-----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, Vsgk5oQN3NXaLRwm51GloSOiSfHpZewT1XnOkZJl0uGRH/yIqTJXM35K8qBoQuOW P+jSdTaa7Gbi1u1n2NUF9w== /in/edgar/work/20000913/0000883946-00-000012/0000883946-00-000012.txt : 20000922 0000883946-00-000012.hdr.sgml : 20000922 ACCESSION NUMBER: 0000883946-00-000012 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 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: 722272 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 9/30/98 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 September 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11135 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: 33,875,790 shares of common stock, $.0001 par value, as of October 23, 1998. Subsequent to filing a Form 10-Q with the Securities and Exchange Commission ("SEC") on October 27, 1998, which included the quarterly financial statements of TREEV, Inc. (the "Company") for the three and nine month periods ended September 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 nine month periods ended September 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 nine month periods ended September 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 September 30, 1998 (unaudited and restated) and December 31, 1997 2 Consolidated Statements of Operations (unaudited and restated) for the three months ended September 30, 1998 and 1997 3 Consolidated Statements of Operations (unaudited and restated) for the nine months ended September 30, 1998 and 1997 4 Consolidated Statement of Changes in Stockholders' Equity (unaudited and restated)for the nine months ended September 30, 1998 5 Consolidated Statements of Cash Flows (unaudited and restated) for the nine months ended September 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. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 19 Item 6. Exhibits and Reports on Form 8-K. 21 TREEV, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) September 30, December 31, 1998 1997 --------- --------- (Unaudited and restated) ASSETS Current assets: Cash and cash equivalents $ 4,291 $ 3,816 Accounts and notes receivable, net 7,006 8,569 Note receivable Dorotech sale -- 7,000 Inventories 827 722 Prepaid expenses and other 682 1,108 --------- --------- Total current assets 12,806 21,215 Fixed assets, net 1,745 2,165 Long-term notes receivable, net 138 378 Software development costs and purchased technology, net 2,637 2,490 Goodwill, net 374 499 Other assets 127 113 --------- --------- Total assets $ 17,827 $ 26,860 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current debt maturities and obligations under capital leases $ 571 $ 2,479 Accounts payable 1,973 2,037 Accrued compensation and related expenses 1,078 1,135 Deferred revenue 3,584 3,334 Other accrued expenses 2,714 2,250 --------- --------- Total current liabilities 9,920 11,235 Long-term debt and obligations under capital leases 60 1,108 --------- --------- Total liabilities 9,980 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; 3,169,601 and 1,615,675 shares issued and outstanding Common stock, $.0001 par value, 100,000,000 shares authorized; 33,875,790 and 26,236,186 shares issued and outstanding 3 3 Additional paid-in-capital 139,697 132,403 Accumulated deficit (131,853) (124,437) --------- --------- Total stockholders' equity 7,847 7,969 --------- --------- Total liabilities and stockholders' equity $ 17,827 $ 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 September 30, 1998 1997 ----------- ----------- (Restated) Revenue: Products $ 3,466 $ 5,225 Services 2,902 4,719 ----------- ----------- 6,368 9,944 ----------- ----------- Costs and expenses: Cost of products sold 1,527 2,585 Cost of services provided 1,847 3,865 Sales and marketing 2,748 3,649 General and administrative 925 1,649 Product development 966 1,142 ----------- ----------- 8,013 12,890 ----------- ----------- Loss before investment and interest income and income taxes (1,645) (2,946) Investment and interest income (expense), net 3 (130) ----------- ----------- Loss before income taxes (1,642) (3,076) Income tax benefit -- (142) ----------- ----------- Net income (loss) (1,642) (2,934) ----------- ----------- Preferred stock preferences Accrued dividends (337) (930) Imputed dividends -- (774) ----------- ----------- Net loss applicable to common shares $ (1,979) $ (4,638) =========== =========== Net loss per common share $ (0.06) $ (0.18) =========== =========== Weighted average shares outstanding 32,993,308 25,436,748 =========== =========== Net loss per common share - assuming dilution $ (0.06) $ (0.18) =========== =========== Weighted average shares outstanding 32,993,308 25,436,748 =========== =========== 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) Nine Months Ended September 30, 1998 1997 ------------ ------------ (Restated) Revenue: Products $ 11,260 $ 13,591 Services 8,395 14,805 ------------ ------------ 19,655 28,396 ------------ ------------ Costs and expenses: Cost of products sold 5,188 6,740 Cost of services provided 5,633 11,681 Sales and marketing 8,585 10,901 General and administrative 3,175 4,949 Product development 2,927 3,451 Gain from extinguishment of debt -- (267) Restructuring costs 1,505 -- ------------ ------------ 27,013 37,455 ------------ ------------ Loss before investment and interest income and income taxes (7,358) (9,059) Investment and interest income (expense), net (58) (163) ------------ ------------ Loss before income taxes (7,416) (9,222) Income tax benefit -- (87) ------------ ------------ Net loss (7,416) (9,135) ------------ ------------ Preferred stock preferences Accrued dividends (1,011) (2,836) Imputed dividends -- (774) ------------ ------------ Net loss applicable to common shares $ (8,427) $ (12,745) ============ ============ Net loss per common share $ (0.28) $ (0.51) ============ ============ Weighted average shares outstanding 29,957,510 24,957,354 ============ ============ Net loss per common share - assuming dilution $ (0.28) $ (0.51) ============ ============ Weighted average shares outstanding 29,957,510 24,957,354 ============ ============ The accompanying notes are an integral part of these financial statements. -4- TREEV, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the nine months ended September 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 $245 5,338,500 4,318 4,318 Issuance of preferred stock, net of offering costs of $763 1,560,576 10,667 10,667 Conversion of preferred stock (1,300) 1,958,720 0 Redemption of preferred stock (5,250) (7,085) (7,085) Issuance of warrants 68 68 Dividends on preferred stock 342,384 (674) (674) Net loss (7,416) (7,416) -------------------- ----------------------- ---------------- ---------------- ------------- Balance September 30, 1998 3,169,601 $ -- 33,875,790 $3 $139,697 ($131,853) $7,847 ==================== ======================= ================ ================ =============
The accompanying notes are an integral part of these financial statements. -5- TREEV, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 1998 1997 --------- --------- (Restated) Cash flows from operating activities: Net loss $(7,416) $(9,135) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,762 3,752 Restructuring costs 1,505 -- Other non-cash adjustments 77 15 Changes in assets and liabilities: Accounts and notes receivable 1,536 (1,837) Inventories (105) (6) Prepaid expenses and other 2 145 Accounts payable (80) 1,698 Accrued compensation and related expenses (57) 242 Accrued expenses, other (561) 161 Deferred revenues 250 (81) Deferred income taxes -- (71) ------- ------- Net cash used in operating activities (3,087) (5,117) ------- ------- Cash flows from investing activities: Capitalized software development and license costs (1,072) (1,059) Purchases of fixed assets (548) (557) Proceeds from business divestitures, net of related costs 7,230 60 ------- ------- Net cash provided by (used in) investing activities 5,610 (1,556) ------- ------- Cash flows from financing activities: Proceeds from issuance of common stock, net 4,318 23 Proceeds from issuance of preferred stock, net 9,707 2,901 Cash dividends paid on preferred stock (337) (1,779) Redemption of Mandatory Redeemable Preferred Stock (6,548) (3,500) Redemption of convertible preferred stock (7,085) -- Redemption of convertible debentures (1,500) -- Proceeds from borrowings -- 5,000 Proceeds from issuance of long-term debt -- 2,000 Principal payments on capital lease obligations (603) (800) Principal payments on debt -- (843) ------- ------- Net cash (used in) provided by financing activities (2,048) 3,002 ------- ------- Effect of exchange rate changes on cash and cash equivalents -- (148) Net increase (decrease) in cash and cash equivalents 475 (3,819) Cash and cash equivalents at beginning of year 3,816 7,601 ------- ------- Cash and cash equivalents at September 30, $ 4,291 $ 3,782 ======= ======= Supplemental Cash Flow Information: Interest paid $ 191 $ 478 Income taxes paid $ 188 $ 261 The accompanying notes are an integral part of these financial statements. -6- TREEV, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 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 nine month period ended September 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 nine month periods ended September 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 $1,659,000 for the quarter ended September 30, 1998, and $2,500,000 for the nine months ended September 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 September 30, Nine months ended September 30, 1998 1998 ------------------------------------ ------------------------------------ As Reported Restated As Reported Restated ------------------ ----------------- ------------------ ----------------- Statement of Operations Data Product revenues $ 5,125 $ 3,466 $ 13,760 $ 11,260 Net income (loss) 17 1,642 (4,916) (7,416) Net loss per common share $ (0.01) $ (0.06) $ (0.20) $ (0.28)
September 30, 1998 ------------------------------------ As Reported Restated ------------------ ----------------- Balance Sheet Data Accounts and notes receivable, net $ 9,506 $ 7,006 Accumulated deficit (129,353) (131,853) 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 September 30, 1998, 24 employees had been terminated, severance benefits of $539,000 had been paid out and the accrual balance relating to the Plan was $138,000. 5. REDEMPTION OF SERIES K AND L CONVERTIBLE PREFERRED STOCK In September 1998, the Company redeemed in cash the remaining 2,000 shares outstanding of Series K Convertible Preferred Stock ("Series K Stock") and all of the outstanding 3,250 shares of Series L Convertible Preferred Stock ("Series L Stock") for $7,100,000 including outstanding interest. The $7,100,000 payment retired the obligations under the Series K Stock and Series L Stock. Proceeds from the $10,000,000 issuance of the Company's Series N Convertible Preferred Stock ("Series N Stock") were used, in part, to fund the redemption of the Series K Stock and Series L Stock (See Note 5). 6. ISSUANCE OF SERIES N CONVERTIBLE PREFERRED STOCK In September 1998, the Company completed a private placement of 1,559,576 shares of Series N Stock, together with warrants to purchase and additional 800,000 shares of Common Stock at an exercise price of $0.625 per share. Proceeds from the offering were $10,000,000 and offering costs were $619,000. In accordance with the terms of the Series N Stock offering, approximately $7,100,000 of the proceeds was used to redeem the Company's Series K Stock and Series L Stock, and the remainder will be used for working capital purposes (See Note 4). The Company also issued warrants to purchase 509,091 shares of Common Stock at an exercise price of $0.69 per share to the placement agent in the transaction. In connection with the sale of the Series N Stock, the Company agreed to register the Common Stock issuable upon conversion of the preferred stock and execution of the warrants upon such time as the Company files a registration statement to register shares for any other stockholder of the Company. At September 30, 1998, the 1,559,576 shares of Series N Stock were convertible into 15,595,760 shares of Common Stock. Each share of Series N Stock is convertible at the option of each holder into 10 shares of Common Stock. Upon stockholders' approval of the Series N Stock offering at a special meeting of the stockholders, scheduled for December 9, 1998, any Series N Stock that has not previously been converted shall be immediately converted into shares of Common Stock. Assuming that no shares of the Series N Stock have been converted prior to such time, the Series N Stock shall immediately convert into 15,595,760 shares of the Company's Common Stock. The conversion price of the Series N Stock is $0.6412 per share, which was the average volume market price of the Common Stock on the date the terms for the Series N Stock were agreed to by the parties. -8- 7. 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, by amendment to the securities purchase agreement for the Series M1 Stock, to file a registration statement to register the Common Stock issuable upon conversion of the preferred stock on or before March 30, 1999. 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 September 30, 1998, the 1,000 shares of Series M1 Stock were convertible into 1,256,823 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 certain 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 M1 Stock for a price per share equal to $1,000 plus the accrued unpaid dividend. 8. 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 $1,100,000 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 when the Company files a registration statement to register shares for any other stockholder, but in no event later than March 30, 1999. 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. -9- Proceeds from the offering were $2,500,000 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 when the Company files a registration statement to register shares for any other stockholder, but in no event later than March 30, 1999. 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. During the third quarter of 1998, the Company completed a private placement of 750,000 shares of Common Stock pursuant to Regulation D under the Securities Act. Proceeds from the offering were $750,000 and offering costs were $60,000. 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 when the Company files a registration statement to register shares for any other stockholder, but in no event later than March 30, 1999. The Company also completed a private placement of 200,000 shares of Common Stock pursuant to Regulation D under the Securities Act. Proceeds from the offering were $200,000 and offering costs were $10,000. Pursuant to the terms of the private placement, the Company agreed to file a registration statement with the Securities and Exchange Commission to register the shares. During the third quarter of 1998, the Company issued 122,427 shares of Common Stock under the Company's Employee Stock Purchase Plan ("the Plan"). Through payroll deductions, employees can purchase the Company's Common Stock at a 15% discount to the market price. Under the Plan, there are two six-month offering periods beginning on January 1st and July 1st. 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. 9. 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. -10- 10. 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 $6,500,000 payment retired the obligations under the Series F Stock. The Company used the $7,000,000 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. 11. 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. During the second quarter of 1998, the Company redeemed in cash $200,000 of the Notes. At September 30, 1998, $400,000 of the Notes remained outstanding. During October 1998, the Company redeemed in cash an additional $200,000 of the Notes (See Note 11). 12. SUBSEQUENT EVENTS During October 1998, the Company redeemed in cash $200,000 of the Notes. After the October 1998 redemption, $200,000 of the Notes remained outstanding. -11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements and Certain Risk Factors This "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this Quarterly Report on Form 10-Q contains certain forward looking statements that are subject to a number of risks and uncertainties. In addition, the Company may publish or make forward looking statements from time to time relating to such matters as anticipated financial performance, business prospects and strategies, sales and marketing efforts, technological developments, new products, research and development activities, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations made in the Company's forward looking statements in this Quarterly Report or elsewhere. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, specifically any Current Reports on Form 8-K filed by the Company. Some risks and uncertainties of the Company that should be considered by the reader include: The adverse results of operations that the Company has experienced have been declining. Although the Company expects the trend of improved operating results to continue, there can be no assurances that the Company will not experience adverse results of operations in the future. The Company has had net losses in each period of its operations since its inception, except for one quarter, and it had an accumulated deficit at September 30, 1998 of $131.9 million. Pursuant to Nasdaq requirements, common and preferred stock trading on Nasdaq must maintain a minimum bid price of $1.00. Nasdaq has indicated that because the Company's Common Stock has traded below the Nasdaq minimum bid price below $1.00, the Company is not currently in compliance with the minimum bid price requirement to maintain listing on the Nasdaq National Market System. Nasdaq indicated that the Company's Common Stock needed to be in compliance by October 7, 1998. The Company was out of compliance at that time and has requested a hearing. The Company understands that, under Nasdaq procedures, the Company's Common Stock will continue to trade on the Nasdaq pending the outcome of that hearing. A hearing date has not yet been scheduled. The Company has also filed proxy materials with the SEC to seek shareholder approval to effect a one-for-four reverse stock split to bring the stock price above $1.00. The Company believes that if a reverse stock split is approved by -12- shareholders and implemented, the Company's Common Stock will trade at a price above the minimum required bid price for continued listing on the Nasdaq National Market System. However, no assurances can be given that the market price would rise in proportion to the reverse split or remain at levels necessary for such continued listing. Any inability to trade on Nasdaq would likely adversely effect the market price and liquidity of the Common Stock. In the event that the Company's Common Stock trades at a minimum price of more than $1.00 for a period of 10 consecutive trading days, and the Company is thereby able to maintain its Nasdaq National Market System listing, the Company will reassess whether to proceed with the reverse stock split. 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, wide-scale 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. Year 2000 Readiness The Year 2000 computer problem originated from programmers writing software code that used two digits instead of four to represent the year. After December 31, 1999, computers and software may incorrectly assume that the year is "1900" rather than "2000." This could lead to system failures and disruptions to activities and operations. In addition, Year 2000 is a leap year, which may further exacerbate incorrect calculations, functions or system failures. At this time it is difficult to predict the effects such disruptions could have and the liabilities that any company may face as a result of these failures. Moreover, companies must not only consider their own products and computer systems, but also the Year 2000 readiness of any third parties, including principal vendors. State of Readiness The Company became aware in 1997 of its potential Year 2000 issues and established a plan to assess its Year 2000 issues and develop an overall strategy. In 1998, the Company began an assessment of its products, its own information technology ("IT") and non-IT systems and the Company's vendors to determine whether they are or will be Year 2000 ready. To ensure that the IT and non-IT systems are, or will be, Year 2000 ready, surveys of the Company's products, services and systems were conducted. These included: audits and analyses of the Company's internal IT systems including hardware and software; assessment of critical non-IT systems; and surveys on principal vendors as to Year 2000 readiness. The Company identified several internal IT and non-IT systems -13- that were not Year 2000 ready. These internal systems have either been replaced or modified with Year 2000 ready systems or will be upgraded to the Year 2000 ready product. All internal system upgrades are expected to be completed by the third quarter of 1999. The Company has received written assurances from material principal vendors as to Year 2000 readiness within that timeframe. The majority of the Company's efforts regarding Year 2000 readiness focused on the Company's products, specifically software applications. As an integral part of the Company's assessment of whether its software products are Year 2000 ready it has established a Year 2000 test force (the "Test Force"). The Test Force has been tasked with providing testing and validation of the Company's Year 2000 readiness of its software products currently being sold to its customers. The Company believes that the current versions of the TREEV Suite of software products are Year 2000 ready. Customers using versions other than current versions of the software products have been given the opportunity, pursuant to maintenance plans or upgrade options, to receive current versions of the software. Costs to Address Year 2000 Readiness Issues The calculation of costs incurred has been limited to bringing the Company's software products, and its own IT and non-IT systems to Year 2000 readiness or to accelerating replacement systems to become Year 2000 ready. Costs incurred in the normal maintenance of the Company's IT and non-IT systems are not included. The total cost of the Year 2000 readiness project is estimated at $740,000 and is being funded through operating cash flows. Of the total project cost, approximately $260,000 is attributable to enhancements of the Company's software products and the purchase of new IT and non-IT systems which will be capitalized. The remaining $480,000 which will be expensed as incurred, is not expected to have a material impact on the results of operations. To date, the Company has incurred approximately $460,000 ($320,000 expensed and $140,000 capitalized) related to the assessment and validation efforts on the Year 2000 readiness project and the development of a modification plan and purchase of new IT and non-IT systems and systems modifications. The costs of the Year 2000 readiness project and the date by which the Company believes it will complete the Year 2000 readiness modifications are based on management's best estimates and are based on certain assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in the Year 2000 readiness area and the ability to locate and correct all relevant computer codes. -14- Company's Contingency Plans At the present time, the Company anticipates that essential software products and IT and non-IT systems will be validated as Year 2000 ready in all material respects. This belief is based on the progress to date and the assessed degree of difficulty associated with the remaining phases to achieve Year 2000 readiness. Contingency plans are under development and the Company anticipates that acceptable alternatives will be available in the event that a contingency arises. These contingency plans generally anticipate use of alternative vendors for hardware and operating systems. Nevertheless, it is not possible for the Company to fully assess the likelihood or magnitude of consequences of Year 2000 issues, should representations made by vendors prove to be in error. Year 2000 Information and Readiness Disclosure Act This section captioned "Year 2000 Readiness," as well as other statements herein or otherwise relating to the Year 2000 issues, are "Year 2000 Readiness Disclosures" pursuant to the "Year 2000 Information and Readiness Disclosure Act." Results of Operations - Nine months ended September 30, 1998 and 1997 Revenues. Total revenues were $19.7 million and $28.4 million for the nine months ended September 30, 1998 and 1997, respectively. The $8.7 million decrease in revenue was the result of a decrease in product revenue of $2.3 million, or 17%, and a decrease in service revenue of $6.4 million, or 43%. The decrease in product revenue was attributable to an increase of $1.3 million, or 13%, in comparative company revenues offset by a decrease of $3.6 million due to the disposition in 1997 of the Company's subsidiary in France ("Dorotech"). The decrease in service sales of $6.4 million was the result of a $7.7 million decrease due to the disposition of Dorotech, offset by a $1.3 million, or 19%, increase in comparative company revenues. On a comparative company basis, overall revenues increased $2.6 million, or 15%, from $17.1 million for the nine months ended September 30, 1997 to $19.7 million for the same period in 1998. Profit margins. Profit margins for product sales increased 4 percentage points for the first nine months of 1998 over the same period in 1997 as cost of products decreased from 50% to 46% 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 12 percentage points for the nine months ended September 30, 1998 as compared to 1997 as the cost of services decreased from 79% to 67% of sales. The increase in service sales margins from 21% to 33% 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 45% for the nine months ended September 30, 1998 from 41% for the same period in 1997. -15- Sales and marketing. Sales and marketing expenses were $8.6 million or 44% of revenue, for the nine months ended September 30, 1998 compared to $10.9 million, or 38% of revenue in 1997. The decrease of $2.3 million, or 21%, was the result of the Company's disposition of Dorotech during 1997, which reduced sales and marketing expenses $2.5 million, offset by an $144,000 increase in comparative company expenses. General and administrative. G&A expenses were $3.2 million or 16% of revenue, for the nine months ended September 30, 1998 compared to $5.0 million, or 17% of revenue in 1997. The decrease of $1.8 million, or 36%, was the result of the Company's disposition of Dorotech during 1997, which reduced G&A expenses $1.1 million, and a $671,000, or 17%, 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 nine months ended September 30, 1998 were $4.0 million, of which $1.1 million was capitalized and $2.9 million was expensed. Software research and development expenditures for the 1997 period were $4.5 million, of which $1.1 million was capitalized and $3.4 million was expensed. The $502,000 decrease in research and development expenditures is attributable to the Company's 1997 disposition of Dorotech, which reduced R&D expenses $790,000, offset by a $288,000 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. Net loss. The Company's net loss for the nine months ended September 30, 1998 was $7.4 million as compared to $9.1 million for the comparable period of 1997. The net loss decrease of $1.7 million is due to a $900,000 decrease in net loss from the Company's continuing operations and due to the disposition of Dorotech, which reduced the net loss by $835,000. The $900,000 decrease in net loss from the Company's continuing operations is primarily attributable to an increase of $1.8 million in gross margins and a $671,000 decrease in G&A expense, offset by the $1.5 restructuring charge. 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 and, during 1997, for a $774,000 non-cash charge to preferred stock dividends for the Company's Series K Preferred Stock. The net loss applicable to -16- common shares was $8.4 million, or ($.28) per share, for the nine months ended September 30, 1998 as compared to $12.7 million or ($.51) 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, the decrease in annual Series A Preferred Stock dividends from $2.00 to $0.84 per share and the $774,000 Series K non-cash dividend charge in 1997. Results of Operations - Three months ended September 30, 1998 and 1997 Revenues. Total revenues were $6.4 million and $9.9 million for the three months ended September 30, 1998 and 1997, respectively. The $3.5 million decrease in revenue was the result of a decrease in product revenue of $1.7 million, or 33%, and a decrease in service revenue of $1.8 million, or 39%. The decrease in product revenue was primarily attributable to a decrease of $600,000, or 15%, in comparative company product revenues and a $1.1 million reduction due the disposition in 1997 of the Company's French subsidiary, Dorotech. The decrease in service revenues of $1.8 million was the result of a $2.3 million decrease due to the disposition of Dorotech, offset by a $472,000, or 19%, increase in comparative company service revenues. On a comparative company basis, overall revenues decreased $100,000, or 1%, from $6.5 million for the nine months ended September 30, 1997 to $6.4 million for the same period in 1998. Profit margins. Profit margins for product sales increased 5 percentage points in the third quarter of 1998 over the same period in 1997 as cost of products decreased from 49% to 44% 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 18 percentage points for the three months ended September 30, 1998 as compared to 1997 as the cost of services decreased from 82% to 64% of sales. The increase in service sales margins from 18% to 36% was due to the Company's continuing emphasis on its custom development and professional services. On a comparative company basis, overall profit margins increased 4 percentage points to 47% for the three months ended September 30, 1998 from 43% for the same period in 1997. Sales and marketing. Sales and marketing expenses were $2.7 million or 43% of revenue, for the three months ended September 30, 1998 compared to $3.6 million, or 37% of revenue in 1997. The decrease of $901,000, or 25%, was the result of the Company's disposition of Dorotech during 1997, which reduced sales and marketing expenses $784,000 and by a $117,000 decrease in comparative company expenses. General and administrative. G&A expenses were $925,000 or 15% of revenue, for the three months ended September 30, 1998 compared to $1.6 million, or -17- 17% of revenue in 1997. The decrease of $724,000, or 44%, was the result of the Company's disposition of Dorotech during 1997, which reduced G&A expenses $349,000, and a $375,000, or 29%, 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 September 30, 1998 were $1.3 million, of which $300,000 was capitalized and $1.0 million was expensed. Software research and development expenditures for the 1997 period were $1.5 million, of which $300,000 was capitalized and $1.2 million was expensed. The $0.2 million decrease in research and development expenditures is primarily attributable to the Company's 1997 disposition of Dorotech. Net income (loss). The Company's net loss for the three months ended September 30, 1998 was $1.6 million as compared to a $2.9 million loss for the comparable period of 1997. The net loss decrease of $1.3 million in the third quarter of 1998 as compared to the same period in 1997 is due to a $800,000 decrease in net loss from the Company's continuing operations and the disposition of Dorotech, which reduced the net loss by $500,000. The $800,000 decrease in net loss from the Company's continuing operations is primarily attributable to an increase of $200,000 in gross margins, $375,000 decrease in G&A expense and $117,000 reduction in sales and marketing expense. 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 and, during 1997, for a $774,000 non-cash charge to preferred stock dividends for the Company's Series K Preferred Stock. The net loss applicable to common shares was $2.0 million, or ($.06) per share, for the three months ended September 30, 1998 as compared to $4.6 million or ($.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 and the $774,000 Series K non-cash dividend charge in 1997. Liquidity and Capital Resources As of September 30, 1998, the Company had $4.3 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 $2.9 million at June 30, 1998 and $10.0 million at December 31, 1997. -18- For the nine months ended September 30, 1998, the $475,000 increase in cash and cash equivalents resulted from $5.6 million in cash generated by investing activities, offset by $3.1 million used to fund operating activities and $2.0 million in cash used to fund financing activities. The $5.6 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 $3.1 million used by operating activities arose primarily with respect to the $7.4 million net loss in operations, offset by $1.8 million in depreciation charges, $1.5 million in restructuring costs, $1.5 million reduction in accounts receivable and $561,000 increase in accrued expenses. The $2.0 million used by financing activities arose primarily from the $6.5 million redemption of the Company's Series F Preferred Stock, $7.1 million redemption of the Company's Series K and L Preferred Stock, $1.5 million used to redeem the Company's convertible debentures and payments in capital leases of $603,000, offset by the $4.3 million proceeds from the issuance of common stock, $9.7 million proceeds from the issuance of preferred stock and $337,000 paid in preferred stock dividends. 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 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. -19- Item 2. Changes in Securities In September 1998, the Company redeemed in cash the remaining 2,000 shares outstanding of Series K Stock and all of the outstanding 3,250 shares of Series L Stock for $7,100,000 including outstanding interest. The $7,100,000 payment retired the obligations under the Series K Stock and Series L Stock. In September 1998, the Company completed a private placement of 1,559,576 shares of Series N Stock, together with warrants to purchase and additional 800,000 shares of Common Stock at an exercise price of $0.625 per share. Proceeds from the offering were $10,000,000. The Company also issued warrants to purchase 509,091 shares of Common Stock at an exercise price of $0.69 per share to the placement agent in the transaction. At September 30, 1998, the 1,559,576 shares of Series N Stock were convertible into 15,595,760 shares of Common Stock. During the third quarter of 1998, the Company completed a private placement of 950,000 shares of Common Stock pursuant to Regulation D under the Securities Act. Proceeds from the offering were $950,000. 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. 3.35 Certificate of Designations, Preferences and Rights of Series N Convertible Preferred Stock to be filed with the Secretary of State of the State of Delaware on October 30, 1998 (previously filed). 10.36 Securities Purchase Agreement between TREEV, Inc. and Horace T. Ardinger, Jr., Ardinger Family Partnership, Baker Family Trust, and the Adkins Family Trust as of September 22, 1998 (previously filed). 27.1 Financial data schedule -20- (b) Reports on Form 8-K. Form 8-K filed on September 17, 1998 to report the Company's plans to seek stockholders' approval for a reverse stock split and to announce an equity financing through a private placement of convertible preferred stock. -21- 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. 9/30/98
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 nine months ended September 30, 1998. 0000883946 TREEV INC 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 4,291 0 8,187 (1,043) 827 12,806 7,581 (5,836) 17,827 9,920 0 0 0 3 7,844 17,827 19,655 19,655 10,821 10,821 16,192 0 58 (7,416) 0 (7,416) 0 0 0 (7,416) (0.28) (0.28)
-----END PRIVACY-ENHANCED MESSAGE-----