<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: December 31, 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 Identification Number)
incorporation or organization)
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 - 6,315,909 shares as of February 12, 1997
<PAGE>
INDEX
MEDIA LOGIC, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated condensed financial statements (Unaudited)
Consolidated condensed balance sheets - December 31, 1996 and March
31, 1996
Consolidated condensed statements of operations - three and nine
months ended December 31, 1996 and 1995
Consolidated condensed statements of cash flows - nine months ended
December 31, 1996 and 1995
Notes to consolidated condensed financial statements - December 31,
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
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 307,663 $ 3,545,477
Accounts receivable, net 1,439,733 998,403
Inventories (Note 2) 3,340,086 2,467,149
Refundable income taxes 24,873 27,658
Other current assets 27,492 73,397
------------ ------------
Total current assets 5,139,847 7,112,084
Property and equipment, net 592,922 793,038
Other assets 72,711 59,870
------------ ------------
$ 5,805,480 $ 7,964,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,296,074 $ 343,873
Accrued expenses 535,687 605,453
------------ ------------
Total liabilities 1,831,761 949,326
Stockholders' equity:
Common stock, par value $.01 per share; 20,000,000
shares authorized; 6,315,909 and 6,213,809 shares
issued and outstanding as of December 31, 1996 and
March 31, 1996, respectively
63,159 62,138
Additional paid-in capital 19,283,328 19,167,072
Retained deficit (15,372,768) (12,213,544)
------------ ------------
Total stockholders' equity 3,973,719 7,015,666
------------ ------------
$ 5,805,480 $ 7,964,992
============ ============
</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 Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 897,376 $ 1,070,407 $ 2,972,809 $ 2,438,755
COSTS AND EXPENSES:
Cost of products sold 739,535 752,164 2,017,060 1,862,706
Selling, general and administrative 883,465 1,191,900 2,820,786 3,401,426
expenses 463,436 956,870 1,316,292 2,608,497
Research and development expenses
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,189,060) (1,830,527) (3,181,329) (5,433,874)
OTHER INCOME (EXPENSE):
Interest income -- 50,675 73,035 81,724
Miscellaneous 1,273 (2,032) (4,808) 7,133
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,187,787) (1,781,884) (3,113,102) (5,345,017)
PROVISION FOR INCOME TAXES -- -- 46,122 --
----------- ----------- ----------- -----------
NET LOSS $(1,187,787) $(1,781,884) $(3,159,224) $(5,345,017)
=========== =========== =========== ===========
NET LOSS PER SHARE (NOTE 3) $ (.19) $ (.29) $ (.50) $ (1.00)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,315,439 6,151,385 6,255,950 5,370,397
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
----------- -----------
CASH USED BY OPERATING ACTIVITIES $(3,239,991) $(2,730,125)
----------- -----------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Sale of marketable securities -- 2,031,289
Sale (purchase) of property and equipment, net (115,100) (6,993)
----------- -----------
(115,100) 2,024,296
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Exercise of stock options 117,277 78,869
Proceeds from private placement, net -- 4,983,668
----------- -----------
117,277 5,062,537
----------- -----------
NET INCREASE (DECREASE) IN CASH (3,237,814) 4,356,708
CASH BALANCE, BEGINNING OF PERIOD 3,545,477 911,729
=========== ===========
CASH BALANCE, END OF PERIOD $ 307,663 $ 5,268,437
=========== ===========
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 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 also supplies 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 December 31, 1996, and the results of its operations and
its cash flows for the nine months ended December 31, 1996 and December 31,
1995.
(2) Inventories
December 31, 1996 March 31, 1996
------------------------- ---------------------
Raw materials $1,477,014 $1,870,553
Work in process 147,168 139,265
Finished goods 1,715,904 457,331
========================= =====================
$3,340,086 $2,467,149
========================= =====================
(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 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>
Management's Discussion and Analysis of Financial Condition and Results of
Operations Three and Nine Months Ended December 31, 1996 Compared to Three and
Nine Months Ended December 31, 1995
Results of operations
Sales:
Sales for the three and nine month periods ended December 31, 1996 were $897,376
and $2,972,809 as compared with $1,070,407 and $2,438,755 for the three and nine
months ended December 31, 1995. Sales for the three and nine month periods ended
December 31, 1996 decreased 16.2% and increased 21.9%, respectively, as compared
with the three and nine month periods ended December 31, 1995. Demand for the
Company's traditional products continues to remain low, and 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 continued initial shipments of its new Scalable Library Architecture
("SLA") data tape libraries.
The Company is continuing to pursue its traditional 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
also is continuing its program to expand its market introduction of its newly
released line of Automated Data Library ("ADL") products.
Gross Profit:
Gross profit for the three and nine months ended December 31, 1996 was $157,841
and $955,749 as compared with $318,243 and $576,049 for the three and nine
months ended December 31, 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 and nine
months ended December 31, 1996 were $883,465 (98.4% of sales) and $2,820,786
(94.9% of sales) as compared with $1,191,900 (111.4% of sales) and $3,401,426
(139.5% of sales) for the three and nine months ended December 31, 1995. SG&A
expense related to the Company's traditional product lines was $551,824 for the
three months ended December 31, 1996 as compared with $761,357 for the three
months ended December 31, 1995. SG&A expenses related directly to the product
line of automated data libraries being developed by the Company's Media Logic
ADL subsidiary were $331,641 in the three month period ended December 31, 1996
as compared with $430,543 in the three month period ended December 31, 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 nine month periods ended
December 31, 1996 were $463,436 (51.6% of sales) and $1,316,292 (44.3% of sales)
as compared to $956,870 (89.4% of sales) and $2,608,497 (107.0% of sales) for
the three and nine month periods ended December 31, 1995. Of the overall Company
research and development expenses, $373,106 or 80.5% for the three month period
ended December 31, 1996 were related to the development of the ADL product line
of automated data libraries, compared to $831,391 or 86.9% for the three month
period ended December 31, 1995. 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
<PAGE>
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 December 31, 1996, the Company had working capital of $3.3 million compared
to $6.2 million at March 31, 1996. The current ratio was 2.8 to 1 as of December
31, 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 anticipates that its existing cash resources will allow it to
maintain its current and planned operations through mid to late March 1997.
Because of its continuing losses from operations, the Company will be required
to obtain additional capital in order to continue its operations. In December
1996 the Company announced it was seeking up to $5,000,000 in additional capital
to be used primarily to strengthen the Company's marketing capabilities for the
ADL product line. Although the Company has been actively pursuing additional
financing opportunities, to date, the Company has not secured a committed source
of additional funds. An investor has expressed an intention to invest in the
Company, subject to the satisfaction of its due diligence review. There can be
no assurance, however, that a commitment to invest will result or that closing
of a financing will occur. The Company has no assurance that it will be able to
raise additional capital in a timely manner or on favorable terms, if at all. If
the Company is unable to secure additional financing, the Company will be forced
to curtail or discontinue its operations by the end of the current fiscal
quarter.
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 availability of
additional capital to fund continued operations on acceptable terms, if at all;
and general economic conditions in both the United States and overseas markets.
As a result, the
<PAGE>
Company's future development efforts involve a high degree of risk. Actual
results may differ materially from 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
None
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.
MEDIA LOGIC, INC.
Date: February 14, 1997 \S\ Paul M. O'Brien
----------------- ------------------------
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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 307,663
<SECURITIES> 0
<RECEIVABLES> 2,070,898
<ALLOWANCES> 631,165
<INVENTORY> 3,340,086
<CURRENT-ASSETS> 5,139,847
<PP&E> 1,994,140
<DEPRECIATION> 1,401,218
<TOTAL-ASSETS> 5,805,480
<CURRENT-LIABILITIES> 1,831,761
<BONDS> 0
0
0
<COMMON> 63,159
<OTHER-SE> 19,283,328
<TOTAL-LIABILITY-AND-EQUITY> 5,805,480
<SALES> 2,972,809
<TOTAL-REVENUES> 2,972,809
<CGS> 2,017,060
<TOTAL-COSTS> 6,154,138
<OTHER-EXPENSES> 4,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,113,102)
<INCOME-TAX> 46,122
<INCOME-CONTINUING> (3,159,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,159,224)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
</TABLE>
