<PAGE>
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: September 30, 1996
Commission File Number: 1-9605
Media Logic, Inc.
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(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
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(Address of principal executive offices) (Zip Code)
(508) 695-2006
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(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
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 - 6,315,509 shares as of November 4, 1996
<PAGE>
INDEX
MEDIA LOGIC, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated condensed financial statements (Unaudited)
Consolidated condensed balance sheets - September 30, 1996 and
March 31, 1996
Consolidated condensed statements of operations - three and six
months ended September 30, 1996 and 1995
Consolidated condensed statements of cash flows - six months ended
September 30, 1996 and 1995
Notes to consolidated condensed financial statements - September 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)
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,368,457 $ 3,545,477
Accounts receivable, net 1,617,055 998,403
Inventories (Note 2) 3,012,391 2,467,149
Refundable income taxes 24,873 27,658
Other current assets 40,558 73,397
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Total current assets 6,063,334 7,112,084
Property and equipment, net 669,447 793,038
Other assets 105,261 59,870
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$ 6,838,042 $ 7,964,992
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,071,868 $ 343,873
Accrued expenses 608,018 605,453
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Total liabilities 1,679,886 949,326
Stockholders' equity:
Common stock, par value $.01 per share; 20,000,000
shares authorized; 6,314,609 and 6,213,809 shares
issued and outstanding as of September 30, 1996 and
March 31, 1996, respectively 63,146 62,138
Additional paid-in capital 19,279,991 19,167,072
Retained deficit (14,184,981) (12,213,544)
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Total stockholders' equity 5,158,156 7,015,666
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$ 6,838,042 $ 7,964,992
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</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
NET SALES $1,226,884 $ 701,363 $ 2,075,433 $ 1,368,348
COSTS AND EXPENSES:
Cost of products sold 830,433 543,411 1,277,525 1,110,542
Selling, general and administrative expenses 905,381 1,087,517 1,937,321 2,209,526
Research and development expenses 332,353 751,184 852,856 1,651,627
----------- ------------ ------------ ------------
LOSS FROM OPERATIONS (841,283) (1,680,749) (1,992,269) (3,603,347)
OTHER INCOME (EXPENSE):
Interest income 32,476 10,110 73,035 31,049
Miscellaneous (8,511) 5,975 (6,081) 9,165
----------- ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (817,318) (1,664,664) (1,925,315) (3,563,133)
PROVISION FOR INCOME TAXES 31,392 - 46,122 -
----------- ------------ ------------ ------------
NET LOSS $ (848,710) $(1,664,664) $(1,971,437) $(3,563,133)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
NET LOSS PER SHARE (NOTE 3) $(.14) $(.33) $(.32) $(.71)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,232,753 5,004,550 6,226,049 4,991,912
----------- ------------ ------------ ------------
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</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
1996 1995
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CASH USED BY OPERATING ACTIVITIES $(2,175,945) $(1,338,011)
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CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Sale of marketable securities - 1,027,666
Sale (purchase) of property and equipment, net (115,002) 10,809
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(115,002) 1,038,475
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CASH PROVIDED BY FINANCING ACTIVITIES:
Exercise of stock options 113,927 16,500
Proceeds from private placement, net - 4,983,168
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113,927 4,999,668
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NET INCREASE (DECREASE) IN CASH (2,177,020) 4,700,132
CASH BALANCE, BEGINNING OF PERIOD 3,545,477 911,729
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CASH BALANCE, END OF PERIOD $1,368,457 $ 5,611,861
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SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
(1) OPERATIONS AND BASIS OF PRESENTATION
Media Logic Inc. (the "Company") designs and manufactures tape-based data
storage libraries targeted at the information needs of small to mid-sized
businesses. The Company is also a leading worldwide supplier of evaluation
equipment for flexible computer disks and tape, and manufactures and sells
industrial duplication equipment for high volume and high reliability
applications.
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 condensed financial statements contain all adjustments
(consisting of only normal recurring items) necessary to present fairly the
Company's financial position at September 30, 1996, and the results of its
operations and its cash flows for the six months ended September 30, 1996 and
September 30, 1995.
(2) INVENTORIES
September 30, 1996 March 31, 1996
------------------ --------------
Raw materials $1,556,725 $1,870,553
Work in process 161,392 139,265
Finished goods 1,294,274 457,331
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$3,012,391 $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.
(4) 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 was $4,983,168 and is restricted
to utilization in connection with the Company's automated data library (ADL)
business, which it conducts through its subsidiary, Media Logic ADL, Inc..
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE AND SIX MONTHS
ENDED SEPTEMBER 30, 1995
RESULTS OF OPERATIONS
SALES:
Sales for the three and six month periods ended September 30, 1996 were
$1,226,884 and $2,075,433 as compared with $701,363 and $1,368,348 for the
three and six months ended September 30, 1995. Sales for the three and six
month periods ended September 30, 1996 increased 74.9% and 51.7%,
respectively, as compared with the three and six month periods ended
September 30, 1995. The Company experienced increased sales in certifiers,
test equipment and duplication equipment, the traditional product lines,
during the quarter. Demand for the Company's traditional products, however,
continues to remain low. 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. During the quarter, the Company began initial shipments
of its new Scalable Library Architecture ("SLA") data tape libraries.
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
its sales force to gain greater visibility and market penetration for its
newly released line of Automated Data Library ("ADL") products.
GROSS PROFIT:
Gross profit for the three and six months ended September 30, 1996 was
$396,451 and $797,908 as compared with $157,952 and $257,806 for the three
and six months ended September 30, 1995. The generation of a gross profit on
low sales volume and higher gross margins than comparable periods in the
previous year are reflective of the cost reduction measures which the Company
has instituted.
EXPENSES:
Selling, General and Administrative ("SG&A") expenses for the three and six
months ended September 30, 1996 were $905,381 (73.8% of sales) and $1,937,321
(93.3% of sales) as compared with $1,087,517 (155.1% of sales) and $2,209,526
(161.5% of sales) for the three and six months ended September 30, 1995.
SG&A expense related to the Company's traditional product lines was $574,204
for the three months ended September 30, 1996 as compared with $723,925 for
the three months ended September 30, 1995. SG&A expenses related directly to
a product line of automated data libraries being developed by the Company's
Media Logic ADL subsidiary were $331,177 in the three month period ended
September 30, 1996 as compared with $363,592 in the three month period ended
September 30, 1995. The Company expects that SG&A expenses related to ADL
will increase as product development is completed and ADL continues the
process of selling the libraries.
Research and development expenses for the three and six month periods ended
September 30, 1996 were $332,353 (27.1% of sales) and $852,856 (41.1% of
sales) as compared to $751,184 (107.1% of sales) and $1,651,627 (120.7% of
sales) for the three and six month periods ended September 30, 1995. Of the
overall Company research and development expenses, $272,843 or 82.1% for the
period ended September 30, 1996 were related to the development of the ADL
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product line of automated data libraries. The Company has and will continue
to devote a substantial portion of its resources to the development 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 began initial shipments of
libraries during the quarter ended September 30, 1996. To date, the Company
has not generated significant revenues from its ADL product line.
LIQUIDITY AND CAPITAL RESOURCES:
At September 30, 1996, the Company had working capital of $4.4 million
compared to $6.2 million at March 31, 1996. The current ratio was 3.6 to 1
as of September 30, 1996 and 7.5 to 1 at March 31, 1996. The decrease in
working capital is principally due to significant operating losses and
funding of the development and introduction to the marketplace 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 received $5,000,000 in a private placement
which must and has been used exclusively in connection with the Company's 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. If this plan is not achieved, the
Company could be without sufficient funds to continue its operations through
March 31, 1997. In such event, the Company will be required to seek
additional funding. While the Company believes that additional sources of
financing would be available if required, 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, if at all.
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 from its traditional product base 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; the
<PAGE>
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 to Shareholders on
Form 10-K for the fiscal year ended March 31, 1996 and the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996,
as filed with the Securities and Exchange Commission. Actual results may
differ materially from such expectations.
<PAGE>
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
(a) The following information relates to matters submitted at
the Annual Meeting of Shareholders of the Company held on September 12,
1996.
(b) Proxies for the meeting were solicited and there was no
solicitation in opposition to management's nominees for directors as
listed in the proxy statement and all such nominees were elected. F.
Michael Hruby, Joseph L. Mitchell and William E. Davis, Jr. were elected
directors.
(c) The total number of shares entitled to vote at the Annual
Meeting of Shareholders was 6,211,442. The total shares voted were
6,105,329 or 98% of those eligible to vote.
The votes for directors were (1) F. Michael Hruby, 6,075,719
votes for, 28,410 votes against, and 1,200 abstentions; (2) Joseph L.
Mitchell, 6,075,579 votes for, 28,550 votes against, and 1,200
abstentions; (3) William E. Davis, Jr., 6,075,779 votes for, 28,350
votes against, and 1,200 abstentions.
Approval was granted to the proposal that Arthur Andersen LLP
be appointed as the Company's independent accountant for fiscal 1997.
The vote was 6,029,168 for approval, 65,711 against approval, and 10,450
abstentions.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIALOGIC, INC.
Date: November 7, 1996 \S\ Paul M. O'Brien
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Paul M. O'Brien
Vice-President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND
ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,368,547
<SECURITIES> 0
<RECEIVABLES> 2,118,220
<ALLOWANCES> 501,165
<INVENTORY> 3,012,391
<CURRENT-ASSETS> 6,063,334
<PP&E> 1,995,890
<DEPRECIATION> 1,326,443
<TOTAL-ASSETS> 6,838,042
<CURRENT-LIABILITIES> 1,679,886
<BONDS> 0
0
0
<COMMON> 63,146
<OTHER-SE> 19,279,991
<TOTAL-LIABILITY-AND-EQUITY> 6,838,042
<SALES> 2,075,433
<TOTAL-REVENUES> 2,075,433
<CGS> 1,277,525
<TOTAL-COSTS> 4,067,702
<OTHER-EXPENSES> 6,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,925,315)
<INCOME-TAX> 46,122
<INCOME-CONTINUING> (1,971,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,971,437)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
