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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------


                                  FORM 10-K/A


(MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                       FOR THE FISCAL YEAR ENDED JUNE 30, 1999

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM             TO

                           COMMISSION FILE NUMBER: 0-20777

                         XIONICS DOCUMENT TECHNOLOGIES, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      04-3186685
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
              70 BLANCHARD ROAD                                    01803
          BURLINGTON, MASSACHUSETTS                              (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 229-7000
   SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE

      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                     COMMON STOCK, $.01 PAR VALUE PER SHARE
                                (TITLE OF CLASS)

     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 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 [ ]


     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A.  [ ]


     The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of September 3, 1999, was $86,377,621 based
on the last sale price as reported by The Nasdaq Stock Market.

     As of September 3, 1999, there were 12,977,407 shares of the registrant's
common stock issued and 11,732,463 shares of the registrant's common stock
outstanding.

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                               TABLE OF CONTENTS


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<S>       <C>                                                           <C>
                                   PART I
ITEM 1.   BUSINESS....................................................    2
ITEM 2.   PROPERTIES..................................................    7
ITEM 3.   LEGAL PROCEEDINGS...........................................    8
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........    8

                                  PART II
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED               9
          STOCKHOLDER MATTERS.........................................
ITEM 6.   SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA..............   10
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION    11
          AND RESULTS OF OPERATIONS...................................
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET          20
          RISK........................................................
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   20
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING    20
          AND FINANCIAL DISCLOSURE....................................

                                  PART III
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS............................   21
ITEM 11.  EXECUTIVE COMPENSATION......................................   23
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND            30
          MANAGEMENT..................................................
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   31

                                  PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM     32
          8-K.........................................................
SIGNATURES............................................................   35
SUMMARY OF TRADEMARKS.................................................   36
FINANCIAL STATEMENTS..................................................  F-1
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                                        1
<PAGE>   3

                                     PART I


     IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K/A
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934.
THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW IN THE SECTION ENTITLED "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- FACTORS AFFECTING FUTURE RESULTS". READERS SHOULD CAREFULLY REVIEW
THESE RISKS AND THE RISKS DESCRIBED IN OTHER DOCUMENTS THE COMPANY FILES FROM
TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
QUARTERLY REPORTS ON FORM 10-Q TO BE FILED IN THE COMPANY'S FISCAL YEAR 2000.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS ANNUAL REPORT ON FORM
10-K/A. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS
TO THE FORWARD-LOOKING STATEMENTS OR UPDATE THEM TO REFLECT EVENTS OR
CIRCUMSTANCES OCCURRING AFTER THE DATE OF THIS ANNUAL REPORT ON FORM 10-K/A.


ITEM 1.  BUSINESS

BUSINESS OVERVIEW


     Xionics Document Technologies, Inc. ("Xionics" or the "Company") is a
provider of digital page processing software and technology for the office
market, enabling users to print, scan, copy, process and transmit documents to
computer peripheral devices that perform document imaging functions. Such
devices include printers, copiers, scanners, and fax machines, as well as
multifunction peripherals ("MFPs") that perform a combination of these imaging
functions. The Company offers integrated, modular embedded software products,
along with firmware and silicon technology products, intended to provide the
performance, output quality and network connectivity required for today's office
market. The Company also offers complementary personal computer software
products, in particular printer drivers. Xionics provides standards-based
technology around which its customers, original equipment manufacturers ("OEMs")
of peripheral devices, can design and develop differentiated products. Xionics'
technology and expertise is packaged as a range of products and services, from
licenses of core source code to complete turnkey controller solutions, all
designed to help OEMs get their devices to market quickly and cost-effectively.
A controller is a printed circuit board inside the printer that contains all of
the processing components, circuitry and firmware necessary to enable the
printer to convert data received from a user's personal computer into marks on
the printed page. Xionics markets its solutions directly to OEMs such as
Hewlett-Packard, IBM, QMS, Ricoh, Samsung, GCC, Seiko Epson, Sharp and Xerox.


     On August 12, 1998, the Company sold substantially all of the assets of its
Digital Document Products Division ("DDPD") to GammaGraphX, Inc. ("GGX") of
Waltham, Massachusetts for consideration consisting of future royalties on GGX's
future sales of all products purchased from the Company in this transaction, if
any, from the date of acquisition through September 2001, or until royalties
reach an aggregate of $2.2 million, subject to certain provisions as defined in
the asset purchase agreement; assumption of certain liabilities; and promissory
notes, payable in 1999 and 2000, totaling $1.28 million, subject to collection
of accounts receivable sold in the transaction. The assets sold include the line
of print and scan image acceleration products formerly marketed by the Company
under the names Turbo, Lightning, PowerLightning and XipPrint, as well as the
scanner control board products and bar code recognition software products
formerly marketed by Seaport Imaging ("Seaport"), which was acquired by the
Company in August 1997. The Company has recently agreed to extend the dates on
which certain payments from GGX are due and has received a security interest in
certain of GGX's assets.

                                        2
<PAGE>   4

     On July 29, 1999, the Company entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") by and among Oak Technology, Inc.
("Oak"), Vermont Acquisition Corporation, a wholly-owned subsidiary of Oak
("Merger Sub"), and the Company, whereunder the Company will merge with and into
Merger Sub and thus become a wholly-owned subsidiary of Oak (the "Merger").
Completion of the Merger is contingent upon Xionics' stockholders approving the
Merger at a special meeting to be announced in a Joint Proxy Statement expected
to be mailed to Xionics stockholders during October 1999; Oak's stockholders
approving the issuance of new shares of Oak common stock to be exchanged for
Xionics common stock; and the satisfaction or waiver of other closing conditions
contained in the Merger Agreement. In the Merger, Xionics stockholders will
receive $2.94 in cash and 0.8031 shares of Oak Common Stock for each share of
Xionics Common Stock owned.

     The Company was incorporated in Delaware on December 30, 1992 under the
name Xionics International Holdings, Inc., although a predecessor to the Company
was formed prior to 1985. In May 1995, the Company changed its name to Xionics
Document Technologies, Inc. The Company's executive offices are at 70 Blanchard
Road, Burlington, Massachusetts 01803. Its telephone number is (781) 229-7000.

CORE TECHNOLOGIES

     Intelligent Peripheral System.  At the heart of Xionics' enabling
technology for OEMs, and forming the foundation of Xionics' embedded systems
product offerings, is the Intelligent Peripheral System ("IPS"), a modular,
scalable, layered software and hardware architecture that provides processing
and control of document imaging peripheral devices. IPS was developed based on
Xionics' longstanding expertise in the development of page description language
interpreters, and enhanced and extended into a complete controller architecture
for printers and MFPs through Xionics' intensive investment in research and
development over the past several years. The Intelligent Peripheral System gives
OEMs the ability to build high-performance, network-enabled devices quickly and
cost-effectively. As OEMs increasingly rely on outside suppliers to provide
foundation technology for their document imaging devices, IPS enables Xionics to
meet OEMs' outsourcing needs and capture a significant share of the expanding
market for outsourced technology and engineering services. The Intelligent
Peripheral System is productized in a series of software developer packages and
hardware components, discussed below.

PRODUCTS

     IPS/2000.  IPS/2000, formerly known as IPS-PRINT, is a software developer
package that contains page rendering application components and supporting
embedded system service components needed to build printer controllers. The
package includes Xionics' industry-leading compatible implementations of
industry-standard software interpreters for the PostScript and PCL page
description languages ("PDLs"). These include Xionics 5(TM), Xionics 5E(TM),
Xionics 5C(TM), and Xionics 6(TM), which emulate the PCL family of PDLs
developed and marketed by Hewlett-Packard, and Xionics PS2(TM) and Xionics
PS3(TM), which are compatible with the PostScript(TM) Level 2 and PostScript
Level 3 page description language interpreters from Adobe Systems Inc. Xionics
PS3 was first released and shipped to 7 customers during the Company's 1999
fiscal year. Each Xionics PDL interpreter can render color and Asian-font pages
as well as standard monochrome output. IPS/2000 includes patented methods for
significantly reducing the amount of printer memory necessary for rendering
complex pages. IPS/2000 also includes extensions that allow OEMs to build high-
performance, cost-effective controllers for multifunction peripheral devices
("MFPs"). The additional software components include applications for copy, scan
and fax functions plus the extended core system services needed to support the
concurrent operation of multiple functions.

     IPS/2000 Operating System.  The IPS/2000 operating system provides a
real-time, multi-tasking core services system based on a dataflow architecture
which permits the direction of multiple parallel data streams through a system
of software defined and hardware executed pipelines. The IPS/2000 operating
system controls conventional reduced instruction set computer ("RISC")
processors in printer only configurations, and can control the XipChip(R) family
of MFP oriented application specific integrated circuits ("ASICs") in
multiple-function configurations.

                                        3
<PAGE>   5

     Printer Drivers.  Xionics offers printer drivers for the PCL6, PCL5E and
PostScript Levels 2 and 3 page printing environments and the Microsoft Windows
3.1, Windows 95, Windows 98 and Windows NT 4.0 operating systems. Driver user
interfaces may be customized to match the individual OEM's look and feel, and
translated into a wide variety of human languages, including Asian languages.

     XipChip Family of ASICs.  Xionics has completed development of XipChip 2.0,
a downsized version of XipChip 1.5, which was the first in the Company's family
of parallel image data processing ASICs directed at the processing needs of
advanced MFPs. The XipChip processor family is able to provide the massive
bandwidth required to drive advanced MFPs and provide true concurrent operation
of two or more functions (for example, receiving a fax and making a copy)
running simultaneously on the same MFP device. XipChip 1.5 began shipping in
commercial volumes in an OEM's MFP device in the fourth calendar quarter of
1998, and XipChip 2.0 is expected to begin shipping in commercial volumes in an
OEM's MFP device in fiscal 2000.

SERVICES

     Nonrecurring Engineering Services.  Xionics assists OEMs in deploying its
products and technology in their devices by providing engineering services which
may include complete controller design as well as custom engineering for
vendor-specific features that complement the Company's standard technology.
Driver development and customization is also offered. In addition, the Company
maintains a network of third-party development partners under the Xionics
Partners Program to give Xionics and OEM customers the option of using an
independent development partner closely allied with Xionics for development and
integration services.

     Manufacturing Services.  For OEMs wishing to procure a total turnkey
controller solution, Xionics from time to time provides manufacturing management
services, including complete project management of the design, development, and
manufacturing start-up, as well as management of the ongoing production of the
OEM's controller board by a third-party manufacturing contractor.

     OEM Services.  The Company's OEM Services group provides customer support
in every aspect of development, training and maintenance. Software maintenance
service is provided on a contract basis, and includes updates of the licensed
software, if any, along with support in the form of telephonic and electronic
mail response to customer questions. Engineering support services, in which
Xionics engineers perform or assist with specific engineering tasks for OEMs,
are available for a fee either on a project specific or general as needed basis.

SALES AND MARKETING

     The Company markets and sells its products and services, and licenses its
software, directly to OEMs of document imaging peripheral devices such as
printers, copiers, faxes, scanners and MFPs who distribute their products
worldwide. In addition, Xionics has licensed certain of its independent
development partners, participants in the Xionics Partners Program who perform
porting or controller design services for OEMs, to distribute its printer
software to OEMs for inclusion in the products being developed by the partners
for the OEMs. As of September 3, 1999, the Company's sales force had a staff of
22 people engaged in direct sales and sales support and located at the Company's
headquarters in Burlington, Massachusetts and the Company's sales office in
Tokyo, Japan. The Company derives a significant portion of its revenue from
sales and licenses of its products to international customers. The Company has
agreed in principle to transfer its Japanese sales operations to a new
independent company being formed by the current executive director of its
Japanese subsidiary, and to enter into a sales representative agreement with
such new company whereunder it will represent Xionics products in Japan. The
Company continually seeks to enhance its relationships with its existing OEM
accounts and obtain new customers through a proven account management program
and through worldwide new business development efforts. Sales account executives
each work with a limited number of OEM customers in order to focus on
partnership building and senior Company executives are active participants in
all significant OEM relationships. The Company regularly participates in trade
shows such as COMDEX, CeBIT, and the Seybold Seminars. In addition, the
Company's marketing communications group manages public relations efforts,
produces and distributes marketing and product support materials and maintains a
World Wide Web site with the address www.xionics.com.

                                        4
<PAGE>   6

CUSTOMERS

     The Company's customers consist primarily of OEMs that manufacture
printers, copiers, faxes, scanners and MFPs and also include several suppliers
of subsystems or components to such OEMs. As of September 3, 1999, the Company
had licensed its IPS products to over 42 OEMs. For the fiscal year ended June
30, 1999, one customer, Hewlett-Packard Company ("Hewlett-Packard" or "HP"),
accounted for approximately 66% of the Company's net revenue and a second
customer, Ricoh Company, Ltd., accounted for approximately 13% of the Company's
net revenue.

     Since September 1994, the Company has had a significant relationship with
Hewlett-Packard Company to supply printer software and related technology and
support. For the three years ended June 30, 1999, 1998, and 1997, revenue from
Hewlett-Packard accounted for approximately 66%, 53%, and 58%, respectively, of
the Company's net revenue. The Company expects that revenue from its
relationship with Hewlett-Packard will continue to represent a material
percentage of the Company's total revenue for the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

     In March 1996, the Company entered into an amendment of its preexisting
agreement with Hewlett-Packard. Under the amended agreement (the "1996 HP
Agreement"), the Company licensed certain of its page description language
technology, including its version of the PostScript page description language,
to Hewlett-Packard. The Company has met all performance milestones on which its
right to receive future payments under the 1996 HP Agreement was conditioned.
The Company's revenue stream from Hewlett-Packard under the 1996 HP Agreement
continued through February 1999 and its cash flow from payments under the 1996
HP Agreement will continue through January 2000.

     In June 1998, the Company entered into a new agreement with Hewlett-Packard
(the "1998 HP Agreement"), under which the Company will develop and license
additional page description language technology to Hewlett-Packard. The Company
expects that its revenue and cash receipts from Hewlett-Packard will continue
after the expiration of the 1996 HP Agreement as the result of the 1998 HP
Agreement through December 2000. However, the Company's right to receive
payments under the 1998 HP Agreement is conditioned upon the Company's meeting
specified delivery milestones, of which the material development obligations
have been met. Hewlett-Packard has the right to terminate the 1998 HP Agreement
upon a failure by the Company to comply with any of the provisions of the 1998
HP Agreement that is not cured within 30 days, and upon the commencement of
certain bankruptcy or insolvency proceedings.

     Beginning in late 1998 and continuing through the present time, the Company
has entered into a series of agreements with Hewlett-Packard for the development
and customization of printer drivers for specific HP laser and inkjet printers
(the "Driver Agreements"). The Company's right to receive payment under each
Driver Agreement is conditioned upon the Company's meeting specified delivery
milestones. Each driver is the subject of a separate agreement, such that any
failure by the Company to meet a delivery milestone under any one agreement will
not affect its right to receive payments under the remaining Driver Agreements.
The Company has met all of its material obligations under the Driver Agreements
which were due to have been performed as of June 30, 1999. The Company
anticipates that its revenues from Hewlett-Packard will continue beyond December
2000 as the result of the Driver Agreements. As with its other agreements with
the Company, Hewlett-Packard has the right to terminate each Driver Agreement
upon a failure by the Company to comply with any of the provisions of that
agreement that is not cured within 30 days, and upon the commencement of certain
bankruptcy or insolvency proceedings.

     By its nature, the OEM market for embedded printing and imaging systems and
software is limited to a small number of companies worldwide who manufacture
document imaging devices. This market, in turn, is dominated by a very few
companies, most of whom are customers of Xionics. The Company's dependence on
its relationships with this small group of companies, combined with the limited
number of OEMs in the market, means that the Company's business, results of
operations and financial condition could be materially adversely affected if the
Company were unable to sustain satisfactory customer relationships or if any of
its significant customers were to experience financial, operational or other
difficulties that resulted in a reduction of orders to the Company or a failure
to pay amounts due to the Company.

                                        5
<PAGE>   7

RESEARCH AND DEVELOPMENT

     The Company's research and development activities are primarily conducted
at the Company's headquarters in Burlington, Massachusetts. As of September 3,
1999, the Company employed 103 software and hardware design engineers, project
managers and engineering support staff. The primary activities of these
employees are new product development, enhancement of existing products, product
testing and technical documentation development. A substantial majority of the
Company's expenses for research and development are allocated to the ongoing
development of the Company's IPS/2000 printer and MFP software products and
printer drivers. A portion of the development staff is engaged in future
technology development in such areas as Internet and corporate intranet
applications, advanced color imaging and next-generation ASICs. The Company has
developed significant tools and methodologies for the automation of testing, bug
tracking and technical document management. The Company's total research and
development expense for fiscal years 1999, 1998, and 1997 was $12.2 million,
$15.5 million and $13.4 million, respectively. The Company anticipates that it
will continue to commit substantial resources to research and development,
although a significant percentage of the engineering staff will be devoted to
customer sponsored engineering, which is included in cost of revenue.

     Through Xionics Document Technologies GmbH ("Xionics GmbH"), a wholly owned
subsidiary located in Dortmund, Germany, the Company has a dedicated ASIC design
staff working to design the XipChip family of ASICs, as well as other future
silicon technology. In 1995, the Company acquired this entity in order to gain
access to the experience of its principal in the design, development and
deployment of complex silicon technology.

COMPETITION

     The market for the Company's products is highly competitive, and many of
the Company's competitors have significantly more resources than the Company.
Principal competitive factors include brand identity, features, price,
performance, ease of integration, service and time to market.

     In the market for embedded printer systems, the Company's IPS/2000 product
line has one primary competitor, Adobe Systems Incorporated ("Adobe"), which has
significantly greater resources than the Company. Adobe was the developer of the
PostScript page description language, which has a significant brand name image.
However, Hewlett-Packard, the Company's largest customer has for the most part
discontinued the use of Adobe PostScript in its printer products. Adobe has
recently changed its licensing practices to make PostScript source code
available to certain of its development partners for the first time, which may
enable Adobe to compete more effectively against the Company. A few other
companies, including Peerless Systems Corporation and Electronics for Imaging,
Inc., offer products and services that compete with the Company's systems
software and integrated controller offerings. The Company's most significant
competition in the area of controller design remains OEMs' in-house development
organizations, and certain large OEMs develop their own proprietary PDL
components as well.

     The Company has a number of competitors and potential competitors for the
MFP-related portions of its IPS/2000 product line, many with significantly
greater resources than the Company. Companies such as Peerless Systems
Corporation and Electronics for Imaging, Inc. are in the market with MFP systems
solutions, including integrated processor chips or chip sets which compete with
the Company's XipChip family of ASICs. Again, OEMs' internal development
organizations represent the Company's most significant competition in this area,
as many of the OEMs now in the market with MFP products have developed much of
their base MFP technology internally.

     In the market for printer driver software, the Company competes primarily
with a small number of companies, including Adobe Systems Incorporated and
Software 2000 Limited, who also offer such software. In addition, a few OEMs
have their own internal driver development capacity.

     In the market for engineering services and manufacturing services the
Company competes primarily with OEMs' internal development and manufacturing
groups, as well as with third-party design houses, contract manufacturers and
the Company's competitors in other markets.

                                        6
<PAGE>   8

INTELLECTUAL PROPERTY

     The Company possesses six United States patents, which will expire at
various future dates beginning in 2011, including two patents issued during the
Company's 1999 fiscal year. In addition to its patents, the Company also relies
on a combination of copyright, trademark and trade secret laws, employee and
third-party non-disclosure agreements, and license agreements for the protection
of its intellectual property. The source code for the Company's products is
protected as an unpublished work under the copyright laws as they currently
exist. Despite these precautions unauthorized third parties may be able to copy
or reverse-engineer all or portions of the Company's products.

     The Company believes that neither its existing products, nor those under
development, infringe any existing patents. There can be no assurance, however,
that the Company is aware of all patents that might be infringed by its
products, or that third parties will not claim such infringement by the Company
with respect to its current or future products. If infringement is alleged, the
Company may seek to obtain a license to use the subject technology. There can be
no assurance that the necessary licenses will be available to the Company on
acceptable terms, if at all, or that the Company would prevail in any related
legal proceeding.

     The Company believes that, because embedded systems and software technology
for printers and MFPs changes and develops rapidly, patent, trade secret and
copyright protection are less important to its ability to compete effectively
than factors such as the knowledge, ability and experience of its employees;
contractual relationships with its market-leading OEM customers; and ongoing
product development and technological innovation.

OPERATIONS

     The Company's operations consist primarily of materials planning for its
controller design and manufacturing services businesses. The Company provides
quality-assurance services in order to test its software and controller products
in conjunction with its OEM customers' printers and MFP devices. The Company has
an in-house software duplication facility which reproduces the Company's OEM
software products on CD-ROM, magnetic tape or other media for delivery to OEMs.

     The Company expects IBM Microelectronics to be its sole source of supply
for its XipChip 1.5 and 2.0 ASICs. Although the Company believes it could
develop other sources for these custom components, no alternative source
currently exists, and identifying an alternative source and obtaining such
components from the alternative source could take several months or longer.

EMPLOYEES

     As of September 3, 1999, Xionics had approximately 176 full-time employees.
The Company employs 130 people in engineering for Company- or customer-sponsored
development, 22 in sales and marketing, 4 in manufacturing services and
operations, and 20 in accounting and administrative functions. The Company hires
temporary employees on an as-needed basis to meet its development goals. None of
the Company's employees are represented by a labor union or subject to a
collective bargaining agreement. The Company believes that its employee
relations are good. Competition in recruiting personnel in the high-technology
industry is intense. The Company believes that its future success will depend in
part on its continued ability to recruit and retain highly skilled engineering
and technical personnel.

ITEM 2.  PROPERTIES

     The Company's principal administrative, sales, marketing, and research and
development facility is located in a leased facility with approximately 74,000
square feet of space in Burlington, Massachusetts, which the Company occupies
under a lease expiring in 2002. Xionics' Japanese sales activities are conducted
from a leased office in Tokyo, Japan. The Company conducts certain of its
research and development activities at a leased facility in Dortmund, Germany.
The Company believes that its facilities are adequate for its current and
foreseeable future needs, and that suitable additional space is likely to be
available on commercially reasonable terms to accommodate the Company's
additional future needs.

                                        7
<PAGE>   9

ITEM 3.  LEGAL PROCEEDINGS


     From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of the date
of this Annual Report on Form 10-K/A, the Company is not a party to any legal
proceedings the outcome of which, in the opinion of management, is likely to
have a material adverse effect on the Company's business, results of operations
or financial condition, either individually or in the aggregate.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1999.

                                        8
<PAGE>   10

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The Company's Common Stock began trading on the Nasdaq Stock Market on
September 26, 1996 under the symbol "XION". The following table sets forth, for
the periods indicated, the high and low closing sales prices for the Company's
Common Stock, as reported by Nasdaq, for the fiscal years ended June 30, 1998
and 1999:

<TABLE>
<CAPTION>
                                                               COMMON STOCK
                                                             ----------------
                                                              HIGH      LOW
                                                             ------    ------
<S>                                                          <C>       <C>
FISCAL QUARTERS ENDED:
  September 30, 1997.......................................  $18.00    $10.25
  December 31, 1997........................................  $19.63    $ 3.19
  March 31, 1998...........................................  $ 6.38    $ 3.47
  June 30, 1998............................................  $ 7.75    $ 4.00

  September 30, 1998.......................................  $ 5.00    $ 3.06
  December 31, 1998........................................  $ 4.88    $ 2.13
  March 31, 1999...........................................  $ 3.59    $ 2.69
  June 30, 1999............................................  $ 4.47    $ 2.94
</TABLE>

     On September 3, 1999, the closing price of the Company's Common Stock was
$6.66.

STOCKHOLDERS

     As of September 3, 1999, there were approximately 89 stockholders of record
and 11,732,463 outstanding shares of Common Stock. The Company believes there
are approximately 2,500 beneficial owners of the Company's Common Stock.

DIVIDENDS

     The Company has not paid dividends to its stockholders since its inception
and does not plan to pay cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the growth of the
Company.

RECENT SALES OF UNREGISTERED SECURITIES

     During the quarter ended June 30, 1999, the Company sold 51,500 shares of
unregistered common stock in reliance on exemptions available under Securities
and Exchange Commission Rule 701, pursuant to the exercise of employee stock
options granted under the Company's 1993, 1995 and 1996 Stock Option Plans (the
"Plans") prior to the effectiveness of the Company's registration statement on
Form S-1, declared effective September 24, 1996. The average exercise price for
the shares was $0.39, and the total consideration received by the Company for
the sale of such shares was $31,675.

USE OF PROCEEDS

     The net proceeds of the Company's initial public offering of its common
stock pursuant to its registration statement on Form S-1, declared effective
September 24, 1996, and of subsequent sales of unregistered securities pursuant
to the exercise of stock options, were used for repaying certain indebtedness,
the acquisition of complementary businesses, namely GCA Gesellschaft fur
Computer-Anwendung mbH ("GCA") and Seaport and to fund the Company's working
capital requirements.

                                        9
<PAGE>   11

ITEM 6.  SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA


     The selected condensed consolidated financial data set forth below with
respect to the balance sheet data at June 30, 1999 and June 30, 1998 and the
statements of operations data for each of the three years in the period ended
June 30, 1999, have been derived from the consolidated financial statements of
the Company included elsewhere in this Form 10-K/A that have been audited by
Arthur Andersen LLP, independent public accountants, as indicated by their
report thereon contained elsewhere herein. The balance sheet data as of June 30,
1997, June 30, 1996 and June 30, 1995 has been derived from consolidated
financial statements of the Company not included in this Form 10-K/A that have
been audited by Arthur Andersen LLP, independent public accountants. The
selected consolidated financial data should be read in conjunction with the
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Form 10-K/A.



<TABLE>
<CAPTION>
                                                                 FISCAL YEAR ENDED JUNE 30,
                                                    ----------------------------------------------------
                                                     1999        1998       1997       1996       1995
                                                    -------    --------    -------    -------    -------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>        <C>         <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue.......................................  $31,403    $ 29,101    $29,179    $13,172    $ 4,758
Cost of revenue...................................    9,747      11,255      3,649      1,289        594
                                                    -------    --------    -------    -------    -------
      Gross profit................................   21,656      17,846     25,530     11,883      4,164
Operating expenses:
  Research and development........................   12,198      15,544     13,428      8,125      3,834
  Selling, general and administrative.............    7,104       6,996      7,144      5,720      3,311
  Unusual charges.................................       --       6,690         --         --         --
  Charge for purchased research and development...       --          --      5,400         --      3,492
                                                    -------    --------    -------    -------    -------
  Income (loss) from continuing operations........    2,354     (11,384)      (442)    (1,962)    (6,472)
Interest and other income (expense), net..........      753         843        853       (119)      (292)
                                                    -------    --------    -------    -------    -------
    Income (loss) from continuing operations
      before provision for income taxes...........    3,107     (10,541)       411     (2,081)    (6,764)
Provision for income taxes........................      290         272        346         --         --
                                                    -------    --------    -------    -------    -------
    Income (loss) from continuing operations......    2,817     (10,813)        65     (2,081)    (6,764)
    Income (loss) from discontinued operations,
      net of income taxes.........................       --      (5,439)       787        548        739
                                                    -------    --------    -------    -------    -------
    Net income (loss).............................  $ 2,817    $(16,252)   $   852    $(1,533)   $(6,025)
                                                    =======    ========    =======    =======    =======
Income (loss) from continuing operations per
  share:
  Basic...........................................  $  0.23    $  (0.91)   $  0.01    $ (1.37)   $ (5.10)
                                                    -------    --------    -------    -------    -------
  Diluted.........................................  $  0.22    $  (0.91)   $  0.01    $ (1.37)   $ (5.10)
                                                    =======    ========    =======    =======    =======
Income (loss) from discontinued operations per
  share:
  Basic...........................................  $    --    $  (0.46)   $  0.08    $  0.36    $  0.56
                                                    =======    ========    =======    =======    =======
  Diluted.........................................  $    --    $  (0.46)   $  0.07    $  0.36    $  0.56
                                                    =======    ========    =======    =======    =======
Net income (loss) per share:
  Basic...........................................  $  0.23    $  (1.37)   $  0.09    $ (1.01)   $ (4.54)
                                                    =======    ========    =======    =======    =======
  Diluted.........................................  $  0.22    $  (1.37)   $  0.07    $ (1.01)   $ (4.54)
                                                    =======    ========    =======    =======    =======
Weighted average number of shares outstanding:
  Basic...........................................   12,279      11,831      9,949      1,518      1,327
                                                    =======    ========    =======    =======    =======
  Diluted.........................................   12,815      11,831     12,081      1,518      1,327
                                                    =======    ========    =======    =======    =======
</TABLE>


<TABLE>
<CAPTION>
                                                                          JUNE 30,
                                                    ----------------------------------------------------
                                                     1999        1998       1997       1996       1995
                                                    -------    --------    -------    -------    -------
                                                                       (IN THOUSANDS)
<S>                                                 <C>        <C>         <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents.........................  $20,318    $ 15,243    $20,844    $ 2,116    $ 1,226
Working capital (deficit).........................   15,361      15,766     26,872    (28,343)    (2,365)
Total assets......................................   34,713      33,933     42,297      9,110      6,888
Long-term debt, net of current maturities.........       --         575         --      2,658      4,849
Redeemable preferred stock........................       --          --         --      8,231      2,276
Stockholders' equity (deficit)....................   19,057      19,519     35,278     (6,570)    (5,377)
</TABLE>

                                       10
<PAGE>   12

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     Xionics Document Technologies, Inc. designs, develops and markets
innovative software and silicon solutions for printing, scanning, copying,
processing and transmitting digital documents to computer peripheral devices
that perform document imaging functions. Such devices include printers, copiers,
scanners, and fax machines, as well as multifunction peripherals that perform a
combination of these imaging functions.

     The Company derives its revenue primarily from sales of its printer
software products, which includes revenue from software licenses, royalties,
engineering and manufacturing services and maintenance. Software license revenue
consists of the Company's charges for licensed source code, which generally
includes initial non-refundable fees that are recognized as revenue upon the
shipment of the source code, provided there are no significant vendor
obligations. Royalty revenue is recognized as earned. Engineering services
revenue is derived from fees paid for porting of the Company's software to
customer-specific printer controllers and is recognized as revenue as the
services are performed or using percentage of completion contract accounting.
Manufacturing services revenue is derived from fees received for providing
design and manufacturing coordination and support on behalf of the OEM. These
fees are earned over the contracted manufacturing period. Payments under
maintenance contracts are generally due at the beginning of the contract;
however, revenue is recognized ratably over the term of the contract, which is
typically twelve months.

     The Company generates a significant portion of its revenue from customers
located outside of the United States. Such revenue accounted for 20%, 32% and
24% of the Company's net revenue for the fiscal years ended June 30, 1999, 1998
and 1997, respectively. The Company's international revenue is primarily
denominated and collected in United States dollars.

     In March 1996, the Company entered into an amendment of its preexisting
development and license agreement with Hewlett-Packard (the "1996 HP
Agreement"). Under the 1996 HP Agreement, the Company licensed certain of its
page description technology, including its version of the PostScript page
description language, to Hewlett-Packard. Payments under the 1996 HP Agreement
include the Company's charges for source code access, engineering services,
license rights and ongoing maintenance and support. Revenue from the 1996 HP
Agreement was recognized by the Company over three years using percentage of
completion contract accounting. Under the 1996 HP Agreement, recognition of
revenue ended in February 1999, however cash payments from Hewlett-Packard
continue until January 2000. In June 1998, the Company entered into an agreement
with Hewlett-Packard (the "1998 HP Agreement") that generates an ongoing revenue
stream through December 2000 at levels nearly comparable with the 1996 HP
Agreement. Under the 1998 HP Agreement, the Company will develop, license and
support new page description languages. As of June 30, 1999, the Company has met
the material development obligations under its 1998 agreement with
Hewlett-Packard. Beginning in late 1998 and continuing through the present time,
the Company has entered into a series of agreements with Hewlett-Packard for the
development and customization of printer drivers for specific HP laser and
inkjet printers (the "Driver Agreements"). The Company's right to receive
payment under the Driver Agreements is conditioned upon the Company's meeting
specified delivery milestones. Each driver is the subject of a separate
agreement, such that any failure by the Company to meet a delivery milestone
under any one agreement will not affect its right to receive payments under the
remaining Driver Agreements. The Company has met all of its material obligations
under the Driver Agreements which were due to have been performed as of June 30,
1999. The Company anticipates that its revenues from Hewlett-Packard will
continue beyond December 2000 as the result of the Driver Agreements. As with
its other agreements with the Company, Hewlett-Packard has the right to
terminate each Driver Agreement upon a failure by the Company to comply with any
of the provisions of that agreement that is not cured within 30 days, and upon
the commencement of certain bankruptcy or insolvency proceedings. Revenue from
Hewlett-Packard accounted for 66%, 53% and 58% of the Company's net revenue for
the fiscal years ended June 30, 1999, 1998 and 1997, respectively.


     In June 1998, the Company announced a restructuring of its operations to
position the Company to return to profitability resulting in unusual charges,
including amounts in discontinued operations, totaling approxi-


                                       11
<PAGE>   13


mately $8.2 million. As part of the restructuring, the Company included as an
additional cost of revenue a $2.7 million charge representing certain costs
under contracts with Ricoh Company, Ltd., including the estimated future costs
to complete the development of an MFP. In addition to the restructuring, the
Company had announced its intent to sell the Company's Digital Document Products
Division ("DDPD"), which sold print and scan image accelerator products. DDPD
also included the assets of Seaport Imaging ("Seaport"), which was acquired in
August 1997 for $2.5 million, including direct acquisition costs, of which $1.1
million was paid at closing and $1.1 million in promissory notes payable over
two years. The sale of DDPD had been accounted for as discontinued operations
resulting in a loss of $5.4 million, including the loss on the sale and the loss
from discontinued operations. All comparative financial information herein has
been restated to reflect this accounting treatment. On August 12, 1998, the
Company announced the sale of substantially all of the assets of DDPD for
consideration consisting of future royalties on GGX's sales of products
purchased in the transaction, if any, through September 2001 or until such
royalties reach an aggregate of $2.2 million; assumption of certain liabilities;
and promissory notes totaling $1.28 million payable in 1999 and 2000, subject to
collection of accounts receivable sold in the transaction. At June 30, 1999, the
Company has not received any material proceeds from the sale and has recorded no
estimated proceeds from the disposition due to the significant uncertainty of
realizing any proceeds from the sale of the DDPD business. If material proceeds
are collected in the future, the Company will record them as income from
discontinued operations in the period received. The Company has recently agreed
to extend the dates on which certain payments from GGX are due and has received
a security interest in certain of the assets sold to GGX.


     In fiscal 1999, the Company returned to profitability, compiling four
consecutive profitable quarters. The Ricoh MFP was deployed during the first
quarter of fiscal 1999 and is the first commercial product to include the
XipChip, an integrated ASIC for multifunctional devices, which the Company
intends to market to other manufacturers of MFPs.

     The Company also repurchased approximately one million outstanding shares
of its common stock costing approximately $4 million, in the aggregate, or on
average $3.88 per share.

     In fiscal 1999 and 1998, the Company recorded a tax provision of
approximately $290,000 and $272,000, respectively. In fiscal 1999 and 1998, the
provision relates primarily to taxes on foreign operations, which do not benefit
from the Company's net operating loss carryforwards. As of June 30, 1999, the
Company had available net operating loss carryforwards of approximately $15.8
million for U.S. income tax reporting purposes. These carryforwards may be used
to offset future taxable income, if any, and are subject to review and possible
adjustment by the Internal Revenue Service.

                                       12
<PAGE>   14

RESULTS OF OPERATIONS

     The following table summarizes the Company's condensed consolidated
operating results as a percentage of net revenue for each of the periods
indicated.


<TABLE>
<CAPTION>
                                                               FISCAL YEARS ENDED JUNE 30,
                                                              -----------------------------
                                                               1999       1998       1997
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Net revenue.................................................   100.0%     100.0%     100.0%
Cost of revenue.............................................    31.0       38.7       12.5
                                                               -----      -----      -----
Gross profit................................................    69.0       61.3       87.5
Operating expenses:
  Research and development..................................    38.9       53.4       46.0
  Selling, general and administrative.......................    22.6       24.0       24.5
  Unusual charges...........................................      --       23.0         --
  Charge for purchased research and development.............      --         --       18.5
                                                               -----      -----      -----
Income (loss) from continuing operations....................     7.5      (39.1)      (1.5)
Interest and other income (expense), net....................     2.4        2.9        2.9
                                                               -----      -----      -----
Income (loss) from continuing operations before provision
  for income taxes..........................................     9.9      (36.2)       1.4
Provision for income taxes..................................     0.9        0.9        1.2
                                                               -----      -----      -----
Income (loss) from continuing operations....................     9.0      (37.1)       0.2
Income (loss) from discontinued operations, net of taxes....      --      (18.7)       2.7
                                                               -----      -----      -----
Net income (loss)...........................................     9.0%     (55.8)%      2.9%
                                                               =====      =====      =====
</TABLE>


FISCAL YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998


     Revenue.  Revenue totaled $31.4 million in fiscal 1999, compared to $29.1
million in fiscal 1998, an increase of $2.3 million or 7.9%. The increase
primarily resulted from higher engineering services fees, which related to
development and porting of languages and the development and customization of
driver software, which increased to 50.1% of net revenue in fiscal 1999 compared
to 17.0% in fiscal 1998. The increase in engineering service fees is primarily
due to revenue recognized under the 1998 HP Agreement and the Driver Agreements,
offset by a decrease in revenue from the 1996 HP Agreement, which represented
approximately 28.9% of fiscal 1999 net revenue compared to approximately 49.9%
in fiscal 1998. Revenue from the sale and customization of driver software
increased to approximately 17.0% of net revenue in fiscal 1999 compared to 5.2%
in fiscal 1998. Hewlett-Packard represented 66.3% of net revenue in fiscal 1999
compared to 53.3% in fiscal 1998. Also offsetting the increase in net revenue
was the decrease in net revenue from the sale of controller boards, which
contributed virtually no revenue for fiscal 1999 compared to 14.8% in fiscal
1998. The Company concluded at the end of fiscal 1998 that the sale of
controller boards was not consistent with the Company's strategy of providing
software to the printer/MFP market. As a result, beginning in fiscal 1999, the
Company ceased selling controller boards. Excluding the controller board
revenue, the year over year increase in revenue is 26.4%.



     Gross Profit.  Gross profit increased 21.4% to $21.7 million for the fiscal
year ended 1999, from $17.8 million for the fiscal year ended 1998. Gross margin
as a percentage of net revenue increased to 69.0% for the fiscal year ended 1999
compared to 61.3% for the fiscal year ended 1998. The increase is attributable
to the inclusion in fiscal 1998 of additional cost of revenue of $2.7 million
related to losses on certain contracts with Ricoh. The components of the $2.7
million related to future costs, primarily engineering cost, the cost of
utilizing consultants and temporary contractors and the cost of the XipChip and
board redesign. These additional costs were recognized in fiscal 1998 at the
time that the Company determined there was a loss on these contracts. Excluding
the additional cost of revenue related to these loss contracts, gross profit for
fiscal 1998 would have been approximately 70.8%. The decrease in gross margin,
excluding the $2.7 million of additional cost of revenue discussed above, as a
percentage of revenue was attributable to: 1) a higher


                                       13
<PAGE>   15


proportion of revenue generated from lower margin unusual engineering services
fees; 2) a decline in higher margin royalty revenue; offset by 3) the decline in
the sale of controller boards which historically contributed very little gross
margin.


     Research and Development.  Research and development expenses consist
primarily of personnel costs, costs of engineering contractors and outside
consultants, engineering supplies, computer equipment depreciation and overhead
costs, all of which are associated with development of the Company's IPS, MFP,
driver software and color technologies. Research and development expenses
decreased 21.5% to $12.2 million for fiscal 1999 from $15.5 million in fiscal
1998. As a result of higher net revenue and lower expenditures, due primarily to
the completion of development projects that had required substantial
expenditures for outside consultants and contractors, research and development
expenses as a percentage of net revenue decreased to 38.8% for fiscal 1999
compared to 53.4% for fiscal 1998.

     Selling, General and Administrative.  Selling, general and administrative
expenses include personnel and related overhead costs for sales, marketing,
finance, human resources and general management. Selling, general and
administrative expenses remained fairly constant, increasing less than 1.5% to
$7.1 million for fiscal 1999 from $7.0 million in fiscal 1998. As a percentage
of net revenue, selling, general and administrative expenses decreased to 22.6%
for fiscal 1999 from 24.0% for fiscal 1998.


     Unusual Charges.  The Company recognized unusual operating charges in 1998
of $6.7 million related to a write-down of certain intangible assets which were
deemed to have no future value, a provision for severance payments related to a
workforce reduction, management restructuring and a provision for lease expense
on excess facilities. If the intangible assets had not become impaired during
fiscal 1998 and the Company had been able to generate revenue in the future
based on this technology, the Company would have incurred amortization expenses
of approximately $2.0 million in 1999, $400,000 in 2000, and $70,000 per year
through fiscal 2003.


     Interest and Other Income (Expense), Net.  Net other income, consisting
primarily of interest income earned on cash and cash equivalents, totaled
$753,000 in fiscal 1999 compared to $843,000 in fiscal 1998. Interest income in
fiscal 1999 declined as the average cash and cash equivalents declined during
fiscal 1999.

FISCAL YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997

     Revenue.  Revenue totaled $29.1 million in fiscal 1998, essentially flat
with fiscal 1997 revenue of $29.2 million. However, the components of revenue
changed between the years. In 1998, revenues from sales of manufactured boards
and customer sponsored engineering services that were subcontracted directly to
third parties increased to 21.6% of revenue in 1998 vs. 4.6% in 1997. Revenues
from the sale of driver software increased to approximately 5.3% of revenue in
1998 vs. 3.5% in 1997. Offsetting these increases were decreases in revenues
from royalties and licensing of the Company's PDL software products, including
revenue recognized under the 1996 HP Agreement, which represented approximately
68.4% of fiscal 1998 revenue compared to approximately 84.2% in 1997. The
decline in royalty and license revenue resulted primarily from the reduction in
royalties from Lexmark on printers that incorporated the Company's IPS printer
language software, but which had reached the end of their product life, and a
decline in the recognition of revenue under the 1996 HP Agreement.
Hewlett-Packard represented 53.3% of revenue in 1998 vs. 57.5% in 1997. Also
offsetting the increase in revenue was revenue recognized on the development
contract of the MFP which declined to approximately 0.8% of revenue in 1998 vs.
approximately 5.6% in 1997.


     Gross Profit.  Gross profit declined to $17.8 million, or 61.3% of revenue,
in 1998 versus $25.5 million, or 87.5% of revenue, in 1997. The decline in gross
profit was primarily attributable to two factors. The first was the inclusion in
1998 of additional cost of revenue of $2.7 million related to losses on certain
contracts with Ricoh. The components of the $2.7 million related to future
costs, primarily engineering costs, the cost of utilizing consultants and
temporary contractors and the cost of the XipChip and board redesign. These
additional costs were recognized in fiscal 1998 at the time that the Company
determined there was a loss on these contracts. Excluding the additional cost of
revenue related to these loss contracts, gross profit would have been
approximately 70.8% versus 87.5% for the prior year. The second factor was the
inclusion in fiscal 1998 revenue of manufactured boards and customer sponsored
engineering services contracted to third parties

                                       14
<PAGE>   16


which carry very little gross margin. It is the intent of the Company to
structure these activities such that they will not be included in revenue or
cost of revenue in future periods.


     Research and Development.  Research and development expenses consist
primarily of personnel costs, costs of engineering contractors and outside
consultants, engineering supplies, computer equipment depreciation and overhead
costs, all of which are associated with development of the Company's IPS, MFP,
driver software and color technologies. Research and development expenses
increased 15.8% to $15.5 million for fiscal 1998 from $13.4 million in fiscal
1997. The higher expense level resulted primarily from increased personnel
expenditures, particularly outside contractors hired to complete the development
of the MFP. As a percentage of revenue, research and development expenses
increased to 53.4% for fiscal 1998 from 46.0% for fiscal 1997.

     Selling, General and Administrative.  Selling, general and administrative
expenses include personnel and related overhead costs for sales, marketing,
finance, human resources and general management. Selling, general and
administrative expenses remained fairly constant, decreasing 2.1% to $7.0
million for fiscal 1998 from $7.1 million in fiscal 1997. As a percentage of
revenue, selling, general and administrative expenses decreased to 24.0% for
fiscal 1998 from 24.5% for fiscal 1997.


     Unusual Charges.  The Company recognized unusual operating charges in 1998
of $6.7 million related to a write-down of intangible assets which were deemed
to have no future value, a provision for severance payments related to a
workforce reduction, management restructuring and a provision for lease expense
on excess facilities. If the intangible assets had not become impaired during
fiscal 1998 and the Company had been able to generate revenue in the future
based on this technology, the Company would have incurred amortization expenses
of approximately $2.0 million in 1999, $400,000 in 2000, and $70,000 per year
through fiscal 2003.



     Charge for Purchased Research and Development.  The charge in fiscal 1997
for purchased research and development represents the February 21, 1997
acquisition of GCA Gesellschaft fur Computer-Anwendung mbH ("GCA"),
Freiberg/Neckar, Germany, a leading developer of printer drivers for the
worldwide multifunction and printer peripheral market (the "GCA acquisition").
The Company acquired all of the outstanding shares of GCA in a $5.0 million cash
transaction through its wholly-owned subsidiary Xionics Document Technologies
GmbH, Dortmund, Germany. The GCA acquisition resulted in a charge of $5.4
million for purchased in-process research and development costs. This amount
represents the value of acquired in-process research and development projects.
The technology acquired in the GCA acquisition has required substantial
additional development by the Company. The development of these projects had not
yet reached technological feasibility and the technology had no alternative
future use.


     Other Income (Expense), Net.  Net other income, consisting primarily of
interest income earned on cash and cash equivalents, totaled $843,000 in 1998
versus $853,000 in 1997. Interest income in 1998 declined as cash and cash
equivalents declined during 1998. However, offsetting this decline in interest
income was a decline in interest expense from 1997. The 1997 interest expense
included bank lines of credit and a note payable to a shareholder, which were
repaid in full by December 31, 1996 from the proceeds of the Company's IPO.

     Discontinued Operations.  In June 1998 the Company announced its intent to
sell the Company's Digital Document Products Division ("DDPD"), which sells
print and scan image accelerator products. DDPD also includes the assets of
Seaport Imaging ("Seaport"), which was acquired in August 1997 for $2.5 million.
DDPD has been accounted for as discontinued operations resulting in a loss of
$5.4 million, including the loss on DDPD operations of $3.2 million and an
estimated loss on the disposal of the business, its assets and liabilities of
approximately $2.2 million. On August 12, 1998, the Company announced the sale
of substantially all of the assets of DDPD for consideration consisting of the
future royalties on GGX's sales of products purchased in the transaction through
September 2001 or until royalties reach an aggregate of $2.2 million; assumption
of certain liabilities; and promissory notes totaling $1.28 million payable in
1999 and 2000, subject to collection of receivables sold in the transaction.

                                       15
<PAGE>   17

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 1999, the Company had cash and cash equivalents of $20.3
million, an increase of $5.1 million from the $15.2 million of cash and cash
equivalents at June 30, 1998. This increase is primarily due to the $9.9 million
of net cash generated from operating activities which is partially offset by
approximately $4.0 million of cash used to repurchase approximately one million
outstanding shares of the Company's common stock from Phoenix Technologies, Inc.
during the fourth quarter of fiscal 1999.

     At present, the Company has available a $5.0 million working capital
revolving line of credit and a $1.0 million term loan facility with a bank, both
of which are secured by substantially all assets of the Company. The working
capital revolving line of credit terminates on December 1, 1999. At June 30,
1999, there were no outstanding borrowings under the working capital line of
credit or term loan facility. It is possible that the Company may in the future
use private or public sales of its securities as a source of liquidity.

     The Company believes that its existing cash and cash equivalent balances,
together with cash provided by operations, $7.0 million of additional cash
payments on the 1996 HP Agreement which continue through January 2000, and
available borrowings under its loan facilities, will be sufficient to finance
the Company's operations for at least the next 12 months. In July of 1999, the
Company announced that it had entered into a definitive agreement to merge with
a wholly-owned subsidiary of Oak Technology, Inc. See related footnote
disclosure (Note 1) in Item 8. Financial Statements and Supplementary Data.

FACTORS AFFECTING FUTURE RESULTS

     Dependence on Relationship with Hewlett-Packard.  The Company derived 66%
of its revenue from Hewlett-Packard in fiscal 1999. Therefore, any significant
disruption or deterioration of its relationship with Hewlett-Packard would have
a material adverse effect on the Company's business, results of operations and
financial condition. The Company has met all of its obligations necessary to
secure the right to receive ongoing payments from Hewlett-Packard under its 1996
agreement with Hewlett-Packard discussed above, and is also current in
performing its obligations under various other agreements it has with
Hewlett-Packard including meeting the material development obligations under its
1998 agreement with Hewlett-Packard. However, there can be no assurance that the
Company will continue to meet all such obligations in the future. Hewlett-
Packard has the right to terminate each of its agreements with the Company if
the Company materially breaches its obligations under that agreement and does
not cure such breach within 30 days. In addition, competitors of the Company,
including without limitation Adobe Systems Inc., Peerless Systems Corporation,
and Electronics for Imaging, Inc., are continuously engaged in efforts to expand
their business relationship with Hewlett-Packard at the Company's expense, and
are likely to continue those efforts in the future. There can be no assurance
that one or more of the Company's competitors will not be successful in
competing with the Company for some or all of Hewlett-Packard's business.
Further, although Hewlett-Packard has shown a strong tendency to outsource
embedded systems software and development for its printer products over the past
several years, there can be no assurance that this trend will continue or that
Hewlett-Packard's internal development groups will not compete successfully for
some or all of this outsourced business in the future. Finally, any adverse
change in Hewlett-Packard's business, results of operations or financial
condition could in turn have a material adverse effect on the Company's
business, results of operations and financial condition.

     Dependence on Market Success of Third Parties.  The markets for the
Company's products and services are characterized by rapidly changing
technology, evolving industry standards and needs, and frequent new product
introductions. The Company currently derives substantially all of its revenue
from the licensing of technology, including royalty streams derived from OEMs'
shipments of office devices containing the Company's products, and the sale of
related products and services to manufacturers of office devices. The Company
anticipates that these sources of revenue will continue to account for
substantially all of its revenue for the foreseeable future. In order to assure
that the Company will derive future royalty streams from the shipment of OEM
devices, the Company and its OEMs are required to develop and release in a
regular and timely manner new office products with increased speed, enhanced
output resolutions, reduced memory requirements, multiple functions, and network
connectivity. The Company's OEMs are under tremendous pressure to continually
shorten the development cycles of these products, leading to increased
complexity and

                                       16
<PAGE>   18

cost of development to the Company and its OEMs. The Company's success will
depend on, among other things: market acceptance of the Company's technology and
the office devices of the Company's OEMs; the ability of the Company and its
OEMs to meet industry changes and market demands in a timely manner; achievement
of new design wins by the Company; successful implementation of the Company's
technology in new office devices being developed by its OEMs; and successful
marketing of those devices by the OEMs. Any failure by the Company or its OEMs
to anticipate or respond adequately to the rapidly changing technology and
evolving industry standards and needs in the market for office devices could
result in a loss of competitiveness or revenue, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

     Product Development; Product Delays.  The Company has in the past
experienced delays in the development of certain of its products and in the
implementation of those products in its customers' office devices. There can be
no assurance that the Company will not experience similar, or more severe,
delays in the future. Prior delays have resulted from numerous factors such as
changing OEM product specifications, difficulties in allocating engineering
personnel among competing projects, other resource limitations, difficulties
with independent contractors, changing market or competitive requirements and
unanticipated engineering complexity. There can be no assurance that these or
other factors will not contribute to future delays; that OEMs will tolerate
those delays; or that delayed office devices, once introduced, will meet with
market acceptance or success. Given the short product life cycles in the market
for office devices, any delay or unanticipated difficulty associated with new
product development or introduction could have a material adverse effect on the
Company's business, results of operations and financial condition.

     Competition.  The market for the Company's products and services is
intensely competitive, and the Company has numerous competitors, including not
only other suppliers of outsourced products and services such as Peerless
Systems Corporation and Electronics for Imaging, Inc., but also its OEM
customers' own internal development groups as well. The Company's page
description language interpreter products compete directly with those of Adobe
Systems, Inc., and its controller designs compete with those of Electronics for
Imaging, Inc., both of which are substantially larger than the Company and have
significantly greater resources and name recognition than the Company.
Similarly, the Company's printer drivers compete with driver offerings from a
small number of companies, including Adobe Systems, Inc. and Software 2000
Limited; certain internal OEM driver development groups; and generic drivers
offered by Microsoft Corporation with its Windows operating system. Both
Peerless Systems Corporation and Electronics for Imaging, Inc. are sublicensees
of Adobe Systems, Inc.'s products that compete with the Company. In addition,
the Company's OEM customers compete fiercely with one another, and with other
manufacturers of office devices, for market share in a market characterized by
rapid development cycles, short product life cycles, and ever-increasing
consumer demand for greater performance and functionality at reduced prices.
There can be no assurance that the Company or its OEMs will be able to compete
successfully against their respective current or future competitors, or that
competitive pressures faced by the Company and its OEMs will not have a material
adverse effect on its business, results of operations or financial condition.

     Competitive and Market Trends.  The future growth of the market for the
Company's products and services is highly dependent on OEMs' continuing to
outsource an increasing portion of their product development work. While the
trend toward outsourcing on the part of the Company's OEM customers has
accelerated in recent years, any reversal of this trend could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Similarly, significant market trends leading to changes in the way
the Company's competitors do business may enable them to compete more
effectively against the Company than they have in the past. For example, in
response to market demand, Adobe Systems, Inc. has recently begun licensing the
source code of its PostScript page description language interpreters to certain
development partners, including competitors of the Company, thus adopting for
the first time a marketing strategy which the Company has long used to
differentiate itself from its competitors. These changes, if they enable
competitors to compete more effectively for business from the Company's
customers, could have a material adverse effect on the Company's business,
financial condition and results of operations.

     Technological Change/Developing Markets.  A substantial portion of the
Company's recent development effort has been directed at the development of new
embedded imaging technologies, including next-
                                       17
<PAGE>   19

generation PDLs, the XipChip family of ASICs, other foundation technology for
MFPs, and embedded digital color copier technology. While the Company has
substantial experience in certain of these areas, it has limited experience in
others. The Company's future success will depend to a significant degree on its
ability to complete development of these technologies and have them deployed in
OEMs' office devices. This success will be dependent in part on the ability of
the Company's OEMs to develop new products that provide the functionality,
performance, speed, and connectivity demanded by the market at acceptable
prices, and for the OEMs to convince end users to adopt new generations of
products for office and desktop use. There can be no assurance that the market
for MFP, color imaging and other products will develop or continue to expand as
currently anticipated by the Company; that the Company's OEM customers will
choose the Company's technology for use in their printers, MFPs, color copiers
or other devices; that the Company's OEM customers will be successful in
developing or introducing such devices; or that these products will gain market
acceptance. The failure of any of these events to occur could have a material
adverse effect on the Company's business, results of operations and financial
condition. Likewise, there can be no assurance that future changes in the
technological or marketing direction of industry leaders such as Microsoft
Corporation or Intel Corporation -- for example, the possibility that Microsoft
may include native print rendering capability in future versions of its personal
computer operating systems -- will not render the Company's key products such as
printer languages, interpreters and drivers obsolete or reduce market demand for
them. Any of these developments could also have a material adverse effect on the
Company's business, results of operations and financial condition.

     Asian Economic Crisis.  The Company has several significant OEM customers
in Japan, South Korea, and other parts of Asia. Although the adverse economic
circumstances recently prevailing in Japan and elsewhere in Asia have begun to
show signs of abating, they could still affect these customers' willingness or
ability to do business with the Company in the future or their success in
developing and launching document imaging devices containing the Company's
products, which in turn could have a material adverse effect on the Company's
business, results of operations and financial condition.

     Recruitment and Retention of Employees.  The Company's future success is
dependent in part upon its ability to attract and retain qualified employees,
especially highly skilled engineering and technical employees. The current labor
market, both in the Company's geographical area and in the high-technology
industry in general, is such that the number of open positions in these
disciplines far exceeds the supply of personnel qualified to fill them. In
consequence, the Company must continually compete with other high-technology
employers for this limited pool of available employees. There can be no
assurance that the Company will be able to attract or retain the employees it
needs to execute against its current or future business plans. Any failure to do
so could have a material adverse effect on the Company's business, results of
operations and financial condition.

     The Year 2000.  Many computer programs written during approximately the
past 20 years use two digits rather than four to identify a calendar year. Such
programs could recognize a date represented as "00" as the year 1900 rather than
the year 2000 when performing date-sensitive operations. This in turn could
cause the programs to generate erroneous data or fail when called upon to
perform date-sensitive operations using the year 2000 or subsequent years.

     Xionics' IPS/2000 products generally do not have date and time dependent
functions. To the extent that any ancillary functions contain date operators,
4-digit representations of year dates are used. The Company believes its current
products do not require modification in order to function correctly in and after
the year 2000 based upon the assumption that all other products used in
combination with Xionics' products (i.e. software, hardware, firmware) properly
exchange date data with Xionics' products.

     Xionics has reviewed certain critical software systems which it uses in its
business operations for Year 2000 compliance, and is in the process of
investigating whether other critical software systems which it uses in its
business operations are Year 2000 compliant, and based upon the information
received by Xionics to date, Xionics believes that most of such software systems
will continue to function in the manner intended without material interruption
of service or other difficulty resulting from the Year 2000 issue. Xionics is in
the process

                                       18
<PAGE>   20

of identifying alternative systems for those critical software systems which are
known to have problems related to the Year 2000 issue.

     The Year 2000 issue creates risk for the Company from undetected, unknown,
and/or unforeseen problems (including failure of systems, equipment, software,
firmware and/or devices to operate properly with regard to dates in the year
2000 and after) in its own products, in its internally used third party
equipment and software, as well as third-party customer and other vendor
services and software, firmware and devices in or with which Xionics' products
are incorporated or used. Furthermore, existing customers or potential customers
may have reduced funds available to purchase products and services such as those
offered by the Company as companies expend significant resources to correct
their current systems for Year 2000 compliance. Any such undetected, unknown
and/or unforeseen problems which results in the Company incurring unanticipated
expenses related to correcting such problem and/or working with third parties to
remedy such problems, and/or any such reduced spending by existing or potential
customers, could have a material adverse effect on the Company's business,
financial condition and results of operations.

     Since the Company licenses and provides services relating to embedded
software and firmware, the Company may become involved in investigations or
allegations regarding Year 2000 issues based on, among other things, third party
software or hardware products used with the Xionics' product which third party
software or hardware products are not Year 2000 compliant or which, when used
together with Xionics' products, are not Year 2000 compliant. For instance,
Xionics' IPS/2000 fax software module is portable to various hardware platforms.
Provided that the underlying third-party hardware clock used with Xionics'
IPS/2000 fax software provides sufficient control to allow Xionics' IPS/2000 fax
software to correctly detect and/or set proper calendar values (i.e. leap year,
centuries, decades, etc.), Xionics' IPS/2000 fax software is expected to perform
properly in the Year 2000. However, if the underlying third-party hardware clock
does not work as anticipated, Xionics' IPS/2000 fax software may not perform
properly in the Year 2000. Due to the unprecedented nature of the potential
litigation related to the Year 2000 readiness discussed in the industry and
popular press, the most likely worst case scenario is that the Company could be
subject to litigation related to the Year 2000 issue. It is uncertain whether or
to what extent the Company may be affected by such litigation.

     The Company is in the process of contacting its critical customers,
suppliers, financial institutions and development partners to obtain assurances
that their operations and the products and services they provide to the Company
are Year 2000 compliant. The Company plans to rely on these assurances, and does
not plan to perform testing or other independent confirmation of such
third-party's statements. Accordingly, the Company may discover additional Year
2000 related problems, may not be able to develop or implement contingency plans
in a timely manner, or may find the costs of these activities to be material, in
the event these assurances are not obtained, are not obtained in a timely manner
or are not accurate, any or all of which could have a material adverse effect on
the Company's business, financial condition or results of operations.

     While the Company's evaluation of the Year 2000 issue as it relates to the
Company's business operations is on-going, the Company does not currently
anticipate any material exposure arising from Year 2000 issues relating to its
own products and services, nor does the Company currently believe that it has
material exposure arising from Year 2000 issues generally. As such, the Company
has not established, nor does it currently intend to establish, a Year 2000
contingency plan. However, the Company or third parties on which the Company
relies for services, products or payments may be unable to produce reliable
information or process routine transactions, or may be otherwise incapable of
conducting critical business activities, which could include manufacturing and
shipping products, invoicing customers and paying vendors, in the event of
significant Year 2000 related failures, whether in the Company's products or in
the products or services provided by third parties to the Company, in the event
of failure of a third party's internal operations or products, or in the event
of widespread economic and/or financial market disruption. In the case of any
such events, the business, financial condition and results of operations of the
Company could be materially adversely affected. The Company has not to date
spent a material amount on Year 2000 expenditures and does not currently
anticipate that any further expenditures will be material to its business,
financial condition or results of operations in any given year. The Company will
reevaluate the need for a contingency plan, and the potential for related
expenditures, from time to time.
                                       19
<PAGE>   21

     Factors Affecting Stock Price.  The market price of the Company's common
stock has been, and may continue to be, subject to significant fluctuations in
response to quarter-to-quarter variations in the Company's operating results,
announcements of technological innovations or strategic relationships by the
Company or its competitors, and other events or factors. In addition, the stock
market in recent months and years has experienced extreme price and volume
fluctuations which have affected the market price of the stock of many
technology companies, and in particular those with small market capitalizations.
These fluctuations, as well as general economic and market conditions, may
materially and adversely affect the market price of the Company's common stock.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments. The Company does not participate in derivative
financial instruments or other financial instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standards
("SFAS") No. 107, Disclosures about Fair Value of Financial Instruments. All of
the Company's investments are in short-term, investment-grade commercial paper,
United States government and agency securities and money market accounts that
are carried at fair value on the Company's books. Accordingly, the Company has
no quantitative information concerning the market risk of participating in such
investments.

     Primary Market Risk Exposures.  The Company's primary market risk exposures
are in the areas of interest rate risk and foreign currency exchange rate risk.
The Company's investment portfolio of cash equivalents is subject to interest
rate fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. Substantially all of the Company's
business outside the United States is conducted in U.S. dollar-denominated
transactions, whereas the Company's operating expenses in Japan and Germany are
denominated in local currency. The Company has no foreign exchange contracts,
option contracts or other foreign hedging arrangements. However, the Company
believes that the operating expenses of its foreign operations are immaterial,
and therefore any associated market risk is unlikely to have a material adverse
effect on the Company's business, results of operations or financial condition.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      XIONICS DOCUMENT TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
                                                              NUMBER
                                                              ------
<S>                                                           <C>
    INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS:
Report of Independent Public Accountants....................   F-1
Consolidated Balance Sheets as of June 30, 1999 and 1998....   F-2
Consolidated Statements of Operations for the Fiscal Years
  Ended June 30, 1999, 1998
  and 1997..................................................   F-3
Consolidated Statements of Redeemable Preferred Stock and
  Stockholders' Equity (Deficit) for the Fiscal Years Ended
  June 30, 1999, 1998 and 1997..............................   F-4
Consolidated Statements of Cash Flows for the Fiscal Years
  Ended June 30, 1999, 1998
  and 1997..................................................   F-7
Notes to Consolidated Financial Statements..................   F-8
</TABLE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

                                       20
<PAGE>   22

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS

     The Company's Amended and Restated Certificate of Incorporation and By-laws
provide for the Company's business to be managed by or under the direction of a
Board of Directors. The number of directors is fixed from time to time by the
Board of Directors. The Board of Directors currently consists of five members,
classified into three classes as follows: Paul R. Low and Richard A. D'Amore
constitute a class with a term expiring at the Annual Meeting of Stockholders in
1999 or until their successors are elected and duly qualified(the "Class III
Directors"); Peter J. Simone and Thomas A. St. Germain constitute a class with a
term expiring at the Annual Meeting of Stockholders in 2000 (the "Class I
Directors"); and David R. Skok constitutes a class with a term expiring at the
Annual Meeting of Stockholders in 2001 (the "Class II Director");. At each
Annual Meeting of Stockholders, directors are elected for a full term of three
years to succeed those directors whose terms are expiring.

     The Company's current directors are as follows:

<TABLE>
<CAPTION>
NAME                                         AGE                    POSITION
----                                         ---                    --------
<S>                                          <C>   <C>
Paul R. Low................................  66    Chairman of the Board of Directors
                                                   President, Chief Executive Officer and
Peter J. Simone............................  52    Director
Richard A. D'Amore.........................  45    Director
David R. Skok..............................  43    Director
Thomas A. St. Germain......................  61    Director
</TABLE>

     Dr. Low has served as a Director of the Company since October 1995 and as
Chairman of the Board of Directors since January 1998. Dr. Low has been
President and Chief Executive Officer of PRL Associates, a technology consulting
company, since June 1992. Previously, Dr. Low was Vice President and General
Manager of IBM Microelectronics, IBM's silicon design and fabrication division,
and a member of IBM's Management Board. Dr. Low is a director of Applied
Materials, Inc., Network Computing Devices, Inc., Solectron Corporation, Veeco
Instruments, Inc., and Maker Communications, Inc.

     Mr. Simone has served as a Director of the Company since December 1997, as
Chief Executive Officer of the Company since October 1997, and as President of
the Company since April 1997. He also served as Chief Operating Officer of the
Company from April 1997 until October 1997. Prior to joining the Company Mr.
Simone served as Group Vice President of Simplex Time Recorder Company, a
manufacturer and supplier of hardware and software based systems for workforce
management, building life safety, and security, from December 1992 until
December 1996. Mr. Simone is a director of Cymer Inc. and a director and member
of the Executive Council of the Massachusetts High Technology Council.


     Mr. D'Amore has served as a Director of the Company since June 1993. Mr.
D'Amore has been a general partner of North Bridge Venture Partners since 1994
and of Hambro International Venture Fund II, L.P. since 1982, both venture
capital investing firms. Mr. D'Amore is also a director of Solectron Corporation
and Veeco Instruments, Inc.


     Mr. Skok has served as a Director of the Company since November 1995. Mr.
Skok has been Chairman of the Board of Directors of Silverstream Software, Inc.,
an Internet software company, since July 1997, and served as its President and
Chief Executive Officer from June 1996 until July 1997. From January 1993 until
June 1996, he was President and Chief Executive Officer of Watermark Software,
Inc., an imaging software company. Mr. Skok is a former Chairman of the Board
and Chief Executive Officer of the Company.

     Mr. St. Germain has served as a Director of the Company since March 1996.
Mr. St. Germain has been Vice President -- Financial Services of Vicor
Corporation, a power systems manufacturing company, since January 1998. He
served as Senior Vice President, Chief Financial Officer and Treasurer of Summa
Four, Inc., a telecommunications company, from May 1993 until August 1997.

                                       21
<PAGE>   23

EXECUTIVE OFFICERS

     The Company's current executive officers, who are not also directors, are
as follows:

<TABLE>
<CAPTION>
NAME                                   AGE                       POSITION
----                                   ---                       --------
<S>                                    <C>   <C>
Rosemary E. Grande...................  41    Chief Operating Officer
Robert L. Lentz......................  49    Senior Vice President -- Finance and
                                               Administration, Chief Financial Officer and
                                               Treasurer
John L. Seguin.......................  45    Vice President -- Worldwide Sales
</TABLE>

     Ms. Grande has served as Chief Operating Officer since October 1997. She
previously served as Senior Vice President -- Strategic Accounts from January
1997 until October 1997; as Vice President -- Product Development from July 1995
until January 1997; and as General Manager of the Company's printer software
division from November 1994 until June 1995. From August 1993 until November
1994, Ms. Grande served as General Manager of the Peripherals Division of
Phoenix.

     Mr. Lentz has served as Senior Vice President -- Finance and
Administration, Chief Financial Officer and Treasurer since joining the Company
in April 1998. Prior to joining the Company, he served as Vice President of
Corporate Development for NewsEdge Corporation, a provider of business news and
current awareness solutions, from January 1998 until April 1998; as Senior Vice
President of Finance and Administration and Chief Financial Officer of
Individual, Inc., a predecessor of NewsEdge, from March 1996 until January 1998;
and as Senior Vice President -- Finance and Operations and Chief Financial
Officer at Teloquent Communications Corporation, a telecommunications software
company, from July 1993 until March 1996.

     Mr. Seguin has served as Vice President -- Worldwide Sales since joining
the Company in April 1999. Prior to joining the Company, he served as Vice
President of Sales at Miros, Inc., a biometrics software company specializing in
facial recognition, from November 1998 until April 1999. From July 1994 until
April 1998, he served as Vice President and Division General Manager for
Bitstream Inc., a leading software company in the graphics communications
industry. From July 1993 until July 1994, Mr. Seguin served as Vice
President/General Manager, Commercial Business Unit for XLI Corporation, a
manufacturer of high resolution laser printing solutions and enhancement
technologies.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons owning more than 10% of the Company's Common
Stock, to file with the Securities and Exchange Commission (the "SEC") initial
reports of beneficial ownership and reports of changes in beneficial ownership
of the Common Stock and other equity securities of the Company. Officers,
directors, and beneficial owners of more than 10% of the Company's Common Stock
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.

     To the Company's knowledge, based solely on review of the copies of such
reports furnished to it and written representations that no other reports were
required during the fiscal year ended June 30, 1999, all Section 16(a) filings
required to have been made by its officers, directors, and stockholders owning
more than 10% of the Company's Common Stock were made in compliance with Section
16(a) with the following exceptions: late filings of Form 4's reporting the
acquisition of insubstantial numbers of shares of stock under the Company's
Employee Stock Purchase Plan (with no accompanying sale of stock) in August of
1998 were made by Fred Ellis, Brian Fitzgerald (former Vice
President -- Engineering), Rosemary Grande, Peter Simone, Mark Sheehan and Paul
Thorn, and in February of 1999 by Robert Lentz, Rosemary Grande and Peter
Simone.

                                       22
<PAGE>   24

ITEM 11.  EXECUTIVE COMPENSATION

     The following Summary Compensation Table sets forth certain information
regarding the Company's Chief Executive Officer and each of the four most highly
compensated other executive officers (the "Named Executive Officers") during the
fiscal years ended June 30, 1999, 1998 and 1997 except as otherwise indicated:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               LONG-TERM
                                                                                             COMPENSATION
                                                                                             -------------
                                                                                               NUMBER OF
                                                                                             SHARES UNDER-
                                                                            OTHER ANNUAL     LYING OPTIONS
NAME AND PRINCIPAL POSITION            FISCAL YEAR   SALARY(1)    BONUS    COMPENSATION(2)   GRANTED(#)(3)
---------------------------            -----------   ---------   -------   ---------------   -------------
<S>                                    <C>           <C>         <C>       <C>               <C>
Peter J. Simone......................     1999       $240,000    $77,900       $9,422           135,000
President and Chief Executive Officer     1998       $219,000    $    --       $4,695           225,000(4)
                                          1997       $ 52,500    $ 9,900       $   --           250,000(5)
Rosemary E. Grande...................     1999       $180,000    $53,000       $2,672            55,000
  Chief Operating Officer                 1998       $167,000    $    --       $8,388            87,500(4)
                                          1997       $152,500    $20,000       $2,150            30,000(5)
Robert L. Lentz(7)...................     1999       $160,000    $39,000       $3,418            75,000
  Senior Vice President -- Finance
     and                                  1998       $ 33,000    $    --       $  676           125,000
  Administration, Chief Financial
  Officer and Treasurer

Former Executive Officers:
Frank P. Monaco(8)...................     1999       $156,000    $43,600       $2,672            10,000
  Senior Vice President -- Research
     and                                  1998       $139,000    $    --       $9,284            67,000(4)
  Development and Chief Technical         1997       $130,000    $15,500       $1,650            30,000(5)
  Officer
Brian F. Fitzgerald(9)...............     1999       $152,000    $ 6,000       $3,774                --
  Vice President -- Engineering           1998       $ 89,000    $    --       $2,022            80,000
Edward B. Mallen(10).................     1999       $167,000    $ 8,250       $  975            15,000
  Executive Vice President -- Sales
     and                                  1998       $169,000    $    --       $6,046            86,563(4)
  Marketing                               1997       $145,000    $22,250       $2,250            50,000(6)
</TABLE>

---------------
 (1) Includes amounts deferred during the Company's 1999, 1998 and 1997 fiscal
     years under the Company's 401(k) plan.

 (2) Includes matching contributions to the Company's 401(k) plan made by the
     Company during its 1999, 1998 and 1997 fiscal years.

 (3) The Company did not make any restricted stock awards, grant any stock
     appreciation rights or make any long-term incentive plan payments during
     its 1999, 1998 or 1997 fiscal years. None of the named executive officers
     hold any restricted stock of the Company.

 (4) Includes new options granted in exchange for previously granted options
     which were surrendered and cancelled, pursuant to a company-wide stock
     option repricing which the Company carried out in February 1998. Under the
     repricing, many employees' existing stock options, including certain stock
     options held by the Named Executive Officers, were exchanged for new stock
     options having a lower exercise price at an exchange rate of 9 for 10
     (i.e., 9 new stock options were granted for every 10 surrendered).

 (5) These options were surrendered and cancelled upon the issuance of the
     repriced options described in footnote (4) above.

 (6) The unexercised portion of these options were surrendered and cancelled
     upon the issuance of the repriced options described in footnote (4) above.

                                       23
<PAGE>   25

 (7) Information regarding Mr. Lentz's compensation for the Company's 1997
     fiscal year has been omitted as Mr. Lentz was not employed by the Company
     at any time during its 1997 fiscal year.

 (8) Mr. Monaco was employed by the Company for the entire 1999 fiscal year,
     however he resigned from the Company effective as of September 7, 1999.

 (9) Information regarding Mr. Fitzgerald's compensation for the Company's 1997
     fiscal year has been omitted as Mr. Fitzgerald was not employed by the
     Company at any time during its 1997 fiscal year. Mr. Fitzgerald was
     employed by the Company for the entire 1999 fiscal year, however he
     resigned from the Company effective as of July 13, 1999.

(10) Information regarding Mr. Mallen's compensation for the Company's 1999
     fiscal year has been provided for that period of time prior to Mr. Mallen's
     resignation from the Company on April 20, 1999.

     Options granted to the Named Executive Officers during the fiscal year
ended June 30, 1999 are set forth in the following table:

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS
                          ----------------------------------------------------------    POTENTIAL REALIZABLE VALUE
                             NUMBER OF         PERCENT OF                               AT ASSUMED ANNUAL RATES OF
                               SHARES        TOTAL OPTIONS                             STOCK PRICE APPRECIATION FOR
                             UNDERLYING        GRANTED TO     EXERCISE                        OPTION TERM(3)
                              OPTIONS          EMPLOYEES        PRICE     EXPIRATION   ----------------------------
NAME                      GRANTED(#)(1)(2)   IN FISCAL 1999   ($/SHARE)      DATE          5%               10%
----                      ----------------   --------------   ---------   ----------   -----------      -----------
<S>                       <C>                <C>              <C>         <C>          <C>              <C>
Peter J. Simone.........      135,000             21.2%        $3.5000       2008       $297,153         $753,043
Rosemary E. Grande......       30,000              4.7%        $4.0630       2008       $ 76,656         $194,261
                               25,000              3.9%        $3.3750       2009       $ 53,063         $134,472
Robert L. Lentz.........       75,000             11.8%        $3.5000       2008       $165,085         $418,357

Former Executive
  Officers:
Frank P. Monaco.........       10,000              1.6%        $3.3750       2009       $ 21,225         $ 53,789
Brian F. Fitzgerald.....           --               --         $    --         --       $     --         $     --
Edward B. Mallen........       15,000              2.4%        $3.3750       2009       $ 31,838         $ 80,683
</TABLE>

---------------
(1) There were no stock appreciation rights granted or outstanding during fiscal
    1999.

(2) Except as hereinafter described, all options vest and become exercisable in
    equal quarterly installments over the four years from the original date of
    grant, which in each case is ten years prior to the expiration date shown.
    Options available to Mr. Simone and Mr. Lentz are also subject to
    accelerated vesting and extended exercise periods under certain
    circumstances as described in the section entitled Employment Agreements,
    Termination of Employment and Change-in-Control Arrangements of this Item
    11.

(3) Represents the hypothetical gains that could be achieved for the options if
    exercised at the end of the option terms. These gains are based on assumed
    rates of stock price appreciation of 5% and 10% compounded annually from the
    date the respective options were granted to their expiration dates. There
    can be no assurance that the stock price will appreciate at the rates shown
    in this table.

                                       24
<PAGE>   26

     The following table sets forth certain information regarding the number of
shares of Common Stock received upon exercise of options during the last fiscal
year, the aggregate dollar value realized upon exercise and the total number of
unexercised options held by each of the Named Executive Officers as of June 30,
1999:

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                           NUMBER OF SECURITIES
                                                          UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED
                            NUMBER OF                           OPTIONS AT                IN-THE-MONEY OPTIONS
                             SHARES                         FISCAL YEAR-END(#)           AT FISCAL YEAR-END(1)
                           ACQUIRED IN      VALUE      ----------------------------   ----------------------------
NAME                        EXERCISE     REALIZED(2)   EXERCISABLE    UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
----                       -----------   -----------   -----------    -------------   -----------    -------------
<S>                        <C>           <C>           <C>            <C>             <C>            <C>
Peter J. Simone..........      --            --          147,531         212,469       $130,144        $193,293
Rosemary E. Grande.......      --            --           82,813          99,187       $204,439        $ 78,983
Robert L. Lentz..........      --            --           48,438         151,562       $ 39,305        $128,657

Former Executive
  Officers:
Frank P. Monaco..........      --            --           63,600          47,000       $168,747        $ 42,883
Brian F. Fitzgerald......      --            --           25,000          55,000       $ 21,875        $ 48,125
Edward B. Mallen.........      --            --           41,700              --       $ 36,663        $     --
</TABLE>

---------------
(1) The value of unexercised in-the-money options at the end of the Company's
    1999 fiscal year assumes a fair market value for the Company's Common Stock
    of $4.4375, the closing sale price per share of the Company's Common Stock
    as reported in the Nasdaq National Market on June 30, 1999.

(2) The value realized on exercise represents the difference between the
    exercise prices of the stock options and the closing price of the Company's
    Common Stock on the Nasdaq National Market on the date of such exercise.

COMPENSATION OF DIRECTORS

     Directors who are not employees of the Company receive meeting fees of
$2,000 for each Board of Directors meeting attended in person and $1,000 for
each committee meeting attended in person (other than committee meetings held on
the same day and at the same place as a Board of Directors meeting), and
reimbursement of reasonable travel expenses. The Chairman of the Board of
Directors also receives compensation of $1,000 per day for up to two days per
month for on-site services. In addition, each non-employee director and new
non-employee director joining the Board may be granted an option to purchase
shares of the Company's Common Stock under the Company's 1996 Stock Option Plan
at a price per share equal to the closing price of the Company's Common Stock on
the date of grant, with the number of shares determined by the Compensation
Committee at its discretion.

EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

     In March 1998 the Company entered into an employment agreement with its
President and Chief Executive Officer, Peter J. Simone, which agreement was
amended in November 1998 and December 1998. The agreement, as amended, provides
for a three year term of employment beginning March 18, 1998 at a base salary
initially paid at the annual rate of $240,000, plus benefits, including
vacation, medical and conditional bonus in the initial amount of $60,000 per
year. The agreement, as amended, also contains non-dislosure and non-competition
provisions, and provisions for severance pay under certain circumstances. The
agreement, as so amended, also provides for certain cash payments in the event
of termination of Mr. Simone's employment following a merger, consolidation,
sale or change in control of the Company, where a "change in control" is defined
as occurring when 50% or more of the voting equity in the Company becomes
beneficially owned by a single person, entity or affiliated group of persons or
entities. If, within eighteen months after such an event involving the Company,
Mr. Simone's employment is actually terminated (other

                                       25
<PAGE>   27

than for Cause or Disability, as defined in the employment agreement), he is not
the chief executive officer of the surviving entity and/or the surviving entity
is not a publicly traded corporation, or his responsibility, compensation or
benefits are materially reduced without his express consent, then Mr. Simone
will be entitled to receive twelve months' base salary together with
reimbursement of the cost of his group health and dental plan coverage, as well
as a period of twenty-four months from and after such actual or constructive
termination to exercise certain vested stock options. In addition, the
employment agreement, as amended, provides that Mr. Simone's then unvested stock
options shall become fully vested upon the closing of any merger, consolidation,
business combination or other reorganization of the Company in which he is not
the chief executive officer of the surviving entity, and/or the surviving entity
is not a publicly traded corporation.

     Except for Mr. Simone, as described above, none of the Company's Named
Executive Officers has an employment agreement with the Company. All of the
Named Executive Officers are parties to confidentiality and noncompetition
agreements with the Company, whereby each is required to disclose to the Company
certain inventions, discoveries and developments, and to assign his or her
rights therein to the Company.

     The Company has also previously entered into two letter agreements dated
March 12, 1998 and November 23, 1998 with its Senior Vice President of Finance
and Administration and Chief Financial Officer, Robert L. Lentz, which provide
for certain benefits in the event of a change in control of Xionics. More
specifically, under the letter agreements, if, following a change of control,
Mr. Lentz is not the chief financial officer of a publicly traded company, or he
is required to relocate or increase his commute by more than 25 miles, Mr. Lentz
will receive six months base salary and benefits, including any earned portion
of the current bonus program. Additionally, all unvested stock options will
become fully exercisable. In addition, in the event Mr. Lentz is actually or
constructively terminated, Mr. Lentz will have a period of twenty-four months to
exercise certain unvested options. The letter agreements also provide that Mr.
Lentz shall receive six months salary and benefits in the event his employment
is terminated for any other reason, excepting cause.

     The Company has entered into a letter agreement with Brian Fitzgerald,
former Vice President -- Engineering, which provides for the continued payment
of salary and vesting of options through January 15, 2000.

     The Company is in the process of entering into letter agreements with 7
officers, one of whom is a Named Executive Officer, not including Mr. Simone or
Mr. Lentz. The letter agreements will provide that in the event of termination
of such officer's employment in connection with a merger, consolidation, sale or
change in control of the Company, where a "change in control" is defined as
occurring when 50% or more of the voting equity in the Company becomes
beneficially owned by a single person, entity or affiliated group of persons or
entities, such officer shall be entitled to receive six months' base salary
together with reimbursement of the cost of his/her group health and dental plan
coverage, as well as a period of twenty-four months from and after such
termination to exercise certain vested stock options. Such officer's employment
shall be deemed terminated if, within eighteen months after such an event
involving the Company, such officer's employment is actually terminated, his/her
responsibilities, compensation or benefits are materially reduced without
his/her express consent, or he/she is required, as a condition of continued
employment, to relocate to a facility or location more than fifty miles from
his/her present location.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Board of Directors has established a Compensation Committee,
which reviews and recommends to the Board of Directors the salaries, bonuses and
other forms of compensation for executive officers of the Company and
administers various compensation and benefit plans. The members of the
Compensation Committee are Mr. D'Amore and Mr. St. Germain. None of the members
of the Compensation Committee is a current or past officer or employee of the
Company.

                                       26
<PAGE>   28

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

COMPENSATION PHILOSOPHY AND OBJECTIVES

     The Company's executive officer compensation program consists of three
primary components: base salary, performance and discretionary bonuses and
grants of stock options. Each component is intended to further the Company's
overall compensation philosophy and to achieve the compensation objectives of
the Company. The Company's compensation philosophy is that executive officer
compensation should further the Company's short- and long-term strategic goals
and values by aligning compensation with business objectives and individual
performance. Further, the compensation of executive officers should be closely
aligned with the interests of the Company's stockholders.

     The Company's executive officer compensation program is based on the
following principles and objectives:

     Competitive, Fair and Balanced Compensation.  The Company is committed to
providing an executive officer compensation program that helps to attract and
retain highly qualified executive officers. To ensure that compensation is
competitive, the Company compares its compensation practices with the executive
officer compensation practices of other companies, both in the same geographical
area and in the high-technology industry generally. The Company also seeks to
balance the compensation paid to a particular individual and the compensation
paid to the other executive officers of the Company, and strives to achieve a
balance between the fixed and variable components and between the short- and
long-term components of each executive officer's compensation.

     Corporate and Individual Performance.  Executive officers are rewarded
based upon both corporate and individual performance. Corporate performance is
evaluated by reviewing the extent to which planned financial results, including
revenue and profit goals, are achieved and strategic and business plan goals are
met. Individual performance is evaluated by reviewing the achievement of
specified individual objectives and the degree to which the executive officer
contributed to the overall success of the Company and the management team. In
keeping with the philosophy that executive compensation should be closely
aligned with the interests of the stockholders, the Company weights the
Company's achievement of its financial and business goals more heavily than
performance against individual goals and objectives in determining the
compensation for each executive officer. In particular, with respect to the
payment of discretionary bonuses, achievement of corporate financial goals as to
revenue and profitability is a threshold which must be met before the portion of
any bonus that relates to individual performance will be paid.

     In evaluating each executive officer's performance, the Company generally
uses the following procedures. Prior to or shortly after the beginning of each
fiscal year, the Company prepares an annual plan setting its goals and
objectives for that fiscal year. The plan is reviewed with and ultimately
approved by the full Board of Directors. The Chief Executive Officer reports to
the Board of Directors from time to time throughout the year on the Company's
progress toward those goals and objectives. At or near the beginning of each
fiscal year, the Compensation Committee and the Chief Executive Officer review
the performance of each executive officer during the fiscal year just ended, and
the Compensation Committee determines the base and discretionary compensation
for each such officer for the new fiscal year based both on the executive
officer's individual performance during the preceding fiscal year and on the
Company's financial performance against its goals during the preceding fiscal
year. The Compensation Committee determines the amount of base and discretionary
compensation for the Chief Executive Officer, and takes management
recommendations into consideration in determining the amount of base and
discretionary compensation for each of the other executive officers. For fiscal
1999, 87.5% of discretionary compensation for each executive officer was tied to
achievement of the Company's business objectives, and 12.5% to individual
performance. Long-term compensation in the form of grants of stock options is
awarded when an executive officer joins the Company, and occasionally thereafter
to reflect promotion or other special circumstances.

                                       27
<PAGE>   29

CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL 1999

     The compensation for Peter J. Simone, the Company's Chief Executive
Officer, consisted in fiscal 1999 of a base salary of $240,000 and eligibility
for a discretionary bonus of up to $80,000, of which 97% was paid. Mr. Simone's
base salary for fiscal 1999 was unchanged from his base salary at fiscal 1998
year end, reflecting the philosophy of the Compensation Committee that the
compensation of senior executives should be closely tied to corporate
performance including financial results. His fiscal 1998 base salary had been
increased to an annual rate of $240,000 as of January 1, 1998 to reflect his
promotion to Chief Executive Officer late in calendar 1997. The target amount of
his bonus was increased from $60,000 in fiscal 1998 to $80,000 in fiscal 1999 to
reflect his achievement of personal goals during fiscal 1998.

            Richard A. D'Amore                Thomas A. St. Germain

                                       28
<PAGE>   30

                               PERFORMANCE GRAPH

     The following graph and table compare the cumulative total stockholder
return on a monthly basis on the Company's Common Stock for the period from
September 26, 1996 (the date of the Company's initial public offering of its
Common Stock) through June 30, 1999 ("Company") against the cumulative total
returns on the Nasdaq Composite Index ("Broad Index") and the Nasdaq Computer
and Data Processing Services Index ("Select") during the same period. It should
be noted that the Company has not paid any dividends on Common Stock, and no
dividends are included in the representation of the Company's performance. The
stock price performance on the graph below is not necessarily indicative of
future stock price performance.

                                [GRAPH OMITTED]

<TABLE>
<CAPTION>
                                 COMPANY    BROAD INDEX   SELECT

<S>                              <C>        <C>           <C>
Sep-96                           100         100          100
Dec-96                            83.3333    105.225      110.888
Mar-97                            84.1667     99.5745     104.239
Jun-97                            98.3333    117.536      126.857
Sep-97                           115.833     137.392      150.247
Dec-97                            25.7733    127.991      132.235
Mar-98                            35.8333    149.617      165.222
Jun-98                            32.92      154.431      181.483
Sep-98                            21.6667    138.056      182.428
Dec-98                            22.9167    178.715      242.426
Mar-99                            18.75      200.616      278.938
Jun-99                            29.5833    218.932      296.322
</TABLE>

     The above graph and table assume $100.00 invested on September 26, 1996,
with all dividends reinvested, in each of the Company's Common Stock, the Nasdaq
Composite Index and the Nasdaq Computer and Data Processing Services Index.

                                       29
<PAGE>   31

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of September 3, 1999, certain
information with respect to the beneficial ownership of the Common Stock by: (i)
each person known by the Company to beneficially own more than 5% of the Common
Stock; (ii) each director of the Company; (iii) each executive officer named in
the Summary Compensation Table on page 23 hereof (the "Named Executive
Officers")***; and (iv) all directors and executive officers of the Company as a
group. The Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares, except as noted below.


<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY
                                                                  OWNED(1)(2)
                                                              --------------------
NAME AND ADDRESS**                                             NUMBER      PERCENT
------------------                                            ---------    -------
<S>                                                           <C>          <C>
Peter J. Simone(3)..........................................    209,885      1.8%
Robert L. Lentz(3)..........................................     95,259        *%
Rosemary E. Grande..........................................    103,981        *%
Richard A. D'Amore(4).......................................    141,449      1.2%
Paul R. Low.................................................     42,750        *%
David R. Skok...............................................    583,324      5.0%
Thomas A. St. Germain.......................................     14,000        *%
Hambro International Venture Fund II
  650 Madison Avenue
  New York, NY 10022(5).....................................    781,977      6.7%
Massachusetts Financial Services Company
  500 Boylston Street
  Boston, MA 02116-3741(6)..................................    759,847      6.5%
All directors and executive officers as a group (7
  persons)..................................................  1,190,648     10.1%
</TABLE>


---------------
  * Less than 1%

 ** Addresses are given for beneficial owners of more than 5% of the outstanding
    Common Stock only.

*** Other than the information for Brian Fitzgerald, former Vice
    President -- Engineering who resigned on July 13, 1999, Edward Mallen,
    former Executive Vice President -- Sales and Marketing who resigned on April
    20, 1999 and Frank Monaco, former Senior Vice President -- Research and
    Development and Chief Technical Officer who resigned September 7, 1999.

(1) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission and includes voting or investment power
    with respect to the shares. Shares of Common Stock subject to options
    currently exercisable or exercisable within 60 days following September 3,
    1999 are deemed outstanding for purposes of computing the share ownership
    and percentage of the person holding such options, but are not deemed
    outstanding for purposes of computing the percentage of any other person.

(2) The number of shares of Common Stock outstanding on September 3, 1999 was
    11,732,463.


(3) Does not include options which may become exercisable under certain
    circumstances in the event of a change in control of the Company. Further
    details are available in the Section entitled "Employment Agreements,
    Termination of Employment and Change-in-Control Arrangements" under Item 11
    of Part II of this Form 10-K/A.



(4) Does not include 781,977 shares held by Hambro International Venture Fund
    II, L.P. Mr. D'Amore is a general partner of Hambro International Venture
    Fund II, L.P. and as such may be deemed to beneficially own all such shares.
    Mr. D'Amore disclaims beneficial ownership of all such shares held by Hambro
    International Venture Fund II, L.P.



(5) Ownership information for Hambro International Venture Fund II, L.P. is
    current as of August 10, 1999. According to the amended Form 13G (the
    "Amended Hambro 13G") filed by Hambro International Venture Fund II, L.P.
    ("Hambro") on July 1, 1999, Hambro is the owner of record of 781,977 shares
    of


                                       30
<PAGE>   32


    Xionics common stock and, in connection therewith, has voting power over all
    of these shares. The general partners of Hambro are HIV-GEN Incorporated,
    Charles L. Dimmler, III, Edwin A. Goodman, Arthur C. Spinner, William J.
    Geary, Alexander R. Hambro and Richard A. D'Amore (together, the "General
    Partners"). As General Partners of Hambro, each of the General Partners may
    be deemed to be the beneficial owner of, and possess shared voting power
    with respect to, the 781,977 shares of Xionics common stock held by Hambro.
    In addition, certain of the General Partners are also the owners of record
    of, and have sole voting power with respect to, additional shares of Xionics
    common stock in the following amounts: Mr. Dimmler--3,804 shares, Mr.
    Goodman--35,619 shares, Mr. Geary--9,834 shares, Mr. Hambro--3,000 shares
    and Mr. D'Amore--141,449 shares. As a result of the fact that these General
    Partners are the owners of record of additional shares of Xionics common
    stock, Hambro and the other General Partners may be deemed to beneficially
    own, and possess shared voting power with respect to, all of the additional
    shares held by these General Partners as well.



(6) According to the amended Form 13G (the "MFS 13G") filed by Massachusetts
    Financial Services Company ("MFS") on February 11, 1999, MFS beneficially
    owns 759,847 shares of Xionics common stock, for which MFS exercises sole
    voting power over 733,747 of such shares.


CHANGES IN CONTROL

     On July 29, 1999, the Company entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") by and among Oak Technology, Inc.
("Oak"), Vermont Acquisition Corporation, a wholly-owned subsidiary of Oak
("Merger Sub"), and the Company, whereunder the Company will merge with and into
Merger Sub and thus become a wholly-owned subsidiary of Oak (the "Merger").
Completion of the Merger is contingent upon Xionics' stockholders approving the
Merger at a special meeting to be announced in a Joint Proxy Statement expected
to be mailed to Xionics stockholders during October 1999; Oak's stockholders
approving the issuance of new shares of Oak common stock to be exchanged for
Xionics common stock; and the satisfaction or waiver of other closing conditions
contained in the Merger Agreement. In the Merger, Xionics stockholders will
receive $2.94 in cash and 0.8031 shares of Oak Common Stock for each share of
Xionics Common Stock owned.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Robert E. Gilkes, the Company's former Chairman of the Board of Directors
and Chief Executive Officer, resigned as Chairman of the Board of Directors and
as a director of the Company and its subsidiaries on January 15, 1998. The
Company provided him with severance pay and benefits through July 31, 1999,
pursuant to a letter agreement whereunder he was also retained as a consultant
to the Board of Directors through that date.

                                       31
<PAGE>   33

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K


<TABLE>
<S>            <C>
Item 14(a)     The following documents are filed as part of this Annual
               Report on Form 10-K/A.
Item 14(a)(1)  See "Index to Consolidated Financial Statements and
               Supplementary Data" at Item 8. of this Annual Report on Form
               10-K/A.
Item 14(a)(2)  Financial Statement Schedule Included in Part IV of this
               Annual Report on Form 10-K/A. Schedule II -- Valuation and
               Qualifying Accounts. Other financial statement schedules
               have not been included because they are not applicable or
               the information is included in the financial statements or
               notes thereto.

Item 14(a)(3)  Exhibits
</TABLE>


     The following exhibits are incorporated herein by reference:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
 3.1      Amended and Restated Certificate of Incorporation of the
          Registrant (filed as Exhibit 3.1 to the Company's
          Registration Statement on Form S-1 dated May 28, 1996, File
          No. 333-4613)
  3.2     Amended and Restated By-Laws of the Registrant (filed as
          Exhibit 3.2 to the Company's Registration Statement on Form
          S-1 dated May 28, 1996, File No. 333-4613)
 4.1      Specimen Certificate for shares of the Registrant's stock
          (filed as Exhibit 4.1 to the Company's Registration
          Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.1      1996 Stock Option Plan and related form of stock option
          agreement (filed as Exhibit 10.1 to the Company's
          Registration Statement on Form S-1 dated May 28, 1996, File
          No. 333-4613)
10.2      1995 Stock Option Plan and related form of stock option
          agreement (filed as Exhibit 10.2 to the Company's
          Registration Statement on Form S-1 dated May 28, 1996, File
          No. 333-4613)
10.3      1993 Stock Option Plan and related form of stock option
          agreement (filed as Exhibit 10.3 to the Company's
          Registration Statement on Form S-1 dated May 28, 1996, File
          No. 333-4613)
10.4      1996 Director Stock Option Plan (filed as Exhibit 10.4 to
          the Company's Registration Statement on Form S-1 dated May
          28, 1996, File No. 333-4613)
10.5      1996 Employee Stock Purchase Plan (filed as Exhibit 10.5 to
          the Company's Registration Statement on Form S-1 dated May
          28, 1996, File No. 333-4613)
10.6      Credit Agreement, dated September 25, 1995, between the
          Company and Fleet Bank of Massachusetts, N.A. (filed as
          Exhibit 10.8 to the Company's Registration Statement on Form
          S-1 dated May 28, 1996, File No. 333-4613)
10.6.1    Modification of Credit Agreement, dated August 21, 1996,
          between the Company and Fleet National Bank (filed as
          Exhibit 10.8.1 to the Company's Registration Statement on
          Form S-1 dated May 28, 1996, File No. 333-4613)
10.7      Computer Technology License Agreement between Phoenix
          Technologies Ltd. and Hewlett-Packard Company for
          PhoenixPage Software Products dated September 30, 1994 as
          amended (including amended and restated Amendment No. 1
          between the Registrant and Hewlett-Packard, effective as of
          March 8, 1996) (filed as Exhibit 10.10 to the Pre-effective
          Amendment No. 1 to the Company's Registration Statement on
          Form S-1 dated June 7, 1996, File No. 333-4613)
10.8      Lease by and between the Registrant and E & F Realty
          Associates Limited Partnership of Property at One Twenty
          Eight Corporate Center, 70 Blanchard Road, Burlington,
          Massachusetts, dated November 29, 1994, including First
          Amendment to Lease, dated August 9, 1995 (filed as Exhibit
          10.11 to the Company's Registration Statement on Form S-1
          dated May 28, 1996, File No. 333-4613)
</TABLE>

                                       32
<PAGE>   34

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
 10.9     Stock Option Agreement between the Company and Robert E.
          Gilkes (filed as Exhibit 10.13 to the Company's Registration
          Statement on Form S-1 dated May 28, 1996, File No. 333-4613)
10.10     Form of Invention and Nondisclosure Agreement (filed as
          Exhibit 10.16 to the Company's Registration Statement on
          Form S-1 dated May 28, 1996, File No. 333-4613)
10.11     Second Amendment dated August 1, 1997 to Lease by and
          between the Company and E&F Realty Associates Limited
          Partnership of Property at One Twenty Eight Corporate
          Center, 70 Blanchard Road, Burlington, Massachusetts dated
          November 29, 1994 (filed as Exhibit 10.13 to the Company's
          Annual Report on Form 10-K dated September 29, 1997)
10.12     Securities Purchase Agreement between WaveMark Technologies,
          Inc. and the Company dated June 20, 1997 (filed as Exhibit
          10.14 to the Company's Annual Report on Form 10-K dated
          September 29, 1997)
10.13     Stock Option Agreements between the Company and Peter J.
          Simone dated June 27, 1997 (filed as Exhibit 10.15 to the
          Company's Annual Report on Form 10-K dated September 29,
          1997)
10.14     Stock Purchase Agreement between Xionics, Inc., Xionics
          Document Technologies, Inc., Seaport Imaging, et al dated
          August 13, 1997 (filed as Exhibit 10.14 to the Company's
          Annual Report on Form 10-K dated September 17, 1998)
10.15     Employment Agreement between the Company and Larry Krummel
          dated September 5, 1997 (filed as Exhibit 10.15 to the
          Company's Annual Report on Form 10-K dated September 17,
          1998)
10.16     Letter agreement between the Company and Robert E. Gilkes
          dated February 24, 1998 (filed as Exhibit 10.16 to the
          Company's Annual Report on Form 10-K dated September 17,
          1998)
10.17     Technology and Services Agreement between the Company and
          Hewlett-Packard Company dated June 19, 1998 (filed as
          Exhibit 10.17 to Amendment No. 1 dated October 8, 1998 to
          the Company's Annual Report on Form 10-K dated September 17,
          1998)
10.18     Rights Agreement between the Company and BankBoston N.A.
          dated April 15, 1998 (filed as Exhibit 10.18 to the
          Company's Annual Report on Form 10-K dated September 17,
          1998)
10.19     Second Loan Modification Agreement between the Company and
          Fleet National Bank dated December 31, 1997 (filed as
          Exhibit 10.19 to the Company's Annual Report on Form 10-K
          dated September 17, 1998)
10.20     Employment Agreement between the Company and Peter J. Simone
          dated March 18, 1998 (filed as Exhibit 10.20 to the
          Company's Annual Report on Form 10-K dated September 17,
          1998)
10.21     Letter Agreement between the Company and Paul R. Low dated
          March 16, 1998 (filed as Exhibit 10.21 to the Company's
          Annual Report on Form 10-K dated September 17, 1998)
10.22     Form of Stock Option Agreement pursuant to the Company's
          1993, 1995 and 1996 Stock Option Agreements (filed as
          Exhibit 10.22 to the Company's Annual Report on Form 10-K
          dated September 17, 1998)
21.1      Subsidiaries of the Registrant (filed as Exhibit 21.1 to the
          Company's Annual Report on Form 10-K dated September 17,
          1998)
99.1      Agreement for the Purchase of Shares, dated as of February
          21, 1997, by and between the Company and Wilfried Welch and
          Oliver Fohr (filed as Exhibit 99.12 to the Company's Current
          Report on From 8-K filed March 8, 1997)
</TABLE>

                                       33
<PAGE>   35

     The following is a list of exhibits filed as part of this Annual Report on
Form 10-K/A.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
10.23*    Third Loan Modification Agreement dated February 12, 1999
          between the Company and Fleet National Bank
10.24*    Amendment No. 1 to Employment Agreement dated November 1998
          between the Company and Peter J. Simone
10.25*    Amendment No. 2 to Employment Agreement dated December 1998
          between the Company and Peter J. Simone
10.26*    Letter Agreement dated June 15, 1999 between the Company and
          Phoenix Technologies, Ltd.
10.27*    Amendment to Rights Agreement dated July 29, 1999 between
          the Company and BankBoston, N.A.
23.1      Consent of Arthur Andersen LLP. Filed herewith
27.1      Financial Data Schedule. Filed herewith
</TABLE>

---------------

* Previously filed as an exhibit to the Company's Annual Report on Form 10-K
filed on September 13, 1999.

ITEM 14(b) REPORTS ON FORM 8-K

     On August 13, 1999, the Company filed a current report on Form 8-K,
announcing that Xionics had entered into an Agreement and Plan of Merger and
Reorganization dated as of July 29, 1999 with Oak Technology, Inc. ("Oak"),
which agreement sets forth the terms and conditions of the proposed merger of
Xionics with and into a wholly owned subsidiary of Oak (the "Merger") pursuant
to which such wholly owned subsidiary will be the surviving corporation in the
Merger. The 8-K further announced that the transaction is subject to certain
conditions, including approval by the stockholders of Xionics and Oak, and is
expected to be completed in the fourth calendar quarter of 1999.

                                       34
<PAGE>   36

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Burlington, Commonwealth of Massachusetts, on this 8th day of December 1999.

                                          XIONICS DOCUMENT TECHNOLOGIES, INC.

                                          By:      /s/ PETER J. SIMONE
                                            ------------------------------------
                                                      PETER J. SIMONE
                                             PRESIDENT, CHIEF EXECUTIVE OFFICER
                                                        AND DIRECTOR

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:

<TABLE>
<CAPTION>
                     SIGNATURE                                  TITLE                      DATE
                     ---------                                  -----                      ----
<S>                                                  <C>                             <C>
                /s/ PETER J. SIMONE                  President, Chief Executive      December 8, 1999
---------------------------------------------------  Officer, and Director
                  PETER J. SIMONE                    (principal executive
                                                     officer)

                  /s/ PAUL R. LOW                    Chairman of the Board of        December 8, 1999
---------------------------------------------------  Directors
                    PAUL R. LOW

              /s/ RICHARD A. D'AMORE                 Director                        December 8, 1999
---------------------------------------------------
                RICHARD A. D'AMORE

                 /s/ DAVID R. SKOK                   Director                        December 8, 1999
---------------------------------------------------
                   DAVID R. SKOK

             /s/ THOMAS A. ST. GERMAIN               Director                        December 8, 1999
---------------------------------------------------
               THOMAS A. ST. GERMAIN

                /s/ ROBERT L. LENTZ                  Senior Vice President --        December 8, 1999
---------------------------------------------------  Finance and Administration,
                  ROBERT L. LENTZ                    Chief Financial Officer, and
                                                     Treasurer (principal
                                                     financial and accounting
                                                     officer)
</TABLE>

                                       35
<PAGE>   37

                             SUMMARY OF TRADEMARKS


     The following trademarks of Xionics Document Technologies, Inc., which may
be registered in certain jurisdictions, are referenced in this Form 10-K/A:


    Intelligent Peripheral System
     IPS-PRINT
     Xionics
     XipChip
     IPS/2000
     Xionics 5
     Xionics 5E
     Xionics 5C
     Xionics 6
     Xionics PS2
     Xionics PS3

                                       36
<PAGE>   38

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Xionics Document Technologies, Inc.:

     We have audited the accompanying consolidated balance sheets of Xionics
Document Technologies, Inc. (a Delaware corporation) and subsidiaries as of June
30, 1999 and 1998, and the related consolidated statements of operations,
redeemable preferred stock and stockholders' equity (deficit) and cash flows for
each of the three years in the period ended June 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Xionics Document
Technologies, Inc. and subsidiaries as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.

                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
July 22, 1999, (except with respect to the
matter discussed in Note 1, as to which
the date is July 29, 1999)

                                       F-1
<PAGE>   39

              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        JUNE 30,
                                                              ----------------------------
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $ 20,317,617    $ 15,243,438
  Accounts receivable, less reserves of approximately
     $56,000 at June 30, 1999 and 1998......................     3,692,426       3,953,722
  Contract receivable.......................................     7,000,000       9,927,416
  Prepaid expenses and other current assets.................         6,745         480,802
                                                              ------------    ------------
          Total current assets..............................    31,016,788      29,605,378
                                                              ------------    ------------
PROPERTY AND EQUIPMENT, NET.................................     2,028,473       2,575,141
DEFERRED TAX ASSET..........................................     1,030,000       1,030,000
OTHER ASSETS................................................       638,000         722,607
                                                              ------------    ------------
                                                              $ 34,713,261    $ 33,933,126
                                                              ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Notes payable, current portion............................  $    575,000    $    527,631
  Accounts payable..........................................       888,665       2,184,184
  Accrued expenses..........................................     8,605,720       9,030,835
  Deferred revenue..........................................     5,586,750       2,096,531
                                                              ------------    ------------
          Total current liabilities.........................    15,656,135      13,839,181
                                                              ------------    ------------
NOTES PAYABLE, NET OF CURRENT PORTION.......................            --         575,000
COMMITMENTS (Notes 6 and 9)
STOCKHOLDERS' EQUITY:
  Common Stock, $.01 par value; Authorized -- 40,000,000
     shares Issued -- 12,726,936 shares at June 30, 1999 and
     12,261,438 at June 30, 1998 Outstanding -- 11,481,992
     shares at June 30, 1999 and 12,037,375 at June 30,
     1998...................................................       127,269         122,614
  Additional paid-in capital................................    46,976,183      46,303,791
  Accumulated deficit.......................................   (23,939,166)    (26,756,214)
  Treasury stock, at cost -- 1,244,944 shares of common
     stock at June 30, 1999 and 224,063 shares of common
     stock at June 30, 1998.................................    (4,107,160)       (151,246)
                                                              ------------    ------------
          Total stockholders' equity........................    19,057,126      19,518,945
                                                              ------------    ------------
                                                              $ 34,713,261    $ 33,933,126
                                                              ============    ============
</TABLE>

                                       F-2
<PAGE>   40

              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED JUNE 30,
                                                     ------------------------------------------
                                                        1999            1998           1997
                                                     -----------    ------------    -----------
<S>                                                  <C>            <C>             <C>
Net revenue........................................  $31,403,383    $ 29,101,136    $29,179,466
Cost of revenue....................................    9,747,074      11,254,991      3,649,188
                                                     -----------    ------------    -----------
  Gross profit.....................................   21,656,309      17,846,145     25,530,278
Operating expenses:
  Research and development.........................   12,197,907      15,544,150     13,428,466
  Selling, general and administrative..............    7,103,998       6,996,031      7,144,055
  Unusual charges..................................           --       6,690,053             --
  Charge for purchased research and development....           --              --      5,400,000
                                                     -----------    ------------    -----------
                                                      19,301,905      29,230,234     25,972,521
                                                     -----------    ------------    -----------
     Income (loss) from continuing operations......    2,354,404     (11,384,089)      (442,243)
Interest and other income (expense):
  Interest income..................................      768,348         870,715        956,402
  Interest expense.................................       (3,350)         (1,567)       (95,462)
  Other expense....................................      (12,380)        (25,783)        (8,001)
                                                     -----------    ------------    -----------
                                                         752,618         843,365        852,939
                                                     -----------    ------------    -----------
Income (loss) from continuing operations before
  provision for income taxes.......................    3,107,022     (10,540,724)       410,696
  Provision for income taxes.......................      289,974         272,374        345,500
                                                     -----------    ------------    -----------
Net income (loss) from continuing operations.......    2,817,048     (10,813,098)        65,196
Discontinued operations (Note 2)
  Income (loss) from discontinued operations of
     DDPD (net of provision for income taxes of
     approximately $0, $0 and $398,000,
     respectively).................................           --      (3,182,447)       787,153
  Loss on sale of discontinued operations..........           --      (2,255,988)            --
                                                     -----------    ------------    -----------
Net income (loss)..................................  $ 2,817,048    $(16,251,533)   $   852,349
                                                     ===========    ============    ===========
Income (loss) from continuing operations per share
  Basic............................................  $      0.23    $      (0.91)   $      0.01
                                                     ===========    ============    ===========
  Diluted..........................................  $      0.22    $      (0.91)   $      0.01
                                                     ===========    ============    ===========
Income (loss) from discontinued operations per
  share
  Basic............................................  $        --    $      (0.46)   $      0.08
                                                     ===========    ============    ===========
  Diluted..........................................  $        --    $      (0.46)   $      0.07
                                                     ===========    ============    ===========
Net income (loss) per share
  Basic............................................  $      0.23    $      (1.37)   $      0.09
                                                     ===========    ============    ===========
  Diluted..........................................  $      0.22    $      (1.37)   $      0.07
                                                     ===========    ============    ===========
Weighted average number of shares outstanding
  Basic............................................   12,279,266      11,830,541      9,948,607
                                                     ===========    ============    ===========
  Diluted..........................................   12,815,248      11,830,541     12,080,987
                                                     ===========    ============    ===========
</TABLE>


                                       F-3
<PAGE>   41

              XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                 CLASS C REDEEMABLE
                                                                     CONVERTIBLE
                                                              -------------------------
                                                              NUMBER OF     LIQUIDATION
                                                                SHARES         VALUE
                                                              ----------    -----------
<S>                                                           <C>           <C>
BALANCE, JUNE 30, 1996......................................   2,698,938    $ 8,231,410
Exercise of stock options...................................          --             --
  Exercise of stock options, issued from treasury...........          --             --
  Issuance of Common Stock under Employee Stock Purchase
     Plan (ESPP)............................................          --             --
  Tax benefit from exercise of incentive stock options......          --             --
  Conversion of Preferred Stock to Common Stock.............  (2,698,938)    (8,231,410)
  Issuance of Common Stock from initial public offering, net
     of issuance costs of $926,439..........................          --             --
  Net income................................................          --             --
                                                              ----------    -----------
BALANCE, JUNE 30, 1997......................................          --             --
  Exercise of stock options.................................          --             --
  Issuance of Common Stock under Employee Stock Purchase
     Plan (ESPP)............................................          --             --
  Tax benefit from exercise of incentive stock options......          --             --
  Net loss..................................................          --             --
                                                              ----------    -----------
BALANCE, JUNE 30, 1998......................................          --             --
  Exercise of stock options.................................          --             --
  Issuance of Common Stock under Employee Stock Purchase
     Plan (ESPP)............................................          --             --
  Noncash compensation charge...............................          --             --
  Repurchase of Common Stock................................          --             --
  Net income................................................          --             --
                                                              ----------    -----------
BALANCE, JUNE 30, 1999......................................          --    $        --
                                                              ==========    ===========
</TABLE>

                                       F-4
<PAGE>   42
              XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                             CLASS A
                                           CONVERTIBLE                   CLASS A                   CLASS B
                                         PREFERRED STOCK              COMMON STOCK               COMMON STOCK
                                    -------------------------    -----------------------    ----------------------
                                      NUMBER      LIQUIDATION      NUMBER        $.01        NUMBER        $.01
                                    OF SHARES        VALUE       OF SHARES     PAR VALUE    OF SHARES    PAR VALUE
                                    ----------    -----------    ----------    ---------    ---------    ---------
<S>                                 <C>           <C>            <C>           <C>          <C>          <C>
BALANCE, JUNE 30, 1996............   3,125,051    $ 3,606,658     1,386,066    $ 13,861      558,931      $ 5,589
Exercise of stock options.........          --             --            --          --           --           --
  Exercise of stock options,
    issued from treasury..........          --             --            --          --           --           --
  Issuance of Common Stock under
    Employee Stock Purchase Plan
    (ESPP)........................          --             --            --          --           --           --
  Tax benefit from exercise of
    incentive stock options.......          --             --            --          --           --           --
  Conversion of Preferred Stock to
    Common Stock..................  (3,125,051)    (3,606,658)   (1,386,066)    (13,861)    (558,931)      (5,589)
  Issuance of Common Stock from
    initial public offering, net
    of issuance costs of
    $926,439......................          --             --            --          --           --           --
  Net income......................          --             --            --          --           --           --
                                    ----------    -----------    ----------    --------     --------      -------
BALANCE, JUNE 30, 1997............          --             --            --          --           --           --
  Exercise of stock options.......          --             --            --          --           --           --
  Issuance of Common Stock under
    Employee Stock Purchase Plan
    (ESPP)........................          --             --            --          --           --           --
  Tax benefit from exercise of
    incentive stock options.......          --             --            --          --           --           --
  Net loss........................          --             --            --          --           --           --
                                    ----------    -----------    ----------    --------     --------      -------
BALANCE, JUNE 30, 1998............          --             --            --          --           --           --
  Exercise of stock options.......          --             --            --          --           --           --
  Issuance of Common Stock under
    Employee Stock Purchase Plan
    (ESPP)........................          --             --            --          --           --           --
  Noncash compensation charge.....          --             --            --          --           --           --
  Repurchase of Common Stock......          --             --            --          --           --           --
  Net income......................          --             --            --          --           --           --
                                    ----------    -----------    ----------    --------     --------      -------
BALANCE, JUNE 30, 1999............          --    $        --            --    $     --           --      $    --
                                    ==========    ===========    ==========    ========     ========      =======
</TABLE>

                                       F-5
<PAGE>   43
              XIONICS DOCUMENT TECHNOLOGIES INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
                       AND STOCKHOLDERS' EQUITY (DEFICIT)
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                         COMMON STOCK                                         TREASURY STOCK            TOTAL
                                    ----------------------   ADDITIONAL                   -----------------------   STOCKHOLDERS'
                                      NUMBER       $.01        PAID-IN     ACCUMULATED     NUMBER                      EQUITY
                                    OF SHARES    PAR VALUE     CAPITAL       DEFICIT      OF SHARES      COST         (DEFICIT)
                                    ----------   ---------   -----------   ------------   ---------   -----------   -------------
<S>                                 <C>          <C>         <C>           <C>            <C>         <C>           <C>
BALANCE, JUNE 30, 1996............          --   $     --    $ 1,312,381   $(11,357,030)    224,311   $  (151,413)  $ (6,569,954)
Exercise of stock options.........   1,182,227     11,822        397,605             --          --            --        409,427
  Exercise of stock options,
    issued from treasury..........          --         --           (117)            --        (248)          167             50
  Issuance of Common Stock under
    Employee Stock Purchase Plan
    (ESPP)........................       5,549         55         69,515             --          --            --         69,570
  Tax benefit from exercise of
    incentive stock options.......          --         --      1,600,000             --          --            --      1,600,000
  Conversion of Preferred Stock to
    Common Stock..................   7,768,986     77,690     11,779,828             --          --            --      8,231,410
  Issuance of Common Stock from
    initial public offering, net
    of issuance costs of
    $926,439......................   2,875,000     28,750     30,656,250             --          --            --     30,685,000
  Net income......................          --         --             --        852,349          --            --        852,349
                                    ----------   --------    -----------   ------------   ---------   -----------   ------------
BALANCE, JUNE 30, 1997............  11,831,762    118,317     45,815,462    (10,504,681)    224,063      (151,246)    35,277,852
  Exercise of stock options.......     394,246      3,943        172,714             --          --            --        176,657
  Issuance of Common Stock under
    Employee Stock Purchase Plan
    (ESPP)........................      35,430        354        147,605             --          --            --        147,959
  Tax benefit from exercise of
    incentive stock options.......          --         --        168,010             --          --            --        168,010
  Net loss........................          --         --             --    (16,251,533)         --            --    (16,251,533)
                                    ----------   --------    -----------   ------------   ---------   -----------   ------------
BALANCE, JUNE 30, 1998............  12,261,438    122,614     46,303,791    (26,756,214)    224,063      (151,246)    19,518,945
  Exercise of stock options.......     331,932      3,319        253,278             --          --            --        256,597
  Issuance of Common Stock under
    Employee Stock Purchase Plan
    (ESPP)........................     133,566      1,336        366,351             --          --            --        367,687
  Noncash compensation charge.....          --         --         52,763             --          --            --         52,763
  Repurchase of Common Stock......          --         --             --             --   1,020,881    (3,955,914)    (3,955,914)
  Net income......................          --         --             --      2,817,048          --            --      2,817,048
                                    ----------   --------    -----------   ------------   ---------   -----------   ------------
BALANCE, JUNE 30, 1999............  12,726,936   $127,269    $46,976,183   $(23,939,166)  1,244,944   $(4,107,160)  $ 19,057,126
                                    ==========   ========    ===========   ============   =========   ===========   ============
</TABLE>

                                       F-6
<PAGE>   44

              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                    FISCAL YEARS ENDED JUNE 30,
                                                             ------------------------------------------
                                                                1999            1998           1997
                                                             -----------    ------------    -----------
<S>                                                          <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..........................................  $ 2,817,048    $(16,251,533)   $   852,349
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities --
    Charge for purchased research and development..........           --       2,000,000      5,400,000
    Depreciation and amortization..........................    1,572,582       2,044,446      1,369,506
    Noncash compensation charge............................       52,763              --             --
    Deferred income taxes..................................           --        (100,000)      (930,000)
    Loss on disposal of property and equipment.............           --              --         22,712
    Unusual charges........................................           --       6,690,053             --
    Changes in current assets and current liabilities (net
       of effects of acquisitions) --
       Accounts receivable.................................      261,296          (3,733)    (2,948,470)
       Contract receivable.................................    2,927,416      (2,516,128)    (7,411,288)
       Prepaid expenses and other current assets...........      474,057         673,559     (1,063,488)
       Assets and liabilities of discontinued operations,
         net...............................................           --       2,113,195         58,868
       Accounts payable....................................   (1,295,519)        201,459         40,841
       Accrued expenses....................................     (425,115)      2,536,007      2,425,562
       Deferred revenue....................................    3,490,219         791,498        (63,800)
                                                             -----------    ------------    -----------
         Net cash provided by (used in) operating
            activities.....................................    9,874,747      (1,821,177)    (2,247,208)
                                                             -----------    ------------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment......................   (1,025,914)     (1,721,192)    (1,504,395)
  Decrease (increase) in other assets......................       84,607      (1,428,133)    (2,342,697)
  Acquisitions, net of cash acquired and acquisition costs
    paid...................................................           --      (2,225,228)    (5,205,475)
  Decrease in short-term investments.......................           --              --        644,613
                                                             -----------    ------------    -----------
         Net cash used in investing activities.............     (941,307)     (5,374,553)    (8,407,954)
                                                             -----------    ------------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal repayments of secured promissory notes payable
    to stockholder.........................................     (527,631)             --     (2,094,000)
  Borrowing under notes payable............................           --       1,102,631             --
  Repurchase of Common Stock...............................   (3,955,914)             --             --
  Proceeds from exercise of stock options..................      256,597         176,657        409,427
  Proceeds from issuance of Common Stock under Employee
    Stock Purchase Plan (ESPP).............................      367,687         147,959         69,570
  Tax benefit from exercise of incentive stock options.....           --         168,010      1,600,000
  Sale of Common Stock, net of issuance costs..............           --              --     30,685,000
  Deferred offering costs..................................           --              --       (400,000)
  Issuance of treasury stock...............................           --              --             50
  Repayment of term loans..................................           --              --       (886,833)
                                                             -----------    ------------    -----------
         Net cash (used in) provided by financing
            activities.....................................   (3,859,261)      1,595,257     29,383,214
                                                             -----------    ------------    -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......    5,074,179      (5,600,473)    18,728,052
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...............   15,243,438      20,843,911      2,115,859
                                                             -----------    ------------    -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.....................  $20,317,617    $ 15,243,438    $20,843,911
                                                             ===========    ============    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest...................................  $     4,469    $      1,567    $   135,631
                                                             ===========    ============    ===========
  Cash paid (refunded) for income taxes....................  $   147,881    $   (648,668)   $   910,097
                                                             ===========    ============    ===========
</TABLE>


                                       F-7
<PAGE>   45

              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     Xionics Document Technologies, Inc. and subsidiaries (the "Company")
designs, develops and markets innovative software and silicon solutions for
printing, scanning, copying, processing and transmitting digital documents to
computer peripheral devices that perform document imaging functions. The
Company's products enable the high-speed capture, processing, printing, copying
and display of complex electronic documents, both locally and across networks.
The Company provides standards-based technology around which its customers,
original equipment manufacturers ("OEMs") of peripheral devices, can design and
develop differentiated products.

     In August 1998, the Company sold its Digital Document Products Division
("DDPD") business to GammaGraphX, Inc. ("GGX"). The sale involved the transfer
of all DDPD assets and related personnel and certain liabilities to GGX for
future consideration, including notes issued for certain assets and future
royalties (see Note 2).

     On July 29, 1999, the Company entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") by and among Oak Technology, Inc.
("Oak"), Vermont Acquisition Corporation, a wholly-owned subsidiary of Oak
("Merger Sub"), and the Company, whereunder the Company will merge with and into
Merger Sub and thus become a wholly-owned subsidiary of Oak (the "Merger").
Completion of the Merger is contingent upon Xionics' stockholders approving the
Merger at a special meeting to be announced in a Joint Proxy Statement expects
to be mailed to Xionics stockholders during October 1999; Oak's stockholders
approving the issuance of new shares of Oak common stock to be exchanged for
Xionics common stock; and the satisfaction or waiver of other closing conditions
contained in the Merger Agreement. In the Merger, Xionics stockholders will
receive $2.94 in cash and 0.8031 shares of Oak Common Stock for each share of
Xionics Common Stock.

     The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the notes to consolidated financial statements.

  (a) Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Xionics Holdings Limited
("Limited"), Xionics Document Technologies GmbH, Xionics Kabushiki Kaisha,
Xionics, Inc. and Xionics Securities Corporation. Xionics International Limited
("Xionics UK") is a wholly owned subsidiary of Limited. Xionics
Geschaftsfuhrungs GmbH and Xionics GmbH & Co. KG Software Consulting ("Xionics
KG") are wholly owned subsidiaries of Xionics Document Technologies GmbH. GCA
Software GmbH is a wholly owned subsidiary of Xionics KG. All material
intercompany accounts and transactions of the consolidated companies have been
eliminated in consolidation.

  (b) Management Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  (c) Revenue Recognition

     The Company has adopted Statement of Position ("SOP") 97-2, Software
Revenue Recognition, which became effective for fiscal years beginning after
December 15, 1997, as amended by SOP 98-9, Modification of SOP 97-2, "Software
Revenue Recognition", with Respect to Certain Transactions. Net revenue includes
software license fees, services, software maintenance and royalty revenue.
Revenue from software is

                                       F-8
<PAGE>   46
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


recognized upon shipment of the product to customers, provided that there are no
significant obligations remaining and collectibility of the receivable is
probable. Revenue from software maintenance contracts is recognized ratably as
it is earned over the term of the contract, generally one year. Unearned
software maintenance revenue is included in deferred revenue. In addition,
deferred revenue includes certain prepaid royalties and advanced billings under
software development contracts for services not yet performed. Service revenue
and royalty revenue are recognized as the service is performed and the royalty
is earned or paid by the customer. Nonrefundable royalty revenue is recognized
over the estimated period of the underlying customer commercial product
shipments. The Company recognizes revenue under software development contracts
as services are provided for per diem contracts or by using the
percentage-of-completion method of accounting based on the ratio of actual labor
hours incurred to the total estimated hours for individual fixed-price
contracts. Provisions for any estimated losses on uncompleted contracts are made
in the period in which such losses become evident or estimatable. During 1998,
the Company recorded contract losses of approximately $2.7 million, which were
included in cost of revenue in the accompanying fiscal 1998 statements of
operations.



  (d) Unusual Charges



     During fiscal 1998, the Company recorded unusual charges of approximately
$6.7 million. The components of these charges were as follows:



<TABLE>
<S>                                                        <C>
Write-down of intangible and other assets to net
  realizable value.......................................  $4,904,891
Provision for lease costs of excess facilities and
other....................................................   1,785,162
                                                           ----------
                                                           $6,690,053
                                                           ==========
</TABLE>



     The Company assesses the realizability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of.  SFAS No. 121 requires, among other things, that an entity
review its long-lived assets, including intangibles such as goodwill, for
impairment whenever changes in circumstances indicate that the carrying amount
of an asset that the entity expects to hold and use may not be fully
recoverable, the entity shall estimate the future cash flow expected to result
from the use of the asset and its eventual disposition. In accordance with SFAS
No. 121 the Company determined that the future cash flows of certain purchased
technology, prepaid royalties and other assets were determined to be less than
the carrying value of the asset.



     During fiscal 1998, the Company recorded charges of approximately $4.9
million relating to the impairment of certain long-lived assets, which are
included in unusual operating charges in the accompanying consolidated
statements of operations. The write-downs relate to purchased technology,
prepaid royalty payments and other long-lived assets. These write-downs were
necessary following management's conclusion in June 1998 that under SFAS No. 121
the future cash flows for these assets were impaired. The Company expensed $3.3
million of purchased technology related to the development of XipChip. The
Company incurred significant costs in acquiring and developing the XipChip
technology, however due to delays in its development, certain purchased
technology was not incorporated into the XipChip design. In addition the market
demand had shifted primarily to lower-end and lower-cost imaging products of
which the XipChip was less suited. Accordingly, the market potential for the
XipChip had changed significantly, resulting in adverse sales prospects for the
XipChip in future periods. The Company also expensed $1.0 million of prepaid
royalty payments relating to technology that due to design modifications was no
longer being used in the current version of the Company's software products and
therefore provided no future cash flow or economic benefit to the Company. The
remaining $600,000 expense related to other long-lived assets consisting of
licenses and fees for certain secondary technology that was being used on
products being developed by the Company. These products were not developed due
to changes in the business direction and therefore it was determined


                                       F-9
<PAGE>   47
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


that these related licenses and fees had no future cashflow to the Company and
therefore were determined to be impaired.



     Additionally during fiscal 1998, the Company recorded a lease loss and
other accrual totaling approximately $1.8 million. The lease costs of
approximately $994,000 related to the estimated loss under two facility leases
for excess space which the Company had determined it would not utilize and would
incur a loss to sublease or settle its commitments. These leases expire in July
2002. The severance cost of approximately $584,000 includes benefits to sixteen
employees who were terminated as part of a workforce reduction that occurred
during the fourth quarter of fiscal 1998. The remaining other accrual amounts of
approximately $257,000 related to purchased technology agreements for which the
Company entered into, but had not yet paid for prior to changing the focus of
their XipChip development efforts as discussed above.



     As of June 30, 1999, $1,331,948 related to the unusual charges was included
in accrued expenses in the accompanying consolidated balance sheet related
primarily to future payments under the lease obligations and certain royalty
agreements related to impaired licensed technology.



  (e) Warranty Cost


     The Company provides a 90-day warranty with the sale of its software
products. The Company estimates and accrues for the costs of providing these
warranties upon shipment of the products.

  (f) Research and Development Costs

     Research and development costs are charged to operations as incurred. SFAS
No. 86, Accounting for the Costs of Computer Software To Be Sold, Leased or
Otherwise Marketed, requires capitalization of certain software development
costs incurred subsequent to the establishment of technological feasibility.
Based on the Company's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the Company
between completion of the working model and the point at which the product is
ready for general release have not been and are not expected to be material.

  (g) Cash and Cash Equivalents

     The Company accounts for investments under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The Company considers all
highly liquid investments with original maturities of less than three months at
the time of purchase to be cash equivalents. As of June 30, 1999 and 1998 cash
and cash equivalents consisted of the following:

<TABLE>
<CAPTION>
                                                             JUNE 30,
                                                    --------------------------
                                                       1999           1998
                                                    -----------    -----------
<S>                                                 <C>            <C>
Cash............................................    $   206,809    $   391,871
Commercial paper................................      6,986,973      9,498,630
Money market accounts...........................      2,397,362      1,644,009
U.S. government and agency securities...........     10,726,473      3,708,928
                                                    -----------    -----------
          Total cash and cash equivalents.......    $20,317,617    $15,243,438
                                                    ===========    ===========
</TABLE>

                                      F-10
<PAGE>   48
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (h) Property and Equipment

     The Company records property and equipment at cost. Maintenance and repair
items are charged to expense when incurred. Depreciation and amortization is
recorded for financial statement purposes on a straight-line basis over the
estimated useful lives of the assets, as follows:

<TABLE>
<CAPTION>
                                                                         JUNE 30,
                                                  ESTIMATED      ------------------------
             ASSET CLASSIFICATION                USEFUL LIVES       1999          1998
             --------------------                ------------    ----------    ----------
<S>                                              <C>             <C>           <C>
Computer equipment.............................      3 years     $5,526,900    $4,510,519
Furniture and fixtures.........................  3 - 7 years      1,098,116     1,127,905
Machinery and equipment........................      3 years        296,112       256,790
                                                                 ----------    ----------
                                                                  6,921,128     5,895,214
Less -- Accumulated depreciation and
  amortization.................................                   4,892,655     3,320,073
                                                                 ----------    ----------
                                                                 $2,028,473    $2,575,141
                                                                 ==========    ==========
</TABLE>

  (i) Accrued Expenses

     Accrued expenses as of June 30, 1999 and 1998 consist of the following:


<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                      ------------------------
                                                         1999          1998
                                                      ----------    ----------
<S>                                                   <C>           <C>
Accrued payroll and related expenses................  $2,245,107    $1,054,903
Accrued unusual charges.............................   1,331,948     1,407,228
Accrued contract loss...............................   2,053,688     2,000,000
Accrued discontinued operations.....................     558,288     1,045,000
Accrued other.......................................   2,416,689     3,523,704
                                                      ----------    ----------
                                                      $8,605,720    $9,030,835
                                                      ==========    ==========
</TABLE>


  (j) Foreign Currency Translation

     The Company follows the translation principles established by SFAS No. 52,
Foreign Currency Translation. Gains and losses resulting from changes in
exchange rates relating to the remeasurement of financial statements of the
Company's subsidiaries, whose functional currency is the U.S. dollar, are
immaterial for all periods presented and are included in other expense in the
accompanying consolidated statements of operations.

  (k) Concentration of Credit Risk

     SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet risk such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements. Financial instruments that potentially subject the Company to
concentrations of credit risk are principally cash equivalents, marketable
securities and accounts receivable. Concentration of credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales. The Company performs periodic credit evaluations of its
customers and has recorded allowances for its estimated losses.

                                      F-11
<PAGE>   49
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes the number of customers that individually
comprise greater than 10% of total revenue for the fiscal year and/or total
trade accounts receivable at June 30 and their aggregate percentage of the
Company's total net revenue and accounts receivable.

<TABLE>
<CAPTION>
                                                 NET REVENUE                   ACCOUNTS RECEIVABLE
                                       -------------------------------    -----------------------------
                                                       PERCENTAGE OF
                                                      CUSTOMER REVENUE                   PERCENTAGE OF
                                       SIGNIFICANT    ----------------    SIGNIFICANT    TOTAL ACCOUNTS
                                        CUSTOMERS       A         B        CUSTOMERS       RECEIVABLE
                                       -----------    ------    ------    -----------    --------------
<S>                                    <C>            <C>       <C>       <C>            <C>
Fiscal Years Ended --
June 30, 1999........................       2          66%       13%           5               64%
June 30, 1998........................       2          53%       14%           3               40%
June 30, 1997........................       1          58%       --%           5               79%
</TABLE>

  (l) Income (Loss) per Share

     SFAS No. 128, Earnings Per Share, establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. In accordance with SFAS No. 128, basic net
income (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding for those periods. Diluted
net income (loss) per share is calculated by dividing net income (loss) by the
diluted weighted average number of common shares outstanding for all periods
presented.

     The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted weighted
average common shares outstanding:

<TABLE>
<CAPTION>
                                                      FISCAL YEARS ENDED JUNE 30,
                                                 --------------------------------------
                                                    1999          1998          1997
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
Weighted average common shares outstanding.....  12,279,266    11,830,541     9,948,607
Incremental weighted average common shares
issuable upon exercise of stock options
outstanding....................................     535,982            --     2,132,380
                                                 ----------    ----------    ----------
Diluted weighted average common shares
  outstanding..................................  12,815,248    11,830,541    12,080,987
                                                 ==========    ==========    ==========
</TABLE>

     Dilutive weighted average shares outstanding for fiscal 1999 and 1997
exclude only potential common shares from stock options that would be
antidilutive. Diluted weighted average shares outstanding for fiscal 1998
exclude all potential common shares from stock options because to include such
shares would have been antidilutive due to the Company's fiscal 1998 net loss.
As of June 30, 1999, 1998 and 1997, 223,967, 2,209,770 and 364,750 potential
common shares, respectively, were outstanding, but not included in the above
calculation, as their effect would have been antidilutive.

  (m) Postretirement Benefits

     The Company has no obligations under SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, as it does not currently offer
such benefits.

  (n) Accounting for Stock Compensation Plans

     The Company applies Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, in accounting for the stock option
activity for its employees and directors. The Company has adopted the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation (see Note 8(c)).

                                      F-12
<PAGE>   50
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (o) Reclassifications

     Certain amounts from prior years have been reclassified to conform with the
current year's presentation.

  (p) Other Assets

     Other assets as of June 30, 1999 and 1998 consist of long-term deposits and
an investment representing less than 20% ownership in a company that was founded
by the previous chief operating officer of the Company. This investment is being
accounted for under the cost method of accounting.

  (q) Comprehensive Income

     The Company has adopted SFAS No. 130, Reporting Comprehensive Income in the
1999 fiscal year. SFAS No. 130 requires disclosure of all components of
comprehensive income on an annual and interim basis. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. The
Company's comprehensive income (loss) is equal to the net income (loss) for all
periods presented.

  (r) Segment Reporting

     The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, in the 1999 fiscal year. SFAS No. 131
requires certain financial and supplementary information to be disclosed on an
annual and interim basis for each reportable segment of an enterprise. To date,
the Company views its operations and manages its business as principally one
segment (See note 11 for revenue by geographic destination).

  (s) New Accounting Standards

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not believe the
adoption of this accounting pronouncement will have a significant impact on its
financial instruments.

                                      F-13
<PAGE>   51
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (t) Noncash Investing and Financing Activities

     The following table summarizes the supplemental disclosure of noncash and
certain other transactions for the years indicated.

<TABLE>
<CAPTION>
                                                             FISCAL YEARS ENDED JUNE 30,
                                                       ----------------------------------------
                                                          1999          1998           1997
                                                       ----------    -----------    -----------
<S>                                                    <C>           <C>            <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In connection with the initial public offering of
Common Stock (Note 8(a)), the following were
converted to Common Stock --
  Class A Common Stock...............................  $       --    $        --    $    13,861
                                                       ==========    ===========    ===========
  Class B Common Stock...............................  $       --    $        --    $     5,589
                                                       ==========    ===========    ===========
  Class A Convertible Preferred Stock................  $       --    $        --    $ 3,606,658
                                                       ==========    ===========    ===========
  Class C Redeemable Convertible Preferred Stock.....  $       --    $        --    $ 8,231,410
                                                       ==========    ===========    ===========
          Total noncash conversion...................  $       --    $        --    $11,857,518
                                                       ==========    ===========    ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS RELATED TO
  ACQUISITIONS:
  During 1997 and 1998, the Company acquired GCA and
     Seaport Imaging, as described in Notes (3) and
     (4), respectively
  These acquisitions are summarized as follows --
  Fair value of assets acquired, excluding cash......  $       --    $ 2,492,052    $ 5,750,648
  Payments in connection with the acquisitions, net
     of cash acquired................................          --     (2,225,228)    (5,205,475)
                                                       ----------    -----------    -----------
  Liabilities assumed................................  $       --    $   266,824    $   545,173
                                                       ==========    ===========    ===========
</TABLE>

(2) DISCONTINUED OPERATIONS

     In fiscal 1998, the Company made the decision to shift all of its focus to
the Company's core embedded systems business and to sell or otherwise dispose of
its DDPD division. The Company's DDPD division sold print and scan accelerators
in the production scanner market. The Company's $5,438,000, or $0.46 per share,
loss reported from discontinued operations for the year ended June 30, 1998
represented a loss from DDPD's operations of $3,182,000 or $0.27 per share that
included a $2,000,000 charge for purchased research and development in
connection with the Seaport Imaging ("Seaport") acquisition (See Note 4). In
addition, the Company recorded the estimated loss on the disposal of the
business, including the write-off of assets and extinguishment of liabilities of
approximately $2,256,000 or $0.19 per share.

     On August 12, 1998, the Company sold substantially all of the assets of its
DDPD division to GGX of Waltham, Massachusetts for consideration consisting of
future royalties on GGX's future sales of all products purchased from the
Company in this transaction, if any, from the date of closing through September
2001, or until royalties reach an aggregate of $2.2 million, subject to
provisions defined in the asset purchase agreement; assumption of certain
liabilities; and promissory notes totaling $1.28 million payable in 1999 and
2000, subject to collection of receivables sold in the transaction. At June 30,
1999, the Company has not received any material proceeds from the sale and has
recorded no estimated proceeds from the disposition due to the significant
uncertainty of realizing any proceeds from the sale of the DDPD business. If
material proceeds are collected in the future, the Company will record them as
income from discontinued operations in

                                      F-14
<PAGE>   52
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the period received. The Company has recently agreed to extend the dates on
which certain payments from GGX are due and has received a security interest in
certain of the assets sold to GGX.

     The accompanying consolidated financial statements contain certain accounts
that have been reclassified in each of the periods presented to reflect this
disposition by the Company. Reported revenue, costs and expenses exclude the
operating results of the Company's DDPD business. The results of the Company's
DDPD business are presented on a net basis in the consolidated statements of
operations as income (loss) from discontinued operations. Product revenue from
the DDPD business was approximately $6,190,000 and $8,621,000 for the years
ended June 30, 1998 and 1997, respectively.

     At June 30, 1999, the Company has approximately $558,000 included in
accrued expenses that principally relates to rent obligations for discontinued
operations.

(3) ACQUISITION OF GCA


     On February 21, 1997, the Company acquired GCA Gesellschaft fur
Computer-Anwendung mbH ("GCA"). The Company paid $5,000,000 in cash for the
outstanding stock of GCA. The acquisition has been accounted for as a purchase
in accordance with APB Opinion No. 16, and, accordingly, GCA's operating results
from February 21, 1997 are included in the accompanying consolidated statements
of operations. In accordance with APB Opinion No. 16, the Company has allocated
the purchase price based on the fair value of assets acquired and liabilities
assumed. A significant portion of the purchase price, as described below, had
been identified as in-process research and development ("in-process R&D"). The
Company was responsible for the valuation of the in-process R&D. The portion of
the purchase price allocated to the in-process R&D projects that had not yet
reached technological feasibility and did not have a future alternative use,
totaled $5,400,000 and was charged to expense as of the acquisition date.
Acquired intangibles included the assembled workforce of GCA and goodwill.
During fiscal 1998, these intangibles were determined to be impaired due to the
Company's change in business focus and were written off (see Note 1(d)).



     GCA had one significant in-process R&D project at the acquisition date.
This project was for a host base printer language for low-end ink jet and laser
printers and significant progress had been made in the design of the basic
architecture. The introduction of this product would have enabled the Company to
diversify its product offerings and enter a new segment of the printer market.
Extensive research and development would have been necessary for the completion
of the in-process R&D into a finished product. The risk of this in-process
technology was that revenue would be dependent upon reaching technological
feasibility and meeting market price requirements. Furthermore, the in-process
R&D did not have any alternative future uses apart from the specific objectives
for the project. At the acquisition date, the Company had expected the remaining
cost to complete this in-process R&D to be approximately $2,100,000. In fiscal
1998 due to a change in business focus, the Company discontinued further
development on this in-process R&D project.


     The purchase price of $5,750,000, including direct acquisition costs, was
allocated as follows:

<TABLE>
<S>                                                        <C>
Current assets...........................................  $  444,313
Property and equipment...................................      91,762
Acquired intangibles.....................................     150,000
In-process R&D...........................................   5,400,000
Other assets.............................................       9,098
Goodwill.................................................     200,000
Liabilities assumed......................................    (545,173)
                                                           ----------
                                                           $5,750,000
                                                           ==========
</TABLE>

                                      F-15
<PAGE>   53
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) ACQUISITION OF SEAPORT IMAGING

     On August 13, 1997, the Company acquired Seaport Imaging ("Seaport") for
$2,450,000, which included direct acquisition costs of approximately $250,000.
The Company paid $1,100,000 in cash at closing and the balance was evidenced by
a promissory note payable over two years, subject to adjustment. The acquisition
has been accounted for as a purchase in accordance with APB Opinion No. 16, and
accordingly, Seaport's operating results from August 13, 1997 are included in
the accompanying consolidated financial statements. The Seaport results combined
with the $2,000,000 charge for in-process R&D has been included in the loss from
discontinued operations for the year ended June 30, 1998.


     In accordance with APB Opinion No. 16, the Company has allocated the
purchase price based on the fair value of assets acquired and liabilities
assumed. A significant portion of the purchase price, as described below, has
been identified as intangible assets using proven valuation procedures and
techniques, including approximately $2,000,000 of in-process R&D. The in-process
R&D represents the fair value of projects that did not have a future alternative
use and was therefore charged to expense as of the acquisition date. Acquired
intangibles include the assembled workforce and existing product technology of
Seaport. These acquired intangibles were also written off and included in the
loss from discontinued operations for the year ended June 30, 1998.


     The purchase price of $2,450,000, including direct acquisition cost was
allocated as follows:

<TABLE>
<S>                                                        <C>
Current assets...........................................  $  434,595
Property and equipment...................................      35,209
In-process R&D...........................................   2,000,000
Other assets.............................................       4,314
Acquired intangibles.....................................     242,706
Liabilities assumed......................................    (266,824)
                                                           ----------
                                                           $2,450,000
                                                           ==========
</TABLE>

(5) INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these differences
reverse.

     The components of the Company's provision for income taxes for the years
ended June 30, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                       1999        1998        1997
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Current:
Federal............................................  $     --    $     --    $     --
  State............................................    38,955      35,000      18,000
  Foreign..........................................   251,019     337,374      44,000
Deferred:
  Federal..........................................        --     (65,000)    579,000
  State............................................        --     (35,000)    102,190
                                                     --------    --------    --------
Total provision for income taxes...................  $289,974    $272,374    $743,190
                                                     ========    ========    ========
</TABLE>

                                      F-16
<PAGE>   54
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:

<TABLE>
<CAPTION>
                                                              1999     1998     1997
                                                              -----    -----    ----
<S>                                                           <C>      <C>      <C>
Tax (benefit) at federal statutory rate.....................   34.0%   (34.0)%  34.0%
State taxes, net of federal benefit.........................    0.8     (5.0)    6.3
Foreign taxes...............................................    8.1      1.0     1.1
Change in valuation allowance/utilization of federal and
  foreign net operating loss carryforwards..................  (33.6)    39.5     5.2
                                                              -----    -----    ----
                                                                9.3%     1.5%   46.6%
                                                              =====    =====    ====
</TABLE>

     The tax effects of the components of the Company's deferred income tax
assets are as follows:

<TABLE>
<CAPTION>
                                                            JUNE 30,
                                                  ----------------------------
                                                      1999            1998
                                                  ------------    ------------
<S>                                               <C>             <C>
Deferred Tax Assets --
Domestic net operating loss carryforwards.......  $  6,917,457    $  5,443,967
  Foreign net operating loss carryforwards......     1,301,082       1,301,082
Temporary differences --
     Intangible and acquired incomplete research
       and development related to the Phoenix
       acquisition..............................       932,986       1,009,725
     Intangible and acquired incomplete research
       and development related to the GCA
       acquisition..............................     1,152,000       1,584,000
     Discontinued operations....................     1,615,053       3,920,000
     Allowance for doubtful accounts............        22,389         140,985
     Inventory valuation allowance..............            --           9,018
     Allowance for sales returns................        88,928          92,000
     Other temporary differences, net...........       713,436         314,728
                                                  ------------    ------------
          Total gross deferred tax asset........    12,743,331      13,815,505
Less -- Valuation allowance.....................   (11,713,331)    (12,785,505)
                                                  ------------    ------------
  Net deferred tax asset........................  $  1,030,000    $  1,030,000
                                                  ============    ============
</TABLE>

     At June 30, 1999, the Company had available net operating loss ("NOL")
carryforwards of approximately $15,800,000 for U.S. income tax purposes, which
may be used to offset future taxable income, if any. The NOL carryforwards begin
to expire in 2009 and are subject to review and possible adjustment by the
Internal Revenue Service. The NOL carryforwards available for use in any given
year may be limited in the event of a significant change in ownership, as
defined by the Internal Revenue Code.

     The Company has recorded a deferred tax asset for that portion of their
deferred tax asset for which it is "more likely than not" that it will receive
benefit in the future. The Company has placed a significant valuation allowance
against the remaining net deferred assets totaling approximately $11,713,000. If
realized, approximately $1,490,000 of this amount will be credited to additional
paid-in capital since these amounts were generated from the utilization of
disqualifying dispositions related to the exercise of incentive stock options.

(6) NOTES PAYABLE

     In relation to the acquisition of Seaport, the Company entered into two
notes payable with various individuals who were the stockholders of Seaport.
These notes totaled $1,150,000 and are subject to reductions, as defined in the
stock purchase agreement. In the first quarter of fiscal 1999, the Company paid
the first portion of the notes and the remaining portion is due on the second
anniversary of the closing. At June 30, 1999, the outstanding principle balance
of the note was $575,000.

                                      F-17
<PAGE>   55
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) REVOLVING LINE OF CREDIT AND TERM LOAN FACILITY

     On September 27, 1995, the Company entered into a $2,000,000 working
capital revolving line of credit (the "Line") and a $1,000,000 term loan
facility with a bank. On February 12, 1999, the Company amended the Line and
term loan facility. The Modification Agreement permits the Company to borrow up
to $5,000,000 under the Line and up to $1,000,000 under the term loan facility.
Under the Modification Agreement, the Line and term loan facility expires on
December 1, 1999. Borrowings under the Line bear interest at the Bank's prime
rate (7.75% at June 30, 1999), and borrowings under the term loan facility bear
interest at prime (7.75% at June 30, 1999) plus 0.5% for qualified equipment
purchases, as defined. Each term loan is repayable over 36 months. Borrowings
under the Line and term loan facility are secured by substantially all assets of
the Company, as defined. The Company is restricted in the payment of any
dividends under the Line and term loan facility. In addition, the Company is
required to comply with certain restrictive covenants, including debt to net
worth, capital base, quick ratio and profitability. The Company was in
compliance with all covenants as of June 30, 1999. There are no outstanding
borrowings under the Line or term loan facility as of June 30, 1999.

(8) STOCKHOLDERS' EQUITY

  (a) Initial Public Offering

     In October 1996, the Company sold, through an underwritten public offering,
2,500,000 shares of its common stock at $12 per share. Also in October 1996, the
Company sold an additional 375,000 shares, at $12 per share, pursuant to an
underwriters' over-allotment provision. The Company received proceeds of
$30,685,000 from its initial public offering, which was net of issuance costs of
$926,439.

  (b) Stock and Stock Option Plans

     In fiscal 1994, the Company established the 1993 Stock Option Plan (the
"1993 Plan"), and in 1995, the Company established the 1995 Stock Option Plan
(the "1995 Plan"). The plans provide for the grant of incentive stock options
and nonqualified stock options. Options granted under the plans vest over
various periods and expire no later than 10 years from the date of grant. The
Company has reserved common stock shares for the options granted under the 1993
Plan and the 1995 Plan. At June 30, 1999, the aggregate number of shares of
Common Stock available for future grants under the 1993 Plan and the 1995 Plan
is 23,798 and 19,993, respectively.

     The Company's 1996 Stock Option Plan (the "1996 Plan") was approved by the
Board of Directors in February 1996 and was adopted by the Company's
stockholders on July 12, 1996. The 1996 Plan was amended by the Board of
Directors on October 10, 1997 to increase the number of shares available for
grants thereunder by 800,000 shares to 1,750,000 shares. The 1996 Plan was
further amended by the Board of Directors on October 5, 1998, to reallocate
334,000 shares then available for issuance under the 1996 Directors Stock Option
Plan (the "Director Plan") to the 1996 Plan, as well as to increase the number
of shares available for issuance thereunder by an additional 500,000 shares of
the Company's Common Stock, over and above any shares reallocated to the 1996
Plan from the Director Plan.

     The 1996 Plan provides for the grant or award of options to purchase shares
of the Company's Common Stock. Stock options granted under the 1996 Plan may be
either incentive stock options or nonqualified options. The purpose of the 1996
Plan is to attract and retain outstanding employees, directors and consultants
of the Company through the incentives of stock ownership. All employees
(including officers), directors and consultants of the Company are eligible to
receive stock options under the 1996 Plan.

     The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board of Directors has the authority to
designate participants, determine the number of shares to be covered

                                      F-18
<PAGE>   56
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

by each grant, the time at which each stock option is exercisable, the method of
payment and any other terms and conditions of the stock options.

     While the Board of Directors determines the prices at which options may be
exercised under the 1996 Plan, the exercise price of an option shall be at least
100% of the fair market value (as determined under the terms of the 1996 Plan)
of a share of Common Stock on the date of grant. At June 30, 1999, the aggregate
number of shares of Common Stock available for future grants under the 1996
Plan, as amended, is 699,431.

     The Director Plan was approved by the Board of Directors and the Company's
stockholders on July 12, 1996. The Director Plan provides for the automatic
grant of stock options ("Director Stock Options") to purchase shares of Common
Stock of the Company to nonemployee directors of the Company once annually, for
so long as the nonemployee director serves on the Board of Directors and is not
employed by the Company. Director Stock Options granted under the Director Plan
must be nonstatutory options. The Director Plan authorizes the grant of options
to purchase up to a total of 350,000 shares. The Director plan was amended by
the Board of Directors on October 5, 1998 and approved by the Company's
stockholders on November 23, 1998 to reallocate the remaining 334,000 shares
then available for issuance under the Director Plan to the 1996 Plan.

     Stock option activity is summarized as follows:

<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                            NUMBER      EXERCISE PRICE     AVERAGE EXERCISE
                                          OF SHARES        PER SHARE       PRICE PER SHARE
                                          ----------    ---------------    ----------------
<S>                                       <C>           <C>                <C>
Outstanding, June 30, 1996..............   2,510,090    $ 0.20 -   6.50         $ 0.55
                                          ----------    ---------------         ------
Granted.................................     874,900     10.00 -  15.00          12.77
  Terminated............................    (169,494)     0.20 -  14.45           8.83
  Exercised.............................  (1,182,475)     0.20 -  10.00           0.35
                                          ----------    ---------------         ------
Outstanding, June 30, 1997..............   2,033,021    $ 0.20 -  15.00         $ 5.24
                                          ----------    ---------------         ------
  Granted...............................   1,588,588      3.50 -  15.25           4.68
  Terminated............................  (1,017,593)     0.68 -  15.25          12.17
  Exercised.............................    (394,246)     0.20 -  11.25           0.45
                                          ----------    ---------------         ------
Outstanding, June 30, 1998..............   2,209,770    $ 0.20 -  15.25         $ 2.52
                                          ----------    ---------------         ------
  Granted...............................     637,175      2.88 -   4.31           3.50
  Terminated............................    (248,850)     0.68 -  15.25           3.82
  Exercised.............................    (331,932)     0.20 -   3.88           0.77
                                          ----------    ---------------         ------
Outstanding, June 30, 1999..............   2,266,163    $ 0.20 - $ 6.50         $ 2.94
                                          ==========    ===============         ======
Exercisable, June 30, 1999..............   1,081,589    $ 0.20 - $ 6.50         $ 2.41
                                          ==========    ===============         ======
</TABLE>

                                      F-19
<PAGE>   57
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The range of exercise prices for options outstanding and options
exercisable at June 30, 1999 are as follows:

<TABLE>
<CAPTION>
                      OPTIONS OUTSTANDING
              ------------------------------------    OPTIONS EXERCISABLE
                             WEIGHTED                ----------------------
  RANGE OF                    AVERAGE     WEIGHTED                 WEIGHTED
  EXERCISE                   REMAINING    AVERAGE                  AVERAGE
 PRICE PER      NUMBER      CONTRACTUAL   EXERCISE     NUMBER      EXERCISE
   SHARE      OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
------------  -----------   -----------   --------   -----------   --------
<S>           <C>           <C>           <C>        <C>           <C>
$0.20 - 0.68     417,927        6.18       $0.44        376,052     $0.42
$1.84 - 3.38     308,666        9.13        3.05         53,382      2.15
$3.44 - 3.50     258,931        9.30        3.50         45,335      3.50
$3.56 - 3.56   1,039,827        8.66        3.56        545,628      3.56
$3.63 - 4.19     217,812        8.91        3.82         54,192      3.77
$4.25 - 4.25      20,000        8.71        4.25          6,250      4.25
$4.31 - 4.31       2,000        9.99        4.31             --        --
$6.50 - 6.50       1,000        6.80        6.50            750      6.50
               ---------       -----       -----      ---------     -----
               2,266,163        8.37       $2.94      1,081,589     $2.41
               =========       =====       =====      =========     =====
</TABLE>

     The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders in July 1996
and authorizes the sale of up to a total of 200,000 shares of Common Stock to
participating employees.

     All employees of the Company meeting certain eligibility requirements as
defined, are eligible to participate in the Purchase Plan. An employee may elect
to have a whole number percentage from 1% to 10% of his or her base pay withheld
during the payroll deduction period ("Offering Period") for purposes of
purchasing shares under the Purchase Plan. The price at which shares may be
purchased during each offering will be 85% of the fair market value per share of
the common stock on either the first day or the last day of the Offering Period,
whichever is lower. The Compensation Committee of the Board of Directors may, at
its discretion, choose an Offering Period of 12 months or less for each of the
offerings and choose a different Offering Period for each offering. Under the
Purchase Plan, the Company had sold 174,545 shares as of June 30, 1999. As of
June 30, 1999, 25,455 shares of Common Stock were available for future sale
under the Purchase Plan.

  (c) Stock -- Based Compensation

     The Company accounts for its stock-based compensation plan under APB No.
25, Accounting for Stock Issued to Employees. In October 1995, the FASB issued
SFAS No. 123, Accounting for Stock-Based Compensation, effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 establishes a fair-value
based method of accounting for stock-based compensation plans. The Company has
adopted the disclosure-only alternative under SFAS No. 123, which requires
disclosure of the pro forma effects on earnings and earnings per share as if
SFAS No. 123 had been adopted, as well as certain other information.

                                      F-20
<PAGE>   58
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has computed the pro forma disclosure required under SFAS No.
123 for all stock compensation plans during the years ended June 30, 1999, 1998
and 1997 using the Black-Scholes option pricing model, as prescribed by SFAS No.
123. The weighted average information and assumptions used are as follows:

<TABLE>
<CAPTION>
                                                1999            1998            1997
                                            ------------    ------------    ------------
<S>                                         <C>             <C>             <C>
Risk free interest rate...................  4.18% - 5.76%   5.44% - 6.11%   5.90% - 6.69%
Expected dividend yield...................            --              --              --
Expected lives............................       4 years         4 years         4 years
Expected volatility.......................            85%             65%             65%
Weighted average value at grant date......         $2.26           $4.70          $12.75
Weighted average remaining contractual
  life of options outstanding.............          8.37            8.73            8.65
</TABLE>

     The pro forma effect of applying SFAS No. 123 would be as follows:

<TABLE>
<CAPTION>
                                                   1999           1998          1997
                                                ----------    ------------    --------
<S>                                             <C>           <C>             <C>
Net income (loss) as reported.................  $2,817,048    $(16,251,533)   $852,349
Pro forma net income (loss) as adjusted.......  $1,627,461    $(18,214,462)   $ 41,890
Net income (loss) per share as reported:
  Basic.......................................  $     0.23    $      (1.37)   $   0.09
                                                ==========    ============    ========
  Diluted.....................................  $     0.22    $      (1.37)   $   0.07
                                                ==========    ============    ========
Pro forma net income (loss) per share as
  adjusted:
  Basic.......................................  $     0.13    $      (1.54)   $   0.00
                                                ==========    ============    ========
  Diluted.....................................  $     0.13    $      (1.54)   $   0.00
                                                ==========    ============    ========
</TABLE>

(9) OPERATING LEASE COMMITMENTS

     The Company leases office facilities and certain equipment under operating
leases which expire at various dates through July 2003. Rent expense for all
operating leases charged to operations was approximately $1,539,000, $1,302,000
and $1,268,000 for the years ended June 30, 1999, 1998 and 1997, respectively.

     Future minimum lease payments under operating leases as of June 30, 1999
are approximately as follows:

<TABLE>
<CAPTION>
                     FISCAL YEARS ENDED
                          JUNE 30,
                     ------------------
<S>                                                           <C>
     2000...................................................  $1,748,000
     2001...................................................   1,773,000
     2002...................................................   1,746,000
     2003...................................................     142,000
     2004...................................................          --
                                                              ----------
Total minimum payments......................................  $5,409,000
                                                              ==========
</TABLE>

(10) RETIREMENT PLAN

     Effective January 1992, the Company adopted the Xionics 401(k) Retirement
Plan (the "Plan"). The Company has elected, at its discretion, to contribute up
to a maximum of 50% of the first 6% of pay contributed to the Plan. The
Company's contributions to the Plan were approximately $316,000, $152,000 and
$146,000 for the years ended June 30, 1999, 1998 and 1997, respectively.

                                      F-21
<PAGE>   59
              XIONICS DOCUMENT TECHNOLOGIES, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) REVENUES BY GEOGRAPHIC DESTINATION

     Revenues by geographic destination and as a percentage of total revenue are
as follows:

<TABLE>
<CAPTION>
                                                     FISCAL YEAR ENDED JUNE 30,
                                              -----------------------------------------
                                                 1999           1998           1997
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
United States...............................  $24,981,307    $19,854,302    $22,325,462
Japan.......................................    5,886,326      8,716,175      5,135,131
Other.......................................      535,750        530,659      1,718,873
                                              -----------    -----------    -----------
                                              $31,403,383    $29,101,136    $29,179,466
                                              ===========    ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED JUNE 30,
                                                              --------------------------
                                                               1999      1998      1997
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
United States...............................................   79.6%     68.2%     76.5%
Japan.......................................................   18.7%     30.0%     17.6%
Other.......................................................    1.7%      1.8%      5.9%
                                                              -----     -----     -----
                                                              100.0%    100.0%    100.0%
                                                              =====     =====     =====
</TABLE>

                                      F-22
<PAGE>   60

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE

To Xionics Document Technologies, Inc.:


     We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Xionics Document Technologies, Inc. and
subsidiaries included in this Form 10-K/A, and have issued our report thereon
dated July 22, 1999 (except with respect to the matter discussed in Note 1 as to
which the date is July 29, 1999). Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index of this Form 10-K/A is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth herein in relation to the basic financial statements taken as a
whole.


                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
July 22, 1999

                                      F-23
<PAGE>   61

                                                                     SCHEDULE II

                      XIONICS DOCUMENT TECHNOLOGIES, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
               FOR THE YEARS ENDED JUNE 30, 1997, 1998, AND 1999

<TABLE>
<CAPTION>
                                              BALANCE
ALLOWANCE FOR DOUBTFUL ACCOUNTS FOR         BEGINNING OF    CHARGED TO                    BALANCE
CONTINUING OPERATIONS:                          YEAR         EXPENSE      WRITE-OFFS    END OF YEAR
-----------------------------------         ------------    ----------    ----------    -----------
<S>                                         <C>             <C>           <C>           <C>
  June 30, 1997...........................   $   56,000     $       --    $      --     $   56,000
  June 30, 1998...........................       56,000             --           --         56,000
  June 30, 1999...........................       56,000             --           --         56,000
</TABLE>

<TABLE>
<CAPTION>
                                              BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS FOR         BEGINNING OF    CHARGED TO                   BALANCE,
DISCONTINUED OPERATIONS:                        YEAR         EXPENSE      WRITE-OFFS    END OF YEAR
-----------------------------------         ------------    ----------    ----------    -----------
<S>                                         <C>             <C>           <C>           <C>
  June 30, 1997...........................   $   84,000     $   67,000    $ (88,000)    $   63,000
  June 30, 1998...........................       63,000        933,000     (996,000)            --
  June 30, 1999...........................           --             --           --             --
</TABLE>

<TABLE>
<CAPTION>
                                              BALANCE                      CHARGED
                                            BEGINNING OF    CHARGED TO      TO THE        BALANCE
DISCONTINUED OPERATIONS ACCRUAL:                YEAR         EXPENSE       ACCRUAL      END OF YEAR
--------------------------------            ------------    ----------    ----------    -----------
<S>                                         <C>             <C>           <C>           <C>
  June 30, 1997...........................   $       --     $       --    $      --     $       --
  June 30, 1998...........................           --      1,045,000           --      1,045,000
  June 30, 1999...........................    1,045,000             --     (486,712)       558,288
</TABLE>

<TABLE>
<CAPTION>
                                              BALANCE                      CHARGED
                                            BEGINNING OF    CHARGED TO      TO THE        BALANCE
RESERVES FOR RESTRUCTURING:                     YEAR         EXPENSE       ACCRUAL      END OF YEAR
---------------------------                 ------------    ----------    ----------    -----------
<S>                                         <C>             <C>           <C>           <C>
  June 30, 1997...........................   $       --     $       --    $      --     $       --
  June 30, 1998...........................           --      1,399,000     (479,000)       920,000
  June 30, 1999...........................      920,000             --     (471,981)       448,019
</TABLE>

                                      F-24
<PAGE>   62


                                                                   1542-10K/A-99