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 December 31, 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
PHOTOMATRIX, INC.
(Exact name of registrant as specified in its charter)
California 95-3267788
- -----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11065 Sorrento Valley Court, San Diego, California 92121
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(Address of principal executive offices) (Zip Code)
(619) 625-4400
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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 December 31, 1996, 5,050,000 shares of Common Stock of the Registrant were
outstanding.
Exhibit Index on Page 18
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INDEX
PHOTOMATRIX, INC.
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets as of
December 31, 1996 and March 31, 1996 3
Condensed consolidated statements of operations for the
three months ended December 31, 1996 and 1995 4
Condensed consolidated statements of operations for the
nine months ended December 31, 1996 and 1995 5
Condensed consolidated statements of cash flows for the
nine months ended December 31, 1996 and 1995 6
Notes to condensed consolidated financial statements 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION 16
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
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PHOTOMATRIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND MARCH 31, 1996
December 31, 1996
(Unaudited) March 31, 1996
----------------- --------------
CURRENT ASSETS:
Cash $ 940,000 255,000
Accounts receivable, net 1,932,000 1,904,000
Inventories, Net 2,424,000 3,093,000
Prepaid expenses and other 223,000 168,000
Net assets of discontinued
operation - 3,070,000
------------ ---------
TOTAL CURRENT ASSETS 5,519,000 8,490,000
PROPERTY AND EQUIPMENT, NET 1,302,000 1,479,000
INTANGIBLES AND OTHER ASSETS, NET 2,423,000 2,610,000
------------ -------------
$ 9,244,000 $ 12,579,000
============ =============
CURRENT LIABILITIES:
Accounts payable $ 559,000 $ 1,145,000
Accrued liabilities and other 658,000 324,000
Customer deposits 729,000 836,000
Line of credit - 170,000
Current portion of notes payable 149,000 391,000
Net liabilities of
discontinued operation 111,000 -
------------ ------------
TOTAL CURRENT LIABILITIES 2,206,000 2,866,000
NON-CURRENT LIABILITIES 450,000 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 (12,943,000) (11,591,000)
Other 186,000 63,000
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,588,000 8,565,000
------------ ------------
9,244,000 12,579,000
============ ============
The accompanying notes are an integral part of these condensed
consolidated balance sheets
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PHOTOMATRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- ----------
REVENUES 2,451,000 2,744,000
COST OF REVENUES 1,785,000 1,576,000
--------- ---------
GROSS PROFIT 666,000 1,168,000
OPERATING EXPENSES:
Selling, general and administrative 904,000 922,000
Research and development 199,000 94,000
--------- ----------
TOTAL OPERATING EXPENSES 1,103,000 1,016,000
--------- ----------
OPERATING INCOME (LOSS) (437,000) 152,000
OTHER INCOME (EXPENSE), NET 241,000 (56,000)
--------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (196,000) 96,000
PROVISION FOR INCOME TAXES - 1,000
-------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (196,000) 95,000
LOSS FROM DISCONTINUED OPERATIONS (3,000) (183,000)
GAIN ON SALE OF DISCONTINUED OPERATION - -
--------- ----------
NET LOSS (199,000) (88,000)
========= ==========
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS (0.04) 0.02
========= ==========
DISCONTINUED OPERATIONS (0.00) (0.03)
========= ==========
NET LOSS (0.04) (0.02)
========= ==========
Weighted average number of common and
common stock equivalent shares
outstanding 5,050,000 5,742,000
========= ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements
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PHOTOMATRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- ----------
REVENUES 6,871,000 6,996,000
COST OF REVENUES 5,107,000 4,378,000
----------- ---------
GROSS PROFIT 1,764,000 2,618,000
OPERATING EXPENSES:
Selling, general and administrative 2,685,000 2,669,000
Research and development 562,000 360,000
----------- ----------
TOTAL OPERATING EXPENSES 3,247,000 3,029,000
----------- ----------
OPERATING LOSS (1,483,000) (411,000)
OTHER INCOME (EXPENSE), NET 193,000 (178,000)
----------- ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,290,000) (589,000)
PROVISION FOR INCOME TAXES - 1,000
----------- ----------
LOSS FROM CONTINUING OPERATIONS (1,290,000) (590,000)
LOSS FROM DISCONTINUED OPERATIONS (246,000) (134,000)
GAIN ON SALE OF DISCONTINUED OPERATION 184,000 -
----------- ----------
NET LOSS (1,352,000) (724,000)
=========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS (0.24) (0.10)
=========== ==========
DISCONTINUED OPERATIONS (0.01) (0.02)
=========== ==========
NET LOSS (0.25) (0.13)
=========== ==========
Weighted average number of common and
common stock equivalent shares
outstanding 5,383,000 5,748,000
=========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements
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PHOTOMATRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------------ ------------
CASH FLOWS FROM OPERATIONS:
Loss from continuing operations $ (1,290,000) (590,000)
Adjustments:
Depreciation and amortization 716,000 533,000
Change in assets and liabilities:
Accounts receivable (28,000) (166,000)
Inventories 669,000 (1,004,000)
Prepaid expenses and other (55,000) (36,000)
Accounts payable (586,000) 330,000
Accrued liabiities and other 334,000 57,000
Customer deposits (107,000) 506,000
------------ ------------
Net cash flow used by continuing
operations (347,000) (370,000)
Net operating cash flows provided by
discontinued operations 447,000 853,000
Gain on sale of discontinued operation (184,000) -
------------ ------------
NET CASH PROVIDED (USED) BY OPERATIONS (84,000) 483,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued
operation 2,000,000 -
Capital expenditures (237,000) (524,000)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 1,763,000 (524,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) credit
facility, net (1,024,000) 500,000
Repayment of notes payable (93,000) (171,000)
Other - (34,000)
------------ ------------
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES (1,117,000) (295,000)
------------ ------------
EFFECTS OF EXCHANGE RATES ON CASH 123,000 24,000
------------ ------------
NET INCREASE TO CASH 685,000 278,000
CASH - BEGINNING OF PERIOD 255,000 188,000
------------ ------------
CASH - END OF PERIOD 940,000 466,000
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements
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PHOTOMATRIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND MARCH 31, 1996
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1. GENERAL
Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
reflect the accounts of Photomatrix, Inc. (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.
Certain prior-year amounts have been reclassified to conform to
current-year presentation.
2. SUPPLEMENTARY FINANCIAL INFORMATION
Inventories
-----------
As of December 31, 1996, inventories consist of the following:
Raw materials and spare parts $ 1,154,000
Work in process 589,000
Finished goods 681,000
--------------
$ 2,424,000
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3. DISCONTINUATION OF LEXIA SYSTEMS, INC.
In December 1996, the Board of Directors of the Company approved a plan
to discontinue the operations of Lexia Systems, Inc. ("Lexia"). In
recent periods, Lexia's operating results have turned from profits to
losses, and management believes these operational reverses to be
permanent in nature. Management has not yet determined the exact method
of discontinuation for Lexia (whether by sale, liquidation or other
means), although management is currently investigating all available
options. Lexia's operational results have been reclassified as a
discontinued operation for the respective three and nine months ending
December 31, 1996 and 1995. Lexia's balance sheets have similarly been
reclassified as net assets (liabilities) of discontinued operations as
of December 31, 1996 and March 31, 1996.
4. CHANGE IN NAME OF THE COMPANY TO PHOTOMATRIX, INC.
On October 21, 1996, at a Special Meeting of Shareholders, the
shareholders approved the change in name of the Company from Xscribe
Corporation to Photomatrix, Inc. The Company's common stock is traded
in NASDAQ Stock Market Small Cap Tier under the symbol PHRX. Refer to
Part II for a vote tabulation regarding this matter.
The Company changed its name to Photomatrix, Inc. because the former
name, Xscribe Corporation, has historically been associated primarily
with its court-reporting business, which the Company sold in July 1996.
The change in name to Photomatrix, Inc. enables the Company to better
differentiate its remaining business activities from its former
court-reporting business and to take advantage of the goodwill
associated with the Photomatrix line of image capture products.
Furthermore, the Company believes its imaging business offers the
Company with its best known opportunity for future growth and that this
imaging business represents the Company's core business.
-8-
<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 December 31, 1996 compared to the three months ended
December 31, 1995
Consolidated revenues for the quarter ended December 31, 1996 decreased $293,000
(11%) to $2,451,000 from $2,744,000 in the quarter ended December 31, 1995. This
decrease was due to an 11% decrease ($254,000) in revenues from scanner products
and services in the quarter ended December 31, 1996 relative to the comparable
quarter in the prior year and a 9% decrease ($39,000) in product and service
revenues from older product lines.
Consolidated gross margin decreased $502,000 (43%) from $1,168,000 in the
quarter ended December 31, 1995 to $666,000 in the quarter ended December 31,
1996. Gross margin as a percent of revenues decreased from 43% to 27% primarily
from the change in mix of scanner sales from direct (end-user) sales to indirect
(distribution) sales.
Selling, general and administrative expenses ("SG&A") decreased $18,000 (2%)
from $922,000 in the quarter ended December 31, 1995 to $904,000 in the quarter
ended December 31, 1996. This net decrease consists of $53,000 of cost
reductions at corporate headquarters offset by a $35,000 increase of expenses to
further develop the Company's distribution channels. As a percent of sales, SG&A
increased from 34% in the quarter ended December 31, 1995 to 37% in the quarter
ended December 31, 1996 due primarily to the revenue decreases described above.
Product development expenses increased by $105,000 (112%) from $94,000 in the
quarter ended December 31, 1995 to $199,000 in the quarter ended December 31,
1996. Product development expenditures that were capitalized because they
related to technologically feasible projects were $78,000 in the prior quarter
compared to $12,000 in the current quarter. Total product development spending
increased $39,000 from $172,000 in the prior quarter to $211,000 in the current
quarter due primarily to an increased level of certain scanner-development
activities.
In the current quarter, other income (expense) consists of $9,000 of interest
expense offset by a $250,000 one-time payment from Kodak to settle a shortfall
of guaranteed-purchase commitments for spares shipments in calendar 1996. In the
prior quarter, other income (expense) from the prior-year's quarter consists
primarily of interest expense. The $297,000 change in other income (expense)
reflects the significant reduction of interest-bearing debt during the
respective periods and the one-time settlement payment from Kodak.
The Company recorded a provision for income taxes in the prior and current
quarters of zero and $1,000, 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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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 December 31, 1996 of $196,000 or
$0.04 per share. This compares to income from continuing operations of $95,000
or $0.02 per share for the quarter ended December 31, 1995. Including the
effects of discontinued operations, the net loss increased from $88,000 or
$0.02 per share in the prior quarter to $199,000 or $0.04 per share in the
current quarter.
Nine months ended December 31, 1996 compared to the nine months ended
December 31, 1995
Consolidated revenues for the nine months ended December 31, 1996 decreased
$125,000 (2%) to $6,871,000 from $6,996,000 in the nine months ended
December 31, 1995. This decrease was due to a 33% decrease ($563,000) in
service revenues from older product lines partially offset by an 8% increase
($438,000) in revenues from scanner products and services.
Consolidated gross margin decreased $854,000 (33%) from $2,618,000 in the nine
months ended December 31, 1995 to $1,764,000 in the nine months ended
December 31, 1996. Gross margin as a percent of revenues decreased from 37% to
26%. This decrease resulted primarily from the change in mix of scanner sales
from direct (end-user) sales to indirect (distribution) sales.
Selling, general and administrative expenses ("SG&A") increased by $16,000 (1%)
from $2,669,000 in the nine months ended December 31, 1995 to $2,685,000 in the
nine months ended December 31, 1996. This net increase consists of costs to
develop the Company's sales and marketing channels and costs to sever personnel
pursuant to the Company's cost-reduction efforts. As a percent of sales, SG&A
increased from 38% in the nine months ended December 31, 1995 to 39% in the nine
months ended December 31, 1996, primarily because of the decrease in revenue as
described above.
Product development expenses increased by $202,000 (56%) from $360,000 in the
nine months ended December 31, 1995 to $562,000 in the nine months ended
December 31, 1996. Product development expenditures that were capitalized
because they related to technologically feasible projects were $240,000 in the
prior period compared to $74,000 in the current period. Total product
development spending increased $36,000 from $600,000 in the prior period to
$636,000 in the current period due primarily to the nature of certain scanner
development activities and the extent to which they could be capitalized.
In the current period, other income (expense) consists of $57,000 of interest
expense offset by a $250,000 one-time payment from Kodak to settle a shortfall
of guaranteed-purchase commitments for spares shipments in calendar 1996. In the
prior period, other income (expense) consists primarily of interest expense. The
$371,000 change in other income (expense) reflects the significant reduction of
interest-bearing debt during the respective periods and the one-time settlement
payment from Kodak.
The Company's provision for income taxes in the prior and current periods were
zero and $1,000, 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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The decrease in gross margin and the increased SG&A and product development
expenses described above resulted in a loss from continuing operations for the
nine months ended December 31, 1996 of $1,290,000 or $0.24 per share. This
compares to a loss from continuing operations of $590,000 or $0.10 per share for
the nine months ended December 31, 1995. Including the effects of discontinued
operations, the net loss increased to $1,352,000 or $0.25 per share in the
current period from $724,000 or $0.13 per share in the prior period.
Liquidity and Capital Resources
-------------------------------
Following is a discussion of the Company'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 nine months ended December 31, 1996, the Company's primary sources of
liquidity were the proceeds from the sale of a discontinued operation
($2,000,000), reduction of inventories ($669,000), increase in accrued
liabilities ($334,000), cash flows provided by discontinued operations
($447,000), and cash reserves. Primary uses of cash in the nine months ended
December 31, 1996 were to pay down the credit facility ($1,024,000), reduce
accounts payable ($586,000), reduce prepaid expenses and other ($55,000), reduce
customer deposits ($107,000), reduce notes payable ($93,000), and for capital
expenditures ($237,000). In the nine months ended December 31, 1996, the
Company's cash balance increased $685,000 from $255,000 to $940,000.
The Company has a $1 million line of credit with a bank. 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 December 31, 1996, the balance of the line of credit was
zero and borrowings on the line of credit were limited to $963,000.
The Company is obligated under a series of notes payable totaling $575,000 as of
December 31, 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 source of future short-term liquidity is its cash balance
of $940,000.
The Company currently is obligated to pay approximately $29,000 per month in
lease payments. Expenses associated with the relocation of the Culver City
facility to San Diego will total approximately $150,000. Aside from these
commitments, the Company has not made any material capital commitments.
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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 (including
continuing and discontinued operations), 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 were completed by October
1996) and the consolidation of the operations and employees at the Photomatrix
facility in Culver City, California and corporate headquarters in San Diego,
California into a single facility located in San Diego, California. At current
revenue levels, these cost reductions will not, in and of themselves, return the
Company to profitability. The Company is focused on building indirect channels
of distribution and increasing its revenues in order to return the Company to
profitable operations.
Relocation of Culver City Operation to San Diego
- ------------------------------------------------
By March 31, 1997, the Company expects to have fully completed its relocation of
the Culver City facility to San Diego. Although management has attempted to
retain all assembly, test and other employees involved in the manufacturing
operations of the Company, most of the current employees in the Culver City
facility will not be relocating to San Diego. The Company has, however, hired
certain replacement employees to train along side existing Photomatrix
operations personnel prior to the relocation. Following the relocation, it is
possible that inefficiencies and disruptions could negatively impact the ability
of the Company to maintain the historical level of quality and manufacturing
throughput until new employees have progressed through their respective learning
curves. Additionally, impaired production levels could reduce the ability of the
Company to meet sales-volume requirements.
Required Revenue Increases and Competitive Environment
- ------------------------------------------------------
Management projects sales revenues from its scanner product lines will need to
increase approximately 50% in the next fiscal year (i.e., the year ended
March 31, 1998) relative to the current year in order for the Company to return
to profitability. This 50% revenue increase of scanner product lines is needed
to offset an estimated 30% service-revenue decrease from discontinued product
lines in the next fiscal year which were providing working capital to
Photomatrix. In order to achieve this revenue growth, management expects that
Photomatrix will have to increase by 60% scanner-product unit sales and
introduce moderate price increases. Pursuant to discussions with industry
consultants, management estimates that the segment of the imaging industry in
which the Company competes will grow approximately 30% during the next fiscal
ear. There can be no assurance the sales of the Company's scanner product
lines will meet or surpass that of the relevant industry segment.
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<PAGE>
The Company competes primarily in the high-end of the imaging marketplace. The
Company believes the critical success factors within this market segment include
engineering quality, price reasonableness, distribution channels, production
volume, name recognition, and access to a strong financial-capital base. The
Company expects the majority of its future revenues to come from the sale of its
line of high-performance document scanners. The Company's primary competitors in
the high-performance document-scanner marketplace include Kodak and BancTec,
both of which have access to a substantially greater financial-capital base than
the Company. In addition, the Company estimates that Kodak has the leading
market share in this market segment, and Kodak has substantially broader name
recognition and greater sales and marketing resources than the Company. There
can be no assurance that Photomatrix, Inc. will be able to overcome competitive
forces and reactions to increase revenues necessary to return to profitability.
The Company's ability to increase its revenues is partially dependent upon
successfully using existing OEM relationships and upon expanding its indirect
channels of distribution. The Company's ability to expand these distribution
channels is in part dependent upon its marketing and research and development
expenditures. The Company's liquidity constraints may adversely impact these
expenditures.
Further, Bell & Howell, with whom the Company has an OEM relationship to sell
the Company's document scanners, has recently introduced a document scanner with
similar speed and features to that of many of the scanners sold via this OEM
channel in the current fiscal year. Although the Company believes it will be
able to enhance its scanner technology to stay ahead of some of its competitors'
products, there can be no assurance that Bell & Howell or another competitor
will not introduce products into the Company's future market niche that will be
of equal or superior performance.
The Company has not yet achieved a critical-mass level of revenue to reach a
financial break-even point. Assuming that the Company's sales forecasts can
be achieved, cash flow forecasts suggest that the Company's existing line of
credit will be adequate to finance the Company's growth in the year ended
March 31, 1998 ("FY 1998"). However, there can be no assurance that the
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Company will be successful in either increasing revenue volumes during FY 1998
to reach break-even levels of sales or in generating sufficient cash flow
therefrom to satisfy cash and working capital requirements during this
turn-around time period. Furthermore, as discussed below, if the Company cannot
increase revenue levels sufficiently to return to profitability, the Company
could default on its bank covenants in the near future and lose its line of
credit.
Forward-Looking Information
- ---------------------------
The information relating to the Company's 1) planned cost reductions, including
the amount of the annual reductions, the timing of the reductions and the
expected sources of cost reductions, 2) focus on revenue growth and break-even
revenue levels, 3) estimates of future liquidity and cash flows, and 4) existing
and future market conditions are forward-looking statements that involve risks
and uncertainties, including a risk that the Company may not be able to 1)
achieve the desired level of cost reductions or that the cost reductions may
have adverse consequences to the Company, 2) compete effectively against its
competitors in the high-end scanner niche or maintain its product margins and
ultimately achieve break-even or profitable revenue levels, 3) maintain adequate
liquidity and cash flow to sustain operations while working to reach a
critical-mass level of operations. 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 $276,000 (32%) from $874,000 to $1,150,000 in the nine
months ended December 31, 1995 and 1996, respectively. This increase in foreign
sales in the current period is due to progress in the development of
distribution channels in foreign markets. Foreign sales comprised 17% and 20% of
total scanner product and services 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.
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 $4,466,000 as of
December 31, 1996. If losses continue at current levels, and even after
considering planned cost reductions, the Company could default on this covenant
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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Need for Capital Infusion
- -------------------------
Based on the financial-capital of the Company's competitors and the overall
competitive environment, the Company and its Board of Directors are evaluating
all feasible avenues to secure access to additional capital via merger, stock
offering, strategic corporate partnering, etc. There can be no assurance that
the Company will be successful in these efforts to obtain additional capital.
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<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
On October 21, 1996, at the Special Meeting of Shareholders, the
shareholders approved the change in name of the Company from Xscribe
Corporation to Photomatrix, Inc. The following is the vote tabulation
for this matter:
Abstained/
Matter Votes For Votes Against Withheld
------ --------- ------------- ----------
Name change to
Photomatrix, Inc. 3,864,135 17,198 12,003
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 December 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.
PHOTOMATRIX, INC.
Date: February 13, 1997 by /s/ Suren G. Dutia
-----------------------
Suren G. Dutia
President
Chief Executive Officer
Date: February 13, 1997 by /s/ Peter B. Harker
----------------------
Peter B. Harker
Chief Financial Officer
Principal Accounting Officer
-17-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule 19
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 940,000
<SECURITIES> 0
<RECEIVABLES> 1,932,000
<ALLOWANCES> 0
<INVENTORY> 2,424,000
<CURRENT-ASSETS> 5,519,000
<PP&E> 1,302,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,244,000
<CURRENT-LIABILITIES> 2,206,000
<BONDS> 450,000
0
0
<COMMON> 19,345,000
<OTHER-SE> (12,757,000)
<TOTAL-LIABILITY-AND-EQUITY> 9,244,000
<SALES> 0
<TOTAL-REVENUES> 6,871,000
<CGS> 0
<TOTAL-COSTS> 5,107,000
<OTHER-EXPENSES> 3,247,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (193,000)
<INCOME-PRETAX> (1,290,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,290,000)
<DISCONTINUED> (62,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,352,000)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
