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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 1-9605
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MEDIA LOGIC, INC.
(Exact name of Registrant as specified in its charter)
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MASSACHUSETTS 04-2772354
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
310 SOUTH STREET, PLAINVILLE, MA 02762
(Address of principal executive offices) (Zip Code)
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(508) 695-2006
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $.01 American Stock Exchange
par value per share
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Indicated 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. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
On May 30, 1997, there were outstanding 5,060,564 shares of Common Stock
held by nonaffiliates (without admitting that any person whose shares are not
included are affiliates) with an aggregate market value of $15,497,977 (based on
the closing price of $3.0625 per share on the American Stock Exchange).
As of May 30, 1997, there were issued and outstanding 6,320,909 shares of
Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed pursuant
to Regulation 14A for the 1997 Annual Meeting of Stockholders are incorporated
by reference into Part III of this Form 10-K.
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MEDIA LOGIC, INC.
FORM 10-K
TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Description of Business............................................................................. 1
2. Properties.......................................................................................... 7
3. Legal Proceedings................................................................................... 8
4. Submission of Matters to a Vote of Security Holders................................................. 8
PART II
5. Market for the Registrant's Common Equity Securities and Related Stockholder Matters................ 9
6. Selected Financial Data............................................................................. 10
7. Management's Discussion and Analysis of Financial Condition and Results of Operation................ 10
8. Consolidated Financial Statements and Supplementary Data............................................ 17
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 17
PART III
10. Directors and Executive Officers of the Registrant.................................................. 18
11. Executive Compensation.............................................................................. 18
12. Security Ownership of Certain Beneficial Owners and Management...................................... 18
13. Certain Relationships and Related Transactions...................................................... 18
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................... 19
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Media Logic, Inc. (the "Company") was incorporated in 1982 to develop and
manufacture certification equipment to be used by manufacturers of flexible
storage media such as floppy disks. The Company's principal product line is
automated tape library systems for data storage and retrieval, which was
introduced in fiscal year 1996.
The Company's data storage libraries have been developed by MediaLogic ADL,
Inc. ("ADL"), a subsidiary of the Company which was established in 1994 to
develop, market and sell automated data storage libraries. In fiscal year 1996,
ADL introduced automated tape libraries in 4mm and 8mm tape technologies and
expects to introduce during 1997 automated tape libraries with digital linear
tape ("DLT") technology. Tape drives from a number of manufacturers are
supported by the libraries, as are system management and software configurations
from a variety of vendors. In fiscal 1996, the Company sold only pre-production
units, and began delivering initial production units in fiscal 1997. Potential
customers for the ADL line of automated tape libraries are data dependent
companies in all types of businesses.
The certification, test and duplication product line, representing the
Company's historical products, is not expected to be the basis for the bulk of
the Company's future business. This product line includes: (i) certifiers which
are used by computer disk manufacturers to test each disk as it is manufactured
and to sort disks into three industry established quality categories, (ii) tape
certification and evaluation equipment used by manufacturers and suppliers of
magnetic tapes, to evaluate and qualify the quality of the tapes, and (iii)
floppy disk duplication equipment utilizing industrial disk drives which have
been developed by the Company for use by software publishers and duplicators.
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 executives, which could have a
material adverse impact on the Company; the development of competing or superior
technologies and products by 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
expansion on acceptable terms, if at all; general economic conditions in both
the United States and overseas markets, and other risks and uncertainties
described in this report and in this Item 1--Description of Business and in Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations in particular. As a result, the Company's future operations involve a
high degree of risk.
INDUSTRY BACKGROUND
DATA STORAGE
The Company believes that the rapidly growing availability of huge amounts
of data, and the need to readily access that data, has accelerated the demand
for reliable and economical data storage capabilities. The expanding role of
networks, access to data from the Internet, and the explosion of graphics and
1
imaging applications require ever greater data storage capabilities. With the
loss of information being potentially devastating, participants in data
dependent businesses have determined that it has become essential to have an
automated system for data backup, archival storage and retrieval. The ADL line
of automated tape libraries is designed to meet this requirement.
Libraries can differ substantially in features, capacity and price. The ADL
libraries target the low-end to mid-range of the market for libraries. The
Company believes that the unique architecture of its libraries provides a
competitive advantage in reliability and functionality. The Company plans to
leverage these competitive advantages to continue to build its position in the
low-end to mid-range of the rapidly growing data storage market.
Competition in the data storage market, including the automated tape library
market, is intense, with a large number of companies in these markets. Many of
the Company's current and potential competitors have longer operating histories,
greater name recognition, larger installed customer bases and significantly
greater financial, technical and marketing resources than the Company. As a
result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products than the Company. An increase in
competition could result in price reductions and loss of market share. Such
competition and any resulting reduction in gross margins could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CERTIFICATION, TEST AND DUPLICATION
The sale of certification equipment to manufacturers of floppy disks has
historically been the source of the majority of the Company's revenue.
Manufacturers typically certify disks to establish quality levels. Disks are
sorted into one of three categories based on quality standards established by
the American National Standards Institute ("ANSI"): Category 1 "exceeds ANSI
standards"; Category 2 "meets ANSI standards"; and Category 3 "does not meet
ANSI standards". The highest grade disks are typically used by software
publishers and duplicators, while the lesser quality disks are generally sold at
retail.
During the early 1990's, significant disk production capacity was added
throughout the world, particularly in the lower labor rate markets of Southeast
Asia and China. The capacity added during the early 1990's has been
substantially sufficient to meet requirements. This, along with the fact that
price competition among disk manufacturers has driven prices down, substantially
reducing margins, has minimized purchases of additional equipment by existing
manufacturers and discouraged new manufacturers. Also, some disk manufacturers
have discontinued the certification process, choosing instead to sell their
disks as low quality into the retail market.
Demand for disks has been restricted by alternative forms of computer media
which have become available. CD-ROM has gained general acceptance as more
personal computers are equipped with CD-ROM drives. Many software programs and
games which once were delivered on multiple floppy disks now come on a single
CD-ROM. Other computer media currently available include floptical disk, which
combines optical tracking and magnetic storage, the Mini Disk, a two inch disk
offered by Sony Corporation, the flash memory card or PCMCIA card, and higher
density floppy disks with dramatically increased storage capabilities. All these
media require specialized drives for their operation. Removable hard drives with
large storage capacity are also available. Although, the Company believes that
the widespread acceptance of the 3.5 inch disk as the standard form of computer
media in the industry will ensure its continued use for at least several years,
the Company expects the market for certification equipment to continue to
decline.
The market for test and evaluation equipment for magnetic tape is primarily
manufacturers of tape and their major customers. The Company believes that it is
a leading supplier of such equipment. The Company works closely with the tape
manufacturers to develop evaluation capabilities as new types of tapes are
introduced to the market.
2
While there are several major companies leading the market for duplication
of floppy disks, there are hundreds of smaller companies which have more limited
duplication requirements. The Company provides a solution to the major
duplicators with its AccuCopy line of industrial duplicators which incorporate
the Company's AccuCopy industrial drives. The Company also provides a single
spindle duplicator to those customers whose requirements are less.
BUSINESS STRATEGY
The Company's business strategy is to devote the substantial majority of its
resources to the development, marketing and sale of its line of ADL automated
tape libraries. The Company will continue to support its historical product
lines of certifiers, evaluators and duplicators and will continue to pursue all
sales opportunities for new equipment, spare parts and service that become
available.
AUTOMATED TAPE LIBRARIES
Going forward, all research and development activities will be conducted and
overseen by the Company's engineering department which was established and
staffed in fiscal 1996. The establishment of an in-house research and
development capability has enabled the Company to reduce its reliance on outside
engineering consultants, giving the Company more immediate control over the
direction, cost, and schedule of product design activities.
The Company believes that the most effective allocation of its resources
requires that the manufacture of the automated tape libraries be done by a third
party. A strategic alliance has been formed with a third party manufacturer for
the production of the ADL libraries. PAGG Corporation, an ISO 9002 certified
manufacturer located in Milford, Massachusetts, is currently manufacturing
automated tape libraries for the Company.
The Company continues to develop a sales staff dedicated to the ADL product
line. The staff will have responsibility only for the Company's ADL line of
automated tape libraries. In order to gain the greatest market exposure and
penetration in the shortest amount of time, the Company is focusing its sales
efforts on Value Added Resellers ("VARs"), Original Equipment Manufacturers
("OEMs") and large end users.
CERTIFIERS, EVALUATORS AND DUPLICATORS
Opportunities for sales are limited in the Company's traditional markets.
There is significant competition for each sales opportunity, leading to severe
pricing pressures. The Company believes it is a leading manufacturer of
certification equipment by virtue of its proven technology and widespread
acceptance of its products and is therefore well positioned to compete for
available business. The Company believes it is similarly well situated in the
market for tape testing equipment. The Company has gained market share in the
duplication market and continues to refine its product offerings to meet
customer requirements.
The Company will continue to support owners of its equipment with spare
parts and service.
PRODUCTS
AUTOMATED TAPE LIBRARIES
The ADL line of automated tape libraries includes libraries based on 4mm
tape technology and 8mm tape technology. The Company expects to introduce a
library based on DLT tape technology during 1997. Each library developed by ADL
capitalizes on the design of its predecessor libraries, shortening the
development cycle and increasing reliability. The Company believes that ADL's
Scaleable Library Architecture ("SLA") includes radical design innovations for
automated tape libraries compared with competitive products.
3
Potential customers for the ADL line of automated tape libraries are data
dependent companies in all types of businesses. In fiscal 1996, the Company sold
only pre-production units, and began delivering initial production units in
fiscal 1997.
Features of ADL automated tape libraries include:
- Independent loading mechanisms which can operate with each tape drive
simultaneously, eliminating the need for robotic mechanisms and providing
critical redundancy to ensure data security and availability.
- A "hot swap" feature that allows the user to service and add drives to an
ADL library without shutting it down, resulting in nearly 100% up time and
uninterrupted data availability.
- Mixed Media Interchange capability allowing the user to access through the
library data held on media other than those incorporated in the library.
For example, the user could store or retrieve data from such media as
CD-ROM, QIC tape, 4mm tape or floppy disk through an 8mm library.
- Scalability of drives, user options and DataPaks for customizing and/or
upgrading ADL libraries.
- Expandability for future applications.
4mm libraries can be configured with from one to six tape drives and with
DataPaks holding up to 65 cartridges, with storage capacity of up to 1.6
terabyte (TB). 8mm libraries can be configured with from one to six tape drives
and with DataPaks holding up to 52 cartridges, with storage capacity of up to
2.6 TB. The Company expects that the DLT library it plans to introduce during
1997 will be configured with up to five tape drives and with DataPaks holding up
to 32 cartridges, with storage capacity of up to 2.2 TB. In fiscal 1996, the
Company sold only pre-production units, and began delivering initial production
units in fiscal 1997.
The computer industry in general, and the markets for the Company's
automated tape library products in particular, are characterized by rapidly
changing technology, frequent new product introductions, and significant
competition. In order to keep pace with this rapidly changing market
environment, the Company must continually develop and incorporate into its
products new technological advances and features desired by the marketplace at
acceptable prices. The successful development and commercialization of new
products involves many risks, including the identification of new product
opportunities, timely completion of the development process, the control and
recoupment of development and production costs and acceptance by customers of
the Company's products. There can be no assurance that the Company will be
successful in identifying, developing, manufacturing and marketing new products
in a timely and cost effective manner, that products or technologies developed
by others will not render the Company's products or technologies uncompetitive,
or that the Company's products will be accepted in the marketplace.
DISK CERTIFIERS
Media Logic manufactures semi-automatic and automatic disk certifiers used
by computer disk manufacturers to test each disk as it comes off a production
line. The certifiers are designed to run 24 hours a day, seven days a week.
Certifiers perform a series of tests on each disk, sorting newly manufactured
disks into one of the three categories based on quality standards established by
the ANSI. See "Industry Background--Certification, Test and Duplication".
The Company believes that it is a recognized leader in the certifier market
because of the high throughput and reliability of its products. Prices range
from $30,000 for six spindle hand loaded units to over $300,000 for customized
automated 60-spindle systems.
4
DISK EVALUATORS
The ML5000 is a disk evaluator for blank disks. It is widely used by both
manufacturers and users of disks. This desktop unit is designed for engineers to
provide quality assurance by testing selected samples of computer disks for a
variety of performance and manufacturing characteristics. Typical customers
include disk manufacturers, software publishers, duplication houses and
government agencies. Prices range from $15,000 to $28,000, depending on the
configuration.
TAPE CERTIFIERS AND EVALUATORS
The ML4500B is a tape test system designed for maximum flexibility through
the use of plug-in modules for the various types of tapes to be tested. The user
can add test capabilities to the ML4500B at any time by purchasing additional
plug-in modules. Customers include tape manufacturers and users of large amounts
of tape. This desktop unit sells in the price range of $65,000 to $90,000.
DUPLICATORS
The Company manufactures and sells a line of AccuCopy duplicators
incorporating the Company's proprietary AccuCopy industrial disk drive.
Principal customers for AccuCopy duplicators include disk manufacturers, who are
increasingly providing disk formatting and duplication services to maximize the
prices they can charge for their disks, and major software duplicators. The
Company sells both three and six spindle versions of the AccuCopy duplicator at
prices ranging from $20,000 to $50,000.
The Company also sells the Spectrum line of single spindle duplicators. This
product is designed for those customers whose duplication needs are relatively
modest or who do not require the industrial quality of the AccuCopy series of
duplicators. The Spectrum duplicators are priced in the range of $5,000 per
spindle.
SALES AND MARKETING
AUTOMATED TAPE LIBRARIES
The Company sells its automated tape libraries through multiple channels
including value added resellers ("VARs"), original equipment manufacturers
("OEMs"), and end users. A dedicated sales force was established in fiscal 1996
with the addition of a Vice President of Sales. The Company is currently in the
process of establishing and staffing several regional sales offices.
CERTIFIERS, EVALUATORS AND DUPLICATORS
Currently all the Company's sales are generated by the Company's internal
sales group, located at its home office in Plainville, Massachusetts.
The Company provides technical support services to customers throughout the
world from its headquarters in Plainville, Massachusetts. Field service
personnel staff a technical hotline and coordinate service requirements. In
addition, repair and refurbishment services are provided through the field
service department.
Approximately 73% of the Company's fiscal 1997 sales were to customers
located outside the United States and, therefore, the Company is subject to
risks common to foreign activities including government regulations, political
and economic instabilities, trade barriers and transaction risks. Substantially
all of the Company's sales are transacted in U.S. dollars eliminating
significant currency risk to the Company. In many cases, international shipments
are covered by letters of credit.
In fiscal 1997, four individual customers each accounted for 10% or more of
the Company's sales. Because of the non-recurring nature of the Company's
largest orders, the identity of its major customers
5
changes from year to year. Therefore, the Company does not believe that it is
dependent on sales to only one customer.
BACKLOG
At May 30, 1997, the Company's backlog was approximately $262,000, compared
to approximately $1,069,000 at June 26, 1996. All of the orders included in the
Company's backlog were requested to be filled and completed within six months
and are, subject to possible customer cancellation, expected to be filled in
that time frame. The Company does not believe its backlog is an accurate
prediction of its annual or quarterly revenues.
PATENTS
Prior to fiscal year 1996, the Company relied upon know-how rather than
patents to develop and maintain its competitive position with respect to its
historical product lines. With respect to its certifiers, evaluators and
duplicators, the Company believes that a variety of factors including its
products, design and applications experience, and its reputation are sufficient
to protect its interests in these markets.
The Company recognizes the value of patents in designs and processes and
holds the rights under several patent applications covering the underlying
technology of its automated tape libraries. The Company expects to seek
additional patents as technological advances require. The Company also protects
its technology and proprietary information through trade secrets, copyrights,
trademarks and licenses.
The Company's ability to compete effectively with other companies will
depend, in part, on the ability of the Company to maintain the proprietary
nature of its technology. There can be no assurance that competitors in both the
United States and foreign counties, many of which have substantially greater
resources and have made substantial investments in competing technologies, do
not have or will not obtain patents that will prevent, limit or interfere with
the Company's ability to make and sell its products or intentionally infringe
the Company's patents. While the Company possesses or licenses certain patent
rights, it relies in large part on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology, whether or not patented, or otherwise obtain access to the
Company's proprietary technology.
RESEARCH AND PRODUCT DEVELOPMENT
The Company has focused its research and development efforts on the ADL line
of automated tape libraries. Expenditures for research and development of this
product line in fiscal 1997 were $1,571,404, compared with $3,374,685 in fiscal
1996 and $2,375,698 in fiscal 1995. During fiscal 1997, the Company continued to
expand an in-house engineering department established during fiscal 1996 which
will be responsible for all future research and development activities. A
substantial portion of the research and development expenditures in fiscal 1996
and 1995 were made pursuant to a contract with an engineering consulting firm
which expired during fiscal 1996 and was not renewed. All work product generated
pursuant to the contract is the property of the Company.
The Company spent $236,741 on research and development activities related to
the certification, evaluation and duplication products in fiscal 1997 compared
to $651,768 in fiscal 1996 and $1,575,235 in fiscal 1995.
As of March 31, 1997, the Company employed 16 engineers, designers and
technicians, including software, mechanical and electrical engineers, all of
whom were assigned to automated tape libraries. The Company expects to add
engineers to its staff during fiscal 1998 as it continues to undertake research
and development activities which had previously been conducted by consultants.
The Company continues to seek out new products and new applications for its
current products.
6
MANUFACTURING
The Company's ADL line of automated tape libraries is manufactured by PAGG
Manufacturing Company of Milford, Massachusetts. The Company believes that PAGG
has the technical and manufacturing experience and capacity to meet the
Company's requirements for the foreseeable future. The Company believes that
there are many manufacturers qualified to build the ADL line of automated tape
libraries should the Company seek alternative manufacturing sources.
All of the Company's certifiers, evaluators and duplicators are manufactured
at the Company's Plainville, Massachusetts facility. The Company's manufacturing
activities consist of subassembly, final assembly and testing along with
software development. Virtually all of the Company's printed circuit boards are
manufactured by third parties in the United States. The Company believes that it
is advantageous to have multiple sources available for printed circuit boards,
fabricated parts and other essential components and generally attempts to locate
more than one qualified vendor for the manufacture of each fabricated part used
in the production of Company products.
COMPETITION
Each of the markets in which the Company participates is highly competitive.
In each market some of the Company's current and prospective competitors have
greater financial, technical, manufacturing and marketing resources than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than any
which are being developed by the Company and which could render certain of the
Company's technology obsolete.
Numerous companies are engaged in the development and commercialization of
automated tape libraries. Several manufacturers of tape storage systems have
introduced libraries incorporating their tape drives. These companies include
IBM, Hewlett-Packard, Exabyte and Quantum Corporation. The Company does not own
proprietary tape drive technology and is therefore dependent on third party
manufacturers of storage devices for incorporation of its libraries. Other
competitors in the automated tape library market include Odetics, Qualstar,
Spectra Logic and ADIC.
Two Japanese companies, Expert Magnetics and Hi-Tek Seiko, are the Company's
principal competitors in the market for certification equipment. AME, an Irish
company, is the principal competitor in the market for desk top evaluators. The
Company competes with Rimage Corporation and Trace Mountain Corporation among
others in the market for duplication equipment.
EMPLOYEES
The Company had 36 employees on March 31, 1997, of whom 29 were located in
Plainville, Massachusetts and 7 were located in Boulder, Colorado at the offices
of MediaLogic ADL. Of the total employees, 16 are engaged in research and
development, 3 in sales and marketing, 2 in finance, 3 in administration and 12
in operations. The Company's employees are not represented under any collective
bargaining agreement. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company leases its headquarters in Plainville, Massachusetts from a
realty trust, the beneficiaries of which are David R. Lennox, the former
Chairman of the Company, and Klaus J. Peter, a former director and former Senior
Vice President of the Company. The facility has a total of 18,000 square feet.
See Note 6 of Notes to Consolidated Financial Statements.
MediaLogic ADL occupies a leased facility of approximately 3000 square feet
in Boulder, Colorado.
The regional sales office in Fremont, California occupies a leased office
suite of approximately 1200 square feet.
7
ITEM 3. LEGAL PROCEEDINGS
On or about January 16, 1996, the Company and its subsidiary MediaLogic ADL,
Inc. (collectively, "Media Logic"), commenced an action in the Superior Court of
the Commonwealth of Massachusetts against Christian P. Marlowe and Marlowe
Engineering Company (collectively, "Marlowe") seeking (a) a declaration of the
rights of Media Logic under certain technology transfer and consulting
agreements, and (b) damages for Marlowe's breach of those agreements. On June 5,
1996, Marlowe answered the complaint and counterclaimed, asserting claims for
breach of contract, misrepresentation, promissory estoppel, violation of the
implied covenant of good faith and fair dealing, M.G.L. c. 93A, and declaratory
judgment. On June 11, 1996, Marlowe amended the counterclaim to include a
defamation count relating to a press release issued by Media Logic concerning
the litigation. In August 1996, Media Logic moved to dismiss the counterclaims.
The Court denied Media Logic's motion in November 1996. Currently, the parties
are engaged in pre-trial discovery.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "TST". The following table sets forth high and low closing sale
prices of the Common Stock on the American Stock Exchange during the periods
indicated below:
HIGH LOW
PRICE PRICE
--------- -----
FISCAL 1996
First Quarter.............................................................. $ 2.06 1.25
Second Quarter............................................................. 6.06 1.38
Third Quarter.............................................................. 9.63 4.19
Fourth Quarter............................................................. 8.56 5.75
FISCAL 1997
First Quarter.............................................................. 10.13 4.31
Second Quarter............................................................. 7.06 4.44
Third Quarter.............................................................. 5.56 2.69
Fourth Quarter............................................................. 3.88 2.00
As of May 30, 1997, there were 245 shareholders of record. The Company
believes that there are in excess of 3,500 beneficial owners of the Company's
Common Stock.
DIVIDEND POLICY
The Company has not paid cash dividends since its inception. The Company
currently intends to retain all of its earnings, if any, to finance the
development and growth of its business and does not anticipate paying any cash
dividends in the foreseeable future.
9
ITEM 6. SELECTED FINANCIAL DATA
The following selected data of the Company is qualified by reference to and
should be read in conjunction with the consolidated financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.
YEAR ENDED MARCH 31,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $ 21,267 $ 15,489 $ 5,836 $ 3,578 $ 3,644
Cost of sales.............................................. 9,346 6,727 5,521 2,801 2,446
--------- --------- ---------- --------- ---------
Gross profit............................................. 11,921 8,762 315 777 1,198
Operating expenses:
Selling, general and administrative........................ 4,533 5,462 5,503 4,651 3,596
Research and development................................... 1,071 1,712 3,951 4,026 1,808
--------- --------- ---------- --------- ---------
Income (loss) from operations............................ 6,317 1,588 (9,139) (7,900) (4,206)
Settlement costs........................................... -- (676) (2,230) (30) --
Other income (expense)..................................... 64 264 220 111 84
--------- --------- ---------- --------- ---------
Income (loss) before provision (benefit) for income
taxes.................................................. 6,381 1,176 (11,149) (7,819) (4,122)
Provision (benefit) for income taxes....................... 2,152 446 (1,168) -- --
--------- --------- ---------- --------- ---------
Net income (loss)........................................ $ 4,229 $ 730 $ (9,981) $ (7,819) $ (4,122)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Net income (loss) per common and common equivalent
share.................................................. $ 1.01 $ 0.15 $ (2.01) $ (1.40) $ (0.66)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Weighted average number of common and common equivalent
shares outstanding....................................... 4,169 4,975 4,968 5,585 6,271
MARCH 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital............................................ $ 7,269 $ 18,783 $ 8,473 $ 6,163 $ 5,360
Total assets............................................... 12,879 22,705 11,104 7,965 8,973
Long-term debt, less current portion....................... -- -- -- -- 3,267
Stockholders, equity....................................... 7,830 19,720 9,767 7,016 4,305
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
THE FOLLOWING DISCUSSION AND OTHER PARTS OF 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 MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED UNDER THE "LIQUIDITY AND CAPITAL RESOURCES", AND
UNDER THE CAPTION "NOTE REGARDING FORWARD-LOOKING STATEMENTS" AND ELSEWHERE IN
ITEM 1 "DESCRIPTION OF BUSINESS" SECTIONS OF THIS REPORT AND THOSE INCLUDED IN
PUBLICLY AVAILABLE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
10
Prior to fiscal 1994, the Company was principally engaged in the
development, manufacture and sale of test equipment for computer media,
primarily floppy disks and tape. Beginning in fiscal 1994, the Company developed
and brought to market a heavy duty industrial disk drive and floppy disk
duplication equipment which incorporated the drives. Together, these products
constituted what is now considered to be the Company's traditional business. The
market for these traditional products has been negatively impacted in recent
years by a number of factors including but not limited to:
- competition among disk manufacturers, the principal customer for the
Company's certification equipment, which led to lower disk prices.
Manufacturers had less money to spend on additional capital equipment and
the low margins made the business unattractive to potential new entrants,
- the wide spread acceptance of CD-ROM as an effective medium for the
delivery of software negatively impacted the demand for higher quality
disks,
- the closing of the Chinese market, eliminating the Company's largest
market for new equipment and providing a source of used equipment to be
sold in non-Chinese markets in competition with the Company's new
equipment.
The Company recognized the declining nature of its traditional markets and
in fiscal 1995 established a subsidiary company, MediaLogic ADL, Inc. ("ADL"),
to develop, market and sell automated tape libraries into the data storage
market. The Company believes that the market for automated tape libraries is
large and growing and that the line of libraries which has been developed by the
Company meets the data storage and retrieval requirements of a large range of
customers. The substantial majority of the Company's resources are now, and will
continue to be, devoted to the development and marketing of this product line.
The Company first commenced sales of its initial production units of ADL
products, other than evaluation units, in fiscal year 1997 and therefore has
limited experience in selling its ADL products. While, in fiscal year 1997 the
Company still derived most of its revenues from sales of its certifiers,
evaluators and duplicators for floppy disks and tape, the Company has shifted
its focus to its automated tape libraries for the data storage market. The
Company expects to derive a substantial majority of its total revenue and net
income from sales of its ADL products in the future.
RESULTS OF OPERATIONS
The following table sets forth, for the indicated periods, certain data as
percentages of the Company's net sales:
YEAR ENDED MARCH 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of goods sold......................................... 94.6 78.3 67.1
--------- --------- ---------
Gross profit............................................. 5.4 21.7 32.9
Selling, general and administrative expenses............... 94.3 130.0 98.7
Research and development expenses.......................... 67.7 112.5 49.6
--------- --------- ---------
Income (loss) from operations............................ (156.6) (220.8) 115.4
Settlement costs........................................... (38.2) (0.8) 0.0
Other income............................................... 3.7 3.1 2.3
--------- --------- ---------
Income (loss) before taxes............................... (191.1) (218.5) (113.1)
Provision (benefit) for Income Taxes....................... (20.0) 0.0 0.0
--------- --------- ---------
Net income (loss)........................................ (171.1)% (218.5)% (113.1)%
--------- --------- ---------
--------- --------- ---------
11
TWELVE MONTHS ENDED MARCH 31, 1997 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1996
Sales for the twelve month period ended March 31, 1997 increased by 1.9%
compared to fiscal 1996 which had decreased by 38.7% compared to fiscal 1995.
This stabilization of revenue is primarily the result of steady demand for the
Company's traditional product line. Previously, severe pricing pressures in the
sale of floppy disks, discouraging current manufacturers from adding capacity
and creating barriers to new entrants into the market, led to dramatic decreases
in revenue. A significant number of manufacturers of floppy disks went out of
business, particularly in China, flooding the market with used equipment. This
led to increased competition for the limited opportunities available and lower
prices for equipment.
Sales of the ADL line of automated libraries were not significant in fiscal
1997. The Company expects sales of this product line to be an increased portion
of the Company's revenues in fiscal 1998.
International revenues increased to $2,816,585 in fiscal 1997 from
$2,642,793 in fiscal 1996. The Company is continuing to pursue opportunities in
sections of the world which have not previously been served by disk
manufacturers. The following table summarizes sales by geographic region:
SALES BY GEOGRAPHIC REGION
FISCAL 1997 FISCAL 1996 FISCAL 1995
------------ ------------ ------------
Domestic............................................ $ 969,954 $ 941,972 $ 1,470,552
Europe.............................................. 489,822 272,617 793,793
Far East............................................ 1,234,700 1,595,396 2,368,837
Other............................................... 950,002 768,251 1,202,512
------------ ------------ ------------
$ 3,644,478 $ 3,578,236 $ 5,835,694
------------ ------------ ------------
------------ ------------ ------------
Total costs and expenses as a percentage of revenue were 215.4% in fiscal
1997 as compared to 321.6% in fiscal 1996 and 294.8% in fiscal 1995. The
principal reasons for the decrease in fiscal 1997 were the expansion of the
development of an in-house engineering capability to replace outside consultants
and the institution of strict controls on all aspects of the Company's business.
All manufacturing of the Company's traditional product lines has been
consolidated at the Company's Plainville, Massachusetts facility. There were 36
employees at March 31, 1997 as compared to 45 at March 31, 1996. There were 37
employees as of May 30,1997, of which 10 employees were assigned to the
Company's traditional product lines, while 27 were assigned to the ADL project.
The Company expects to add additional employees to the ADL project during fiscal
1998. Headcount by location is as follows:
HEADCOUNT BY LOCATION
MAY 30, MARCH 31, MARCH 31, MARCH 31,
1997 1997 1996 1995
--------- ------------- --------- ---------
Media Logic, Plainville............................................... 30 29 26 53
Media Logic ADL....................................................... 7 7 13 8
Media Logic, West..................................................... 0 0 3 10
Media Logic Far East.................................................. N/A N/A 3 3
--- --- --- ---
37 36 45 74
--- --- --- ---
--- --- --- ---
Cost of goods sold as a percentage of revenue decreased to 67.1% in fiscal
1997 from 78.3% in fiscal 1996 and 94.6% in fiscal 1995. The reduction in the
cost of goods sold percentages reflects the strict controls which have been
instituted by the Company. Future gross margins will be impacted by continuing
cost reduction programs, the product mix of future revenues including the ADL
line of automated tape
12
libraries, and sales volume. The Company will continue to monitor events in an
attempt to improve its gross margin levels.
RESEARCH AND DEVELOPMENT
Research and development expense decreased 55.1% to $1,808,145 in fiscal
1997 from $4,026,453 in fiscal 1996. 86.9% of the total research and development
expenditures in fiscal 1997 were associated with the ADL line of automated tape
libraries now which is the Company's primary area of focus. ADL research and
development expenses decreased by 53.4% in fiscal 1997 from the prior year,
primarily due to the continued development of an in-house engineering staff and
reduced dependence on outside consultants. Research and development expenses
related to the Company's traditional product lines of certification, evaluation
and duplication equipment decreased by 63.7% to $236,741 in fiscal 1997 from
$651,168 in fiscal 1996. The following table represents all of the research and
development costs for the periods indicated:
FISCAL 1997 FISCAL 1996 FISCAL 1995
------------ ------------ ------------
ADL................................................. $ 1,571,404 $ 3,374,685 $ 2,375,698
Other............................................... 236,741 651,768 1,575,235
------------ ------------ ------------
$ 1,808,145 $ 4,026,453 $ 3,950,933
------------ ------------ ------------
------------ ------------ ------------
SELLING GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses decreased by $1,054,752 or 22.7% from fiscal 1996, primarily
as the result of a combination of strict cost controls and reduction in the
number of employees. SG&A expenses associated with the ADL line of automated
tape libraries decreased by $286,968 or 17.9% in fiscal 1996 compared to the
prior fiscal year. SG&A expenditures related to the Company's traditional
product lines were reduced by $767,784 or 25.2% in fiscal 1997 as compared to
fiscal 1996.
FISCAL 1997 FISCAL 1996 FISCAL 1995
------------ ------------ ------------
ADL................................................. $ 1,312,435 $ 1,599,403 $ 1,292,273
Other............................................... 2,283,890 3,051,674 4,211,043
------------ ------------ ------------
$ 3,596,325 $ 4,651,077 $ 5,503,316
------------ ------------ ------------
------------ ------------ ------------
OTHER EXPENSES
None.
TWELVE MONTHS ENDED MARCH 31, 1996 COMPARED TO TWELVE MONTHS ENDED MARCH 31,
1995
Sales for the twelve month period ended March 31, 1996 decreased by 38.7%
compared to fiscal 1995 which had decreased by 62.3% compared to fiscal 1994.
This steady decline in revenue is primarily the result of severe pricing
pressures in the sale of floppy disks, discouraging current manufacturers from
adding capacity and creating barriers to new entrants into the market.
Additionally, a significant number of manufacturers of floppy disks have gone
out of business, particularly in China, flooding the market with used equipment.
This has led to increased competition for the limited opportunities available
and lower prices for equipment.
13
Revenues by product are summarized in the following table.
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------ ------------ -------------
Certifiers........................................ $ 775,960 $ 2,706,400 $ 10,523,090
Disk Evaluators................................... 69,510 294,905 1,499,058
Tape Evaluators................................... 527,337 1,261,961 930,105
AccuCopy.......................................... 629,317 498,835 93,070
Spares............................................ 1,576,112 1,073,593 2,443,940
------------ ------------ -------------
$ 3,578,236 $ 5,835,694 $ 15,489,263
------------ ------------ -------------
------------ ------------ -------------
Revenue from the sale of certifiers accounted for 21.7% of the Company's
revenues in fiscal 1996 as compared to 46.4% in fiscal 1995 and 67.9% in fiscal
1994. This is reflective of the fact that disk manufacturers are not adding
manufacturing capacity and therefore do not require additional certifiers. Sales
of new certifiers are also adversely affected by the availability of used
certifiers. The Company believes that it continues to be a leading manufacturer
of disk certification equipment and that it is well positioned to secure what
opportunities become available. However, the Company does not expect the market
for disk certification equipment to increase substantially in fiscal 1997, and
the Company furthermore expects to continue to encounter severe competition for
those opportunities which arise.
Revenue from disk evaluators represents 2% of the Company's revenue in
fiscal 1996 compared to 5.1% of sales in fiscal 1995 and 9.7% of sales in fiscal
1994. As with certifiers, sales of disk evaluators, which are used primarily by
disk manufacturers to test the quality of disks from their production, are
directly related to the addition of manufacturing capacity.
Revenue from tape evaluators decreased to 14.7% of sales in fiscal 1996
compared to 21.6% in fiscal 1995 and 6% in fiscal 1994. The Company believes
that fiscal 1995 sales were higher because of the introduction of the 4500B tape
evaluator during that fiscal year and that fiscal 1996 sales are representative
of the market for the Company's tape evaluator products.
AccuCopy drives and duplicators represent 17.6% of fiscal 1996 revenues as
compared to 8.5% of fiscal 1995 revenues and 1% of fiscal 1994 revenues. The
increase is primarily in the sale of duplicators which incorporate AccuCopy
drives as the Company has established itself as a viable supplier to the
duplication market.
Customer service and spares business accounted for 44% of the Company's
sales in fiscal 1996, 18.4% in fiscal 1995, and 15.8% in fiscal 1994. This
represents an increase of 47% in actual revenues for service and spares, despite
a significant reduction in new system sales. The Company has emphasized the sale
of service and spare parts to take advantage of its installed base and to offset
a portion of the shortfall in new system sales.
Sales of the ADL line of automated libraries constituted less than one
percent of total sales in fiscal 1996. The Company expects sales of this product
line to be a substantial portion of the Company's revenues in fiscal 1997.
International revenues decreased from $4,365,142 in fiscal 1995 to
$2,636,264 in fiscal 1996. Sales fell in all geographic regions, reflecting
general industry conditions. The Company is continuing to pursue opportunities
in sections of the world which have not previously been served by disk
manufacturers. The following table summarizes sales by geographic region.
14
SALES BY GEOGRAPHIC REGION
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------ ------------ --------------
Far East (excluding China)............................................ $ 1,588,867 $ 2,368,837 $ 6,181,109
China................................................................. 6,529 0 2,960,843
Europe................................................................ 272,617 793,793 2,608,393
Domestic.............................................................. 941,972 1,470,552 1,517,206
Other................................................................. 768,251 1,202,512 2,221,712
------------ ------------ --------------
$ 3,578,236 $ 5,835,694 $ 15,489,263
------------ ------------ --------------
------------ ------------ --------------
Total costs and expenses, excluding any income tax provision (benefit), as a
percentage of revenue were 322.6% in fiscal 1996 as compared to 295.3% in fiscal
1995 and 94.3% in fiscal 1994. The principal reason, discussed in detail below,
has been the decision by the Company to aggressively fund the development and
introduction of the ADL line of automated tape libraries. Strict controls have
been instituted on the traditional portion of the Company's business and the
effect of these controls is reflected in the results. All manufacturing of the
Company's traditional product lines was consolidated at the Company's
Plainville, Massachusetts facility. Employees numbered 45 at March 31, 1996 as
compared to 74 at March 31, 1995. 32 employees were assigned to the Company's
traditional product lines while 13 were assigned to the ADL project. Headcount
as of June 26, 1996, is 43. The Company expects to add additional employees to
the ADL project during fiscal 1997. Headcount by location is as follows:
HEADCOUNT BY LOCATION:
JUNE 28, MARCH 31, MARCH 31,
1996 1996 1995
------------- --------------- ---------------
Media Logic, Plainville............................................. 24 26 53
Media Logic, West................................................... 2 3 10
Media Logic Far East................................................ 3 3 3
Media Logic ADL..................................................... 14 13 8
-- -- --
43 45 74
-- -- --
-- -- --
MARCH 31,
1994
---------------
Media Logic, Plainville............................................. 56
Media Logic, West................................................... 10
Media Logic Far East................................................ 4
Media Logic ADL..................................................... --
--
70
--
--
Cost of goods sold as a percentage of revenue decreased to 78.3% in fiscal
1996 from 94.6% in fiscal 1995 and 43.4% in fiscal 1994. The reduction in the
cost of goods sold percentage from 1995 to 1996, despite a significant reduction
in sales for that period, reflects the strict controls which have been
instituted by the Company. Future gross margins will be impacted by continuing
cost reduction programs, the product mix of future revenues including the ADL
line of automated tape libraries, and sales volume. The Company will continue to
monitor events in an attempt to improve its gross margin levels.
RESEARCH AND DEVELOPMENT
Research and development expense increased approximately 2% from $3,950,933
in fiscal 1995 to $4,026,453 in fiscal 1996. 84% of the total research and
development expenditures in fiscal 1996 were associated with the ADL line of
automated tape libraries which is the Company's primary area of focus. ADL
research and development expenses increased by 42% in fiscal 1996 over the prior
year. Research and development expenses related to the Company's traditional
product lines of certification, evaluation
15
and duplication decreased by 59% to $651,768 in fiscal 1996. The following table
represents all of the research and development costs for the periods indicated.
FISCAL 1996 FISCAL 1995 FISCAL 1996
------------ ------------ ------------
ADL related............................................................. 3,374,685 2,375,698 --
Other................................................................... $ 651,768 1,575,235 1,712,639
------------ ------------ ------------
$ 4,026,453 $ 3,950,933 $ 1,712,639
------------ ------------ ------------
------------ ------------ ------------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES (SG&A)
SG&A expenses decreased by $852,239 or 15% from fiscal 1995. SG&A
expenditures related to the Company's traditional product lines were reduced by
$1,159,369 or 27.5% in fiscal 1996 as compared to fiscal 1995. SG&A expenses
associated with the ADL line of automated tape libraries increased by $307,130
or 24% in fiscal 1996 compared to the prior fiscal year.
FISCAL 1996 FISCAL 1995 FISCAL 1994
------------ ------------ ------------
ADL..................................................................... 1,599,403 1,292,273 --
Other................................................................... $ 3,051,674 $ 4,211,043 $ 5,461,919
------------ ------------ ------------
4,651,077 $ 5,503,316 $ 5,461,919
------------ ------------ ------------
------------ ------------ ------------
OTHER EXPENSES
None.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $5.4 million compared
to $6.2 million at March 31, 1996. The current ratio was 4.8 to 1 as of March
31, 1997 and 7.5 to 1 as of 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, slightly offset by proceeds from the Company's
issuance of convertible debentures.
In September 1995, the Company privately placed 1,000,000 shares of its
Common Stock with Raymond W. Leclerc, a private investor. The shares were priced
at $5.00 per share and subject to an absolute restriction on resale for a period
of one year and, thereafter, certain other resale restrictions. Mr. Leclerc may
not acquire additional shares of the Company's stock if, as a result thereof, he
would own beneficially more than 25% of the Company's Common Stock then
outstanding. The Company has granted Mr. Leclerc certain rights for the
registration of the shares purchased in this placement and appointed Mr. Leclerc
to the Company's Board of Directors. Net proceeds from the placement were used
exclusively in connection with the Company's ADL business.
On March 24, 1997, the Company issued 7% Convertible Subordinated Debentures
Due 2000 (the "Debentures") aggregating $3,530,000 to accredited investors in a
private placement exempt from registration under Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). The debentures mature
on March 24, 2000 and are convertible into the Company's Common Stock prior to
that date at the option of 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 151,016 shares
of Common Stock at $3.51 per share. Rochon Capital Group, Ltd. served as
placement agent for this transaction.
16
In February 1997, the Company issued 5,000 shares of Common Stock to the
former President of MediaLogic ADL pursuant to the terms of a separation
agreement entered in October 1996. These shares were issued in a private
placement exempt from registration under Regulation D under the Securities Act.
No underwriter was involved in this issuance.
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.
SEASONALITY
The Company's business is not seasonal in nature.
INFLATION
The Company does not believe that its operations have been materially
affected by inflation.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Page F-1 for the index to the consolidated financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item is incorporated by reference to the
discussion response thereto under the captions "Proposal 1--Election of
Directors" and 16(a) "Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for the 1997 Annual Meeting section.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item is incorporated by reference to the
discussion response thereto under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1997 Annual Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is incorporated by reference to the
discussion response thereto under the caption "Share Ownership" in the Company's
Proxy Statement for the 1997 Annual Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this is incorporated by reference to the
discussion response thereto under the caption "Certain Transactions" in the
Company's Proxy Statement for the 1997 Annual Meeting.
18
MEDIA LOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1997, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
MEDIA LOGIC, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of March 31, 1997 and 1996................................................ F-3
Consolidated Statements of Operations for the Years Ended March 31, 1997, 1996 and 1995.................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1997, 1996 and 1995........ F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1997, 1996 and 1995.................. F-6
Notes to Consolidated Financial Statements............................................................... F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Public Accountants on Supplementary Schedule....................................... S-1
Schedule II--Valuation and Qualifying Accounts for the Years Ended March 31, 1997, 1996 and 1995......... S-2
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Media Logic, Inc.:
We have audited the accompanying consolidated balance sheets of Media Logic,
Inc. (a Massachusetts corporation) and subsidiaries as of March 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Media Logic, Inc. and
subsidiaries as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations.
In addition, the Company's business plan is predicated on achieving sales
forecasts for new products for which the market acceptance is uncertain. This
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Boston, Massachusetts
May 19, 1997
F-2
MEDIA LOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND 1996
1997 1996
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 2,382,875 $ 3,545,477
Refundable income taxes.......................................................... -- 27,658
Accounts receivable, net of allowance for doubtful accounts of approximately
$62,000 and $471,000 at March 31, 1997 and 1996, respectively.................. 813,993 998,403
Inventories...................................................................... 3,563,482 2,467,149
Prepaid expenses and other current assets........................................ 1,000 73,397
-------------- -------------
Total current assets......................................................... 6,761,350 7,112,084
-------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment.......................................................... 1,210,345 1,554,498
Office equipment and fixtures.................................................... 393,773 397,886
Leasehold improvements........................................................... 256,766 256,766
Vehicles......................................................................... 13,315 65,283
-------------- -------------
1,874,199 2,274,433
Less--Accumulated depreciation and amortization.................................. 1,405,119 1,481,395
-------------- -------------
469,080 793,038
-------------- -------------
DEFERRED FINANCING COSTS (Note 3).................................................. 1,711,829 --
OTHER ASSETS....................................................................... 30,696 59,870
-------------- -------------
$ 8,972,955 $ 7,964,992
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................. $ 1,107,732 $ 343,873
Accrued expenses................................................................. 293,238 605,453
-------------- -------------
Total current liabilities.................................................... 1,400,970 949,326
-------------- -------------
CONVERTIBLE SUBORDINATED DEBENTURES (Note 3)....................................... 3,266,663 --
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--
Authorized--20,000,000 shares
Issued and outstanding--6,320,909 shares and 6,213,809 shares at March 31, 1997
and 1996, respectively......................................................... 63,209 62,138
Additional paid-in capital....................................................... 20,577,945 19,167,072
Accumulated deficit.............................................................. (16,335,832) (12,213,544)
-------------- -------------
Total stockholders' equity................................................... 4,305,322 7,015,666
-------------- -------------
$ 8,972,955 $ 7,964,992
-------------- -------------
-------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
MEDIA LOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1997 1996 1995
------------- ------------- -------------
NET SALES............................................................ $ 3,644,478 $ 3,578,236 $ 5,835,694
COST OF SALES........................................................ 2,446,183 2,801,009 5,520,891
------------- ------------- -------------
Gross profit..................................................... 1,198,295 777,227 314,803
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......................... 3,596,325 4,651,077 5,503,316
RESEARCH AND DEVELOPMENT EXPENSES.................................... 1,808,145 4,026,453 3,950,933
------------- ------------- -------------
Loss from operations............................................. (4,206,175) (7,900,303) (9,139,446)
OTHER INCOME (EXPENSE):
Interest income.................................................... 83,887 144,583 248,601
Settlement costs (Note 2).......................................... -- (30,000) (2,230,000)
Other.............................................................. -- (33,099) (28,475)
------------- ------------- -------------
Loss before benefit for income taxes............................. (4,122,288) (7,818,819) (11,149,320)
BENEFIT FOR INCOME TAXES............................................. -- -- (1,168,000)
------------- ------------- -------------
Net loss......................................................... $ (4,122,288) $ (7,818,819) $ (9,981,320)
------------- ------------- -------------
------------- ------------- -------------
NET LOSS PER COMMON SHARE............................................ $ (.66) $ (1.40) $ (2.01)
------------- ------------- -------------
------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................. 6,271,463 5,585,025 4,968,141
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
MEDIA LOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
COMMON STOCK ADDITIONAL RETAINED TOTAL
--------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
---------- --------- ------------- -------------- -------------
BALANCE, MARCH 31, 1994.................... 4,960,800 $ 49,608 $ 14,084,250 $ 5,586,595 $ 19,720,453
Net loss................................. -- -- -- (9,981,320) (9,981,320)
Exercise of stock options, including
related tax benefit.................... 17,200 172 15,278 -- 15,450
Compensation related to issuance of stock
options................................ 1,000 10 12,547 -- 12,557
---------- --------- ------------- -------------- -------------
BALANCE, MARCH 31, 1995.................... 4,979,000 49,790 14,112,075 (4,394,725) 9,767,140
Net loss................................. -- -- -- (7,818,819) (7,818,819)
Exercise of stock options................ 103,900 1,039 83,138 -- 84,177
Proceeds from private placement of common
stock, net of issuance costs of
$16,832................................ 1,130,909 11,309 4,971,859 -- 4,983,168
---------- --------- ------------- -------------- -------------
BALANCE, MARCH 31, 1996.................... 6,213,809 62,138 19,167,072 (12,213,544) 7,015,666
Net loss................................. -- -- -- (4,122,288) (4,122,288)
Issuance of common stock................. 5,000 50 14,950 -- 15,000
Issuance of warrants, net of issuance
costs of $211,733...................... -- -- 862,916 -- 862,916
Issuance of rights for guaranteed return
on convertible subordinate debentures
(Note 3)............................... -- -- 416,750 -- 416,750
Exercise of stock options................ 102,100 1,021 116,257 -- 117,278
---------- --------- ------------- -------------- -------------
BALANCE, MARCH 31, 1997.................... 6,320,909 $ 63,209 $ 20,577,945 $ (16,335,832) $ 4,305,322
---------- --------- ------------- -------------- -------------
---------- --------- ------------- -------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
MEDIA LOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
1997 1996 1995
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $ (4,122,288) $ (7,818,819) $ (9,981,320)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation and amortization.................................... 430,602 549,631 424,436
Compensation expense related to nonqualified stock options....... -- -- 12,557
Loss on sale and retirements of property and equipment........... 10,389 44,235 134,460
Deferred income taxes............................................ -- -- 466,575
Changes in assets and liabilities--
Refundable income taxes........................................ 27,658 1,701,972 (856,494)
Accounts receivable............................................ 184,410 249,652 1,114,606
Due from related parties -- -- 325,520
Inventories.................................................... (1,096,333) 1,227,248 606,140
Prepaid expenses and other current assets...................... 72,397 121,075 (121,076)
Accounts payable............................................... 763,859 (495,160) (1,250,158)
Accrued expenses............................................... (312,215) 126,895 (416,995)
Customer deposits.............................................. -- (19,709) 19,709
------------- ------------- -------------
Net cash used in operating activities........................ (4,041,521) (4,312,980) (9,522,040)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (117,033) (129,622) (762,932)
Proceeds from sale of marketable securities........................ -- 2,031,289 9,281,237
Decrease (increase) in other assets................................ 29,174 (22,284) (15,344)
------------- ------------- -------------
Net cash (used in) provided by investing activities.......... (87,859) 1,879,383 8,502,961
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible subordinated
debentures....................................................... 3,266,663 -- --
Proceeds from issuance of common stock............................. 15,000 4,983,168 --
Increase in deferred financing costs............................... (432,163) -- --
Exercise of stock options.......................................... 117,278 84,177 15,450
------------- ------------- -------------
Net cash provided by financing activities...................... 2,966,778 5,067,345 15,450
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (1,162,602) 2,633,748 (1,003,629)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......................... 3,545,477 911,729 1,915,358
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR............................... $ 2,382,875 $ 3,545,477 $ 911,729
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
Charge for guaranteed return on convertible subordinated
debenture...................................................... $ (416,750) $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
Issuance of warrants............................................. $ (862,916) $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest......................................................... $ -- $ 5,963 $ --
------------- ------------- -------------
------------- ------------- -------------
Income taxes..................................................... $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Media Logic, Inc. (the Company) is engaged in the manufacture and sale of
high precision, computer-based test equipment used by computer media
manufacturers, software developers and other computer media users. This
equipment measures the recording performance and quality of digital information
contained in flexible computer disks and magnetic tape cartridges. The Company
also manufactures and sells industrial disk drives and duplication equipment and
develops automated data library products.
Since 1995, the Company has dedicated, through its wholly owned subsidiary
Media Logic ADL, Inc., significant financial resources to the development of its
automated data library (ADL) product line. The future success of the Company is
dependent on the viability of its new ADL products. During fiscal 1997, the
Company introduced its 8 mm and 4 mm tape libraries and has increased inventory
levels for anticipated demand but has not yet achieved significant sales. The
Company plans to continue development of the ADL product line with the
introduction of automated data libraries with digital linear tape (DLT)
scheduled for fiscal 1998. The financial condition of the Company, including its
ability to obtain additional capital for operations, is contingent on the
Company's ability to achieve its sales and profit projections for its ADL
product line.
The Company believes, based on its strategic plan, that operating cash flows
will be sufficient to enable the Company to sustain operations through fiscal
1998. However, if the Company is unable to substantially achieve its sales
forecasts for ADL products or is unable to secure additional financing, for
which it does not currently have any commitment, there is substantial doubt
whether the Company will have the ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies described below and elsewhere in the
accompanying notes to these consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with remaining
original maturities of 90 days or less to be cash equivalents. At March 31,
1996, cash equivalents consisted primarily of U.S. Treasury Bills totaling
approximately $2,481,000, which are stated at amortized cost, which approximates
market value, and money market accounts of approximately $559,000. There were no
cash equivalents as of March 31, 1997.
(C) MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No. 115 requires enterprises to
classify debt and equity securities as either held-to-maturity,
available-for-sale
F-7
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or trading. Under SFAS No. 115, the accounting for the effects of unrealized
gains and losses reported on investment holdings differs according to the nature
of an investment classification.
(D) RESEARCH AND DEVELOPMENT
Research and development costs, other than software development costs, are
charged to operations as incurred. SFAS No. 86, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires the
capitalization of certain computer software development costs incurred after
technological feasibility is established. The Company believes that once
technological feasibility of a software product has been established, the
additional development costs incurred to bring the software to a commercially
acceptable level are not significant. There were no capitalized software
development costs at March 31, 1996 and 1997.
(E) REVENUE RECOGNITION
Revenue is recognized at the time of product shipment, at which point title
has been transferred. Costs of service and warranty, which are not significant,
are accrued upon shipment.
(F) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing overhead. At March 31, 1997 and
1996, inventories consisted of the following:
1997 1996
------------ ------------
Raw materials..................................................... $ 1,808,917 $ 1,870,553
Work-in-process................................................... 168,762 139,265
Finished goods.................................................... 1,585,803 457,331
------------ ------------
$ 3,563,482 $ 2,467,149
------------ ------------
------------ ------------
(G) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of property and equipment over
their estimated useful lives, using the straight-line method, as follows:
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- --------------------------------------------------------------------------------- -----------
Machinery and equipment.......................................................... 5-7 years
Office equipment and fixtures.................................................... 3-7 years
Leasehold improvements........................................................... 8-20 years
Vehicles......................................................................... 5-7 years
F-8
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) NET LOSS PER COMMON SHARE
Net loss per common share has been computed using the weighted average
number of shares of common stock outstanding during each period. Common
equivalent shares have not been included for any period as the results would be
antidilutive.
(I) FOREIGN CURRENCY
The Company translates the assets and liabilities of its foreign subsidiary
at the rate of exchange in effect at year-end. Revenues and expenses are
translated using a weighted average of exchange rates in effect during the
period. Gains and losses from both foreign currency and transactions, which are
not material, are classified within selling, general and administrative expenses
in the accompanying consolidated statements of operations.
(J) OTHER EMPLOYMENT BENEFITS
The Company has no obligations for postretirement benefits under SFAS No.
106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, or
postemployment benefits under SFAS No. 112, EMPLOYERS' ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS, as it does not currently offer such benefits.
(K) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(L) PRIOR YEAR RECLASSIFICATION
Certain amounts in the prior year's financial statements have been
reclassified to conform with the current year's presentation.
(M) CONCENTRATION OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that subject the Company to credit risk
consist primarily of trade accounts receivable. As of March 31, 1997, two
customers accounted for approximately 67% of accounts receivable, which are
managed by the Company with payment terms. As of March 31, 1996, four customers
accounted for approximately 62% of accounts receivable. See Note 9(a) for
discussion of significant customer sales. The Company has no significant
off-balance-sheet concentration of credit risk such as foreign exchange
contracts, option contracts or other foreign hedging arrangements.
F-9
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
that the Company disclose estimated fair values for certain of its financial
instruments. The Company's financial instruments include cash and cash
equivalents, accounts receivable, accounts payable and convertible subordinated
debentures. The carrying amounts of these financial instruments approximate
their fair value.
(O) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. In October 1995, the
Financial Accounting Standards Board (FASB) issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 establishes a fair-value based method of
accounting for stock-based compensation plans. The Company has adopted the
disclosure-only alternative for grants to employees (see Note 5(B)).
(P) NEW ACCOUNTING STANDARD
In March 1997, the FASB issued 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
the adoption of SFAS No. 128 will not have a material effect on its financial
statements.
(2) LEGAL PROCEEDINGS
On January 17, 1996, the Company filed suit against Christian Marlowe
(Marlowe) and the Marlowe Engineering Company (Marlowe Engineering) for a
declaration that Media Logic ADL, Inc. (ML-ADL) properly terminated agreements
with Marlowe and Marlowe Engineering and that ML-ADL owned technology developed
in conjunction with Marlowe and Marlowe Engineering. On June 5, 1996, Marlowe
and Marlowe Engineering filed an answer and counterclaims against the Company
alleging breach of contract and other charges, asserting that the Company
improperly terminated agreements with them, refused to recognize certain stock
options and improperly assigned certain patents.
The Company believes that the counterclaims are without merit and that the
Company has complied in all material respects with the terms of the contracts
with Marlowe and Marlowe Engineering. The Company further believes that
ultimately any negative decision by the court, if rendered, would not have a
material adverse effect on the Company.
On September 16, 1993, several stockholders, as purported representatives
for all other persons or entities who purchased the Company's common stock
during the period beginning on May 19, 1993 through September 9, 1993, brought
claims against the Company and three of the Company's officers in the United
States District Court for the District of Massachusetts as a class action. On
January 19, 1994, the plaintiffs filed a consolidated and amended complaint in
federal district court in Massachusetts under the caption, IN RE: MEDIA LOGIC,
INC. SECURITIES LITIGATION, Civil Action No. 93-12037-H. The lawsuit alleged,
F-10
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(2) LEGAL PROCEEDINGS (CONTINUED)
among other things, that the Company and the named officers and directors
violated Section 10(b) of the Securities Exchange Act of 1934 by making material
misrepresentations or omitting material information in statements issued by or
on behalf of the Company. On November 29, 1994, the United States District Court
for the District of Massachusetts approved a settlement of the securities claim
action pending against the Company and the named officers and entered final
judgment dismissing all claims. The settlement provided for a payment of $2.05
million plus legal charges associated with the settlement, included in
settlement costs in the accompanying consolidated statements of operations for
fiscal 1995 and 1996.
From time to time, the Company is involved in other litigation in its
ordinary course of business. At the current time, the Company does not believe
that any existing or pending litigation would have a material effect on the
consolidated financial statements.
(3) 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 beginning on the earlier of (i) the effective date of the S-3
Registration Statement to register such conversion shares or (ii) June 23, 1997.
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
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 has 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 approximately $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.
However, to the extent the Debentures are converted, any unamortized deferred
financing costs will be charged against additional paid-in capital.
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined
F-11
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(4) INCOME TAXES (CONTINUED)
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates expected to be in effect
when these differences reverse.
The benefit for income taxes in the accompanying consolidated statements of
operations consisted of the following:
1997 1996 1995
--------- --------- -------------
Current--
Federal...................................................... $ -- $ -- $ (1,667,000)
State........................................................ -- -- --
Foreign...................................................... -- -- 32,000
--------- --------- -------------
-- -- (1,635,000)
--------- --------- -------------
Deferred--
Federal...................................................... -- -- 467,000
State........................................................ -- -- --
--------- --------- -------------
-- -- 467,000
--------- --------- -------------
Total benefit for income taxes............................. $ -- $ -- $ (1,168,000)
--------- --------- -------------
--------- --------- -------------
The reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows for the years ended March 31, 1997, 1996 and 1995:
1997 1996 1995
----------- ----- -----
Benefit at federal statutory rate................................................... (34)% (34)% (34)%
Decrease in benefit resulting from--
Federal losses not benefited...................................................... 31 31 11
Tax credits not benefited......................................................... -- -- 2
Adjustment of deferred tax asset.................................................. -- -- 31
Other, net........................................................................ 3 3 --
-- -- --
Effective tax rate.................................................................. --% --% 10%
-- -- --
-- -- --
As of March 31, 1997, the Company has available net operating loss
carryforwards of approximately $16,000,000 and research and development credit
carryforwards of approximately $129,000 to reduce federal and state income
taxes, if any. These carryforwards expire through fiscal 2012 and are subject to
review and possible adjustment by the Internal Revenue Service.
The Tax Reform Act of 1986 contains provisions that may limit the amount of
net operating loss and credit carryforwards that the Company may utilize in any
one year in the event of certain cumulative changes in ownership over a
three-year period in excess of 50%, as defined.
F-12
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(4) INCOME TAXES (CONTINUED)
The approximate income tax effect of each type of temporary difference
comprising the net deferred tax asset at March 31, 1997 and 1996 is as follows:
1997 1996
------------ ------------
Net operating loss carryforwards.................................. $ 5,440,000 $ 3,692,000
Nondeductible reserves............................................ 422,000 876,000
Research and development credit carryforwards..................... 129,000 129,000
Alternative minimum tax credit carryforwards...................... 100,000 100,000
Nondeductible accruals............................................ 104,000 161,000
------------ ------------
6,195,000 4,958,000
Less--Valuation allowance......................................... 6,195,000 4,958,000
------------ ------------
$ -- $ --
------------ ------------
------------ ------------
The Company cannot recognize a deferred tax asset for the future benefit of
its net operating loss and tax credit carryforwards unless it concludes that it
is more likely than not that the deferred tax asset will be realized. Due to the
significant decline in sales and recent history of operating losses, the Company
has recorded a valuation allowance equal to 100% of its otherwise recognizable
net deferred tax asset.
(5) COMMON STOCK
(A) 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 totaled $4,983,168 and were restricted to
utilization in connection with the Company's automated data library business,
which it conducts through its subsidiary, ML-ADL, Inc. All of the proceeds of
the private placement had been expended by March 31, 1997.
(B) STOCK OPTION PLANS
The Company has a stock option plan (the Plan), established in 1991, which
replaced a previous stock option plan. The Plan enables options to be granted to
purchase shares of common stock at the fair market value on the date of grant,
and at not less than 110% of fair market value on the date of grant for
optionees who are 10% stockholders. Options vest ratably over three years and
expire 10 years from the date of grant. The Board of Directors and stockholders
of the Company have reserved a total of 1,500,000 shares of common stock for
issuance under the Plan.
F-13
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(5) COMMON STOCK (CONTINUED)
The following is a summary of the stock option activity:
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE PRICE
OF SHARES PER SHARE PER SHARE
---------- ------------------ ------------
Outstanding, March 31, 1994.............................. 491,600 $ .3750-$11.0630 $ 3.4263
Granted................................................ 331,821 1.9375-3.5000 4.2202
Exercised.............................................. (18,200) .3750 .3750
Terminated............................................. (149,800) .3750-11.0630 5.7266
---------- ------------------ ------------
Outstanding, March 31, 1995.............................. 655,421 .3750-11.0630 3.3872
Granted................................................ 206,043 3.5000 3.5000
Exercised.............................................. (103,900) .3750-3.5000 1.0936
Terminated............................................. (68,200) .3750-8.8750 3.5693
---------- ------------------ ------------
Outstanding, March 31, 1996.............................. 689,364 .3750-11.0630 3.7486
Granted................................................ 127,924 2.5000-7.0000 5.1494
Exercised.............................................. (102,100) .4125-8.8750 1.1487
Terminated............................................. (139,434) 2.0000-8.8750 4.0005
---------- ------------------ ------------
Outstanding, March 31, 1997.............................. 575,754 $ .3750-$11.0630 $ 4.4598
---------- ------------------ ------------
---------- ------------------ ------------
Exercisable, March 31, 1997.............................. 358,454 $ .3750-$11.0630 $ 3.0349
---------- ------------------ ------------
---------- ------------------ ------------
On July 24, 1994, the Company established the 1994 stock option plan of
Media Logic ADL, Inc. (the ADL Plan) and reserved 2,000,000 shares of common
stock for issuance under the plan. Under the ADL Plan, both incentive and
nonqualified options may be granted to purchase shares of common stock. The
exercise of these options can be accelerated upon the achievement of
performance goals and expire 10 years from the date of grant.
The Company has computed the pro forma disclosures required under SFAS No.
123 for stock options granted to employees in the years ended March 31, 1997
and 1996 using the Black-Scholes option pricing model prescribed by SFAS No.
123.
The assumptions used and resultant pro forma net loss are as follows:
1997 1996
---------- ----------
Risk-free interest rates.............................................. 7.50 6.50
Expected dividend yield............................................... 0% 0%
Expected lives........................................................ 6.5 years 6.5 years
Expected volatility................................................... 88% 88%
F-14
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(5) COMMON STOCK (CONTINUED)
The effect of applying SFAS No. 123 would be as follows:
Net loss as reported................................. $4,122,288 $7,818,819
--------- ---------
--------- ---------
Pro forma net loss................................... $4,372,288 $7,945,819
--------- ---------
--------- ---------
Net loss per share as reported....................... $ .66 $ 1.40
--------- ---------
--------- ---------
Pro forma net loss per share......................... $ .70 $ 1.42
--------- ---------
--------- ---------
(6) COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company's headquarters facility is leased from D&K Realty Trust (D&K),
of which both of the beneficiaries are stockholders of the Company. This lease
carries a 15-year term expiring in April 2008, with minimum monthly payments
established in an amount covering the underlying mortgage, excluding all taxes
and other operating charges that are the responsibility of the Company. The
Company's subsidiaries also conduct their operations in leased facilities.
Future minimum lease payments under existing noncancelable operating leases
at March 31, 1997 are as follows:
FISCAL YEAR AMOUNT
- ------------------------------------------------------------ ------------
1998........................................................ $ 169,000
1999........................................................ 170,000
2000........................................................ 143,000
2001........................................................ 83,000
2002........................................................ 83,000
Thereafter.................................................. 507,000
------------
$ 1,155,000
------------
------------
Rent expense was approximately $262,000, $250,000 and $185,000 for the years
ended March 31, 1997, 1996 and 1995, respectively, which included $83,400 in
fiscal 1997, 1996 and 1995 to D&K.
(B) EMPLOYMENT AGREEMENTS
In 1995, the Compensation Committee of the Board of Directors voted to
establish employment contracts with the chief executive officer and the chief
financial officer for three-year terms. Under these agreements, these officers
receive annual salaries of $200,000 and $120,000, respectively, and at the
discretion of the Compensation Committee, a bonus of up to 100% and 50%,
respectively, of the annual base salary.
F-15
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(7) ACCRUED EXPENSES
Accrued expenses at March 31, 1997 and 1996 consisted of the following:
1997 1996
---------- ----------
Accrued payroll-related............................................... $ 173,238 $ 458,390
Accrued warranty...................................................... 120,000 120,000
Accrued commissions................................................... -- 13,041
Accrued other......................................................... -- 14,022
---------- ----------
$ 293,238 $ 605,453
---------- ----------
---------- ----------
(8) EMPLOYEE BENEFIT PLANS
(A) 401(K) RETIREMENT PLAN
The Company maintains a 401(k) retirement savings plan (the 401(k) Plan),
covering all eligible employees, as defined. Participants in the 401(k) Plan may
elect to defer up to 15% of their compensation for deposit, subject to certain
Internal Revenue Service (IRS) limitations. The Company may elect to make
contributions to the 401(k) Plan at the discretion and in an amount determined
by the Board of Directors. The contributions are allocated to each eligible
participant's account in proportion to each participant's compensation in
relation to the total of all eligible participants' compensation, subject to IRS
limitations; deferrals in excess of 6% of compensation are not matched. During
fiscal 1997, 1996 and 1995, the Company charged to operations approximately
$19,000, $62,000 and $82,000, respectively, of employer matching contributions
to the 401(k) Plan.
(9) SIGNIFICANT CUSTOMERS AND DOMESTIC AND EXPORT SALES
(A) SIGNIFICANT CUSTOMERS
During fiscal 1997, four customers accounted for 52% of net sales. During
fiscal 1995, two customers accounted for 24% of net sales. During fiscal 1996,
no single customer accounted for greater than 10% of net sales.
(B) DOMESTIC AND EXPORT SALES
Sales to customers as a percentage of net sales for the years ended March
31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
----- ----- -----
Far East................................................................. 34% 34% 40%
Domestic................................................................. 27 26 25
Brazil................................................................... 26 15 7
Europe................................................................... 13 8 14
All others............................................................... -- 17 14
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
F-16
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(10) GEOGRAPHIC INFORMATION
Revenues, income (loss) before provision for income taxes and identifiable
assets for the Company's domestic and Hong Kong operations for the years ended
March 31, 1997, 1996 and 1995 are summarized as follows:
HONG ADJUSTMENTS/
DOMESTIC KONG ELIMINATIONS CONSOLIDATED
--------------- --------------- --------------- ---------------
Fiscal 1997--
Sales to unaffiliated
customers................. $ 3,406,819(1) $ 237,659 $ -- $ 3,644,478
Transfers between geographic
areas..................... 163,287 108,935 (272,222) --
--------------- --------------- --------------- ---------------
Total sales............... $ 3,570,106 $ 346,594 $ (272,222) $ 3,644,478
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Loss before provision for
income taxes............ $ (3,951,995) $ (173,652) $ 3,359 $ (4,122,288)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Identifiable assets......... $ 24,220,836 $ 2,082,406 $ (17,330,287) $ 8,972,955
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Fiscal 1996--
Sales to unaffiliated
customers................. $ 3,205,931(1) $ 372,305 $ -- $ 3,578,236
Transfers between geographic
areas..................... 331,256 148,252 (479,508) --
--------------- --------------- --------------- ---------------
Total sales............... $ 3,537,187 $ 520,557 $ (479,508) $ 3,578,236
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Loss before provision for
income
taxes................... $ (7,457,389) $ (8,075) $ (353,355) $ (7,818,819)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Identifiable assets......... $ 21,410,548 $ 2,306,438 $ (15,751,994) $ 7,964,992
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Fiscal 1995--
Sales to unaffiliated
customers................. $ 4,541,793(1) $ 1,293,901 $ -- $ 5,835,694
Transfers between geographic
areas..................... 1,279,634 406,648 (1,686,282) --
--------------- --------------- --------------- ---------------
Total sales............... $ 5,821,427 $ 1,700,549 $ (1,686,282) $ 5,835,694
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Income (loss) before
benefit for income
taxes................... $ (11,258,912) $ 109,592 $ -- $ (11,149,320)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Identifiable assets........... $ 16,862,053 $ 2,256,848 $ (8,014,461) $ 11,104,440
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
- ------------------------
(1) Domestic operations included approximately $2,674,574, $2,595,885 and
$3,071,241 of export sales in 1997, 1996 and 1995, respectively.
F-17
MEDIA LOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(11) QUARTERLY DATA (UNAUDITED)
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, TOTAL
------------- ------------- ------------- ------------- -------------
Fiscal 1997--
Net sales........................... $ 848,549 $ 1,226,884 $ 897,376 $ 671,669 $ 3,644,478
Gross profit........................ 401,457 396,451 157,841 242,546 1,198,295
Loss from operations................ (1,150,986) (841,283) (1,189,060) (1,024,846) (4,206,175)
Net loss............................ $ (1,122,727) $ (848,710) $ (1,187,787) $ (963,064) $ (4,122,288)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Loss per share...................... $ (.18) $ (.14) $ (.19) $ (.15)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fiscal 1996--
Net sales........................... $ 666,984 $ 701,363 $ 1,070,407 $ 1,139,482 $ 3,578,236
Gross profit........................ 99,853 157,952 318,243 201,179 777,227
Loss from operations................ (1,922,599) (1,680,749) (1,830,527) (2,466,428) (7,900,303)
Net loss............................ $ (1,898,469) $(1,664,664) $ (1,781,884) $ (2,473,802) $ (7,818,819)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Loss per share...................... $ (.38) $ (.33) $ (.29) $ (.40)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Fiscal 1995--
Net sales........................... $ 531,730 $ 973,979 $ 2,124,157 $ 2,205,828 $ 5,835,694
Gross profit (loss)................. (747,798) 170,308 741,681 150,612 314,803
Loss from operations................ (2,790,104) (2,124,405) (2,172,522) (2,052,415) (9,139,446)
Net loss............................ $ (2,408,107) $(3,948,001) $ (1,855,512) $ (1,769,700) $ (9,981,320)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Loss per share...................... $ (.49) $ (.80) $ (.37) $ (.36)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
To Media Logic, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Media Logic, Inc. and subsidiaries and
have issued our report thereon dated May 19, 1997. Our audits were made for the
purpose of forming an opinion on those consolidated financial statements taken
as a whole. The schedule listed in the index to consolidated financial
statements is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 19, 1997
S-1
SCHEDULE II
MEDIA LOGIC, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
BALANCE, CHARGED BALANCE,
BEGINNING TO COSTS AND END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ------------ ----------- ----------
Year Ended March 31, 1997:
Deducted from asset accounts--
Allowance for doubtful accounts............................ $ 471,000 $ 220,000 $ 629,000 $ 62,000
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Warranty reserve........................................... $ 120,000 $ -- $ -- $ 120,000
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Year Ended March 31, 1996:
Deducted from asset accounts--
Allowance for doubtful accounts............................ $ 557,000 $ 173,000 $ 259,000 $ 471,000
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Warranty reserve........................................... $ 120,000 $ -- $ -- $ 120,000
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Year Ended March 31, 1995:
Deducted from asset accounts--
Allowance for doubtful accounts............................ $ 665,000 $ 236,000 $ 344,000 $ 557,000
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
Warranty reserve........................................... $ 120,000 $ -- $ -- $ 120,000
---------- ------------ ----------- ----------
---------- ------------ ----------- ----------
S-2
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS:
See Item 8, Consolidated Financial Statements and Supplementary Data
2. SCHEDULE:
Report of Independent Public Accountants on Supplementary Schedule
II--Valuation and Qualifying Accounts for the years ended March 31, 1995,
1996, and 1997
3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K AND BY ITEM
14(c):
3.1 Restated Articles of Organization*
3.2 By-Laws of Registrant**
4. Specimen of Registrant's Common Stock Certificate**
10.1 Amended and Restated Profit Sharing and 401(k) Plan effective April 1, 1992***(****)
10.2 1991 Stock Option Plan****(*****)
10.3 Lease between the Company and D&K Realty Trust, dated April 1, 1993**
10.4 Combination Agreement between the Company and John Miller and Peter Moore, dated as
of March 1, 1993***
10.5 Employment Contract between the Company and its Chief Executive Officer, William
Davis****
10.6 Employment Contract between the Company and its Chief Financial Officer, Paul
O'Brien****
10.7 First Amendment to the Employment Contract between the Company and its Chief
Executive Officer, William Davis****
10.8 First Amendment to the Employment Contract between the Company and its Chief
Financial Officer, Paul O'Brien****
10.9 Stock Purchase Agreement between the Company and Raymond W.Leclerc
10.10 Separation Agreement among Lee H.Elizer, MediaLogic ADL, Inc. and Media Logic, Inc.
dated October 23, 1996+
10.11 Form of Media Logic, Inc. 7% Convertible Subordinated Debenture Due 2000, dated
March 24, 1997++(Ex. 99.1)
10.12 Form of Subscription Agreement among Media Logic, Inc. and the purchasers named on
the signature pages thereto, dated March 1997++(Ex. 99.2)
10.13 Form of Registration Rights Agreement among Media Logic, Inc. and the purchasers
named on the signature pages thereto, dated March 24, 1997++ (Ex. 99.3)
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
19
(b) Reports on Form 8-K--The Company filed a report on Form 8-K on March 31,
1997, reporting the consummation of its debenture financing, which closed on
March 24, 1997.
- ------------------------
* Incorporated by reference to Annual Report Form 10-K for fiscal year ended March 31,
1993
** Incorporated by reference to Exhibits to Registrant's Registration Statement on Form
S-18 (No 33-14722-B) effective July 23, 1987.
*** Incorporated by reference to Exhibits to Registrant's Registration Statement on Form
S-2 (No 33-63014) filed May 19, 1993.
**** Management contract or compensatory plan required to be filed as an exhibit to this
Form 10-K pursuant to Item 14(c) of this report.
***** Incorporated by reference to the Proxy Statement of the Registrant filed pursuant to
Rule 14a-6, dated June 25, 1992.
+ Incorporated by reference to Exhibit 99 to the Registrants Registration Statement on
Form S-3 (No. 333-22657) filed March 4, 1997
++ Incorporated by reference to Exhibits to the Registrant's Registration Statement on
Form S-3 (No. 333-27503) filed May 20, 1997
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ WILLIAM E. DAVIS, JR.
-----------------------------------------
William E. Davis, Jr.
CHIEF EXECUTIVE OFFICER AND PRESIDENT
By: /s/ PAUL M. O'BRIEN
-----------------------------------------
Paul M. O'Brien
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
Date: June 16, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ WILLIAM E. DAVIS, JR. Director and
------------------------------------------- Chief Executive Officer June 16, 1997
William E. Davis, Jr. and President
/s/ HAROLD B. SHUKOVSKY Director
------------------------------------------- June 16, 1997
Harold B. Shukovsky
/s/ JOSEPH L MITCHELL Director
------------------------------------------- June 16, 1997
Joseph L. Mitchell
/s/ FRANCIS S. WYMAN Director
------------------------------------------- June 16, 1997
Francis S. Wyman
/s/ RAYMOND W. LECLERC Director
------------------------------------------- June 16, 1997
Raymond W. Leclerc
21
INDEX FOR EXHIBITS
EXHIBIT PAGE
--------------------------------------------------------------------------------------------- -----
Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule
20