<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1995 Commission file No. 0-14880
Microlog Corporation (Exact name
of registrant as specified in its charter).
State of Incorporation: Virginia
I.R.S. Employer Identification No.: 52-0901291
20270 Goldenrod Lane
Germantown, Maryland 20876
(Address of principal executive offices).
Registrant's Telephone No., Including Area Code: 301-428-9100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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
------------ -------------
As of September 8, 1995 3,892,248 shares of common stock were outstanding.
1
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MICROLOG CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
July 31, October 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 962,131 $ 1,166,194
Receivables, net $ 2,806,853 $ 2,617,337
Receivable from related party $ 87,427 $ 70,237
Inventories $ 1,254,352 $ 882,184
Other current assets $ 148,772 $ 157,590
------------ ------------
Total current assets $ 5,259,535 $ 4,893,542
Fixed assets, net $ 3,058,538 $ 2,941,925
Licenses, net $ 552,381 $ 638,095
Other assets $ 275,610 $ 365,286
Goodwill, net $ 164,315 $ 217,131
------------ ------------
Total assets $ 9,310,379 $ 9,055,979
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 989,410 $ 1,463,818
Accounts payable $ 1,375,675 $ 1,083,970
Accrued compensation and related expenses $ 1,577,110 $ 1,634,278
Other accrued expenses $ 1,166,003 $ 1,415,480
------------ ------------
Total current liabilities $ 5,108,198 $ 5,597,546
Long-term debt $ 0 $ 45,456
Deferred officers' compensation $ 272,194 $ 269,218
Other liabilities $ 243,415 $ 394,865
------------ ------------
Total liabilities $ 5,623,807 $ 6,307,085
------------ ------------
Mandatorily redeemable common stock
102,857 shares issued, redeemable at $2.1875 per share $ 0 $ 225,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued $ 0 $ 0
Common stock, $.01 par value, 10,000,000 shares authorized,
4,491,818 and 4,379,511 shares issued $ 44,918 $ 43,795
Capital in excess of par value $ 14,999,351 $ 14,765,999
Treasury stock, at cost, 601,870 shares ($ 1,176,537) ($ 1,176,537)
Accumulated deficit ($10,181,160) ($11,109,363)
------------ ------------
Total stockholders' equity $ 3,686,572 $ 2,523,894
------------ ------------
Total liabilities and stockholders' equity $ 9,310,379 $ 9,055,979
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MICROLOG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended July 31, Ended July 31,
1995 1994 1995 1994
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 5,555,881 $ 4,290,151 $ 16,291,586 $ 12,806,920
Costs and expenses:
Cost of sales 3,136,909 4,473,003 9,481,745 10,739,199
Selling, general and administrative 1,645,997 2,168,922 4,640,277 5,556,611
Research and development 389,938 441,315 1,165,240 1,220,573
Restructuring costs 0 550,258 0 550,258
------------ ------------ ------------- -------------
5,172,844 7,633,498 15,287,262 18,066,641
------------ ------------ ------------- -------------
Operating income (loss) 383,037 (3,343,347) 1,004,324 (5,259,721)
Net other expense 21,345 23,083 76,121 15,128
------------ ------------ ------------- -------------
Income (loss) before income taxes 361,692 (3,366,430) 928,203 (5,274,849)
Provision for income taxes 0 13,255 0 30,002
------------ ------------ ------------- -------------
Net income (loss) 361,692 (3,379,685) 928,203 (5,304,851)
Accumulated deficit:
- at beginning of period (10,845,519) (8,050,488) (11,109,363) (6,125,322)
------------ ------------ ------------- -------------
- at end of period $(10,483,827) $(11,430,173) $(10,181,160) $(11,430,173)
============ ============ ============= =============
Weighted average shares outstanding 4,132,927 3,876,198 3,977,955 3,875,156
------------ ------------ ------------- -------------
Income (loss) per common share $ 0.09 $ (0.87) $ 0.23 $ (1.37)
============ =========== ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
MICROLOG CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995 (unaudited) and OCTOBER 31, 1994
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MICROLOG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Nine Months
Ended Ended
July 31, 1995 July 31, 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 928,203 $(5,304,851)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 338,588 655,160
Amortization of goodwill and other 206,035 206,035
Loss/(gain) from disposition of assets 3,009 (42,159)
Changes in assets and liabilities:
Receivables (206,706) 1,683,776
Inventories (372,168) 1,101,511
Other current assets 8,818 (56,677)
Accounts payable and accrued expenses (14,940) 935,468
Other liabilities (148,474) 5,590
Net cash used in operating activities 742,365 (816,147)
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (458,210) (376,669)
Proceeds (loss) from sale of fixed assets 0 58,638
Other assets 22,171 (151,503)
----------- -----------
Net cash used in investing activities (436,039) (469,534)
----------- -----------
Cash flows from financing activities:
Reduction of long-term debt (519,864) (228,335)
Issuance of common stock 9,475 3,113
----------- -----------
Net cash used in financing activities (510,389) (225,222)
----------- -----------
Cash and cash equivalents:
Net increase (decrease) during period (204,063) (1,510,903)
Balance at beginning of period 1,166,194 2,612,794
----------- -----------
Balance at end of period $ 962,131 $ 1,101,891
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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General
-------
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of Microlog
Corporation (the Company) as of July 31, 1995 and October 31, 1994, and the
results of their operations and cash flows for the three and nine month periods
ended July 31, 1995 and 1994. The results of operations presented are not
necessarily indicative of the results that may be expected for the fiscal year
ending October 31, 1995.
The significant accounting principles and practices followed by the Company are
set forth in the Notes to Consolidated Financial Statements in Microlog
Corporation's Annual Report on Form 10-K for the year ended October 31, 1994.
<TABLE>
<CAPTION>
Note 1 - Inventories
Inventories consist of the following: (Unaudited)
July 31, October 31,
1995 1994
---------- ----------
<S> <C> <C>
Components and finished goods $2,085,697 $1,726,615
Work-in-process 313,349 300,263
---------- ----------
2,399,046 2,026,878
Less: reserve for obsolescence (1,144,694) (1,144,694)
---------- ----------
$1,254,352 $ 882,184
========== ==========
Note 2 - Fixed Assets
The cost of property and equipment consists of the following:
(Unaudited)
July 31, October 31,
1995 1994
---------- ----------
Land $ 520,000 $520,000
Buildings and improvements 2,527,902 2,523,100
Furniture and equipment 2,902,767 3,229,416
Vehicles 23,642 34,772
Leasehold improvements 204,171 52,702
---------- ----------
6,178,482 6,359,990
Less: accumulated depreciation and amortization (3,119,944) (3,418,065)
---------- ----------
$3,058,538 $2,941,925
========== ==========
</TABLE>
Note 3 - Debt
As of July 31, 1995, the Company's mortgage loan was $898,500. The Company and
the bank are negotiating an extention of the due date of the mortgage note until
October 31, 1995. The extension will require the Company to make monthly
principle payments of $20,000 plus interest starting in August.
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Note 4 - Restructuring of Operations
The following table sets forth the Company's reserves for the nine months ended
July 31, 1995.
Restructuring Reserves
<TABLE>
<CAPTION>
Employee Asset
Separations Writedowns Facilities Other Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve balance, October 31, 1994 $89,039 $31,206 $250,133 $142,388 $512,766
Cash payments ($70,109) ($10,402) ($53,906) ($67,447) ($201,864)
--------------------------------------------------------------------------------------------------
Reserve balance, July 31, 1995 $18,930 $20,804 $196,227 $74,941 $310,902
==================================================================================================
</TABLE>
6
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Microlog Corporation designs, manufactures, markets and supports a series of
microprocessor-based voice processing systems which allow users to store,
retrieve and transmit digitized voice messages and to access information on
computer data bases. The Company's voice processing products include the VCS
INTELA, VCS 3500 and CallStar models, which are comprised of specially
configured microprocessor-based hardware platforms and versatile proprietary
applications software that enables the systems to perform multiple voice
processing applications.
The Company also provides performance analysis and technical and administrative
support services ("performance analysis") through its wholly-owned subsidiary,
Old Dominion Systems Inc. of Maryland, primarily to the Applied Physics
Laboratory ("APL") and American Telephone and Telegraph (AT&T), both prime
contractors to the U.S. Navy.
The percentage of the Company's sales generated by the Company's two business
segments has varied significantly from period to period, but the Company
anticipates that any significant growth in sales will be derived primarily from
increases in voice processing sales.
The following table sets forth for the periods indicated the percentage of
revenues of certain items from the Company's condensed consolidated statement of
operations and retained earnings:
PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Voice processing 64.2% 52.1% 61.6% 54.7%
Performance analysis 35.8% 47.9% 38.4% 45.3%
------- ------- ------- ------
Total 100.0% 100.0% 100.0% 100.0%
------- ------- ------ ------
Costs and expenses
Cost of sales 56.5% 104.3% 58.2% 83.9%
Selling, general and administrative 29.6% 50.5% 28.4% 43.4%
Research and development 7.0% 10.3% 7.2% 9.5%
Restructuring costs 0.0% 12.8% 0.0% 4.3%
--------- -------- -------- -------
Total 93.1% 177.9% 93.8% 141.1%
-------- -------- -------- -------
Operating income (loss) 6.9% (77.9%) 6.2% (41.1%)
Interest and other income (expense), net (0.4%) (0.6%) (0.5%) (0.1%)
--------- ---------- --------- --------
Income (loss) before income taxes 6.5% (78.5%) 5.7% (41.2%)
Provision (benefit) for income taxes 0.0% (0.3%) 0.0% (0.2%)
-------- ---------- ------- ---------
Net income (loss) 6.5% (78.8%) 5.7% (41.4%)
======== ========= ======== =========
</TABLE>
7
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RESULTS OF OPERATIONS
The Company had a net income of $362,000 ($.09 per share) for the quarter ended
July 31, 1995 and a net income of $928,000 ($.23 per share) for the nine months
ended July 31, 1995. This compares to net a loss of $3.4 million ($.87 per
share) and a net loss of $5.3 million ($1.37 per share) for the comparable
periods in fiscal 1994. The improvement in earnings is primarily attributable to
a restructuring of the Company's voice processing operations in the third
quarter of fiscal 1994 and an increase in voice processing net sales.
The Company was in default under its mortgage loan covenants at January 31,
1994, April 30, 1994, and July 31, 1994 and received waivers from its bank of
these covenants through July 31, 1994. In connection with these waivers, the
maturity date of the loan was accelerated by agreement with the bank to
September 30, 1994. The bank subsequently extended the due date of the mortgage
loan until December 31, 1994, in return for which the Company paid an extension
fee of 1% of the mortgage note balance at September 30, 1994 and made an
additional principal payment of $100,000 on September 30, 1994 and $50,000
payments on October 15, 1994, November 15, 1994, and December 15, 1994. The
Company obtained an additional extension of the due date of the mortgage note
until June 30, 1995. This extension required the Company to pay additional
principal payments of $37,500 per month from February 1995 through June 1995.
The Company believes, based upon its recent financial results and discussions
with its bank, that it will be able to obtain an additional extension until
October 31, 1995 from the bank. This extension will require the Company to make
monthly $20,000 principal payments, plus interest, starting in August. The bank
has indicated, in connection with this last extension, that the bank presently
does not intend to grant further significant extensions. The Company has been
pursuing financing alternatives and has received several financing offers that
would allow the Company to refinance its mortgage and provide working capital.
Although each of such offers has certain terms that the Company would like to
improve upon and is subject to various conditions, the Company believes that at
least one of these offers would be acceptable to the Company, and intends to
accept one of such offers in sufficient time to meet its obligation to repay the
mortgage on October 31, 1995.
NET SALES
Net sales for the quarter ending July 31, 1995 were $5.6 million, which
represented an increase of 30% as compared to $4.3 million of net sales in the
quarter ending July 31, 1994. Net sales were $16.3 million for the nine months
ended July 31, 1995, which represented a 27% increase from net sales for the
nine months ended July 31, 1994 of $12.8 million. The increase in net sales is
primarily attributable to increases in voice processing net sales.
VOICE PROCESSING NET SALES
Net sales of voice processing products were $3.6 million for the quarter ended
July 31, 1995, which represented a 64% increase from voice processing net sales
of $2.2 million for the quarter ended July 31, 1994. Net sales were $10.0
million for the nine months ended July 31, 1995, which represented a 43%
increase from voice processing net sales for the nine months ended July 31, 1994
of $7.0 million. The increase in sales is primarily attributable to increases in
sales of the Company's products to large multiple unit government customers and
to international customers. For the nine months ended July 31, 1995,
international sales were 10.6% of voice processing net sales, which represented
a 133% increase over international sales for the nine months ended July 31,
1994.
8
<PAGE>
The Company is pursuing a strategy that it believes will increase its voice
processing sales. This strategy includes the introduction of enhanced products
with additional features not previously offered by the Company's VCS 3500
products, pursuit of large government procurements and other large multi-unit
customers, targeting of select industries or vertical markets with special voice
processing applications and entering into arrangements with large resellers or
distributors. Microlog introduced a new product in March 1994, the VCS INTELA
("INTELA"), which uses a multi-tasking UNIX operating system and offers
additional features that the Company believes will improve the competitiveness
of its VCS product line. Microlog believes that customers are particularly
interested in the latest technological features, and that continual improvements
to its products and development of new products are essential if the Company is
to increase its voice processing revenues.
As of July 31, 1995, the Company had a backlog of existing orders for voice
processing systems totaling $3.3 million. By comparison, the backlog as of July
31, 1994 was $4.0 million. The Company has experienced fluctuations in its
backlog at various times during the past two fiscal years attributable primarily
to the seasonality of governmental purchases. In addition, the Company has
observed a lengthening of the period between the date of booking an order and
the date of shipment, with the shipment depending on any customer delivery
schedules and any customization needed for VCS 3500 or VCS INTELA applications.
The Company anticipates that most of the outstanding orders at July 31, 1995
will be shipped and the sales recognized during the next three quarters.
Although the Company believes that its entire backlog of orders consists of firm
orders, because of the possibility of customer changes in delivery schedules and
delays inherent in the government contracting process, the Company's backlog as
of any particular date may not be indicative of actual sales for any future
period.
PERFORMANCE ANALYSIS AND SUPPORT SERVICES NET SALES
Net sales from performance analysis and support services were $2.0 million for
the quarter ended July 31, 1995 as compared to $2.1 million for the same period
in fiscal 1994. Net sales were $6.3 million for the nine months ended July 31,
1995, which represents an 8% increase from net sales for the nine months ended
July 31, 1994. This increase resulted from the addition of new contracts as well
as increases in the level of work authorized under existing contracts from Johns
Hopkins Applied Physics Laboratory (APL), the Company's principal customer for
these services.
During the quarter ended July 31, 1995, APL terminated 14 Company employees as a
result of a laboratory-wide reduction in force. These employees represented
approximately 10% of the Company's performance analysis work-force and
approximately 675,000 (approximately 8%) of annual net sales of performance
analysis and support services. During the most recent quarter the Company also
lost an additional 7 employees who were hired directly by APL. These employees
represented approximately 5% of the Company's performance analysis work-force
and approximately $365,000 (approximately 4%) of annual net sales of performance
analysis and support services. The Company did not incur any significant
severance costs in connection with these employee terminations and expects its
pre-tax income to decline by approximately $160,000 annually as a result of the
expected decline in net sales. The Company is not aware of any additional
employee terminations at APL. However, there is no assurance that additional
terminations will not occur during the fiscal year or thereafter.
9
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The Company is seeking to diversify its operations for performance analysis and
support services by seeking contracts in non-defense related areas. Because of
the lower profit margins allowed on contracts for performance analysis and
support services and the Company's limited success to date in obtaining new
contracts with contractors and agencies other than APL or AT&T, the Company
believes that this segment of its business is not likely to generate a
substantial increase in profitability. Nevertheless, the Company believes that
its performance analysis contracts are likely to continue to provide a stable
source of sales for the Company. The Company does not anticipate that any
additional changes in defense priorities or spending will result in any material
adverse affect over the remainder of this fiscal year on its net sales from
performance analysis and support services nor alter the manner in which it
procures contracts for such services. However, there is no assurance that
changes in defense priorities or continuing budget reductions will not cause
such an effect during the fiscal year or thereafter.
As of July 31, 1995, the Company had a backlog of funding on existing contracts
for performance analysis and support services totaling $3.9 million. By
comparison, the backlog as of July 31, 1994 was $4.7 million. The decrease in
backlog is attributable primarily to a reduction in the remaining term of a
significant multi-year contract. The Company anticipates that these services
will be provided during the next three fiscal years. Of the $3.9 million of
backlog at July 31, 1995, $2.5 million will be recognized as sales beyond fiscal
1995. Because of the delays inherent in the government contracting process or
possible changes in defense priorities or spending, the Company's backlog as of
any particular date may not be indicative of actual sales for any future period.
Although the Company believes that its backlog of funding on existing contracts
is firm, the possibility exists that funding for some contracts on which the
Company is continuing to work, in the expectation of renewal, may not be
authorized (and the Government has the right to cancel contracts at any time),
although to date such a possibility has not been realized. See "Liquidity and
Capital Reserves."
COSTS AND EXPENSES
Cost of sales was $3.1 million or 56.5% of net sales for the quarter ended July
31, 1995, and $9.5 million or 58.2% of net sales for the nine months ended July
31, 1995. By comparison, cost of sales was $4.5 million or 104.3% of net sales
for the quarter ended July 31, 1994, and $10.7 million or 83.9% of net sales for
the nine months ended July 31, 1994. The decrease in cost of sales, as a
percentage of net sales, is primarily attributable to the higher percentage of
voice processing net sales for the quarter as compared to performance analysis
and support services net sales. Performance analysis and support services has a
significantly higher cost of sales compared to voice processing.
Selling, general and administrative expenses decreased to $1.6 million or 29.6%
of net sales for the quarter ended July 31, 1995, as compared to $2.2 million or
50.5% of net sales for the quarter July 31, 1994. For the nine months ended July
31, 1995, selling, general and administrative expenses decreased to $4.6 million
or 28.5% of net sales as compared to $5.6 million or 43.4 of net sales for the
same time period last year. The decrease, as a percent of net sales, was
attributable primarily to an increase in voice processing net sales and to cost
cutting measures and the restructuring of the Company's voice processing
operations in fiscal 1994.
Research and development expenses reflect costs associated with the development
of applicable software and product enhancements for the Company's voice
processing systems. Research and development expenses were $390,000 or 7.0% of
net sales for the quarter ended July 31, 1995, as compared to $441,000 or 10.3%
of net sales for the quarter ended July 31, 1994. For the nine months ended July
31, 1995, research and development expenses were $1.2 million or 7.2% of net
sales as compared to $1.2 million or 9.5% of net sales for the comparable nine
months ended July 31, 1994. The decrease, as a percentage of net sales, was
attributable primarily to an increase in voice processing net sales and to cost
cutting measures and the restructuring of the Company's voice processing
operations. The Company expects that research and development expenses during
fiscal 1995 will be at the same level as those incurred in fiscal 1994 as the
Company continues to develop new products and enhance its
10
<PAGE>
existing products. The Company believes that the process of establishing
technological feasibility with its new products is completed approximately upon
release of the products to its customers. Hence, the Company does not anticipate
capitalizing engineering development costs.
RESTRUCTURING COSTS
In the quarter ended July 31, 1994, the Company's voice processing operations
were restructured extensively at a cost of approximately $550,000. This was the
third such restructuring in the past four years, and resulted from the Company's
on-going significant losses during three of the past four years due to declines
in revenues for voice processing products and/or failure to increase such
revenues to keep pace with planned increases in expenditures. The Company
believes that the restructuring has had a positive impact on the results of
fiscal 1995 by reducing employment, overhead and ongoing costs of approximately
$1.4 million annually, and the Company does not believe that any further
cutbacks will be necessary over its next fiscal year.
NET OTHER EXPENSE
Net other expense was $21,000 and $76,000 for the quarter and nine months ended
July 31, 1995 as compared to $23,000 and $15,000 for the same periods last year.
For the quarter ended April 30, 1994, the Company realized a $42,000 gain on the
sale of one of its two office condominium units. Without this gain, the Company
would have had a net other expense of $57,000 for the nine months ended July 31,
1994. Net other expense consisted primarily of interest expense.
PROVISION FOR INCOME TAXES
The Company has exhausted its ability to carry losses back for income tax
refunds. However, net operating loss and tax credit carry forwards for income
tax reporting purposes of approximately $10.3 million and $156,000,
respectively, at October 31, 1994, will be available to offset taxes generated
from future taxable income. These potential future tax benefits have not been
reflected in the financial statements since realization is not assured. Tax
expense for the three months and nine months ended July 31, 1995 was fully
offset by a related reduction in the deferred tax asset valuation allowance in
the period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of July 31, 1995 was $151,000 as compared to a negative
$704,000 as of October 31, 1994. The increase in working capital is primarily
attributable to the net income in the first three quarters of fiscal 1995. Cash
and cash equivalents as of July 31, 1995 were $962,000 as compared to $1.2
million as of October 31, 1994. The decline in cash is primarily attributable to
reductions of debt of $520,000, consisting principally of payments of principal
under the Company's mortgage loan, purchase of fixed assets and an increase in
accounts receivable resulting from the higher voice processing revenues. As
discussed below, the Company is seeking additional financing for working capital
purposes. Several of the financing offers the Company is evaluating include
working capital lines of credit that will be secured by accounts receivable,
inventory, furniture and equipment.
Accounts receivable as of July 31, 1995 were $2.9 million, as compared to $2.7
million as of October 31, 1994. Included in the July 31, 1995 balance is a
related party receivable of $87,000 relating to the sale of voice processing
products and services to American Computer, of which
11
<PAGE>
a former member of the Board of Directors is an executive officer, and of which
a member of the Board of Directors was a director of American Computer.
Net fixed assets as of July 31, 1995 were $3.1 million, as compared to $2.9
million as of October 31, 1994. Goodwill as of July 31, 1995 was $164,000 as
compared to $217,000 at October 31, 1994.
On May 24, 1993, the Company reached a settlement concerning patent licenses
relating to voice mail technology with VMX, Inc. As part of that settlement, the
Company issued 102,857 shares of Microlog stock which required the Company to
redeem those shares at $2.1875 per share. During the quarter ended July 31,
1995, VMX, Inc., notified the Company that it had sold all of the shares in the
open market releasing the Company from its obligation to purchase those shares.
The Company was in default under its mortgage loan on its principal corporate
headquarters which was due on December 31, 1994. The mortgage note is due in
monthly installments and has an interest rate at the bank's prime rate of
interest plus one-half percent. The mortgage loan is collateralized by the
headquarters building and is subject to a covenant requiring a minimum
consolidated tangible net worth. In addition, the bank has asserted (as a result
of a cross default provision with a prior line of credit with the bank) that the
mortgage loan is also collateralized by accounts receivable and inventory of the
Company and is subject to a number of additional restrictive covenants,
including a requirement to maintain a fixed charge coverage ratio, prohibitions
on mergers or acquisitions, sale of stock (other than stock issued pursuant to
the Company's stock option plan) and payment of dividends, and certain
restrictions on additional borrowing.
The Company was in default under its mortgage loan covenants at January 31,
1994, April 30, 1994 and July 31, 1994 and received waivers from its bank of
these covenants through July 31, 1994. In connection with these waivers, the
maturity date of the loan was accelerated by agreement with the bank to
September 30, 1994. The bank subsequently extended the due date of the mortgage
loan until December 31, 1994, in return for which the Company paid an extension
fee of 1% of the mortgage note balance at September 30, 1994 and made additional
principal payments of $100,000 on September 30, 1994 and $50,000 payments on
each of October 15, 1994, November 15, 1994 and December 15, 1994. The Company
obtained an additional extension of the due date of the mortgage note until June
30, 1995. This extension required the Company to pay additional principal
payments of $37,500 per month from February 1995 through June 1995.
The Company believes, based upon its recent financial results and discussions
with its bank, that it will be able to obtain an additional extension until
October 31, 1995 from the bank. This extension will require the Company to make
monthly $20,000 principal payments, plus interest, starting in August (in lieu
of the prior monthly principal payments). The bank has indicated, in connection
with this last extension, that the bank presently does not intend to grant
further significant extensions. The Company has been pursuing financing
alternatives and has received several financing offers that would allow the
Company to refinance its mortgage and provide a working capital line of credit
secured by accounts receivable, inventory, furniture and equipment. Although
each of such offers has certain terms that the Company would like to improve
upon and is subject to various conditions, the Company believes that at least
one of these offers would be acceptable to the Company, and intends to accept
one of such offers in sufficient time to meet its obligation to repay the
mortgage on October 31, 1995.
12
<PAGE>
ITEM 1 Legal Proceedings
-----------------
None
ITEM 2 Changes in Securities
---------------------
None.
ITEM 3 Defaults Upon Senior Securities
-------------------------------
The Company was in default under a $899,000 mortgage loan due
on June 30, 1995. The Company and the bank are negotiating
an extension of the mortgage note until October 31, 1995.
See "Liquidity and Capital Resources."
ITEM 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
ITEM 5 Other Information
None.
ITEM 6 Exhibits and Reports on Form 8-K
--------------------------------
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROLOG CORPORATION
BY /s/ Joe J. Lynn
-------------------------------
Joe J. Lynn
Chief Executive Officer
BY /s/ Richard A. Thompson
-------------------------------
Richard A. Thompson
President and Chief Operating Officer
September 14, 1995
------------------
DATE
13
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 962,131
<SECURITIES> 0
<RECEIVABLES> 2,894,280
<ALLOWANCES> 0
<INVENTORY> 1,254,352
<CURRENT-ASSETS> 5,259,535
<PP&E> 6,178,482
<DEPRECIATION> 3,119,944
<TOTAL-ASSETS> 9,310,379
<CURRENT-LIABILITIES> 5,108,198
<BONDS> 0
<COMMON> 44,918
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,310,379
<SALES> 5,555,881
<TOTAL-REVENUES> 5,555,881
<CGS> 3,136,909
<TOTAL-COSTS> 5,172,844
<OTHER-EXPENSES> 21,345
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 361,692
<INCOME-TAX> 0
<INCOME-CONTINUING> 361,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,692
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
