<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-20938
SCRIPTEL HOLDING, INC.
(Exact name of Registrant as specified in its charter)
Delaware 31-1069865
(State or jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4153 Arlingate Plaza
Columbus, Ohio 43228
(Address of principal executive offices) (Zip Code)
(614) 276-8402
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of common shares outstanding at October 31, 1996 was 29,812,059.
SCRIPTEL HOLDING, INC.
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996 (unaudited) 3
and December 31, 1995
Consolidated Statements of Operations for the three months 4
ended September 30, 1996 and 1995, unaudited
Consolidated Statements of Operations for the nine months 5
ended September 30, 1996 and 1995, unaudited
Consolidated Statements of Cash Flows for the nine months 6-8
ended September 30, 1996 and 1995, unaudited
Notes to Consolidated Financial Statements, unaudited 9-25
Item 2. Management's Discussion and Analysis of Financial 26-32
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal proceedings 33
Item 2. Changes in securities 33
Item 3. Defaults upon senior securities 33
Item 4. Submission of matters to a vote of security holders 33-35
Item 5. Other information 35
Item 6. Exhibits and reports on Form 8-K 35
SIGNATURES 35
Exhibits: 3 (i) - Restated Certificate Of Incorporation
Of Scriptel Holding, Inc. 36-37
27 - Financial Data Schedule 37-38
Scriptel Holding, Inc. and Subsidiaries September 30,
CONSOLIDATED BALANCE SHEETS 1996 December 31,
(Unaudited) 1995
---------- ----------
Assets
Current assets:
Cash and cash equivalents $ 87,000 $ 51,000
Trade accounts receivable, net of allowance for
doubtful accounts of $3,000 in 1996 and 1995 83,000 65,000
Inventories 20,000 2,000
Other current assets 1,000 2,000
---------- ----------
Total current assets 191,000 120,000
Property and equipment, net 562,000 947,000
Patents, net 130,000 184,000
Deposits --- 122,000
Other assets 60,000 88,000
---------- ----------
Total assets $ 943,000 $1,461,000
========== ==========
Liabilities and Stockholder's Deficit
Current liabilities:
Notes payable, short-term and current portion $5,041,000 $4,741,000
Accounts payable 1,959,000 1,681,000
Accrued interest 1,441,000 855,000
Accrued loss on discontinued operations 450,000 470,000
Other accrued liabilities 6,762,000 2,777,000
---------- ----------
Total current liabilities 15,653,000 10,524,000
Notes payable, long-term 1,520,000 1,000,000
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.10 par value, 50,000,000 shares
authorized: 26,371,356 shares and 21,058,217
shares issued and outstanding at September 30,
1996 and December 31, 1995, respectively 2,637,000 2,106,000
Additional paid in capital 42,174,000 38,529,000
Accumulated deficit (61,033,000) (50,558,000)
Notes receivable - stockholders (8,000) (140,000)
---------- ----------
Total stockholders' deficit (16,230,000) (10,063,000)
---------- ----------
Total liabilities and stockholders' deficit $ 943,000 $1,461,000
========== ==========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
Revenues $ 195,000 $ 78,000
Cost of sales 172,000 136,000
---------- ----------
23,000 (58,000)
Costs and expenses:
General and administrative 582,000 917,000
Sales and marketing 58,000 77,000
Research and development 359,000 1,173,000
---------- ----------
Total costs and expenses 999,000 2,167,000
---------- ----------
Loss from operations (976,000) (2,225,000)
Other expense (income):
Interest expense 261,000 1,128,000
Finance charge 428,000 1,578,000
Other expense, net 1,000 23,000
(Income)loss on disposition of assets (61,000) (27,000)
---------- ----------
Total other expense 629,000 2,702,000
---------- ----------
Loss from continuing operations (1,605,000) (4,927,000)
Discontinued operations:
Loss from operations of Ampsco --- (27,000)
---------- ----------
Total loss from discontinued operations --- (27,000)
---------- ----------
Net loss $ (1,605,000) $(4,954,000)
========== ==========
Loss per share of common stock:
Continuing operations $ (0.06) $ (0.28)
Discontinued operations --- ---
------- -------
Net loss per share $ (0.06) $ (0.28)
======= =======
Weighted average number of common shares
used in computing net loss per share 24,994,088 17,638,891
========== ==========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended September 30,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
Revenues $ 372,000 $ 339,000
Cost of sales 319,000 311,000
---------- ----------
53,000 28,000
Costs and expenses:
General and administrative 3,172,000 3,193,000
Sales and marketing 177,000 197,000
Research and development 3,665,000 3,959,000
---------- ----------
Total costs and expenses 7,014,000 7,349,000
---------- ----------
Loss from operations (6,961,000) (7,321,000)
Other expense (income):
Interest expense 756,000 1,817,000
Finance charge 2,610,000 1,578,000
Other expense, net --- (16,000)
(Income)loss on disposition of assets 148,000 323,000
Minority interest --- (65,000)
---------- ----------
Total other expense 3,514,000 3,637,000
---------- ----------
Loss from continuing operations (10,475,000) (10,958,000)
Discontinued operations:
Loss from operations of Ampsco --- (366,000)
---------- ----------
Total loss from discontinued operations --- (366,000)
---------- ----------
Net loss $(10,475,000) $(11,324,000)
========== ==========
Loss per share of common stock:
Continuing operations $ (0.45) $ (0.67)
Discontinued operations --- (0.02)
------- -------
Net loss per share $ (0.45) $ (0.69)
======= =======
Weighted average number of common shares
used in computing net loss per share 23,303,970 16,473,196
========== ==========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
1996 1995
(Unaudited) (Unaudited)
---------- ----------
Net cash used in operating activities $(2,413,000) $(4,103,000)
Cash flows from investing activities:
Purchase of property and equipment (236,000) (360,000)
Sale of property and equipment 274,000 ---
Disposal of assets held for sale --- 605,000
Purchase of patents --- (40,000)
Other --- (30,000)
---------- ----------
Net cash provided by (used in)
investing activities 38,000 175,000
Cash flows from financing activities:
Proceeds from notes and debentures payable 2,125,000 3,551,000
Repayment of notes payable (475,000) (600,000)
Proceeds from the issuance of stock 761,000 961,000
---------- ----------
Net cash provided by financing activities 2,411,000 3,912,000
---------- ----------
Increase (decrease) in cash and cash equivalents 36,000 (16,000)
Cash and cash equivalents, at the beginning
of the year 51,000 31,000
---------- ----------
Cash and cash equivalents, at the end
of the period $ 87,000 $ 15,000
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 84,000 $ 78,000
========== ==========
Debt conversion and use of debt to exercise options and warrants:
Decrease in notes payable and debentures $1,045,000 $3,079,000
Decrease in accounts payable 49,000 79,000
Decrease in accrued interest 42,000 88,000
General and administrative expense --- 3,000
Finance charge --- 989,000
Increase in common stock (283,000) (439,000)
Increase in additional paid-in-capital (853,000) (3,799,000)
---------- ----------
Net effect on cash $ 0 $ 0
========== ==========
The accompanying notes are an integral part of the financial statements.
continued
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Nine months ended September 30, 1996 and 1995 (Unaudited)
Supplemental disclosures of cash flow information:
In the first nine 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 nine months), and 4,191,450 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 nine 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 nine months), 1,903,722 warrants on
debt financings (value of $935,000 treated as interest expense in the nine
months), 914,934 warrants on debt financings (value of $484,000 treated as
finance charge in the nine months), and 700,000 warrants on sale of real
estate (value of $350,000 treated as loss on sale of property in the nine
months). The Company also issued a total of 210,000 shares of Common Stock to
debt holders and officers (value of $298,000 treated as interest expense and
$78,000 treated as administrative expense in the nine months).
In 1996 and 1995, the Company recognized finance charges of $543,000 and
$904,000, respectively, on the conversion of convertible debentures. This
amount represented the difference in value between the market price of the
common stock and the conversion price on the date of issuance or conversion.
In the first nine months of 1996, the Company had these non-cash transactions
relating to stock, stock options and convertible debt: issued 175,000 shares
and 1,768,329 stock options, net, to officers, directors, employees,
creditors, 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
($292,000); finance charges ($1,421,000); and loss on sale of assets
($34,000). The Company also entered into transactions in the first nine
months wherein option, warrant, and convertible debt holders relinquished
their rights to exercise or convert into common stock their instruments
representing a combined total of 9,672,105 authorized shares, so the Company
could use the freed up authorized shares in its current financings. The
Company entered into agreements to issue a total of 22,100,255 options or
warrants, substantially reduce the exercise price of 1,230,508 options and
warrants, issue 300,000 shares of common stock, and convert $1,000,000 of
debentures into 3,333,333 shares of common stock, all subject to availability
of authorized shares (these agreements included replacing the authorized
shares freed up as described above). The stockholders approved an increase in
authorized shares at their annual meeting in October 1996, and all of these
agreements were fulfilled in the fourth quarter. The Company will record a
charge of approximately $2,600,000 as the value of the options, warrants, and
shares issued, and the repriced 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.
-continued-
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Nine months ended September 30, 1996 and 1995 (Unaudited)
Supplemental disclosures of cash flow information:
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.
In September 1996, the Company issued a $280,000 note payable to settle unpaid
lease costs and costs of the environmental clean up of the Coloray facility.
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
September 30, 1996 (Unaudited)
1. CONSOLIDATION:
The consolidated information presented for September 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 closing the Coloray operation. This
enabled the Company to focus on its core pen/touch technology and related
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.
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 September 30, 1996, the Company was in default on approximately $3.1
million of its notes and interest payable, of which approximately $1.0 million
have been demanded, and in arrears over 60 days on trade accounts payable
totaling approximately $1.9 million. In addition, approximately $2.6 million
of notes payable were represented by demand cognovit notes at September 30,
1996. At September 30, 1996 the Company had a reported deficit in equity of
approximately $16.2 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 September 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 September 30, 1996, several additional creditors filed 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 remedies that might result in the Company ceasing to be a going concern.
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 used to
settle the claims of secured creditors and none, except possibly some of the
value of the patents, would be available to other creditors. 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 September 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 September
30, 1996. It is also management's estimate that the value of the Company's
patents would be higher than their recorded value at September 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
September 30, 1996 of $191,000. Management's estimate of realizable value on
liquidation of property and equipment is approximately $200,000, compared to a
carrying value at September 30, 1996 of $562,000. 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 $943,000 at September 30, 1996. At that date, the
Company's recorded liabilities totaled approximately $17,200,000. 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
$620,000. 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.
Coloray's landlord had threatened legal action for non-payment of rents. In
September 1996, the Company settled the outstanding lease payments of Coloray
and the environmental shutdown costs of the Coloray operation by issuing a
$280,000 note payable to Coloray's landlord. The note is due in two years.
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
received a levy for withheld but unpaid California state income taxes of
approximately $25,000.
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 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. Reported inventories are
mainly raw materials.
6. NOTES PAYABLE AND DEBENTURES
Notes payable and debentures as of September 30, 1996 and December 31, 1995
consist of the following:
1996 1995
---------- ----------
Convertible notes, at rates ranging from 10%
to 18%, principal and interest convertible to
common shares at $0.55 to $3.50 per share;
in default $ 1,072,000 $ 1,156,000
Convertible debenture, 8%, due November 1998 1,000,000 1,000,000
Convertible debenture, 6%, due September 1999 240,000 ---
Convertible debenture, 14%, due September 1997 173,000 ---
Notes payable to a corporation, $250,000 at 10%
and $250,000 at 8%; in default 500,000 500,000
Demand notes payable to major stockholders
at 18% per annum 2,555,000 2,021,000
Demand and cognovit promissory notes payable,
at rates ranging from 8% to 18%; in default 544,000 622,000
Note payable on machinery purchase, due
August 1996; in default 115,000 104,000
Note payable to a corporation, 10%, due
September 1998 280,000 ---
Demand notes payable to suppliers, 18%;
in default 38,000 38,000
Demand secured cognovit convertible
promissory note, 10% 44,000 300,000
---------- ----------
6,561,000 5,741,000
Less current portion 5,041,000 4,741,000
---------- ----------
$ 1,520,000 $ 1,000,000
========== ==========
The prime interest rate was 8.25% at September 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 to date in 1996:
* 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. 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 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.
* Option and warrant holders exercised existing options and warrants, at a
price per share lower than the stated exercise price, for a total of 600,591
common shares. Net cash proceeds from these exercises totaled $135,000, and
holders also used $166,000 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 shareholders
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 a part of his currently
owned options or warrants for cancellation so that the Company could use those
authorized shares in its current financings. Under the Agreements, the
Company had 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 expire six
years after issuance. The Company also had to issue to Sonata Investment
Company, Ltd. (at the time the holder of a $300,000 convertible note, and also
an affiliate of Mr. Jacobs) warrants to purchase 2,400,000 common shares at a
price of $0.50 per share, and which expire six years after issuance. The
warrants to Mr. Jacobs and Sonata were contingent upon the Company having
available authorized shares. In October 1996, the Company's shareholders
approved additional authorized shares and the Company fulfilled these
commitments (see below).
Mr. Jacobs agreed to surrender a part of the options or warrants he currently
owns, so the Company could use the authorized shares to issue in its current
financings. This was subject to the requirement that the Company must reissue
those options or warrants when, as and if authorized shares are first
available. The new warrants are exercisable at a price of $0.75 per share and
expire six years after issuance under these provisions. These terms are more
favorable than the terms of the options surrendered. In March 1996, the
Company used 853,125 of Mr. Jacobs' options to provide part of the authorized
shares on new issuances under the provisions of Regulation S (see below). The
Company replaced these options in October 1996 on the new terms.
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. 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.
* 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
102,725 warrants have been issued (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 shareholder relinquished 800,000 of his options with an exercise price of
$1.69 to $1.70 per share and expiring in 1998, 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
shareholders 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. Kevin Woodbridge, a director at
the time, also relinquished 500,000 options (see below). The revised terms on
all of these options and warrants are more favorable than those surrendered.
The Company issued the new instruments in October 1996 after stockholders
approved an increase in authorized shares.
* 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
of 1996 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
reissued the 500,000 relinquished options in October 1996 after shareholders
approved an authorization of additional shares.
* 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 of 1996.
* 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 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 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. (No directors have yet been named under this
provision.) 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 issued in 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 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 common shares at $0.50 per share and which expire
six years after issuance. Such warrants were contingent upon having available
authorized shares. The Company issued these warrants in October 1996 after
shareholders approved an increase in authorized shares.
* 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 of 1996.
* The settlement of the lawsuit (see Note 4 - Litigation) and consulting
agreement with Mr. Nicholas 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' efforts, or
in any case by October 31, 1996 (the Company is in default on this payment as
it was not paid by October 31). 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 provide consulting services, as
required, in various areas of financing, marketing, and business development.
The Company will issue Mr. Venetis warrants to purchase 500,000 shares of
common stock at an exercise price of $0.55 per share, which were contingent
upon shareholder approval of an increase in authorized shares. The Company
will include such warrants on an S-8 registration statement as soon as
possible. The warrants were issued in October 1996.
* 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 of 1996.
* The Company agreed to issue a one-time stock grant to employees of
Scriptel at June 1, 1996, equal to twice each employee's monthly salary
divided by $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 in the second
quarter of 1996 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 of 1996 as an adjustment of the estimated costs of
closure of Coloray (see below).
* 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 expire five years after issuance.
Issuance of these options was contingent on the availability of authorized
shares. The Company issued these options in October 1996. 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 the third quarter of 1996, the Company entered into several agreements
with its officers, nine employees, and four consultants. Under these
agreements, the individuals agreed to let the Company use in its current
financings the authorized shares represented by a total of 2,685,647 options
and warrants held by these individuals. All of such released authorized
shares were used to support financings in the third quarter. The individuals
agreed not to exercise their options and warrants until such time as
authorized shares become available. These became available in October 1996
when stockholders approved an increase in authorized shares. This restriction
has now been released, and these individuals may exercise the options and
warrants. The Company also agreed to issue an additional option to each
individual for each of the 2,685,647 authorized shares used, as soon as
authorized shares become available. The additional options have an exercise
price of $0.40 per share and expire five years after their issuance. The
options were issued in October 1996; the stock price was $0.38 per share at
the date of issue.
* 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 were
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. The deferral has continued to
date.
* In June and the third quarter of 1996, the Company entered into an
agreement with Alexander Wescott & Co., Inc. (Wescott) under which Wescott
would use its best efforts to place up to $2,500,000 of 6%, 3-year Scriptel
debentures to foreign investors. The principal and interest on such
debentures is 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.
These debentures were issued as follows: $350,000 in June 1996 (which was
converted into 885,858 shares); $620,000 in the third quarter (which were
converted into 1,661,481 shares); and $200,000 in the third quarter (which
have not been converted - the Company has reserved 534,000 shares for the
conversion). All shares issued have now become unrestricted and immediately
tradeable under the provisions of Regulation S. The Company issued warrants
to the agent to purchase 254,735 shares of common stock; the value of $53,000
was expensed as a finance charge. Cash commissions of $152,000 were paid on
these financings. 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 in the
second quarter and 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.
* In October 1996, the Company amended its agreement with Wescott, to the
effect that the minimum conversion price on the convertible debentures issue
was reduced to $0.20 per share. A total of $205,000 of such debentures were
issued in October 1996. At the time of issuance, the Company's stock price
ranged from $0.32 to $0.40 per share. The Company has reserved 1,025,000
shares for the conversion of these debentures, and an additional 102,500
shares for warrants to the agent if the debentures are converted.
* In November 1995, the Company issued $1,000,000 of convertible
debentures to M & M Capital Management, a foreign investor, under the
provisions of Regulation S promulgated by the Securities and Exchange
Commission. In October 1996, the debentures were converted into 3,333,333
shares of common stock at the minimum conversion rate in the agreement of
$0.30 per share. The market price of the Company's common stock on the date
of conversion of the debenture was $0.38 per share.
* In August 1996, the Company entered into an agreement through Everest
Securities, Inc. (see above) to issue up to $1,000,000 of 14%, 1-year
convertible debentures to domestic accredited investors. Such debentures are
convertible into common stock of the Company at a conversion price equal to
60% of the market price of the stock, as defined, on the day of conversion
subject to a minimum conversion price of $0.50 per share (subsequently amended
to $0.30 per share). The investors also received one warrant for each dollar
of debentures; such warrant has an exercise price of $0.75 per share and
expires three years from issuance. The Company paid a cash commission to the
agent of 10% of the funds received, paid a non-accountable expense allowance
of 3% of the funds received, plus will give the agent 3-year warrants equal to
10% of the shares issued upon conversion. The debentures and the warrants
will be subject to the provisions of Rule 144 promulgated by the Securities
and Exchange Commission ("Rule 144"). The stock price on the dates of
issuance of the debentures ranged from $0.32 to $0.40 per share.
In August and September 1996 the Company issued $173,000 of these debentures,
paid the agent's commission of $22,000, reserved 575,000 authorized shares for
the conversion, issued the 172,500 warrants to the investors, and reserved
authorized shares for the warrants to be issued to the agent if the debentures
are converted. The company expensed the estimated value of all the warrants,
$34,000, as a finance charge in the third quarter of 1996. The Company issued
an additional $43,000 of these debentures in October 1996.
The Company has entered into separate agreements with the individual debenture
holders agreeing to convert the debentures to shares if and when the Company's
stock price next hits $0.50 per share. At that price, the debentures would be
converted at the minimum conversion price of $0.30 per share.
* The Company issued 50,000 options to Mr. Bernard Eckstein and 25,000
options to Mr. Woodbridge for their services as directors in 1994 and 1995,
under the provisions of the 1993 Stock Option Plan. These options had an
exercise price of $0.40 per share and expire in 2001.
* In August and September 1996, the Company entered into an agreement with
five consultants to issue the consultants, as payment for services to be
rendered, warrants to purchase a total of 5,000,000 shares of common stock.
Of these, 2,500,000 will have an exercise price of $0.75 per share; 1,250,000
will have an exercise price of $0.80 per share; and 1,250,000 will have an
exercise price of $0.85 per share. All of these warrants expire in two years.
The issuance was contingent on shareholders approving an increase in
authorized shares. The Company has agreed to register the warrants in an S-8
registration statement as soon as possible after issuance. The individuals
(George Furla, Gregg Rondinelli, Peter Benz, Merrick Okamoto, and Steve
Westlund, all from Los Angeles, California) will consult with the Company on
matters pertaining to the restructuring and design of the Company's operations
and long term strategic plan, including, but not limited to the development of
sponsorship for the Company's securities through meetings with brokers, market
makers, securities analysts, and fund managers in key financial centers in the
United States and Europe. the consulting period will be one year. The
warrants were issued in October 1996 after shareholders approved an increase
in the authorized shares.
* Trenwith Capital, Inc. (Trenwith) consulted with the Company in 1995 and
1996, and is due cash commissions and approximately 160,000 warrants as
commissions for services rendered. In August 1996, the Company agreed to
issue a total of 300,000 common shares to settle all claims by Trenwith
against the Company. Such shares were to be issued immediately after
shareholders approved an increase in authorized shares. The Company has
agreed to register the shares in an S-8 registration statement as soon as
possible after issuance. The value of the shares is estimated at $120,000.
This amount was expensed through the third quarter of 1996 as the value of the
cash commissions and warrants due to Trenwith.
* In October 1996, subject to approval by shareholders of an increase in
authorized shares, the Company agreed to issue a total of 3,869,332 additional
warrants to Mr. Walter Krumm, a major stockholder and creditor of the Company.
Of these, 1,000,000 were priced at $0.65 per share and 2,869,332 were priced
at $0.75 per share. All expire six years from the date of issuance. The
issuance of these warrants is additional compensation to Mr. Krumm for his
assistance in the funding efforts of the Company in 1995 (by exercising
warrants), surrendering 800,000 options for use by the Company in its 1996
financing efforts (see above), agreeing not to exercise 1,000,000 warrants to
further help the Company in its 1996 financings, and delays by the Company in
making promised payments on a loan from Mr. Krumm earlier in 1996. The
Company's shareholders approved an increase in authorized shares in October
1996. The company is continuing the negotiations with Mr. Krumm and has not
yet released the additional warrants to him. The Company also agreed to lower
the exercise price on a total of $300,000 of convertible loans held by him
(convertible at $1.00 to $1.69 per share) to $0.65 per share. This will allow
conversion into an additional 250,000 shares. The value of the change in
conversion price of approximately $100,000 will be expensed in the fourth
quarter of 1996 as a finance charge.
* In the third quarter, the Company agreed to reduce the exercise price of
1,230,508 options and warrants as compensation to the holders for agreeing not
to exercise the instruments until such time as authorized shares became
available. The Company used the freed up authorized shares in its 1996
financings. The repricing was effected in October 1996 after shareholders
approved an increase in authorized shares. The repriced options and warrants
included: 700,000 held by Everest Securities, Inc. expiring in 2001, from an
exercise price of $0.60 per share to a new exercise price of $0.40 per share;
and 530,508 options and warrants held by three accredited investors, expiring
in 1997 and 1998, from an exercise price ranging from $1.50 to $4.00 per
share, all to a new exercise price of $0.55 per share.
* Summarizing the above activity, after the shareholders approved an
increase in authorized shares, the Company issued or scheduled the issuance of
a total of 22,100,255 options and warrants, and repriced 1,230,508 options and
warrants. The Company will record the estimated value of these transactions
in the fourth quarter of 1996 as follows: administrative expense $888,000;
and finance charges $2,042,000. The stock price on the date of issue was
$0.38 per share.
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 elsewhere herein, 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 shareholders. The
loans are payable on demand, and bear interest at stated amounts up to 41% of
principal. The Company repaid $429,000 to Mr. Jacobs through the end of
September 1996. The Company has a "handshake" agreement with Mr. Jacobs under
which the Company pays Mr. Jacobs, as reduction of debt, an amount equal to
15% of the net proceeds from its financings. 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 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 paid such taxes in the third quarter of 1996 and
filed a Certificate for Renewal and Revival to reinstate its charter.
* At their annual meeting in October, the Company's shareholders: elected
Bernard H. Eckstein and Philip A. Schlosser as directors; approved an increase
in the authorized shares of Common Stock from 50,000,000 shares to 125,000,000
shares (the Company has filed a Restated Certificate of Incorporation with the
state of Delaware to reflect the change); approved an increase in the amount
of shares which may be issued under the 1993 Stock Option Plan from 5,000,000
shares to 7,500,000 shares; and ratified the selection of Norman, Jones, Enlow
& Co. as the Company's independent accountants for the fiscal year ending
December 31, 1996. The shareholders did not approve the requested amendment
to the Company's Certificate of Incorporation to authorize a class of
15,000,000 shares of undesignated Preferred Stock.
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 ("CRADAs") 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 September 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.
Subsequent to the auction, the Company received credit from Mr. Jacobs for an
additional $82,000 received on sale of all the remainder of Coloray's
equipment. This also reduced the overall recorded loss on sale of the assets.
Coloray's reported assets approximated $130,000 at September 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 shareholders' 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 September 30, 1996, and from the loss
from continuing operations shown on the accompanying statements of operations
for the three- and nine-month periods ended September 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 shareholders 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
$1,363,000 for the nine months ended September 30, 1995. No information is
available on Ampsco's sales since March 31, 1996.
PART I, ITEM 2
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
manufacturing and licensing business of pen-based computing products for over
ten years, through its wholly owned subsidiary, Scriptel Corporation.
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. In May 1996, the Company began
shipping development kits to potential customers of its cordless pen/touch
digitizer subsystem. 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.
The Company has received notice from two OEMs that those manufacturers will
use the Company's patented WriteTouch (TM) technology in their new computer
notebook and tablet applications. Due to the anticipated cost associated with
the completion of the research and development of the Company's products and
the ramp up of production, 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.
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
shareholders 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 SEPTEMBER 30, 1996 AND 1995
1996 1995
Revenues $ 195,000 $ 78,000
The Company operates as a single business segment, providing computer
peripheral equipment to OEMs. The Company has increased its sales of current
products in each quarter this year, from $60,000 in the first quarter, to
$117,000 in the second quarter, to $195,000 in the third quarter. 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 $ 172,000 $ 136,000
The year-to-year fluctuations in cost of sales generally follow the change in
revenues. In the third quarter of 1995, Scriptel scrapped the inventory of a
product line which had been terminated. The net cost of $60,000 was expensed
as cost of sales in 1995. 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 $ 582,000 $ 917,000
Sales and marketing expenses 58,000 77,000
Research and development expenses 359,000 1,173,000
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, $9,000 in 1996 and $78,000 in
1995, was expensed when all restrictions had lapsed. 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.
Cash outflows for research and development expenses have been reduced
dramatically, principally through the closure of the Coloray operation.
Research and development expenses also include unfunded costs in each year 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.
1996 1995
Other expenses $ 629,000 $2,702,000
Other expenses include interest expense of $261,000 and $1,128,000 in 1996 and
1995, respectively. Other expense also includes finance costs of $428,000 in
1996 and $1,578,000 in 1995. Interest expense reflects high levels of debt
financing and, in 1995, included $775,000, 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, and $298,000 in value of
common shares issued for the same purpose. Finance expenses in 1996 related
principally to $87,000 in value of stock warrants surrendered or repriced as
compensation on new financing, a loss of $193,000 on convertible debentures
issued in the quarter, and cash costs of new financing. Finance charges in
1995 represented cash costs on new financing, $150,000, the value of warrants
issued on financings and conversions, $484,000, and the loss on conversion of
debentures in the third quarter, $944,000.
1996 1995
Discontinued operations; loss from
operation of Ampsco $ --- $ (27,000)
Ampsco has had continuing losses from operations since acquisition, and at
December 31, 1995 had an accumulated deficit in shareholders 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.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Revenues $ 372,000 $ 339,000
The Company operates as a single business segment, providing computer
peripheral equipment to OEMs. The Company's sales have been growing in 1996.
The 1995 amounts included development fees of $170,000 from partial funding of
Coloray development efforts by outside companies. There were no development
fees in 1996.
1996 1995
Cost of sales $ 319,000 $ 311,000
The year-to-year fluctuations in cost of sales generally follow the change in
revenues. In addition, Scriptel incurred a $60,000 charge in 1995 to scrap
inventory on a product line which was terminated. 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 $ 3,172,000 $ 3,193,000
Sales and marketing expenses 177,000 197,000
Research and development expenses 3,665,000 3,959,000
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, $292,000 in 1996 and $252,000 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 in the last few
years. Most of the amounts reported in 1996 and 1995 related to the research
efforts of Coloray. 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, but
Coloray's ongoing costs have now dropped to near zero. 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 $ 3,514,000 $ 3,637,000
Other expenses include interest expense of $756,000 and $1,817,000 in 1996 and
1995, respectively. Other expense also includes finance costs of $2,610,000
in 1996 and $1,578,000 in 1995. Interest expense is high due to higher levels
of debt financing and, in 1995, included $938,000, 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, and $298,000 in 1995 in
value of common shares issued for the same purpose. 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 $1,420,000 in
value of stock warrants surrendered as compensation on new financing, a loss
of $543,000 on convertible debentures issued to date, and cash costs of new
financing. Finance charges in 1995 stemmed from cash payments to acquire
financing, $150,000, the value of warrants issued to obtain financing on
convertible debt, $484,000, and the loss on conversion of debentures in the
third quarter of 1995, $944,000.
Income from minority interest of $65,000 in 1995 represents the portion of the
net loss of Coloray that is allocable to the minority shareholders 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 $253,000. The Company also recognized a $105,000 gain from sale of
its Ampsco subsidiary in 1996. The 1995 loss on disposition of assets stemmed
mainly 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 $ --- $ (366,000)
Ampsco has had continuing losses from operations since acquisition, and at
December 31, 1995 had an accumulated deficit in shareholders 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 September 30, 1996 and from the loss from continuing operations
shown on the accompanying statements of operations for the three- and
nine-month periods ended September 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 September 30, 1996, the
Company's stockholders had paid or surrendered in value $44,803,000 (which is
net of $8,000 of notes receivable from stockholders) to acquire 26,371,356
shares of common stock and to obtain the outstanding options and warrants. In
addition, $6,561,000 of notes payable and debentures were outstanding as of
September 30, 1996, and accrued interest on notes was $1,441,000 at that date.
From inception of the Company through September 30, 1996, the Company has
incurred an accumulated deficit of $61,033,000.
The Company had current liabilities in excess of current assets of
approximately $15,500,000 at September 30, 1996. This has occurred due to
cumulative operating losses being financed by the issuance of notes payable
and other liabilities.
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.
In October, shareholders approved a substantial increase in the Company's
authorized shares. There can be no assurance that such shares could be sold,
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 help 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 4 "Litigation" to the accompanying consolidated financial statements.
ITEM 2. CHANGES IN SECURITIES
See Note 7 "Common Stock and Common Stock Commitments" to the accompanying
consolidated financial statements for a discussion of recent transactions.
This disclosure includes the information required by Item 701 of Regulation S-
K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) The Company and its subsidiaries are in default on the payment of
principal and interest on several notes. The table below summarizes principal
and interest in default at September 30, 1996:
Principal Interest
Cognovit promissory notes payable, due at
various dates through December 1994 $ 544,000 $ 88,000
Convertible promissory notes payable to
investors, due at various dates 1,072,000 550,000
Notes payable to a corporation, in default
as of December 1, 1994 500,000 119,000
Notes payable on machinery purchases,
due August 1996 115,000 7,000
Notes payable to trade creditors, due at
various dates in 1994 38,000 8,000
---------- ----------
Total in default $ 2,269,000 $ 772,000
The Company is continuing its efforts to restructure its defaulted
indebtedness. The Company has negotiated short extensions for payment of
various notes that were in default and the Company continues to negotiate new
terms with certain debt holders, as well as seeking the exercise of conversion
privileges of convertible promissory notes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The annual meeting of the stockholders of the Company was held on October
23, 1996.
b. Stockholders elected nominee Bernard H. Eckstein for a two year term of
office to expire in 1998. Stockholders also elected nominee Philip A.
Schlosser for a three year term of office to expire in 1999. J. Vance
Holloway, a director whose term of office expires in 1997, will continue his
term in office after the meeting.
c. Stockholders voted on these items:
1. electing one Director for the term of office expiring in 1998 and one
Director for the term of office expiring in 1999;
2. amending Scriptel's Certificate of Incorporation to increase the number
of authorized shares to 125,000,000 shares of Common Stock;
3. amending Scriptel's Certificate of Incorporation to authorize a class of
15,000,000 shares of undesignated Preferred Stock;
4. approving an 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; and
5. appointing Norman, Jones, Enlow & Co. as Scriptel's independent
accountants for the fiscal year ending December 31, 1996.
The following is a tabulation of the vote for each nominee and each issue.
There were 26,585,991 shares eligible to vote, of which 21,138,868, or 79.5%,
were represented at the meeting. A quorum was present.
Abstain/ Broker
For Against Withheld Non-Votes
---------- ---------- ---------- ----------
1. Election of directors 21,003,348 0 135,520 0
Individually:
Bernard H. Eckstein 20,909,531 0 229,337 0
Philip A. Schlosser 20,915,676 0 223,192 0
2. Increase in authorized
Common Stock 20,392,934 502,918 243,016 0
3. Authorizing a class of
Preferred Stock 9,863,995 1,086,236 287,139 9,901,498
4. Amending the 1993
Stock Option Plan 9,976,456 1,088,292 182,822 9,891,298
5. Appointing independent
accountants 20,885,087 136,659 117,122 0
As a result of the vote:
1. The stockholders elected each of the nominee directors by more than 50% of
the votes actually cast.
2. The stockholders approved the increase in authorized Common Stock by more
than 50% of total eligible shares.
3. The stockholders did not approve the authorization of a class of Preferred
Stock, as less than 50% of total eligible shares were voted on this proposal.
4. The stockholders approved the amendment to the 1993 Stock Option Plan by
more than 50% of the votes actually cast.
5. The stockholders ratified the appointment of the independent accountants by
more than 50% of the votes actually cast.
ITEM 5. OTHER INFORMATION
See Note 10 "Closure of Coloray" to the accompanying consolidated financial
statements for a discussion on the sale or disposition of substantially all
the property and equipment of Coloray in the second and third quarters.
See Note 7 "Common Stock and Common Stock Commitments" to the accompanying
consolidated financial statements for a discussion on the ability of Everest
Securities, Inc. to appoint two directors to the Company's Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.(i) Restated Certificate Of Incorporation Of Scriptel Holding, Inc.
27- Financial Data Schedule
(b) Reports on Form 8-K:
On July 8, 1996, the Company filed an 8-K dated June 26, 1996 relating to
settlement of a lawsuit filed by Nicholas G. Venetis, a former officer and
director of the Company.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCRIPTEL HOLDING, INC.
(Registrant)
Date: November 11, 1996 /s/ Bernard H. Eckstein
Bernard H. Eckstein
Chairman and Chief Executive Officer
Date: November 11, 1996 /s/ Frederick A. Niebauer
Frederick A. Niebauer
Treasurer (principal financial and
accounting officer)
RESTATED CERTIFICATE OF INCORPORATION OF SCRIPTEL HOLDING, INC.
(A Delaware corporation formerly known as Scriptel Corporation)
Duly adopted in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware
SCRIPTEL HOLDING, INC., formerly known as Scriptel Corporation, is a
corporation organized and existing under the laws of the State of Delaware
(the "Corporation"). The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
July 20, 1983. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, a Restated Certificate of Incorporation of the
Corporation restating and integrating and further amending the provisions of
the Corporation's Certificate of Incorporation was duly adopted.
1. The name of the Corporation is SCRIPTEL HOLDING, INC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of Common Stock which the Corporation shall
have authority to issue is One Hundred Twenty-Five Million (125,000,000) and
the par value of each share is Ten Cents ($.10) amounting in the aggregate to
Twelve Million Five Hundred Thousand Dollars ($12,500,000).
5. [Omitted pursuant to Section 245 (c) of the Delaware General Corporation
Law]
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized to make, alter or repeal the
by-laws of the Corporation.
8. Elections of directors need not be by written ballot unless the by-laws of
the Corporation shall so provide.
Meetings of stockholders may be held within or without the State of Delaware,
as the by-laws may provide. The books of the Corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at
such place or places as may be designated from time to time by the board of
directors or in the by-laws of the Corporation.
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit.
11. No officer shall be liable for any mistake or error in judgment or any
act or omission reasonably believed by such officer in good faith to be within
the scope of his authority and to be in, or at least not opposed to, the best
interests of the Corporation provided that such mistake, error, act or
omission is not found by a court of competent jurisdiction to constitute gross
negligence or intentional wrongdoing on the part of said officer.
IN WITNESS WHEREOF, SCRIPTEL HOLDING, INC. has caused this Restated
Certificate of Incorporation to be executed by its President and Chief
Operating Officer this 30th day of October, 1996.
SCRIPTEL HOLDING, INC.
By: /s/ James V. Holloway
J. Vance Holloway, President and Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 87,000
<SECURITIES> 0
<RECEIVABLES> 86,000
<ALLOWANCES> 3,000
<INVENTORY> 20,000
<CURRENT-ASSETS> 191,000
<PP&E> 862,000
<DEPRECIATION> 300,000
<TOTAL-ASSETS> 943,000
<CURRENT-LIABILITIES> 15,653,000
<BONDS> 1,520,000
0
0
<COMMON> 2,637,000
<OTHER-SE> (18,867,000)
<TOTAL-LIABILITY-AND-EQUITY> 943,000
<SALES> 372,000
<TOTAL-REVENUES> 372,000
<CGS> 319,000
<TOTAL-COSTS> 319,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 756,000
<INCOME-PRETAX> (10,475,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,475,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,475,000)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
