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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 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 of (I.R.S. Employer
incorporation or organization) Identification Number)
310 South Street; P.O. Box 2258; Plainville, MA 02762
(Address of principal executive offices) (Zip Code)
(508) 695-2006
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $.01 par value -- 6,226,609 shares as of
August 10, 1996
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INDEX
MEDIA LOGIC, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated financial statements (Unaudited)
Consolidated condensed balance sheets -- June 30, 1996 and
March 31, 1996
Consolidated condensed statements of operations -- three months
ended June 30, 1996 and 1995.
Consolidated condensed statements of cash flows -- three months
ended June 30, 1996 and 1995.
Notes to consolidated condensed financial statements --
June 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, MARCH 31,
1996 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,615,661 $ 3,545,477
Marketable securities --- ---
Accounts receivable, net 978,349 998,403
Inventories (Note 2) 2,760,461 2,467,149
Refundable income taxes 24,873 27,658
Other current assets 57,491 73,397
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TOTAL CURRENT ASSETS 6,436,835 7,112,084
PROPERTY AND EQUIPMENT - NET 641,333 793,038
Other Assets 136,759 59,870
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$ 7,214,927 $ 7,964,992
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 674,099 $ 343,873
Accrued expenses 606,039 605,453
Customer deposits --- ---
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TOTAL LIABILITIES $ 1,280,138 $ 949,326
STOCKHOLDERS' EQUITY:
Common stock par value $.01 per
share; authorized 20,000,000 shares,
6,226,609 and 6,213,809 outstanding
as of June 30, 1996 and March 31,
1996, respectively 62,266 62,138
Additional paid-in capital 19,208,794 19,167,072
Retained deficit (13,336,271) (12,213,544)
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TOTAL STOCKHOLDERS' EQUITY 6,034,789 7,015,666
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7,214,927 7,964,992
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SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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PART 1. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1996 1995
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NET SALES $ 848,549 $ 666,984
COSTS AND EXPENSES:
Cost of products sold 447,092 567,131
Selling, general and administrative
expenses 1,031,940 1,122,009
Research and development expenses 520,503 900,443
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LOSS FROM OPERATIONS (1,150,986) (1,922,599)
OTHER INCOME (EXPENSE):
Interest income 40,559 20,939
Miscellaneous 2,430 3,191
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LOSS BEFORE INCOME TAXES (1,107,997) (1,898,469)
INCOME TAXES 14,730 --
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NET LOSS $(1,122,727) $(1,898,469)
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NET LOSS PER SHARE (NOTE 3) $ (.18) $ (.38)
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,219,308 4,979,066
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SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1996 1995
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CASH USED BY OPERATING
ACTIVITIES $(1,741,045) $(1,510,515)
INVESTING ACTIVITIES:
Sale of marketable securities 840,563 1,027,666
Sale (purchase) of property
and equipment (29,334) 18,417
Other assets -- 4,086
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Cash provided by investing
activities 811,229 1,050,169
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NET INCREASE (DECREASE) IN CASH (929,816) (460,346)
CASH BALANCE,
BEGINNING OF THE PERIOD 3,545,477 911,729
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CASH BALANCE, END OF THE PERIOD $ 2,615,661 $ 451,383
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SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
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MEDIA LOGIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
(1) BASIS OF PRESENTATION
As permitted by rules of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, these notes are condensed and
do not contain all disclosures required by generally accepted accounting
principles. Reference should be made to the consolidated financial
statements and related notes included in the Company's Annual Report to
shareholders on Form 10-K for the fiscal year ended March 31, 1996.
In the opinion of the management of Media Logic, Inc., the accompanying
consolidated financial statements contain all adjustments (consisting of only
normal recurring items) necessary to present fairly the Company's financial
position at June 30, 1996, and the results of its operations and its cash
flows for the three months ended June 30, 1996 and June 30, 1995.
(2) INVENTORIES
JUNE 30, 1996 MARCH 31, 1996
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Raw materials $1,866,394 $1,870,553
Work in process 408,485 139,265
Finished goods 485,582 457,331
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$2,760,461 $2,467,149
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(3) LOSS PER SHARE
Net loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period.
Common stock equivalents were not considered in the determination of net loss
per share, as their inclusion would be anti-dilutive.
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(4) MARKETABLE SECURITIES
As of June 30, 1996, marketable securities consist of investments in
state and local municipal obligations which are carried at their quoted
market values. Such amounts did not differ materially from the amortized cost
basis of the securities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
RESULTS OF OPERATIONS
SALES:
Sales for the three month period ended June 30, 1996 increased 27.2% to
$848,459 from $666,984 for the three months ended June 30, 1995. Demand for
certifiers, test equipment and duplication equipment, the Company's
traditional products, remained low during the quarter. While diskette prices
have experienced a modest increase, margins remain low for disk manufacturers
and the Company does not expect these manufacturers to make significant
investments in additional capital equipment.
The Company is committed to achieving the maximum possible revenues from its
current product lines. This includes not only the sale of new certification,
test and duplication equipment but also upgrades, spare parts and maintenance
for previously sold units. The Company is continuing its program to expand
and upgrade its sales force to gain greater visibility and market
penetration. The Company has not yet generated sales from its line of
automated data library ("ADL") products currently under development.
GROSS PROFIT:
The Company's gross profit for the three months ended June 30, 1996 was
$401,457 as compared with $99,583 for the three months ended June 30, 1995.
The generation of a gross profit on low sales volume is reflective of the
cost reduction measures which the Company has instituted.
EXPENSES:
Selling, General and Administrative (SG&A) expenses for the three months
ended June 30, 1996 was $1,031,940 (121.6% of sales) as compared with
$1,122,009 (108.2% of sales) for the three months ended June 30, 1995. SG&A
expense related to the Company's
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current product lines was $612,619 for the three months ended June 30, 1996
as compared with $782,628 for the three months ended June 30, 1995. SG&A
expenses related directly to a product line of automated data libraries being
developed by the Company's MediaLogic ADL subsidiary were $419,327 in the
three month period ended June 30, 1996 as compared with $339,381 in the three
month period ended June 30, 1995. The Company expects that SG&A expenses
related to ADL will continue to increase as product development is completed
and ADL begins the process of selling the libraries.
Research and Development expenses for the three month period ended June 30,
1996 were $520,503 (61.3% of sales) as compared to $900,443 (135.0% of sales)
for the three month period ended June 30, 1995. Of the overall Company
research and development expenditure, $433,603 or 83.3% for the period ended
June 30, 1996 were related to the development of the ADL product line of
automated data libraries. The Company has and will continue to devote a
substantial portion of its resources to the development and introduction into
manufacturing of the ADL product line. The Company believes that the ADL
product line will provide a unique solution to the data storage and retrieval
needs of a broad range of potential users. The Company further believes that
the tape library market is large and growing and is the area in which the
Company has the best opportunity for future growth. The Company expects the
first shipment of libraries near the middle of fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES:
At June 30, 1996, the Company had working capital of $5.2 million compared
to $6.2 million at March 31, 1996. The current ratio was 5.0 to 1 as of June
30, 1996 and 7.5 to 1 at March 31, 1996. 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.
The Company's internal operating plan for fiscal 1996 shows cash resources
will be available to fund operations if the plan is substantially achieved.
Critical to achievement of the plan are the sale and shipment of automated
data libraries by the middle of fiscal 1996 and the achievement of sales
goals for the current certifier, evaluation and duplication products.
Because of reliance on sales of ADL products which are unproven, there is
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substantial risk that the Company may not achieve the plan and therefore, the
Company could be without sufficient funds to continue operations through
fiscal 1996. The Company is exploring alternative sources of financing
should there be a requirement for additional funding but has not yet received
a commitment for such financing. There can be no assurance that the Company
will have sufficient funds to complete the development of its ADL products or
that, if required, the Company will be able to raise sufficient funds to do
so. Further, if the Company is required to raise additional funds, there is
no assurance that it will be able to do so in a timely manner or on favorable
terms.
In September, 1995, the Company received $5 million in a private placement
which must be used exclusively in connection with the Company's Automated
Data Library (ADL) business.
The Company continually monitors the changing business conditions and takes
whatever actions it deems necessary to protect and promote the Company's
interests.
UNCERTAINTIES
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 that 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 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;
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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. For further information, refer to the risks
and uncertainties discussed in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996, as filed with the Securities and
Exchange Commission. Actual results may differ materially from such
expectations.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIA LOGIC, INC.
Date: 8/13/96
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Paul M. O'Brien,
Vice-President and
Chief Financial Officer
