<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[x] Preliminary proxy statement [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SCRIPTEL HOLDING, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rules
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each Class of Securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[x] Fee paid previously with preliminary materials.
[ ] Check box, if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
SCRIPTEL HOLDING, INC.
4153 Arlingate Plaza
Columbus, Ohio 43228
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 24, 1996
The 1996 annual meeting of stockholders of Scriptel Holding, Inc.
("Scriptel") will be held at the Holiday Inn West, 2350 Westbelt Drive,
Columbus, Ohio on September 24, 1996 at 9 AM, local time for the following
purposes:
1. To elect one Director of the class whose two-year term of office will
expire in 1998, and one Director to the class whose three-year term of
office will expire in 1999, or until successors are qualified and elected;
2. To amend Scriptel's Certificate of Incorporation to increase the number
of authorized shares to 125,000,000 shares of Common Stock;
3. To amend Scriptel's Certificate of Incorporation to authorize a class
of 15,000,000 shares of undesignated Preferred Stock;
4. To approve the amendment to the 1993 Stock Option Plan to increase the
number of shares which may be issued under the Plan to 7,500,000 shares;
5. To appoint Norman, Jones, Enlow & Co. as Scriptel's independent public
accountants for the fiscal year ending December 31, 1996; and
6. To transact other business that may properly come before the meeting or
any adjournment thereof.
The holders of record of the Common Stock at the close of business on July
26, 1996 have the right to receive notice of and to vote at the annual
meeting and at any adjournments thereof.
The accompanying document contains the Proxy Statement of Scriptel for the
1996 annual meeting of stockholders.
The Board of Directors unanimously recommends a vote "FOR" each of the
proposals submitted and in favor of the director nominees named herein.
Your vote is important regardless of the number of shares you hold. Kindly
sign the enclosed Proxy and return it at once in the enclosed stamped
envelope. If you attend the meeting, you may revoke your Proxy and vote
your shares in person.
By Order of the Board of Directors
Dr. Philip A. Schlosser, Secretary
Columbus, Ohio
August 24, 1996
<PAGE>
PROXY STATEMENT
SCRIPTEL HOLDING, INC.
SOLICITATION OF PROXIES OF STOCKHOLDERS
September 24, 1996
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Scriptel Holding, Inc., a Delaware corporation
("Scriptel" or the "Company" ), of proxies to be voted at its 1996 Annual
Meeting of stockholders to be held on September 24, 1996 and at all
adjournments thereof (the "Annual Meeting"). The 1996 Annual Meeting of
stockholders of Scriptel will be held at the Holiday Inn West, 2350
Westbelt Drive, Columbus, Ohio on September 24, 1996 at 9 AM, local time.
The purposes of this solicitation are to obtain stockholder action upon (i)
electing one Director for the term of office expiring in 1998 and one
Director for the term of office expiring in 1999; (ii) amending Scriptel's
Certificate of Incorporation to increase the number of authorized shares to
125,000,000 shares of Common Stock; (iii) amending Scriptel's Certificate
of Incorporation to authorize a class of 15,000,000 shares of undesignated
Preferred Stock; (iv) approving the amendment to the 1993 Stock Option Plan
to increase the number of shares which may be issued under the Plan to
7,500,000 shares; (v) appointing Norman, Jones, Enlow & Co. as Scriptel's
independent public accountants for the fiscal year ending December 31,
1996; and (vi) such other business as may properly come before the meeting.
Scriptel's principal executive offices are located at 4153 Arlingate
Plaza, Columbus Ohio 43228 and its telephone number is (614) 276-8402.
Only Scriptel stockholders of record at the close of business on July
26, 1996 will be entitled to vote at the Annual Meeting. On that date,
approximately 23,680,213 shares of Common Stock were issued and outstanding
and entitled to vote at the Annual Meeting, each of which is entitled to
one vote. This Proxy Statement and the Proxy are being delivered to
stockholders beginning on August 24, 1996.
This solicitation is being made by Scriptel. In addition to
solicitation by mail, directors, officers, and employees of Scriptel may
solicit written proxies from the stockholders of Scriptel personally or by
telephone. Scriptel will bear the expense of preparing and printing this
Proxy Statement and will cause this Proxy Statement to be delivered to its
stockholders.
Stockholders of Scriptel are urged to sign and return the enclosed
Proxy promptly in the enclosed envelope to make certain that their shares
will be voted at the meeting. Shares which are the subject of properly
executed proxies will be voted in accordance with any specification made
thereon; if no specification is made, such shares will be voted in favor of
electing the director nominees named in this Proxy Statement and "FOR" the
amendment to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock, the amendment to the Certificate of
Incorporation to authorize a class of Preferred Stock, approval of the
amendment to the 1993 Stock Option Plan, and appointment of Norman, Jones,
Enlow & Co. as Scriptel's independent public accountants. Any stockholder
has the right to revoke his or her Proxy (a) by written notice to the
President or Secretary of Scriptel received before the Annual Meeting
convenes, (b) by submitting (before the time the vote is taken) a later
dated Proxy or (c) by appearing at the Annual Meeting and giving notice of
his or her intention to vote in person. A stockholder's presence at the
Annual Meeting, however, will not operate to revoke a proxy.
The Board of Directors of Scriptel is not aware of any business to be
acted upon at the Annual Meeting other than the items referred to herein.
If, however, other matters are properly brought before the Annual Meeting
or any adjournment thereof, the persons authorized to vote shares that are
the subject of written Proxies will have discretion to vote or act thereon
according to their best judgment.
A quorum of stockholders is necessary to take action at the Annual
Meeting. A majority of the outstanding shares of Common Stock of the
Company, represented in person or by proxy, will constitute a quorum of
stockholders at the Annual Meeting. Votes cast by proxy or in person at
the Annual Meeting will be tabulated by the inspector of election appointed
for the Annual Meeting. The inspector of election will treat abstentions
as shares of Common Stock that are present and entitled to vote for
purposes of determining the presence of a quorum. If a broker indicates on
the proxy that it does not have discretionary authority to vote certain
shares of Common Stock on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
The director nominees who receive the greatest number of votes cast in
person or by proxy at the Annual Meeting shall be elected directors of the
Company. The vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve the amendment to the Certificate of
Incorporation to increase the number of authorized shares of Common Stock
and the amendment to the Certificate of Incorporation to authorize a class
of Preferred Stock. The vote required for the approval of the amendment to
the Stock Option Plan and the appointment of Scriptel's independent public
accountants is the affirmative vote of a majority of the shares present in
person or represented by proxy at the Annual Meeting. For purposes of
determining the approval of any matter submitted to the stockholders for a
vote, abstentions will be treated as shares of Common Stock that have been
withheld for the purpose of electing directors and as voted against
approval of the amendments to the Certificate of Incorporation, against
approval of the amendment to the 1993 Stock Option Plan, and against the
appointment of Scriptel's independent public accountants.
ELECTION OF DIRECTORS
Scriptel's Board of Directors presently consists of three (3) serving
directors divided into three classes, consisting of one, one and one
member, respectively, of nine (9) available Board seats. Four vacancies on
the board of Directors were created by resignation during 1995. An
additional two vacancies were created by resignation in 1996 The Board of
Directors has not filled the vacancies. The Board of Directors is
conducting a search for qualified persons to fill the remaining vacancies.
Two of the vacancies may be filled at the direction of Everest Securities,
Inc. ("Everest"), under Scriptel's exclusive investment banking
relationship agreement with Everest. Everest has not yet named these
individuals to the Board of Directors. In accordance with Delaware law,
the Company's bylaws state that Board vacancies may be filled on approval
by a majority of the directors then in office. Under this provision, the
Board has agreed to accept the nominees by Everest once they are named.
Proxies may not be voted for a greater number of persons than the number of
nominees named.
The following table sets forth certain information as of July 26, 1996
regarding the nominees for election as members of the Board of Directors as
well as directors whose terms of office will continue after the meeting:
Principal Occupation in Past 5 Years,
Name Other Directorships, and Age Director Since
NOMINEE FOR THE TERM TO EXPIRE IN 1998
Bernard Eckstein Chairman and Chief Executive Officer 1992
of the Company since May 1996. He was a self-employed
financial consultant from October 1995 to May 1996.
Prior to that he was Treasurer of Qualstan Corporation
(residential construction development) for over
five years; age 58.
NOMINEE FOR THE TERM TO EXPIRE IN 1999
Philip A. Schlosser, Executive Vice President- Research 1992
Ph.D. and Development; Secretary of the Company for more than
five years; age 53.
DIRECTOR WHOSE TERM EXPIRES IN 1997
J. Vance Holloway President and Chief Operating Officer 1992
of the Company since May 1996. President and Chief
Operating Officer of Scriptel Corporation since May 1993.
Prior to joining the Company, Mr. Holloway was employed
for more than five years by NCR Corporation holding his
most recent position as Consulting Director, Strategic
Planning of Workstation Products Division; age 59.
Executive officers of the Company at July 26, 1996 include the three
directors named above and also Edward Palmer and Frederick A. Niebauer.
Mr. Palmer, age 53, has been Vice President and Chief Information Officer
of the Company since January 1994. Prior to joining the Company, Mr.
Palmer was Director of Marketing for the U.S. Group of AT&T Global
Information Systems (formerly NCR Corp.) for more than five years. Mr.
Niebauer, age 46, was appointed Treasurer of the Company on October 27,
1994. From September 1993 to the time he joined the Company in September
1994, Mr. Niebauer was a self-employed financial consultant. From April
1987 until September 1993, Mr. Niebauer served as Director of Financial
Reporting for Ranco Incorporated, a large, privately-owned, international
manufacturer.
During the year ended December 31, 1995, the Board of Directors met on
eight (8) occasions and took various actions by unanimous consent. The
Board of Directors has assigned certain responsibilities to an Audit
Committee and a Compensation Committee. All of the current directors
attended in excess of 75% of the Board and relevant committee meetings held
during 1995. In addition to holding regular committee meetings, the Board
members also reviewed and considered company matters and documents and
communicated with each other wholly apart from the meetings.
The Audit Committee of the Board of Directors is presently vacant.
During 1995 it was comprised of Bernard Eckstein, and, until April 1995,
Joseph F. Caligiuri also served on the Audit Committee. Mr. Caligiuri
resigned from the Board of Directors in April 1995. The Audit Committee
held four (4) meetings during 1995. The functions of the Audit Committee
include recommending the appointment of the Company s independent
accountants , reviewing the scope of the audit and evaluating the
recommendations by the independent accountants on matters relating to
internal controls and procedures.
The Compensation Committee of the Board of Directors is presently
vacant. During 1995 it was comprised of Bernard Eckstein, and, until May
1995, the Compensation Committee also included M. Kathy Vieth and Lawrence
Lieberman, both of whom resigned from the Board of Directors in May 1995.
The Compensation Committee held three (3) meetings during 1995. The
Committee also took various actions during the year as part of regular
Board meetings.
Four individuals resigned from the Board of Directors of Scriptel
Holding, Inc. in 1995. By letter dated April 17, 1995, Mr. Joseph F.
Caligiuri resigned from the Board. Mr. Caligiuri cited contrasting
business philosophies and approaches as a factor leading to his
resignation. No specific disagreements were mentioned. Ms. M. Kathy Vieth
and Mr. Lawrence Lieberman resigned from the Board in May 1995, citing the
time demands of other commitments. In June 1995, Ms. Deborah Triant
resigned from the Board. No reasons were stated in her letter.
Under the terms of a May 1993 agreement with Woodbridge & Associates,
a financial public relations firm, ("Woodbridge") the Company agreed to the
designation of one director nominee by Woodbridge. In August 1995, under
the terms of this agreement, Mr. Kevin Woodbridge filled the vacancy caused
by the resignation of Mr. Caligiuri. In June 1996, Mr. Woodbridge resigned
from the Board. No reasons were stated.
Two individuals, in addition to Mr. Woodbridge, resigned from the
Board in 1996. Mr. Thomas J. Leukart resigned from the Board on
April 4, 1996. On that date, the Company sold its former wholly-owned
subsidiary Ampsco Corporation to a company headed by Mr. Leukart.
Mr. James W. France, Jr., the Company's former Chairman, President and
Chief Executive Officer resigned from the Board on May 15, 1996, citing
personal reasons. The Company has executed a severance and consulting
agreement with Mr. France under which Mr. France received a severance
package of: continuation of his salary through September 1996, cancellation
of all old options (a total of 1,425,467 options including 800,000 he
relinquished in 1996) held by Mr. France and issuance of new options to
purchase a total of 1,500,000 shares of Common Stock at $0.68 per share and
which expire in May 1999, severance pay of $150,000, and cancellation of
all of the Company's notes receivable (approximately $150,000) and advances
receivable (approximately $100,000) from Mr. France. The Company has
engaged Mr. France to act as a consultant in arranging financings for the
Company. If these efforts are successful, Mr. France will receive in cash
9% of the amount raised (which will first be used to pay the severance
costs outlined above) plus an additional $150,000 if more than $5 million
is raised by year end. Bernard Eckstein, a director of the Company since
1992, has been appointed as the Company's Chairman and Chief Executive
Officer. J. Vance Holloway, President and Chief Operating Officer of
Scriptel Corporation, has been appointed as President and Chief Operating
Officer of Scriptel Holding, Inc.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK
The Board of Directors has recommended that action be taken by the
stockholders to amend the Certificate of Incorporation of Scriptel to
increase the authorized shares of Common Stock, $.10 par value, 50,000,000
to 125,000,000 shares which the Company shall have authority to issue from
time to time.
The increase in the number of authorized shares of Common Stock is
believed by the Board of Directors to be essential in order to provide
flexibility of action in the future and to enable the Company to act
promptly in connection with financings and such other corporate matters
involving the issuance of Common Stock as the Board of Directors may deem
advisable. At present, there are sufficient shares authorized for issuance
in the event all exercisable stock options and warrants were exercised and
convertible debt were exchanged for equity. There is a small amount of
authorized shares available for current financings of the Company, should
any arise. But the Company has no available authorized shares to provide
flexibility should a major financing occur, or for any other corporate
purpose. The Company has committed to make authorized shares available for
approximately 15,200,000 additional options or warrants as required by
agreements with major creditors in 1996, or by agreements in 1996 with
creditors, directors, officers, employees and other option and warrant
holders to replace options or warrants those individuals relinquished in
1996 to provide available authorized shares for the Company's financing
efforts. (See table and description below.) The Company expects to meet
these commitments from the first available authorized shares, whether from
expiration of currently outstanding options or warrants, or from an
increase approved by stockholders. In addition, the Company anticipates
that approximately 5,000,000 authorized shares will be reserved for
issuance under the 1993 Stock Option Plan if stockholders approve the
proposals to increase the authorized shares and the number of options which
may be issued under the 1993 Stock Option Plan.
Under the Company's Certificate of Incorporation and Bylaws, the Board
of Directors of the Company has broad power to issue shares; commit to
issue shares through issuance of options, warrants, and convertible debt;
and set the pricing of any of these transactions, all without further
approval of stockholders except as may be required by law. The following
table and accompanying descriptive footnotes outline the Company's current
use and availability of its authorized shares from December 31, 1995 and
until August 9, 1996 (the most recent practicable date). The table and
footnotes also summarize the additional commitments the Company has made
for use of authorized shares, which commitments are contingent upon the
availability of authorized shares. IF STOCKHOLDERS APPROVE THE PROPOSED
INCREASE IN AUTHORIZED SHARES, THE BOARD OF DIRECTORS INTENDS TO
ISSUE
OPTIONS OR WARRANTS TO FULFILL EACH AND ALL OF THESE CONTINGENT
COMMITMENTS
WITHOUT FURTHER APPROVAL BY STOCKHOLDERS. IN EFFECT, BY VOTING FOR
THE
PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES,
STOCKHOLDERS ARE
RATIFYING THE BOARD'S INTENTION TO SATISFY THE COMMITMENTS. ALSO, BY
VOTING FOR THE PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED
SHARES,
STOCKHOLDERS WILL BE DEEMED TO BE IMPLICITLY APPROVING THE
AGREEMENTS
UNDERLYING THE COMPANY'S COMMITMENTS, AND WILL BE PRECLUDED FROM
OBJECTING
TO THE AGREEMENTS AT A FUTURE DATE. Further descriptions of the changes in
use or availability of authorized shares, and the contingent commitments
for use of authorized shares are included in this Proxy Statement under the
heading "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" below.
Common Stock Commitments:
Further
Commitments
For Use Of
Authorized
Authorized Available Shares
Shares Authorized Contingent On
Used Shares Availibility
------------- ------------ ------------
Shares outstanding plus
commitments to issue shares
on existing convertible debt,
options, or warrants at
December 31, 1995, per
annual report 49,817,618 182,382 None
Issuance of shares to an
officer, director, and founder
(Note 1) 100,000 (100,000) ---
Options and warrants cancelled
under agreements, subject to
reissuance under more favorable
terms upon availability of
authorized shares:
Mr. Gerald S. Jacobs (Note 2) (853,125) 853,125 853,125
Mr. James W. France,Jr.(Note 3) (800,000) 800,000 800,000
Mr. Walter T. Krumm (Note 4) (800,000) 800,000 800,000
Mr. Kevin Woodbridge (Note 5) (500,000) 500,000 500,000
Sale of Common Shares to
foreign investors under the pro-
visions of Regulation S (Note 6) 2,357,000 (2,357,000) ---
Warrants issued to agent in sale
of Common Stock to foreign
investors (Note 6) 117,850 (117,850) ---
Rescission of sales of Common
Shares to certain foreign investors
(Note 6) (302,500) 302,500 ---
Extension and repricing of
certain convertible debt (Note 7) 87,358 (87,358) ---
Issuance of common shares to
settle accounts payable (Note 8) 43,080 (43,080) ---
Stock grant to employees (Note 9) 44,000 (44,000) ---
Issuance of Common Shares to
obtain title to certain leased
equipment (Note 10) 60,000 (60,000) ---
Agreement to issue warrants to
Mr. Gerald S. Jacobs, contingent
upon availability of authorized
shares (Note 2) --- --- 3,600,000
Agreement to issue warrants to
Sonata Investment Company, Ltd.,
contingent upon availability of
authorized shares (Note 2) --- --- 2,400,000
Expiration of options and warrants
through July 31, 1996 (Note 11) (1,863,478) 1,863,478 ---
Issuance of warrants to satisfy
part of the contingent issuance
to Mr. Gerald S. Jacobs
(Note 11) 464,000 (464,000) (464,000)
Issuance of options and warrants
through July 31, 1996 (Note 12) 1,141,533 (1,141,533) ---
Agreement to issue warrants to
Sonata Investment Company, Ltd.,
contingent upon availability of
authorized shares (Note 13) --- --- 500,000
Agreement to issue warrants to
a consultant, contingent upon
availability of authorized shares
(Note 14) --- --- 500,000
Agreement to issue options to
Mr. Bernard Eckstein, Chairman
of the Company, contingent upon
availability of authorized shares
(Note 15) --- --- 500,000
Agreements with officers, employees,
and consultants to release authorized
shares represented by options and
warrants held by them; commitment
to allow exercise of the options and
warrants contingent upon availability
of authorized shares (Note 16) (2,616,147) 2,616,147 2,616,147
Agreements with officers, employees,
and consultants to issue new options
equal to the quantities released, con-
tingent upon availability of authorized
shares (Note 16) --- --- 2,616,147
Issuance of shares to foreign
investors upon conversion of
debentures issued under the provisions
of Regulation S (Note 17) 885,858 (885,858) ---
Issuance of warrants to agent for
converted debentures (Note 17) 88,586 (88,586) ---
Issuance of convertible debentures
to foreign investors under the
provisions of Regulation S
(Note 17) 895,000 (895,000) ---
Agreement to issue options to
officers and employees as a result
of deferral of part of their salary,
contingent upon availability of
authorized shares (Note 18) 195,000 (195,000) ---
--------- ----------- -----------
Totals 48,561,633 1,438,367 15,221,419
Notes to the table of common stock commitments:
(1) The Company issued 100,000 shares in January 1996 to Mr. Philip A.
Schlosser, a founder, director, and officer of the Company, as additional
compensation for his service since the Company was founded. The value of
this stock, $75,000, was expensed in January 1996 when it was issued.
(2) The Company entered into an agreement with Mr. Gerald S. Jacobs ("Mr.
Jacobs"), and Standard Energy Company (owned by Mr. Jacobs) as amended
March 29, 1996. This agreement compensates Mr. Jacobs as an individual for
his help personally or through companies he owns or is affiliated with in
providing debt financing to the Company over the last several years,
patience in not demanding repayment of those loans, cooperation with other
matters, and for relinquishing a part of his currently owned options or
warrants for cancellation so that the Company could use the authorized
shares reserved for such options in its current financings.
The agreement requires the Company to issue to Mr. Jacobs, or his
nominee, warrants to purchase 3,600,000 common shares at a price of $0.75
per share, and which will expire six years after issuance. It also
requires the Company to issue to Sonata Investment Company, Ltd. (the
holder of $151,000 of convertible notes, and an affiliate of Mr. Jacobs)
warrants to purchase 2,400,000 common shares at a price of $0.50 per share,
and which will expire six years after issuance. The warrants to Mr. Jacobs
and Sonata are contingent upon the Company having available authorized
shares, which authorized shares shall be obtained from the first-expiring
options or warrants or through approval by the Company's stockholders of
additional authorized shares at any time in sufficient amount to cover this
commitment, or both. The Company has agreed to use its best efforts to
obtain the requisite shares.
Management estimates the value of the 3,600,000 warrants to be issued
to Mr. Jacobs as approximately $2,272,000 if issued now and assuming
current market prices; because of the uncertainties relating to the
requirement for available authorized shares, the actual value to be
recorded is not known, and will be recorded only when these contingencies
are resolved and the warrants are actually issued. Management estimates
the value of the 2,400,000 warrants to be issued to Sonata Investment
Company, Ltd. as approximately $1,545,000 if issued now and assuming
current market prices; because of the uncertainties relating to the
requirement for available authorized shares, the actual value to be
recorded is not known, and will be recorded only when these contingencies
are resolved and the warrants are actually issued.
Mr. Jacobs agreed to surrender up to a total of 1,000,000 options or
warrants he currently owns, if the Company needs additional authorized shares
to issue in its current financings, of which 853,125 have been relinquished
and cancelled. The Company agreed to reissue the 853,125 options when, as
and if authorized shares are first available as set forth above. The new
options would be exercisable at a price of $0.75 per share and would expire
six years after issuance under these provisions. These terms are more
favorable than the terms of the options surrendered.
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and by Donna L. Sanger, a vice president of Standard
Energy Company, will be reissued with a new expiration date of October 1,
2001 and with a new price of $1.00 per share. At December 31, 1995, Mr.
Jacobs owned 2,190,000 warrants and 1,956,000 options at prices ranging
from $1.51 to $2.62 per share which expire at various dates through October
29, 2000. At December 31, 1995, Ms. Sanger owned 65,000 warrants and
63,500 options at prices ranging from $1.51 to $2.50 per share and which
expire at various dates through July 12, 2000. The options and warrants
were repriced and reissued as of February 29, 1996. The Company recorded
the $392,000 estimated value of these transactions as a finance charge in
the first quarter of 1996. The Company's commitments to issue warrants to
Mr. Jacobs and Sonata will be met from the first available authorized
shares, whether arising from expiration of currently existing options or
warrants or at such time as stockholders approve an amendment to the
Certificate of Incorporation increasing the amount of authorized shares.
The creditors have not indicated the consequences to the Company if the
commitments cannot be met.
The authorized shares represented by the relinquished options were
used by the Company in a sale of Common Stock to foreign investors (see
Note 6 below).
(3) Mr. James W. France, Jr., ("Mr. France"), the Company's former
Chairman, also relinquished 800,000 of the options he owned so that the
Company could use the freed up authorized shares in its current financings.
These options, priced at $1.74 per share and expiring in July 2000, were
cancelled. The Company agreed to reissue the options when, as and if
authorized shares become available, at an exercise price of $0.75 per share
and with an expiration date six years after their reissuance under these
provisions. These terms are more favorable than the terms of the options
surrendered. The authorized shares represented by the relinquished options
were used by the Company in a sale of Common Stock to foreign investors
(see Note 6 below).
(4) Mr. Walter T. Krumm, ("Mr. Krumm"), a major creditor of the Company,
also relinquished 800,000 of the options he owned so that the Company could
use the freed up authorized shares in its current financings. These
options, priced at $1.69 to $1.70 per share and expiring in 1998, were
cancelled. The Company agreed to reissue the options when, as and if
authorized shares become available, at an exercise price of $0.75 per share
and with an expiration date six years after their reissuance under these
provisions. These terms are more favorable than the terms of the options
surrendered. The authorized shares represented by the relinquished options
were used by the Company in a sale of Common Stock to foreign investors
(see Note 6 below).
(5) Mr. Kevin Woodbridge, ("Mr. Woodbridge"), a director of the Company at
the time, entered into an agreement with the Company. This agreement,
including provisions to reprice and reissue all of the options owned by Mr.
Woodbridge, was approved by the Board in April 1996. This is additional
compensation for his continuing to operate under a consulting contract with
the Company without receiving his retainer fee for eight months,
relinquishing part of his retainer and part of his stock options to obtain
a release of a 1995 judgment against the Company on a cognovit note, and
relinquishing 500,000 currently owned options for cancellation so that the
Company could use those authorized shares in its current financings. At
March 31, 1996, Mr. Woodbridge owned 870,797 options with exercise prices
ranging from $1.43 to $2.00 per share and with expiration dates of 1996 to
2000. All of his options were reissued with a new expiration date of April
1, 2000 and with a new exercise price of $0.50 per share. The Company
recorded in the second quarter the estimated $161,000 value of the
reissuance of currently existing options with new pricing and expiration
dates. Mr. Woodbridge also has rights to immediate registration of his
options through an S-8 filing. The Company has agreed to reissue the
500,000 relinquished options at such time as the shareholders approve the
authorization of additional shares. The reissued options will have an
exercise price of $0.50 per share and will expire five years after their
issuance. These terms are more favorable than the terms of the options
surrendered. The authorized shares represented by the relinquished options
were used by the Company in a sale of Common Stock to foreign investors
(see Note 6 below).
(6) In March and April 1996, the Company entered into several agreements
with foreign investors for them to purchase shares at $0.40 per share under the
provisions of Regulation S promulgated by the Securities and Exchange
Commission. A total of 2,357,000 shares were issued under these
agreements. The market price of the Company's common stock on the dates of
issuance was approximately $0.75 to $1.12. Cash proceeds were $943,000,
less a total of $130,000 paid as finders fees and expenses. The Company
was delayed in filing certain of its reports to the Securities and Exchange
Commission for the year ended December 31, 1995 and the quarter ended March
31, 1996. Because of this, the Company was forced to rescind certain of
these stock transactions, and the Company repurchased 302,500 shares from
the foreign investors at their then-current market price of $230,000. The
net proceeds after the rescission were used to fund payrolls, audit and
legal costs, and other operating expenses. In addition to the cash costs
of closing, the Company committed to issue warrants to purchase common
shares equal to 5% of the shares issued, at a price of $0.48, and which
will expire five years after issuance. A total of 117,850 warrants have
been committed (the estimated value of $39,000 was expensed in the second
quarter as a finance charge). This sale used shares freed up by agreements
with Mr. Jacobs, Mr. France, Mr. Krumm, and Mr. Woodbridge. (See Notes 2,
3, 4 and 5).
(7) In April 1996, the Company was successful in obtaining a one-year
extension on four convertible notes payable totaling $71,000. The Company
agreed to modify the conversion price from $1.69 per share to $0.55 per
share. This transaction increased the authorized shares committed for
conversion by 87,358 shares. The estimated value of these additional shares
of $78,000 was expensed as a finance charge in the first quarter.
(8) The Company issued 43,080 shares in 1996 in settlement of payables
totaling $35,000.
(9) The Company agreed to issue a one-time stock grant to employees of
Scriptel at June 1, 1996, equal in value to twice each employee's monthly
salary, and valued at $0.75 per share. This grant approximates 244,000
shares. The Company will also pay the employees' taxes on the stock grant,
subject to availability of cash. A charge of $311,000 has been recorded as
the value of the grant plus taxes. The Company had reserved 200,000
authorized shares for this grant at December 31, 1995, so the net change to
authorized shares as a result of the Board action in June 1996 was an
increase of 44,000 authorized shares.
(10) In May 1996, the Company issued 60,000 shares and a cognovit note for
$115,000 in return for title to certain assets leased by Coloray Display
Corporation, a subsidiary of the Company, and for settlement of $70,000 of
recorded but unpaid lease payments. The Company recorded the $38,000 value
of the shares and the $45,000 difference in lease costs in the first quarter
as an adjustment of the estimated costs of closure of Coloray Display
Corporation.
(11) Through July 31, 1996, a total of 1,863,478 options and warrants
expired under their contractual terms. Some of the authorized shares freed
up by these expirations were used to issue new options (see Note 12).
Under the agreement with Mr. Jacobs (see Note 2), approximately 1,314,000
of these were to be issued to him to satisfy part of the future commitments
of the Company. However, in July 1996, the Company entered into
supplemental agreements with Mr. Jacobs, Sonata Investment Company, Ltd.,
Mr. France, Mr. Krumm, and several officers to the effect that, despite
prior agreements, the Company could use in its current financings up to
850,000 of the authorized shares freed up by the expiration of these
options and warrants. The remaining 464,000 options will be issued to Mr.
Jacobs under the terms of his March 29, 1996 agreement. The $20,000 net
value of the expiration and reissuance of these options was expensed in the
second quarter of 1996.
(12) In addition to the options and warrants issued as identified above,
in 1996 to date the Company issued a total of 1,141,533 options and
warrants at exercise prices ranging from $0.40 to $1.00 per share and
expiring in three to five years. These included the following:
The Company issued 50,000 options to Mr. Bernard Eckstein and 25,000
options to Mr. Woodbridge for their services as directors, under the
provisions of the 1993 Stock Option Plan. These options had an exercise
price of $0.40 per share and expired in 2001.
The Company issued 100,000 options in January 1996 to Bernard
Eckstein, a director, as compensation for his services in helping with year
end activities. The options are exercisable at a price of $0.75 per share
(the market price at the date of grant), and expire in January 2001. The
estimated value of $62,000 was charged to administrative expense in the
first quarter of 1996.
In May 1996 the Company engaged Everest Securities, Inc. of
Minneapolis, Minnesota in an exclusive investment banking relationship.
Everest will advise and consult with the Company, and will use its best
efforts to obtain commitments for financings using debt, convertible debt or
stock. As part of the agreement, the Company sold to Everest for a nominal
amount a warrant to purchase 350,000 shares of common stock at a price of
$0.60 pershare. The Company also granted Everest an additional warrant to
purchase 350,000 shares of common stock at $0.60 per share for services under a
prior consulting agreement. Both warrants expire in December 1999. The
estimated value of these warrants, $132,000, was expensed as a finance
charge in the second quarter of 1996.
The agreement also contains the following provisions. The minimum
term is one year, cancelable by either party with ninety days written notice.
Upon completion of at least $1,000,000 in funding in any form, the Company
will pay $20,000 monthly to Everest for the term of the agreement. Everest
will have the right to appoint two (2) directors to the Board of Directors
for a minimum period of three years. Everest will get cash placement fees on
any financing the Company receives; such fees range from 2% on any financing
which Everest does not manage, to 13% on equity funds raised by Everest. In
addition, Everest will receive warrants for 10% of any shares tendered on the
financings. Generally, such fees are payable on any financings from a source
introduced to the Company by Everest, during the term of the agreement and
for 60 months thereafter.
The Company issued 74,533 options to Mr. France as part of his
severance package. These have an exercise price of $0.68 per share and
expire in three years.
The Company issued to a consultant options to purchase 70,000 shares
of common stock at $1.00 per share and which expire in 2001. The $20,000
value was expensed in the second
quarter of 1996.
The Company issued a total of 122,000 options at an exercise price of
$0.40 per share to employees under the provisions of the 1993 Stock Option
Plan. These options expire in five years. The estimated value of the
issuance, $33,000, was expensed in the second quarter of 1996.
(13) In June 1996, Sonata Investment Company loaned $45,000 to the Company
under a demand cognovit note. On demand, $10,000 of interest will also be
due. In consideration for the loan, and for Sonata's forbearance in not
demanding repayment of another note, the Company agreed to issue to Sonata
warrants to purchase 500,000 common shares at $0.50 per share and which would
expire six years after issuance. Such warrants are contingent upon having
available authorized shares from the Company's first-expiring unexercised
options or warrants, or from approval by the Company's stockholders of an
increase in authorized shares. If issued now, and assuming current market
prices, management estimates the value of the warrants at $216,000:
because of the uncertainties relating to the requirement for available
authorized shares, the actual value to be recorded is not known, and will
be recorded only when these contingencies are resolved and the warrants are
actually issued.
(14) The Company entered into an agreement with a consultant to issue the
consultant, as partial payment for services rendered, options to purchase
500,000 shares of common stock at $0.55 per share. Such options are
contingent on the availability of authorized shares. The value (estimated
at $160,000 if issued now) will be expensed when the options are issued.
(15) In June 1996, the Company committed to issue to Mr. Bernard Eckstein,
the Company's Chairman and Chief Executive Officer, as part of his employment
negotiations, options to purchase 500,000 shares of Common Stock at an
exercise price of $0.40 per share and which will expire five years after
issuance. Issuance of these options is contingent on the availability of
authorized shares. The value of the options (estimated at $167,000 if issued
now) will be expensed when they are issued. The Board of Directors also set
the compensation of Mr. Eckstein at an annual base salary of $150,000
beginning on May 16, 1996.
(16) In July 1996, the Company entered into several agreements with its
officers, eight employees, and two consultants. Under these agreements,
the individuals agreed to let the Company use in its current financings the
authorized shares represented by a total of 2,616,147 options and warrants
held by these individuals. All of such released authorized shares were
used. Further, the individuals have agreed not to exercise their options
and warrants until such time as authorized shares become available (e.g.,
from approval by stockholders at any time of an amendment to the Company's
Certificate of Incorporation increasing the amount of authorized shares).
If sufficient authorized shares are not available before the options expire
under their original terms, they will expire worthless. The Company also
agreed to issue an additional option to each individual for each of the
2,616,147 authorized shares used, as soon as authorized shares become
available. The additional options will have an exercise price of $0.40 per
share and will expire five years after their issuance. The estimated value
of $882,000 for the release, subsequent use, and subsequent issuance of the
additional options will be expensed when the authorized shares become
available and the new options are issued. The released authorized shares
were used to cover the issuance of convertible debentures to foreign
investors (see Note 17).
(17) In June and July 1996, the Company entered into agreements to issue
6%, 3-year debentures to foreign investors. Such debentures are
convertible into common stock of the Company under the provisions of
Regulation S promulgated by the Securities and Exchange Commission. The
conversion price is 60% of the market price of the stock, as defined, on
the day of conversion subject to a minimum conversion price of $0.375 per
share and a maximum conversion price of $1.50 per share. The Company
agreed to pay a cash commission to the agent of 13% of the funds received,
plus warrants equal to 10% of the shares issued upon conversion. Such
warrants are to be priced at 120% of the conversion price, will expire five
years after issuance, and bear piggyback registration rights.
On June 28, 1996, the Company issued $350,000 of these debentures, paid the
agent's commission of $46,000, and reserved authorized shares for the conversion
and the warrants to be issued to the agent. This debenture and accrued
interest was converted into 885,858 shares of common stock in August 1996.
Of these shares, 880,503 were unrestricted and immediately tradeable under
the provisions of Regulation S. The Company issued warrants to the agent
to purchase 88,586 shares of common stock; the value of $29,000 was
expensed as a finance charge in the second quarter.
In July, the Company issued $305,000 of these debentures, paid the agent's
commission of $40,000, and reserved 895,000 authorized shares for the assumed
conversion of the debentures and the warrants to be issued to the agent.
Proceeds of all debentures were used for operating costs.
The market price of the Company's common stock was about $0.75 on the date
of issuance of each debenture. The Company recorded a finance charge of
$350,000 in the second quarter of 1996, and will record a finance charge of
$305,000 in the third quarter of 1996, equal to the difference between fair
value of the common stock on the dates the debentures were issued and the
minimum conversion price of the debenture.
(18) In May 1996, certain of the Company's officers and employees agreed
to defer that part of their annual compensation which exceeded $85,000
until such time as the Company's cash situation improved. As part of the
agreements with these individuals (including officers Bernard Eckstein, J.
Vance Holloway, Edward Palmer, and Frederick A. Niebauer), the Company
agreed to pay interest at 10% per annum on the amounts deferred, and agreed
to issue an option to purchase one share of common stock at an exercise
price of $0.40 per share and with an expiration date of five years after
issuance (which options are subject to the availability of authorized
shares) for each dollar of salary deferred. These would total 195,000
options if such deferral continued for a year, and similar amounts annually
thereafter.
End of footnotes to the common stock commitments table.
In May 1996, the Company has entered into an exclusive investment
banking relationship with Everest Securities, Inc. ("Everest"). Everest
will advise and consult with the Company, and will use its best efforts to
obtain commitments for financings up to $18 million using debt, convertible
debt or stock. Although the composition of the financing, if any, is not
known, management believes that if the maximum financing were to occur and
if it is in the form of convertible debt or equity, or is accompanied by
options or warrants, an undetermined number of additional shares will be
needed. The exact amount of shares, if any, will depend on market pricing
and other considerations.
The agreement also contains the following provisions. The minimum
term is one year, cancelable by either party with ninety days written
notice. Upon completion of at least $1,000,000 in funding in any form, the
Company will pay $20,000 monthly to Everest for the term of the agreement.
Everest will have the right to appoint two (2) directors to the Board of
Directors for a minimum period of three years. Everest will get cash
placement fees on any financing the Company receives; such fees to range
from 2% on any financing which Everest does not manage, to 13% on equity
funds raised by Everest. In addition, Everest will receive warrants for
10% of any shares tendered on the financings. Generally, such fees are
payable on any financings from a source introduced to the Company by
Everest, during the term of the agreement and for 60 months thereafter.
Other than the foregoing, there are no present plans, understandings
or agreements for issuance or use of the proposed additional shares.
Additional authorized shares would also be required if the Company entered
into future private or public stock offerings.
Without additional authorized shares to use in its financings, it is
likely that the Company may not be able to continue to remain in business.
(See footnotes relating to Going Concern Basis of Presentation, and Risk of
Liquidation in the consolidated financial statements in the Annual Report
to Stockholders and the quarterly financial statements.) If the proposed
increase is not approved, the Company may not be able to meet its
contingent commitments on authorized shares underlying options and
warrants.
The following general description of provisions relating to Common
Stock is qualified in its entirety by the description included in the
proposed Amendment to Article 4 of the Certificate of Incorporation of
Scriptel Holding, Inc. included as Appendix A to this proxy statement.
The additional shares of Common Stock may be issued at such times, to
such persons and for such consideration as the Board of Directors may
determine to be in the Company's best interest without (except as otherwise
required by law) further authority from the stockholders. The additional
shares of Common Stock would have the same voting and other rights as the
presently authorized Common Stock. Stockholders presently have no
preemptive rights and would have none in respect of the proposed additional
shares of Common Stock.
The increase in the number of authorized shares of Common Stock will
not have any immediate effect on the rights of existing stockholders. To
the extent the additional shares are issued in the future, they will
decrease the existing stockholders' percentage equity ownership and,
depending on the price at which they are issued, could be dilutive to the
existing stockholders.
Adoption of the proposed amendment requires the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting. The effect of an abstention, or a
broker non-vote, is the same as a vote against the proposal. If the
proposed amendment is approved by stockholders, it will become effective
upon filing and recording of a Certificate of Amendment as required by the
Delaware General Corporation Law. The Board of Directors unanimously
recommends that stockholders vote FOR the proposed amendment.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO AUTHORIZE A
CLASS OF 15,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK
In June 1996, the Board of Directors approved an amendment to the
Certificate of Incorporation, subject to stockholder approval, to add a
provision allowing for the issuance of 15,000,000 shares of undesignated
Preferred Stock.
The following general description of provisions relating to Preferred
Stock is qualified in its entirety by the description included in the
proposed Amendment to Article 4 of the Certificate of Incorporation of
Scriptel Holding, Inc. included as Appendix A to this proxy statement.
Currently the Company is authorized to issued only Common stock. The
purpose of the proposed amendment to authorize a class of 15,000,000 shares
of undesignated Preferred Stock is to give the Board of Directors the
flexibility and authority to provide for the issuance of Preferred Stock
without delay and without the need for further action by the stockholders,
except in connection with transactions for which Delaware law requires
stockholder approval. It is not possible to state the precise effect of
the authorization of the Preferred Stock upon the rights of the Company's
stockholders until the Board of Directors determines the respective
preferences, limitations and relative rights of the holders of one or more
series of the Preferred Stock, including dividend rights, conversion
rights, voting rights, redemption rights, and liquidation preferences. The
amendment will give the Board of Directors broad discretion to set the
terms of any shares of Preferred Stock that are issued. The Company may
issue one or more series of stock with such voting powers, designations,
preferences, and other rights as set forth in the Certificate of
Incorporation or in resolutions authorizing the issuance of such stock
adopted by the Board of Directors pursuant to express authority vested in
it by provisions of the Company's Certificate of Incorporation.
Preferred Stock authorized by the amendment would be available for
issuance from time to time for any proper corporate purpose, including but
not limited to issuance in public or private transactions in connection
with future financings, acquisitions, or stock distributions. At this
time, the Company has no plans to issue any shares of Preferred Stock.
However, because the need to raise additional capital or take immediate
advantage of an attractive business opportunity can arise when it would be
inconvenient to hold a stockholders' meeting or when there would not be
time for such a meeting, the Company believes that prudent business
planning suggests the 15,000,000 shares of Preferred Stock be authorized at
this time.
The amendment may be viewed as having the overall effect of delaying
or preventing an unsolicited attempt by another person or entity to acquire
control of the Company. Issuances of authorized preferred shares can be
implemented, and have been implemented by some companies in the past, with
voting or conversion privileges intended to make acquisition of the company more
difficult or more costly. Such an issuance could discourage or limit the
stockholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not management or a majority
of the stockholders favored such transactions, and could enhance the
ability of officers and directors to retain their positions. The Company
is not aware of any current proposals by any party to acquire control of
the Company.
The Board of Directors recommends a vote "FOR" this proposal. The
affirmative vote by a majority of the shares of Common Stock of the Company
entitled to vote at the Annual Meeting will be required to amend the
Certificate of Incorporation. Proxies solicited by the Board of Directors
will be so voted unless stockholders specify otherwise on their proxy
cards. Votes that are cast against the proposal will be counted for
purposes of determining the presence or absence of a quorum and the total
number of votes cast with respect to the proposal. Abstentions will have
the same effect as a vote against the proposal. Broker non-votes will be
counted for purposes of determining the presence or absence of a quorum for
the transaction of business, but will not be counted for purposes of
determining the number of votes cast with respect to the proposal.
AMENDMENT TO THE STOCK OPTION PLAN
The Board of Directors unanimously recommend the approval of
stockholders of an amendment to Scriptel s 1993 Stock Option Plan (the
Plan ) to increase the amount of shares which may be issued under the Plan
from 5,000,000 to 7,500,000 shares.
The Plan provides for the grant of up to 5,000,000 shares of Common
Stock. All employees of Scriptel and its subsidiaries, non-employee
Directors, and consultants to the Company, are eligible for the grant of
options under the Plan. The Plan provides for the grant of incentive stock
options and non-qualified options; provided that only employees can
receive incentive stock options. The Board of Directors is responsible for
granting options under the Plan and administering the Plan.
The purchase price of the shares subject to options granted under the
Plan are determined by the Board of Directors or the Compensation
Committee, as the case may be. Each option becomes exercisable at the time
or times determined by the Compensation Committee when the option is
granted, provided that no option may be exercised within six months of date
of grant, except that the Board of Directors or the Compensation Committee
has the right to accelerate the exercisability of the options upon the
occurrence of certain events that involve or may result in a change in
control of Scriptel. Each option terminates on the date set by the
Compensation Committee at the time of grant, but no termination date may be
later than ten years from the date of grant. Generally, no option may be
exercised unless the holder of the option is an employee of Scriptel or one
of its subsidiaries or is rendering services to the Company as a
non-employee director or consultant, except for limited exercise rights
after termination of employment or services. An optionee can pay the
purchase price for a stock option in cash, by delivery of shares of Common
Stock already owned by the optionee, or by a combination of these methods,
as determined by the Compensation Committee.
An employee who is granted an incentive stock option generally will
not realize income for federal income tax purposes upon the grant or
exercise of the option, and Scriptel will not be entitled to a deduction.
Any person who is granted a non-qualified option will not realize income
for federal income tax purposes upon the grant of the option, and Scriptel
will not be entitled to a deduction. Upon exercise of a non-qualified
option, the optionee will realize income, and Scriptel will be entitled to
a deduction, in an amount equal to the difference between the purchase
price and the fair market value of the shares, on the date of exercise or,
in the case of a director, officer or 10% stockholder who does not file the
necessary election with the Internal Revenue Service, six months after such
date.
Since the approval of the Plan by stockholders in 1994, approximately
2,500,000 of the options under the plan have been granted or committed and
the Directors feel that additional shares are needed for subsequent grants.
The Board believes that the amendment to the Plan will benefit
Scriptel and its stockholders by enabling Scriptel to attract and retain
qualified employees. Therefore, the Board unanimously recommends that
Scriptel stockholders vote FOR the proposed amendment to the 1993 Stock
Option Plan. Approval will require the affirmative vote of the holders of
at least a majority of the shares represented at the Annual Meeting.
On August 15, 1996, the bid and asked prices of a share of Common
Stock as reported on the Electronic Bulletin Board maintained by NASD were
$0.656 and $0.688, respectively.
INDEPENDENT PUBLIC ACCOUNTANTS
Norman, Jones, Enlow & Co. audited the consolidated financial
statements of Scriptel Holding, Inc. for the fiscal year ended December 31,
1995. Coopers & Lybrand L.L.P. audited the consolidated financial
statements of Scriptel Holding, Inc. for the fiscal years ended December
31, 1994 and 1993. The accountant's opinions for each of 1995, 1994 and
1993, although otherwise unqualified, included a supplemental paragraph
indicating that the consolidated financial statements had been prepared
assuming that the Company will continue as a going-concern and, as
discussed in the financial statements, the Company's recurring losses from
operations, net working capital deficiency, and need for immediate
financing to fund its operations raise substantial doubt about its ability
to continue as a going-concern. Management's plans concerning these
matters, and the repercussions if they are not successful, are described in
notes to the consolidated financial statements. The consolidated financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
By letter dated August 10, 1995 and received August 14, 1995, Coopers
& Lybrand L.L.P. indicated that they had resigned as the independent
accountants for Company. In connection with the audits by Coopers &
Lybrand L.L.P. and through the date of their resignation, there were no
disagreements with the former accountants in any matter of accounting
principles or practices, financial statements disclosures, or auditing
scope or procedure, or reportable events, within the meaning of Item 304 of
Regulation S-K.
On January 11, 1996, with approval of the Audit Committee of the Board
of Directors, the Company selected Norman, Jones, Enlow & Co. to audit its
consolidated financial statements for the year ended December 31, 1995.
The Board of Directors annually reviews the selection of its independent
public accountants.
While under Delaware law the appointment of the Company's independent
public accountants could be made without the authorization of stockholders,
the Board of Directors considered it appropriate to obtain such
authorization. Therefore, the Board of Directors unanimously recommends
that Scriptel stockholders vote to appoint Norman, Jones, Enlow & Co. as
the Company's independent public accountants for the fiscal year ending
December 31, 1996.
Representatives of Norman, Jones, Enlow & Co. are expected to be
present at the Annual Meeting with an opportunity to make a statement if
they want to and to respond to appropriate questions.
EXECUTIVE COMPENSATION
All directors and officers of the company devote such of their time as
may be necessary to the company's business. Non-employee directors do not
presently receive any cash compensation for their attendance at meetings of
the Company's Board of Directors or at any committee meetings thereof. In
lieu thereof, non-employee directors annually receive under the 1993 Stock
Option Plan options to purchase 25,000 shares of Common Stock at the then
current stock price. Pursuant to the terms of the Plan, non-employee
directors received options to purchase a total of 50,000 shares of Common
Stock at an exercise price of $0.75 per share on January 1, 1996.
SUMMARY COMPENSATION
The following table provides certain summary information concerning
the compensation paid or accrued by the Company, to or on behalf of its chief
executive officer for the years ended December 31, 1995, 1994 and 1993, and
all other officers of the Company who earned more than $100,000 in total annual
salary and bonus in any of the years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
Other
Names and Principal Annual
Position Year Salary Bonus Compensation
James W. France, Jr. 1995 $193,054 $ 0 $77,500 (13)
Chief Executive Officer 1994 152,962 25,000 0
(14) 1993 132,294 0 0
C. Edward Palmer III, 1995 133,750 0 0
Vice President , Chief 1994 112,500 0 41,800 (6)
Information Officer 1993 0 0 0
M. Kathy Vieth, former 1995 72,912 0 100,000 (10)
Director and former 1994 111,568 40,000 2,239 (6)
President of Coloray 1993 0 0 44,570 (7)
J. Vance Holloway, 1995 117,291 0 0
President of Scriptel 1994 91,666 0 0
Corporation 1993 0 0 0
Dennis J. Leukart, 1995 117,333 0 0
President of Ampsco 1994 84,000 2,000 0
Corporation 1993 84,000 4,000 0
continued
SUMMARY COMPENSATION TABLE, continued
Restricted Stock All
Names and Principal Stock Underlying Other
Position Awards Warrants & Compensation
Options
James W. France, Jr. 1995 0 1,400,000 (3) 0
Chief Executive Officer 1994 0 235,000 (4)(5) 0
1993 0 1,085,000 (1)(2)(4) 0
C. Edward Palmer III, 1995 0 100,000 (8) 0
Vice President , Chief 1994 0 104,500 (8) 0
Information Officer 1993 0 0 0
M. Kathy Vieth, former 1995 0 100,000 (9) 0
Director and former 1994 0 187,500 (9) 0
President of Coloray 1993 0 25,000 (9) 0
J. Vance Holloway, 1995 0 0 (11) 0
President of Scriptel 1994 7,000 121,100 (11) 0
Corporation 1993 0 125,000 (11) 0
Dennis J. Leukart, 1995 0 100,000 (12) 0
President of Ampsco 1994 0 65,000 (12) 0
Corporation 1993 0 0 0
The following table contains information concerning the grant of stock
options and employment related options to the named executive officers
listed below during the fiscal year ended December 31, 1995:
OPTIONS AND WARRANTS GRANTED IN 1995
% of Total
Options Per
Granted to Share Market
Options Employees Exercise Bid
Name Granted in 1995 Price Price
James W. France, Jr. (3) 1,400,000 48.1% $1.74 $1.94
C. Edward Palmer III (8) 100,000 3.4 2.50 3.25
M. Kathy Vieth (9) 100,000 3.4 2.25 3.25
J. Vance Holloway None 0.0 N/A N/A
Dennis J. Leukart (12) 100,000 3.4 2.50 .88
continued
OPTIONS AND WARRANTS GRANTED IN 1995, continued
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term
Expiration
Name Date 0% 5% 10%
James W. France, Jr. (3) 07-27-00 280,000 1,036,000 1,932,000
C. Edward Palmer III (8) 01-26-00 75,000 165,000 273,000
M. Kathy Vieth (9) 01-26-00 100,000 190,000 298,000
J. Vance Holloway N/A N/A N/A N/A
Dennis J. Leukart (12) 09-07-00 0 0 0
(1) Options for 500,000 of such option shares were granted in
accordance with the terms referenced in an agreement between the Company
and Woodbridge & Associates. See the Related Party Transactions footnotes
to the consolidated financial statements. In connection with this
agreement the Company agreed to consider granting, but was not obligated to
grant, to Mr. France a number of six year stock options for the purchase of
Company Common Stock equal to 4.9% of the Company's outstanding stock.
Accordingly, the Board of Directors independently considered the proposed
grant and in December 1993 the Board of Directors granted to Mr. France
options to purchase 500,000 shares at a price of $1.70 per share. The
options were exercisable immediately upon the stockholders approval to
increase the authorized shares of Common Stock of the Company at the
Annual Meeting held in May 1994. Except for the use of Kevin Woodbridge
and Woodbridge and Associates as a consultant to the Company, Mr. France
has no other business relationships with Kevin Woodbridge or Woodbridge and
Associates.
(2) Mr. France has received options to purchase 175,000, 250,000 and
150,000 shares of Common Stock at $2.50 per share upon attaining in 1994 a
NASDAQ listing, completion of the Hillcrest financing package with an
aggregate of $5 million or more, and registration of all stock, warrants
and options, respectively. The foregoing options were originally granted
in 1992, the vesting conditions for which were achievement of performance
objectives in 1993. The Board of Directors extended the performance date
through 1994.
(3) Mr. France received 400,000 options for meeting performance
objectives in his contract, and 1,000,000 options as a replacement for
options he transferred to debt holders in 1994, but at a lower exercise
price (see Note 5 below). These were immediately vested and immediately
exercisable.
(4) Mr. France's employment agreement provides for an automatic,
annual grant of options to purchase 10,000 shares of Common Stock at $2.00
per share, immediately exercisable, which expire at the earlier of 5 years
after the date of grant or 90 days after termination of employment.
(5) Mr. France received options and warrants to purchase 225,000
shares of Common Stock in an exchange of options with Mr. Gerald S. Jacobs,
a principal stockholder. Such options and warrants were at prices ranging
between $1.70 and $2.00 per share and expiring at various dates through
October 2000. For no consideration to Mr. France at the time, Mr. France
transferred these options and warrants to purchase 225,000 shares of Common
Stock, and additional options to purchase 993,200 shares of Common Stock to
note holders as an inducement to loan funds (options and warrants for
1,078,200 shares) and to Mr. Ronald Pellett, an outside independent
consultant, for services rendered (options for 140,000 shares). The
options and warrants transferred have exercise prices ranging from $1.70 to
$2.50 per share and expire at various dates through October 2000. See Note
3 above for details about a replacement for some of these options.
(6) Other compensation in 1994 includes amounts received by these
officers for reimbursement of their moving expenses.
(7) Ms. Vieth was a consultant to the Company in 1993, and received
$44,570 in consulting fees.
(8) In 1994, Mr. Palmer received options to purchase 50,000 shares of
Common Stock as part of his employment agreement with the Company. He also
received a grant of options to purchase 54,500 shares of Common Stock as
part of a distribution to all employees under the Company's Stock Option
Plan. In 1995, Mr. Palmer received options to purchase 100,000 shares of
Common Stock as part of his employment agreement with the Company. In
addition, in 1995 the expiration date on 50,000 options he received in 1994
was extended from 1997 to 2000.
(9) In 1994, Ms. Vieth received options to purchase 100,000 shares of
Common Stock as part of her employment agreement with the Company. In
1994, she also received a grant of options to purchase 62,500 shares of
Common Stock as part of a distribution to all employees under the Company's
Stock Option Plan, and options to purchase 25,000 shares of Common Stock
for services as a Director of the company prior to becoming an officer of
Coloray. In addition, in 1993 Ms. Vieth received options to purchase
25,000 shares of Common Stock for services performed as a Director of the
Company prior to becoming an officer of Coloray, with such grant subject to
stockholders' approval to increase the authorized shares of the Company at
the Annual Meeting held in May 1994. In 1995, Ms. Vieth received options
to purchase 100,000 shares of Common Stock as part of her employment
agreement with the Company. In addition, in 1995 the expiration date on
100,000 options she received in 1994 were extended from 1996 to 2000.
(10) Ms. Vieth received a $100,000 severance package in 1995 when she
terminated her service with the Company.
(11) In 1993 Mr. Holloway received options to purchase 125,000 shares
of Common Stock as part of his employment agreement with the Company. He
also received a grant of options to purchase 121,100 shares of Common Stock
as part of a distribution to all employees under the Company's Stock Option
Plan in 1994. In 1995 he received no options; however the expiration date
on 125,000 options he received in 1993 was extended from 1996 to 2000.
(12) In 1995 Mr. Leukart received options to purchase 100,000 shares of
Common Stock as part of his employment agreement with the Company. He also
received a grant of options to purchase 65,000 shares of Common Stock as
part of a distribution to all employees under the Company's Stock Option
Plan in 1994.
(13) Mr. France received a one-time grant of 40,000 shares of Common
Stock in 1995 per terms included in his employment contract. The fair
market value of these shares at the date of the grant, $77,500, was
recorded as compensation expense.
(14) Mr. France resigned on May 15, 1996 from all positions with the
Company.
<PAGE>
The following table contains information concerning the exercise of
stock options and employment related options and information on unexercised
stock options and warrants held as of the end of fiscal year 1995 by the
named executive officers:
OPTION AND WARRANT EXERCISES AND YEAR-END VALUE TABLE
Value of
Number of Unexercised Unexercised
Shares Options & Warrants In-the-money
Acquired -------------------- Options and
on Value Non- Warrants at
Name Exercise Realized Exercisable Exercisable December 31,
1995(1)
James W. France, Jr. 0 $0 1,425,467 0 $0
C. Edward Palmer III 0 0 204,500 0 0
M. Kathy Vieth 0 0 312,500 0 0
J. Vance Holloway 0 0 246,100 0 0
Dennis J. Leukart 0 0 170,388 0 0
(1) The average of the bid and asked prices at December 31, 1995 was
$0.56. Value equals the difference between the average of the bid and
asked price and the exercise price.
EMPLOYMENT CONTRACTS
James W. France, Jr., Chairman, President and Chief Executive Officer,
entered into a three-year agreement commencing September 1, 1992, which was
extended and amended in 1993 and again in October 1994 and which expired
September 1, 1995. On October 1, 1994, Mr. France's salary was set at
$165,000 per year. On September 1, 1995, after his contract expired, the
Board set Mr. France's salary at $250,000 per year on a month-to-month
basis. Mr. France remained in the same capacity without a contract, until
he resigned from all positions with the Company on May 15, 1996.
C. Edward Palmer III, Vice President and Chief Information Officer,
entered into a three-year employment agreement commencing January 1, 1994.
Under the agreement, Mr. Palmer received a base annual salary of $100,000
until July 1, 1994 at which time his annual base salary increased to
$125,000 per year. Effective January 1, 1995, his salary was set at
$133,750 per year. The agreement provides for the granting of options to
purchase 50,000 shares of Common Stock in January 1994 at a price of $1.75
per share, and further provides for a grant of options to purchase 100,000
shares of Common Stock at a price of $2.50 per share exercisable one third
per year for each year of the contract.
M. Kathy Vieth, former President of Coloray and a former Director of
the Company, entered into a two-year employment agreement commencing June
1, 1994. Under the agreement, Ms. Vieth received a base annual salary of
$125,000. In May 1995, Ms. Vieth resigned as a Director of the Company.
In September 1995, Ms. Vieth resigned her position as President of Coloray.
Her salary ceased in September 1995, and she received a $100,000 severance
package. Her resignation was permitted under her contract.
J. Vance Holloway entered into a three year contract with the Company
on June 1, 1993. Mr. Holloway received 125,000 options as his total
compensation from June 1, 1993 to March 1, 1994, at which time he began to
receive an annual base salary of $110,000 per year. His salary increased
to $135,000 per year effective September 16, 1995. Mr. Holloway is
entitled to receive annual options to purchase 5,000 shares of Common Stock
at a price of $4.00 per share; to date the Board of Directors has not
formally granted these options. Mr. Holloway received 5,000 shares of
Common Stock as additional compensation in 1994.
Dennis J. Leukart entered into a three year contract with Ampsco and
with the Company on January 1, 1995. He receives a base annual salary of
$117,000. He received 100,000 options at $2.50 per share on signing the
contract, and is to receive 10,000 options at fair market value annually.
Dennis Leukart resigned from this contract on April 4, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
These individuals served as members of the Compensation Committee of the
Board of Directors in calendar year 1995:
Mr. Bernard Eckstein (Chairman)
Mr. Lawrence Lieberman
Ms. M. Kathy Vieth
Mr. Lieberman was a consultant to the Company during 1994. The consulting
Memorandum of Understanding with Mr. Lieberman provided for compensation of
$5,000 per month and options to purchase 50,000 shares of Common Stock of the
Company for $2.25 per share (the market bid price at the time of grant was
$3.875 per share). The consulting arrangement has now been terminated.
Until September 1995, Ms. Vieth was President of Coloray Display
Corporation, a subsidiary of Scriptel. Prior to becoming President of
Coloray , Ms. Vieth was a consultant to the Company. In performing her
Compensation Committee duties, Ms. Vieth abstained in any decisions that
would affect her personally.
Both Mr. Lieberman and Ms. Vieth resigned from the Board and the
Compensation Committee in 1995.
In January 1996, Mr. Eckstein received options to purchase 100,000 shares
of Common Stock at an exercise price of $0.75 per share for consulting
services rendered to the Company in its 1995 year-end closing. The options
were approved by the Board of Directors, with Mr. Eckstein abstaining. In
May 1996, Mr. Eckstein became Chairman and Chief Executive Officer of the
Company. In June 1996, the Company committed to issue to Mr. Eckstein, as
part of his employment negotiations, options to purchase 500,000 shares of
Common Stock at an exercise price of $0.40 per share and which will expire
five years after issuance. Issuance of these options is contingent on the
availability of authorized shares. The value of the options (estimated at
$167,000 if issued now) will be expensed when they are issued. The Board
of Directors also set the compensation of Mr. Eckstein at an annual base
salary of $150,000 beginning on May 16, 1996. Mr. Eckstein abstained from
voting on all Board proposals relating to his compensation.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
The Compensation Committee has general authority to review the Company's
employee and management compensation practices, to monitor compliance, and to
recommend changes to those practices. The Compensation Committee also
administers the Company's 1993 Stock Option Plan. The Compensation Committee
has final review and approval of the terms and conditions of the Company's
Pay for Performance Plan. The Compensation Committee establishes objectives for
the Company's CEO and meets privately to evaluate his performance and
recommends changes to his compensation which are then brought to the full
board for approval. The Compensation Committee has no authority with
respect to the granting of options to directors eligible to receive stock
options under the 1993 Stock Option Plan. In general, the CEO establishes
compensation for all other senior executives with guidance from the
Compensation Committee.
Pay for Performance Plan
The Company's Pay for Performance Plan applies to all officers of the
Company, officers of its subsidiaries, and certain management positions as
designated by the presidents of the individual operations. The purpose of
the plan is to provide contingent benefits to employees to reflect their
contributions to the Company and to serve as an incentive to contribute to
future Company success. The Pay for Performance Plan balances financial
incentives with a combination of near term cash bonuses and long term stock
options.
Quantitative factors in the Pay for Performance Plan include revenue
and income measurements as compared to the company's business plan. Cash
bonuses are paid based on attainment of specified percentages of Pay for
Performance Plan revenues and income. The Pay for Performance Plan also
includes qualitative measurements based on evaluation of customer
satisfaction, timely and accurate forecasting and reporting, and other
facto rs. Stock options are used to compensate individuals for their
qualitative performance.
No bonuses or options were granted under the Pay for Performance Plan
in 1995.
Stock Options
A stock option permits the holder to buy shares of Company Common
Stock at a specific price during a specific time period. As the prices of
Company stock rises, the option increases in value. The Company has a
stock option plan permitting the Committee to award stock options to
executive officers, other key employees of the Company, and to consultants
who perform significant valuable services. The intent of such awards is to
provide the recipient with an incentive to perform at levels that will
result in better Company performance and enhanced stock values.
Whether or not an option grant is made and the size of any particular
grant depends on the committee's subjective evaluation of performance and
input from senior executives. In some cases, stock options are used to
attract and retain key employees of the Company or to compensate
consultants in lieu of cash for services rendered.
During 1995 several employees, including some of the named executive
officers, were granted stock options based on their individual employment
contracts.
Chief Executive Officer Compensation
Effective September 1995, Mr. France's annual base salary was
increased to $250,000. In providing this increase, the Compensation
Committee considered that, under Mr. France's leadership, the Company had
met several milestones in the past year. Among these were the evolution of
the WriteTouch chip through fabrication, the ongoing relationship with
Samsung, recruitment of key senior staff, and continued new financings
under challenging circumstances. The Compensation Committee also noted
that in light of Mr. France's extensive travel and time commitments in
support of the Company's activities, his new salary level still remains
below the industry average. The Compensation Committee believes the
factors serving as a basis for Mr. France's salary increase will continue
to have a positive impact on the Company.
The Compensation Committee recommended to the Board, and the Board
ratified a grant of 400,000 options at an exercise price of $1.74 per share
to Mr. France for meeting performance objectives. In a similar manner,
options to purchase 1,000,000 shares at $1.74 per share were granted to Mr.
France to compensate him for transferring some of his options to debt
holders in 1994 at no benefit to him.
Mr. France had two loans payable to the Company for shares purchased
in 1992. The Compensation Committee agreed in 1994 to cease his current
monthly payments on the notes, and to restructure the notes to require a
balloon payment of the principal and accrued interest on December 31, 1995.
This accelerated the repayment of the total amount of the notes, yet reduced
the near term cash requirements. The Compensation Committee believed this
would help Mr. France focus his energies on the Company's objectives. (In May
1996, Mr. France resigned all positions with the Company. As part of his
separation agreement, all notes and advances receivable were forgiven.)
Mr. France also received 40,000 shares of stock of Scriptel when two
milestones were met. The Compensation Committee feels that this will
reduce the overall cash cost of Mr. France's compensation with minimal
dilution of the other stockholders of Scriptel.
The Compensation Committee notes that Mr. France's overall
compensation was highly dependent on performance. The Compensation
Committee feels that achievement of the specified performance added
significantly to Scriptel's stockholder value.
By the Compensation Committee:
Bernard Eckstein (former Chairman of the Compensation Committee, and sole
member at the end of 1995 and until May 1996)
Performance Graph
The following performance graph compares the cumulative total return
(change of the bid stock price) of the Company's Common Stock for the five
year period from December 31, 1990 through December 31, 1995 with the S&P
Small Cap Index and the S&P Computer Systems Index. The graph assumes that
the value of the investment in the Company's Common Stock and each index
was $100 at December 31, 1990 and that all dividends, if any, were
reinvested. The comparisons are not intended to forecast or be indicative
of possible future performance of the Company's stock.
[Graph not submitted in electronic filing. Data points are shown below.]
December 31, 1990 1991 1992 1993 1994 1995
Scriptel 100.00 350.00 112.50 181.50 181.50 31.50
S&P SmallCap Index 100.00 145.87 174.23 204.88 192.93 248.10
S&P Computer Systems
Index 100.00 86.06 60.68 61.87 79.05 103.20
STOCK OWNERSHIP
As of July 26, 1996, the Company had 23,680,213 shares of Common Stock
issued and outstanding and an additional 26,319,787 shares reserved for
issuance upon the exercise of existing options and warrants and the
conversion of convertible promissory notes. The address of each person,
unless otherwise indicated, is c/o of the Company:
MANAGEMENT (at July 26, 1996):
Shares
Shares Owned Issuable Upon Total Percent of
Names (5) Exercise Of Shares Class (2)
Warrants &
Options (1)
James W. France, Jr. (3) 46,767 625,467 672,234 2.77%
Philip A. Schlosser, Ph.D. 115,556 0 115,556 *
Bernard Eckstein 46,326 0 46,326 *
J. Vance Holloway 36,500 0 36,500 *
M. Kathy Vieth (6) 0 200,000 200,000 *
Dennis Leukart (4) 66,840 5,000 71,840 *
C. Edward Palmer III 29,722 0 29,722 *
Frederick A. Niebauer 28,667 0 28,667 *
All Executive Officers and
Directors as a Group
(8 persons) 370,378 830,467 1,200,845 4.90%
* Less than 1%.
(1) Includes options and warrants exercisable within 60 days following July
26, 1996
(2) In calculating the percentage of ownership, in accordance with SEC
rules, the denominator includes number of shares outstanding plus shares
issuable to the individual or group whose percentage is being calculated.
The numerator also contains shares issuable to the individual or group
whose percentage is being calculated.
(3) Resigned May 15, 1996.
(4) Resigned April 4, 1996.
(5) Includes shares which will be issued as part of a grant to all
employees in June 1996. These include 15,556 shares for Mr. Schlosser,
33,333 shares for Mr. Eckstein, 30,000 shares for Mr. Holloway, 29,722,
shares for Mr. Palmer, and 26,667 shares for Mr. Niebauer.
(6) Resigned in September 1995.
SIGNIFICANT STOCKHOLDERS (at July 26, 1996):
Shares Shares
Issuable Issuable
Upon Upon Percent
Shares Exercise Of Exercise Total Of
Names & Addresses Owned Convertible Of Shares Class
Notes Warrants (4)
& Options
Walter T. Krumm
4951 Gulfshore Blvd.
Naples, FL 33940 1,017,622 310,113 1,020,000 2,347,735 9.38%
Gerald S. Jacobs (1)
6480 Busch Blvd.
Columbus, OH 43229 383,872 537,028 3,292,875 4,213,775 15.32%
Vittorio E. Cuniberti (2)
P.O. Box 1931
Lakeville, CT 06039 1,307,589 94,409 5,000 1,406,998 5.94%
CommTech International
Mgmt. Corp. (3)
545 Middlefield Road
Menlo Park, CA 94025 896,764 0 400,000 1,296,764 5.38%
Credit Suisse (Hong Kong)
2nd Floor
Alliance Building
130 Connaught Road Central
Hong Kong 1,235,712 0 0 1,235,712 5.21%
M & M Capital Management
P.O. Box 309
Georgetown
Grand Cayman, Cayman
Islands, BWI 1,385,281 2,222,223 0 3,607,504 13.92%
(1) Includes shares held by Standard Energy Company, of which Mr. Jacobs
is President and sole stockholder, and convertible debt held by Sonata
Investment Company, Ltd., an affiliate of Mr. Jacobs.
(2) Includes shares beneficially owned by his wife and various family
trusts.
(3) Includes 400,000 options held by CommTech International Management
Corp. the general partner of CommTech International, and 528,483 shares held
by CommTech Partners IV, of which CommTech International is the general
partner.
(4) In calculating the percentage of ownership, in accordance with SEC
rules, the denominator includes number of shares outstanding plus shares
issuable to the individual or group whose percentage is being calculated.
The numerator also contains shares issuable to the individual or group
whose percentage is being calculated.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
A former officer and director of the Company filed a suit against the
Company in January 1996 in U. S. District Court for the Southern District
of Ohio, entitled Nicholas G. Venetis vs. Scriptel Corporation and Scriptel
Holding, Inc. The individual alleged common fraud; securities fraud;
non-payment of payroll, severance, director bonus, and expenses; improper
handling of COBRA benefits and disclosures; and other matters. Mr. Venetis
and the Company settled this suit in June 1996, and the Company entered
into a consulting agreement with Mr. Venetis for an initial term of one
year. The settlement and consulting agreement with Mr. Venetis included
the following terms: The Company and Mr. Venetis each released the other,
with prejudice, from any claims or counterclaims in the lawsuit. The
Company will pay Mr. Venetis $60,000 either from the first funds raised for
the Company through Mr. Venetis's efforts, or in any case by October 31,
1996. The Company will pay Mr. Venetis a total of $50,000 under the
consulting agreement, at $5,000 per month for ten months beginning
September 1, 1996. Mr. Venetis will keep confidential any confidential
information he acquires during the course of his consulting with the
Company. Mr. Venetis will provide consulting services, as required, in
various areas of financing, marketing, and business development. The
Company will provide Mr. Venetis warrants to purchase 500,000 shares of
common stock at an exercise price of $0.55 per share, contingent upon
stockholder approval of an increase in authorized shares. The Company will
include such warrants on an S-8 registration statement no later than two
weeks after stockholder approval of an increase in authorized shares.
Three former officers of Coloray Display Corporation, a majority-owned
subsidiary of the Company, filed an action against Coloray and the Company
on February 23, 1996 in Alameda County Superior Court, Hayward, California,
entitled Michael W. Blas, M. Kathy Vieth, and Daniel J. Devine vs. Coloray
Display Corporation and Scriptel Holding, Inc., alleging non-payment of
amounts due them for payroll, severance, expense reports and other matters,
and seeking damages totaling approximately $680,000. These individuals
also sought a Temporary Protective Order prohibiting the transfer of the
assets of Coloray and the assets of the Company located in California.
Following a hearing on March 28, 1996, the California court denied the
plaintiffs' application for Writ of Attachment or Temporary Protective
Order. The Company intends to vigorously pursue this action, including the
possibility of an action by the Company against each of the individuals.
These individuals have also taken administrative action against Coloray
through the California Labor Board.
The Company entered into a private placement with M&M Capital
Management, a foreign investor, of $1,000,000 of convertible debentures in
March 1995. Net proceeds of $900,000 were received on April 5, 1995, after
payment of a finders fee and a consulting fee. Interest was 8%, payable at
maturity. The debentures would have matured in March 1998. The conversion
price floated. The March debentures were converted into 1,385,281 shares of
Common Stock in the third quarter of 1995. The Company has recorded a
finance charge of $429,000 on the conversion equal to the difference
between fair value of the shares issued and the conversion price at the
date of conversion. The March 1995 debenture issues were made in
accordance with the provisions of Regulation S of the Securities Act of
1933, as amended. The shares acquired on the conversion of the debentures
were exempted from registration under the provisions of Regulation S, and
were immediately tradeable.
In November 1995 the Company issued a demand, secured, convertible
promissory note to Sonata Investment Co., Ltd, an affiliate of Mr. Gerald
S. Jacobs ("Mr. Jacobs"), a major creditor and stockholder of the Company
in exchange for proceeds of $300,000. The note bears interest at 10% and
the rate increases to 18% if the Company defaults on the note. The note
and accrued interest are convertible into a maximum of 700,000 shares of
Common Stock at $0.50 per share. The market price of the Company's Common
Stock on the date of the note was $0.75 per share. In conjunction with
this loan, the Company granted a security interest in all its receivables,
inventories, equipment, patents and other assets, and an express pledge of
the patents of Coloray Display Corporation, a majority-owned subsidiary of
the Company. The Company recorded a finance charge of $131,000 in the
fourth quarter of 1995 on this note, equal to the difference between fair
value of the Common Stock on the date of the note and the conversion price
implicit in the note.
In November 1995 the Company entered into an agreement to issue
$1,000,000 of convertible debentures with M&M Capital Management, a foreign
investor, under the provisions of Regulation S promulgated by the
Securities and Exchange Commission. The debentures bear interest at 8% and
mature in 1998. The debentures are convertible into Common Stock at a
floating rate subject to a minimum conversion price of $0.30 per share
(equivalent to 3,333,334 shares) and a maximum conversion price of $0.45
per share (equivalent to 2,222,223 shares). The market price of the
Company's Common Stock on the date of issue of the debenture was $1.00 per
share. The Company recorded a finance charge of $1,222,000 in the fourth
quarter of 1995, equal to the difference between fair value of the Common
Stock on the date of the debenture and the maximum conversion price of the
debenture. Depending on the actual conversion price if and when the
debenture is converted, the Company may have to record an additional
finance charge. The Company paid $58,000 and issued 15,000 shares of
Common Stock (value approximately $15,000) to financial consultants (The
Trenwith Group - $50,000 cash; Bridgewater Capital Corporation - $8,000
cash plus 15,000 shares) as closing costs on this debenture transaction.
In addition, the Company expects to issue warrants to The Trenwith Group on
this transaction to purchase shares of Common Stock equal to 5% of the
shares issued if and when the debenture is converted. Such warrants would
expire in five years, the warrant price would be equal to 110% of the
conversion price, and the warrants would have demand registration rights.
In November 1994, Metrend, Ltd., a foreign investor, entered into two
stock subscription agreements to purchase a total of 3,000,000 shares of
Common Stock of the Company at a purchase price of $2.82 per share. Net
proceeds to the Company from the initial 1,235,712 shares sold in November
1994 were $2,250,000, which was net of all commissions and finders fees for
both subscription agreements. The remaining 1,764,288 shares were to be
sold in December. The foreign investor did not complete the purchase of
the remaining shares and the Company cancelled this subscription agreement
in 1995. The sale of shares to the foreign investor was made in accordance
with the provisions of Regulation S promulgated by the SEC. The shares
sold in November 1994 were transferred to Credit Suisse (Hong Kong) in 1995
and the restrictive legend was removed.
In July 1995 the Company issued 170,000 shares of Common Stock and
granted warrants to purchase an additional 1,500,000 shares of Common Stock
at $1.51 per share to Mr. Jacobs. These grants were made in recognition of
bridge loans made by this stockholder to the Company over the last several
years, voluntary transfers of options to investors during recent funding
activities, and return of short-swing profits incurred to help the Company
in its financing. The estimated value of the warrants, $750,000, and
shares, $298,000, was expensed in the third quarter of 1995 as interest
expense.
On July 27, 1995, the Board of Directors approved a sale effective
June 30, 1995 of all real estate owned by Ampsco Corporation, a
wholly-owned subsidiary of the Company ("Ampsco"). The purchaser was a
company owned by Mr. Jacobs. Mr. Jacobs also had a security interest in
the property. The purchase price of $350,000 was received in two
installments of $150,000 each, with the remaining $50,000 used by Mr.
Jacobs to pay off existing mortgages on the property and for legal costs of
the transaction. In addition, the Company granted Mr. Jacobs warrants to
purchase 700,000 shares of Common Stock at a price of $1.51 per share.
Management estimates the value of warrants at $350,000 (treated as a loss
on the sale of property). The book value of the land and buildings sold
was $626,000. The Company recorded a loss in the second quarter of 1995
including the loss on the land and buildings, the value of the warrants,
and the legal costs. Ampsco leased back the manufacturing facilities for a
one year period until June 30, 1996 in a triple net lease at a monthly
rental of $5,000.
In July 1995, the Board of Directors approved a recommendation by the
Compensation Committee to grant to Mr. James W. France, Jr. ("Mr. France"),
at the time the Company's Chairman, a combination of Common Stock and options
to purchase Common Stock, based on his achievement of goals in his employment
contract. Mr. France received 40,000 shares of Common Stock (value of
$78,000 treated as administrative expense) and options to purchase 400,000
shares of Common Stock at $1.74 per share, all per his contract. In
addition, he received options to purchase 1,000,000 shares of Common Stock
at $1.74 per share to replace the compensation incentive inherent in
options Mr. France transferred to noteholders and consultants in 1994 at no
benefit to him.
The Company issued 100,000 shares in January 1996 to Mr. Philip A.
Schlosser ("Mr. Schlosser"), a founder, director, and officer of the
Company as additional compensation for his service since the Company was
founded. The value of this stock, $75,000, was expensed in January 1996
when it was issued. In a related action, the Board of Directors authorized
cancellation of all the notes and advances receivable from Mr. Schlosser.
These receivables approximated $91,000, most of which had been fully
reserved at December 31, 1994. All remaining amounts were expensed in
December 1995.
The Company entered into two letter agreements between the Company,
Standard Energy Company, and Mr. Jacobs, which agreements are dated September
21, 1995 as amended February 29, 1996 (the "September Agreement"), and dated
February 29, 1996 (the "February Agreement"). The Company entered into a
further agreement between the same parties, dated March 29, 1996 (the "March
Agreement") which supersedes the September and February Agreements. The
March Agreement was ratified by the Company's Board of Directors on April
4, 1996. Standard Energy Company and Mr. Jacobs are both major creditors
and stockholders of the Company. Mr. Jacobs is the sole owner of Standard
Energy Company.
The Agreements, as amended in March 1996, compensate Mr. Jacobs as an
individual for his help personally or through companies he owns or is
affiliated with in providing debt financing to the Company over the last
several years, patience in not demanding repayment of those loans and
cooperation with other matters, and for relinquishing up to 1,000,000
currently owned options or warrants for cancellation so that the Company
could use those authorized shares in its current financings. The Company
will issue to Mr. Jacobs, or his nominee, warrants to purchase 3,600,000
shares of Common Stock at a price of $0.75 per share, and which will expire
six years after issuance. The Company will issue to Sonata Investment
Company, Ltd. (the holder of $151,000 of convertible notes issued in
November 1995 and an affiliate of Mr. Jacobs) warrants to purchase
2,400,000 shares of Common Stock at a price of $0.50 per share, and which
will expire six years after issuance. The warrants to Mr. Jacobs and
Sonata are contingent upon the Company having available authorized shares,
which authorized shares shall be obtained from the first-expiring options
or warrants or through approval by the Company's stockholders of additional
authorized shares at any time in sufficient amount to cover this
commitment, or both. The Company has agreed to use its best efforts to
obtain authorization of the requisite shares.
Mr. Jacobs has agreed to surrender up to a total of 1,000,000 options
or warrants he currently owns, if the Company needs additional authorized
shares to issue in its current financings. This is subject to the
requirement that the Company must reissue those options or warrants when,
as and if authorized shares are first available as set forth above. The
new warrants would be exercisable at a price of $0.75 per share and would
expire six years after issuance under these provisions. In March 1996, the
Company used 853,125 options of the 1,000,000 offered to provide part of
the authorized shares on new issuances under the provisions of Regulation S
(see below).
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and by Donna L. Sanger, a vice president of Standard
Energy Company, will be reissued with a new expiration date of October 1,
2001 and with a new price of $1.00 per share. At December 31, 1995, Mr.
Jacobs owned 2,190,000 warrants and 1,956,000 options at prices ranging
from $1.51 to $2.62 per share and which expire at various dates through
October 29, 2000. At December 31, 1995, Ms. Sanger owned 65,000 warrants
and 63,500 options at prices ranging from $1.51 to $2.50 per share and
which expire at various dates through July 12, 2000. Mr. Jacobs reported
the effects of the September Agreement in his Form 4 filed for the month of
September 1995. The options and warrants were repriced and reissued as of
February 29, 1996. The Company recorded the $392,000 estimated value of
these transactions as a finance charge in the first quarter of 1996.
Management estimates the value of the 3,600,000 warrants to be issued
to Mr. Jacobs as approximately $2,272,000 if issued now and assuming
current market prices; because of the uncertainties relating to the
requirement for available authorized shares, the actual value to be
recorded is not known, and will be recorded only when these contingencies
are resolved and the warrants are actually issued. Management estimates
the value of the 2,400,000 warrants to be issued to Sonata Investment
Company, Ltd. as approximately $1,545,000 if issued now and assuming
current market prices; because of the uncertainties relating to the
requirement for available authorized shares, the actual value to be
recorded is not known, and will be recorded only when these contingencies
are resolved and the warrants are actually issued.
In March and April 1996, the Company entered into several agreements
with foreign investors to purchase shares at $0.40 per share under the
provisions of Regulation S promulgated by the Securities and Exchange
Commission. A total of 2,357,000 shares were issued under these
agreements. The market price of the Company's Common Stock on the dates of
issuance was approximately $0.75 to $1.12. Cash proceeds were $943,000,
less a total of $130,000 paid as finders fees and expenses. The Company
was delayed in filing certain of its reports to the Securities and Exchange
Commission for the year ended December 31, 1995 and the quarter ended March
31, 1996. Because of this, the Company was forced to rescind certain of
these stock transactions, and the Company repurchased 302,500 shares from
the foreign investors at their then-current market price of $230,000. The
net proceeds after the rescission were used to fund payrolls, audit and
legal costs, and other operating expenses. In addition to the cash costs
of closing, the Company committed to issue warrants to purchase shares of
Common Stock equal to 5% of the shares issued, at a price of $0.48, and
which will expire five years after issuance. A total of 117,850 warrants
have been committed (the estimated value of $39,000 was expensed in the
second quarter of 1996 as a finance charge). Mr. Jacobs relinquished
853,125 of his options, (see above), Mr. Walter Krumm, another major
creditor and stockholder relinquished 800,000 of his options with an
exercise price of $1.69 to $1.70 per share and expiring in 1998, and Mr.
France relinquished 800,000 of his options with an exercise price of $1.74
per share and expiring in July 2000, so that the Company would have enough
authorized shares available to issue the new shares and warrants. As part
of the agreements with these individuals, the Company agreed to reissue the
surrendered instruments as warrants when, as and if Scriptel is first able
to do so, but in no event later than when Scriptel stockholders approve an
increase in the amount of authorized shares, at a price of $0.75 per share,
and with an expiration date of six years after the date of any reissue
under these provisions. Scriptel also committed to use its best efforts to
obtain stockholder approval to an increase in its authorized shares. Kevin
Woodbridge, a director at the time, also relinquished 500,000 options (see
below). If all of these are subsequently reissued, management estimates
the incremental value of the reissued options or warrants at approximately
$200,000, assuming current market prices; because of the uncertainties
relating to the requirement for available authorized shares, the actual
value to be recorded is not known, and will be recorded only when these
contingencies are resolved and the warrants are actually issued.
The Company issued 100,000 options in January 1996 to Bernard
Eckstein, a director, as compensation for his services in helping with year
end activities. The options are exercisable at a price of $0.75 per share
(the market price at the date of grant), and expire in January 2001. The
estimated value of $62,000 was charged to administrative expense in the
first quarter of 1996.
The Board of Directors approved in April 1996 a repricing and
reissuance of all the options owned by Kevin Woodbridge, a director at the
time. This is additional compensation for his continuing to operate under
a consulting contract with the Company without receiving his retainer fee
for eight months, relinquishing part of his retainer and part of his stock
options to obtain a release of a 1995 judgment against the Company on a
cognovit note, and relinquishing 500,000 currently owned options for
cancellation so that the Company could use those authorized shares in its
current financings. At December 31, 1995, Mr. Woodbridge owned 845,797
options with exercise prices ranging from $1.43 to $2.00 per share and with
expiration dates of 1996 to 2000. All of his options will be reissued with
a new expiration date of April 1, 2000 and with a new exercise price of
$0.50 per share. Mr. Woodbridge also has rights to immediate registration
of his options through an S-8 filing. If any of these options are
relinquished and cancelled, the Company has agreed to reissue them at such
time as the stockholders approve the authorization of additional shares.
Management estimates the value of the reissuance of currently existing
options with new pricing and expiration dates as approximately $161,000.
This was recorded in the second quarter of 1996.
In April 1996, the Board also extended relinquishment and reissue
privileges (reissue at an exercise price of $0.75 per share and expiring
six years after reissue) to employees and directors, and to CommTech
International Management Corp., a major stockholder and option holder.
Exercise prices on options owned by these holders generally range from
$2.00 to $3.00 per share.
In connection with a financial public relations agreement dated April
20, 1993, Mr. K. Woodbridge and Woodbridge & Associates ( collectively,
"Woodbridge"), an unaffiliated entity at that time , was paid $150,000 and
was granted three year options to purchase 1,500,000 shares of Common Stock
at a price of $1.69 per share ( the market bid price at the time of grant
was $3.50 for unrestricted shares). Under the agreement, as amended,
Woodbridge performs financial public relations services and refers the
Company to sources of investment capital. The grant of 750,000 of the
1,500,000 Woodbridge options was conditioned on the Company's stockholders
approving an increase in the Company's authorized shares at the 1994 Annual
Meeting. An additional 175,000 share options were granted to Woodbridge
under the Company's Stock Option Plan in December 1993, also conditioned on
the stockholders approving an increase in the Company's authorized shares
at the 1994 Annual Meeting. The agreement with Woodbridge was amended on
two occasions prior to December 31, 1994. Under such amendments,
Woodbridge has received an aggregate retainer of $130,000 through December
1995 and will continue to receive $5,000 per month until his contract is
renegotiated or terminated. Additionally, Woodbridge has received
reimbursement of documented travel and other expenditures of $82,000 in
1993 and $100,000 in 1994. In November 1994, the Company granted an
additional 300,000 options at an exercise price of $2.00 per share,
expiring in 1997, in accordance with the October 1994 amendment to the
consulting agreement with Woodbridge. At the date of grant, the bid price
of the underlying Common Stock on the over-the-counter market was $3.375
per share. The consulting agreement further provided for grants of 100,000
options on February 28, 1995 and 100,000 options on May 31, 1995, on the
same terms, provided that Woodbridge continued to provide services to the
Company on those dates. These options were granted on those dates.
Pursuant to the agreement, Woodbridge could appoint an individual to the
Company's Board of Directors. Mr. Woodbridge became a Director of the
Company in June 1995 and he resigned in 1996. All consulting agreements
with Woodbridge have now expired. Woodbridge cannot now name a member to
the Board. Mr. Woodbridge also received 80,000 options at an exercise
price of $1.43 per share in 1995.
On January 17, 1995, the Company issued demand cognovit promissory
notes in the combined principal amount of $200,000 to Mr. Krumm and Mr.
Jacobs for funds in that amount. Upon demand, interest of $20,000 was
payable. If the Company defaults in payment when demand is made, the notes
bear interest at 18% per annum. The Company repaid Mr. Krumm's note with
$10,000 interest in February 1995. The Company paid the $10,000 interest
and $22,500 of principal on Mr. Jacob's note in April 1995, and an
additional $20,000 of principal in May 1995, and the remaining $57,500 of
principal in November 1995.
On January 31, 1995 and March 2, 1995 the Company issued demand
cognovit promissory notes in the principal amount of $100,000 and $175,000,
respectively, to Standard Energy Company for funds in that amount. The
Company paid off these notes, with $10,000 and $25,000 interest,
respectively, in April 1995.
In February 1995, the Company paid $10,000 of principal and interest
on a demand note payable to Standard Energy Company.
Between May 10 and November 2, 1995 the Company borrowed $1,375,000
from Standard Energy Company under ten separate demand cognovit promissory
notes. Upon demand, total interest of $195,000 is due. One of the notes in
the amount of $70,000 dated May 15, 1995, together with interest of $10,000,
was paid off on May 19, 1995. One note in the amount of $150,000 dated
November 2, 1995, together with interest of $10,000, was paid off on
November 6, 1995.
On October 16, 1995 the Company borrowed $40,000 under a demand
cognovit note from a relative of Mr. Jacobs. A principal payment of $30,000
was made on October 20, 1995, and the remaining $10,000 of principal and
$10,000 of interest was paid on November 6, 1995.
In January through June 1995 Coloray sold certain equipment which was
not being used. Proceeds were $380,000, which approximated the net book
value of the assets sold. These assets were included as assets held for sale
at December 31, 1994 in the consolidated balance sheets. Half of the
proceeds, or a total of $190,000 were paid to Standard Energy Company against
notes (see above) to obtain release of liens on the assets.
On March 9, 1992 the Company loaned $90,000 to Mr. France which was
used by Mr. France to exercise options to purchase 60,000 shares of Common
Stock at $1.50 per share. The note is due on demand and bears interest at
the rate of 10%. On December 30, 1992, an additional $75,000 was loaned to
Mr. France. This was originally due on December 31, 1993, with interest at
10%. The proceeds of this loan were used by Mr. France to exercise options
to purchase 50,000 shares at $1.50 per share. As of December 31, 1995,
$71,000 in principal and interest was due on the March note and $81,000 was
due on the December note. In 1994, the Compensation Committee of the Board
of Directors changed the terms of the note to defer further payments of
interest and the principal balance on both notes until December 31, 1995.
In addition, the Company has made and expensed net advances to Mr. France
of approximately $91,000 through December 31, 1995 against a $100,000 bonus
included in his former employment contract. Although the Board declared
this bonus be paid to Mr. France in 1995, Mr. France refused to accept it.
In 1995, Coloray borrowed a total of $106,000 from certain of its
officers to cover payroll and other immediate needs. These notes were
payable on demand with interest at 12% to 20% of the principal. Coloray
repaid $72,000 of principal and $14,000 of interest in 1995.
From January 1996 through May 1996, the Company borrowed a total of
$672,000 in five separate transactions with Mr. Jacobs and Mr. Krumm,
creditors and stockholders of the Company. The loans are payable on demand,
and bear interest at stated amounts up to 41% of principal. The Company repaid
$141,000 to Mr. Jacobs through the end of June 1996. A $200,000 loan from
Mr. Krumm requires payment from first proceeds available from a large
financing transaction.
Ampsco has had continuing losses from operations since acquisition,
and at December 31, 1995 had an accumulated deficit in stockholders' equity
of approximately $2.2 million. To cut the ongoing losses and to focus the
Company on the computer peripheral segment, in April 1996 the Company sold
all of the Common Stock of Ampsco. No appraisal of Ampsco was made in
connection with this transaction. The buyer was 1896, Inc., a corporation
headed by Thomas J. Leukart, a director of the Company at the time of sale.
Dennis J. Leukart, president of Ampsco at the time of the sale is a brother
of Thomas Leukart and the father-in-law of Mr. France. As part of the
agreement of sale, both Thomas Leukart and Dennis Leukart resigned from
their positions with the Company and cancelled their employment agreements.
Thomas Leukart also resigned as Director of the Company.
The buyer of Ampsco issued a Promissory Note (the "Note") to the
Company in partial payment of the purchase price. The Note was for
$650,000, with interest at 5%. Interest was payable monthly, with the
entire principal balance due on April 1, 1999. Management believes that
collection of the Note is improbable. The Company sold this Note to Mr.
Jacobs, (who had a security interest in the Ampsco shares which were sold)
for a $100,000 reduction in notes payable to Mr. Jacobs.
The remaining payments of the purchase price were to be in the form of
monthly royalties at 2% of Ampsco's collected sales for a ten-year period.
These payments were subject to a maximum of $100,000 per year. (Ampsco's
sales in 1995 were $1,827,000, which would have resulted in a royalty
payment of approximately $37,000 had the agreement then been in effect.)
The buyer received from Mr. Jacobs an option until March 31, 1999 to
purchase for $375,000 the land and buildings Ampsco occupies, which is also
subject to full payment on the Note. If the Note were paid and the option
exercised, no further royalty payments would be required. The Company also
sold its rights to royalties to Mr. Jacobs as part of the $100,000
reduction of debt note above.
The Company is contractually obligated on Ampsco's notes payable to
Stimsonite Corporation ("Stimsonite"). Stimsonite has obtained a judgment
against the Company on this debt. Management estimates that it is
improbable that Ampsco could pay the creditor or repay Scriptel if Scriptel
is forced to pay the creditor. The Company has recorded a loss on disposal
of Ampsco of $450,000 to recognize the full contractual obligation to
Stimsonite. The Company is also negotiating with the creditor to settle
the debt for a reduced amount. As part of the agreement to sell the Common
Stock of Ampsco, the Company contributed its $2.2 million intercompany
receivable from Ampsco to the capital of Ampsco. This resulted in almost
complete liquidation of Ampsco's stockholders deficit, and the buyer
assumed the remaining $22,000 of net liabilities of Ampsco. The Company
recorded this assumption of net liabilities as a reduction of the loss on
disposal at December 31, 1995. The Company also recorded a loss of $20,000
at December 31, 1995 for the anticipated loss from operations of Ampsco
until the disposal date in April. The net result of these three items is
that the Company has recorded a net loss of $448,000 in 1995 on the
disposal of Ampsco.
In June 1996, Mr. Krumm loaned $30,000 to the Company under a demand
cognovit promissory note at 18% per annum interest. In consideration for
the loan, and for Mr. Krumm's forbearance in not demanding repayment of
other notes, the Company reduced the price of 1,020,000 warrants held by
Mr. Krumm from $1.69 per share to $0.40 per share, and extended the
expiration date of the warrants from 1997 to March 2001. The estimated
value of the repricing and extension, $340,000, was expensed as a finance
charge in the second quarter of 1996.
In June 1996, Sonata Investment Company loaned $45,000 to the Company
under a demand cognovit note. On demand, $10,000 of interest will also be
due. In consideration for the loan, and for Sonata's forbearance in not
demanding repayment of another note, the Company agreed to issue to Sonata
warrants to purchase 500,000 shares of Common Stock at $0.50 per share and
which would expire six years after issuance. Such warrants are contingent
upon having available authorized shares from the Company's first-expiring
unexercised options or warrants, or from approval by the Company's
stockholders of an increase in authorized shares. If issued now, and
assuming current market prices, management estimates the value of the
warrants at $216,000: because of the uncertainties relating to the
requirement for available authorized shares, the actual value to be
recorded is not known, and will be recorded only when these contingencies
are resolved and the warrants are actually issued.
In May 1996, Mr. France retired and resigned his positions as an
officer and director of the Company. Mr. France received a severance
package of: continuation of his salary through September 1996, cancellation
of all old options (a total of 1,425,467 options, including the 800,000 he
relinquished as outlined above) held by Mr. France and issuance of new
options to purchase 1,500,000 shares of Common Stock at $0.68 per share and
which expire in May 1999, severance pay of $150,000, and cancellation of
all of the Company's notes receivable (approximately $150,000) and advances
receivable (approximately $100,000) from Mr. France. The Company has
engaged Mr. France to act as a consultant in arranging financings for the
Company. If these efforts are successful, Mr. France will receive in cash
9% of the amount raised (which will first be used to pay the severance
costs outlined above) plus an additional $150,000 if more than $5 million
is raised by year end. Bernard Eckstein, a director of the Company since
1992, has been appointed as the Company's Chairman and Chief Executive
Officer. J. Vance Holloway, President and Chief Operating Officer of
Scriptel Corporation, has been appointed as President and Chief Operating
Officer of Scriptel Holding, Inc.
The Company did not have the funds to pay its employees in April, May
and June 1996. To recognize the sacrifices made by the employees during
this period, and to partially compensate them for their continued
dedication and service, in June 1996 the Company reduced the exercise price
to $0.40 per share on 1,805,700 options and 255,337 warrants owned by the
employees. Expiration dates were not changed. Formerly, such options and
warrants carried exercise prices ranging from $0.75 per share to $4.00 per
share. In addition, the Company issued a total of 122,000 options at $0.40
per share to employees. The estimated value of the repricing ($228,000)
and issuance ($33,000) was expensed in the second quarter of 1996.
The Company also agreed to issue a one time stock grant to employees
of Scriptel at June 1, 1996 equal in value to twice each employee's monthly
salary, and valued at $0.75 per share. This grant approximates 244,000
shares. The Company will also pay the employees' taxes on the stock grant,
subject to the availability of cash. A charge of $311,000 has been
recorded in the first quarter of 1996 as the value of the grant plus taxes.
As of May 21, 1996, the Company agreed to amend all amounts owed to
Mr. Jacobs or his affiliates to bear interest at 18% per annum from that
date. This affected loans totaling approximately $3,000,000. The loans had
previously accrued interest at stated amounts or at per annum rates of 10% to
12%.
In June 1996, the Company committed to issue to Mr. Bernard Eckstein,
the Company's Chairman and Chief Executive Officer, as part of his
employment negotiations, options to purchase 500,000 shares of Common Stock
at an exercise price of $0.40 per share and which will expire five years
after issuance. Issuance of these options is contingent on the
availability of authorized shares. The value of the options (estimated at
$167,000 if issued now) will be expensed when they are issued. The Board
of Directors also set the compensation of Mr. Eckstein at an annual base
salary of $150,000 beginning on May 16, 1996.
In July 1996, the Company entered into several agreements with its
officers, eight employees, and two consultants. Under these agreements,
the individuals agreed to let the Company use in its current financings the
authorized shares represented by a total of 2,616,147 options and warrants
held by these individuals. All of such released authorized shares were
used. Further, the individuals have agreed not to exercise their options
and warrants until such time as authorized shares become available (e.g.,
from an increase in authorized shares approved by stockholders). The
Company also agreed to issue an additional option to each individual for
each of the 2,616,147 authorized shares used, as soon as authorized shares
become available. The additional options will have an exercise price of
$0.40 per share and will expire five years after their issuance. The
estimated value of $882,000 for the release, subsequent use, and subsequent
issuance of additional options will be expensed when the authorized shares
become available and the new options are issued.
In May 1996, certain of the Company's officers agreed to defer that
part of their annual compensation which exceeded $85,000 until such time as
the Company's cash situation improved. As part of the agreements with
these individuals (including Bernard Eckstein, J. Vance Holloway, Edward
Palmer and Frederick A. Niebauer), the Company agreed to pay interest at
10% per annum on the amounts deferred, and agreed to issue an option to
purchase one share of Common Stock at an exercise price of $0.40 per share
and with an expiration date of five years after issuance (which options are
subject to availability of authorized shares) for each dollar of salary
deferred. These would total 195,000 options if such deferral continued for
a year, and similar amounts annually thereafter.
In May 1996 the Company engaged Everest Securities, Inc. of Minneapolis,
Minnesota in an exclusive investment banking relationship. Everest will
advise and consult with the Company, and will use its best efforts to obtain
commitments for financings using debt, convertible debt or stock. As part
of the agreement, the Company sold to Everest for a nominal amount a
warrant to purchase 350,000 shares of common stock at a price of $0.60 per
share. The Company also granted Everest an additional warrant to purchase
350,000 shares of common stock at $0.60 per share for services under a
prior consulting agreement. Both warrants expire in December 1999. The
estimated value of these warrants, $132,000, was expensed as a finance
charge in the second quarter.
The agreement also contains the following provisions. The minimum
term is one year, cancelable by either party with ninety days written notice.
Upon completion of at least $1,000,000 in funding in any form, the Company
will pay $20,000 monthly to Everest for the term of the agreement. Everest
will have the right to appoint two (2) directors to the Board of Directors
for a minimum period of three years. Everest will get cash placement fees on
any financing the Company receives; such fees range from 2% on any financing
which Everest does not manage, to 13% on equity funds raised by Everest. In
addition, Everest will receive warrants for 10% of any shares tendered on the
financings. Generally, such fees are payable on any financings from a source
introduced to the Company by Everest, during the term of the agreement and for
60 months thereafter.
In July 1996, three months after the sale of Ampsco and the closure of
Coloray, a total of 1,314,000 options issued to employees of Ampsco and
Coloray under the provisions of the 1993 Stock Option Plan expired. In
July, the Company also entered into agreements with Mr. Jacobs, Mr. Krumm,
Mr. France, and several officers to the effect that, despite prior
agreements, the Company could use in its current financings up to 850,000
of the authorized shares freed up by the expiration of these options. The
remaining 464,000 options will be issued to Mr. Jacobs under his March 29,
1996 agreement, The $20,000 net value of the expiration and reissuance of
these options was expensed in the second quarter.
The Company's Board of Directors will continue its policy of authorizing
or approving transactions in which any director, officer or other affiliate
has an interest only if the terms thereof are believed by the Board of
Directors to be no more favorable with respect to the interest of any such
affiliate than could be obtained from unaffiliated third persons.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by the Securities & Exchange Commission rules under
section 16 of the Securities Exchange Act of 1934, the Company notes that
the following directors, executive officers and beneficial owners of more
than ten percent of the Company's Common Stock filed untimely reports with
respect to events in 1995 and prior thereto: Kevin Woodbridge did not file
two reports with eight transactions; James W. France, Jr. did not file
three reports with three transactions; J. Vance Holloway did not file one
report with one transaction; Edward Palmer did not file one report with two
transactions; M. Kathy Vieth did not file one report with one transaction;
Dennis Leukart did not file one report with one transaction.
FINANCIAL AND OTHER INFORMATION
A copy of the Company's annual reports on Form 10-K/A for the fiscal
year ended December 31, 1995, including financial statements and the
financial statement schedules thereto, and the Company's quarterly report
on Form 10-Q/A for the period ended June 30, 1996, will be furnished
without charge to each stockholder who requests one upon written or oral
request from the Secretary of Scriptel Holding, Inc., 4153 Arlingate Plaza,
Columbus, Ohio 43228, phone (614) 276-8402. The Company's Annual Report to
Stockholders is attached to this proxy statement.
STOCKHOLDER PROPOSALS
To be considered for inclusion in next year s proxy materials,
stockholder proposals to be presented at Company s 1997 Annual Meeting
(expected to be in May 1997) must be in writing and be received by the
Company no later than November 30, 1996.
OTHER BUSINESS
The Board of Directors does not know of any business to be brought
before the Annual Meeting other than the matters described in the Notice of
Annual Meeting. However, if any other matters are properly presented for
action, it is the intention of each person named in the accompanying proxy
to vote said proxy in accordance with his judgement on such matters.
By Order of the Board of Directors
Philip A. Schlosser, Secretary
August 24, 1996
<PAGE>
APPENDIX A
PROPOSED AMENDMENT TO ARTICLE 4 OF THE CERTIFICATE OF
INCORPORATION OF SCRIPTEL HOLDING, INC.
ARTICLE 4.
A. Authorized Capital Stock. The Corporation shall be authorized to
issue an aggregate number of 140,000,000 shares of capital stock, of which
125,000,000 shares shall be designated shares of "Common Stock" having a
par value of $0.10 each and 15,000,000 shares shall be designated shares of
"Preferred Stock" having a par value of $0.10 each.
B. Rights of Classes of Common Stock. Each share of Common Stock
shall be equal in all respects, including, without limitation, with respect to
rights to dividends, distributions and liquidation proceeds.
C. Rights of Common Stock Upon Liquidation. In the event of a
liquidation, dissolution or winding up of the Corporation, whether voluntarily
or involuntarily (a "Liquidation"), and immediately after the holders of
Preferred Stock shall have been paid in full their liquidation, dividend
and other distribution preferences, if any, the holders of shares of Common
Stock shall be entitled to receive the net assets of the Corporation
remaining, if any, which shall be distributed to the holders of Common
Stock in proportion to their respective ownership of shares of Common
Stock. The Corporation's consolidation or merger with any other entity or
group of entities, or the Corporation's sale or transfer of all or
substantially all of the Corporation's assets, shall not be deemed a
Liquidation within the meaning of the provisions of this Article 4.
D. Preferred Stock. The Corporation's Board of Directors is
authorized, from time to time, to issue the shares of Preferred Stock in
one or more series, and in connection with the creation of each such
series, the Corporation's Board of Directors is authorized to fix by
resolution or resolutions providing for the issuance of such shares thereof
(i) the division of any class of Preferred Stock into series, and the
designation and authorized number of shares of each such series; (ii) the
dividend or distribution rate, if any, for each such series; (iii) the
dates of payment of dividends or distribution, if any, and the date from
which they are cumulative, if at all, for each such series; (iv) redemption
rights and a redemption price for each such series; (v) a liquidation price
for each such series; (vi) sinking fund requirements for each such series;
(vii) conversion rights for each such series; and (viii) restrictions on
the issuance of each such series to the full extent now or hereafter
permitted by the laws of the State of Delaware, subject only to the
limitations provided herein.
<PAGE>
Scriptel Holding, Inc.
4153 Arlingate Plaza
Columbus, Ohio 43228
PROXY
This Proxy is solicited on behalf of the Board of Directors of
Scriptel Holding, Inc.
The undersigned hereby appoints J. Vance Holloway, Philip A. Schlosser
and Frederick A. Niebauer as Proxies, each with the power to appoint his or
her own substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of Common Stock of SCRIPTEL HOLDING, INC.
held of record by the undersigned on July 26, 1996, at the Annual Meeting of
Stockholders to be held on September 24, 1996 or any adjournment thereof.
Instruction: Please indicate your vote in the spaces below by an X .
WITHHOLD
FOR AUTHORITY
nominees to vote for nominees
listed below listed below
1. Election of Directors:
For Terms expiring in 1998:
Bernard Eckstein _______ _______
For Terms expiring in 1999:
Philip A. Schlosser, Ph.D. _______ ________
FOR AGAINST ABSTAIN
2.Proposal to amend the Certificate of Incorporation
to increase the authorized shares of Common Stock
from 50,000,000 shares to 125,000,000 shares,
$0.10 par value. ______ ______ _______
3. Proposal to amend the Certificate of Incorporation
to authorize a class of 15,000,000 shares of undesignated
Preferred Stock. ______ ______ _______
4. Proposal to amend the 1993 Stock Option Plan to
increase the amount of shares of Common Stock which
may be issued thereunder from 5,000,000 shares to
7,500,000 shares. ______ ______ _______
5. Proposal to appoint Norman, Jones, Enlow & Co.
as the Company's independent public accountants
for the fiscal year ending December 31, 1996. ______ _______ _______
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy
will be voted for all directors as nominated and for proposals 2, 3, 4 and 5.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign a partnership name by
authorized person.
Dated:__________________ _________________________________________
Signature
_________________________________________
Signature if held jointly
PLEASE MARK YOUR VOTE, SIGN AND DATE THE PROXY CARD, AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
NAME OF STOCKHOLDERS
COMPANY if applicable
ADDRESS
CITY STATE ZIP
<PAGE>
SCRIPTEL HOLDING, INC.
ANNUAL REPORT TO STOCKHOLDERS
YEAR ENDED DECEMBER 31, 1995
<PAGE>
Business
Scriptel Holding, Inc. (the" Company") is a Delaware corporation with
its principal corporateoffices in Columbus, Ohio. The Company had three
wholly-owned subsidiaries at December 31, 1995, Scriptel Corporation
("Scriptel"), Scriptel Communications Corporation ("Scriptcom"), and Ampsco
Corporation ("Ampsco"), and owned the majority of the capital stock of
Coloray Display Corporation ("Coloray"). Financial information about
industry segments is included in Note 11 to the accompanying consolidated
financial statements for the year ended December 31, 1995. In March 1996,
the Company made a decision to close Coloray. The Company sold Ampsco on
April 4, 1996 to a related party. See Notes 16 and 18 to the accompanying
consolidated financial statements for the year ended December 31, 1995 for
further details on the closure of Coloray and the sale of Ampsco. In the
future, the Company will focus on Scriptel (pen computer applications) and
Scriptcom (communications applications).
Scriptel
Scriptel was founded in 1982 to manufacture and market high-performance
digitizers for computer-aided design, business graphics and personal computer
applications. Digitizers, also known as "graphics tablets," are electronic
drawing boards which, in addition to being versatile data input devices,
are also used to create artwork and drawings on a computer with the aid of
graphics software and hardware.
The function of a digitizer is to sense the location of a stylus tip on
a writing surface and to transmit the coordinate data to a computer. In
pen-based computers, the digitizer is located on a flat panel display.
When the user writes on the surface the coordinate data from the digitizer
is used to activate, or "turn on," dots on the display located directly
under the stylus tip as it is moved, leaving a visible trace on the display
and thus producing an "electronic ink" effect. The application of
digitizers in pen computers is a recent development compared to the
traditional use of digitizers in computer-aided design ("CAD") and computer
graphics applications. Indeed, one of the purposes of pen computers is use as
an electronic equivalent to pencil and paper.
Pen-based computers are complete systems which generally include
memory, input-output ports, a flat panel display, and a pen capable of writing
electronically on the display screen. The above components are typically
enclosed in a lightweight, notebook size package designed for portable uses.
The pen computer components which Scriptel manufactures and sells to its OEM
customers are the stylus, the transparent digitizer panel, and an
electronic circuit which controls the digitizer functions. The stylus,
digitizer panel, and circuit, taken together, form the pen-input component
system, or pen-input hardware, of a pen computer.
The Company has historically financed the funding of research and
development, and anticipates that continued funding of research and development
will be financed by internal cash flow sources such as additional offerings or
private placements of securities, and cash flow from operations. Scriptel
intends to continue its research and development activities for further
application of its present digitizer technology in new products and the
development of new digitizers based on other technologies.
Ampsco
Ampsco was sold on April 4, 1996. It has been treated as a
discontinued operation in the accompanying financial statements. See note
18 to the accompanying consolidated financial statements for the year ended
December 31, 1995.
Ampsco, founded in 1960, is an Ohio corporation engaged in the machine
industrial segment. The facilities provide the normal complement of
machine tools and Ampsco is also well known for its large piece capacities
on its large lathes and mills
Coloray
From acquisition until 1996, Coloray was engaged in the development of
a new generation flat-panel display product commonly referred to as an FED.
Potential markets for FEDs include: small displays used in personal
communication devices, video-phones, and avionics; medium sized displays
used primarily in portable computers; and large displays used in desk-top
computers and high-definition television ("HDTV"). Coloray has focused on
the small and medium sized markets.
Liquidation of Coloray
All current research and development is being financed by the Company.
In 1996, the Company determined that it could no longer continue to fund
Coloray's research and development efforts. In March 1996 the Company
announced plans to close Coloray and liquidate its investment. Funds, if any,
received from the consortium (see above) may be used to pay down
liabilities of Coloray or the Company, but management does not expect these
funds, if received, to be sufficient to fund all of Coloray's reported
liabilities. See note 16 to the accompanying consolidated financial
statements for the year ended December 31, 1995.
Market for the Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is not traded in any established trading
market. The prices set forth in the table below represent "bid" prices
without adjustments for retail markups, markdowns or commissions, and may
not necessarily represent actual transactions, based on "pink sheet"
quotations reported in the Columbus, Ohio newspaper of general circulation.
1996 High Low
First Quarter $1.375 $0.500
Second Quarter 1.188 0.438
1995
First Quarter 3.688 1.406
Second Quarter 2.375 1.500
Third Quarter 2.000 0.625
Fourth Quarter 1.125 0.438
1994 High Low
First Quarter 4.500 3.000
Second Quarter 3.563 2.750
Third Quarter 3.375 2.500
Fourth Quarter 5.875 2.939
As of December 31, 1995, the Company had approximately 1,600
stockholders of record. The Company has not paid, nor does it have present
plans to pay, cash dividends on its Common Stock. The Board of Directors
intends to retain all earnings, if any , for use in the business.
Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The officers and directors of the Company at December 31, 1995 were as
follows:
Name
Age
Position with the Company
James W. France, Jr.
48
Director, and Chairman, President and Chief Executive Officer
Philip A. Schlosser, Ph.D.
53
Director, and Executive Vice President-Research and Development, and
Secretary
Edward Palmer
53
Vice President and Chief Information Officer
Frederick A. Niebauer
46
Treasurer
J. Vance Holloway
58
Director, and President and Chief Operating Officer of Scriptel Corporation
Dennis Leukart
55
President of Ampsco Corporation
Thomas J. Leukart
49
Director, and Vice President of the Company
Bernard Eckstein
58
Director
Kevin Woodbridge
34
Director
The following sets forth information concerning the principal
occupations of each of the officers and directors of the Company for the
last five years:
James W. France, Jr. has been President, Chief Executive Officer and
Director of the Company since 1987. Mr. France became Chairman of the
Board of Director's in December 1993 following the retirement of the former
Chairman.
Philip A. Schlosser, Ph.D. is Executive Vice President - Research and
Development and Secretary of the Company. Dr. Schlosser is one of Scriptel's
founders and has been a Director of the Company since its inception in 1982.
He is the inventor or co-inventor of twenty-one U.S. and foreign patented
technologies, including some issued to the Company on its digitizer
products.
Edward Palmer has been a Vice President and Chief Information Officer
of the Company since January 1994. Prior to joining the Company, Mr.
Palmer was Director of Marketing for the U.S. Group of AT&T Global
Information Systems (Formerly NCR Corp.) for more than five years.
Frederick A. Niebauer was appointed Treasurer of the Company on
October 27, 1994. From September 1993 to the time he joined the Company in
September 1994, Mr. Niebauer was a self-employed financial consultant.
From April 1987 until September 1993, Mr. Niebauer served as a Director of
Financial Reporting for Ranco Incorporated, a large, privately-owned,
international manufacturer.
J. Vance Holloway has been President and Chief Operating Officer of
Scriptel since May 1993 and a Director of the Company since May 1994.
Prior to joining the Company, Mr. Holloway was employed for more than five
years by NCR Corporation holding his most recent position as Consulting
Director, Strategic Planning of Workstation Products Division.
Dennis Leukart has been President of Ampsco since September 1994, and
was previously Vice President of Sales and Vice President of the Machine
Division of Ampsco for more than five years. He is the brother of Thomas
J. Leukart, a Director and Vice President of the Company, and the
father-in-law of James W. France, Jr., Chairman, President and Chief
Executive Officer of the Company. Dennis Leukart resigned his employment
contract with the Company on April 4, 1996.
Thomas J. Leukart has been a Director since May 1989. He has been a
Vice President of the Company since September 1994 and was previously
President of Ampsco for more than five years. On April 4, 1996, Thomas
Leukart resigned from the Board of Directors and also resigned from his
employment agreement with the Company.
Bernard Eckstein has been a Director since January 1992. Since
October 1995, Mr. Eckstein has been a self employed financial consultant.
Prior to that he was treasurer for more than five years of Qualstan
Corporation.
Kevin Woodbridge, age 34, has been a Director of the Company since
June 1995. He operates Woodbridge & Associates, a financial public
relations firm located in Newport Beach, California. Mr. Woodbridge has
been providing financial public relations services to the Company since
1993 and, under his contract, has the right to appoint a Director of the
Company. Prior to forming Woodbridge & Associates, Mr. Woodbridge was
Senior Vice President, Investment Banking for Cruttenden & Company in
Newport Beach, California.
<PAGE>
SELECTED FINANCIAL DATA
Scriptel Holding, Inc. and Subsidiaries
Year Ended December 31,
(Dollars in thousands
except per share data) 1995 1994 1993 1992 1991
Total Revenues $431 $383 $950 $552 $432
(Loss) from continuing
operations (14,194) (16,225) (2,588) (3,639) (2,361)
(Loss) from discontinued
operations (955) (705) (856) (279) --
(Loss) before
extraordinary item (15,149) (16,930) (3,444) (3,918) (2,361)
Extraordinary item-debt
conversion -- -- -- (222) --
Net (loss) (15,149) (16,930) (3,444) (4,140) (2,361)
Loss per share of common
stock:
(Loss) from continuing
operations (0.81) (1.27) (0.32) (0.58) (1.54)
(Loss) from discontinued
operations (0.05) (0.05) (0.10) (0.05) --
(Loss) before
extraordinary item (0.86) (1.32) (0.42) (0.63) (1.54)
Extraordinary item -- -- -- (0.03) --
Net (loss) per share (0.86) (1.32) (0.42) (0.66) (1.54)
Long term debt 1,000 44 665 360 1,260
No dividends were paid in any year. Ampsco was acquired on September
30, 1992 and disposed of on April 4, 1996; Coloray was acquired on April 11,
1994. Results of operations of Ampsco are included as discontinued operations
in the consolidated selected financial data. Results of operations of Coloray
are included in the consolidated selected financial data from date of
acquisition.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has been in the research, development, and ultimately the
licensing business of pen-based computing products for over ten years,
through its wholly owned subsidiary, Scriptel. However, the marketplace
has only recently begun focusing on and identifying broad based
applications for pen-based computers, an area in which the Company views
its proprietary technology as critical and in which management considers
Scriptel primarily an early stage company. As the market continues to
develop and pen-based applications become more common, Scriptel's focus is
expected to shift from one principally based on the development of
pen-based computer components to commercialization of these products.
Based on current marketing forecasts of original equipment manufacturers
("OEM") and licensee shipments and, in part, upon the growth forecasted by
industry experts for the pen-based computer markets, management believes
Scriptel will experience revenue growth associated with its pen-based
operating activities commencing in late 1996. Due to the anticipated cost
associated with the completion of the research and development of the
Company's products, management cannot predict when the Company will achieve
profitable operations on a consolidated basis.
Management believes that Scriptel's electrostatic system is the most
viable technology currently available for electronic ink applications. All
the other known technologies have either functionality or cost penalties
that render them non-competitive versus Scriptel's patented electrostatic
coupling technology. There are some approaches that could result in a next
generation system, but they are in the early stages of research and
development. Scriptel is aware of these and is currently spending research
and development money to develop a next generation replacement for its
current technology. It is estimated that the current electrostatic system
will be highly competitive for the next four to five years.
There are two main sources of the Company's revenue; (i) royalty
income from licensees of the Company's patented technologies, and, (ii)
sale of the Company's products directly to OEM's or through resellers to
end users. As the pen-based computer market experiences its anticipated
growth, it is anticipated that revenues from royalties and direct sales to
OEM's will be the principal source of total revenue of the Company.
Additionally, Scriptel anticipates its development of proprietary products
for the mobile communications markets will generate some future revenues.
Scriptel's ability to meet its revenue projections and be a major
player in the pen-based computer market will depend on the success of the
cordless digital pen development effort. This system, currently being
jointly developed by Scriptel and Symbios Logic has incurred technical
delays. At this time, the problems that caused the delays appear to be
solved. The integrated circuit that is the heart of the system has been
fabricated and is currently being tested. The Company must continue to
expend significant resources to bring this technology to market to produce
revenues. Although further delays are not expected and anticipated
resources are expected to be available to bring the technology to market,
no assurance can be given.
On April 11, 1994 the Company completed its previously announced
acquisition of a majority of the outstanding shares of Coloray, a company
engaged principally in researching and developing flat-panel field emission
displays (FEDs) for use in conjunction with computers and other
sophisticated electronic applications. The acquisition is outlined in Note
15 to the consolidated financial statements. Although management believes
expanded growth of Coloray is desirable, it believes that the Company
cannot continue to fund research and development for Coloray, and overall
returns to stockholders will be higher by concentrating its limited
financial resources on the pen computer market. This is one of the reasons
that in March 1996, the Company decided to close down its Coloray
operation. This is more fully described in Note 16 in the accompanying
consolidated financial statements.
During 1995 and 1996, management reevaluated the cost structure of
Ampsco. Certain aspects of Ampsco's business activities require significant
capital, labor and management commitment to compete effectively. In 1994, the
Company decided that it would no longer supply the capital needed for Ampsco's
highway contracting division. This division was sold in April 1994. Ampsco
requires some major repairs and maintenance to its roof and equipment, and has
a need for additional equipment in order to remain competitive and become
profitable. In late 1995, the Company determined that it could not fund the
required repairs and capital improvements. Because of this, and to cut the
ongoing losses of Ampsco, the Company sold the remaining machining division of
Ampsco on April 4, 1996. See Note 18. Ampsco has been reported as a
discontinued operation in the accompanying financial statements.
Results of Operations for the three years ended December 31, 1995
The consolidated statements of operations for the Company and its
subsidiaries include the results of operations for Coloray since date of
acquisition in April 1994.
1995 1994 1993
Sales $ 230,000 $ 205,000 $ 378,000
Licensing and
development fees 201,000 178,000 572,000
Total revenues $ 431,000 $ 383,000 $ 950,000
Percent change from
the prior year 12.5% (59.7%) 72.1%
The Company operates as a single business segment, providing
computer peripheral equipment to OEMs. Revenues have trended slightly downward
in this segment, except for 1993 where the Company had $500,000 of licensing
revenues. The decline in revenues in this segment was primarily a result
of de-emphasizing Scriptel's peripheral digitizer product in preparation
for new products for the pen-based computer market. Management expects
computer peripheral revenues to remain at relatively low levels until the
fourth quarter of 1996 or first quarter of 1997 when shipments to large OEM
customers are expected to increase. The $500,000 of licensing fee revenues
in 1993 resulted from the expiration of license conversion rights relating
to an OEM customer of Scriptel. Development fees in 1994 and 1995 stemmed
from partial funding of Coloray development efforts by outside companies.
1995 1994 1993
Cost of Sales $360,000 $615,000 $581,000
Percent change
from the prior year (41.5%) 5.9% (31.3%)
Since Scriptel's activities have been principally oriented to research
and development, deficit gross margins are generated due to the unabsorbed
burden caused by the minimal level of manufacturing volume and the direct
costs of excess capacity. In addition, Scriptel recorded charges for scrap
and obsolete inventories in 1993, 1994 and 1995 as a result of
de-emphasizing its former digitizer products.
1995 1994 1993
General and administrative expenses $3,708,000 $6,809,000 $1,627,000
Sales and marketing expenses 258,000 320,000 548,000
Research and development expenses 5,117,000 7,368,000 609,000
General and administrative expenses decreased slightly in 1993. In
1994, general and administrative expenses increased substantially. This
increase was due principally to addition to the Company's management, increased
use of outside consultants, and the inclusion of the general and administrative
expenses of Coloray for the period since acquisition. During late 1993 and
early 1994, the Company substantially broadened its executive and
supporting staffs to meet the increased management demands related to the
anticipated acquisition of Coloray and the anticipated emergence of the
pen-based computing market place. During this period, the Company added
several senior officers and supporting staffs. The Company also increased
its use of outside consultants in this period to hire the staff, evaluate
the Company's products and its competitors' products, and to perform
financial public relations services. Certain members of management and
certain outside consultants received compensatory stock options to attract
them to the Company or to pay for their services. The fair value of the stock
options at the date of issuance, $180,000 in 1995 and $2,001,000, in 1994
was expensed when all restrictions had lapsed. The Company lowered its
general and administrative expenses in 1995 by reducing staff at Coloray
and Scriptel, and reducing use of consultants.
Sales and marketing expenses have been reduced in 1993, 1994 and 1995.
Research and development expenses have increased significantly since
1992. The Company expanded its development efforts in pen-based computer
technologies and, in 1994 with the Coloray acquisition, entered FED
research. Management anticipates that such costs will continue for
Scriptel. Research and development expenses also include unfunded costs of
research agreements with Xetron (by Scriptel) and SRI (by Coloray), and
Cooperative Research and Development Agreements (by Coloray) (See Note 14).
Cash payments on research and development will increase, as the Company
funds these research agreement obligations. Approximately $3,357,000 of
the costs associated with the acquisition of Coloray in 1994 related to
purchased research and development projects in progress which were charged
to expense at the date of acquisition. In 1995, the Company expensed
$425,000 of fair value of stock options issued to research and development
consultants.
1995 1994 1993
Other Expenses $5,182,000 $1,418,000 $173,000
Other expenses include interest expense of $1,967,000, $1,261,000, and
$197,000 in 1995, 1994, and 1993, respectively. Other expense also
includes finance costs of $2,958,000 in 1995 and $636,000 in 1994.
Interest expense increased due to higher levels of debt financing and, in
1995 and 1994, included $720,000 and $880,000, respectively, related to the
value of options transferred to noteholders as an inducement for them to
loan funds to the Company or as additional interest compensation. Finance
expenses in 1994 related principally to the transfer of a 28.8% interest in
Coloray to the noteholders who financed part of the acquisition. (See Note
15 to the accompanying financial statements). Finance expenses in 1995
included $720,000 in value of stock options surrendered as compensation on
new financing, and $2,256,000 as the difference in value at the date of the
transaction or at the date of conversion between conversion prices on
debentures and notes issued in 1995 and the market price of the Company's
common shares.
Income from minority interest of $65,000 in 1995 and $517,000 in 1994
represents the portion of the net loss of Coloray from the date of
acquisition through year end that is allocable to the minority stockholders
of Coloray. Early in 1995, minority interest was reduced to zero;
therefore, during the remainder of 1995 and going forward, the Company will
incur 100% of the losses of Coloray in its consolidated income statement.
In 1995 the Company sold Ampsco's land and buildings to a related
party (see Note 7) and issued 700,000 warrants to the buyer of the property
as part of the sale. The value of the warrants, $350,000, is the primary
component of the loss on sale of assets of $323,000 in 1995.
1995 1994 1993
Discontinued operations:
Loss from operation of Ampsco $(507,000) $(705,000) $(856,000)
Loss on disposal of Ampsco (448,000) ----- -----
Total loss from discontinued operations $(955,000) $(705,000) $(856,000)
Ampsco has had continuing losses from operations since acquisition,
and at December 31, 1995 had an accumulated deficit in stockholders equity
of approximately $2.2 million. The Company determined that it could not
fund the required repairs and capital improvements needed for Ampsco to
remain competitive and become profitable. Because of this, and to cut the
ongoing losses and to focus the Company on the computer peripheral segment,
in April 1996 the Company sold all of the Common Stock of Ampsco to a
related party. See Note 18 to the accompanying consolidated financial
statements for a more complete description of the transaction.
The Company has treated the sale as a discontinued operation.
Consequently, Ampsco's results are excluded from the accompanying balance sheet
at December 31, 1995 and from the loss from continuing operations shown on the
accompanying statements of operations for 1995, 1994 and 1993. The Company has
recorded a loss of $448,000 on the disposal of Ampsco.
Ampsco's sales were $1,827,000 in 1995, $1,841,000 in 1994, and
$4,230,000 in 1993. Ampsco's construction division, with sales of $2,310,000
in 1993, was sold in early 1994. The losses from operations shown above
exclude Ampsco's interest expense of $195,000 in 1995 and $88,000 in 1994 on
intercompany debt from Scriptel. The loss from operations includes a net loss
of $287,000 on the sale of Ampsco assets in 1995.
The Company is contractually obligated on certain of Ampsco's notes
payable. The creditor has obtained a judgment against the Company on this
debt. Management estimates that it is improbable that Ampsco could pay the
creditor or repay Scriptel if Scriptel is forced to pay the creditor. The
Company has recorded a loss on disposal of Ampsco of $450,000 to recognize
the full contractual obligation. The Company is also negotiating with the
creditor to settle the debt for a reduced amount.
As part of the agreement to sell the Common Stock of Ampsco, the
Company contributed its $2.2 million intercompany receivable from Ampsco to
the capital of Ampsco. This resulted in almost complete liquidation of
Ampsco's stockholders deficit, and the buyer assumed the remaining $22,000
of net liabilities of Ampsco.
The Company recorded this assumption of net liabilities as a reduction
of the loss on disposal at December 31, 1995. The Company also recorded a
loss of $20,000 at December 31, 1995 for the anticipated loss from
operations of Ampsco until the disposal date in April.
Liquidity and Capital Resources
The Company has funded its operations primarily through the sale of
Common Stock, the issuance of debt instruments with Common Stock conversion
features, and private, institutional and bank financing. As of December 31,
1995, the Company's stockholders had paid or surrendered in value $40,495,000
(which is net of $140,000 of notes receivable from stockholders) to acquire
21,058,217 shares of Common Stock. In addition, $5,741,000 of notes
payable and debentures were outstanding as of December 31, 1995, and
accrued interest on notes was $855,000 at that date. From inception of the
Company through December 31, 1995, the Company has incurred an accumulated
deficit of $50,558,000.
The Company had current liabilities in excess of current assets of
approximately $10,404,000 at December 31, 1995 (approximately $6,936,000 at
December 31, 1994). This has occurred due to cumulative operating losses
being financed by the issuance of notes payable and lines of credit. Also
at December 31, 1995 the Company had approximately $1,400,000 of trade
payables more than 60 days past due. Proceeds from financing activities
(net of payments) totalled approximately $5,372,000 for the year ended
December 31, 1995, (approximately $6,967,000 for the year ended December
31, 1994). Funds received from financing activities were used to fund
operating losses and other operating activities of approximately $5,665,000
for the year ended December 31, 1995 (approximately $7,838,000 for the year
ended December 31, 1994).
In 1995, the Company engaged in several major debt and equity
securities sales. These are outlined in Notes 6 and 7 to the accompanying
consolidated financial statements.
Additional debt and equity transactions have occurred to date in 1996.
(See Note 16 to the consolidated financial statements). Management
believes that these recently concluded private placements of debt and
equity securities are not sufficient to finance the Company's planned
operating, development and capital expenditures for 1996 and to repay
defaulted indebtedness. Management has cut back on operating and
development activities, and anticipates further reductions. Management
also intends to seek additional financing through other private placements
of debt, convertible debt and / or Common Stock to fund such activities.
Efforts are underway to close Coloray and form a consortium to continue
Coloray's research.
The Company's total committed shares approximated the total authorized
shares of the Company at December 31, 1995 (see Note 7). If all options
outstanding at December 31, 1995 were exercised at their contract prices,
proceeds would be approximately $27,498,000. If all warrants outstanding at
December 31, 1995 were exercised at their contract prices, proceeds would be
approximately $17,627,000. If all convertible debt and accrued interest
outstanding at December 31, 1995 were converted, equity would increase by
$2,780,000. Management intends to seek approval from the stockholders, at
the next stockholders meeting, for a substantial increase in the authorized
shares. Approximately 8,900,000 of any increase in authorized shares have
already been committed (see Note 7).
There can be no assurance that the stockholders will approve an
increase in the authorized shares, nor that such shares could be sold if
authorized, nor that the proceeds from such sales or other financing
activities will be sufficient to fund operating activities and repayment of
defaulted indebtedness. If funds received are insufficient, then the
Company's ability to continue as a going concern could be adversely
affected, and the Company may have to liquidate.
Management believes that Scriptel will experience revenue growth
associated with its pen-based operating activities commencing in late 1996
or early 1997, and anticipates that this revenue growth will provide for
Scriptel's working capital needs on an ongoing basis after 1996.
The Company's independent accountants have included a paragraph in
their report, stating that the Company's financial statements as of
December 31, 1995 and for the periods then ended have been prepared
assuming that the Company will continue as a going concern and that the
Company's recurring losses from operations, net working capital deficiency
and need for immediate financing to fund operations raise substantial doubt
about its ability to continue as a going concern. See Notes 1, 2 and 3.
Adoption of Accounting Standards
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
changes the method of accounting for deferred income taxes. The standard
requires the Company to recognize deferred tax liabilities and assets for the
expected future tax consequence of events that have been recognized in the
Company's consolidated financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse. On January 1, 1993, the Company adopted SFAS No. 109,
without any material effect on the consolidated financial statements, as the
Company has significant net operating loss carryforwards.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock Compensation." The Company will adopt this statement
in 1996. The approximate effects of adopting this statement on reported
net loss and net loss per share are outlined in Note 17 to the consolidated
financial statements.
Inflation and Economic Conditions
Management believes that the effect of inflation on the Company's
operations is not material. The Company does not have long-term contracts
requiring performance at fixed rates. Accordingly, management believes it
will be able to pass through to its customers most cost increases resulting
from inflation.
<PAGE>
AUDITOR OPINION
NORMAN, JONES, ENLOW & CO.
Norman, Jones, Enlow & Co. have indicated that they are
prepared to permit the use of their opinion on the financial
statements to be included in the Annual Report to Stockholders.
An opinion will accompany the Annual report included with the
definitive proxy.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994
--------- ---------
Assets
Current assets:
Cash and cash equivalents $51,000 $31,000
Trade accounts receivable, net of allowance
for doubtful accounts of $3,000 in 1995
and $52,000 in 1994 65,000 458,000
Inventories 2,000 194,000
Assets held for sale -- 548,000
Other current assets 2,000 32,000
------------ -----------
Total current assets 120,000 1,263,000
Property and equipment, net 947,000 2,180,000
Patents, net 184,000 275,000
Deposits 122,000 141,000
Other assets 88,000 103,000
------------ -----------
Total assets $1,461,000 $3,962,000
============ ==========
The accompanying notes are an integral part of the financial statements.
-continued-
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS, continued
December 31, 1995 1994
--------- ---------
Liabilities and Stockholder's Deficit
Current liabilities:
Notes payable, short-term and current portion $4,741,000 $5,115,000
Accounts payable 1,681,000 1,234,000
Accrued interest 855,000 462,000
Accrued loss on discontinued operations 470,000 --
Other accrued liabilities 2,777,000 1,388,000
----------- -----------
Total current liabilities 10,524,000 8,199,000
Notes payable, long-term 1,000,000 44,000
Notes payable, officers -- 107,000
Minority interest -- 65,000
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.10 par value,
50,000,000 shares authorized: 21,058,217
shares and 15,234,138 shares issued and
outstanding at December 31, 1995 and
1994, respectively 2,106,000 1,523,000
Additional paid in capital 38,529,000 29,578,000
Accumulated deficit (50,558,000) (35,409,000)
Notes receivable - stockholders (140,000) (145,000)
------------ -----------
Total stockholders' deficit (10,063,000) (4,453,000)
------------ -----------
Total liabilities and stockholders' deficit $1,461,000 $3,962,000
============ ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995 1994 1993
-------- -------- --------
Revenues:
Sales $230,000 $205,000 $378,000
Licensing and development fees 201,000 178,000 572,000
--------- --------- --------
Total revenues 431,000 383,000 950,000
Costs and expenses:
Cost of sales 360,000 615,000 581,000
General and administrative 3,708,000 6,809,000 1,627,000
Sales and marketing 258,000 320,000 548,000
Research and development 5,117,000 7,368,000 609,000
Write-down of investments -- 78,000 --
---------- --------- ----------
Total costs and expenses 9,443,000 15,190,000 3,365,000
---------- ---------- ----------
Loss from operations (9,012,000) (14,807,000) (2,415,000)
Other expense (income):
Interest expense 1,967,000 1,261,000 197,000
Finance charge 2,958,000 636,000 --
Other expense, net -- 70,000 29,000
Sale of assets 323,000 -- --
Interest income (1,000) (32,000) (53,000)
Minority interest (65,000) (517,000) --
----------- ----------- -----------
Total other expense 5,182,000 1,418,000 173,000
----------- ----------- -----------
Loss from continuing operations (14,194,000) (16,225,000) (2,588,000)
Discontinued operations:
Loss from operations of Ampsco (507,000) (705,000) (856,000)
Loss on disposal of Ampsco (448,000) -- --
------------ ----------- -----------
Total loss from discontinued operations (955,000) (705,000) (856,000)
------------ ----------- -----------
Net loss ($15,149,000)($16,930,000) ($3,444,000)
============ =========== ==========
Loss per share of common stock:
Continuing operations ($0.81) ($1.27) ($0.32)
Discontinued operations (0.05) (0.05) (0.10)
--------- -------- --------
Net loss per share ($0.86) ($1.32) ($0.42)
========= ======== ========
Weighted average number of common shares
used in computing net loss per share 17,519,171 12,785,243 8,110,281
========== ========== =========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 1994 1993
-------- --------- ---------
Cash flows from operating activities:
Net loss ($15,149,000) ($16,930,000) ($3,444,000)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 690,000 532,000 408,000
Non-cash compensation 677,000 2,180,000 13,000
Non-cash interest expense 1,282,000 880,000 --
Inventory reserves 20,000 60,000 34,000
Write down of investments -- 78,000 --
Loss on disposal of assets 610,000 89,000 32,000
Acquired research and development expense -- 3,357,000 --
Non-cash finance charge 2,695,000 582,000 --
Minority interest in subsidiary loss (65,000) (517,000) --
Deferred licensing fees -- -- (485,000)
Changes in certain assets and liabilities:
Trade accounts receivable 115,000 505,000 (406,000)
Inventories 122,000 136,000 90,000
Deposits and other assets 26,000 (41,000) (51,000)
Accounts payable 696,000 361,000 (144,000)
Accrued interest 611,000 62,000 168,000
Accrued loss on discontinued
operations 444,000 -- --
Other accrued liabilities 1,557,000 828,000 (46,000)
---------- --------- ---------
Net cash used in operating activities (5,669,000) (7,838,000) (3,831,000)
Cash flows from investing activities:
Acquisition of Coloray Display Corporation -- (580,000) (877,000)
Notes and advances receivable from
related parties -- -- 22,000
Purchase of investments -- (125,000) --
Sale (purchase) of restricted
short-term investment -- 992,000 (992,000)
Purchase of property and equipment (420,000) (280,000) (119,000)
Disposal of property and equipment 211,000 113,000 --
Disposal of assets held for sale 548,000 346,000 --
Purchase of patents (22,000) (4,000) (59,000)
--------- --------- ---------
Net cash provided by (used in)
investing activities 317,000 462,000 (2,025,000)
-continued-
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Years ended December 31, 1995 1994 1993
-------- --------- ----------
Cash flows from financing activities:
Proceeds from notes payable 5,398,000 4,021,000 2,177,000
Repayment of notes payable (1,209,000) (3,536,000) (579,000)
Proceeds from the issuance of stock 1,153,000 6,413,000 4,592,000
Receipt of short swing profits from
related parties, and other 30,000 69,000 --
---------- ---------- ----------
Net cash provided by
financing activities 5,372,000 6,967,000 6,190,000
---------- ---------- ----------
Increase (decrease) in cash and
cash equivalents 20,000 (409,000) 334,000
Cash and cash equivalents, at the
beginning of the year 31,000 440,000 106,000
---------- --------- --------
Cash and cash equivalents, at the
end of the year $51,000 $31,000 $440,000
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $137,000 $413,000 $418,000
======== ======== ========
Supplemental schedule for non-cash financing and investing activities:
Debt conversion and use of debt to exercise options and warrants:
Decrease in notes payable $3,142,000 $111,000 $56,000
Decrease in accounts payable 85,000 15,000 73,000
Decrease in accrued interest 125,000 8,000 --
Increase in common stock (467,000) (5,000) (8,000)
Increase in additional paid-in-capital(2,885,000) (129,000) (121,000)
----------- ---------- ----------
Net effect on cash $0 $0 $0
===== ===== =====
Acquisition of Coloray Display Corporation:
Increase in property and equipment -- $1,416,000 --
Increase in patents -- 197,000 --
Increase in common stock -- (125,000) --
Increase in additional paid-in-capital,
including the value of 1,640,000
options issued for the Coloray
acquisition -- (3,387,000) --
Research and development expense -- 1,899,000 --
------ --------- -----
Net effect on cash -- $0 --
====== ===== =====
The accompanying notes are an integral part of the financial statements.
-continued-
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
In 1994, the Company transferred 28.8% of Coloray's common stock to two
major stockholders of the Company in partial consideration for loans from those
stockholders to finance part of the acquisition of Coloray. The Company
recognized a minority interest in Coloray of $582,000 and also recognized a
non-cash finance charge of $582,000 related to this transfer.
In 1994, the Company issued a note payable of $105,000 to purchase
machinery and equipment, and the Company issued a note payable of $399,000
to a supplier to settle the accounts payable with that supplier. In 1995,
the Company issued a note payable of $37,000 to a supplier to settle the
accounts payable with that supplier.
In 1994, the Company issued compensatory stock, stock options and warrants
as follows: 300,000 warrants on sales of common stock (no value assigned),
680,000 options on debt financings (value of $317,000 treated as interest
expense), 7,000 shares of stock and 2,655,050 options as compensation to
officers, directors and consultants (value of $1,921,000 treated as
administrative expense). In 1995, the Company issued compensatory stock,
stock options, and warrants as follows: 170,000 shares of stock, 7,000
options and 2,818,656 warrants as additional compensation to debt holders
(value of $438,000 treated as finance charge and value of $1,282,000
treated as interest expense); 40,000 shares of stock, 4,191,450 options and
94,610 warrants as compensation to officers, directors and consultants
(value of $252,000 treated as administrative expense and value of $425,000
treated as research and development expense); and 700,000 warrants to the
buyer of Ampsco's land and buildings (value of $350,000 treated as other
expense).
In 1994, options to purchase a total of 1,218,200 shares of common stock
were transferred from an officer of the Company to note holders as an
inducement to loan funds (options for 1,078,200 shares) and to a consultant
for services rendered (options for 140,000 shares). See Notes 4 and 7.
These options were valued at $563,000 treated as interest expense, and
$104,000 treated as administrative expense, respectively.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years ended December 31, 1993, 1994, and 1995
Additional
Common Common Paid-in
Shares Stock Capital
-------- --------- ----------
Balance, December 31, 1992 7,571,383 $757,000 $12,588,000
Sale of common stock, net 2,845,039 285,000 4,091,000
Conversion of convertible notes and
accounts payable to common stock 77,317 8,000 121,000
Exercise of warrants for common stock 51,980 5,000 68,000
Exercise of options for common stock 84,919 8,000 135,000
Stock issued for consulting services 7,500 1,000 12,000
Collection on notes receivable
from stockholders -- -- --
Net loss -- -- --
----------- --------- ----------
Balance, December 31, 1993 10,638,138 1,064,000 17,015,000
Sale of common stock, net 2,200,311 220,000 4,371,000
Stock and options issued in the
acquisition of Coloray 1,254,131 125,000 3,387,000
Stock options issued to debt holders,
employees, and consultants -- -- 2,881,000
Conversion of convertible notes and
accounts payable to common stock 52,747 5,000 129,000
Exercise of warrants for common stock,
less 795 shares received in partial
payment and cancelled 42,634 4,000 64,000
Exercise of options for common stock 1,039,177 104,000 1,650,000
Stock issued for services 7,000 1,000 23,000
Return of short swing profits -- -- 58,000
Collections on notes receivable from
stockholders -- -- --
Net loss -- -- --
--------- -------- -----------
Balance, December 31, 1994 15,234,138 1,523,000 29,578,000
Stock or options issued to debt holders,
employees, and consultants 211,000 21,000 2,426,000
Conversion of convertible debentures,
convertible notes and accounts payable
to common stock 4,269,671 428,000 5,231,000
Exercise of warrants for common stock 870,122 87,000 759,000
Exercise of options for common stock 473,286 47,000 510,000
Return of short swing profits -- -- 30,000
Write off on notes receivable from stockholders -- -- (5,000)
Net loss -- -- --
---------- --------- ----------
Balance, December 31, 1995 21,058,217 $2,106,000 $38,529,000
========== ========= ==========
The accompanying notes are an integral part of the financial statements. -
continued-
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT, continued
Years ended December 31, 1993, 1994, and 1995
Notes Total
Accumulated Receivable Stockholders'
Deficit Stockholders Deficit
----------- ----------- ------------
Balance, December 31, 1992 ($15,035,000) ($177,000) ($1,867,000)
Sale of common stock, net -- -- 4,376,000
Conversion of convertible notes and
accounts payable to common stock -- -- 129,000
Exercise of warrants for common stock -- -- 73,000
Exercise of options for common stock -- -- 143,000
Stock issued for consulting services -- -- 13,000
Collection on notes receivable from
stockholders -- 21,000 21,000
Net loss (3,444,000) -- (3,444,000)
----------- --------- -----------
Balance, December 31, 1993 (18,479,000) (156,000) (556,000)
Sale of common stock, net -- -- 4,591,000
Stock and options issued in the
acquisition of Coloray -- -- 3,512,000
Stock options issued to debt holders,
employees, and consultants -- -- 2,881,000
Conversion of convertible notes and
accounts payable to common stock -- -- 134,000
Exercise of warrants for common stock,
less 795 shares received in partial
payment and cancelled -- -- 68,000
Exercise of options for common stock -- -- 1,754,000
Stock issued for services -- -- 24,000
Return of short swing profits -- -- 58,000
Collections on notes receivable
from stockholders -- 11,000 11,000
Net loss (16,930,000) -- (16,930,000)
---------- --------- ------------
Balance, December 31, 1994 (35,409,000) (145,000) (4,453,000)
Stock or options issued to debt
holders, employees, and consultants -- -- 2,447,000
Conversion of convertible debentures,
convertible notes and accounts
payable to common stock -- -- 5,659,000
Exercise of warrants for common stock -- -- 846,000
Exercise of options for common stock -- -- 557,000
Return of short swing profits -- -- 30,000
Write off on notes receivable from
stockholders -- 5,000 0
Net loss (15,149,000) -- (15,149,000)
---------- -------- -----------
Balance, December 31, 1995 ($50,558,000) ($140,000) ($10,063,000)
============ ========= ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GOING CONCERN BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Scriptel
Holding, Inc. and its wholly-owned subsidiaries, Scriptel Corporation
("Scriptel"), and Scriptel Communications Corp. ("Scriptcom"), and its
majority-owned subsidiary, Coloray Display Corporation ("Coloray")
(collectively known as "the Company" ). Another wholly-owned subsidiary,
Ampsco Corporation ("Ampsco") has been reported as a discontinued operation,
and was sold in April 1996. (See Note 18). All significant intercompany
transactions have been eliminated. The accounts of Coloray are included only
for the period since its acquisition. (See Note 15).
Scriptel has developed and licensed certain technology to various
manufacturers and suppliers engaged in pen-based computer product
development; however, Scriptel has not earned significant royalties to date.
Scriptel's future revenue growth is partially dependent on royalties
provided under these license agreements. Completion of certain research
and development activities and further market development for Scriptel's
products are necessary for the Company to achieve profitable operations.
In early 1996, the Company sold its interest in Ampsco Corporation,
and committed to shutting down Coloray. (See Notes 16 and 18 for a more
complete description of these events). If these efforts are successful, it
will enable the Company to focus on its core Scriptel technology and
Scriptel products.
The accompanying consolidated financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Scriptel
Holding, Inc. and each of its subsidiaries have incurred recurring
losses from operations and resulting cash flow problems since inception.
Management's plan for meeting obligations as they come due is summarized below.
At December 31, 1995, the Company was in default on approximately $2.4
million of its notes payable, and in arrears over 60 days on trade accounts
payable totaling approximately $1,400,000. In addition, $2,021,000 of notes
payable were represented by demand cognovit notes at December 31, 1995. At
December 31, 1995 the Company had a reported deficit in equity of $10,063,000.
The Company is currently attempting to negotiate new terms with certain
debt holders, as well as to seek the execution of conversion privileges on
convertible notes. See Notes 7 and 16 for a summary of the significant
financing activities by the Company subsequent to December 31, 1995.
At December 31, 1995, the Company was a party to legal proceedings
brought by several creditors. (See Note 3 for a summary of litigation issues.)
Subsequent to December 31, 1995, several additional creditors took or
threatened legal action against the Company to collect amounts due and payable.
The Company has successfully deferred, for the present, legal action
by other creditors and has made some partial payments on the amounts due.
There can be no assurance, however, that the creditors will not hereafter seek
other legal remedies.
The Company must generate significant and sufficient additional
working capital and restructure its debt obligations in order to continue as a
going concern and meet its debt obligations as they come due. Management is
seeking additional financing through public or private placements of debt,
convertible debt and or Common Stock to fund its activities. There
can be no assurance that the Company will be able to obtain such funds,
that such funds obtained will be sufficient, or that the Company will be able
to meet or restructure its debt obligations as they come due. If the funds are
not received, management plans to cut back further on its planned research and
development and capital expenditures, which could jeopardize the timing and
ultimate completion of certain critical projects.
If the Company is not successful with its current and future financing
efforts, there is a substantial likelihood that it could not proceed as a going
concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
2. RISK OF LIQUIDATION (UNAUDITED):
Due to the Company's history of operating losses and immediate need
for additional capital, there is a risk that the Company will have to liquidate.
Substantially all of the Company s assets, including patents, are pledged as
collateral on certain of the Company's debt instruments. If the
Company were forced into liquidation, it is likely that all of the assets
would be attached to settle the claims of secured creditors and none, except
possibly the value of the patents, would be available to other security holders.
If the Company were to liquidate, management estimates that the realizable
value of the Company's property, equipment, and deposits would be substantially
less than the carrying values of those assets at December 31, 1995, and the
realizable value of the Company's other assets would be less, but would not be
materially different than the reported values for those assets at December 31,
1995. It is also management's estimate that the value of the Company's patents
would be higher than their recorded value at December 31, 1995. The
valuation of assets necessarily requires many estimates and assumptions.
The actual value of assets if liquidation were to occur would depend on a
variety of factors, including finding interested buyers, the timing of any
sales, sales commissions and selling costs, operating losses incurred to the
date of any sale, and the forced nature of the sale. Management considered
these factors in developing its estimate of realizable values if liquidation
were to occur. The Company has not had a current outside appraisal of the
assets made because it is management's intention to continue to operate the
Company on a going-concern basis. Management's estimate of realizable
value on liquidation of property and equipment is approximately $400,000,
compared to a carrying value at December 31, 1995 of $947,000. Excluding
patents, for which an appraisal is not available and management is otherwise
unable to reasonably estimate value, management's estimates of realizable value
on liquidation of all assets is approximately $600,000, compared to a carrying
value of all assets of $1,461,000 at December 31, 1995. At that date, the
Company's recorded liabilities totaled approximately $11,524,000. The Company
also has other contractual commitments. See Note 14.
3. LEGAL PROCEEDINGS
The Company is a defendant in several legal actions brought by
creditors to collect amounts due, or brought by others.
On September 6, 1995, a promissory note holder filed suit in the
Circuit Court of Cook County, Illinois, entitled Stimsonite Corporation vs.
Scriptel Holding, Inc., for collection of principal, interest and other charges
on a note. The total sought is approximately $450,000. The promissory note
holder received a judgement against the Company in Illinois in November 1995,
and domesticated the judgement against the Company in Ohio in February
1996. The Company is attempting to negotiate a resolution with the
creditor.
A former officer and director of the Company filed a suit against the
Company in January 1996 in U. S. District Court for the Southern District
of Ohio, entitled Nicholas G. Venetis vs. Scriptel Corporation and Scriptel
Holding, Inc. The individual alleges common fraud; securities fraud;
non-payment of payroll, severance, director bonus, and expenses; improper
handling of COBRA benefits and disclosures; and other matters. He claims
damages of approximately $100,000 and requests specified grants of options
and punitive damages of $250,000. The Company intends to file a response
to the suit to deny the allegations and to attempt to collect amounts due
the Company from the individual. The Company may work with the individual
in an attempt to settle the suit.
Three former officers of Coloray Display Corporation, a majority-owned
subsidiary of the Company, filed an action against Coloray and the Company on
February 23, 1996 in Alameda County Superior Court, Hayward, California,
entitled Michael W. Blas, M. Kathy Vieth, and Daniel J. Devine vs. Coloray
Display Corporation and Scriptel Holding, Inc., alleging non- payment of
amounts due them for payroll, severance, expense reports and other matters, and
seeking damages totaling approximately $680,000. These individuals also
sought and obtained in connection with this action an ex parte Temporary
Protective Order prohibiting the transfer of the assets of Coloray and the
assets of the Company located in California. Following a hearing on March
28, 1996, the California court denied the plaintiffs' application for Writ
of Attachment or Temporary Protective Order. The Company intends to
vigorously pursue this action, including the possibility of an action by
the Company against each of the individuals.
These individuals have also taken administrative action against
Coloray through the California Labor Board.
A creditor filed suit against the Company in February 1996 in the
Court of Common Pleas, Franklin County, Ohio, entitled Financetech, Inc. vs.
Scriptel Holding, Inc., for collection of a debt and accrued interest of
approximately $580,000. The Company has filed a counterclaim against the
creditor for amounts of royalty that the Company feels is due it from the
creditor, and has requested the court to offset the note payable by the amount
of royalty due. This action is pending.
Several other creditors have filed suit against the Company and its
subsidiaries, in various courts in Ohio and California, for payment of amounts
due them. In addition, the Company has been informed that several other
creditors may take such actions in the near future. The amount currently
under suit in these actions totals less than $150,000.
The landlord of Coloray has threatened to start eviction proceedings
due to non-payment of rents totaling approximately $84,000.
In January 1996 the State of Ohio issued a final claim against the
Company for unpaid sales and use taxes of $41,000. These taxes are included in
the Company's liabilities at December 31, 1994 and for all subsequent periods.
The Internal Revenue Service has filed a payroll tax levy against the
assets of Coloray Display Corporation. In February 1996, the IRS attached
$42,000 of funds held on deposit in Coloray's bank account, and obtained
those funds. The Company and Coloray have agreed to pay the remaining
$120,000 of payroll tax liability within 45 to 60 days from the end of
February.
Coloray has also received a personal property tax lien from Alameda
County, California in the amount of approximately $23,000. In addition,
Coloray has unpaid withheld state income taxes of approximately $20,000 which
are subject to levy at any time.
The Company has unpaid personal property, franchise, capital stock,
workers compensation, and other taxes aggregating approximately $190,000. Such
amounts may be subject to levy against Company assets. The Company intends to
pay these taxes as funds become available.
There can be no assurance that creditors will not hereafter seek other
legal remedies.
4. SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Company includes in cash and cash equivalents all highly liquid
investments with maturities of three months or less upon acquisition. The
Company's cash was held in two financial institutions at December 31, 1995.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Management conducts a general review of the adequacy of
excess and obsolete inventory reserves on a quarterly basis. In performing
obsolescence reviews, management considers, among other factors, changes in the
Company's customer base, changes in its products, and technological
obsolescence.
The major components of inventory at December 31, 1995 (excluding
Ampsco) and 1994 are as follows:
1995 1994
Finished goods $ --- $ 50,000
Work in process --- 41,000
Raw materials 2,000 253,000
Allowance for obsolescence --- (150,000)
----------- ------------
$2,000 $194,000
======= =========
Property and Equipment:
Property and equipment are stated at cost. Depreciation of property
and equipment is computed using the straight-line method over the estimated
useful lives of the assets. The detail of property and equipment at
December 31, 1995 (excluding Ampsco) and 1994 is as follows:
1995 1994
Land $ --- $150,000
Buildings --- 334,000
Machinery and equipment 1,051,000 1,282,000
Furniture and fixtures 86,000 103,000
Leasehold improvements 627,000 797,000
Vehicles --- 110,000
---------- ----------
1,764,000 2,776,000
Accumulated depreciation (817,000) (596,000)
---------- ----------
$ 947,000 $2,180,000
========= =========
Depreciation expense for the years ended December 31, 1995, 1994 and
1993, was $569,000, $491,000, and $381,000, respectively.
Patents:
The Company capitalizes costs incurred in acquiring patents. These
assets are amortized using the straight-line method over their expected
technological life, which is less than their 17 year legal life.
Accumulated amortization at December 31, 1995 and 1994 was $310,000 and
$197,000, respectively, and amortization expense for the years ended
December 31, 1995, 1994 and 1993 was $113,000, $41,000, and $28,000,
respectively.
Revenue Recognition:
Revenues from product sales are recognized when the goods are shipped.
The Company periodically reviews the credit collection status of its customers
and provides for potential losses.
Stock Issued to Employees:
The Company maintains a stock option plan under which it is authorized
to grant incentive stock options and non-qualified stock options to employees,
directors and consultants. In addition, the Company has issued Common Stock
and options and warrants to purchase Common Stock to certain officers in
recognition of services they have performed. The Company recognizes as
compensation expense the amount, if any, of the fair value of the Common Stock
or the difference between the estimated fair value of the underlying Common
Stock at the measurement date and the option or warrant exercise price. The
compensation expense is allocated to the periods in which the employees perform
services. The estimated fair value of the Common Stock is determined based on
a subjective determination taking into consideration the OTC Bulletin Board
price, the limited market for freely tradable shares, prices of Common Stock,
options and warrants negotiated with third parties in recent private
placements, and the restricted nature of the shares issuable upon exercise of
the options and warrants. ( See Notes 7, 8, and 9).
Options and Warrants:
Options and warrants are considered to be outstanding only when the
Board of Directors has formally approved their issuance.
Per Common Share Information:
Net loss per common share is based on the weighted average number of
common shares outstanding during the year. The effect on net loss per common
share of the assumed exercise of stock options and warrants and conversions of
convertible notes has not been considered as the effect would be antidilutive.
Reclassification:
In order to conform with the 1995 presentation, certain 1994 and 1993
amounts have been reclassified.
5. INCOME TAXES:
On January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which
required a change from an income statement to a balance sheet approach for
accounting for income taxes. Under SFAS 109, deferred tax assets and
liabilities are recognized based on temporary differences between the
financial statement and tax basis of assets and liabilities using current
statutory tax rates. SFAS 109 also requires a valuation allowance against net
deferred tax assets if, based on the available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
The Company elected not to restate prior years' financial statements
under the provisions of SFAS 109 and determined that the cumulative effect of
implementation was not significant as the Company has incurred losses since
inception. As of December 31, 1995, net deferred tax assets approximated
$20,200,000 and related principally to net operating loss carryforwards of
approximately $50,500,000, available to offset future taxable income, if
any, through 2010. Net operating losses are subject to limitations under
Section 382 of the Internal Revenue Code. Approximately $5,200,000 of the
total net operating loss carryforwards can only be utilized to offset the
separate company income of Coloray. Due to the uncertainty surrounding the
realization of these favorable tax attributes in future tax returns, all of
the net deferred tax assets have been fully offset by a valuation allowance.
6. NOTES PAYABLE AND DEBT CONVERSION:
Notes payable as of December 31, 1995 and 1994 consist of the
following:
1995 1994
Convertible notes to individuals and
stockholders at prime rate plus 2% to 4%,
principal and interest convertible to common
shares at $1.69 to $3.50 per share; $1,156,000
and $908,000 past due at December 31, 1995
and 1994, respectively $1,156,000 $1,400,000
Demand notes payable to related parties, at
rates ranging from 10% to prime plus 4%;
$53,000 and $116,000 past due at December
31, 1995 and 1994, respectively 53,000 116,000
Promissory notes payable, 12%, due December
31, 1995. See Note 7. -- 471,000
Notes payable to a corporation, $250,000 at
10% and $250,000 at 8%, quarterly principal
and interest payments ranging from $8,423 to
$10,495 due through November 1996, and the
unpaid balance due December 1996; in default
at December 31, 1995 and 1994 500,000 500,000
Demand notes payable to a major stockholder at
10% per annum to 40% of principal on demand 2,021,000 873,000
Cognovit promissory notes payable, at prime
rate; in default at December 31, 1995 and 1994.
See Note 7. 569,000 1,103,000
Note payable on machinery purchases, monthly
payments, in default at December 31, 1995 and
1994. 104,000 95,000
Demand notes payable to suppliers, 18%; in
default at December 31, 1995 and 1994. 38,000 449,000
Convertible debenture, 8%, due November 1998 1,000,000 --
Demand, secured, cognovit, convertible
promissory note, 10% 300,000 --
Mortgages payable at interest rates ranging
from 9.75% to 11.75% -- 44,000
Installment loans owed to stockholders and
others, at prime or rates ranging from 7% to
15.9%; in default at December 31, 1994. -- 108,000
----------- ----------
5,741,000 5,159,000
Less current portion 4,741,000 5,115,000
---------- ----------
Non-current - payable 1998 $ 1,000,000 $ 44,000
The prime interest rate was 8.5% at December 31, 1995. Substantially
all assets of the Company are pledged as collateral for certain of the notes.
During 1994, convertible notes, related accrued interest, and certain
accounts payable, in the amounts of $111,000, $8,000, and $15,000, respectively
were converted to Common Stock. The price associated with these conversions
ranged from $1.00 to $2.62 per share. As a result of the conversions, 52,747
common shares were issued.
During 1995, notes payable, related accrued interest, and certain
accounts payable, in the amounts of $882,000, $82,000, and $34,000
respectively, were converted to Common Stock. The price associated with these
conversions ranged from $1.43 to $1.70 per share. As a result of
the conversions, 726,077 common shares were issued. In 1995, an additional
$260,000, $43,000, and $51,000 of notes payable, accrued interest, and accounts
payable, respectively, were used as payment by holders to exercise options and
warrants for a total of 393,249 shares.
The Company has approximately $324,000 of interest accrued on
convertible notes at December 31, 1995, which is also convertible to Common
Stock. This amount is payable on demand.
The Company entered into a private placement to a foreign investor of
$1,000,000 of convertible debentures in March 1995. Net proceeds of $900,000
were received on April 5, 1995, after payment of a finders fee and a consulting
fee. Interest was 8%, payable at maturity. The debentures would have matured
in March 1998. The conversion price floated. The March debentures were
converted into 1,385,281 shares in the third quarter of 1995. The Company has
recorded a finance charge of $429,000 on the conversion equal to the
difference between fair value of the shares issued and the conversion price at
the date of conversion.
The Company entered into a private placement to a foreign investor of
$1,000,000 of convertible debentures in May 1995. Net proceeds were $880,000,
after payment of finders fees and legal fees. The debentures would have
matured in May 1998. Interest was 8%, payable at maturity. The conversion
price floated. The May debentures were converted into 2,165,060
shares in the third quarter of 1995. The Company has recorded a finance
charge of $475,000 on the conversion equal to the difference between fair value
of the shares issued and the conversion price at the date of conversion.
Effective June 15, 1995, in accordance with certain penalty provisions included
in the agreement, the Company was required to issue to the foreign investor
warrants to purchase 50,000 shares of Common Stock at a rate equal to the
market price on the date of the conversion, and the Company is required to pay
the investor $20,000 in penalties.
Both the March and the May 1995 debenture issues were made in
accordance with the provisions of Regulation S of the Securities Act of 1933,
as amended. The shares acquired on the conversion of the debentures were
exempted from registration under the provisions of Regulation S, and were
immediately tradeable.
In November 1995 the Company issued a demand, secured, convertible
promissory note to an affiliate of a major creditor and stockholder of the
Company in exchange for proceeds of $300,000. The note bears interest at 10%
and the rate increases to 18% if the Company defaults on the note. The note
and accrued interest are convertible into a maximum of 700,000 shares at
$0.50 per share. The market price of the Company's Common Stock on the
date of the note was $0.75 per share. In conjunction with this loan, the
Company granted a security interest in all its receivables, inventories,
equipment, patents and other assets, and an express pledge of the patents
of Coloray. The Company recorded a finance charge of $131,000 in the
fourth quarter of 1995 on this note, equal to the difference between fair value
of the common shares on the date of the note and the conversion price implicit
in the note.
In November 1995 the Company entered into an agreement to issue
$1,000,000 of convertible debentures to a foreign investor under the provisions
of Regulation S promulgated by the Securities and Exchange Commission. The
debentures bear interest at 8% and mature in 1998. The debentures are
convertible into common shares at a floating rate subject to a minimum
conversion price of $0.30 per share (equivalent to 3,333,334 shares) and a
maximum conversion price of $0.45 per share (equivalent to 2,222,223 shares).
The market price of the Company's Common Stock on the date of issue of the
debenture was $1.00 per share. The Company recorded a finance charge of
$1,222,000 in the fourth quarter of 1995, equal to the difference
between fair value of the Common Stock on the date of the debenture and the
maximum conversion price of the debenture. Depending on the actual conversion
price if and when the debenture is converted, the Company may have to record
an additional finance charge. The Company paid $58,000 and committed to issue
15,000 shares (value approximately $15,000) to financial consultants as
closing costs on this debenture transaction. In addition, the Company
expects to issue warrants to a financial consultant on this transaction to
purchase common shares equal to 5% of the shares issued if and when the
debenture is converted. Such warrants would expire in five years, the warrant
price would be equal to 110% of the conversion price, and the warrants would
have demand registration rights.
7. COMMON STOCK AND COMMON STOCK COMMITMENTS:
The Company issued 40,000 shares in 1995 and 7,000 shares in 1994 to
officers and directors for services rendered, and recorded compensation expense
of $78,000 and $24,000, respectively.
The Company entered into the following significant Common Stock
transactions and made the following Common Stock commitments for the year
ended December 31, 1995:
The Company filed a registration statement in July 1994 which became
effective in February 1995, and which expired March 31, 1995. The registration
statement covered the registration of: (a) up to 2,000,000 shares of Common
Stock offered by the Company; (b) up to 17,303,780 shares of Common Stock to be
sold by selling stockholders, 5,006,843 shares of which were already held by
selling stockholders and 12,296,937 of which shares were issuable following
exercise of certain outstanding options and warrants and conversion of
outstanding convertible promissory notes; and (c) up to $556,000 of
convertible promissory notes and Common Stock issuable upon conversion thereof,
or cash plus accrued interest in rescission of convertible promissory notes
purchased in a private offering during September, July, and August 1994. Due
in part to a substantial decrease in the market value of the Company's
Common Stock on the day of effectiveness, none of the shares offered by the
Company were sold during the registration period. Of the 12,296,937 shares
which could have been issued on exercise of options, warrants, or convertible
debt by the selling stockholders, a total of 683,375 shares were actually
issued. The Company received proceeds of $798,000 in a combination of cash and
reduction in notes payable from the exercises. This capital has been used to
meet payroll and other immediate obligations. Of the $556,000 of convertible
promissory notes, two noteholders elected to receive registered notes in the
combined principal amount of $29,000, four noteholders used a total of
$46,000 of principal of notes to exercise warrants they owned, and the
remaining noteholders elected or were deemed to have elected rescission of the
notes for cash.
In November 1994, a foreign investor entered into two stock
subscription agreements to purchase a total of 3,000,000 shares of Common Stock
of the Company at a purchase price of $2.82 per share. Net proceeds to the
Company from the initial 1,235,712 shares sold in November 1994 were $2,250,000,
which was net of all commissions and finders fees for both subscription
agreements. The remaining 1,764,288 shares were to be sold in December. The
foreign investor did not complete the purchase of the remaining shares and
the Company cancelled this subscription agreement in 1995. The sale of shares
to the foreign investor was made in accordance with the provisions of
Regulation S promulgated by the SEC.
Option and warrant holders exercised existing options and warrants at
$1.00 to $1.69 per share, for a total of 901,694 common shares which includes
those which were issued in the registration statement effective in the first
quarter of 1995. Net cash proceeds from these exercises totaled $961,000.
In May and June 1995, the Company converted otherwise non-convertible
debt and accrued interest into 348,722 common shares at $1.43 per share.
The Company also issued related warrants to purchase an additional 348,722
common shares at $1.69 per share. The warrants expire in the year 2000. The
estimated fair value of the warrants, $160,000, was expensed as financing costs
in the second quarter of 1995. The shares and warrants have piggyback
registration rights.
In September 1995, the Company converted certain debt and accrued
interest into 292,001 common shares at $1.50 per share. The Company also
issued to certain noteholders related warrants to purchase an additional
292,001 common shares at $1.50 per share and warrants (as compensation for
delays in payment of principal and interest on certain notes) to purchase an
additional 472,933 common shares at $2.00 per share. The warrants expire
in the year 2000. The estimated fair value of the warrants, $438,000, was
expensed as financing costs in the third quarter of 1995. The shares and
warrants have piggyback registration rights.
The Company issued warrants to a financial consultant to purchase
100,000 common shares at $1.70 per share. The estimated fair value of the
warrants, $46,000, has been treated as a finance charge in the third quarter of
1995. The Company issued warrants to purchase 94,610 common shares at $1.69
per share to a consultant in lieu of payment of a consulting bill (value of
$44,000, treated as administrative expense.)
In July 1995 the Company issued 170,000 shares and granted warrants to
purchase 1,500,000 shares of Common Stock at $1.51 per share to a major
stockholder and creditor of the Company. These grants were made in recognition
of bridge loans made by this stockholder to the Company over the last several
years, voluntary transfers of options to investors during recent funding
activities, and return of short-swing profits incurred to help the Company
in its financing. The estimated value of the warrants, $750,000, and shares,
$298,000, was expensed in the third quarter as interest expense.
On July 27, 1995, the Board of Directors approved a sale effective
June 30, 1995 of all real estate owned by Ampsco. The purchaser was an
affiliate of a major stockholder and creditor of the Company, who also had a
security interest in the property. The purchase price of $350,000
was received in two installments of $150,000 each, with the remaining
$50,000 used by the purchaser to pay off existing mortgages on the property
and for legal costs of the transaction. In addition, the Company granted the
purchaser warrants to purchase 700,000 shares of Common Stock at a price of
$1.51 per share. Management estimates the value of warrants at $350,000
(treated as a loss on the sale of property). The book value of the land
and buildings sold was $626,000. The Company recorded a loss in the second
quarter including the loss on the land and buildings (this was subsequently
restated as discontinued operations of Ampsco), the value of the
warrants, and the legal costs. Ampsco leased back the manufacturing
facilities for a one year period until June 30, 1996 in a triple net lease at
a monthly rental of $5,000.
The Company granted warrants to purchase 55,000 shares of Common Stock
at $0.81 per share to certain noteholders as compensation for delays in payment
(value of $25,000 treated as interest expense).
In July 1995, the Board of Directors approved a recommendation by the
Compensation Committee to grant the Company's chairman a combination of Common
Stock and options to purchase Common Stock, based on his achievement of goals
in his employment contract. Mr. France received 40,000 shares of Common Stock
(value of $78,000 treated as administrative expense) and options to purchase
400,000 shares of Common Stock at $1.74 per share, all per his contract. In
addition, he received options to purchase 1,000,000 shares of Common Stock at
$1.74 per share to replace the compensation incentive inherent in the
options Mr. France transferred to noteholders and consultants in 1994 at no
benefit to him.
The Company issued to employees, consultants and certain noteholders a
total of 2,798,450 options to purchase common shares. These options were
granted under existing agreements or as part of employment negotiations with
certain employees. Option prices range from $0.63 to $3.20 per share and
expire at various dates from 1997 to 2000. Option values were $3,000
treated as interest expense, $137,000 treated as administrative expense,
and $425,000 treated as research and development expense.
The Company issued 21,104 common shares to vendors to convert the
balance owed to the vendors at $1.50 to $1.70 per share. The shares have
piggyback registration rights.
Options and warrants to purchase 1,003,035 common shares at exercise
prices ranging from $0.75 to $3.00 per share have expired in 1995 without
exercise.
In December 1995, the Company offered a reduction in the purchase
price for its outstanding options and warrants to $0.55 per share if the
holders would exercise within a brief period of time. As a result of this
offer, a total of 497,051 shares were issued upon exercise. Payment included
$113,681 in cash and $159,697 from reduction of debt owed to the holders.
All shares issued have piggyback registration rights. The cash was used for
operating purposes.
The Company is authorized to issue up to 50,000,000 shares of its
Common Stock, par value $.10 per share. Of these, the Company had the
following outstanding or committed shares of Common Stock at December 31, 1995:
Outstanding common shares at December 31, 1995 21,058,217
Commitments to issue common shares at December 31, 1995:
Options (See Note 8) 13,263,936
Warrants (See Note 9) 11,171,923
Convertible debt and accrued interest (See Note 6) 1,535,208
November 1995 convertible debentures, at maximum conversion
price (3,333,334 shares would be issuable at the minimum
conversion price) (See Note 6) 2,222,223
Shares to be issued to financial consultant as closing costs on the
November 1995 convertible debentures (issued in April 1996) 15,000
Shares committed to be granted to employees, based on their
respective salaries 200,000
Warrants to be issued to financial consultant on the November
1995 convertible debentures 111,111
Options to officers, employees, directors and consultants which
have been committed in various agreements of the Company
but not yet granted at December 31, 1995 240,000
-------------
Total outstanding or committed common shares at
December 31, 1995 49,817,618
=============
Subsequent to December 31, 1995, the Company had the following
transactions in Common Stock or Common Stock commitments:
* The Company issued 100,000 shares in January 1996 to a founder,
director, and officer of the Company as additional compensation for his service
since the Company was founded. The value of this stock, $75,000, was expensed
in January 1996 when it was issued. In a related action, the Board of
Directors authorized cancellation of all the notes and advances receivable
from this individual. These receivables approximated $91,000, most of
which had been fully reserved at December 31, 1994. All remaining amounts
were expensed in December 1995.
* Options and warrant holders exercised existing options and warrants at
$0.55 per share for a total of 46,917 common shares. Net cash proceeds from
these exercises totaled $26,000. There was no change in total committed
shares as a result of these exercises.
* The Company entered into two letter agreements between the Company,
Standard Energy Company, and Gerald S. Jacobs, an individual, which agreements
are dated September 21, 1995 as amended February 29, 1996 (the "September
Agreement"), and dated February 29, 1996 (the "February Agreement"). The
Company entered into a further agreement between the same parties, dated
March 29, 1996 (the "March Agreement") which supersedes the September and
February Agreements. The March Agreement was ratified by the Company's
Board of Directors on April 4, 1996. The September and February Agreements
were included as exhibits to a Form 8-K Current Report dated September 21,
1995 and filed in March 1996. The March Agreement was included as an exhibit
to a Form 8-K Current Report dated March 29, 1996 and filed in April
1996. Standard Energy Company and Gerald S. Jacobs are both major
creditors and stockholders of the Company. Mr. Jacobs is the sole owner of
Standard Energy Company.
The Agreements, as amended in March 1996, compensate Mr. Jacobs as an
individual for his help personally or through companies he owns or is
affiliated with in providing debt financing to the Company over the last
several years, patience in not demanding repayment of those loans and
cooperation with other matters, and for relinquishing up to 1,000,000
currently owned options or warrants for cancellation so that the Company
could use those authorized shares in its current financings. The Company
will issue to Mr. Jacobs, or his nominee, warrants to purchase
3,600,000 common shares at a price of $0.75 per share, and which will
expire six years after issuance. The Company will issue to Sonata
Investment Company, Ltd. (the holder of the $300,000 convertible notes issued
in November 1995 - see Note 6) warrants to purchase 2,400,000 common shares
at a price of $0.50 per share, and which will expire six years after
issuance. The warrants to Mr. Jacobs and Sonata are contingent upon the
Company having available authorized shares, which authorized shares shall
be obtained from the first-expiring options or warrants or through approval by
the Company's stockholders of additional authorized shares at any time in
sufficient amount to cover this commitment, or both. The Company has
agreed to use its best efforts to obtain the requisite shares.
Mr. Jacobs has agreed to surrender up to a total of 1,000,000 options
or warrants he currently owns, if the Company needs additional authorized
shares to issue in its current financings. This is subject to the
requirement that the Company must reissue those options or warrants when, as
and if authorized shares are first available as set forth above. The new
warrants would be exercisable at a price of $0.75 per share and would expire
six years after issuance under these provisions. In March 1996, the Company
used 853,125 options of the 1,000,000 offered to provide part of the authorized
shares on new issuances under the provisions of Regulation S (see below).
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and by Donna L. Sanger, a vice president of Standard
Energy Company, will be reissued with a new expiration date of October 1,
2001 and with a new price of $1.00 per share. At December 31, 1995, Mr.
Jacobs owned 2,190,000 warrants and 1,956,000 options at prices ranging
from $1.51 to $2.62 per share and which expire at various dates through
October 29, 2000. At December 31, 1995, Ms. Sanger owned 65,000 warrants
and 63,500 options at prices ranging from $1.51 to $2.50 per share and
which expire at various dates through July 12, 2000. Mr. Jacobs reported
the effects of the September Agreement in his Form 4 filed for the month of
September 1995. The options and warrants were repriced and reissued as of
February 29, 1996.
The Company will record the estimated value of these transactions as
additional interest expense on the loans. Management estimates the value of
the reissuance of currently existing options with new pricing and expiration
dates as approximately $2,013,000. This will be recorded in the first quarter
of 1996, which is when the Directors of the Company approved the
transaction. Mr. Jacobs subsequently relinquished 853,125 options of the
1,000,000 options or warrants he committed to relinquish (see below); if these
are subsequently reissued, management estimates the additional value of the
reissued options or warrants as approximately $200,000, assuming current market
prices; because of the uncertainties relating to the availability of
authorized shares, the actual value to be recorded is not known, and will
be recorded only when this contingency is resolved. Management estimates the
value of the 3,600,000 warrants to be issued to Mr. Jacobs as approximately
$3,420,000 if issued now and assuming current market prices; because of the
uncertainties relating to the requirement for available authorized shares, the
actual value to be recorded is not known, and will be recorded only when
these contingencies are resolved and the warrants are actually issued.
Management estimates the value of the 2,400,000 warrants to be issued to
Sonata Investment Company, Ltd. as approximately $2,712,000 if issued now and
assuming current market prices; because of the uncertainties relating to the
requirement for available authorized shares, the actual value to be recorded
is not known, and will be recorded only when these contingencies are resolved
and the warrants are actually issued.
* In March and April 1996, the Company entered into several agreements
with foreign investors to purchase shares at $0.40 per share under the
provisions of Regulation S promulgated by the Securities and Exchange
Commission. A total of 2,425,000 shares were issued under these agreements.
The market price of the Company's Common Stock on the dates of issuance was
approximately $0.75 to $1.12. Cash proceeds were $970,000, less a total of
$134,000 paid as finders fees and expenses. These proceeds were used to fund
payrolls, audit and legal costs, and other operating expenses. In addition to
the cash costs of closing, the Company committed to issue warrants to
purchase common shares equal to 5% of the shares issued, at a price of
$0.48, and which will expire five years after issuance. A total of 121,250
warrants have been committed. Mr. Jacobs relinquished 853,125 of his options,
(see above), Mr. Walter Krumm, another major creditor and stockholder
relinquished 800,000 of his options with an exercise price of $1.69 to $1.70
per share and expiring in 1988, and the Company's Chairman relinquished
800,000 of his options with an exercise price of $1.74 per share and
expiring in July 2000, so that the Company would have enough authorized shares
available to issue the new shares and warrants. As part of the agreements
with these individuals, the Company agreed to reissue the surrendered
instruments as warrants when, as and if Scriptel is first able to do so, but
in no event later than when Scriptel stockholders approve an increase in the
amount of authorized shares, at a price of $0.75 per share, and with an
expiration date of six years after the date of any reissue under these
provisions. Scriptel also committed to use its best efforts to obtain
stockholder approval of an increase in authorized shares. Kevin Woodbridge, a
director, also relinquished 500,000 options (see below).
* In April 1996, the Company issued a total of 8,565 shares of Common
Stock to settle $8,738 of payables to two suppliers.
* In April 1996, the Company was successful in obtaining a one-year
extension on four convertible notes payable totaling $71,000. The Company
agreed to modify the conversion price from $1.69 per share to $0.55 per
share. This transaction increased the authorized shares committed for
conversion by 87,358 shares.
* In April 1996, the Board of Directors ratified the Company's prior
agreement to issue 15,000 shares to a consultant for services rendered on a
financing concluded in November 1995. These shares had been included in
committed shares as of December 31, 1995.
* The Company issued 100,000 options in January 1996 to Bernard
Eckstein, a director, as compensation for his services in helping with year
end activities. The options are exercisable at a price of $1.00 per share
(the market price at the date of grant), and expire in January 2001.
* The Board of Directors approved in April 1996 a repricing and
reissuance of all the options owned by Kevin Woodbridge, a director. This is
additional compensation for his continuing to operate under a consulting
contract with the Company without receiving his retainer fee for eight months,
relinquishing part of his retainer and part of his stock options to obtain a
release of a 1995 judgment against the Company on a cognovit note, and
relinquishing 500,000 currently owned options for cancellation so that the
Company could use those authorized shares in its current financings. At
December 31, 1995, Mr. Woodbridge owned 845,797 options with exercise prices
ranging from $1.43 to $2.00 per share and with expiration dates of 1996 to
2000. All of his options will be reissued with a new expiration date of
April 1, 2000 and with a new exercise price of $0.50 per share. Mr.
Woodbridge also has rights to immediate registration of his options through
an S-8 filing. If any of these options are relinquished and cancelled, the
Company has agreed to reissue them at such time as the stockholders approve
the authorization of additional shares.
Management estimates the value of the reissuance of currently existing
options with new pricing and expiration dates as approximately $967,000.
This will be recorded in the second quarter of 1996, which is when the
Directors of the Company (excluding Mr. France and Mr. Woodbridge, who
abstained) approved the transaction. If 500,000 of Mr. Woodbridge's options
are relinquished and cancelled, and subsequently reissued, management
estimates the additional value of the reissued options as approximately
$50,000, assuming current market prices. Because of the uncertainties
relating to the relinquishment of the options and the availability of
authorized shares for reissue, the actual value to be recorded is not known,
and will be recorded only when this contingency is resolved and the options
are actually issued.
* In April 1996, the Board also extended relinquishment and reissue
privileges (reissue at an exercise price of $0.75 per share and expiring six
years after reissue) to employees and directors, and to CommTech
International Management Corp., a major stockholder and option holder.
Exercise prices on options owned by these holders generally range from
$2.00 to $3.00 per share.
Considering the outstanding Common Stock and commitments at December
31, 1995, the aforementioned changes arising subsequent to that date and the
current market price of the Common Stock, the Company had 50,000,000 shares
outstanding or committed at the date of the accompanying report from the
independent accountants. Management will seek stockholder approval to increase
the authorized shares at the next annual stockholders meeting.
8. STOCK OPTIONS
During 1993, 500,000 options were granted in partial consideration for
services of an underwriter, 15,000 were granted under employment agreements,
300,000 were granted under consulting agreements, and approximately 1,580,000
were granted in conjunction with financing arrangements. See Notes 13 and 15.
No expense or allocation of financing proceeds between debt and equity was
recorded in connection with granting these options in 1993, due to
immateriality.
For the year ended December 31, 1994, the Company granted the
following options to purchase one share of Common Stock:
* 1,485,000 options at prices ranging from $1.70 to $4.00 per share,
expiring in 1997 through 1999, related to employment contracts.
* 140,000 options to non-employee directors at prices ranging from
$2.25 to $3.00 per share, expiring in 1998 and 1999.
* 3,050,525 options at prices ranging from $2.25 to $2.97 per share,
expiring in 1999, to employees under the employee stock option plan approved by
stockholders at the May 12, 1994 annual meeting.
* 580,000 options related to the Coloray acquisition, at $2.00 per
share, of which 400,000 expire in 1999, and 180,000 options at $2.00 per share
expired in November 1994. In addition, the Company committed to grant an
additional 60,000 options to SRI (formerly known as Stanford Research
Institute) related to the Coloray acquisition, pending entering into a new
contract with SRI.
* 1,675,000 options at prices ranging from $1.69 to $2.62 per share,
expiring from 1998 through 2000, related to debt financing.
* 1,954,583 options at prices ranging from $1.69 to $3.20 per share,
expiring from 1997 through 1999, related to consulting agreements.
General and administrative expenses for the year ended December 31,
1994 included expenses of approximately $1,897,000 related to these
options. Research and development expenses for the year ended December 31,
1994 included expenses of approximately $1,004,000 related to these
options. Interest expense for the year ended December 31, 1994 included
approximately $317,000 related to options granted in 1994.
A total of $1,103,000 of cognovit promissory notes were issued in
August through October 1994 at the prime interest rate. During 1994, for no
consideration to the officer involved, options and warrants to purchase
shares of Common Stock were transferred from an officer of the
Company to these noteholders to assist the Company in its financing
activities (1,078,200 options and warrants, see Note 6) and to a consultant
for services rendered (140,000 options). The options have exercise prices
ranging from $1.70 to $2.50 per share and expire at various dates through
October 2000. Certain of such options and warrants transferred by the
officer were received by the officer in an exchange of options and warrants
with a principal stockholder. Such options and warrants transferred from such
principal stockholder were exercisable for shares of Common Stock at prices
ranging between $1.70 to $2.00 per share and expiring at various dates
through October 2000. The Company accounted for these latter options and
warrants as a contribution to paid in capital by the principal stockholder
and a charge to compensation expense. For 1994, general and administrative
expenses include net expenses of approximately $104,000 related to
compensation cost and consulting services, and interest expense includes
approximately $563,000 relating to financing transactions equal to the fair
value of the options and warrants transferred.
In October 1993, the Board of Directors approved a new Stock Option
Plan ("Plan"), which was approved by the stockholders at their 1994 annual
meeting. The Plan provides for the grant of options to purchase up to
5,000,000 shares of Company Common Stock. All employees of the
Company and its subsidiaries, as well as non-employee directors and
consultants, are eligible for the grant of options under the Plan. The Plan
provides for the grant of incentive stock options and non-qualified options.
The Board of Directors or a committee of three disinterested directors
("Committee") administers the Plan. The purchase price for the shares
subject to options granted under the Plan will be determined by the Board
of Directors or the Committee, as the case may be. Each option becomes
exercisable at the time or times determined by the Board or the Committee
when the option is granted provided that no option may be exercised within
six months of date of grant; however the Board of Directors or the Committee
has the right to accelerate the exercisability of the options upon the
occurrence of certain events that involve, or may result in, a change in
control of the Company. Each option terminates on the date set by the
Board or the Committee at the time of grant, but no termination date may
be later than 10 years from the date of the grant. Generally, no option may be
exercised unless the holder of the option has continued to be an employee of
the Company or one of its subsidiaries except for limited exercise rights
after termination of employment. An optionee can pay the purchase price for
the stock option in cash, by delivery of Company Common Stock already owned by
the optionee, or by a combination of these methods, as determined by the Board
or the Committee, as the case may be. Approximately 3,150,000 options were
outstanding under the provisions of the Plan at December 31, 1995. These are
included in the table below. As a practical matter, because of the
restrictions on reissue of options and warrants identified in Note 7, no
further grants may be made under the Plan until stockholders approve an
increase in the Company's authorized shares.
For the year ended December 31, 1995, the Company granted the
following options to purchase one share of Common Stock:
* 1,912,450 options at prices ranging from $0.63 to $3.20 per share,
expiring in 1997 through 2000, related to employment contracts or offers.
* 1,279,000 options at prices ranging from $1.43 to $2.75 per share,
expiring in 1997 through 2000, related to consulting agreements.
* 7,000 options at a price of $1.69 per share, expiring in 2000, related
to debt financing.
* 1,000,000 options at a price of $1.74 per share, expiring in 2000,
related to a replacement for options transferred from an officer of the Company
to noteholders in 1994 (see above).
General and administrative expenses for the year ended December 31,
1995 included expenses of approximately $137,000 related to these options.
Research and development expenses for the year ended December 31, 1995
included expenses of approximately $425,000 related to these options.
Interest expense for the year ended December 31, 1995 included
approximately $3,000 related to options granted in 1995.
The table below reflects all options granted and outstanding through
December 31, 1995, all of which are exercisable (See notes 4 and 7):
Number of Shares Option Price
Options outstanding at
December 31, 1992 748,844 $1.50-$5.00
Granted 2,394,891 $1.69-$5.00
Forfeited -- --
Exercised ( 84,919) $1.69
--------
Options outstanding at
December 31, 1993 3,058,816 $1.69-$5.00
Granted 8,885,108 $1.69-$4.00
Forfeited ( 459,962) $1.75-$5.00
Exercised (1,039,177) $1.69-$2.00
--------
Options outstanding at
December 31, 1994 10,444,785 $1.69-$4.00
Granted 4,198,450 $0.63-$3.20
Forfeited (906,013) $2.25-$3.00
Exercised (473,286) $1.69-$2.50
-----------
Options outstanding at
December 31, 1995 13,263,936 $0.63-$4.00
===========
The options outstanding at December 31, 1995 expire as follows:
644,797 in 1996, 1,512,348 in 1997, 3,664,391 in 1998, 2,867,950 in 1999,
and 4,574,450 in 2000.
9. STOCK WARRANTS:
During 1993, the Company issued 41,177 warrants in conjunction with
the issuance of convertible notes. In November 1993, the Company sold
1,253,067 units at $3.38 per unit in two private placements, each unit
consisting of two shares of Common Stock ( a total of 2,506,134
shares) and a warrant ("class A Warrant") to purchase three to five
additional shares ( a total of 4,136,834 warrants). In partial consideration
for its services, the underwriter received a three-year option to purchase
125,307 units at $3.38 per unit, with five Class A Warrants in each unit
( a total of 626,535 warrants). Additionally, the Company issued 21,898
Class A Warrants to the underwriter's attorney for their services in the
transaction and issued 84,361 Class A Warrants to three stockholders who
acquired Common Stock in conjunction with another private placement which
was terminated in the third quarter of 1993. All of the Class A Warrants,
aggregating 4,869,628, have an exercise price of $1.69 per share and a term
of three years from the date a registration statement is filed with the
Securities and Exchange Commission. Because of delays in filing a
registration statement on these Class A Warrants, the exercise price
decreased to $1.39 per share in accordance with the 1993 private offering
agreement. A registration statement on these warrants was declared
effective on February 13, 1995. No expense or allocation of financing
proceeds between debt and equity was recorded in connection with issuing
these warrants due to immateriality.
In 1994, the Company issued 300,000 warrants in conjunction with
sales of Common Stock. No expense was recorded in connection with issuing
these warrants due to immateriality.
In 1995, the Company issued the following warrants to purchase one
share of Common Stock:
* 94,610 warrants at a price of $1.65 per share, expiring in 2000,
related to consulting agreements.
* 150,000 warrants at a price of $1.70 per share (or for 50,000, at a
price which floats with the market price), expiring in 1998, related to new
debt financings.
* 700,000 warrants at a price of $1.51 per share, expiring in 2000,
related to the sale of Ampsco's land and buildings.
* 2,668,656 warrants at prices ranging from $0.81 to $2.00 per share,
expiring in 1998 through 2000, related to negotiations with debt holders.
For the year ended December 31, 1995, expenses included the following
approximate amounts related to warrants issued in 1995: general and
administrative expenses - $44,000; interest expense - $984, 000; finance
charges - $438,000; other expenses - $350,000.
<PAGE>
The table below reflects all warrants issued and outstanding through
December 31, 1995, all of which are exercisable (See notes 4 and 7):
Warrants Warrant Price
Warrants outstanding at
December 31, 1992 3,600,974 $0.75-$6.00
Issued 4,910,805 $1.69-$2.00
Terminated (12,500) $6.00
Exercised (51,980) $0.75-$1.69
------------
Warrants outstanding at
December 31, 1993 8,447,299 $0.75-$5.25
Issued 300,000 $2.00
Terminated (25,000) $3.50
Exercised (43,429) $1.00-$1.69
-----------
Warrants outstanding at
December 31, 1994 8,678,870 $0.75-$5.25
Issued 3,613,266 $0.81-$2.00
Terminated (250,091) $0.75-$2.88
Exercised (870,122) $1.00-$5.25
-----------
Warrants outstanding at
December 31, 1995 11,171,923 $0.81-$4.00
==========
The warrants outstanding at December 31, 1995 expire as follows:
291,457 in 1996, 2,181,902 in 1997, 5,836,732 in 1998, 50,000 in 1999,
and 2,811,832 in 2000.
10. LEASES
The Company leases Scriptel's office and production facility under an
operating lease that provides for monthly lease payments of approximately
$10,000 per month through January 1997. The Company also leases the office and
production space of Coloray through November 1996 (monthly rental $19,000) and
various equipment through short-term operating leases. (See Notes
13 and 15). Total rent expense for the years ended December 31, 1995, 1994
and 1993 amounted to $395,000, $452,000, and $201,000, respectively.
Future minimum lease payments are as follows:
1996 $334,000
1997 15,000
-----------
Total $349,000
==========
Lease payments of $103,000 were past due at December 31, 1995.
11. BUSINESS SEGMENT INFORMATION:
The Company currently operates in a single business segment --
computer peripheral equipment. The computer peripherals segment involves
manufacturing and marketing of high performance digitizers, stylus pens,
control chips and glass screens for computer aided design, business graphics,
and personal computer applications, and revenues from development fees.
Prior to the disposition of Ampsco, the Company also operated in a
machining/contracting segment. The machining / contracting segment involved
the repair and customizing of machine tools and precision machining equipment,
and until April 1994 this segment also included the sale and installation of
highway safety equipment and other highway contracting. Ampsco was sold in
April 1996. The Company has treated the sale as a discontinued operation in
the accompanying consolidated financial statements.
Summarized financial information by business segment for the years
ended December 31 are as follows:
1995 1994 1993
Total assets:
Computer peripherals $1,461,000 $2,191,000 $2,982,000
Machining/contracting -- 1,771,000 3,114,000
----------- ---------- ----------
Total $1,461,000 $3,962,000 $6,096,000
=========== ========== ==========
Depreciation and amortization:
Computer peripherals $580,000 $411,000 $91,000
Machining/contracting 110,000 121,000 317,000
-------- ---------- --------
Total $690,000 $532,000 $408,000
======== ======== ========
Capital expenditures:
Computer peripherals $359,000 $372,000 $81,000
Machining/contracting 60,000 14,000 38,000
-------- -------- -------
Total $419,000 $386,000 $119,000
======== ======== ========
12. MAJOR CUSTOMERS:
Sales to one customer comprised 66.2%, 7.0%, and 11.5% of total sales
in 1995, 1994, and 1993, respectively. Sales to a second customer comprised
15.2% and 18.4% of total sales in 1995 and 1994 respectively. In addition, the
Company had 16.2% of sales to a third customer in 1994.
13. RELATED PARTY TRANSACTIONS:
In 1993 the Company granted a former director and his firm options to
purchase a total of 35,000 common shares at $2.00 per share.
The Company recognized interest expense of approximately $7,000,
$6,000, and $103,000 on notes payable to officers and directors for the years
ended December 31, 1995, 1994 and 1993, respectively.
In connection with a financial public relations agreement dated April
20, 1993, Mr. K. Woodbridge and Woodbridge & Associates ( collectively,
"Woodbridge"), an unaffiliated entity at that time , was paid $150,000 and was
granted three year options to purchase 1,500,000 shares of Common Stock at a
price of $1.69 per share ( the market bid price at the time of grant was
$3.50 for unrestricted shares). Under the agreement, as amended,
Woodbridge performs financial public relations services and refers the
Company to sources of investment capital. The grant of 750,000 of the
1,500,000 Woodbridge options was conditioned on the Company's stockholders
approving an increase in the Company's authorized shares at the 1994 Annual
Meeting. An additional 175,000 share options were granted to Woodbridge
under the Company's Stock Option Plan in December 1993, also conditioned on
the stockholders approving an increase in the Company's authorized shares
at the 1994 Annual Meeting. The agreement with Woodbridge has been amended
on two occasions prior to December 31, 1994. Under such amendments,
Woodbridge has received an aggregate retainer of $130,000 through December
1995 and will continue to receive $5,000 per month until his contract is
renegotiated or terminated. Additionally, Woodbridge has received
reimbursement of documented travel and other expenditures of $82,000 in
1993 and $100,000 in 1994. In November 1994, the Company granted an
additional 300,000 options at an exercise price of $2.00 per share,
expiring in 1997, in accordance with the October 1994 amendment to the
consulting agreement with Woodbridge. At the date of grant, the bid price
of the underlying Common Stock on the over-the-counter market was $3.375 per
share. The consulting agreement further provided for grants of 100,000 options
on February 28, 1995 and 100,000 options on May 31, 1995, on the same
terms, provided that Woodbridge continued to provide services to the Company
on those dates. These options were granted on those dates. Pursuant to the
agreement, Woodbridge may appoint an individual to the Company s Board of
Directors. Mr. Woodbridge became a Director of the Company in June
1995. Mr. Woodbridge also received 80,000 options at an exercise price of
$1.43 per share in 1995.
A director of the Company from May 1994 to May 1995 was a consultant
to the Company from July 1993 to February 1995. In January 1994 the Company
and the director entered into a Consulting Memorandum of Understanding and
Consulting Agreement with respect to his consulting services to the Company.
The Consulting Memorandum of Understanding provided for a 90 day term,
compensation of $5,000 per month, and options to purchase 50,000 shares of
Common Stock of the Company for $2.25 per share (the market bid price at
the time of grant was $3.875 for unrestricted shares). The Consulting
Agreement includes provisions for the protection of the Company's
intellectual property. The director and the Company continued the consulting
arrangement following the 90 day term referenced above but terminated the
agreement in February 1995.
In 1994, the Company granted 14,583 options under the Stock Option
Plan at an exercise price of $3.00 per share, expiring in 1999, to a director
of Coloray who is also a consultant to the Company. In addition , 175,000
options were granted under the Stock Option Plan at an exercise price of
$3.20 per share, expiring in 1999, in accordance with provisions of a
consulting agreement with that consultant. A further 275,000 options were
approved for grant to consultants under the Stock Option Plan, and 125,000
options were granted in 1994 and 50,000 options were granted in 1995 to three
consultants at a price of $3.20 per share, expiring in 1999 or 2000, and the
remainder will be granted by the Compensation Committee of the Board of
Directors when they determine the consultants who will receive the options.
Such future grants will be at an exercise price which is the higher of 85% of
the fair market value of the underlying shares at the date of grant or $3.20
per share, and will expire five years after grant.
In August 1991, Mr. W.T. Krumm (a significant stockholder of the
Company) and an affiliate loaned the Company an aggregate of $1,000,000. The
loan was evidenced by a convertible promissory note that bore interest at
prime, plus four percent, and was convertible into up to 1,000,000 shares of
Common Stock at a conversion price of $1.00 per share. Mr. Krumm
received a warrant to purchase an additional 1,000,000 shares at $1.00 per
share, provided that the warrants were only issued in direct proportion to
draws on the loan. In March 1992, Mr. Krumm converted $875,000 of principal,
plus $53,308 of interest, into 928,308 shares of Common Stock and exercised
warrants for 702,000 shares at $1.00 per share. As consideration
to Mr. Krumm to exercise the warrants, the Company granted Mr. Krumm a
replacement warrant to purchase 1,000,000 shares at $1.69 per share. Mr.
Krumm loaned $75,000 to the Company in February 1993, and $100,000 in May
1993 in the form of convertible notes, convertible at the rate of $1.69 per
share. In exchange for extending the due date of the remaining $125,000 of
the 1991 convertible note, extending the February 1993 convertible note and
loaning $100,000 in May 1993, Mr. Krumm received options to purchase 300,000
shares at $1.70 per share. At the time of the issuance of notes and grants of
options and warrants to Mr. Krumm, the market bid price for unrestricted
Common Stock was between $4.00 and $5.75 per share. The Company has granted
registration rights with respect to all of the shares of Common Stock issued or
issuable to Mr. Krumm.
In 1992, (at various dates between August and October) Mr. G. S.
Jacobs (a significant stockholder and creditor of the Company), who controls
Standard Energy Company (references to Mr. Jacobs shall include Standard
Energy Company where appropriate) loaned $525,000 to the Company and received
options to purchase 220,000 shares at prices ranging from $1.75 to $2.50 per
share. He also purchased 60,000 shares in June of 1992 and received warrants
to purchase an additional 60,000 shares at $2.50 per share. In April 1994,
the Company repaid the outstanding balance of the 1992 loan. In February
1993, Mr. Jacobs loaned $75,000, an additional $100,000 in April, and $100,000
and $50,000 in each of May and June in the form of convertible notes,
convertible at $1.69 per share for the February and April notes and
at $1.70 per share for the later notes. In addition, as part of his
$75,000 loan in February 1993, Mr. Jacobs received options to purchase 45,000
shares at $1.75 per share. In April 1993, Mr. Jacobs was granted options to
purchase 400,000 shares at $1.70 per share for extending the $225,000
remaining on the 1992 loan, for extending the February 1993 loan and for
making the $100,000 April loan. As additional consideration for the loans in
May and June, Mr. Jacobs received options for an aggregate of 175,000 shares
at $1.70 per share. In addition , Mr. Jacobs received options to purchase
100,000 shares at $1.70 per share in August 1993, and in September
1993 loaned the Company $25,000, which was repaid in its entirety in
October 1993. In March 1994, Mr. Jacobs loaned the Company $90,000 in the form
of a cognovit promissory note, payable on demand, which the Company repaid in
April 1994 with $9,000 of interest. On May 5, 1994, May 17, 1994, and May 31,
1994, Standard Energy loaned the Company (Scriptel and Coloray, collectively)
$125,000, $125,000, and $250,000, respectively, in the form of cognovit
promissory notes, payable on demand, bearing interest at 10% per annum. As
additional consideration for these loans, Mr. Jacobs was granted options to
purchase 500,000 shares of the Company's stock at $2.62 per share, and the
exercise period of all his options and warrants was extended to the year 2000.
At various dates from August to December 1994 the Company repaid $61,000 of
these May 1994 Standard Energy loans. On September 15, 1994 and September 30,
1994, Standard Energy loaned the Company $75,000 and $120,000, respectively,
in the form of cognovit promissory notes payable on demand. Both of these
loans were repaid on November 28, 1994, together with interest of $7,500 and
$12,000, respectively. Mr. Jacobs has a security interest in substantially all
tangible and intangible assets of the Company and pledges on all current and
future patent rights. At the time of the issuance of notes and grants of
options and warrants to Mr. Jacobs, the market bid price for unrestricted
Common Stock was between $2.125 and $4.875 per share. On October 31, 1994 and
December 29, 1994, the Company issued demand cognovit promissory notes to
Standard Energy in the principal amount of $100,000 and $235,000, respectively.
The $100,000 note bears interest at 10%. Upon demand, interest of
$23,500 is payable on the $235,000 note . If the Company defaults in
payment when demand is made, the notes bear interest at 18% per annum.
On January 17, 1995, the Company issued demand cognovit promissory
notes in the combined principal amount of $200,000 to Mr. Krumm and Mr.
Jacobs for funds in that amount. Upon demand, interest of $20,000 was
payable. If the Company defaults in payment when demand is made, the notes
bear interest at 18% per annum. The Company repaid Mr. Krumm's note with
$10,000 interest in February 1995. The Company paid the $10,000 interest
and $22,500 of principal on Mr. Jacob's note in April 1995, and an
additional $20,000 of principal in May 1995, and the remaining $57,500 of
principal in November 1995.
On January 31, 1995 and March 2, 1995 the Company issued demand
cognovit promissory notes in the principal amount of $100,000 and $175,000,
respectively, to Standard Energy Company for funds in that amount. The Company
paid off these notes, with $10,000 and $25,000 interest, respectively, in
April 1995.
In February 1995, the Company paid $10,000 of principal and interest
on a demand note payable to Standard Energy Company.
Between May 10 and November 2, 1995 the Company borrowed $1,375,000
from Standard Energy Company under ten separate demand cognovit promissory
notes. Upon demand, total interest of $195,000 is due. One of the notes in
the amount of $70,000 dated May 15, 1995, together with interest of $10,000,
was paid off on May 19, 1995. One note in the amount of $150,000 dated
November 2, 1995, together with interest of $10,000, was paid off on November
6, 1995.
On October 16, 1995 the Company borrowed $40,000 under a demand
cognovit note from a relative of Mr. Jacobs. A principal payment of $30,000
was made on October 20, 1995, and the remaining $10,000 of principal and
$10,000 of interest was paid on November 6, 1995.
In January through June 1995 Coloray sold certain equipment which was
not being used. Proceeds were $380,000, which approximated the net book value
of the assets sold. These assets were included as assets held for sale at
December 31, 1994 in the accompanying consolidated balance sheets. Half of
the proceeds, or a total of $190,000 were paid to Standard Energy
Company against notes (see above) to obtain release of liens on the assets.
In March 1992, a director who retired in December 1993, and his spouse
and various family trusts converted an aggregate of $1,493,132 of notes to
1,019,771 shares of Common Stock. In January 1993, his spouse loaned $20,000
to the Company and received options to purchase 5,000 shares at $1.75 per
share. In February 1993, his spouse loaned $75,000 to the Company in form
of a convertible note at $1.69 per share and received options to purchase
75,000 shares at a $1.70 per share. In March 1993, his spouse and the family
trusts exercised warrants to purchase 43,980 shares at a total exercise price
of $62,970. At the time of the issuance of notes and grants of options and
warrants to the director and his spouse, the market bid price for unrestricted
Common Stock was between $2.25 and $2.625 per share.
In November 1993, a director of the Company, and a related affiliate
converted two notes totaling $53,301 into 34,197 shares of the Company's Common
Stock.
On March 9, 1992 the Company loaned $90,000 to its President, Mr.
James W. France, Jr., which was used by Mr. France to exercise options to
purchase 60,000 shares of Common Stock at $1.50 per share. The note is due
on demand and bears interest at the rate of 10%. On December 30, 1992, an
additional $75,000 was loaned to Mr. France. This was originally due on
December 31, 1993, with interest at 10%. The proceeds of this loan were
used by Mr. France to exercise options to purchase 50,000 shares at $1.50 per
share. As of December 31, 1995, $71,000 in principal and interest was due on
the March note and $81,000 was due on the December note. In 1994, the
Compensation Committee of the Board of Directors changed the terms of the
note to defer further payments of interest and the principal balance on both
notes until December 31, 1995. In addition, the Company has made and expensed
net advances to Mr. France of approximately $91,000 through December 31, 1995
against a $100,000 bonus included in his former employment contract.
Although the Board declared this bonus be paid to Mr. France in 1995, Mr.
France refused to accept it. The Company expects to pay this bonus in 1996,
and offset it against these advances.
In addition to the borrowing noted above , during 1993, and 1994, the
Company borrowed additional funds from Messrs. Krumm and Jacobs in connection
with the purchase of Coloray, all of which were subsequently repaid. (See
Note 15).
In 1995, Coloray borrowed a total of $106,000 from certain of its
officers to cover payroll and other immediate needs. These notes were
payable on demand with interest at 12% to 20% of the principal. Coloray
repaid $72,000 of principal and $14,000 of interest in 1995.
The Company's Board of Directors will continue its policy of
authorizing or approving transactions in which any director, officer or other
affiliate has an interest only if the terms thereof are believed by the
directors to be no more favorable with respect to the interest of any such
affiliate than could be obtained from unaffiliated third persons.
14. COMMITMENTS:
License and Technology agreements:
In July 1992, the Company entered into a joint technology development
agreement with a major original equipment manufacturer ("OEM") for the
development of certain cordless chip technology. Pursuant to the agreement,
the Company was required to make payments totaling $150,000. Due to
scheduling delays, the OEM has agreed to defer these payments. Upon sale of
units containing the licensed technology, the OEM is obligated to make
royalty payments at rates that decline as volumes increase, with a minimum
annual royalty of $50,000. The agreement has a 5 year term with automatic
one-year renewal terms thereafter. If the OEM ceases development or
manufacture of the chip, the OEM will grant Scriptel a non-exclusive permanent
license on its technology in return for a payment of $1,000,000, and Scriptel
will pay royalties to the OEM.
In October 1992, the Company entered into a hardware development and
technology agreement with a major OEM. The Company received an initial
licensing payment of $500,000 and granted the OEM until October 1993 the option
to invest up to an additional $1,000,000 in the Company's Common Stock and
receive a credit of $500,000 toward additional Common Stock. The option
expired without exercise in October 1993 and, therefore, the Company no
longer had an obligation to credit the license fee. Accordingly, the
Company having completed all conditions and obligations of the agreement
recognized the full amount of the $500,000 as licensing fee income in 1993.
In January 1994, the Company entered into a new development and licensing
agreement with the OEM which provides for the OEM to develop, license,
manufacture, sell and distribute certain products derived from the
technology.
In addition, as a condition to the agreement, the OEM and the Company
executed a stock purchase agreement in February 1994 pursuant to which the OEM
purchased 477,099 shares of the Company's Common Stock for an aggregate price
of $1,250,000. The stock sale was effected in April 1994.
The Company has entered into license agreements with various OEM's and
suppliers for use of the Company's technology in their products. The
Company will be paid licensing fees based on the volume of use of its
technology. No royalty fee income was recognized under these
agreements during 1995, 1994 or 1993.
On December 16, 1994, Scriptel signed a Development Agreement and
License with Xetron Corporation, a designer and developer of radio frequency
products. Xetron is developing for Scriptel radio frequency technology to
enable Scriptel's hand-held devices to communicate using radio frequencies.
Under the agreement Scriptel is obligated to pay Xetron a total of $875,000 in
quarterly installments from September 30, 1995 through December 15, 1996,
(this will be expensed over the term of the agreement), in addition to
royalty payments upon reaching threshold sales of the resulting Scriptel
hand-held device incorporating the radio frequency technology. During the
three year period ending December 16, 1997, Xetron has an option to
purchase, upon mutually acceptable terms, a 50% interest in a subsidiary to
be formed by Scriptel to exploit the radio frequency hand-held product. If
Xetron elects to purchase the 50% interest, royalty payments under the
agreement will terminate. Research and development expense in 1995 and
1994 included $438,000 and $18,000, respectively relating to this
agreement.
In 1993, 1994 and 1995 Coloray entered into several joint development
agreements with outside companies under Cooperative Research and Development
Agreements (CRADA's) and also with the U.S. Display Consortium on various
on-going projects relating to flat panel display technology. Under these
agreements, Coloray is obligated to provide cash or in-kind payments of
$2,460,000 through various periods to June 1997. The Company accrued
$875,000 in 1995 and $689,000 in 1994, which is shown as research and
development expense. The remaining amounts will be accrued in 1996 and 1997,
and will be expensed in those years as the research efforts are performed.
In August 1995, Coloray entered into a license and royalty agreement
with SRI International. The agreement requires an initial $100,000 payment to
SRI, and additional payments of $1,750,000 over a three year term of research
on field emission display (FED) technology. It also requires royalties on
sale of FED units. Costs of $343,000 were expensed in 1995 relating to this
agreement.
Employment Agreements:
In September 1992 and as amended in 1993 and 1994, the Company entered
into a three-year employment agreement with the Company's CEO. This
agreement expired in September 1995. However, he is continuing to serve in
the same capacity, without a contract, at an annual salary of $250,000. The
agreement, as amended, provided for the annual grant of options to purchase
10,000 shares of Common Stock at $2.00 per share ( previously 7,000 shares
annually at $2.50 per share). These options are immediately exercisable and
expire at the earlier of five years after the date of grant or 90 days after
termination. In addition, in exchange for cancellation of all other options
held by the CEO and cancellation of an earlier employment agreement, he was
also granted four-year options to purchase 96,667 shares of Common Stock at
$2.50 per share and five-year options to purchase 70,000 shares of Common
Stock at $2.50 per share, each exercisable commencing on September 1, 1993.
The same agreement also provided for issuance of options to purchase up to
575,000 shares of Common Stock at $2.50 per share pending completion of
certain milestones, as defined in the agreement. In December 1993, the CEO was
granted an option for an additional 500,000 shares of Common Stock,
exercisable immediately at $1.70 per share, contingent upon the stockholders
approving an increase in the number of authorized shares. This approval was
granted in May 1994. All of the above options were transferred to certain
noteholders in 1994, for no consideration to the CEO, to help the Company
in its financing activities (See Note 8).
At December 31, 1995, the Company has employment agreements with
several other key employees and officers expiring at various dates through
February 1998. The aggregate commitment for future salaries under these
employment agreements is approximately $558,000 in 1996, $326,000 in 1997,
and $9,000 in 1998.
15. ACQUISITIONS:
Coloray:
In April 1994, the Company acquired a majority of the outstanding
shares of Coloray Display Corporation ("Coloray"), a development-stage company
engaged in research and development of flat panel displays for use in
conjunction with computers and other sophisticated electronic applications.
Coloray was under reorganization pursuant to Chapter 11 of the Federal
Bankruptcy Code, and the acquisition was subject to the Bankruptcy Court's
approval. Coloray's principal assets are its proprietary rights in basic
field emission display technologies and its sophisticated equipment used to
fabricate display components. Under the court-approved plan of
reorganization, the Company, in exchange for a 79.8% interest in Coloray,
issued approximately 1,261,000 shares of Common Stock, purchased and
extinguished $1,057,000 of claims against Coloray, issued five-year options to
purchase 460,000 shares at $2.00 per share, and paid approximately $400,000.
An additional 180,000 options to purchase Scriptel stock at $2.00 per
share, that were exercisable over a period not to exceed 180 days, were
issued to certain former common stockholders of Coloray. The former
preferred stockholders of Coloray, in cancellation of their preferred equity
interests, received a 20.2% equity interest in Coloray. To meet its cash
requirements in the acquisition, the Company received in March 1994, a loan
of $450,000 in the form of a 10% interest bearing, secured, demand promissory
note, payable to Messrs. Krumm and Jacobs. The loan was repaid in April
1994. As additional consideration for the loan, the Company conveyed to the
two stockholders 28.8%, in the aggregate, of the Coloray Common Stock leaving
the Company with a 51% ownership interest in Coloray and which resulted in a
finance charge of $582,000 in the second quarter of 1994. Prior to
submitting its creditors' plan of reorganization to the bankruptcy court,
Scriptel purchased the secured lien positions of Coloray's primary lenders
and entered into a lease agreement with Coloray's former landlord
whereby the Company (i) paid Coloray's prepetition claim of $281,334 and
(ii) agreed to pay, as additional rent over one year, the post-petition claim
of $114,756. The purchased Coloray claims have been extinguished as part of
the plan of reorganization. The funds to purchase the Coloray
secured lenders positions were initially lent in September, 1993 to the
Company by Messrs. Jacobs and Krumm. The loans were repaid in October, 1993
with interest at 8%, a premium of $64,304, and five-year options to purchase
1,000,000 shares of Scriptel at $1.69 per share.
During 1993, the Company incurred certain legal and acquisition
related expenses, and paid on behalf of Coloray certain prepetition salary
claims relating to this pending acquisition amounting to approximately
$99,000. In addition, the Company funded certain operating and research
and development activities at Coloray amounting to approximately $306,000,
which were all expensed during 1993.
At December 31, 1993, the Company recorded notes and accounts
receivable from Coloray related to the above-mentioned claims and acquisition
costs of approximately $877,000.
Approximately $3,357,000 of the costs associated with the 1994
acquisition, including the value of options issued, related to purchased
research and development projects in progress. Such amount has been reported
as research and development expense in the Company's second quarter 1994
financial statements.
Due to the fact Coloray was an inactive corporation in bankruptcy
proceedings since October 1992, the historical financial statements were not
considered to be meaningful since they are not representative of the type or
level of activity anticipated by the Company subsequent to acquisition.
Accordingly, the Company has not presented consolidated pro forma financial
information as though the transaction occurred at the beginning of the periods.
16. SUBSEQUENT EVENTS:
In addition to several items described above and in Note 18, the
Company had the following events occur subsequent to December 31, 1995, and
through the date of the accompanying independent accountants opinion.
The Company borrowed a total of $672,000 in five separate transactions
with two major creditors and stockholders. The loans are payable on demand,
and bear interest at stated amounts up to 41% of principal. The Company
repaid $75,000 to one of the creditors during the same time period. One of
the new loans requires payment from first proceeds available from a large
financing transaction.
In March 1996, the Company determined that it could no longer support
the operations of Coloray and announced plans to close that operation.
Expected additional costs to close Coloray are approximately $400,000
including rental payments through the end of Coloray's lease in November 1996,
environmental shutdown, severance, and equipment decommissioning. In
addition, Coloray has contractual research and development obligations
continuing through 1997, of which $2,300,000 have not been recorded at
December 31, 1995. The Company, Coloray and SRI International, Inc. (SRI)
have entered into a letter of intent to arrange a consortium to continue
Coloray and SRI's field emission display technology research. No
definitive consortium documents have been signed. The proposal requires
Coloray to contribute its patents and technology to the consortium in
return for one-time royalty payments by consortium members and cancellation
of the existing research agreement with SRI (see Note 14). The Company has
the right but not the obligation to enter the consortium as a member to
obtain the benefits of future research. The amounts, if any, to be
received from the consortium are not currently estimable but will probably
not be sufficient to meet all of Coloray's obligations. Coloray's
liabilities and obligations include the following approximate amounts:
Accounts payable $600,000
Accrued expenses 300,000
Notes payable 100,000
Intercompany notes payable 2,800,000
CRADAs and existing SRI research agreement:
Accrued through December 31, 1995 1,900,000
To be accrued through 1997 2,300,000
Additional estimated total costs of closure 400,000
-----------
$8,400,000
==========
Coloray's assets approximate $800,000 at December 31, 1995.
The Company will attempt to obtain the release of Coloray from its
CRADA commitments as part of the closure and will attempt to obtain the
release of Coloray from its SRI commitments through the proposed consortium.
The Company is not currently able to estimate or quantify the effects
of the proposed consortium; the reduction, if any, in Coloray's CRADA
commitments; proceeds, if any, to be received from any disposition of assets;
or the ultimate resolution of the closure. However, if sufficient proceeds
are not received to meet Coloray's liabilities and obligations, it is likely
that Coloray will have to liquidate. Assuming that proceeds received are
minimal and the Company is successful in negotiating releases from the SRI
and CRADA obligations, the Company believes that the operations and closure
of Coloray would have the following approximate, unaudited, pro forma net
effects on results to be shown in the Company's consolidated statement of
operations in 1996:
Coloray's estimated operating (loss)
through March 1996 $(500,000)
Additional costs of closure (Scriptel
Holding, Inc. is contractually liable
on Coloray's lease and for certain other matters) (400,000)
-----------
(900,000)
Gain which would be reported on elimination
of the approximate amount of Coloray's
non-intercompany net liabilities 1,900,000
-----------
Approximate amount of net gain to be reported $1,000,000
===========
If the Company is unable to negotiate releases of the SRI and/or CRADA
obligations, these obligations would be recorded by Coloray at full value and
then eliminated. If proceeds are more than minimal, from the consortium or
otherwise, the proceeds would be used to reduce the amount of Coloray's net
liabilities, with a corresponding reduction in the amount of gain which
would be reported on their elimination.
In addition, if proceeds were minimal, the closure of Coloray would
have an approximate, unaudited, pro forma effect of reducing the reported
total assets of the Company by $800,000. This represents the elimination of
the approximate value of Coloray's equipment and leasehold improvements of
$500,000; patents of $150,000; and other assets of $150,000.
17. NEW ACCOUNTING PRONOUNCEMENT
In late 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Compensation" (SFAS-123). The Company intends to fully adopt this statement
in 1996. SFAS-123 requires a substantial change in the calculation of the
value of options granted to directors, officers and employees. Had the
Company used the provisions of SFAS-123 to calculate the value of options
granted in 1995, management estimates that the reported net loss of the Company
for the year ended December 31, 1995 would have increased by approximately
$1,000,000, or $0.06 per share.
18. DISCONTINUED OPERATIONS - SALE OF AMPSCO:
Ampsco has had continuing losses from operations since acquisition,
and at December 31, 1995 had an accumulated deficit in stockholders' equity of
approximately $2.2 million. To cut the ongoing losses and to focus the
Company on the computer peripheral segment, in April 1996 the Company sold
all of the Common Stock of Ampsco. No appraisal of Ampsco was made in
connection with this transaction.
The buyer was 1896, Inc., a corporation headed by Thomas J. Leukart, a
director of the Company at the time of sale. Dennis J. Leukart, president of
Ampsco at the time of the sale is a brother of Thomas Leukart and the
father-in-law of James W. France, Jr., the Company's Chairman, President, and
CEO. As part of the agreement of sale, both Thomas Leukart and Dennis Leukart
resigned from their positions with the Company and cancelled their employment
agreements. Thomas Leukart also resigned as Director of the Company.
The buyer issued a Promissory Note (the "Note") to the Company in
partial payment of the purchase price. The Note is for $650,000, and bears
interest at 5%. Interest is payable monthly, with the entire principal
balance due on April 1, 1999. The Company has endorsed this Note to
Mr. Jacobs, who had a security interest in the Ampsco shares which were
sold. The Company has not recorded any amount of the Note as proceeds on
the sale of Ampsco because management estimates that collection of the Note
is improbable. The Company will record cash payments on the Note as income
when received, and offset notes payable to Mr. Jacobs for the funds
transferred to him. If the Note is repaid, Mr. Jacobs has agreed to
release Ampsco from any further obligation it may have as endorser of
several notes the Company has with Mr. Jacobs or his affiliates.
The remaining payments of the purchase price are in the form of
monthly royalties at 2% of Ampsco's collected sales for a ten-year period.
These payments are subject to a maximum of $100,000 per year. (Ampsco's
sales in 1995 were $1,827,000, which would have resulted in a
royalty payment of approximately $37,000 had the agreement then been in
effect.) The buyer received from Mr. Jacobs an option until March 31, 1999 to
purchase for $375,000 the land and buildings Ampsco occupies, which is also
subject to full payment on the Note. If the Note were paid and the option
exercised, no further royalty payments would be required. The Company has
not recorded any amount of the royalties as proceeds on the sale of Ampsco
because management estimates that long-term cash realization is improbable and
because of the significant contingency with respect to the termination of the
royalty payments. The Company will record cash payments, if any, as income
when received.
The buyer has pledged Ampsco stock to Mr. Jacobs.
The Company has treated the sale of Ampsco as a discontinued
operation. Consequently, Ampsco's results are excluded from the accompanying
consolidated balance sheet at December 31, 1995 and from the loss from
continuing operations shown on the accompanying statements of operations for
1995, 1994 and 1993.
The Company is contractually obligated on Ampsco's notes payable to
Stimsonite Corporation (see Note 3 - Litigation). Stimsonite has obtained
a judgment against the Company on this debt. Management estimates that it
is improbable that Ampsco could pay the creditor or repay Scriptel if
Scriptel is forced to pay the creditor. The Company has recorded a loss on
disposal of Ampsco of $450,000 to recognize the full contractual obligation
to Stimsonite. The Company is also negotiating with the creditor to settle
the debt for a reduced amount. As part of the agreement to sell the Common
Stock of Ampsco, the Company contributed its $2.2 million intercompany
receivable from Ampsco to the capital of Ampsco. This resulted in almost
complete liquidation of Ampsco's stockholders deficit, and the buyer
assumed the remaining $22,000 of net liabilities of Ampsco. The Company
recorded this assumption of net liabilities as a reduction of the loss on
disposal at December 31, 1995. The Company also recorded a loss of $20,000
at December 31, 1995 for the anticipated loss from operations of Ampsco
until the disposal date in April. The net result of these three items is
that the Company has recorded a net loss of $448,000 in 1995 on the
disposal of Ampsco.
Ampsco's sales were $1,827,000 in 1995, $1,841,000 in 1994, and
$4,230,000 in 1993. Ampsco's loss from operations was $507,000 in 1995,
$705,000 in 1994, and $856,000 in 1993. The effects of the sale of Ampsco
reduced the Company's reported total assets at December 31, 1995 by
approximately $975,000.
<PAGE>
SCRIPTEL HOLDING, INC.
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
JUNE 30, 1996
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS June 30,1996 December 31,
(Unaudited) 1995
Assets ------------ ------------
Current assets:
Cash and cash equivalents $ 125,000 $ 51,000
Trade accounts receivable, net of allowance for
doubtful accounts of $3,000 in 1996 and 1995 82,000 65,000
Inventories 6,000 2,000
Other current assets 2,000 2,000
----------- -----------
Total current assets 215,000 120,000
Property and equipment, net 475,000 947,000
Patents, net 148,000 184,000
Deposits -- 122,000
Other assets 54,000 88,000
----------- ----------
Total assets $ 892,000 $1,461,000
=========== ===========
Liabilities and Stockholder's Deficit
Current liabilities:
Notes payable, short-term and current portion $ 5,033,000 $4,741,000
Accounts payable 1,864,000 1,681,000
Accrued interest 1,205,000 855,000
Accrued loss on discontinued operations 450,000 470,000
Other accrued liabilities 6,770,000 2,777,000
--------- ---------
Total current liabilities 15,322,000 10,524,000
Notes payable, long-term 1,350,000 1,000,000
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.10 par value, 50,000,000 shares authorized:
24,003,887 shares and 21,058,217 shares issued and
outstanding at June 30, 1996 and December 31,
1995, respectively 2,400,000 2,106,000
Additional paid in capital 41,256,000 38,529,000
Accumulated deficit (59,428,000) (50,558,000)
Notes receivable - stockholders (8,000) (140,000)
----------- ----------
Total stockholders' deficit (15,780,000) (10,063,000)
----------- ----------
Total liabilities and stockholders' deficit $ 892,000 $1,461,000
========= ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended June 30,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
Revenues $ 117,000 $ 140,000
Costs and expenses:
Cost of sales 101,000 73,000
General and administrative 1,096,000 1,207,000
Sales and marketing 57,000 68,000
Research and development 2,277,000 1,185,000
--------- ---------
Total costs and expenses 3,531,000 2,533,000
--------- ---------
Loss from operations (3,414,000) (2,393,000)
Other expense (income):
Interest expense 106,000 517,000
Finance charge 1,512,000 --
Other expense, net (1,000) (26,000)
(Income)loss on disposition of assets (105,000) 350,000
--------- --------
Total other expense 1,512,000 841,000
--------- --------
Loss from continuing operations (4,926,000) (3,234,000)
Discontinued operations:
Loss from operations of Ampsco -- (312,000)
--------- ---------
Total loss from discontinued operations -- (312,000)
--------- ---------
Net loss $(4,926,000) $(3,546,000)
========== ==========
Loss per share of common stock:
Continuing operations $ (0.21) $ (0.20)
Discontinued operations -- (0.02)
-------- -------
Net loss per share $ (0.21) $ (0.22)
======== =======
Weighted average number of common shares
used in computing net loss per share 23,534,009 16,200,926
========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS Six months ended June 30,
1996 1995
(Unaudited) (Unaudited)
----------- ----------
Revenues $ 177,000 $ 261,000
Costs and expenses:
Cost of sales 147,000 175,000
General and administrative 2,590,000 2,276,000
Sales and marketing 119,000 120,000
Research and development 3,306,000 2,786,000
--------- ---------
Total costs and expenses 6,162,000 5,357,000
--------- ---------
Loss from operations (5,985,000) (5,096,000)
Other expense (income):
Interest expense 495,000 689,000
Finance charge 2,182,000 --
Other expense, net (1,000) (39,000)
Loss on disposition of assets 209,000 350,000
Minority interest -- (65,000)
--------- --------
Total other expense 2,885,000 935,000
--------- ---------
Loss from continuing operations (8,870,000) (6,031,000)
Discontinued operations:
Loss from operations of Ampsco -- (339,000)
--------- ---------
Total loss from discontinued operations -- (339,000)
--------- ---------
Net loss $ (8,870,000) $(6,370,000)
========== ==========
Loss per share of common stock:
Continuing operations $ (0.40) $ (0.38)
Discontinued operations -- (0.02)
-------- -------
Net loss per share $ (0.40) $ (0.40)
======== =======
Weighted average number of common shares
used in computing net loss per share 22,449,624 15,880,687
========== ==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
1996 1995
(Unaudited) (Unaudited)
----------- ----------
Net cash used in operating activities $(1,637,000) $(3,440,000)
Cash flows from investing activities:
Notes and advances receivable -- (7,000)
Purchase of property and equipment (125,000) (279,000)
Sale of property and equipment 168,000 --
Disposal of assets held for sale -- 455,000
Purchase of patents -- (28,000)
---------- ---------
Net cash provided by (used in) investing activities 43,000 141,000
Cash flows from financing activities:
Proceeds from notes and debentures payable 1,132,000 2,999,000
Repayment of notes payable (304,000) (590,000)
Proceeds from the issuance of stock 840,000 913,000
----------- ---------
Net cash provided by financing activities 1,668,000 3,322,000
----------- ---------
Increase (decrease) in cash and cash equivalents 74,000 23,000
Cash and cash equivalents, at beginning of the year 51,000 31,000
----------- ---------
Cash and cash equivalents, at the end of the period $ 125,000 $ 54,000
========= ========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 40,000 $ 77,000
========== =========
Debt conversion and use of debt to exercise options and warrants:
Decrease in notes payable $ 115,000 $ 613,000
Decrease in accounts payable 35,000 28,000
Decrease in accrued interest 37,000 49,000
Increase in common stock (36,000) (48,000)
Increase in additional paid-in-capital (151,000) (642,000)
--------- ---------
Net effect on cash $ 0 $ 0
========= =========
The accompanying notes are an integral part of the financial statements.
continued
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Six months ended June 30, 1996 and 1995 (Unaudited)
Supplemental disclosures of cash flow information:
In the first six months of 1995, the Company issued compensatory stock
options as follows: 7,000 options on debt financings (value of $3,000 treated
as interest expense in the six months), and 2,420,950 options as compensation
to officers, directors, employees and consultants (values of $130,000 and
$425,000 treated as administrative and research and development expense,
respectively, in the six months). The Company also issued 94,610 warrants
used in payment of an account payable to a consultant (value of $44,000
treated as administrative expense in the six months), 348,722 warrants on debt
financings (value of $160,000 treated as interest expense in the six months),
and 700,000 warrants on sale of real estate (value of $350,000 treated as
loss on sale of property in the six months).
In the first six months of 1996, the Company had these non-cash
transactions relating to stock, stock options and convertible debt: issued
175,000 shares and 1,273,219 stock options, net, to officers, directors,
employees and consultants; repriced and extended a total of 8,228,334 stock
options and warrants; and repriced certain convertible debt. The Company
recorded the combined value of these transactions as administrative expense
($283,000); finance charges ($1,334,000); and loss on sale of assets ($34,000).
The Company also entered into transactions in the first six months wherein
option and warrant holders relinquished their rights to exercise 3,953,125
combined options and warrants so the Company could use the freed up authorized
shares in its current financings. The Company entered into agreements to
issue a total of 11,016,000 options or warrants subject to availability of
authorized shares. If issued, the Company expects to record a charge of
approximately $4,500,000 as the value of these options and warrants.
As part of a separation agreement with the Company's former Chairman, in
1996 the Company cancelled all notes receivable (approximately $150,000) and
advances receivable (approximately $100,000) from the individual.
In April 1996, the Company sold its subsidiary, Ampsco Corporation. The
transaction is outlined in Note 12 to the consolidated financial
statements. In June 1996, the Company sold to a creditor its note
receivable from the buyer of Ampsco and sold its right to a 10-year royalty
stream from Ampsco, all for a $100,000 reduction in notes and accrued
interest payable to the creditor.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Scriptel Holding, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
June 30, 1996 (Unaudited)
1. CONSOLIDATION:
The consolidated information presented for June 30, 1996 and 1995, and
for the periods then ended, is unaudited, but includes all adjustments (which
consist only of normal recurring adjustments) which the Company's management
believes to be necessary for the fair presentation of results for the periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The results for the
interim periods are not necessarily indicative of results to be expected for
the year. The consolidated balance sheet data at December 31, 1995 was
derived from the audited consolidated financial statements. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1995,
which were included as part of the Company's Form 10-K/A.
The consolidated financial statements include the accounts of Scriptel
Holding, Inc. and its wholly-owned subsidiaries, Scriptel Corporation
("Scriptel") and Scriptel Communications Corp., and its majority-owned
subsidiary Coloray Display Corporation ("Coloray") (collectively known as "the
Company"). Another wholly-owned subsidiary, Ampsco Corporation ("Ampsco") has
been reported as a discontinued operation, and was sold in April 1996. All
significant intercompany transactions have been eliminated.
In early 1996, the Company committed to shutting down Coloray. If
this effort is successful, it will enable the Company to focus on its core
Scriptel technology and Scriptel products.
2. GOING CONCERN BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Scriptel
Holding, Inc. and each of its subsidiaries have incurred recurring losses
from operations and resulting cash flow problems since inception. Management's
plan for meeting obligations as they come due is summarized below. If the
Company is unable to obtain additional funding, and meet or restructure its
debt obligations as they come due, there would be a substantial likelihood
that it could not proceed as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue
as a going concern.
The Company must generate significant and sufficient additional
working capital and restructure its debt obligations in order to continue as a
going concern. Management is seeking additional financing through other
public or private placements of debt, convertible debt and or common stock to
fund its activities. There can be no assurance that the Company will be able
to obtain such funds, that such funds obtained will be sufficient, or that the
Company will be able to meet or restructure its debt obligations as they come
due. If the funds are not received, management plans to cut back further on
its planned research and development and capital expenditures, which could
jeopardize the timing and ultimate completion of certain critical projects.
Completion of these projects and further market development for Scriptel's
products are necessary for the Company to achieve profitable operations.
At June 30, 1996, the Company was in default on approximately $3.4
million of its notes and interest payable, of which approximately $0.7 million
have been demanded, and in arrears over 60 days on trade accounts payable
totaling approximately $1.8 million. In addition, approximately $2.5 million
of notes payable were represented by demand cognovit notes at June 30, 1996.
At June 30, 1996 the Company had a reported deficit in equity of approximately
$15.8 million. The Company is currently attempting to negotiate new terms
with certain debt holders, as well as to seek the execution of conversion
privileges on convertible notes.
At June 30, 1996, the Company was a party to legal proceedings brought
by several creditors. (See Note 4 for a summary of litigation issues.)
Subsequent to June 30, 1996, several additional creditors took or threatened
legal action against the Company to collect amounts due and payable. The
Company has successfully deferred, for the present, legal action by other
creditors and has made some partial payments on the amounts due. There can
be no assurance, however, that the creditors will not hereafter seek other
legal remedies.
3. RISK OF LIQUIDATION:
Due to the Company's history of operating losses and immediate need for
additional capital, there is a risk that the Company will have to liquidate.
Substantially all of the Company's assets, including patents, are pledged
as collateral on certain of the Company's debt instruments. If the Company
were forced into liquidation, it is likely that all of the assets would be
attached to settle the claims of secured creditors and none, except
possibly the value of the patents, would be available to other security
holders. If the Company were to liquidate, management estimates that the
realizable value of the Company's property and equipment would be
substantially less than the carrying values of those assets at June 30,
1996, and the realizable value of the Company's other assets, except
patents, would be less, but would not be materially different than the
reported values for those assets at June 30, 1996. It is also management's
estimate that the value of the Company's patents would be higher than their
recorded value at June 30, 1996. The valuation of assets necessarily
requires many estimates and assumptions. The actual value of assets if
liquidation were to occur would depend on a variety of factors, including
finding interested buyers, the timing of any sales, sales commissions and
selling costs, operating losses incurred to the date of any sale, and the
forced nature of the sale. Management considered these factors in
developing its estimate of realizable values if liquidation were to occur.
The Company has not had a current outside appraisal of the assets made
because it is management's intention to continue to operate the Company on
a going-concern basis. Management's estimate of realizable value on
liquidation of current assets is approximately $200,000, compared to a
carrying value at June 30, 1996 of $215,000. Management's estimate of
realizable value on liquidation of property and equipment is approximately
$200,000, compared to a carrying value at June 30, 1996 of $475,000.
Excluding patents, for which an appraisal is not available and management
is otherwise unable to reasonably estimate value, management's estimates of
realizable value on liquidation of all assets is approximately $500,000,
compared to a carrying value of all assets of $892,000 at June 30, 1996.
At that date, the Company's recorded liabilities totaled approximately
$16,672,000. The Company also has other contractual commitments.
If the Company could continue as a going concern and achieve profits,
the Company could realize substantial savings from the use of its net operating
loss carryforwards to offset future taxable income. If the Company were
liquidated, it is unlikely that any benefit would be realized from these tax
loss carryforwards.
4. LITIGATION
The Company is a defendant in several legal actions brought by
creditors to collect amounts due, or brought by others.
A former officer and director of the Company filed a suit against the
Company in January 1996 in U. S. District Court for the Southern District of
Ohio, entitled Nicholas G. Venetis vs. Scriptel Corporation and Scriptel
Holding, Inc. This suit was settled on June 26, 1996. Scriptel has entered
into a consulting agreement with Mr. Venetis. Mr. Venetis will provide
services as required in various areas of financing, marketing, and business
development. The initial term of the agreement will be twelve months.
On September 6, 1995, a promissory note holder filed suit in the
Circuit Court of Cook County, Illinois, entitled Stimsonite Corporation vs.
Scriptel Holding, Inc., for collection of principal, interest and other
charges on a note. The total sought is approximately $450,000. The
promissory note holder received a judgement against the Company in Illinois
in November 1995, and domesticated the judgement against the Company in Ohio
in February 1996. The Company is attempting to negotiate a resolution with the
creditor.
Three former officers of Coloray Display Corporation, a majority-owned
subsidiary of the Company, filed an action against Coloray and the Company on
February 23, 1996 in Alameda County Superior Court, Hayward, California,
entitled Michael W. Blas, M. Kathy Vieth, and Daniel J. Devine vs. Coloray
Display Corporation and Scriptel Holding, Inc., alleging non-payment of
amounts due them for payroll, severance, expense reports and other matters, and
seeking damages totaling approximately $680,000. These individuals also
sought a Temporary Protective Order prohibiting the transfer of the assets of
Coloray and the assets of the Company located in California. Following a
hearing on March 28, 1996, the California court denied the plaintiffs'
application for a Writ of Attachment or Temporary Protective Order. The
Company intends to vigorously pursue this action, including the possibility of
an action by the Company against each of the individuals. These individuals
have also taken administrative action against Coloray through the California
Labor Board.
A creditor filed suit against the Company in February 1996 in the
Court of Common Pleas, Franklin County, Ohio, entitled Financetech, Inc. vs.
Scriptel Holding, Inc., for collection of a debt and accrued interest of
approximately $580,000. The Company has filed a counterclaim
against the creditor for amounts of royalty that the Company feels is due
it from the creditor, and has requested the court to offset the note payable
by the amount of royalty due. This action is pending.
Several other creditors have filed suit against the Company and its
subsidiaries, in various courts in Ohio and California, for payment of amounts
due them. In addition, the Company has been informed that several other
creditors may take such actions in the near future. The amount
currently under suit in these actions totals less than $150,000.
The landlord of Coloray has threatened to start proceedings due to
non-payment of rents totaling approximately $100,000.
In January 1996 the State of Ohio issued a final claim against the
Company for unpaid sales and use taxes of $41,000. These taxes were included
in the Company's liabilities at December 31, 1994 and for all subsequent
periods.
The Internal Revenue Service has filed a payroll tax levy against the
assets of Coloray Display Corporation. In February 1996, the IRS attached
$42,000 of funds held on deposit in Coloray's bank account, and obtained those
funds. Several other payments have been made and Coloray still owes
approximately $95,000 of federal payroll tax liabilities.
Coloray has also received a personal property tax lien from Alameda
County, California in the amount of approximately $23,000. In addition,
Coloray has unpaid withheld state income taxes of approximately $25,000 which
are subject to levy at any time.
The Company has unpaid personal property, franchise, capital stock,
workers compensation, and other taxes aggregating approximately $210,000. Such
amounts may be subject to levy against Company assets. The Company intends to
pay these taxes as funds become available.
Demands for payment have been made by several cognovit note holders,
for loans and costs totaling approximately $700,000. A cognovit note allows
the holder to obtain immediate judgement against the Company if the note is
presented in court. To date, the cognovit note holders have not exercised
this right.
There can be no assurance that creditors will not hereafter seek other
legal remedies.
5. INVENTORIES
Inventories are valued at the lower of costs (first-in, first-out
method) or market. Management conducts a general review of the adequacy of
excess and obsolete inventory reserves on a quarterly basis. Reported
inventories are mainly raw materials.
6. NOTES PAYABLE AND DEBENTURES:
Notes payable and debentures as of June 30, 1996 and December 31, 1995
consist of the following:
1996 1995
----------- ----------
Convertible notes to individuals and stockholders
at prime rate plus 2% to 4%, principal and
interest convertible to common shares at $0.55
to $3.50 per share; in default $ 1,485,000 $ 1,156,000
Convertible debenture, 8%, due in November 1998 1,000,000 1,000,000
Convertible debenture, 6%, due in June 1999 350,000 --
Demand notes payable to related parties, at rates
ranging from 10% to 18%, in default 123,000 53,000
Notes payable to a corporation, $250,000 at 10% and $250,000
at 8%, quarterly principal and interest payments ranging from
$8,423 to $10,495 due through November 1996, and the unpaid
balance due December 1996; in default 500,000 500,000
Demand notes payable to a major stockholder
at 18% per annum 2,130,000 2,021,000
Cognovit promissory notes payable, at prime
rate; in default 491,000 569,000
Note payable on machinery purchase, due
August 1996 115,000 104,000
Demand notes payable to suppliers, 18%; in default 38,000 38,000
Demand secured cognovit convertible promissory
note, 10% 151,000 300,000
---------- ----------
6,383,000 5,741,000
Less current portion 5,033,000 4,741,000
--------- ---------
$ 1,350,000 $1,000,000
========= =========
The prime interest rate was 8.25% at June 30, 1996. Substantially all
assets of the Company are pledged as collateral for certain of the notes.
7. COMMON STOCK AND COMMON STOCK COMMITMENTS
The Company entered into the following significant common stock
transactions and made the following common stock commitments for the six months
ended June 30, 1996 and subsequently:
* The Company issued 100,000 shares in January 1996 to a founder,
director, and officer of the Company as additional compensation for his
service since the Company was founded. The value of this stock, $75,000, was
expensed in January 1996 when it was issued. In a related action, the Board
of Directors authorized cancellation of all the notes and advances receivable
from this individual. These receivables approximated $91,000, most of
which had been fully reserved at December 31, 1994. All remaining amounts
were expensed in December 1995.
* The Company issued 15,000 shares to a consultant for services rendered
on a financing concluded in November 1995. The value of this stock, $11,000,
was expensed as a finance charge.
* Options and warrant holders exercised existing options and warrants,
at a price per share lower than the stated exercise price, for a total of
573,091 common shares. Net cash proceeds from these exercises totaled
$135,000, and holders also used $152,000 of Company debt in payment of the
reduced exercise price. The Company issued 43,080 shares in settlement of
payables totaling $35,000.
* The Company entered into two letter agreements between the Company,
Standard Energy Company, and Gerald S. Jacobs, an individual, which agreements
are dated September 21, 1995 as amended February 29, 1996 (the "September
Agreement"), and dated February 29, 1996 (the "February Agreement"). The
Company entered into a further agreement between the same parties, dated
March 29, 1996 (the "March Agreement") which supersedes the September and
February Agreements. The March Agreement was ratified by the Company's
Board of Directors on April 4, 1996. The September and February Agreements
were included as exhibits to a Form 8-K Current Report dated September 21,
1995 and filed in March 1996. The March Agreement was included as an exhibit
to a Form 8-K Current Report dated April 4, 1996 and filed in April
1996. Standard Energy Company and Gerald S. Jacobs are both major
creditors and stockholders of the Company. Mr. Jacobs is the sole owner of
Standard Energy Company.
The Agreements, as amended in March 1996, compensate Mr. Jacobs as an
individual for his help personally or through companies he owns or is
affiliated with in providing debt financing to the Company over the last
several years, patience in not demanding repayment of those loans and
cooperation with other matters, and for relinquishing up to 1,000,000 currently
owned options or warrants for cancellation so that the Company could use those
authorized shares in its current financings. The Company will issue to Mr.
Jacobs, or his nominee, warrants to purchase 3,600,000 common shares at a
price of $0.75 per share, and which will expire six years after issuance.
The Company will issue to Sonata Investment Company, Ltd. (the holder of
$151,000 of convertible notes, and an affiliate of Mr. Jacobs) warrants to
purchase 2,400,000 common shares at a price of $0.50 per share, and which
will expire six years after issuance. The warrants to Mr. Jacobs and
Sonata are contingent upon the Company having available authorized shares,
which authorized shares shall be obtained from the first-expiring options
or warrants or through approval by the Company's stockholders of additional
authorized shares at any time in sufficient amount to cover this
commitment, or both. The Company has agreed to use its best efforts to
obtain the requisite shares.
Mr. Jacobs agreed to surrender up to a total of 1,000,000 options or
warrants he currently owns, if the Company needs additional authorized shares
to issue in its current financings. This is subject to the requirement that
the Company must reissue those options or warrants when, as and if authorized
shares are first available as set forth above. The new warrants would be
exercisable at a price of $0.75 per share and would expire six years after
issuance under these provisions. In March 1996, the Company used 853,125
options of the 1,000,000 offered to provide part of the authorized shares on
new issuances under the provisions of Regulation S (see below).
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and by Donna L. Sanger, a vice president of Standard
Energy Company, will be reissued with a new expiration date of October 1, 2001
and with a new price of $1.00 per share. At December 31, 1995, Mr. Jacobs
owned 2,190,000 warrants and 1,956,000 options at prices ranging from
$1.51 to $2.62 per share and which expire at various dates through October
29, 2000. At December 31, 1995, Ms. Sanger owned 65,000 warrants and 63,500
options at prices ranging from $1.51 to $2.50 per share and which expire at
various dates through July 12, 2000. Mr. Jacobs reported the effects of the
September Agreement in his Form 4 filed for the month of September 1995. The
options and warrants were repriced and reissued as of February 29, 1996.
The Company recorded the $392,000 estimated value of these transactions as
a finance charge in the first quarter.
Management estimates the value of the 3,600,000 warrants to be issued
to Mr. Jacobs as approximately $2,272,000 if issued now and assuming current
market prices; because of the uncertainties relating to the requirement for
available authorized shares, the actual value to be recorded is not known, and
will be recorded only when these contingencies are resolved and the
warrants are actually issued. Management estimates the value of the
2,400,000 warrants to be issued to Sonata Investment Company, Ltd. as
approximately $1,545,000 if issued now and assuming current market prices;
because of the uncertainties relating to the requirement for available
authorized shares, the actual value to be recorded is not known, and will be
recorded only when these contingencies are resolved and the warrants are
actually issued.
* In March and April 1996, the Company entered into several agreements
with foreign investors for them to purchase shares at $0.40 per share under the
provisions of Regulation S promulgated by the Securities and Exchange
Commission. A total of 2,357,000 shares were issued under these agreements.
The market price of the Company's common stock on the dates of issuance was
approximately $0.75 to $1.12. Cash proceeds were $943,000, less a total of
$130,000 paid as finders fees and expenses. The Company was delayed in
filing certain of its reports to the Securities and Exchange Commission for
the year ended December 31, 1995 and the quarter ended March 31, 1996. Because
of this, the Company was forced to rescind certain of these stock transactions,
and the Company repurchased 302,500 shares from the foreign investors at their
then-current market price of $230,000. The net proceeds after the rescission
were used to fund payrolls, audit and legal costs, and other operating
expenses. In addition to the cash costs of closing, the Company committed to
issue warrants to purchase common shares equal to 5% of the shares issued, at
a price of $0.48, and which will expire five years after issuance. A total
of 117,850 warrants have been committed (the estimated value of $39,000 was
expensed in the second quarter as a finance charge). Mr. Jacobs relinquished
853,125 of his options, (see above), Mr. Walter Krumm, another major
creditor and stockholder relinquished 800,000 of his options with an
exercise price of $1.69 to $1.70 per share and expiring in 1988, and Mr.
James W. France, Jr., the Company's former Chairman relinquished 800,000 of
his options with an exercise price of $1.74 per share and expiring in July
2000, so that the Company would have enough authorized shares available to
issue the new shares and warrants. As part of the agreements with these
individuals, the Company agreed to reissue the surrendered instruments as
warrants when, as and if Scriptel is first able to do so, but in no event
later than when Scriptel stockholders approve an increase in the amount of
authorized shares, at a price of $0.75 per share, and with an expiration
date of six years after the date of any reissue under these provisions.
Scriptel also committed to use its best efforts to obtain stockholder
approval of an increase in authorized shares. Kevin Woodbridge, a director
at the time, also relinquished 500,000 options (see below). If all of
these are subsequently reissued, management estimates the incremental value
of the reissued options or warrants as approximately $200,000, assuming
current market prices; because of the uncertainties relating to the
availability of authorized shares, the actual value to be recorded is not
known, and will be recorded only when this contingency is resolved.
* In April 1996, the Company was successful in obtaining a one-year
extension on four convertible notes payable totaling $71,000. The Company
agreed to modify the conversion price from $1.69 per share to $0.55 per share.
This transaction increased the authorized shares committed for conversion by
87,358 shares. The estimated value of these additional shares of
$78,000 was expensed as a finance charge in the first quarter.
* The Company issued 100,000 options in January 1996 to Bernard
Eckstein, a director, as compensation for his services in helping with year
end activities. The options are exercisable at a price of $0.75 per share
(the market price at the date of grant), and expire in January 2001. The
estimated value of $62,000 was charged to administrative expense in the
first quarter.
* The Board of Directors approved in April 1996 a repricing and reissuance
of all the options owned by Kevin Woodbridge, a director. This is additional
compensation for his continuing to operate under a consulting contract with the
Company without receiving his retainer fee for eight months, relinquishing part
of his retainer and part of his stock options to obtain a release of a 1995
judgment against the Company on a cognovit note, and relinquishing 500,000
currently owned options for cancellation so that the Company could use
those authorized shares in its current financings. At March 31, 1996, Mr.
Woodbridge owned 870,797 options with exercise prices ranging from $1.43 to
$2.00 per share and with expiration dates of 1996 to 2000. All of his
options were reissued with a new expiration date of April 1, 2000 and with
a new exercise price of $0.50 per share. The Company recorded in the
second quarter the estimated $161,000 value of the reissuance of currently
existing options with new pricing and expiration dates. Mr. Woodbridge
also has rights to immediate registration of his options through an S-8
filing. The Company has agreed to reissue the 500,000 relinquished options
at such time as the stockholders approve the authorization of additional
shares.
* In April 1996, the Board also extended relinquishment and reissue
privileges (reissue at an exercise price of $0.75 per share and expiring six
years after reissue) to employees and directors, and to CommTech
International Management Corp., a major stockholder and option holder.
Exercise prices on options owned by these holders generally range from
$2.00 to $3.00 per share.
* In May 1996 the Company engaged Everest Securities, Inc. of
Minneapolis, Minnesota in an exclusive investment banking relationship.
Everest will advise and consult with the Company, and will use its best efforts
to obtain commitments for financings using debt, convertible debt or stock. As
part of the agreement, the Company sold to Everest for a nominal amount a
warrant to purchase 350,000 shares of common stock at a price of $0.60 per
share. The Company also granted Everest an additional warrant to purchase
350,000 shares of common stock at $0.60 per share for services under a
prior consulting agreement. Both warrants expire in December 1999. The
estimated value of these warrants, $132,000, was expensed as a finance
charge in the second quarter.
The agreement also contains the following provisions. The minimum
term is one year, cancelable by either party with ninety days written notice.
Upon completion of at least $1,000,000 in funding in any form, the Company will
pay $20,000 monthly to Everest for the term of the agreement. Everest will
have the right to appoint two (2) directors to the Board of Directors for a
minimum period of three years. Everest will get cash placement fees on any
financing the Company receives; such fees range from 2% on any financing
which Everest does not manage, to 13% on equity funds raised by Everest. In
addition, Everest will receive warrants for 10% of any shares tendered on the
financings. Generally, such fees are payable on any financings from a source
introduced to the Company by Everest, during the term of the agreement and for
60 months thereafter.
* In June 1996, Mr. Krumm loaned $30,000 to the Company under a demand
cognovit promissory note at 18% per annum interest. In consideration for the
loan, and for Mr. Krumm's forbearance in not demanding repayment of other
notes, the Company reduced the price of 1,020,000 warrants held by Mr. Krumm
from $1.69 per share to $0.40 per share, and extended the warrants from 1997
to March 2001. The estimated value of the repricing and extension,
$340,000, was expensed as a finance charge in the second quarter.
* In June 1996, Sonata Investment Company loaned $45,000 to the Company
under a demand cognovit note. On demand, $10,000 of interest will also be due.
In consideration for the loan, and for Sonata's forbearance in not demanding
repayment of another note, the Company agreed to issue to Sonata warrants to
purchase 500,000 common shares at $0.50 per share and which would expire six
years after issuance. Such warrants are contingent upon having available
authorized shares from the Company's first-expiring unexercised options or
warrants, or from approval by the Company's stockholders of an increase in
authorized shares. If issued now, and assuming current market prices,
management estimates the value of the warrants at $216,000: because of the
uncertainties relating to the requirement for available authorized shares,
the actual value to be recorded is not known, and will be recorded only when
these contingencies are resolved and the warrants are actually issued.
* In May 1996, James W. France, Jr., the Company's former Chairman,
President and Chief Executive Officer retired and resigned his positions as
an officer and director of the Company. Mr. France received a severance
package of: continuation of his salary through September 1996,
cancellation of all old options (a total of 1,425,467 options, including
the 800,000 he relinquished as outlined above) held by Mr. France and
issuance of new options to purchase 1,500,000 shares at $0.68 per share and
which expire in May 1999, severance pay of $150,000, and cancellation of
all of the Company's notes receivable (approximately $150,000) and advances
receivable (approximately $100,000) from Mr. France. The Company has
engaged Mr. France to act as a consultant in arranging financings for the
Company. If these efforts are successful, Mr. France will receive in cash
9% of the amount raised (which will first be used to pay the severance
costs outlined above) plus an additional $150,000 if more than $5 million
is raised by year end. Bernard Eckstein, a director of the Company since
1992, has been appointed as the Company's Chairman and Chief Executive
Officer. J. Vance Holloway, President and Chief Operating Officer of
Scriptel Corporation, has been appointed as President and Chief Operating
Officer of Scriptel Holding, Inc.
* The Company issued to a consultant options to purchase 70,000 shares
of common stock at $1.00 per share and which expire in 2001. The $20,000 value
was expensed in the second quarter.
* The Company entered into an agreement with a consultant to issue the
consultant, as partial payment for services rendered, options to purchase
500,000 shares of common stock at $0.55 per share. Such options are
contingent on the availability of authorized shares. The value (estimated
at $160,000 if issued now) will be expensed when the options are issued.
* The Company did not have the funds to pay its employees on time for
several months in 1996. To recognize the sacrifices made by the employees
during this period, and to partially compensate them for their continued
dedication and service, in June 1996 the Company reduced the exercise price
to $0.40 per share on 1,805,700 options and 255,337 warrants owned by the
employees. Expiration dates were not changed. Formerly, such options and
warrants carried exercise prices ranging from $0.75 per share to $4.00 per
share. In addition, the Company issued a total of 122,000 options at $0.40
per share to employees. The estimated value of the repricing
($228,000) and issuance ($33,000) was expensed in the second quarter.
* The Company agreed to issue a one-time stock grant to employees of
Scriptel at June 1, 1996, equal in value to twice each employee's monthly
salary, and valued at $0.75 per share. This grant approximates 244,000 shares.
The Company will also pay the employees' taxes on the stock grant, subject to
availability of cash. A charge of $311,000 has been recorded as the value of
the grant plus taxes.
* In May 1996, the Company issued 60,000 shares and a cognovit note for
$115,000 in return for title to certain assets leased by Coloray and for
settlement of $70,000 of recorded but unpaid lease payments. The Company
recorded the $38,000 value of the shares and the $45,000 difference in lease
costs in the first quarter as an adjustment of the estimated costs of closure
of Coloray (see below).
* In July 1996, three months after the sale of Ampsco and the closure of
Coloray (see notes below), a total of 1,314,000 options issued to employees of
Ampsco and Coloray under the provisions of the 1993 Stock Option Plan expired.
In July, the Company also entered into agreements with Mr. Jacobs, Mr. Krumm,
Mr. France, and several officers to the effect that, despite prior agreements,
the Company could use in its current financings up to 850,000 of the
authorized shares freed up by the expiration of these options. The
remaining 464,000 options will be issued to Mr. Jacobs under his March 29,
1996 agreement, The $20,000 net value of the expiration and reissuance of
these options was expensed in the second quarter.
* In June 1996, the Company committed to issue to Mr. Bernard Eckstein,
the Company's Chairman and Chief Executive Officer, as part of his employment
negotiations, options to purchase 500,000 shares of Common Stock at an exercise
price of $0.40 per share and which will expire five years after issuance.
Issuance of these options is contingent on the availability of
authorized shares. The value of the options (estimated at $167,000 if
issued now) will be expensed when they are issued. The Board of Directors
also set the compensation of Mr. Eckstein at an annual base salary of
$150,000 beginning on May 16, 1996.
* In July 1996, the Company entered into several agreements with its
officers, eight employees, and two consultants. Under these agreements, the
individuals agreed to let the Company use in its current financings the
authorized shares represented by a total of 2,616,147 options and
warrants held by these individuals. All of such released authorized shares
were used. Further, the individuals have agreed not to exercise their
options and warrants until such time as authorized shares become available
(e.g., from an increase in authorized shares approved by stockholders).
The Company also agreed to issue an additional option to each individual
for each of the 2,616,147 authorized shares used, as soon as authorized
shares become available. The additional options will have an exercise
price of $0.40 per share and will expire five years after their issuance.
The estimated value of $882,000 for the release, subsequent use, and
subsequent issuance of the additional options will be expensed when the
authorized shares become available and the new options are issued.
* In May 1996, certain of the Company's officers and employees agreed to
defer that part of their annual compensation which exceeded $85,000 until such
time as the Company's cash situation improved. As part of the agreements with
these individuals (including officers Bernard Eckstein, J. Vance Holloway,
Edward Palmer, and Frederick A. Niebauer), the Company agreed
to pay interest at 10% per annum on the amounts deferred, and agreed to
issue an option to purchase one share of common stock at an exercise price of
$0.40 per share and with an expiration date of five years after issuance
(which options are subject to the availability of authorized shares) for each
dollar of salary deferred. These would total 195,000 options if such
deferral continued for a year, and similar amounts annually thereafter.
* In June and July 1996, the Company entered into agreements to issue
6%, 3-year debentures to foreign investors. Such debentures are convertible
into common stock of the Company under the provisions of Regulation S
promulgated by the Securities and Exchange Commission. The conversion price
is 60% of the market price of the stock, as defined, on the day of conversion
subject to a minimum conversion price of $0.375 per share and a maximum
conversion price of $1.50 per share. The Company agreed to pay a cash
commission to the agent of 13% of the funds received, plus warrants equal to
10% of the shares issued upon conversion. Such warrants are to be priced at
120% of the conversion price, will expire five years after issuance, and bear
piggyback registration rights.
On June 28, 1996, the Company issued $350,000 of these debentures, paid the
agent's commission of $46,000, and reserved authorized shares for the
conversion and the warrants to be issued to the agent. This debenture and
accrued interest was converted into 885,858 shares of common stock in August
1996. Of these shares, 880,503 were unrestricted and immediately
tradeable under the provisions of Regulation S. The Company issued
warrants to the agent to purchase 88,586 shares of common stock; the value of
$29,000 was expensed as a finance charge in the second quarter.
In July, the Company issued $305,000 of these debentures, paid the agent's
commission of $40,000, and reserved 895,000 authorized shares for the assumed
conversion of the debentures and the warrants to be issued to the agent.
Proceeds of all debentures were used for operating costs.
The market price of the Company's common stock was about $0.75 on the date
of issuance of each debenture. The Company recorded a finance charge of
$350,000 in the second quarter of 1996, and will record a finance charge of
$305,000 in the third quarter of 1996, equal to the difference between fair
value of the common stock on the dates the debentures were issued and
the minimum conversion price of the debenture.
* Considering the outstanding common stock and commitments at December
31, 1995, the aforementioned changes arising subsequent to that date and the
current market price of the common stock, the Company has fully used its
50,000,000 share authorization. The Company has also committed to reserve
approximately 16,300,000 of additional authorized shares to satisfy the
commitments outlined above, if and when authorized shares first become
available. Management will seek stockholder approval to increase the
authorized shares at the next annual stockholders meeting.
8. CALCULATION OF LOSS PER SHARE OF COMMON STOCK
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. The effect on net loss per
common share of the assumed exercise of stock options and warrants and
conversions of convertible notes has not been considered as the effect would
be antidilutive.
9. RELATED PARTY TRANSACTIONS, SUBSEQUENT EVENTS
In addition to several items described above, the Company had the
following events occur subsequent to December 31, 1995.
* The Company borrowed a total of $672,000 in five separate transactions
with Mr. Jacobs and Mr. Krumm, both major creditors and stockholders. The
loans are payable on demand, and bear interest at stated amounts up to 41% of
principal. The Company repaid $141,000 to Mr. Jacobs through the end of June
1996. A $200,000 loan from Mr. Krumm requires payment from first proceeds
available from a large financing transaction.
* As of May 21, 1996, the Company agreed to amend all amounts owed to
Mr. Jacobs or his affiliates to bear interest at 18% per annum from that date.
This affected loans totaling approximately $3,000,000. The loans had
previously accrued interest at stated amounts or at per annum rates of 10%
to 12%.
* The Company has received unofficial information indicating that the
Company's charter may be revoked by the State of Delaware for non-payment of
corporate franchise taxes. The Company intends to pay such taxes and file a
Certificate for Renewal and Revival to reinstate its charter.
10. CLOSURE OF COLORAY
In March 1996, the Company determined that it could no longer support
the operations of Coloray and announced plans to close that operation.
Expected additional costs to close Coloray are approximately $400,000 including
rental payments through the end of Coloray's lease in November 1996,
environmental shutdown, severance, and equipment decommissioning. This
was expensed in the first quarter. In the first quarter the Company also
expensed the net book value of the leasehold improvements made by Coloray which
will be surrendered to the landlord at the end of the lease, and reduced the
remaining property and equipment down to the $168,000 received as proceeds
from sale of the property and equipment at auction in May 1996; the
Company recognized a loss of $314,000 on these transactions. In addition,
Coloray has contractual research and development obligations continuing through
1997, of which approximately $2,036,000 had not been recorded at March 31,
1996. All of these obligations under research and development agreements were
recorded in the second quarter of 1996. The Company, Coloray and SRI
International, Inc. (SRI) have entered into a letter of intent to arrange
a consortium to continue Coloray and SRI's field emission display
technology research. No definitive consortium documents have been signed. The
proposal requires Coloray to contribute its patents and technology to the
consortium in return for one-time royalty payments by consortium
members and cancellation of the existing research agreement with
SRI. The Company has the right but not the obligation to enter the
consortium as a member to obtain the benefits of future research. The
amounts, if any, to be received from the consortium are not currently
estimable but will probably not be sufficient to meet all of Coloray's
obligations. Coloray's liabilities and obligations include the following
approximate amounts at June 30, 1996:
Accounts payable $ 700,000
Accrued expenses 600,000
Accounts payable intercompany to Scriptel 3,300,000
CRADAs and existing SRI research agreement 4,100,000
Additional estimated total costs of closure 400,000
-------------
$9,100,000
=========
Coloray has also signed, with Scriptel, approximately $2,000,000 of
cognovit notes payable to Mr. Jacobs and Standard Energy Company. These
liabilities are recorded at Scriptel. The $168,000 of proceeds from the
auction sale of Coloray's assets in May 1996 were used to reduce these loans.
Mr. Jacobs has a perfected security interest on all assets of Coloray and the
Company.
Coloray's reported assets approximated $140,000 at June 30, 1996.
This is the amortized value of Coloray's patents. The Company expects to
contribute these patents to the proposed consortium in return for one-time
royalty payments at least equal to the recorded value.
The Company will attempt to obtain the release of Coloray from its
CRADA commitments as part of the closure and will attempt to obtain the release
of Coloray from its SRI commitments through the proposed consortium.
The Company is not currently able to estimate or quantify the effects
of the proposed consortium; the reduction, if any, in Coloray's CRADA
commitments; or the ultimate resolution of the closure. However, if
sufficient proceeds are not received to meet Coloray's liabilities and
obligations, it is likely that Coloray will have to liquidate.
11. NEW ACCOUNTING PRONOUNCEMENT
In late 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Compensation" (SFAS-123). The Company adopted this statement in 1996.
SFAS-123 requires a substantial change in the calculation of the value of
options granted to directors, officers and employees. Had the Company used
the provisions of SFAS-123 to calculate the value of options granted in 1995,
management estimates that the reported net loss of the Company for the year
ended December 31, 1995 would have increased by approximately $4,746,000,
or $0.27 per share.
12. DISCONTINUED OPERATIONS - SALE OF AMPSCO:
Ampsco has had continuing losses from operations since acquisition, and
at December 31, 1995 had an accumulated deficit in stockholders' equity of
approximately $2.2 million. To cut the ongoing losses and to focus the
Company on the computer peripheral segment, in April 1996 the Company sold all
of the common stock of Ampsco. No appraisal of Ampsco was made in
connection with this transaction.
The buyer was 1896, Inc., a corporation headed by Thomas J. Leukart, a
director of the Company at the time of sale. Dennis J. Leukart, president of
Ampsco at the time of the sale is a brother of Thomas Leukart and the father-
in-law of James W. France, Jr., the Company's former Chairman, President, and
CEO. As part of the agreement of sale, both Thomas Leukart and Dennis Leukart
resigned from their positions with the Company and cancelled their employment
agreements. Thomas Leukart also resigned as Director of the Company.
The buyer issued a Promissory Note (the "Note") to the Company in
partial payment of the purchase price. The Note was for $650,000, with
interest at 5%. Interest was payable monthly, with the entire principal
balance due on April 1, 1999. The Company endorsed this Note to Mr. Jacobs,
who had a security interest in the Ampsco shares which were sold. The
Company did not record any amount of the Note as proceeds on the sale of
Ampsco because management estimates that collection of the Note is improbable.
Ampsco made small, contractual, payments on the Note for April and May, which
were transferred to Mr. Jacobs and used to offset notes payable to him. In
June 1996, the Company sold the Ampsco Note to Mr. Jacobs in return for a
$100,000 reduction in notes and interest payable to him. The Company
recorded these transactions as income in the second quarter. If the Note
is repaid to Mr. Jacobs, Mr. Jacobs has agreed to release Ampsco from any
further obligation it may have as endorser of several notes the Company has
with Mr. Jacobs or his affiliates.
The remaining payments of the purchase price were to be in the form of
monthly royalties at 2% of Ampsco's collected sales for a ten-year period.
These payments were subject to a maximum of $100,000 per year. (Ampsco's sales
in 1995 were $1,827,000, which would have resulted in a royalty payment of
approximately $37,000 had the agreement then been in effect.) The Company
sold its right to royalty payments to Mr. Jacobs as part of the $100,000
reduction of debt noted above.
The Company has treated the sale of Ampsco as a discontinued
operation. Consequently, Ampsco's results are excluded from the accompanying
consolidated balance sheet at December 31, 1995 and June 30, 1996, and from the
loss from continuing operations shown on the accompanying statements of
operations for the three- and six-month periods ended June 30, 1996 and 1995.
The Company is contractually obligated on Ampsco's notes payable to
Stimsonite Corporation (see Note 4 - Litigation). Stimsonite has obtained a
judgment against the Company on this debt. The Company has recorded a loss on
disposal of Ampsco of $450,000 to recognize the full contractual obligation to
Stimsonite. The Company is also negotiating with the creditor to settle the
debt for a reduced amount. As part of the agreement to sell the common stock
of Ampsco, the Company contributed its $2.2 million intercompany receivable
from Ampsco to the capital of Ampsco. This resulted in almost complete
liquidation of Ampsco's stockholders deficit, and the buyer assumed the
remaining net liabilities of Ampsco. The Company also recorded in 1995 the
loss from operations of Ampsco until the disposal date in April.
Ampsco's sales were $494,000 for the three months ended March 31,
1996, and $868,000 for the six months ended June 30, 1995. No information is
available on Ampsco's sales for the second quarter of 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SCRIPTEL HOLDING, INC. AND SUBSIDIARIES
OVERVIEW
The Company has been in the research, development, and ultimately the
licensing business of pen-based computing products for over ten years, through
its wholly owned subsidiary, Scriptel. However, the marketplace has only
recently begun focusing on and identifying broad based applications for
pen-based computers, an area in which the Company views its proprietary
technology as critical and in which management considers Scriptel primarily an
early stage company. As the market continues to develop and pen-based
applications become more common, Scriptel's focus is expected to shift from one
principally based on the development of pen-based computer components to
commercialization of these products. Based on current marketing forecasts
of original equipment manufacturers ("OEM") and licensee shipments and, in
part, upon the growth forecasted by industry experts for the pen-based
computer markets, management believes Scriptel will experience revenue
growth associated with its pen-based operating activities commencing in
late 1996. Due to the anticipated cost associated with the completion of
the research and development of the Company's products, management cannot
predict when the Company will achieve profitable operations on a
consolidated basis.
Management believes that Scriptel's electrostatic system is the most
viable technology currently available for electronic ink applications. All the
other known technologies have either functionality or cost penalties that
render them non-competitive versus Scriptel's patented electrostatic coupling
technology. There are some approaches that could result in a next
generation system, but they are in the early stages of research and
development. Scriptel is aware of these and is currently spending research
and development money to develop a next generation replacement for its
current technology. It is estimated that the current electrostatic system
will be highly competitive for the next four to five years.
As the pen-based computer market experiences its anticipated growth,
it is anticipated that revenues from royalties and direct sales to OEM's will
be the principal source of total revenue of the Company. Additionally,
Scriptel anticipates its development of proprietary products for the
mobile communications markets will generate some future revenues.
Scriptel's ability to meet its revenue projections and be a major player
in the pen-based computer market will depend on the success of the cordless
digital pen development effort. This system, currently being jointly
developed by Scriptel, Symbios Logic, and Samsung Display Devices has incurred
technical delays. At this time, the problems that caused the delays appear to
be solved. The integrated circuit that is the heart of the system has been
fabricated and is currently being tested. The Company must continue to expend
significant resources to bring this technology to market to produce revenues.
Although further delays are not expected and anticipated resources are expected
to be available to bring the technology to market, no assurance can be given.
In 1994 the Company acquired a majority of the outstanding shares of
Coloray, a company engaged principally in researching and developing flat-panel
field emission displays (FEDs) for use in conjunction with computers and other
sophisticated electronic applications. Although management believes expanded
growth of Coloray is desirable, it believes that the Company cannot continue to
fund research and development for Coloray, and overall returns to stockholders
will be higher by concentrating its limited financial resources on the pen
computer market. This is one of the reasons that in March 1996, the Company
decided to close down its Coloray operation. This is more fully described in
the notes in the accompanying consolidated financial statements.
During 1995 and 1996, management reevaluated the cost structure of
Ampsco. Certain aspects of Ampsco's business activities require significant
capital, labor and management commitment to compete effectively. In 1994, the
Company decided that it would no longer supply the capital needed for Ampsco's
highway contracting division. This division was sold in April 1994. Ampsco
requires some major repairs and maintenance to its roof and equipment, and has
a need for additional equipment in order to remain competitive and become
profitable. In late 1995, the Company determined that it could not fund the
required repairs and capital improvements. Because of this, and to cut the
ongoing losses of Ampsco, the Company sold the remaining machining division of
Ampsco on April 4, 1996. Ampsco has been reported as a discontinued
operation in the accompanying financial statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
1995
1996 1995
Revenues $ 117,000 $ 140,000
The Company operates as a single business segment, providing computer
peripheral equipment to OEMs. Development fees in 1996 from partial funding of
Coloray development efforts by outside companies were $92,000 lower than in
1995. Scriptel's revenues in this segment have increased due to a higher
demand for Scriptel's glass panels for pen-based computers.
1996 1995
Cost of sales $ 101,000 $ 73,000
The year-to-year fluctuations in cost of sales generally follow the
change in revenues.
Since Scriptel's activities have been principally oriented to research
and development, gross margins have remained relatively low due to the
unabsorbed burden caused by the minimal level of manufacturing volume and the
direct costs of excess capacity.
1996 1995
General and administrative expenses $ 1,096,000 $ 1,207,000
Sales and marketing expenses 57,000 68,000
Research and development expenses 2,277,000 1,185,000
Certain members of management, employees and certain outside consultants
received stock, compensatory stock options, or repriced stock options to
attract them to the Company or to pay for their services. The fair value of
the stock or options at the date of issuance, $146,000 in 1996 and $130,000
in 1995, was expensed when all restrictions had lapsed. The 1996
administrative expenses also include $353,000 of severance costs, and
$160,000 of legal fees or settlement costs of lawsuits against the Company.
The Company lowered its general and administrative expenses in late 1995 by
reducing staff at Coloray and Scriptel, and reducing use of consultants.
Sales and marketing expenses have not changed significantly.
Research and development expenses have increased significantly. The
Company expanded its development efforts in pen-based computer technologies
and, with the Coloray acquisition, entered FED research. Management
anticipates that such costs will continue for Scriptel. Research and
development expenses also include unfunded costs of research agreements with
Xetron (by Scriptel) and SRI (by Coloray), and Cooperative Research and
Development Agreements (by Coloray). Cash payments on research and development
will increase, as the Company funds these research agreement obligations. In
1996, the Company recorded the remaining $2,036,000 of costs relating to
Coloray's research commitments.
1996 1995
Other expenses $ 1,512,000 $ 841,000
Other expenses include interest expense of $106,000 and $517,000 in
1996 and 1995, respectively. Other expense also includes finance costs of
$1,512,000 in 1996. Interest expense increased due to higher levels of debt
financing and, in 1995, included $160,000, related to the value of options
transferred to noteholders as an inducement for them to loan funds to the
Company or as additional interest compensation. Finance expenses in 1996
related principally to $864,000 in value of stock warrants surrendered or
repriced as compensation on new financing, a loss of $350,000 on convertible
debentures issued in June 1996, and cash costs of new financing.
In 1996 the Company realized a gain of $105,000 from sale of its Ampsco
subsidiary. In 1995, the Company realized a $350,000 loss on disposition of
assets, from warrants granted as part of the transaction to sell Ampsco's land
and buildings (see below).
1996 1995
Discontinued operations; loss from
operation of Ampsco $ --- $ (312,000)
Ampsco has had continuing losses from operations since acquisition,
and at December 31, 1995 had an accumulated deficit in stockholders equity of
approximately $2.2 million. The Company determined that it could not fund the
required repairs and capital improvements needed for Ampsco to remain
competitive and become profitable. Because of this, and to cut the ongoing
losses and to focus the Company on the computer peripheral segment, in April
1996 the Company sold all of the common stock of Ampsco to a related party.
See notes to the accompanying consolidated financial statements for a more
complete description of the transaction.
The loss in 1995 included a loss of $286,000 from sale of Ampsco's
land and buildings last year.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
Revenues $ 177,000 $ 261,000
The Company operates as a single business segment, providing computer
peripheral equipment to OEMs. Development fees in 1996 from partial funding of
Coloray development efforts by outside companies were $115,000 lower than in
1995.
1996 1995
Cost of sales $ 147,000 $ 175,000
The year-to-year fluctuations in cost of sales generally follow the
change in revenues.
Since Scriptel's activities have been principally oriented to research
and development, gross margins have remained relatively low due to the
unabsorbed burden caused by the minimal level of manufacturing volume and the
direct costs of excess capacity.
1996 1995
General and administrative expenses $ 2,590,000 $ 2,276,000
Sales and marketing expenses 119,000 120,000
Research and development expenses 3,306,000 2,786,000
Certain members of management, employees and certain outside consultants
received stock, compensatory stock options, or repriced stock options to
attract them to the Company or to pay for their services. The fair value of
the stock or options at the date of issuance, $283,000 in 1996 and $174,000
in 1995, was expensed when all restrictions had lapsed. The 1996
administrative expenses also include $400,000 of anticipated costs on the
closure of Coloray, $353,000 of severance costs, and $160,000 of second
quarter legal costs or costs of lawsuit settlements. The Company lowered its
general and administrative expenses in late 1995 by reducing staff at Coloray
and Scriptel, and reducing use of consultants.
Sales and marketing expenses have not changed significantly.
Research and development expenses have increased significantly. The
Company expanded its development efforts in pen-based computer technologies
and, with the Coloray acquisition, entered FED research. Management
anticipates that such costs will continue for Scriptel. Research and
development expenses also include unfunded costs of research agreements with
Xetron (by Scriptel) and SRI (by Coloray), and Cooperative Research and
Development Agreements (by Coloray). Cash payments on research and development
will increase, as the Company funds these research agreement obligations. In
1995, the Company expensed $425,000 of fair value of stock options issued to
research and development consultants. In 1996, the Company accrued the full
remaining $2,036,000 of Coloray's research commitments as part of the costs of
closure of Coloray. The Company is working on reducing these commitments.
1996 1995
Other expenses $ 2,885,000 $ 935,000
Other expenses include interest expense of $495,000 and $689,000 in
1996 and 1995, respectively. Other expense also includes finance costs of
$2,182,000 in 1996. Interest expense is high due to higher levels of debt
financing and, in 1995, included $163,000, related to the value of options
transferred to noteholders as an inducement for them to loan funds to the
Company or as additional interest compensation. Interest expense in 1996
included stated interest of $242,000 on new demand notes totaling $672,000 of
principal. Finance expenses in 1996 related principally to $1,256,000 in value
of stock warrants surrendered as compensation on new financing, a loss of
$350,000 on convertible debentures issued in June, and cash costs of new
financing.
Income from minority interest of $65,000 in 1995 represents the portion
of the net loss of Coloray that is allocable to the minority stockholders of
Coloray. Early in 1995, minority interest was reduced to zero; therefore,
during the remainder of 1995 and going forward, the Company will incur 100% of
the losses of Coloray in its consolidated income statement.
In 1996 the Company sold Coloray's property and equipment at auction, and
eliminated its leasehold improvements, resulting in a loss from disposition of
assets of $314,000. The Company also recognized a $105,000 gain from sale of
its Ampsco subsidiary in 1996. The 1995 loss on disposition of assets stemmed
from the value of warrants granted as part of the 1995 transaction to sell
Ampsco's land and buildings (see below).
1996 1995
Discontinued operations; loss from operation
of Ampsco $ --- $ (339,000)
Ampsco has had continuing losses from operations since acquisition,
and at December 31, 1995 had an accumulated deficit in stockholders equity of
approximately $2.2 million. The Company determined that it could not fund the
required repairs and capital improvements needed for Ampsco to remain
competitive and become profitable. Because of this, and to cut the ongoing
losses and to focus the Company on the computer peripheral segment, in April
1996 the Company sold all of the common stock of Ampsco to a related party.
See notes to the accompanying consolidated financial statements for a more
complete description of the transaction.
The Company has treated the sale as a discontinued operation.
Consequently, Ampsco's results are excluded from the accompanying balance
sheets at December 31, 1995 and June 30, 1996 and from the loss from continuing
operations shown on the accompanying statements of operations for the three-
and six-month periods ended June 30, 1996 and 1995. The loss in 1995 included
a loss of $286,000 from sale of Ampsco's land and buildings last year.
The Company recorded Ampsco's operating loss for the first quarter of
1996 as of December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition, the risk of liquidation if its
current financing efforts are unsuccessful, and its severe liquidity problems
are outlined in the accompanying notes to the consolidated financial
statements. The Company has funded its operations primarily through the
sale of common stock, the issuance of debt instruments with common stock
conversion features, and private, institutional and bank financing. As of
June 30, 1996, the Company's stockholders had paid or surrendered in value
$43,648,000 (which is net of $8,000 of notes receivable from stockholders) to
acquire 24,003,887 shares of common stock. In addition, $6,383,000 of notes
payable and debentures were outstanding as of June 30, 1996, and accrued
interest on notes was $1,205,000 at that date. From inception of the Company
through June 30, 1996, the Company has incurred an accumulated deficit of
$59,428,000.
The Company had current liabilities in excess of current assets of
approximately $15,100,000 at June 30, 1996. This has occurred due to
cumulative operating losses being financed by the issuance of notes payable
and lines of credit.
Several debt and equity transactions have occurred to date in 1996.
(See notes to the consolidated financial statements). Management believes that
these recently concluded private placements of debt and equity securities are
not sufficient to finance the Company's planned operating, development and
capital expenditures for 1996 and to repay defaulted indebtedness.
Management has cut back on operating and development activities, and
anticipates further reductions. Management also intends to seek additional
financing through other private placements of debt, convertible debt and / or
common stock to fund such activities. Efforts are underway to close Coloray
and form a consortium to continue Coloray's research.
The Company's total committed shares exceeded by approximately
16,300,000 the total authorized shares of the Company at June 30, 1996 (see
Note 7). Management intends to seek approval from the stockholders, at the
next stockholders meeting, for a substantial increase in the authorized shares.
There can be no assurance that the stockholders will approve an increase
in the authorized shares, nor that such shares could be sold if authorized, nor
that the proceeds from such sales or other financing activities will be
sufficient to fund operating activities and repayment of defaulted
indebtedness. If funds received are insufficient, then the Company's ability
to continue as a going concern could be adversely affected, and the Company may
have to liquidate.
Management believes that Scriptel will experience revenue growth
associated with its pen-based operating activities commencing in late 1996 or
early 1997, and anticipates that this revenue growth will provide for
Scriptel's working capital needs on an ongoing basis after 1996.
The Company's independent accountants have included a paragraph in
their report, stating that the Company's financial statements as of December
31, 1995 and for the periods then ended have been prepared assuming that the
Company will continue as a going concern and that the Company's recurring
losses from operations, net working capital deficiency and need for
immediate financing to fund operations raise substantial doubt about its
ability to continue as a going concern.
ADOPTION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock Compensation." The Company adopted this statement in
1996.
INFLATION AND ECONOMIC CONDITIONS
Management believes that the effect of inflation on the Company's
operations is not material. The Company does not have long-term contracts
requiring performance at fixed rates. Accordingly, management believes it
will be able to pass through to its customers most cost increases resulting
from inflation.
