SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[x] Preliminary proxy statement [ ] Confidential, for use of the
Commission
only (as
permitted by Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SCRIPTEL HOLDING, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of
Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rules
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each Class of Securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and state
how it was
determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box, if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify
the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
SCRIPTEL HOLDING, INC.
4153 Arlingate Plaza
Columbus, Ohio 43228
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 11, 1996
The 1996 annual meeting of stockholders of Scriptel Holding, Inc. ("Scriptel")
will be held at the
Holiday Inn West, 2350 Westbelt Drive, Columbus, Ohio on September 11, 1996 at
9 AM, local
time for the following purposes:
1. To elect one Director of the class whose two-year term of office will
expire in 1998, and one
Director to the class whose three-year term of office will expire in 1999, or
until successors are
qualified and elected;
2. To amend Scriptel's Certificate of Incorporation to increase the number of
authorized shares to
125,000,000 shares of Common Stock;
3. To amend Scriptel's Certificate of Incorporation to authorize a class of
15,000,000 shares of
undesignated Preferred Stock;
4. To approve the amendment to the 1993 Stock Option Plan to increase the
number of shares
which may be issued under the Plan to 7,500,000 shares;
5. To appoint Norman, Jones, Enlow & Co. as Scriptel's independent public
accountants for the
fiscal year ending December 31, 1996; and
6. To transact other business that may properly come before the meeting or any
adjournment
thereof.
The holders of record of the Common Stock at the close of business on July 26,
1996 have the
right to receive notice of and to vote at the annual meeting and at any
adjournments thereof.
The accompanying document contains the Proxy Statement of Scriptel for the 1996
annual
meeting of stockholders.
The Board of Directors unanimously recommends a vote "FOR" each of the
proposals submitted
and in favor of the director nominees named herein.
Your vote is important regardless of the number of shares you hold. Kindly
sign the enclosed
Proxy and return it at once in the enclosed stamped envelope. If you attend
the meeting, you may
revoke your Proxy and vote your shares in person.
By Order of the Board of Directors
Dr. Philip A. Schlosser, Secretary
Columbus, Ohio
July 30, 1996
PROXY STATEMENT
SCRIPTEL HOLDING, INC.
SOLICITATION OF PROXIES OF STOCKHOLDERS
September 11, 1996
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors
of Scriptel Holding, Inc., a Delaware corporation ("Scriptel" or the "Company"
), of proxies to be
voted at its 1996 Annual Meeting of stockholders to be held on September 11,
1996 and at all
adjournments thereof (the "Annual Meeting"). The 1996 Annual Meeting of
stockholders of
Scriptel will be held at the Holiday Inn West, 2350 Westbelt Drive, Columbus,
Ohio on
September 12, 1996 at 9 AM, local time. The purposes of this solicitation are
to obtain
stockholder action upon (i) electing one Director for the term of office
expiring in 1998 and one
Director for the term of office expiring in 1999; (ii) amending Scriptel's
Certificate of
Incorporation to increase the number of authorized shares to 125,000,000 shares
of Common
Stock; (iii) amending Scriptel's Certificate of Incorporation to authorize a
class of 15,000,000
shares of undesignated Preferred Stock; (iv) approving the amendment to the
1993 Stock Option
Plan to increase the number of shares which may be issued under the Plan to
7,500,000 shares; (v)
appointing Norman, Jones, Enlow & Co. as Scriptel's independent public
accountants for the
fiscal year ending December 31, 1996; and (vi) such other business as may
properly come before
the meeting.
Scriptel's principal executive offices are located at 4153 Arlingate
Plaza, Columbus Ohio
43228 and its telephone number is (614) 276-8402.
Only Scriptel stockholders of record at the close of business on July 26,
1996 will be entitled
to vote at the Annual Meeting. On that date, approximately 23,680,213 shares
of Common Stock
were issued and outstanding and entitled to vote at the Annual Meeting, each of
which is entitled
to one vote. This Proxy Statement and the Proxy are being delivered to
stockholders beginning
on July 30, 1996.
This solicitation is being made by Scriptel. In addition to solicitation
by mail, directors,
officers, and employees of Scriptel may solicit written proxies from the
stockholders of Scriptel
personally or by telephone. Scriptel will bear the expense of preparing and
printing this Proxy
Statement and will cause this Proxy Statement to be delivered to its
stockholders.
Stockholders of Scriptel are urged to sign and return the enclosed Proxy
promptly in the
enclosed envelope to make certain that their shares will be voted at the
meeting. Shares which are
the subject of properly executed proxies will be voted in accordance with any
specification made
thereon; if no specification is made, such shares will be voted in favor of
electing the director
nominees named in this Proxy Statement and "FOR" the amendment to the
Certificate of
Incorporation to increase the number of authorized shares of Common Stock, the
amendment to
the Certificate of Incorporation to authorize a class of Preferred Stock,
approval of the
amendment to the 1993 Stock Option Plan, and appointment of Norman, Jones,
Enlow & Co. as
Scriptel's independent public accountants. Any stockholder has the right to
revoke his or her
Proxy (a) by written notice to the President or Secretary of Scriptel received
before the Annual
Meeting convenes, (b) by submitting (before the time the vote is taken) a later
dated Proxy or (c)
by appearing at the Annual Meeting and giving notice of his or her intention to
vote in person. A
stockholder's presence at the Annual Meeting, however, will not operate to
revoke a proxy.
The Board of Directors of Scriptel is not aware of any business to be
acted upon at the Annual
Meeting other than the items referred to herein. If, however, other matters
are properly brought
before the Annual Meeting or any adjournment thereof, the persons authorized to
vote shares that
are the subject of written Proxies will have discretion to vote or act thereon
according to their
best judgment.
A quorum of stockholders is necessary to take action at the Annual
Meeting. A majority of
the outstanding shares of Common Stock of the Company, represented in person or
by proxy, will
constitute a quorum of stockholders at the Annual Meeting. Votes cast by proxy
or in person at
the Annual Meeting will be tabulated by the inspector of election appointed for
the Annual
Meeting. The inspector of election will treat abstentions as shares of Common
Stock that are
present and entitled to vote for purposes of determining the presence of a
quorum. If a broker
indicates on the proxy that it does not have discretionary authority to vote
certain shares of
Common Stock on a particular matter, those shares will not be considered as
present and entitled
to vote with respect to that matter.
The director nominees who receive the greatest number of votes cast in
person or by proxy at
the Annual Meeting shall be elected directors of the Company. The vote of the
holders of a
majority of the outstanding shares of Common Stock is required to approve the
amendment to
the Certificate of Incorporation to increase the number of authorized shares of
Common Stock
and the amendment to the Certificate of Incorporation to authorize a class of
Preferred Stock.
The vote required for the approval of the amendment to the Stock Option Plan
and the
appointment of Scriptel's independent public accountants is the affirmative
vote of a majority of
the shares present in person or represented by proxy at the Annual Meeting.
For purposes of
determining the approval of any matter submitted to the stockholders for a
vote, abstentions will
be treated as shares of Common Stock that have been withheld for the purpose of
electing
directors and as voted against approval of the amendments to the Certificate of
Incorporation,
against approval of the amendment to the 1993 Stock Option Plan, and against
the appointment
of Scriptel's independent public accountants.
ELECTION OF DIRECTORS
Scriptel's Board of Directors presently consists of three (3) serving
directors divided into three
classes, consisting of one, one and one member, respectively, of nine (9)
available Board seats.
Four vacancies on the board of Directors were created by resignation during
1995. An additional
two vacancies were created by resignation in 1996 The Board of Directors has
not filled the
vacancies. The Board of Directors is conducting a search for qualified persons
to fill the
remaining vacancies. The remaining vacancies may be filled, at a subsequent
date, by the directors
then in office. Two of the vacancies may be filled at the direction of Everest
Securities, Inc.
("Everest"), under Scriptel's exclusive investment banking relationship
agreement with Everest.
Everest has not yet named these individuals to the Board of Directors. Proxies
may not be voted
for a greater number of persons than the number of nominees named.
The following table sets forth certain information as of July 26, 1996
regarding the nominees
for election as members of the Board of Directors as well as directors whose
terms of office will
continue after the meeting:
Principal Occupation in Past 5 Years,
Name Other Directorships, and Age
Director Since
NOMINEE FOR THE TERM TO EXPIRE IN 1998
Bernard Eckstein Chairman and Chief Executive Officer of the Company
1992
since May 1996. He was a self-employed
financial
consultant from October 1995 to May 1996.
Prior to
that he was Treasurer of Qualstan Corporation
(residential construction development) for over
five
years; age 58.
NOMINEE FOR THE TERM TO EXPIRE IN 1999
Philip A. Schlosser, Executive Vice President- Research and Development;
1992
Ph.D. Secretary of the Company for more than five
years; age 53.
DIRECTOR WHOSE TERM EXPIRES IN 1997
J. Vance Holloway President and Chief Operating Officer of the Company
1994
since May 1996. President and Chief
Operating Officer
of Scriptel Corporation since May 1993.
Prior to joining
the Company, Mr. Holloway was employed for
more than
five years by NCR Corporation holding his
most recent
position as Consulting Director, Strategic
Planning
of Workstation Products Division; age 58.
Executive officers of the Company at July 12, 1996 include the three
directors named above
and also Edward Palmer and Frederick A. Niebauer. Mr. Palmer, age 53, has been
Vice President
and Chief Information Officer of the Company since January 1994. Prior to
joining the Company,
Mr. Palmer was Director of Marketing for the U.S. Group of AT&T Global
Information Systems
(formerly NCR Corp.) for more than five years. Mr. Niebauer, age 46, was
appointed Treasurer
of the Company on October 27, 1994. From September 1993 to the time he joined
the Company
in September 1994, Mr. Niebauer was a self-employed financial consultant. From
April 1987
until September 1993, Mr. Niebauer served as Director of Financial Reporting
for Ranco
Incorporated, a large, privately-owned, international manufacturer.
During the year ended December 31, 1995, the Board of Directors met on
eight (8) occasions
and took various actions by unanimous consent. The Board of Directors has
assigned certain
responsibilities to an Audit Committee and a Compensation Committee. All of
the current
directors attended in excess of 75% of the Board and relevant committee
meetings held during
1995. In addition to holding regular committee meetings, the Board members
also reviewed and
considered company matters and documents and communicated with each other
wholly apart
from the meetings.
The Audit Committee of the Board of Directors is presently vacant. During
1995 it was
comprised of Bernard Eckstein, and, until April 1995, Joseph F. Caligiuri also
served on the Audit
Committee. Mr. Caligiuri resigned from the Board of Directors in April 1995.
The Audit
Committee held four (4) meetings during 1995. The functions of the Audit
Committee include
recommending the appointment of the Company s independent accountants ,
reviewing the scope
of the audit and evaluating the recommendations by the independent accountants
on matters
relating to internal controls and procedures.
The Compensation Committee of the Board of Directors is presently vacant.
During 1995 it
was comprised of Bernard Eckstein, and, until May 1995, the Compensation
Committee also
included M. Kathy Vieth and Lawrence Lieberman, both of whom resigned from the
Board of
Directors in May 1995. The Compensation Committee held three (3) meetings
during 1995. The
Committee also took various actions during the year as part of regular Board
meetings.
Four individuals resigned from the Board of Directors of Scriptel Holding,
Inc. in 1995. By
letter dated April 17, 1995, Mr. Joseph F. Caligiuri resigned from the Board.
Mr. Caligiuri cited
contrasting business philosophies and approaches as a factor leading to his
resignation. No
specific disagreements were mentioned. Ms. M. Kathy Vieth and Mr. Lawrence
Lieberman
resigned from the Board in May 1995, citing the time demands of other
commitments. In June
1995, Ms. Deborah Triant resigned from the Board. No reasons were stated in
her letter.
Under the terms of a May 1993 agreement with Woodbridge & Associates, a
financial public
relations firm, ("Woodbridge") the Company agreed to the designation of one
director nominee by
Woodbridge. In August 1995, under the terms of this agreement, Mr. Kevin
Woodbridge filled
the vacancy caused by the resignation of Mr. Caligiuri. In June 1996, Mr.
Woodbridge resigned
from the Board. No reasons were stated.
Two individuals, in addition to Mr. Woodbridge, resigned from the Board in
1996. Mr.
Thomas J. Leukart resigned from the Board on April 4, 1996. On that date, the
Company sold its
former wholly-owned subsidiary Ampsco Corporation to a company headed by Mr.
Leukart.
Mr. James W. France, Jr., the Company's former Chairman, President and
Chief Executive
Officer resigned from the Board on May 15, 1996, citing personal reasons. The
Company has
executed a severance and consulting agreement with Mr. France under which Mr.
France received
a severance package of: continuation of his salary through September 1996,
issuance of warrants
to purchase 1,500,000 shares of Common Stock at $0.68 per share and which
expire in May 1999
(value of $303,000 to be expensed in the second quarter of 1996), severance pay
of $150,000,
and cancellation of all of the Company's notes receivable (approximately
$150,000) and advances
receivable (approximately $100,000) from Mr. France. The Company has engaged
Mr. France to
act as a consultant in arranging financings for the Company. If these efforts
are successful, Mr.
France will receive in cash 9% of the amount raised (which will first be used
to pay the severance
costs outlined above) plus an additional $150,000 if more than $5 million is
raised by year end.
Bernard Eckstein, a director of the Company since 1992, has been appointed as
the Company's
Chairman and Chief Executive Officer. J. Vance Holloway, President and Chief
Operating Officer
of Scriptel Corporation, has been appointed as President and Chief Operating
Officer of Scriptel
Holding, Inc.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK
The Board of Directors has recommended that action be taken by the
stockholders to amend
the Certificate of Incorporation of Scriptel to increase the authorized shares
of Common Stock,
$.10 par value, which the Company shall have authority to issue from 50,000,000
to 125,000,000
shares.
The increase in the number of authorized shares of Common Stock is
believed by the Board of
Directors to be essential in order to provide flexibility of action in the
future and to enable the
Company to act promptly in connection with financings and such other corporate
matters
involving the issuance of Common Stock as the Board of Directors may deem
advisable. At
present, there are sufficient shares authorized for issuance in the event all
exercisable stock
options and warrants were exercised and convertible debt were exchanged for
equity. But the
Company has no additional available authorized shares. The Company has
committed to make
authorized shares available for approximately 16,300,000 additional options or
warrants as
required by agreements with major creditors in 1996, or by agreements in 1996
with creditors,
directors, officers, employees and other option and warrant holders to replace
options or warrants
those individuals relinquished in 1996 to provide available authorized shares
for the Company's
financing efforts. (See table below.) In addition, the Company anticipates
that approximately
5,000,000 authorized shares will be reserved for issuance under the 1993 Stock
Option Plan if
stockholders approve the proposals to increase the authorized shares and the
number of options
which may be issued under the 1993 Stock Option Plan.
In addition to the number of shares outstanding and those reserved for
issuance for convertible
debt, convertible debentures, options, and warrants, the Company had made the
following
commitments to reserve authorized shares as soon as they become available. If
stockholders
approve the proposed increase in authorized shares, all of these commitments
will be fulfilled.
See further description in "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS" below.
Common Stock Commitments:
Shares or
Issuance of warrants and options, per agreements:
Commitments
Mr. Gerald S. Jacobs,
exercise price of $0.75 per share, expiration
date six years after issuance
3,600,000
Sonata Investment Company, Ltd.,
exercise price of $0.50 per share, expiration date six years
after issuance
2,400,000
To replace options and warrants relinquished to assist
the Company in its financing efforts,
exercise price of $0.75 per share, expiration date six
years after issuance:
Mr. Gerald S. Jacobs
853,125
Mr. James W. France, Jr.
800,000
Mr. Walter T. Krumm
800,000
To replace options relinquished by Mr. Kevin Woodbridge
to assist the Company in its financing efforts,
exercise price of $0.50 per share, expiration date six
years after issuance
500,000
To replace options and warrants which Company officers
allowed the Company to use in its financing efforts,
exercise price of $0.40 per share, with their original
expiration dates:
Bernard H. Eckstein
225,000
J. Vance Holloway
246,100
Philip A. Schlosser
427,700
Edward Palmer
254,500
Frederick A. Niebauer
100,000
To replace options and warrants which eight Company employees
and two consultants allowed the Company to use in its financing
efforts, exercise price of $0.40 per share, with their original
expiration dates.
1,362,847
Additional options to be issued to officers, employees and two
consultants, per agreement, exercise price of $0.40 per share,
expiration date five years after issuance.
2,616,147
Options to be issued to a consultant providing marketing,
financial public relations and financial services, exercise price
of $0.55 per share, expiration date five years after issuance
500,000
Sonata Investment Company, Ltd, as additional interest on loans
made to the Company, exercise price of $0.50 per share,
expiration date six years after issuance
500,000
Bernard H. Eckstein, employment bonus options,
exercise price of $0.40 per share, expiration date
five years after issuance
500,000
Options issuable to officers who have agreed to defer part
of their annual salaries, exercise price of $0.40 per share,
expiration date five years after issuance
195,000
Other, at various exercise prices and expiration dates,
approximately
420,000
---------------------
TOTAL
16,300,419
=============
In May 1996, the Company has entered into an exclusive investment banking
relationship with
Everest Securities, Inc. ("Everest"). Everest will advise and consult with the
Company, and will
use its best efforts to obtain commitments for financings up to $18 million
using debt, convertible
debt or stock. Although the composition of the financing, if any, is not
known, management
believes that if the maximum financing were to occur and if it is in the form
of convertible debt or
equity, or is accompanied by options or warrants, an undetermined number of
additional shares
will be needed. The exact amount of shares, if any, will depend on market
pricing and other
considerations.
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, will be expensed as a finance
charge in the
second quarter.
The agreement also contains the following provisions. The minimum term
is one year,
cancelable by either party with ninety days written notice. Upon completion of
at least
$1,000,000 in funding in any form, the Company will pay $20,000 monthly to
Everest for the
term of the agreement. Everest will have the right to appoint two (2)
directors to the Board of
Directors for a minimum period of three years. Everest will get cash placement
fees on any
financing the Company receives; such fees to range from 2% on any financing
which Everest does
not manage, to 13% on equity funds raised by Everest. In addition, Everest
will receive warrants
for 10% of any shares tendered on the financings. Generally, such fees are
payable on any
financings from a source introduced to the Company by Everest, during the term
of the agreement
and for 60 months thereafter.
Other than the foregoing, there are no present plans, understandings or
agreements for
issuance or use of the proposed additional shares. Additional authorized
shares would also be
required if the Company entered into future private or public stock offerings.
Without additional authorized shares to use in its financings, it is
likely that the Company
would not be able to continue to remain in business. (See footnotes relating
to Going Concern
Basis of Presentation, and Risk of Liquidation in the consolidated financial
statements in the
Annual Report to Stockholders and the quarterly financial statements.)
The following general description of provisions relating to Common Stock
is qualified in its
entirety by the description included in the proposed Amendment to Article 4 of
the Certificate of
Incorporation of Scriptel Holding, Inc. included as Appendix A to this proxy
statement.
The additional shares of Common Stock may be issued at such times, to such
persons and for
such consideration as the Board of Directors may determine to be in the Company
s best interest
without (except as otherwise required by law) further authority from the
stockholders. The
additional shares of Common Stock would have the same voting and other rights
as the presently
authorized Common Stock. Stockholders presently have no preemptive rights and
would have
none in respect of the proposed additional shares of Common Stock.
The increase in the number of authorized shares of Common Stock will not
have any
immediate effect on the rights of existing stockholders. To the extent the
additional shares are
issued in the future, they will decrease the existing stockholders' percentage
equity ownership and,
depending on the price at which they are issued, could be dilutive to the
existing stockholders.
Adoption of the proposed amendment requires the affirmative vote of the
holders of a majority
of the outstanding shares of Common Stock entitled to vote at the Annual
Meeting. The effect of
an abstention, or a broker non-vote, is the same as a vote against the
proposal. If the proposed
amendment is approved by stockholders, it will become effective upon filing and
recording of a
Certificate of Amendment as required by the Delaware General Corporation Law.
The Board of
Directors unanimously recommends that stockholders vote FOR the proposed
amendment.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO AUTHORIZE A
CLASS OF 15,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK
In June 1996, the Board of Directors approved an amendment to the
Certificate of
Incorporation, subject to stockholder approval, to add a provision allowing for
the issuance of
15,000,000 shares of undesignated Preferred Stock.
The following general description of provisions relating to Preferred
Stock is qualified in its
entirety by the description included in the proposed Amendment to Article 4 of
the Certificate of
Incorporation of Scriptel Holding, Inc. included as Appendix A to this proxy
statement.
Currently the Company is authorized to issued only Common stock. The
purpose of the
proposed amendment to authorize a class of 15,000,000 shares of undesignated
Preferred Stock is
to give the Board of Directors the flexibility and authority to provide for the
issuance of Preferred
Stock without delay and without the need for further action by the
stockholders, except in
connection with transactions for which Delaware law requires stockholder
approval. It is not
possible to state the precise effect of the authorization of the Preferred
Stock upon the rights of
the Company's stockholders until the Board of Directors determines the
respective preferences,
limitations and relative rights of the holders of one or more series of the
Preferred Stock,
including dividend rights, conversion rights, voting rights, redemption rights,
and liquidation
preferences. The amendment will give the Board of Directors broad discretion
to set the terms of
any shares of Preferred Stock that are issued. The Company may issue one or
more series of
stock with such voting powers, designations, preferences, and other rights as
set forth in the
Certificate of Incorporation or in resolutions authorizing the issuance of such
stock adopted by
the Board of Directors pursuant to express authority vested in it by provisions
of the Company's
Certificate of Incorporation.
Preferred Stock authorized by the amendment would be available for
issuance from time to
time for any proper corporate purpose, including but not limited to issuance in
public or private
transactions in connection with future financings, acquisitions, or stock
distributions. At this time,
the Company has no plans to issue any shares of Preferred Stock. However,
because the need to
raise additional capital or take immediate advantage of an attractive business
opportunity can arise
when it would be inconvenient to hold a stockholders' meeting or when there
would not be time
for such a meeting, the Company believes that prudent business planning
suggests the 15,000,000
shares of Preferred Stock be authorized at this time.
The amendment may be viewed as having the overall effect of delaying or
preventing an
unsolicited attempt by another person or entity to acquire control of the
Company. Issuances of
authorized preferred shares can be implemented, and have been implemented by
some companies
in the past, with voting or conversion privileges intended to make acquisition
of the company
more difficult or more costly. Such an issuance could discourage or limit the
stockholders'
participation in certain types of transactions that might be proposed (such as
a tender offer),
whether or not management or a majority of the stockholders favored such
transactions, and
could enhance the ability of officers and directors to retain their positions.
The Company is not
aware of any current proposals by any party to acquire control of the Company.
The Board of Directors recommends a vote "FOR" this proposal. The
affirmative vote by a
majority of the shares of Common Stock of the Company entitled to vote at the
Annual Meeting
will be required to amend the Certificate of Incorporation. Proxies solicited
by the Board of
Directors will be so voted unless stockholders specify otherwise on their proxy
cards. Votes that
are cast against the proposal will be counted for purposes of determining the
presence or absence
of a quorum and the total number of votes cast with respect to the proposal.
Abstentions will
have the same effect as a vote against the proposal. Broker non-votes will be
counted for
purposes of determining the presence or absence of a quorum for the transaction
of business, but
will not be counted for purposes of determining the number of votes cast with
respect to the
proposal.
AMENDMENT TO THE STOCK OPTION PLAN
The Board of Directors unanimously recommend the approval of stockholders
of an
amendment to Scriptel s 1993 Stock Option Plan (the Plan ) to increase the
amount of shares
which may be issued under the Plan from 5,000,000 to 7,500,000 shares.
The Plan provides for the grant of up to 5,000,000 shares of Common Stock.
All employees
of Scriptel and its subsidiaries, non-employee Directors, and consultants to
the Company, are
eligible for the grant of options under the Plan. The Plan provides for the
grant of incentive stock
options and non-qualified options; provided that only employees can receive
incentive stock
options. The Board of Directors is responsible for granting options under the
Plan and
administering the Plan.
The purchase price of the shares subject to options granted under the Plan
are determined by
the Board of Directors or the Compensation Committee, as the case may be. Each
option
becomes exercisable at the time or times determined by the Compensation
Committee when the
option is granted, provided that no option may be exercised within six months
of date of grant,
except that the Board of Directors or the Compensation Committee has the right
to accelerate the
exercisability of the options upon the occurrence of certain events that
involve or may result in a
change in control of Scriptel. Each option terminates on the date set by the
Compensation
Committee at the time of grant, but no termination date may be later than ten
years from the date
of grant. Generally, no option may be exercised unless the holder of the
option is an employee of
Scriptel or one of its subsidiaries or is rendering services to the Company as
a non-employee
director or consultant, except for limited exercise rights after termination of
employment or
services. An optionee can pay the purchase price for a stock option in cash, by
delivery of shares
of Common Stock already owned by the optionee, or by a combination of these
methods, as
determined by the Compensation Committee.
An employee who is granted an incentive stock option generally will not
realize income for
federal income tax purposes upon the grant or exercise of the option, and
Scriptel will not be
entitled to a deduction. Any person who is granted a non-qualified option will
not realize income
for federal income tax purposes upon the grant of the option, and Scriptel will
not be entitled to a
deduction. Upon exercise of a non-qualified option, the optionee will realize
income, and Scriptel
will be entitled to a deduction, in an amount equal to the difference between
the purchase price
and the fair market value of the shares, on the date of exercise or, in the
case of a director, officer
or 10% stockholder who does not file the necessary election with the Internal
Revenue Service,
six months after such date.
Since the approval of the Plan by stockholders in 1994, approximately
2,500,000 of the
options under the plan have been granted or committed and the Directors feel
that additional
shares are needed for subsequent grants.
The Board believes that the amendment to the Plan will benefit Scriptel
and its stockholders by
enabling Scriptel to attract and retain qualified employees. Therefore, the
Board unanimously
recommends that Scriptel stockholders vote FOR the proposed amendment to the
1993 Stock
Option Plan. Approval will require the affirmative vote of the holders of at
least a majority of the
shares represented at the Annual Meeting.
On July 26, 1996, the bid and asked prices of a share of Common Stock as
reported on the
Electronic Bulletin Board maintained by NASD were $______ and $______,
respectively.
[amounts to be filled in on definitive proxy]
INDEPENDENT PUBLIC ACCOUNTANTS
Norman, Jones, Enlow & Co. audited the consolidated financial statements
of Scriptel
Holding, Inc. for the fiscal year ended December 31, 1995. Coopers & Lybrand
L.L.P. audited
the consolidated financial statements of Scriptel Holding, Inc. for the fiscal
years ended December
31, 1994 and 1993. The accountant's opinion for each year indicated that the
consolidated
financial statements had been prepared assuming that the Company will continue
as a
going-concern and, as discussed in the financial statements, the Company's
recurring losses from
operations, net working capital deficiency, and need for immediate financing to
fund its operations
raise substantial doubt about its ability to continue as a going-concern.
Management's plans
concerning these matters, and the repercussions if they are not successful, are
described in notes
to the consolidated financial statements. The consolidated financial
statements do not include any
adjustments that might result from the outcome of these uncertainties.
By letter dated August 10, 1995 and received August 14, 1995, Coopers &
Lybrand L.P.P.
indicated that they had resigned as the independent accountants for Company.
In connection with
the audits by Coopers & Lybrand L.L.P. and through the date of their
resignation, there were no
disagreements with the former accountants in any matter of accounting
principles or practices,
financial statements disclosures, or auditing scope or procedure, or reportable
events, within the
meaning of Item 304 of Regulation S-K.
On January 11, 1996, with approval of the Audit Committee of the Board of
Directors, the
Company selected Norman, Jones, Enlow & Co. to audit its consolidated financial
statements for
the year ended December 31, 1995. The Board of Directors annually reviews the
selection of its
independent public accountants.
While under Delaware law the appointment of the Company's independent
public accountants
could be made without the authorization of stockholders, the Board of Directors
considered it
appropriate to obtain such authorization. Therefore, the Board of Directors
unanimously
recommends that Scriptel stockholders vote to appoint Norman, Jones, Enlow &
Co. as the
Company's independent public accountants for the fiscal year ending December
31, 1996.
Representatives of Norman, Jones, Enlow & Co. are expected to be present
at the Annual
Meeting with an opportunity to make a statement if they want to and to respond
to appropriate
questions.
EXECUTIVE COMPENSATION
All directors and officers of the company devote such of their time as may
be necessary to the
company's business. Non-employee directors do not presently receive any cash
compensation for
their attendance at meetings of the Company's Board of Directors or at any
committee meetings
thereof. In lieu thereof, non-employee directors annually receive under the
1993 Stock Option
Plan options to purchase 25,000 shares of Common Stock at the then current
stock price.
Pursuant to the terms of the Plan, non-employee directors received options to
purchase a total of
50,000 shares of Common Stock at an exercise price of $0.75 per share on
January 1, 1996.
SUMMARY COMPENSATION
The following table provides certain summary information concerning the
compensation
paid or accrued by the Company, to or on behalf of its chief executive officer
for the years ended
December 31, 1995, 1994 and 1993, and all other officers of the Company who
earned more than
$100,000 in total annual salary and bonus in any of the years ended December
31, 1995, 1994 and
1993.
SUMMARY COMPENSATION TABLE
Other
Names and Principal
Annual
Position Year Salary
Bonus Compensation
James W. France, Jr. 1995 $193,054 $
0 $77,500 (13)
Chief Executive Officer 1994 152,962
25,000 0
(14) 1993
132,294 0 0
C. Edward Palmer III, 1995 133,750
0 0
Vice President , Chief 1994 112,500
0 41,800 (6)
Information Officer 1993 0
0 0
M. Kathy Vieth, former 1995 72,912
0 100,000 (10)
Director and former 1994 111,568
40,000 2,239 (6)
President of Coloray 1993 0
0 44,570 (7)
J. Vance Holloway, 1995 117,291
0 0
President of Scriptel 1994 91,666
0 0
Corporation 1993 0
0 0
Dennis J. Leukart, 1995 117,333
0 0
President of Ampsco 1994 84,000
2,000 0
Corporation 1993 84,000
4,000 0
continued
SUMMARY COMPENSATION TABLE, continued
Restricted Stock All
Names and Principal Stock
Underlying Other
Position Awards
Warrants & Compensation
Options
James W. France, Jr. 1995 0
1,400,000 (3) 0
Chief Executive Officer 1994 0
235,000 (4)(5) 0
1993
0 1,085,000 (1)(2)(4) 0
C. Edward Palmer III, 1995 0
100,000 (8) 0
Vice President , Chief 1994 0
104,500 (8) 0
Information Officer 1993 0
0 0
M. Kathy Vieth, former 1995 0
100,000 (9) 0
Director and former 1994 0
187,500 (9) 0
President of Coloray 1993 0
25,000 (9) 0
J. Vance Holloway, 1995 0
0 (11) 0
President of Scriptel 1994 7,000
121,100 (11) 0
Corporation 1993 0
125,000 (11) 0
Dennis J. Leukart, 1995 0
100,000 (12) 0
President of Ampsco 1994 0
65,000 (12) 0
Corporation 1993 0
0 0
The following table contains information concerning the grant of stock
options and
employment related options to the named executive officers listed below during
the fiscal year
ended December 31, 1995:
OPTIONS AND WARRANTS GRANTED IN 1995
%
of Total
Options Per
Granted to Share Market
Options
Employees Exercise Bid
Name Granted in
1995 Price Price
James W. France, Jr. (3) 1,400,000 48.1%
$1.74 $1.94
C. Edward Palmer III (8) 100,000 3.4
2.50 3.25
M. Kathy Vieth (9) 100,000 3.4
2.25 3.25
Dennis J. Leukart (12) 100,000 3.4
2.50 .88
continued
OPTIONS AND WARRANTS GRANTED IN 1995, continued
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term
Expiration
Name Date 0%
5% 10%
James W. France, Jr. (3) 07-27-00 280,000
1,036,000 1,932,000
C. Edward Palmer III (8) 01-26-00 75,000
165,000 273,000
M. Kathy Vieth (9) 01-26-00 100,000
190,000 298,000
Dennis J. Leukart (12) 09-07-00 0
0 0
(1) Options for 500,000 of such option shares were granted in accordance
with the terms
referenced in an agreement between the Company and Woodbridge & Associates.
See the
Related Party Transactions footnotes to the consolidated financial statements.
In connection with
this agreement the Company agreed to consider granting, but was not obligated
to grant, to Mr.
France a number of six year stock options for the purchase of Company Common
Stock equal to
4.9% of the Company's outstanding stock. Accordingly, the Board of Directors
independently
considered the proposed grant and in December 1993 the Board of Directors
granted to Mr.
France options to purchase 500,000 shares at a price of $1.70 per share. The
options were
exercisable immediately upon the stockholders approval to increase the
authorized shares of
Common Stock of the Company at the Annual Meeting held in May 1994.
(2) Mr. France has received options to purchase 175,000, 250,000 and
150,000 shares of
Common Stock at $2.50 per share upon attaining in 1994 a NASDAQ listing,
completion of the
Hillcrest financing package with an aggregate of $5 million or more, and
registration of all stock,
warrants and options, respectively. The foregoing options were originally
granted in 1992, the
vesting conditions for which were achievement of performance objectives in
1993. The Board of
Directors extended the performance date through 1994.
(3) Mr. France received 400,000 options for meeting performance objectives
in his contract,
and 1,000,000 options as a replacement for options he transferred to debt
holders in 1994 (see
Note 5 below). These were immediately vested and immediately exercisable.
(4) Mr. France's employment agreement provides for an automatic, annual
grant of options to
purchase 10,000 shares of Common Stock at $2.00 per share, immediately
exercisable, which
expire at the earlier of 5 years after the date of grant or 90 days after
termination of employment.
(5) Mr. France received options and warrants to purchase 225,000 shares of
Common Stock in
an exchange of options with a principal stockholder. Such options and warrants
were at prices
ranging between $1.70 and $2.00 per share and expiring at various dates through
October 2000.
For no consideration to Mr. France, Mr. France transferred these options and
warrants to
purchase 225,000 shares of Common Stock, and additional options to purchase
993,200 shares of
Common Stock to note holders as an inducement to loan funds (options and
warrants for
1,078,200 shares) and to a consultant for services rendered (options for
140,000 shares). The
options and warrants transferred have exercise prices ranging from $1.70 to
$2.50 per share and
expire at various dates through October 2000.
(6) Other compensation in 1994 includes amounts received by these officers
for reimbursement
of their moving expenses.
(7) Ms. Vieth was a consultant to the Company in 1993, and received
$44,570 in consulting
fees.
(8) In 1994, Mr. Palmer received options to purchase 50,000 shares of
Common Stock as part
of his employment agreement with the Company. He also received a grant of
options to purchase
54,500 shares of Common Stock as part of a distribution to all employees under
the Company's
Stock Option Plan. In 1995, Mr. Palmer received options to purchase 100,000
shares of
Common Stock as part of his employment agreement with the Company. In
addition, in 1995 the
expiration date on 50,000 options he received in 1994 was extended from 1997 to
2000.
(9) In 1994, Ms. Vieth received options to purchase 100,000 shares of
Common Stock as part
of her employment agreement with the Company. In 1994, she also received a
grant of options to
purchase 62,500 shares of Common Stock as part of a distribution to all
employees under the
Company's Stock Option Plan, and options to purchase 25,000 shares of Common
Stock for
services as a Director of the company prior to becoming an officer of Coloray.
In addition, in
1993 Ms. Vieth received options to purchase 25,000 shares of Common Stock for
services
performed as a Director of the Company prior to becoming an officer of Coloray,
with such
grant subject to stockholders' approval to increase the authorized shares of
the Company at the
Annual Meeting held in May 1994. In 1995, Ms. Vieth received options to
purchase 100,000
shares of Common Stock as part of her employment agreement with the Company.
In addition, in
1995 the expiration date on 100,000 options she received in 1994 were extended
from 1996 to
2000.
(10) Ms. Vieth received a $100,000 severance package in 1995 when she
terminated her
service with the Company.
(11) In 1993 Mr. Holloway received options to purchase 125,000 shares of
Common Stock as
part of his employment agreement with the Company. He also received a grant of
options to
purchase 121,100 shares of Common Stock as part of a distribution to all
employees under the
Company's Stock Option Plan in 1994. In 1995 he received no options; however
the expiration
date on 125,000 options he received in 1993 was extended from 1996 to 2000.
(12) In 1995 Mr. Leukart received options to purchase 100,000 shares of
Common Stock as
part of his employment agreement with the Company. He also received a grant of
options to
purchase 65,000 shares of Common Stock as part of a distribution to all
employees under the
Company's Stock Option Plan in 1994.
(13) Mr. France received a one-time grant of 40,000 shares of Common Stock
in 1995 per
terms included in his employment contract.
(14) Mr. France resigned on May 15, 1996 from all positions with the
Company.
The following table contains information concerning the exercise of stock
options and
employment related options and information on unexercised stock options and
warrants held as of
the end of fiscal year 1995 by the named executive officers:
OPTION AND WARRANT EXERCISES AND YEAR-END VALUE TABLE
Value of
Number of Unexercised Unexercised
Shares
Options & Warrants In-the-money
Acquired
- - - - -------------------------- Options and
on Value
Non- Warrants at
Name Exercise Realized Exercisable
Exercisable December
31, 1995 (1)
James W. France, Jr. 0 $0 1,425,467
0 $0
C. Edward Palmer III 0 0 204,500
0 0
M. Kathy Vieth 0 0 312,500
0 0
J. Vance Holloway 0 0 246,100
0 0
Dennis J. Leukart 0 0 170,388
0 0
(1) The average of the bid and asked prices at December 31, 1995 was $0.56.
Value equals
the difference between the average of the bid and asked price and the
exercise price.
EMPLOYMENT CONTRACTS
James W. France, Jr., Chairman, President and Chief Executive Officer,
entered into a three-
year agreement commencing September 1, 1992, which was extended and amended in
1993 and
again in October 1994. The agreement has now expired, but Mr. France has
remained in the same
capacity, without a contract, at an annual base salary of $250,000.
C. Edward Palmer III, Vice President and Chief Information Officer,
entered into a three-year
employment agreement commencing January 1, 1994. Under the agreement, Mr.
Palmer received
a base annual salary of $100,000 until July 1, 1994 at which time his annual
base salary increased
to $125,000 per year. The agreement provides for the granting of options to
purchase 50,000
shares of Common Stock in January 1994 at a price of $1.75 per share, and
further provides for a
grant of options to purchase 100,000 shares of Common Stock at a price of $2.50
per share
exercisable one third per year for each year of the contract.
M. Kathy Vieth, former President of Coloray and a former Director of the
Company, entered
into a two-year employment agreement commencing June 1, 1994. Under the
agreement, Ms.
Vieth received a base annual salary of $125,000. In May 1995, Ms. Vieth
resigned as a Director
of the Company. In September 1995, Ms. Vieth resigned her position as
President of Coloray and
received a $100,000 severance package.
J. Vance Holloway entered into a three year contract with the Company on
June 1, 1993. Mr.
Holloway received 125,000 options as his total compensation from June 1, 1993
to March 1,
1994, at which time he began to receive an annual base salary of $110,000 per
year. Mr.
Holloway is entitled to receive annual options to purchase 5,000 shares of
Common Stock at a
price of $4.00 per share; to date the Board of Directors has not formally
granted these options.
Mr. Holloway received 5,000 shares of Common Stock as additional compensation
in 1994.
Dennis J. Leukart entered into a three year contract with Ampsco and with
the Company on
January 1, 1995. He receives a base annual salary of $117,000. He received
100,000 options at
$2.50 per share on signing the contract, and is to receive 10,000 options at
fair market value
annually. Dennis Leukart resigned from this contract on April 4, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
These individuals served as members of the Compensation Committee of the Board
of Directors
in calendar year 1995:
Mr. Bernard Eckstein (Chairman)
Mr. Lawrence Lieberman
Ms. M. Kathy Vieth
Mr. Lieberman was a consultant to the Company during 1994. The consulting
Memorandum of
Understanding with Mr. Lieberman provided for compensation of $5,000 per month
and options
to purchase 50,000 shares of Common Stock of the Company for $2.25 per share
(the market bid
price at the time of grant was $3.875 per share). The consulting arrangement
has now been
terminated.
Until September 1995, Ms. Vieth was President of Coloray Display Corporation, a
subsidiary of
Scriptel. Prior to becoming President of Coloray , Ms. Vieth was a consultant
to the Company.
In performing her Compensation Committee duties, Ms. Vieth abstained in any
decisions that
would affect her personally.
Both Mr. Lieberman and Ms. Vieth resigned from the Board and the Compensation
Committee
in 1995.
In January 1996, Mr. Eckstein received options to purchase 100,000 shares of
Common Stock
at an exercise price of $0.75 per share for consulting services rendered to the
Company in its
1995 year-end closing. The options were approved by the Board of Directors,
with Mr. Eckstein
abstaining. In May 1996, Mr. Eckstein became Chairman and Chief Executive
Officer of the
Company. Mr. Eckstein's salary of $150,000 per year was set and approved by
the Board of
Directors in June 1996, with Mr. Eckstein abstaining.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
General
The Compensation Committee has general authority to review the Company's
employee and
management compensation practices, to monitor compliance, and to recommend
changes to those
practices. The Compensation Committee also administers the Company's 1993
Stock Option
Plan. The Compensation Committee has final review and approval of the terms
and conditions of
the Company's Pay for Performance Plan. The Compensation Committee establishes
objectives
for the Company's CEO and meets privately to evaluate his performance and
recommends
changes to his compensation which are then brought to the full board for
approval. The
Compensation Committee has no authority with respect to the granting of options
to directors
eligible to receive stock options under the 1993 Stock Option Plan. In
general, the CEO
establishes compensation for all other senior executives with guidance from the
Compensation
Committee.
Pay for Performance Plan
The Company's Pay for Performance Plan applies to all officers of the
Company, officers of
its subsidiaries, and certain management positions as designated by the
presidents of the individual
operations. The purpose of the plan is to provide contingent benefits to
employees to reflect their
contributions to the Company and to serve as an incentive to contribute to
future Company
success. The Pay for Performance Plan balances financial incentives with a
combination of near
term cash bonuses and long term stock options.
Quantitative factors in the Pay for Performance Plan include revenue and
income
measurements as compared to the company's business plan. Cash bonuses are paid
based on
attainment of specified percentages of Pay for Performance Plan revenues and
income. The Pay
for Performance Plan also includes qualitative measurements based on evaluation
of customer
satisfaction, timely and accurate forecasting and reporting, and other factors.
Stock options are
used to compensate individuals for their qualitative performance.
No bonuses or options were granted under the Pay for Performance Plan in
1995.
Stock Options
A stock option permits the holder to buy shares of Company Common Stock at
a specific price
during a specific time period. As the prices of Company stock rises, the
option increases in value.
The Company has a stock option plan permitting the Committee to award stock
options to
executive officers, other key employees of the Company, and to consultants who
perform
significant valuable services. The intent of such awards is to provide the
recipient with an
incentive to perform at levels that will result in better Company performance
and enhanced stock
values.
Whether or not an option grant is made and the size of any particular grant
depends on the
committee's subjective evaluation of performance and input from senior
executives. In some
cases, stock options are used to attract and retain key employees of the
Company or to
compensate consultants in lieu of cash for services rendered.
During 1995 several employees, including some of the named executive
officers, were granted
stock options based on their individual employment contracts.
Chief Executive Officer Compensation
Effective September 1995, Mr. France's annual base salary was increased to
$250,000. In
providing this increase, the Compensation Committee considered that, under Mr.
France's
leadership, the Company had met several milestones in the past year. Among
these were the
evolution of the WriteTouch chip through fabrication, the ongoing relationship
with Samsung,
recruitment of key senior staff, and continued new financings under challenging
circumstances.
The Compensation Committee also noted that in light of Mr. France's extensive
travel and time
commitments in support of the Company's activities, his new salary level still
remains below the
industry average. The Compensation Committee believes the factors serving as a
basis for Mr.
France's salary increase will continue to have a positive impact on the Company.
The Compensation Committee recommended to the Board, and the Board
ratified a grant of
400,000 options at an exercise price of $1.74 per share to Mr. France for
meeting performance
objectives. In a similar manner, options to purchase 1,000,000 shares at $1.74
per share were
granted to Mr. France to compensate him for transferring some of his options to
debt holders in
1994 at no benefit to him.
Mr. France had two loans payable to the Company for shares purchased in
1992. The
Compensation Committee agreed in 1994 to cease his current monthly payments on
the notes, and
to restructure the notes to require a balloon payment of the principal and
accrued interest on
December 31, 1995. This accelerated the repayment of the total amount of the
notes, yet reduced
the near term cash requirements. The Compensation Committee believed this
would help Mr.
France focus his energies on the Company's objectives. (In May 1996, Mr.
France resigned all
positions with the Company. As part of his separation agreement, all notes and
advances
receivable were forgiven.)
Mr. France also received 40,000 shares of stock of Scriptel when two
milestones were met.
The Compensation Committee feels that this will reduce the overall cash cost of
Mr. France's
compensation with minimal dilution of the other stockholders of Scriptel.
The Compensation Committee notes that Mr. France's overall compensation
was highly
dependent on performance. The Compensation Committee feels that achievement of
the specified
performance added significantly to Scriptel's stockholder value.
By the Compensation Committee:
Bernard Eckstein (former Chairman of the Compensation Committee, and sole
member at the end
of 1995 and until May 1996)
Performance Graph
The following performance graph compares the cumulative total return
(change of the bid
stock price) of the Company's Common Stock for the five year period from
December 31, 1990
through December 31, 1995 with the S&P Small Cap Index and the S&P Computer
Systems
Index. The graph assumes that the value of the investment in the Company's
Common Stock and
each index was $100 at December 31, 1990 and that all dividends, if any, were
reinvested. The
comparisons are not intended to forecast or be indicative of possible future
performance of the
Company's stock.
[Graph not submitted in electronic filing. Data points are shown below.]
December 31, 1990 1991 1992 1993
1994 1995
Scriptel 100.00 350.00 112.50
181.50 181.50 31.50
S&P SmallCap Index 100.00 145.87 174.23 204.88
192.93 248.10
S&P Computer Systems
Index 100.00 86.06 60.68
61.87 79.05 103.20
STOCK OWNERSHIP
As of July 12, 1996, the Company had 23,680,213 shares of Common Stock
issued and
outstanding and an additional 26,319,787 shares reserved for issuance upon the
exercise of
existing options and warrants and the conversion of convertible promissory
notes. The address of
each person, unless otherwise indicated, is c/o of the Company:
MANAGEMENT (at July 12, 1996):
Shares
Shares Owned Issuable Upon
Total Percent of
Names (5) Exercise Of
Shares Class (2)
Warrants &
Options (1)
James W. France, Jr. (3) 46,767 625,467
672,234 2.77%
Philip A. Schlosser, Ph.D. 115,556 0
115,556 *
Bernard Eckstein 46,326 0
46,326 *
J. Vance Holloway 36,500 0
36,500 *
Dennis Leukart (4) 66,840 5,000
71,840 *
C. Edward Palmer III 29,722 0
29,722 *
Frederick A. Niebauer 28,667 0
28,667 *
All Executive Officers and
Directors as a Group
(7 persons) 370,378 630,467
1,000,845 4.12%
* Less than 1%.
(1) Includes options and warrants exercisable within 60 days following July 12,
1996
(2) In calculating the percentage of ownership, in accordance with SEC rules,
the denominator
includes number of shares outstanding plus shares issuable to the individual or
group whose
percentage is being calculated.
(3) Resigned May 15, 1996.
(4) Resigned April 4, 1996.
(5) Includes shares which will be issued as part of a grant to all employees in
June 1996. These
include 15,556 shares for Mr. Schlosser, 33,333 shares for Mr. Eckstein,
30,000 shares for
Mr. Holloway, 29,722, shares for Mr. Palmer, and 26,667 shares for Mr.
Niebauer.
SIGNIFICANT STOCKHOLDERS (at July 12, 1996):
Shares
Shares
Issuable
Issuable
Upon
Upon Percent
Shares Exercise Of
Exercise Total of
Names & Addresses Owned Convertible Of
Shares Class
Notes
Warrants (4)
& Options
Walter T. Krumm
4951 Gulfshore Blvd.
Naples, FL 33940 1,017,622 310,113 1,020,000
2,347,735 9.38%
Gerald S. Jacobs (1)
6480 Busch Blvd.
Columbus, OH 43229 383,872 137,028 3,292,875
3,813,775 14.06%
Vittorio E. Cuniberti (2)
P.O. Box 1931
Lakeville, CT 06039 1,307,589 94,409 5,000
1,406,998 5.94%
CommTech International
Mgmt. Corp. (3)
545 Middlefield Road
Menlo Park, CA 94025 896,764 0 400,000
1,296,764 5.38%
Credit Suisse (Hong Kong)
2nd Floor
Alliance Building
130 Connaught Road Central
Hong Kong 1,235,712 0
0 1,235,712 5.21%
M & M Capital Management
P.O. Box 309
Georgetown
Grand Cayman, Cayman
Islands, BWI 1,385,281 2,222,223 0
3,607,504 13.92%
(1) Includes shares held by Standard Energy Company, of which Mr. Jacobs is
President and
sole stockholder.
(2) Includes shares beneficially owned by his wife and various family trusts.
(3) Includes 400,000 options held by CommTech International Management Corp.
the general
partner of CommTech International, and 528,483 shares held by CommTech
Partners IV, of
which CommTech International is the general partner.
(4) In calculating the percentage of ownership, in accordance with SEC rules,
the denominator
includes number of shares outstanding plus shares issuable to the
individual or group whose
percentage is being calculated.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
A former officer and director of the Company filed a suit against the
Company in January 1996
in U. S. District Court for the Southern District of Ohio, entitled Nicholas G.
Venetis vs. Scriptel
Corporation and Scriptel Holding, Inc. The individual alleged common fraud;
securities fraud;
non-payment of payroll, severance, director bonus, and expenses; improper
handling of COBRA
benefits and disclosures; and other matters. Mr. Venetis and the Company
settled this suit in June
1996, and the Company entered into a consulting agreement with Mr. Venetis for
an initial term
of one year.
Three former officers of Coloray Display Corporation, a majority-owned
subsidiary of the
Company, filed an action against Coloray and the Company on February 23, 1996
in Alameda
County Superior Court, Hayward, California, entitled Michael W. Blas, M. Kathy
Vieth, and
Daniel J. Devine vs. Coloray Display Corporation and Scriptel Holding, Inc.,
alleging
non-payment of amounts due them for payroll, severance, expense reports and
other matters, and
seeking damages totaling approximately $680,000. These individuals also sought
and obtained in
connection with this action an ex parte Temporary Protective Order prohibiting
the transfer of the
assets of Coloray and the assets of the Company located in California.
Following a hearing on
March 28, 1996, the California court denied the plaintiffs' application for
Writ of Attachment or
Temporary Protective Order. The Company intends to vigorously pursue this
action, including
the possibility of an action by the Company against each of the individuals.
These individuals
have also taken administrative action against Coloray through the California
Labor Board.
The Company entered into a private placement with M&M Capital Management,
a foreign
investor, of $1,000,000 of convertible debentures in March 1995. Net proceeds
of $900,000
were received on April 5, 1995, after payment of a finders fee and a consulting
fee. Interest was
8%, payable at maturity. The debentures would have matured in March 1998. The
conversion
price floated. The March debentures were converted into 1,385,281 shares of
Common Stock in
the third quarter of 1995. The Company has recorded a finance charge of
$429,000 on the
conversion equal to the difference between fair value of the shares issued and
the conversion price
at the date of conversion. The March 1995 debenture issues were made in
accordance with the
provisions of Regulation S of the Securities Act of 1933, as amended. The
shares acquired on the
conversion of the debentures were exempted from registration under the
provisions of Regulation
S, and were immediately tradeable.
In November 1995 the Company issued a demand, secured, convertible
promissory note to
Sonata Investment Co., Ltd, an affiliate of Mr. Gerald S. Jacobs ("Mr.
Jacobs"), a major creditor
and stockholder of the Company in exchange for proceeds of $300,000. The note
bears interest
at 10% and the rate increases to 18% if the Company defaults on the note. The
note and accrued
interest are convertible into a maximum of 700,000 shares of Common Stock at
$0.50 per share.
The market price of the Company's Common Stock on the date of the note was
$0.75 per share.
In conjunction with this loan, the Company granted a security interest in all
its receivables,
inventories, equipment, patents and other assets, and an express pledge of the
patents of Coloray
Display Corporation, a majority-owned subsidiary of the Company. The Company
recorded a
finance charge of $131,000 in the fourth quarter of 1995 on this note, equal to
the difference
between fair value of the Common Stock on the date of the note and the
conversion price implicit
in the note.
In November 1995 the Company entered into an agreement to issue $1,000,000
of convertible
debentures with M&M Capital Management, a foreign investor, under the
provisions of
Regulation S promulgated by the Securities and Exchange Commission. The
debentures bear
interest at 8% and mature in 1998. The debentures are convertible into Common
Stock at a
floating rate subject to a minimum conversion price of $0.30 per share
(equivalent to 3,333,334
shares) and a maximum conversion price of $0.45 per share (equivalent to
2,222,223 shares). The
market price of the Company's Common Stock on the date of issue of the
debenture was $1.00
per share. The Company recorded a finance charge of $1,222,000 in the fourth
quarter of 1995,
equal to the difference between fair value of the Common Stock on the date of
the debenture and
the maximum conversion price of the debenture. Depending on the actual
conversion price if and
when the debenture is converted, the Company may have to record an additional
finance charge.
The Company paid $58,000 and committed to issue 15,000 shares of Common Stock
(value
approximately $15,000) to financial consultants as closing costs on this
debenture transaction. In
addition, the Company expects to issue warrants to a financial consultant on
this transaction to
purchase shares of Common Stock equal to 5% of the shares issued if and when
the debenture is
converted. Such warrants would expire in five years, the warrant price would
be equal to 110%
of the conversion price, and the warrants would have demand registration rights.
In November 1994, Metrend, Ltd., a foreign investor, entered into two
stock subscription
agreements to purchase a total of 3,000,000 shares of Common Stock of the
Company at a
purchase price of $2.82 per share. Net proceeds to the Company from the
initial 1,235,712 shares
sold in November 1994 were $2,250,000, which was net of all commissions and
finders fees for
both subscription agreements. The remaining 1,764,288 shares were to be sold
in December.
The foreign investor did not complete the purchase of the remaining shares and
the Company
cancelled this subscription agreement in 1995. The sale of shares to the
foreign investor was
made in accordance with the provisions of Regulation S promulgated by the SEC.
The shares
sold in November 1994 were transferred to Credit Suisse (Hong Kong) in 1995 and
the restrictive
legend was removed.
In July 1995 the Company issued 170,000 shares of Common Stock and granted
warrants to
purchase an additional 1,500,000 shares of Common Stock at $1.51 per share to
Mr. Jacobs.
These grants were made in recognition of bridge loans made by this stockholder
to the Company
over the last several years, voluntary transfers of options to investors during
recent funding
activities, and return of short-swing profits incurred to help the Company in
its financing. The
estimated value of the warrants, $750,000, and shares, $298,000, was expensed
in the third
quarter of 1995 as interest expense.
On July 27, 1995, the Board of Directors approved a sale effective June
30, 1995 of all real
estate owned by Ampsco Corporation, a wholly-owned subsidiary of the Company
("Ampsco").
The purchaser was a company owned by Mr. Jacobs. Mr. Jacobs also had a
security interest in
the property. The purchase price of $350,000 was received in two installments
of $150,000 each,
with the remaining $50,000 used by Mr. Jacobs to pay off existing mortgages on
the property and
for legal costs of the transaction. In addition, the Company granted Mr.
Jacobs warrants to
purchase 700,000 shares of Common Stock at a price of $1.51 per share.
Management estimates
the value of warrants at $350,000 (treated as a loss on the sale of property).
The book value of
the land and buildings sold was $626,000. The Company recorded a loss in the
second quarter of
1995 including the loss on the land and buildings, the value of the warrants,
and the legal costs.
Ampsco leased back the manufacturing facilities for a one year period until
June 30, 1996 in a
triple net lease at a monthly rental of $5,000.
In July 1995, the Board of Directors approved a recommendation by the
Compensation
Committee to grant to Mr. James W. France, Jr. ("Mr. France"), at the time the
Company's
Chairman, a combination of Common Stock and options to purchase Common Stock,
based on
his achievement of goals in his employment contract. Mr. France received
40,000 shares of
Common Stock (value of $78,000 treated as administrative expense) and options
to purchase
400,000 shares of Common Stock at $1.74 per share, all per his contract. In
addition, he received
options to purchase 1,000,000 shares of Common Stock at $1.74 per share to
replace the
compensation incentive inherent in options Mr. France transferred to
noteholders and consultants
in 1994 at no benefit to him.
The Company issued 100,000 shares in January 1996 to Mr. Philip A.
Schlosser ("Mr.
Schlosser"), a founder, director, and officer of the Company as additional
compensation for his
service since the Company was founded. The value of this stock, $75,000, was
expensed in
January 1996 when it was issued. In a related action, the Board of Directors
authorized
cancellation of all the notes and advances receivable from Mr. Schlosser.
These receivables
approximated $91,000, most of which had been fully reserved at December 31,
1994. All
remaining amounts were expensed in December 1995.
The Company entered into two letter agreements between the Company,
Standard Energy
Company, and Mr. Jacobs, which agreements are dated September 21, 1995 as
amended February
29, 1996 (the "September Agreement"), and dated February 29, 1996 (the "February
Agreement"). The Company entered into a further agreement between the same
parties, dated
March 29, 1996 (the "March Agreement") which supersedes the September and
February
Agreements. The March Agreement was ratified by the Company's Board of
Directors on April
4, 1996. Standard Energy Company and Mr. Jacobs are both major creditors and
stockholders of
the Company. Mr. Jacobs is the sole owner of Standard Energy Company.
The Agreements, as amended in March 1996, compensate Mr. Jacobs as an
individual for his
help personally or through companies he owns or is affiliated with in providing
debt financing to
the Company over the last several years, patience in not demanding repayment of
those loans and
cooperation with other matters, and for relinquishing up to 1,000,000 currently
owned options or
warrants for cancellation so that the Company could use those authorized shares
in its current
financings. The Company will issue to Mr. Jacobs, or his nominee, warrants to
purchase
3,600,000 shares of Common Stock at a price of $0.75 per share, and which will
expire six years
after issuance. The Company will issue to Sonata Investment Company, Ltd. (the
holder of the
$300,000 convertible notes issued in November 1995) warrants to purchase
2,400,000 shares of
Common Stock at a price of $0.50 per share, and which will expire six years
after issuance. The
warrants to Mr. Jacobs and Sonata are contingent upon the Company having
available authorized
shares, which authorized shares shall be obtained from the first-expiring
options or warrants or
through approval by the Company's stockholders of additional authorized shares
at any time in
sufficient amount to cover this commitment, or both. The Company has agreed to
use its best
efforts to obtain authorization of the requisite shares.
Mr. Jacobs has agreed to surrender up to a total of 1,000,000 options or
warrants he currently
owns, if the Company needs additional authorized shares to issue in its current
financings. This is
subject to the requirement that the Company must reissue those options or
warrants when, as and
if authorized shares are first available as set forth above. The new warrants
would be exercisable
at a price of $0.75 per share and would expire six years after issuance under
these provisions. In
March 1996, the Company used 853,125 options of the 1,000,000 offered to
provide part of the
authorized shares on new issuances under the provisions of Regulation S (see
below).
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and
by Donna L. Sanger, a vice president of Standard Energy Company, will be
reissued with a new
expiration date of October 1, 2001 and with a new price of $1.00 per share. At
December 31,
1995, Mr. Jacobs owned 2,190,000 warrants and 1,956,000 options at prices
ranging from $1.51
to $2.62 per share and which expire at various dates through October 29, 2000.
At December 31,
1995, Ms. Sanger owned 65,000 warrants and 63,500 options at prices ranging
from $1.51 to
$2.50 per share and which expire at various dates through July 12, 2000. Mr.
Jacobs reported the
effects of the September Agreement in his Form 4 filed for the month of
September 1995. The
options and warrants were repriced and reissued as of February 29, 1996. The
Company
recorded the $392,000 estimated value of these transactions as a finance charge
in the first quarter
of 1996.
Management estimates the value of the 3,600,000 warrants to be issued to
Mr. Jacobs as
approximately $2,272,000 if issued now and assuming current market prices;
because of the
uncertainties relating to the requirement for available authorized shares, the
actual value to be
recorded is not known, and will be recorded only when these contingencies are
resolved and the
warrants are actually issued. Management estimates the value of the 2,400,000
warrants to be
issued to Sonata Investment Company, Ltd. as approximately $1,545,000 if issued
now and
assuming current market prices; because of the uncertainties relating to the
requirement for
available authorized shares, the actual value to be recorded is not known, and
will be recorded
only when these contingencies are resolved and the warrants are actually issued.
In March and April 1996, the Company entered into several agreements with
foreign investors
to purchase shares at $0.40 per share under the provisions of Regulation S
promulgated by the
Securities and Exchange Commission. A total of 2,357,000 shares were issued
under these
agreements. The market price of the Company's Common Stock on the dates of
issuance was
approximately $0.75 to $1.12. Cash proceeds were $943,000, less a total of
$130,000 paid as
finders fees and expenses. These proceeds were used to fund payrolls, audit
and legal costs, and
other operating expenses. In addition to the cash costs of closing, the
Company committed to
issue warrants to purchase shares of Common Stock equal to 5% of the shares
issued, at a price
of $0.48, and which will expire five years after issuance. A total of 117,850
warrants have been
committed. Mr. Jacobs relinquished 853,125 of his options, (see above), Mr.
Walter Krumm,
another major creditor and stockholder relinquished 800,000 of his options with
an exercise price
of $1.69 to $1.70 per share and expiring in 1988, and Mr. France relinquished
800,000 of his
options with an exercise price of $1.74 per share and expiring in July 2000, so
that the Company
would have enough authorized shares available to issue the new shares and
warrants. As part of
the agreements with these individuals, the Company agreed to reissue the
surrendered instruments
as warrants when, as and if Scriptel is first able to do so, but in no event
later than when Scriptel
stockholders approve an increase in the amount of authorized shares, at a price
of $0.75 per
share, and with an expiration date of six years after the date of any reissue
under these provisions.
Scriptel also committed to use its best efforts to obtain stockholder approval
to an increase in its
authorized shares. Kevin Woodbridge, a director at the time, also relinquished
500,000 options
(see below). If all of these are subsequently reissued, management estimates
the incremental
value of the reissued options or warrants at approximately $200,000, assuming
current market
prices; because of the uncertainties relating to the requirement for available
authorized shares, the
actual value to be recorded is not known, and will be recorded only when these
contingencies are
resolved and the warrants are actually issued.
The Company issued 100,000 options in January 1996 to Bernard Eckstein, a
director, as
compensation for his services in helping with year end activities. The options
are exercisable at a
price of $0.75 per share (the market price at the date of grant), and expire in
January 2001. The
estimated value of $62,000 was charged to administrative expense in the first
quarter of 1996.
The Board of Directors approved in April 1996 a repricing and reissuance
of all the options
owned by Kevin Woodbridge, a director at the time. This is additional
compensation for his
continuing to operate under a consulting contract with the Company without
receiving his retainer
fee for eight months, relinquishing part of his retainer and part of his stock
options to obtain a
release of a 1995 judgment against the Company on a cognovit note, and
relinquishing 500,000
currently owned options for cancellation so that the Company could use those
authorized shares
in its current financings. At December 31, 1995, Mr. Woodbridge owned 845,797
options with
exercise prices ranging from $1.43 to $2.00 per share and with expiration dates
of 1996 to 2000.
All of his options will be reissued with a new expiration date of April 1, 2000
and with a new
exercise price of $0.50 per share. Mr. Woodbridge also has rights to immediate
registration of his
options through an S-8 filing. If any of these options are relinquished and
cancelled, the Company
has agreed to reissue them at such time as the stockholders approve the
authorization of
additional shares. Management estimates the value of the reissuance of
currently existing options
with new pricing and expiration dates as approximately $161,000. This will be
recorded in the
second quarter of 1996.
In April 1996, the Board also extended relinquishment and reissue
privileges (reissue at an
exercise price of $0.75 per share and expiring six years after reissue) to
employees and directors,
and to CommTech International Management Corp., a major stockholder and option
holder.
Exercise prices on options owned by these holders generally range from $2.00 to
$3.00 per share.
In connection with a financial public relations agreement dated April 20,
1993, Mr. K.
Woodbridge and Woodbridge & Associates ( collectively, "Woodbridge"), an
unaffiliated entity
at that time , was paid $150,000 and was granted three year options to purchase
1,500,000 shares
of Common Stock at a price of $1.69 per share ( the market bid price at the
time of grant was
$3.50 for unrestricted shares). Under the agreement, as amended, Woodbridge
performs financial
public relations services and refers the Company to sources of investment
capital. The grant of
750,000 of the 1,500,000 Woodbridge options was conditioned on the Company's
stockholders
approving an increase in the Company's authorized shares at the 1994 Annual
Meeting. An
additional 175,000 share options were granted to Woodbridge under the Company's
Stock Option
Plan in December 1993, also conditioned on the stockholders approving an
increase in the
Company's authorized shares at the 1994 Annual Meeting. The agreement with
Woodbridge has
been amended on two occasions prior to December 31, 1994. Under such
amendments,
Woodbridge has received an aggregate retainer of $130,000 through December 1995
and will
continue to receive $5,000 per month until his contract is renegotiated or
terminated.
Additionally, Woodbridge has received reimbursement of documented travel and
other
expenditures of $82,000 in 1993 and $100,000 in 1994. In November 1994, the
Company granted
an additional 300,000 options at an exercise price of $2.00 per share, expiring
in 1997, in
accordance with the October 1994 amendment to the consulting agreement with
Woodbridge. At
the date of grant, the bid price of the underlying Common Stock on the
over-the-counter market
was $3.375 per share. The consulting agreement further provided for grants of
100,000 options
on February 28, 1995 and 100,000 options on May 31, 1995, on the same terms,
provided that
Woodbridge continued to provide services to the Company on those dates. These
options were
granted on those dates. Pursuant to the agreement, Woodbridge may appoint an
individual to the
Company s Board of Directors. Mr. Woodbridge became a Director of the Company
in June
1995. Mr. Woodbridge also received 80,000 options at an exercise price of
$1.43 per share in
1995.
On January 17, 1995, the Company issued demand cognovit promissory notes
in the combined
principal amount of $200,000 to Mr. Krumm and Mr. Jacobs for funds in that
amount. Upon
demand, interest of $20,000 was payable. If the Company defaults in payment
when demand is
made, the notes bear interest at 18% per annum. The Company repaid Mr. Krumm's
note with
$10,000 interest in February 1995. The Company paid the $10,000 interest and
$22,500 of
principal on Mr. Jacob's note in April 1995, and an additional $20,000 of
principal in May 1995,
and the remaining $57,500 of principal in November 1995.
On January 31, 1995 and March 2, 1995 the Company issued demand cognovit
promissory
notes in the principal amount of $100,000 and $175,000, respectively, to
Standard Energy
Company for funds in that amount. The Company paid off these notes, with
$10,000 and $25,000
interest, respectively, in April 1995.
In February 1995, the Company paid $10,000 of principal and interest on a
demand note
payable to Standard Energy Company.
Between May 10 and November 2, 1995 the Company borrowed $1,375,000 from
Standard
Energy Company under ten separate demand cognovit promissory notes. Upon
demand, total
interest of $195,000 is due. One of the notes in the amount of $70,000 dated
May 15, 1995,
together with interest of $10,000, was paid off on May 19, 1995. One note in
the amount of
$150,000 dated November 2, 1995, together with interest of $10,000, was paid
off on November
6, 1995.
On October 16, 1995 the Company borrowed $40,000 under a demand cognovit
note from a
relative of Mr. Jacobs. A principal payment of $30,000 was made on October 20,
1995, and the
remaining $10,000 of principal and $10,000 of interest was paid on November 6,
1995.
In January through June 1995 Coloray sold certain equipment which was not
being used.
Proceeds were $380,000, which approximated the net book value of the assets
sold. These assets
were included as assets held for sale at December 31, 1994 in the consolidated
balance sheets.
Half of the proceeds, or a total of $190,000 were paid to Standard Energy
Company against notes
(see above) to obtain release of liens on the assets.
On March 9, 1992 the Company loaned $90,000 to Mr. France which was used
by Mr. France
to exercise options to purchase 60,000 shares of Common Stock at $1.50 per
share. The note is
due on demand and bears interest at the rate of 10%. On December 30, 1992, an
additional
$75,000 was loaned to Mr. France. This was originally due on December 31,
1993, with interest
at 10%. The proceeds of this loan were used by Mr. France to exercise options
to purchase
50,000 shares at $1.50 per share. As of December 31, 1995, $71,000 in
principal and interest was
due on the March note and $81,000 was due on the December note. In 1994, the
Compensation
Committee of the Board of Directors changed the terms of the note to defer
further payments of
interest and the principal balance on both notes until December 31, 1995. In
addition, the
Company has made and expensed net advances to Mr. France of approximately
$91,000 through
December 31, 1995 against a $100,000 bonus included in his former employment
contract.
Although the Board declared this bonus be paid to Mr. France in 1995, Mr.
France refused to
accept it.
In 1995, Coloray borrowed a total of $106,000 from certain of its officers
to cover payroll and
other immediate needs. These notes were payable on demand with interest at 12%
to 20% of the
principal. Coloray repaid $72,000 of principal and $14,000 of interest in 1995.
From January 1996 through May 1996, the Company borrowed a total of
$672,000 in five
separate transactions with Mr. Jacobs and Mr. Krumm, creditors and stockholders
of the
Company. The loans are payable on demand, and bear interest at stated amounts
up to 41% of
principal. The Company repaid $75,000 to Mr. Jacobs during the same time
period. The new
loan with Mr. Krumm requires payment from first proceeds available from a large
financing
transaction.
Ampsco has had continuing losses from operations since acquisition, and at
December 31,
1995 had an accumulated deficit in stockholders' equity of approximately $2.2
million. To cut the
ongoing losses and to focus the Company on the computer peripheral segment, in
April 1996 the
Company sold all of the Common Stock of Ampsco. No appraisal of Ampsco was
made in
connection with this transaction. The buyer was 1896, Inc., a corporation
headed by Thomas J.
Leukart, a director of the Company at the time of sale. Dennis J. Leukart,
president of Ampsco at
the time of the sale is a brother of Thomas Leukart and the father-in-law of
Mr. France. As part
of the agreement of sale, both Thomas Leukart and Dennis Leukart resigned from
their positions
with the Company and cancelled their employment agreements. Thomas Leukart
also resigned as
Director of the Company.
The buyer of Ampsco issued a Promissory Note (the "Note") to the Company
in partial
payment of the purchase price. The Note is for $650,000, and bears interest at
5%. Interest is
payable monthly, with the entire principal balance due on April 1, 1999.
Management believes
that collection of the Note is improbable. The Company sold this Note to Mr.
Jacobs, (who had a
security interest in the Ampsco shares which were sold) for a $100,000
reduction in notes payable
to Mr. Jacobs.
The remaining payments of the purchase price are in the form of monthly
royalties at 2% of
Ampsco's collected sales for a ten-year period. These payments are subject to
a maximum of
$100,000 per year. (Ampsco's sales in 1995 were $1,827,000, which would have
resulted in a
royalty payment of approximately $37,000 had the agreement then been in
effect.) The buyer
received from Mr. Jacobs an option until March 31, 1999 to purchase for
$375,000 the land and
buildings Ampsco occupies, which is also subject to full payment on the Note.
If the Note were
paid and the option exercised, no further royalty payments would be required.
The Company also
sold its rights to royalties to Mr. Jacobs.
The buyer has pledged Ampsco stock to Mr. Jacobs.
The Company is contractually obligated on Ampsco's notes payable to
Stimsonite Corporation
("Stimsonite"). Stimsonite has obtained a judgment against the Company on this
debt.
Management estimates that it is improbable that Ampsco could pay the creditor
or repay Scriptel
if Scriptel is forced to pay the creditor. The Company has recorded a loss on
disposal of Ampsco
of $450,000 to recognize the full contractual obligation to Stimsonite. The
Company is also
negotiating with the creditor to settle the debt for a reduced amount. As part
of the agreement to
sell the Common Stock of Ampsco, the Company contributed its $2.2 million
intercompany
receivable from Ampsco to the capital of Ampsco. This resulted in almost
complete liquidation of
Ampsco's stockholders deficit, and the buyer assumed the remaining $22,000 of
net liabilities of
Ampsco. The Company recorded this assumption of net liabilities as a reduction
of the loss on
disposal at December 31, 1995. The Company also recorded a loss of $20,000 at
December 31,
1995 for the anticipated loss from operations of Ampsco until the disposal date
in April. The net
result of these three items is that the Company has recorded a net loss of
$448,000 in 1995 on the
disposal of Ampsco.
In June 1996, Mr. Krumm loaned $30,000 to the Company under a demand
cognovit
promissory note at 18% per annum interest. In consideration for the loan, and
for Mr. Krumm's
forbearance in not demanding repayment of other notes, the Company reduced the
price of
1,020,000 warrants held by Mr. Krumm from $1.69 per share to $0.40 per share,
and extended
the expiration date of the warrants from 1997 to March 2001. The estimated
value of the
repricing and extension, $340,000, will be expensed as a finance charge in the
second quarter of
1996.
In June 1996, Sonata Investment Company loaned $45,000 to the Company
under a demand
cognovit note. On demand, $10,000 of interest will also be due. In
consideration for the loan,
and for Sonata's forbearance in not demanding repayment of another note, the
Company agreed to
issue to Sonata warrants to purchase 500,000 shares of Common Stock at $0.50
per share and
which would expire six years after issuance. Such warrants are contingent upon
having available
authorized shares from the Company's first-expiring unexercised options or
warrants, or from
approval by the Company's stockholders of an increase in authorized shares. If
issued now, and
assuming current market prices, management estimates the value of the warrants
at $216,000:
because of the uncertainties relating to the requirement for available
authorized shares, the actual
value to be recorded is not known, and will be recorded only when these
contingencies are
resolved and the warrants are actually issued.
In May 1996, Mr. France retired and resigned his positions as an officer
and director of the
Company. Mr. France received a severance package of: continuation of his
salary through
September 1996, issuance of warrants to purchase 1,500,000 shares of Common
Stock at $0.68
per share and which expire in May 1999 (value of $303,000 to be expensed in the
second quarter
of 1996), severance pay of $150,000, and cancellation of all of the Company's
notes receivable
(approximately $150,000) and advances receivable (approximately $100,000) from
Mr. France.
The Company has engaged Mr. France to act as a consultant in arranging
financings for the
Company. If these efforts are successful, Mr. France will receive in cash 9%
of the amount raised
(which will first be used to pay the severance costs outlined above) plus an
additional $150,000 if
more than $5 million is raised by year end. Bernard Eckstein, a director of
the Company since
1992, has been appointed as the Company's Chairman and Chief Executive Officer.
J. Vance
Holloway, President and Chief Operating Officer of Scriptel Corporation, has
been appointed as
President and Chief Operating Officer of Scriptel Holding, Inc.
The Company did not have the funds to pay its employees in April, May and
June 1996. To
recognize the sacrifices made by the employees during this period, and to
partially compensate
them for their continued dedication and service, in June 1996 the Company
reduced the exercise
price to $0.40 per share on 1,805,700 options and 255,337 warrants owned by the
employees.
Expiration dates were not changed. Formerly, such options and warrants carried
exercise prices
ranging from $0.75 per share to $4.00 per share. In addition, the Company
issued a total of
60,000 options at $0.40 per share to employees who did not already own options.
The estimated
value of the repricing ($228,000) and issuance ($13,000) will be expensed in
the second quarter
of 1996.
The Company also agreed in 1996 to issue a one time stock grant to
employees of Scriptel
equal in value to twice each employee's monthly salary, and valued at $0.75 per
share. This grant
approximates 265,000 shares. A charge of $240,000 has been recorded in the
first quarter of
1996.
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.
In June 1996, the Company committed to issue to Mr. Bernard Eckstein, the
Company's
Chairman and Chief Executive Officer, as part of his employment negotiations,
options to
purchase 500,000 shares of Common Stock at an exercise price of $0.40 per share
and which will
expire five years after issuance. Issuance of these options is contingent on
the availability of
authorized shares. The Board of Directors also set the compensation of Mr.
Eckstein at an annual
base salary of $150,000 beginning on May 16, 1996.
In July 1996, the Company entered into several agreements with its
officers, eight employees,
and two consultants. Under these agreements, the individuals agreed to let the
Company use in
its current financings a total of 2,616,147 options and warrants held by these
individuals. All of
such released authorized shares were used. Further, the individuals have
agreed not to exercise
their options and warrants until such time as authorized shares become
available (e.g., from an
increase in authorized shares approved by stockholders). The Company also
agreed to issue an
additional option to each individual for each of the 2,616,147 authorized
shares used, as soon as
authorized shares become available. The additional options will have an
exercise price of $0.40
per share and will expire five years after their issuance.
In May 1996, certain of the Company's officers agreed to defer that part
of their annual
compensation which exceeded $85,000 until such time as the Company's cash
situation improved.
As part of the agreements with these individuals (including Bernard Eckstein,
J. Vance Holloway,
Edward Palmer and Frederick A. Niebauer), the Company agreed to pay interest at
10% per
annum on the amounts deferred, and agreed to issue an option to purchase one
share of Common
Stock at an exercise price of $0.40 per share and with an expiration date of
five years after
issuance (which options are subject to availability of authorized shares) for
each dollar of salary
deferred. These would total 195,000 options if such deferral continued for a
year, and similar
amounts annually thereafter.
The Company's Board of Directors will continue its policy of authorizing or
approving
transactions in which any director, officer or other affiliate has an interest
only if the terms thereof
are believed by the Board of Directors to be no more favorable with respect to
the interest of any
such affiliate than could be obtained from unaffiliated third persons.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by the Securities & Exchange Commission rules under section 16
of the Securities
Exchange Act of 1934, the Company notes that the following directors, executive
officers and
beneficial owners of more than ten percent of the Company's Common Stock filed
untimely
reports with respect to events in 1995 and prior thereto: Kevin Woodbridge did
not file two
reports with eight transactions; James W. France, Jr. did not file three
reports with three
transactions; J. Vance Holloway did not file one report with one transaction;
Edward Palmer did
not file one report with two transactions; M. Kathy Vieth did not file one
report with one
transaction; Dennis Leukart did not file one report with one transaction.
FINANCIAL AND OTHER INFORMATION
A copy of the Company's annual reports on Form 10-K/A for the fiscal year
ended December
31, 1995, including financial statements and the financial statement schedules
thereto, and the
Company's quarterly report on Form 10-Q/A for the period ended March 31, 1996,
will be
furnished without charge to each stockholder who requests one upon written or
oral request from
the Secretary of Scriptel Holding, Inc., 4153 Arlingate Plaza, Columbus, Ohio
43228, phone
(614) 276-8402. The Company's Annual Report to Stockholders is attached to
this proxy
statement.
STOCKHOLDER PROPOSALS
To be considered for inclusion in next year s proxy materials, stockholder
proposals to be
presented at Company s 1997 Annual Meeting (expected to be in May 1997) must be
in writing
and be received by the Company no later than November 30, 1996.
OTHER BUSINESS
The Board of Directors does not know of any business to be brought before
the Annual
Meeting other than the matters described in the Notice of Annual Meeting.
However, if any other
matters are properly presented for action, it is the intention of each person
named in the
accompanying proxy to vote said proxy in accordance with his judgement on such
matters.
By Order of the Board of Directors
Philip A. Schlosser, Secretary
July 30, 1996
APPENDIX A
PROPOSED AMENDMENT TO ARTICLE 4 OF THE CERTIFICATE OF
INCORPORATION OF SCRIPTEL HOLDING, INC.
ARTICLE 4.
A. Authorized Capital Stock. The Corporation shall be authorized to
issue an
aggregate number of 140,000,000 shares of capital stock, of which 125,000,000
shares shall be
designated shares of "Common Stock" having a par value of $0.10 each and
15,000,000 shares
shall be designated shares of "Preferred Stock" having a par value of $0.10
each.
B. Rights of Classes of Common Stock. Each share of Common Stock shall
be equal
in all respects, including, without limitation, with respect to rights to
dividends, distributions and
liquidation proceeds.
C. Rights of Common Stock Upon Liquidation. In the event of a
liquidation,
dissolution or winding up of the Corporation, whether voluntarily or
involuntarily (a
"Liquidation"), and immediately after the holders of Preferred Stock shall have
been paid in full
their liquidation, dividend and other distribution preferences, if any, the
holders of shares of
Common Stock shall be entitled to receive the net assets of the Corporation
remaining, if any,
which shall be distributed to the holders of Common Stock in proportion to
their respective
ownership of shares of Common Stock. The Corporation's consolidation or merger
with any
other entity or group of entities, or the Corporation's sale or transfer of all
or substantially all of
the Corporation's assets, shall not be deemed a Liquidation within the meaning
of the provisions
of this Article 4.
D. Preferred Stock. The Corporation's Board of Directors is authorized,
from time to
time, to issue the shares of Preferred Stock in one or more series, and in
connection with the
creation of each such series, the Corporation's Board of Directors is
authorized to fix by
resolution or resolutions providing for the issuance of such shares thereof (i)
the division of any
class of Preferred Stock into series, and the designation and authorized number
of shares of each
such series; (ii) the dividend or distribution rate, if any, for each such
series; (iii) the dates of
payment of dividends or distribution, if any, and the date from which they are
cumulative, if at all,
for each such series; (iv) redemption rights and a redemption price for each
such series; (v) a
liquidation price for each such series; (vi) sinking fund requirements for each
such series; (vii)
conversion rights for each such series; and (viii) restrictions on the issuance
of each such series to
the full extent now or hereafter permitted by the laws of the State of
Delaware, subject only to the
limitations provided herein.
Scriptel Holding, Inc.
4153 Arlingate Plaza
Columbus, Ohio 43228
PROXY
This Proxy is solicited on behalf of the Board of Directors of Scriptel
Holding, Inc.
The undersigned hereby appoints J. Vance Holloway, Philip A. Schlosser and
Frederick A.
Niebauer as Proxies, each with the power to appoint his or her own substitute,
and hereby
authorizes them to represent and to vote, as designated below, all the shares
of Common
Stock of SCRIPTEL HOLDING, INC. held of record by the undersigned on July 26,
1996,
at the Annual Meeting of Stockholders to be held on September 11, 1996 or any
adjournment thereof.
Instruction: Please indicate your vote in the spaces below by an X .
WITHHOLD
FOR
AUTHORITY
nominees
to vote for nominees
listed below
listed below
1. Election of Directors:
For Terms expiring in 1998:
Bernard Eckstein _______
_______
For Terms expiring in 1999:
Philip A. Schlosser, Ph.D. _______
________
FOR AGAINST ABSTAIN
2.Proposal to amend the Certificate of Incorporation
to increase the authorized shares of Common Stock
from 50,000,000 shares to 125,000,000 shares,
$0.10 par value.
______ ______ _______
3. Proposal to amend the Certificate of Incorporation
to authorize a class of 15,000,000 shares of undesignated
Preferred Stock.
______ ______ _______
4. Proposal to amend the 1993 Stock Option Plan to
increase the amount of shares of Common Stock which
may be issued thereunder from 5,000,000 shares to
7,500,000 shares.
______ ______ _______
5. Proposal to appoint Norman, Jones, Enlow & Co.
as the Company's independent public accountants
for the fiscal year ending December 31, 1996. ______
_______ _______
In their discretion, the Proxies are authorized to vote upon such other
business as may
properly come before the meeting.
This Proxy when properly executed will be voted in the manner directed
herein by the
undersigned stockholder. If no direction is made, this proxy will be voted for
all directors
as nominated and for proposals 2, 3, 4 and 5.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should
sign. When signing as attorney, as executor, administrator, trustee or
guardian, please give full
title as such. If a corporation, please sign in full corporate name by the
President or other
authorized officer. If a partnership, please sign a partnership name by
authorized person.
Dated:__________________ _________________________________________
Signature
_________________________________________
Signature if
held jointly
PLEASE MARK YOUR VOTE, SIGN AND DATE THE PROXY CARD, AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
NAME OF STOCKHOLDERS
COMPANY if applicable
ADDRESS
CITY STATE ZIP
<PAGE>
SCRIPTEL HOLDING, INC.
ANNUAL REPORT TO STOCKHOLDERS
YEAR ENDED DECEMBER 31, 1995
Business
Scriptel Holding, Inc. (the" Company") is a Delaware corporation with its
principal corporate
offices in Columbus, Ohio. The Company had three wholly-owned subsidiaries at
December 31,
1995, Scriptel Corporation ("Scriptel"), Scriptel Communications Corporation
("Scriptcom"), and
Ampsco Corporation ("Ampsco"), and owned the majority of the capital stock of
Coloray Display
Corporation ("Coloray"). Financial information about industry segments is
included in Note 11
to the accompanying consolidated financial statements for the year ended
December 31, 1995. In
March 1996, the Company made a decision to close Coloray. The Company sold
Ampsco on
April 4, 1996 to a related party. See Notes 16 and 18 to the accompanying
consolidated financial
statements for the year ended December 31, 1995 for further details on the
closure of Coloray and
the sale of Ampsco. In the future, the Company will focus on Scriptel (pen
computer
applications) and Scriptcom (communications applications).
Scriptel
Scriptel was founded in 1982 to manufacture and market high-performance
digitizers for
computer-aided design, business graphics and personal computer applications.
Digitizers, also
known as "graphics tablets," are electronic drawing boards which, in addition
to being versatile
data input devices, are also used to create artwork and drawings on a computer
with the aid of
graphics software and hardware.
The function of a digitizer is to sense the location of a stylus tip on a
writing surface and to
transmit the coordinate data to a computer. In pen-based computers, the
digitizer is located on a
flat panel display. When the user writes on the surface the coordinate data
from the digitizer is
used to activate, or "turn on," dots on the display located directly under the
stylus tip as it is
moved, leaving a visible trace on the display and thus producing an "electronic
ink" effect. The
application of digitizers in pen computers is a recent development compared to
the traditional use
of digitizers in computer-aided design ("CAD") and computer graphics
applications. Indeed, one
of the purposes of pen computers is use as an electronic equivalent to pencil
and paper.
Pen-based computers are complete systems which generally include memory,
input-output
ports, a flat panel display, and a pen capable of writing electronically on the
display screen. The
above components are typically enclosed in a lightweight, notebook size package
designed for
portable uses. The pen computer components which Scriptel manufactures and
sells to its OEM
customers are the stylus, the transparent digitizer panel, and an electronic
circuit which controls
the digitizer functions. The stylus, digitizer panel, and circuit, taken
together, form the pen-input
component system, or pen-input hardware, of a pen computer.
The Company has historically financed the funding of research and
development, and
anticipates that continued funding of research and development will be financed
by internal cash
flow sources such as additional offerings or private placements of securities,
and cash flow from
operations. Scriptel intends to continue its research and development
activities for further
application of its present digitizer technology in new products and the
development of new
digitizers based on other technologies.
Ampsco
Ampsco was sold on April 4, 1996. It has been treated as a discontinued
operation in the
accompanying financial statements. See note 18 to the accompanying
consolidated financial
statements for the year ended December 31, 1995.
Ampsco, founded in 1960, is an Ohio corporation engaged in the machine
industrial segment.
The facilities provide the normal complement of machine tools and Ampsco is
also well known for
its large piece capacities on its large lathes and mills
Coloray
From acquisition until 1996, Coloray was engaged in the development of a
new generation
flat-panel display product commonly referred to as an FED. Potential markets
for FEDs include:
small displays used in personal communication devices, video-phones, and
avionics; medium sized
displays used primarily in portable computers; and large displays used in
desk-top computers and
high-definition television ("HDTV"). Coloray has focused on the small and
medium sized
markets.
Liquidation of Coloray
All current research and development is being financed by the Company. In
1996, the
Company determined that it could no longer continue to fund Coloray's research
and development
efforts. In March 1996 the Company announced plans to close Coloray and
liquidate its
investment. Funds, if any, received from the consortium (see above) may be
used to pay down
liabilities of Coloray or the Company, but management does not expect these
funds, if received, to
be sufficient to fund all of Coloray's reported liabilities. See note 16 to
the accompanying
consolidated financial statements for the year ended December 31, 1995.
Market for the Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is not traded in any established trading
market. The prices set
forth in the table below represent "bid" prices without adjustments for retail
markups, markdowns
or commissions, and may not necessarily represent actual transactions, based on
"pink sheet"
quotations reported in the Columbus, Ohio newspaper of general circulation.
1996 High
Low
First Quarter $1.375 $0.500
Second Quarter 1.188 0.438
1995
First Quarter 3.688 1.406
Second Quarter 2.375 1.500
Third Quarter 2.000 0.625
Fourth Quarter 1.125 0.438
1994 High Low
First Quarter 4.500 3.000
Second Quarter 3.563 2.750
Third Quarter 3.375 2.500
Fourth Quarter 5.875 2.939
As of December 31, 1995, the Company had approximately 1,600 stockholders
of record. The
Company has not paid, nor does it have present plans to pay, cash dividends on
its Common
Stock. The Board of Directors intends to retain all earnings, if any , for use
in the business.
Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The officers and directors of the Company at December 31, 1995 were as
follows:
Name
Age
Position with the Company
James W. France, Jr.
48
Director, and Chairman, President and Chief Executive Officer
Philip A. Schlosser, Ph.D.
53
Director, and Executive Vice President-Research and Development, and Secretary
Edward Palmer
53
Vice President and Chief Information Officer
Frederick A. Niebauer
46
Treasurer
J. Vance Holloway
58
Director, and President and Chief Operating Officer of Scriptel Corporation
Dennis Leukart
55
President of Ampsco Corporation
Thomas J. Leukart
49
Director, and Vice President of the Company
Bernard Eckstein
58
Director
Kevin Woodbridge
34
Director
The following sets forth information concerning the principal occupations
of each of the
officers and directors of the Company for the last five years:
James W. France, Jr. has been President, Chief Executive Officer and
Director of the Company
since 1987. Mr. France became Chairman of the Board of Director's in December
1993 following
the retirement of the former Chairman.
Philip A. Schlosser, Ph.D. is Executive Vice President - Research and
Development and
Secretary of the Company. Dr. Schlosser is one of Scriptel's founders and has
been a Director of
the Company since its inception in 1982. He is the inventor or co-inventor of
twenty-one U.S.
and foreign patented technologies, including some issued to the Company on its
digitizer
products.
Edward Palmer has been a Vice President and Chief Information Officer of
the Company since
January 1994. Prior to joining the Company, Mr. Palmer was Director of
Marketing for the U.S.
Group of AT&T Global Information Systems (Formerly NCR Corp.) for more than
five years.
Frederick A. Niebauer was appointed Treasurer of the Company on October
27, 1994. From
September 1993 to the time he joined the Company in September 1994, Mr.
Niebauer was a self-
employed financial consultant. From April 1987 until September 1993, Mr.
Niebauer served as a
Director of Financial Reporting for Ranco Incorporated, a large,
privately-owned, international
manufacturer.
J. Vance Holloway has been President and Chief Operating Officer of
Scriptel since May 1993
and a Director of the Company since May 1994. Prior to joining the Company,
Mr. Holloway
was employed for more than five years by NCR Corporation holding his most
recent position as
Consulting Director, Strategic Planning of Workstation Products Division.
Dennis Leukart has been President of Ampsco since September 1994, and was
previously Vice
President of Sales and Vice President of the Machine Division of Ampsco for
more than five
years. He is the brother of Thomas J. Leukart, a Director and Vice President
of the Company,
and the father-in-law of James W. France, Jr., Chairman, President and Chief
Executive Officer of
the Company. Dennis Leukart resigned his employment contract with the Company
on April 4,
1996.
Thomas J. Leukart has been a Director since May 1989. He has been a Vice
President of the
Company since September 1994 and was previously President of Ampsco for more
than five
years. On April 4, 1996, Thomas Leukart resigned from the Board of Directors
and also resigned
from his employment agreement with the Company.
Bernard Eckstein has been a Director since January 1992. Since October
1995, Mr. Eckstein
has been a self employed financial consultant. Prior to that he was treasurer
for more than five
years of Qualstan Corporation.
Kevin Woodbridge, age 34, has been a Director of the Company since June
1995. He operates
Woodbridge & Associates, a financial public relations firm located in Newport
Beach, California.
Mr. Woodbridge has been providing financial public relations services to the
Company since 1993
and, under his contract, has the right to appoint a Director of the Company.
Prior to forming
Woodbridge & Associates, Mr. Woodbridge was Senior Vice President, Investment
Banking for
Cruttenden & Company in Newport Beach, California.
SELECTED FINANCIAL DATA
Scriptel Holding, Inc. and Subsidiaries
Year Ended December 31,
(Dollars in thousands
except per share data) 1995 1994
1993 1992 1991
Total Revenues $431 $383
$950 $552 $432
(Loss) from continuing
operations (14,194) (16,225)
(2,588) (3,639) (2,361)
(Loss) from discontinued
operations (955) (705)
(856) (279) --
(Loss) before
extraordinary item (15,149) (16,930)
(3,444) (3,918) (2,361)
Extraordinary item-debt
conversion -- --
-- (222) --
Net (loss) (15,149) (16,930)
(3,444) (4,140) (2,361)
Loss per share of common
stock:
(Loss) from continuing
operations (0.81) (1.27)
(0.32) (0.58) (1.54)
(Loss) from discontinued
operations (0.05) (0.05)
(0.10) (0.05) --
(Loss) before
extraordinary item (0.86) (1.32)
(0.42) (0.63) (1.54)
Extraordinary item -- --
-- (0.03) --
Net (loss) per share (0.86) (1.32)
(0.42) (0.66) (1.54)
Long term debt 1,000 44
665 360 1,260
No dividends were paid in any year. Ampsco was acquired on September 30,
1992 and
disposed of on April 4, 1996; Coloray was acquired on April 11, 1994. Results
of operations of
Ampsco are included as discontinued operations in the consolidated selected
financial data.
Results of operations of Coloray are included in the consolidated selected
financial data from date
of acquisition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has been in the research, development, and ultimately the
licensing business of
pen-based computing products for over ten years, through its wholly owned
subsidiary, Scriptel.
However, the marketplace has only recently begun focusing on and identifying
broad based
applications for pen-based computers, an area in which the Company views its
proprietary
technology as critical and in which management considers Scriptel primarily an
early stage
company. As the market continues to develop and pen-based applications become
more common,
Scriptel's focus is expected to shift from one principally based on the
development of pen-based
computer components to commercialization of these products. Based on current
marketing
forecasts of original equipment manufacturers ("OEM") and licensee shipments
and, in part, upon
the growth forecasted by industry experts for the pen-based computer markets,
management
believes Scriptel will experience revenue growth associated with its pen-based
operating activities
commencing in late 1996. Due to the anticipated cost associated with the
completion of the
research and development of the Company's products, management cannot predict
when the
Company will achieve profitable operations on a consolidated basis.
Management believes that Scriptel's electrostatic system is the most
viable technology
currently available for electronic ink applications. All the other known
technologies have either
functionality or cost penalties that render them non-competitive versus
Scriptel's patented
electrostatic coupling technology. There are some approaches that could result
in a next
generation system, but they are in the early stages of research and
development. Scriptel is aware
of these and is currently spending research and development money to develop a
next generation
replacement for its current technology. It is estimated that the current
electrostatic system will be
highly competitive for the next four to five years.
There are two main sources of the Company's revenue; (i) royalty income
from licensees of the
Company's patented technologies, and, (ii) sale of the Company's products
directly to OEM's or
through resellers to end users. As the pen-based computer market experiences
its anticipated
growth, it is anticipated that revenues from royalties and direct sales to
OEM's will be the
principal source of total revenue of the Company. Additionally, Scriptel
anticipates its
development of proprietary products for the mobile communications markets will
generate some
future revenues.
Scriptel's ability to meet its revenue projections and be a major player
in the pen-based
computer market will depend on the success of the cordless digital pen
development effort. This
system, currently being jointly developed by Scriptel and Symbios Logic has
incurred technical
delays. At this time, the problems that caused the delays appear to be solved.
The integrated
circuit that is the heart of the system has been fabricated and is currently
being tested. The
Company must continue to expend significant resources to bring this technology
to market to
produce revenues. Although further delays are not expected and anticipated
resources are
expected to be available to bring the technology to market, no assurance can be
given.
On April 11, 1994 the Company completed its previously announced
acquisition of a majority
of the outstanding shares of Coloray, a company engaged principally in
researching and
developing flat-panel field emission displays (FEDs) for use in conjunction
with computers and
other sophisticated electronic applications. The acquisition is outlined in
Note 15 to the
consolidated financial statements. Although management believes expanded
growth of Coloray
is desirable, it believes that the Company cannot continue to fund research and
development for
Coloray, and overall returns to stockholders will be higher by concentrating
its limited financial
resources on the pen computer market. This is one of the reasons that in March
1996, the
Company decided to close down its Coloray operation. This is more fully
described in Note 16 in
the accompanying consolidated financial statements.
During 1995 and 1996, management reevaluated the cost structure of Ampsco.
Certain
aspects of Ampsco's business activities require significant capital, labor and
management
commitment to compete effectively. In 1994, the Company decided that it would
no longer
supply the capital needed for Ampsco's highway contracting division. This
division was sold in
April 1994. Ampsco requires some major repairs and maintenance to its roof and
equipment, and
has a need for additional equipment in order to remain competitive and become
profitable. In late
1995, the Company determined that it could not fund the required repairs and
capital
improvements. Because of this, and to cut the ongoing losses of Ampsco, the
Company sold the
remaining machining division of Ampsco on April 4, 1996. See Note 18. Ampsco
has been
reported as a discontinued operation in the accompanying financial statements.
Results of Operations for the three years ended December 31, 1995
The consolidated statements of operations for the Company and its
subsidiaries include the
results of operations for Coloray since date of acquisition in April 1994.
1995 1994
1993
Sales $ 230,000 $ 205,000 $
378,000
Licensing and
development fees 201,000 178,000 572,000
Total revenues $ 431,000 $ 383,000 $ 950,000
Percent change from
the prior year 12.5% (59.7%)
72.1%
The Company operates as a single business segment, providing computer
peripheral
equipment to OEMs. Revenues have trended slightly downward in this segment,
except for 1993
where the Company had $500,000 of licensing revenues. The decline in revenues
in this segment
was primarily a result of de-emphasizing Scriptel's peripheral digitizer
product in preparation for
new products for the pen-based computer market. Management expects computer
peripheral
revenues to remain at relatively low levels until the fourth quarter of 1996 or
first quarter of 1997
when shipments to large OEM customers are expected to increase. The $500,000
of licensing fee
revenues in 1993 resulted from the expiration of license conversion rights
relating to an OEM
customer of Scriptel. Development fees in 1994 and 1995 stemmed from partial
funding of
Coloray development efforts by outside companies.
1995 1994
1993
Cost of Sales $360,000 $615,000
$581,000
Percent change
from the prior year (41.5%) 5.9%
(31.3%)
Since Scriptel's activities have been principally oriented to research and
development, deficit
gross margins are generated due to the unabsorbed burden caused by the minimal
level of
manufacturing volume and the direct costs of excess capacity. In addition,
Scriptel recorded
charges for scrap and obsolete inventories in 1993, 1994 and 1995 as a result
of de-emphasizing
its former digitizer products.
1995
1994 1993
General and administrative expenses $3,708,000 $6,809,000
$1,627,000
Sales and marketing expenses 258,000
320,000 548,000
Research and development expenses 5,117,000 7,368,000
609,000
General and administrative expenses decreased slightly in 1993. In 1994,
general and
administrative expenses increased substantially. This increase was due
principally to addition to
the Company's management, increased use of outside consultants, and the
inclusion of the general
and administrative expenses of Coloray for the period since acquisition.
During late 1993 and
early 1994, the Company substantially broadened its executive and supporting
staffs to meet the
increased management demands related to the anticipated acquisition of Coloray
and the
anticipated emergence of the pen-based computing market place. During this
period, the
Company added several senior officers and supporting staffs. The Company also
increased its use
of outside consultants in this period to hire the staff, evaluate the Company's
products and its
competitors' products, and to perform financial public relations services.
Certain members of
management and certain outside consultants received compensatory stock options
to attract them
to the Company or to pay for their services. The fair value of the stock
options at the date of
issuance, $180,000 in 1995 and $2,001,000, in 1994 was expensed when all
restrictions had
lapsed. The Company lowered its general and administrative expenses in 1995 by
reducing staff
at Coloray and Scriptel, and reducing use of consultants.
Sales and marketing expenses have been reduced in 1993, 1994 and 1995.
Research and development expenses have increased significantly since 1992.
The Company
expanded its development efforts in pen-based computer technologies and, in
1994 with the
Coloray acquisition, entered FED research. Management anticipates that such
costs will continue
for Scriptel. Research and development expenses also include unfunded costs of
research
agreements with Xetron (by Scriptel) and SRI (by Coloray), and Cooperative
Research and
Development Agreements (by Coloray) (See Note 14). Cash payments on research
and
development will increase, as the Company funds these research agreement
obligations.
Approximately $3,357,000 of the costs associated with the acquisition of
Coloray in 1994 related
to purchased research and development projects in progress which were charged
to expense at the
date of acquisition. In 1995, the Company expensed $425,000 of fair value of
stock options
issued to research and development consultants.
1995
1994 1993
Other Expenses $5,182,000 $1,418,000
$173,000
Other expenses include interest expense of $1,967,000, $1,261,000, and
$197,000 in 1995,
1994, and 1993, respectively. Other expense also includes finance costs of
$2,958,000 in 1995
and $636,000 in 1994. Interest expense increased due to higher levels of debt
financing and, in
1995 and 1994, included $720,000 and $880,000, respectively, related to the
value of options
transferred to noteholders as an inducement for them to loan funds to the
Company or as
additional interest compensation. Finance expenses in 1994 related principally
to the transfer of a
28.8% interest in Coloray to the noteholders who financed part of the
acquisition. (See Note 15
to the accompanying financial statements). Finance expenses in 1995 included
$720,000 in value
of stock options surrendered as compensation on new financing, and $2,256,000
as the difference
in value at the date of the transaction or at the date of conversion between
conversion prices on
debentures and notes issued in 1995 and the market price of the Company's
common shares.
Income from minority interest of $65,000 in 1995 and $517,000 in 1994
represents the portion
of the net loss of Coloray from the date of acquisition through year end that
is allocable to the
minority stockholders of Coloray. Early in 1995, minority interest was reduced
to zero; therefore,
during the remainder of 1995 and going forward, the Company will incur 100% of
the losses of
Coloray in its consolidated income statement.
In 1995 the Company sold Ampsco's land and buildings to a related party
(see Note 7) and
issued 700,000 warrants to the buyer of the property as part of the sale. The
value of the
warrants, $350,000, is the primary component of the loss on sale of assets of
$323,000 in 1995.
1995
1994 1993
Discontinued operations:
Loss from operation of Ampsco $(507,000) $(705,000)
$(856,000)
Loss on disposal of Ampsco (448,000)
- - - - ----- -----
Total loss from discontinued operations $(955,000) $(705,000)
$(856,000)
Ampsco has had continuing losses from operations since acquisition, and
at December 31,
1995 had an accumulated deficit in stockholders equity of approximately $2.2
million. The
Company determined that it could not fund the required repairs and capital
improvements needed
for Ampsco to remain competitive and become profitable. Because of this, and
to cut the ongoing
losses and to focus the Company on the computer peripheral segment, in April
1996 the Company
sold all of the Common Stock of Ampsco to a related party. See Note 18 to the
accompanying
consolidated financial statements for a more complete description of the
transaction.
The Company has treated the sale as a discontinued operation.
Consequently, Ampsco's
results are excluded from the accompanying balance sheet at December 31, 1995
and from the
loss from continuing operations shown on the accompanying statements of
operations for 1995,
1994 and 1993. The Company has recorded a loss of $448,000 on the disposal of
Ampsco.
Ampsco's sales were $1,827,000 in 1995, $1,841,000 in 1994, and $4,230,000
in 1993.
Ampsco's construction division, with sales of $2,310,000 in 1993, was sold in
early 1994. The
losses from operations shown above exclude Ampsco's interest expense of
$195,000 in 1995 and
$88,000 in 1994 on intercompany debt from Scriptel. The loss from operations
includes a net loss
of $287,000 on the sale of Ampsco assets in 1995.
The Company is contractually obligated on certain of Ampsco's notes
payable. The creditor
has obtained a judgment against the Company on this debt. Management estimates
that it is
improbable that Ampsco could pay the creditor or repay Scriptel if Scriptel is
forced to pay the
creditor. The Company has recorded a loss on disposal of Ampsco of $450,000 to
recognize the
full contractual obligation. The Company is also negotiating with the creditor
to settle the debt
for a reduced amount.
As part of the agreement to sell the Common Stock of Ampsco, the Company
contributed its
$2.2 million intercompany receivable from Ampsco to the capital of Ampsco.
This resulted in
almost complete liquidation of Ampsco's stockholders deficit, and the buyer
assumed the
remaining $22,000 of net liabilities of Ampsco.
The Company recorded this assumption of net liabilities as a reduction of
the loss on disposal
at December 31, 1995. The Company also recorded a loss of $20,000 at December
31, 1995 for
the anticipated loss from operations of Ampsco until the disposal date in April.
Liquidity and Capital Resources
The Company has funded its operations primarily through the sale of Common
Stock, the
issuance of debt instruments with Common Stock conversion features, and
private, institutional
and bank financing. As of December 31, 1995, the Company's stockholders had
paid or
surrendered in value $40,495,000 (which is net of $140,000 of notes receivable
from
stockholders) to acquire 21,058,217 shares of Common Stock. In addition,
$5,741,000 of notes
payable and debentures were outstanding as of December 31, 1995, and accrued
interest on notes
was $855,000 at that date. From inception of the Company through December 31,
1995, the
Company has incurred an accumulated deficit of $50,558,000.
The Company had current liabilities in excess of current assets of
approximately $10,404,000
at December 31, 1995 (approximately $6,936,000 at December 31, 1994). This has
occurred due
to cumulative operating losses being financed by the issuance of notes payable
and lines of credit.
Also at December 31, 1995 the Company had approximately $1,400,000 of trade
payables more
than 60 days past due. Proceeds from financing activities (net of payments)
totalled
approximately $5,372,000 for the year ended December 31, 1995, (approximately
$6,967,000 for
the year ended December 31, 1994). Funds received from financing activities
were used to fund
operating losses and other operating activities of approximately $5,665,000 for
the year ended
December 31, 1995 (approximately $7,838,000 for the year ended December 31,
1994).
In 1995, the Company engaged in several major debt and equity securities
sales. These are
outlined in Notes 6 and 7 to the accompanying consolidated financial statements.
Additional debt and equity transactions have occurred to date in 1996.
(See Note 16 to the
consolidated financial statements). Management believes that these recently
concluded private
placements of debt and equity securities are not sufficient to finance the
Company's planned
operating, development and capital expenditures for 1996 and to repay defaulted
indebtedness.
Management has cut back on operating and development activities, and
anticipates further
reductions. Management also intends to seek additional financing through other
private
placements of debt, convertible debt and / or Common Stock to fund such
activities. Efforts are
underway to close Coloray and form a consortium to continue Coloray's research.
The Company's total committed shares approximated the total authorized
shares of the
Company at December 31, 1995 (see Note 7). If all options outstanding at
December 31, 1995
were exercised at their contract prices, proceeds would be approximately
$27,498,000. If all
warrants outstanding at December 31, 1995 were exercised at their contract
prices, proceeds
would be approximately $17,627,000. If all convertible debt and accrued
interest outstanding at
December 31, 1995 were converted, equity would increase by $2,780,000.
Management intends
to seek approval from the stockholders, at the next stockholders meeting, for a
substantial
increase in the authorized shares. Approximately 8,900,000 of any increase in
authorized shares
have already been committed (see Note 7).
There can be no assurance that the stockholders will approve an increase
in the authorized
shares, nor that such shares could be sold if authorized, nor that the proceeds
from such sales or
other financing activities will be sufficient to fund operating activities and
repayment of defaulted
indebtedness. If funds received are insufficient, then the Company's ability
to continue as a going
concern could be adversely affected, and the Company may have to liquidate.
Management believes that Scriptel will experience revenue growth
associated with its pen-
based operating activities commencing in late 1996 or early 1997, and
anticipates that this revenue
growth will provide for Scriptel's working capital needs on an ongoing basis
after 1996.
The Company's independent accountants have included a paragraph in their
report, stating that
the Company's financial statements as of December 31, 1995 and for the periods
then ended have
been prepared assuming that the Company will continue as a going concern and
that the
Company's recurring losses from operations, net working capital deficiency and
need for
immediate financing to fund operations raise substantial doubt about its
ability to continue as a
going concern. See Notes 1, 2 and 3.
Adoption of Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting
Standards No. 109, "Accounting for Income Taxes," which changes the method of
accounting
for deferred income taxes. The standard requires the Company to recognize
deferred tax
liabilities and assets for the expected future tax consequence of events that
have been recognized
in the Company's consolidated financial statements or tax returns. Deferred
tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts
and tax basis of assets and liabilities using enacted tax rates in effect in
the years in which the
differences are expected to reverse. On January 1, 1993, the Company adopted
SFAS No. 109,
without any material effect on the consolidated financial statements, as the
Company has
significant net operating loss carryforwards.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock
Compensation." The Company will adopt this statement in 1996. The approximate
effects of
adopting this statement on reported net loss and net loss per share are
outlined in Note 17 to the
consolidated financial statements.
Inflation and Economic Conditions
Management believes that the effect of inflation on the Company's
operations is not material.
The Company does not have long-term contracts requiring performance at fixed
rates.
Accordingly, management believes it will be able to pass through to its
customers most cost
increases resulting from inflation.
AUDITOR OPINION
NORMAN, JONES, ENLOW & CO.
Norman, Jones, Enlow & Co. have indicated that they are
prepared to permit the use of their opinion on the financial
statements to be included in the Annual Report to Stockholders.
An opinion will accompany the Annual report included with the
definitive proxy.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
--------- ---------
Assets
Current assets:
Cash and cash equivalents
$51,000 $31,000
Trade accounts receivable, net of allowance
for doubtful accounts of $3,000 in 1995
and $52,000 in 1994
65,000 458,000
Inventories
2,000 194,000
Assets held for sale
-- 548,000
Other current assets
2,000 32,000
------------ ------------
Total current assets
120,000 1,263,000
Property and equipment, net 947,000
2,180,000
Patents, net
184,000 275,000
Deposits
122,000 141,000
Other assets
88,000 103,000
------------ ------------
Total assets
$1,461,000 $3,962,000
========= =========
The accompanying notes are an integral part of the financial statements.
- - - - -continued-
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS, continued
December 31,
1995 1994
--------- ---------
Liabilities and Stockholder's Deficit
Current liabilities:
Notes payable, short-term and current portion $4,741,000
$5,115,000
Accounts payable
1,681,000 1,234,000
Accrued interest
855,000 462,000
Accrued loss on discontinued operations 470,000
--
Other accrued liabilities
2,777,000 1,388,000
------------- ---------------
Total current liabilities
10,524,000 8,199,000
Notes payable, long-term 1,000,000
44,000
Notes payable, officers
-- 107,000
Minority interest
-- 65,000
Commitments and contingencies
Stockholders' deficit:
Common stock, $0.10 par value,
50,000,000 shares authorized: 21,058,217
shares and 15,234,138 shares issued and
outstanding at December 31, 1995 and
1994, respectively
2,106,000 1,523,000
Additional paid in capital
38,529,000 29,578,000
Accumulated deficit
(50,558,000) (35,409,000)
Notes receivable - stockholders (140,000)
(145,000)
- - - - --------------- -------------
Total stockholders' deficit
(10,063,000) (4,453,000)
- - - - ----------------- ----------------
Total liabilities and stockholders' deficit $1,461,000
$3,962,000
========== =========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995
1994 1993
- - - - ------------ ------------ -----------
Revenues:
Sales
$230,000 $205,000 $378,000
Licensing and development fees 201,000
178,000 572,000
- - - - ------------ ------------- -------------
Total revenues 431,000
383,000 950,000
Costs and expenses:
Cost of sales
360,000 615,000 581,000
General and administrative 3,708,000
6,809,000 1,627,000
Sales and marketing 258,000
320,000 548,000
Research and development 5,117,000
7,368,000 609,000
Write-down of investments --
78,000 --
- - - - ------------ ------------ -----------
Total costs and expenses 9,443,000
15,190,000 3,365,000
- - - - ------------ ------------ -----------
Loss from operations (9,012,000)
(14,807,000) (2,415,000)
Other expense (income):
Interest expense 1,967,000
1,261,000 197,000
Finance charge 2,958,000
636,000 --
Other expense, net
- - - - -- 70,000 29,000
Sale of assets
323,000 -- --
Interest income
(1,000) (32,000) (53,000)
Minority interest
(65,000) (517,000) --
- - - - ------------ ------------ -----------
Total other expense 5,182,000
1,418,000 173,000
- - - - ------------ ------------ -----------
Loss from continuing operations (14,194,000)
(16,225,000) (2,588,000)
Discontinued operations:
Loss from operations of Ampsco (507,000)
(705,000) (856,000)
Loss on disposal of Ampsco (448,000)
-- --
- - - - ------------ ------------ -----------
Total loss from discontinued operations (955,000)
(705,000) (856,000)
- - - - ------------ ------------ -----------
Net loss
($15,149,000) ($16,930,000) ($3,444,000)
============
========= ==========
Loss per share of common stock:
Continuing operations ($0.81)
($1.27) ($0.32)
Discontinued operations (0.05)
(0.05) (0.10)
- - - - ------------ ------------ -----------
Net loss per share
($0.86) ($1.32) ($0.42)
===== ===== ======
Weighted average number of common shares
used in computing net loss per share 17,519,171
12,785,243 8,110,281
========= ========= ========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995
1994 1993
-------- --------- ----------
Cash flows from operating activites:
Net loss
($15,149,000) ($16,930,000) ($3,444,000)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 690,000
532,000 408,000
Non-cash compensation 677,000
2,180,000 13,000
Non-cash interest expense 1,282,000
880,000 --
Inventory reserves 20,000
60,000 34,000
Write down of investments --
78,000 --
Loss on disposal of assets 610,000
89,000 32,000
Acquired research and development expense --
3,357,000 --
Non-cash finance charge 2,695,000
582,000 --
Minority interest in subsidiary loss (65,000)
(517,000) --
Deferred licensing fees
- - - - -- -- (485,000)
Changes in certain assets and liabilities:
Trade accounts receivable 115,000
505,000 (406,000)
Inventories
122,000 136,000 90,000
Deposits and other assets 26,000
(41,000) (51,000)
Accounts payable 696,000
361,000 (144,000)
Accrued interest 611,000
62,000 168,000
Accrued loss on discontinued operations 444,000
-- --
Other accrued liabilities 1,557,000
828,000 (46,000)
- - - - ------------- ------------ -------------
Net cash used in operating activities (5,669,000)
(7,838,000) (3,831,000)
Cash flows from investing activities:
Acquisition of Coloray Display Corporation --
(580,000) (877,000)
Notes and advances receivable from related parties --
-- 22,000
Purchase of investments --
(125,000) --
Sale (purchase) of restricted short-term investment --
992,000 (992,000)
Purchase of property and equipment (420,000)
(280,000) (119,000)
Disposal of property and equipment 211,000
113,000 --
Disposal of assets held for sale 548,000
346,000 --
Purchase of patents (22,000)
(4,000) (59,000)
- - - - ------------ ------------ -------------
Net cash provided by (used in)
investing activities 317,000
462,000 (2,025,000)
-continued-
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Years ended December 31, 1995
1994 1993
-------- --------- ----------
Cash flows from financing activities:
Proceeds from notes payable 5,398,000
4,021,000 2,177,000
Repayment of notes payable (1,209,000)
(3,536,000) (579,000)
Proceeds from the issuance of stock 1,153,000
6,413,000 4,592,000
Receipt of short swing profits from
related parties, and other 30,000
69,000 --
- - - - ------------- -------------- -------------
Net cash provided by financing activities 5,372,000
6,967,000 6,190,000
- - - - -------------- --------------- --------------
Increase (decrease) in cash and cash equivalents 20,000
(409,000) 334,000
Cash and cash equivalents, at the beginning
of the year
31,000 440,000 106,000
- - - - ----------- ------------ ----------
Cash and cash equivalents, at the end of the year $51,000
$31,000 $440,000
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $137,000
$413,000 $418,000
========= ======== ========
Supplemental schedule for non-cash financing and investing activities:
Debt conversion and use of debt to exercise options and warrants:
Decrease in notes payable $3,142,000
$111,000 $56,000
Decrease in accounts payable 85,000
15,000 73,000
Decrease in accrued interest 125,000
8,000 --
Increase in common stock (467,000)
(5,000) (8,000)
Increase in additional paid-in-capital (2,885,000)
(129,000) (121,000)
- - - - ----------- ------------ ----------
Net effect on cash
$0 $0 $0
===== ===== =======
Acquisition of Coloray Display Corporation:
Increase in property and equipment
$1,416,000
Increase in patents
197,000
Increase in common stock
(125,000)
Increase in additional paid-in-capital, including the value of
1,640,000 options issued for the Coloray acquisition
(3,387,000)
Research and development expense
1,899,000
------------
Net effect on cash
$0
=====
The accompanying notes are an integral part of the financial statements.
- - - - -continued-
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
In 1994, the Company transferred 28.8% of Coloray's common stock to two major
stockholders
of the Company in partial consideration for loans from those stockholders to
finance part of the
acquisition of Coloray. The Company recognized a minority interest in Coloray
of $582,000 and
also recognized a non-cash finance charge of $582,000 related to this transfer.
In 1994, the Company issued a note payable of $105,000 to purchase machinery
and equipment,
and the Company issued a note payable of $399,000 to a supplier to settle the
accounts payable
with that supplier. In 1995, the Company issued a note payable of $37,000 to
a supplier to settle
the accounts payable with that supplier.
In 1994, the Company issued compensatory stock, stock options and warrants as
follows:
300,000 warrants on sales of common stock (no value assigned), 680,000 options
on debt
financings (value of $317,000 treated as interest expense), 7,000 shares of
stock and 2,655,050
options as compensation to officers, directors and consultants (value of
$1,921,000 treated as
administrative expense). In 1995, the Company issued compensatory stock,
stock options, and
warrants as follows: 170,000 shares of stock, 7,000 options and 2,818,656
warrants as
additional compensation to debt holders (value of $438,000 treated as finance
charge and value
of $1,282,000 treated as interest expense); 40,000 shares of stock, 4,191,450
options and 94,610
warrants as compensation to officers, directors and consultants (value of
$252,000 treated as
administrative expense and value of $425,000 treated as research and
development expense); and
700,000 warrants to the buyer of Ampsco's land and buildings (value of
$350,000 treated as
other expense).
In 1994, options to purchase a total of 1,218,200 shares of common stock were
transferred
from an officer of the Company to note holders as an inducement to loan funds
(options
for 1,078,200 shares) and to a consultant for services rendered (options for
140,000 shares).
See Notes 4 and 7. These options were valued at $563,000 treated as interest
expense, and
$104,000 treated as administrative expense, respectively.
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years ended December 31, 1993, 1994, and 1995
Additional
Common Common Paid-in
Shares Stock Capital
-------- ---------- ----- -----
Balance, December 31, 1992 7,571,383
$757,000 $12,588,000
Sale of common stock, net 2,845,039
285,000 4,091,000
Conversion of convertible notes and accounts
payable to common stock 77,317
8,000 121,000
Exercise of warrants for common stock 51,980
5,000 68,000
Exercise of options for common stock 84,919
8,000 135,000
Stock issued for consulting services 7,500
1,000 12,000
Collection on notes receivable from stockholders
Net loss
- - - - ----------- ----------- -----------
Balance, December 31, 1993 10,638,138
1,064,000 17,015,000
Sale of common stock, net 2,200,311
220,000 4,371,000
Stock and options issued in the acquisition
of Coloray 1,254,131
125,000 3,387,000
Stock options issued to debt holders, employees,
and consultants
- - - - -- -- 2,881,000
Conversion of convertible notes and accounts
payable to common stock 52,747
5,000 129,000
Exercise of warrants for common stock, less 795 shares
received in partial payment and cancelled 42,634
4,000 64,000
Exercise of options for common stock 1,039,177
104,000 1,650,000
Stock issued for services 7,000
1,000 23,000
Return of short swing profits --
-- 58,000
Collections on notes receivable from stockholders
Net loss
- - - - ----------- --------- -----------
Balance, December 31, 1994 15,234,138
1,523,000 29,578,000
Stock or options issued to debt holders,
employees, and consultants 211,000
21,000 2,426,000
Conversion of convertible debentures, convertible notes
and accounts payable to common stock 4,269,671
428,000 5,231,000
Exercise of warrants for common stock 870,122
87,000 759,000
Exercise of options for common stock 473,286
47,000 510,000
Return of short swing profits --
-- 30,000
Write off on notes receivable from stockholders --
-- (5,000)
Net loss
- - - - ----------- ----------- -----------
Balance, December 31, 1995 21,058,217
$2,106,000 $38,529,000
========== ======== ========
The accompanying notes are an integral part of the financial statements. -
continued-
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT, continued
Years ended December 31, 1993, 1994, and 1995
Notes Total
Accumulated Receivable Stockholders'
Deficit Stockholders Deficit
- - - - ----------- --------------- --------------
Balance, December 31, 1992 ($15,035,000)
($177,000) ($1,867,000)
Sale of common stock, net
4,376,000
Conversion of convertible notes and
accounts payableto common stock
129,000
Exercise of warrants for common stock
73,000
Exercise of options for common stock
143,000
Stock issued for consulting services
13,000
Collection on notes receivable from stockholders
21,000 21,000
Net loss
(3,444,000) (3,444,000)
- - - - -------------- ----------- -----------
Balance, December 31, 1993 (18,479,000)
(156,000) (556,000)
Sale of common stock, net
4,591,000
Stock and options issued in the acquisition of Coloray
3,512,000
Stock options issued to debt holders, employees,
and consultants
2,881,000
Conversion of convertible notes and accounts
payable to common stock
134,000
Exercise of warrants for common stock, less 795 shares
received in partial payment and cancelled
68,000
Exercise of options for common stock
1,754,000
Stock issued for services
24,000
Return of short swing profits
58,000
Collections on notes receivable from stockholders
11,000 11,000
Net loss
(16,930,000) (16,930,000)
- - - - ---------------- ----------- --------------
Balance, December 31, 1994 (35,409,000)
(145,000) (4,453,000)
Stock or options issued to debt holders,
employees, and consultants
2,447,000
Conversion of convertible debentures, convertible
notes and accounts payable to common stock
5,659,000
Exercise of warrants for common stock
846,000
Exercise of options for common stock
557,000
Return of short swing profits
30,000
Write off on notes receivable from stockholders
5,000 0
Net loss
(15,149,000) (15,149,000)
- - - - ---------------- ------------ --------------
Balance, December 31, 1995 ($50,558,000)
($140,000) ($10,063,000)
========== ========= ==========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GOING CONCERN BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Scriptel
Holding, Inc. and its
wholly-owned subsidiaries, Scriptel Corporation ("Scriptel"), and Scriptel
Communications Corp.
("Scriptcom"), and its majority-owned subsidiary, Coloray Display Corporation
("Coloray")
(collectively known as "the Company" ). Another wholly-owned subsidiary,
Ampsco Corporation
("Ampsco") has been reported as a discontinued operation, and was sold in April
1996. (See Note
18). All significant intercompany transactions have been eliminated. The
accounts of Coloray are
included only for the period since its acquisition. (See Note 15).
Scriptel has developed and licensed certain technology to various
manufacturers and suppliers
engaged in pen-based computer product development; however, Scriptel has not
earned
significant royalties to date. Scriptel's future revenue growth is partially
dependent on royalties
provided under these license agreements. Completion of certain research and
development
activities and further market development for Scriptel's products are necessary
for the Company
to achieve profitable operations.
In early 1996, the Company sold its interest in Ampsco Corporation, and
committed to
shutting down Coloray. (See Notes 16 and 18 for a more complete description of
these events).
If these efforts are successful, it will enable the Company to focus on its
core Scriptel technology
and Scriptel products.
The accompanying consolidated financial statements have been prepared on a
going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal
course of business. Scriptel Holding, Inc. and each of its subsidiaries have
incurred recurring
losses from operations and resulting cash flow problems since inception.
Management's plan for
meeting obligations as they come due is summarized below.
At December 31, 1995, the Company was in default on approximately $2.4
million of its notes
payable, and in arrears over 60 days on trade accounts payable totaling
approximately
$1,400,000. In addition, $2,021,000 of notes payable were represented by
demand cognovit
notes at December 31, 1995. At December 31, 1995 the Company had a reported
deficit in
equity of $10,063,000. The Company is currently attempting to negotiate new
terms with certain
debt holders, as well as to seek the execution of conversion privileges on
convertible notes. See
Notes 7 and 16 for a summary of the significant financing activities by the
Company subsequent to
December 31, 1995.
At December 31, 1995, the Company was a party to legal proceedings brought
by several
creditors. (See Note 3 for a summary of litigation issues.) Subsequent to
December 31, 1995,
several additional creditors took or threatened legal action against the
Company to collect
amounts due and payable. The Company has successfully deferred, for the
present, legal action
by other creditors and has made some partial payments on the amounts due.
There can be no
assurance, however, that the creditors will not hereafter seek other legal
remedies.
The Company must generate significant and sufficient additional working
capital and
restructure its debt obligations in order to continue as a going concern and
meet its debt
obligations as they come due. Management is seeking additional financing
through public or
private placements of debt, convertible debt and or Common Stock to fund its
activities. There
can be no assurance that the Company will be able to obtain such funds, that
such funds obtained
will be sufficient, or that the Company will be able to meet or restructure its
debt obligations as
they come due. If the funds are not received, management plans to cut back
further on its planned
research and development and capital expenditures, which could jeopardize the
timing and
ultimate completion of certain critical projects.
If the Company is not successful with its current and future financing
efforts, there is a
substantial likelihood that it could not proceed as a going concern. The
consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary
should the Company be unable to continue as a going concern.
2. RISK OF LIQUIDATION (UNAUDITED):
Due to the Company's history of operating losses and immediate need for
additional capital,
there is a risk that the Company will have to liquidate. Substantially all of
the Company s assets,
including patents, are pledged as collateral on certain of the Company s debt
instruments. If the
Company were forced into liquidation, it is likely that all of the assets would
be attached to settle
the claims of secured creditors and none, except possibly the value of the
patents, would be
available to other security holders. If the Company were to liquidate,
management estimates that
the realizable value of the Company's property, equipment, and deposits would
be substantially
less than the carrying values of those assets at December 31, 1995, and the
realizable value of the
Company's other assets would be less, but would not be materially different
than the reported
values for those assets at December 31, 1995. It is also management's estimate
that the value of
the Company's patents would be higher than their recorded value at December 31,
1995. The
valuation of assets necessarily requires many estimates and assumptions. The
actual value of
assets if liquidation were to occur would depend on a variety of factors,
including finding
interested buyers, the timing of any sales, sales commissions and selling
costs, operating losses
incurred to the date of any sale, and the forced nature of the sale.
Management considered these
factors in developing its estimate of realizable values if liquidation were to
occur. The Company
has not had a current outside appraisal of the assets made because it is
management's intention to
continue to operate the Company on a going-concern basis. Management's
estimate of realizable
value on liquidation of property and equipment is approximately $400,000,
compared to a
carrying value at December 31, 1995 of $947,000. Excluding patents, for which
an appraisal is
not available and management is otherwise unable to reasonably estimate value,
management's
estimates of realizable value on liquidation of all assets is approximately
$600,000, compared to a
carrying value of all assets of $1,461,000 at December 31, 1995. At that date,
the Company's
recorded liabilities totaled approximately $11,524,000. The Company also has
other contractual
commitments. See Note 14.
3. LEGAL PROCEEDINGS
The Company is a defendant in several legal actions brought by creditors
to collect amounts
due, or brought by others.
On September 6, 1995, a promissory note holder filed suit in the Circuit
Court of Cook
County, Illinois, entitled Stimsonite Corporation vs. Scriptel Holding, Inc.,
for collection of
principal, interest and other charges on a note. The total sought is
approximately $450,000. The
promissory note holder received a judgement against the Company in Illinois in
November 1995,
and domesticated the judgement against the Company in Ohio in February 1996.
The Company is
attempting to negotiate a resolution with the creditor.
A former officer and director of the Company filed a suit against the
Company in January 1996
in U. S. District Court for the Southern District of Ohio, entitled Nicholas G.
Venetis vs. Scriptel
Corporation and Scriptel Holding, Inc. The individual alleges common fraud;
securities fraud;
non-payment of payroll, severance, director bonus, and expenses; improper
handling of COBRA
benefits and disclosures; and other matters. He claims damages of
approximately $100,000 and
requests specified grants of options and punitive damages of $250,000. The
Company intends to
file a response to the suit to deny the allegations and to attempt to collect
amounts due the
Company from the individual. The Company may work with the individual in an
attempt to settle
the suit.
Three former officers of Coloray Display Corporation, a majority-owned
subsidiary of the
Company, filed an action against Coloray and the Company on February 23, 1996
in Alameda
County Superior Court, Hayward, California, entitled Michael W. Blas, M. Kathy
Vieth, and
Daniel J. Devine vs. Coloray Display Corporation and Scriptel Holding, Inc.,
alleging non-
payment of amounts due them for payroll, severance, expense reports and other
matters, and
seeking damages totaling approximately $680,000. These individuals also sought
and obtained in
connection with this action an ex parte Temporary Protective Order prohibiting
the transfer of the
assets of Coloray and the assets of the Company located in California.
Following a hearing on
March 28, 1996, the California court denied the plaintiffs' application for
Writ of Attachment or
Temporary Protective Order. The Company intends to vigorously pursue this
action, including
the possibility of an action by the Company against each of the individuals.
These individuals have also taken administrative action against Coloray
through the California
Labor Board.
A creditor filed suit against the Company in February 1996 in the Court of
Common Pleas,
Franklin County, Ohio, entitled Financetech, Inc. vs. Scriptel Holding, Inc.,
for collection of a
debt and accrued interest of approximately $580,000. The Company has filed a
counterclaim
against the creditor for amounts of royalty that the Company feels is due it
from the creditor, and
has requested the court to offset the note payable by the amount of royalty
due. This action is
pending.
Several other creditors have filed suit against the Company and its
subsidiaries, in various
courts in Ohio and California, for payment of amounts due them. In addition,
the Company has
been informed that several other creditors may take such actions in the near
future. The amount
currently under suit in these actions totals less than $150,000.
The landlord of Coloray has threatened to start eviction proceedings due
to non-payment of
rents totaling approximately $84,000.
In January 1996 the State of Ohio issued a final claim against the Company
for unpaid sales
and use taxes of $41,000. These taxes are included in the Company's
liabilities at December 31,
1994 and for all subsequent periods.
The Internal Revenue Service has filed a payroll tax levy against the
assets of Coloray Display
Corporation. In February 1996, the IRS attached $42,000 of funds held on
deposit in Coloray's
bank account, and obtained those funds. The Company and Coloray have agreed to
pay the
remaining $120,000 of payroll tax liability within 45 to 60 days from the end
of February.
Coloray has also received a personal property tax lien from Alameda
County, California in the
amount of approximately $23,000. In addition, Coloray has unpaid withheld
state income taxes
of approximately $20,000 which are subject to levy at any time.
The Company has unpaid personal property, franchise, capital stock,
workers compensation,
and other taxes aggregating approximately $190,000. Such amounts may be
subject to levy
against Company assets. The Company intends to pay these taxes as funds become
available.
There can be no assurance that creditors will not hereafter seek other
legal remedies.
4. SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents:
The Company includes in cash and cash equivalents all highly liquid
investments with
maturities of three months or less upon acquisition. The Company's cash was
held in two
financial institutions at December 31, 1995.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Management
conducts a general review of the adequacy of excess and obsolete inventory
reserves on a
quarterly basis. In performing obsolescence reviews, management considers,
among other
factors, changes in the Company's customer base, changes in its products, and
technological
obsolescence.
The major components of inventory at December 31, 1995 (excluding Ampsco)
and 1994 are
as follows:
1995
1994
Finished goods $ --- $
50,000
Work in process ---
41,000
Raw materials 2,000
253,000
Allowance for obsolescence ---
(150,000)
-----------
---------------
$2,000
$194,000
=======
=========
Property and Equipment:
Property and equipment are stated at cost. Depreciation of property and
equipment is
computed using the straight-line method over the estimated useful lives of the
assets. The detail
of property and equipment at December 31, 1995 (excluding Ampsco) and 1994 is
as follows:
1995
1994
Land $ ---
$150,000
Buildings ---
334,000
Machinery and equipment 1,051,000 1,282,000
Furniture and fixtures 86,000
103,000
Leasehold improvements 627,000
797,000
Vehicles ----
110,000
---------------
--------------
1,764,000
2,776,000
Accumulated depreciation (817,000)
(596,000)
---------------
---------------
$ 947,000
$2,180,000
=========
=========
Depreciation expense for the years ended December 31, 1995, 1994 and 1993,
was $569,000,
$491,000, and $381,000, respectively.
Patents:
The Company capitalizes costs incurred in acquiring patents. These assets
are amortized using
the straight-line method over their expected technological life, which is less
than their 17 year
legal life. Accumulated amortization at December 31, 1995 and 1994 was
$310,000 and
$197,000, respectively, and amortization expense for the years ended December
31, 1995, 1994
and 1993 was $113,000, $41,000, and $28,000, respectively.
Revenue Recognition:
Revenues from product sales are recognized when the goods are shipped.
The Company
periodically reviews the credit collection status of its customers and provides
for potential losses.
Stock Issued to Employees:
The Company maintains a stock option plan under which it is authorized to
grant incentive
stock options and non-qualified stock options to employees, directors and
consultants. In
addition, the Company has issued Common Stock and options and warrants to
purchase Common
Stock to certain officers in recognition of services they have performed. The
Company
recognizes as compensation expense the amount, if any, of the fair value of the
Common Stock or
the difference between the estimated fair value of the underlying Common Stock
at the
measurement date and the option or warrant exercise price. The compensation
expense is
allocated to the periods in which the employees perform services. The
estimated fair value of the
Common Stock is determined based on a subjective determination taking into
consideration the
OTC Bulletin Board price, the limited market for freely tradable shares, prices
of Common Stock,
options and warrants negotiated with third parties in recent private
placements, and the restricted
nature of the shares issuable upon exercise of the options and warrants. ( See
Notes 7, 8, and 9).
Options and Warrants:
Options and warrants are considered to be outstanding only when the Board
of Directors has
formally approved their issuance.
Per Common Share Information:
Net loss per common share is based on the weighted average number of
common shares
outstanding during the year. The effect on net loss per common share of the
assumed exercise of
stock options and warrants and conversions of convertible notes has not been
considered as the
effect would be antidilutive.
Reclassification:
In order to conform with the 1995 presentation, certain 1994 and 1993
amounts have been
reclassified.
5. INCOME TAXES:
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No.
109, "Accounting for Income Taxes," ("SFAS 109") which required a change from
an income
statement to a balance sheet approach for accounting for income taxes. Under
SFAS 109,
deferred tax assets and liabilities are recognized based on temporary
differences between the
financial statement and tax basis of assets and liabilities using current
statutory tax rates. SFAS
109 also requires a valuation allowance against net deferred tax assets if,
based on the available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.
The Company elected not to restate prior years' financial statements under
the provisions of
SFAS 109 and determined that the cumulative effect of implementation was not
significant as the
Company has incurred losses since inception. As of December 31, 1995, net
deferred tax assets
approximated $20,200,000 and related principally to net operating loss
carryforwards of
approximately $50,500,000, available to offset future taxable income, if any,
through 2010. Net
operating losses are subject to limitations under Section 382 of the Internal
Revenue Code.
Approximately $5,200,000 of the total net operating loss carryforwards can only
be utilized to
offset the separate company income of Coloray. Due to the uncertainty
surrounding the
realization of these favorable tax attributes in future tax returns, all of the
net deferred tax assets
have been fully offset by a valuation allowance.
6. NOTES PAYABLE AND DEBT CONVERSION:
Notes payable as of December 31, 1995 and 1994 consist of the following:
1995 1994
Convertible notes to individuals and
stockholders at prime rate plus 2% to 4%,
principal and interest convertible to common
shares at $1.69 to $3.50 per share; $1,156,000
and $908,000 past due at December 31, 1995
and 1994, respectively
$1,156,000 $1,400,000
Demand notes payable to related parties, at
rates ranging from 10% to prime plus 4%;
$53,000 and $116,000 past due at December
31, 1995 and 1994, respectively
53,000 116,000
Promissory notes payable, 12%, due December
31, 1995. See Note 7.
---- 471,000
Notes payable to a corporation, $250,000 at
10% and $250,000 at 8%, quarterly principal
and interest payments ranging from $8,423 to
$10,495 due through November 1996, and the
unpaid balance due December 1996; in default
at December 31, 1995 and 1994
500,000 500,000
Demand notes payable to a major stockholder at
10% per annum to 40% of principal on demand
2,021,000 873,000
Cognovit promissory notes payable, at prime
rate; in default at December 31, 1995 and 1994.
See Note 7.
569,000 1,103,000
Note payable on machinery purchases, monthly
payments, in default at December 31, 1995 and
1994.
104,000 95,000
Demand notes payable to suppliers, 18%; in
default at December 31, 1995 and 1994.
38,000 449,000
Convertible debenture, 8%, due November
1998
1,000,000 ----
Demand, secured, cognovit, convertible
promissory note, 10%
300,000 ----
Mortgages payable at interest rates ranging
from 9.75% to 11.75%
---- 44,000
Installment loans owed to stockholders and
others, at prime or rates ranging from 7% to
15.9%; in default at December 31, 1994.
---- 108,000
--------------- ------------
5,741,000 5,159,000
Less current portion
4,741,000 5,115,000
--------------- -----------
Non-current - payable 1998
$ 1,000,000 $ 44,000
The prime interest rate was 8.5% at December 31, 1995. Substantially all
assets of the
Company are pledged as collateral for certain of the notes.
During 1994, convertible notes, related accrued interest, and certain
accounts payable, in the
amounts of $111,000, $8,000, and $15,000, respectively were converted to Common
Stock. The
price associated with these conversions ranged from $1.00 to $2.62 per share.
As a result of the
conversions, 52,747 common shares were issued.
During 1995, notes payable, related accrued interest, and certain accounts
payable, in the
amounts of $882,000, $82,000, and $34,000 respectively, were converted to
Common Stock.
The price associated with these conversions ranged from $1.43 to $1.70 per
share. As a result of
the conversions, 726,077 common shares were issued. In 1995, an additional
$260,000, $43,000,
and $51,000 of notes payable, accrued interest, and accounts payable,
respectively, were used as
payment by holders to exercise options and warrants for a total of 393,249
shares.
The Company has approximately $324,000 of interest accrued on convertible
notes at
December 31, 1995, which is also convertible to Common Stock. This amount is
payable on
demand.
The Company entered into a private placement to a foreign investor of
$1,000,000 of
convertible debentures in March 1995. Net proceeds of $900,000 were received
on April 5,
1995, after payment of a finders fee and a consulting fee. Interest was 8%,
payable at maturity.
The debentures would have matured in March 1998. The conversion price floated.
The March
debentures were converted into 1,385,281 shares in the third quarter of 1995.
The Company has
recorded a finance charge of $429,000 on the conversion equal to the difference
between fair
value of the shares issued and the conversion price at the date of conversion.
The Company entered into a private placement to a foreign investor of
$1,000,000 of
convertible debentures in May 1995. Net proceeds were $880,000, after payment
of finders fees
and legal fees. The debentures would have matured in May 1998. Interest was
8%, payable at
maturity. The conversion price floated. The May debentures were converted
into 2,165,060
shares in the third quarter of 1995. The Company has recorded a finance charge
of $475,000 on
the conversion equal to the difference between fair value of the shares issued
and the conversion
price at the date of conversion. Effective June 15, 1995, in accordance with
certain penalty
provisions included in the agreement, the Company was required to issue to the
foreign investor
warrants to purchase 50,000 shares of Common Stock at a rate equal to the
market price on the
date of the conversion, and the Company is required to pay the investor $20,000
in penalties.
Both the March and the May 1995 debenture issues were made in accordance
with the
provisions of Regulation S of the Securities Act of 1933, as amended. The
shares acquired on the
conversion of the debentures were exempted from registration under the
provisions of Regulation
S, and were immediately tradeable.
In November 1995 the Company issued a demand, secured, convertible
promissory note to an
affiliate of a major creditor and stockholder of the Company in exchange for
proceeds of
$300,000. The note bears interest at 10% and the rate increases to 18% if the
Company defaults
on the note. The note and accrued interest are convertible into a maximum of
700,000 shares at
$0.50 per share. The market price of the Company's Common Stock on the date of
the note was
$0.75 per share. In conjunction with this loan, the Company granted a security
interest in all its
receivables, inventories, equipment, patents and other assets, and an express
pledge of the patents
of Coloray. The Company recorded a finance charge of $131,000 in the fourth
quarter of 1995
on this note, equal to the difference between fair value of the common shares
on the date of the
note and the conversion price implicit in the note.
In November 1995 the Company entered into an agreement to issue $1,000,000
of convertible
debentures to a foreign investor under the provisions of Regulation S
promulgated by the
Securities and Exchange Commission. The debentures bear interest at 8% and
mature in 1998.
The debentures are convertible into common shares at a floating rate subject to
a minimum
conversion price of $0.30 per share (equivalent to 3,333,334 shares) and a
maximum conversion
price of $0.45 per share (equivalent to 2,222,223 shares). The market price of
the Company's
Common Stock on the date of issue of the debenture was $1.00 per share. The
Company
recorded a finance charge of $1,222,000 in the fourth quarter of 1995, equal to
the difference
between fair value of the Common Stock on the date of the debenture and the
maximum
conversion price of the debenture. Depending on the actual conversion price if
and when the
debenture is converted, the Company may have to record an additional finance
charge. The
Company paid $58,000 and committed to issue 15,000 shares (value approximately
$15,000) to
financial consultants as closing costs on this debenture transaction. In
addition, the Company
expects to issue warrants to a financial consultant on this transaction to
purchase common shares
equal to 5% of the shares issued if and when the debenture is converted. Such
warrants would
expire in five years, the warrant price would be equal to 110% of the
conversion price, and the
warrants would have demand registration rights.
7. Common Stock AND Common Stock COMMITMENTS:
The Company issued 40,000 shares in 1995 and 7,000 shares in 1994 to
officers and directors
for services rendered, and recorded compensation expense of $78,000 and
$24,000, respectively.
The Company entered into the following significant Common Stock
transactions and made the
following Common Stock commitments for the year ended December 31, 1995:
The Company filed a registration statement in July 1994 which became
effective in February
1995, and which expired March 31, 1995. The registration statement covered the
registration of:
(a) up to 2,000,000 shares of Common Stock offered by the Company; (b) up to
17,303,780
shares of Common Stock to be sold by selling stockholders, 5,006,843 shares of
which were
already held by selling stockholders and 12,296,937 of which shares were
issuable following
exercise of certain outstanding options and warrants and conversion of
outstanding convertible
promissory notes; and (c) up to $556,000 of convertible promissory notes and
Common Stock
issuable upon conversion thereof, or cash plus accrued interest in rescission
of convertible
promissory notes purchased in a private offering during September, July, and
August 1994. Due
in part to a substantial decrease in the market value of the Company's Common
Stock on the day
of effectiveness, none of the shares offered by the Company were sold during
the registration
period. Of the 12,296,937 shares which could have been issued on exercise of
options, warrants,
or convertible debt by the selling stockholders, a total of 683,375 shares were
actually issued.
The Company received proceeds of $798,000 in a combination of cash and
reduction in notes
payable from the exercises. This capital has been used to meet payroll and
other immediate
obligations. Of the $556,000 of convertible promissory notes, two noteholders
elected to receive
registered notes in the combined principal amount of $29,000, four noteholders
used a total of
$46,000 of principal of notes to exercise warrants they owned, and the
remaining noteholders
elected or were deemed to have elected rescission of the notes for cash.
In November 1994, a foreign investor entered into two stock subscription
agreements to
purchase a total of 3,000,000 shares of Common Stock of the Company at a
purchase price of
$2.82 per share. Net proceeds to the Company from the initial 1,235,712 shares
sold in
November 1994 were $2,250,000, which was net of all commissions and finders
fees for both
subscription agreements. The remaining 1,764,288 shares were to be sold in
December. The
foreign investor did not complete the purchase of the remaining shares and the
Company
cancelled this subscription agreement in 1995. The sale of shares to the
foreign investor was
made in accordance with the provisions of Regulation S promulgated by the SEC.
Option and warrant holders exercised existing options and warrants at
$1.00 to $1.69 per
share, for a total of 901,694 common shares which includes those which were
issued in the
registration statement effective in the first quarter of 1995. Net cash
proceeds from these
exercises totaled $961,000.
In May and June 1995, the Company converted otherwise non-convertible debt
and accrued
interest into 348,722 common shares at $1.43 per share. The Company also
issued related
warrants to purchase an additional 348,722 common shares at $1.69 per share.
The warrants
expire in the year 2000. The estimated fair value of the warrants, $160,000,
was expensed as
financing costs in the second quarter of 1995. The shares and warrants have
piggyback
registration rights.
In September 1995, the Company converted certain debt and accrued interest
into 292,001
common shares at $1.50 per share. The Company also issued to certain
noteholders related
warrants to purchase an additional 292,001 common shares at $1.50 per share and
warrants (as
compensation for delays in payment of principal and interest on certain notes)
to purchase an
additional 472,933 common shares at $2.00 per share. The warrants expire in
the year 2000. The
estimated fair value of the warrants, $438,000, was expensed as financing costs
in the third
quarter of 1995. The shares and warrants have piggyback registration rights.
The Company issued warrants to a financial consultant to purchase 100,000
common shares at
$1.70 per share. The estimated fair value of the warrants, $46,000, has been
treated as a finance
charge in the third quarter of 1995. The Company issued warrants to purchase
94,610 common
shares at $1.69 per share to a consultant in lieu of payment of a consulting
bill (value of $44,000,
treated as administrative expense.)
In July 1995 the Company issued 170,000 shares and granted warrants to
purchase 1,500,000
shares of Common Stock at $1.51 per share to a major stockholder and creditor
of the Company.
These grants were made in recognition of bridge loans made by this stockholder
to the Company
over the last several years, voluntary transfers of options to investors during
recent funding
activities, and return of short-swing profits incurred to help the Company in
its financing. The
estimated value of the warrants, $750,000, and shares, $298,000, was expensed
in the third
quarter as interest expense.
On July 27, 1995, the Board of Directors approved a sale effective June
30, 1995 of all real
estate owned by Ampsco. The purchaser was an affiliate of a major stockholder
and creditor of
the Company, who also had a security interest in the property. The purchase
price of $350,000
was received in two installments of $150,000 each, with the remaining $50,000
used by the
purchaser to pay off existing mortgages on the property and for legal costs of
the transaction. In
addition, the Company granted the purchaser warrants to purchase 700,000 shares
of Common
Stock at a price of $1.51 per share. Management estimates the value of
warrants at $350,000
(treated as a loss on the sale of property). The book value of the land and
buildings sold was
$626,000. The Company recorded a loss in the second quarter including the loss
on the land and
buildings (this was subsequently restated as discontinued operations of
Ampsco), the value of the
warrants, and the legal costs. Ampsco leased back the manufacturing facilities
for a one year
period until June 30, 1996 in a triple net lease at a monthly rental of $5,000.
The Company granted warrants to purchase 55,000 shares of Common Stock at
$0.81 per
share to certain noteholders as compensation for delays in payment (value of
$25,000 treated as
interest expense).
In July 1995, the Board of Directors approved a recommendation by the
Compensation
Committee to grant the Company's chairman a combination of Common Stock and
options to
purchase Common Stock, based on his achievement of goals in his employment
contract. Mr.
France received 40,000 shares of Common Stock (value of $78,000 treated as
administrative
expense) and options to purchase 400,000 shares of Common Stock at $1.74 per
share, all per his
contract. In addition, he received options to purchase 1,000,000 shares of
Common Stock at
$1.74 per share to replace the compensation incentive inherent in the options
Mr. France
transferred to noteholders and consultants in 1994 at no benefit to him.
The Company issued to employees, consultants and certain noteholders a
total of 2,798,450
options to purchase common shares. These options were granted under existing
agreements or as
part of employment negotiations with certain employees. Option prices range
from $0.63 to
$3.20 per share and expire at various dates from 1997 to 2000. Option values
were $3,000
treated as interest expense, $137,000 treated as administrative expense, and
$425,000 treated as
research and development expense.
The Company issued 21,104 common shares to vendors to convert the balance
owed to the
vendors at $1.50 to $1.70 per share. The shares have piggyback registration
rights.
Options and warrants to purchase 1,003,035 common shares at exercise
prices ranging from
$0.75 to $3.00 per share have expired in 1995 without exercise.
In December 1995, the Company offered a reduction in the purchase price
for its outstanding
options and warrants to $0.55 per share if the holders would exercise within a
brief period of
time. As a result of this offer, a total of 497,051 shares were issued upon
exercise. Payment
included $113,681 in cash and $159,697 from reduction of debt owed to the
holders. All shares
issued have piggyback registration rights. The cash was used for operating
purposes.
The Company is authorized to issue up to 50,000,000 shares of its Common
Stock, par value
$.10 per share. Of these, the Company had the following outstanding or
committed shares of
Common Stock at December 31, 1995:
Outstanding common shares at December 31, 1995
21,058,217
Commitments to issue common shares at December 31, 1995:
Options (See Note 8)
13,263,936
Warrants (See Note 9)
11,171,923
Convertible debt and accrued interest (See Note 6)
1,535,208
November 1995 convertible debentures, at maximum conversion
price (3,333,334 shares would be issuable at the minimum
conversion price) (See Note 6)
2,222,223
Shares to be issued to financial consultant as closing costs on the
November 1995 convertible debentures (issued in April 1996)
15,000
Shares committed to be granted to employees, based on their
respective salaries
200,000
Warrants to be issued to financial consultant on the November
1995 convertible debentures
111,111
Options to officers, employees, directors and
consultants which have been committed in various
agreements of the Company but not yet granted at December 31, 1995
240,000
-------------
Total outstanding or committed common shares at December 31, 1995
49,817,618
========
Subsequent to December 31, 1995, the Company had the following
transactions in Common
Stock or Common Stock commitments:
* The Company issued 100,000 shares in January 1996 to a founder, director,
and officer of
the Company as additional compensation for his service since the Company was
founded. The
value of this stock, $75,000, was expensed in January 1996 when it was issued.
In a related
action, the Board of Directors authorized cancellation of all the notes and
advances receivable
from this individual. These receivables approximated $91,000, most of which
had been fully
reserved at December 31, 1994. All remaining amounts were expensed in December
1995.
* Options and warrant holders exercised existing options and warrants at
$0.55 per share for
a total of 46,917 common shares. Net cash proceeds from these exercises
totaled $26,000. There
was no change in total committed shares as a result of these exercises.
* The Company entered into two letter agreements between the Company,
Standard Energy
Company, and Gerald S. Jacobs, an individual, which agreements are dated
September 21, 1995
as amended February 29, 1996 (the "September Agreement"), and dated February
29, 1996 (the
"February Agreement"). The Company entered into a further agreement between
the same
parties, dated March 29, 1996 (the "March Agreement") which supersedes the
September and
February Agreements. The March Agreement was ratified by the Company's Board
of Directors
on April 4, 1996. The September and February Agreements were included as
exhibits to a Form
8-K Current Report dated September 21, 1995 and filed in March 1996. The March
Agreement
was included as an exhibit to a Form 8-K Current Report dated March 29, 1996
and filed in April
1996. Standard Energy Company and Gerald S. Jacobs are both major creditors
and stockholders
of the Company. Mr. Jacobs is the sole owner of Standard Energy Company.
The Agreements, as amended in March 1996, compensate Mr. Jacobs as an
individual for his
help personally or through companies he owns or is affiliated with in providing
debt financing to
the Company over the last several years, patience in not demanding repayment of
those loans and
cooperation with other matters, and for relinquishing up to 1,000,000 currently
owned options or
warrants for cancellation so that the Company could use those authorized shares
in its current
financings. The Company will issue to Mr. Jacobs, or his nominee, warrants to
purchase
3,600,000 common shares at a price of $0.75 per share, and which will expire
six years after
issuance. The Company will issue to Sonata Investment Company, Ltd. (the
holder of the
$300,000 convertible notes issued in November 1995 - see Note 6) warrants to
purchase
2,400,000 common shares at a price of $0.50 per share, and which will expire
six years after
issuance. The warrants to Mr. Jacobs and Sonata are contingent upon the
Company having
available authorized shares, which authorized shares shall be obtained from the
first-expiring
options or warrants or through approval by the Company's stockholders of
additional authorized
shares at any time in sufficient amount to cover this commitment, or both. The
Company has
agreed to use its best efforts to obtain the requisite shares.
Mr. Jacobs has agreed to surrender up to a total of 1,000,000 options or
warrants he currently
owns, if the Company needs additional authorized shares to issue in its current
financings. This is
subject to the requirement that the Company must reissue those options or
warrants when, as and
if authorized shares are first available as set forth above. The new warrants
would be exercisable
at a price of $0.75 per share and would expire six years after issuance under
these provisions. In
March 1996, the Company used 853,125 options of the 1,000,000 offered to
provide part of the
authorized shares on new issuances under the provisions of Regulation S (see
below).
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and
by Donna L. Sanger, a vice president of Standard Energy Company, will be
reissued with a new
expiration date of October 1, 2001 and with a new price of $1.00 per share. At
December 31,
1995, Mr. Jacobs owned 2,190,000 warrants and 1,956,000 options at prices
ranging from $1.51
to $2.62 per share and which expire at various dates through October 29, 2000.
At December 31,
1995, Ms. Sanger owned 65,000 warrants and 63,500 options at prices ranging
from $1.51 to
$2.50 per share and which expire at various dates through July 12, 2000. Mr.
Jacobs reported the
effects of the September Agreement in his Form 4 filed for the month of
September 1995. The
options and warrants were repriced and reissued as of February 29, 1996.
The Company will record the estimated value of these transactions as
additional interest
expense on the loans. Management estimates the value of the reissuance of
currently existing
options with new pricing and expiration dates as approximately $2,013,000. This
will be recorded
in the first quarter of 1996, which is when the Directors of the Company
approved the
transaction. Mr. Jacobs subsequently relinquished 853,125 options of the
1,000,000 options or
warrants he committed to relinquish (see below); if these are subsequently
reissued, management
estimates the additional value of the reissued options or warrants as
approximately $200,000,
assuming current market prices; because of the uncertainties relating to the
availability of
authorized shares, the actual value to be recorded is not known, and will be
recorded only when
this contingency is resolved. Management estimates the value of the 3,600,000
warrants to be
issued to Mr. Jacobs as approximately $3,420,000 if issued now and assuming
current market
prices; because of the uncertainties relating to the requirement for available
authorized shares, the
actual value to be recorded is not known, and will be recorded only when these
contingencies are
resolved and the warrants are actually issued. Management estimates the value
of the 2,400,000
warrants to be issued to Sonata Investment Company, Ltd. as approximately
$2,712,000 if issued
now and assuming current market prices; because of the uncertainties relating
to the requirement
for available authorized shares, the actual value to be recorded is not known,
and will be recorded
only when these contingencies are resolved and the warrants are actually issued.
* In March and April 1996, the Company entered into several agreements with
foreign
investors to purchase shares at $0.40 per share under the provisions of
Regulation S promulgated
by the Securities and Exchange Commission. A total of 2,425,000 shares were
issued under these
agreements. The market price of the Company's Common Stock on the dates of
issuance was
approximately $0.75 to $1.12. Cash proceeds were $970,000, less a total of
$134,000 paid as
finders fees and expenses. These proceeds were used to fund payrolls, audit
and legal costs, and
other operating expenses. In addition to the cash costs of closing, the
Company committed to
issue warrants to purchase common shares equal to 5% of the shares issued, at a
price of $0.48,
and which will expire five years after issuance. A total of 121,250 warrants
have been committed.
Mr. Jacobs relinquished 853,125 of his options, (see above), Mr. Walter Krumm,
another major
creditor and stockholder relinquished 800,000 of his options with an exercise
price of $1.69 to
$1.70 per share and expiring in 1988, and the Company's Chairman relinquished
800,000 of his
options with an exercise price of $1.74 per share and expiring in July 2000, so
that the Company
would have enough authorized shares available to issue the new shares and
warrants. As part of
the agreements with these individuals, the Company agreed to reissue the
surrendered instruments
as warrants when, as and if Scriptel is first able to do so, but in no event
later than when Scriptel
stockholders approve an increase in the amount of authorized shares, at a price
of $0.75 per
share, and with an expiration date of six years after the date of any reissue
under these provisions.
Scriptel also committed to use its best efforts to obtain stockholder approval
of an increase in
authorized shares. Kevin Woodbridge, a director, also relinquished 500,000
options (see below).
* In April 1996, the Company issued a total of 8,565 shares of Common Stock
to settle
$8,738 of payables to two suppliers.
* In April 1996, the Company was successful in obtaining a one-year
extension on four
convertible notes payable totaling $71,000. The Company agreed to modify the
conversion price
from $1.69 per share to $0.55 per share. This transaction increased the
authorized shares
committed for conversion by 87,358 shares.
* In April 1996, the Board of Directors ratified the Company's prior
agreement to issue
15,000 shares to a consultant for services rendered on a financing concluded in
November 1995.
These shares had been included in committed shares as of December 31, 1995.
* The Company issued 100,000 options in January 1996 to Bernard Eckstein, a
director, as
compensation for his services in helping with year end activities. The options
are exercisable at a
price of $1.00 per share (the market price at the date of grant), and expire in
January 2001.
* The Board of Directors approved in April 1996 a repricing and reissuance
of all the
options owned by Kevin Woodbridge, a director. This is additional compensation
for his
continuing to operate under a consulting contract with the Company without
receiving his retainer
fee for eight months, relinquishing part of his retainer and part of his stock
options to obtain a
release of a 1995 judgment against the Company on a cognovit note, and
relinquishing 500,000
currently owned options for cancellation so that the Company could use those
authorized shares
in its current financings. At December 31, 1995, Mr. Woodbridge owned 845,797
options with
exercise prices ranging from $1.43 to $2.00 per share and with expiration dates
of 1996 to 2000.
All of his options will be reissued with a new expiration date of April 1, 2000
and with a new
exercise price of $0.50 per share. Mr. Woodbridge also has rights to immediate
registration of his
options through an S-8 filing. If any of these options are relinquished and
cancelled, the Company
has agreed to reissue them at such time as the stockholders approve the
authorization of
additional shares.
Management estimates the value of the reissuance of currently existing
options with new
pricing and expiration dates as approximately $967,000. This will be recorded
in the second
quarter of 1996, which is when the Directors of the Company (excluding Mr.
France and Mr.
Woodbridge, who abstained) approved the transaction. If 500,000 of Mr.
Woodbridge's options
are relinquished and cancelled, and subsequently reissued, management estimates
the additional
value of the reissued options as approximately $50,000, assuming current market
prices. Because
of the uncertainties relating to the relinquishment of the options and the
availability of authorized
shares for reissue, the actual value to be recorded is not known, and will be
recorded only when
this contingency is resolved and the options are actually issued.
* In April 1996, the Board also extended relinquishment and reissue
privileges (reissue at an
exercise price of $0.75 per share and expiring six years after reissue) to
employees and directors,
and to CommTech International Management Corp., a major stockholder and option
holder.
Exercise prices on options owned by these holders generally range from $2.00 to
$3.00 per share.
Considering the outstanding Common Stock and commitments at December 31,
1995, the
aforementioned changes arising subsequent to that date and the current market
price of the
Common Stock, the Company had 50,000,000 shares outstanding or committed at the
date of the
accompanying report from the independent accountants. Management will seek
stockholder
approval to increase the authorized shares at the next annual stockholders
meeting.
8. STOCK OPTIONS
During 1993, 500,000 options were granted in partial consideration for
services of an
underwriter, 15,000 were granted under employment agreements, 300,000 were
granted under
consulting agreements, and approximately 1,580,000 were granted in conjunction
with financing
arrangements. See Notes 13 and 15. No expense or allocation of financing
proceeds between
debt and equity was recorded in connection with granting these options in 1993,
due to
immateriality.
For the year ended December 31, 1994, the Company granted the following
options to
purchase one share of Common Stock:
* 1,485,000 options at prices ranging from $1.70 to $4.00 per share,
expiring in 1997
through 1999, related to employment contracts.
* 140,000 options to non-employee directors at prices ranging from $2.25 to
$3.00 per
share, expiring in 1998 and 1999.
* 3,050,525 options at prices ranging from $2.25 to $2.97 per share,
expiring in 1999, to
employees under the employee stock option plan approved by stockholders at the
May 12, 1994
annual meeting.
* 580,000 options related to the Coloray acquisition, at $2.00 per share, of
which 400,000
expire in 1999, and 180,000 options at $2.00 per share expired in November
1994. In addition,
the Company committed to grant an additional 60,000 options to SRI (formerly
known as
Stanford Research Institute) related to the Coloray acquisition, pending
entering into a new
contract with SRI.
* 1,675,000 options at prices ranging from $1.69 to $2.62 per share,
expiring from 1998
through 2000, related to debt financing.
* 1,954,583 options at prices ranging from $1.69 to $3.20 per share,
expiring from 1997
through 1999, related to consulting agreements.
General and administrative expenses for the year ended December 31, 1994
included expenses
of approximately $1,897,000 related to these options. Research and development
expenses for
the year ended December 31, 1994 included expenses of approximately $1,004,000
related to
these options. Interest expense for the year ended December 31, 1994 included
approximately
$317,000 related to options granted in 1994.
A total of $1,103,000 of cognovit promissory notes were issued in August
through October
1994 at the prime interest rate. During 1994, for no consideration to the
officer involved, options
and warrants to purchase shares of Common Stock were transferred from an
officer of the
Company to these noteholders to assist the Company in its financing activities
(1,078,200 options
and warrants, see Note 6) and to a consultant for services rendered (140,000
options). The
options have exercise prices ranging from $1.70 to $2.50 per share and expire
at various dates
through October 2000. Certain of such options and warrants transferred by the
officer were
received by the officer in an exchange of options and warrants with a principal
stockholder. Such
options and warrants transferred from such principal stockholder were
exercisable for shares of
Common Stock at prices ranging between $1.70 to $2.00 per share and expiring at
various dates
through October 2000. The Company accounted for these latter options and
warrants as a
contribution to paid in capital by the principal stockholder and a charge to
compensation expense.
For 1994, general and administrative expenses include net expenses of
approximately $104,000
related to compensation cost and consulting services, and interest expense
includes approximately
$563,000 relating to financing transactions equal to the fair value of the
options and warrants
transferred.
In October 1993, the Board of Directors approved a new Stock Option Plan
("Plan"), which
was approved by the stockholders at their 1994 annual meeting. The Plan
provides for the grant
of options to purchase up to 5,000,000 shares of Company Common Stock. All
employees of the
Company and its subsidiaries, as well as non-employee directors and
consultants, are eligible for
the grant of options under the Plan. The Plan provides for the grant of
incentive stock options
and non-qualified options. The Board of Directors or a committee of three
disinterested directors
("Committee") administers the Plan. The purchase price for the shares subject
to options granted
under the Plan will be determined by the Board of Directors or the Committee,
as the case may
be. Each option becomes exercisable at the time or times determined by the
Board or the
Committee when the option is granted provided that no option may be exercised
within six
months of date of grant; however the Board of Directors or the Committee has
the right to
accelerate the exercisability of the options upon the occurrence of certain
events that involve, or
may result in, a change in control of the Company. Each option terminates on
the date set by the
Board or the Committee at the time of grant, but no termination date may be
later than 10 years
from the date of the grant. Generally, no option may be exercised unless the
holder of the option
has continued to be an employee of the Company or one of its subsidiaries
except for limited
exercise rights after termination of employment. An optionee can pay the
purchase price for the
stock option in cash, by delivery of Company Common Stock already owned by the
optionee, or
by a combination of these methods, as determined by the Board or the Committee,
as the case
may be. Approximately 3,150,000 options were outstanding under the provisions
of the Plan at
December 31, 1995. These are included in the table below. As a practical
matter, because of the
restrictions on reissue of options and warrants identified in Note 7, no
further grants may be made
under the Plan until stockholders approve an increase in the Company's
authorized shares.
For the year ended December 31, 1995, the Company granted the following
options to
purchase one share of Common Stock:
* 1,912,450 options at prices ranging from $0.63 to $3.20 per share,
expiring in 1997
through 2000, related to employment contracts or offers.
* 1,279,000 options at prices ranging from $1.43 to $2.75 per share,
expiring in 1997
through 2000, related to consulting agreements.
* 7,000 options at a price of $1.69 per share, expiring in 2000, related to
debt financing.
* 1,000,000 options at a price of $1.74 per share, expiring in 2000, related
to a replacement
for options transferred from an officer of the Company to noteholders in 1994
(see above).
General and administrative expenses for the year ended December 31, 1995
included expenses
of approximately $137,000 related to these options. Research and development
expenses for the
year ended December 31, 1995 included expenses of approximately $425,000
related to these
options. Interest expense for the year ended December 31, 1995 included
approximately $3,000
related to options granted in 1995.
The table below reflects all options granted and outstanding through
December 31, 1995, all of
which are exercisable (See notes 4 and 7):
Number of Shares
Option Price
Options outstanding at
December 31, 1992 748,844
$1.50-$5.00
Granted 2,394,891
$1.69-$5.00
Forfeited --
--
Exercised ( 84,919)
$1.69
-------------
Options outstanding at
December 31, 1993 3,058,816
$1.69-$5.00
Granted 8,885,108
$1.69-$4.00
Forfeited ( 459,962)
$1.75-$5.00
Exercised (1,039,177)
$1.69-$2.00
- - - - --------------
Options outstanding at
December 31, 1994 10,444,785
$1.69-$4.00
Granted 4,198,450
$0.63-$3.20
Forfeited (906,013)
$2.25-$3.00
Exercised (473,286)
$1.69-$2.50
- - - - ----------------
Options outstanding at
December 31, 1995 13,263,936
$0.63-$4.00
=========
The options outstanding at December 31, 1995 expire as follows: 644,797
in 1996,
1,512,348 in 1997, 3,664,391 in 1998, 2,867,950 in 1999, and 4,574,450 in 2000.
9. STOCK WARRANTS:
During 1993, the Company issued 41,177 warrants in conjunction with the
issuance of
convertible notes. In November 1993, the Company sold 1,253,067 units at $3.38
per unit in two
private placements, each unit consisting of two shares of Common Stock ( a
total of 2,506,134
shares) and a warrant ("class A Warrant") to purchase three to five additional
shares ( a total of
4,136,834 warrants). In partial consideration for its services, the
underwriter received a three-
year option to purchase 125,307 units at $3.38 per unit, with five Class A
Warrants in each unit
( a total of 626,535 warrants). Additionally, the Company issued 21,898 Class
A Warrants to the
underwriter's attorney for their services in the transaction and issued 84,361
Class A Warrants to
three stockholders who acquired Common Stock in conjunction with another
private placement
which was terminated in the third quarter of 1993. All of the Class A
Warrants, aggregating
4,869,628, have an exercise price of $1.69 per share and a term of three years
from the date a
registration statement is filed with the Securities and Exchange Commission.
Because of delays in
filing a registration statement on these Class A Warrants, the exercise price
decreased to $1.39
per share in accordance with the 1993 private offering agreement. A
registration statement on
these warrants was declared effective on February 13, 1995. No
expense or allocation of financing proceeds between debt and equity was
recorded in connection
with issuing these warrants due to immateriality.
In 1994, the Company issued 300,000 warrants in conjunction with sales of
Common Stock.
No expense was recorded in connection with issuing these warrants due to
immateriality.
In 1995, the Company issued the following warrants to purchase one share
of Common Stock:
* 94,610 warrants at a price of $1.65 per share, expiring in 2000, related
to consulting
agreements.
* 150,000 warrants at a price of $1.70 per share (or for 50,000, at a price
which floats with
the market price), expiring in 1998, related to new debt financings.
* 700,000 warrants at a price of $1.51 per share, expiring in 2000, related
to the sale of
Ampsco's land and buildings.
* 2,668,656 warrants at prices ranging from $0.81 to $2.00 per share,
expiring in 1998
through 2000, related to negotiations with debt holders.
For the year ended December 31, 1995, expenses included the following
approximate amounts
related to warrants issued in 1995: general and administrative expenses -
$44,000; interest
expense - $984, 000; finance charges - $438,000; other expenses - $350,000.
The table below reflects all warrants issued and outstanding through
December 31, 1995, all of
which are exercisable (See notes 4 and 7):
Warrants Warrant Price
Warrants outstanding at
December 31, 1992 3,600,974
$0.75-$6.00
Issued
4,910,805 $1.69-$2.00
Terminated (
12,500) $6.00
Exercised (
51,980) $0.75-$1.69
- - - - -------------
Warrants outstanding at
December 31, 1993 8,447,299
$0.75-$5.25
Issued
300,000 $2.00
Terminated (
25,000) $3.50
Exercised (
43,429) $1.00-$1.69
- - - - --------------
Warrants outstanding at
December 31, 1994 8,678,870
$0.75-$5.25
Issued
3,613,266 $0.81-$2.00
Terminated
(250,091) $0.75-$2.88
Exercised
(870,122) $1.00-$5.25
- - - - --------------
Warrants outstanding at
December 31, 1995 11,171,923
$0.81-$4.00
=========
The warrants outstanding at December 31, 1995 expire as follows: 291,457
in 1996,
2,181,902 in 1997, 5,836,732 in 1998, 50,000 in 1999, and 2,811,832 in 2000.
10. LEASES
The Company leases Scriptel's office and production facility under an
operating lease that
provides for monthly lease payments of approximately $10,000 per month through
January 1997.
The Company also leases the office and production space of Coloray through
November 1996
(monthly rental $19,000) and various equipment through short-term operating
leases. (See Notes
13 and 15). Total rent expense for the years ended December 31, 1995, 1994 and
1993 amounted
to $395,000, $452,000, and $201,000, respectively.
Future minimum lease payments are as follows:
1996 $334,000
1997 15,000
-----------
Total $349,000
=======
Lease payments of $103,000 were past due at December 31, 1995.
11. BUSINESS SEGMENT INFORMATION:
The Company currently operates in a single business segment -- computer
peripheral
equipment. The computer peripherals segment involves manufacturing and
marketing of high
performance digitizers, stylus pens, control chips and glass screens for
computer aided design,
business graphics, and personal computer applications, and revenues from
development fees.
Prior to the disposition of Ampsco, the Company also operated in a
machining/contracting
segment. The machining / contracting segment involved the repair and
customizing of machine
tools and precision machining equipment, and until April 1994 this segment also
included the sale
and installation of highway safety equipment and other highway contracting.
Ampsco was sold in
April 1996. The Company has treated the sale as a discontinued operation in
the accompanying
consolidated financial statements.
Summarized financial information by business segment for the years ended
December 31 are as
follows:
1995
1994 1993
Total assets:
Computer peripherals $1,461,000 $2,191,000
$2,982,000
Machining/contracting --
1,771,000 3,114,000
-------------
------------- --------------
Total $1,461,000
$3,962,000 $6,096,000
========
======== ========
Depreciation and amortization:
Computer peripherals $580,000
$411,000 $91,000
Machining/contracting 110,000
121,000 317,000
----------
----------- ----------
Total $690,000
$532,000 $408,000
=======
======= =======
Capital expenditures:
Computer peripherals $359,000
$372,000 $81,000
Machining/contracting 60,000
14,000 38,000
------------
----------- -----------
Total $419,000
$386,000 $119,000
========
======= =======
12. MAJOR CUSTOMERS:
Sales to one customer comprised 66.2%, 7.0%, and 11.5% of total sales in
1995, 1994, and
1993, respectively. Sales to a second customer comprised 15.2% and 18.4% of
total sales in
1995 and 1994 respectively. In addition, the Company had 16.2% of sales to a
third customer in
1994.
13. RELATED PARTY TRANSACTIONS:
In 1993 the Company granted a former director and his firm options to
purchase a total of
35,000 common shares at $2.00 per share.
The Company recognized interest expense of approximately $7,000, $6,000,
and $103,000 on
notes payable to officers and directors for the years ended December 31, 1995,
1994 and 1993,
respectively.
In connection with a financial public relations agreement dated April 20,
1993, Mr. K.
Woodbridge and Woodbridge & Associates ( collectively, "Woodbridge"), an
unaffiliated entity
at that time , was paid $150,000 and was granted three year options to purchase
1,500,000 shares
of Common Stock at a price of $1.69 per share ( the market bid price at the
time of grant was
$3.50 for unrestricted shares). Under the agreement, as amended, Woodbridge
performs financial
public relations services and refers the Company to sources of investment
capital. The grant of
750,000 of the 1,500,000 Woodbridge options was conditioned on the Company's
stockholders
approving an increase in the Company's authorized shares at the 1994 Annual
Meeting. An
additional 175,000 share options were granted to Woodbridge under the Company's
Stock Option
Plan in December 1993, also conditioned on the stockholders approving an
increase in the
Company's authorized shares at the 1994 Annual Meeting. The agreement with
Woodbridge has
been amended on two occasions prior to December 31, 1994. Under such
amendments,
Woodbridge has received an aggregate retainer of $130,000 through December 1995
and will
continue to receive $5,000 per month until his contract is renegotiated or
terminated.
Additionally, Woodbridge has received reimbursement of documented travel and
other
expenditures of $82,000 in 1993 and $100,000 in 1994. In November 1994, the
Company granted
an additional 300,000 options at an exercise price of $2.00 per share, expiring
in 1997, in
accordance with the October 1994 amendment to the consulting agreement with
Woodbridge. At
the date of grant, the bid price of the underlying Common Stock on the
over-the-counter market
was $3.375 per share. The consulting agreement further provided for grants of
100,000 options
on February 28, 1995 and 100,000 options on May 31, 1995, on the same terms,
provided that
Woodbridge continued to provide services to the Company on those dates. These
options were
granted on those dates. Pursuant to the agreement, Woodbridge may appoint an
individual to the
Company s Board of Directors. Mr. Woodbridge became a Director of the Company
in June
1995. Mr. Woodbridge also received 80,000 options at an exercise price of
$1.43 per share in
1995.
A director of the Company from May 1994 to May 1995 was a consultant to
the Company
from July 1993 to February 1995. In January 1994 the Company and the director
entered into a
Consulting Memorandum of Understanding and Consulting Agreement with respect to
his
consulting services to the Company. The Consulting Memorandum of Understanding
provided
for a 90 day term, compensation of $5,000 per month, and options to purchase
50,000 shares of
Common Stock of the Company for $2.25 per share (the market bid price at the
time of grant was
$3.875 for unrestricted shares). The Consulting Agreement includes provisions
for the protection
of the Company's intellectual property. The director and the Company continued
the consulting
arrangement following the 90 day term referenced above but terminated the
agreement in
February 1995.
In 1994, the Company granted 14,583 options under the Stock Option Plan at
an exercise
price of $3.00 per share, expiring in 1999, to a director of Coloray who is
also a consultant to the
Company. In addition , 175,000 options were granted under the Stock Option
Plan at an exercise
price of $3.20 per share, expiring in 1999, in accordance with provisions of a
consulting
agreement with that consultant. A further 275,000 options were approved for
grant to
consultants under the Stock Option Plan, and 125,000 options were granted in
1994 and 50,000
options were granted in 1995 to three consultants at a price of $3.20 per
share, expiring in 1999
or 2000, and the remainder will be granted by the Compensation Committee of the
Board of
Directors when they determine the consultants who will receive the options.
Such future grants
will be at an exercise price which is the higher of 85% of the fair market
value of the underlying
shares at the date of grant or $3.20 per share, and will expire five years
after grant.
In August 1991, Mr. W.T. Krumm (a significant stockholder of the Company)
and an affiliate
loaned the Company an aggregate of $1,000,000. The loan was evidenced by a
convertible
promissory note that bore interest at prime, plus four percent, and was
convertible into up to
1,000,000 shares of Common Stock at a conversion price of $1.00 per share. Mr.
Krumm
received a warrant to purchase an additional 1,000,000 shares at $1.00 per
share, provided that
the warrants were only issued in direct proportion to draws on the loan. In
March 1992, Mr.
Krumm converted $875,000 of principal, plus $53,308 of interest, into 928,308
shares of
Common Stock and exercised warrants for 702,000 shares at $1.00 per share. As
consideration
to Mr. Krumm to exercise the warrants, the Company granted Mr. Krumm a
replacement warrant
to purchase 1,000,000 shares at $1.69 per share. Mr. Krumm loaned $75,000 to
the Company in
February 1993, and $100,000 in May 1993 in the form of convertible notes,
convertible at the rate
of $1.69 per share. In exchange for extending the due date of the remaining
$125,000 of the 1991
convertible note, extending the February 1993 convertible note and loaning
$100,000 in May
1993, Mr. Krumm received options to purchase 300,000 shares at $1.70 per share.
At the time of
the issuance of notes and grants of options and warrants to Mr. Krumm, the
market bid price for
unrestricted Common Stock was between $4.00 and $5.75 per share. The Company
has granted
registration rights with respect to all of the shares of Common Stock issued or
issuable to Mr.
Krumm.
In 1992, (at various dates between August and October) Mr. G. S. Jacobs (a
significant
stockholder and creditor of the Company), who controls Standard Energy Company
(references
to Mr. Jacobs shall include Standard Energy Company where appropriate) loaned
$525,000 to
the Company and received options to purchase 220,000 shares at prices ranging
from $1.75
to $2.50 per share. He also purchased 60,000 shares in June of 1992 and
received warrants to
purchase an additional 60,000 shares at $2.50 per share. In April 1994, the
Company repaid
the outstanding balance of the 1992 loan. In February 1993, Mr. Jacobs loaned
$75,000, an
additional $100,000 in April, and $100,000 and $50,000 in each of May and June
in the
form of convertible notes, convertible at $1.69 per share for the February and
April notes and
at $1.70 per share for the later notes. In addition, as part of his $75,000
loan in February 1993,
Mr. Jacobs received options to purchase 45,000 shares at $1.75 per share. In
April 1993, Mr.
Jacobs was granted options to purchase 400,000 shares at $1.70 per share for
extending the
$225,000 remaining on the 1992 loan, for extending the February 1993 loan and
for making
the $100,000 April loan. As additional consideration for the loans in May and
June, Mr. Jacobs
received options for an aggregate of 175,000 shares at $1.70 per share. In
addition , Mr. Jacobs
received options to purchase 100,000 shares at $1.70 per share in August 1993,
and in September
1993 loaned the Company $25,000, which was repaid in its entirety in October
1993. In March
1994, Mr. Jacobs loaned the Company $90,000 in the form of a cognovit
promissory note,
payable on demand, which the Company repaid in April 1994 with $9,000 of
interest. On May 5,
1994, May 17, 1994, and May 31, 1994, Standard Energy loaned the Company
(Scriptel and
Coloray, collectively) $125,000, $125,000, and $250,000, respectively, in the
form of cognovit
promissory notes, payable on demand, bearing interest at 10% per annum. As
additional
consideration for these loans, Mr. Jacobs was granted options to purchase
500,000 shares of
the Company's stock at $2.62 per share, and the exercise period of all his
options and warrants
was extended to the year 2000. At various dates from August to December 1994
the Company
repaid $61,000 of these May 1994 Standard Energy loans. On September 15, 1994
and
September 30, 1994, Standard Energy loaned the Company $75,000 and $120,000,
respectively,
in the form of cognovit promissory notes payable on demand. Both of these
loans were repaid on
November 28, 1994, together with interest of $7,500 and $12,000, respectively.
Mr. Jacobs has a
security interest in substantially all tangible and intangible assets of the
Company and pledges on
all current and future patent rights. At the time of the issuance of notes and
grants of options and
warrants to Mr. Jacobs, the market bid price for unrestricted Common Stock was
between $2.125
and $4.875 per share. On October 31, 1994 and December 29, 1994, the Company
issued
demand cognovit promissory notes to Standard Energy in the principal amount of
$100,000 and
$235,000, respectively. The $100,000 note bears interest at 10%. Upon demand,
interest of
$23,500 is payable on the $235,000 note . If the Company defaults in payment
when demand is
made, the notes bear interest at 18% per annum.
On January 17, 1995, the Company issued demand cognovit promissory notes
in the combined
principal amount of $200,000 to Mr. Krumm and Mr. Jacobs for funds in that
amount. Upon
demand, interest of $20,000 was payable. If the Company defaults in payment
when demand is
made, the notes bear interest at 18% per annum. The Company repaid Mr. Krumm's
note with
$10,000 interest in February 1995. The Company paid the $10,000 interest and
$22,500 of
principal on Mr. Jacob's note in April 1995, and an additional $20,000 of
principal in May 1995,
and the remaining $57,500 of principal in November 1995.
On January 31, 1995 and March 2, 1995 the Company issued demand cognovit
promissory
notes in the principal amount of $100,000 and $175,000, respectively, to
Standard Energy
Company for funds in that amount. The Company paid off these notes, with
$10,000 and $25,000
interest, respectively, in April 1995.
In February 1995, the Company paid $10,000 of principal and interest on a
demand note
payable to Standard Energy Company.
Between May 10 and November 2, 1995 the Company borrowed $1,375,000 from
Standard
Energy Company under ten separate demand cognovit promissory notes. Upon
demand, total
interest of $195,000 is due. One of the notes in the amount of $70,000 dated
May 15, 1995,
together with interest of $10,000, was paid off on May 19, 1995. One note in
the amount of
$150,000 dated November 2, 1995, together with interest of $10,000, was paid
off on November
6, 1995.
On October 16, 1995 the Company borrowed $40,000 under a demand cognovit
note from a
relative of Mr. Jacobs. A principal payment of $30,000 was made on October 20,
1995, and the
remaining $10,000 of principal and $10,000 of interest was paid on November 6,
1995.
In January through June 1995 Coloray sold certain equipment which was not
being used.
Proceeds were $380,000, which approximated the net book value of the assets
sold. These assets
were included as assets held for sale at December 31, 1994 in the accompanying
consolidated
balance sheets. Half of the proceeds, or a total of $190,000 were paid to
Standard Energy
Company against notes (see above) to obtain release of liens on the assets.
In March 1992, a director who retired in December 1993, and his spouse and
various family
trusts converted an aggregate of $1,493,132 of notes to 1,019,771 shares of
Common Stock. In
January 1993, his spouse loaned $20,000 to the Company and received options to
purchase 5,000
shares at $1.75 per share. In February 1993, his spouse loaned $75,000 to the
Company in form
of a convertible note at $1.69 per share and received options to purchase
75,000 shares at a $1.70
per share. In March 1993, his spouse and the family trusts exercised warrants
to purchase
43,980 shares at a total exercise price of $62,970. At the time of the
issuance of notes and grants
of options and warrants to the director and his spouse, the market bid price
for unrestricted
Common Stock was between $2.25 and $2.625 per share.
In November 1993, a director of the Company, and a related affiliate
converted two notes
totaling $53,301 into 34,197 shares of the Company's Common Stock.
On March 9, 1992 the Company loaned $90,000 to its President, Mr. James W.
France, Jr.,
which was used by Mr. France to exercise options to purchase 60,000 shares of
Common Stock
at $1.50 per share. The note is due on demand and bears interest at the rate
of 10%. On
December 30, 1992, an additional $75,000 was loaned to Mr. France. This was
originally due on
December 31, 1993, with interest at 10%. The proceeds of this loan were used
by Mr. France to
exercise options to purchase 50,000 shares at $1.50 per share. As of December
31, 1995,
$71,000 in principal and interest was due on the March note and $81,000 was due
on the
December note. In 1994, the Compensation Committee of the Board of Directors
changed the
terms of the note to defer further payments of interest and the principal
balance on both notes
until December 31, 1995. In addition, the Company has made and expensed net
advances to Mr.
France of approximately $91,000 through December 31, 1995 against a $100,000
bonus included
in his former employment contract. Although the Board declared this bonus be
paid to Mr.
France in 1995, Mr. France refused to accept it. The Company expects to pay
this bonus in 1996,
and offset it against these advances.
In addition to the borrowing noted above , during 1993, and 1994, the
Company borrowed
additional funds from Messrs. Krumm and Jacobs in connection with the purchase
of Coloray, all
of which were subsequently repaid. (See Note 15).
In 1995, Coloray borrowed a total of $106,000 from certain of its officers
to cover payroll and
other immediate needs. These notes were payable on demand with interest at 12%
to 20% of the
principal. Coloray repaid $72,000 of principal and $14,000 of interest in 1995.
The Company's Board of Directors will continue its policy of authorizing
or approving
transactions in which any director, officer or other affiliate has an interest
only if the terms thereof
are believed by the directors to be no more favorable with respect to the
interest of any such
affiliate than could be obtained from unaffiliated third persons.
14. COMMITMENTS:
License and Technology agreements:
In July 1992, the Company entered into a joint technology development
agreement with a
major original equipment manufacturer ("OEM") for the development of certain
cordless chip
technology. Pursuant to the agreement, the Company was required to make
payments totaling
$150,000. Due to scheduling delays, the OEM has agreed to defer these
payments. Upon sale of
units containing the licensed technology, the OEM is obligated to make royalty
payments at rates
that decline as volumes increase, with a minimum annual royalty of $50,000.
The agreement has
a 5 year term with automatic one-year renewal terms thereafter. If the OEM
ceases development
or manufacture of the chip, the OEM will grant Scriptel a non-exclusive
permanent license on its
technology in return for a payment of $1,000,000, and Scriptel will pay
royalties to the OEM.
In October 1992, the Company entered into a hardware development and
technology
agreement with a major OEM. The Company received an initial licensing payment
of $500,000
and granted the OEM until October 1993 the option to invest up to an additional
$1,000,000 in
the Company's Common Stock and receive a credit of $500,000 toward additional
Common
Stock. The option expired without exercise in October 1993 and, therefore, the
Company no
longer had an obligation to credit the license fee. Accordingly, the Company
having completed all
conditions and obligations of the agreement recognized the full amount of the
$500,000 as
licensing fee income in 1993. In January 1994, the Company entered into a new
development
and licensing agreement with the OEM which provides for the OEM to develop,
license,
manufacture, sell and distribute certain products derived from the technology.
In addition, as a condition to the agreement, the OEM and the Company
executed a stock
purchase agreement in February 1994 pursuant to which the OEM purchased
477,099 shares of
the Company's Common Stock for an aggregate price of $1,250,000. The stock
sale was effected
in April 1994.
The Company has entered into license agreements with various OEM's and
suppliers for use of
the Company's technology in their products. The Company will be paid licensing
fees based on
the volume of use of its technology. No royalty fee income was recognized
under these
agreements during 1995, 1994 or 1993.
On December 16, 1994, Scriptel signed a Development Agreement and License
with Xetron
Corporation, a designer and developer of radio frequency products. Xetron is
developing for
Scriptel radio frequency technology to enable Scriptel's hand-held devices to
communicate using
radio frequencies. Under the agreement Scriptel is obligated to pay Xetron a
total of $875,000 in
quarterly installments from September 30, 1995 through December 15, 1996,
(this will be
expensed over the term of the agreement), in addition to royalty payments upon
reaching
threshold sales of the resulting Scriptel hand-held device incorporating the
radio frequency
technology. During the three year period ending December 16, 1997, Xetron has
an option to
purchase, upon mutually acceptable terms, a 50% interest in a subsidiary to be
formed by Scriptel
to exploit the radio frequency hand-held product. If Xetron elects to purchase
the 50% interest,
royalty payments under the agreement will terminate. Research and development
expense in 1995
and 1994 included $438,000 and $18,000, respectively relating to this agreement.
In 1993, 1994 and 1995 Coloray entered into several joint development
agreements with
outside companies under Cooperative Research and Development Agreements
(CRADA's) and
also with the U.S. Display Consortium on various on-going projects relating to
flat panel display
technology. Under these agreements, Coloray is obligated to provide cash or
in-kind payments of
$2,460,000 through various periods to June 1997. The Company accrued $875,000
in 1995 and
$689,000 in 1994, which is shown as research and development expense. The
remaining amounts
will be accrued in 1996 and 1997, and will be expensed in those years as the
research efforts are
performed.
In August 1995, Coloray entered into a license and royalty agreement with
SRI International.
The agreement requires an initial $100,000 payment to SRI, and additional
payments of
$1,750,000 over a three year term of research on field emission display (FED)
technology. It also
requires royalties on sale of FED units. Costs of $343,000 were expensed in
1995 relating to this
agreement.
Employment Agreements:
In September 1992 and as amended in 1993 and 1994, the Company entered
into a three-year
employment agreement with the Company's CEO. This agreement expired in
September 1995.
However, he is continuing to serve in the same capacity, without a contract, at
an annual salary of
$250,000. The agreement, as amended, provided for the annual grant of options
to purchase
10,000 shares of Common Stock at $2.00 per share ( previously 7,000 shares
annually at $2.50
per share). These options are immediately exercisable and expire at the
earlier of five years after
the date of grant or 90 days after termination. In addition, in exchange for
cancellation of all
other options held by the CEO and cancellation of an earlier employment
agreement, he was also
granted four-year options to purchase 96,667 shares of Common Stock at $2.50
per share and
five-year options to purchase 70,000 shares of Common Stock at $2.50 per share,
each
exercisable commencing on September 1, 1993. The same agreement also provided
for issuance
of options to purchase up to 575,000 shares of Common Stock at $2.50 per share
pending
completion of certain milestones, as defined in the agreement. In December
1993, the CEO was
granted an option for an additional 500,000 shares of Common Stock, exercisable
immediately at
$1.70 per share, contingent upon the stockholders approving an increase in the
number of
authorized shares. This approval was granted in May 1994. All of the above
options were
transferred to certain noteholders in 1994, for no consideration to the CEO, to
help the Company
in its financing activities (See Note 8).
At December 31, 1995, the Company has employment agreements with several
other key
employees and officers expiring at various dates through February 1998. The
aggregate
commitment for future salaries under these employment agreements is
approximately $558,000 in
1996, $326,000 in 1997, and $9,000 in 1998.
15. ACQUISITIONS:
Coloray:
In April 1994, the Company acquired a majority of the outstanding shares
of Coloray Display
Corporation ("Coloray"), a development-stage company engaged in research and
development of
flat panel displays for use in conjunction with computers and other
sophisticated electronic
applications. Coloray was under reorganization pursuant to Chapter 11 of the
Federal
Bankruptcy Code, and the acquisition was subject to the Bankruptcy Court's
approval. Coloray's
principal assets are its proprietary rights in basic field emission display
technologies and its
sophisticated equipment used to fabricate display components. Under the
court-approved plan of
reorganization, the Company, in exchange for a 79.8% interest in Coloray,
issued approximately
1,261,000 shares of Common Stock, purchased and extinguished $1,057,000 of
claims against
Coloray, issued five-year options to purchase 460,000 shares at $2.00 per
share, and paid
approximately $400,000. An additional 180,000 options to purchase Scriptel
stock at $2.00 per
share, that were exercisable over a period not to exceed 180 days, were issued
to certain former
common stockholders of Coloray. The former preferred stockholders of Coloray,
in cancellation
of their preferred equity interests, received a 20.2% equity interest in
Coloray. To meet its cash
requirements in the acquisition, the Company received in March 1994, a loan of
$450,000 in the
form of a 10% interest bearing, secured, demand promissory note, payable to
Messrs. Krumm and
Jacobs. The loan was repaid in April 1994. As additional consideration for
the loan, the
Company conveyed to the two stockholders 28.8%, in the aggregate, of the
Coloray Common
Stock leaving the Company with a 51% ownership interest in Coloray and which
resulted in a
finance charge of $582,000 in the second quarter of 1994. Prior to submitting
its creditors' plan
of reorganization to the bankruptcy court, Scriptel purchased the secured lien
positions of
Coloray's primary lenders and entered into a lease agreement with Coloray's
former landlord
whereby the Company (i) paid Coloray's prepetition claim of $281,334 and (ii)
agreed to pay, as
additional rent over one year, the post-petition claim of $114,756. The
purchased Coloray claims
have been extinguished as part of the plan of reorganization. The funds to
purchase the Coloray
secured lenders positions were initially lent in September, 1993 to the Company
by Messrs.
Jacobs and Krumm. The loans were repaid in October, 1993 with interest at 8%,
a premium of
$64,304, and five-year options to purchase 1,000,000 shares of Scriptel at
$1.69 per share.
During 1993, the Company incurred certain legal and acquisition related
expenses, and paid on
behalf of Coloray certain prepetition salary claims relating to this pending
acquisition amounting
to approximately $99,000. In addition, the Company funded certain operating
and research and
development activities at Coloray amounting to approximately $306,000, which
were all expensed
during 1993.
At December 31, 1993, the Company recorded notes and accounts receivable
from Coloray
related to the above-mentioned claims and acquisition costs of approximately
$877,000.
Approximately $3,357,000 of the costs associated with the 1994
acquisition, including the
value of options issued, related to purchased research and development projects
in progress.
Such amount has been reported as research and development expense in the
Company's second
quarter 1994 financial statements.
Due to the fact Coloray was an inactive corporation in bankruptcy
proceedings since October
1992, the historical financial statements were not considered to be meaningful
since they are not
representative of the type or level of activity anticipated by the Company
subsequent to
acquisition. Accordingly, the Company has not presented consolidated pro forma
financial
information as though the transaction occurred at the beginning of the periods.
16. SUBSEQUENT EVENTS:
In addition to several items described above and in Note 18, the Company
had the following
events occur subsequent to December 31, 1995, and through the date of the
accompanying
independent accountants opinion.
The Company borrowed a total of $672,000 in five separate transactions
with two major
creditors and stockholders. The loans are payable on demand, and bear interest
at stated amounts
up to 41% of principal. The Company repaid $75,000 to one of the creditors
during the same
time period. One of the new loans requires payment from first proceeds
available from a large
financing transaction.
In March 1996, the Company determined that it could no longer support the
operations of
Coloray and announced plans to close that operation. Expected additional costs
to close Coloray
are approximately $400,000 including rental payments through the end of
Coloray's lease in
November 1996, environmental shutdown, severance, and equipment
decommissioning. In
addition, Coloray has contractual research and development obligations
continuing through 1997,
of which $2,300,000 have not been recorded at December 31, 1995. The Company,
Coloray and
SRI International, Inc. (SRI) have entered into a letter of intent to arrange a
consortium to
continue Coloray and SRI's field emission display technology research. No
definitive consortium
documents have been signed. The proposal requires Coloray to contribute its
patents and
technology to the consortium in return for one-time royalty payments by
consortium members and
cancellation of the existing research agreement with SRI (see Note 14). The
Company has the
right but not the obligation to enter the consortium as a member to obtain the
benefits of future
research. The amounts, if any, to be received from the consortium are not
currently estimable but
will probably not be sufficient to meet all of Coloray's obligations.
Coloray's liabilities and
obligations include the following approximate amounts:
Accounts payable
$600,000
Accrued expenses
300,000
Notes payable
100,000
Intercompany notes payable
2,800,000
CRADAs and existing SRI research
agreement:
Accrued through December 31, 1995 1,900,000
To be accrued through 1997
2,300,000
Additional estimated total costs of closure
400,000
-----------
$8,400,000
========
Coloray's assets approximate $800,000 at December 31, 1995.
The Company will attempt to obtain the release of Coloray from its CRADA
commitments as
part of the closure and will attempt to obtain the release of Coloray from its
SRI commitments
through the proposed consortium.
The Company is not currently able to estimate or quantify the effects of
the proposed
consortium; the reduction, if any, in Coloray's CRADA commitments; proceeds, if
any, to be
received from any disposition of assets; or the ultimate resolution of the
closure. However, if
sufficient proceeds are not received to meet Coloray's liabilities and
obligations, it is likely that
Coloray will have to liquidate. Assuming that proceeds received are minimal
and the Company is
successful in negotiating releases from the SRI and CRADA obligations, the
Company believes
that the operations and closure of Coloray would have the following
approximate, unaudited, pro
forma net effects on results to be shown in the Company's consolidated
statement of operations in
1996:
Coloray's estimated operating (loss) through March 1996
$(500,000)
Additional costs of closure (Scriptel Holding, Inc. is contractually
liable on Coloray's lease and for certain other matters)
(400,000)
-------------
(900,000)
Gain which would be reported on elimination of the approximate
amount of Coloray's non-intercompany net liabilities
1,900,000
-----------
Approximate amount of net gain to be reported
$1,000,000
========
If the Company is unable to negotiate releases of the SRI and/or CRADA
obligations, these
obligations would be recorded by Coloray at full value and then eliminated. If
proceeds are more
than minimal, from the consortium or otherwise, the proceeds would be used to
reduce the
amount of Coloray's net liabilities, with a corresponding reduction in the
amount of gain which
would be reported on their elimination.
In addition, if proceeds were minimal, the closure of Coloray would have
an approximate,
unaudited, pro forma effect of reducing the reported total assets of the
Company by $800,000.
This represents the elimination of the approximate value of Coloray's equipment
and leasehold
improvements of $500,000; patents of $150,000; and other assets of $150,000.
17. NEW ACCOUNTING PRONOUNCEMENT
In late 1995, the Financial Accounting Standards Board adopted Statement
of Financial
Accounting Standards No. 123, "Accounting for Stock Compensation" (SFAS-123).
The
Company intends to fully adopt this statement in 1996. SFAS-123 requires a
substantial change
in the calculation of the value of options granted to directors, officers and
employees. Had the
Company used the provisions of SFAS-123 to calculate the value of options
granted in 1995,
management estimates that the reported net loss of the Company for the year
ended December 31,
1995 would have increased by approximately $1,000,000, or $0.06 per share.
18. DISCONTINUED OPERATIONS - SALE OF AMPSCO:
Ampsco has had continuing losses from operations since acquisition, and at
December 31,
1995 had an accumulated deficit in stockholders' equity of approximately $2.2
million. To cut the
ongoing losses and to focus the Company on the computer peripheral segment, in
April 1996 the
Company sold all of the Common Stock of Ampsco. No appraisal of Ampsco was
made in
connection with this transaction.
The buyer was 1896, Inc., a corporation headed by Thomas J. Leukart, a
director of the
Company at the time of sale. Dennis J. Leukart, president of Ampsco at the
time of the sale is a
brother of Thomas Leukart and the father-in-law of James W. France, Jr., the
Company's
Chairman, President, and CEO. As part of the agreement of sale, both Thomas
Leukart and
Dennis Leukart resigned from their positions with the Company and cancelled
their employment
agreements. Thomas Leukart also resigned as Director of the Company.
The buyer issued a Promissory Note (the "Note") to the Company in partial
payment of the
purchase price. The Note is for $650,000, and bears interest at 5%. Interest
is payable monthly,
with the entire principal balance due on April 1, 1999. The Company has
endorsed this Note to
Mr. Jacobs, who had a security interest in the Ampsco shares which were sold.
The Company has
not recorded any amount of the Note as proceeds on the sale of Ampsco because
management
estimates that collection of the Note is improbable. The Company will record
cash payments on
the Note as income when received, and offset notes payable to Mr. Jacobs for
the funds
transferred to him. If the Note is repaid, Mr. Jacobs has agreed to release
Ampsco from any
further obligation it may have as endorser of several notes the Company has
with Mr. Jacobs or
his affiliates.
The remaining payments of the purchase price are in the form of monthly
royalties at 2% of
Ampsco's collected sales for a ten-year period. These payments are subject to
a maximum of
$100,000 per year. (Ampsco's sales in 1995 were $1,827,000, which would have
resulted in a
royalty payment of approximately $37,000 had the agreement then been in
effect.) The buyer
received from Mr. Jacobs an option until March 31, 1999 to purchase for
$375,000 the land and
buildings Ampsco occupies, which is also subject to full payment on the Note.
If the Note were
paid and the option exercised, no further royalty payments would be required.
The Company has
not recorded any amount of the royalties as proceeds on the sale of Ampsco
because management
estimates that long-term cash realization is improbable and because of the
significant contingency
with respect to the termination of the royalty payments. The Company will
record cash payments,
if any, as income when received.
The buyer has pledged Ampsco stock to Mr. Jacobs.
The Company has treated the sale of Ampsco as a discontinued operation.
Consequently,
Ampsco's results are excluded from the accompanying consolidated balance sheet
at December
31, 1995 and from the loss from continuing operations shown on the accompanying
statements of
operations for 1995, 1994 and 1993.
The Company is contractually obligated on Ampsco's notes payable to
Stimsonite Corporation
(see Note 3 - Litigation). Stimsonite has obtained a judgment against the
Company on this debt.
Management estimates that it is improbable that Ampsco could pay the creditor
or repay Scriptel
if Scriptel is forced to pay the creditor. The Company has recorded a loss on
disposal of Ampsco
of $450,000 to recognize the full contractual obligation to Stimsonite. The
Company is also
negotiating with the creditor to settle the debt for a reduced amount. As part
of the agreement to
sell the Common Stock of Ampsco, the Company contributed its $2.2 million
intercompany
receivable from Ampsco to the capital of Ampsco. This resulted in almost
complete liquidation of
Ampsco's stockholders deficit, and the buyer assumed the remaining $22,000 of
net liabilities of
Ampsco. The Company recorded this assumption of net liabilities as a reduction
of the loss on
disposal at December 31, 1995. The Company also recorded a loss of $20,000 at
December 31,
1995 for the anticipated loss from operations of Ampsco until the disposal date
in April. The net
result of these three items is that the Company has recorded a net loss of
$448,000 in 1995 on the
disposal of Ampsco.
Ampsco's sales were $1,827,000 in 1995, $1,841,000 in 1994, and $4,230,000
in 1993.
Ampsco's loss from operations was $507,000 in 1995, $705,000 in 1994, and
$856,000 in 1993.
The effects of the sale of Ampsco reduced the Company's reported total assets
at December 31,
1995 by approximately $975,000.
<PAGE>
SCRIPTEL HOLDING, INC.
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
MARCH 31, 1996
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS March 31
December 31
1996 1995
(Unaudited)
Assets
--------------- -----------------
Current assets:
Cash and cash equivalents $
30,000 $ 51,000
Trade accounts receivable, net of allowance for
doubtful accounts of $3,000 in 1996 and 1995
45,000 65,000
Inventories
1,000 2,000
Assets held for sale
168,000 ---
Other current assets
2,000 2,000
------------ -----------
Total current assets
246,000 120,000
Property and equipment, net
481,000 947,000
Patents, net
166,000 184,000
Deposits
--- 122,000
Other assets
63,000 88,000
------------- --------------
Total assets
$ 956,000 $ 1,461,000
========== =========
Liabilities and Stockholder's Deficit
Current liabilities:
Notes payable, short-term and current portion $
5,309,000 $ 4,741,000
Accounts payable
1,596,000 1,681,000
Accrued interest
1,146,000 855,000
Accrued loss on discontinued operations
450,000 470,000
Other accrued liabilities
4,229,000 2,777,000
---------------- ---------------
Total current liabilities
12,730,000 10,524,000
Notes payable, long-term
1,000,000 1,000,000
Commitments and contingencies
Stockholders' deficit:
Common Stock, $0.10 par value, 50,000,000 shares authorized:
22,842,634 shares and 21,058,217 shares issued and
outstanding at March 31, 1996 and December 31,
1995 respectively
2,284,000 2,106,000
Additional paid in capital
39,584,000 38,529,000
Accumulated deficit
(54,502,000) (50,558,000)
Notes receivable - stockholders
(140,000) (140,000)
---------------- ----------------
Total stockholders' deficit
(12,774,000) (10,063,000)
----------------- -----------------
Total liabilities and stockholders' deficit
$ 956,000 $ 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 March 31
1996 1995
(Unaudited) (Unaudited)
----------------- ---------------
Revenues
$ 60,000 $ 121,000
Costs and expenses:
Cost of sales
46,000 102,000
General and administrative
1,494,000 1,069,000
Sales and marketing
62,000 52,000
Research and development
1,029,000 1,601,000
---------------- ---------------
Total costs and expenses
2,631,000 2,824,000
----------------- ---------------
Loss from operations
(2,571,000) (2,703,000)
Other expense (income):
Interest expense
389,000 172,000
Finance charge
670,000 ---
Other expense, net
--- (13,000)
Loss on disposition of assets
314,000 ---
Minority interest
--- (65,000)
---------------- ---------------
Total other expense
1,373,000 94,000
---------------- ---------------
Loss from continuing operations
(3,944,000) (2,797,000)
Discontinued operations:
Loss from operations of Ampsco
--- (27,000)
---------------- ----------------
Total loss from discontinued operations
--- (27,000)
----------------- -----------------
Net loss
$ (3,944,000) $ (2,824,000)
=========== ===========
Loss per share of Common Stock:
Continuing operations
$ (0.18) $ (0.18)
Discontinued operations
0.00 0.00
------------------ ------------------
Net loss per share
$ (0.18) $ (0.18)
=========== ===========
Weighted average number of common shares
used in computing net loss per share
21,365,240 15,556,891
=========== ===========
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31
1996 1995
(Unaudited) (Unaudited)
----------------- -----------------
Net cash used in operating activities $ (1,104,000)
$ (1,226,000)
Cash flows from investing activities:
Purchase of property and equipment (97,000)
(220,000)
Disposal of assets held for sale
--- 353,000
Purchase of patents
--- (32,000)
---------------- ---------------
Net cash provided by (used in) investing activities (97,000)
101,000
Cash flows from financing activities:
Proceeds from notes payable
707,000 528,000
Repayment of notes payable
(155,000) (290,000)
Proceeds from the issuance of stock
628,000 857,000
--------------- --------------
Net cash provided by financing activities
1,180,000 1,095,000
---------------- ---------------
Increase (decrease) in cash and cash equivalents (21,000)
(30,000)
Cash and cash equivalents, at the beginning of the year 51,000
31,000
---------------- ---------------
Cash and cash equivalents, at the end of the period $ 30,000
$ 1,000
========== =========
The accompanying notes are an integral part of the financial statements.
continued
Scriptel Holding, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Three months ended March 31
1996 1995
(Unaudited) (Unaudited)
--------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid for interest $
21,000 $ 35,000
=========== ===========
Supplemental schedule for non-cash financing and investing activities:
Record receivable for convertible debenture:
Increase in subscription receivable
$ 1,000,000
Increase in notes payable
(1,000,000)
Debt conversion and use of debt to exercise options and warrants:
Decrease in notes payable
$ 142,000
Decrease in accrued interest
20,000
Increase in Common Stock
(12,000)
Increase in additional paid-in-capital
(150,000)
-------------------
Net effect on cash
$ 0
============
In the first quarter of 1995, the Company issued stock options as follows:
7,000 options on
debt financings (value of $3,000 treated as interest expense in the quarter),
and 2,240,950 options
as compensation to officers, directors, employees and consultants (value of
$44,000 and $425,000
treated as administrative and research and development expense, respectively,
in the quarter).
In the first quarter of 1996, the Company had these non-cash charges
relating to stock, stock
options and convertible debt: issued 100,000 shares and 100,250 stock options,
net, to officers,
directors, employees and consultants (value of $137,000 treated as
administrative expense in the
quarter); repriced and extended a total of 4,274,500 stock options and warrants
(value of
$392,000 treated as a finance charge in the quarter); repriced certain
convertible debt (value of
$78,000 treated as a finance charge in the quarter).
The accompanying notes are an integral part of the financial statements.
Scriptel Holding, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
March 31, 1996 (Unaudited)
1. CONSOLIDATION:
The consolidated information presented for March 31, 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 (file
No. 0-20271).
The consolidated financial statements include the accounts of Scriptel
Holding, Inc. and its
wholly-owned subsidiaries, Scriptel Corporation ("Scriptel") and Scriptel
Communications Corp.,
and its majority-owned subsidiary Coloray Display Corporation ("Coloray")
(collectively known
as "the Company"). Another wholly-owned subsidiary, Ampsco Corporation
("Ampsco") has
been reported as a discontinued operation, and was sold in April 1996. All
significant
intercompany transactions have been eliminated.
In early 1996, the Company committed to shutting down Coloray. If this
effort is successful,
it will enable the Company to focus on its core Scriptel technology and
Scriptel products.
2. GOING CONCERN BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared on a
going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal
course of business. Scriptel Holding, Inc. and each of its subsidiaries have
incurred recurring
losses from operations and resulting cash flow problems since inception.
Management's plan for
meeting obligations as they come due is summarized below. If the Company is
unable to obtain
additional funding, and meet or restructure its debt obligations as they come
due, there would be a
substantial likelihood that it could not proceed as a going concern. The
consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary
should the Company be unable to continue as a going concern.
The Company must generate significant and sufficient additional working
capital and
restructure its debt obligations in order to continue as a going concern.
Management is seeking
additional financing through other public or private placements of debt,
convertible debt and or
Common Stock to fund its activities. There can be no assurance that the
Company will be able to
obtain such funds, that such funds obtained will be sufficient, or that the
Company will be able to
meet or restructure its debt obligations as they come due. If the funds are
not received,
management plans to cut back further on its planned research and development
and capital
expenditures, which could jeopardize the timing and ultimate completion of
certain critical
projects. Completion of these projects and further market development for
Scriptel's products are
necessary for the Company to achieve profitable operations.
At March 31, 1996, the Company was in default on approximately $2.7
million of its notes
payable, of which approximately $500,000 have been demanded, and in arrears
over 60 days on
trade accounts payable totaling approximately $1.4 million. In addition,
$2,519,000 of notes
payable were represented by demand cognovit notes at March 31, 1996. At March
31, 1996 the
Company had a reported deficit in equity of $12,774,000. The Company is
currently attempting
to negotiate new terms with certain debt holders, as well as to seek the
execution of conversion
privileges on convertible notes.
At March 31, 1996, the Company was a party to legal proceedings brought by
several
creditors. (See Note 4 for a summary of litigation issues.) Subsequent to
March 31, 1996,
several additional creditors took or threatened legal action against the
Company to collect
amounts due and payable. The Company has successfully deferred, for the
present, legal action
by other creditors and has made some partial payments on the amounts due.
There can be no
assurance, however, that the creditors will not hereafter seek other legal
remedies.
3. RISK OF LIQUIDATION:
Due to the Company's history of operating losses and immediate need for
additional capital,
there is a risk that the Company will have to liquidate. Substantially all of
the Company's assets,
including patents, are pledged as collateral on certain of the Company's debt
instruments. If the
Company were forced into liquidation, it is likely that all of the assets would
be attached to settle
the claims of secured creditors and none, except possibly the value of the
patents, would be
available to other security holders. If the Company were to liquidate,
management estimates that
the realizable value of the Company's property and equipment would be
substantially less than the
carrying values of those assets at March 31, 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 March 31, 1996. It is also management's estimate
that the value of the
Company's patents would be higher than their recorded value at March 31, 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 March
31, 1996 of $246,000. Management's estimate of realizable value on liquidation
of property and
equipment is approximately $200,000, compared to a carrying value at March 31,
1996 of
$481,000. 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 $956,000 at
March 31, 1996. At that date, the Company's recorded liabilities totaled
approximately
$13,730,000. 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.
On September 6, 1995, a promissory note holder filed suit in the Circuit
Court of Cook
County, Illinois, entitled Stimsonite Corporation vs. Scriptel Holding, Inc.,
for collection of
principal, interest and other charges on a note. The total sought is
approximately $450,000. The
promissory note holder received a judgement against the Company in Illinois in
November 1995,
and domesticated the judgement against the Company in Ohio in February 1996.
The Company is
attempting to negotiate a resolution with the creditor.
A former officer and director of the Company filed a suit against the
Company in January 1996
in U. S. District Court for the Southern District of Ohio, entitled Nicholas G.
Venetis vs. Scriptel
Corporation and Scriptel Holding, Inc. The individual alleges common fraud;
securities fraud;
non-payment of payroll, severance, director bonus, and expenses; improper
handling of COBRA
benefits and disclosures; and other matters. He claims damages of
approximately $100,000 and
requests specified grants of options and punitive damages of $250,000. The
Company has filed a
response to the suit denying the allegations and attempting to collect amounts
due the Company
from the individual. The Company may work with the individual in an attempt to
settle the suit.
Three former officers of Coloray Display Corporation, a majority-owned
subsidiary of the
Company, filed an action against Coloray and the Company on February 23, 1996
in Alameda
County Superior Court, Hayward, California, entitled Michael W. Blas, M. Kathy
Vieth, and
Daniel J. Devine vs. Coloray Display Corporation and Scriptel Holding, Inc.,
alleging non-
payment of amounts due them for payroll, severance, expense reports and other
matters, and
seeking damages totaling approximately $680,000. These individuals also sought
and obtained in
connection with this action an ex parte Temporary Protective Order prohibiting
the transfer of the
assets of Coloray and the assets of the Company located in California.
Following a hearing on
March 28, 1996, the California court denied the plaintiffs' application for
Writ of Attachment or
Temporary Protective Order. The Company intends to vigorously pursue this
action, including
the possibility of an action by the Company against each of the individuals.
These individuals
have also taken administrative action against Coloray through the California
Labor Board.
A creditor filed suit against the Company in February 1996 in the Court of
Common Pleas,
Franklin County, Ohio, entitled Financetech, Inc. vs. Scriptel Holding, Inc.,
for collection of a
debt and accrued interest of approximately $580,000. The Company has filed a
counterclaim
against the creditor for amounts of royalty that the Company feels is due it
from the creditor, and
has requested the court to offset the note payable by the amount of royalty
due. This action is
pending.
Several other creditors have filed suit against the Company and its
subsidiaries, in various
courts in Ohio and California, for payment of amounts due them. In addition,
the Company has
been informed that several other creditors may take such actions in the near
future. The amount
currently under suit in these actions totals less than $150,000.
The landlord of Coloray has threatened to start eviction proceedings due
to non-payment of
rents totaling approximately $84,000.
In January 1996 the State of Ohio issued a final claim against the Company
for unpaid sales
and use taxes of $41,000. These taxes are included in the Company's
liabilities at December 31,
1994 and for all subsequent periods.
The Internal Revenue Service has filed a payroll tax levy against the
assets of Coloray Display
Corporation. In February 1996, the IRS attached $42,000 of funds held on
deposit in Coloray's
bank account, and obtained those funds. Several other payments have been made
and Coloray
still owes approximately $95,000 of federal payroll tax liabilities.
Coloray has also received a personal property tax lien from Alameda
County, California in the
amount of approximately $23,000. In addition, Coloray has unpaid withheld
state income taxes
of approximately $25,000 which are subject to levy at any time.
The Company has unpaid personal property, franchise, capital stock,
workers compensation,
and other taxes aggregating approximately $190,000. 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 $500,000. A cognovit note allows the holder to obtain
immediate
judgement against the Company if the note is presented in court. To date, the
cognovit note
holders have not exercised this right.
There can be no assurance that creditors will not hereafter seek other
legal remedies.
5. INVENTORIES
Inventories are valued at the lower of costs (first-in, first-out method)
or market.
Management conducts a general review of the adequacy of excess and obsolete
inventory reserves
on a quarterly basis. Reported inventories are mainly raw materials.
6. NOTES PAYABLE AND DEBENTURES:
Notes payable and debentures as of March 31, 1996 and December 31, 1995
consist of the
following:
1996 1995
--------------- ---------------
Convertible notes to individuals and stockholders
at prime rate plus 2% to 4%, principal and
interest convertible to common shares at $0.55
to $3.50 per share; in default
$ 1,520,000 $ 1,156,000
Convertible debenture, 8%, due in November 1998
1,000,000 1,000,000
Demand notes payable to related parties, at rates ranging
from 10% to prime plus 4%, in default
48,000 53,000
Notes payable to a corporation, $250,000 at 10% and $250,000
at 8%, quarterly principal and interest payments ranging from
$8,423 to $10,495 due through November 1996, and the unpaid
balance due December 1996; in default
500,000 500,000
Demand notes payable to a major stockholder at 10% per
annum to 40% of principal on demand
2,219,000 2,021,000
Cognovit promissory notes payable, at prime rate; in default
569,000 569,000
Note payable on machinery purchase, monthly payments
115,000 104,000
Demand notes payable to suppliers, 18%; in default
38,000 38,000
Demand, secured, cognovit, convertible promissory note, 10% 300,000
300,000
------------ ------------
6,309,000 5,741,000
Less current portion
5,309,000 4,741,000
------------- ------------
$ 1,000,000 $ 1,000,000
======== =========
The prime interest rate was 8.5% at March 31, 1996. Substantially all
assets of the Company
are pledged as collateral for certain of the notes.
7. Common Stock AND Common Stock COMMITMENTS
The Company entered into the following significant Common Stock
transactions and made the
following Common Stock commitments for the three months ended March 31, 1996 and
subsequently:
* The Company issued 100,000 shares in January 1996 to a founder, director,
and officer of
the Company as additional compensation for his service since the Company was
founded. The
value of this stock, $75,000, was expensed in January 1996 when it was issued.
In a related
action, the Board of Directors authorized cancellation of all the notes and
advances receivable
from this individual. These receivables approximated $91,000, most of which
had been fully
reserved at December 31, 1994. All remaining amounts were expensed in December
1995.
* Options and warrant holders exercised existing options and warrants at
$0.55 per share for
a total of 46,917 common shares. Net cash proceeds from these exercises
totaled $26,000. There
was no change in total committed shares as a result of these exercises.
* The Company entered into two letter agreements between the Company,
Standard Energy
Company, and Gerald S. Jacobs, an individual, which agreements are dated
September 21, 1995
as amended February 29, 1996 (the "September Agreement"), and dated February
29, 1996 (the
"February Agreement"). The Company entered into a further agreement between
the same
parties, dated March 29, 1996 (the "March Agreement") which supersedes the
September and
February Agreements. The March Agreement was ratified by the Company's Board
of Directors
on April 4, 1996. The September and February Agreements were included as
exhibits to a Form
8-K Current Report dated September 21, 1995 and filed in March 1996. The March
Agreement
was included as an exhibit to a Form 8-K Current Report dated April 4, 1996 and
filed in April
1996. Standard Energy Company and Gerald S. Jacobs are both major creditors
and stockholders
of the Company. Mr. Jacobs is the sole owner of Standard Energy Company.
The Agreements, as amended in March 1996, compensate Mr. Jacobs as an
individual for his
help personally or through companies he owns or is affiliated with in providing
debt financing to
the Company over the last several years, patience in not demanding repayment of
those loans and
cooperation with other matters, and for relinquishing up to 1,000,000 currently
owned options or
warrants for cancellation so that the Company could use those authorized shares
in its current
financings. The Company will issue to Mr. Jacobs, or his nominee, warrants to
purchase
3,600,000 common shares at a price of $0.75 per share, and which will expire
six years after
issuance. The Company will issue to Sonata Investment Company, Ltd. (the
holder of the
$300,000 convertible notes - see Note 6) warrants to purchase 2,400,000 common
shares at a
price of $0.50 per share, and which will expire six years after issuance. The
warrants to Mr.
Jacobs and Sonata are contingent upon the Company having available authorized
shares, which
authorized shares shall be obtained from the first-expiring options or warrants
or through
approval by the Company's stockholders of additional authorized shares at any
time in sufficient
amount to cover this commitment, or both. The Company has agreed to use its
best efforts to
obtain the requisite shares.
Mr. Jacobs has agreed to surrender up to a total of 1,000,000 options or
warrants he currently
owns, if the Company needs additional authorized shares to issue in its current
financings. This is
subject to the requirement that the Company must reissue those options or
warrants when, as and
if authorized shares are first available as set forth above. The new warrants
would be exercisable
at a price of $0.75 per share and would expire six years after issuance under
these provisions. In
March 1996, the Company used 853,125 options of the 1,000,000 offered to
provide part of the
authorized shares on new issuances under the provisions of Regulation S (see
below).
This agreement also specifies that all options and warrants currently
owned by Mr. Jacobs, and
by Donna L. Sanger, a vice president of Standard Energy Company, will be
reissued with a new
expiration date of October 1, 2001 and with a new price of $1.00 per share. At
December 31,
1995, Mr. Jacobs owned 2,190,000 warrants and 1,956,000 options at prices
ranging from $1.51
to $2.62 per share and which expire at various dates through October 29, 2000.
At December 31,
1995, Ms. Sanger owned 65,000 warrants and 63,500 options at prices ranging
from $1.51 to
$2.50 per share and which expire at various dates through July 12, 2000. Mr.
Jacobs reported the
effects of the September Agreement in his Form 4 filed for the month of
September 1995. The
options and warrants were repriced and reissued as of February 29, 1996. The
Company
recorded the $392,000 estimated value of these transactions as a finance charge
in the first
quarter.
Management estimates the value of the 3,600,000 warrants to be issued to
Mr. Jacobs as
approximately $2,272,000 if issued now and assuming current market prices;
because of the
uncertainties relating to the requirement for available authorized shares, the
actual value to be
recorded is not known, and will be recorded only when these contingencies are
resolved and the
warrants are actually issued. Management estimates the value of the 2,400,000
warrants to be
issued to Sonata Investment Company, Ltd. as approximately $1,545,000 if issued
now and
assuming current market prices; because of the uncertainties relating to the
requirement for
available authorized shares, the actual value to be recorded is not known, and
will be recorded
only when these contingencies are resolved and the warrants are actually issued.
* In March and April 1996, the Company entered into several agreements with
foreign
investors 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. These proceeds were used to fund payrolls, audit
and legal costs, and
other operating expenses. In addition to the cash costs of closing, the
Company committed to
issue warrants to purchase common shares equal to 5% of the shares issued, at a
price of $0.48,
and which will expire five years after issuance. A total of 117,850 warrants
have been committed.
Mr. Jacobs relinquished 853,125 of his options, (see above), Mr. Walter Krumm,
another major
creditor and stockholder relinquished 800,000 of his options with an exercise
price of $1.69 to
$1.70 per share and expiring in 1988, and Mr. James W. France, Jr., the
Company's Chairman
relinquished 800,000 of his options with an exercise price of $1.74 per share
and expiring in July
2000, so that the Company would have enough authorized shares available to
issue the new
shares and warrants. As part of the agreements with these individuals, the
Company agreed to
reissue the surrendered instruments as warrants when, as and if Scriptel is
first able to do so, but
in no event later than when Scriptel stockholders approve an increase in the
amount of authorized
shares, at a price of $0.75 per share, and with an expiration date of six years
after the date of any
reissue under these provisions. Scriptel also committed to use its best
efforts to obtain
stockholder approval of an increase in authorized shares. Kevin Woodbridge, a
director, also
relinquished 500,000 options (see below). If all of these are subsequently
reissued, management
estimates the incremental value of the reissued options or warrants as
approximately $200,000,
assuming current market prices; because of the uncertainties relating to the
availability of
authorized shares, the actual value to be recorded is not known, and will be
recorded only when
this contingency is resolved.
* In April 1996, the Company was successful in obtaining a one-year
extension on four
convertible notes payable totaling $71,000. The Company agreed to modify the
conversion price
from $1.69 per share to $0.55 per share. This transaction increased the
authorized shares
committed for conversion by 87,358 shares. The estimated value of these
additional shares of
$78,000 was expensed as a finance charge in the first quarter.
* In April 1996, the Board of Directors ratified the Company's prior
agreement to issue
15,000 shares to a consultant for services rendered on a financing concluded in
November 1995.
These shares had been included in committed shares as of December 31, 1995.
* The Company issued 100,000 options in January 1996 to Bernard Eckstein, a
director, as
compensation for his services in helping with year end activities. The options
are exercisable at a
price of $0.75 per share (the market price at the date of grant), and expire in
January 2001. The
estimated value of $62,000 was charged to administrative expense in the first
quarter.
* The Board of Directors approved in April 1996 a repricing and reissuance
of all the
options owned by Kevin Woodbridge, a director. This is additional compensation
for his
continuing to operate under a consulting contract with the Company without
receiving his retainer
fee for eight months, relinquishing part of his retainer and part of his stock
options to obtain a
release of a 1995 judgment against the Company on a cognovit note, and
relinquishing 500,000
currently owned options for cancellation so that the Company could use those
authorized shares
in its current financings. At March 31, 1996, Mr. Woodbridge owned 870,797
options with
exercise prices ranging from $1.43 to $2.00 per share and with expiration dates
of 1996 to 2000.
All of his options will be reissued with a new expiration date of April 1, 2000
and with a new
exercise price of $0.50 per share. Mr. Woodbridge also has rights to immediate
registration of his
options through an S-8 filing. The Company has agreed to reissue the
relinquished options at
such time as the stockholders approve the authorization of additional shares.
Management estimates the value of the reissuance of currently existing
options with new
pricing and expiration dates as approximately $161,000. This will be recorded
in the second
quarter of 1996, which is when the Directors of the Company (excluding Mr.
France and Mr.
Woodbridge, who abstained) approved the transaction.
* In April 1996, the Board also extended relinquishment and reissue
privileges (reissue at an
exercise price of $0.75 per share and expiring six years after reissue) to
employees and directors,
and to CommTech International Management Corp., a major stockholder and option
holder.
Exercise prices on options owned by these holders generally range from $2.00 to
$3.00 per share.
* In May 1996 the Company engaged Everest Securities, Inc. of Minneapolis,
Minnesota in
an exclusive investment banking relationship. Everest will advise and consult
with the Company,
and will use its best efforts to obtain commitments for financings using debt,
convertible debt or
stock. As part of the agreement, the Company sold to Everest for a nominal
amount a warrant to
purchase 350,000 shares of Common Stock at a price of $0.60 per share. The
Company also
granted Everest an additional warrant to purchase 350,000 shares of Common
Stock at $0.60 per
share for services under a prior consulting agreement. Both warrants expire in
December 1999.
The estimated value of these warrants, $132,000, will be expensed as a finance
charge in the
second quarter.
The agreement also contains the following provisions. The minimum term is
one year,
cancelable by either party with ninety days written notice. Upon completion of
at least
$1,000,000 in funding in any form, the Company will pay $20,000 monthly to
Everest for the
term of the agreement. Everest will have the right to appoint two (2)
directors to the Board of
Directors for a minimum period of three years. Everest will get cash placement
fees on any
financing the Company receives; such fees range from 2% on any financing which
Everest does
not manage, to 13% on equity funds raised by Everest. In addition, Everest
will receive warrants
for 10% of any shares tendered on the financings. Generally, such fees are
payable on any
financings from a source introduced to the Company by Everest, during the term
of the agreement
and for 60 months thereafter.
* In June 1996, Mr. Krumm loaned $30,000 to the Company under a demand
cognovit
promissory note at 18% per annum interest. In consideration for the loan, and
for Mr. Krumm's
forbearance in not demanding repayment of other notes, the Company reduced the
price of
1,020,000 warrants held by Mr. Krumm from $1.69 per share to $0.40 per share,
and extended
the warrants from 1997 to March 2001. The estimated value of the repricing and
extension,
$340,000, will be expensed as a finance charge in the second quarter.
* In June 1996, Sonata Investment Company loaned $45,000 to the Company
under a
demand cognovit note. On demand, $10,000 of interest will also be due. In
consideration for the
loan, and for Sonata's forbearance in not demanding repayment of another note,
the Company
agreed to issue to Sonata warrants to purchase 500,000 common shares at $0.50
per share and
which would expire six years after issuance. Such warrants are contingent upon
having available
authorized shares from the Company's first-expiring unexercised options or
warrants, or from
approval by the Company's stockholders of an increase in authorized shares. If
issued now, and
assuming current market prices, management estimates the value of the warrants
at $216,000:
because of the uncertainties relating to the requirement for available
authorized shares, the actual
value to be recorded is not known, and will be recorded only when these
contingencies are
resolved and the warrants are actually issued.
* In May 1996, James W. France, Jr., the Company's former Chairman,
President and Chief
Executive Officer retired and resigned his positions as an officer and director
of the Company.
Mr. France received a severance package of: continuation of his salary through
September 1996,
issuance of warrants to purchase 1,500,000 shares at $0.68 per share and which
expire in May
1999 (value of $303,000 to be expensed in the second quarter), severance pay of
$150,000, and
cancellation of all of the Company's notes receivable (approximately $150,000)
and advances
receivable (approximately $100,000) from Mr. France. The Company has engaged
Mr. France to
act as a consultant in arranging financings for the Company. If these efforts
are successful, Mr.
France will receive in cash 9% of the amount raised (which will first be used
to pay the severance
costs outlined above) plus an additional $150,000 if more than $5 million is
raised by year end.
Bernard Eckstein, a director of the Company since 1992, has been appointed as
the Company's
Chairman and Chief Executive Officer. J. Vance Holloway, President and Chief
Operating Officer
of Scriptel Corporation, has been appointed as President and Chief Operating
Officer of Scriptel
Holding, Inc.
* The Company did not have the funds to pay its employees in April, May and
June 1996.
To recognize the sacrifices made by the employees during this period, and to
partially compensate
them for their continued dedication and service, in June 1996 the Company
reduced the exercise
price to $0.40 per share on 1,805,700 options and 255,337 warrants owned by the
employees.
Expiration dates were not changed. Formerly, such options and warrants carried
exercise prices
ranging from $0.75 per share to $4.00 per share. In addition, the Company
issued a total of
60,000 options at $0.40 per share to employees who did not already own options.
The estimated
value of the repricing ($228,000) and issuance ($13,000) will be expensed in
the second quarter.
* The Company also agreed in February 1996 to issue a one time stock grant
to employees
of Scriptel equal in value to twice each employee's monthly salary, and valued
at $0.91 per share.
This grant approximates 265,000 shares. A charge of $240,000 has been recorded
in the first
quarter.
* In May 1996, the Company issued 60,000 shares and a cognovit note for
$115,000 in
return for title to certain assets leased by Coloray and for settlement of
$70,000 of recorded but
unpaid lease payments. The Company recorded the $38,000 value of the shares
and the $45,000
difference in lease costs in the first quarter as an adjustment of the
estimated costs of closure of
Coloray (see below).
Considering the outstanding Common Stock and commitments at December 31,
1995, the
aforementioned changes arising subsequent to that date and the current market
price of the
Common Stock, the Company has fully used its 50,000,000 share authorization.
The Company
has also committed to issue an additional 11,060,000 shares if and when
authorized shares first
become available. Management will seek stockholder approval to increase the
authorized shares
at the next annual stockholders meeting.
8. CALCULATION OF LOSS PER SHARE OF Common Stock
Net loss per common share is based on the weighted average number of
common shares
outstanding during the period. The effect on net loss per common share of the
assumed exercise
of stock options and warrants and conversions of convertible notes has not been
considered as the
effect would be antidilutive.
9. RELATED PARTY TRANSACTIONS, SUBSEQUENT EVENTS
In addition to several items described above, the Company had the
following events occur
subsequent to December 31, 1995.
* The Company borrowed a total of $672,000 in five separate transactions
with two major
creditors and stockholders. The loans are payable on demand, and bear interest
at stated amounts
up to 41% of principal. The Company repaid $141,000 to one of the creditors
through the end of
March 1996. One of the new loans 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.
* The Company has received unofficial information indicating that the
Company's charter
may be revoked by the State of Delaware for non-payment of corporate franchise
taxes. The
Company intends to pay such taxes and file a Certificate for Renewal and
Revival to reinstate its
charter.
* In June 1996, several option and warrant holders offered to exercise their
holdings at a
reduced price of $0.546 per share. Through June 17, 1996, the Company accepted
offers totaling
approximately 250,000 shares. About half of the total exercise price is
expected to be realized in
cash, and the Company expects to convert debt for the remaining part of the
total exercise price.
This transaction is in process.
10. CLOSURE OF COLORAY
In March 1996, the Company determined that it could no longer support the
operations of
Coloray and announced plans to close that operation. Expected additional costs
to close Coloray
are approximately $400,000 including rental payments through the end of
Coloray's lease in
November 1996, environmental shutdown, severance, and equipment
decommissioning. This
was expensed in the first quarter. In the first quarter the Company also
expensed the net book
value of the leasehold improvements made by Coloray which will be surrendered
to the landlord
at the end of the lease, and reduced the remaining property and equipment down
to the $168,000
received as proceeds from sale of the property and equipment at auction in May
1996; the
Company recognized a loss of $314,000 on these transactions. In addition,
Coloray has
contractual research and development obligations continuing through 1997, of
which
approximately $2,200,000 have not been recorded at March 31, 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 March 31, 1996:
Accounts payable
$600,000
Accrued expenses
600,000
Accounts payable
3,300,000
CRADAs and existing SRI research agreement:
Accrued through March 31, 1996
2,000,000
To be accrued through 1997
2,200,000
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.
Coloray's assets approximated $330,000 at March 31, 1996, including the
$168,000 auction
proceeds identified as assets held for sale on the accompanying balance sheet.
The auction
proceeds were delivered to Mr. Jacobs, the holder of secured debt signed by
Coloray, and used to
reduce that debt. Coloray's assets also include patents with an amortized
value of $148,000. 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. If the Company is unable to negotiate
releases of the SRI
and/or CRADA obligations, these obligations would be recorded by Coloray at
full value.
The Company is not currently able to estimate or quantify the effects of
the proposed
consortium; the reduction, if any, in Coloray's CRADA commitments; or the
ultimate resolution
of the closure. However, if sufficient proceeds are not received to meet
Coloray's liabilities and
obligations, it is likely that Coloray will have to liquidate.
11. NEW ACCOUNTING PRONOUNCEMENT
In late 1995, the Financial Accounting Standards Board adopted Statement
of Financial
Accounting Standards No. 123, "Accounting for Stock Compensation" (SFAS-123).
The
Company adopted this statement in 1996. SFAS-123 requires a substantial change
in the
calculation of the value of options granted to directors, officers and
employees. Had the
Company used the provisions of SFAS-123 to calculate the value of options
granted in 1995,
management estimates that the reported net loss of the Company for the year
ended December 31,
1995 would have increased by approximately $4,746,000, or $0.27 per share.
12. DISCONTINUED OPERATIONS - SALE OF AMPSCO:
Ampsco has had continuing losses from operations since acquisition, and at
December 31,
1995 had an accumulated deficit in stockholders' equity of approximately $2.2
million. To cut the
ongoing losses and to focus the Company on the computer peripheral segment, in
April 1996 the
Company sold all of the Common Stock of Ampsco. No appraisal of Ampsco was
made in
connection with this transaction.
The buyer was 1896, Inc., a corporation headed by Thomas J. Leukart, a
director of the
Company at the time of sale. Dennis J. Leukart, president of Ampsco at the
time of the sale is a
brother of Thomas Leukart and the father-in-law of James W. France, Jr., the
Company's former
Chairman, President, and CEO. As part of the agreement of sale, both Thomas
Leukart and
Dennis Leukart resigned from their positions with the Company and cancelled
their employment
agreements. Thomas Leukart also resigned as Director of the Company.
The buyer issued a Promissory Note (the "Note") to the Company in partial
payment of the
purchase price. The Note is for $650,000, and bears interest at 5%. Interest
is payable monthly,
with the entire principal balance due on April 1, 1999. The Company has
endorsed this Note to
Mr. Jacobs, who had a security interest in the Ampsco shares which were sold.
The Company has
not recorded any amount of the Note as proceeds on the sale of Ampsco because
management
estimates that collection of the Note is improbable. 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 will
record 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 are in the form of monthly
royalties at 2% of
Ampsco's collected sales for a ten-year period. These payments are subject to
a maximum of
$100,000 per year. (Ampsco's sales in 1995 were $1,827,000, which would have
resulted in a
royalty payment of approximately $37,000 had the agreement then been in
effect.) The buyer
received from Mr. Jacobs an option until March 31, 1999 to purchase for
$375,000 the land and
buildings Ampsco occupies, which is also subject to full payment on the Note.
If the Note were
paid and the option exercised, no further royalty payments would be required.
The Company has
not recorded any amount of the royalties as proceeds on the sale of Ampsco
because management
estimates that long-term cash realization is improbable and because of the
significant contingency
with respect to the termination of the royalty payments. The Company will
record cash payments,
if any, as income when received.
The buyer has pledged Ampsco stock to Mr. Jacobs.
The Company has treated the sale of Ampsco as a discontinued operation.
Consequently,
Ampsco's results are excluded from the accompanying consolidated balance sheet
at December
31, 1995 and March 31, 1996, and from the loss from continuing operations shown
on the
accompanying statements of operations for the three months ended March 31, 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.
Management estimates that it is improbable that Ampsco could pay the creditor
or repay Scriptel
if Scriptel is forced to pay the creditor. The Company has recorded a loss on
disposal of Ampsco
of $450,000 to recognize the full contractual obligation to Stimsonite. The
Company is also
negotiating with the creditor to settle the debt for a reduced amount. As part
of the agreement to
sell the Common Stock of Ampsco, the Company contributed its $2.2 million
intercompany
receivable from Ampsco to the capital of Ampsco. This resulted in almost
complete liquidation of
Ampsco's stockholders deficit, and the buyer assumed the remaining 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 and $390,000 for the three months ended March
31, 1996 and
1995, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SCRIPTEL HOLDING, INC. AND SUBSIDIARIES
OVERVIEW
The Company has been in the research, development, and ultimately the
licensing business of
pen-based computing products for over ten years, through its wholly owned
subsidiary, Scriptel.
However, the marketplace has only recently begun focusing on and identifying
broad based
applications for pen-based computers, an area in which the Company views its
proprietary
technology as critical and in which management considers Scriptel primarily an
early stage
company. As the market continues to develop and pen-based applications become
more common,
Scriptel's focus is expected to shift from one principally based on the
development of pen-based
computer components to commercialization of these products. Based on current
marketing
forecasts of original equipment manufacturers ("OEM") and licensee shipments
and, in part, upon
the growth forecasted by industry experts for the pen-based computer markets,
management
believes Scriptel will experience revenue growth associated with its pen-based
operating activities
commencing in late 1996. Due to the anticipated cost associated with the
completion of the
research and development of the Company's products, management cannot predict
when the
Company will achieve profitable operations on a consolidated basis.
Management believes that Scriptel's electrostatic system is the most
viable technology
currently available for electronic ink applications. All the other known
technologies have either
functionality or cost penalties that render them non-competitive versus
Scriptel's patented
electrostatic coupling technology. There are some approaches that could result
in a next
generation system, but they are in the early stages of research and
development. Scriptel is aware
of these and is currently spending research and development money to develop a
next generation
replacement for its current technology. It is estimated that the current
electrostatic system will be
highly competitive for the next four to five years.
As the pen-based computer market experiences its anticipated growth, it is
anticipated that
revenues from royalties and direct sales to OEM's will be the principal source
of total revenue of
the Company. Additionally, Scriptel anticipates its development of proprietary
products for the
mobile communications markets will generate some future revenues.
Scriptel's ability to meet its revenue projections and be a major player
in the pen-based
computer market will depend on the success of the cordless digital pen
development effort. This
system, currently being jointly developed by Scriptel, Symbios Logic, and
Samsung Display
Devices has incurred technical delays. At this time, the problems that caused
the delays appear to
be solved. The integrated circuit that is the heart of the system has been
fabricated and is
currently being tested. The Company must continue to expend significant
resources to bring this
technology to market to produce revenues. Although further delays are not
expected and
anticipated resources are expected to be available to bring the technology to
market, no assurance
can be given.
In 1994 the Company acquired a majority of the outstanding shares of
Coloray, a company
engaged principally in researching and developing flat-panel field emission
displays (FEDs) for use
in conjunction with computers and other sophisticated electronic applications.
Although
management believes expanded growth of Coloray is desirable, it believes that
the Company
cannot continue to fund research and development for Coloray, and overall
returns to
stockholders will be higher by concentrating its limited financial resources on
the pen computer
market. This is one of the reasons that in March 1996, the Company decided to
close down its
Coloray operation. This is more fully described in the notes in the
accompanying consolidated
financial statements.
During 1995 and 1996, management reevaluated the cost structure of Ampsco.
Certain
aspects of Ampsco's business activities require significant capital, labor and
management
commitment to compete effectively. In 1994, the Company decided that it would
no longer
supply the capital needed for Ampsco's highway contracting division. This
division was sold in
April 1994. Ampsco requires some major repairs and maintenance to its roof and
equipment, and
has a need for additional equipment in order to remain competitive and become
profitable. In late
1995, the Company determined that it could not fund the required repairs and
capital
improvements. Because of this, and to cut the ongoing losses of Ampsco, the
Company sold the
remaining machining division of Ampsco on April 4, 1996. Ampsco has been
reported as a
discontinued operation in the accompanying financial statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
1996
1995
Revenues $ 60,000 $ 121,000
The Company operates as a single business segment, providing computer
peripheral equipment
to OEMs. The decline in revenues in this segment was primarily a result of
delays by a supplier in
shipping glass panels for Scriptel's pen-based computer. Also, management
expects computer
peripheral revenues to remain at relatively low levels until the fourth quarter
of 1996 or first
quarter of 1997 when shipments to large OEM customers are expected to increase.
Development
fees in 1996 from partial funding of Coloray development efforts by outside
companies were
$23,000 lower than in 1995.
1996
1995
Cost of Sales $ 46,000 $ 102,000
The year-to-year fluctuations in cost of sales generally follow the change
in revenues.
Since Scriptel's activities have been principally oriented to research and
development, gross
margins have remained relatively low due to the unabsorbed burden caused by the
minimal level of
manufacturing volume and the direct costs of excess capacity.
1996 1995
General and administrative expenses $ 1,494,000
$ 1,069,000
Sales and marketing expenses 62,000
52,000
Research and development expenses 1,029,000
1,601,000
Certain members of management, employees and certain outside consultants
received stock or
compensatory 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, $302,000 in 1996 and
$44,000 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. The Company lowered
its general and
administrative expenses in late 1995 by reducing staff at Coloray and Scriptel,
and reducing use of
consultants.
Sales and marketing expenses have not changed significantly.
Research and development expenses have increased significantly. The
Company expanded its
development efforts in pen-based computer technologies and, with the Coloray
acquisition,
entered FED research. Management anticipates that such costs will continue for
Scriptel.
Research and development expenses also include unfunded costs of research
agreements with
Xetron (by Scriptel) and SRI (by Coloray), and Cooperative Research and
Development
Agreements (by Coloray). Cash payments on research and development will
increase, as the
Company funds these research agreement obligations. In 1995, the Company
expensed $425,000
of fair value of stock options issued to research and development consultants.
1996
1995
Other expenses $ 1,373,000 $ 94,000
Other expenses include interest expense of $389,000 and $172,000 in 1996
and 1995,
respectively. Other expense also includes finance costs of $670,000 in 1996.
Interest expense
increased due to higher levels of debt financing and, in 1995, included $3,000,
related to the value
of options transferred to noteholders as an inducement for them to loan funds
to the Company or
as additional interest compensation. Interest expense in 1996 included stated
interest of $242,000
on new demand notes totaling $672,000 of principal. Finance expenses in 1996
related principally
to $644,000 in value of stock warrants surrendered as compensation on new
financing.
Income from minority interest of $65,000 in 1995 represents the portion of
the net loss of
Coloray that is allocable to the minority stockholders of Coloray. Early in
1995, minority interest
was reduced to zero; therefore, during the remainder of 1995 and going forward,
the Company
will incur 100% of the losses of Coloray in its consolidated income statement.
In 1996 the Company sold Coloray's property and equipment at auction, and
eliminated its
leasehold improvements, resulting in a loss from disposition of assets of
$314,000.
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 stockholders equity of approximately $2.2
million. The
Company determined that it could not fund the required repairs and capital
improvements needed
for Ampsco to remain competitive and become profitable. Because of this, and
to cut the ongoing
losses and to focus the Company on the computer peripheral segment, in April
1996 the Company
sold all of the Common Stock of Ampsco to a related party. See notes to the
accompanying
consolidated financial statements for a more complete description of the
transaction.
The Company has treated the sale as a discontinued operation.
Consequently, Ampsco's
results are excluded from the accompanying balance sheets at December 31, 1995
and March 31,
1996 and from the loss from continuing operations shown on the accompanying
statements of
operations for the three months ended March 31, 1996 and 1995.
Ampsco's sales were $494,000 in 1996 and $390,000 in 1995.
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 March 31, 1996,
the Company's
stockholders had paid or surrendered in value $41,728,000 (which is net of
$140,000 of notes
receivable from stockholders) to acquire 22,842,634 shares of Common Stock. In
addition,
$6,309,000 of notes payable and debentures were outstanding as of March 31,
1996, and accrued
interest on notes was $1,146,000 at that date. From inception of the Company
through March
31, 1996, the Company has incurred an accumulated deficit of $54,502,000.
The Company had current liabilities in excess of current assets of
approximately $12,484,000
at March 31, 1996. This has occurred due to cumulative operating losses being
financed by the
issuance of notes payable and lines of credit.
Several debt and equity transactions have occurred to date in 1996. (See
notes to the
consolidated financial statements). Management believes that these recently
concluded private
placements of debt and equity securities are not sufficient to finance the
Company's planned
operating, development and capital expenditures for 1996 and to repay defaulted
indebtedness.
Management has cut back on operating and development activities, and
anticipates further
reductions. Management also intends to seek additional financing through other
private
placements of debt, convertible debt and / or Common Stock to fund such
activities. Efforts are
underway to close Coloray and form a consortium to continue Coloray's research.
The Company's total committed shares exceeded by approximately 11,060,000
the total
authorized shares of the Company at March 31, 1996 (see Note 7). Management
intends to seek
approval from the stockholders, at the next stockholders meeting, for a
substantial increase in the
authorized shares.
There can be no assurance that the stockholders will approve an increase
in the authorized
shares, nor that such shares could be sold if authorized, nor that the proceeds
from such sales or
other financing activities will be sufficient to fund operating activities and
repayment of defaulted
indebtedness. If funds received are insufficient, then the Company's ability
to continue as a going
concern could be adversely affected, and the Company may have to liquidate.
Management believes that Scriptel will experience revenue growth
associated with its pen-
based operating activities commencing in late 1996 or early 1997, and
anticipates that this revenue
growth will provide for Scriptel's working capital needs on an ongoing basis
after 1996.
The Company's independent accountants have included a paragraph in their
report, stating that
the Company's financial statements as of December 31, 1995 and for the periods
then ended have
been prepared assuming that the Company will continue as a going concern and
that the
Company's recurring losses from operations, net working capital deficiency and
need for
immediate financing to fund operations raise substantial doubt about its
ability to continue as a
going concern.
ADOPTION OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock
Compensation." The Company adopted this statement in 1996.
INFLATION AND ECONOMIC CONDITIONS
Management believes that the effect of inflation on the Company's
operations is not material.
The Company does not have long-term contracts requiring performance at fixed
rates.
Accordingly, management believes it will be able to pass through to its
customers most cost
increases resulting from inflation.
