-----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, WcOfR7pFC+Qm9mDHkgjfiglBYnMqp26IiHLj/SxksSve4YAwxGaJ3RXgEYV35ZeS /hUfL9uQAcIxA3tcDV0tFw== 0000912057-99-006438.txt : 19991117 0000912057-99-006438.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006438 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROFIELD GRAPHICS INC /OR CENTRAL INDEX KEY: 0000944947 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 930935149 STATE OF INCORPORATION: OR FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-26226 FILM NUMBER: 99758706 BUSINESS ADDRESS: STREET 1: 9216 SW DURHAM RD CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036204000 MAIL ADDRESS: STREET 1: MICRFIELD GRAPHICS INC /OR STREET 2: 9216 SW DURHAM RD CITY: PORTLAND STATE: OR ZIP: 97224 10QSB 1 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 1O-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number : 0-26226 MICROFIELD GRAPHICS, INC. (Exact name of small business issuer as specified in its charter) OREGON 93-0935149 (State or other jurisdiction (I. R. S. Employer of incorporation or organization) Identification No.) 7216 SW DURHAM RD. PORTLAND, OREGON 97224 (Address of principal executive offices and zip code) (503) 620-4000 (Issuer's telephone number including area code) Check whether the issuer (1) filed all reports required to be filed by Section 3 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] The number of shares outstanding of the Registrant's Common Stock as of October 31, 1999 was 4,132,185 shares. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] MICROFIELD GRAPHICS, INC. FORM 10-QSB INDEX
PART I FINANCIAL INFORMATION Page - ------------------------------- ---- Item 1. Financial Statements Consolidated Balance Sheet - October 2, 1999 and January 2, 1999 3 Consolidated Statement of Operations -Three and Nine Months Ended October 2, 1999 and October 3, 1998 4 Consolidated Statement of Cash Flows -Nine Months Ended October 2, 1999 and October 3, 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION - ---------------------------- Item 3. Defaults upon Senior Securities 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12
2 MICROFIELD GRAPHICS, INC. CONSOLIDATED BALANCE SHEET
(unaudited) October 2, January 2, 1999 1999 ------------ ------------ Current assets: Cash $ 454,370 $ 739,628 Accounts receivable, net of allowances Of $41,841 and $44,553 381,450 797,543 Inventories (Note 2) 647,457 946,103 Prepaid expenses and other 113,082 156,627 ------------ ------------ Total current assets 1,596,359 2,639,901 Property and equipment, net (Note 4) 279,601 379,457 Other assets 172,876 226,140 ------------ ------------ $ 2,048,836 $ 3,245,498 ------------ ------------ ------------ ------------ Current liabilities: Current portion of debt $ 551,778 $ 738,333 Accounts payable 398,729 532,308 Accrued payroll and payroll taxes 59,279 255,698 Unearned income 85,290 56,101 Accrued liabilities 191,982 186,403 ------------ ------------ Total current liabilities 1,287,058 1,768,843 Long-term debt, net of current portion 38,610 84,165 ------------ ------------ 1,325,668 1,853,008 Shareholders' equity: Common stock, no par value, 25,000,000 shares Authorized, 4,132,185 and 3,686,775 shares Issued and outstanding 15,352,662 14,362,698 Accumulated deficit (14,629,494) (12,970,208) ------------ ------------ Total shareholders' equity 723,168 1,392,490 ------------ ------------ $ 2,048,836 $ 3,245,498 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 3 MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited) (unaudited) Three months ended Nine months ended October 2, October 3, October 2, October 3, 1999 1998 1999 1998 --------- --------- --------- --------- Sales $ 919,561 1,245,020 $ 2,780,309 5,642,067 Cost of goods sold 569,749 719,199 1,742,473 3,274,290 --------- --------- --------- --------- Gross profit 349,812 525,821 1,037,836 2,367,777 Operating expenses Research and development 56,776 254,862 582,435 710,360 Marketing and sales 304,759 619,413 1,364,475 2,050,668 General and administrative 168,438 236,382 657,438 705,039 --------- --------- --------- --------- 529,973 1,110,657 2,604,348 3,466,067 --------- --------- --------- --------- Loss from operations (180,161) (584,836) (1,566,512) (1,098,290) Other income (expense) Interest income (expense), net (16,066) (7,626) (43,350) (39,384) Other income, net 95 98 (49,424) 228 --------- --------- --------- --------- Loss before provision for income taxes (196,132) (592,364) (1,659,286) (1,137,446) Provision for income taxes 800 1,505 --------- --------- --------- --------- Net loss $ (196,132) (593,164) $(1,659,286) (1,138,951) --------- --------- --------- --------- --------- --------- --------- --------- Net loss per share Basic $ (.05) (.16) $ (.42) (.32) --------- --------- --------- --------- --------- --------- --------- --------- Diluted $ (.05) (.16) $ (.42) (.32) --------- --------- --------- --------- --------- --------- --------- --------- Shares used in per share calculations Basic 4,132,185 3,627,984 3,995,230 3,512,594 --------- --------- --------- --------- --------- --------- --------- --------- Diluted 4,132,185 3,627,984 3,995,230 3,512,594 --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 4 MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited) Nine months ended --------------------------------- October 2, October 3, 1999 1998 ----------- ----------- Cash Flows From Operating Activities: Net loss $(1,659,286) $(1,138,951) Adjustments to reconcile net loss to net cash Used in operating activities: Depreciation and amortization 146,471 143,361 Changes in assets and liabilities: Accounts receivable 416,093 184,753 Inventories 298,646 (192,789) Prepaid expenses and other 80,521 64,967 Accounts payable (133,579) (193,786) Accrued payroll and payroll taxes (196,419) (85,014) Unearned income 29,189 (5,900) Accrued liabilities (33,031) 58,653 ----------- ----------- Net cash used in operating activities (1,051,395) (1,164,706) Cash flows from investing activities: Acquisition of property and equipment (30,327) (161,994) ----------- ----------- Net cash used in investing activities (30,327) (161,994) Cash flows from financing activities: Payments on equipment line of credit (62,500) (62,500) Proceeds from (payments on) operating line of credit (131,000) (225,000) Proceeds from exercise of common stock options 1,210 and warrants 93,677 Proceeds from issuance of common stock 988,754 1,990,208 ----------- ----------- Net cash provided by financing activities 796,464 1,796,385 Net increase (decrease) in cash and cash equivalents (285,258) 469,685 Cash and cash equivalents, beginning of period 739,628 909,184 ----------- ----------- Cash and cash equivalents, end of period $ 454,370 $ 1,378,869 ----------- ----------- ----------- ----------- Supplemental disclosure of cash flow information: Cash paid for: Interest $ 52,709 $ 76,517 ----------- ----------- ----------- ----------- Income taxes $ 0 $ 705 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. 5 MICROFIELD GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Microfield Graphics, Inc. (the "Company") for the quarters and the nine months ended October 2, 1999 and October 3, 1998 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The financial information as of January 2, 1999 is derived from the Company's Annual Report on Form 10-KSB. The accompanying consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles and should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended January 2, 1999. In the opinion of Company management, the unaudited consolidated financial statements for the interim periods presented include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Operating results for the quarters and the nine months ended October 2, 1999 are not necessarily indicative of the results that may be expected for the full year or any portion thereof. The Company's fiscal year is the 52- or 53-week period ending on the Saturday closest to the last day of December. The Company's current fiscal year is the 52-week period ending January 1, 2000. The Company's last fiscal year was the 53-week period ended January 2, 1999. The Company's third fiscal quarters in fiscal 1999 and 1998 were the 13-week periods ended October 2, 1999 and October 3, 1998, respectively. 6 2. INVENTORIES Inventories are stated at the lower of standard cost (which approximates the first-in, first-out method), or market value. Inventory costs include raw materials, direct labor and allocated overhead and consist of the following:
October 2, January 2, 1999 1999 ---------- ---------- Raw materials $ 540,355 $ 607,140 Finished goods 107,102 338,963 ---------- ---------- $ 647,457 $ 946,103 ---------- ---------- ---------- ----------
3. PROPERTY AND EQUIPMENT
October 2, January 2, 1999 1999 ---------- ---------- Machinery and equipment $1,253,340 $1,223,014 Less accumulated depreciation and amortization 973,739 843,557 ---------- ---------- $ 279,601 $ 379,457 ---------- ---------- ---------- ----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Microfield Graphics, Inc. (the "Company") develops, manufactures and markets computer conferencing and telecommunications products to facilitate group communications. The principal purpose of these products is to make meetings more productive and cost effective by capturing ideas from all meeting members (whether they are located locally or linked remotely through a computer and an audio hookup) and making the information available to all of the linked systems, where everyone involved can see and interact with the information produced and presented. The Company's product lines incorporate a series of digital whiteboards, digital whiteboard rear projection systems and interactive plasma display systems under the brand name SoftBoard, along with a variety of application software packages, supplies and accessories. Information written or drawn on the SoftBoard surface is recorded and displayed on a personal computer simultaneously and in color using the Company's proprietary technology. The information is recorded in a computer file that can be replayed, printed, faxed, e-mailed or saved for future applications. Optional proprietary software allows the information to be communicated in real time to remote computers over standard telephone lines, networks and the Internet. The Company was incorporated in Oregon in 1986. The Company's executive offices are located at 7216 SW Durham Road, Portland, OR 97224. In July 1997 the Company entered into a General Purchase and Development Agreement with Minnesota Mining and Manufacturing Company (3M), under which 3M globally marketed advanced versions of the Company's SoftBoard family of products. Under the terms of the two year agreement, the 7 Company developed specialized versions of the SoftBoard product line exclusively for 3M. Shipments from the Company to 3M began in the fourth quarter of 1997 and continued through the second quarter of 1998. For the nine months ended October 2, 1999 and October 3, 1998, approximately 0% and 45%, respectively, of the Company's sales were attributable to 3M. In April 1999, the Company was informed by 3M of its decision to exit the Advanced Meeting Solutions (AMS) Project under which the SoftBoard family of products was marketed. The Company reached an agreement with 3M under which the Company assumed responsibility for 3M's global distribution network of whiteboard products. In this role, the Company will support digital whiteboard product sales, service and warranty obligations for all of 3M's installed base and dealer network affected by their withdrawal from the AMS Project. The reduced level of sales to 3M and their announced exit from the AMS program has had a material adverse effect on the Company's business. The Company believes that 3M's liquidation of its inventory of Ideaboard products negatively impacted sales of its SoftBoard digital whiteboard products during the first half of 1999. Unit sales in this product line have been strengthening, reflecting completion of the 3M liquidation program, the recent expansion of the Company's dealer base as previously announced, and new product pricing strategies which the Company recently introduced. In March 1998 the Company signed a Common Stock Purchase Agreement with Steelcase Inc. (Steelcase), pursuant to which Steelcase purchased 350,000 shares of the Company's common stock and a warrant for a total of $2,012,500 in cash. The warrant gives Steelcase the right to purchase an additional 260,000 shares of the Company's common stock at $6.75 per share. The warrant is exerciseable starting on March 16, 1999 and expires on March 16, 2001. In March 1999, Steelcase purchased an additional 444,445 shares for a total of $1,000,001 in cash. As of October 2, 1999 Steelcase owned 23% of the outstanding common stock of the Company. At the end of the second quarter of 1999, the Company introduced a major restructuring to realign operating expenses with sales levels while retaining critical functions in key operational areas. Total overhead expense was reduced by approximately 50% through a combination of staff reductions, workweek reductions, temporary executive salary reductions, and reductions in general expense spending levels. As a result, the Company has delayed the previously reported Joint Development Agreement with Steelcase Inc. entered into in the first quarter of 1999. In the near term, the Company is focusing efforts on expanding product offerings based on its current technology. It is the Company's intention to resume the joint product development program with Steelcase when the Company achieves profitability on a sustainable basis. There is no assurance that the development program will be resumed or that the restructuring will return the Company to profitability. Also at the end of the second quarter of 1999, the Company introduced a product price reduction in its 200 Series digital whiteboard product line. Prices were adjusted to achieve closer parity with competing products in the marketplace. As a result of the restructuring and increased unit sales in the third quarter of 1999, the Company reported a net loss of $196,000, an improvement of 77% from the second quarter of 1999 and an improvement of 67% from the third quarter of 1998. The Company's future results of operations will depend on continued and increased market acceptance of its SoftBoard products and the Company's ability to modify them to meet the needs of its customers. Any reduction in demand for, or increasing competition with respect to, these products could have a material adverse effect on the Company's financial condition and results of operations. 8 RESULTS OF OPERATIONS The following table sets forth, as a percentage of sales, certain consolidated statement of operations data relating to the SoftBoard Business for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------- ---------------------- OCT. 2, OCT 3, OCT. 2, OCT 3, 1999 1998 1999 1998 ------ ------ ------ ------ Sales 100% 100% 100% 100% Cost of goods sold 62 58 63 58 ------ ------ ------ ------ Gross profit 38 42 37 42 Research and development expenses (6) (20) (21) (13) Marketing and sales expenses (33) (50) (49) (36) General and administrative expenses (18) (19) (24) (12) ------ ------ ------ ------ Loss from operations (19) (47) (57) (19) Other income (expense) (2) (1) (3) (1) ------ ------ ------ ------ Loss before provision for income taxes (21) (48) (60) (20) Provision for income taxes -- -- -- -- ------ ------ ------ ------ Net loss (21)% (48)% (60)% (20)% ------ ------ ------ ------ ------ ------ ------ ------
THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1999 COMPARED WITH THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 3, 1998 SALES. Sales decreased $325,000 (26%) to $920,000 in the third quarter of 1999 from $1,245,000 in the third quarter of 1998. Sales decreased $2,862,000 (51%) to $2,780,000 in the first nine months of 1999 from $5,642,000 in the first nine months of 1998. The decrease in sales for the three month period resulted primarily from an increased percentage of sales through the Company's reseller distribution channel at discounted prices combined with the effect of a price reduction on the Series 200 product line introduced at the end of the second quarter. The decrease for the first nine months of this year resulted primarily from the absence of revenue from 3M as compared to the comparable prior year period. SEE OVERVIEW. Unit sales for the third quarter of 1999 increased by 49% over the second quarter which the Company believes is a result of completion of the 3M liquidation program, a more effective product pricing strategy, and expansion of the Company's dealer base. GROSS PROFIT. Cost of goods sold includes the cost of raw materials needed to assemble the products, assembly and preparation by vendors and direct and indirect costs associated with the procurement, testing, scheduling and quality assurance functions performed by the Company. The Company's gross margin decreased to 38% in the third quarter of 1999 from 42% in the third quarter of 1998. The Company's gross margin also decreased to 37% in the first nine months of 1999 from 42% in the first nine months of 1998. The decline in gross margin during the third quarter of 1999 versus the comparable year period was primarily due to the effect of the 200 Series product line price reduction introduced at the end of the second quarter of 1999 combined with decreased overhead absorption. Gross margins for the nine months decreased between years as a result of lower sales volumes resulting in decreased manufacturing overhead absorption. Gross margin remained constant at 38% between the second and third quarters of 1999. 9 RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are expensed as incurred. These expenses decreased $198,000 (78%) to $57,000 in the third quarter of 1999 from $255,000 in the third quarter of 1998. These expenses decreased $128,000 (18%) to $582,000 in the first nine months of 1999 from $710,000 in the first nine months of 1998. The decreases for both periods were due primarily to the Company restructuring implemented at the end of the second quarter. Research and development expenses increased as a percentage of sales to 21% in the first nine months of 1999 from 13% in the first nine months of 1998. The increase was due primarily to the lower level of Company revenue in the first nine months of 1999 compared to the same period in 1998. Research and development expenses decreased as a percentage of sales to 6% in the first three months of 1999 from 20% in the first three months of 1998. The decrease is due primarily to the restructuring implemented at the end of the second quarter. MARKETING AND SALES EXPENSES. Marketing and sales expenses decreased $315,000 (51%) to $305,000 in the third quarter of 1999 from $619,000 in the third quarter of 1998. These expenses decreased $686,000 (33%) to $1,364,000 in the first nine months of 1999 from $2,051,000 in the first nine months of 1998. The decrease between quarters was due primarily to the restructuring implemented at the end of the second quarter and continued lower costs associated with the current advertising program and decreased participation in trade shows. Marketing and sales expenses increased as a percentage of sales to 49% in the first nine months of 1999 from 36% in the first nine months of 1998 primarily due to the lower sales volume in 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $68,000 (29%) to $168,000 in the third quarter of 1999 from $236,000 in the third quarter of 1998. These expenses decreased $48,000 (7%) to $657,000 in the first nine months of 1999 from $705,000 in the first nine months of 1998. The decreases for both periods were due primarily to the Company restructuring implemented at the end of the second quarter. General and administrative expenses increased as a percentage of sales to 24% in the first nine months of 1999 from 12% in the first nine months of 1998 primarily due to lower sales volume in 1999. General and administrative expenses as a percentage of sales decreased slightly to 18% for the three months ended 1999 from 19% for the prior year comparable period. OTHER INCOME (EXPENSE). Other income (expense) includes interest income, interest expense, and miscellaneous income. Other expense, net was ($16,000) in the third quarter of 1999 compared to other expense, net of ($8,000) in the third quarter of 1998. Other expense, net was ($93,000) in the first nine months of 1999 compared to ($39,000) of other expense, net in the first nine months of 1998. The majority of the increase over the comparable nine-month period in the prior year is due to a legal settlement and related expenses of approximately $23,000 and a one time non-recurring charge of $26,000 related to the restructuring. (See Overview) Other expense, net also increased as a result of increased levels of borrowing under the Company's operating line of credit and a decrease in interest income due to lower average cash balances in the first nine months of 1999 compared to the first nine months of 1998. INCOME TAXES. The Company recorded losses from operations in the third quarters of 1999 and 1998. Accordingly no provision for income taxes was provided for in either of these periods. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations and capital expenditures through the private and public sale of equity securities, cash from operations, and borrowings under operating lines of credit. At October 2, 1999, the Company had working capital of approximately $309,000 and its principal source of liquidity consisted of approximately $454,000 in cash and cash equivalents. Accounts receivable decreased to $381,000 from $797,000 at the end of 1998, and inventory decreased to $647,000 from $946,000 at the end of 1998. 10 The Company has a line of credit with its bank using its accounts receivable and certain of its inventory as collateral. The Loan Agreement for the line of credit expired on September 8, 1999, at which time $524,000 was outstanding under the line of credit. The Company and the bank continued to operate under the terms of the Loan Agreement until new terms were formalized on October 25, 1999. At September 8, 1999 and at October 2, 1999, the Company was not in compliance with the minimum tangible net worth financial covenant of its Loan Agreement with the bank. On October 15, 1999, the bank delivered a notice of default and the Company subsequently entered into a Forbearance Agreement which provides for a reduction in the line of credit to $650,000, the elimination of inventory from the collateral base over a 14 month period, an interest rate increase, and certain financial covenants with which the Company must comply. The Forbearance Agreement period is through April 30, 2000. The operating line bears interest monthly at prime ( 8.5 % at October 2, 1999) and will increase to prime plus 2.5% under terms of the the Forbearance Agreement. In the event that the Forbearance Agreement is not extended or the Loan Agreement is not renewed, the Company's business and financial condition could be materially and adversely affected. At the end of the second quarter, the Company concluded that it may not have sufficient funds to operate for at least the next twelve months due to reduced resources (cash and cash equivalents, cash available under its operating line of credit) coupled with the reduction in sales that occurred during the first six months of 1999. In response to this, the Company significantly reduced corporate expenses through a restructuring and introduced additional interim cost savings measures. (SEE OVERVIEW) During the third quarter, these measures significantly reduced operating losses and improved cash flow. The Company believes its resources are sufficient to fund its operations until April 2000 if the Forbearance Agreement is not terminated prior to that time. If the Company's lender (a) terminates the Forbearance Agreement prior to April 2000 and does not renew the Loan Agreement at that time or (b) does not extend the Forbearance Agreement upon its expiration in April 2000 and does not renew the Loan Agreement at that time, the Company believes that it will not have resources sufficient to fund its operations for the next twelve months unless it is able to obtain alternative financing on terms acceptable to the Company. The Company is also exploring alternative means of financing the business. There is no assurance that the Company can obtain such financing, or that such financing will be on terms acceptable to the Company. The Company has no commitments for capital expenditures in material amounts. IMPACT OF THE YEAR 2000 ISSUE The Company has made an assessment of the Year 2000 issue on its internal systems and equipment, its hardware and software products, and on the systems of its vendor base. Based on this assessment, the Company believes that its internal systems have been updated to address the Year 2000 issue, its hardware and software products will properly recognize calendar dates beginning in the Year 2000, and its vendor base is appropriately addressing the Year 2000 issues. Accordingly, the Company believes it is Year 2000 ready and does not currently expect to incur any material costs in connection with the Year 2000 issue. 11 PART II. OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company failed to comply with the minimum tangible net worth financial covenant of its Loan Agreement with its bank. The bank has delivered a notice of default and the Company has entered into a Forbearance Agreement that extends through April 30, 2000. At that time, in the event the Forbearance Agreement is not extended or the Loan Agreement is not renewed, the Company's business and financial condition could be materially and adversely affected. SEE LIQUIDITY AND CAPITAL RESOURCES. ITEM 5. OTHER INFORMATION Subsequent to the end of the third quarter, the Company was notified by the Nasdaq Stock Market that its securities would be delisted from the Nasdaq SmallCap Market effective with the close of business October 29, 1999 for failure to maintain certain requirements for continued listing. The Company's securities are presently traded on the OTC Bulletin Board. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibit filed as part of this report is listed below: Exhibit No. ----------- 27 Financial data schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended October 2, 1999. 12 SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 16, 1999 MICROFIELD GRAPHICS, INC. By:_________________________________ John B. Conroy President and Chief Executive Officer (Principal Executive Officer) By:_________________________________ Sandra K. Pleasants Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 13 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the issuer caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 16, 1999 MICROFIELD GRAPHICS, INC. By:/s/JOHN B. CONROY ----------------- John B. Conroy President and Chief Executive Officer (Principal Executive Officer) By:/s/ SANDRA K. PLEASANTS ----------------------- Sandra K. Pleasants Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 14 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-QSB FOR THE THREE AND NINE MONTH PERIODS ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-01-2000 JAN-03-1999 OCT-02-1999 454 0 423 42 647 1,596 280 146 2,049 1,287 0 0 0 15,353 (14,629) 2,049 2,781 2,781 1,743 1,743 2,605 0 53 (1,659) 0 0 0 0 0 (1,659) (.42) (.42)
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