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 September 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 (IRS Employer
of incorporation or organization) Identification No.)
6285 Nancy Ridge Drive, San Diego, California 92121
- --------------------------------------------------------------------------------
(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 September 30, 1996, 5,050,000 shares of Common Stock of the Registrant
were outstanding.
Exhibit Index on Page 20
Page 1 of 21
<PAGE>
INDEX
XSCRIBE CORPORATION
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets as of
September 30, 1996 and March 31, 1996 1
Condensed consolidated statements of
operations for the three months ended
September 30, 1996 and 1995 2
Condensed consolidated statements of
operations for the six months ended
September 30, 1996 and 1995 3
Condensed consolidated statements of cash
flows for the six months ended
September 30, 1996 and 1995 4
Notes to condensed consolidated financial 5
statements
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY 15
HOLDERS
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 17
EXHIBIT INDEX 18
Page 2 of 21
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XSCRIBE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND MARCH 31, 1996
September 30, 1996
(Unaudited) March 31, 1996
----------- --------------
CURRENT ASSETS:
Cash $ 413,000 $ 219,000
Accounts receivable, net 2,685,000 3,098,000
Inventories, net 2,750,000 3,152,000
Prepaid expenses and other 220,000 190,000
Net assets of discontinued operation -- 1,941,000
------------ ------------
TOTAL CURRENT ASSETS 6,068,000 8,600,000
PROPERTY AND EQUIPMENT, NET 1,457,000 1,594,000
INTANGIBLES AND OTHER ASSETS, NET 2,484,000 3,462,000
------------ ------------
$ 10,009,000 $ 13,656,000
============ ============
CURRENT LIABILITIES:
Accounts payable $ 887,000 $ 1,809,000
Accrued liabilities and other 790,000 509,000
Customer deposits 565,000 1,064,000
Line of credit 460,000 170,000
Current portion of notes payable 146,000 391,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,848,000 3,943,000
NON-CURRENT LIABILITIES 476,000 1,148,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock (5,050,000 and 5,715,000
shares outstanding, respectively) 19,345,000 20,093,000
Accumulated deficit (12,744,000) (11,591,000)
Other 84,000 63,000
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,685,000 8,565,000
------------ ------------
$ 10,009,000 $ 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 SEPTEMBER 30, 1996 AND 1995
1996 1995
------------ -----------
REVENUES $ 3,265,000 $ 3,057,000
COST OF REVENUES 2,467,000 1,953,000
----------- -----------
GROSS PROFIT 798,000 1,104,000
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 1,137,000 1,220,000
Research and development 181,000 163,000
----------- -----------
TOTAL OPERATING EXPENSES 1,318,000 1,383,000
----------- -----------
OPERATING LOSS (520,000) (279,000)
OTHER EXPENSE, NET (6,000) (81,000)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (526,000) (360,000)
PROVISION FOR INCOME TAXES -- --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (526,000) (360,000)
INCOME (LOSS) FROM DISCONTINUED OPERATION (73,000) 171,000
GAIN ON SALE OF DISCONTINUED OPERATION 184,000 --
----------- -----------
NET LOSS $ (415,000) $ (189,000)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.10) $ (0.06)
DISCONTINUED OPERATION 0.02 0.03
----------- -----------
NET LOSS $ (0.08) $ (0.03)
=========== ===========
Weighted average number of common and common
stock equivalent shares outstanding 5,383,000 5,750,000
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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XSCRIBE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
----------- ------------
REVENUES $ 5,653,000 $ 5,751,000
COST OF REVENUES 4,181,000 3,848,000
----------- -----------
GROSS PROFIT 1,472,000 1,903,000
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 2,263,000 2,367,000
Research and development 363,000 331,000
----------- -----------
TOTAL OPERATING EXPENSES 2,626,000 2,698,000
----------- -----------
OPERATING LOSS (1,154,000) (795,000)
OTHER EXPENSE, NET (50,000) (124,000)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,204,000) (919,000)
PROVISION FOR INCOME TAXES 4,000 --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,208,000) (919,000)
INCOME (LOSS) FROM DISCONTINUED OPERATION (129,000) 283,000
GAIN ON SALE OF DISCONTINUED OPERATION 184,000 --
----------- -----------
NET LOSS $(1,153,000) $ (636,000)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.22) $ (0.16)
DISCONTINUED OPERATION 0.01 0.05
----------- -----------
NET LOSS $ (0.21) $ (0.11)
=========== ===========
Weighted average number of common and common
stock equivalent shares outstanding 5,549,000 5,752,000
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
-3-
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XSCRIBE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
----------- ----------
CASH FLOWS FROM OPERATIONS:
Loss from continuing operations $(1,208,000) $ (919,000)
Adjustments:
Depreciation and amortization 654,000 571,000
Change in assets and liabilities:
Accounts receivable 248,000 362,000
Inventories 402,000 (888,000)
Prepaid expenses and other (30,000) 40,000
Accounts payable (922,000) (741,000)
Accrued liabilities and other 460,000 (6,000)
Customer deposits (499,000) 56,000
----------- -----------
Net cash flow provided (used) by continuing
operations (895,000) (1,525,000)
Net operating cash flows provided by
discontinued operations 116,000 718,000
Gain on sale of discontinued operation (184,000) --
----------- -----------
NET CASH PROVIDED (USED) BY OPERATIONS (963,000) (807,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of discontinued operation 2,000,000 --
Capital expenditures (223,000) (385,000)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 1,777,000 (385,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) credit (564,000) 1,210,000
facility, net
Repayment of notes payable (72,000) (76,000)
Other (5,000) (34,000)
----------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING
ACTIVITIES (641,000) 1,100,000
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH 21,000 29,000
----------- -----------
NET INCREASE (DECREASE) TO CASH 194,000 (63,000)
CASH - BEGINNING OF PERIOD 219,000 311,000
----------- -----------
CASH - END OF PERIOD $ 413,000 $ 248,000
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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XSCRIBE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND MARCH 31, 1996
FOR THE SIX MONTHS ENDED SEPTEMBER 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 September 30, 1996, inventories consist of the following:
Raw materials and spare parts $ 1,365,000
Work in process 764,000
Finished goods 621,000
-----------
$ 2,750,000
===========
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<PAGE>
3. DIVESTITURE OF XSCRIBE LEGAL SYSTEMS, INC.
As more fully described in the Company's Form 8-K dated July 31, 1996
(filed August 13, 1996), on July 31, 1996, the Company sold
substantially all of the assets and 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 ($844,000) of Legal Systems (excluding certain contingent
liabilities). The contingent liabilities retained by the Company
consist primarily of all income, property, sales and employment tax
contingencies of Legal Systems, if any, and all products liability
contingencies of Legal Systems for product sold prior to July 31,
1996, including the three cases described in Footnote 10 of Notes to
Consolidated Financial Statements included in the Company's Annual
Report to Shareholders for the Fiscal Year Ended March 31, 1996. The
Company also agreed to indemnify Stenograph, subject to certain
limitations, upon the occurrence of certain events and with respect to
retained contingent liabilities.
The Company recognized a gain on the sale of Legal Systems of
$184,000. The discontinued business accounted for 33% and 29% of the
Company's revenues for the year ended March 31, 1996 and for the six
months ended September 30, 1996, respectively. Prior period balances
have been reclassified to segregate the discontinued operation.
4. SETTLEMENT OF CERTAIN DISAGREEMENTS WITH ICL, INC.
On July 31, 1996, the Company and ICL, Inc. signed an agreement
to settle certain disagreements relating to ICL's alleged breach
of its obligations under the October 1993 purchase, distribution
and license agreements and under the cooperative marketing
agreement for TeamWARE that became effective November 1, 1995.
Under the terms of the settlement, the cooperative marketing
agreement was terminated effective March 31, 1996, the exclusive
distribution and licensing agreement for OfficePower and TeamWARE
in the United States and Canada were restructured as a non-
exclusive reseller agreement (with sales limited to end users),
and the strategic alliance between ICL and Lexia was terminated.
In exchange for the restructuring of the agreement, ICL returned
to Xscribe for cancellation 666,666 shares of Xscribe common
-6-
Page 8 of 21
<PAGE>
stock owned by ICL, which were valued at $748,000, and Xscribe
wrote off all intangible assets of Lexia. The Company also
released ICL from certain prior claims which gave rise to the
disagreements referred to above. This transaction resulted in no
financial-accounting gain or loss to the Company.
-7-
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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 September 30, 1996 compared to the three
months ended September 30, 1995
- -----------------------------------------------------------
Consolidated revenues for the quarter ended September 30, 1996
increased $208,000 (7%) to $3,265,000 from $3,057,000 in the quarter
ended September 30, 1995. Revenues from groupware products and
services decreased $143,000 (21%) from $688,000 in the quarter ended
September 30, 1995 to $545,000 in the quarter ended September 30,
1996. This 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 from imaging products and
services increased $351,000 (15%) from $2,369,000 to $2,720,000 in the
quarters ended September 30, 1995 and 1996, respectively. This
increase was due to a 32% increase ($576,000) in revenues from scanner
products and services, offset partially by a 38% decrease ($224,000)
in service revenues from older product lines.
Consolidated gross margin decreased $306,000 (28%) from $1,104,000 in
the quarter ended September 30, 1995 to $798,000 in the quarter ended
September 30, 1996. Gross margin as a percent of revenues decreased
from 36% to 24%. This decrease resulted primarily from the change in
mix of scanner sales from direct (end-user) sales to indirect
(distribution) sales, from the change in mix of sales from higher
margin software (e.g., groupware and scanner software) to lower margin
hardware, and from a $120,000 write-off of an impaired asset in the quarter
ended September 30, 1996.
Selling, general and administrative expenses ("SG&A") decreased
$83,000 (7%) from $1,220,000 in the quarter ended September 30, 1995
to $1,137,000 in the quarter ended September 30, 1996. This net
decrease consists primarily of $77,000 cost reductions at Lexia and at
corporate headquarters. As a percent of sales, SG&A decreased from 40%
in the quarter ended September 30, 1995 to 35% in the quarter
-8-
Page 10 of 21
<PAGE>
ended September 30, 1996, due to the revenue increases and cost
reductions described above.
Product development expenses increased by $18,000 (11%) from $163,000
in the quarter ended September 30, 1995 to $181,000 in the quarter
ended September 30, 1996. Product development expenditures that were
capitalized because they related to technologically feasible projects
were $89,000 in the prior quarter compared to $25,000 in the current
quarter. Total product development spending decreased $46,000 from
$252,000 in the prior quarter to $206,000 in the current quarter due
primarily to the completion of certain scanner development activities
at Photomatrix.
Other expense, which consists primarily of interest expense, decreased
$75,000 from $81,000 in the prior quarter to $6,000 in the current
quarter. The reduction of interest expense reflects the significant
reduction of interest-bearing debt during the respective periods.
The Company recorded no provision for income taxes 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 decrease in gross margin and the increase in product development
expenses, offset somewhat by the decrease in SG&A expense, resulted
in a loss from continuing operations for the quarter ended September
30, 1996 of $526,000 or $0.10 per share. This compares to a loss from
continuing operations of $360,000 or $0.06 per share for the quarter
ended September 30, 1995. Including the effects of a discontinued
operation, the net loss increased from $189,000 or $0.03 per share in
the prior quarter to $415,000 or $0.08 per share in the current
quarter.
Six months ended September 30, 1996 compared to the six months
ended September 30, 1995
- --------------------------------------------------------------
Consolidated revenues for the six months ended September 30, 1996
decreased $98,000 (2%) to $5,653,000 from $5,752,000 in the six months
ended September 30, 1995. Revenues from groupware products and
services decreased $265,000 (18%) from $1,498,000 in the six months
ended September 30, 1995 to $1,233,000 in the six months ended
September 30, 1996. This 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 from imaging
products and services increased $167,000 (4%) from $4,253,000 to
-9-
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<PAGE>
$4,420,000 in the six months ended September 30, 1995 and 1996,
respectively. This increase was due to a 23% increase ($693,000) in
revenues from scanner product and services partially offset by a 41%
decrease ($525,000) in service revenues from older product lines.
Consolidated gross margin decreased $431,000 (23%) from $1,903,000 in
the six months ended September 30, 1995 to $1,472,000 in the six
months ended September 30, 1996. Gross margin as a percent of revenues
decreased from 33% to 26%. This decrease resulted primarily from the
change in mix of scanner sales from direct (end-user) sales to
indirect (distribution) sales, and from the change in mix of sales from
higher margin software (e.g., groupware and scanner software) to lower
margin hardware.
Selling, general and administrative expenses ("SG&A") decreased by
$104,000 (4%) from $2,367,000 in the six months ended September 30,
1995 to $2,263,000 in the six months ended September 30, 1996. This
net decrease consists of a $59,000 increase in SG&A costs at
Photomatrix to develop its sales and marketing channels, offset by
$163,000 of cost reductions at Lexia and at corporate headquarters. As
a percent of sales, SG&A decreased from 41% in the six months ended
September 30, 1995 to 40% in the six months ended September 30, 1996,
primarily because of the overall cost reduction efforts describe
above.
Product development expenses increased by $32,000 (10%) from $331,000
in the six months ended September 30, 1995 to $363,000 in the six
months ended September 30, 1996. Product development expenditures that
were capitalized because they related to technologically feasible
projects were $230,000 in the prior period compared to $65,000 in the
current period. Total product development spending decreased $133,000
from $561,000 in the prior period to $428,000 in the current period
due primarily to the completion of certain scanner development
activities at Photomatrix.
Other expense, which consists primarily of interest expense, decreased
$74,000 from $124,000 in the prior period to $50,000 in the current
period. The reduction of interest expense reflects the significant
reduction 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 periods, 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.
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<PAGE>
The decreased in gross margin and the increased product development
expenses described above, offset somewhat by the decreased SG&A
expenses, resulted in a loss from continuing operations for the six
months ended September 30, 1996 of $1,208,000 or $0.22 per share. This
compares to a loss from continuing operations of $919,000 or $0.16 per
share for the six months ended September 30, 1995. Including the
effects of a discontinued operation, the net loss increased from
$636,000 or $0.11 per share in the prior period to $1,153,000 or $0.21
per share in the current period.
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<PAGE>
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 six months ended September 30, 1996, the Company's primary
sources of liquidity were the proceeds from the sale of discontinued
operation ($2,000,000), reduction of accounts receivable ($248,000),
reduction of inventories ($402,000), increase in accrued liabilities
($460,000), cash flows provided by discontinued operation ($116,000),
and cash reserves. Primary uses of cash in the six months ended
September 30, 1996 were to reduce accounts payable ($922,000), pay
down the credit facility ($564,000), reduce customer deposits
($499,000), reduce notes payable ($72,000), and for capital
expenditures ($223,000). In the six months ended September 30, 1996,
the Company's cash balance increased $194,000 from $219,000 to
$413,000.
Through August 1, 1996, the Company had a combined credit facility
with a bank which consisted of a term loan and a line of credit. On
August 1, 1996, with a portion of the proceeds from the sale of assets
of the Company's wholly owned subsidiary, Xscribe Legal Systems, Inc.,
the Company paid the full outstanding balance of the term loan and the
term loan expired. The $1 million line of credit continues thereafter.
The Company is required to maintain certain financial balances and
ratios, the most restrictive of which is the maintenance of tangible
net worth of at least $3,980,000. Borrowings under the line are
limited to 80% of eligible receivables (as defined), interest accrues
at prime plus 1-1/4%, and borrowings are collateralized by all of the
Company's assets. As of September 30, 1996, the balance of the line of
credit was $460,000, and borrowings on the line of credit were limited
to $1,000,000.
The Company is obligated under a series of notes payable totaling
$599,000 as of September 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 $413,000 as of September 30, 1996 and the unused
portion of its line of credit ($540,000 as of September 30, 1996).
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<PAGE>
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.
Trends and Uncertainties
Cost Reduction Efforts
- ----------------------
In order to reduce operating losses, management plans to reduce operating costs
on a consolidated basis by an aggregate of $800,000 annually, which management
expects to implement by March 31, 1997. The majority of the $800,000 cost
reductions will be realized through headcount reductions (the majority of which
had been completed by October 1996) and the consolidation of the operations and
employees of Photomatrix and corporate headquarters into a single facility. At
current revenue levels, these cost reductions will not, in and of themselves,
return the Company to profitability. The Company is focused on building
Photomatrix's indirect channels of distribution and increasing its revenues
in order to return the Company to profitable operations.
The information relating to the Company's planned cost reductions,
including the amount of the annual reductions, the timing of the
reductions and the expected sources of cost reductions, and the
Company's focus on sales growth at Photomatrix are forward-looking
statements that involve risks and uncertainties, including a risk
that the Company may not be able to achieve the desired level of cost
reductions or that the cost reductions may have adverse consequences
to the Company. More information on factors which could affect the
Company's financial results is included in the Company's Annual Report
to Shareholders for the Fiscal Year Ended March 31, 1996.
Foreign Sales
- -------------
Foreign sales increased $776,000 (92%) from $845,000 to $1,621,000 in
the six months ended September 30, 1995 and 1996, respectively. This
significant increase in foreign sales in the current period is due to
progress in the development of distribution channels in foreign
markets. Foreign sales comprised 15% and 29% of total consolidated revenues
in the prior and current periods, respectively. Management believes foreign
sales will comprise a comparatively larger proportion of consolidated revenues
in the current fiscal year than in the past.
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<PAGE>
Lexia Systems, Inc.
- -------------------
As more fully described in the Annual Report to Shareholders for the
Fiscal Year Ended March 31, 1996, Lexia is heavily dependent on ICL
and Fujitsu for future revenue increases. Furthermore, in recent
periods, Lexia's operating results have turned from profits to losses.
There can be no assurance that Lexia will return to profitability, and
Xscribe may be forced to liquidate or otherwise dispose of its
remaining investment in Lexia.
Line of Credit Covenants
- ------------------------
The Company's line of credit requires that the Company maintain tangible net
worth of $3,980,000 compared to actual tangible net worth of $4,361,000 as
of September 30, 1996. If losses continue at current levels, and even after
considering planned cost reductions, the Company could default on this
convenant in the near future. If such a default occurs, the Bank could
terminate the line and demand immediate payment in full of all outstanding
borrowings. There can be no assurance that the Company would be able to
maintain adequate financing in the event of continuing losses.
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<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
On August 5, 1996, at the Annual Meeting of Shareholders, Suren
G. Dutia, Donald R. Miller, Jr., Patrick W. Moore, Jukka V.
Norokorpi, Ira H. Sharp, John F. Staley, and Evan A. Wyly were
elected to the Board of Directors. The tabulation for all
nominees was as follows:
Votes
Nominee Votes For Withheld
------- --------- --------
Suren G. Dutia 3,696,382 68,017
Donald R. Miller, Jr. 3,689,580 74,909
Patrick W. Moore 3,690,142 74,347
Jukka V. Norokorpi 3,689,467 75,022
Ira H. Sharp 3,690,083 74,406
John F. Staley 3,696,772 67,767
Evan A.Wyly 3,696,550 67,938
Jukka V. Norokorpi resigned from the Board of Directors on August
20, 1996 following the settlement with ICL. On October 7, 1996,
Evan A. Wyly and Donald R. Miller, Jr. also resigned from the
Board of Directors. Following these resignations, the Board of
Directors reduced the size of the Board to five members.
Currently, there is one vacancy on the Board.
Also at the Annual Meeting of Shareholders, the shareholders
ratified the appointment of KPMG Peat Marwick LLP as the
Company's independent auditor for the fiscal year ending March
31, 1997. The following is the vote tabulation for this matter:
Votes Abstained/
Matter Votes For Against Withheld
------ --------- ------- --------
Ratification of KPMG
Peat Marwick LLP 3,714,460 30,510 19,518
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
Exhibit 27 - Financial Data Schedule
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<PAGE>
b. Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K dated July 31,
1996 to report the sale of assets of the Company's wholly owned
subsidiary, Xscribe Legal Systems, Inc., to Stenograph Corporation on
July 31, 1996.
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<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: November 13, 1996 by /s/ Suren G. Dutia
-------------------
Suren G. Dutia
President
Chief Executive Officer
Date: November 13, 1996 by /s/ Bruce C. Myers
-------------------
Bruce C. Myers
Chief Financial Officer
Date: November 13, 1996 by /s/ Peter B. Harker
--------------------
Peter B. Harker
Controller
Principal Accounting Officer
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Page 19 of 21
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
- -----------------------------------------------------------------
27 Financial Data Schedule 21
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Page 20 of 21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 413,000
<SECURITIES> 0
<RECEIVABLES> 2,685,000
<ALLOWANCES> 0
<INVENTORY> 2,750,000
<CURRENT-ASSETS> 6,068,000
<PP&E> 1,457,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,009,000
<CURRENT-LIABILITIES> 2,848,000
<BONDS> 476,000
0
0
<COMMON> 19,345,000
<OTHER-SE> (12,660,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,009,000
<SALES> 0
<TOTAL-REVENUES> 5,653,000
<CGS> 0
<TOTAL-COSTS> 4,181,000
<OTHER-EXPENSES> 2,626,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,000
<INCOME-PRETAX> (1,204,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (1,208,000)
<DISCONTINUED> 55,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,153,000)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
