SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
( ) 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 0-16055
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XSCRIBE CORPORATION
-------------------------------------
(Exact name of registrant as specified in its charter)
California 95-3267788
---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6285 Nancy Ridge Drive, San Diego, California 92121
---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(619) 457-5091
-------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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 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
------- -------
At June 30, 1995, 5,754,000 shares of Common Stock of the
Registrant were outstanding.
Exhibit Index on Page 12
Page 1 of 13 <PAGE>
INDEX
XSCRIBE CORPORATION
Page
----
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets as of
June 30, 1995 and March 31, 1995 . . . . 3
Condensed consolidated statements of
operations for the three months ended
June 30, 1995 and 1994. . . . . . . 4
Condensed consolidated statements of
cash flows for the three months ended
June 30, 1995 and 1994 . . . . . . . 5
Notes to condensed consolidated financial
statements. . . . . . . . . . 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . 7
PART II - OTHER INFORMATION
---------------------------
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K . . . . 10
SIGNATURES. . . . . . . . . . . . 11
Page 2 of 13 <PAGE>
XSCRIBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND MARCH 31, 1995
June 30, 1995
(Unaudited) March 31, 1995
CURRENT ASSETS: ------------- --------------
Cash and cash equivalents $ 360,000 $ 311,000
Accounts receivable, net 2,688,000 3,623,000
Inventories 4,640,000 3,897,000
Prepaid expenses and other 442,000 509,000
----------- -----------
TOTAL CURRENT ASSETS 8,130,000 8,340,000
PROPERTY AND EQUIPMENT, NET 2,457,000 2,491,000
INTANGIBLES AND OTHER
ASSETS, NET 4,190,000 4,322,000
----------- -----------
$14,777,000 $15,153,000
=========== ===========
CURRENT LIABILITIES:
Accounts payable $ 1,629,000 $ 2,182,000
Accrued liabilities and other 1,373,000 1,415,000
Line of Credit 1,170,000 500,000
Current portion of
notes payable 132,000 108,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,304,000 4,205,000
NON-CURRENT LIABILITIES 670,000 699,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock (5,754,000
shares outstanding) 20,138,000 20,132,000
Accumulated deficit (10,333,000) (9,887,000)
Other (2,000) 4,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 9,803,000 10,249,000
----------- -----------
$14,777,000 $15,153,000
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
Page 3 of 13 <PAGE>
XSCRIBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
1995 1994
----------- -----------
REVENUES $ 4,337,000 $ 5,404,000
COST OF REVENUES 3,007,000 3,276,000
----------- -----------
GROSS PROFIT 1,330,000 2,128,000
----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative 1,515,000 1,589,000
Research and development 203,000 163,000
----------- -----------
TOTAL OPERATING EXPENSES 1,718,000 1,752,000
----------- -----------
OPERATING INCOME (LOSS) (388,000) 376,000
OTHER INCOME (EXPENSE), NET (44,000) (20,000)
----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (432,000) 356,000
PROVISION FOR INCOME TAXES -- 4,000
----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (432,000) 352,000
LOSS FROM DISCONTINUED OPERATION (15,000) (65,000)
----------- -----------
NET INCOME (LOSS) $ (447,000) $ 287,000
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.08) $ 0.06
=========== ===========
DISCONTINUED OPERATION $ 0.00 $ (0.01)
=========== ===========
NET INCOME (LOSS) $ (0.08) $ 0.05
=========== ===========
Weighted average number of
common and common stock
equivalent shares outstanding 5,754,000 6,074,000
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Page 4 of 13 <PAGE>
XSCRIBE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
1995 1994
CASH FLOWS FROM OPERATIONS: ----------- -----------
Income (loss) from
continuing operations $ (432,000) $ 352,000
Adjustments:
Depreciation and amortization 443,000 486,000
Changes in assets and
liabilities:
Accounts receivable 935,000 (87,000)
Inventories (743,000) (395,000)
Prepaid expenses and other 37,000 (203,000)
Accounts payable (553,000) (724,000)
Accrued liabilities and other (42,000) (44,000)
----------- -----------
Net cash flow (used) by
continuing operations (355,000) (615,000)
Net operating cash flows
provided (used) by
discontinued operation 24,000 (107,000)
----------- -----------
NET CASH (USED) BY OPERATIONS (331,000) (722,000)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (281,000) (183,000)
----------- -----------
NET CASH (USED) FOR INVESTING
ACTIVITIES (281,000) (183,000)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock 6,000 --
Proceeds from line of
credit, net 670,000 495,000
Repayment of notes payable (9,000) (16,000)
Other -- 7,000
----------- -----------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 667,000 486,000
EFFECTS OF EXCHANGE RATES ON CASH (6,000) 12,000
----------- -----------
NET INCREASE (DECREASE) TO CASH 49,000 (407,000)
CASH - BEGINNING OF PERIOD 311,000 557,000
----------- -----------
CASH - END OF PERIOD $ 360,000 $ 150,000
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated financial statements.
Page 5 of 13 <PAGE>
XSCRIBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 AND MARCH 31, 1995 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
1. GENERAL - Basis of presentation. The accompanying
unaudited condensed consolidated financial statements reflect the
accounts of Xscribe Corporation (the "Company"), together with
its majority-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
These unaudited condensed consolidated financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the
disclosures made are adequate to prevent the information from
being misleading. These unaudited condensed consolidated
financial statements reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present the results of operations and financial
position as of the dates and for the periods presented. These
unaudited condensed consolidated financial statements should be
read in conjunction with the audited financial statements and
related notes included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended March 31,
1995. The results for the interim periods presented are not
necessarily indicative of results to be expected for a full year.
2. SUPPLEMENTARY FINANCIAL INFORMATION.
Inventories. As of June 30, 1995, inventories consist of
the following:
Raw materials and
spare parts $ 2,686,000
Work in process 757,000
Finished goods 1,197,000
-----------
$ 4,640,000
===========
Page 6 of 13 <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition
and results of operations should be read in conjunction with the
condensed consolidated financial statements and notes to
condensed consolidated financial statements included elsewhere
herein.
Results of Operations
Three months ended June 30, 1995 compared to the three months
ended June 30, 1994.
--------------------------------------------------------------
Consolidated revenues for the quarter ended June 30, 1995
decreased by 20%, from $5,404,000 to $4,337,000, compared to the
quarter ended June 30, 1994. Revenues in the Solutions Segment
decreased from $2,986,000 in the quarter ended June 30, 1994 to
$2,453,000 in the quarter ended June 30, 1995. The decrease of
$533,000 (18%) was due primarily to declines in computer-aided-
transcription (CAT) system prices and units sold. Revenues in
the Imaging Segment decreased 22% from $2,418,000 to $1,884,000
in the quarters ended June 30, 1994 and 1995, respectively; this
$534,000 decrease was due to decreases in computer-output-
microfiche (COM) duplicator and aperture card scanner sales,
offset somewhat by increases in document scanner sales.
Consolidated gross margin decreased $798,000 (38%) from
$2,128,000 (39% of consolidated revenues) in the quarter ended
June 30, 1994 to $1,330,000 (31% of consolidated revenues) in the
quarter ended June 30, 1995. Gross margin in the Solutions
Segment decreased $513,000 (40%) from $1,272,000 (43% of
revenues) in the prior quarter to $759,000 (31% of revenues) in
the current quarter. The decrease in gross margin dollars for
the Solutions Segment totalled $272,000 from CAT revenue and
$241,000 from groupware revenue and resulted from the
decreased sales and the decreased margins as a percent of
sales. The decrease in the gross margin percent resulted
from the decreased CAT prices and also from a change in the
mix of groupware sales from higher margin software towards
lower margin hardware. Gross margin in the Imaging Segment
decreased $285,000 (33%) from $856,000 (35% of revenues) in the
prior quarter to $571,000 (30% of revenues) in the current
quarter. The decrease is due primarily to the revenue decreases
described above. The decrease in gross margin as a percent of
revenues resulted from a change in the mix of sales from COM
duplicators and aperture card scanners toward lower margin
document scanners.
Selling, general and administrative expenses ("SG&A")
decreased by $74,000 (5%) from $1,589,000 in the quarter ended
June 30, 1994 to $1,515,000 in the quarter ended June 30, 1995.
This decrease is due primarily to cost containment efforts at
Xscribe Legal Systems. SG&A, as a percent of revenues, increased
from 29% in the quarter ended June 30, 1994 to 35% in the quarter
ended June 30, 1995, primarily because of the sales decreases
described above.
Page 7 of 13 <PAGE>
Product development expenses increased by $40,000 (25%) from
$163,000 in the quarter ended June 30, 1994 to $203,000 in the
quarter ended June 30, 1995. Product development expenditures
that were capitalized because they related to technologically
feasible projects were $182,000 in the current quarter compared
to $132,000 in the prior quarter.
The Company's provision for income taxes was zero in the
current quarter and $4,000 in the prior quarter. These amounts
are substantially less than the provision calculated using the
statutory rates because of the effects of net operating loss
carryforwards, net of valuation allowances.
The decreased revenues and gross margins and the increased
product development expenses described above, offset slightly by
the decreased SG&A expenses, resulted in a loss from continuing
operations for the quarter ended June 30, 1995 of $432,000 or
$0.08 per share. This compares to income from continuing
operations of $352,000 or $0.06 per share for the quarter ended
June 30, 1994. Including the losses from a discontinued
operation of $15,000 and 65,000 in the quarters ended June 30,
1995 and 1994, respectively, net income decreased from $287,000
or $0.05 per share in the prior quarter to a net loss of $447,000
or $0.08 per share in the quarter ended June 30, 1995.
Liquidity and Capital Resources
Following is a discussion of Xscribe's recent and future
sources of and demands on liquidity as well as an analysis of
liquidity levels.
Recent and Future Sources of and Demands on Liquidity and Capital
Resources
-----------------------------------------------------------------
During the quarter ended June 30, 1995, the Company's
primary sources of liquidity were the reduction of accounts
receivable ($935,000), proceeds from the Company's line of credit
($670,000) and cash reserves. Primary uses of cash in the
quarter ended June 30, 1995 were to increase inventories
($743,000), reduce accounts payable ($553,000) and for capital
expenditures ($281,000). In the quarter ended June 30, 1995, the
Company's cash balance increased $49,000 from $311,000 to
$360,000.
The Company has a $1.5 million line of credit with a bank.
Interest on outstanding borrowings accrues at prime plus 1-1/4%
per annum. Outstanding borrowings are collateralized by all of
the Company's assets. The Company is required to maintain
certain financial balances and ratios, the most restrictive of
which is a maximum debt to tangible net worth ratio of 1.0 to
1.0. The balance outstanding on the line of credit as of
June 30, 1995 was $1,170,000.
Page 8 of 13 <PAGE>
The current line of credit arrangement expires in August
1995. The Company has received a commitment from the bank to
renew the arrangement for an additional year to increase the
total facility from $1.5 million to $2 million and to convert
$1 million of outstanding borrowings into a 48-month amortizing
term loan at prime plus 1-1/2% per annum. This new agreement
should be finalized prior to the expiration of the existing
arrangement.
The Company is obligated under a series of notes payable
totalling $777,000. These notes bear interest at a rate of 8%
per annum and mature in April 2000. In June 1995, the Company
began making equal monthly payments of principal and interest
totalling $15,750 each.
The Company's assured sources of future short-term liquidity
are its cash balance of $360,000 as of June 30, 1995 and the
unused portion of its line of credit of $330,000. If the new
financing agreement with the bank referred to above were in
effect as of June 30, 1995, the unused portion of the Company's
financing arrangement would be $830,000.
The Company currently is obligated to pay approximately
$40,000 per month in lease payments. Aside from these
commitments, the Company has not made any material capital
commitments.
Analysis of Liquidity Levels
----------------------------
The Company expects that the capital expenditures required
to maintain and grow its consolidated operations will approximate
$1.2 million per year for the coming three years. The capital
expenditures required in future periods will consist primarily of
software development costs needed to maintain products at
competitive levels. However, the Company may be required to
reallocate or increase its capital expenditures due to
competitive conditions or other unforeseen circumstances and the
Company reserves the right to change its strategy and to
reallocate or change the amount of its capital expenditures.
Future additional working capital requirements will depend on
future growth rates, if any, and will stem from the need to
finance increased inventory and accounts receivable levels
commensurate with the growth rate. The Company believes that the
future capital expenditures and working capital increases will be
financed from internally generated funds (i.e., profits before
depreciation and amortization). Accordingly, the Company
believes that it currently has sufficient liquidity to fund its
consolidated operating needs for at least three years, assuming
that Xscribe can improve profitability. The Company believes
that its cash balance and line of credit will provide an adequate
liquidity reserve.
Page 9 of 13 <PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during the quarter
ended June 30, 1995.
b. Exhibits
--------
Exhibit 27 - Financial Data Schedule.
Page 10 of 13 <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
XSCRIBE CORPORATION
Date: August 14, 1995 By /s/ Suren G. Dutia
--------------------------
Suren G. Dutia
President
Chief Executive Officer
Date: August 14, 1995 By /s/ Bruce C. Myers
--------------------------
Bruce C. Myers
Chief Financial Officer
Date: August 14, 1995 By /s/ Peter B. Harker
--------------------------
Peter B. Harker
Controller
Principal Accounting Officer
Page 11 of 13 <PAGE>
EXHIBIT INDEX
No. Description Page
-----------------------------------------------------------------
27 Financial Data Schedule 13
Page 12 of 13 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 360,000
<SECURITIES> 0
<RECEIVABLES> 2,688,000
<ALLOWANCES> 0
<INVENTORY> 4,640,000
<CURRENT-ASSETS> 8,130,000
<PP&E> 2,457,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,777,000
<CURRENT-LIABILITIES> 4,304,000
<BONDS> 670,000
<COMMON> 20,138,000
0
0
<OTHER-SE> (10,335,000)
<TOTAL-LIABILITY-AND-EQUITY> 14,777,000
<SALES> 0
<TOTAL-REVENUES> 4,337,000
<CGS> 0
<TOTAL-COSTS> 3,007,000
<OTHER-EXPENSES> 1,718,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,000
<INCOME-PRETAX> (432,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (432,000)
<DISCONTINUED> (15,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (447,000)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
