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 September 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
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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
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(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 October 10, 1996, there were 1,778,647
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 September 30,1996
(unaudited) and December 31, 1995 4
Statements of Operations for the nine and three
month periods ended September 30,1996 and
1995 (unaudited) 5
Statements of Cash Flows for the nine and three month
periods ended September 30,1996 and 1995
(unaudited) 6
Notes to Financial Statements
(unaudited) 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-9
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 10
Signatures 11
<TABLE>
<CAPTION>
XEROGRAPHIC LASER IMAGES CORPORATION
Balance Sheets
<S> <C> <C>
September 30, December 31,
1996 1995
(unaudited)
ASSETS
Current assets:
Cash $ 11,961 $ -
Accounts receivable, less allowance for
doubtful accounts of $5,000 in 1996 and
$14,033 in 1995 156,021 279,271
Finished goods inventory 46,027 55,181
Other current assets 2,500 3,250
Total current assets 216,509 337,702
Property and equipment, net 45,253 68,512
Other assets 9,224 12,651
Total assets $ 270,986 $ 418,865
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 20,500 $ 101,000
Cash overdraft - 1,432
Accounts payable 528,430 439,228
Accrued expenses 219,828 220,694
Accrued severance costs 89,182 103,634
Current portion of capital lease obligations 6,510 12,161
Total current liabilities 864,450 878,149
Capital lease obligations 25,062 28,639
Subordinated notes payable 283,688 -
Accrued severance costs 29,813 69,474
Total liabilities 1,203,013 976,262
Stockholders' equity (deficit)
SeriesA Preferred stock, $.01 par value; authorized 1,000,000 shares;
315,238 issued and outstanding at
September 30, 1996 and December 31, 1995. 3,152 3,152
Common stock, $.01 par value; 30,000,000 shares authorized:
1,778,647 issued and outstanding at September 30,1996
and 1,338,647 outstanding at December 31, 1995. 17,786 13,386
Additional paid- in capital 8,434,353 8,423,428
Accumlated deficit (9,387,318) (8,997,363)
Total stockholders' equity (deficit) (932,027) (557,397)
Total liabilities and stockholders' equity (deficit) $ 270,986 $ 418,865
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
XEROGRAPHIC LASER IMAGES CORPORATION
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Product revenues $ 57,654 $ 95,436 166,495 $ 301,475
Contract and license revenues 225,000 200,000 250,000 450,000
Total revenues 282,654 295,436 416,495 751,475
Cost and expenses:
Product costs of revenues 33,319 69,432 105,395 311,025
Research and development 90,701 90,727 248,467 268,528
Selling and marketing 13,518 37,822 33,381 79,119
General and administrative 122,693 85,586 391,212 306,969
Total cost and expenses 260,231 283,567 778,455 965,641
Profit (Loss) from operations 22,423 11,869 (361,960) (214,166)
Other income (expense)
Net interest expense (17,132) (8,221) (29,821) (20,821)
Other income 326 2,320 1,826 2,320
Total other expense (16,806) (5,901) (27,995) (18,501)
Net Income(Loss) $ 5,617 $ 5,968 $ (389,955) $ (232,667)
Net income(loss) per common share $ 0.00 $ 0.00 $ (0.26) $ (0.19)
Weighted average common and common
equivalent shares outstanding 1,778,647 1,338,646 1,493,925 1,227,536
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<TABLE>
<CAPTION>
XEROGRAPHIC LASER IMAGES CORPORATION
Statements of Cash Flows
Nine Months Ended Nine Months Ended
September130,1996 September 30,1995
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (389,955) $ (232,667)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of common stock for services rended 15,325
(Increase) decrease:
Accounts receivable 123,250 39,814
Inventory 9,154 121,309
Other assets 4,177 (15,144)
Increase (decrease):
Accounts payable 89,202 81,492
Accrued expenses 12,822 17,262
Accrued severance costs (54,113) (94,103)
Depreciation and amortization 23,259 34,279
Net cash used in operating activities (166,879) (47,758)
Cash flows from financing activities:
Cash overdraft (1,432)
Procceds from issuance of Subordinated Notes 195,000
Payments of notes payable (5,500) (15,000)
Payments under capital lease obligations (9,228)
Net cash provided by financing activities 178,840 (15,000)
Net increase (decrease) in cash 11,961 (62,758)
Cash at beginning of period - 75,874
Cash at end of period $ 11,961 $ 13,116
Supplemental disclosure of cash flow information:
Cash paid for interest $ 22,003 $ 20,821
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
XEROGRAPHIC LASER IMAGES CORPORATION
Notes to Financial Statements
September 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 of the Company. XLI's "1-bit Grayscale"
enhancement technology is being implemented in current 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. A
patent application was filed during the quarter focused on both monochrome and
color edge enhancement. 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 nine months ending September 30, 1996, the Company had
negative cash flow from operations of $166,879.
Despite the progress made in maintaining current expense levels and the
potential revenue to be generated pursuant to the co-development agreements with
OEMs, significant 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 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 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.
7
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.
XLI has signed a second agreement with Pipeline Associates which
includes the development of "Superchip" (XLI's next generation enhancement ASIC)
with a Taiwan foundry, at no cost to XLI. Both XLI and Pipeline have the rights
to sell this ASIC into the printer marketplace with XLI receiving a per unit
royalty from any such sales. XLI has also signed a VHDL agreement with a
Japanese company that includes up-front and royalty fees for the rights to
develop their own enhancement ASIC for their end user products only. A display
scaling/enhancement technology agreement was signed with Samsung Electronics
giving the rights to Samsung to incorporate XLI technology into future Samsung
display products. This agreement included upfront and milestone payments tied to
specific technology deliverables. Samsung also signed an additional printer
enhancement agreement with XLI for the rights to use XLI's "Superchip"
enhancement technology in Samsung's ASIC.
Revenues for the third quarter of 1996, which ended September 30, 1996
were $282,654, a decrease of approximately 4% from 1995's third quarter revenues
of $295,436. Revenues for the nine-month period ended September 30, 1996 were
$416,495, a decrease of approximately 45% from the $751,475 of revenue recorded
for the nine months ended September 30, 1995. The Company received $225,000 in
Contract and License fees from Samsung in the third quarter of 1996 and $200,000
in 1995 and Contract and License fees for the nine months ended September 30,
1996 was $250,000 compared to $450,00 for the same period in 1995.
The Company recorded a net profit of $5,617 for the third quarter of
1996 as compared to a net profit of $5,968 for the same period in 1995.
The Company's gross margin on product sales was 42% for the third
quarter of fiscal year 1996 compared to 27% for the same period in 1995. The
gross margin for the nine months ended September 30, 1996 was 37% compared to a
negative 3% in 1995 due to inventory write-offs in 1995.
Research and development costs for the three-month period ended
September 30, 1996 were $90,701 or approximately 32% of revenues as compared to
$90,727, or approximately 31% of revenues for the third quarter of 1995.
Research and development costs for the nine months ended
8
September 30, 1996 were $248,467, as compared to $268,528 for the same period in
1995. The Company anticipates that its 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
September 30, 1996 were $13,518 or approximately 5% of revenues as compared to
$37,822 or approximately 13% of revenues for the three-month period ended
September 30, 1995. Selling and marketing expenses for the nine months ended
September 30, 1996 were $33,381, as compared to $79,119 for the same period in
1995. The decrease of $45,738 is attributed to a reduction in board sales and
the corresponding decrease in commissions on sales. In the future, the Company
intends to market and sell its board products primarily through telemarketing
and its ASIC technology through third party partnerships.
General and administrative expenses for the three-month period ended
September 30, 1996 were $122,693 or approximately 43% of revenues as compared to
$85,586 or approximately 29% of revenues for the three-month period ended
September 30, 1995. General and administrative expenses for nine months ended
September 30,1996 were $391,212, as compared to the same period in 1995 was
$306,969. The increase of $84,243 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 September 30, 1996 the Company had current assets of $216,509 and
current liabilities of $864,450.
At September 30, 1996, the Company had $11,961 in cash.
During this period, the Company has continued its policy of issuing
stock to certain key employees for accepting less cash compensation than they
are entitled to based on their experience and knowledge.
The Company requires additional cash to fund its working capital needs
and research and development efforts and is currently investigating additional
financing alternatives. There can be no assurance that the Company will be able
to obtain additional funding on reasonable terms, if at all.
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 to petition the Korean Government for
a refund on the Company's behalf. The potential success of this petition can not
be determined at this time.
9
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any material 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.
10
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: November 5, 1996 By:/s/ James L. Salerno
----------------- ----------------------------------
James L. Salerno, Principal Financial and
Accounting Officer
11
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 11,961
<SECURITIES> 0
<RECEIVABLES> 156,021
<ALLOWANCES> 5,000
<INVENTORY> 46,027
<CURRENT-ASSETS> 216,509
<PP&E> 45,253
<DEPRECIATION> 445,450
<TOTAL-ASSETS> 270,986
<CURRENT-LIABILITIES> 864,450
<BONDS> 0
0
3,152
<COMMON> 17,786
<OTHER-SE> (932,027)
<TOTAL-LIABILITY-AND-EQUITY> 270,986
<SALES> 166,495
<TOTAL-REVENUES> 416,495
<CGS> 105,395
<TOTAL-COSTS> 105,395
<OTHER-EXPENSES> 673,060
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 27,995
<INCOME-PRETAX> (389,955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (389,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (389,955)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
</TABLE>
