-----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, J2B7l7+44V27G9kHZkhBRzTxbxN+sh/OLPZl65Ev6oEUC4J8jEimH21UnwPeo4eC W9Y8IReQZ6KCzq2Vld0NPw== /in/edgar/work/20000913/0000883946-00-000014/0000883946-00-000014.txt : 20000922 0000883946-00-000014.hdr.sgml : 20000922 ACCESSION NUMBER: 0000883946-00-000014 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 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: 722281 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, INC. 6/30/99 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, 1999 [ ] 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: 12,806,943 shares of common stock, $.0001 par value, as of June 30, 1999. Subsequent to filing a Form 10-Q with the Securities and Exchange Commission ("SEC") on August 4, 1999, which included the quarterly financial statements of TREEV, Inc. (the "Company") for the three and six month periods ended June 30, 1999, the Company became aware that the timing and amount of reported earned revenues from license transactions in 1999 required revision. Accordingly, the Company has determined to restate its quarterly financial statements for the three and six month periods ended June 30, 1999. 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, 1999, 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. Balance Sheets at June 30, 1999 (unaudited and restated) and December 31, 1998 2 Statements of Operations (unaudited and restated) for the three months ended June 30, 1999 and 1998 3 Statements of Operations (unaudited and restated) for the six months ended June 30, 1999 and 1998 4 Statement of Changes in Stockholders' Equity (unaudited and restated) for the six months ended June 30, 1999 5 Statements of Cash Flows (unaudited and restated) for the six months ended June 30, 1999 and 1998 6 Notes to 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. 17 Item 6. Exhibits and Reports on Form 8-K. 18 TREEV, INC. BALANCE SHEETS (In thousands, except share and per share amounts) June 30, December 31, 1999 1998 ----------- ----------- (Unaudited and restated) ASSETS Current assets: Cash and cash equivalents $ 1,741 $ 1,645 Accounts and notes receivable, net 10,721 11,419 Inventories 567 911 Prepaid expenses and other 780 490 --------- --------- Total current assets 13,809 14,465 Fixed assets, net 1,275 1,578 Long-term notes receivable, net 33 47 Software development costs, net 3,352 2,978 Goodwill, net 249 332 Other assets 126 122 --------- --------- Total assets $ 18,844 $ 19,522 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current debt maturities and obligations under capital leases $ 4,502 $ 342 Accounts payable 2,933 2,327 Accrued compensation and expenses 1,003 1,448 Deferred revenue 4,111 5,887 Other accrued expenses 1,874 1,945 --------- --------- Total current liabilities 14,423 11,949 Long-term debt and obligations under capital leases 26 43 --------- --------- Total liabilities 14,449 11,992 Commitments Stockholders' equity: Convertible preferred stock, $.0001 par value, 20,000,000 shares authorized; 1,610,025 shares issued and outstanding -- -- Common stock, $.0001 par value, 100,000,000 shares authorized; 12,806,943 and 12,367,888 shares issued and outstanding 1 1 Additional paid-in-capital 139,482 139,310 Accumulated deficit (135,088) (131,781) --------- --------- Total stockholders' equity 4,395 7,530 --------- --------- Total liabilities and stockholders' equity $ 18,844 $ 19,522 ========= ========= The accompanying notes are an integral part of these financial statements. -2- TREEV, INC. STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) Three Months Ended June 30, 1999 1998 ------------ ------------ (Restated) Revenue: Products $ 4,601 $ 4,244 Services 3,312 2,844 ------------ ------------ 7,913 7,088 ------------ ------------ Costs and expenses: Cost of products sold 2,361 1,846 Cost of services provided 2,080 1,941 Sales and marketing 2,726 3,103 General and administrative 855 1,075 Product development 1,244 965 Restructuring costs -- 1,505 ------------ ------------ 9,266 10,435 ------------ ------------ Loss before interest (expense) income and income taxes (1,353) (3,347) Interest (expense) income, net (44) 6 ------------ ------------ Loss before income taxes (1,397) (3,341) Income tax benefit -- -- ------------ ------------ Net loss (1,397) (3,341) ------------ ------------ Preferred stock dividends (337) (337) ------------ ------------ Net loss applicable to common shares $ (1,734) $ (3,678) ============ ============ Net loss per common share $ (0.14) $ (0.50) ============ ============ Weighted average shares outstanding 12,803,488 7,332,704 ============ ============ The accompanying notes are an integral part of these financial statements. -3- TREEV, INC. STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) Six Months Ended June 30, 1999 1998 ------------ ------------ (Restated) Revenue: Products $ 7,040 $ 7,795 Services 6,404 5,493 ------------ ------------ 13,444 13,288 ------------ ------------ Costs and expenses: Cost of products sold 3,726 3,661 Cost of services provided 4,173 3,786 Sales and marketing 5,122 5,837 General and administrative 1,633 2,250 Product development 2,051 1,961 Restructuring costs -- 1,505 ------------ ------------ 16,705 19,000 ------------ ------------ Loss before interest (expense) income and income taxes (3,261) (5,712) Interest (expense) income, net (46) (62) ------------ ------------ Loss before income taxes (3,307) (5,774) Income tax benefit -- -- ------------ ------------ Net loss (3,307) (5,774) ------------ ------------ Preferred stock dividends (674) (674) ------------ ------------ Net loss applicable to common shares $ (3,981) $ (6,448) ============ ============ Net loss per common share $ (0.31) $ (0.94) ============ ============ Weighted average shares outstanding 12,777,096 6,829,092 ============ ============ The accompanying notes are an integral part of these financial statements. -4- TREEV, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Six months ended June 30, 1999 (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, 1998 1,610,025 $ - 12,367,888 $ 1 $ 139,310 $(131,781) $ 7,530 Issuance of common stock, net of offering costs of $71 439,055 774 774 Issuance of warrants 72 72 Dividends on preferred stock (674) (674) Net loss (3,307) (3,307) ------------------------ ------------------------ ------------ ------------ ------------ Balance June 30, 1999 1,610,025 $ - 12,806,943 $ 1 $ 139,482 $(135,088) $ 4,395 ======================== ======================== ============ ============ ============
The accompanying notes are an integral part of these financial statements. -5- TREEV, INC. STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six months ended June 30, 1999 1998 --------- --------- (Restated) Cash flows from operating activities: Net loss $ (3,307) $ (5,774) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,124 1,221 Restructuring costs -- 1,505 Other non-cash adjustments 82 40 Changes in assets and liabilities: Accounts and notes receivable 516 1,429 Inventories 344 31 Prepaid expenses and other (83) 111 Accounts payable 606 (320) Accrued expenses (896) (374) Deferred revenue (1,776) 1,347 --------- --------- Net cash used in operating activities (3,390) (784) --------- --------- Cash flows from investing activities: Software development costs (850) (751) Purchases of fixed assets (262) (473) Cash received from business divestitures and related costs 196 7,230 --------- --------- Net cash (used in) provided by investing activities (916) 6,006 --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock, net 774 3,423 Cash dividends paid on preferred stock (337) -- Redemption of Redeemable Series F preferred stock -- (6,548) Proceeds from issuance of convertible notes 2,150 -- Redemption of convertible notes (200) (1,300) Borrowings of debt 8,029 -- Repayments of debt (5,927) -- Principal payments on capital lease obligations (87) (521) --------- --------- Net cash provided by (used in) financing activities 4,402 (4,946) --------- --------- Net increase in cash and cash equivalents 96 276 Cash and cash equivalents at beginning of year 1,645 3,816 --------- --------- Cash and cash equivalents at June 30, $ 1,741 $ 4,092 ========= ========= Supplemental Cash Flow Information: Interest paid $ 67 $ 156 The accompanying notes are an integral part of these financial statements. -6- TREEV, INC. NOTES TO FINANCIAL STATEMENTS June 30, 1999 and 1998 (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, 1998 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, 1999 may not be indicative of the results that may be expected for the year ending December 31, 1999. 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, 1999, the Company became aware that the timing and amount of reported earned revenues from license transactions in 1999 required revision. During 1999, TREEV initiated relationships with new customers under its Business Alliance Program (the "BAP") which allowed the customers to purchase licenses of the Company's software products at discounted rates based on commitments from the BAP customers to meet certain volume requirements. The terms and conditions of the BAP agreements were consistent with prior agreements entered into with longstanding customers in similar lines of business. The Company anticipated these BAP customers, primarily value added resellers, systems integrators, and original equipment manufacturers, would increase the distribution and market share of its document management solutions. The Company's management evaluated the new BAP customers' credit ratings, business reputation, and ability to comply with the terms of the BAP agreements prior to initiating the relationships. However, during the fourth quarter of 1999, the Company experienced a significant number of new BAP customers not complying with the financial obligations under the BAP agreements as amounts became due in full. The Company's management initiated a review of these relationships to determine the degree of correlation among the new BAP customers and lack of financial performance in a timely manner. In addition, the Company considered the lack of financial performance of the new BAP customers, as a class, to the collectibility criteria of SOP 97-2 and determined that the software revenues related to such arrangements no longer met that criteria as amounts due by this class of customers were generally not paid in full when due. Based on the results of management's review of new BAP customers, the Company, after consultation with its independent auditors, determined that certain revenues previously recognized should be reversed and recognized when payments are received from new BAP customers until sufficient history with specific customers is achieved to determine the likelihood that the new BAP customers' financial obligations will be met in accordance with the original terms of such agreement. In addition to the reversal of certain revenues as discussed above, the Company reversed related costs of revenue and commissions attributable to such transactions and certain other expenses related thereto. The Company also reversed legal fees that had been accrued during the quarter attributable to certain litigation that was resolved in the third quarter of 1999, as such amounts were not paid. -7- 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, 1999 Six months ended June 30, 1999 ------------------------------------ ------------------------------------ As Reported Restated As Reported Restated ------------------ ----------------- ------------------ ----------------- Statement of Operations Data Product revenues $ 4,802 $ 4,601 $ 7,630 $ 7,040 Cost of products sold 2,346 2,361 3,696 3,726 Selling, general and administrative 3,747 3,581 7,210 6,755 Net loss (1,347) (1,397) (3,142) (3,307) Net loss per common share $ (0.13) $ (0.14) $ (0.30) $ (0.31)
June 30, 1999 ------------------------------------ As Reported Restated ------------------ ----------------- Balance Sheet Data Accounts and notes receivable, net $ 11,311 $ 10,721 Inventories 597 567 Accrued compensation 1,253 1,003 Other accrued expenses 2,079 1,874 Accumulated deficit (134,923) (135,088) 3. LINE OF CREDIT During the first quarter of 1999, the Company secured a $5 million revolving line of credit from a commercial bank. The Company can draw up to $5 million on the line of credit for working capital needs based on 80% of its eligible receivables. The line of credit bears interest at a rate equal to prime plus 2%. The agreement shall remain in effect until February 28, 2000, and automatically renews for successive additional terms of one year each. The line of credit is collateralized by all of the Company's accounts receivable, inventory, equipment, general intangibles, and other personal property assets. At June 30, 1999, the Company had $2,204,000 outstanding under the line of credit. 4. CONVERTIBLE NOTES REDEMPTION During the first quarter of 1999, the Company redeemed in cash the remaining $200,000 of the 8% Convertible Notes (the "Notes") due August 20, 2002. At June 30, 1999, all of the Notes had been converted or redeemed. 5. ISSUANCE OF COMMON STOCK During the first quarter of 1999, the Company completed a private placement of 388,500 shares of Common Stock pursuant to Regulation D under the Securities Act of 1933, as amended. Proceeds from the offering were $777,000 and offering costs were approximately $71,000. -8- During the first quarter of 1999, the Company issued 45,555 shares of Common Stock under the Company's Employee Stock Purchase Plan ("the Plan"). Employees can choose to have up to 10% of their annual earnings withheld to purchase the Company's Common Stock. Under the terms of the Plan, there are two six-month offering periods beginning on January 1st and July 1st of each year during which employees can participate. The purchase price is determined by taking 85% of the lower of (a) the average of the high and low market prices on the offering commencement date and (b) the average of the high and low market prices on the offering termination date. The terms of the Plan require that the purchaser hold the shares purchased under the Plan for a minimum of six months from the date the offering period ends. 6. ISSUANCE OF CONVERTIBLE NOTES During the second quarter of 1999, the Company issued, pursuant to Regulation D under the Securities Act of 1933, as amended, 8% Convertible Notes (the "Notes") due October 1, 1999, totaling $2,000,000, together with warrants to purchase 50,000 shares of Common Stock at an exercise price of $2.00 per share. At the time of maturity, the Notes are convertible, at the Company's election, into Common Stock at a conversion price of $2.00 per share. 7. BUSINESS SEGMENTS The Company's reportable segments are strategic business units that sell its products and services to a wide variety of customers throughout the United States. The products segment includes sales of software licenses of the Company's TREEV Suite of document management software and computer equipment. The services segment includes sales of software maintenance contracts, installation, training, and customization. The following table sets forth summarized financial information concerning the Company's reportable segments for the periods ended June 30, 1999 and 1998 (in thousands). The "Corporate" column includes corporate related items and expenses not allocated to reportable segments, such as sale of subsidiaries and restructuring costs.
Products Services Corporate Total ------------------- ------------------ ------------------ ---------------- 1999 Revenues $7,040 $6,404 $ --- $13,444 Segment profit (loss) (442) (1,186) (1,633) (3,261) 1998 Revenues $7,795 $5,493 $ --- $13,288 Segment profit (loss) (441) (1,517) (3,754) (5,712)
-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. 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 two quarters, and it had an accumulated deficit at June 30, 1999, of $135 million. The computer industry, including the information access, document management, imaging and optical disk storage segments, is highly competitive, and is characterized by rapid and continuous technological change. The Company's future profitability will depend on, among other things, market acceptance of the Company's products and on the Company's ability to develop, in a timely fashion, enhancements to existing products or new products. There can be no assurance that the Company will be able to market successfully its current products, develop and market enhancements to existing products or introduce new products. Revenues for any period depend on the number, size and timing of license agreements. The size and timing of license agreements is difficult to forecast because software sales cycles are affected by the nature of the transactions, including the scope of the solutions to be licensed and the organizational and geographic scope of the licenses. -10- Also, the number, size and timing of license agreements may be affected by external factors such as general domestic and international business or economic conditions, including the effects of such conditions on the Company's customers and prospects, or competitors' actions. A small variation in the timing of software licensing transactions, particularly near the end of any quarter or year, can cause significant variations in software product license revenues in any period. 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 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 -11- 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 $650,000 ($200,000 capitalized and $450,000 expensed) 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. 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. -12- 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 - Six months ended June 30, 1999 and 1998 Revenues. Total revenues were $13.4 million and $13.3 million for the six months ended June 30, 1999 and 1998, respectively. The $100,000 increase in revenue was the result of a decrease in product revenue of $800,000, or 10%, offset by an increase in service revenue of $900,000, or 17%. The decrease in product revenue was attributable to postponed contracts from prospective government and banking customers who have delayed implementation of new systems due to fiscal funding appropriations or completion of Year 2000 readiness. The increase in service revenue was attributable to increased staffing and continued management emphasis on the professional services business. Profit margins. Profit margins for product sales decreased 6 percentage point for the six months ended June 30, 1999, compared to the same period in 1998, as cost of products sold increased from 47% to 53% of sales. The decrease in product sales margins from 53% to 47% was primarily due to the increased sales mix of hardware. Profit margins for service sales increased 4 percentage points for the six months ended June 30, 1999, compared to the same period in 1998, as the cost of services decreased from 69% to 65% of sales. The increase in service sales margins from 31% to 35% was due to the Company's continued emphasis on its custom development and professional services. Sales and marketing. Sales and marketing expenses were $5.1 million, or 38% of revenue, for the six months ended June 30, 1999, compared to $5.8 million, or 44% of revenue, for the same period in 1998. The decrease of $700,000, or 12%, was the result of reduced sales expenses attributable to the decrease in product revenue combined with continuing cost reduction efforts by the Company. General and administrative. G&A expenses were $1.6 million, or 12% of revenue, for the six months ended June 30, 1999, compared to $2.3 million, or 17% of revenue, for the same period in 1998. The decrease of $700,000, or 27%, was due to the Company's continued cost reduction efforts. Product development. The Company's expenditures on software research and development activities ("R&D") for the six months ended June 30, 1999, were $2.9 million, of which $800,000 was capitalized and $2.1 million was expensed. R&D expenditures for the same period in 1998 were $2.7 million, of which $700,000 was -13- capitalized and $2.0 million was expensed. The $200,000 increase in research and development expenditures was attributable to the development of the Company's new TREEV 2000 Suite of integrated document management software, which was completed in April 1999. 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 six months ended June 30, 1999, was $3.3 million as compared to $5.8 million for the comparable period in 1998. The net loss decrease of $2.5 million was due to a $1.0 million decrease in net loss from the Company's continuing operations, which was primarily attributable to the decrease in sales and marketing and G&A expenses, and the $1.5 million restructuring charge incurred in the second quarter of 1998. Net loss applicable to Common Shares. The net loss applicable to common shares includes adjustments for dividend amounts related to the Company's preferred stock. The net loss applicable to common shares was $4.0 million, or $.31 per share, for the six months ended June 30, 1999, as compared to $6.4 million or $.94 per share, for the comparable period in 1998. The decrease in net loss applicable to common shares is attributable to the decrease in net loss described above and an increase in the weighted average shares outstanding. Results of Operations - Three months ended June 30, 1999 and 1998 Revenues. Total revenues were $7.9 million and $7.1 million for the three months ended June 30, 1999 and 1998, respectively. The $800,000 increase in revenue was the result of an increase in product revenue of $300,000, or 8%, and an increase in service revenue of $500,000, or 16%. The increase in product revenue was attributable to the receipt of postponed contracts from the first quarter of 1999 by banking customers who had delayed implementation of new systems due to completion of Year 2000 readiness. The increase in service revenue was attributable to increased staffing and continued management emphasis on the professional services business. Profit margins. Profit margins for product sales decreased 7 percentage points for the three months ended June 30, 1999, compared to the same period in 1998, as cost of products sold increased from 43% to 51% of sales. The decrease in product sales margins from 57% to 49% was primarily due to the increased sales mix of hardware. Profit margins for service sales increased 5 percentage points for the three months ended June 30, 1999, compared to the same period in 1998, as the cost of services decreased from 68% to 63% of sales. The increase in service sales margins from 32% to 37% was due to the Company's continued emphasis on its custom development and professional services. -14- Sales and marketing. Sales and marketing expenses were $2.7 million, or 34% of revenue, for the three months ended June 30, 1999, compared to $3.1 million, or 44% of revenue, for the same period in 1998. The decrease of $400,000, or 12%, was the result of continuing cost reduction efforts by the Company. General and administrative. G&A expenses were $900,000,or 11% of revenue, for the three months ended June 30, 1999, compared to $1.1 million, or 15% of revenue, for the same period in 1998. The decrease of $200,000, or 20%, was due to the Company's continued cost reduction efforts. Product development. The Company's expenditures on software R&D activities for the three months ended June 30, 1999, were $1.5 million, of which $200,000 was capitalized and $1.3 million was expensed. R&D expenditures for the same period in 1998 were $1.4 million, of which $400,000 was capitalized and $1.0 million was expensed. The $200,000 decrease in capitalized R&D was attributable to the timing and varying stages of completion in the development cycle of the Company's software. 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, 1999, was $1.4 million as compared to $3.3 million for the comparable period in 1998. The net loss decrease of $1.9 million was due to a $400,000 decrease in net loss from the Company's continuing operations, which was primarily attributable to the decrease in sales and marketing and G&A expenses, and the $1.5 million restructuring charge incurred in the second quarter of 1998. Net loss applicable to Common Shares. The net loss applicable to common shares includes adjustments for dividend amounts related to the Company's preferred stock. The net loss applicable to common shares was $1.7 million, or $.14 per share, for the three months ended June 30, 1999, as compared to $3.7 million or $.50 per share, for the comparable period in 1998. The decrease in net loss applicable to common shares is attributable to the decrease in net loss described above and an increase in the weighted average shares outstanding. -15- Liquidity and Capital Resources As of June 30, 1999, the Company had $1.7 million in cash and cash equivalents, as compared to $1.6 million in cash and cash equivalents at December 31, 1998. Net working capital was $(600,000) at June 30, 1999, and $2.5 million at December 31, 1998. For the six months ended June 30, 1999, the $100,000 increase in cash and cash equivalents resulted from $3.4 million in cash used in operating activities and $900,000 in cash used in investing activities, offset by $4.4 million in cash provided by financing activities. The $3.4 million used by operating activities arose primarily with respect to the $3.3 million loss from operations, the $1.8 million decrease in deferred revenues and the $900,0000 decrease in accrued expenses, offset by the $1.1 million in depreciation and amortization. The $900,000 used in investing activities arose primarily from capitalized software development costs. The $4.4 million provided by financing activities arose primarily from the $800,000 proceeds from the issuance of Common Stock, the $2.0 million proceeds from the issuance of convertible notes and the $2.1 million in net borrowings of debt. During the first quarter of 1999, the Company secured a $5 million revolving line of credit from a commercial bank. The Company can draw up to $5 million on the line of credit for working capital needs based on 80% of its eligible receivables. The line of credit bears interest at a rate equal to prime plus 2%. The line of credit shall remain in effect until February 28, 2000, and automatically renews for successive additional terms of one year each. The line of credit is collateralized by all of the Company's accounts receivable, inventory, equipment, general intangibles, and other personal property assets. The adverse results of operations that the Company has experienced have been declining. Although the Company expects the trend of improved operating results to continue, there can be no assurances that the Company will not experience adverse results of operations in the future. The Company believes that its existing cash, cash flows from operations and availability under its line of credit should provide sufficient resources to fund its activities through the next twelve months and to maintain net tangible assets of at least $4.0 million, which is required for continued inclusion of the Company's securities on the Nasdaq National Market. Cash flows from operations are largely dependent upon the Company's ability to achieve its sales and gross profit objectives for its TREEV suite of products. If the Company is unable to meet these objectives, it will consider alternative sources of liquidity, such as additional offerings of equity securities and/or further reductions of operating expenses (such as travel, marketing, consulting and salaries). -16- Nasdaq announced new listing requirements on February 23, 1998, for continued inclusion on the Nasdaq National Market. Specifically, Nasdaq requires, effective February 23, 1998, that common and preferred stock trading on its National Market continuously have a minimum bid price of $1.00. At times in 1997 and 1998, the Company's Common Stock had a minimum bid price below $1.00 before the one-for-four reverse stock split in December 1998. The Company's Preferred Stock has consistently traded with a minimum bid price of over $1.00. Although the Company's Common Stock is currently trading with a minimum bid price above $1.00, there can be no assurance that the Company's Common Stock will continue to trade with such a minimum bid price. In the event that the Company's Common Stock has a minimum bid price below $1.00, the Company believes it can propose and effect a plan to achieve compliance; however, there can be no assurance that the Company will be able to stay in compliance with the Nasdaq requirement. While the Company believes that it can continue to meet the requirements of the Nasdaq Stock Market, any ability to trade on a national exchange could adversely impact the value of the Company's stock. 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. Item 2. Changes in Securities During the first quarter of 1999, the Company completed a private placement of 388,500 shares of Common Stock pursuant to Regulation D under the Securities Act. Proceeds from the offering were $777,000. During the first quarter of 1999, the Company issued 45,555 shares of Common Stock under the Company's Employee Stock Purchase Plan. 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 3, 1999, at which the Stockholders elected six directors, approved an increase to the number of shares which may be granted under the Amended and Restated 1997 Director Stock Option Plan, approved an increase to the number of shares which may be granted under the Employee -17- Stock Purchase Plan, and ratified the selection of Ernst & Young LLP as the Company's independent accountants for the year ending December 31, 1999. 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 Edwin A. Adams..........................12,480,565 51,375 Robert P. Bernardi.......................7,388,683 5,143,257 John F. Burton..........................12,480,565 51,375 James J. Leto...........................12,480,315 51,625 C. Alan Peyser..........................12,480,565 51,375 Michael J. Smith........................12,480,565 51,375 With respect to the proposal to approve an increase to the number of shares which may be granted under the Amended and Restated 1997 Director Stock Option Plan, 11,257,924 shares were voted for the proposal, 1,207,206 against the proposal and 66,808 were withheld. With respect to the proposal to approve an increase to the number of shares which may be granted under the Employee Stock Purchase Plan, 11,398,667 shares were voted for the proposal, 1,065,744 against the proposal and 67,529 were withheld. In connection with the ratification of the selection of Ernst & Young LLP as the independent auditors for the Company for the year ending December 31, 1999, 12,211,318 shares were voted in favor of the ratification, 73,501 against the ratification and 22,121 abstained. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27.1 Financial data schedule (b) Reports on Form 8-K. None. -18- 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. 6/30/99
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, 1999. 0000883946 TREEV INC 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1,741 0 12,005 (1,251) 567 13,809 7,625 (6,350) 18,844 14,423 0 0 0 1 4,395 18,844 13,444 13,444 7,899 7,899 8,806 0 46 (3,307) 0 (3,307) 0 0 0 (3,307) (0.31) (0.31)
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