliances has proven to be an effective means of increasing
product functionality and reducing product development cycles.
New XPP customers in fiscal 1995 include Alexander Graphics, News
Printing, Reed Technology and Information Services Inc. (U.S. and U.K.),
Elsevier Science Inc., EVACO, U.S. Air Force, Swiss Air Force, Finnish Air
Force, Berger-Levrault (France), Site (France), The Rustica Press (South
Africa), Durigo (Italy), Tipografica Giuntina (Italy), MGB Ltd. (Israel),
Embraer (Brazil), Qantas (Australia), and Telecommunications of Jamaica. The
Company believes that the interest in Parlance Publisher continues due to its
superior automation capabilities and to a diminishing number of competitors
in the high-end publishing system arena.
1
<PAGE>
The focus of the Company's effort to broaden geographic distribution has
been on Xyvision's Contex product line. This program, called Contex Prepress
Partners(Trademark), made further progress towards establishing a worldwide
network of value added resellers with appropriate applications support and
systems integration skills to resell Contex and complementary products and
services to customers in their territory. In fiscal 1995, the Company was
able to add Contex Prepress Partners for Southeast Asia, additional countries
in Europe, and additional regions in the United States.
The Company continued to adjust expenses to meet the realities of being a
software and services business. Gross margin percentage decreased in fiscal
1995 primarily due to increased amortization of software development costs.
During fiscal 1995, operating expenses decreased $611,000 to 46% of revenues
as compared to 50% of revenues last fiscal year.
During fiscal 1994, the Company's employee headcount stabilized following
several years of planned workforce reductions. In fiscal 1995, the Company's
employee headcount increased to meet operational needs. Should the Company's
financial performance continue to improve in fiscal 1996, the Company's
headcount is expected to modestly increase.
During fiscal 1994, the Company's line of credit with a current investor
in the Company was amended to increase the line of credit from $2,000,000 to
$3,000,000. This line, which is secured by essentially all the assets of the
Company, is being used and will continue to be used for general working
capital purposes. Additional information about the credit line can be found
in Part II of this Form 10-K.
In fiscal 1992, Xyvision initiated a program to restructure the Company's
6% Convertible Subordinated Debentures due 2002 (the "Debentures") by issuing
promissory notes and/or shares of common stock in exchange for the
cancellation of the Debentures. To date (June 28, 1995), Xyvision has
completed transactions to restructure $18,675,000, or 83% of the $22,410,000
Debentures outstanding at the beginning of fiscal 1992. To date, the Company
has identified the holders of an additional $1,960,000, or 9% of the
Debentures, leaving $1,775,000, or 8% of the Debentures outstanding at the
beginning of fiscal 1992, not identified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994 or 1995.
Under the terms of the Indenture covering the Debentures, the Trustee or
the holders of not less than 25% of the then outstanding principal amount of
Debentures have the right to accelerate the maturity date of the remaining
Debentures. To date (June 28, 1995), such acceleration has neither occurred
nor been threatened. Additional information about the history and status of
Xyvision's Debenture restructuring efforts can be found in Part II of this
Form 10-K.
The Company continues to negotiate in good faith with as many of the
remaining Debentureholders as possible. However, despite the progress that
has been made, the Company can still give no assurance about the outcome of
the Debenture restructuring efforts and does not expect the matter to be
resolved in the near future. If the Company is unable to enter into
restructuring transactions with the remaining Debentureholders, and such
Debentureholders seek to pursue legal remedies against the Company, the
Company may have to seek protection under applicable laws, including the
Bankruptcy Code, while it develops, analyzes, and completes alternative
restructuring strategies.
In addition, as of September 30, 1994 the Company had issued promissory
notes in an aggregate principal amount of $5,692,000 in connection with the
Debenture exchange transactions described above, the interest on which
accrued at a rate of 15% per year and totalled $2,344,000 payable at
maturity. Such 15% Promissory Notes in an aggregate principal amount of
$4,542,000 were to mature on September 30, 1994, and the remainder of these
15% Promissory Notes mature at various dates between September 30, 1994 and
February 28, 1997. In order to
2
<PAGE>
relieve itself of the payment obligations on the Promissory Notes, in fiscal
1995 the Company began a program to restructure the Promissory Notes. During
fiscal 1995, the Company completed exchange transactions with holders of 15%
Promissory Notes in an aggregate principal amount of $4,637,000, in which, in
exchange for the cancellation of a 15% Promissory Note (including all rights
to receive any interest accrued thereon), the Company issued (i) a new
Promissory Note that will mature 30 months from the date of issuance and
bears interest at 4% per annum, (ii) one share of common stock for each
$10.00 of principal amount of 15% Promissory Note delivered and (iii) one
share of Series B Preferred Stock for each $10.00 of interest due on the 15%
Promissory Note delivered. The Series B Preferred Stock accrues a cumulative
dividend in the amount of $.40 per share per annum, whether or not declared,
and has a liquidation preference of $12.50 per share, plus any dividends
declared or accrued but unpaid. Each share of Series B Preferred Stock is
convertible into two shares of common stock, subject to adjustment for
certain events as defined in the Series B Preferred Stock terms.
Additionally, holders of outstanding shares of Series B Preferred Stock are
entitled to voting rights equivalent to the rights attributable to the whole
shares of common stock into which the Series B Preferred Stock is
convertible. The Company will seek to restructure the remaining 15%
Promissory Notes.
During fiscal 1996, Xyvision will focus on growing its position as a
leading supplier of advanced software for document management, publishing,
and prepress applications by: (i) enhancing and expanding its technologies,
(ii) focusing on targeted market segments, (iii) emphasizing superior
customer support, and (iv) leveraging its global presence. Additionally, the
Company will consider scenarios to refinance its various debt obligations.
Management believes these tasks are the primary ingredients for continued
profitable operations. While the Company remains confident about its future,
it can give no assurance regarding the ultimate success of its strategy.
XYVISION PUBLISHING SYSTEMS
XYVISION PUBLISHING SYSTEMS ARE DESIGNED TO HELP USERS MEET THEIR BUSINESS
AND PUBLISHING NEEDS BY PROVIDING COMPREHENSIVE PUBLISHING SOLUTIONS THAT
AUTOMATE THE PUBLISHING PROCESS, ENABLE OUTPUT TO BOTH PAPER AND ELECTRONIC
MEDIA, AND PROVIDE POWER AND SPEED UNATTAINABLE WITH DESKTOP PRODUCTS. THESE
SYSTEMS ALLOW USERS TO OPERATE IN A MULTI-VENDOR NETWORKED COMPUTING
ENVIRONMENT; TRANSPARENTLY SHARE, REUSE, AND MANAGE TEXT AND GRAPHICS DATA
FROM MULTIPLE SOURCES THROUGHOUT AN ORGANIZATION; MAXIMIZE PRODUCTIVITY BY
USING THE APPROPRIATE COMPUTER PLATFORMS AND APPLICATIONS; AND RETAIN THEIR
INVESTMENTS IN EXISTING HARDWARE, SOFTWARE, AND TRAINING. XYVISION DEVELOPS
AND MARKETS TWO HIGH-PERFORMANCE, OPEN PUBLISHING SOLUTIONS: PARLANCE
DOCUMENT MANAGER AND PARLANCE PUBLISHER.
PARLANCE DOCUMENT MANAGER (PDM) ADDRESSES THE INFORMATION NEEDS OF TODAY'S
CORPORATE AND COMMERCIAL PUBLISHERS: MANAGING LARGE AMOUNTS OF INFORMATION,
PUBLISHING INFORMATION IN BOTH PAPER AND ELECTRONIC MEDIA, AND LEVERAGING THE
VALUE OF INFORMATION BY ENABLING INFORMATION REUSE IN MULTIPLE PRODUCTS. PDM
IS A CLIENT/SERVER COMPOUND DOCUMENT MANAGEMENT SYSTEM THAT STORES DOCUMENT
ELEMENTS AS INFORMATION OBJECTS IN A CENTRAL DATABASE, ALLOWING THESE
ELEMENTS TO BE SHARED AND REUSED IN MULTIPLE DOCUMENTS. IT SUPPORTS OBJECTS
OF VARYING TYPES AND SIZES, AND MANAGES A WIDE VARIETY OF TEXT AND GRAPHICS
FORMATS INCLUDING SGML (STANDARD GENERALIZED MARKUP LANGUAGE) AND POPULAR
UNIX OR WINDOWS WORD PROCESSING FORMATS, ALLOWING USERS VIRTUALLY UNLIMITED
FLEXIBILITY AND ACCESS. IN ADDITION, PDM PROVIDES VERSION CONTROL, BUILT-IN
WORKFLOW, AND CONTENT MANAGEMENT THAT AUTOMATE EDITORIAL PROCESSES FOR
COMPLEX PUBLISHING PROJECTS.
PDM IS WELL SUITED FOR PUBLISHING ENVIRONMENTS WITH LARGE AMOUNTS OF TEXT,
GRAPHICS, AND OTHER DATA THAT ARE FORMATTED AND PUBLISHED IN MULTIPLE
VERSIONS OR ON MULTIPLE MEDIA. IT ALLOWS CUSTOMERS TO PRODUCE EXISTING
PUBLICATIONS MORE ACCURATELY AND COST-EFFECTIVELY, AND PROVIDES ADDITIONAL
REVENUE OPPORTUNITIES BY ENABLING USERS TO CREATE NEW PRODUCTS FROM EXISTING
INFORMATION.
XYVISION PARLANCE PUBLISHER (XPP) SHORTENS PRODUCTION CYCLES AND REDUCES
COSTS BY AUTOMATING COMPOSITION AND PAGINATION OF HIGH-VOLUME,
TYPOGRAPHICALLY-DEMANDING DOCUMENTS. XPP OFFERS A POWERFUL SOLUTION FOR
CORPORATE AND COMMERCIAL PUBLISHERS WHO WANT TO STREAMLINE AND AUTOMATE THE
PRODUCTION OF COMPLEX DOCUMENTS--FROM THE INPUT OF TEXT AND GRAPHICS TO THE
OUTPUT OF FULLY COMPOSED AND PAGINATED PAGES, FILM SEPARATIONS, OR ELECTRONIC
OUTPUT. ADVANCED FEATURES INCLUDE BATCH AND INTERACTIVE COMPOSITION,
AUTOMATIC IMPORT AND PLACEMENT OF GRAPHICS, SPOT AND PROCESS COLOR
SPECIFICATION, POWERFUL TABULAR AND MATH COMPOSITION, EXTENSIVE FOOTNOTING
CAPABILITIES, AUTOMATIC LOOSELEAF COMPOSITION, AND COMMERCIAL-QUALITY
TYPOGRAPHIC CONTROLS.
THE COMPANY BELIEVES THE SPEED, POWER, AND BACKGROUND PROCESSING CAPABILITIES
3
<PAGE>
OF PARLANCE PUBLISHER MAKE
3
<PAGE>
IT THE MOST VERSATILE AND POWERFUL COMPOSITION SYSTEM AVAILABLE TODAY. XPP
ENABLES CUSTOMERS TO SIGNIFICANTLY SHORTEN PRODUCTION TIME AND REDUCE COSTS
ASSOCIATED WITH THE PUBLISHING PROCESS.
XYVISION ALSO PROVIDES CUSTOMERS WITH A COMPREHENSIVE CUSTOMER SUPPORT
PROGRAM THAT INCLUDES SYSTEMS INTEGRATION, PRODUCTION ANALYSIS,
IMPLEMENTATION PLANNING, ON-SITE AND CLASSROOM TRAINING, APPLICATIONS
SUPPORT, PROGRAM MANAGEMENT, REMOTE DIAGNOSTICS, AND FIELD SERVICE AND
SUPPORT.
XYVISION PUBLISHING SYSTEMS ARE CURRENTLY SOLD FOR UNIX-BASED SERVERS AND
WORKSTATIONS FROM SUN(REGISTERED TRADEMARK) MICROSYSTEMS AND IBM(REGISTERED
TRADEMARK). XYVISION ALSO OFFERS PDM PC CLIENT SOFTWARE RUNNING UNDER
MICROSOFT(REGISTERED TRADEMARK) WINDOWS. XYVISION'S SUPPORT OF STANDARD
HARDWARE PLATFORMS GIVES CUSTOMERS THE ADVANTAGES OF SUPERIOR PRICE AND
PERFORMANCE, LEADING-EDGE TECHNOLOGIES FROM MAJOR COMPUTER VENDORS, AND AN
ASSURED GROWTH PATH FOR FUTURE EXPANSION.
CONTEX PREPRESS SYSTEMS
The Contex family of color electronic design and prepress software
automate full-color design, stripping, and page assembly operations used to
produce packaging, inserts, advertisements, brochures, catalogs, and other
high-quality color printed materials.
For design environments, Contex systems feature the ability to take a
design from initial concept through full-size "comprehensives" to final
mechanical art, all from the same electronic data. The user can bring
together design elements such as text, graphics and multi-color backgrounds
and connect and integrate them with a variety of sizing, cropping, masking,
overlay, and special effects facilities.
For prepress environments, Contex systems form the core workstation of a
full function color electronic prepress system ("CEPS"). Contex systems can
handle input from other CEPS systems, PostScript applications, image
scanners, and other sources of high-resolution, high-quality line art and
continuous tone images used to generate high-quality printed work. Contex
systems then provide the sophisticated color image processing needed to
generate output films, called separations, used in the printing process.
These separations are generated by a wide variety of film plotters made by
other companies that connect directly or indirectly to a Contex system.
If desired, full-size, full-color, hard-copy proofs can be generated to
aid in design evaluation, review, and approval processes. For package
designs, three-dimensional mock-ups can be created. Synthetic imaging can
also be created to show a new package design on a store shelf alongside
competing products.
While Contex systems provide capabilities to enhance the generation of
quality color materials, they are primarily purchased to improve
productivity. Contex software operates on UNIX-based RISC workstations and
servers from Silicon Graphics, Inc. This hardware is used because of its
leading capabilities for interactive manipulation of complex color images.
MARKETS, APPLICATIONS, AND CUSTOMERS
WITHIN THE BROAD MARKET FOR COMPUTER-BASED ELECTRONIC PUBLISHING, INFORMATION
MANAGEMENT, AND PRINTING TECHNOLOGIES, THE COMPANY TARGETS ITS MARKETING
EFFORTS PRIMARILY TO THREE KEY APPLICATION SEGMENTS: (1) TECHNICAL
DOCUMENTATION, (2) COMMERCIAL PUBLISHING, AND (3) COLOR ELECTRONIC DESIGN AND
PREPRESS APPLICATIONS.
TECHNICAL DOCUMENTATION APPLICATIONS SEGMENT. This market includes
corporations and product manufacturers who produce documentation in support
of a product or service, as well as trade shops who service these companies.
Customers in this segment include aerospace, automotive, heavy equipment,
computers, electronics, and transportation companies.
TYPICAL DOCUMENTS PRODUCED BY THESE COMPANIES INCLUDE REPAIR AND MAINTENANCE
MANUALS, TRANSPORTATION DIRECTORIES, AND SOFTWARE DOCUMENTATION. THESE
DOCUMENTS TYPICALLY HAVE A LONG SHELF LIFE, NEED FREQUENT REVISIONS, AND
REQUIRE OUTPUT IN A VARIETY OF FORMATS INCLUDING INTERACTIVE ELECTRONIC
TECHNICAL MANUALS (IETMS), CD-ROM, AND TRADITIONAL LOOSELEAF PAPER MANUALS.
BECAUSE OF GOVERNMENT REGULATIONS AND THE NEED TO OUTPUT ON MULTIPLE MEDIA,
TECHNICAL DOCUMENTS ARE INCREASINGLY AUTHORED AND STORED IN SGML, A FORMAT
SUPPORTED BY PDM AND XPP. PRODUCT MANUFACTURERS OFTEN SUPPORT MULTIPLE
MODELS, OR VERSIONS, BUILT FROM THE SAME BASELINE PRODUCT. THESE PRODUCTS
SHARE COMMON PARTS AND PROCEDURES, BUT ALSO CONTAIN UNIQUE COMPONENTS. USING
TRADITIONAL SYSTEMS AND PROCESSES, THE DOCUMENTATION THAT SUPPORTS THESE
4
<PAGE>
PRODUCTS OFTEN CONTAINS COMMON DATA THAT IS CREATED, UPDATED, AND DISTRIBUTED
REDUNDANTLY. XYVISION'S PARLANCE DOCUMENT MANAGER ELIMINATES REDUNDANT
EDITING, STREAMLINES THE OVERALL PRODUCTION CYCLE, AND SUPPORTS UNIQUE
PRODUCT DERIVATIVES. CUSTOMERS BENEFIT BY IMPROVING DOCUMENTATION ACCURACY
AND REDUCING PRODUCTION TIME AND COSTS.
4
<PAGE>
COMPANIES WHO PRODUCE TECHNICAL DOCUMENTATION OFTEN PRODUCE MANUALS IN
LOOSELEAF FORMAT AND DISTRIBUTE UPDATES AS LOOSELEAF CHANGE PAGES. PARLANCE
PUBLISHER'S UNIQUE AUTOMATIC LOOSELEAF OPTION ENABLES COMPANIES TO
AUTOMATICALLY CREATE UPDATE PAGES WHEN NEW INFORMATION IS ADDED TO PREVIOUSLY
RELEASED DOCUMENTS, ENABLING USERS TO DISTRIBUTE ONLY CHANGED PAGES INSTEAD
OF REPRINTS OF THE ENTIRE DOCUMENT. THIS CAN DRAMATICALLY REDUCE PRINTING AND
WAREHOUSING COSTS, AND ALLOWS MORE TIMELY UPDATES OF TECHNICAL INFORMATION.
XYVISION CUSTOMERS IN THE TECHNICAL DOCUMENTATION SEGMENT INCLUDE:
AEROSPATIALE (FRANCE), BOEING HELICOPTERS, CONSOLIDATED FREIGHTWAYS, CUMMINS
ENGINE, GULFSTREAM AEROSPACE, GENERAL ELECTRIC, MCDONNELL DOUGLAS AEROSPACE,
FORD MOTOR CO., PRATT & WHITNEY CANADA, RAYTHEON SERVICE COMPANY, TWEDDLE
LITHO, SIKORSKY AIRCRAFT, AND WESTLAND HELICOPTERS (U.K.).
COMMERCIAL PUBLISHING APPLICATIONS SEGMENT. Customers in this segment include
commercial printers and trade service bureaus, book and journal publishers,
legal publishers, professional associations, wholesale distributors,
financial services and insurance companies, pharmaceutical companies, and
government agencies. Commercial printers and trade service bureaus produce
periodicals, text and reference books, directories, and other high-quality
printed materials. While these companies do not own the information within a
publication, document production is the company's major source of income, and
timely delivery of quality work is essential. Additionally, service providers
have begun to produce a variety of electronic deliverables to generate
additional revenue, including Internet online, CD-ROM, and Adobe Acrobat
documents. Parlance Publisher gives commercial service providers a
competitive advantage by enabling them to quickly produce high-quality,
camera-ready, printed and electronic output.
COMMERCIAL PUBLISHERS, SUCH AS LEGAL PUBLISHERS AND PROFESSIONAL
ASSOCIATIONS, OWN THE PUBLISHED INFORMATION AND HAVE INCREASINGLY BEEN FACED
WITH THE NEED TO BETTER MANAGE INFORMATION CONTENT, VERSIONS, AND WORKFLOW.
XYVISION'S PDM PROVIDES THESE COMPANIES WITH A COMPLETE INFORMATION
MANAGEMENT SOLUTION THAT REDUCES COSTS, SHORTENS THE PRODUCTION CYCLE, AND
ENABLES CUSTOMERS TO GENERATE NEW REVENUE BY REPACKAGING EXISTING INFORMATION
INTO NEW PUBLICATIONS OR MEDIA.
XYVISION CUSTOMERS IN THE COMMERCIAL PUBLISHING SEGMENT INCLUDE AAA, ASTM,
AMERICAN INSTITUTE OF PHYSICS, AMERICAN CHEMICAL SOCIETY, AMERICAN MEDICAL
ASSOCIATION, CADMUS JOURNAL SERVICES, CAPITAL PRINTING SYSTEMS, FACTS AND
COMPARISONS, GRAFIKON (BELGIUM), IDEA INSTITUTE (JAPAN), MERCK & CO., R.R.
DONNELLEY & SONS, SHEPARD'S/MCGRAW-HILL, REED ELSEVIER, TVSM, THOMSON
PROFESSIONAL PUBLISHING, AND VALUELINE, INC.
COLOR ELECTRONIC DESIGN AND PREPRESS APPLICATIONS SEGMENT. This market
segment consists of commercial trade shops, printers, packaging convertors,
prepress service companies, consumer goods companies, and independent and
in-house design organizations that specialize in packaging, advertising,
catalogs, brochures, promotional displays and similar printed material that
involves complex layout of color elements.
For commercial trade shops, printers, and prepress service companies, the
production of catalogs, brochures, posters or ads involves assembling job
elements and page geometries into a high-quality, finished, printed piece.
Typically, these organizations receive data from their clients in a variety
of formats during various stages of the production cycle.
Design firms, packaging manufacturers and consumer goods companies are
responsible for creating packages, free-standing newspaper inserts, in-store
promotions, and other collateral for consumer product marketing. For these
companies, the challenge is taking an initial design concept through to
completion.
For each of these groups, success depends significantly on their ability
to make the path from design through production completely electronic. They
need to be able to create an open-systems environment that allows them to
accept data in any format, at any time and to manage projects and people for
efficient use of available resources.
Contex software is sold to general and packaging trade shops, general
printers, and packaging converters primarily to facilitate the color prepress
production processes. It is sold to package designers and consumer product
companies to facilitate the more interactive needs of designers. This
typically involves exploration of design concepts and alternatives, and
requires experimental, hands-on operations from designers.
Xyvision's customers in the color electronic design and prepress
application segment include: Akerlund & Rausing (Sweden), Banta/Color
Response, Field Packaging (U.K.), The Gillette Company, DAR Projects (U.K.),
Kimberly Clark, HEL Productions (Australia), Novacel (Mexico), Lincoln
Graphics, Prestige Graphics (Malaysia), Rubber Type, Schawkgraphics,
5
<PAGE>
Scandicolor (Denmark), Schmalback-Lubeca (Germany), Southern Graphics, and
Litho Plus (Canada).
5
<PAGE>
PRODUCT STRATEGY
In the 1980s, Xyvision's strengths were primarily in organizations with
production-oriented work groups that produced high-volume and/or high-quality
documents and publications. In the 1990s, the tendency is for greater control
to be moved into the hands of information creators (e.g., designers, authors,
illustrators, etc.), with increasing focus placed on streamlining the
production and dissemination processes. Also, there has been significant
growth in the use of: (i) color, (ii) electronic deliverables (e.g., CD-Rom
and the Internet), and (iii) document databases. Electronic dissemination is
expected to lead to significant growth in multimedia publications.
Xyvision recognizes that today's customers demand an open system with
access to a wide range of products in an integrated environment. These
systems must meet a customer's current needs while still providing a sound,
flexible platform to meet their future needs in a rapidly changing
marketplace. Xyvision's product and business strategy reflect a commitment to
provide users with the tools to create this environment, which enables them
to leverage existing investments, implement an efficient operation, and
realize significant cost reductions and productivity increases.
Xyvision's product development will continue to embrace open-systems
technology and standards, and will focus on: (i) enhanced and broader
functionality, (ii) document, information, and image management, (iii)
workflow management, and (iv) productivity increases. The commitment to
open-systems technology should continue to allow popular third-party
applications, including desktop tools, to be integrated into each of
Xyvision's solutions. Also, integration of third-party applications provides
further leverage, as users can continue to use the "right tool for the right
task" on equipment already in place throughout the organization or work
group.
SALES AND DISTRIBUTION
Xyvision Publishing Systems. In the United States and Canada, Xyvision
markets these products and services primarily through a direct sales force.
However, for larger document management systems, the Company is increasingly
marketing through and with large systems integrators. In Europe, Asia, and
Australia, these products and services are provided by independent
distributors with appropriate systems integration skills.
Contex Prepress Systems. Xyvision markets the Contex software and
associated services primarily through a worldwide network of value added
resellers with appropriate applications support and systems integration
skills. This distribution program is called Contex Prepress
Partners(Trademark).
International. The Company maintains a European sales and support
headquarters in England. International revenues are expected to be of growing
importance to the Company.
CUSTOMER SERVICE AND SUPPORT
Most of Xyvision's customers enter into maintenance and support contracts
and receive training. As part of a standard software support contract, the
Company provides software and documentation updates, as well as telephone
support. Each customer site is provided with remote diagnostics for the
identification, isolation, and resolution of system problems. Hardware
maintenance is provided by the vendor who manufactured the hardware.
Upon request, Xyvision will provide its customers with complete workflow
and configuration analysis, pre-installation planning, system integration,
on-site and classroom training, applications support, program management,
remote diagnostics, and field service and support.
Revenues from customer service and support have been 40%, 38%, and 36% of
overall revenues during fiscal 1993, fiscal 1994, and fiscal 1995,
respectively.
PRODUCT DEVELOPMENT AND ENGINEERING
The market for the Company's products is characterized by rapid
technological change that requires the continuing enhancement of existing
products and the development of new products. During the past three fiscal
years ended March 31, 1995, the Company's investments in product development
and engineering, before the capitalization of software costs, have been a
significant percentage (17-19%) of the Company's total revenues.
6
<PAGE>
In the future, the Company's product development efforts will focus on
continuing to enhance its open- architecture systems, increasing the
price/performance of its products and developing software for specific
application needs. The Company believes it will have to continue to invest a
significant portion of its revenues in development to remain competitive in
its markets.
COMPETITION
The markets for document management, publishing, and prepress systems are
highly competitive. Xyvision competes with a number of companies, and other
companies not currently in these markets may introduce competing products.
Many existing and potential competitors have significantly greater financial,
technical, and marketing resources than Xyvision.
Competition is usually based on: (i) price/performance, (ii) functionality
differences, (iii) quality and extent of service and support, and (iv) the
financial strength of the vendor.
In the market segment for document management and publishing applications
for technical documentation, Xyvision principally competes with
Frame/Datalogics, Documentum, Intergraph, Interleaf, and Xerox. In the
commercial publishing applications market segment, the Company's principal
competitors are CCI Europe, Miles 33, and Quark. In the prepress applications
market segment, the Company competes primarily with Barco/Disc, Dainippon
Screen, Linotype-Hell, Wright Technologies, Scitex, and a wide variety of
desktop packages from companies such as Quark and Adobe.
MANUFACTURING AND SUPPLIERS
Xyvision's Contex family of prepress systems is based on workstations and
operating systems from Silicon Graphics, Inc. The Company's document
management and publishing product lines have completed a transition from
proprietary hardware platforms to workstations and operating systems from Sun
Microsystems, IBM (including IBM's power PC products) and DEC. A significant
interruption in supply from these vendors would have a material adverse
effect on the Company.
BACKLOG
The Company believes that it is able to anticipate near-term demand for
its products and ship products shortly after receipt of the order.
Accordingly, the Company's backlog at any particular time is not indicative
of future sales levels.
PATENTS, LICENSES, AND TRADEMARKS
The Company relies on copyright, patent, and trade secret law to protect
its technology. Management believes that because of rapid technological
changes in professional publishing and color electronic design and prepress
technologies, patent, trade secret, and copyright protection is not as
significant to the Company's business as the technical and creative skills of
its employees.
Xyvision, PackageMaker, RIP'n'Strip, and RoboRIP are registered trademarks
of the Company. The Company also uses the following trademarks; Parlance
Publisher, Parlance Document Manager, Contex, Contex Professional, Contex
LinePro, Contex Prepress Partners, DotBox, and SmarTrap.
The Company has acquired non-exclusive licenses for certain software from
several companies. These licenses permit the Company to grant sublicenses to
its customers. Loss of the Company's rights to grant sublicenses to its
customers on some of these software products could have a material adverse
effect on the Company.
EMPLOYEES
As of March 31, 1995, the Company employed 171 persons, which included 50
in research and development, 47 in sales and marketing, 51 in customer
support, and 23 in finance and administration.
7
<PAGE>
Xyvision's products are primarily proprietary software and services.
Software and services companies are commonly referred to as "intellectual
property companies." As an intellectual property company, management believes
that the future success of the Company will depend in large part on its
ability to attract and retain qualified employees. The Company does not
expect to encounter any significant difficulty in hiring or retaining such
personnel. The Company's employees are not represented by a labor union, and
the Company has never suffered an interruption of business as a result of a
labor dispute. The Company believes its employee relations are excellent.
Properties
The Company's executive, administrative, research and development, and
home office sales support facilities are located in a 77,214 square foot
building in Wakefield, Massachusetts. The Company occupies this facility
under a lease which expires in February 1996 (with a two-year option to
extend on the part of the landlord).
The Company also leases sales and service facilities at other locations in
the United States and abroad.
Legal Proceedings
There are no material legal proceedings to which the Company or any of its
subsidiaries is a party of or of which any of their properties is subject.
Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended March 31, 1995.
8
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers and Management of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION
Thomas H. Conway 56 Chief Executive Officer
Daniel M. Clarke 48 President and Chief Operating Officer
Eugene P. Seneta 50 Treasurer and Secretary
Kevin J. Duffy 40 Vice President, North American Sales
Vice President, Customer Support and Managing
James G. Hickey 41 Director, Europe
Donald J. MacDonald 58 Vice President, International, Pacific Rim
</TABLE>
Mr. Conway has served as Chief Executive Officer since joining the Company
in August 1991 and also served as President from August 1991 to February
1994. He is the President of the consulting firm T.H. Conway and Associates.
For the past ten years he has been assisting companies to remediate their
operational and financial problems. Mr. Conway is a graduate of Harvard
College and holds a Masters Degree from the Wharton School of Finance. He is
a member of the Financial Executive Institute, and his firm is one of the
founding firms of the Turnaround Management Association.
Mr. Clarke joined Xyvision in February 1990 as Vice President, Chief
Financial Officer and Treasurer. He was appointed General Manager of Contex
Prepress Systems in April 1991, and elected President and Chief Operating
Officer in February 1994. He also served as Secretary from September 1990 to
February 1994. He holds an M.B.A. degree from the Harvard Business School and
a B.S. degree from Rensselaer Polytechnic Institute.
Mr. Seneta joined Xyvision in June 1990 as Manager of Contract
Administration and was elected Treasurer and Secretary in February 1994. From
May 1991 to February 1994, he served as Corporate Controller. He holds a
Bachelor of Arts in Business Administration from Grove City College and an
M.B.A. from the Emory University Graduate School of Business .
Mr. Duffy joined Xyvision in June 1983 and was promoted to Vice President,
North American Sales in April 1991. Immediately prior to this position, Mr.
Duffy served as Director, Eastern Region Sales, a position he assumed in
January 1990. Previously, he held a variety of sales, support, and marketing
positions for the Company, including commercial sales manager, customer
support manager, and pre-sales support manager. He holds a B.S. degree from
Suffolk University.
Mr. Hickey joined the Company in October 1987 and has served as Vice
President of Customer Support since April 1991. In June 1992, he was given
general management responsibility for Xyvision Publishing Systems activities
in Europe. He spent his first two and a half years with Xyvision as aerospace
market manager and director of product marketing. He holds a B.A. in
Economics from Harvard College and an M.B.A. from the Stanford University
Graduate School of Business.
Mr. MacDonald is a member of Xyvision's founding group. He has been a Vice
President of the Company since 1982, first with responsibilities for customer
support, then special products and engineering services, and now sales for
the Pacific Rim. He holds B.S. and M.S. degrees in electrical engineering
from Northeastern University.
10
<PAGE>
PART II
Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is currently traded on the Nasdaq system under
the symbol "XYVI". The price per share of the Company's Common Stock is
reported on the OTC Bulletin Board over a level 2 or level 3 Nasdaq
workstation and through the National Quotation Bureau Pink Sheets.
The following table sets forth the reported high and low sales prices for
the Company's Common Stock for the periods indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
HIGH LOW
FISCAL 1994
April 1 - June 30 $ .13 $ .05
July 1 - September 30 .13 .09
October 1 - December 31 .22 .13
January 1 - March 31 .22 .19
FISCAL 1995
April 1 - June 30 $ .20 $ .19
July 1 - September 30 .23 .20
October 1 - December 31 .53 .25
January 1 - March 31 .50 .50
</TABLE>
As of June 9, 1995, there were approximately 701 stockholders of record.
No cash dividends have been paid on the Common Stock since Xyvision's
formation. The Company does not expect to pay cash dividends on the Common
Stock in the foreseeable future.
11
<PAGE>
Selected Financial Data
The following table summarizes certain selected financial data and should
be read in conjunction with the financial statements and related notes
appearing elsewhere in this report.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
-----------------------------------------------------------
March 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1991 1992 1993 1994 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues $27,793 $ 22,695 $23,846 $23,865 $24,559
Gross margin 9,966 7,609 10,626 11,907 12,045
Operating expenses 26,502 15,272 13,833 11,815 11,205
Income (loss) from operations (16,536) (7,664) (3,206) 92 840
Income (loss) before income taxes and
extraordinary item (16,961) (8,903) (4,079) (479) 321
Net income (loss) (1) (16,961) (5,299) 1,631 301 321
Net income (loss) per share (1) $(3.08) $ (.95) $ .24 $ .04 $ .03
Weighted average common and common
equivalent shares outstanding 5,516 5,566 6,908 8,224 10,033
FINANCIAL POSITION
Cash, cash equivalents and short-term
investments $7,510 $ 825 $ 577 $ 312 $ 174
Working capital (deficit) 6,424 (13,973) (4,115) (8,961) (3,200)
Total assets 30,188 15,536 12,846 12,505 13,137
Long-term debt 22,529 2,958 7,445 1,706 4,655
Stockholders' deficit $(4,958) $ (9,521) $(7,295) $(6,674) $(4,116)
OTHER INFORMATION
Research and development expenditures,
including capitalized software costs $7,522 $ 5,590 $ 4,041 $ 4,586 $ 4,410
</TABLE>
(1) Fiscal 1992 results include an extraordinary item for a gain of
$3,604, or $.65 per share, from the exchange of Debentures for unsecured,
unsubordinated promissory notes, and shares of common stock (also, see Note 9
of the Notes to Consolidated Financial Statements).
Fiscal 1993 results include an extraordinary item for a gain of $5,709, or
$.83 per share, from the exchange of Debentures for unsecured, unsubordinated
promissory notes, and shares of common stock (also, see Note 9 of the Notes
to Consolidated Financial Statements).
Fiscal 1994 results include an extraordinary item for a gain of $780, or
$.10 per share, from the exchange of Debentures for unsecured, unsubordinated
promissory notes, and shares of common stock (also, see Note 9 of the Notes
to Consolidated Financial Statements).
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
Revenues increased slightly from $23,846,000 in fiscal 1993 to $23,865,000
in fiscal 1994 and increased 3% from $23,865,000 in fiscal 1994 to
$24,559,000 in fiscal 1995. From fiscal 1993 to fiscal 1994, systems revenues
increased 4% due primarily to the increased volume from both the Company's
publishing and color system's domestic markets. In fiscal 1995 systems
revenues increased 5% from fiscal 1994, due primarily to the increased volume
from the Company's color systems European and Pacific Rim/Asian markets.
Service revenues decreased 6% from fiscal 1993 to fiscal 1994 and decreased
1% from fiscal 1994 to fiscal 1995. The decreases are primarily due to
reduced maintenance from the Company's publishing domestic markets. In fiscal
1993 and 1994, market concerns over the Company's financial condition also
had a negative impact on revenues. Although in the sales process the Company
continues to encounter questions concerning its financial condition, the
Company does not believe that these concerns had a significant impact on
revenues in fiscal 1995.
Gross margins increased from 45% of revenues in fiscal 1993 to 50% of
revenues in fiscal 1994, but decreased to 49% in fiscal 1995. System margins
increased from 52% of revenues in fiscal 1993 to 63% of revenues in fiscal
1994, but decreased to 58% of revenues in fiscal 1995. The systems margin
increase in fiscal 1994 was due to a higher content of software. The decrease
in fiscal 1995 was the result of higher amortization of capitalized software
development costs. Service margins decreased from 34% of revenues in fiscal
1993 to 29% of revenues in fiscal 1994 and then increased to 33% of revenues
in fiscal 1995. The decrease in service margin in fiscal 1994 was the result
of reduced service revenues and a relatively high level of fixed costs. The
increase in service margins in fiscal 1995 was due to careful control of
expenses.
Research and development expenses, including capitalized software
development costs, were $4,041,000, $4,586,000 and $4,410,000 for fiscal
1993, 1994, and 1995, respectively. These amounts represented 17%, 19%, and
18% of revenues, respectively. Capitalized software costs were $1,287,000,
$1,389,000, and $1,413,000 in fiscal 1993, 1994, and 1995 respectively. The
increase in research and development expenditures from fiscal 1993 to fiscal
1994 was due to the Company's continuing commitment to support its product
development programs. The decrease in research and development expenditures
from fiscal 1994 to fiscal 1995 was primarily due to the completion of major
projects and cost control efforts. Research and development expenses,
excluding capitalized software costs, were 12%, 13% and 12% of revenues
during fiscal 1993, 1994 and 1995, respectively.
Marketing, general, and administrative expenses decreased from $9,468,000
(or 40% of revenues) in fiscal 1993 to $8,618,000 (or 36% of revenues) in
fiscal 1994. Fiscal 1995 expenses decreased further to $8,208,000 (or 33% of
revenues). These decreases are primarily a result of the Company's continuing
cost awareness and containment efforts. Management does not expect further
decreases in fiscal 1996.
The Company continually evaluates the future benefit of its capitalized
software costs. During fiscal 1993, the Company wrote off $1,610,000 of
capitalized software costs for Xyvision's publishing products that were not
expected to generate material benefits to the Company in future periods since
they were replaced by new software technologies released by the Company.
Interest income was $32,000, $3,000 and $9,000 in fiscal 1993, 1994, and
1995, respectively. The low amount of interest income in each of the fiscal
years was due to the decrease in the Company's level of cash available for
investing. Interest expense from third parties was $789,000, $256,000 and
$284,000 in fiscal 1993, 1994, and 1995, respectively. Interest expense on
debt from third parties includes the interest obligation on the Debentures
and the quarterly interest payments on the 4% promissory notes. The decrease
in the interest expense from fiscal 1993 to fiscal 1994 was a result of the
Debenture exchanges. The increase in the interest expense from fiscal 1994 to
fiscal 1995 was primarily due to the quarterly interest payments on the new
4% promissory notes (also please see Note 9 of the Notes to Consolidated
Financial Statements). Interest expense related to the Company's debt to a
shareholder was $115,000, $317,000, and $244,000 in fiscal 1993, 1994, and
1995, respectively.
During fiscal 1993, the Company entered into exchange transactions with
investors holding a total of $10,285,000 principal amount of Debentures. As a
result of these transactions, the Company realized an extraordinary gain of
$5,709,000, or $.83 per share. These Debentureholders exchanged their
Debentures for (i) an unsecured, unsubordinated promissory note of the
Company, in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, which bears interest (payable at maturity)
at 15% per year (compounded annually) and matures 30 months from issuance,
and (ii) 107,095 shares of common stock of the Company per $1,000,000
principal amount of Debentures exchanged.
13
<PAGE>
During fiscal 1994, the Company entered into agreements to restructure an
additional $1,425,000 of Debentures on substantially the same terms as those
described above. As a result of these transactions, the Company realized an
extraordinary gain of $780,000, or $.10 per share.
13
<PAGE>
During fiscal 1995, the Company entered into agreements to restructure an
additional $30,000 of Debentures on substantially the same terms as those
described above. The Company did not recognize an extraordinary gain on these
transactions.
During fiscal 1995, the Company completed exchange transactions with
holders of 15% Promissory Notes in an aggregate principal amount of
$4,637,000, in which, in exchange for the cancellation of a 15% Promissory
Note (including all rights to receive any interest accrued thereon) the
Company issued, among other securities, shares of Series B Preferred Stock.
The Series B Preferred Stock accrues a cumulative dividend in the amount of
$.40 per share per annum, whether or not declared. During fiscal 1995, as a
result of these transactions, the Company declared dividends of $35,000 on
the Series B Preferred Stock.
Net income allocable to common stockholders was $286,000, $301,000 and
$1,631,000 for fiscal 1995, 1994, and 1993, respectively.
The Company believes inflation has not had a material effect on its
results of operations to date.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Company had cash and cash equivalents of $174,000,
which is a decrease of $138,000 from the previous fiscal year end.
Approximately $1,767,000 of cash was provided by operations and approximately
$1,783,000 of cash was used in investing activities in fiscal 1995. The
Company plans to continue its aggressive efforts of managing working capital.
.
In fiscal 1995 the Company invested $1,783,000 in capital assets,
including $1,413,000 of capitalized software costs, reflecting the Company's
continuing commitment to its product development programs. The Company
anticipates it will continue to invest in capital assets as required to
support its product development efforts and general business needs in future
periods.
The Company has a $3,000,000 line of credit with a current investor in the
Company. The line, which is payable on demand, is secured by substantially
all of the assets of the Company and has been used for working capital and
general business purposes. Interest on the line of credit is payable monthly.
The line of credit is scheduled to expire on June 30, 1995, although the
Company and this investor are currently engaged in negotiations to extend the
credit line.
At the beginning of fiscal 1992, the Company had outstanding $22,410,000
of Debentures. This was a significant amount of debt for the Company and
represented an annual cash interest payment obligation of $1,344,600. During
fiscal 1992, the Company began a program to restructure its financial
position, specifically, these Debentures.
Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,675,000 principal amount of
Debentures. Substantially all of these transactions involved the exchange of
outstanding Debentures for (i) an unsecured, unsubordinated promissory note
of Xyvision in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, bearing interest (payable at a maturity)
at 15% per year (compounded annually) and maturing 30 months from issuance
and (ii) 107,095 shares of common stock of Xyvision per $1,000,000 principal
amount of Debentures. As of June 28, 1995, a total of $3,735,000 principal
amount of Debentures remained outstanding. Of such Debentures, the Company
has indentified the holders of $1,960,000 principal amount, leaving
$1,775,000 principal amount of Debentures unidentified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994 or 1995.
Under the terms of the Indenture covering the Debentures, the Trustee or the
holders of not less than 25% of the then outstanding principal amount of
Debentures have the right to accelerate the maturity date of the remaining
Debentures. To date (June 28, 1995), such acceleration has neither occurred
nor been threatened.
The Company continues to negotiate in good faith with as many of the
remaining Debentureholders as possible. However, despite the progress that
has been made, the Company can still give no assurance about the outcome of
the Debenture restructuring efforts and does not expect the matter to be
resolved in the near future. If the Company is unable to enter into
restructuring transactions with the remaining Debentureholders, and such
Debentureholders seek to pursue legal remedies against the Company, the
Company may have to seek protection under applicable laws, including the
Bankruptcy Code, while it develops, analyzes and completes alternative
restructuring strategies.
14
<PAGE>
In addition, as of September 30, 1994 the Company had issued promissory
notes in an aggregate principal amount of $5,692,000 in connection with the
Debenture exchange transactions described above, the interest on which
accrued at a rate of 15% per year and totalled $2,344,000 payable at
maturity. Such 15% Promissory Notes in an aggregate principal amount of
$4,542,000 were to mature on September 30, 1994, and the remainder of these
15% Promissory Notes were to mature at various dates between September 30,
1994 and February 28, 1997. In order to relieve itself of the payment
obligations on the Promissory Notes, in fiscal 1995 the Company began a
program to restructure the Promissory Notes. During fiscal 1995, the Company
completed exchange transactions with holders of 15% Promissory Notes in an
aggregate principal amount of $4,637,000, in which, in exchange for the
cancellation of a 15% Promissory Note (including all rights to receive any
interest accrued thereon), the Company issued (i) a new Promissory Note that
will mature 30 months from the date of issuance and bears interest at 4% per
annum, (ii) one share of common stock for each $10.00 of principal amount of
15% Promissory Note delivered and (iii) one share of Series B Preferred Stock
for each $10.00 of interest due on the 15% Promissory Note delivered. The
Series B Preferred Stock accrues a cumulative dividend in the amount of $.40
per share per annum, whether or not declared, and has a liquidation
preference of $12.50 per share, plus any dividends declared or accrued but
unpaid. Each share of Series B Preferred Stock is convertible into two shares
of common stock, subject to adjustment for certain events as defined in the
Series B Preferred Stock terms. Additionally, holders of outstanding shares
of Series B Preferred Stock are entitled to voting rights equivalent to the
rights attributable to the whole shares of common stock into which the Series
B Preferred Stock is convertible. As of June 28, 1995, 15% Promissory Notes
in an aggregate principal amount of $1,02 3,000 were outstanding which will
mature at various dates between July 1, 1995 and February 28, 1997. The
Company will seek to restructure the remaining 15% Promissory Notes.
The Company anticipates that its cash requirements for the first part of
fiscal 1996 will be satisfied from its present cash balances, cash flow from
existing operations, and its credit line, assuming the extension of the
credit line and the continued forbearance by the Debentureholders. Despite
the progress made during the past fiscal year, the Company can give no
assurance on the outcome of the Debenture restructuring efforts and does not
expect the matter to be resolved in the immediate future. Moreover, no
assurance can be given as to the ability of the Company to satisfy or
otherwise discharge its payment obligations under the promissory notes issued
in connection with the Debenture restructuring. The above uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recovery and classifications of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company's long term liquidity needs cannot reasonably be determined at
this time principally because these needs are dependent, in a large part,
upon the outcome of the Company's ongoing attempts to restructure the
remaining outstanding Debentures and the ability of the Company to obtain
financing to repay or otherwise restructure the remaining outstanding 15%
promissory notes.
The Company believes that its current strategy, as outlined in Item 1 of
this Form 10-K, will continue to significantly contribute to the revival of
the Company. During fiscal 1996, the Company will focus more emphasis on
marketing and enhancing its new technologies, and broadening geographic
distribution. While the Company remains confident about its future, it can
give no assurance regarding the ultimate success of its strategy.
15
<PAGE>
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF XYVISION, INC.:
We have audited the accompanying consolidated balance sheets of Xyvision,
Inc. as of March 31, 1995 and 1994, and the related consolidated statements
of operations, changes in stockholders' deficit and cash flows for each of
the three years in the period ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our report.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a incurred loss
from operations in fiscal 1993 and has working capital and stockholders'
deficit at March 31, 1995 and 1994. On May 5, 1995, 1994, 1993, and 1992, the
Company elected not to make the interest payment that was due on its 6%
Convertible Subordinated Debentures. Under the terms of the Indenture
covering the debentures, the Trustee or the holders of not less than 25% of
the outstanding principal amount of the debentures have the right to
accelerate the maturity date of the remaining debentures. As of June 9, 1995,
no such acceleration had occurred. The Company's attainment of profitable
operations and sufficient additional financing, as well as the continued
forbearance of its Debentureholders, cannot be determined at this time. These
uncertainties raise substantial doubt about the Company's ability to continue
as a going concern. Management's actions in regard to these matters are
described in Note 2. The financial statements do not include any adjustments
relating to the recovery and classifications of recorded asset amounts or the
amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Because of the significance of the uncertainties referred to in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the consolidated financial statements referred to above.
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
June 9, 1995
17
<PAGE>
XYVISION, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1995 1994
Current assets:
Cash $ 174,289 $ 312,238
Accounts receivable: Trade, less allowance for doubtful
accounts of $711,000 in 1995 and $759,000 in 1994 7,860,775 6,973,216
Retainage -- 526,220
Inventories 188,251 91,401
Other current assets 1,173,339 609,543
Total current assets 9,396,654 8,512,618
Property and equipment, net 1,217,799 1,787,900
Other assets, net, principally capitalized software costs 2,522,159 2,204,887
Total assets $ 13,136,612 $ 12,505,405
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to shareholder $ 1,100,000 $ 1,400,000
Current portion of long-term debt 5,175,906 10,103,793
Accounts payable and accrued expenses 3,664,855 2,740,029
Other current liabilities 2,656,157 3,229,393
Total current liabilities 12,596,918 17,473,215
Long-term debt 4,655,255 1,705,972
Total liabilities 17,252,173 19,179,187
Commitments and contingencies -- --
Stockholders' deficit:
Series preferred stock, $1.00 par value; 2,700,000 shares
authorized; no shares issued -- --
Series B Preferred Stock, $1.00 par value: 300,000 shares
authorized; 189,875 issued at March 31, 1995 (aggregate
liquidation preference of $2,373,438) 189,875 --
Common stock, $.03 par value; 20,000,000 shares
authorized; 9,218,962 issued in 1995 and 8,752,104
issued in 1994 276,569 262,563
Additional paid-in capital 41,176,900 39,367,327
Accumulated deficit (43,806,103) (44,091,927)
(2,162,759) (4,462,037)
Less: Treasury stock, at cost; 573,325 shares in 1995 and
573,925 shares in 1994 1,458,517 1,460,317
Receivable from employee stock ownership plan 494,285 751,428
Total stockholders' deficit (4,115,561) (6,673,782)
Total liabilities and stockholders' deficit $ 13,136,612 $ 12,505,405
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
XYVISION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
- -------------------------------------------------------- ------------- ------------- -------------
Revenues: Systems $15,674,312 $14,895,180 $14,320,653
Service 8,884,796 8,969,855 9,525,021
Total revenues 24,559,108 23,865,035 23,845,674
Cost of sales: Systems 6,527,775 5,572,756 6,907,004
Service 5,986,263 6,385,063 6,312,248
Total cost of sales 12,514,038 11,957,819 13,219,252
Gross margin 12,045,070 11,907,216 10,626,422
Expenses:
Research and development 2,997,285 3,197,231 2,754,256
Marketing, general, and administrative 8,207,762 8,618,326 9,468,232
Write down of capitalized software costs -- -- 1,610,428
Total operating expenses 11,205,047 11,815,557 13,832,916
Net income (loss) from operations 840,023 91,659 (3,206,494)
Other income (expense), net: Interest income 9,193 2,848 32,156
Interest expense - third party (284,285) (256,499) (789,359)
Interest expense - shareholder (244,204) (316,613) (115,014)
Total other expense, net (519,296) (570,264) (872,217)
Income (loss) before income taxes and extraordinary item 320,727 (478,605) (4,078,711)
Provision for income taxes -- -- --
Income (loss) before extraordinary item 320,727 (478,605) (4,078,711)
Extraordinary item:
Gain on exchange of convertible subordinated
debentures -- 779,574 5,709,396
Net income 320,727 300,969 1,630,685
Series B Preferred Stock Dividends 34,903 -- --
Net income allocable to common stockholders $ 285,824 $ 300,969 $ 1,630,685
Income (loss) per share:
Income (loss)before extraordinary item $ .03 $ (.06) $ (.59)
Extraordinary item .-- .10 .83
Income per share $ .03 $ .04 $ .24
Weighted average common and common equivalent shares
outstanding 10,032,930 8,224,189 6,908,456
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
XYVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
- ---------------------------------------------------------- ------------- ------------- -------------
Operations: Net income $ 320,727 $ 300,969 $ 1,630,685
Adjustments to reconcile net income to net cash provided
from operating activities:
Gain on exchange of convertible subordinated debentures -- (779,574) (5,709,396)
Write down of capitalized software costs -- -- 1,610,428
Depreciation and amortization 2,137,450 2,231,586 3,253,270
Provision for losses on contracts and accounts receivables 505,554 963,803 1,357,000
Loss on disposal of property and equipment 20,030 61,733 20,565
Operating assets and liabilities:
Accounts receivable (1,393,112) (1,275,876) (2,017,481)
Retainage 526,220 113,196 (639,416)
Inventories (96,850) 152,506 205,363
Accounts payable and accrued expenses 894,249 (696,822) 219,918
Other current liabilities (577,608) 371,210 (48,176)
Other current assets (570,109) (147,415) 519,239
Net cash provided from operations 1,766,551 1,295,316 401,999
Investments:
Additions to property and equipment (368,982) (640,176) (719,580)
Proceeds from sales of property and equipment 225 11,794 19,645
Additions to customer support spares (1,358) -- (42,809)
Capitalized software costs (1,412,911) (1,388,884) (1,286,593)
Net cash used by investments (1,783,026) (2,017,266) (2,029,337)
Financing:
Repayment of debt -- -- (81,948)
Proceeds from line of credit from a shareholder 1,800,000 2,900,000 2,700,000
Repayment of line of credit to a shareholder (2,100,000) (2,700,000) (1,500,000)
Proceeds from issuance of common stock from treasury 186 331 3,947
Dividends on preferred stock (15,967) -- --
Payment on 15% promissory notes (62,836) -- --
Loan payment from Employee Stock Ownership Plan 257,143 257,143 257,143
Net cash provided from (used by) financing (121,474) 457,474 1,379,142
Net decrease in cash and cash equivalents (137,949) (264,476) (248,196)
Cash and cash equivalents at the beginning of the year 312,238 576,714 824,910
Cash and cash equivalents at the end of the year $ 174,289 $ 312,238 $ 576,714
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE>
XYVISION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <
C>
RECEIVABLE
FROM
EMPLOYEE
ADDITIONAL STOCK
TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY OWNERSHIP
STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT STOCK PLAN
DEFICIT
BALANCE, MARCH 31, 1992 $205,811 $39,113,757 $(46,023,581) $(1,551,601) $(1,265,714)
$(9,521,328)
ISSUANCE OF COMMON STOCK WITH THE EXCHANGE OF
$10,285,000 OF CONVERTIBLE SUBORDINATED
DEBENTURES, 1,030,549 SHARES 30,916 223,466
254,382
ISSUANCE OF COMMON STOCK IN ACCORDANCE WITH
CREDIT LINE AGREEMENT, 400,000 SHARES 12,000 68,000
80,000
ISSUANCE OF STOCK FROM TREASURY FOR LEGAL
SERVICES ASSOCIATED WITH THE EXCHANGE OF
CONVERTIBLE SUBORDINATED DEBENTURES, 20,000
SHARES (58,125) 60,000
1,875
ISSUANCE OF STOCK FROM TREASURY UNDER
EMPLOYEE STOCK PURCHASE PLAN, 7,028 SHARES (19,217) 21,084
1,867
- --------------------------------------------- ----------- ---------- ------------- --------------- -------------- --------------
---------------
ISSUANCE OF STOCK FROM TREASURY FOR
EMPLOYMENT SERVICE AWARDS, 1,000 SHARES (2,794) 3,000
206
PAYMENTS ON RECEIVABLE FROM EMPLOYEE STOCK
OWNERSHIP PLAN 257,143
257,143
NET INCOME 1,630,685
1,630,685
BALANCE, MARCH 31, 1993 -- 248,727 39,325,087 (44,392,896) (1,467,517) (1,008,571)
(7,295,170)
- --------------------------------------------- ----------- ---------- ------------- --------------- -------------- --------------
---------------
ISSUANCE OF COMMON STOCK WITH THE EXCHANGE OF
$1,425,000 OF CONVERTIBLE SUBORDINATED
DEBENTURES, 161,181 SHARES 4,836 14,359
19,195
ISSUANCE OF COMMON STOCK IN ACCORDANCE WITH
CREDIT LINE AGREEMENT 300,000 SHARES 9,000 34,750
43,750
ISSUANCE OF STOCK FROM TREASURY FOR
EMPLOYMENT SERVICE AWARDS, 2,400 SHARES (6,869) 7,200
331
PAYMENTS ON RECEIVABLE FROM EMPLOYEE STOCK
OWNERSHIP PLAN 257,143
257,143
NET INCOME 300,969
300,969
BALANCE, MARCH 31, 1994 -- 262,563 39,367,327 (44,091,927) (1,460,317) (751,428)
(6,673,782)
- --------------------------------------------- ----------- ---------- ------------- --------------- -------------- --------------
---------------
ISSUANCE OF COMMON STOCK WITH THE EXCHANGE OF
$30,000 OF CONVERTIBLE SUBORDINATED
DEBENTURES, 3,213 SHARES 96 639
735
============================================= =========== ========== ============= =============== ============== ==============
===============
ISSUANCE OF COMMON STOCK WITH THE EXCHANGE OF
$4,636,500 OF PROMISSORY NOTES, 463,650
SHARES 13,910 101,673
115,583
ISSUANCE OF SERIES B PREFERRED STOCK WITH THE
EXCHANGE OF $4,636,500 OF PROMISSORY NOTES,
189,875 SHARES 189,875 1,708,875
1,898,750
ISSUANCE OF STOCK FROM TREASURY FROM
EMPLOYMENT SERVICE AWARDS, 600 SHARES (1,614) 1,800
186
PAYMENTS ON RECEIVABLE FROM EMPLOYEE STOCK
OWNERSHIP PLAN 257,143
257,143
DIVIDENDS ON SERIES B PREFERRED STOCK (34,903)
(34,903)
NET INCOME 320,727
320,727
BALANCE, MARCH 31, 1995 $189,875 $276,569 $41,176,900 $(43,806,103) $(1,458,517) $(494,285)
$(4,115,561)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
XYVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Xyvision, Inc. (the "Company"), which operates as a
single industry segment, designs and markets software for publishing,
document management, color design, and prepress applications.
Basis of Presentation: The consolidated financial statements include the
accounts of Xyvision, Inc. and all its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Cash: Cash consists of bank deposits.
Inventories: Inventories are stated at the lower of cost, determined under
the first-in, first-out method, or market.
Property and Equipment: Property and equipment are stated at cost. Major
renewals and improvements are capitalized while repair and maintenance
charges are expensed when incurred. Depreciation and amortization are
computed on a straight-line basis over the useful lives of the assets, except
for leasehold improvements that are amortized over the lesser of the term of
the lease or the estimated useful life of the related asset. When assets are
sold or retired, their cost and related accumulated depreciation are removed
from the accounts. Any gain or loss is included in income.
The following lives are used to provide for depreciation and amortization:
<TABLE>
<CAPTION>
<S> <C>
LIVES IN YEARS
- ---------------------------------------------- ------------------
Design, test, and manufacturing equipment 2-5
Office furniture and fixtures 7
Leasehold improvements 2-10
Purchased software 5
Delivery and service vehicles 3
</TABLE>
Revenue Recognition: Revenues from equipment, software, and supplies are
recognized upon shipment. Maintenance revenues are recognized over the
contractual periods and noncontractual maintenance services are recognized as
the services are provided. Revenues on major systems integration contracts
are recognized on the percentage-of-completion method. Losses, if any, on
such contracts are provided for at the time they become apparent.
Software Development Costs: Costs for research, design, and development of
software for sale to others incurred prior to the achievement of
"technological feasibility" are charged to expense. The Company capitalizes
certain software costs in accordance with Statement of Financial Accounting
No. 86, "Accounting for costs of computer software to be sold, leased or
otherwise marketed". The Company amortizes these costs over periods not
exceeding three years beginning when the product is offered for sale. The
amortization recognized in a period is the greater of the straight line basis
or the proportion of current revenues to total anticipated revenues.
Income Taxes: The Company follows the provisions of Financial Accounting
Standards Board Statement ("FAS") No. 109, "Accounting for Income Taxes."
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial statement purposes
and such amounts recognized for tax purposes. These deferred taxes are
measured by applying currently enacted tax rates. Applicable tax credits are
recognized as a reduction in the provision for income taxes in the year in
which they are available.
23
<PAGE>
Warranty Costs: The Company warrants the majority of its products for 90
days from the date of customer acceptance. Estimated warranty costs are
provided at the time of sale. Warranty costs incurred by the Company have not
been significant.
Earnings (Loss) per Share: Earnings (loss) per share is computed based on
the weighted average number of common shares outstanding adjusted to include
the dilutive effect of stock options and warrants.
Concentration of Credit Risk: Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
trade receivables.
Concentrations of credit risk with respect to trade receivables are due to
the number of customers operating primarily in the electronic publishing
industry, which includes commercial publishers, printers, and trade shops.
FUTURE OPERATIONS
In fiscal 1992, the Company reduced its workforce and made other cost
reductions to meet the realities of: (i) becoming a software and services
oriented business and (ii) weak worldwide demand in its markets. In fiscal
1993, the Company continued to adjust expenses due to these same factors.
At the beginning of fiscal 1992, the Company had outstanding $22,410,000
of Debentures. This was a significant amount of debt for the Company and
represented an annual cash interest payment obligation of $1,344,600. During
fiscal 1992, the Company began a program to restructure its financial
position, specifically, these Debentures.
Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,675,000 principal amount of
Debentures. Substantially all of these transactions involved the exchange of
outstanding Debentures for (i) an unsecured, unsubordinated promissory note
of Xyvision in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, bearing interest (payable at a maturity)
at 15% per year (compounded annually) and maturing 30 months from issuance
and (ii) 107,095 shares of common stock of Xyvision per $1,000,000 principal
amount of Debentures. As of June 28, 1995, a total of $3,735,000 principal
amount of Debentures remained outstanding. Of such Debentures, the Company
has indentified the holders of $1,960,000 principal amount, leaving
$1,775,000 principal amount of Debentures unidentified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994 or 1995.
Under the terms of the Indenture covering the Debentures, the Trustee or
the holders of not less than 25% of the outstanding principal amount of the
Debentures have the right to accelerate the maturity date of the remaining
Debentures. As of June 28, 1995, no such acceleration had occurred or been
threatened. The Company continues to negotiate, in good faith, with as many
of the remaining Debentureholders as possible. However, despite the progress
that has been made, the Company can still give no assurance about the outcome
of the Debenture conversion efforts and does not expect the matter to be
resolved in the near future.
If the Company is unable to enter into exchange transactions with the
remaining Debentureholders, and such Debentureholders seek to pursue legal
remedies against the Company, the Company may have to seek protection under
applicable laws, including the Bankruptcy Code, while it develops, analyzes,
and completes alternative restructuring strategies.
In addition, as of September 30, 1994 the Company had issued promissory
notes in an aggregate principal amount of $5,692,000 in connection with the
Debenture exchange transactions described above, the interest on which
accrued at a rate of 15% per year and totalled $2,344,000 payable at
maturity. Such 15% Promissory Notes in an aggregate principal amount of
$4,542,000 were to mature on September 30, 1994, and the remainder of these
15% Promissory Notes were to mature at various dates between September 30,
1994 and February 28, 1997. In order to relieve itself of the payment
obligations on the Promissory Notes, in fiscal 1995 the Company began a
program to restructure the Promissory Notes. During fiscal 1995, the Company
completed exchange transactions with holders of 15% Promissory Notes in an
aggregate principal amount of $4,637,000, in which, in exchange for the
cancellation of a 15% Promissory Note (including all rights to receive any
interest accrued thereon), the Company issued (i) a new Promissory Note that
will mature 30 months from the date of issuance and bears interest
24
<PAGE>
at 4% per annum, (ii) one share of common stock for each $10.00 of principal
amount of 15% Promissory Note delivered and (iii) one share of Series B
Preferred Stock for each $10.00 of interest due on the 15% Promissory Note
delivered. The Series B Preferred Stock accrues a cumulative dividend in the
amount of $.40 per share per annum, whether or not declared, and has a
liquidation preference of $12.50 per share, plus any dividends declared or
accrued but unpaid. Each share of Series B Preferred Stock is convertible
into two shares of common stock, subject to adjustment for certain events as
defined in the Series B Preferred Stock terms. Additionally, holders of
outstanding shares of Series B Preferred Stock are entitled to voting rights
equivalent to the rights attributable to the whole shares of common stock
into which the Series B Preferred Stock is convertible. The exchange
transaction was completed assuming a fair value of $10 per share of Series B
Preferred Stock. An independent valuation of the Series B Preferred Stock was
completed which supported a fair value of $10.00 per share. The Company will
seek to restructure the remaining 15% Promissory Notes.
On June 30, 1992, the Company obtained a $2,000,000 line of credit with a
current investor in the Company. The line, which is payable on demand, is
secured by substantially all of the assets of the Company and has been used
for working capital and general business purposes. Interest on the line of
credit is payable monthly. The Company issued 400,000 shares of common stock
and a common stock purchase warrant for 100,000 shares of common stock at an
exercise price of $.50 per share to the investor for no additional
consideration upon signing of the line of credit. In addition, as required by
the line of credit, from September 30, 1992 through June 30, 1993, the
Company granted the investor four additional common stock purchase warrants,
each covering 100,000 shares of common stock. On September 28, 1993, the
Company and the investor amended the line of credit. Under the terms of this
amendment: (i) the amount available under the line of credit was increased
from $2,000,000 to $2,500,000; (ii) the annual interest rate was reduced from
13% to 10%; and (iii) the term of the line of credit was extended from June
30, 1994 to June 30, 1995. In consideration of such changes, the Company: (i)
reduced the exercise price of 200,000 and 100,000 common stock purchase
warrants exercisable by the investor from $.50 and $.25 per share,
respectively, to $.09 per share (the fair market value of the common stock on
September 28, 1993); (ii) issued 200,000 shares of common stock and a warrant
to purchase 300,000 shares of common stock at an exercise price of $.09 per
share to the investor for no additional consideration; and (iii) agreed to
grant the investor up to eight additional warrants, each covering 125,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of issue or $1.00 per share.
On December 3, 1993, the Company and the investor entered into an
additional amendment to the line of credit. Under the terms of this
amendment, the amount available under the line of credit was increased to
$3,000,000. In consideration of this change, the Company: (i) issued 100,000
shares of common stock and a warrant to purchase 500,000 shares of common
stock at fair market value of the common stock on December 3, 1993 and (ii)
agreed to grant the investor up to seven additional common stock purchase
warrants between December 31, 1993 and June 30, 1995, each covering 200,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of grant or $1.00 per share (these
warrants are in lieu of the last seven of the warrants referred to in clause
(iii) of the preceding paragraph). As of March 31, 1995, the Company had
$1,900,000 available under the amended line of credit. As of June 28, 1995,
the Company had $1,000,000 available under the amended line of credit. The
line of credit is scheduled to expire on June 30, 1995, although the Company
and this investor are currently engaged in negotiations to extend the credit
line.
The Company anticipates that its cash requirements for the first part of
fiscal 1995 will be satisfied from its present cash balances, cash flow from
existing operations, and its credit line, assuming the extension of the
credit line and the continued forbearance by the Debentureholders. Despite
the progress made during the past fiscal year, the Company can give no
assurance on the outcome of the Debenture restructuring efforts and does not
expect the matter to be resolved in the immediate future. Moreover, no
assurance can be given as to the ability of the Company to satisfy or
otherwise discharge its payment obligations under the promissory notes issued
in connection with the Debenture restructuring. The above uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recovery and classifications of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company's long term liquidity needs cannot reasonably be determined at
this time principally because these needs are dependent, in a large part,
upon the outcome of the Company's ongoing attempts to restructure the
remaining outstanding Debentures and the ability of the Company to obtain
financing to repay or otherwise restructure the remaining outstanding 15%
Promissory Notes.
25
<PAGE>
The Company believes that its current strategy, as previously described,
will continue to significantly contribute to the revival of the Company.
During fiscal 1996 , the Company will focus more emphasis on marketing and
enhancing its new technologies, and broadening geographic distribution. While
the Company remains confident about its future, it can give no assurance
regarding the ultimate success of its strategy.
ACCOUNTS RECEIVABLE
Trade receivables do not contain any material amounts collectible over a
period in excess of one year. Retainage consists of receivables billed under
retainage provisions of contracts and collectibility is not expected to
extend over a period of one year.
INVENTORIES
Inventory consists primarily of finished goods from third party vendors.
PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1995 March 31, 1994
Design, test, and manufacturing equipment $ 4,864,898 $ 11,876,517
Office furniture and fixtures 1,197,041 1,194,265
Leasehold improvements 1,209,948 1,204,929
Purchased software 316,974 654,721
Delivery and service vehicles 9,333 148,434
7,598,194 15,078,866
Accumulated depreciation and amortization (6,380,395) (13,290,966)
$ 1,217,799 $ 1,787,900
</TABLE>
Depreciation and amortization expense for property and equipment for
fiscal 1995, 1994, and 1993 was $919,000, $1,301,000, and $1,759,000,
respectively.
OTHER ASSETS
Other assets consists of the following, which are presented net of any
accumulated amortization:
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, MARCH 31,
1995 1994
------------ ------------
Capitalized software costs $2,214,966 $1,944,894
Debenture issuance costs 57,448 67,391
Other 249,745 192,602
$2,522,159 $2,204,887
</TABLE>
The Company continually evaluates the future benefit of its capitalized
software costs. During fiscal 1993, the Company determined that certain costs
exceeded their net realizable value due to new software technologies
developed and released by the Company. Accordingly, the Company wrote down
these capitalized software costs by $1,610,000 in the third quarter of fiscal
1993. In fiscal 1994, the Company retired $9,713,000 of fully amortized
capitalized software costs. Capitalized software costs amortized and charged
to expense were $1,143,000, $752,000, and $1,024,000 in fiscal 1995, 1994,
and 1993, respectively. Capitalized software costs are presented net of
accumulated amortization of $1,937,000 and $794,000 at March 31, 1995 and
1994, respectively.
Debenture issuance costs amortized and charged to expense were $10,000,
$11,000, and $31,000, in fiscal 1995, 1994, and 1993 , respectively. In
addition, as a result of the exchange of Debentures in fiscal 1994 and 1993,
26
<PAGE>
related Debenture issuance costs of $27,000 and $217,000, respectively were
written off as a reduction to the extraordinary gain recognized in each
fiscal year 1994 and 1993, respectively. The accumulated amortization of the
Debenture issuance costs was $727,000 and $717,000 at March 31, 1995 and
1994, respectively. (See Note 9.)
OTHER CURRENT LIABILITIES
Other current liabilities consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, MARCH 31,
1995 1994
- ------------------------------ ------------ ------------
Deferred service revenue $1,107,493 $1,747,482
Interest payable on debentures 876,277 660,441
Customer deposits 34,000 31,000
Other 638,387 790,470
$2,656,157 $3,229,393
</TABLE>
NOTE PAYABLE TO SHAREHOLDER
On June 30, 1992, the Company obtained a $2,000,000 line of credit with a
current investor in the Company. The line, which is payable on demand, is
secured by substantially all of the assets of the Company and has been used
for working capital and general business purposes. Interest on the line of
credit is payable monthly. The Company issued 400,000 shares of common stock
and a common stock purchase warrant for 100,000 shares of common stock at an
exercise price of $.50 per share to the investor for no additional
consideration upon signing of the line of credit. In addition, as required by
the line of credit, from September 30, 1992 through June 30, 1993, the
Company granted the investor four additional common stock purchase warrants,
each covering 100,000 shares of common stock. On September 28, 1993, the
Company and the investor amended the line of credit. Under the terms of this
amendment: (i) the amount available under the line of credit was increased
from $2,000,000 to $2,500,000; (ii) the annual interest rate was reduced from
13% to 10%; and (iii) the term of the line of credit was extended from June
30, 1994 to June 30, 1995. In consideration of such changes, the Company: (i)
reduced the exercise price of 200,000 and 100,000 common stock purchase
warrants exercisable by the investor from $.50 and $.25 per share,
respectively, to $.09 per share (the fair market value of the common stock on
September 28, 1993); (ii) issued 200,000 shares of common stock and a warrant
to purchase 300,000 shares of common stock at an exercise price of $.09 per
share to the investor for no additional consideration; and (iii) agreed to
grant the investor up to eight additional warrants, each covering 125,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of issue or $1.00 per share.
On December 3, 1993, the Company and the investor entered into an
additional amendment to the line of credit. Under the terms of this
amendment, the amount available under the line of credit was increased to
$3,000,000. In consideration of this change, the Company: (i) issued 100,000
shares of common stock and a warrant to purchase 500,000 shares of common
stock at fair market value of the common stock on December 3, 1993 and (ii)
agreed to grant the investor up to seven additional common stock purchase
warrants between December 31, 1993 and June 30, 1995, each covering 200,000
shares of common stock at an exercise price at the lesser of the fair market
value of the common stock on the date of grant or $1.00 per share (these
warrants are in lieu of the last seven of the warrants referred to in clause
(iii) of the preceding paragraph). As of March 31, 1995, the Company had
$1,900,000 available under the amended line of credit. As of June 28, 1995,
the Company had $1,000,000 available under the amended line of credit. The
line of credit is scheduled to expire on June 30, 1995, although the Company
and this investor are currently engaged in negotiations to extend the credit
line.
27
<PAGE>
LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Fiscal
1995 1994
6% Convertible Subordinated Debentures $3,735,000 $ 3,765,000
15% promissory notes, due fiscal 1995, 1996, and
1997 1,459,661 8,044,765
4% promissory notes, due fiscal 1998 4,636,500 --
9,831,161 11,809,765
Less: Current portion of long-term debt 5,175,906 10,103,793
$4,655,255 $ 1,705,972
</TABLE>
In May 1987, the Company issued $25,000,000 of 6% Convertible Subordinated
Debentures (the "Debentures") convertible into common stock at a conversion
price of $22.50 per share. Interest on the Debentures is payable annually (on
May 5th) and the Debentures may be called by the Company under certain
conditions. At the beginning of fiscal 1992, the Company had outstanding
$22,410,000 of these Debentures. This was a significant amount of debt for
the Company and represented an annual cash interest payment obligation of
$1,344,600. During fiscal 1992, the Company began a program to restructure
its financial position, specifically, these Debentures.
Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,675,000 principal amount of
Debentures. Substantially all of these transactions involved the exchange of
outstanding Debentures for (i) an unsecured, unsubordinated promissory note
of Xyvision in a principal amount equal to 30% of the principal amount of the
Debentures delivered for exchange, bearing interest (payable at maturity) at
15% per year (compounded annually) and maturing 30 months from issuance and
(ii) 107,095 shares of common stock of Xyvision per $1,000,000 principal
amount of Debentures. As of June 28, 1995, a total of $3,735,000 principal
amount of Debentures remained outstanding. Of such Debentures, the Company
has identified the holders of $1,960,000 principal amount, leaving $1,775,000
principal amount of Debentures unidentified.
During the course of its attempts to restructure the Debentures and
negotiate transactions with Debentureholders, the Company did not make the
interest payment due on the Debentures on May 5 of 1992, 1993, 1994 or 1995.
Under the terms of the Indenture covering the Debentures, the Trustee or
the holders of not less than 25% of the outstanding principal amount of the
debentures have the right to accelerate the maturity date of the remaining
Debentures. As of June 28, 1995, no such acceleration had occurred or been
threatened.
The Company continues to negotiate, in good faith, with as many of the
remaining Debentureholders as possible. However, despite the progress that
has been made, the Company can still give no assurance about the outcome of
the Debenture conversion efforts and does not expect the matter to be
resolved in the near future.
If the Company is unable to enter into exchange transactions with the
remaining Debentureholders, and such Debentureholders seek to pursue legal
remedies against the Company, the Company may have to seek protection under
applicable laws, including the Bankruptcy Code, while it develops, analyzes
and completes alternative restructuring strategies.
In addition, as of September 30, 1994 the Company had issued promissory
notes in an aggregate principal amount of $5,692,000 in connection with the
Debenture exchange transactions described above, the interest on which
accrues at a rate of 15% per year and totalled $2,344,000 payable at
maturity. Such 15% Promissory Notes in an aggregate principal amount of
$4,542,000 were to mature on September 30, 1994, and the remainder of these
15% Promissory Notes were to mature at various dates between September 30,
1994 and February 28 1997. In order to relieve itself of the payment
obligations on the Promissory Notes, in fiscal 1995 the Company began a
program to restructure the Promissory Notes. During fiscal 1995, the Company
completed exchange transactions with holders of 15% Promissory Notes in an
aggregate principal amount of $4,637,000, in exchange for the cancellation of
a 15% Promissory Note (including all rights to receive any interest accrued
thereon), the Company issued (i) a new Promissory Note that will mature 30
months from the date of issuance and bears interest at 4% per annum, (ii) one
share of common stock for each $10.00 of principal
28
<PAGE>
amount of 15% Promissory Note delivered and (iii) one share of Series B
Preferred Stock for each $10.00 of interest due on the 15% Promissory Note
delivered. The Series B Preferred Stock accrues a cumulative dividend in the
amount of $.40 per share per annum, whether or not declared, and has a
liquidation preference of $12.50 per share, plus any dividends declared or
accrued but unpaid. Each share of Series B Preferred Stock is convertible
into two shares of common stock, subject to adjustment for certain events as
defined in the Series B Preferred Stock terms. Additionally, holders of
outstanding shares of Series B Preferred Stock are entitled to voting rights
equivalent to the rights attributable to the whole shares of common stock
into which the Series B Preferred Stock is convertible. The exchange
transaction was completed assuming a fair value of $10 per share of Series B
Preferred Stock. An independent valuation of the Series B Preferred Stock was
completed which supported a fair value of $10.00 per share. The Company will
seek to restructure the remaining 15% Promissory Notes.
Interest expense amounted to $528,000, $573,000 and $904,000, in fiscal 1995,
1994 and 1993, respectively.
INCOME TAXES
For fiscal years 1995, 1994 and 1993 the Company was not required to
provide for income taxes and had no effective income tax rate due to the
utilization of net operating loss carryforwards. Payments of alternative
minimum taxes amounted to $14,000, $46,000, and $12,000 in fiscal 1995, 1994,
and 1993, respectively.
As of March 31, 1995, the Company had net operating loss carryforwards of
$44,090,000 expiring at various dates through fiscal 2006, investment tax
credits of $150,000 expiring at various dates through fiscal 2002, and
research and development credits of $1,439,000 expiring at various dates
through fiscal 2007. These items are available to reduce future income taxes
payable.
Additionally, the Company has approximately $2,500,000 of net operating
loss carryforwards for regular federal income tax and alternative minimum tax
purposes from the acquisition of Contex Graphics Systems, Inc. These acquired
net operating loss carryforwards, which expire in the year 2001, have
limitations on their use pursuant to the United States Internal Revenue Code
and are available only to offset income from that subsidiary.
As of March 31, 1995, 1994, and 1993 the Company's deferred tax assets of
approximately $18,343,000, $18,440,000, and $19,303,000, respectively,
consisted primarily of its net operating loss carryforwards. Management has
assigned a valuation allowance to fully offset the future tax benefits of
these deferred tax assets.
Under Federal tax laws, certain changes in ownership of the Company, which
may not be within the Company's control, may restrict future utilization of
these carryforwards.
STOCK OPTION AND PURCHASE PLANS
Stock Option Plans
Under the Company's 1982 Stock Option Plan, options to purchase 1,647,057
shares of the Company's Common Stock may be granted to key employees,
consultants, and non-employee directors. Incentive stock options are granted
at a price equal to the fair market value per share on the date of the grant
and non-qualified stock options may be granted at not less than 85% of the
fair market value per share on the date of the grant. During fiscal 1990, the
Company increased the options available under the Plan to the sum of: (i)
1,450,000; (ii) the 196,971 shares held by the Company as treasury shares as
of April 28, 1988; and (iii) any shares issued to an optionee upon the
exercise of a stock option but repurchased by the Company, under stock
restriction agreements then in effect. Options granted prior to January 1,
1987 are exercisable immediately, but the shares issued upon exercise of the
options are subject to repurchase by the Company at the original exercise
price in the event of the option holder's termination of employment. This
repurchase right generally terminates as to 20% of the shares annually for
five years from the date of the option grant. Options granted on or after
January 1, 1987 generally become exercisable at a rate of 20% per year over a
five-year period with any shares issued upon exercise not being subject to
repurchase by the Company.
29
<PAGE>
The 1982 Stock Option Plan expired on May 5, 1992. No options were granted
under the 1982 Stock Option Plan after March 31, 1992. At the Company's June
23, 1992 Board of Directors' Meeting, the Board approved a 1992 Stock Option
Plan and an increase in the authorized number of shares of the Company's
Common Stock from 10,000,000 to 15,000,000 shares. The terms of the 1992
Stock Option Plan are essentially the same as the 1982 Stock Option Plan. At
this time the maximum number of options that could be granted under the 1992
Stock Option Plan was 1,000,000 shares. The 1992 Stock Option Plan and the
increase in authorized shares were both approved by the Company's
shareholders at the Company's 1992 Annual Meeting of Stockholders held on
October 21, 1992.
The Company held its 1994 Annual Meeting of Stockholders on September 22,
1994. At this meeting, the stockholders of the Company approved an amendment
to the Company's 1992 Stock Option Plan. The amendment increased the number
of shares for which options may be granted from 1,000,000 to 2,000,000.
The following sets forth certain information relating to the 1982 Stock
Option Plan and the 1992 Stock Option Plan for the years ended March 31,1993,
1994, and 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
SHARES PRICE
- ------------------------------------- ----------- ---------------
Options outstanding at March 31, 1992 851,251 $0.38 -$13.75
Granted 812,636 0.31
Cancelled (155,615) 0.31 -13.75
Exercised -- --
Options outstanding at March 31, 1993 1,508,272 0.31 -13.75
Granted 15,000 0.19
Cancelled (496,522) 0.19 - 6.75
Exercised -- --
Options outstanding at March 31, 1994 1,026,750 0.19 -13.75
Granted 297,500 0.19 - 0.53
Cancelled (98,633) 0.31 - 0.38
Exercised -- --
Options outstanding at March 31, 1995 1,225,617 $0.19 -$13.75
</TABLE>
Options were exercisable for 745,426 and 729,095 shares of Common Stock at
March 31, 1994 and 1995, respectively. At March 31, 1994 and 1995, options
for the purchase of 331,794 and 1,074,594 shares of Common Stock,
respectively, were available for future grants under the 1992 Stock Option
Plan. At March 31, 1995, there were 2,300,211 shares of Common Stock reserved
for issuance under these Plans.
On August 10, 1989 the Director Stock Option Plan was approved by the
stockholders. Under this Plan, options to purchase 150,000 shares of the
Company's Common Stock were available for grant to outside directors of the
Company whose continued services are considered essential to the Company's
future progress. These non- qualified options were granted at the last
reported sale price per share of the Company's common stock on the date of
grant. Each option becomes exercisable on a cumulative basis as follows: 20%
may be exercised on the date of grant; and the remaining shares may be
exercised in annual installments of 20% over the remaining four years. Each
option becomes immediately exercisable if a change in control of the Company
occurs or if the optionee ceases to serve as a director due to death,
disability or retirement. On August 10, 1989, the approval date of the Plan,
the Company granted to each of the five then current outside directors
non-qualified stock options for 20,000 shares at a price of $4.75 per share.
On October 21, 1992, the 1992 Director Stock Option Plan was approved by
stockholders of the Company. Under this Plan, options to purchase up to a
total of 150,000 shares of Common Stock may be granted to outside directors
of the Company. On March 31, 1993, an option for 20,000 shares of Common
Stock at an exercise price of $0.25 per share (the fair market value of the
Common Stock on the date of grant) was granted to each of the four outside
directors of the Company. Each outside director who is initially elected to
the Board of Directors after March 31, 1993 will also be granted an option
for 20,000 shares of Common Stock, at an exercise price equal to the fair
market value of the Common Stock on the date of grant. Each option becomes
exercisable in five equal annual installments beginning on the date of grant,
provided that all outstanding
30
<PAGE>
options will become exercisable in full in the event of a "change in control"
of the Company (as defined in the Plan) which is not approved by the Board of
Directors. In general, an optionholder may exercise his option, to the extent
vested, only while he is a director of the Company and for up to three months
thereafter. In connection with the adoption of the 1992 Director Stock Option
Plan, the Company terminated the 1989 Director Stock Option Plan. In
addition, each of the four outside directors who received options under the
1992 Director Stock Option Plan on March 31, 1993 surrendered for
cancellation the option held by him under the 1989 Director Stock Option
Plan.
On January 8, 1990, the Board of Directors granted options to purchase 42,500
shares of the Company's Common Stock to former officers of the Company. These
non-qualified stock options were granted outside the Company's 1982 Stock
Option Plan at an exercise price of $2.50 per share and are immediately
exercisable. At March 31, 1995, there were 42,500 shares reserved for
issuance for these options.
Stock Purchase Plan
In 1990, the Board of Directors adopted and the stockholders approved the
Company's 1990 Employee Stock Purchase Plan (the "1990 Purchase Plan"). The
1990 Purchase Plan covers an aggregate of up to 420,000 shares of Common
Stock to be issued and sold to participating employees of the Company through
a series of six overlapping one-year offerings, commencing six months apart,
beginning August 1, 1990 and ending January 31, 1994. The 1990 Purchase Plan
was administered by the Compensation Committee and was intended to qualify as
an "employee stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code. All employees who have been employed by the Company
(or a qualifying subsidiary) for 30 days on the date an offering under the
1990 Purchase Plan commences and who ordinarily work more than 20 hours per
week and more than five months per year were eligible to participate in that
offering. The price at which the shares were offered is 85% of the fair
market value of the Common Stock on the date such offering commences or the
date such offering terminates, which ever is lower. Each employee could elect
to have up to 10% of his base pay withheld and applied toward the purchase of
shares in such offering. The 1990 Purchase Plan terminated January 31, 1994.
RIGHTS AGREEMENT
In October 1988, the Company entered into a Rights Agreement and declared
a dividend distribution of one Right for each share of the Common Stock of
the Company outstanding on October 26, 1988. Each Right entitles the holder
to purchase from the Company 1/100 of a share of $1.00 par value Series A
Junior Participating Preferred Stock at an exercise price of $35.00 per
Right, subject to adjustment. The Rights will not be exercisable or separable
from the Common Stock until ten business days after a party acquires
beneficial ownership of 20% or more of the Company's Common Stock or
announces a tender offer for at least 30% of its Common Stock outstanding.
Except for Saltzman Partners' and Tudor Trust's acquisition of 20% of the
Company's Common Stock, which have been exempted by the Board of Directors
from the Rights Agreement, the Company is not aware of the occurrence of any
such events. The issuance of the Rights does not dilute ownership or affect
reported earnings per share.
PROFIT-SHARING AND SAVINGS PLANS
Employee Stock Ownership Plan
In fiscal 1990, the Company created the Xyvision, Inc. Employee Stock
Ownership Plan and Trust (the "Trust") and entered into a Term Loan Agreement
with the Trust whereby the Trust borrowed $1,800,000 from the Company and
paid the proceeds to the Company to purchase 400,000 shares of the Company's
Common Stock at $4.50 per share. The loan, with an interest rate of prime
plus one-half of one percent, is to be repaid over seven years in equal
annual installments of approximately $257,000. The Company is required to
make equal annual contributions to the Trust in the amounts of the Trust's
annual principal installments. The Company also makes monthly contributions
to the Trust which uses such funds to pay monthly interest installments to
the Company. The Plan covers substantially all employees and, as principal
payments are made on the term loan, shares held by the Trust are allocated to
eligible employees. Payments of approximately $257,000 were made to the Trust
in each of the fiscal years 1995, 1994 and 1993, respectively, which the
Trust applied against its loan to the Company. These payments caused an
allocation to the eligible employees of 57,143 shares of the Company's Common
Stock in each of fiscal 1995, 1994, and 1993.
31
<PAGE>
The Company charged $257,000 per year to operations for contributions to
this Trust in fiscal 1995, 1994 and 1993.
Savings Plan
The Company has a 401(k) Savings Plan under which employees may
voluntarily defer a portion of their compensation and the Company matches a
portion of the employee deferral. All employees employed within the United
States with at least one year of continuous service are eligible for the
Plan. Company contributions vest 100% immediately. The Company's
contributions to this Plan and charged to expense amounted to $58,000,
$56,000, and $56,000 in fiscal 1995, 1994 and 1993, respectively.
COMMITMENTS AND CONTINGENCIES
Leases
At March 31, 1995, the Company was committed under operating leases,
principally for building and office space. Certain leases require the payment
of expenses under escalation clauses. The major facilities leases are for ten
year terms and provide renewal options for additional periods up to ten
years.
Future minimum lease payments under all noncancelable leases as of March
31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
FISCAL YEAR
- -------------
1996 $1,190,000
1997 133,000
1998 95,000
1999 95,000
2000 95,000
Thereafter 418,000
Total $2,026,000
============
</TABLE>
Rental expense under all operating leases was approximately $1,185,000,
$1,221,000, and $1,037,000 in fiscal 1995, 1994, and 1993, respectively.
Employment Agreements
The Company has entered into employment agreements with certain of its
executive officers which provide for the payment to these executives of up to
twelve months of compensation and the continuation of certain benefits if
there is a change in control of the Company (as defined) or if employment is
terminated without cause. The maximum contingent liability, at March 31,
1995, under these agreements was approximately $400,000.
The Company has also instituted a severance benefit plan which covers
substantially all employees. The agreement stipulates, in general, that in
the event of a change in control of the Company (as defined), any employee
terminated within twelve months of such event, without cause, would be
entitled to receive a cash payment equal to his annual base compensation. The
Board of Directors may declare by resolution that an event otherwise
constituting a change in control per this agreement will not be considered a
change in control. Therefore, it can not be reasonably estimated what the
potential liability to the Company would be under this agreement.
Contingencies
The Company is party to several pending legal proceedings and claims.
Although the outcome of such proceedings and claims cannot be determined with
certainty, the Company's counsel and management are of the opinion that the
final outcome should not have a material adverse effect on the Company's
operations or financial position.
MAJOR CUSTOMERS AND EXPORT SALES
No single customer accounted for more than 10% of revenues in fiscal 1995,
1994 or 1993.
32
<PAGE>
Export sales to unrelated customers outside of the United States for
fiscal 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FISCAL 1995 FISCAL 1994 FISCAL 1993
- -------------- ------------- ------------- -------------
Western
Europe $1,221,000 $1,319,000 $ 691,000
Asia 1,043,000 396,000 1,024,000
Australia 254,000 219,000 54,000
Total $2,518,000 $1,934,000 $1,769,000
</TABLE>
RELATED PARTIES
The Company has an agreement to pay consulting fees, which amounted to
$148,000, $162,000, and $320,000 in fiscal 1995, 1994 and 1993, respectively,
to T.H. Conway and Associates. Mr. Conway, Chief Executive Officer and
Director of the Company, is the managing director of this firm.
32
<PAGE>
PART III
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Not Applicable.
Directors and Executive Officers of the Registrant
Information required by this item (i) will be included in the table under
the heading "Election of Directors" in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Stockholders (the "1995 Proxy
Statement"), which table is incorporated herein by reference, and (ii) is
included in Part I of this Annual Report on Form 10-K under the heading
"Executive Officers and Management of the Company."
Executive Compensation
Information required by this item will be included under the headings
"Election of Directors -- Director Compensation; -- Executive Compensation";
and "Agreements with Senior Executives" in the 1995 Proxy Statement, which
sections are incorporated herein by reference.
Security Ownership of Certain Beneficial Owners and Management
Information required by this item will be included under the heading
"Beneficial Ownership of Common Stock" in the 1995 Proxy Statement, which
section is incorporated herein by reference.
Certain Relationships and Related Transactions
Information required by this item will be included under the heading
"Certain Transactions" and "Compensation Committee Interlocks and Insider
Participation" in the 1995 Proxy Statement, which section is incorporated
herein by reference.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) Financial Statements
The following financial statements of Xyvision are included in Part II,
Item 8.
PAGE(S) IN
FORM 10-K
Report of Independent Accountants .................................... 15
Consolidated Balance Sheets--March 31, 1995 and 1994 ................... 16
Consolidated Statements of Operations
for the years ended March 31, 1995, 1994 and 1993 ..................... 17
Consolidated Statements of Cash Flows
for the years ended March 31, 1995, 1994 and 1993...................... 18
Consolidated Statements of Changes in Stockholders' Deficit
for the years ended March 31, 1993, 1994 and 1995 ..................... 19
Notes to Consolidated Financial Statements ......................... 20-30
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are either
not required, not applicable or because the required information has been
included elsewhere in the financial statements or notes thereto.
Reports on Forms 8-K
No reports on Form 8-K were filed for the last quarter of the Company's
fiscal year ended March 31, 1995.
Exhibits
The Exhibit Index appearing at the end of this document and immediately
preceding the exhibits is incorporated by reference herein.
34
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
XYVISION, INC.
DATE:
JUNE 28, 1995
/S/ DANIEL M. CLARKE
- -----------------------------------------------------------------------------
DANIEL M. CLARKE
PRESIDENT AND CHIEF OPERATING OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES ON THE DATE INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
President and Chief Operating
/s/ Daniel M. Clarke Daniel Officer (principal executive
M. Clarke officer)
Treasurer and Secretary
/s/ Eugene P. Seneta Eugene (principal financial and
P. Seneta accounting officer)
/s/ Thomas H. Conway Thomas
H. Conway Director June 28, 1995
/s/ Leland S. Kollmorgen
Leland S. Kollmorgen Director
/s/ James McKenney James
McKenney Director
/s/ James S. Saltzman James
S. Saltzman Director
</TABLE>
35
<PAGE>
XYVISION, INC.
COMMISSION FILE NUMBER 0-14747
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Number Description Page
- -----------------------------------------------------------------------------------------------------------------
*3.1 - Restated Certificate of Incorporation of the Company
+++3.2 - Certificate of Amendment No. 6 Certificate of Incorporation of the Company
+++3.3 - Certificate of Amendment to Certificate of Incorporation
Certificate of Designation to Certificate of Incorporation of the Company designating
+++3.4 - Series B Preferred Stock
******3.5 - Amended and Restated By-laws of the Company as amended
Indenture dated as of May 5, 1987 between the Company and Bankers Trust Company, as
Trustee, regarding the Company's $25,000,000 principal amount of 6% Convertible
***4.1 - Subordinated Debentures Due 2002
Rights Agreement, dated as of October 19, 1988, between Xyvision, Inc. and the
****4.2 - Connecticut Bank and Trust Company, N.A.
Amendment No. 1, dated January 8, 1992, to Rights Agreement between Xyvision, Inc. and
++4.3 - Mellon Bank, N.A. (formerly Connecticut Bank and Trust Company, N.A.)
0++10.1 - 1992 Stock Option Plan
Registration Agreement among the Company and certain holders of Common and Preferred
* 10.2 - Stock of the Company dated as of May 24, 1983, as amended
Lease dated April 3, 1985 for the Company's premises at 101 Edgewater Drive, Wakefield,
** 10.3 - Massachusetts, between Edward Callan and the Company (the "Edgewater Lease")
X 10.4 - Form of Lease Amendment No. 2 to the Edgewater Lease
Secured Advance Facility Loan Agreement between the Company and Tudor Trust dated July
X 10.5 - 2, 1992, as amended to date
0****** 10.6 - Severence Program for Executive Committee Corporate Officers
0****** 10.7 - Employee Severence Benefit Program
0******10.8 - Employee Stock Ownership Plan and Trust
0*****10.9 - 1992 Director Stock Option Plan
Lease Termination Agreement dated April 25, 1991 for the Company's premises at 5
+ 10.10 - Centennial Park, Peabody, Massachusetts, between the Company and JMS Realty Trust
++10.11 - Exchange Agreement dated June 23, 1992 between the Company and Saltzman Partners
XX10.12 - Form of Exchange Agreement for 15% Promissory Notes
O10.13 - Letter Agreement effective October 1, 1993 betwen the Company and Thomas H. Conway
+ 21.1 - List of Subsidiaries
23.1 - Consent of Independent Accountants
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
* 31, 1988.
** Incorporated by reference from the Company's Registration Statement on Form S-1 (File No. 33-6015).
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
*** 31, 1987.
**** Incorporated by reference from the Company's Current Report on Form 8-K dated October 19, 1988.
***** Incorporated by reference from the Company's Registration Statement on Form S-8 (File No. 33-54018).
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
****** 31, 1990.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
+ 31, 1991.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
++ 31, 1992.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
+++ 31, 1993.
Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Items
0 14(a) and 14(c) of Form 10-K.
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March
X 31, 1994.
Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
XX September 30, 1994. 31, 1994.
</TABLE>
36
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Xyvision, Inc. on Form S-8 (File Nos. 33-10405, 33-29485,
33-29486, 33-36243, 33-41846, 33-54014 and 33-54018) of our report dated June
9, 1995, which report disclaims an opinion on the consolidated financial
statements of Xyvision, Inc. as of March 31, 1995 due to the uncertainties as
to the Company's ability to continue as a going concern.
/s/ Coopers & Lybrand
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
June 27, 1995
1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1995 MAR-31-1995
<PERIOD-END> MAR-31-1995 MAR-31-1995
<CASH> 174 174
<SECURITIES> 0 0
<RECEIVABLES> 8,572 8,572
<ALLOWANCES> 711 711
<INVENTORY> 188 188
<CURRENT-ASSETS> 1,174 1,174
<PP&E> 15,273 15,273
<DEPRECIATION> 11,533 11,533
<TOTAL-ASSETS> 13,137 13,137
<CURRENT-LIABILITIES> 12,597 12,597
<BONDS> 4,677 4,677
<COMMON> (2,352) (2,352)
0 0
190 190
<OTHER-SE> (1,953) (1,953)
<TOTAL-LIABILITY-AND-EQUITY> 13,137 13,137
<SALES> 6,186 24,559
<TOTAL-REVENUES> 6,186 24,559
<CGS> 3,382 12,514
<TOTAL-COSTS> 3,382 12,514
<OTHER-EXPENSES> 2,780 10,699
<LOSS-PROVISION> 0 506
<INTEREST-EXPENSE> 160 519
<INCOME-PRETAX> 136 321
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 136 321
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 136 321
<EPS-PRIMARY> .01 .03
<EPS-DILUTED> .01 .03
</TABLE>
