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, 1996
( ) 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
XSCRIBE CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
California 95-3267788
- --------------------------------------------------------------------------------
State or other jurisdiction of incorporation (IRS Employer
or organization Identification No.)
6285 Nancy Ridge Drive, San Diego, California 92121
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(Address of principal executive offices) (Zip Code)
(619) 457-5091
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(Registrant's telephone number, including area code)
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, 1996, 5,715,000 shares of Common Stock of the Registrant were
outstanding.
<PAGE>
INDEX
XSCRIBE CORPORATION
Page
----
PART I - FINANCIAL INFORMATION
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ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets as of
June 30, 1996 and March 31, 1996 1
Condensed consolidated statements of operations for the
three months ended June 30, 1996 and 1995 2
Condensed consolidated statements of cash flows for the
three months ended June 30, 1996 and 1995 3
Notes to condensed consolidated financial statements 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 8
SIGNATURES 9
<PAGE>
XSCRIBE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND MARCH 31, 1996
June 30, 1996
(Unaudited) March 31, 1996
------------- --------------
CURRENT ASSETS:
Cash $ 171,000 $ 219,000
Accounts receivable, net 1,851,000 3,098,000
Inventories 3,214,000 3,152,000
Prepaid expenses and other 219,000 190,000
Net assets of discontinued operations 1,724,000 1,941,000
--------- ---------
TOTAL CURRENT ASSETS 7,179,000 8,600,000
PROPERTY AND EQUIPMENT, NET 1,596,000 1,594,000
INTANGIBLES AND OTHER ASSETS, NET 3,384,000 3,462,000
--------- ---------
$ 12,159,000 $ 13,656,000
============ ============
CURRENT LIABILITIES:
Accounts payable $ 1,215,000 $ 1,809,000
Accrued liabilities and other 501,000 509,000
Customer deposits 903,000 1,064,000
Line of credit 245,000 170,000
Current portion of notes payable 935,000 391,000
--------- ---------
TOTAL CURRENT LIABILITIES 3,799,000 3,943,000
NON-CURRENT LIABILITIES 524,000 1,148,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock (5,715,000 shares
outstanding) 20,093,000 20,093,000
Accumulated deficit (12,329,000) (11,591,000)
Other 72,000 63,000
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 7,836,000 8,565,000
---------- ----------
$ 12,159,000 $ 13,656,000
============ ============
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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XSCRIBE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
---- ----
REVENUES $ 2,388,000 $ 2,694,000
COST OF REVENUES 1,714,000 1,895,000
--------- ---------
GROSS PROFIT 674,000 799,000
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 1,126,000 1,147,000
Research and development 182,000 168,000
--------- ---------
TOTAL OPERATING EXPENSES 1,308,000 1,315,000
--------- ---------
OPERATING LOSS (634,000) (516,000)
OTHER EXPENSE, NET (44,000) (43,000)
--------- ---------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (678,000) (559,000)
PROVISION FOR INCOME TAXES 4,000 --
--------- ---------
LOSS FROM CONTINUING OPERATIONS (682,000) (559,000)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (56,000) 112,000
--------- ---------
NET LOSS $ (738,000) $ (447,000)
=========== ===========
LOSS PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.12) $ (0.10)
=========== ===========
DISCONTINUED OPERATIONS $ (0.01) $ 0.02
=========== ===========
NET LOSS $ (0.13) $ (0.08)
=========== ===========
Weighted average number of common and common stock
equivalent shares outstanding 5,715,000 5,754,000
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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XSCRIBE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATIONS:
Loss from continuing operations $ (682,000) $ (559,000)
Adjustments:
Depreciation and amortization 306,000 273,000
Change in assets and liabilities:
Accounts receivable 1,247,000 897,000
Inventories (42,000) (813,000)
Prepaid expenses and other (30,000) 28,000
Accounts payable (594,000) (710,000)
Accrued liabilities and other (8,000) 23,000
Customer deposits (161,000) (52,000)
--------- ---------
Net cash flow provided (used) by
continuing operations 36,000 (913,000)
Net operating cash flows provided by
discontinued operations 92,000 496,000
--------- ---------
NET CASH PROVIDED (USED) BY OPERATIONS 128,000 (417,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (180,000) (195,000)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (180,000) (195,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 6,000
Proceeds from line of credit, net 75,000 670,000
Repayment of notes payable (80,000) (9,000)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES (5,000) 667,000
--------- ---------
EFFECTS OF EXCHANGE RATES ON CASH 9,000 (6,000)
--------- ---------
NET INCREASE (DECREASE) TO CASH (48,000) 49,000
CASH - BEGINNING OF PERIOD 219,000 311,000
--------- ---------
CASH - END OF PERIOD $ 171,000 $ 360,000
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
XSCRIBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND MARCH 31, 1996
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(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, 1996. 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, 1996, inventories consist of the following:
Raw materials and spare parts $ 1,379,000
Work in process 793,000
Finished goods 1,042,000
-----------
$ 3,214,000
============
3. DIVESTITURE OF XSCRIBE LEGAL SYSTEMS, INC.
As more fully described in the Company's Form 8-K dated August 13, 1996, on
July 31, 1996, the Company sold substantially all of the assets of the business
of its wholly owned subsidiary, Xscribe Legal Systems, Inc. ("Legal Systems"),
to Stenograph Corporation ("Stenograph") in exchange for $2 million cash paid at
closing, a $180,000 note delivered at closing, and the assumption by Stenograph
of substantially all of the current liabilities (about $800,000) of Legal
Systems (excluding certain contingent liabilities). The discontinued business
accounted for 33% and 35% of the Company's revenues for the year ended March 31,
1996 and for the quarter ended June 30, 1996, respectively. Prior period
balances have been reclassified to segregate the discontinued operation. As
discussed in Liquidity and Capital Resources below, subsequent to June 30, 1996,
the Company paid the full outstanding balance of the Company's credit facility
(consisting of a term loan and line of credit) with a bank. Accordingly, the
full balance of the term loan has been classified as a current liability on the
June 30, 1996 balance sheet.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1995
Consolidated revenues for the quarter ended June 30, 1996 decreased
$306,000 (11%) to $2,388,000 from $2,694,000 in the quarter ended June 30, 1995.
Revenues in the Solutions Segment decreased $122,000 (15%) from $810,000 in the
quarter ended June 30, 1995 to $688,000 in the quarter ended June 30, 1996. The
decrease was due to the limits on Lexia's ability to sell ICL's Office Power
products and the lack of a market for TeamWARE products in the United States.
Revenues in the Imaging Segment decreased $184,000 (10%) from $1,884,000 to
$1,700,000 in the quarters ended June 30, 1995 and 1996, respectively; this
decrease was due to a 43% decrease in computer-output-microfiche (COM)
duplicator related sales, offset by a 10% increases in sales of scanner product
and services.
Consolidated gross margin decreased $125,000 (16%) from $799,000 in the
quarter ended June 30, 1995 to $674,000 in the quarter ended June 30, 1996.
Gross margin in the Solutions Segment decreased $11,000 (5%) from $228,000 in
the prior quarter to $217,000 in the current quarter. The decrease in gross
margin dollars for the Solutions Segment resulted from the decreased sales
volume, offset somewhat by the improvement of gross margin as a percent of sales
(28% in the prior quarter compared to 32% in the current quarter). The increase
in gross margin as a percent of sales resulted from a change in the mix of
groupware sales from lower margin hardware towards higher margin software. Gross
margin in the Imaging Segment decreased $114,000 (20%) from $571,000 in the
prior quarter to $457,000 in the current quarter. Gross margin as a percent of
sales in the Imaging Segment decreased from 30% in the prior quarter to 27% in
the current quarter due to sales mix and overhead absorption issues.
Selling, general and administrative expenses ("SG&A") decreased by $21,000
(2%) from $1,147,000 in the quarter ended June 30, 1995 to $1,126,000 in the
quarter ended June 30, 1996. This net decrease consists of a $54,000 increase in
SG&A costs at Photomatrix to develop its sales and marketing channels, offset by
$75,000 cost reductions in the Solutions Segment and corporate headquarters. As
a percent of sales, SG&A increased from 43% in the quarter ended June 30, 1995
to 47% in the quarter ended June 30, 1996, primarily because of the sales
decreases described above.
Product development expenses increased by $14,000 (8%) from $168,000 in the
quarter ended June 30, 1995 to $182,000 in the quarter ended June 30, 1996.
Product development expenditures that were capitalized because they related to
technologically feasible projects were $141,000 in the prior quarter compared to
$54,000 in the current quarter. Total product development spending decreased
$73,000 from $309,000 in the prior quarter to $236,000 in the current quarter
due to the completion of certain scanner-development activities at Photomatrix.
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<PAGE>
Other expense, which consists primarily of interest expense, increased
$1,000 from $43,000 in the prior quarter to $44,000 in the current quarter. The
consistent interest expense figures in the prior and current quarters reflects
comparable levels of interest-bearing debt during the respective periods.
The Company's provision for income taxes increased $4,000 from zero to
$4,000 in the prior and current quarters, respectively. 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, 1996 of $682,000 or $0.12 per share. This compares to a loss from
continuing operations of $559,000 or $0.10 per share for the quarter ended June
30, 1995. Including the loss from discontinued operations of $56,000 in the
quarter ended June 30, 1996 and the income from discontinued operations of
$112,000 in the quarter ended June 30, 1995, the net loss increased from
$447,000 or $0.08 per share in the prior quarter to $738,000 or $0.13 per share
in the current quarter.
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, 1996, the Company's primary sources of
liquidity were the reduction of accounts receivable ($1,247,000), proceeds from
the Company's line of credit ($75,000), cash flows provided by discontinued
operations ($92,000), and cash reserves. Primary uses of cash in the quarter
ended June 30, 1996 were to reduce accounts payable ($594,000), reduce customer
deposits ($161,000), repay notes payable ($80,000), and for capital expenditures
($180,000). In the quarter ended June 30, 1996, the Company's cash balance
decreased $48,000 from $219,000 to $171,000.
As of June 30, 1996, the Company had a combined credit facility with a bank
which consisted of a term loan and a line of credit. Total borrowings under this
combined credit facility were limited to the lesser of 1) the balance on the
term loan plus $1 million or 2) 80% of eligible accounts receivable (as
defined). Outstanding borrowings under this combined credit facility are
collateralized by all of the Company's assets.
As of June 30, 1996, the balance of the term loan was $792,000. Monthly
principal payments on this term note were $21,000 and interest accrued at prime
plus 1-1/2% per annum. As of June 30, 1996, the outstanding balance of the line
of credit was $245,000, which accrued interest at prime plus 1-1/4% per annum.
On August 1, 1996, with a portion of the proceeds from the sale of the Company's
wholly owned subsidiary, Xscribe Legal System, Inc., the Company paid the full
outstanding balances of both the term loan and the line of credit. The combined
credit facility, with no provisions for term debt, continues thereafter subject
to the renegotiation of financial covenants (to account for the changes that the
divestiture will have on the Company's financial position and future prospects).
-6-
<PAGE>
Primarily because of reductions in accounts receivable balances resulting from
the sale of Legal Systems, as of July 31, 1996, total borrowings are limited to
approximately $750,000.
The Company is obligated under a series of notes payable totaling $633,000
as of June 30, 1996. These notes bear interest at a rate of 8% per annum and
mature in April 2000. Interest and principal payments totaling $16,000 are due
monthly.
The Company's assured sources of future short-term liquidity are its cash
balance of $171,000 as of June 30, 1996 and the proceeds from the sale of Legal
Systems ($2 million). Substantially all of these proceeds were or will be used
to pay the entire balance outstanding under the credit facility with a bank, to
pay transaction costs, and to pay past due trade payables outstanding as of July
31, 1996. Thereafter, available liquidity will consist primarily of the $750,000
to be available under the line of credit.
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 $800,000 per year for the
coming three years. The capital expenditures required in future periods will
consist primarily of product development costs needed to maintain products at
competitive levels (see Annual Report to Shareholders for the Fiscal Year Ended
March 31, 1996). 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. Considering the sale of Legal Systems,
the Company believes that it currently has sufficient liquidity to fund its
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<PAGE>
consolidated operating needs for at least the next year, assuming that Xscribe
can improve profitability and reduce inventory levels at Photomatrix.
Improvements in future profitability and reductions in inventory levels depend
on the ability of Photomatrix to complete certain development projects on time,
to expand distribution channels, and to increase scanner revenues.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 30, 1996. However, pursuant to the sale of the Company's wholly
owned subsidiary, Xscribe Legal Systems, Inc., to Stenograph
Corporation on July 31, 1996, the Company filed a report on Form 8-K
on August 13, 1996.
-8-
<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 13, 1996 by /s/ Suren G. Dutia
------------------------
Suren G. Dutia
President
Chief Executive Officer
Date: August 13, 1996 by /s/ Bruce C. Myers
------------------------
Bruce C. Myers
Chief Financial Officer
Date: August 13, 1996 by /s/ Peter B. Harker
------------------------
Peter B. Harker
Controller
Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 171,000
<SECURITIES> 0
<RECEIVABLES> 1,851,000
<ALLOWANCES> 0
<INVENTORY> 3,214,000
<CURRENT-ASSETS> 7,179,000
<PP&E> 1,596,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,159,000
<CURRENT-LIABILITIES> 3,799,000
<BONDS> 524,000
0
0
<COMMON> 20,093,000
<OTHER-SE> (12,257,000)
<TOTAL-LIABILITY-AND-EQUITY> 12,159,000
<SALES> 0
<TOTAL-REVENUES> 2,388,000
<CGS> 0
<TOTAL-COSTS> 1,714,000
<OTHER-EXPENSES> 1,308,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,000
<INCOME-PRETAX> (678,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (682,000)
<DISCONTINUED> (56,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (738,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
