<PAGE>
- -----------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT No. 1
FORM 10-Q/A
[box][check] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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
XYVISION, INC.
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
September 30,1995.
COMMON STOCK, $.03 PAR VALUE
(TITLE OF EACH CLASS)
8,730,959
(NUMBER OF SHARES)
XYVISION, INC.
1
<PAGE>
XYVISION, INC.
CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 1995 AND MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
(Unaudited)
September 30, March 31,
1995 1995
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 204 $ 174
Accounts receivable: Trade, less allowance for doubtful accounts of
$752 at September 30, 1995 and $711 at March 31, 1995 7,697 7,861
Inventories 282 188
Other current assets 1,262 1,174
--------------
Total current assets 9,445 9,397
Property and equipment, net 997 1,218
Other assets, net, principally software development costs 2,682 2,522
Total assets $ 13,124 $ 13,137
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to a shareholder $ 2,500 $ 1,100
Current portion of long-term debt 4,051 5,176
Accounts payable and accrued expenses 3,148 3,665
Other current liabilities 2,473 2,656
Total current liabilities 12,172 12,597
Long-term debt, less current portion 5,435 4,655
Total liabilities 17,607 17,252
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;
222,943 issued at September 30, 1995 and 189,875 issued at March 31, 1995
(aggregate liquidation preference of 2,786,788) 223 190
Common stock, $.03 par value; 20,000,000 shares authorized; 9,296,824
issued at September 30, 1995 and 9,218,962 at March 31, 1995 279 276
Additional paid-in capital 41,495 41,177
Accumulated deficit (44,807) (43,806)
(2,810) (2,163)
Less: Treasury stock, at cost; 565,865 shares at September 30, 1995 and
573,325 shares at March 31, 1995 1,436 1,458
Receivable from Employee Stock Ownership Plan 237 494
Total stockholders' deficit (4,483) (4,115)
Total liabilities and stockholders' deficit $ 13,124 $ 13,137
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
XYVISION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
Revenues:
Systems $3,375 $ 3,641 $6,988 $ 7,430
Services 2,486 2,313 4,695 4,631
Total revenues 5,861 5,954 11,683 12,061
Cost of sales:
Systems 1,115 1,452 2,678 3,088
Service 1,579 1,537 3,099 2,922
Total cost of sales 2,694 2,989 5,777 6,010
Gross margin 3,167 2,965 5,906 6,051
-------------- --------------
Expenses:
Research and development 781 738 1,537 1,476
Marketing, general and administrative 2,468 2,026 4,965 4,116
Total operating expenses 3,249 2,764 6,502 5,592
Income (loss) from operations (82) 201 (596) 459
Other expense, net: Interest income 3 3 4 4
Interest expense - third party (90) (37) (186) (94)
Interest expense - shareholder (105) (65) (182) (116)
Total other expense, net (192) (99) (364) (206)
--------------
Income (loss) before income taxes and extraordinary item (274) 102 (960) 253
Provision for income taxes -- -- -- --
Income (loss) before extraordinary item (274) 102 (960) 253
Extraordinary item: Gain on exchange of convertible
subordinated debentures -- -- -- --
Net income (loss) (274) 102 (960) 253
Series B Preferred Stock dividends 22 -- 41 --
Net income (loss) allocable to common stockholders $(296) $ 102 $(1,001) $ 253
Earnings per share:
Income (loss) per share $(0.03) $ 0.01 $(0.11) $ 0.03
============== ============== ============== ==============
Weighted average common and common equivalent shares
outstanding 8,734 8,980 8,693 8,967
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
XYVISION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
September 30 September 30,
1995 1994
(Unaudited)
Operations:
Net income (loss) $(960) $ 253
Adjustments to reconcile net income to net cash used for operating
activities:
Depreciation and amortization 1,025 1,052
Provisions for losses on accounts receivable 317 362
Loss on disposal of property and equipment -- --
Operating assets and liabilities: Accounts receivable (153) (342)
Retainage -- 224
Inventories (94) 39
Accounts payable and accrued expenses (535) 164
Other current liabilities (177) (865)
Other assets (83) (105)
------------- --------------
Net cash provided from (used for) operations (660) 782
Investments:
Additions to property and equipment (192) (173)
Proceeds from sale of property and equipment -- --
Additions to customer support spares -- (1)
Capitalized software (737) (577)
------------- --------------
Net cash used for investments (929) (751)
Financing: Proceeds from line of credit from a shareholder 2,100 300
Repayment of line of credit to a shareholder (700) (700)
Issuance of common stock 3 --
Payment on 15% Promissory Notes -- (63)
Dividends on preferred stock (41) --
Principal loan payment from Employee Stock Ownership Plan 257 257
-------------
Net cash provided (used for) from financing 1,619 (206)
Net decrease in cash and cash equivalents 30 (175)
Cash and cash equivalents at the beginning of the period 174 312
------------- --------------
Cash and cash equivalents at the end of the period $204 $ 137
============= ==============
Supplemental Information: Interest paid $120 $ 67
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
XYVISION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the Company's consolidated financial position
as of September 30, 1995 and the results of its consolidated operations and
consolidated cash flows for the interim periods ended September 30, 1995 and
1994 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 Annual Report on Form 10-K for the year
March 31, 1995.
The results of consolidated operations for the interim period ended September
30, 1995 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).
The Company and the investor are currently negotiating an amendment to
extend the line of credit. The Company expects to complete documentation of
this amendment in November 1995, but there can be no assurance that it will
do so. As of September 30, 1995 the Company had an outstanding line of credit
balance of $2,500,000. As of November 10, 1995, the Company had an
outstanding line of credit balance of $3,000,000.
5
<PAGE>
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 $18,700,000 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 November 10, 1995, a total of $3,710,000
principal amount of Debentures remained outstanding. Of such Debentures, the
Company has identified the holders of $1,935,000 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
November 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 June 30, 1995 the Company had issued promissory notes in
an aggregate principal amount of $5,715,000 in connection with the Debenture
exchange transactions described above, the interest on which accrues at a
rate of 15% per year and is $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. Prior to June 30, 1995, the Company closed exchange
transactions with 15% Promissory Note holders of an aggregate principal
amount of $4,647,000 and accrued interest of $1,903,000, in which, in
exchange for the delivery of a 15% Promissory Note (including all rights to
receive any interest accrued thereon) for cancellation, 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 Agreement.
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 are 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.
Subsequent to June 30, 1995 and prior to November 10, 1995, the Company
closed exchange transactions with 15% Promissory Note holders of an
additional aggregate principal amount of $774,000 and accrued interest of
$326,000 on substantially the same terms as those described above. The
Company will seek to restructure the remaining 15% Promissory Notes.
6
<PAGE>
The Company anticipates that its cash requirements for the remainder of
fiscal 1996 will be satisfied from its present cash balances, cash flow from
existing operations, and its credit line, assuming the continued forbearance
by the Debentureholders and the completion of the amendment to the line of
credit. 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 remaining 15% 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 negotiate an extension
to its credit line and 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's deferred tax assets consist 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. There has been no
change to the valuation allowance during the six months ended September 30,
1995.
During the first six months of fiscal 1996, the Company supplemented its
revenue recognition policy to reflect its current business strategy. This
strategy includes growing a network of domestic and international resellers
to market its software and services, particularly in its Contex division.
7
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
- -----------------------------------------------------------------------------
(Registrant)
November 15, 1995
/s/ Eugene P. Seneta
- -----------------------------------------------------------------------------
Eugene P. Seneta
Treasurer and Secretary
(Prinicipal Financial Officer)
8
