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, 1998 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 14, 1998, 4,287,335 shares of common stock were outstanding.
<PAGE>
MICROLOG CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
July 31, October 31,
1998 1997
------------------ -----------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 629,428 $ 3,979,452
Receivables, net of $119,647 and $102,186 allowance
for doubtful accounts 5,277,903 3,882,564
Inventories, net 1,634,310 1,920,983
Deferred tax asset -- 1,200,000
Other current assets 371,136 422,836
------------ ------------
Total current assets 7,912,777 11,405,835
Fixed assets, net 3,393,387 3,733,994
Licenses, net 209,524 295,238
Deferred tax asset -- 950,000
Other assets 96,260 61,395
Goodwill, net 505,560 608,238
------------ ------------
Total assets $ 12,117,508 $ 17,054,700
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 67,620 $ 61,180
Accounts payable 1,988,580 1,872,200
Accrued compensation and related expenses 2,009,713 1,807,709
Deferred revenue 752,326 695,017
Other accrued expenses 730,877 300,152
------------ ------------
Total current liabilities 5,549,116 4,736,258
Long-term debt 74,060 141,680
Deferred officers' compensation 255,639 256,255
Other liabilities -- 32,635
------------ ------------
Total liabilities 5,878,815 5,166,828
------------ ------------
Stockholders' equity:
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
4,889,205 and 4,872,753 shares issued and 4,287,335
and 4,270,883 outstanding 48,892 48,727
Capital in excess of par value 16,417,294 16,293,536
Treasury stock, at cost, 601,870 shares (1,176,537) (1,176,537)
Accumulated deficit (9,050,956) (3,277,854)
------------ ------------
Total stockholders' equity 6,238,693 11,887,872
------------ ------------
Total liabilities and stockholders' equity $ 12,117,508 $ 17,054,700
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MICROLOG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended July 31, Ended July 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,928,782 $ 8,842,228 $ 21,134,752 $ 23,174,944
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 5,604,714 5,467,737 15,948,122 14,040,615
Selling, general, and administrative 2,123,385 1,842,763 6,328,458 4,714,195
Research and development 826,808 1,020,364 2,327,737 2,747,754
------------ ------------ ------------ ------------
8,554,907 8,330,864 24,604,317 21,502,564
------------ ------------ ------------ ------------
Operating (loss) income (1,626,125) 511,364 (3,469,565) 1,672,380
Net other (expense) income (11,248) 10,519 (14,004) (66,704)
------------ ------------ ------------ ------------
(Loss) income before income taxes (1,637,373) 521,883 (3,483,569) 1,605,676
(Provision) benefit for income taxes (2,218,136) 92,658 (2,289,533) 293,203
------------ ------------ ------------ ------------
Net (loss) income (3,855,509) 614,541 (5,773,102) 1,898,879
Accumulated deficit:
at beginning of period (5,195,447) (5,725,160) (3,277,854) (7,009,498)
------------ ------------ ------------ ------------
at end of period $ (9,050,956) $ (5,110,619) $ (9,050,956) $ (5,110,619)
============ ============ ============ ============
Basic weighted average shares outstanding 4,287,335 4,225,646 4,282,372 4,208,538
------------ ------------ ------------ ------------
Diluted weighted average shares outstanding 4,287,335 4,501,527 4,282,372 4,528,759
------------ ------------ ------------ ------------
Basic (loss) earnings per share $ (0.90) $ 0.15 $ (1.35) $ 0.45
Diluted (loss) earnings per share $ (0.90) $ 0.14 $ (1.35) $ 0.42
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MICROLOG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Nine Months
Ended Ended
July 31, 1998 July 31, 1997
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(5,773,102) $ 1,898,879
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation 661,880 647,367
Amortization of goodwill and licensing agreement 188,392 235,339
Consulting expense funded through stock options
granted 50,000
Changes in assets and liabilities:
Receivables (1,395,339) (2,617,835)
Inventories 286,673 278,288
Other assets 16,835 (225,046)
Deferred tax asset 2,150,000 (300,000)
Accounts payable 116,380 1,156,500
Accrued compensation and related expenses 202,004 580,822
Deferred officers' compensation (616) 10,014
Deferred revenue 57,309 --
Other accrued expenses and accrued liabilities 398,090 (73,704)
----------- -----------
Net cash (used in) provided by operating activities (3,091,494) 1,640,624
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets (321,273) (477,593)
----------- -----------
Net cash used in investing activities (321,273) (477,593)
----------- -----------
Cash flows from financing activities:
Reduction in long-term debt (61,180) (54,740)
Net payments under line-of-credit agreements -- (1,400,000)
Exercise of common stock options 123,923 63,850
----------- -----------
Net cash provided by (used in) financing activities 62,743 (1,390,890)
----------- -----------
Cash and cash equivalents:
Net decrease during period (3,350,024) (227,859)
Balance at beginning of period 3,979,452 1,170,603
----------- -----------
Balance at end of period $ 629,428 $ 942,744
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MICROLOG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998 (Unaudited) and OCTOBER 31, 1997
General
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of Microlog Corporation and
its subsidiaries at July 31, 1998 and October 31, 1997, and the results of their
operations and their cash flows for the three and nine month periods ended July
31, 1998. The results of operations presented are not necessarily indicative of
the results that may be expected for the fiscal year ending October 31, 1998.
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, 1997.
<TABLE>
<CAPTION>
Note 1 - Inventories (Unaudited)
July 31, October 31,
Inventories consist of the following: 1998 1997
------------------ ------------------
<S> <C> <C>
Components $ 2,401,567 $ 1,474,629
Work-in-process and finished goods 562,937 791,576
------------------ ------------------
2,964,504 2,266,205
Less: reserve for obsolescence (1,330,194) (345,222)
------------------ ------------------
$ 1,634,310 $ 1,920,983
================== ==================
</TABLE>
<TABLE>
<CAPTION>
Note 2 - Fixed Assets
(Unaudited)
Fixed assets consist of the following: July 31, October 31,
1998 1997
------------------ ------------------
<S> <C> <C>
Land $ 520,000 $ 520,000
Building 2,511,266 2,511,266
Office furniture and equipment 3,772,655 3,451,382
Vehicles 23,642 23,642
Leasehold improvements 176,096 176,096
------------------ ------------------
7,003,659 6,682,386
Less: accumulated depreciation and amortization (3,610,272) (2,948,392)
------------------ ------------------
$ 3,393,387 $ 3,733,994
================== ==================
</TABLE>
Accumulated amortization on the Company's intangible assets was $1,574,837 and
$1,386,445 at July 31, 1998 and October 31, 1997, respectively.
5
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Microlog Corporation designs, develops, markets, and supports a complete line of
UNIX and DOS-based voice processing systems and applications solutions 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 and RETAIL SOLUTION (APRS(R)) and VCS 3500
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"), a prime contractor 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 sales from voice processing operations.
The following table sets forth for the periods indicated the percentage of
revenues of certain items from the Company's consolidated statements of income
and retained earnings:
PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Voice processing 57.7% 61.6% 57.3% 60.4%
Performance analysis and support services 42.3% 38.4% 42.7% 39.6%
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of sales 80.9% 61.8% 75.5% 60.6%
Selling, general, and administrative 30.7% 20.9% 29.9% 20.4%
Research and development 11.9% 11.5% 11.0% 11.8%
----- ----- ----- -----
Total 123.5% 94.2% 116.4% 92.8%
----- ----- ----- -----
Operating (loss) income (23.5)% 5.8% (16.4)% 7.2%
Net other (expense) income (0.1)% 0.1% (0.1)% (0.3)%
----- ----- ----- -----
(Loss) income before income taxes (23.6)% 5.9% (16.5)% 6.9%
(Provision) benefit for income taxes (32.0)% 1.0% (10.8)% 1.3%
----- ----- ----- -----
Net (loss) income (55.6)% 6.9% (27.3)% 8.2%
===== ===== ===== =====
</TABLE>
6
<PAGE>
RESULTS OF OPERATIONS
The Company had a net loss of $3,856,000 (($.90) per basic and diluted share)
for the quarter ended July 31, 1998 and a net loss of $5,773,000 (($1.35) per
basic and diluted share) for the nine months ended July 31, 1998. These results
include a write-off of the deferred tax asset for the three and nine month
periods of $2,150,000 (($.50) per basic and diluted share). As a result of the
losses in the first three quarters of fiscal 1998, management believes that the
expected future realization of the Company's net operating loss carryforwards is
not likely to be realized in the near future. By comparison, the Company had net
income of $615,000 ($.15 per basic share and $.14 per diluted share), and
$1,899,000 ($.45 per basic share and $.42 per diluted share) for the comparable
periods in fiscal year 1997. The Company is now reporting basic and diluted
earnings per share as required under Statement of Financial Accounting Standards
(SFAS No.128), "Earnings per Share", which became effective for the Company in
the first quarter of 1998.
The loss for the third quarter of fiscal 1998 and the nine months ended July 31,
1998 was primarily attributable to lower than expected sales in the Company's
voice processing operations, particularly in the commercial and international
sectors, a change in the sales mix in the Company's voice processing operations
and an increased level of staffing in the sales and marketing departments and
expanded marketing programs and activities relating primarily to the upcoming
introduction of a new call center product. Voice processing sales for the
comparable quarters, as well as the comparable nine month periods, included
lower profit margins on a higher percentage of product sales in fiscal year
1998. Fiscal year 1997 had a higher percentage of software and services sales.
Product sales have a significantly higher cost of sales than software and
services sales.
NET SALES
Net sales for the quarter ended July 31, 1998 were $6.9 million, which
represented a decrease of 22% as compared to $8.8 million of net sales for the
quarter ended July 31, 1997. Net sales for the nine months ended July 31, 1998
were $21.1 million, which represented a decrease of 9% as compared to $23.2
million of net sales for the nine months ended July 31, 1997. The decrease for
the quarter as well as the comparable nine month periods was primarily
attributable to a decrease in voice processing net sales.
VOICE PROCESSING NET SALES
Voice processing net sales for the quarter ended July 31, 1998 were $4.0
million, which represented a decrease of 26% as compared to $5.4 million of net
sales for the quarter ended July 31, 1997. The net sales for the nine months
ended July 31, 1998 were $12.1 million, which represented a decrease of 14% as
compared to $14.0 million of net sales for the nine months ended July 31, 1997.
The decrease in sales for the comparable quarters was primarily attributable to
a decrease of 68% in sales to commercial customers and a decrease of 20% in
sales to international customers. The decrease in sales for the comparable nine
month periods was primarily due to a decrease of 49% in sales to commercial
customers, partially offset by an increase of 71% in sales to international
customers. The decrease in commercial sales was primarily due to delays or
losses of various anticipated orders of the APRS product. The Company's
commercial sales of the APRS product are subject to increased competition,
including the internal MIS departments of potential retail pharmacy customers.
The Company is seeking to increase its commercial sales by adding a new call
center product. The increase in international sales for the nine months ended
July 31, 1998 was primarily due to a sale of $1.6 million to a subsidiary of KPN
Telecom of The Netherlands.
As of July 31, 1998, the Company had a backlog of existing orders for voice
processing systems totaling $3.1 million. The backlog, as of July 31, 1997, was
$5.4 million. Of the $3.1 million of backlog at July 31, 1998, approximately
$1.4 million is expected to be recognized as sales beyond fiscal year 1998. The
Company has experienced fluctuations in its backlog at various times during the
past two fiscal years attributable primarily to the seasonality of government
purchases. 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.
7
<PAGE>
PERFORMANCE ANALYSIS AND SUPPORT SERVICES NET SALES
Performance analysis and support services net sales for the quarter ended July
31, 1998 were $2.9 million, which represented a decrease of 15% as compared to
$3.4 million of net sales for the quarter ended July 31, 1997. The net sales for
the nine months ended July 31, 1998 were $9.0 million, which represented a
decrease of 2% as compared to $9.2 million of net sales for the nine months
ended July 31, 1997. This decrease was principally attributable to reductions in
the level of work authorized under existing contracts from the John Hopkins
University Applied Physics Laboratory (APL), the Company's principal customer
for these services. Also, because of the current low unemployment rate in the
Washington, DC area, the Company has had difficulties in recruiting and hiring
qualified employees to replace employees that have terminated.
The Company believes that its performance analysis contracts are likely to
continue to provide a stable source of sales. The Company does not anticipate
that any changes in defense priorities or spending will result in any material
adverse affect over the next 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, 1998, the Company had a backlog of funding on existing contracts
for performance analysis and support services totaling $1.7 million. By
comparison, the backlog as of July 31, 1997 was $1.4 million. Of the $1.7
million of backlog at July 31, 1998, approximately $0.7 million is expected to
be recognized as sales beyond fiscal year 1998. 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 this has not
occurred.
COSTS AND EXPENSES
Cost of sales was $5.6 million or 80.9% of net sales for the quarter ended July
31, 1998 as compared to $5.5 million or 61.8% of net sales for the quarter ended
July 31, 1997. Cost of sales was $15.9 million or 75.5% of net sales for the
nine months ended July 31, 1998 as compared to $14.0 million or 60.6% of net
sales for the nine months ended July 31, 1997. The increase in cost of sales for
the comparable quarters, as a percentage of revenue, was primarily attributable
to lower margins on product sales to government customers and lower services
sales to government customers. The increase in cost of sales for the comparable
nine month periods was primarily attributable to a higher percentage of voice
processing product sales than services sales. Product sales have a significantly
higher cost of sales than services sales. The first nine months of fiscal year
1997 included sales of software licenses of $3.1 million, which have
significantly lower costs than product sales, as compared to the first nine
months of fiscal year 1998 which had no sales of software licenses.
Selling, general and administrative expenses were $2.1 million or 30.7% of net
sales for the quarter ended July 31, 1998 as compared to $1.8 million or 20.9%
of net sales for the quarter ended July 31, 1997. Selling, general and
administrative expenses were $6.3 million or 29.9% of net sales for the nine
months ended July 31, 1998 as compared to $4.7 million or 20.4% of net sales for
the nine months ended July 31, 1997. The increase in selling, general, and
administrative expenses was primarily attributable to increased staffing in the
sales and marketing departments as well as expanded marketing programs and
activities.
Research and development expenses reflect costs associated with the development
of applicable software and product enhancements for the Company's voice
processing systems. 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 research and development costs. Research and development expenses
were $827,000 or 11.9% of net sales for the quarter ended July 31, 1998 as
compared to $1.0 million or 11.5% of net sales for the quarter ended July 31,
1997. Research and development
8
<PAGE>
expenses were $2.3 million or 11.0% of net sales for the nine months ended July
31, 1998 as compared to $2.7 million or 11.8% of net sales for the nine months
ended July 31, 1997. The decrease in expenses for the comparable quarters, as
well as for the comparable nine month periods, was primarily attributable to the
completion of research and development on a product for the retail pharmacy
industry. Research and development expenses for fiscal year 1998 are focused on
the Intela products and the upcoming introduction of a new call center product.
The Company has assessed the impact of the Year 2000 on its internal and
external software, and has determined that any modification to the software will
not have a material impact on the Company or its results of operations or
financial condition.
NET OTHER EXPENSE / INCOME
Net other expense was $11,000 and $14,000 for the quarter and nine months ended
July 31, 1998 as compared to net other income of $10,000 for the quarter ended
July 31, 1997 and net other expense of $67,000 for the nine months ended July
31, 1997. Net other expense consisted primarily of interest expense on short
term borrowings and net other income consisted primarily of interest income on
cash and cash equivalents.
PROVISION FOR INCOME TAXES
For the quarter ended July 31, 1998, the Company wrote-off the deferred tax
asset of $2,150,000. As a result of the losses in the first three quarters of
fiscal year 1998, management believes that the expected future realization of
the Company's net operating loss carryforwards is not likely to be realized in
the near future. By comparison, the Company recorded a tax benefit of $95,000
for the quarter ended July 31, 1997.
The Company has exhausted its ability to carry losses back for income tax
refunds. Net operating loss and tax credit carry forwards for income tax
reporting purposes of approximately $7.1 million and $293,000, respectively,
will be available to offset taxes generated from future taxable income through
2011 and 2012, respectively.
FACTORS THAT MAY EFFECT FUTURE RESULTS OF OPERATIONS
Various paragraphs of this Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth below and
elsewhere in this document.
The Company believes that in the future its results of operations could be
affected by factors such as the introduction by the Company of new and enhanced
products and services, market acceptance of new voice processing products and
enhancements of existing products, growth in the voice processing market in
general, competition, commitments to automation by potential large purchasers of
the Company's Retail Solutions products, fluctuations in the buying cycles of
governmental customers, changes in general economic conditions, and changes in
the U.S. defense industry and their impact on the prime contractor for which the
Company provides performance analysis and support services.
The Company believes that its ability to meet revenue targets and the products
and services mix will primarily determine the Company's profitability for each
fiscal quarter. The Company's backlog on a quarterly basis generally will not be
large enough to assure that the Company will meet its revenue targets for a
particular quarter, and delivery of backlog depends upon a number of factors, as
discussed above. Further, a large percentage of any quarter's shipments have
traditionally been booked in the last month of the quarter. Consequently,
quarterly revenues and operating results will depend on the volume and timing of
new orders received during a quarter, which is difficult to predict.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of July 31, 1998 was $2.4 million as compared to $6.7 million
as of October 31, 1997. The decrease in working capital was primarily
attributable to a decrease in cash and cash equivalents of $3.4 million, the
write-off of the current portion of the deferred tax asset of $1.2 million, and
an increase in current liabilities of $0.8 million, offset by an increase in
accounts receivable of $1.4 million.
Cash and cash equivalents were $629,000 as of July 31, 1998 as compared to $4.0
million as of October 31, 1997. The decrease was primarily due to the net loss
in the first nine months of the year and an increase in accounts receivable.
Since July 31, 1998, cash has increased by over $2.0 million as a result of the
sale of the Company's principal office building. Accounts receivable was $5.3
million as of July 31, 1998 as compared to $3.9 million as of October 31, 1997.
The increase was primarily due to the timing of shipments during the quarter.
Inventories were $1.6 million as of July 31, 1998 as compared to $1.9 million as
of October 31, 1997. The decrease in inventories was primarily due to the
increase in the reserve for obsolescence offset by the increases in inventory in
anticipation of receipt of large orders in the commercial sector. The reserve
for inventory obsolescence was $1.3 million as of July 31, 1998 as compared to
$345,000 as of October 31, 1997. The increase was primarily due to additional
reserves required due to the aging of inventory associated with the Company's
retail solution products.
Goodwill as of July 31, 1998 was $506,000 as compared to $608,000 at October 31,
1997.
Net fixed assets as of July 31, 1998 were $3.4 million as compared to $3.7
million as of October 31, 1997. In May 1998, the Company entered into a 15 year
lease commitment, commencing on or about June 1999, for office space intended to
consolidate the Company's headquarters, warehouse, and training facilities.
Total rental payments under this lease agreement are approximately $10.6 million
over the lease term. In August, 1998, the Company sold its principal
headquarters building for $2.4 million and has committed to lease back the
building prior to its occupation of the new leased space. The Company does not
anticipate recording a large gain or loss on the sale of the building.
In February, 1998, the Company renewed its line-of-credit facility with its bank
which allows the Company to borrow up to 70% of its eligible receivables to a
maximum of $2,000,000. The line-of-credit bears interest at the bank's prime
rate plus 1.25% (9.75% at July 31, 1998), and contains a 0.5% commitment fee on
the average unused portion of the line. The line expires on February 28, 1999
and subjects the Company to a number of restrictive covenants, including a
requirement to maintain a minimum consolidated tangible net worth, a maximum
ratio of total liabilities to tangible net worth, and a minimum current ratio.
There are restrictions on mergers or acquisitions, payment of dividends, and
certain restrictions on additional borrowings. The line is secured by all of the
Company's tangible assets. At July 31, 1998, the Company was not in compliance
with the covenant for a minimum consolidated tangible net worth. The covenant
requires the minimum net worth to be $7,500,000, but the Company's net worth was
$5,524,000. The bank waived the covenant at July 31. There was no outstanding
debt against this line-of-credit at July 31, 1998.
In February, 1998, the Company also renewed its $1,000,000 loan facility. The
loan facility bears interest at the bank's prime rate plus 0.5% (9.00% at July
31, 1998), and contains a 0.5% commitment fee on the average unused portion. At
July 31, 1998, there was no outstanding debt against this loan facility. The
loan facility was secured by the Company's principal headquarters building. In
August, 1998, when the Company sold the building, the loan facility terminated.
The Company believes that, through management of its cash and cash equivalents,
and its line of credit, it will not need additional financial resources beyond
those presently expected to be available during fiscal year 1998. However, if
losses continue, the Company likely will need to seek additional debt or equity
financing. There can be no assurance that such financing would be available on
acceptable terms. Failure to raise any required financing would have a material
adverse effect on the Company.
10
<PAGE>
ITEM 1 Legal Proceedings
None
ITEM 2 Changes in Securities None.
ITEM 3 Submission of Matters to a Vote of Security Holders None.
ITEM 4 Other Information
None.
ITEM 5 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/ Richard A. Thompson
----------------------------------------------------
Richard A. Thompson
President and Chief Executive Officer
BY /s/ Steven R. Delmar
----------------------------------------------------
Steven R. Delmar
Executive Vice President and Chief Financial Officer
September 14, 1998
------------------
DATE
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> Feb-01-1998
<PERIOD-END> Jul-31-1998
<EXCHANGE-RATE> 1
<CASH> 629,428
<SECURITIES> 0
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48,892
0
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<NET-INCOME> (3,855,509)
<EPS-PRIMARY> (0.90)
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</TABLE>
