AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 15, 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 March 31, 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)
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: 15,906,671 shares of
common stock, $.0001 par value, as of March 31, 2000.
<PAGE>
TREEV, INC.
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999 2
Statements of Operations (unaudited) for the three
months ended March 31, 2000 and 1999 3
Statement of Changes in Stockholders' Equity (unaudited)
for the three months ended March 31, 2000 4
Statements of Cash Flows (unaudited) for the three
months ended March 31, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 6. Exhibits and Reports on Form 8-K. 12
<PAGE>
TREEV, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,085 $ 1,886
Accounts and notes receivable, net 13,475 13,816
Inventories 876 1,135
Prepaid expenses and other 1,586 1,111
---------------- ---------------
Total current assets 18,022 17,948
Fixed assets, net 1,225 1,237
Long-term notes receivable, net 14 21
Software development costs, net 3,879 3,627
Other assets 417 458
---------------- ---------------
Total assets $ 23,557 $ 23,291
================ ===============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital leases $ 8,115 $ 7,572
Accounts payable 2,437 2,374
Accrued compensation and expenses 892 1,160
Deferred revenue 4,966 3,143
Other accrued expenses 2,443 1,497
---------------- ---------------
Total current liabilities 18,853 15,746
Long-term debt and obligations under capital leases 108 120
---------------- ---------------
Total liabilities 18,961 15,866
Stockholders' equity:
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;
15,906,671 and 14,237,009 shares issued and outstanding 1 1
Additional paid-in-capital 141,751 141,841
Accumulated deficit (137,156) (134,417)
---------------- ---------------
Total stockholders' equity 4,596 7,425
---------------- ---------------
Total liabilities and stockholders' equity $ 23,557 $ 23,291
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
TREEV, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
-------------------- ------------------
<S> <C> <C>
Revenues:
Products $ 1,651 $ 2,438
Services 3,392 3,092
-------------------- ------------------
5,043 5,530
-------------------- ------------------
Costs and expenses:
Cost of products sold 1,022 1,364
Cost of services provided 2,096 2,093
Sales and marketing 2,547 2,397
General and administrative 962 777
Product development 934 808
-------------------- ------------------
7,561 7,439
-------------------- ------------------
Loss before interest expense and income taxes (2,518) (1,909)
Interest expense, net (221) (1)
-------------------- ------------------
Loss before income taxes (2,739) (1,910)
Income tax benefit - -
-------------------- ------------------
Net loss (2,739) (1,910)
-------------------- ------------------
Preferred stock dividends (337) (337)
-------------------- ------------------
Net loss applicable to common shares $ (3,076) $ (2,247)
==================== ==================
Net loss per common share $ (0.20) $ (0.18)
==================== ==================
Weighted average shares outstanding 15,414,197 12,750,410
==================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
TREEV, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three months ended March 31, 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 154,724 - 247 247
Conversion of preferred stock (5,000) - 1,514,938 - - -
Dividends on preferred stock (337) (337)
Net loss (2,739) (2,739)
------------------------- -------------------------- --------------- --------------- ---------------
Balance March 31, 2000 1,605,025 $ - 15,906,671 $ 1 $ 141,751 $ (137,156) $ 4,596
========================= ========================== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
TREEV, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,739) $ (1,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 604 522
Other non-cash interest fees 238 19
Changes in assets and liabilities:
Accounts and notes receivable 173 1,590
Inventories 259 67
Prepaid expenses and other (476) (183)
Accounts payable 63 (198)
Accrued expenses 341 (775)
Deferred revenue 1,823 (59)
------------------ ------------------
Net cash provided by (used in) operating activities 286 (927)
------------------ ------------------
Cash flows from investing activities:
Software development costs (590) (617)
Purchases of fixed assets (212) (69)
Cash received from business divestitures and related costs 176 95
------------------ ------------------
Net cash used in investing activities (626) (591)
------------------ ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 247 766
Redemption of convertible notes - (200)
Borrowings from line of credit 7,734 2,275
Repayments of line of credit (7,426) (272)
Principal payments on capital lease obligations and debt (15) (54)
------------------ ------------------
Net cash provided by financing activities 540 2,515
------------------ ------------------
Net increase in cash and cash equivalents 200 997
Cash and cash equivalents at beginning of year 1,886 1,645
------------------ ------------------
Cash and cash equivalents at March 31, $ 2,086 $ 2,642
================== ==================
Supplemental Cash Flow Information:
Interest paid $ 91 $ 16
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
TREEV, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 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 three month period ended March 31,
2000 may not be indicative of the results that may be expected for the year
ending December 31, 2000.
2. 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 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 quarter of 2000, the Company issued 139,018 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.
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<PAGE>
3. 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 quarters ended March 31, 2000 and 1999 (in
thousands).
<TABLE>
<CAPTION>
Products Services Corporate Total
------------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
2000
Revenues $1,651 $3,392 $ --- $5,043
Segment profit (loss) (520) (1,064) (934) (2,518)
1999
Revenues $2,438 $3,092 $ --- $5,530
Segment profit (loss) (339) (793) (777) (1,909)
</TABLE>
4. BUSINESS COMBINATION
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
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 1,330,000 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 third quarter of 2000.
-7-
<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 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 four quarters, and it had an accumulated deficit at
March 31, 2000, of $137 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.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products,
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<PAGE>
its internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
Year 2000 Information and Readiness Disclosure Act
The section captioned "Impact of Year 2000," 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 - Three months ended March 31, 2000 and 1999
Revenues. Total revenues were $5.0 million and $5.5 million
for the three months ended March 31, 2000 and 1999, respectively. The $500,000
decrease in revenue was the result of a decrease in product revenue of $800,000,
or 32%, offset by an increase in service revenue of $300,000, or 10%. The
decrease in product revenue was attributable to postponed contracts from
prospective banking customers who have delayed implementation of new systems
during the first quarter due to lingering Year 2000 concerns. The increase in
service revenue was attributable to increased software maintenance contract
revenue and continued growth of professional services business.
Profit Margins. Profit margins for product sales decreased 6
percentage points for the three months ended March 31, 2000, compared to the
same period in 1999, as cost of products sold increased from 56% to 62% of
sales. The decrease in product sales margins from 44% to 38% was primarily due
to the increased sales mix of hardware which carries lower margins. Profit
margins for service sales increased 6 percentage points for the three months
ended March 31, 2000, compared to the same period in 1999, as the cost of
services decreased from 68% to 62% of sales. The increase in service sales
margins from 32% to 38% was due to the continued growth of maintenance revenue
and professional services business which provided more contribution towards its
fixed costs.
Sales and marketing. Sales and marketing expenses were $2.5
million, or 51% of revenue, for the three months ended March 31, 2000, compared
to $2.4 million, or 43% of revenue, for the same period in 1999. The increase of
$100,000, or 6%, was the result of development and implementation of a new
marketing strategy and a new corporate identity program to support increased
sales objectives.
General and administrative. G&A expenses were $1.0 million,
or 19% of revenue, for the three months ended March 31, 2000, compared to
$800,000, or 14% of revenue, for the same period in 1999. The increase of
$200,000, or 24%, was due to increased Company operating expenses related to
employee benefits, business taxes, legal fees, line of credit fees, rent and
utilities.
-9-
<PAGE>
Product development. The Company's expenditures on software
research and development activities ("R&D") in the three months ended March 31,
2000, were $1.5 million, of which $600,000 was capitalized and $900,000 was
expensed. R&D expenditures for the same period in 1999 were $1.4 million, of
which $600,000 was capitalized and $800,000 was expensed. The $100,000 increase
in R&D expenditures was due to the Company's continued development of new
products and enhancements to existing products.
Net loss. The Company's net loss for the three months ended
March 31, 2000, was $2.7 million as compared to $1.9 million for the comparable
period of 1999. The net loss increase of $800,000 in the first quarter of 2000
as compared to the same period in 1999 was due to the decreases in revenues and
the increase in sales and marketing and G&A expenses as described above.
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 $3.1
million, or $0.20 per share, for the three months ended March 31, 2000, as
compared to $2.2 million or $0.18 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 March 31, 2000, the Company had $2.1 million in cash and cash
equivalents, as compared to $1.9 million in cash and cash equivalents at
December 31, 1999. Net working capital was $(800,000) at March 31, 2000 and $2.2
million at December 31, 1999. The Company's net tangible assets were $4.5
million and $7.3 million as of March 31, 2000 and December 31, 1999,
respectively.
For the three months ended March 31, 2000, the $200,000 increase in
cash and cash equivalents resulted from $300,000 in cash provided by operating
activities and $500,000 in cash provided by financing activities, offset by
$600,000 in cash used in investing activities.
The $300,000 provided by operating activities arose primarily from the
$2.7 million loss from operations, offset by the $1.8 million increase in
deferred revenue and the $600,000 in depreciation and amortization charges. The
$600,000 used in investing activities arose primarily from capitalized software
development costs. The $500,000 provided by financing activities arose primarily
from the $200,000 proceeds from the issuance of Common Stock and the $300,000 in
additional draws under the Company's revolving 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
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<PAGE>
prime plus 2%. The line of credit shall remain in effect until June 30, 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. 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 alternative sources of liquidity, such
as additional offerings of debt or equity securities and/or further reductions
of operating expenses (such as travel, marketing, consulting and salaries).
.
-11-
<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 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 quarter of 2000, the Company issued 139,018 shares of
Common Stock attributable to exercises of previously granted stock options and
warrants.
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.
Form 8-K filed on May 9, 2000, to report that the Company had
entered into an amended and restated Agreement and Plan of
Merger dated May 8, 2000, with CE Computer Equipment AG.
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<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: May 15, 2000 By /s/ Thomas A. Wilson
--------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: May 15, 2000 By /s/ Brian H. Hajost
-------------------
Brian H. Hajost
Executive Vice President, Finance and Corporate Development
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<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 three months ended March 31, 2000.
</LEGEND>
<CIK> 0000883946
<NAME> TREEV INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,085
<SECURITIES> 0
<RECEIVABLES> 14,701
<ALLOWANCES> (1,212)
<INVENTORY> 876
<CURRENT-ASSETS> 18,022
<PP&E> 7,340
<DEPRECIATION> (6,115)
<TOTAL-ASSETS> 23,557
<CURRENT-LIABILITIES> 18,853
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 4,595
<TOTAL-LIABILITY-AND-EQUITY> 23,557
<SALES> 5,043
<TOTAL-REVENUES> 5,043
<CGS> 3,118
<TOTAL-COSTS> 3,118
<OTHER-EXPENSES> 4,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> (2,739)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,739)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
