SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998.
--------------
( ) 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
101 Billerica Avenue, 5 Billerica Park, North Billerica, MA 01862
- ------------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(978) 670-5999
--------------------------------------------------
(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 requirement for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of Stock, as of the latest practicable date.
Class Outstanding at May 6, 1998
------- --------------------------
Common Stock, $.01 par value
per share 3,574,941 *
Series A Convertible Preferred
Stock, $.01 par value
per share 315,238
*Common stock assuming conversion of the outstanding Series A
convertible preferred shares equals 4,359,370 shares.
Transitional Small Business Disclosure Format:
Yes No X
----- -----
XEROGRAPHIC LASER IMAGES CORPORATION
INDEX
PAGES
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 4
Statements of Operations for the three
month period ended March 31, 1998 and
1997 (unaudited) 5
Statements of Cash Flows for the three month
period ended March 31, 1998 and 1997
(unaudited) 6
Notes to Financial Statements
(unaudited) 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
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
Signature 12
<TABLE>
Xerographic Laser Images Corporation
Balance Sheets
<CAPTION>
March 31 December 31
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash $39,832 $112,401
Accounts receivable 21,627 3,667
---------- ---------
Total current assets 61,459 116,069
---------- ---------
Property and equipment, net 15,465 16,478
Other assets 3,432 3,432
---------- ---------
Total assets 80,356 135,979
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Notes payable $110,000 $ -
Accounts payable 363,019 237,873
Deferred revenue - 10,000
Accrued expenses 276,914 286,216
Accrued payroll 85,133 101,705
Current portion of capital leases 11,731 11,731
---------- ---------
Total current liabilities 846,798 647,525
---------- ---------
Capital lease obligations 1,049 5,176
Subordinated notes payable 283,688 283,688
---------- ---------
Total liabilities 1,131,535 936,390
Stockholder's equity (deficit)
Series A Preferred stock, $.01 par value;
authorized 1,000,000 shares; 315,238
issued and outstanding at March 31, 1998
and December 31, 1997 3,152 3,152
Common stock, $.01 par value; 30,000,000
shares authorized: 3,574,941 issued and
outstanding at March 31, 1998 and
2,039,310 outstanding at December 31, 1997. 35,749 20,393
Additional paid-in capital 8,484,033 8,438,278
Accumulated deficit (9,574,114) (9,262,234)
---------- ----------
Total stockholders' equity (deficit) (1,051,180) (800,411)
---------- ----------
Total liabilities and stockholders' equity $80,356 $135,979
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Xerographic Laser Images Corporation
Statements of Operations
<CAPTION>
Three Months Ended Three Months Ended
March 31 March 31
1998 1997
(unaudited) (unaudited)
----------------- ------------------
<S> <C> <C>
Product revenues $2,739 $20,054
Contract and license revenues 141,603 241,667
---------- ----------
Total revenues 144,341 261,721
Cost and expenses:
Cost of product revenues 2,052 10,795
Cost of contract and license revenues 34,923 40,932
Research and development 158,401 112,491
Sales and marketing 41,707 7,330
General and administrative 211,342 145,268
---------- ----------
Total cost and expenses 448,426 316,816
Loss from operations (304,085) (55,095)
Other income 100 4,739
Net interest expense 7,810 1,725
Provision for Taxes 85 -
---------- ----------
Net loss ($311,880) ($52,081)
========== ==========
Net loss per common share - basic ($0.11) ($0.03)
Weighted average common and common
equivalent shares outstanding-basic 2,807,125 1,778,646
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
Xerographic Laser Images Corporation
Statements of Cash Flows
<CAPTION>
Three Months Ended Three Months Ended
March 31 March 31
1998 1997
(unaudited) (unaudited)
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($311,880) ($52,081)
Adjustments to reconcile net loss to net cash
Used in operating activities:
Depreciation and amortization 1,013 4,678
(Increase) decrease:
Accounts receivable (17,960) 13,743
Increase (decrease):
Accounts payable 125,147 (3,142)
Deferred revenues (10,000) (41,667)
Accrued expenses (9,302) (94,929)
Accrued payroll (16,571) -
Accrued severance costs - (22,144)
---------- ----------
Net cash used in operating activities (239,553) (195,542)
---------- ----------
Cash flows from financing activities:
Issuance of common stock 61,111 -
Payments under capital lease obligations (4,127) (2,933)
Issuance of Note Payable 110,000 -
---------- ----------
Net cash provided (used) in investing activities 166,984 (2,933)
---------- ----------
Net increase (decrease) in cas (72,569) (198,475)
Cash at beginning of period 112,401 219,723
---------- ----------
Cash at end of period $39,832 $21,248
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $7,810 $1,725
The accompanying notes are an integral part of the financial statements.
</TABLE>
XEROGRAPHIC LASER IMAGES CORPORATION
Notes to Financial Statements
March 31, 1998
1. Nature of Business and Basis of Presentation
---------------------------------------------
In the first quarter of 1998, the Company continued to focus on the design and
development of ASIC and VHDL (Virtual Hardware Description Language)
enhancement product offerings for the OEM printer and printer controller market.
During 1997 the Company delivered VHDL modules to OEMs and introduced the XLI-
2050 ImageChip ASIC (Application Specific Integrated Circuit) that incorporates
all of the Company's current enhancement technology into one chip design. The
Company hopes to increase revenue through additional licensing of the ImageChip
technology and through sales of its ImageChip ASICs to OEMs. The Company's
strategy is to become the primary distributor of its ImageChip ASICs rather
than solely a licensor of the ImageChip technology. The Company believes that
its revenues and gross margins will ultimately be greater from chip sales than
from royalties earned pursuant to technology licenses. Production quantities
of the ImageChip are planned for the second half of 1998. The Company also
plans to add additional engineering resources in 1998 in order to meet the
demands from existing and anticipated OEM agreements. This will result in
increased research and development costs that may negatively affect cash flow.
On January 29, 1998 the Company entered into a Plan of Reorganization and
Agreement of Merger by and among Oak Technology, Inc., Pixel Magic, Inc., and
OTI Acquisition Corporation ("OTI") pursuant to which OTI will be merged with
and into the Company and the Company will become a wholly-owned subsidiary of
Pixel Magic, Inc., which is a wholly-owned subsidiary of Oak Technology, Inc.
The ASIC products of Pixel Magic and XLI are complementary to each other and
are targeted to the same printer/digital copier market. The Company believes
that the merger should enhance XLI's ability to bring its products to the OEM
market. The merger is subject to the approval of the Company's shareholders.
During the first quarter or 1998, the Company continued working with a licensee
on the design and development for a scaling/enhancement ASIC for flat-panel
displays. Although this technology is an extension of the Company's
Technology outside the printer market, there are no current plans to market
such a product and, if done so, there is no assurance that this product would
have market acceptance.
In February 1998, the Company entered into a license agreement with QMS, Inc.,
(a provider of printing products to end users and printer controllers to OEMs)
for the purchase of ImageChips. Including the agreement with QMS, the Company
has entered into seven license agreements for its ImageChip Technology to
date. 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. Certain information and footnote disclosures normally
included in the Company's annual financial statements have been condensed or
omitted. These interim financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1997,
which are contained in the Company's 1997 Form 10-KSB filed with the
Securities and Exchange Commission.
2. Net Loss per Common Share
-------------------------
Net loss per share is computed based upon the weighted average number of
common shares outstanding. Common equivalent shares are not included in the
per share calculations as the effect of their inclusion would be nondilutive.
3. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
- ---------------------
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forwarding-looking statements. Except for historical
information contained herein, the matters discussed in this section contain
potential risks and uncertainties, including, without limitation, risks
related to the ability of XLI (hereinafter referred to in this section as the
"Company") to successfully develop, test, product and market its proposed
products, identify and attract partners to help market its proposed products,
identify and attract partners to help commercialize the Company's products;
attract and retain key employees; obtain meaningful patent protection to
cover the Company's proprietary technology; raise capital for future
operations and commercialization of its products; and successfully respond to
technological changes in the marketplace. The Company will need to complete
the pending merger to attract partners in order to exploit its products, and
there can be no assurance that the Company will be successful in completing
such transactions. Additional information regarding potential factors which
could affect the Company's financial results are included in the Company's
public filings with the Securities and Exchange Commission.
Results of Operations
The Company's strategy is to develop core ideas derived from XLI's current
technology, then design products incorporating such ideas for production in
collaboration with strategic partners.
Revenues for the first quarter of 1998, which ended March 31, 1998 were
$144,341, a decrease of approximately 45% from 1997's first quarter revenues
of $261,721. Product revenues were $2,739 and contract and license revenues
were $141,603 for the first quarter of 1998, as compared to product revenues
of $20,054 and contract and license revenues of $241,667 for the same period
in 1997. The decrease in product revenues of $17,315 or approximately 86%
was attributable to a reduction in revenues from sales of board products.
XLI ceased the production and promotion of its board products in the second
half of 1996, and is in the process of selling off its remaining board
inventory. XLI expects its board product revenues to continue to decrease
in the future.
The decrease in contract and license revenues of $100,064 or approximately
41% was attributable to a reduction in license fees as the Company pursues
its strategy to become the primary distributor of its ImageChip ASICs
rather than solely a licensor of its technology.
Cost of product revenues for the quarter ended March 31, 1998 was $2,052 as
compared to $10,795 for the quarter ended March 31, 1997. The decrease of
$8,743 or approximately 81% was attributable to the decrease in product
revenue resulting from fewer sales of board products. Cost of contract and
license revenues for the quarter ended March 31, 1998 was $34,923 as
compared to $40,932 for the quarter ended March 31, 1997. The decrease of
$6,009 or approximately 15% was attributable to the decrease in contract
and license revenues. The cost of contract and license revenues for the
quarter ended March 31, 1998 represents a higher percentage of contract and
license revenues than for the quarter ended March 31, 1997 because of
increased engineering costs associated with the generation of contract
revenues combined with the decrease in license revenue.
The Company recorded a net loss of $311,880 for the first quarter of 1998, as
compared to a net loss of $52,081 for the same period in 1997. The increase
is attributable primarily to the decrease in contract and license revenues of
$100,064 and the increase in cost and expenses of $131,610.
The Company's gross margin on total revenue was 75% for the first quarter of
fiscal year 1998 compared to 81% for the same period in 1997. The decrease
in gross margin was mostly due to the decrease in contract and license
revenue of $100,064.
Research and development costs for the three month period ended March 31, 1998
were $158,401 or approximately 110% of revenues as compared to $112,491 or
approximately 43% of revenues for the three month period ended March 31, 1997.
The increase in 1998 of $45,910 was primarily attributable to the hiring of
additional personnel and to associated expenses to support the increase in
ASIC and VHDL development activity. The Company's ongoing engineering
emphasis continues to be on the development of image enhancement ASICs.
Selling and marketing expenses for the three month period ended March 31, 1998
were $41,707 or approximately 29% of revenues as compared to $7,330 or
approximately 3% of revenues for the three month period ended March 31, 1997.
The increase of $34,377 is primarily attributable to the hiring of a vice
president of marketing and sales in late 1997 and expenses associated with
the introduction of the XLI-2050 ImageChip.
General and administrative expenses for the three month period ended March 31,
1998 were $211,342 or approximately 147% of revenues as compared to $145,268
or approximately 50% of revenues for the three month period ended March 31,
1997. The increase of $66,074 is primarily attributable to costs incurred in
connection with the proposed merger with OTI Acquisition Corporation.
Liquidity and Capital Resources
At March 31, 1998 the Company had current assets of $61,459, current
liabilities of $846,798 and cash of $39,832, resulting in a working capital
deficit of $785,339. For the quarter ended March 31, 1998, the Company had
a negative cash flow from operations of $239,553.
In connection with the Merger Agreement, XLI and Oak entered into a Promissory
Note and Agreement on April 24, 1998 (the "Note and Agreement") pursuant to
which Oak Technology, Inc. ("Oak") agrees to advance to XLI such amounts as
XLI may request for working capital purposes, up to $500,000. XLI promises
to pay to Oak the principal sum of $500,000, or such lesser principal amount,
as the case may be, at an interest rate equal to the Prime Rate plus one-half
percent. All principal and accrued interest shall be due on August 31, 1998.
If the Reorganization Agreement has not closed on or before August 31, 1998,
then the principal and accrued interest shall at the option of the Lender
either convert to a prepaid royalty under that Technology License and Supply
Agreement entered into on October 15, 1997 by and between Pixel Magic, Inc.,
a Massachusetts corporation and wholly owned subsidiary of Lender, and
Borrower or be immediately due and payable. Lender shall provide written
notification to Borrower on August 31, 1998, indicating the form of repayment
it has chosen.
The Company plans to finance its operations from its available cash and
through the working capital line provided by Oak.
Capital Expenditures
The Company does not have any material commitments for capital expenditures
at this time.
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) The following exhibit is filed herewith:
Exhibit Number Title
-------------- -------
10.47 Promissory Note and Agreement
dated April 24, 1998 between
Oak Technology, Inc. and XLI
(b) Form 8-K filed by the Company on February 3, 1998 to announce
the signing of the Plan of Reorganization and Agreement of Merger
by and among Oak Technology, Inc., Pixel Magic, Inc., OTI
Acquisition Corporation and Xerographic Laser Images
Corporation.
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: May 13, 1997 By: /s/ James L. Salerno
------------ -----------------------------
James L. Salerno, Chief Financial
Officer (Principal Financial and
Accounting Officer)
Exhibit 10.47
PROMISSORY NOTE AND AGREEMENT
("Note and Agreement")
$500,000.00 Sunnyvale, California
April 24, 1998
FOR VALUE RECEIVED, Xerographic Laser Images, a Delaware Corporation
("Borrower"), hereby promises to pay to the order of Oak Technology, Inc., a
Delaware corporation ("Lender"), the principal sum of FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) or such lesser amount as shall equal the outstanding
principal amount of all sums advanced to Borrower hereunder and to pay
interest on the outstanding balance of said sum at a rate per annum equal to
the Prime Rate (as defined below) plus one-half percent (0.50%), such rate of
interest to change as the Prime Rate shall change. The "Prime Rate" shall be,
for any day, the rate of interest in effect for such day as published by the
Federal Reserve Board from time to time in its Statistical Release H.15 (519)
under the heading "Bank prime loan". Any change in the Prime Rate shall take
effect at the opening of business on the day specified in the publication
of such change. All principal and accrued interest hereunder shall be due
and payable on August 31, 1998. If the Reorganization Agreement (defined
below) has closed on or before August 31, 1998, then the principal and
accrued interest shall become an intercompany debt and be eliminated in the
purchase accounting related to the Reorganization Agreement and this Note and
Agreement shall terminate. If the Reorganization Agreement has not closed on
or before August 31, 1998, then the principal and accrued interest shall at
the option of the Lender either convert to a prepaid royalty under that
Technology License and Supply Agreement entered into on October 15, 1997 by
and between Pixel Magic, Inc. a Massachusetts corporation and wholly owned
subsidiary of Lender, and Borrower or be immediately due and payable. Lender
shall provide written notification to Borrower on August 31, 1998, indicating
the form of repayment it has chosen.
All computations of interest under this Note and Agreement shall be
based on a year of 365 or 366 days, as applicable, for actual days elapsed.
In the event that, contrary to the intent of Lender and Borrower, Borrower
pays interest under this Note and Agreement and it is determined that such
interest rate was in excess of the then legal maximum rate, then that portion
be deemed a payment of principal and applied against the principal then due
under this Note and Agreement.
Reorganization Agreement:
This Note and Agreement is being entered into in connection with the
Plan of Reorganization and Agreement of Merger dated as of January 29, 1998
(as the same may be amended, restated, supplemented or otherwise modified
pursuant to the terms thereof, the"Reorganization Agreement") by and between
Borrower, Lender, OTI Acquisition Corporation and certain party stockholders
of Borrower. Capitalized terms used herein and not otherwise defined shall
have the respective meanings set forth in the Reorganization Agreement.
Conditions to Advances, Use of Proceeds, Covenants:
Amounts shall be advanced to Borrower under this Note and Agreement
solely in accordance with the terms and conditions set forth in this Note
and Agreement, including Schedule A attached hereto and incorporated herein
by this reference. Borrower shall use the proceeds of any amount advanced
under this Note and Agreement solely for its normal working capital in the
ordinary course of business. Until the termination of this Note and
Agreement or payment in full by Borrower of all amounts outstanding under
this Note and Agreement, Borrower agrees that it shall comply with and duly
perform all of its covenants, obligations and agreement set forth in the
Reorganization Agreement, which are hereby incorporated herein by reference
as if fully set forth herein.
Borrower agrees to pay on demand: (i) all reasonable costs and
expenses of Lender, and the reasonable fees and disbursements of counsel, in
connection with the enforcement or attempted enforcement of, and preservation
of any rights or interests under, this Note and Agreement, including in any
out-of-court workout or other refinancing or restructuring or in any
bankruptcy case. Any amounts payable to Lender pursuant to this paragraph if
not paid upon demand shall bear interest from the date of such demand until
paid in full, at the rate of interest set forth herein in respect of
principal outstanding hereunder.
If at any time any provision of this Note and Agreement is or become
illegal, invalid or unenforceable in any respect, neither the legality,
validity nor enforceability of the remaining provisions shall in any way be
affected or impaired thereby.
Any term, covenant, agreement or condition of this Note and Agreement
may be amended or waived if such amendment or waiver is in writing and is
signed by Borrower and Lender. No failure or delay by Lender in exercising
any right or remedy hereunder shall operate as a waiver thereof or of any
other right or remedy nor shall any single or partial exercise of any such
right or remedy preclude any other further exercise thereof or of any other
right or remedy. The acceptance at any time by Lender of any past due amount
hereunder shall not be deemed to be a waiver of the right to require prompt
payment when due of any other amounts then or thereafter due and payable.
Unless otherwise specified in such waiver or consent, a waiver of consent
given hereunder shall be effective only in the specific instance and for the
specific purpose for which given.
This Note and Agreement shall be binding upon and inure to the benefit
of Borrower, Lender, and their respective successors and permitted assigns,
except that Borrower may not assign or transfer any of its rights or
obligations under this Note and Agreement without the prior written consent
of Lender.
Nothing expressed in or to be implied from this Note and Agreement is
intended to give, or shall be construed to give, any person or entity, other
than the parties hereto and their permitted successors and assigns hereunder,
any benefit or legal or equitable right, remedy or claim under or by virtue
of this Note and Agreement or under or by virtue of any provisions herein.
The words "hereof", "herein", "hereunder" and similar words refer to
this Note and Agreement as a whole (including the Schedules attached hereto)
and not to any particular provision of this Note and Agreement.
Borrower hereby waives presentment, demand, protest, notice of
dishonor and all other notices, except as expressly provided herein, any
release or discharge other than actual payment in full hereof.
This Note and Agreement shall be construed in accordance with and
governed by the laws of the State of California, excluding conflict of laws
principles.
All notices and other communications hereunder shall be given as
provided in Section 12.9 of the Reorganization Agreement.
IN WITNESS WHEREOF, the undersigned duly authorized officer of
Borrower has executed this Note and Agreement as of the date set forth above.
By: /s/ Anthony D. D'Amelio
--------------------------
Name: Anthony D. D'Amelio
Title: President & CEO, XLI
By: /s/ William L. Siddall
-------------------------
William L. Siddall
Vice President, Operations
Pixel Magic, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 39,832
<SECURITIES> 0
<RECEIVABLES> 21,627
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,459
<PP&E> 490,704
<DEPRECIATION> 475,239
<TOTAL-ASSETS> 80,356
<CURRENT-LIABILITIES> 846,798
<BONDS> 0
0
3,152
<COMMON> 35,749
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 80,356
<SALES> 2,739
<TOTAL-REVENUES> 144,341
<CGS> 2,052
<TOTAL-COSTS> 36,975
<OTHER-EXPENSES> 411,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,810
<INCOME-PRETAX> (304,085)
<INCOME-TAX> 0
<INCOME-CONTINUING> (304,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 100
<CHANGES> 0
<NET-INCOME> (311,880)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
