SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22970
TREEV, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1590649
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Huntmar Park Drive, Herndon, Virginia 20170
(Address of principal executive offices)
(703) 478-2260
(Issuer's telephone number)
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 past 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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 12,806,943 shares of
common stock, $.0001 par value, as of June 30, 1999.
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TREEV, INC.
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets at June 30, 1999 (unaudited)
and December 31, 1998 2
Statements of Operations (unaudited) for the three
months ended June 30, 1999 and 1998 3
Statements of Operations (unaudited) for the six
months ended June 30, 1999 and 1998 4
Statement of Changes in Stockholders' Equity (unaudited)
for the six months ended June 30, 1999 5
Statements of Cash Flows (unaudited) for the six
months ended June 30, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 6. Exhibits and Reports on Form 8-K. 17
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TREEV, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,741 $ 1,645
Accounts and notes receivable, net 11,311 11,419
Inventories 597 911
Prepaid expenses and other 780 490
--------- ---------
Total current assets 14,429 14,465
Fixed assets, net 1,275 1,578
Long-term notes receivable, net 33 47
Software development costs, net 3,352 2,978
Goodwill, net 249 332
Other assets 126 122
--------- ---------
Total assets $ 19,464 $ 19,522
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 4,502 $ 342
Accounts payable 2,933 2,327
Accrued compensation and expenses 1,253 1,448
Deferred revenue 4,111 5,887
Other accrued expenses 2,079 1,945
--------- ---------
Total current liabilities 14,878 11,949
Long-term debt and obligations
under capital leases 26 43
--------- ---------
Total liabilities 14,904 11,992
Commitments
Stockholders' equity:
Convertible preferred stock,
$.0001 par value, 20,000,000 shares
authorized; 1,610,025 shares issued
and outstanding -- --
Common stock, $.0001 par value,
100,000,000 shares authorized;
12,806,943 and 12,367,888 shares
issued and outstanding 1 1
Additional paid-in-capital 139,482 139,310
Accumulated deficit (134,923) (131,781)
--------- ---------
Total stockholders' equity 4,560 7,530
--------- ---------
Total liabilities and
stockholders' equity $ 19,464 $ 19,522
========= =========
The accompanying notes are an integral part of these financial statements.
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TREEV, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended June 30,
1999 1998
------------ ------------
Revenue:
Products $ 4,802 $ 4,244
Services 3,312 2,844
------------ ------------
8,114 7,088
------------ ------------
Costs and expenses:
Cost of products sold 2,346 1,846
Cost of services provided 2,080 1,941
Sales and marketing 2,776 3,103
General and administrative 971 1,075
Product development 1,244 965
Restructuring costs -- 1,505
------------ ------------
9,417 10,435
------------ ------------
Loss before interest (expense)
income and income taxes (1,303) (3,347)
Interest (expense) income, net (44) 6
------------ ------------
Loss before income taxes (1,347) (3,341)
Income tax benefit -- --
------------ ------------
Net loss (1,347) (3,341)
------------ ------------
Preferred stock dividends (337) (337)
------------ ------------
Net loss applicable to common shares $ (1,684) $ (3,678)
============ ============
Net loss per common share $ (0.13) $ (0.50)
============ ============
Weighted average shares outstanding 12,803,488 7,332,704
============ ============
The accompanying notes are an integral part of these financial statements.
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TREEV, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Six Months Ended June 30,
1999 1998
------------ ------------
Revenue:
Products $ 7,630 $ 7,795
Services 6,404 5,493
------------ ------------
14,034 13,288
------------ ------------
Costs and expenses:
Cost of products sold 3,696 3,661
Cost of services provided 4,173 3,786
Sales and marketing 5,297 5,837
General and administrative 1,913 2,250
Product development 2,051 1,961
Restructuring costs -- 1,505
------------ ------------
17,130 19,000
------------ ------------
Loss before interest (expense)
income and income taxes (3,096) (5,712)
Interest (expense) income, net (46) (62)
------------ ------------
Loss before income taxes (3,142) (5,774)
Income tax benefit -- --
------------ ------------
Net loss (3,142) (5,774)
------------ ------------
Preferred stock dividends (674) (674)
------------ ------------
Net loss applicable to common shares $ (3,816) $ (6,448)
============ ============
Net loss per common share $ (0.30) $ (0.94)
============ ============
Weighted average shares outstanding 12,777,096 6,829,092
============ ============
The accompanying notes are an integral part of these financial statements.
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<TABLE>
TREEV, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six months ended June 30, 1999
(In thousands, except share amounts)
(Unaudited)
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amt. Shares Amt. capital Deficit Total
------------------------ ------------------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 1,610,025 $ - 12,367,888 $ 1 $ 139,310 $(131,781) $ 7,530
Issuance of common stock,
net of offering costs of $71 439,055 774 774
Issuance of warrants 72 72
Dividends on preferred stock (674) (674)
Net loss (3,142) (3,142)
------------------------ ------------------------ ------------ ------------ ------------
Balance June 30, 1999 1,610,025 $ - 12,806,943 $ 1 $ 139,482 $(134,923) $ 4,560
======================== ======================== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TREEV, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1999 1998
--------- ---------
(In thousands)
Cash flows from operating activities:
Net loss $ (3,142) $ (5,774)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,124 1,221
Restructuring costs -- 1,505
Other non-cash adjustments 82 40
Changes in assets and liabilities:
Accounts and notes receivable (74) 1,429
Inventories 314 31
Prepaid expenses and other (83) 111
Accounts payable 606 (320)
Accrued expenses (441) (374)
Deferred revenue (1,776) 1,347
--------- ---------
Net cash used in operating activities (3,390) (784)
--------- ---------
Cash flows from investing activities:
Software development costs (850) (751)
Purchases of fixed assets (262) (473)
Cash received from business
divestitures and related costs 196 7,230
--------- ---------
Net cash (used in) provided by
investing activities (916) 6,006
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of
common stock, net 774 3,423
Cash dividends paid on
preferred stock (337) --
Redemption of Redeemable
Series F preferred stock -- (6,548)
Proceeds from issuance of
convertible notes 2,150 --
Redemption of convertible notes (200) (1,300)
Borrowings of debt 8,029 --
Repayments of debt (5,927) --
Principal payments on capital
lease obligations (87) (521)
--------- ---------
Net cash provided by (used in)
financing activities 4,402 (4,946)
--------- ---------
Net increase in cash and cash equivalents 96 276
Cash and cash equivalents at
beginning of year 1,645 3,816
--------- ---------
Cash and cash equivalents at June 30, $ 1,741 $ 4,092
========= =========
Supplemental Cash Flow Information:
Interest paid $ 67 $ 156
The accompanying notes are an integral part of these financial statements.
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TREEV, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 and 1998
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 which include
information and note disclosures not included herein. In the opinion of
management all adjustments, which include only those of a normal recurring
nature, necessary to fairly present the Company's financial position, results of
operations and cash flows have been made to the accompanying financial
statements. The results of operations for the six-month period ended June 30,
1999 may not be indicative of the results that may be expected for the year
ending December 31, 1999.
2. LINE OF CREDIT
During the first quarter of 1999, the Company secured a $5 million revolving
line of credit from a commercial bank. The Company can draw up to $5 million on
the line of credit for working capital needs based on 80% of its eligible
receivables. The line of credit bears interest at a rate equal to prime plus 2%.
The agreement shall remain in effect until February 28, 2000, and automatically
renews for successive additional terms of one year each. The line of credit is
collateralized by all of the Company's accounts receivable, inventory,
equipment, general intangibles, and other personal property assets. At June 30,
1999, the Company had $2,204,000 outstanding under the line of credit.
3. CONVERTIBLE NOTES REDEMPTION
During the first quarter of 1999, the Company redeemed in cash the remaining
$200,000 of the 8% Convertible Notes (the "Notes") due August 20, 2002. At June
30, 1999, all of the Notes had been converted or redeemed.
4. ISSUANCE OF COMMON STOCK
During the first quarter of 1999, the Company completed a private placement of
388,500 shares of Common Stock pursuant to Regulation D under the Securities Act
of 1933, as amended. Proceeds from the offering were $777,000 and offering costs
were approximately $71,000.
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<PAGE>
During the first quarter of 1999, the Company issued 45,555 shares of Common
Stock under the Company's Employee Stock Purchase Plan ("the Plan"). Employees
can choose to have up to 10% of their annual earnings withheld to purchase the
Company's Common Stock. Under the terms of the Plan, there are two six-month
offering periods beginning on January 1st and July 1st of each year during which
employees can participate. The purchase price is determined by taking 85% of the
lower of (a) the average of the high and low market prices on the offering
commencement date and (b) the average of the high and low market prices on the
offering termination date. The terms of the Plan require that the purchaser hold
the shares purchased under the Plan for a minimum of six months from the date
the offering period ends.
5. ISSUANCE OF CONVERTIBLE NOTES
During the second quarter of 1999, the Company issued, pursuant to Regulation D
under the Securities Act of 1933, as amended, 8% Convertible Notes (the "Notes")
due October 1, 1999, totaling $2,000,000, together with warrants to purchase
50,000 shares of Common Stock at an exercise price of $2.00 per share. At the
time of maturity, the Notes are convertible, at the Company's election, into
Common Stock at a conversion price of $2.00 per share.
6. BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that sell its
products and services to a wide variety of customers throughout the United
States. The products segment includes sales of software licenses of the
Company's TREEV Suite of document management software and computer equipment.
The services segment includes sales of software maintenance contracts,
installation, training, and customization.
The following table sets forth summarized financial information concerning the
Company's reportable segments for the periods ended June 30, 1999 and 1998 (in
thousands). The "Corporate" column includes corporate related items and expenses
not allocated to reportable segments, such as sale of subsidiaries and
restructuring costs.
<TABLE>
<CAPTION>
Products Services Corporate Total
------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
1999
Revenues $7,630 $6,404 $ --- $14,034
Segment profit (loss) (61) (1,123) (1,912) (3,096)
1998
Revenues $7,795 $5,493 $ --- $13,288
Segment profit (loss) (441) (1,517) (3,754) (5,712)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements and Certain Risk Factors
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of this Quarterly Report on Form 10-Q contains
certain forward looking statements that are subject to a number of risks and
uncertainties. In addition, the Company may publish or make forward looking
statements from time to time relating to such matters as anticipated financial
performance, business prospects and strategies, sales and marketing efforts,
technological developments, new products, research and development activities,
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results to differ materially from the anticipated
results or other expectations made in the Company's forward looking statements
in this Quarterly Report or elsewhere. Readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission, specifically any Current Reports on Form
8-K filed by the Company. Some risks and uncertainties of the Company that
should be considered by the reader include:
The adverse results of operations that the Company has experienced have
been declining. Although the Company expects the trend of improved operating
results to continue, there can be no assurances that the Company will not
experience adverse results of operations in the future.
The Company has had net losses in each period of its operations since
its inception, except for two quarters, and it had an accumulated deficit at
June 30, 1999, of $135 million.
The computer industry, including the information access, document
management, imaging and optical disk storage segments, is highly competitive,
and is characterized by rapid and continuous technological change. The Company's
future profitability will depend on, among other things, market acceptance of
the Company's products and on the Company's ability to develop, in a timely
fashion, enhancements to existing products or new products. There can be no
assurance that the Company will be able to market successfully its current
products, develop and market enhancements to existing products or introduce new
products.
Revenues for any period depend on the number, size and timing of
license agreements. The size and timing of license agreements is difficult to
forecast because software sales cycles are affected by the nature of the
transactions, including the scope of the solutions to be licensed and the
organizational and geographic scope of the licenses.
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<PAGE>
Also, the number, size and timing of license agreements may be affected by
external factors such as general domestic and international business or economic
conditions, including the effects of such conditions on the Company's customers
and prospects, or competitors' actions. A small variation in the timing of
software licensing transactions, particularly near the end of any quarter or
year, can cause significant variations in software product license revenues in
any period.
Year 2000 Readiness
The Year 2000 computer problem originated from programmers writing
software code that used two digits instead of four to represent the year. After
December 31, 1999, computers and software may incorrectly assume that the year
is "1900" rather than "2000." This could lead to system failures and disruptions
to activities and operations. In addition, Year 2000 is a leap year, which may
further exacerbate incorrect calculations, functions or system failures. At this
time it is difficult to predict the effects such disruptions could have and the
liabilities that any company may face as a result of these failures. Moreover,
companies must not only consider their own products and computer systems, but
also the Year 2000 readiness of any third parties, including principal vendors.
State of Readiness
The Company became aware in 1997 of its potential Year 2000 issues and
established a plan to assess its Year 2000 issues and develop an overall
strategy. In 1998, the Company began an assessment of its products, its own
information technology ("IT") and non-IT systems and the Company's vendors to
determine whether they are or will be Year 2000 ready. To ensure that the IT and
non-IT systems are, or will be, Year 2000 ready, surveys of the Company's
products, services and systems were conducted. These included: audits and
analyses of the Company's internal IT systems including hardware and software;
assessment of critical non-IT systems; and surveys on principal vendors as to
Year 2000 readiness. The Company identified several internal IT and non-IT
systems that were not Year 2000 ready. These internal systems have either been
replaced or modified with Year 2000 ready systems or will be upgraded to the
Year 2000 ready product. All internal system upgrades are expected to be
completed by the third quarter of 1999. The Company has received written
assurances from material principal vendors as to Year 2000 readiness within that
timeframe.
The majority of the Company's efforts regarding Year 2000 readiness
focused on the Company's products, specifically software applications. As an
integral part of the Company's assessment of whether its software products are
Year 2000 ready it has established a Year 2000 test force (the "Test Force").
The Test Force has been tasked with providing testing and validation of the
Company's Year 2000 readiness of its
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software products currently being sold to its customers. The Company believes
that the current versions of the TREEV Suite of software products are Year 2000
ready. Customers using versions other than current versions of the software
products have been given the opportunity, pursuant to maintenance plans or
upgrade options, to receive current versions of the software.
Costs to Address Year 2000 Readiness Issues
The calculation of costs incurred has been limited to bringing the
Company's software products, and its own IT and non-IT systems to Year 2000
readiness or to accelerating replacement systems to become Year 2000 ready.
Costs incurred in the normal maintenance of the Company's IT and non-IT systems
are not included. The total cost of the Year 2000 readiness project is estimated
at $740,000 and is being funded through operating cash flows. Of the total
project cost, approximately $260,000 is attributable to enhancements of the
Company's software products and the purchase of new IT and non-IT systems which
will be capitalized. The remaining $480,000 which will be expensed as incurred,
is not expected to have a material impact on the results of operations. To date,
the Company has incurred approximately $650,000 ($200,000 capitalized and
$450,000 expensed) related to the assessment and validation efforts on the Year
2000 readiness project and the development of a modification plan and purchase
of new IT and non-IT systems and systems modifications.
The costs of the Year 2000 readiness project and the date by which the
Company believes it will complete the Year 2000 readiness modifications are
based on management's best estimates and are based on certain assumptions of
future events, including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in the Year 2000
readiness area and the ability to locate and correct all relevant computer
codes.
Company's Contingency Plans
At the present time, the Company anticipates that essential software
products and IT and non-IT systems will be validated as Year 2000 ready in all
material respects. This belief is based on the progress to date and the assessed
degree of difficulty associated with the remaining phases to achieve Year 2000
readiness. Contingency plans are under development and the Company anticipates
that acceptable alternatives will be available in the event that a contingency
arises. These contingency plans generally anticipate use of alternative vendors
for hardware and operating systems. Nevertheless, it is not possible for the
Company to fully assess the likelihood or magnitude of consequences of Year 2000
issues, should representations made by vendors prove to be in error.
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<PAGE>
Year 2000 Information and Readiness Disclosure Act
This section captioned "Year 2000 Readiness," as well as other
statements herein or otherwise relating to the Year 2000 issues, are "Year 2000
Readiness Disclosures" pursuant to the "Year 2000 Information and Readiness
Disclosure Act."
Results of Operations - Six months ended June 30, 1999 and 1998
Revenues. Total revenues were $14.0 million and $13.3 million
for the six months ended June 30, 1999 and 1998, respectively. The $700,000
increase in revenue was the result of a decrease in product revenue of $200,000,
or 2%, offset by an increase in service revenue of $900,000, or 17%. The
decrease in product revenue was attributable to postponed contracts from
prospective government and banking customers who have delayed implementation of
new systems due to fiscal funding appropriations or completion of Year 2000
readiness. The increase in service revenue was attributable to increased
staffing and continued management emphasis on the professional services
business.
Profit margins. Profit margins for product sales decreased 1
percentage point for the six months ended June 30, 1999, compared to the same
period in 1998, as cost of products sold increased from 47% to 48% of sales. The
decrease in product sales margins from 53% to 52% was primarily due to the
increased sales mix of hardware. Profit margins for service sales increased 4
percentage points for the six months ended June 30, 1999, compared to the same
period in 1998, as the cost of services decreased from 69% to 65% of sales. The
increase in service sales margins from 31% to 35% was due to the Company's
continued emphasis on its custom development and professional services.
Sales and marketing. Sales and marketing expenses were $5.3
million, or 38% of revenue, for the six months ended June 30, 1999, compared to
$5.8 million, or 44% of revenue, for the same period in 1998. The decrease of
$500,000, or 9%, was the result of reduced sales expenses attributable to the
decrease in product revenue combined with continuing cost reduction efforts by
the Company.
General and administrative. G&A expenses were $1.9 million,
or 14% of revenue, for the six months ended June 30, 1999, compared to $2.3
million, or 17% of revenue, for the same period in 1998. The decrease of
$400,000, or 15%, was due to the Company's continued cost reduction efforts.
Product development. The Company's expenditures on software
research and development activities ("R&D") for the six months ended June 30,
1999, were $2.9 million, of which $800,000 was capitalized and $2.1 million was
expensed. R&D expenditures for the same period in 1998 were $2.7 million, of
which $700,000 was
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capitalized and $2.0 million was expensed. The $200,000 increase in research and
development expenditures was attributable to the development of the Company's
new TREEV 2000 Suite of integrated document management software, which was
completed in April 1999.
Restructuring costs. During the second quarter 1998, the
Company committed to a plan of restructuring and incurred a charge of $1.5
million.
Net loss. The Company's net loss for the six months ended
June 30, 1999, was $3.1 million as compared to $5.8 million for the comparable
period in 1998. The net loss decrease of $2.7 million was due to a $1.2 million
decrease in net loss from the Company's continuing operations, which was
primarily attributable to the decrease in sales and marketing and G&A expenses,
and the $1.5 million restructuring charge incurred in the second quarter of
1998.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's preferred stock. The net loss applicable to common shares was $3.8
million, or $.30 per share, for the six months ended June 30, 1999, as compared
to $6.4 million or $.94 per share, for the comparable period in 1998. The
decrease in net loss applicable to common shares is attributable to the decrease
in net loss described above and an increase in the weighted average shares
outstanding.
Results of Operations - Three months ended June 30, 1999 and 1998
Revenues. Total revenues were $8.1 million and $7.1 million
for the three months ended June 30, 1999 and 1998, respectively. The $1.0
million increase in revenue was the result of an increase in product revenue of
$500,000, or 13%, and an increase in service revenue of $500,000, or 16%. The
increase in product revenue was attributable to the receipt of postponed
contracts from the first quarter of 1999 by banking customers who had delayed
implementation of new systems due to completion of Year 2000 readiness. The
increase in service revenue was attributable to increased staffing and continued
management emphasis on the professional services business.
Profit margins. Profit margins for product sales decreased 6
percentage points for the three months ended June 30, 1999, compared to the same
period in 1998, as cost of products sold increased from 43% to 49% of sales. The
decrease in product sales margins from 57% to 51% was primarily due to the
increased sales mix of hardware. Profit margins for service sales increased 5
percentage points for the three months ended June 30, 1999, compared to the same
period in 1998, as the cost of services decreased from 68% to 63% of sales. The
increase in service sales margins from 32% to 37% was due to the Company's
continued emphasis on its custom development and professional services.
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<PAGE>
Sales and marketing. Sales and marketing expenses were $2.8
million, or 34% of revenue, for the three months ended June 30, 1999, compared
to $3.1 million, or 44% of revenue, for the same period in 1998. The decrease of
$300,000, or 11%, was the result of continuing cost reduction efforts by the
Company.
General and administrative. G&A expenses were $1.0 million,
or 12% of revenue, for the three months ended June 30, 1999, compared to $1.1
million, or 15% of revenue, for the same period in 1998. The decrease of
$100,000, or 10%, was due to the Company's continued cost reduction efforts.
Product development. The Company's expenditures on software
R&D activities for the three months ended June 30, 1999, were $1.5 million, of
which $200,000 was capitalized and $1.3 million was expensed. R&D expenditures
for the same period in 1998 were $1.4 million, of which $400,000 was capitalized
and $1.0 million was expensed. The $200,000 decrease in capitalized R&D was
attributable to the timing and varying stages of completion in the development
cycle of the Company's software.
Restructuring costs. During the second quarter 1998, the
Company committed to a plan of restructuring and incurred a charge of $1.5
million.
Net loss. The Company's net loss for the three months ended
June 30, 1999, was $1.3 million as compared to $3.3 million for the comparable
period in 1998. The net loss decrease of $2.0 million was due to a $500,000
decrease in net loss from the Company's continuing operations, which was
primarily attributable to the decrease in sales and marketing and G&A expenses,
and the $1.5 million restructuring charge incurred in the second quarter of
1998.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's preferred stock. The net loss applicable to common shares was $1.7
million, or $.13 per share, for the three months ended June 30, 1999, as
compared to $3.7 million or $.50 per share, for the comparable period in 1998.
The decrease in net loss applicable to common shares is attributable to the
decrease in net loss described above and an increase in the weighted average
shares outstanding.
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<PAGE>
Liquidity and Capital Resources
As of June 30, 1999, the Company had $1.7 million in cash and cash
equivalents, as compared to $1.6 million in cash and cash equivalents at
December 31, 1998. Net working capital was $(400,000) at June 30, 1999, and $2.5
million at December 31, 1998.
For the six months ended June 30, 1999, the $100,000 increase in cash
and cash equivalents resulted from $3.4 million in cash used in operating
activities and $900,000 in cash used in investing activities, offset by $4.4
million in cash provided by financing activities.
The $3.4 million used by operating activities arose primarily with
respect to the $3.1 million loss from operations and the $1.8 million decrease
in deferred revenues, offset by the $1.1 million in depreciation and
amortization. The $900,000 used in investing activities arose primarily from
capitalized software development costs. The $4.4 million provided by financing
activities arose primarily from the $800,000 proceeds from the issuance of
Common Stock, the $2.0 million proceeds from the issuance of convertible notes
and the $2.1 million in net borrowings of debt.
During the first quarter of 1999, the Company secured a $5 million
revolving line of credit from a commercial bank. The Company can draw up to $5
million on the line of credit for working capital needs based on 80% of its
eligible receivables. The line of credit bears interest at a rate equal to prime
plus 2%. The line of credit shall remain in effect until February 28, 2000, and
automatically renews for successive additional terms of one year each. The line
of credit is collateralized by all of the Company's accounts receivable,
inventory, equipment, general intangibles, and other personal property assets.
The adverse results of operations that the Company has experienced
have been declining. Although the Company expects the trend of improved
operating results to continue, there can be no assurances that the Company will
not experience adverse results of operations in the future. The Company believes
that its existing cash, cash flows from operations and availability under its
line of credit should provide sufficient resources to fund its activities
through the next twelve months and to maintain net tangible assets of at least
$4.0 million, which is required for continued inclusion of the Company's
securities on the Nasdaq National Market. Cash flows from operations are largely
dependent upon the Company's ability to achieve its sales and gross profit
objectives for its TREEV suite of products. If the Company is unable to meet
these objectives, it will consider alternative sources of liquidity, such as
additional offerings of equity securities and/or further reductions of operating
expenses (such as travel, marketing, consulting and salaries).
-15-
<PAGE>
Nasdaq announced new listing requirements on February 23, 1998, for
continued inclusion on the Nasdaq National Market. Specifically, Nasdaq
requires, effective February 23, 1998, that common and preferred stock trading
on its National Market continuously have a minimum bid price of $1.00. At times
in 1997 and 1998, the Company's Common Stock had a minimum bid price below $1.00
before the one-for-four reverse stock split in December 1998. The Company's
Preferred Stock has consistently traded with a minimum bid price of over $1.00.
Although the Company's Common Stock is currently trading with a minimum bid
price above $1.00, there can be no assurance that the Company's Common Stock
will continue to trade with such a minimum bid price. In the event that the
Company's Common Stock has a minimum bid price below $1.00, the Company believes
it can propose and effect a plan to achieve compliance; however, there can be no
assurance that the Company will be able to stay in compliance with the Nasdaq
requirement. While the Company believes that it can continue to meet the
requirements of the Nasdaq Stock Market, any ability to trade on a national
exchange could adversely impact the value of the Company's stock.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings, other than the
routine litigation incidental to the business.
Item 2. Changes in Securities
During the first quarter of 1999, the Company completed a private
placement of 388,500 shares of Common Stock pursuant to Regulation D under the
Securities Act. Proceeds from the offering were $777,000.
During the first quarter of 1999, the Company issued 45,555 shares
of Common Stock under the Company's Employee Stock Purchase Plan.
Item 3. Changes Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 3, 1999, at
which the Stockholders elected six directors, approved an increase to the number
of shares which may be granted under the Amended and Restated 1997 Director
Stock Option Plan, approved an increase to the number of shares which may be
granted under the Employee
-16-
<PAGE>
Stock Purchase Plan, and ratified the selection of Ernst & Young LLP as the
Company's independent accountants for the year ending December 31, 1999.
The following table sets forth the names of the nominees for director
and the votes for and withheld with respect to each such nominee:
Nominee For Authority Withheld
Edwin A. Adams..........................12,480,565 51,375
Robert P. Bernardi.......................7,388,683 5,143,257
John F. Burton..........................12,480,565 51,375
James J. Leto...........................12,480,315 51,625
C. Alan Peyser..........................12,480,565 51,375
Michael J. Smith........................12,480,565 51,375
With respect to the proposal to approve an increase to the number of
shares which may be granted under the Amended and Restated 1997 Director Stock
Option Plan, 11,257,924 shares were voted for the proposal, 1,207,206 against
the proposal and 66,808 were withheld.
With respect to the proposal to approve an increase to the number of
shares which may be granted under the Employee Stock Purchase Plan, 11,398,667
shares were voted for the proposal, 1,065,744 against the proposal and 67,529
were withheld.
In connection with the ratification of the selection of Ernst & Young
LLP as the independent auditors for the Company for the year ending December 31,
1999, 12,211,318 shares were voted in favor of the ratification, 73,501 against
the ratification and 22,121 abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial data schedule
(b) Reports on Form 8-K.
None.
-17-
<PAGE>
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 hereunto duly authorized.
TREEV, INC.
(Registrant)
Date: August 4, 1999 By /s/ Thomas A. Wilson
-------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: August 4, 1999 By /s/ Brian H. Hajost
-------------------------------------
Brian H. Hajost
Executive Vice President of Finance
and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirety by reference to such financial
statements as of and for the six months ended June 30, 1999.
</LEGEND>
<CIK> 0000883946
<NAME> TREEV INC
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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0
0
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