<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: December 31, 1995 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)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
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 -- 6,209,809 shares as of January 31, 1996.
<PAGE> 2
INDEX
MEDIA LOGIC, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated financial statements (Unaudited)
Consolidated condensed balance sheets -- December 31, 1995 and March
31, 1995.
Consolidated condensed statements of operations -- three and nine
months ended December 31, 1995 and 1994.
Consolidated condensed statements of cash flows -- nine months ended
December 31, 1995 and 1994.
Notes to consolidated condensed financial statements -- December 31,
1995.
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
<PAGE> 3
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,268,437 $ 911,729
Marketable securities -- 2,031,289
Accounts receivable, net 790,563 1,248,055
Inventories (Note 2) 3,221,978 3,694,397
Refundable income taxes -- 1,729,630
Other current assets 159,170 194,472
------------ ------------
TOTAL CURRENT ASSETS 9,440,148 9,809,572
PROPERTY AND EQUIPMENT - NET 1,062,170 1,257,282
Other Assets 50,632 37,586
------------ ------------
$ 10,552,950 $ 11,104,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 614,829 $ 839,033
Accrued expenses 454,716 478,558
Customer deposits -- 19,709
------------ ------------
TOTAL LIABILITIES 1,069,545 1,337,300
STOCKHOLDERS' EQUITY:
Common stock par
value $.01 per
share; authorized
20,000,000 shares,
6,209,809 and 4,979,000
outstanding as of
December 31, 1995
and March 31, 1995,
respectively 62,098 49,790
Additional paid-in capital 19,161,049 14,112,075
Retained deficit (9,739,742) (4,394,725)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,483,405 9,767,140
============ ============
$ 10,552,950 $ 11,104,440
============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
<PAGE> 4
PART 1. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,070,407 $ 2,124,157 $ 2,438,755 $ 3,629,866
COSTS AND EXPENSES:
Cost of products sold 752,164 1,382,476 1,862,706 3,465,676
Selling, general and
administrative expenses 1,191,900 1,595,365 3,401,426 4,345,327
Research and development
expenses 956,870 1,318,838 2,608,497 2,905,895
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,830,527) (2,172,522) (5,433,874) (7,087,032)
OTHER INCOME (EXPENSE):
Settlement costs -- -- -- (2,230,000)
Interest income 50,675 43,837 81,724 231,543
Other (2,032) (26,827) 7,133 (26,129)
----------- ----------- ----------- -----------
LOSS BEFORE BENEFIT FROM INCOME TAXES (1,781,884) (2,155,512) (5,345,017) (9,111,618)
BENEFIT FROM INCOME TAXES -- (300,000) -- (900,000)
----------- ----------- ----------- -----------
NET LOSS $(1,781,884) $(1,855,512) $(5,345,017) $(8,211,618)
=========== =========== =========== ===========
NET LOSS PER SHARE (NOTE 3) $ (.29) $ (.37) $ (1.00) $ (1.65)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,151,385 4,972,935 5,370,397 4,965,597
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
<PAGE> 5
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
----------- -----------
<S> <C> <C>
CASH USED BY OPERATING
ACTIVITIES $(2,730,125) $(8,416,833)
INVESTING ACTIVITIES:
Sale of marketable securities 2,031,289 8,253,206
Sale (purchase) of property
and equipment
6,054 (173,956)
Other assets (13,047) (312,337)
----------- -----------
Cash provided by
investing activities 2,024,296 7,766,913
----------- -----------
FINANCING ACTIVITIES:
Exercise of stock options and
disqualifying dispositions 78,869 25,757
Proceeds from private placement,
net 4,983,668 --
----------- -----------
Cash provided by financing
activities 5,062,537 25,757
----------- -----------
NET INCREASE (DECREASE) IN CASH 4,356,708 (624,163)
CASH BALANCE,
BEGINNING OF THE PERIOD 911,729 1,915,358
=========== ===========
CASH BALANCE, END OF THE PERIOD $ 5,268,437 $ 1,291,195
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
<PAGE> 6
MEDIA LOGIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1995
(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, 1995.
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 December 31, 1995, and the results of its operations and its cash
flows for the nine months ended December 31, 1995 and December 31, 1994.
(2) Inventories
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1995
-------------------- --------------------
<S> <C> <C>
Raw materials $ 1,635,966 $ 2,328,971
Work in process 1,508,434 695,971
Finished goods 77,578 669,455
-------------------- --------------------
$ 3,221,978 $ 3,694,397
==================== ====================
</TABLE>
(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.
<PAGE> 7
(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 were $4,983,668 and are 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> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three and Nine Months Ended December 31, 1995 Compared to Three and Nine Months
Ended December 31, 1994
RESULTS OF OPERATIONS
SALES:
Sales for the three and nine month period ended December 31, 1995 were
$1,070,407 and $2,438,755 as compared with $2,124,157 and $3,629,866 for the
three and nine months ended December 31, 1994. Sales for the three and nine
month period ended December 31, 1995 were down 49.6% and 32.8% as compared with
the three and nine month period ended December 31, 1994, reflecting low demand
for certifiers and test equipment. Sales of duplication equipment increased as a
result of greater penetration by the Company into this market. Sales of spare
parts remained strong.
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 has been successful in identifying
opportunities in areas of the world it had not previously served and in
packaging its product offerings to meet competitive challenges in an
increasingly price conscious environment.
Initial sales by the Company's ADL Subsidiary of pre-production units of
automated data libraries occurred in the third quarter. The Company expects to
sell additional pre-production units in the fourth quarter. The Company has
entered into an agreement with PAGG Corporation pursuant to which PAGG will
manufacture, for the Company, the ADL line of tape libraries. Units are
scheduled to be delivered in production volumes during the first quarter of
Fiscal 1997. 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.
GROSS PROFIT:
Gross profit for the three and nine months ended December 31, 1995 was $318,243
and $576,049 as compared with $741,681 and $164,190 for the three and nine
months ended December 31, 1994. The Company has been aggressive in pricing its
products to meet competitive pressures while at the same time adhering to strict
internal controls and reducing costs wherever possible to maximize gross
profits.
<PAGE> 9
EXPENSES:
Selling, General and Administrative (SG&A) expenses for the three and nine
months ended December 31, 1995 was $1,191,900(111.4% of sales) and $3,401,426
(139.5% of sales) as compared with 1,595,365 (75.1% of sales)and $4,345,327
(119.7% of sales) for the three and nine months ended December 31, 1994. SG&A
expense related to the Company's current product lines was $761,357 for the
three months ended December 31, 1995 as compared with $1,009,420 for the three
months ended December 31, 1994. SG&A expenses related directly to a product line
of automated data libraries being developed by the Company's MediaLogic ADL
subsidiary were $430,543 in the three month period ended December 31, 1995 as
compared with $585,945 in the three month period ended December 31, 1994.
Research and Development expenses for the three and nine month period ended
December 31, 1995 were $956,870(89.4% of sales) and $2,608,497 (107.0% of sales)
as compared to $1,318,838 (62.1% of sales) and $2,905,894 (80.1% of sales) for
the three and nine month period ended December 31, 1994. Of the overall Company
research and development expenditure, $831,391 or 77.7% for the period ended
December 31, 1995 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.
LIQUIDITY AND CAPITAL RESOURCES:
At December 31, 1995, the Company had working capital of $8.4 million compared
to $8.5 million at March 31, 1995. The current ratio was 7.8 to 1 as of December
31, 1995 and 7.3 to 1 at March 31, 1995. Funding of the development of the ADL
family of products and initial production costs, as well as continuing operating
losses, have negatively impacted working capital.
The Company has no debt nor does it have a line of credit or other committed
source of additional financing.
The Company continually monitors the changing business conditions and takes
whatever actions it deems necessary to protect and promote the Company's
interests.
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Christian P. Marlowe and the Marlowe Engineering
Company have raised certain claims against the Company in response to
receiving notice of the Company's intent to terminate its agreements
with them. Demands have been made for a severance payment, the vesting
of stock options, the waiver by the Company of stock repurchase rights,
the grant of an option to Mr. Marlowe to put any ADL stock he may own
to the Company, and for rights in certain technology. The Company has
been notified that if it does not agree to the demands which have been
made, Mr. Marlowe and the Marlowe Engineering Company are prepared to
pursue their claims pursuant to Chapter 93A of the General Laws of the
Commonwealth of Massachusetts.
The Company believes it is in compliance with all
agreements with Mr. Marlowe and with the Marlowe Engineering Company.
After having received notice of the claims, the Company, on January 17,
1996, filed a lawsuit in the Superior Court of the Commonwealth of
Massachusetts seeking a declaration that its position is correct.
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
<PAGE> 11
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Organization. Incorporated by
reference to the Company's Annual Report on Form 10-K
for its fiscal year ended March 31, 1993.
3.2 Bylaws. Incorporated by reference to the Company's
Registration Statement on Form S-18 (No. 33-14722)
effective July 23, 1987.
<PAGE> 12
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: February 12, 1996 \S\ Paul M. O'Brien
------------------------
Paul M. O'Brien,
Vice-President and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. CURRENCY
<S> <C>
<PERIOD-TYPE> 3 MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 5,268,437
<SECURITIES> 0
<RECEIVABLES> 1,415,128
<ALLOWANCES> (624,566)
<INVENTORY> 3,221,978
<CURRENT-ASSETS> 9,440,148
<PP&E> 2,217,218
<DEPRECIATION> (1,155,048)
<TOTAL-ASSETS> 10,552,950
<CURRENT-LIABILITIES> 1,069,545
<BONDS> 0
<COMMON> 62,098
0
0
<OTHER-SE> 19,161,049
<TOTAL-LIABILITY-AND-EQUITY> 10,552,950
<SALES> 1,070,407
<TOTAL-REVENUES> 1,070,407
<CGS> 752,164
<TOTAL-COSTS> 2,148,770
<OTHER-EXPENSES> (48,642)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,781,884)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,781,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,781,884)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
