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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[BOX][CHECK] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[box] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-14747
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
04-2751102
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
101 EDGEWATER DRIVE, WAKEFIELD, MA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
01880-1291
(ZIP CODE)
Registrant's telephone number including area code (617) 245-4100
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 No
[check]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1994.
COMMON STOCK, $.03 PAR VALUE
(TITLE OF EACH CLASS)
8,638,586
(NUMBER OF SHARES)
XYVISION, INC.
1
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FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1994 AND MARCH 31, 1994
2 Consolidated Statements of Operations
for the three and nine months ended December 31, 1994 and 1993
3 Consolidated Statements of Cash Flows
for the three and nine months ended December 31, 1994 and 1993
4 Notes to Consolidated Financial Statements
5 Management's Discussion and Analysis of Financial Condition and Results of
Operations
7
PART II. OTHER INFORMATION ............................................10
1
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XYVISION, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1994 AND MARCH 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
(Unaudited)
December 31, March 31,
1994 1994
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 170 $ 312
Accounts receivable: Trade, less allowance for doubtful accounts of
$783 at December 31, 1994 and $759 at March 31, 1994 7,238 6,973
Retainage 144 526
Inventories 104 91
Other current assets 895 610
-------------
Total current assets 8,551 8,512
Property and equipment, net 1,377 1,788
Customer support spares, net 45 49
Other assets, net, principally software development costs 2,267 2,156
Total assets $ 12,240 $ 12,505
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to a shareholder $ 1,000 $ 1,400
Current portion of long-term debt 5,015 10,104
Accounts payable and accrued expenses 2,900 2,740
Other current liabilities 2,446 3,229
Total current liabilities 11,361 17,473
Long-term debt, less current portion 4,851 1,706
Total liabilities 16,212 19,179
Commitments and contingencies -- --
Stockholders' deficit:
Capital stock:
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;
189,225 issued at December 31, 1994 189 --
Common stock, $.03 par value; 20,000,000 shares authorized; 9,212,111
issued at December 31, 1994 and 8,752,104 at March 31, 1994 276 263
Additional paid-in capital 41,168 39,367
Accumulated deficit (43,652) (44,093)
(2,019) (4,463)
Less: Treasury stock, at cost; 573,525 shares at December 31, 1994 and
573,925 shares at March 31, 1994 1,459 1,460
Receivable from Employee Stock Ownership Plan 494 751
Total stockholders' deficit (3,972) (6,674)
Total liabilities and stockholders' deficit $ 12,240 $ 12,505
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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XYVISION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
(Unaudited) (Unaudited)
Revenues:
Systems $4,111 $ 3,931 $11,541 $ 11,458
Services 2,201 2,036 6,832 6,359
Total revenues 6,312 5,967 18,373 17,817
Cost of sales:
Systems 1,592 1,253 4,680 4,103
Service 1,530 1,536 4,452 4,961
Total cost of sales 3,122 2,789 9,132 9,064
Gross margin 3,190 3,178 9,241 8,753
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Expenses:
Research and development 767 795 2,243 2,436
Marketing, general and administrative 2,066 2,201 6,182 6,435
Total operating expenses 2,833 2,996 8,425 8,871
Income (loss) from operations 357 182 816 (118)
Other expense, net: Interest income 1 2 5 18
Interest expense - third party (90) (72) (184) (212)
Interest expense - shareholder (64) (82) (180) (232)
Total other expense, net (153) (152) (359) (426)
-------------
Income (loss) before income taxes and extraordinary item 204 30 457 (544)
Provision for income taxes -- -- -- --
Income (loss) before extraordinary item 204 30 457 (544)
Extraordinary item: Gain on exchange of convertible
subordinated debentures -- 76 -- 760
Net income $204 $ 106 $457 $ 216
Series B Preferred Stock dividends 16 -- 16 --
Net income allocable to common stockholders 188 106 441 216
Income (loss) per share: Income (loss) before
extraordinary item $.02 $ -- $.05 $ (.06)
Extraordinary item -- .01 -- .09
Income (loss) per share $.02 $ .01 $.05 $ .03
============= ============= ============= =============
Weighted average common and common equivalent shares
outstanding 9,900 8,583 9,307 8,178
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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XYVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended
December 31 December 31,
1994 1993
(Unaudited)
Operations:
Net income $457 $ 216
Adjustments to reconcile net income to net cash used for operating
activities: Gain on exchange of convertible subordinated debentures -- (760)
Depreciation and amortization 1,661 1,756
Provisions for losses on accounts receivable 550 255
Loss on disposal of property and equipment -- 13
Operating assets and liabilities: Accounts receivable (814) (1,589)
Retainage 382 (148)
Inventories (12) (10)
Accounts payable and accrued expenses 165 (468)
Other current liabilities (798) 75
Other assets (296) 6
------------ -------------
Net cash provided from (used for) operations 1,295 (654)
Investments:
Additions to property and equipment (288) (539)
Proceeds from sale of property and equipment -- 12
Additions to customer support spares (1) --
Capitalized software (942) (1,091)
------------ -------------
Net cash used for investments (1,231) (1,618)
Financing: Proceeds from line of credit from a shareholder 1,100 2,700
Repayment of line of credit to a shareholder (1,500) (1,200)
Issuance of common stock -- 44
Payment on 15% promissory notes (63) --
Principal loan payment from Employee Stock Ownership Plan 257 257
------------ -------------
Net cash provided (used for) from financing (206) 1,801
Net decrease in cash and cash equivalents (142) (471)
Cash and cash equivalents at the beginning of the period 312 577
------------ -------------
Cash and cash equivalents at the end of the period $170 $ 106
============ =============
Supplemental Information: Interest paid $107 $ 200
Income taxes paid $ -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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XYVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the Company's consolidated financial position
as of December 31, 1994 and the results of its consolidated operations and
consolidated cash flows for the interim periods ended December 31, 1994 and
1993 reflect all adjustments (including normal recurring adjustments)
necessary to present fairly these financial statements. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these financial statements be read
in conjunction with the Company's most recent Annual Report on Form 10-K for
the year March 31, 1994.
The results of consolidated operations for the interim periods ended December
31, 1994 are not necessarily indicative of the results of consolidated
operations that may be expected for the complete fiscal year.
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 are stated at the lower of cost, determined on a first-in,
first-out method, or market and consist primarily of finished goods.
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, 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 the
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 December 31, 1994, the Company had $2,000,000
available under the amended line of credit. As of February 10, 1996, the
Company had $1,700,000 available under the amended line of credit.
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.
5
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Since March 10, 1992, the Company has consummated restructuring
transactions with the holders of a total of $18,625,000 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 February 10, 1995, a total of $3,785,000
principal amount of Debentures remained outstanding. Of such Debentures, the
Company has identified the holders of $2,005,000 principal amount, leaving
$1,780,000 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 or 1994.
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 February 10, 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% g 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 15% Promissory
Notes.
The Company believes that its current business strategy of carefully
controlling expenses, marketing its new technologies, broadening its
geographic distribution and restructuring the Debentures and 15% Promissory
Notes will continue to significantly contribute to improve operations. During
fiscal 1995, the Company is focusing 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.
10
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS: NOT APPLICABLE.
Item 2. Changes in Securities: On October 13, 1994, the Company filed a
Certificate of Designations of the Preferred Stock of the Company designating
300,000 shares of "Series B Preferred Stock". For a complete description of
the rights and preferences afforded to holders of the Company's Series B
Preferred Stock (the "Series B Preferred"), please refer to the Certificate
of Designations filed as Exhibit 3.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994. Dividends of $.40 per
share will accrue annually on the Series B Preferred and be payable on a
quarterly basis. The Series B Preferred has a liquidation preference of
$12.50 per share and is convertible into Common Stock at a rate of 2.0 shares
of Common Stock for each share of Series B Preferred. The Series B Preferred
will automatically be converted into Common Stock in the event that the
market price of the Common Stock exceeds $5.00 per share for 15 consecutive
trading days. The Series B Preferred will have voting rights on all matters
submitted to a vote of stockholders at the rate of one vote per share of
Common Stock into which it is convertible.
Item 3. Defaults upon Senior Securities: Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders: Not
applicable.
ITEM 5. OTHER INFORMATION: NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
NONE.
11
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SIGNATURES
Pursuant to the requirements 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.
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(Registrant)
February 10, 1995
/s/Eugene P. Seneta
- -----------------------------------------------------------------------------
Eugene P. Seneta
Treasurer and Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1995 MAR-31-1995
<PERIOD-END> DEC-31-1994 DEC-31-1994
<CASH> 170 170
<SECURITIES> 0 0
<RECEIVABLES> 7,382 7,382
<ALLOWANCES> 0 0
<INVENTORY> 104 104
<CURRENT-ASSETS> 895 895
<PP&E> 22,379 22,379
<DEPRECIATION> 18,690 18,690
<TOTAL-ASSETS> 12,240 12,240
<CURRENT-LIABILITIES> 11,361 11,361
<BONDS> 4,851 4,851
<COMMON> (2,208) (2,208)
0 0
189 189
<OTHER-SE> (1,953) (1,953)
<TOTAL-LIABILITY-AND-EQUITY> 12,240 12,240
<SALES> 6,312 18,373
<TOTAL-REVENUES> 6,312 18,373
<CGS> 3,122 9,132
<TOTAL-COSTS> 3,122 9,132
<OTHER-EXPENSES> 2,833 8,425
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 153 359
<INCOME-PRETAX> 204 457
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 204 457
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 204 457
<EPS-PRIMARY> .02 .05
<EPS-DILUTED> .02 .05
</TABLE>
