-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mb8gPeosWiySGlPQZtX4lVVNz/ZWJgyaEgTgU4yIUQiuphk8TksoONjOmUz3MKzN 7l4qomo6M/5uQZI4ewX5Dg== /in/edgar/work/20000913/0000883946-00-000011/0000883946-00-000011.txt : 20000922 0000883946-00-000011.hdr.sgml : 20000922 ACCESSION NUMBER: 0000883946-00-000011 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 20000913 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TREEV INC CENTRAL INDEX KEY: 0000883946 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 541590649 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-11135 FILM NUMBER: 722263 BUSINESS ADDRESS: STREET 1: 13900 LINCOLN PARK DR CITY: HERNDON STATE: VA ZIP: 20171 BUSINESS PHONE: 7034782260 MAIL ADDRESS: STREET 1: 13900 LINCOLN PARK DR CITY: HERNDON STATE: VA ZIP: 20171 FORMER COMPANY: FORMER CONFORMED NAME: NETWORK IMAGING CORP DATE OF NAME CHANGE: 19930328 10-Q/A 1 0001.txt TREEV 6/30/98 FORM 10-Q/A AMENDMENT NO. 2 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. 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. 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 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. -2- 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. -3- 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. -4- 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))
Additional Preferred Stock Common Stock paid-in Accumulated Shares Amt. Shares Amt. capital Deficit Total ----------------------- --------------------------- ---------------- ------------- ---------- 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 ======================= =========================== ================ ============= ==========
The accompanying notes are an integral part of these financial statements. -5- 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. -6- 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):
Three months ended June 30, 1998 Six months ended June 30, 1998 ------------------------------------ ------------------------------------ As Reported Restated As Reported Restated ------------------ ----------------- ------------------ ----------------- Statement of Operations Data 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)
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. -7- 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. -8- 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. -9- 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 -10- 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 -11- 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. -12- 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. -13- 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. -14- 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. -15- 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. -16- 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 -17- 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). -18- 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. -19- 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 EX-27.1 2 0002.txt FDS FOR TREEV, INC. 6/30/98
5 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements as of and for the six months ended June 30, 1998. 0000883946 TREEV INC 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 4,092 0 8,354 (1,103) 691 12,495 7,481 (5,504) 17,631 11,320 0 0 0 3 6,231 17,631 13,288 13,288 7,447 7,447 11,553 0 62 (5,774) 0 (5,774) 0 0 0 (5,774) (0.24) (0.24)
-----END PRIVACY-ENHANCED MESSAGE-----