SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 1O-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
Commission File Number 0-17977
SunRiver Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
13-3469637
(I.R.S. Employer Identification No.)
9430 Research Blvd.
Bldg. IV, Suite 200
Austin, TX
(Address of principal executive offices)
78759-6543
(Zip Code)
(512) 349-5800
(Registrant's telephone number, including area code)
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___
As of May 14, 1997, the Registrant had 48,871,757 shares of Common Stock, $.01
par value per share outstanding.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
March 31, 1997 (unaudited) and December 31, 1996............................ 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1997 and 1996.......................... 4
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1997 and 1996.... ..................... 5
Notes to Consolidated Financial Statements (unaudited)........................ 6
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SUNRIVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
ASSETS
March 31, December 31,
1997 1996
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents................. $ 4,860 $ 5,213
Trade accounts receivable, net............ 14,846 22,046
Inventories............................... 15,532 18,525
Deferred income taxes..................... - -
Prepaid expenses and other current assets. 1,511 256
----------- -----------
Total current assets................. 36,749 46,040
Property and equipment, net.................... 11,264 11,474
Goodwill, net.................................. 9,236 9,505
Other assets................................... 2,326 2,506
----------- -----------
$ 59,575 $ 69,525
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................. $ 15,421 $ 13,950
Current portion of long-term debt......... 8,006 8,009
Accounts payable.......................... 5,178 10,892
Accrued expenses.......................... 5,510 6,345
Deferred revenue.......................... 230 180
Net liabilities of discontinued operation. 1,254 3,492
----------- -----------
Total current liabilities 35,599 42,868
Long-term liabilities:
Long-term debt, less current maturities... 10,182 13,382
Deferred income taxes..................... - -
Other..................................... 810 918
----------- -----------
Total long-term liabilities.......... 10,992 14,300
----------- -----------
Total liabilities.................... 46,591 57,168
Commitments and contingencies..................
Mandatorily redeemable preferred stock of
subsidiary................................... 3,555 3,555
Stockholders' equity:
Preferred stock........................... - -
Common stock.............................. 488 486
Additional paid-in capital................ 31,668 31,440
Accumulated deficit....................... (22,727) (23,124)
----------- -----------
Total stockholders' equity........... 9,429 8,802
----------- -----------
$ 59,575 $ 69,525
=========== ===========
3
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SUNRIVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months Ended March 31,
1997 1996
----------- -----------
(unaudited)
Revenue....................................... $ 23,924 $ 37,671
Cost of revenue............................... 18,467 29,663
----------- -----------
Gross margin........................ 5,457 8,008
Operating expenses:
Sales and marketing...................... 1,782 2,178
General and administrative............... 1,629 1,743
Research and development................. 724 1,299
----------- -----------
Total operating expenses............ 4,135 5,220
----------- -----------
Operating income............... 1,322 2,789
Other (income) expense:
Interest expense, net.................... 807 1,045
Other.................................... (5) 210
----------- -----------
Total Other Expenses................ 802 1,255
----------- -----------
Income before income taxes and
discontinued operations.................. 520 1,533
Income tax expense............................ - 410
---------- -----------
Income before discontinued operations......... 520 1,123
Loss from discontinued operations............. - (762)
---------- -----------
Net income.................................... 520 361
Dividend on preferred stock of subsidiary..... 124 124
----------- -----------
Earnings available for common shareholders.... $ 396 $ 237
=========== ===========
Weighted average common shares outstanding.... 48,626 45,872
=========== ===========
Earnings per common share:
Continuing operations.................... $ 0.01 $ 0.02
Discontinued operations.................. 0.00 (0.02)
----------- -----------
Earnings per common share..................... $ 0.01 $ 0.00
=========== ===========
4
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SUNRIVER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
For the Three Months Ended March 31,
1997 1996
----------- -----------
(unaudited)
Cash flows from opoerating activities:
Net income............................... $ 520 $ 361
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss from discontinued operations... - 762
Depreciation and amortization....... 790 956
Deferred revenues................... 50 (433)
Provision for doubtful accounts..... 118 (499)
Provision for excess and obsolete
inventory...................... 422 654
Estimated value of compensatory
warrants....................... - 75
Changes in assets and liabilities:
Trade accounts receivable........... 7,082 (1,559)
Inventories......................... 2,571 (772)
Other assets........................ (1,333) 1,225
Accounts payable and accrued
expenses....................... (9,018) 234
----------- -----------
Net cash provided by operating activities..... 1,202 1,004
----------- -----------
Cash flows from investing activities:
Capital expenditures..................... (53) (528)
----------- -----------
Net cash used in investing activities......... (53) (528)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock... 2 1,067
Decrease in short-term debt, net......... - (30)
Proceeds from debt issuance.............. 1,700 1,500
Purchase of treasury stock............... - (1,305)
Net change in revolving loan payable..... - 1,500
Payment on term loan..................... (3,200) (1,500)
Payments on capital leases............... (4) (3)
----------- -----------
Net cash provided by (used in) financing
activities............................... (1,502) 1,229
----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. (353) 1,705
Cash and cash equivalents at beginning of
period................................... 5,213 369
----------- -----------
Cash and cash equivalents at end of period.... $ 4,860 $ 2,074
=========== ===========
Non-cash transactions:
Dividend on preferred stock of
subsidiary............................. $ 124 $ 124
Conversion of notes payable to common
stock.................................. 228 109
Estimated value of compensatory warrants. - 491
Issuance of common stock for consulting
services............................... - 893
Cash paid for:
Interest................................. 293 782
Taxes.................................... 6 205
5
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SUNRIVER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(Unaudited)
1. Condensed Consolidated Financial Statements
Basis of Presentation
- ---------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
occurring accruals) considered necessary for a fair presentation have been
included. Certain prior period amounts in these financial statements have been
reclassified to conform to current period presentation. Operating results for
the three-month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. For
further information refer to the consolidated financial statements and footnotes
thereto in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
2. Background
SunRiver Corporation (the Company) is engaged, through its subsidiary, Boundless
Technologies, Inc. (Boundless), in designing and manufacturing computer
terminals and network computers for business use. The Company's general strategy
is to provide access to corporate computing environments, including mainframes,
LANS, WANS, intranets and the Internet. Boundless principally designs,
assembles, sells and supports (i) General Display Terminals, (ii) Network
Computers and (iii) other terminal products that are used in multi-user,
personal computer and mini-computer-based environments. The Company receives a
royalty from a partnership (the GAI Partnership) formed by Boundless and General
Automation, Inc. (GAI) and managed by GAI. The GAI Partnership designs,
integrates, sells and supports multi-user computer systems that can manage large
volumes of data running Boundless' and GAI's versions of a data-based system
licensed from Pick Systems.
The operations at OTW Corporation (OTW), formerly TradeWave Corporation, were
discontinued in December 1996.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in first-out basis. The major components of inventories are as follows:
March 31, December 31,
1997 1996
----------- -----------
Raw materials and purchased components........... $ 11,386 $ 12,845
Finished goods................................... 3,537 4,942
Demonstration equipment.......................... 260 396
Service parts.................................... 349 342
----------- -----------
$ 15,532 $ 18,525
=========== ===========
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4. Equity
At March 31, 1997 and December 31, 1996, stockholders' equity consisted of the
following:
March 31, December 31,
1997 1996
----------- -----------
Preferred stock, $0.01 par value, 1,000,000
shares authorized, none issued.............. $ - $ -
Common stock, $0.01 par value, 60,000,000
shares authorized, 48,796,000 and 48,572,000
shares issued at December 31, 1996 and
1995, respectively.......................... 488 486
Additional paid-in capital....................... 31,668 31,440
Accumulated deficit.............................. (22,727) (23,124)
------------ -----------
Total stockholders' equity.................. $ 9,429 $ 8,802
============ ===========
5. Financings
Regulation S Offerings
- ----------------------
The Company completed two offerings of securities under Regulation S of the
Securities Act of 1933 (a "Regulation S Offering") subsequent to December 31,
1996 described below:
o In February 1997, the Company received gross proceeds of $1,000 by selling
convertible notes, bearing interest at 8%, which require the holders to
convert the notes by December 31, 1998 into common stock.
o In March 1997, the Company received gross proceeds of $400 by selling
convertible notes, bearing interest at 8%, which require the holders to
convert the notes by December 31, 1998 into common stock. In connection
with this offering, the Company issued warrants to a financial advisor to
purchase 33,000 shares of common stock at an exercise price of $1.375 per
share, exercisable through February 28, 2000. These options were valued at
approximately $13. The proceeds of this offering were used by the Company
to finance the discontinuance of operations at TradeWave.
6. Employee Stock Options Granted and Warrants Granted
Options to purchase a total of 450,000 shares of common stock of the Company
were granted under the 1995 Incentive Plan to employees. The options vest in
1997, and are exercisable through the year 2002 at an exercise price of $1.03.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The numbers and percentages contained in this Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations are approximate.
Dollar amounts are stated in thousands.
7
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First quarter of 1997 compared with first quarter of 1996
- ---------------------------------------------------------
Revenue - Revenue for the quarter ended March 31, 1997 were $23,924, as compared
to $37,671 for the quarter ended March 31, 1996.
Sales of the Company's General Display Terminals declined from $29,795 for the
quarter ended March 31, 1996 to $19,226 for the quarter ended March 31, 1997.
The decline is principally attributable to declines of $4,090 and $3,293 in
sales to VT and Dorio distributors and Digital Equipment Corporation (Digital),
respectively. The Digital Acquisition agreement required Digital to purchase
80,000 units in the first year. The Company believes that the significant
purchases by Digital during the fourth quarter of 1996 to meet this volume
commitment resulted in inventory levels at Digital sufficient to meet its
terminal needs for at least the first half of 1997. The VT and Dorio terminals
are based on a proprietary architecture and, as a result, the users requiring
flexibility are prone to more quickly move to alternative platforms. Finally,
demand for the General Display Terminals continues to decline as competing
technologies, including Network Computers, are gaining market share. For these
reasons, sales of General Display Terminals for 1997 are not expected to reach
the levels achieved in 1996.
The Company believes that there will be a continuing substantial demand for
General Display Terminals. The Company is leveraging its manufacturing
expertise, installed customer base and distribution networks while shifting
research and development to software and hardware development that will deliver
Windows-based applications, as well as intranet and Java applications, to the
desktop by means of Network Computers.
As a result of the Digital Acquisition, the Company has expanded its OEM
relationships and worldwide channels of distribution, particularly in Europe.
The Company reached distribution agreements with approximately ten Western
European distributors in 1997. Sales of VT and Dorio General Display Terminals
have historically been particularly strong in Europe, while sales of the ADDS
General Display Terminals have been stronger in the United States.
Sales of Network Graphic Displays declined $1,959 to $2,156 for the quarter
ended March 31, 1997, from $4,115 for the quarter ended March 31, 1996. This
decline was anticipated and relates to specific projects undertaken by NCR
during 1995, and completed during the first quarter of 1996. The Company
believes that sales of Network Graphics Displays will continue to decline as
demand is satisfied by the more capable Network Computers.
Net revenues from the Company's repairs and spare parts business decreased 45%,
or $864, from $1,920 for the quarter ended March 31, 1996 to $1,056 for the
quarter ended March 31, 1997. The decline was due to reduced spares sales to
NCR, resulting from a change in NCR's field support strategy and inventory
purchasing habits.
8
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GAI Partnership royalties for the quarter ending March 31, 1997, were $544
versus $661 in the corresponding period of 1996. The GAI Partnership agreement
provides for the payment of royalties to the Company as a percentage of
partnership revenues, commencing May 1995, as follows: months 1-12, 12%; months
13-24, 10%; months 25-36, 9%; months 37-48, 8%; and months 49-60, 7%.
IBM and NCR were the most significant customers for the Company's products,
accounting for 14.6% and 11%, respectively, of revenues for the quarter ended
March 31, 1997. Although both Digital and NCR are expected to remain significant
customers for the Company's products, neither is expected to account for
revenues of the Company comparable to 1996. The loss of NCR or Digital as a
customer, and as a distribution channel for the Company's General Display
Terminals, would have a material adverse effect on the Company's results of
operations and liquidity.
Gross margin - Gross margin for the quarter ended March 31, 1997 was $5,457
(22.8% of revenue), as compared to gross margin for the quarter ended March 31,
1996 of $8,008 (21.3% of revenue). The increase in gross margin as a percent of
revenue stems primarily from cost reductions achieved in the VT and Dorio and
MultiConsole product lines; offsetting declines in spare parts margin resulting
from the sale of spares to Digital under a parts purchase agreement contained
within the Digital Acquisition.
In a continuing effort to maintain and improve margins in an industry otherwise
characterized by commodity pricing, management has focused on quality,
flexibility, and product cost reductions. In addition, sales of the Company's
Network Computers, which carry margins greater than its General Display
Terminals, are expected to positively impact the Company's gross margin.
However, there can be no assurance, given the recent introduction of this new
technology, that the Company's Network Computers will improve gross margin.
From time-to-time margins are adversely affected by industry shortages of key
components. The Company emphasizes product and cost reductions in its research
and development activities and frequently reviews its supplier relationships for
the purpose of obtaining the best component prices available.
Total Operating Expenses - For the quarter ended March 31, 1997, operating
expenses were $4,135 (17.2% of revenue), compared to expenses for the
corresponding quarter in 1996 of $5,220 (13.8% of revenue). As a result of a
reorganization of the Company, including a reduction-in-force affecting 130
employees at Boundless and the discontinuation of operations at OTW, management
expects that operating expenses, in amount and as a percent of revenue, will
decline in 1997.
9
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Sales and marketing expenses - Sales and marketing expenses decreased 18.2% from
$2,178 (5.8% of revenue) for the quarter ended March 31, 1996 to $1,782 (7.4% of
revenue) for the quarter ended March 31, 1997. The decline stems from reductions
in corporate advertising and expenses related to the integration of the VT and
Dorio product line into Boundless.
The Company uses direct mail, telemarketing and cooperative advertising and
promotion to promote its products. The Company's installed user base of more
than 5,000,000 units is the primary target market for its new Network Computer.
The Company believes the most effective way to reach this market is via
cooperative marketing with its channel partners and an aggressive use of public
relations. Accordingly, significant direct mail/telemarketing and public
relations programs are planned for 1997. Additionally, the Company will
participate in a limited number of highly targeted trade shows during 1997.
General and administrative expenses - General and administrative expenses
decreased from $1,743 (4.6% of revenue), to $1,629 (6.8% of revenue) for the
quarters ending March 31, 1996 and 1997, respectively. The decline is a result
of the reorganization, previously discussed, as well as reductions in insurance
expense and amortization of goodwill.
Research and development expenses - Research and development expenses decreased
from $1,299 (3.4% of revenue) in 1996 to $724,000 (3.0% of revenue) in 1996. The
decline stems from the reorganization, previously discussed, as well as one-time
expenses incurred during 1996 to integrate the VT and Dorio product into
Boundless.
Research and development expenses were expected to decline due to a
consolidation of research activities including the closing of the Company's
Orlando, Florida, facility. Research and development expenses are shifting to
software and hardware development that will deliver user-friendly Windows-based
and Java applications to the desktop while maintaining current cost and
administrative benefits of the shared resource multi-user computing model. The
Company's Network Computers are designed to offer customers simple, easy and
cost-effective access to current and emerging computing environments that
include Windows NT, UNIX and Java applications, corporate intranets and the
Internet. Since August 1996, the Company has released three Network Computer
models, and is expecting to release a second generation Network Computer in the
second quarter of 1997.
Other expense - Other expenses for the quarter ended March 31, 1997 were $802
compared to $1,255 for the comparable period in 1996. Interest expense (net of
interest income) amounted to $807 for the quarter ended March 31, 1997 compared
to $1,045 for 1996. The decline was caused by the provision for discontinued
operations in 1996 and the decline in outstanding debt.
Income tax expense - There is no provision for income tax expense for the
quarter ended March 31, 1997, as compared to $410 for the quarter ended March
31, 1996, due to net operating loss carryforwards available resulting from the
discontinuation of operations at OTW.
10
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Loss from Discontinued Operations - The Company recorded a loss relating to the
discontinuation of operations at OTW of $762 for the quarter ended March 31,
1996. OTW had incurred losses since commencing business in 1995 and consumed
significant amounts of cash. The discontinuation of operations was a material
component of the Company's reorganization and was intended to allow the Company
to focus its resources on its core business conducted at Boundless.
Net income - For the quarter ended March 31, 1997, net income was $520 (2.1% of
revenue), compared to net income of $361 (0.9% of revenue) for the quarter ended
March 31, 1996. Despite an anticipated decline in revenues in 1997, the Company
believes that it will be profitable in 1997 as a result of its restructuring
programs and introduction of its Network Computers.
Impact of Inflation - The Company has not been adversely affected by inflation
because technological advances and competition within the microcomputer industry
have generally caused prices of products sold by the Company to decline. The
Company has flexibility in its pricing and could, if necessary, pass along price
changes to most of its customers.
LIQUIDITY AND CAPITAL RESOURCES
The discussion below regarding liquidity and capital resources should be read
together with the information included in the Notes to Consolidated Financial
Statements.
Working capital was approximately $1,150 as of March 31, 1997. Historically, the
Company has relied on cash flow from operations, bank borrowings and sales of
its common stock to finance its working capital, capital expenditures and
acquisitions.
The Company is highly leveraged. As of March 31, 1997, the Company had a
negative tangible net worth of $2,133 and total liabilities of $50,146. The
Company's cash requirements at March 31, 1997 included repayment of the
remaining balance of $10,182, plus interest, of the term loan in six quarterly
installments; repayment of a revolving loan of $13,950, plus interest, due
September 1998; repayment of an $8,000 note, plus interest, payable to NCR on
January 31, 1999; payment of $3,555 to NCR if it exercises a put option at any
time in 1999; and annual payments to NCR of $498 in cash or the Company's Common
Stock.
Borrowing under the revolving loan is based on a borrowing base formula of up to
80% of eligible receivables, plus 50% of delineated eligible inventory, plus 30%
of non-delineated eligible inventory. Up to $7,500 is available under the
revolving loan for letters of credit. As a result of the borrowing-base formula,
the credit available to the Company could be adversely restricted in the event
the Company's sales decline.
With the exception that the Company will be required to refinance the NCR Note,
which is secured by a mortgage on the Company's Hauppauge facility, by its
January 31, 1999 due date, the Company believes that cash generated from
operations and available under the Chase Credit Line will be sufficient to pay
its other obligations as they become due. In the event there is a decline in the
Company's sales and earnings and/or a decrease in availability under the Chase
Credit Line, the Company's cash flow would be adversely affected. Accordingly,
the Company may not have the necessary cash to fund all of its obligations.
During 1996, the Company violated certain covenants of the Chase Credit Line.
Prior to the fourth quarter 1996 covenant violations, Chase, as agent for the
bank group, had been granting waivers of these covenant violations without
requiring any material change in the governing documents. As a result of the
fourth quarter violations, the Company entered into negotiations with the bank
group to revise the covenants and to obtain a waiver of the fourth quarter
violations. During March 1997, the Company completed negotiations with the bank
syndicate and obtained both the requested revisions to the covenants and the
waiver of the fourth quarter violations, principally in exchange for a payment
of $500, representing incremental interest at the default rate, by the Company.
While the Company believes it will maintain compliance with the revised
covenants, there can be no assurance that it will be able to comply.
11
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Net cash provided by operating activities during the quarter ended March 31,
1997 was $1,202. The amount consisted primarily of a reduction in inventories of
$2,571, accounts receivable of $7,082, partially offset by a decrease in
accounts payable and accrued expenses of $9,018. Net cash used in investing
activities was comprised of capital expenditures of $53. Net cash used in
financing activities was principally comprised of proceeds from convertible
notes of $1,700 offset by payments on the term loan.
As of March 31, 1997, the Company and Boundless had advanced $10,263 to OTW as
intercompany transfers. Funding these cash requirements has adversely affected
liquidity since April 1995. The Company will not be reimbursed for the
intercompany transfers. The Company believes its liquidity will improve as a
result of the discontinuation of operations at OTW.
In March 1997, Microelectronics and Computer Technology Corporation (MCC), OTW,
the Company and SunRiver Group entered into agreements whereby all obligations
of the parties in connection with the Technology Agreement and the transfer of
the technology were discharged and OTW's membership in MCC was terminated. The
Company paid MCC $500, granted MCC a non-exclusive license to use certain
technology and assigned to a designee of MCC the rights in the Infosleuth
Project. At the time of this settlement, MCC was owed $1,250 through December
31, 1997 and had disputed the adequacy of the delivery of 60,000 shares of
common stock to satisfy a $250 payment made in 1996.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "believe," "estimate," and "expect," and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the specific risk factors
described in the Company's Form 10-K for the year ended December 31, 1996.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated or expected. The Company does not intend
to update these forward-looking statements and information.
New Accounting Standards
In October 1995, the FASB issued Statement 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), which establishes fair value-based accounting
and reporting standards for all transactions in which a company acquires goods
or services by issuing its equity securities, including all arrangements under
which employees receive stock based compensation. Statement 123 encourages, but
does not require, employers to adopt fair value accounting to recognize
compensation expense for grants under stock-based compensation plans. However,
companies must comply with the disclosure requirements set forth in statement
123 which is effective for fiscal years beginning after December 31, 1995. The
Company adopted only the disclosure requirements of Statement 123 in 1996.
12
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In March 1995, the FASB issued Statement 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement
121"), which addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used. It also addresses the accounting for long-lived assets and certain
identifiable intangibles to be disposed of. Statement 121 has an effective date
of January 1, 1996. The application of Statement 121 had no significant impact
upon the Company's financial statements.
In March 1997, the FASB issued Statement 128, "Earnings Per Share" ("Statement
128"), which requires a calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share include no dilution. The Company does not expect
Statement 128 to have a significant impact on its calculation of earnings per
share.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 2, 1997, shareholders representing 26,439,380 shares (approximately
52.9%) of the 50,016,629 shares of the Company's Common Stock, outstanding and
in escrow pending conversion, consented in writing to amending the Registrant's
Certificate of Incorporation, as follows:
o to increase the total number of shares of Common Stock which the Registrant
has authority to issue from 60,000,000 to 100,000,000; and
o to change the name of the Company from SunRiver Corporation to Boundless
Corporation.
An Information Statement relating to the foregoing was distributed on May 5,
1997 to stockholders of record as of April 9, 1997, as required by Regulation
14C under the Securities Exchange Act of 1934, and the amendments are expected
to become effective May 27, 1997.
Item 5. Other Information
Effective March 18, 1997 Robert James was appointed President and CEO of the
Company's wholly-owned Boundless Technologies, Inc. subsidiary. Mr. James is the
co-founder, and was President and CEO until April 1997, of ABM Data Systems, a
world leader in security software. Previously, he served as President and CEO of
Racal-Chubb Security Systems USA.
Effective May 9, 1997, Leonard Mackenzie completed his six-month commitment
to the Company and resigned from his position as Director, and Acting Chief
Executive Officer and President of the Company and from the Board of Directors
and all offices held at all of its subsidiaries. J. Gerald Combs was elected
Chairman and Chief Executive Officer of the Company and its subsidiaries. Mr.
Combs has been the Chairman and CEO of SunRiver Group, the majority shareholder
of the Company, since April 1997 and Chairman and CEO of Merrico Corporation, a
privately held financial consulting firm since 1992. He was also President of
All-Quotes, Inc., the predecessor of the Company, from 1993 to 1994.
The Company announced the sale of certain assets of its wholly owned subsidiary,
OTW, to CyberGuard Corporation for a combination of cash, a royalty on certain
future revenues and the assumption of certain liabilities. The Company
previously discontinued the operations of this subsidiary and took a one-time
charge in the fourth quarter of 1996 to cover all costs associated with the
discontinuation. The sale will not have a material impact on the Company.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11: Statement Concerning Computation of Per Share Earnings is hereby
incorporated by reference to "Condensed Consolidated Statements of Operations"
of Part I- Financial Information, Item 1- Financial Statements, contained in
this Form 10-Q.
Exhibit 27: Financial Data Schedule for the quarter ended March
31, 1997.
(b) Reports on Form 8-K
1. The Registrant filed a report on Form 8-K dated January 7, 1997 related to
the resignation of the Company's independent accountant under Item 4.
Changes in Registrant's Certifying Accountant.
2. The Registrant filed a report on Form 8-K dated March 14, 1997 related to
the sale of convertible notes under Item 9. Sales of Equity Securities
Pursuant to Regulation S.
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.
Dated: May 14, 1997
SunRiver Corporation
By: /s/Wayne Schroeder
- ----------------------------------------
Wayne Schroeder
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,860
<SECURITIES> 0
<RECEIVABLES> 15,447
<ALLOWANCES> (601)
<INVENTORY> 15,532
<CURRENT-ASSETS> 36,749
<PP&E> 14,854
<DEPRECIATION> (3,590)
<TOTAL-ASSETS> 59,575
<CURRENT-LIABILITIES> 35,599
<BONDS> 10,182
3,555
0
<COMMON> 488
<OTHER-SE> 8,941
<TOTAL-LIABILITY-AND-EQUITY> 59,575
<SALES> 23,924
<TOTAL-REVENUES> 23,924
<CGS> 18,467
<TOTAL-COSTS> 18,467
<OTHER-EXPENSES> 4,937
<LOSS-PROVISION> 118
<INTEREST-EXPENSE> 807
<INCOME-PRETAX> 520
<INCOME-TAX> 0
<INCOME-CONTINUING> 520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
