SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,1996
------------
( ) 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 1-11236
XEROGRAPHIC LASER IMAGES CORPORATION
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0319174
- ----------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
101 Billerica Avenue, 5 Billerica Park,
North Billerica, MA 01862
------------------- ----------
(Address of principal executive offices) (Zip Code)
(508) 670-5999
---------------------------------------------------
(Registrant's telephone number, including area code)
Transitional Small Business Disclosure Format:
Yes ____ No__X__
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 requirement for the past 90 days. YES X NO
As of the close of business on August 7, 1996, there were 1,683,647
shares outstanding of the issuer's Common Stock, $.01 par value, and 315,238
shares of Series A Convertible Preferred Stock, $.01 par value per share.
XEROGRAPHIC LASER IMAGES CORPORATION
INDEX
PAGES
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of June 30,1996
(unaudited) and December 31, 1995 4
Statements of Operations for the six and three
month periods ended June 30,1996 and
1995 (unaudited) 5
Statements of Cash Flows for the six and three month
periods ended June 30,1996 and 1995
(unaudited) 6
Notes to Financial Statements
(unaudited) 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-10
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security-Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
XEROGRAPHIC LASER IMAGES CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
(unaudited)
ASSETS
===========
<S> <C> <C>
Current assets:
Cash $ 4,249 $ -
Accounts receivable, less allowance for
doubtful accounts of $5,000 in 1996 and
$14,033 in 1995 15,436 279,271
Finished goods inventory 56,921 55,181
Other current assets 2,500 3,250
------------ ------------
Total current assets 79,106 337,702
------------ ------------
Property and equipment, net 53,975 68,512
Other assets 10,510 12,651
------------ ------------
Total assets $ 143,591 $ 418,865
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
=======================================================
Current liabilities:
Notes payable $ 20,500 $ 101,000
Cash overdraft - 1,432
Accounts payable 506,498 439,228
Accrued expenses 111,268 220,694
Accrued severance costs 98,676 103,634
Current portion of capital lease obligations 6,510 12,161
------------ ------------
Total current liabilities 743,452 878,149
------------ ------------
Capital lease obligations 28,639 28,639
Subordinated notes payable 283,688 -
Accrued severance costs 37,331 69,474
------------ ------------
Total liabilities 1,093,110 976,262
------------ ------------
Stockholders' equity (deficit)
Series A Preferred stock, $.01 par value; authorized 1,000,000
shares; 315,238 issued and outstanding at
June 30, 1996 and December 31, 1995. 3,152 3,152
Common stock, $.01 par value; 30,000,000 shares authorized:
1,683,647 issued and outstanding at June 30,1996
and 1,338,647 outstanding at December 31, 1995. 16,836 13,386
Additional paid- in capital 8,423,428 8,423,428
Accumlated deficit (9,392,935) (8,997,363)
------------ ------------
Total stockholders' equity (deficit) (949,519) (557,397)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 143,591 $ 418,865
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
XEROGRAPHIC LASER IMAGES CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ --------------------------------
June 30, 1996 June 30,1995 June 30,1996 June 30,1995
------------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Product revenues $ 49,130 $ 101,729 $ 108,841 $ 206,039
Contract and license revenues 200,000 25,000 250,000
------------- ------------ ------------ ------------
Total revenues 49,130 301,729 133,841 456,039
------------- ------------ ------------ ------------
Cost and expenses:
Product costs of revenues 34,315 142,487 72,076 241,593
Research and development 87,283 101,772 157,766 177,801
Selling and marketing 7,073 21,399 19,863 41,297
General and administrative 167,103 122,456 268,519 221,383
------------- ------------ ------------ ------------
Total cost and expenses 295,774 388,114 518,224 682,074
------------- ------------ ------------ ------------
Loss from operations (246,644) (86,385) (384,383) (226,035)
------------- ------------ ------------ ------------
Net interest expense 5,361 5,532 11,189 12,600
Net loss $ (252,005) $ (91,917) $ (395,572) $ (238,635)
------------- ------------ ------------ ------------
Net loss per common share $ (0.18) $ (0.08) $ (0.29) $ (0.22)
============= ============ ============ ============
Weighted average common and common
equivalent shares outstanding 1,396,146 1,088,647 1,367,396 1,088,647
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
XEROGRAPHIC LASER IMAGES CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30,1996 June 30,1995
(unaudited) (unaudited)
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (395,572) $ (238,635)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation and amortization 14,537 22,853
Inventory reserve - 80,000
Issuance of common stock for services rendered 3,450
(Increase) decrease:
Accounts receivable 263,835 29,978
Inventory (1,740) 61,205
Other assets 2,891 (2,500)
Increase (decrease):
Accounts payable 67,270 129,904
Accrued expenses (95,738) 30,381
Accrued severance costs (37,101) (71,751)
---------- -----------
Net cash used in operating activities (178,168) 41,435
---------- -----------
Cash flows from financing activities:
Cash overdraft (1,432) -
Proceeds from issuance of Subordinated Notes 195,000 -
Payments of notes payable (5,500) (40,000)
Payments under capital lease obligations (5,651) (49,149)
---------- -----------
Net cash provided (used in investing activities) 182,417 (89,149)
---------- -----------
Net increase (decrease) in cash 4,249 (47,714)
Cash at beginning of period - 75,874
---------- -----------
Cash at end of period $ 4,249 $ 28,160
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 17,281 $ 12,600
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
XEROGRAPHIC LASER IMAGES CORPORATION
Notes to Financial Statements
June 30,1996
1. Nature of Business and Basis of Presentation
--------------------------------------------
Xerographic Laser Images plans to continue to move from being a provider
of board products to that of a technology provider primarily to large OEMs
through ASIC, VHDL and software products. Monochrome and color enhancement
technology continues to be the key focus for the Company. This technology is
applicable for the printer OEM market which has been the traditional focus for
the Company. However, attention is now also being placed on the broader display
market including flat panel, CRT and television enhancement. The Company's color
enhancement technology has been named ColorSharp TM and was introduced with a
press announcement in June during the PC Expo show in New York. XLI's grayscale
enhancement technology also continues to be improved with the introduction of
"1-bit Grayscale" technology being implemented in current enhancement VHDL
modules and ASICs for the printer OEMs. This technology provides gray scale
enhancement while minimizing the memory and performance requirements of the
printer controller. Two ASIC chips will be marketed in 1996, MFIP and Superchip,
for the laser desk top printer and multi-function market. These were conceived
and designed by XLI's core technical group; put into VHDL (a computer design
language for integrated circuits), and then will be put into final chip layout
and manufactured by Samsung. Samsung has paid for the entire process and, in
return, can use the chips in its own products royalty-free, while XLI can sell
the chip to all other manufacturers worldwide. XLI has contracted to provide its
technology to Pipeline for incorporation into certain Pipeline Associates
products. XLI hopes to enter into additional corporate alliances, and provide
ASIC and board products to its own customer base. ASIC development and
licensing/royalty agreements are, by nature, long term investments, therefore
placing a burden on short term cash flow and placing the Company in a tenuous
position. For the six months ending June 30, 1996, the Company had negative cash
flow from operations of $191,856.
Despite the progress made in maintaining current expense levels and the
potential revenue to be generated pursuant to the co-development agreements with
OEMs, some risk remains concerning the Company's ability to continue as an
independent going concern. The financial statements do not include any
adjustments relating to the recovery and classification 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. At
present, the Company is exploring several promising funding opportunities.
The information furnished has been prepared from the Company's accounts
without audit. In the opinion of management, all adjustments and accruals
(consisting only of normal recurring adjustments) which are necessary for a fair
presentation of operating results are reflected in the accompanying financial
statements. Reference should be made to Xerographic
7
Laser Images Corporation's most recent Annual Report on Form 10-KSB for the year
ended December 31, 1995 for a summary of significant accounting policies.
Net Loss Per Common Share
-------------------------
Net loss per share is computed based upon the weighted average number of
common shares outstanding. Common share equivalents are not included in the per
share calculations as the effect of their inclusion
8
2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
RESULTS OF OPERATIONS
XLI plans to continue to move from being a provider of board products to
that of a technology provider primarily to large OEMs through ASIC, VHDL and
software products.
The Company's strategy is to develop core ideas derived from XLI's
current technology, then design products incorporating these ideas for
production in collaboration with strategic partners.
Revenues for the second quarter of 1996, which ended June 30, 1996 were
$49,130, a decrease of approximately 84% from 1995's second quarter revenues of
$301,729. Revenues for the six-month period ended June 30, 1996 were $133,841, a
decrease of approximately 70% from the $456,039 of revenue recorded for the six
months ended June 30, 1995. The Company received $200,000 in Contract and
License fees from Samsung in the second quarter of 1995 and none in 1996.
The Company recorded a net loss of $252,005 for the second quarter of
1996 as compared to a net loss of $91,917 for the same period in 1995. The
increase loss is attributable to the absence of Contract and License fees in the
second quarter and reduced board sales.
The Company's gross margin on product sales was 30% for the second
quarter of fiscal year 1996 compared to 53% for the same period in 1995. The
gross margin for the six months ended June 30, 1996 was 46% compared to 47% for
the same period in 1995.
Research and development costs for the three-month period ended June 30,
1996 were $87,283 or approximately 178% of revenues as compared to $101,772, or
approximately 34% of revenues for the second quarter of 1995. Research and
development costs for the six months ended June 30, 1996 were $157,766, as
compared to for the same period in 1995 $177,801. The Company's engineering
emphasis will continue to be on the development of ASICs incorporating the
Company's proprietary high resolution technology for the OEM market and for its
own board products.
Selling and marketing expenses for the three-month period ended June 30,
1996 were $7,073 or approximately 14% of revenues as compared to $21,399 or
approximately 7% of revenues for the three-month period ended June 30, 1995.
Selling and marketing expenses for the six months ended June 30, 1996 were
$19,863, a decrease from $41,297 for the same period in 1995. The decrease of
$21,434 is attributed to a reduction in board sales and the form of compensation
and commissions on sales. The Company will promote its board products primarily
through telemarketing and its ASIC technology through third party partnerships.
General and administrative expenses for the three-month period ended June
30, 1996 were $167,103 or approximately 340% of revenues as compared
9
to $122,456 or approximately 41% of revenues for the three-month period ended
June 30, 1995. The increase of $44,647 is primarily attributed to a charge
related to Korean Income Taxes withheld on the Samsung Contract over the amount
reserved at December 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had current assets of $79,106 and current
liabilities of $1,027,140.
At June 30, 1996, the Company had $4,249 in cash.
During this period, the Company has continued its policy to issue stock
to its Directors for serving on its Board and has also made stock awards to
certain key employees for accepting less than the normal compensation for their
services.
In March 1996, the Company commenced a limited private offering to
accredited investors of subordinated nonrecourse promissory notes in an
aggregate principal amount of up to $500,000. In addition to a note, each
subscriber shall receive a five year warrant to purchase two shares of the
Company's Common Stock at an exercise price of $.01 per share for each dollar
invested. Principal and interest will be repaid, if at all, solely from the
Company's pre-tax earnings for each of the five fiscal years commencing with the
fiscal year ending December 31, 1996. Payments, if any, will be made annually to
the holders of the notes within thirty days after the Company files its Form
10-KSB or its then equivalent form with the Securities and Exchange Commission.
Such annual payments shall not exceed, in the aggregate, based on the actual
funds raised, 14% of the Company's pre-tax earnings, and shall not exceed over
the five year term of the notes, three times the principal amount of the notes.
The offering closed on May 31, 1996 and the Company raised a total of $283,688.
Included in this amount was $13,698 of accrued interest and $75,000 of
outstanding debt that were converted into the new notes and warrants.
In addition to the above offering the Company will require additional
cash to fund its working capital needs and research and development efforts and
is currently investigating additional financing alternatives.
In April 1996, the Company received notice from Samsung Electronics that
$104,812.50 was withheld from the final payment on the April 1995 contract due
to payment of Korean Income Taxes. The Company has consulted with its advisors
and believes that the withholding was inappropriate based upon their
interpretation of Korean tax laws. The Company has engaged the services of the
Korean affiliate of a U.S. accounting firm in order to petition the Korean
Government for a refund on the Company's behalf. The success of this petition
can not be determined at this time.
10
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any legal proceedings.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matters were submitted to a vote of security-holders during the period
covered by this report.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits required to be filed herewith.
(b) There were no reports on Form 8-K filed by the Company during the
period reported on in this Report on Form 10-QSB.
11
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Xerographic Laser Images Corporation
------------------------------------
(Company)
Date: By:
------------------- ----------------------------------------------
James L. Salerno, Principal Financial and
Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,249
<SECURITIES> 0
<RECEIVABLES> 20,436
<ALLOWANCES> (5,000)
<INVENTORY> 56,921
<CURRENT-ASSETS> 79,106
<PP&E> 490,703
<DEPRECIATION> 436,758
<TOTAL-ASSETS> 143,591
<CURRENT-LIABILITIES> 743,452
<BONDS> 0
0
3,152
<COMMON> 16,836
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 143,591
<SALES> 49,130
<TOTAL-REVENUES> 49,130
<CGS> 34,315
<TOTAL-COSTS> 295,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (246,644)
<INTEREST-EXPENSE> 5,361
<INCOME-PRETAX> (252,005)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,005)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
</TABLE>
