<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 1-9605
-----------------------------
MEDIA LOGIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------
MASSACHUSETTS 04-2772354
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
310 SOUTH STREET, PLAINVILLE, MA 02762
(Address of principal executive offices) (ZIP CODE)
---------------------------
(508) 695-2006
(Registrant's telephone number, including area code)
------------------
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $.01 American Stock Exchange
par value per share
-------------------
Indicated 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K . /X/
On June 26, 1996, there were outstanding 6,226,609 shares of Common
Stock held by nonaffiliates (without admitting that any person whose shares are
not included are affiliates) with an aggregate market value of $43,586,263.00
(based on the closing price of $7.00 per share on the American Stock Exchange).
As of June 26, 1996, there were issued and outstanding 6,226,609 shares
of Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A for the 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
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MEDIA LOGIC, INC.
FORM 10-K
<TABLE>
TABLE OF CONTENTS
<CAPTION>
ITEM PAGE
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<S> <C> <C>
PART I
1. Description of Business.................................................................. 1
2. Properties............................................................................... 7
3. Legal Proceedings........................................................................ 7
4. Submission of Matters to a Vote of Security Holders...................................... 7
PART II
5. Market for the Registrant's Common Equity Securities and Related Stockholder Matters .... 8
6. Selected Financial Data ................................................................. 9
7. Management's Discussion and Analysis of Financial Condition and Results of Operation..... 10
8. Consolidated Financial Statements and Supplementary Data ................................ 16
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .... 16
PART III
10. Directors and Executive Officers of the Registrant ...................................... 17
11. Executive Compensation................................................................... 17
12. Security Ownership of Certain Beneficial Owners and Management........................... 17
13. Certain Relationships and Related Transactions........................................... 17
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 18
</TABLE>
<PAGE> 3
9
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Media Logic, Inc. (the "Company") was incorporated in 1982 to develop
and manufacture certification equipment to be used by manufacturers of flexible
storage media such as floppy disks. The Company currently has two principal data
storage product lines, libraries introduced in fiscal year 1996, and
certification, test and duplication equipment for flexible computer storage
media.
The Company's data storage libraries have been developed by MediaLogic
ADL, ("ADL") a subsidiary of the Company, established in 1994 to develop, market
and sell automated data storage libraries. In fiscal year 1996, ADL has
introduced automated tape libraries in 4mm and 8mm tape technologies and expects
to introduce in fiscal year 1997 automated tape libraries with digital linear
tape ("DLT") technology. Tape drives from a number of manufacturers are
supported by the libraries as are system management and software configurations
from a variety of vendors. In fiscal 1996, the Company sold only pre-production
units, and began delivering production units in the first quarter of fiscal
1997. Potential customers for the ADL line of automated tape libraries are data
dependent companies in all types of businesses.
The certification, test and duplication product line includes: 1)
certifiers which are used by computer disk manufacturers to test each disk as it
is manufactured and to sort disks into three industry established quality
categories, 2) tape certification and evaluation equipment used by manufacturers
and suppliers of magnetic tapes, to evaluate and qualify the quality of the
tapes, and 3) floppy disk duplication equipment utilizing industrial disk drives
which have been developed by the Company for use by software publishers and
duplicators.
The discussion in this report includes forward-looking statements based
on management's current expectations. To the extent that any of the statements
contained herein relating to the Company's products and its operations are
forward looking, such statements are based on management's current expectations
and involve a number of uncertainties and risks. Factors that could cause
future results to differ materially from such expectations include, but are not
limited to, the uncertainty surrounding the Company's change in product base
from floppy disk/magnetic tape certifiers and evaluators to automated data
libraries; the Company's limited experience in manufacturing, marketing and
selling automated data libraries and the risk that the Company's new products
may not be able to be marketed at acceptable prices or receive commercial
acceptance in the markets that the Company expects to target; the loss of the
services of one or more of the Company's key individuals, which could have a
material adverse impact on the Company; the development of competing or superior
technologies and products from manufacturers, many of which have substantially
greater financial, technical and other resources than the Company; the cyclical
nature of the computer industry; the availability of additional capital to fund
expansion on acceptable terms, if at all; and general economic conditions in
both the United States and overseas markets. As a result, the Company's future
development efforts involve a high degree of risk. Actual results may differ
materially from such expectations.
INDUSTRY BACKGROUND
Data Storage
The rapidly growing availability of huge amounts of data, and the need
to readily access that data, has accelerated the demand for reliable and
economical data storage capabilities. The expanding role of networks, access to
data from the Internet, and the explosion of graphics and imaging applications
require ever greater data storage capabilities. With the loss of information
being potentially devastating, participants in data dependent businesses have
determined that it has become essential to have an automated system for data
backup, archival storage and retrieval. The ADL line of automated tape libraries
is designed to meet this requirement.
Libraries can differ substantially in features, capacity and price. The
ADL libraries target the low end to mid-range of the market for libraries. The
Company believes that the unique architecture of its libraries provides a
competitive advantage in reliability and functionality. The Company plans to
leverage these competitive advantages to continue to build its position as a key
player in the rapidly growing data storage market.
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The market for automated tape libraries is highly competitive and
subject to rapid technological change. Competitors vary depending on the
underlying tape technology used in the library. The competitors are both small
and large companies, including several manufacturers of tape drives who have
developed libraries incorporating their own tape technology.
Certification, Test and Duplication
The sale of certification equipment to manufacturers of floppy disks
has historically been the source of the majority of the Company's revenue.
Manufacturers typically certify disks to establish quality levels. Disks are
sorted into one of three categories based on quality standards established by
the American National Standards Institute ("ANSI"): Category 1 "exceeds ANSI
standards"; Category 2 "meets ANSI standards"; and Category 3 "does not meet
ANSI standards". The highest grade disks are typically used by software
publishers and duplicators while the lesser quality disks are generally sold at
retail.
During the early 1990's significant disk production capacity was added
throughout the world, particularly in the lower labor rate markets of Southeast
Asia and China. Since that time, there has been a strong rate of growth in
demand for disks. The capacity added during the early 1990's has been
substantially sufficient to meet requirements. This, along with the fact that
price competition among disk manufacturers has driven prices down, substantially
reducing margins, has minimized purchases of additional equipment by existing
manufacturers and discouraged new manufacturers. Also, some disk manufacturers
have discontinued the certification process, choosing instead to sell their
disks as low quality into the retail market.
While demand for disks has continued to increase, growth has been
restricted by alternative forms of computer media which have become available.
CD-ROM has gained general acceptance as more personal computers are equipped
with CD-ROM drives. Many software programs and games which once were delivered
on multiple floppy disks now come on a single CD-ROM. Other computer media
currently available include floptical disk, which combines optical tracking and
magnetic storage, the Mini Disk, a two inch disk offered by Sony Corporation,
the flash memory card or PCMCIA card, and higher density floppy disks with
dramatically increased storage capabilities. All these media require specialized
drives for their operation. Removable hard drives with large storage capacity
are also available. The Company believes that the widespread acceptance of the
3.5 inch disk as the standard form of computer media in the industry will ensure
its continued use for at least several years as many of the new media
technologies have not yet been accepted in the market and, if ultimately
accepted, will require several years to be fully integrated into widespread use.
The market for test and evaluation equipment for magnetic tape is
primarily manufacturers of tape and their major customers. The Company believes
that it is a leading supplier of such equipment. The Company works closely with
the tape manufacturers to develop evaluation capabilities as new types of tapes
are introduced to the market.
While there are several major companies leading the market for
duplication of floppy disks, there are hundreds of smaller companies which have
more limited duplication requirements. The Company provides a solution to the
major duplicators with its AccuCopy line of industrial duplicators which
incorporate the Company's AccuCopy industrial drives. The Company also provides
a single spindle duplicator to those customers whose requirements are less.
BUSINESS STRATEGY
The Company's business strategy is to devote a substantial majority and
sharply increasing portion of its resources to the development, marketing and
sale of its line of ADL automated tape libraries. The Company will continue to
support its historical product lines of certifiers, evaluators and duplicators
and will aggressively pursue all sales opportunities for new equipment, spare
parts and service that become available.
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Automated Tape Libraries
Going forward, all research and development activities will be
conducted and overseen by the Company's engineering department which was
established and staffed in fiscal 1996. The establishment of a research and
development capability has enabled the Company to end its reliance on outside
engineering consultants, giving the Company more immediate control over the
direction, costs, and schedule of product design activities.
The Company believes that the most effective allocation of its
resources requires that the manufacture of the automated tape libraries be done
by a third party. A strategic alliance has been formed with a third party
manufacturer for the production of the ADL libraries. PAGG Corporation, an ISO
9002 certified manufacturer located in Milford, Massachusetts, is currently
manufacturing the first generation of automated tape libraries for the Company.
The Company is developing a sales staff dedicated to the ADL product
line. The staff will have responsibility only for the Company's ADL line of
automated tape libraries. In order to gain the greatest market exposure and
penetration in the shortest amount of time, the Company will focus its sales
efforts on Value Added Resellers ("VARs"), Original Equipment Manufacturers
("OEMs") and large end users.
Certifiers, Evaluators and Duplicators
Opportunities for sales are limited in the Company's traditional
markets. There is significant competition for each sales opportunity, leading to
severe pricing pressures. The Company believes it is a leading manufacturer of
certification equipment by virtue of its proven technology and widespread
acceptance of its products and is therefore well positioned to compete for
available business. The Company believes it is similarly well situated in the
market for tape testing equipment. The Company has gained market share in the
duplication market and continues to refine its product offering to meet customer
requirements.
The Company will continue to support owners of its equipment with spare
parts and service. Likewise, the Company will seek out and aggressively pursue
sales opportunities for its traditional products in their historical markets as
well as potential new applications.
PRODUCTS
Automated Tape Libraries
The ADL line of automated tape libraries includes libraries based on
8mm tape technology and 4mm tape technology with a library based on DLT tape
technology scheduled to be produced during fiscal year 1997. Each library
developed by ADL capitalizes on the design of its predecessor libraries,
shortening the development cycle and increasing reliability. ADL's Scaleable
Library Architecture ("SLA") includes radical design innovations for automated
tape libraries compared with competitive products.
Potential customers for the ADL line of automated tape libraries are
data dependent companies in all types of businesses. In fiscal 1996, the Company
sold only pre-production units, and began delivering production units in the
first quarter of fiscal 1997.
Features of ADL automated tape libraries include:
* Independent loading mechanisms which can operate with each tape drive
simultaneously, eliminating the need for robotic mechanisms and
providing critical redundancy to ensure data security and availability.
* A "hot swap" feature that allows the user to service and add drives
to an ADL library without shutting it down, resulting in nearly 100% up
time and uninterrupted data availability.
* The Company believes it has highest ratio of drives to cartridges in
the industry, creating multiple data access paths.
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* Mixed Media Interchange capability allowing the user to access
through the library data held on media other than those incorporated in
the library. For example, the user could store or retrieve data from
such media as CD-ROM, QIC tape, 4mm tape or floppy disk through an 8mm
library.
* Scalability of drives, user options and DataPaks for customizing
and/or upgrading ADL libraries.
* Expandability for future applications.
4mm libraries can be configured with from one to six tape drives and
with DataPaks holding from 20 to 72 cartridges, with native storage capacity of
up to 288 GB. 8mm libraries can be configured with from one to six tape drives
and with DataPaks holding from 14 to 52 cartridges, with native storage capacity
of up to 364 GB. The DLT library to be introduced during fiscal year 1997 will
be configured with up to five tape drives and with DataPaks holding up to 26
cartridges, with native storage capacity of up to 520 GB. In fiscal 1996, the
Company sold only pre-production units, and began delivering production units in
the first quarter of fiscal 1997.
Disk Certifiers
Media Logic manufactures semi-automatic and automatic disk certifiers
used by computer disk manufacturers to test each disk as it comes off a
production line. The certifiers are designed to run 24 hours a day, seven days a
week. Certifiers perform a series of tests on each disk, sorting newly
manufactured disks in up to three categories:
Category 1 - exceeds ANSI standards
Category 2 - meets ANSI standards
Category 3 - does not meet ANSI standards
The Company believed that it is a recognized as the leader in the
certifier market because of the high throughput and reliability of its products.
Prices range from $50,000 for six spindle hand loaded units to over $500,000 for
customized automated 60-spindle systems.
Disk Evaluators
The ML5000 is a disk evaluator for blank disks. It is widely used by
both manufacturers and users of disks. This desktop unit is designed for
engineers to provide quality assurance by testing selected samples of computer
disks for a variety of performance and manufacturing characteristics. Typical
customers include disk manufacturers, software publishers, duplication houses
and government agencies. Prices range from $15,000 to $28,000, depending on the
configuration.
Tape Certifiers and Evaluators
The ML4500B is a tape test system designed for maximum flexibility
through the use of plug-in modules for the various types of tapes to be tested.
The user can add test capabilities to the ML4500B at any time by purchasing
additional plug-in modules. Customers include tape manufacturers and users of
large amounts of tape. This desktop unit sells in the price range of $65,000 to
$90,000.
Duplicators
The Company manufactures and sells a line of AccuCopy duplicators
incorporating the Company's proprietary AccuCopy industrial disk drive.
Principal customers for AccuCopy duplicators include disk manufacturers, who are
increasingly providing disk formatting and duplication services to maximize the
prices they can charge for their disks, and major software duplicators. The
Company sells both three and six spindle versions of the AccuCopy duplicator at
prices ranging from $24,000 to $60,000.
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The Company also sells the Spectrum line of single spindle duplicators.
This product is designed for those customers whose duplication needs are
relatively modest or who do not require the industrial quality of the AccuCopy
series of duplicators. The Spectrum duplicators are priced in the range of
$5,000 per spindle.
SALES AND MARKETING
Automated Tape Libraries
The Company sells its automated tape libraries through multiple
channels including value added resellers ("VARs"), original equipment
manufacturers ("OEMs"), and end users. A dedicated sales force was established
in fiscal 1996 with the addition of a Vice President of Sales. The Company is
currently in the process of establishing and staffing several regional sales
offices.
Certifiers, Evaluators and Duplicators
Currently all the Company's sales are generated by the Company's
internal sales group. The Company has sales staff located at its home office in
Plainville, Massachusetts and at regional sales offices in Fremont, California
and Hong Kong. A technician is located at each regional sales office to provide
technical support to the Company's customers in the region.
The Company provides technical support services to customers throughout
the world from its headquarters in Plainville, Massachusetts. Field service
personnel staff a technical hotline and coordinate service requirements. In
addition, repair and refurbishment services are provided through the field
service department.
Approximately 74% of the Company's fiscal 1996 sales were to customers
located outside the United States and, therefore, the Company is subject to
risks common to foreign activities including government regulations, political
and economic instabilities, trade barriers and transaction risks. Substantially
all of the Company's sales are transacted in U.S. dollars eliminating
significant currency risk to the Company. In many cases, international shipments
are covered by letters of credit.
In fiscal 1996, no single customer accounted for 10% or more of the
Company's sales. Because of the non-recurring nature of the Company's largest
orders, the identity of its major customers changes from year to year.
Therefore, the Company does not believe that it is dependent on sales to only
one customer.
BACKLOG
At June 26, 1996, the Company's backlog was $1,069,363 compared to
$457,000 at June 28, 1995. All of the orders included in the Company's backlog
were requested to be filled and completed within six months and are, subject to
possible customer cancellation, expected to be filled in that time frame. The
Company does not believe its backlog is an accurate prediction of its annual or
quarterly revenues.
PATENTS
Prior to fiscal year 1996, the Company relied upon know-how rather than
patents to develop and maintain its competitive position with respect to its
historical product lines. Insofar as related to its certifiers, evaluators and
duplicators, the Company believes that a variety of factors including its
products, design and applications experience, and its reputation are sufficient
to protect its interests in these markets.
The Company recognizes the value of patents in designs and processes
and holds the rights under several patent applications covering the underlying
technology of its automated tape libraries. The Company expects to seek
additional patents as technological advances require. The Company also protects
its technology and proprietary information through trade secrets, copyright,
trademarks, and licenses.
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RESEARCH AND PRODUCT DEVELOPMENT
The Company has focused its research and development efforts on the ADL
line of automated tape libraries. Expenditures for research and development of
this product line in fiscal 1996 were $3,374,685, compared with $2,375,698 in
fiscal 1995. A substantial portion of the research and development expenditures
in fiscal 1996 were made pursuant to a contract with an engineering consulting
firm which expired during the year and has not been renewed. All work product
generated pursuant to the contract is the property of the Company. During fiscal
1996, the Company established an in-house engineering department which will be
responsible for all future research and development activities.
The Company spent $651,768 on research and development activities
related to the certification, evaluation and duplication products in fiscal 1996
compared to $1,575,235 in fiscal 1995 and $1,712,639 in fiscal 1994.
As of March 31, 1996, the Company employed 13 engineers and designers,
including software, mechanical and electrical engineers. Of this number, 9 were
assigned to automated tape libraries. The Company expects to add engineers to
its staff during fiscal 1997 as it undertakes research and development
activities which had previously been conducted by consultants. The Company
continues to seek out new products and new applications for its current
products.
MANUFACTURING
All of the Company's certifiers, evaluators and duplicators are
manufactured at the Company's Plainville, Massachusetts facility. The Company's
manufacturing activities consist of subassembly, final assembly and testing
along with software development. Virtually all of the Company's printed circuit
boards are manufactured by third parties in the United States. The Company
believes that it is advantageous to have multiple sources available for printed
circuit boards, fabricated parts and other essential components and generally
attempts to locate more than one qualified vendor for the manufacture of each
fabricated part used in the production of Company products.
The Company's ADL line of automated tape libraries is manufactured by
PAGG Manufacturing Company of Milford, Massachusetts. The Company believes that
PAGG has the technical and manufacturing experience and capacity to meet the
Company's requirements in the foreseeable future.
The Company believes that there are many manufacturers qualified to
build the ADL line of automated tape libraries should the Company seek
alternative manufacturing sources.
COMPETITION
Each of the markets in which the Company participates is highly
competitive. In each market some of the Company's current and prospective
competitors have greater financial, technical, manufacturing and marketing
resources than the Company. There can be no assurance that the Company's
competitors will not succeed in developing technologies and products that are
more effective than any which are being developed by the Company and which could
render certain of the Company's technology obsolete.
Two Japanese companies, Expert Magnetics and Hi-Tek Seiko, are the
Company's principal competitors in the market for certification equipment. AME,
an Irish company, is the principal competitor in the market for desk top
evaluators. The Company competes with Rimage Corporation and Trace Mountain
Corporation among others in the market for duplication equipment.
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Numerous companies are engaged in the development and commercialization
of automated tape libraries. Several manufacturers of tape storage systems have
introduced libraries incorporating their tape drives. These companies include
IBM, Hewlett-Packard, Exabyte and Quantum Corporation. The Company does not own
proprietary tape drive technology and is therefore dependent on third party
manufacturers of storage devices for incorporation of its libraries. Other
competitors in the automated tape library market include Odetics, Qualstar,
Spectra Logic, and ADIC.
EMPLOYEES
The Company had 45 employees on March 31, 1996, of whom 26 were located
in Plainville, Massachusetts, 3 were located at the regional sales office in
Fremont, California, 3 were located at the regional sales office in Hong Kong,
and 13 were located in Boulder, Colorado at the offices of MediaLogic ADL. Of
the total employees, 13 are engaged in research and development, 7 in sales and
marketing, 3 in finance, 4 in administration and 18 in operations. The Company's
employees are not represented under any collective bargaining agreement. The
Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company leases its headquarters in Plainville, Massachusetts from a
realty trust, the beneficiaries of which are David R. Lennox, the former
Chairman of the Company, and Klaus J. Peter, a Senior Vice President of the
Company. The facility has a total of 18,000 square feet. See Note 3 of Notes to
Consolidated Financial Statements.
The regional sales office in Fremont, California occupies a leased
office suite of approximately 1200 square feet. The regional sale office in Hong
Kong occupies an approximately 1000 square foot leased office suite in central
Hong Kong.
MediaLogic ADL occupies a leased facility of approximately 6000 square
feet in Boulder, Colorado. The facility includes sales and marketing offices as
well as space for research and development and service.
ITEM 3. LEGAL PROCEEDINGS
On January 17, 1996, the Company and its subsidiary, MediaLogic ADL,
Inc. ("ADL") filed an action against Christian P. Marlowe ("Marlowe") and the
Marlowe Engineering Company ("Marlowe Engineering") , formerly consulting
engineers to the Company, seeking a declaratory judgment as to the
enforceability of several contracts between the Company and ADL and Marlowe and
Marlowe Engineering.
On June 5, 1996, Marlowe and Marlowe Engineering filed an answer
and counterclaim. The Company and ADL believe that the counterclaims are without
merit and that the Company and ADL have complied in all material respects with
the terms of the contracts with Marlowe and Marlowe Engineering. The Company and
ADL further believe that, in any event, a negative decision by the Court would
not have a material adverse effect on the Company or ADL.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES AND RELATED
STOCKHOLDER MATTERS
<TABLE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the American Stock Exchange
under the symbol "TST". Subsequent to the Company's initial public offering in
1987 until March 17, 1992, the Company's Common Stock traded on the NASDAQ Stock
Market under the symbol "TSTM". The Company's Common Stock commenced trading on
the American Stock Exchange Emerging Company Marketplace on March 18, 1992,
under the symbol "TST.EC" and on the American Stock Exchange on October 14,
1992, under the symbol "TST". The following table sets forth high and low
closing sale prices of the Common Stock on the American Stock Exchange during
the periods indicated below. <CAPTION>
HIGH LOW
PRICE PRICE
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<S> <C> <C>
FISCAL 1995
First Quarter ......................... $2.69 $1.81
Second Quarter ........................ 2.31 1.38
Third Quarter ......................... 2.94 2.25
Fourth Quarter ........................ 2.69 1.94
FISCAL 1996
First Quarter ......................... 2.06 1.25
Second Quarter ........................ 6.06 1.38
Third Quarter ......................... 9.63 4.19
Fourth Quarter ........................ 8.56 5.75
</TABLE>
As of June 26, 1995, there were 263 shareholders of record.
DIVIDEND POLICY
The Company has not paid cash dividends since its inception. The
Company currently intends to retain all of its earnings, if any, to finance the
development and growth of its business and does not anticipate paying any cash
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
The following selected data of the Company is qualified by reference
to and should be read in conjunction with the consolidated financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ....................................... $8,572 $21,267 $15,489 $ 5,836 $ 3,578
Cost of sales ................................... 4,463 9,346 6,727 5,521 2,801
------ ------- ------- -------- -------
Gross profit ............................... 4,109 11,921 8,762 315 777
Operating expenses:
Selling, general and administrative ............. 2,444 4,533 5,462 5,503 4,651
Research and development ........................ 569 1,071 1,712 3,951 4,026
------ ------- ------- -------- -------
Income (loss) from operations .............. 1,096 6,317 1,588 (9,139) (7,900)
Settlement Costs ................................ -- -- (676) (2,230) (30)
Other income (expense) .......................... (11) 64 264 220 111
------ ------- ------- -------- -------
Income (loss) before provision (benefit) for
income taxes ........................... 1,085 6,381 1,176 (11,149) (7,819)
Provision (benefit) for income taxes ............ 136 2,152 446 (1,168) 0
------ ------- ------- -------- -------
Net income (loss) .......................... $ 949 $ 4,229 $ 730 $ (9,981) $(7,819)
====== ======= ======= ======== =======
Net income (loss) per common and common
equivalent share ......................... $ 0.25 $ 1.01 $ .15 $ (2.01) ($ 1.40)
====== ======= ======= ======== =======
Weighted average number of common and
common equivalent shares outstanding ........ 3,858 4,169 4,975 4,968 5,585
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ............................ $2,392 $ 7,269 $18,783 $ 8,473 $6,163
Total assets .............................. 4,555 12,879 22,705 11,104 7,965
Long-term debt, less current portion ...... -- -- -- -- --
Stockholders, equity ...................... $2,960 $ 7,830 $19,720 $ 9,767 $7,016
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
Prior to fiscal 1994, the Company was principally engaged in the
development, manufacture and sale of test equipment for computer media,
primarily floppy disks and tape. Beginning in fiscal 1994, the Company developed
and brought to market a heavy duty industrial disk drive and floppy disk
duplication equipment which incorporated the drives. Together, these products
constituted what is now considered to be the Company's traditional business. The
market for these traditional products has been negatively impacted in recent
years by a number of factors including but not limited to:
* competition among disk manufacturers, the principal customer for the
Company's certification equipment, which led to lower disk prices.
Manufacturers had less money to spend on additional capital equipment
and the low margins made the business unattractive to potential new
entrants,
* the wide spread acceptance of CD-ROM as an effective medium for the
delivery of software negatively impacted the demand for higher quality
disks,
* the closing of the Chinese market, eliminating the Company's largest
market for new equipment and providing a source of used equipment to be
sold in non-Chinese markets in competition with the Company's new
equipment.
The Company recognized the declining nature of its traditional markets
and in fiscal 1995 established a subsidiary company, MediaLogic ADL, Inc.,
("ADL"), to develop, market and sell automated tape libraries into the data
storage market. The Company believes that the market for automated tape
libraries is large and growing and that the line of libraries which has been
developed by the Company meets the data storage and retrieval requirements of a
large range of customers. The substantial majority of the Company's resources
are now, and will continue increasingly to be, devoted to the development of
this product line. The Company expects the majority of its sales in fiscal 1997
to be generated by the ADL line of automated tape libraries.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth, for the indicated periods, certain data
as percentages of the Company's net sales.
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1994 1995 1996
------ ------ -----
<S> <C> <C> <C>
Net sales .............................................. 100.0% 100.0% 100.0%
Cost of goods sold ..................................... 43.4 94.6 78.3
----- ------ ------
Gross profit ................................. 56.6 5.4 21.7
Selling, general and administrative expenses ........... 35.3 94.3 130.0
Research and development expenses ...................... 11.1 67.7 112.5
----- ------ ------
Operating income ............................. 10.2 (156.6) (220.8)
Settlement Costs ....................................... (4.4) (38.2) (0.8)
Other income ........................................... 1.7 3.7 3.1
----- ------ ------
Income (loss) before taxes ................... 7.5 (191.1) (218.5)
Provision (Benefit) for Income Taxes ................... 2.9 (20.0) 0.0
----- ------ ------
Net income (loss) ..................................... 4.6% (171.1%) (218.5%)
</TABLE>
10
<PAGE> 13
Twelve Months Ended March 31, 1996 Compared to Twelve Months Ended March 31,
1995
Sales for the twelve month period ended March 31, 1996 decreased by 38.7%
compared to fiscal 1995 which had decreased by 62.3% compared to fiscal 1994.
This steady decline in revenue is primarily the result of severe pricing
pressures in the sale of floppy disks, discouraging current manufacturers from
adding capacity and creating barriers to new entrants into the market.
Additionally, a significant number of manufacturers of floppy disks have gone
out of business, particularly in China, flooding the market with used equipment.
This has led to increased competition for the limited opportunities available
and lower prices for equipment.
<TABLE>
Revenues by product are summarized in the following table.
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Certifiers $ 775,960 $ 2,706,400 $ 10,523,090
Disk Evaluators 69,510 294,905 1,499,058
Tape Evaluators 527,337 1,261,961 930,105
AccuCopy 629,317 498,835 93,070
Spares 1,576,112 1,073,593 2,443,940
----------- ----------- ------------
$ 3,578,236 $ 5,835,694 $ 15,489,263
=========== =========== ============
</TABLE>
Revenue from the sale of certifiers accounted for 21.7% of the Company's
revenues in fiscal 1996 as compared to 46.4% in fiscal 1995 and 67.9% in fiscal
1994. This is reflective of the fact that disk manufacturers are not adding
manufacturing capacity and therefore do not require additional certifiers.
Sales of new certifiers are also adversely affected by the availability of used
certifiers. The Company believes that it continues to be a leading manufacturer
of disk certification equipment and that it is well positioned to secure what
opportunities become available. However, the Company does not expect the market
for disk certification equipment to increase substantially in fiscal 1997, and
the Company furthermore expects to continue to encounter severe competition for
those opportunities which arise.
Revenue from disk evaluators represents 2% of the Company's revenue in
fiscal 1996 compared to 5.1% of sales in fiscal 1995 and 9.7% of sales in fiscal
1994. As with certifiers, sales of disk evaluators, which are used primarily by
disk manufacturers to test the quality of disks from their production, are
directly related to the addition of manufacturing capacity.
Revenue from tape evaluators decreased to 14.7% of sales in fiscal 1996
compared to 21.6% in fiscal 1995 and 6% in fiscal 1994. The Company believes
that fiscal 1995 sales were higher because of the introduction of the 4500B tape
evaluator during that fiscal year and that fiscal 1996 sales are representative
of the market for the Company's tape evaluator products.
AccuCopy drives and duplicators represent 17.6% of fiscal 1996 revenues as
compared to 8.5% of fiscal 1995 revenues and 1% of fiscal 1994 revenues. The
increase is primarily in the sale of duplicators which incorporate AccuCopy
drives as the Company has established itself as a viable supplier to the
duplication market.
Customer service and spares business accounted for 44% of the Company's
sales in fiscal 1996, 18.4% in fiscal 1995, and 15.8% in fiscal 1994. This
represents an increase of 47% in actual revenues for service and spares, despite
a significant reduction in new system sales. The Company has emphasized the sale
of service and spare parts to take advantage of its installed base and to offset
a portion of the shortfall in new system sales.
11
<PAGE> 14
Sales of the ADL line of automated libraries constituted less than one
percent of total sales in fiscal 1996. The Company expects sales of this product
line to be a substantial portion of the Company's revenues in fiscal 1997.
International revenues decreased from $4,365,142 in fiscal 1995 to
$2,636,264 in fiscal 1996. Sales fell in all geographic regions, reflecting
general industry conditions. The Company is continuing to pursue opportunities
in sections of the world which have not previously been served by disk
manufacturers. The following table summarizes sales by geographic region.
<TABLE>
SALES BY GEOGRAPHIC REGION
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
----------- ----------- -----------
<S> <C> <C> <C>
Far East (excluding China) $1,588,867 $2,368,837 $ 6,181,109
China 6,529 0 2,960,843
Europe 272,617 793,793 2,608,393
Domestic 941,972 1,470,552 1,517,206
Other 768,251 1,202,512 2,221,712
---------- ---------- -----------
$3,578,236 $5,835,694 $15,489,263
========== ========== ===========
</TABLE>
Total costs and expenses, excluding any income tax provision (benefit), as a
percentage of revenue were 322.6% in fiscal 1996 as compared to 295.3% in fiscal
1995 and 94.3% in fiscal 1994. The principal reason, discussed in detail below,
has been the decision by the Company to aggressively fund the development and
introduction of the ADL line of automated tape libraries. Strict controls have
been instituted on the traditional portion of the Company's business and the
effect of these controls is reflected in the results. All manufacturing of the
Company's traditional product lines was consolidated at the Company's
Plainville, Massachusetts facility. Employees numbered 45 at March 31, 1996 as
compared to 74 at March 31, 1995. 32 employees were assigned to the Company's
traditional product lines while 13 were assigned to the ADL project. Headcount
of June 26, 1996, is 43. The Company expects to add additional employees to the
ADL project during fiscal 1997. Headcount by location is as follows:
<TABLE>
HEADCOUNT BY LOCATION
<CAPTION>
JUNE 28, MARCH 31, MARCH 31, MARCH 31,
1996 1996 1995 1994
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Media Logic, Plainville 24 26 53 56
Media Logic, West 2 3 10 10
Media Logic Far East 3 3 3 4
Media Logic ADL 14 13 8 --
-- -- -- --
43 45 74 70
== == == ==
</TABLE>
Cost of goods sold as a percentage of revenue decreased to 78.3% in fiscal
1996 from 94.6% in fiscal 1995 and 43.4% in fiscal 1994. The reduction in the
cost of goods sold percentage from 1995 to 1996, despite a significant
reduction in sales for that period, reflects the strict controls which have
been instituted by the Company. Future gross margins will be impacted by
continuing cost reduction programs, the product mix of future revenues
including the ADL line of automated tape libraries, and sales volume. The
Company will continue to monitor events in an attempt to improve its gross
margin levels.
12
<PAGE> 15
<TABLE>
RESEARCH AND DEVELOPMENT
Research and development expense increased approximately 2% from $3,950,933
in fiscal 1995 to $4,026,453 in fiscal 1996. 84% of the total research and
development expenditures in fiscal 1996 were associated with the ADL line of
automated tape libraries which is the Company's primary area of focus. ADL
research and development expenses increased by 42% in fiscal 1996 over the prior
year. Research and development expenses related to the Company's traditional
product lines of certification, evaluation and duplication decreased by 59% to
$651,768 in fiscal 1996. The following table represents all of the research and
development costs for the periods indicated.
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1996
----------- ----------- -----------
<S> <C> <C> <C>
ADL related 3,374,685 2,375,698 --
Other $ 651,768 $1,575,235 $1,712,639
---------- ---------- ----------
$4,026,453 $3,950,933 $1,712,639
========== ========== ==========
</TABLE>
<TABLE>
SELLING GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses decreased by $852,239 or 15% from fiscal 1995. SG&A
expenditures related to the Company's traditional product lines were reduced by
$1,159,369 or 27.5% in fiscal 1996 as compared to fiscal 1995. SG&A expenses
associated with the ADL line of automated tape libraries increased by $307,130
or 24% in fiscal 1996 compared to the prior fiscal year.
<CAPTION>
FISCAL 1996 FISCAL 1995 FISCAL 1994
----------- ----------- -----------
<S> <C> <C> <C>
ADL 1,599,403 1,292,273 --
Other $3,051,674 $4,211,043 $5,461,919
---------- ---------- ----------
4,651,077 $5,503,316 $5,461,919
========== ========== ==========
</TABLE>
OTHER EXPENSES
. None.
TWELVE MONTHS ENDED MARCH 31, 1995 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1994
Revenue from the sale of certifiers accounted for 46.4% of Company
revenues in fiscal 1995 as compared to 67.9% in fiscal 1994 and 81.1% in
fiscal 1993, due to the depressed market for certification equipment.
Revenues from tape evaluators represented 21.6% of the Company revenue in
fiscal 1995, as compared to 6.0% in fiscal 1994. The primary reason for this
increase was the introduction by the Company in fiscal 1995 of the ML4500B
Removable Media Evaluator.
Disk evaluator sales dropped from 9.7% of sales in fiscal 1994 and to 5.1%
of sales in fiscal 1995. The reduction in expenditures for capital equipment by
disk manufacturers directly resulted in lower sales of the ML5000 Disk Evaluator
which is primarily used by manufacturers to test the quality of disks from their
production.
13
<PAGE> 16
AccuCopy drives and duplicators represented 8.5% of sales in fiscal 1995
as compared to 1% in fiscal 1994.
Customer service and spares business accounted for 18.4% of the Company's
sales in fiscal 1995 and 15.8% in fiscal 1994. Revenues from customer service
and spares dropped from $2,443,940 in fiscal 1994 to $1,073,593 in fiscal 1995.
This was directly due to lower certifier sales. Large spares orders are
typically placed when new systems are delivered and the lower number of system
sales resulted in fewer spares orders.
International revenues decreased from $13,972,057 to $4,365,142 and
decreased as a percentage of sales from 90.2% in fiscal 1994 to 74.8% in fiscal
1995. Far East revenues, excluding China, decreased from $6,181,109 to
$2,368,837. The Company believes that some products are subsequently resold by
the original buyer to companies in China, but is unable to definitively
determine the amount of such sales. European revenues decreased from $2,608,393
to $793,793.
Total costs and expenses, excluding any income tax provision (benefit), as
a percentage of revenue were 295.3% in fiscal 1995 compared with 94.3% in
fiscal 1994. Principal reasons, which are discussed more fully below, include a
revenue shortfall below the level required to absorb fixed costs, the necessity
to maintain research and development costs at a relatively high level through a
portion of the fiscal year to complete new products, and reduced margins due to
competitive pricing pressures. The Company has taken several steps to reduce
costs including staff reductions, consolidation of operations and institution of
strict financial controls. Headcount totaled 74 at the end of fiscal 1995 as
compared to 70 at the end of fiscal 1994.
Cost of goods sold as a percentage of revenues increased to 94.6% from
43.4% in fiscal 1994. Margins decreased across product lines as a result of
competitive pricing pressures.
Research and development expenses increased 131% to $3,950,933 in fiscal
1995 compared to $1,712,639 in fiscal 1994. There were two major research and
development efforts in fiscal 1995. The Company completed and introduced to
market a new disk certifier, tape evaluator and duplication equipment. The
associated research and development has been completed and engineering support
has been reduced to sustaining levels. Research and development headcount in
these areas was reduced from 17 at March 31, 1994, to 9 at March 31, 1995.
The second major area of research and development expenditure was the
development of the automated data storage library product line by the Company's
ADL subsidiary. This effort, which commenced in July 1994, was a major consumer
of the Company's resources.
SG&A expenses increased by $41,397 or less than 1% from fiscal 1994.
Overhead reductions made in response to business conditions led to a decrease in
SG&A expenses for Plainville, Media Logic West and MLFE of $1,250,876 or 23%
over fiscal 1994. At the same time the Company incurred additional SG&A expenses
related to the start up of the ADL subsidiary.
On October 7, 1994, the Company entered into a Stipulation of Settlement in
the litigation captioned IN RE MEDIA LOGIC SECURITIES LITIGATIONS. Under the
terms of the Stipulation of Settlement, the Company made a payment of $2.05
million to resolve all claims of purchasers of its common stock between January
5, 1993, and September 9, 1993, against the Company, David Lennox, Klaus Peter
and Paul O'Brien. The Company and individual defendants deny any wrongdoing but
entered the Stipulation of Settlement to avoid the expense, burden and
uncertainty associated with continued litigation. On September 19, 1994, the
Company agreed to the payment of the $2.05 million as settlement of the suit
discussed above. Accordingly, the Company recognized a provision in the
accompanying financial statements in the second quarter of fiscal 1995 of $2.230
million, including legal cost.
The Company's effective income tax rate was a 10% benefit in fiscal 1995,
compared to 38% provision in fiscal 1994. The effective tax benefit in fiscal
1995 relates to the amount of federal net operating loss carrybacks generated in
the current year. The higher effective tax rate in fiscal 1994 resulted
primarily from the increase of the deferred tax asset valuation allowance which
is partially offset by a greater foreign sales corporation tax credit in fiscal
1994.
14
<PAGE> 17
QUARTERLY INFORMATION
<TABLE>
The following selected data of the Company is qualified by and should be
read in conjunction with, the consolidated financial statements, including the
notes thereto, and "Management's Discussion and Analysis and Results of
Operations" included elsewhere in this report.
QUARTER ENDED
--------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .......................... 532 974 2,124 2,206 667 701 1,070 1,140
Cost of sales ...................... 1,280 804 1,382 2,055 567 543 752 939
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss) .............. (748) 170 742 151 100 158 318 201
Selling, general and
administrative expenses .......... 1,330 1,420 1,595 1,158 1,122 1,088 1,192 1,250
Research and development
expenses ......................... 712 875 1,319 1,045 900 751 957 1,417
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations ...... (2,790) (2,125) (2,172) (2,052) (1,922) (1,681) (1,831) (2,466)
Settlement Costs ................... -- (2,230) -- -- -- -- -- (30)
Other income ....................... 82 107 16 15 24 16 49 22
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
(benefit) income taxes ......... (2,708) (4,248) (2,156) (2,037) (1,898) (1,665) (1,782) (2,474)
Provision (benefit) for income
taxes............................. (300) (300) (300) (268) 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) ................ $(2,408) $(3,948) $(1,856) $(1,769) $(1,898) $(1,665) $(1,782) $(2,474)
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
The following table sets forth for the periods indicated the percentage of
net sales represented by the indicated items:
<CAPTION>
QUARTER ENDED
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales .......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ...................... 240.6 82.5 65.1 93.2 85.0 77.5 70.3 82.4
------ ------ ------ ----- ------ ------ ------ ------
Gross profit (loss) .............. (140.6) 17.5 34.9 6.8 15.0 22.5 29.7 17.6
Selling, general and
administrative expenses .......... 250.1 145.8 75.1 52.5 168.2 155.2 111.4 109.6
Research and development
expenses ......................... 134.0 89.8 62.1 47.3 134.9 107.1 89.4 124.3
------ ------ ------ ----- ------ ------ ------ ------
Income (loss) from operations ...... (524.7) (218.1) (102.3) (93.0) (288.1) (239.8) (171.1) (216.3)
Settlement Costs ................... -- (229.0) -- -- (2.6)
Other income ....................... 15.4 11.0 .8 .7 3.5 2.3 4.6 1.9
------ ------ ------ ----- ------ ------ ------ ------
Income (loss) before provision
(benefit) for income taxes ........ (509.3) (436.1) (101.5) (92.3) (284.6) (237.5) (166.5) (217.0)
Provision (benefit) for income
taxes .............................. (56.4) (30.8) (14.1) (12.1) 0.0 0.0 0.0 0.0
------ ------ ------ ----- ------ ------ ------ ------
Net income (loss) ................ (452.9%) (405.3%) (87.4%) (80.2%) (284.6%) (237.5%) (166.5%) (217.0%)
------ ------ ------ ----- ------ ------ ------ ------
</TABLE>
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $6.2 million compared
to $8.5 million at March 31, 1995. The current ratio was 7.5 to 1 as of March
31, 1996 and 7.3 to 1 as of March 31, 1995. The decrease in working capital was
principally due to significant operating losses and funding of the development
of the ADL family of products.
The Company has no debt nor does it have a line of credit or other
committed source of additional financing.
In September 1995, the Company privately placed 1,000,000 shares of its
Common Stock with Raymond W. Leclerc, a private investor. The shares were priced
at $5.00 per share and subject to an absolute restriction on resale for a period
of one year, and, thereafter, certain other resale restrictions. Mr. Leclerc may
not acquire additional shares of the Company's stock if, as a result thereof, he
would own beneficially more than 25% of the Company's Common Stock then
outstanding. The Company has granted Mr. Leclerc certain rights for the
registration of the shares purchased on this placement and appointed Mr. Leclerc
to the Company's Board of Directors. Net proceeds from the placement are to be
used exclusively in connection with the Company's Automated Data Library (ADL)
business.
The Company's internal operating plan for fiscal 1997 shows cash resources
will be available to fund operations through March 31, 1997, if the plan is
substantially achieved. However, because the plan is in large part based on the
sale of ADL automated tape libraries which are currently being introduced into
the market and have not yet achieved widespread acceptance, there is a risk that
the plan might not be achieved. The Company believes that additional sources of
financing would be available if required, but the Company does not have a
committed source of additional funds. Should the Company be required to raise
additional funds, it has no assurance that it would be able to do so in a timely
manner or on favorable terms.
The Company continually monitors the changing business conditions and takes
whatever actions it deems necessary to protect and promote the Company's
interests.
SEASONALITY
The Company's business is not seasonal in nature.
INFLATION
The Company does not believe that its operations have been materially
affected by inflation.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Page F-1 for the index to the consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item is incorporated by reference to the
discussion response thereto under the caption "Proposal 1 - Election of
Directors" and 16(a) Beneficial Ownership Reporting Compliance in the Company's
Proxy Statement for the 1996 Annual Meeting.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is incorporated by reference to the
discussion response thereto under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1996 Annual Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is incorporated by reference to the
discussion response thereto under the caption "Share Ownership" in the Company's
Proxy Statement for the 1996 Annual Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this is incorporated by reference to the
discussion response thereto under the caption "Certain Transactions" in the
Company's Proxy Statement for the 1996 Annual Meeting.
17
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are flied as part of this report:
1. Financial Statements:
See Item 8, Consolidated Financial Statements and Supplementary Data
2. Schedule:
Report of Independent Public Accountants on Supplementary Schedule
II -Valuation and Qualifying Accounts for the years ended March 31, 1994,
1995, and 1996
3. Exhibits required to be filed by Item 601 of Regulation S-K and by Item
14(c):
3.1 Restated Articles of Organization*
3.2 By-Laws of Registrant**
4. Specimen of Registrant's Common Stock Certificate**
10.1 Amended and Restated Profit Sharing and 401(k) Plan effective April 1,
1992***(****)
10.2 1991 Stock Option Plan****(*****)
10.3 Lease between the Company and D&K Realty Trust, dated April 1, 1993**
10.4 Combination Agreement between the Company and John Miller and Peter
Moore, dated as of March 1, 1993***
10.5 Employment Contract between the Company and its Chief Executive
Officer, William Davis****
10.6 Employment Contract between the Company and its Chief Financial
Officer, Paul O'Brien****
10.7 First Amendment to the Employment Contract between the Company and its
Chief Executive Officer, William Davis****
10.8 First Amendment to the Employment Contract between the Company and its
Chief Financial Officer, Paul O'Brien****
10.9 Stock Purchase Agreement between the Company and Raymond W. Leclerc
23. Consent of Arthur Andersen LLP
(b) Reports on Form 8-K:
Not applicable.
* Incorporated by reference to Annual Report Form 10-K for fiscal year
ended March 31, 1993
** Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form S-18 (No 33-14722-B) effective July 23, 1987.
*** Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form S-2 (No 33-63014) filed May 19, 1993.
**** Management contract or compensatory plan required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c) of this report.
***** Incorporated by reference to the Proxy Statement of the Registrant
filed pursuant to Rule 14a-6, dated June 25, 1992.
18
<PAGE> 21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
Media Logic, Inc.
/s/ WILLIAM E. DAVIS, JR.
By:___________________________________________
WILLIAM E. DAVIS, JR.
CHIEF EXECUTIVE OFFICER AND PRESIDENT
/s/ PAUL M. O'BRIEN
By:___________________________________________
PAUL M. O'BRIEN
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
DATE: JUNE 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM E. DAVIS, JR. DIRECTOR AND JUNE 28, 1996
__________________________________ CHIEF EXECUTIVE OFFICER
WILLIAM E. DAVIS, JR. AND PRESIDENT
/s/ KLAUS J. PETER DIRECTOR AND EXECUTIVE JUNE 28, 1996
__________________________________ VICE PRESIDENT
KLAUS J. PETER
/S/ F. MICHAEL HRUBY CHAIRMAN JUNE 28, 1996
__________________________________
F. MICHAEL HRUBY
/s/ HAROLD B. SHUKOVSKY DIRECTOR JUNE 28, 1996
__________________________________
HAROLD B. SHUKOVSKY
/s/ JOSEPH L. MITCHELL DIRECTOR JUNE 28, 1996
__________________________________
JOSEPH L. MITCHELL
/s/ FRANCIS S. WYMAN DIRECTOR JUNE 28, 1996
__________________________________
FRANCIS S. WYMAN
/s/ RAYMOND W. LECLERC DIRECTOR JUNE 28, 1996
__________________________________
RAYMOND W. LECLERC
</TABLE>
19
<PAGE> 22
MEDIA LOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE> 23
MEDIA LOGIC, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of March 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years
Ended March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Public Accountants on Supplementary Schedule S-1
Schedule II--Valuation and Qualifying Accounts S-2
F-1
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Media Logic, Inc.:
We have audited the accompanying consolidated balance sheets of Media Logic,
Inc. (a Massachusetts corporation) and subsidiaries as of March 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Media Logic, Inc. and
subsidiaries as of March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 5, 1996
F-2
<PAGE> 25
MEDIA LOGIC, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS--MARCH 31, 1996 AND 1995
<CAPTION>
ASSETS
1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 4(a)) $ 3,545,477 $ 911,729
Marketable securities -- 2,031,289
Refundable income taxes 27,658 1,729,630
Accounts receivable, net of allowance for doubtful accounts of approximately 998,403 1,248,055
$471,000 and $557,000 at March 31, 1996 and 1995, respectively
Inventories 2,467,149 3,694,397
Prepaid expenses and other current assets 73,397 194,472
------------ -----------
Total current assets 7,112,084 9,809,572
------------ -----------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment 1,554,498 1,525,578
Office equipment and fixtures 397,886 376,910
Leasehold improvements 256,766 255,502
Vehicles 65,283 65,283
------------ -----------
2,274,433 2,223,273
Less--Accumulated depreciation and amortization 1,481,395 965,991
------------ -----------
793,038 1,257,282
------------ -----------
OTHER ASSETS 59,870 37,586
------------ -----------
$ 7,964,992 $11,104,440
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 343,873 $ 839,033
Accrued expenses 605,453 478,558
Customer deposits -- 19,709
------------ -----------
Total current liabilities 949,326 1,337,300
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 5)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized--20,000,000 shares
Issued and outstanding--6,213,809 shares and 4,979,000 shares
at March 31, 1996 and 1995, respectively 62,138 49,790
Additional paid-in capital 19,167,072 14,112,075
Retained deficit (12,213,544) (4,394,725)
------------ -----------
Total stockholders' equity 7,015,666 9,767,140
------------ -----------
Total liabilities and stockholders' equity $ 7,964,992 $11,104,440
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 26
MEDIA LOGIC, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 3,578,236 $ 5,835,694 $15,489,263
COST OF SALES 2,801,009 5,520,891 6,726,916
----------- ------------ -----------
Gross profit 777,227 314,803 8,762,347
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,651,077 5,503,316 5,461,919
RESEARCH AND DEVELOPMENT EXPENSES 4,026,453 3,950,933 1,712,639
----------- ------------ -----------
Income (loss) from operations (7,900,303) (9,139,446) 1,587,789
OTHER INCOME (EXPENSE):
Interest income 144,583 248,601 291,153
Settlement costs (30,000) (2,230,000) (675,930)
Other (33,099) (28,475) (27,094)
----------- ------------ -----------
Income (loss) before provision (benefit)
for income taxes (7,818,819) (11,149,320) 1,175,918
PROVISION (BENEFIT) FOR INCOME TAXES -- (1,168,000) 446,000
----------- ------------ -----------
Net income (loss) $(7,818,819) $ (9,981,320) $ 729,918
=========== ============ ===========
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ (1.40) $ (2.01) $ .15
=========== ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 5,585,025 4,968,141 4,974,550
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 27
MEDIA LOGIC, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<CAPTION>
Additional Retained Cumulative Total
Common Stock Paid-in Earnings Translation Stockholders'
Shares Amount Capital (Deficit) Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 3,882,800 $28,828 $ 2,932,091 $ 4,856,677 $ 2,314 $ 7,829,910
Net income -- -- -- 729,918 -- 729,918
Proceeds from second public offering, net of issuance
costs of approximately $1,228,000 1,000,000 10,000 10,762,289 -- -- 10,772,289
Exercise of stock options, including related tax benefit 70,000 700 297,382 -- -- 298,082
Compensation related to issuance
of nonqualified stock options -- -- 76,568 -- -- 76,568
Exercise of common stock purchase warrants 8,000 80 15,920 -- -- 16,000
Cumulative translation adjustment -- -- -- -- (2,314) (2,314)
--------- ------- ----------- ------------ ------- ------------
BALANCE, MARCH 31, 1994 4,960,800 49,608 14,084,250 5,586,595 -- 19,720,453
Net loss -- -- -- (9,981,320) -- (9,981,320)
Exercise of stock options, including related tax benefit 17,200 172 15,278 -- -- 15,450
Compensation related to issuance of stock options 1,000 10 12,547 -- -- 12,557
--------- ------- ----------- ------------ ------- ------------
BALANCE, MARCH 31, 1995 4,979,000 49,790 14,112,075 (4,394,725) -- 9,767,140
Net loss -- -- -- (7,818,819) -- (7,818,819)
Exercise of stock options 103,900 1,039 83,138 -- -- 84,177
Proceeds from private placement of common stock, net
of issuance costs of $16,832 1,130,909 11,309 4,971,859 -- -- 4,983,168
--------- ------- ----------- ------------ ------- ------------
BALANCE, MARCH 31, 1996 6,213,809 $62,138 $19,167,072 $(12,213,544) $ -- $ 7,015,666
========= ======= =========== ============ ======= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 28
MEDIA LOGIC, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(7,818,819) $(9,981,320) $ 729,918
Adjustments to reconcile net income (loss) to net
cash used in operating activities-
Depreciation and amortization 549,631 424,436 280,715
Compensation expense related to nonqualified
stock options -- 12,557 76,568
Loss on sale and retirements of property and 44,235 134,460 30,531
equipment
Deferred income taxes -- 466,575 (122,950)
Changes in assets and liabilities-
Refundable income taxes 1,701,972 (856,494) (873,136)
Accounts receivable 249,652 1,114,606 963,473
Due from related parties -- 325,520 (136,747)
Inventories 1,227,248 606,140 (1,916,581)
Prepaid expenses and other current assets 121,075 (121,076) (212,909)
Accounts payable (495,160) (1,250,158) 216,990
Accrued expenses 126,895 (416,995) (156,567)
Accrued income taxes -- -- (1,824,686)
Customer deposits (19,709) 19,709 (174,098)
----------- ----------- ------------
Net cash used in operating activities (4,312,980) (9,522,040) (3,119,479)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (129,622) (762,932) (653,421)
Purchase of marketable securities -- -- (11,312,526)
Proceeds from sale of marketable securities 2,031,289 9,281,237 --
Increase in other assets (22,284) (15,344) (5,247)
----------- ----------- ------------
Net cash provided by (used in) investing
activities (1,879,383) 8,502,961 (11,971,194)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from second public offering, net of -- -- 10,772,289
issuance costs
Proceeds from issuance of common stock, net of
issuance costs 4,983,168 -- --
Exercise of common stock purchase warrants -- -- 16,000
Exercise of stock options 84,177 15,450 172,500
----------- ----------- ------------
Net cash provided by financing activities 5,067,345 15,450 10,960,789
----------- ----------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- (2,314)
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,633,748 (1,003,629) (4,132,198)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 911,729 1,915,358 6,047,556
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,545,477 $ 911,729 $ 1,915,358
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 5,963 $ -- $ --
Income taxes -- -- 2,234,394
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 29
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Media Logic, Inc. (the Company) is engaged in the manufacture and sale of
high precision, computer-based test equipment used by computer media
manufacturers, software developers and other computer media users. This
equipment measures the recording performance and quality of digital
information contained in flexible computer disks and magnetic tape
cartridges. The Company also manufactures and sells industrial disk drives
and duplication equipment and develops automated data library products.
Since the second quarter of fiscal 1994, the Company has experienced
significant declining sales. This decrease was due principally to three
factors. First, credit restrictions imposed by the Chinese government on
disk manufacturers in China made it difficult for many of the Company's
customers to obtain letters of credit necessary to purchase the Company's
certifiers. Second, uncertainty in the United States and European Economic
Community developed due to tariffs imposed by the European Community on
disk manufacturers in China and Taiwan. Third, this uncertainty caused a
major erosion in the selling price of diskettes. The lower diskette prices
caused manufacturers to slow or defer expansion, thereby reducing demand
for the Company's certification equipment. Given the high level of sales by
the Company to customers outside of the United States, the Company will
continue to be subject to risks common to foreign activities, including
governmental regulations and trade barriers. As a result, the Company
intends to focus on its existing installed base of equipment by providing
product enhancements, retrofits, spare parts and other services.
The Company began development of its Automated Data Library (ADL) products
in 1995 and raised approximately $4.9 million for the development and
marketing of these products (see Note 4(a)). Subsequent to year-end, the
Company began shipping the ADL product. The Company believes, based on its
operating plan and the cost and headcount reductions implemented in 1995,
that its existing cash will be sufficient to enable the Company to continue
as a going concern through the fiscal year ending March 31, 1997. The
Company continues to evaluate various financing alternatives that may be
required for the business to continue as a going concern beyond that date.
In the event that the Company does not achieve its 1997 operating plan
and/or does not meet its other goals, the Company's overall financial
condition may be impacted negatively.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies described below and elsewhere in
the accompanying notes to consolidated financial statements.
F-7
<PAGE> 30
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
remaining original maturities of 90 days or less to be cash
equivalents. At March 31, 1995, cash and cash equivalents consisted
primarily of certificates of deposit and money market accounts. At
March 31, 1996, cash equivalents consisted primarily of U.S. Treasury
Bills totaling $2,481,000, which are stated at amortized cost, which
approximates market value, and money market accounts of $559,000.
(c) Marketable Securities
The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities. SFAS No. 115
requires enterprises to classify debt and equity securities as either
held-to-maturity, available-for-sale or trading. Under SFAS No. 115,
the accounting for the effects of unrealized gains and losses reported
on investment holdings differs according to the nature of an
investment classification.
As of March 31, 1995, marketable securities consisted of investments
in state and local municipal obligations with an aggregate market
value of approximately $2,087,000, which did not differ materially
from the amount at which these securities are carried on the
consolidated balance sheets at March 31, 1995. The Company carries
nonequity marketable securities at the lower of cost, adjusted for
premium or discount amortization, or market value. The Company held no
marketable securities as of March 31, 1996.
(d) Research and Development
Research and development costs, other than software development costs,
are charged to operations as incurred. SFAS No. 86, Accounting for the
Costs of Computer Software To Be Sold, Leased or Otherwise Marketed,
requires the capitalization of certain computer software development
costs incurred after technological feasibility is established. The
Company believes
F-8
<PAGE> 31
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Research and Development (Continued)
that once technological feasibility of a software product has been
established, the additional development costs incurred to bring the
software to a commercially acceptable level are not significant. There
were no capitalized software development costs at March 31, 1996 and
1995.
(e) Revenue Recognition
Revenue is recognized at the time of product shipment, at which point
title has been transferred. Costs of service and warranty, which are
not significant, are accrued upon shipment.
<TABLE>
(f) Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market and include materials, labor and manufacturing overhead. At
March 31, 1996 and 1995, inventories consisted of the following:
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $1,870,553 $2,612,267
Work in-process 139,265 370,626
Finished goods 457,331 711,504
---------- ----------
$2,467,149 $3,694,397
========== ==========
</TABLE>
<TABLE>
(g) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of property and equipment
over their estimated useful lives, using the straight-line method, as
follows:
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
<S> <C>
Machinery and equipment 5-7 Years
Office equipment and fixtures 3-7 Years
Leasehold improvements 8-20 Years
Vehicles 5-7 Years
</TABLE>
F-9
<PAGE> 32
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Net Income (Loss) per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share has been
computed using the weighted average number of shares of common
stock and common stock equivalents outstanding during each period.
Common stock and common stock issuable pursuant to stock options
and warrants have been reflected as outstanding using the treasury
stock method. For the years ended March 31, 1996 and 1995, stock
options and warrants were excluded from the net loss per share
calculation, as the results would be antidilutive.
(i) Foreign Currency
During fiscal 1994, the Company determined that the functional
currency of its only foreign subsidiary is the United States dollar
after reexamining the criteria of SFAS No. 52, Foreign Currency
Translation. As a result of this determination, the Company no
longer includes gains and losses from the translation of assets and
liabilities denominated in Hong Kong dollars as a cumulative
translation adjustment to stockholders' equity. Application of this
change in accounting principle did not have a material financial
statement impact.
The Company translates the assets and liabilities of its foreign
subsidiary at the rate of exchange in effect at year-end. Revenues
and expenses are translated using a weighted average of exchange
rates in effect during the period. Gains and losses from both
foreign currency translation and transactions, which are not
material, are classified within selling, general and administrative
expenses in the accompanying consolidated statements of operations.
(j) Other Employment Benefits
The Company has no obligations for postretirement benefits under
SFAS No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, or postemployment benefits under SFAS No. 112,
Employers' Accounting for Postemployment Benefits, as it does not
currently offer such benefits.
(k) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-10
<PAGE> 33
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) Prior Year Reclassification
Certain amounts in the prior year's financial statements have been
reclassified in order to conform with the current year's presentation.
(m) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. The Company has no
significant off-balance-sheet concentration of credit risk such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements.
(n) Disclosure About Fair Value of Financial Instruments
Effective March 31, 1996, the Company adopted SFAS No. 107, Disclosure
About Fair Value of Financial Instruments, which requires that the
Company disclose estimated fair values for certain of its financial
instruments. As of March 31, 1996, the Company's financial instruments
include cash and cash equivalents, accounts receivable and accounts
payable. The carrying amounts of these financial instruments
approximate their fair value.
(2) LEGAL PROCEEDINGS
On January 17, 1996, the Company filed suit against Christian Marlowe
(Marlowe) and the Marlowe Engineering Company (Marlowe Engineering) for a
declaration that Media Logic ADL, Inc. (ML-ADL) properly terminated
agreements with Marlowe and Marlowe Engineering and that ML-ADL owned
technology developed in conjunction with Marlowe and Marlowe Engineering.
On June 5, 1996, Marlowe and Marlowe Engineering filed an answer and
counter claims against the Company alleging breach of contract and other
charges, asserting that the Company improperly terminated agreements with
them, refused to recognize certain stock options and improperly assigned
certain patents.
The Company believes that the counterclaims are without merit and that the
Company has complied in all material respects with the terms of the
contracts with Marlowe and Marlowe Engineering. The Company further
believes that ultimately any negative decision by the court, if rendered,
would not have a material adverse effect on the Company.
F-11
<PAGE> 34
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(2) LEGAL PROCEEDINGS (Continued)
On September 16, 1993, several stockholders, as purported representatives
for all other persons or entities who purchased the Company's common stock
during the period beginning on May 19, 1993 through September 9, 1993,
brought claims against the Company and three of the Company's officers in
the United States District Court for the District of Massachusetts as a
class action. On January 19, 1994, the plaintiffs filed a consolidated and
amended complaint in federal district court in Massachusetts under the
caption, in re: Media Logic, Inc. Securities Litigation, Civil Action No.
93-12037-H. The lawsuit alleged, among other things, that the Company and
the named officers and directors violated Section 10(b) of the Securities
Exchange Act of 1934 by making material misrepresentations or omitting
material information in statements issued by or on behalf of the Company.
On November 29, 1994, the United States District Court for the District of
Massachusetts approved a settlement of the securities claim action pending
against the Company and the named officers and entered final judgment
dismissing all claims. The settlement provided for a payment of $2.05
million plus legal costs associated with the settlement, included in
settlement charges in the accompanying consolidated statement of operations
for fiscal 1995.
On June 10, 1993, the Company was served with a complaint filed by
Laudholm, Inc. (LAS) in the United States District Court for the District
of Maine. The plaintiff, a supplier of automated equipment used in certain
Company certification products, sought monetary damages and certain
nonmonetary relief in connection with alleged violations of contractual and
common law duties. The Company denied the LAS allegations and asserted
counterclaims. In December 1993, the action was dismissed with prejudice.
In connection with this litigation, the Company incurred a nonrecurring
charge of $368,000. Pursuant to this settlement, LAS granted the Company
certain technological rights which the Company did not value.
On June 22, 1993, the Company was served with a complaint filed by
Providence Securities, Inc. and its principals in the United States
District Court for the District of Rhode Island. Subsequently, two Company
officers were added as defendants to the case. The plaintiffs sought
damages in connection with breach of an alleged oral agreement by the
Company to extend the term of a warrant to purchase 120,000 shares of the
Company's common stock at a price of $2.40 per share, which expired in
1991. A motion to dismiss this action was denied, and the Company and the
two officers/defendants answered the complaint and asserted counterclaims.
In May 1994, the action was dismissed by agreement with judgment entering
in favor of the Company and its officers. In connection with this
litigation, the Company incurred a nonrecurring charge in fiscal 1994 of
$308,000.
From time to time, the Company is involved in litigation. At the current
time, the Company does not believe that any existing or pending litigation
would have a material effect on the consolidated financial statements.
F-12
<PAGE> 35
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(3) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS
No. 109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates expected to be in effect
when these differences reverse.
<TABLE>
The provision (benefit) for income taxes in the accompanying consolidated
statements of operations consisted of the following at March 31, 1996, 1995
and 1994:
<CAPTION>
1995 1994
<S> <C> <C>
Current-
Federal $(1,667,000) $ 346,000
State -- 102,000
Foreign 32,000 99,000
----------- ---------
(1,635,000) 547,000
Deferred-
Federal 467,000 (101,000)
State -- --
----------- ---------
467,000 (101,000)
Total provision (benefit) for income taxes $(1,168,000) $ 446,000
=========== =========
</TABLE>
<TABLE>
The reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows for the years ended March 31, 1996, 1995 and 1994:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate (34)% (34)% 34%
Increase (decrease) in provision resulting
from-
Federal losses not benefited 31 11 --
Tax credits not benefited -- 2 --
FSC tax benefit -- -- (11)
State taxes, net of federal -- -- 4
Adjustment of deferred tax asset -- 31 9
Other, net 3 -- 1
--- --- ---
Effective tax rate --% 10% 38%
=== === ===
</TABLE>
As of March 31, 1996, the Company has available net operating loss
carryforwards of approximately $10,857,000 and research and development
credit carryforwards of approximately $129,000 to reduce federal and state
income taxes, if any. These carryforwards expire through fiscal 2010 and
are subject to review and possible adjustment by the Internal Revenue
Service.
F-13
<PAGE> 36
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(3) INCOME TAXES (Continued)
The Tax Reform Act of 1986 contains provisions that may limit the amount of
net operating loss and credit carryforwards that the Company may utilize in
any one year in the event of certain cumulative changes in ownership over a
three-year period in excess of 50%, as defined.
<TABLE>
The approximate income tax effect of each type of temporary difference
comprising the net deferred tax asset at March 31, 1996 and 1995 is as
follows:
<CAPTION>
1996 1995
<S> <C> <C>
Net operating loss carryforwards $3,692,000 $1,240,000
Nondeductible reserves 876,000 738,000
Research and development carryforwards 129,000 129,000
Alternative minimum tax credit 100,000 100,000
carryforwards
Nondeductible accruals 161,000 81,000
Other, net -- (5,000)
---------- ----------
4,958,000 2,283,000
Less--Valuation allowance 4,958,000 2,283,000
---------- ----------
$ -- $ --
========== ==========
</TABLE>
The Company cannot recognize a deferred tax asset for the future benefit of
its net operating loss and tax credit carryforwards unless it concludes
that it is more likely than not that the deferred tax asset will be
realized. Due to the significant decline in sales and recent history of
operating losses, the Company has recorded a valuation allowance equal to
100% of its otherwise recognizable net deferred tax asset.
(4) COMMON STOCK
(a) Private Placement
On September 29, 1995, the Company sold 1,000,000 shares of its common
stock, $.01 par value per share, to a private investor at a price of
$5.00 per share. In addition, the Company issued an additional 130,909
shares to its financial advisory firm in connection with this private
placement. The Company's net proceeds from this transaction totaled
$4,983,168 and are restricted to utilization in connection with the
Company's automated data library business, which it conducts through
its subsidiary, ML-ADL, Inc. As of March 31, 1996, $2,938,087 of the
private placement proceeds were still on hand and are included in cash
and cash equivalents in the accompanying consolidated balance sheets.
F-14
<PAGE> 37
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(4) COMMON STOCK (Continued)
(b) Stock Option Plans
The Company has a stock option plan (the Plan), established in 1991,
which replaced a previous stock option plan. The Plan enables options
to be granted to purchase shares of common stock at the fair market
value on the date of grant, and at not less than 110% of fair market
value on the date of grant for optionees who are 10% stockholders.
These options vest ratably over three years and expire 10 years from
the date of grant. The Board of Directors and stockholders of the
Company have reserved a total of 1,500,000 shares of common stock for
issuance under the Plan.
In fiscal 1993, the Company issued 60,000 nonqualified stock options
with a vesting period of two years to a consultant at an exercise
price of $5.25 per share, at which time the fair market value per
share was $7.437. The Company recognized compensation expense of
$10,932 and $76,568 related to these stock options during fiscal 1995
and 1994, respectively.
<TABLE>
The following is a summary of the stock option activity:
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
<S> <C> <C>
Outstanding, March 31, 1993 519,140 $ .3750 - $11.0630
Granted 75,000 3.8700
Exercised (70,000) .3750 - 5.2500
Terminated (32,540) .3750 - 11.0630
-------- ----------------------
Outstanding, March 31, 1994 491,600 .3750 - 11.0630
Granted 331,821 1.9375 - 3.5000
Exercised (18,200) .3750
Terminated (149,800) .3750 - 11.0630
-------- ----------------------
Outstanding, March 31, 1995 655,421 .3750 - 11.0630
Granted 206,043 3.5000
Exercised (103,900) .3750 - 3.5000
Terminated (68,200) .3750 - 8.8750
-------- ----------------------
Outstanding, March 31, 1996 689,364 .3750 - 11.0630
-------- ----------------------
Exercisable, March 31, 1996 483,321 $ .3750 - $11.0630
======== ======================
</TABLE>
F-15
<PAGE> 38
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(4) COMMON STOCK (Continued)
(b) Stock Option Plans (Continued)
In addition, the Company has reserved 58,000 shares of common stock
for warrants outstanding at March 31, 1994. In fiscal 1995, the 58,000
warrants outstanding expired. At March 31, 1996, the Company has no
warrants outstanding to purchase shares of common stock.
On July 24, 1994, the Company established the 1994 stock option plan
of Media Logic ADL, Inc. (the ADL Plan) and reserved 2,000,000 shares
of common stock for issuance under the plan. Under the ADL Plan, both
incentive and nonqualified options may be granted to purchase shares
of common stock. The exercise of these options can be accelerated upon
the achievement of performance goals and expire 10 years from the date
of grant. As of March 31, 1996, 1,500,000 options have been granted of
which approximately 359,000 are currently exercisable.
(5) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitment
The Company's headquarter facility is leased from D&K Realty Trust
(D&K), of which one of the beneficiaries is an officer of the Company.
This lease carries a 15-year term expiring in April 2008 with minimum
monthly payments established in an amount covering the underlying
mortgage, excluding all taxes and other operating charges which are
the responsibility of the Company. The Company's subsidiaries also
conduct their operations in leased facilities.
<TABLE>
Future minimum lease payments under existing noncancelable operating
leases at March 31, 1996 are as follows:
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
1997 $ 206,000
1998 171,000
1999 159,000
2000 83,000
2001 83,000
Thereafter 591,000
----------
$1,293,000
==========
</TABLE>
F-16
<PAGE> 39
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(5) COMMITMENTS AND CONTINGENCIES (Continued)
(a) Lease Commitment (Continued)
Rent expense was approximately $250,000, $185,000 and $164,000 for the
years ended March 31, 1996, 1995 and 1994, respectively, which
included $83,400, $83,400 and $65,000 in fiscal 1996, 1995 and 1994,
respectively, to D&K.
(b) Employment Agreements
In 1995, the Compensation Committee of the Board of Directors voted to
establish employment contracts with the chief executive officer and
the chief financial officer for three-year terms. Under these
agreements, these officers will receive annual salaries of $200,000
and $120,000, respectively, and at the discretion of the Compensation
Committee, a bonus of up to 100% and 50%, respectively, of the annual
base salary.
<TABLE>
(6) ACCRUED EXPENSES
Accrued expenses at March 31, 1996 and 1995 consisted of the following:
<CAPTION>
1996 1995
<S> <C> <C>
Accrued payroll-related $458,390 $287,277
Accrued warranty 120,000 120,000
Accrued commissions 13,041 64,143
Accrued other 14,022 7,138
-------- --------
$605,453 $478,558
======== ========
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
(a) 401(k) Retirement Plan
The Company maintains a 401(k) retirement savings plan (the 401(k)
Plan), covering all eligible employees, as defined. Participants in
the 401(k) Plan may elect to defer up to 15% of their compensation for
deposit, subject to certain Internal Revenue Service (IRS)
limitations. The Company may elect to make contributions to the 401(k)
Plan at the discretion and in an amount determined by the Board of
Directors. The contributions are allocated to each eligible
participant's account in proportion to each participant's compensation
in relation to the total of
F-17
<PAGE> 40
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
(7) EMPLOYEE BENEFIT PLANS (Continued)
(a) 401(k) Retirement Plan (Continued)
all eligible participants' compensation, subject to IRS limitations;
deferrals in excess of 6% of compensation are not matched. During
fiscal 1996, 1995 and 1994, the Company expensed approximately
$62,000, $82,000 and $50,000, respectively, of employer matching
contributions to the 401(k) Plan.
(b) Profit Sharing Plan
The Company's profit sharing plan covered substantially all of its
employees and provided for contributions into a trust fund from
profits of the Company in such amounts as the Board of Directors
determined annually. In fiscal 1994, the Company replaced its profit
sharing plan with the 401(k) retirement plan discussed above.
(8) SIGNIFICANT CUSTOMERS AND DOMESTIC AND EXPORT SALES
(a) Significant Customers
During the year ended March 31, 1995, two customers accounted for 24%
of net sales. During the years ended March 31, 1994 and 1996, no
single customer accounted for greater than 10% of net sales.
(b) Domestic and Export Sales
<TABLE>
Domestic and export sales as a percentage of net sales for the years
ended March 31, 1996, 1995 and 1994 were as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Far East 34% 40% 64%
Domestic 26 25 10
Brazil 15 7 -
Europe 8 14 17
All others 17 14 9
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
F-18
<PAGE> 41
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
<TABLE>
(9) GEOGRAPHIC INFORMATION
Revenues, income (loss) before provision for income taxes and identifiable
assets for the Company's domestic and foreign operations for the years
ended March 31, 1996, 1995 and 1994 are summarized as follows:
<CAPTION>
ADJUSTMENTS/
DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Fiscal 1996-
Sales to unaffiliated customers $ 3,205,931(1) $ 372,305 $ -- $ 3,578,236
Transfers between geographic areas 331,256 148,252 (479,508) --
------------ ---------- ------------ ------------
Total sales $ 3,537,187 $ 520,557 $ (479,508) $ 3,578,236
============ ========== ============ ============
Loss before provision
for income taxes $ (7,457,389) $ (8,075) $ (353,355) $ (7,818,819)
============ ========== ============ ============
Identifiable assets $ 21,410,548 $2,306,438 $(15,751,994) $ 7,964,992
============ ========== ============ ============
Fiscal 1995-
Sales to unaffiliated customers $ 4,541,793(1) $1,293,901 $ -- $ 5,835,694
Transfers between geographic areas 1,279,634 406,648 (1,686,282) --
------------ ---------- ------------ ------------
Total sales $ 5,821,427 $1,700,549 $ (1,686,282) $ 5,835,694
============ ========== ============ ============
Income (loss) before
benefit for income taxes $(11,258,912) $ 109,592 $ -- $(11,149,320)
============ ========== ============ ============
Identifiable assets $ 16,862,053 $2,256,848 $ (8,014,461) $ 11,104,440
============ ========== ============ ============
Fiscal 1994-
Sales to unaffiliated customers $ 10,138,341(1) $5,350,922 $ -- $ 15,489,263
Transfers between geographic areas 5,370,919 880,849 (6,251,768) --
------------ ---------- ------------ ------------
Total sales $ 15,509,260 $6,231,771 $ (6,251,768) $ 15,489,263
============ ========== ============ ============
Income before provision
for income taxes $ 605,598 $ 570,320 $ -- $ 1,175,918
============ ========== ============ ============
Identifiable assets $ 23,683,411 $2,185,963 $ (3,164,177) $ 22,705,197
============ ========== ============ ============
<FN>
(1) Domestic operations included approximately $2,595,885, $3,071,241 and
$13,940,000 of foreign sales in 1996, 1995 and 1994, respectively.
</TABLE>
F-19
<PAGE> 42
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Continued)
<TABLE>
(10) QUARTERLY DATA (UNAUDITED)
<CAPTION>
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, TOTAL
<S> <C> <C> <C> <C> <C>
FISCAL 1996:
Net sales $ 666,984 $ 701,363 $ 1,070,407 $ 1,139,482 $ 3,578,236
Gross profit 99,853 157,952 318,243 201,179 777,227
Loss from operations (1,922,599) (1,680,749) (1,830,527) (2,466,428) (7,900,303)
Net loss (1,898,469) (1,664,664) (1,781,884) (2,473,802) (7,818,819)
=========== =========== =========== =========== ============
Loss per share $ (.38) $ (.33) $ (.29) $ (.40)
=========== =========== =========== ============
FISCAL 1995:
Net sales $ 531,730 $ 973,979 $ 2,124,157 $ 2,205,828 $ 5,835,694
Gross profit (loss) (747,798) 170,308 741,681 150,612 314,803
Loss from operations (2,790,104) (2,124,405) (2,172,522) (2,052,415) (9,139,446)
Net loss (2,408,107) (3,948,001) (1,855,512) (1,769,700) (9,981,320)
=========== =========== =========== =========== ============
Loss per share $ (.49) $ (.80) $ (.37) $ (.36)
=========== =========== =========== ============
FISCAL 1994:
Net sales $ 7,094,753 $ 4,073,345 $ 3,302,918 $ 1,018,247 $ 15,489,263
Gross profit 4,123,524 2,485,704 1,750,881 402,238 8,762,347
Income (loss) from operations 2,499,784 978,870 (305,313) (2,261,482) 911,859
Net income (loss) 1,591,754 638,512 (253,297) (1,247,051) 729,918
=========== =========== =========== =========== ============
Income (loss) per share $ .37 $ .12 $ (.05) $ (.24)
=========== =========== =========== ============
<FN>
(A) Includes fourth quarter sales returns of approximately $667,000. As a
result of these sales returns, the Company's net loss and loss per
share for the fourth quarter of 1994 were higher by approximately
$491,000 and $.09, respectively.
</TABLE>
F-20
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
To Media Logic, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Media Logic, Inc. and subsidiaries and have
issued our report thereon dated May 20, 1996. Our audits were made for the
purpose of forming an opinion on those consolidated financial statements taken
as a whole. The schedule listed in the index to consolidated financial
statements is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 5, 1996
S-1
<PAGE> 44
SCHEDULE II
MEDIA LOGIC, INC. AND SUBSIDIARIES
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<CAPTION>
BALANCE, CHARGED BALANCE,
BEGINNING TO COSTS AND END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1996:
Deducted from asset accounts-
Allowance for doubtful accounts $557,000 $173,000 $259,000 $471,000
======== ======== ======== ========
Warranty reserve $120,000 $ -- $ -- $120,000
======== ======== ======== ========
YEAR ENDED MARCH 31, 1995:
Deducted from asset accounts-
Allowance for doubtful accounts $665,000 $236,000 $344,000 $557,000
======== ======== ======== ========
Warranty reserve $120,000 $ -- $ -- $120,000
======== ======== ======== ========
YEAR ENDED MARCH 31, 1994:
Deducted from asset accounts-
Allowance for doubtful accounts $300,000 $483,000 $118,000 $665,000
======== ======== ======== ========
Warranty reserve $120,000 $ -- $ -- $120,000
======== ======== ======== ========
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
This Agreement is by and between Media Logic, Inc., a Massachusetts
corporation (the "Company"), with principal offices at 310 South Street,
Plainville, Massachusetts 02762, and Raymond Leclerc (the "Purchaser"), an
individual residing at 4501 Pond Apple Drive, Naples, Florida 33999.
In consideration of the mutual covenants contained in this Agreement, the
parties agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE THE SHARES. At the Closing (as
hereinafter defined), the Company shall sell to the Purchaser, and the
Purchaser shall buy from the Company, upon the terms and conditions hereinafter
set forth, 1,000,000 shares (the "Shares") of Common Stock, $.01 par value per
share ("Common Stock"), of the Company at a purchase price of $5.00, being not
less than the average of the closing prices for the Common Stock on the
American Stock Exchange for the trading days immediately preceding the Closing.
SECTION 2. ACKNOWLEDGEMENT AND AGREEMENTS OF THE PURCHASER. The
Purchaser acknowledges and agrees that:
(a) he will not resell any of the Shares for a year after the Closing
and, after that but prior to the third anniversary of the Closing, he will not
sell shares representing 5% or more of the Common Stock outstanding at any
party without the Company's consent, which will not be unreasonably withheld;
(b) prior to the third anniversary of the Closing, he will not acquire
shares of Common Stock which would result in his owning more than 25% of the
Common Stock than outstanding; and
(c) he acknowledges that the Shares are not registered under federal
securities laws and he will comply with all applicable securities laws in
connection with any future resale of Shares, including but not limited to the
SEC's Rule 144, with which he has familiarized himself.
SECTION 3. AGREEMENT AND UNDERTAKINGS OF THE COMPANY. In connection with
the sale and purchase of the Shares hereunder, the Company covenants and agrees
with the Purchaser as follows:
(a) the Purchaser will be appointed as a director of the Company as
promptly after the Closing as practicable and will be nominated and endorsed by
the Board as a director at each annual stockholders' meeting so long as he
beneficially owns 10% or more of the Common Stock outstanding;
(b) as a director, the Purchaser will be appointed to the Compensation
Committee of the Board;
(c) the Company will afford the Purchaser the opportunity to have Shares
included in registered public offerings that it does, if the Purchaser so
requires, subject to usual and customary provisions and, unless and until Rule
144 permits him to resell Shares after one year, he will also have the right to
demand one registration of the public resale of Shares; and
(d) the net proceeds of the sale of the Shares to the Purchaser will be
used solely for the Company's automated data library (ADL) business.
SECTION 4. CHANGES COUNTERPARTS. Any term of this Agreement may be
amended or compliance therewith waived with the written consent of both parties
hereto. This Agreement may be executed in counterparts, such of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each hereto and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the 25th day of September, 1995.
THE COMPANY: MEDIA LOGIC, INC.
By /s/ William E. Davis, Jr.
---------------------------------
Name: William E. Davis, Jr.
Title: Chief Executive Officer
THE PURCHASER: By: /s/ Raymond Leclerc
--------------------------------
Raymond Leclerc
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,573,135
<SECURITIES> 0
<RECEIVABLES> 1,469,403
<ALLOWANCES> 471,000
<INVENTORY> 2,540,546
<CURRENT-ASSETS> 7,112,084
<PP&E> 2,334,303
<DEPRECIATION> 1,481,395
<TOTAL-ASSETS> 7,964,992
<CURRENT-LIABILITIES> 949,326
<BONDS> 0
<COMMON> 62,138
0
0
<OTHER-SE> 6,953,528
<TOTAL-LIABILITY-AND-EQUITY> 7,964,992
<SALES> 3,578,236
<TOTAL-REVENUES> 3,578,236
<CGS> 2,801,009
<TOTAL-COSTS> 8,677,530
<OTHER-EXPENSES> (81,484)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,818,819)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,818,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,818,819)
<EPS-PRIMARY> (1.40)
<EPS-DILUTED> (1.40)
</TABLE>
