AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON November 14, 2000
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 September 30, 2000
------------------
[ ] 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 small business issuer as specified in its charter)
Delaware 54-1590649
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13900 Lincoln Park Drive, Suite 300, Herndon, Virginia 20171
(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: 16,193,054 shares of
common stock, $.0001 par value, as of September 30, 2000.
<PAGE>
TREEV, INC.
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999 2
Statements of Operations (unaudited) for the three
months ended September 30, 2000 and 1999 3
Statements of Operations (unaudited) for the nine
months ended September 30, 2000 and 1999 4
Statement of Changes in Stockholders' Equity (unaudited)
for the nine months ended September 30, 2000 5
Statements of Cash Flows (unaudited) for the nine
months ended September 30, 2000 and 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 15
Item 6. Exhibits and Reports on Form 8-K. 15
<PAGE>
TREEV, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 751 $ 1,886
Short term investments 348 -
Accounts and notes receivable, net 10,768 13,816
Inventories 675 1,135
Prepaid expenses and other 1,348 1,111
---------------- --------------
Total current assets 13,890 17,948
Fixed assets, net 1,310 1,237
Long-term notes receivable, net - 21
Software development costs, net 4,420 3,627
Other assets 308 458
---------------- --------------
Total assets $ 19,928 $ 23,291
================ ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital leases $ 10,580 $ 7,572
Accounts payable 2,162 2,374
Accrued compensation and expenses 1,075 1,160
Deferred revenue 3,673 3,143
Other accrued expenses 2,577 1,497
---------------- --------------
Total current liabilities 20,067 15,746
Long-term debt and obligations under capital leases 322 120
---------------- --------------
Total liabilities 20,389 15,866
Stockholders' equity (deficit):
Convertible preferred stock, $.0001 par value, 20,000,000 shares
authorized; 1,605,025 and 1,610,025 shares issued and outstanding - -
Common stock, $.0001 par value, 100,000,000 shares authorized;
16,193,054 and 14,237,009 shares issued and outstanding 2 1
Additional paid-in-capital 142,017 141,841
Accumulated deficit (142,480) (134,417)
---------------- --------------
Total stockholders' equity (deficit) (461) 7,425
---------------- --------------
Total liabilities and stockholders' equity (deficit) $ 19,928 $ 23,291
================ ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
TREEV, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
----------------- ---------------
<S> <C> <C>
Revenue:
Products $ 2,226 $ 5,314
Services 3,545 3,400
----------------- ---------------
5,771 8,714
----------------- ---------------
Costs and expenses:
Cost of products sold 1,083 1,597
Cost of services provided 2,401 2,137
Sales and marketing 2,364 2,706
General and administrative 1,007 761
Product development 1,068 1,099
----------------- ---------------
7,923 8,300
----------------- ---------------
Loss before interest expense and income taxes (2,152) 414
Interest expense, net (298) (133)
----------------- ---------------
Loss before income taxes (2,450) 281
Income tax benefit - -
----------------- ---------------
Net loss (2,450) 281
----------------- ---------------
Preferred stock dividends (337) (337)
----------------- ---------------
Net loss applicable to common shares $ (2,787) $ (56)
================= ===============
Net loss per common share $ (0.17) $ (0.00)
================= ===============
Weighted average shares outstanding 16,145,084 12,851,866
================= ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---------------- ---------------
<S> <C> <C>
Revenue:
Products $ 6,541 $ 12,354
Services 10,180 9,803
---------------- ---------------
16,721 22,157
---------------- ---------------
Costs and expenses:
Cost of products sold 3,401 5,323
Cost of services provided 6,668 6,310
Sales and marketing 7,767 7,828
General and administrative 2,976 2,394
Product development 3,201 3,150
---------------- ---------------
24,013 25,005
---------------- ---------------
Loss before interest expense and income taxes (7,292) (2,848)
Interest expense, net (771) (178)
---------------- ---------------
Loss before income taxes (8,063) (3,026)
Income tax benefit - -
---------------- ---------------
Net loss (8,063) (3,026)
---------------- ---------------
Preferred stock dividends (1,011) (1,011)
---------------- ---------------
Net loss applicable to common shares $ (9,074) $ (4,037)
================ ===============
Net loss per common share $ (0.59) $ (0.32)
================ ===============
Weighted average shares outstanding 15,505,649 12,792,448
================ ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
TREEV, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 2000
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<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, 1999 1,610,025 $ - 14,237,009 $ 1 $ 141,841 $(134,417) $ 7,425
Issuance of common stock 333,699 - 513 513
Conversion of preferred stock (5,000) - 1,514,938 1 - 1
Dividends on preferred stock (1,011) (1,011)
Issuance of common stock
in payment of dividends 107,408 - 674 674
Net loss (8,063) (8,063)
--------------------- ---------------------- ------------- ------------- ---------------
Balance September 30, 2000 1,605,025 $ - 16,193,054 $ 2 $ 142,017 $(142,480) $ (461)
===================== ====================== ============= ============= ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
TREEV, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,063) $ (3,026)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,745 1,703
Other non-cash interest fees 433 223
Changes in assets and liabilities:
Accounts and notes receivable 2,535 (1,713)
Inventories 460 (182)
Prepaid expenses and other (212) (301)
Accounts payable (212) 310
Accrued expenses 659 (757)
Deferred revenue 530 (2,112)
----------------- -----------------
Net cash used in operating activities (2,125) (5,855)
----------------- -----------------
Cash flows from investing activities:
Software development costs (1,738) (1,252)
Purchases of fixed assets (451) (384)
Cash received from business divestitures and related costs 534 285
----------------- -----------------
Net cash used in investing activities (1,655) (1,351)
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 513 854
Cash dividends paid on preferred stock - (674)
Proceeds from issuance of convertible notes - 1,997
Proceeds from issuance of subordinated notes 2,500 1,100
Redemption of convertible notes - (200)
Borrowings from line of credit 20,644 14,862
Repayments of line of credit (20,957) (11,745)
Principal payments on capital lease obligations and debt (55) (105)
----------------- -----------------
Net cash provided by financing activities 2,645 6,089
----------------- -----------------
Net decrease in cash and cash equivalents (1,135) (1,117)
Cash and cash equivalents at beginning of year 1,886 1,645
----------------- -----------------
Cash and cash equivalents at September 30, $ 751 $ 528
================= =================
Supplemental Cash Flow Information:
Interest paid $ 385 $ 144
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TREEV, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000 and 1999
(In thousands, except share and per share amounts)
(Unaudited)
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, 1999, 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 nine-month period ended September
30, 2000, may not be indicative of the results that may be expected for the year
ending December 31, 2000.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC released Staff Accounting Bulletin ("SAB) No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. In June 2000, the SEC issued SAB
101B, further delaying the required implementation of SAB 101 by the Company
until the fourth quarter of fiscal year 2000. The Company does not expect the
application of SAB 101 to have a material impact on its financial position or
results of operations.
3. ISSUANCE OF SUBORDINATED NOTES
During the second and third quarters of 2000, the Company issued Subordinated
Promissory Notes (the "Promissory Notes") due December 31, 2000, totaling $2.5
million and bearing interest of 13.5%. The Promissory Notes are subordinated to
the Company's revolving line of credit and are collateralized by all of the
Company's accounts receivable, inventory, equipment, general intangibles, and
other personal property assets. Interest payments are due monthly and the
Promissory Notes may be prepaid at any time without premium or penalty. CE
Computer Equipment AG is the lender of the Promissory Notes.
4. ISSUANCE OF COMMON STOCK
During the first quarter of 2000, all 4,000 outstanding shares of Series M Stock
were converted into 1,177,219 shares of Common Stock.
During the first quarter of 2000, all 1,000 outstanding shares of Series M1
Stock were converted into 337,719 shares of Common Stock.
7
<PAGE>
During the first, second, and third quarters of 2000, the Company issued 317,993
shares of Common Stock attributable to exercises of previously granted stock
options and warrants.
During the first quarter of 2000, the Company issued 15,706 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.
During the second quarter of 2000, the Company issued 107,408 shares of Common
Stock as quarterly dividends to the shareholders of the Company's Series A
Cumulative Convertible Preferred Stock.
5. 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. In addition, corporate related items
and expenses not allocated to reportable segments are shown separately as
"Corporate."
The following table sets forth summarized financial information concerning the
Company's reportable segments for the periods ended September 30, 2000 and 1999
(in thousands).
<TABLE>
<CAPTION>
Products Services Corporate Total
------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
2000
Revenues $ 6,541 $10,180 $ --- $16,721
Segment loss (1,150) (3,166) (2,976) (7,292)
1999
Revenues $12,354 $ 9,803 $ --- $22,157
Segment profit (loss) 910 (1,364) (2,394) (2,848)
</TABLE>
6. BUSINESS COMBINATIONS
The Company has entered into an Agreement and Plan of Merger dated as of
November 19, 1999 (the "Merger Agreement") with CE Computer Equipment AG, a
German corporation. CE Computer Equipment and the Company amended and restated
the Merger agreement as of May 8, 2000, to reflect that they no longer intend to
account for the transaction as a pooling of interests and expect that they will
account for the acquisition as a purchase transaction. Provided that certain
8
<PAGE>
conditions are met, as set forth in the Merger Agreement, at the conclusion of
the merger, the Company will become a wholly owned subsidiary of CE Computer
Equipment. Under the terms of the Merger Agreement, CE Computer Equipment will
issue a total of 6,650,000 Ordinary Shares in the form of American Depositary
Shares ("ADSs") in exchange for the outstanding shares of the Company's Common
Stock and Preferred Stock and for the outstanding warrants and options for the
Company's Common Stock. The merger is subject to governmental and shareholder
approvals and customary closing conditions. Shareholders owning more than 33% of
the Company's Common Stock have agreed to vote their shares in favor of the
merger, which is expected to be completed in the fourth quarter of 2000.
9
<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. Some risks and uncertainties of the Company that should be considered
by the reader include:
The Company has had net losses in each period of its operations since
its inception, except for four quarters, and it had an accumulated deficit at
September 30, 2000, of $142 million. Although the Company expects improved
operating results in the future, there can be no assurances that the Company
will not experience adverse results of operations in the future.
The Company's securities are listed on the Nasdaq National Market,
which requires companies to comply with certain listing and maintenance
requirements. In 1997, the Company fell below the requirement to maintain net
tangible assets of at least $4 million. The Company appealed to a Nasdaq Listing
Qualifications Panel, who allowed the Company to continue to trade on Nasdaq but
required the Company to have a minimum of $6 million in net tangible assets to
ensure long-term compliance with the requirement. The Company achieved net
tangible assets in excess of $6 million at the end of 1997, and the Company has
since that time maintained net tangible assets over $4 million. As of September
30, 2000, the Company again fell below the net tangible asset requirement. In
the event that the contemplated merger with CE Computer Equipment AG is not
effected, the Company will consider additional offerings of equity securities
and/or further reductions of operating expenses (such as travel, marketing,
consulting and salaries) to achieve compliance with the Nasdaq requirement.
Although the Company believes it can raise additional capital if necessary,
there can be no assurance that financing, if sought, will be available.
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 into the marketplace.
10
<PAGE>
Results of Operations - Three months ended September 30, 2000 and 1999
Revenues. Total revenues were $5.8 million and $8.7 million
for the three months ended September 30, 2000 and 1999, respectively. The $2.9
million decrease in revenue was the result of a decrease in product revenue of
$3.0 million, or 58%, and an increase in service revenue of $100,000, or 4%.
Management believes that the decrease in product revenue was the result of
certain events and factors that include the delayed implementation of sales and
marketing plans due to the pending merger and the delay in completing the
merger; the inability to attract and retain qualified sales representatives
pending the merger; the inability to close forecasted sales; and increased
competition in the Company's banking sector. Although Management believes that
the closing of the pending merger in the near term will result in increased
sales, there can be no assurances that these trends will not continue. 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
19% for the three months ended September 30, 2000, compared to the same period
in 1999, as cost of products sold increased from 30% to 49% of sales. The
decrease in product sales margins from 70% to 51% was primarily due to the
decrease in hardware margin contribution as a result of competitive pressures in
obtaining or securing sales. Profit margins for service sales decreased 5% for
the three months ended September 30, 2000, compared to the same period in 1999,
as the cost of services increased from 63% to 68% of sales. The decrease in
service sales margins from 37% to 32% was largely due to the increase in costs
related to third party consultants.
Sales and marketing. Sales and marketing expenses were $2.4
million, or 41% of revenue, for the three months ended September 30, 2000,
compared to $2.7 million, or 31% of revenue, for the same period in 1999. The
decrease of $300,000, or 13%, was the result of the reduced sales expenses
attributable to the decrease in product revenue for the quarter.
General and administrative. General and administrative
expenses were $1.0 million, or 17% of revenue, for the three months ended
September 30, 2000, compared to $800,000, or 9% of revenue, for the same period
in 1999. The increase of $200,000, or 32%, was due to increased operating
expenses related to costs associated with the pending merger, increased employee
benefits, business taxes, legal fees and rent and utilities on the new corporate
office facility.
Product development. The Company's expenditures on software
research and development activities in the three months ended September 30,
2000, were $1.7 million, of which $700,000 were capitalized and $1.0 million
were expensed. Research and development expenditures for the same period in 1999
were $1.5 million, of which $400,000 were capitalized and $1.1 million were
expensed. The $200,000 increase in research and development expenditures was due
to the Company's continued development of new products and enhancements to
existing products to maintain the Company's competitive product and market
position.
11
<PAGE>
Net loss. The Company's net loss for the three months ended
September 30, 2000, was $2.4 million as compared to a net profit of $280,000 for
the comparable period of 1999. The net loss increase of $2.7 million was
primarily due to the decrease in revenue and related margins.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's preferred shares. The net loss applicable to common shares was $2.8
million, or $0.17 per share, for the three months ended September 30, 2000, as
compared to $56,000 or $0.00 per share, for the comparable period in 1999. The
increase in net loss applicable to common shares is attributable to the increase
in net loss described above.
Results of Operations - Nine months ended September 30, 2000 and 1999
Revenues. Total revenues were $16.7 million and $22.1 million
for the nine months ended September 30, 2000 and 1999, respectively. The $5.4
million decrease in revenue was the result of a decrease in product revenue of
$5.8 million, or 47%, offset by an increase in service revenue of $400,000, or
4%. Management believes that the decrease in product revenue was the result of
certain events and factors that include the delayed implementation of sales and
marketing plans due to the pending merger and the delay in completing the
merger; the inability to attract and retain qualified sales representatives
pending the merger; the inability to close forecasted sales; and increased
competition in the Company's banking sector. Although Management believes that
the closing of the pending merger in the near term will result in increased
sales, there can be no assurances that these trends will not continue. 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 9%
for the nine months ended September 30, 2000, compared to the same period in
1999, as cost of products sold increased from 43% to 52% of sales. The decrease
in product sales margins from 57% to 48% was due to a decrease in hardware
margin contribution as a result of competitive pressures in obtaining or
securing sales. Profit margins for service sales decreased 2% for the nine
months ended September 30, 2000, compared to the same period in 1999, as the
cost of services increased from 64% to 66% of sales. The decrease in service
sales margins from 36% to 34% was largely due to the increase in costs related
to third party consultants.
Sales and marketing. Sales and marketing expenses were $7.7
million, or 46% of revenue, for the nine months ended September 30, 2000,
compared to $7.8 million, or 35% of revenue, for the same period in 1999. The
decrease of $100,000, or 1%, was the result of the reduced sales expenses
attributable to the decrease in product revenue for the period.
General and administrative. General and administrative
expenses were $3.0 million, or 18% of revenue, for the nine months ended
September 30, 2000, compared to $2.4 million, or 11% of revenue, for the same
period in 1999. The increase of $600,000, or 24%, was due to increased operating
expenses related to costs associated with the pending merger, increased employee
benefits, business taxes, legal fees and rent and utilities on the new corporate
office facility.
12
<PAGE>
Product development. The Company's expenditures on software
research and development activities for the nine months ended September 30,
2000, were $4.9 million, of which $1.7 million were capitalized and $3.2 million
were expensed. Research and development expenditures for the same period in 1999
were $4.4 million, of which $1.3 million were capitalized and $3.1 million were
expensed. The $500,000 increase in research and development expenditures was due
to the Company's continued development of new products and enhancements to
existing products to maintain the Company's competitive product and market
position.
Net loss. The Company's net loss for the nine months ended
September 30, 2000, was $8.1 million as compared to $3.0 million for the
comparable period in 1999. The net loss increase of $5.1 million was primarily
due to the decrease in revenue and related margins, along with the increases in
general and administrative expenses as described above and a $600,000 increase
in interest expense due to increased borrowings under the subordinated notes.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's preferred shares. The net loss applicable to common shares was $9.1
million, or $.59 per share, for the nine months ended September 30, 2000, as
compared to $4.0 million or $.32 per share, for the comparable period in 1999.
The increase in net loss applicable to common shares is attributable to the
increase in net loss described above.
Liquidity and Capital Resources
As of September 30, 2000, the Company had $750,000 in cash and cash
equivalents, as compared to $1.9 million in cash and cash equivalents at
December 31, 1999. Net working capital was $(6.2) million at September 30, 2000
and $2.2 million at December 31, 1999. The Company's net tangible assets were
$(450,000) and $7.4 million as of September 30, 2000 and December 31, 1999,
respectively.
For the nine months ended September 30, 2000, the $1.1 million decrease
in cash and cash equivalents resulted from $2.1 million in cash used in
operating activities and $1.6 million in cash used in investing activities,
offset by $2.6 million in cash provided by financing activities.
The $2.1 million used in operating activities arose primarily from the
$8.1 million loss from operations, offset by the $2.5 million decrease in
accounts and notes receivable, the $700,000 increase in accrued expenses, the
$500,000 increase in deferred revenue and the $1.7 million in depreciation and
amortization charges. The $1.6 million used in investing activities arose
primarily from capitalized software development costs of $1.7million. The $2.6
million provided by financing activities arose primarily from the $2.5 million
proceeds from the issuance of the promissory notes and $500,000 proceeds from
the issuance of common stock, offset by the $300,000 in repayments of the
Company's revolving line of credit.
13
<PAGE>
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 November 30, 2000. The
line of credit is collateralized by all of the Company's accounts receivable,
inventory, equipment, general intangibles, and other personal property assets.
At September 30, 2000, the Company had $4.5 million outstanding under the line
of credit.
Although the Company expects improved operating results in the fourth
quarter and in the future, there can be no assurances that the Company will not
continue to experience adverse results of operations in the future. Although
management believes that the closing of the pending merger transaction will
improve operating results and increase software sales, there can be no
assurances that the operating results will improve in the near term. Although
the Company believes, based on its current forecasts and budgets, that its
existing cash and cash flows from operations should provide sufficient resources
to fund its activities and operations through the next twelve months and to
maintain its listing on the Nasdaq National Market, anticipated 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 additional borrowings or
offerings of debt or equity securities and/or further reductions of operating
expenses, such as travel, marketing, consulting and salaries.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings, other than those
proceedings and matters incidental to the business.
Item 2. Changes in Securities
During the first quarter of 2000, the Company issued 15,706 shares of
Common Stock under the Company's Employee Stock Purchase Plan.
During the first quarter of 2000, all 4,000 outstanding shares of
Series M Stock were converted into 1,177,219 shares of Common Stock.
During the first quarter of 2000, all 1,000 outstanding shares of
Series M1 Stock were converted into 337,719 shares of Common Stock.
During the first, second, and third quarters of 2000, the Company
issued 317,993 shares of Common Stock attributable to exercises of previously
granted stock options and warrants.
During the second quarter of 2000, the Company issued 107,408 shares of
Common Stock as quarterly dividends to the shareholders of the Company's Series
A Cumulative Convertible Preferred Stock.
Item 3. Changes Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27.1 Financial data schedule
(b) Reports on Form 8-K.
None.
15
<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: November 14, 2000 By /s/ Thomas A. Wilson
-------------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: November 14, 2000 By /s/ Brian H. Hajost
-------------------------------------------
Brian H. Hajost
Executive Vice President,
Finance and Corporate Development
16
