<PAGE>
AMENDMENT #1
FORM 10K/A
XYVISION, INC.
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>
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,
Inc. 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.
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.
13
<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
20
<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.
21
<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.
22
<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.
23
<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.
24
<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.
25
<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
26
<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.
27
<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,
28
<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.
29
<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
30
<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.
31
<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
32
<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.
33
<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.
34
<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, Inc.. Mr. Conway, Chief Executive Officer and
Director of the Company, is the President and owner of this firm.
35
<PAGE>
XYVISION, INC.
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, 1994 was $2,844,304.
As of May 31, 1994, 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, 1994) are incorporated by reference in Part III.
36
<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 AMENDMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
XYVISION, INC.
DATE:
JUNE 29, 1995
/S/ DANIEL M. CLARKE
- -----------------------------------------------------------------------------
DANIEL M. CLARKE
PRESIDENT AND CHIEF OPERATING OFFICER
37
