SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] 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)
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: 32,491,048 shares of
common stock, $.0001 par value, as of July 22, 1998.
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EXPLANATORY NOTE
Subsequent to filing a Form 10-Q with the Securities and Exchange
Commission ("SEC") on July 23, 1998, which included the quarterly financial
statements of TREEV, Inc. (the "Company") for the three and six month periods
ended June 30, 1998, the Company became aware that the timing and amount of
reported earned revenues from license transactions in 1998 required revision.
Accordingly, the Company has determined to restate its quarterly financial
statements for the three and six month periods ended June 30, 1998.
This Form 10-Q/A includes in Item 1 of Part I such restated financial
statements and related notes thereto for the three and six month periods ended
June 30, 1998, and other information relating to such restated financial
statements. Except for Items 1 and 2 of Part I and Exhibit 27.1, no other
information included in the original report on Form 10-Q is amended by this Form
10-Q/A.
<PAGE>
TREEV, INC.
Form 10-Q/A
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets at June 30, 1998
(unaudited and restated) and December 31, 1997 2
Consolidated Statements of Operations (unaudited and
restated)for the three months ended June 30, 1998 and 1997 3
Consolidated Statements of Operations (unaudited and
restated)for the six months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders'
Equity (unaudited and restated) for the six months
ended June 30, 1998 5
Consolidated Statements of Cash Flows (unaudited and
restated for the six months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements (unaudited
and restated) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 16
Item 6. Exhibits and Reports on Form 8-K. 18
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TREEV, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
June 30, December 31,
1998 1997
--------- ---------
(Unaudited and
restated)
ASSETS
Current assets:
Cash and cash equivalents $ 4,092 $ 3,816
Accounts and notes receivable, net 7,113 8,569
Note receivable Dorotech sale -- 7,000
Inventories 691 722
Prepaid expenses and other 599 1,108
--------- ---------
Total current assets 12,495 21,215
Fixed assets, net 1,977 2,165
Long-term notes receivable, net 138 378
Software development costs and
purchased technology, net 2,484 2,490
Goodwill, net 416 499
Other assets 121 113
--------- ---------
Total assets $ 17,631 $ 26,860
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 803 $ 2,479
Accounts payable 1,736 2,037
Accrued compensation and related
expenses 1,199 1,135
Deferred revenue 4,681 3,334
Other accrued expenses 2,901 2,250
--------- ---------
Total current liabilities 11,320 11,235
Long-term debt and obligations
under capital leases 77 1,108
--------- ---------
Total liabilities 11,397 12,343
Commitments
Redeemable Series F preferred
stock, none and 792,186 shares
issued and outstanding -- 6,548
Stockholders' equity:
Preferred stock, $.0001 par value,
20,000,000 shares authorized;
1,615,575 and 1,615,675 shares
issued and outstanding
Common stock, $.0001 par value,
100,000,000 shares authorized;
32,044,328 and 26,236,186 shares
issued and outstanding 3 3
Additional paid-in-capital 136,442 132,403
Accumulated deficit (130,211) (124,437)
--------- ---------
Total stockholders' equity 6,234 7,969
--------- ---------
Total liabilities and
stockholders' equity $ 17,631 $ 26,860
========= =========
The accompanying notes are an integral part of these financial statements.
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TREEV, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended June 30,
1998 1997
------------ ------------
(Restated)
Revenue:
Products $ 4,244 $ 4,098
Services 2,844 5,236
------------ ------------
7,088 9,334
------------ ------------
Costs and expenses:
Cost of products sold 1,846 2,198
Cost of services provided 1,941 3,934
Sales and marketing 3,103 3,640
General and administrative 1,075 1,689
Product development 965 1,266
Restructuring costs 1,505 --
------------ ------------
10,435 12,727
------------ ------------
Loss before interest income
and income taxes (3,347) (3,393)
Interest income (expense), net 6 (64)
------------ ------------
Loss before income taxes (3,341) (3,457)
Income tax provision -- 61
------------ ------------
Net loss (3,341) (3,518)
------------ ------------
Preferred stock preferences (337) (930)
------------ ------------
Net loss applicable to common
shares $ (3,678) $ (4,448)
============ ============
Net loss per common share $ (0.13) $ (0.18)
============ ============
Weighted average shares
outstanding 29,330,815 24,963,956
============ ============
Net loss per common share -
assuming dilution $ (0.13) $ (0.18)
============ ============
Weighted average shares
outstanding 29,330,815 24,963,956
============ ============
The accompanying notes are an integral part of these financial statements.
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TREEV, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Six Months Ended June 30,
1998 1997
------------ ------------
(Restated)
Revenue:
Products $ 7,795 $ 8,366
Services 5,493 10,087
------------ ------------
13,288 18,453
------------ ------------
Costs and expenses:
Cost of products sold 3,661 4,156
Cost of services provided 3,786 7,816
Sales and marketing 5,837 7,252
General and administrative 2,250 3,300
Product development 1,961 2,308
Restructuring costs 1,505 --
Gain from extinguishment of debt -- (267)
------------ ------------
19,000 24,565
------------ ------------
Loss before interest income
and income taxes (5,712) (6,112)
Interest expense, net (62) (33)
------------ ------------
Loss before income taxes (5,774) (6,145)
Income tax provision -- 55
------------ ------------
Net loss (5,774) (6,200)
------------ ------------
Preferred stock preferences (674) (1,906)
------------ ------------
Net loss applicable to common
shares $ (6,448) $ (8,106)
============ ============
Net loss per common share $ (0.24) $ (0.33)
============ ============
Weighted average shares
outstanding 27,316,368 24,715,116
============ ============
Net loss per common share -
assuming dilution $ (0.24) $ (0.33)
============ ============
Weighted average shares
outstanding 27,316,368 24,715,116
============ ============
The accompanying notes are an integral part of these financial statements.
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<TABLE>
TREEV, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 1998
(In thousands, except share amounts)
(Unaudited and restated))
<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, 1997 1,615,575 $ -- 26,236,186 $3 $132,403 ($124,437) $7,969
Issuance of common stock,
net of offering costs of $175 4,016,073 3,352 3,352
Issuance of preferred stock,
net of offering costs of $144 1,000 972 972
Conversion of preferred stock (1,000) 1,449,685 0
Issuance of warrants 52 52
Dividends on preferred stock 342,384 (337) (337)
Net loss (5,774) (5,774)
----------------------- --------------------------- ---------------- ------------- ----------
Balance June 30, 1998 1,615,575 -- 32,044,328 $3 136,442 ($130,211) $6,234
======================= =========================== ================ ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
TREEV INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six months Ended June 30,
1998 1997
------- -------
(Restated)
Cash flows from operating activities:
Net loss $(5,774) $(6,200)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 1,221 2,550
Restructuring costs 1,505 --
Other non-cash adjustments 40 10
Changes in assets and liabilities:
Accounts and notes receivable 1,429 (836)
Inventories 31 (182)
Prepaid expenses and other 111 190
Accounts payable (320) 474
Accrued compensation and
related expenses 64 418
Accrued expenses, other (438) (212)
Deferred revenues 1,347 641
Deferred income taxes -- 74
------- -------
Net cash used in operating activities (784) (3,073)
------- -------
Cash flows from investing activities:
Capitalized software development
and license costs (751) (751)
Purchases of fixed assets (473) (410)
Proceeds from business divestitures,
net of related costs 7,230 60
------- -------
Net cash provided by (used in)
investing activities 6,006 (1,101)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 3,423 22
Proceeds from issuance of preferred
stock, net -- (24)
Cash dividends paid on preferred
stock -- (1,779)
Redemption of Mandatory Redeemable
Preferred Stock (6,548) (3,500)
Redemption of convertible debentures (1,300) --
Proceeds from borrowings -- 5,000
Principal payments on capital lease
obligations (521) (536)
Principal payments on debt -- (633)
------- -------
Net cash used in financing activities (4,946) (1,450)
------- -------
Effect of exchange rate changes on cash
and cash equivalents -- (132)
Net decrease in cash and cash
equivalents 276 (5,756)
Cash and cash equivalents at beginning
of year 3,816 7,601
------- -------
Cash and cash equivalents at June 30, $ 4,092 $ 1,845
======= =======
Supplemental Cash Flow Information:
Interest paid $ 156 $ 234
Income taxes paid $ 175 $ 198
The accompanying notes are an integral part of these financial statements.
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<PAGE>
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(Unaudited and restated)
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, 1997 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,
1998 may not be indicative of the results that may be expected for the year
ending December 31, 1998.
2. RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to filing a Form 10-Q with the SEC which included the Company's
quarterly financial statements for the three and six month periods ended June
30, 1998, the Company became aware that the timing and amount of reported earned
revenues from license transactions in 1998 required revision.
Due to the collapse and delayed recovery of the Asian financial market, one of
TREEV's customers in Malaysia was unable to fulfill the original payment terms
of its agreement with the Company. Accordingly, the Company reversed the revenue
associated with the agreement in the amount of $841,000 for the quarter ended
June 30, 1998.
Accordingly, such financial statements for the periods presented in this Form
10-Q/A have been restated as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, 1998 Six months ended June 30, 1998
------------------------------------ ------------------------------------
As Reported Restated As Reported Restated
------------------ ----------------- ------------------ -----------------
Statement of Operations Data
<S> <C> <C> <C> <C>
Product revenues $ 5,085 $ 4,244 $ 8,636 $ 7,795
Net loss (2,500) (3,341) (4,933) (5,774)
Net loss per common share $ (0.10) $ (0.13) $ (0.21) $ (0.24)
</TABLE>
June 30, 1998
------------------------------------
As Reported Restated
------------------ -----------------
Balance Sheet Data
Accounts and notes receivable, net $ 7,954 $ 7,113
Accumulated deficit (129,370) (130,211)
3. NAME CHANGE
During the second quarter of 1998, the Company changed its name from Network
Imaging Corporation to TREEV, Inc. The name change more accurately reflects the
Company's new orientation as a provider of integrated, production level document
management solutions and was done in conjunction with the introduction of the
Company's new integrated document management software product suite.
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<PAGE>
4. RESTRUCTURING CHARGES
During the second quarter of 1998, the Company incurred a charge of $1.5 million
as a result of effecting a restructuring plan ("the Plan"). The Plan provided
for the elimination of duplicate job functions and outdated or discontinued
products. Under the Plan, the Company is combining its three separate customer
support organizations into one support organization, and the Company's strategic
focus will shift to its newest suite of integrated document management software
using a Microsoft based architecture. The restructuring charge includes a
$827,000 write down to net realizable value of prepaid licenses and capitalized
software which related to products abandoned in favor of the new integrated
document management software suite. In addition, $677,000 of the restructuring
charge related to severance costs for 29 employees located throughout the U.S.,
including customer support, sales, marketing, engineering and administrative
personnel. The Plan is expected to be completed by the end of the first quarter
of 1999. At June 30, 1998, 19 employees had been terminated, severance benefits
of $267,000 had been paid out and the accrual balance relating to the Plan was
$410,000.
5. CONVERSION OF LINE OF CREDIT TO PREFERRED STOCK
In June 1998, the Company converted the remaining $1.0 million of the
Stockholder line of credit into equity through the issuance of 1,000 shares of
Series M1 Convertible Stock ("Series M1 Stock"). The Company agreed to file a
registration statement to register the Common Stock issuable upon conversion of
the preferred stock on or about August 1, 1998. The Company received no proceeds
from the conversion of the Stockholder line of credit to equity. The Series M1
Stock issued and outstanding in December 2001 automatically converts into Common
Stock. At June 30, 1998, the 1,000 shares of Series M1 Stock were convertible
into 1,230,769 shares of Common Stock.
The Series M1 Stock has a per share liquidation preference, subject to the
liquidation preference of the Series A Stock, of an amount equal to the sum of
$1,000 plus 8 1/2% per annum simple interest thereon for the period since the
date of issuance. Each share is convertible at the option of the holder into the
number of shares of Common Stock determined by dividing an amount equal to the
initial purchase price of $1,000 by $0.8125. The Series M1 Stock has a
cumulative dividend rate of 8 1/2% per annum which is payable at the time of
conversion or redemption in cash or shares of Common Stock, at the election of
the Company. If the cumulative dividend is paid in stock, the amount paid is
based on 95% of the closing bid price on the date of notice of conversion or
redemption.
The Series M1 holder has a right of redemption under various circumstances, all
of which are under the sole control of the Company. The Company has the right,
at any time, to redeem all of the then outstanding Series M Stock for a price
per share equal to $1,000 plus the accrued unpaid dividend.
6. ISSUANCE OF COMMON STOCK
During the first quarter of 1998, the Company completed a private placement of
1,108,947 shares of Common Stock, together with warrants to purchase an
additional 50,000 shares of Common Stock, pursuant to Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). Proceeds from the
offering were $1.1 million and offering costs were $26,000. Pursuant to the
terms of the private placement, the Company is obligated to file a registration
statement with the Securities and Exchange Commission to register the shares by
August 31, 1998.
During the second quarter of 1998, the Company completed a private placement of
2,907,126 shares of Common Stock, pursuant to Regulation D under the Securities
Act. Proceeds from the offering were $2.5 million and offering costs were
$150,000. Pursuant to the terms of the private placement, the Company is
obligated to file a registration statement with the Securities and Exchange
Commission to register the shares by August 31, 1998.
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<PAGE>
During the second quarter of 1998, the Company issued 342,384 shares of Common
Stock as a quarterly dividend to the shareholders of the Company's Series A
Preferred Stock.
7. EXCHANGE OF NOTE RECEIVABLE FOR EQUITY
During the second quarter of 1998, the Company exchanged a $1.1 million note
receivable, that had been received from the sale of a previously owned
subsidiary, for equity in the company that acquired the subsidiary. Previously,
the note had been reserved in its entirety, and the Company has made a similar
reserve on the equity received in the exchange.
8. RETIREMENT OF REDEEMABLE PREFERRED STOCK
During the first quarter of 1998, the Company redeemed the remaining 792,186
shares of Series F Preferred Stock for $6.5 million including outstanding
interest. The $6.5 million payment retired the obligations under the Series F
Stock. The Company used the $7.0 million proceeds received in January 1998 from
the sale of its subsidiary in France, Dorotech, S.A., to finance the buy back of
the Company's Series F Stock.
9. CONVERTIBLE NOTE REDEMPTION
During the first quarter of 1998, the Company redeemed in cash $1.3 million of
the 8% Convertible Notes ("the Notes") due July 8, 2002 and August 20, 2002. At
June 30, 1998, $600,000 of the Notes remained outstanding.
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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. The risks and uncertainties of the
Company include those set forth in the Company's Prospectus dated April 6, 1998,
such as the following:
The Company has had net losses in each period of its operations since
its inception, except for one quarter, and it had an accumulated deficit at June
30, 1998 of $130.2 million. Net losses applicable to Common Stock were $14.3
million for the twelve months ended December 31, 1997, $21.1 million for the
year ended December 31, 1996, and $34.9 million for the year ended December 31,
1995. Included in those losses were non-recurring charges. See "Description of
Network Imaging - Business."
The adverse results of operations that the Company has experienced is
expected to continue at least until the latter part of 1998. The Company
believes that the combination of existing cash, benefits from its second quarter
restructuring, potential future proceeds from such additional offerings of
equity securities as may be required, and any anticipated cash flows from
operations, will provide sufficient resources to fund its activities through the
next twelve months. Any anticipated cash flows from operations are largely
dependent upon the Company's ability to achieve its sales and gross profit
objectives for its TREEV product suite. If the Company is unable to meet these
objectives, it will consider alternative sources of liquidity. Although the
Company believes that it can successfully implement its operating plan and, if
necessary, raise additional capital, there can be no assurance that
implementation of the plan will be successful or that financing, if sought, will
be available.
The Company's stock is listed on Nasdaq, and Nasdaq 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
$4.0 million. The
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<PAGE>
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. The Company expects to continue to maintain net
tangible assets over $4 million; however, there can be no assurances that the
Company will continue to do so. If the Company is unable to meet the net
tangible assets requirement, it will consider additional offerings of equity
securities and/or further reductions of operating expenses (such as travel,
marketing, consulting and salaries). Although the Company believes it can
successfully implement its operating plan and, if necessary, raise additional
capital, there can be no assurance that implementation of the plan will be
successful or that financing, if sought, will be available. Pursuant to Nasdaq
requirements, common and preferred stock trading on Nasdaq must maintain a
minimum bid price of $1.00. At times in 1997 and the first half of 1998, the
Company's Common Stock has had a minimum bid price below $1.00. Currently, the
Company's Common Stock is trading with a minimum bid price below $1.00. Any
inability to trade on Nasdaq could adversely impact the value of the Company's
stock. In order to maintain the Nasdaq listing, the Company may be required to
seek shareholder approval to effect a reverse stock split to bring the stock
price above $1.00.
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, short product
cycles, frequent product innovations and new product introductions, evolving
industry standards, and changes in customer requirements and preferences. The
Company's future profitability will depend on, among other things, wide-scale
market acceptance of the Company's products, the Company's ability to
demonstrate the potential advantages of its products over other types of similar
products and on the Company's ability to develop in a timely fashion
enhancements to existing products or new products that are responsive to the
demands of the marketplace for information access, document management, imaging
and optical disk storage systems. 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. In addition, the
Company faces existing competitors that are larger and more established and have
substantially greater resources than the Company. Because of the rapid expansion
of the information access, document management, imaging and optical disk storage
market, the Company will also face competition from new entrants, possibly
including the Company's customers, suppliers or resellers. Technological
advances by any of the Company's current or future competitors could render
obsolete or less competitive the products being offered by the Company. The
Company believes that the principal competitive factors affecting the market for
information access, document management, imaging and optical disk storage
products
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<PAGE>
include effectiveness, scope of product offerings, technical features, ease of
use, reliability, customer service and support, name recognition, distribution
resources and price. Current and potential competitors have established, or may
establish in the future, strategic alliances to increase their ability to
compete for the Company's prospective customers. Accordingly, it is possible
that new competitors or alliances may emerge and rapidly acquire significant
market share. Such competition could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's development of enhancements to existing products and of
new products is subject to the kinds of problems and delays that are routinely
encountered in the development of software. For example, the Company may
experience schedule overruns in software development triggered by factors such
as insufficient staffing or the unavailability of development-related software,
hardware or technologies. Further, during the development of new software
products, or the enhancement of existing products, the Company's development
schedules may be altered as a result of the discovery of software bugs,
performance problems or changes to the product specification in response to
customer requirements, market developments or Company initiated changes. Changes
in product specifications may delay completion of documentation, packaging or
testing, which may, in turn, affect the release schedule of the product. In
connection with complex software products, the technology market may shift
during the development cycle, requiring the Company either to enhance or change
a product's specifications to meet a customer's changing needs. Any of these
factors may cause a product to enter the market behind schedule, which may
adversely affect market acceptance of the product, or place it at a disadvantage
to a competitor's product that has already gained market share or market
acceptance during the delay. The Company does not believe, however, that it is
practicable to quantify the impact that such delays have had or in the future
may have on its operating results. There can be no assurance that the Company
will not experience difficulties that will interrupt the marketing and
distribution of its current products or that the Company will not experience
difficulties in the future that could materially delay or prevent the successful
development of other products.
Results of Operations - Six months ended June 30, 1998 and 1997
Revenues. Total revenues were $13.3 million and $18.4 million
for the six months ended June 30, 1998 and 1997, respectively. The $5.1 million
decrease in revenue was the result of a decrease in product revenue of $570,000,
or 7%, and a decrease in service revenue of $4.6 million, or 46%. The decrease
in product revenue was attributable to an increase of $1.9 million, or 32%, in
comparative company revenues offset by a decrease of $2.4 million due to the
disposition in 1997 of the Company's subsidiary in France ("Dorotech"). The
decrease in service sales of $4.6 million was the result of a $5.5 million
decrease due to the disposition of Dorotech, offset by a $867,000, or 19%,
increase in comparative company revenues. On a comparative company basis,
overall revenues increased $2.8 million, or 26%, from $10.5 million for the six
months ended June 30, 1997 to $13.3 million for the same period in 1998.
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Profit margins. Profit margins for product sales increased 3
percentage points for the first six months of 1998 over the same period in 1997
as cost of products decreased from 50% to 47% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed software products. Profit margins for service sales
increased 8 percentage points for the six months ended June 30, 1998 as compared
to 1997 as the cost of services decreased from 77% to 69% of sales. The increase
in service sales margins from 23% to 31% was due to the Company's continued
emphasis on its custom development and professional services. On a comparative
company basis, overall profit margins increased 4 percentage points to 44% for
the six months ended June 30, 1998 from 40% for the same period in 1997.
Sales and marketing. Sales and marketing expenses were $5.8
million or 44% of revenue, for the six months ended June 30, 1998 compared to
$7.3 million, or 39% of revenue in 1997. The decrease of $1.4 million, or 20%,
was the result of the Company's disposition of Dorotech during 1997, which
reduced sales and marketing expenses $1.7 million, offset by an $260,000
increase in comparative company expenses.
General and administrative. G&A expenses were $2.3 million or
17% of revenue, for the six months ended June 30, 1998 compared to $3.3 million,
or 18% of revenue in 1997. The decrease of $1.1 million, or 32%, was the result
of the Company's disposition of Dorotech during 1997, which reduced G&A expenses
$754,000, and a $296,000, or 12%, decrease in comparative company G&A expenses
due to the Company's efforts in cost reduction.
Product development. The Company's expenditures on software
research and development activities ("R&D") in the six months ended June 30,
1998 were $2.7 million, of which $0.7 million was capitalized and $2.0 million
was expensed. Software research and development expenditures for the 1997 period
were $3.0 million, of which $0.7 million was capitalized and $2.3 million was
expensed. The $337,000 decrease in research and development expenditures is
attributable to the Company's 1997 disposition of Dorotech, which reduced R&D
expenses $589,000, offset by a $252,000 increase in comparative company R&D
expenses.
Restructuring costs. During the second quarter 1998, the
Company committed to a plan of restructuring and incurred a charge of $1.5
million.
Gain on extinguishement of debt. During the first quarter
1997, the Company's French subsidiary, Dorotech, realized a $267,000 gain in
connection with the partial forgiveness of a grant made from a French government
agency.
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Net loss. The Company's net loss for the six months ended
June 30, 1998 was $5.8 million as compared to $6.2 million for the comparable
period of 1997. The net loss decrease of $400,000 is due to a $200,000 decrease
in net loss from the Company's continuing operations, which is primarily
attributable to an increase of $1.7 million in gross margins offset by the $1.5
restructuring charge, and due to the disposition of Dorotech which reduced the
net loss by $330,000.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's Series A preferred stock. The net loss applicable to common shares was
$6.4 million, or ($.24) per share, for the six months ended June 30, 1998 as
compared to $8.1 million or ($.33) per share, for the comparable period of 1997.
The decrease in net loss applicable to common shares is attributable to the
decrease in net loss described above and to the decrease in annual Series A
Preferred Stock dividends from $2.00 to $0.84 per share.
Results of Operations - Three months ended June 30, 1998 and 1997
Revenues. Total revenues were $7.1 million and $9.3 million
for the three months ended June 30, 1998 and 1997, respectively. The $2.2
million decrease in revenue was the result of an increase in product revenue of
$200,000, or 4%, offset by a decrease in service revenue of $2.4 million, or
46%. The increase in product revenue was primarily attributable to an increase
of $1.5 million, or 56%, in comparative company product revenues offset by a
$1.3 million reduction due the disposition in 1997 of the Company's French
subsidiary, Dorotech. The decrease in service revenues of $2.4 million was the
result of a $3.0 million decrease due to the disposition of Dorotech, offset by
a $573,000, or 25%, increase in comparative company service revenues. On a
comparative company basis, overall revenues increased $2.1 million, or 42%, from
$5.0 million for the six months ended June 30, 1997 to $7.1 million for the same
period in 1998.
Profit margins. Profit margins for product sales increased 11
percentage points in the second quarter of 1998 over the same period in 1997 as
cost of products decreased from 54% to 43% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed software products. Profit margins for service sales
increased 7 percentage points for the three months ended June 30, 1998 as
compared to 1997 as the cost of services decreased from 75% to 68% of sales. The
increase in service sales margins from 25% to 32% was due to the Company's
continuing emphasis on its custom development and professional services. On a
comparative company basis, overall profit margins increased 9 percentage points
to 47% for the three months ended June 30, 1998 from 38% for the same period in
1997.
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Sales and marketing. Sales and marketing expenses were $3.1
million or 44% of revenue, for the three months ended June 30, 1998 compared to
$3.6 million, or 39% of revenue in 1997. The decrease of $537,000, or 15%, was
the result of the Company's disposition of Dorotech during 1997, which reduced
sales and marketing expenses $840,000, offset by a $303,000 increase in
comparative company expenses.
General and administrative. G&A expenses were $1.1 million or
15% of revenue, for the three months ended June 30, 1998 compared to $1.7
million, or 18% of revenue in 1997. The decrease of $614,000, or 36%, was the
result of the Company's disposition of Dorotech during 1997, which reduced G&A
expenses $362,000, and a $252,000, or 19%, decrease in comparative company G&A
expenses due to the Company's efforts in cost reduction.
Product development. The Company's expenditures on software
R&D activities in the three months ended June 30, 1998 were $1.4 million, of
which $0.4 million was capitalized and $1.0 million was expensed. Software
research and development expenditures for the 1997 period were $1.6 million, of
which $0.3 million was capitalized and $1.3 million was expensed. The $0.2
million decrease in research and development expenditures is primarily
attributable to the Company's 1997 disposition of Dorotech.
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, 1998 was $3.3 million as compared to $3.5 million for the comparable
period of 1997. The net loss decrease of $200,000 in the second quarter of 1998
as compared to the same period in 1997 is due to a $100,000 decrease in net loss
from the Company's continuing operations, which is primarily attributable to an
increase of $1.6 million in gross margins offset by the $1.5 restructuring
charge, and the disposition of Dorotech, which reduced the net loss by $100,000.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's Series A preferred stock. The net loss applicable to common shares was
$3.7 million, or ($.13) per share, for the three months ended June 30, 1998 as
compared to $4.4 million or ($.18) per share, for the comparable period of 1997.
The decrease in net loss applicable to common shares is attributable to the
decrease in net loss described above and to the decrease in annual Series A
Preferred Stock dividends from $2.00 to $0.84 per share.
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Liquidity and Capital Resources
As of June 30, 1998, the Company had $4.1 million in cash and cash
equivalents, as compared to $3.8 million in cash and cash equivalents at
December 31, 1997. Net working capital was $1.2 million at June 30, 1998 and
$10.0 million at December 31, 1997.
For the six months ended June 30, 1998, the $276,000 increase in cash
and cash equivalents resulted from $6.0 million in cash generated by investing
activities, offset by $784,000 used to fund operating activities and $4.9
million in cash used to fund financing activities.
The $6.0 million provided by investing activities arose primarily with
respect to cash collected from the promissory note received as consideration for
the sale of Dorotech. The $784,000 used by operating activities arose primarily
with respect to the $5.8 million net loss in operations, offset by $1.2 million
in depreciation charges, $1.5 million in restructuring costs, $1.4 million
reduction in accounts receivable and $1.3 million increase in deferred revenues.
The $4.9 million in cash used by financing activities arose primarily from the
$6.5 million redemption of the Company's Series F Preferred Stock, $1.3 million
used to redeem the Company's convertible debentures and payments in capital
leases of $521,000, offset by the $3.4 million proceeds from the issuance of
common stock.
The adverse results of operations that the Company has experienced is
expected to continue at least until the latter part of 1998. The Company
believes that the combination of existing cash, benefits from its second quarter
restructuring, potential future proceeds from such additional offerings of
equity securities as may be required, and any anticipated cash flows from
operations, will provide sufficient resources to fund its activities through the
next twelve months. Any anticipated cash flows from operations are largely
dependent upon the Company's ability to achieve its sales and gross profit
objectives for its TREEV product suite. If the Company is unable to meet these
objectives, it will consider alternative sources of liquidity. Although the
Company believes that it can successfully implement its operating plan and, if
necessary, raise additional capital, there can be no assurance that
implementation of the plan will be successful or that financing, if sought, will
be available.
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.
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Item 2. Changes in Securities
In June 1998, the Company converted the remaining $1.0 million of
the Stockholder line of credit into equity through the issuance of 1,000 shares
of Series M1 Convertible Stock ("Series M1 Stock") held by an investor of the
Company. The Company agreed to file a registration statement to register the
Common Stock issuable upon conversion of the preferred stock on or about August
1, 1998. The Company received no proceeds from the conversion of the Stockholder
line of credit to equity. The Series M1 Stock issued and outstanding in December
2001 automatically converts into Common Stock. At June 30, 1998, the 1,000
shares of Series M1 Stock were convertible into 1,230,769 shares of Common
Stock.
During the first quarter of 1998, the Company completed a private
placement of 1,108,947 shares of Common Stock, together with warrants to
purchase an additional 50,000 shares of Common Stock, pursuant to Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"). Proceeds
from the offering were $1.1 million and offering costs were $26,000. Pursuant to
the terms of the private placement, the Company is obligated to file a
registration statement with the Securities and Exchange Commission to register
the shares by August 31, 1998.
During the second quarter of 1998, the Company completed a private
placement of 2,907,126 shares of Common Stock, pursuant to Regulation D under
the Securities Act. Proceeds from the offering were $2.5 million and offering
costs were $150,000. Pursuant to the terms of the private placement, the Company
is obligated to file a registration statement with the Securities and Exchange
Commission to register the shares by August 31, 1998.
During the second quarter of 1998, the Company issued 342,384
shares of Common Stock as a quarterly dividend to the shareholders of the
Company's Series A Preferred Stock
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 11, 1998 at
which the Stockholders elected five directors, ratified the selection of Ernst &
Young LLP as the Company's independent accountants for the fiscal year ending
1998, approved the adoption of the 1997 Director Stock Option Plan, approved an
increase to the number of shares which may be granted under the 1994 Key
Incentive Stock Option Plan, and approved the issuance of shares of the
Company's Common Stock issuable in connection
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with the Series L Convertible Preferred Stock, on exercise of warrants to
purchase shares of Common Stock for $1.00 under Nasdaq Rule 4460(i)(1)(D).
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
Robert P. Bernardi.........................24,343,678 624,768
John F. Burton.............................24,343,678 624,768
James J. Leto..............................24,343,678 624,768
C. Alan Peyser.............................24,343,678 624,768
Robert Ripp................................24,343,678 624,768
In connection with the ratification of the selection of Ernst & Young
LLP as the independent auditors for the Company for the fiscal year ending 1998,
24,369,788 shares were voted in favor of the ratification and 598,658 abstained.
With respect to the proposal to approve the adoption of the 1997
Director Stock Option Plan, 24,403,088 shares were voted for the proposal
and 565,358 were Broker non-votes.
With respect to the proposal to approve an increase to the number of
shares which may granted under the 1994 Key Incentive Stock Option Plan,
23,215,519 shares were voted for the proposal and 1,752,927 were Broker
non-votes.
In connection with the approval of the issuance of shares of the
Company's Common Stock issuable in connection with the Series L Convertible
Preferred Stock, on exercise of warrants to purchase shares of Common Stock for
$1.00 under Nasdaq Rule 4460(i)(1)(D), 24,398,288 shares were voted for the
proposal and 570,158 were Broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.14 Certificate of Ownership and Merger Merging TREEV, Inc. into Network
Imaging Corporation filed in Delaware on May 5, 1998 (previously filed).
3.15 Certificate of Designations, Preferences and Rights of Series M1
convertible Preferred Stock filed with the Secretary of State of the State of
Delaware on July 22, 1998 (previously filed).
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10.34 Securities Purchase Agreement between TREEV, Inc. and Fred Kassner as of
June 30, 1998 (previously filed).
27.1 Financial data schedule
(b) Reports on Form 8-K.
Form 8-K filed on June 1, 1998 to report certain organizational changes in the
Company aimed at saving $4,800,000 annually.
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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: September 13, 2000 By /s/ Thomas A. Wilson
------------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: September 13, 2000 By /s/ Brian H. Hajost
------------------------------------------
Brian H. Hajost
Executive Vice President, Finance and
Corporate Development
