UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 1997
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 Identification No.)
incorporation or organization)
310 South Street, P.O. Box 2258, Plainville, MA 02762
----------------------------------------------------------
(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 - 6,613,029 shares as of August 12, 1997
<PAGE>
INDEX
MEDIA LOGIC, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated condensed financial statements (Unaudited)
Consolidated condensed balance sheets - June 30, 1997 and March 31,
1997
Consolidated condensed statements of operations - three months ended
June 30, 1997 and 1996
Consolidated condensed statements of cash flows - three months ended
June 30, 1997 and 1996
Notes to consolidated condensed financial statements - June 30, 1997
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
<TABLE>
<CAPTION>
(UNAUDITED)
June 30, March 31,
1997 1997
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS::
Cash and cash equivalents $ 1,177,479 $2,382,875
Accounts receivable, net 473,394 813,993
Inventories 3,422,570 3,563,482
Prepaid expenses and other current assets 1,000 1,000
------------------ ------------------
Total current assets 5,074,443 6,761,350
PROPERTY AND EQUIPMENT, net 397,526 469,080
DEFERRED FINANCING COSTS 1,569,176 1,711,829
OTHER ASSETS 18,641 30,696
------------------ ------------------
$7,059,786 $8,972,955
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES::
Accounts payable $416,150 $1,107,732
Accrued expenses 350,507 293,238
------------------ ------------------
Total current liabilities 766,657 1,400,970
CONVERTIBLE SUBORDINATED DEBENTURES 3,288,608 3,266,663
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 20,000,000
shares authorized; 6,321,509 and 6,320,909 shares
issued and outstanding as of June 30, 1997 and March
31, 1997, respectively 63,215 63,209
Additional paid-in capital 20,579,138 20,577,945
Accumulated deficit (17,637,832) (16,335,832)
------------------ ------------------
Total stockholders' equity 3,004,521 4,305,322
------------------ ------------------
$7,059,786 $8,972,955
================== ==================
</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
June 30,
1997 1996
---------------- ----------------
<S> <C> <C>
NET SALES $332,569 $848,549
COSTS AND EXPENSES:
Cost of products sold 245,441 447,092
Selling, general and administrative expenses 746,927 1,031,940
Research and development expenses 429,682 520,503
---------------- ----------------
LOSS FROM OPERATIONS (1,089,481) (1,150,986)
OTHER INCOME (EXPENSE):
Interest income 12,713 40,559
Interest expense-convertible debentures (226,372) -
Other 1,140 2,430
---------------- ----------------
LOSS BEFORE INCOME TAXES (1,302,000) (1,107,997)
PROVISION FOR INCOME TAXES - 14,730
---------------- ----------------
NET LOSS $(1,302,000) $(1,122,727)
================ ================
NET LOSS PER SHARE $(.21) $(.18)
================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,321,067 6,219,308
================ ================
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1997 1996
--------------- ---------------
<S> <C> <C>
CASH USED BY OPERATING ACTIVITIES $ (1,218,651) $(1,741,045)
--------------- ---------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Sale of marketable securities - 840,563
Sale (purchase) of property and equipment, net - (29,334)
Decrease in other assets 12,055 -
--------------- ---------------
12,055 811,229
--------------- ---------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Exercise of stock options 1,200 -
--------------- ---------------
1,200 -
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (1,205,396) (929,816)
CASH BALANCE, BEGINNING OF PERIOD 2,382,875 3,545,477
--------------- ---------------
CASH BALANCE, END OF PERIOD $ 1,177,479 $2,615,661
=============== ===============
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
PART I. FINANCIAL INFORMATION
MEDIA LOGIC, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997
(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, 1997.
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 June 30, 1997, and the results of its operations and its
cash flows for the three months ended June 30, 1997 and June 30, 1996.
(2) Inventories
June 30, 1997 March 31, 1997
------------------ ------------------
Raw materials $1,751,150 $1,808,917
Work in process 159,166 168,762
Finished goods 1,512,254 1,585,803
================== ==================
$3,422,570 $3,563,482
================== ==================
(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) Convertible Subordinated Debentures
On March 24, 1997, the Company issued 7% convertible subordinated debentures
(the "Debentures") with gross proceeds of $3,530,000. Each debenture has a face
amount of $10,000 and bears interest at 7% per annum. Interest is payable upon
conversion or redemption of the Debentures and is payable in either cash or
shares of common stock at the average market price of common stock over the five
days preceding the conversion dates, at the option of the Company.
The Debentures are convertible at the option of the holder into common stock of
the Company. The conversion price is equal to the lower of (x) 120% of the
average closing bid price of the common stock for the five trading-day period
ending on the trading day prior to the subscription date (March 24, 1997) or (y)
80% of the average closing bid price for five days immediately preceding the
conversion date. As of the subscription date, the conversion price was $2.805.
The
<PAGE>
Debentures mature on March 24, 2000 and automatically convert on that date
at the then current conversion price.
In connection with the issuance of the Debentures, The Company issued warrants
to purchase 1,550,870 shares of common stock at $3.00 per share and 151,016
shares of common stock at $3.51 per share. The warrants are exercisable at the
option of the warrantholder at any time on or after September 24, 1997 and March
24, 1998 for warrants priced at $3.00 per share and $3.51 per share,
respectively. All warrants expire on March 25, 2002.
The Company recognized the estimated fair value of the warrants based on the
Black-Scholes valuation model and the guaranteed return conversion feature
attributable to the Debentures as deferred financing costs with an increase to
additional paid-in capital. These amounted to $1,228,000 along with actual cash
financing costs of approximately $484,000. Deferred financing costs are being
amortized over three years, the stated term of the Debentures, and are included
in "Interest expense-convertible debentures" in the accompanying Consolidated
Condensed Statements of Operations. To the extent that the Debentures are
converted, any unamortized deferred financing costs will be charged against
additional paid-in capital.
5) New Accounting Standard
In March 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This statement is effective for fiscal years ending after December 15, 1997 and
early adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will adopt this
statement for its fiscal year ended March 31, 1998. The Company believes that
adoption of SFAS No. 128 will not have a material effect on its financial
statements.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Results of operations
Sales:
Sales for the three month period ended June 30, 1997 were $332,569 as compared
with $848,549 for the three months ended June 30, 1996. Sales for the three
month period ended June 30, 1997 decreased 60.8% as compared with the three
month period ended June 30, 1996. Demand for the Company's traditional products
continued to decline, and sales of the Company's Automated Data Library ("ADL")
line were not a significant source of operating revenues.
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 the market introduction of its ADL products.
Gross Profit:
Gross profit for the three months ended June 30, 1997 was $87,128 as compared
with $401,457 for the three months ended June 30, 1996. 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, 1997 were $746,927 (224.6% of sales) as compared with $1,031,940
(121.6% of sales) for the three months ended June 30, 1996. SG&A expenses
related to the Company's traditional product lines were $451,225 for the three
months ended June 30, 1997 as compared with $612,619 for the three months ended
June 30, 1996. SG&A expenses related directly to the ADL product line were
$295,702 for the three month period ended June 30, 1997 as compared with
$419,321 for the three month period ended June 30, 1996. The Company's cost
reduction measures have significantly reduced total SG&A expenses, but the
Company expects that SG&A expenses related to its ADL line will increase as
product development is completed and the Company continues the market
introduction of its ADL products.
Research and development expenses for the three month period ended June 30, 1997
were $429,682 (129.2% of sales) as compared to $520,503 (61.3% of sales) for the
three month period ended June 30, 1996. All of the Company's research and
development expenses for the three month period ended June 30, 1997 were related
to the development of the ADL product line of automated data libraries, compared
to $433,603, or 83.3% of total research and development expenses, for the three
month period ended June 30, 1996.
Liquidity and Capital Resources:
At June 30, 1997, the Company had working capital of $4.3 million compared to
$5.4 million at March 31, 1997. The current ratio was 6.6 to 1 as of June 30,
1997 and 4.8 to 1 as of March 31, 1997. 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.
On March 24, 1997, the Company issued 7% Convertible Subordinated Debentures
(the "Debentures") aggregating $3,530,000 in a private placement. The Debentures
mature on March 24, 2000 and are convertible into the Company's common stock
prior to that date at the option of
<PAGE>
the holder. The Debentures, together with accrued interest thereon, are
convertible into shares of common stock at the lower of (i) $2.805 and (ii) 80%
of the average closing bid price of the common stock over the five trading days
immediately preceding the conversion date. In connection with the issuance of
the Debentures, the Company issued warrants to purchase 1,550,870 shares of
common stock at $3.00 per share and warrants to purchase 151,016 shares of
common stock at $3.51 per share. Subsequent to June 30, 1997, Debentures
aggregating $440,000, plus accrued interest, were converted to 291,520 shares of
the Company's common stock.
The Company, because of its continuing losses from operations, anticipates that,
unless revenues increase significantly, it will require additional capital in
order to continue its operations. The Company has no assurance that it will be
able to raise such additional capital, if needed, in a timely manner or on
favorable terms, if at all. If the Company is unable to increase revenues
significantly and/or secure additional financing, the Company could be forced to
curtail or discontinue its operations.
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 which express "belief", "anticipation", "plans",
"expectation", "future" or "intention" as well as other statements which are not
historical fact are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and involve a number of risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in these forward-looking statements. 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 competitors, many of whom 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
Company's future operations involve a high degree of risk.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
Subsequent to June 30, 1997, 291,520 shares of the
Company's common stock were issued upon the
conversion of 7% Convertible Subordinated
Debentures aggregating $440,000, plus interest.
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: August 14, 1997 \S\ Paul M. O'Brien
--------------- -----------------------------
Paul M. O'Brien
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND IN 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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 1,177,479
<SECURITIES> 0
<RECEIVABLES> 535,319
<ALLOWANCES> 61,925
<INVENTORY> 3,422,570
<CURRENT-ASSETS> 5,074,443
<PP&E> 1,723,622
<DEPRECIATION> 1,326,096
<TOTAL-ASSETS> 7,059,786
<CURRENT-LIABILITIES> 766,657
<BONDS> 3,288,608
0
0
<COMMON> 63,215
<OTHER-SE> 20,579,138
<TOTAL-LIABILITY-AND-EQUITY> 7,059,786
<SALES> 332,569
<TOTAL-REVENUES> 332,569
<CGS> 245,441
<TOTAL-COSTS> 1,422,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 226,372
<INCOME-PRETAX> (1,302,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,302,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,302,000)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
