<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 27, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________
to ______________
Commission File Number: 0-12046
STREAMLOGIC CORPORATION
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-3093858
- --------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21329 Nordhoff Street, Chatsworth, California 91311
- ------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (818) 701-8400
____________________________
Not Applicable
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes__X____ No________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
November 1, 1996: 16,930,790 shares of Common Stock, $1.00 Par Value
---------------------------------------------------------------------
<PAGE>
STREAMLOGIC CORPORATION
-----------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at 2
September 27, 1996 and March 29, 1996
Condensed Consolidated Statements of 3
Operations for the Three Months and
Six Months ended September 27, 1996
and September 29, 1995
Condensed Consolidated Statements of Cash 4
Flows for the Six Months Ended September
27, 1996 and September 29, 1995
Notes to Condensed Consolidated 5
Financial Statements
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6 Exhibit and Reports on Form 8-K 13
</TABLE>
1
<PAGE>
PART I- FINANCIAL INFORMATION
STREAMLOGIC CORPORATION
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 27, March 29,
1996 1996
-------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash, cash equivalents and short-term investments $ 22,450 $ 40,477
Accounts receivable, net 9,292 19,139
Receivable from Singapore Technologies - 13,966
Inventories 13,851 10,022
Other current assets 2,266 1,033
--------- ---------
Total current assets 47,859 84,637
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 6,840 5,850
Investments 5,410 -
Intangibles 6,483 1,152
Other assets 180 744
--------- ---------
$ 66,772 $ 92,383
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Revolving credit facility $ 3,200 $ -
10% Subordinated Notes - 20,000
Current maturities of long term debt 3,750 3,750
Accounts payable 8,794 8,610
Other accrued liabilities 14,835 14,137
--------- ---------
Total current liabilities 30,579 46,497
6% Convertible Subordinated Debentures due 2012 71,250 71,250
Deferred income taxes 1,720 1,720
Shareholders' equity:
Preferred stock, $1.00 par value, 2,000,000
shares authorized, none issued - -
Common stock, $1.00 par value, 50,000,000
shares authorized; 16,930,790 shares issued
and outstanding (15,580,413 in March 1996) 16,931 15,580
Additional paid-in capital 116,037 112,330
Accumulated deficit (169,745) (154,994)
--------- ---------
Total shareholders' equity (36,777) (27,084)
--------- ---------
$ 66,772 $ 92,383
========= =========
See accompanying notes.
</TABLE>
2
<PAGE>
STREAMLOGIC CORPORATION
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 12,947 $ 58,785 $ 24,136 $ 128,861
Cost of sales 12,001 56,294 22,468 111,001
-------- -------- -------- ---------
Gross margin 946 2,491 1,668 17,860
-------- -------- -------- ---------
Operating expenses:
Research and development 3,604 9,145 6,069 19,497
Selling, general and administrative 4,373 9,852 7,144 20,122
In-process research and development 1,370 - 1,370 -
-------- -------- -------- ---------
Total operating expenses 9,347 18,997 14,583 39,619
-------- -------- -------- ---------
Loss from operations (8,401) (16,506) (12,915) (21,759)
Interest expense (1,167) (1,311) (2,569) (2,800)
Interest income 366 372 743 791
-------- -------- -------- ---------
Loss before income taxes (9,202) (17,445) (14,741) (23,768)
Income tax provision 2 36 10 57
-------- -------- --------- ---------
Net loss $ (9,204) $(17,481) $(14,751) $ (23,825)
======== ======== ======== =========
Net loss per share $(.54) $ (1.12) $ (.91) $ (1.54)
======== ======== ======== =========
Weighted average common and
common equivalent shares
outstanding 16,931 15,551 16,260 15,444
======== ======== ======== =========
</TABLE>
See accompanying notes.
3
<PAGE>
STREAMLOGIC CORPORATION
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
September 27, September 29,
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,751) $ (23,825)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,017 10,477
Write off in process research and development 1,370 -
(Gain) loss on disposal of fixed assets - 33
Deferred income taxes - (96)
Increase (decrease) from changes in:
Accounts receivable 12,285 (17,721)
Inventories (410) 11,695
Other current assets (545) 1,120
Accounts payable and other accrued liabilities (6,965) 5,799
-------- ---------
Net cash used in operating activities (7,999) (12,518)
Cash flows from investing activities:
Investment in Concentric Network Corporation (2,500) -
Net change in short-term investments 6,992 (2,437)
Proceeds from sale of drive business 13,966 -
Proceeds from sale of equipment - 11
Additions to property, plant and equipment (506) (14,704)
Other assets 564 (12)
Acquisition of FWB hardware business (5,250) -
-------- ---------
Net cash provided by (used in) investing activities 13,266 (17,142)
Cash flows from financing activities:
Proceeds from credit facility 3,200 4,390
Decrease in 10% subordinated notes (20,000) -
Increase in Term Loan Facility - 11,419
Proceeds from sale of common stock, net 498 1,428
-------- ---------
Net cash provided by (used in) financing activities (16,302) 17,237
Net decrease in cash and equivalents (11,035) (12,423)
Cash and equivalents at beginning of period 15,443 35,959
-------- ---------
Cash and equivalents at end of period 4,408 23,536
Short-term investments 18,042 13,774
-------- ---------
Total cash, cash equivalents and short-term investments $ 22,450 $ 37,310
======== =========
Supplemental cash flow information
Interest payments $ 319 $ 2,736
Income tax payments $ 337 $ 50
</TABLE>
See accompanying notes.
4
<PAGE>
STREAMLOGIC CORPORATION
-----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
SEPTEMBER 27, 1996
------------------
(Unaudited)
NOTE 1. General
- -----------------
The accompanying condensed consolidated financial statements have not been
audited by independent auditors but, in the opinion of the Company, such
unaudited statements include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position as of September 27, 1996, and the consolidated results of operations
for the three and six month periods ended September 27, 1996 and September 29,
1995 and cash flows for the six month periods ended September 27, 1996 and
September 29, 1995. 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. Nevertheless, the
Company believes that the disclosures in these financial statements are adequate
to make the information presented not misleading. Interim results are not
necessarily indicative of the results for the full fiscal year.
On May 13, 1996 the Company elected to change its fiscal year from the last
Friday in December to the last Friday in March beginning with March 1996. The
Company has elected to disclose the consolidated results of operations and cash
flows for the three and six month periods ended September 27, 1996 in
comparative form with the three and six month periods ended September 29, 1995,
because it believes comparability is improved.
The three and six month periods ended September 27, 1996 exclude the
results of operations of the hard disk drive business operated under the name
"Micropolis Corporation" and sold by the Company as of March 29, 1996.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the three month
transition period ended March 29,1996 filed with the Securities and Exchange
Commission.
NOTE 2. Inventories
- --------------------
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market:
<TABLE>
<CAPTION>
September 27, March 29,
1996 1996
------------- ---------
<S> <C> <C>
Raw materials and purchased parts $ 9,643 $ 4,564
Work in process 1,525 1,487
Finished goods 2,683 3,971
------- -------
$13,851 $10,022
======= =======
</TABLE>
5
<PAGE>
NOTE 3. Per Share Information
- ------------------------------
Loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and applicable common stock equivalents
outstanding during the period. Primary and fully diluted loss per share are the
same.
NOTE 4. Acquisition of FWB Inc.
- --------------------------------
Effective July 1, 1996 the Company purchased all of the net assets related
to the hardware business of FWB Software Inc. ("FWB"), a developer of
performance computer storage products for pre-press, multi-media and graphics
applications. In addition, the Company made an 11% equity investment in the
software business being retained by FWB Software Inc. In consideration for such
net assets and minority equity investment, at closing the Company paid cash of
approximately $5 million and issued 1,256,123 shares of StreamLogic Common
Stock.
Pursuant to such agreement, FWB was to receive additional shares or return
shares of StreamLogic Common Stock such that the market value (based on the
average price as defined in the Operating Agreement of FWB Software, LLC) of the
shares contributed to FWB would be equal to $7.5 million, such adjustment to
have occurred on October 29, 1996. Since the average price of the Company's
common stock during the defined period was approximately $1.73, such adjustment
would have required the issuance of approximately 3,079,000 additional shares of
StreamLogic Common Stock to FWB which issuance, if made, would have contravened
the terms of the agreement relating to the offer to exchange discussed in Note
5, as well as certain Nasdaq rules relating to the issuance of 20% or greater of
an issuer's outstanding common stock. The Company did not issue such additional
shares to FWB on October 29, 1996, and on November 1, 1996 reached an agreement
with FWB whereby the Company issued to FWB 1,380,000 additional shares of Common
Stock, a $1.25 million promissory note bearing interest at Bank of America's
reference rate plus 2% due November 1998 and secured by the Company's equity
interest in FWB Software LLC, and paid to FWB $500,000 in cash. In addition,
the Company's equity interest in FWB Software LLC was reduced from 11% to 7.5%.
The total consideration paid for the net assets related to the hardware business
of FWB and investment in FWB Software LLC, including costs of acquisition, was
approximately $7.9 million and $3.4 million, respectively.
The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values and the results of operations of the hardware business of FWB are
included in the accompanying statements of operations from the date of
acquisition. The purchase price plus costs directly attributable to the
completion of the acquisition have been allocated to the assets and liabilities
acquired. Approximately $1.4 million of the total purchase price represented
the value of in-process research and development that had not yet reached
technological feasibility and was charged to the Company's operations. The
investment in FWB Software LLC is being accounted for at cost. The allocation
of purchase price among the identified tangible and intangible assets of the
hardware business, including developed technology, trademarks, customer lists
and assembled workforce, and the investment in FWB Software LLC is based on
preliminary estimates and the final allocation may vary from these estimates.
6
<PAGE>
Note 5. Tender Agreement
- -------------------------
On June 14, 1996 the Company entered into an agreement (the "Initial
Tender Agreement") with Loomis Sayles & Company, L.P. ("Loomis Sayles"), an
entity which advises investors that collectively hold approximately 79% of the
Company's outstanding $75 million issue of 6% Convertible Subordinated
Debentures ("Debentures") to exchange its Debentures for a package of cash and
securities of the Company. On September 13, 1996, the Company announced an
amendment to the Initial Tender Agreement (the "First Amendment"), and on
October 4, 1996 the Company announced a second amendment to the Initial Tender
Agreement (the "Second Amendment"; the Initial Tender Agreement, as amended by
both the First Amendment and the Second Amendment, is referred to as the "Tender
Agreement").
Pursuant to the Tender Agreement, the Company has commenced a tender offer
for the Debentures on October 7, 1996. In the tender offer, the Company has
offered to exchange its Debentures such that, for each $1,000 face amount of
Debentures tendered, the holders will receive (a) $120 in cash, (b) $113.33
in increasing rate unsecured promissory notes, (c) 216.66667 shares of
StreamLogic Common Stock, and (d) warrants to purchase 40 shares of StreamLogic
Common Stock at an initial exercise price of $3.60 per share of Common Stock.
The exercise price of the warrants is subject to downward adjustment in certain
circumstances, and contains antidilution adjustments. The Company shareholder
approval is required pursuant to Nasdaq rules and regulations.
The obligations of the Loomis Sayles to advise the holders to participate
in the tender offer under the Tender remains subject to various conditions
including among others, satisfaction of all necessary regulatory requirements
and 95% participation by bondholders. In addition, such holders are not
obligated to participate. As a result, there can be no assurance that the tender
offer will be consummated.
If the holders of 100% of the outstanding Debentures accept the exchange,
the Company will exchange the Debentures for (a) $9 million in cash, (b) $8.5
million in unsecured promissory notes due 1998, (c) approximately 16.25 million
shares of common stock, and (d) warrants to purchase 3.0 million shares of
common stock. As a result, the transaction would increase the Company's net
tangible assets by more than $50 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Three Months Ended September 27, 1996 Compared to Three Months Ended September
- ------------------------------------------------------------------------------
29, 1995
- --------
Net sales decreased 78% to $12.9 million in the September 1996 quarter as
compared to $58.8 million in the September 1995 quarter. The decline in
revenues was due to the sale of the hard disk drive business by the Company as
of March 29, 1996. The September 1996 quarter was the first period for which the
Company's results of operations included those of the FWB Hammer hardware
business purchased from FWB Software, Inc. effective July 1, 1996. The Hammer
hardware lines added approximately $5.4 million in revenue to the Company for
the quarter. Revenue for the September 1996 quarter included that of the
Company's RAIDION family of high performance and fault-tolerant RAID solutions,
the Hammer high-performance storage products and the VIDEON family of video
server systems. Such September 1996 quarter
7
<PAGE>
revenues for the RAIDION and VIDEON products decreased by 20% from those of the
September 1995 quarter. Such decline was largely attributable to generally
slower market demand in the September 1996 quarter and late component deliveries
experienced at the end of the quarter. Backlog as of September 27, 1996 was
$2.5 million.
Cost of sales as a percent of sales decreased to 92.7% in the September
1996 quarter from 95.8% in the September 1995 quarter resulting in a gross
margin of 7.3% in the 1996 quarter as compared to 4.2% in the 1995 quarter. The
increase in margin during the 1996 quarter was a result of price declines in the
Company's Javelin family of hard disk drives and the manufacturing difficulties
which resulted in higher manufacturing and warranty costs experienced in the
September 1995 quarter, as compared to the price reductions of certain products
and inefficiencies as a result of low product shipments experienced by the
Company in the September 1996 quarter.
Research and development expenses were 27.8% of sales in the September 1996
quarter as compared to 15.6% in the September 1995 quarter. The percentage
increase is the result of lower sales, offset partially by a decrease in expense
of $5.5 million. The decrease in expense was the result of the sale of the hard
disk drive business by the Company as of March 29, 1996, and the termination of
the Company's funding of the costs incurred by Tulip Memory Systems, Inc., a
start-up company formed to develop substrates which are to be used in the
manufacture of computer disk drives. Research and development expense incurred
in the September 1996 quarter was for the Company's RAIDION family of high
performance and fault-tolerant RAID solutions, the Hammer high-performance
storage products and the VIDEON family of video server systems. Research and
development expense for the RAIDION and VIDEON products amounted to
approximately $2.9 million in the September 1995 quarter. The increase of
$746,000 is largely attributable to research and development expenses to support
the Hammer product lines.
Selling, general and administrative expenses were 33.8% of sales in the
September 1996 quarter as compared to 16.8% in the September 1995 quarter. The
percentage increase is the result of lower sales, offset by a decrease in
expense of $5.5 million. The decrease in expense was the result of the sale of
the hard disk drive business by the Company as of March 29, 1996 and offset
partially by selling, general and administrative expenses to support the Hammer
product lines.
Nonrecurring charges in the September 1996 quarter of $1.4 million
consisted primarily of in-process research and development purchased from FWB
that had not yet reached technological feasibility and, therefore, were required
to be written off under generally accepted accounting principles. Excluding
nonrecurring charges, total operating expenses were $8.0 million for the
September 1996 quarter.
Interest expense was $1.2 million in the September 1996 quarter (9.0% of
sales) as compared to $1.3 million in the September 1995 quarter (2.2% of
sales). Interest income was $366,000 in the September 1996 quarter as compared
to $372,000 in the September 1995 quarter.
As a result of the above, loss before income taxes was $9.2 million in the
September 1996 quarter as compared to $17.4 million in the September 1995
quarter. Net loss for the
8
<PAGE>
September 1996 quarter was $9.2 million compared to $17.5 million in the
September 1995 quarter.
Six Months Ended September 27, 1996 Compared to Six Months Ended September 29,
- ------------------------------------------------------------------------------
1995
- ----
Net sales decreased 81% to $24.1 million in the September 1996 period as
compared to $128.9 million in the September 1995 period. The decline in
revenues was due to the sale of the hard disk drive business by the Company as
of March 29, 1996. Revenue for the September 1996 period included that of the
Company's RAIDION family of high performance and fault-tolerant RAID solutions,
the Hammer high-performance storage products and the VIDEON family of video
server systems. Such September 1996 period revenues for the RAIDION and VIDEON
products decreased by 7.5% from those of the September 1995 period. Such
decline was largely attributable to generally slower market demand in the
September 1996 quarter and late component deliveries experienced at the end of
the period.
Cost of sales as a percent of sales increased to 93.1% in the September
1996 period from 86.1% in the September 1995 period resulting in a gross margin
of 6.9% in the 1996 period as compared to 13.9% in the 1995 period. The
decrease in margin during the 1996 period was a result of increased costs and
inefficiencies experienced by the Company during the period of transition
following the sale of the hard disk drive business and price reductions of
certain products late in the 1996 period.
Research and development expenses were 25.1% of sales in the September 1996
period as compared to 12.8% in the September 1995 period. The percentage
increase is the result of lower sales, offset partially by a decrease in expense
of $13.4 million. The decrease in expense was the result of the sale of the
hard disk drive business by the Company as of March 29, 1996, and the
termination of the Company's funding of the costs incurred by Tulip Memory
Systems, Inc. Research and development expense in the September 1996 period
consisted of expenditures incurred for the Company's RAIDION family of high
performance and fault-tolerant RAID solutions, the Hammer high-performance
storage products and the VIDEON family of video server systems. Research and
development expense for the RAIDION and VIDEON products amounted to
approximately $6.0 million in the September 1995 period. The increase of
$69,000 is attributable to research and development expenses to support the
Hammer product lines offset partially by the reduction in expense incurred on
the video server systems and the Company's cost reduction efforts.
Selling, general and administrative expenses were 30.0% of sales in the
September 1996 period as compared to 15.6% in the September 1995 period. The
percentage increase is the result of lower sales, offset by a decrease in
expense of $13.0 million. The decrease in expense was the result of the sale of
the hard disk drive business by the Company as of March 29, 1996 and offset
partially by selling, general and administrative expenses to support the Hammer
product lines.
Nonrecurring charges in the September 1996 period of $1.4 million consisted
primarily of in-process research and development purchased from FWB that had not
yet reached technological feasibility and, therefore, were required to be
written off under generally accepted accounting principles. Excluding
nonrecurring charges, total operating expenses were $13.2 million for the
September 1996 period.
9
<PAGE>
Interest expense was $2.6 million in the September 1996 period (10.6% of
sales) as compared to $2.8 million in the September 1995 period (2.2% of sales).
The decrease in expense was a result of interest incurred during the June 1996
quarter on the Company's 10% Subordinated Notes offset by fees associated with
the Company's Term Loan Facility in the September 1995 period. Interest income
was $743,000 in the September 1996 period as compared to $791,000 in the
September 1995 period.
As a result of the above, loss before income taxes was $14.7 million in the
September 1996 period as compared to $23.8 million in the September 1995 period.
Net loss for the September 1996 period was $16.8 million compared to $23.8
million in the September 1995 period.
Liquidity and Capital Resources
- -------------------------------
Cash, cash equivalents and short-term investments decreased to $22.5
million as of September 27, 1996 from $40.5 million as of March 29, 1996. Net
cash used in operations of $7.9 million is primarily due to the Company's net
loss of $16.8 million and increase in inventories of $3.8 million, offset by the
collection of a substantial amount of the trade accounts receivable not sold as
part of the hard disk drive business. The increase in inventory is primarily
due to the weak revenues experienced in the September quarter.
The Company's capital expenditures in the first six months of the 1997
fiscal year were $1.9 million as compared to $14.7 million in the like period of
1995. Capital expenditures in 1996 related primarily to the acquisition of the
hardware business of FWB. Capital expenditures in the 1995 period related
primarily to the construction of a new manufacturing facility in Singapore to
replace the current leased facility and for equipment and tooling to support new
products. The new facility was completed in 1996 and sold as part of the sale
of the hard disk drive business. The Company currently anticipates that its
fiscal 1997 capital spending will be substantially less than that of fiscal 1995
and will be principally for equipment and tooling required for the Company's new
products.
On June 28, 1996 the Company established a $4 million revolving credit
facility with Wells Fargo Bank bearing interest at prime and secured by cash of
the Company. As of September 27, 1996, $3.2 million was outstanding under the
facility and $423,000 was available.
During October 1995, the Company completed the private placement to an
institutional investor of $20,000,000 aggregate principal amount of 10%
Convertible Subordinated Notes the "Notes"), due October 15, 1998. The Notes
were convertible at the option of the holder into shares of Common Stock of the
Company at a conversion price of $6.00 per share, a premium to the market price
of the Company's Common Stock at the time of issuance. The Notes were senior to
the Debentures and were collateralized by substantially all of the assets of the
Company. During March 1996, the Company obtained the required consent of the
holder of the Notes to allow consummation of the Sale and in consideration for
such consent, agreed to repay the Notes on July 2, 1996 and issued warrants to
purchase 1,500,000 shares of the Company's Common Stock at a price of $4 per
share. On April 5, 1996, the Company repaid $10,000,000 of the Notes, and on
July 1, 1996, the Company repaid the remaining $10,000,000 of the Notes.
10
<PAGE>
In consideration of the sale of the hard disk drive business as of March
29, 1996, the Company received total cash consideration of approximately $54
million. $39.7 million of such cash consideration was received as of the March
29, 1996 closing, $13 million in cash consideration was received on June 6,
1996, and a final payment of $1 million, which is subject to certain conditions,
is expected to be received in November and is classified as an offset to
accounts payable.
Market for StreamLogic Common Stock
- -----------------------------------
As of June 28, 1996, the Company's net tangible assets did not meet the
criteria for continued inclusion on the Nasdaq National Market System ("Nasdaq
NMS"). If the Company's Common Stock is no longer approved for inclusion on the
Nasdaq NMS and the Company cannot obtain listing elsewhere, trading, if any, in
the Company's Common Stock may thereafter be conducted in the over-the-counter
market and its stock quoted in the so-called "pink sheets" or, if then
available, the "OTC Bulletin Board Service." As a result, it could be more
difficult to trade, or to obtain accurate quotations as to the value of, the
Company's Common Stock and the spread between the "bid" and "ask" prices for the
Common Stock could materially increase. However, Nasdaq granted the Company's
request for continued inclusion of the Company's Common Stock on the Nasdaq NMS
conditioned upon consummation of the Exchange Offer by October 4, 1996.
On September 16, the Company requested Nasdaq to extend the date by which
it would require the Exchange Offer to be consummated in order to allow the
continued inclusion of the Common Stock on the Nasdaq NMS to October 31, 1996.
Following further telephonic conversations with representatives of Nasdaq, on
September 30, 1996, Nasdaq informed the Company that it would not grant the
Company's request for an extension of the date by which it would require the
Exchange Offer to be consummated and that effective October 7, 1996, the
Company's Common Stock would be removed from the Nasdaq NMS. Nasdaq did,
however, inform the Company that it could apply to have its Common Stock listed
on the Nasdaq SmallCap Market pending consummation of the Exchange Offer. The
Company then initiated an oral appeal of the proposed delisting of its Common
Stock from the Nasdaq NMS, and concurrently applied for listing of its Common
Stock on the Nasdaq SmallCap Market pending successful consummation of the
Exchange Offer.
On October 24, 1996, a Nasdaq Qualification Hearing with respect to the
continued inclusion of the Company's Common Stock on the Nasdaq NMS was held in
Washington, D.C. before a three-member panel of the National Association of
Securities Dealers Inc. At such hearing, the Company requested that it be
granted an extension until November 21, 1996 to meet the net tangible assets
requirement for continued inclusion of its Common Stock on the Nasdaq NMS. On
November 4, 1996, the Company received a determination from Nasdaq that its
inclusion on the Nasdaq NMS would be continued through November 21, 1996 and
thereafter, subject to the Company having net tangible assets not less than $10
million on or before such date. If the Company is unable to consummate the
Exchange Offer, it is likely that the Common Stock would no longer be authorized
for quotation either on the Nasdaq NMS or the Nasdaq SmallCap Market.
11
<PAGE>
Recent Developments
- -------------------
On October 16, 1996, the Company announced a plan to relocate its corporate
headquarters and consolidate all of its manufacturing operations in Northern
California. This cost saving measure calls for the closing of the company's
current Chatsworth facility and relocation of its manufacturing operations,
engineering and corporate administration by early April 1997.
StreamLogic Strategic and Financial Alternatives
- ------------------------------------------------
The Company currently estimates that its cash position as of November 1,
1996, after giving effect on a pro forma basis to the consummation of the
Exchange Offer (assuming 95% of the 6% Debentures are exchanged) and the
completion of the transaction with FWB as amended, would have been approximately
$9 million. Although the Company anticipates operating losses in the near term,
the Company is considering and will consider strategic and financial
alternatives to improve its results of operations, cash flows and net worth,
including cost reduction measures, equity financing and other alternatives.
There can be no assurance that such measures will be successful, however.
12
<PAGE>
PART II - OTHER INFORMATION
---------------------------
STREAMLOGIC CORPORATION
-----------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
27 Article 5 FDS for 2nd Quarter 10-Q
b) Reports on Form 8-K
-------------------
The Company filed one report on Form 8-K during the fiscal quarter
covered by this report, as follows:
(1) Report on Form 8-K filed on August 15, 1996, reporting under
Item 5 the filing of cautionary statements in connection
with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 12, 1996.
STREAMLOGIC CORPORATION
By s/J. Larry Smart
-------------------------------------
J. Larry Smart
President and Chief Executive Officer
By s/Barbara V. Scherer
-------------------------------------
Barbara V. Scherer
Senior VP and Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF STREAMLOGIC
CORPORATION AS OF AND FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 27, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 22,450
<SECURITIES> 0
<RECEIVABLES> 9,292
<ALLOWANCES> 4,800
<INVENTORY> 13,851
<CURRENT-ASSETS> 47,859
<PP&E> 27,882
<DEPRECIATION> 21,043
<TOTAL-ASSETS> 64,742
<CURRENT-LIABILITIES> 30,579
<BONDS> 71,250
0
0
<COMMON> 16,931
<OTHER-SE> (55,738)
<TOTAL-LIABILITY-AND-EQUITY> 64,742
<SALES> 12,947
<TOTAL-REVENUES> 12,947
<CGS> 12,001
<TOTAL-COSTS> 12,001
<OTHER-EXPENSES> 9,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,167
<INCOME-PRETAX> (9,202)
<INCOME-TAX> 2
<INCOME-CONTINUING> (9,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,204)
<EPS-PRIMARY> (0.54)
<EPS-DILUTED> (0.54)
</TABLE>
