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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File Number 000-21463
---------
Murdock Communications Corporation
----------------------------------
(Exact Name of Issuer as Specified in Its Charter)
Iowa 42-1339746
-------------------- -------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
701 Tama Street Marion, Iowa 52302
------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 319-447-4239
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by sections 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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
On March 31, 2003, there were outstanding 12,304,967 shares of the Registrant's
no par value Common Stock.
MURDOCK COMMUNICATIONS CORPORATION
FORM 10-Q
March 31, 2003
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Consolidated Balance Sheets (unaudited)
as of March 31, 2003 and December 31, 2002. . . . . . . . 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 2003 and 2002 . . . . 5
Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2003 and 2002 . . . . 6
Notes to Consolidated Financial Statements (unaudited). . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . 19
PART II - OTHER INFORMATION
Page
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 20
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . 20
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders. . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . 23
Certifications . . . . . . . . . . . . . . . . . . . . . 24
2
PART I FINANCIAL INFORMATION
MURDOCK COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2003 and December 31, 2002
(Dollars in thousands)
(Unaudited)
MARCH 31, 2003 DECEMBER 31, 2002*
-------------- ------------------
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . $ 1 $ 1
Prepaid expenses and other
current assets . . . . . . . . . . . . 5 7
--------------- -------------------
TOTAL CURRENT ASSETS . . . . . . . . 6 8
--------------- -------------------
OTHER ASSETS
Other noncurrent assets . . . . . . . . 1 1
--------------- -------------------
TOTAL OTHER ASSETS . . . . . . . . . 1 1
--------------- -------------------
TOTAL . . . . . . . . . . . . . . . . . . $ 7 $ 9
=============== ===================
* Note: The consolidated balance sheet as of December 31, 2002 has been
derived from the audited consolidated financial statements at that date.
See accompanying notes to consolidated financial statements.
3
MURDOCK COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONCLUDED)
March 31, 2003 and December 31, 2002
(Dollars in thousands)
(Unaudited)
MARCH 31, 2003 DECEMBER 31, 2002*
---------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,186 7,186
Notes payable with related parties . . . . . . . . . . . . . . . . . . . . . . . 6,658 6,614
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,085 960
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,835 7,272
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 436
---------------- --------------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 23,177 22,468
---------------- --------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock, no par or stated value: authorized - 40,000,000 shares; issued
and outstanding: 2003 and 2002 - 12,554,967 shares . . . . . . . . . . . . . . 22,291 22,291
Common stock warrants: Issued and outstanding: 2003 - 11,927,913
and 2002 - 10,889,478 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,052 1,052
Treasury stock at cost: 2003 and 2002 - 250,000 shares . . . . . . . . . . . . . (94) (94)
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 134
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,553) (45,842)
---------------- --------------------
TOTAL SHAREHOLDERS' DEFICIENCY. . . . . . . . . . . . . . . . . . . . . . . . (23,170) (22,459)
---------------- --------------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 $ 9
================ ====================
* Note: The consolidated balance sheet as of December 31, 2002 has been derived from the audited consolidated financial
statements at that date.
See accompanying notes to consolidated financial statements.
4
MURDOCK COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2003 and 2002
(Dollars in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2002
-------------- --------------
REVENUES. . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
COSTS OF SALES. . . . . . . . . . . . . . . . . . . . . . . . - -
---------------- ----------------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . - -
OPERATING EXPENSES
Selling, general and administrative expenses . . . . . . . . 149 144
---------------- ----------------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . 149 144
---------------- ----------------
LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . . (149) (144)
NON-OPERATING INCOME (EXPENSE)
Interest expense, net. . . . . . . . . . . . . . . . . . . . (563) (553)
Other income . . . . . . . . . . . . . . . . . . . . . . . . 1 1
---------------- ----------------
TOTAL NON-OPERATING INCOME (EXPENSE) . . . . . . . . . . . (562) (552)
---------------- ----------------
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (711) $ (696)
================ ================
BASIC AND DILUTED NET LOSS PER COMMON SHARE . . . . . . . . . $ (0.06) $ (0.06)
================ ================
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. 12,304,967 12,264,967
================ ================
See accompanying notes to consolidated financial statements.
5
MURDOCK COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2003 and 2002
(Dollars in thousands)
(Unaudited)
THREE MONTHS
ENDED MARCH 31,
2003 2002
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(711) $(696)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FLOWS FROM OPERATING ACTIVITIES
Changes in operating assets and liabilities:
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (4)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 11
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540 559
------ ------
NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . . . . . . (44) (130)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . 44 132
------ ------
NET CASH FLOW FROM FINANCING ACTIVITIES. . . . . . . . . . . . . . . . 44 132
------ ------
NET INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . 1 3
------ ------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1 $ 5
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest. . . . . . . . . . . . . . . . . . . $ - $ -
Cash paid during the period for income taxes. . . . . . . . . . . . . . . . . - -
See accompanying notes to consolidated financial statements.
6
MURDOCK COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
---------------------------------
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared by Murdock Communications Corporation ("MCC" or the "Company") in
accordance with accounting principles generally accepted in the United States of
America for interim financial reporting and the regulations of the Securities
and Exchange Commission for quarterly reporting. Accordingly, they do not
include all information and footnotes required by generally accepted accounting
principles for complete financial information. The foregoing unaudited interim
consolidated financial statements reflect all adjustments which, in the opinion
of management, are necessary to reflect a fair presentation of the financial
position, the results of the operations and cash flows of the Company and its
subsidiaries for the interim periods presented. All adjustments, in the opinion
of management, are of a normal and recurring nature. Operating results for the
three months ending March 31, 2003 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 2003. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") have been condensed or omitted pursuant to
instructions, rules and regulations prescribed by the Securities and Exchange
Commission ("SEC"). Although management believes that the disclosures provided
are adequate to make the information presented not misleading, management
recommends that you read these unaudited consolidated financial statements in
conjunction with the audited consolidated financial statements and related
footnotes included in the Company's Annual Report on Form 10-K (Commission File
#000-21463) as filed with the Securities and Exchange Commission on April 16,
2003.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has an accumulated
deficit of $46.6 million, and current liabilities exceed current assets by $23.2
million at March 31, 2003. The Company also is past due in the payment of
approximately $15.1 million of principal and accrued interest on notes payable
as of March 31, 2003. The Company was also past due with its trade vendors in
the amount of approximately $1.2 million at March 31, 2003. If the creditors who
hold the past due liabilities seek to enforce their payment rights, the Company
would not be able to repay the liabilities. These factors, among others,
indicate that the Company may be unable to continue as a going concern for a
reasonable period of time.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis and to obtain additional financing and
refinancing as may be required. Management's plans to accomplish these
objectives include, but are not limited to, the following:
7
- - The Company intends to continue to negotiate with its creditors to
restructure indebtedness and obtain financing to fund operations. The
Company believes that possible sources of funds will primarily consist of
advances from Polar Molecular Corporation ("Polar"). If the Company is
unsuccessful in this strategy, the Company may not be able to continue
operating as a going concern.
- - The Company has an agreement with Polar to use the Company's public shell
as a reverse merger vehicle. On December 19, 2001 the Company and Polar
entered into an Agreement and Plan of Merger (see Note 2). The merger is
subject to a number of significant closing conditions, including, among
others, approval by the shareholders of the parties, that shareholders
owning no more than 1,000 shares of the Company's or Polar's common stock
shall have exercised dissenters' or appraisal rights with respect to the
merger, the conversion of substantially all of the Company's indebtedness
into equity, and completion of the merger by July 31, 2003. If the merger
is not completed for any reason, the Company will continue to be subject to
a significant amount of past due debt and other liabilities, including the
costs related to the proposed merger, without any source of operating cash
flow to satisfy its liabilities. The Company also would not be able to
continue to borrow from Polar, which has been the Company's principal
source of cash since the beginning of 2002. The Company can make no
assurance that it would be able to identify another merger transaction if
the merger is not completed, and in such event, the Company would not be
able to continue as a going concern.
- - The Company retains an investment banker, Berthel Fisher and Company
Financial Services, Inc. ("Berthel"), to assist the Company regarding the
identification and investigation of strategic alternatives available to the
Company. Berthel, including entities related to Berthel, is a significant
shareholder of the Company.
Stock-Based Compensation
As permitted by Statement of Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), the Company measures stock-based
compensation using the intrinsic value method as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
is required to make pro forma disclosures in the footnotes to the financial
statements as if the measurement provisions of SFAS 123 and SFAS No. 148
"Accounting for Stock-Based Compensation-Transition and Disclosure - an
Amendment of SFAS 123" had been adopted. Under the intrinsic value method,
compensation is measured as the difference between the market value of the stock
on the grant date, less the amount required to be paid for the stock. The
difference, if any, is charged to expense over the vesting period of the
options. No compensation expense was recorded in connection with the grant of
options for the quarters ended March 31, 2003 and 2002, respectively, as all
options granted under the plans had an exercise price greater than or equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and net loss per share if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation.
8
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2003 MARCH 31, 2002
------------------ ------------------
Net loss attributable to As reported $ (711) $ (696)
common shareholders Pro forma (711) (696)
Net loss per common share As reported $ (0.06) $ (0.06)
Pro forma (0.06) (0.06)
Net Loss Per Common Share
Basic net loss per common share has been computed using the weighted average
number of shares of the Company's no par value common stock (the "Common Stock")
outstanding during the quarter. The warrants outstanding are anti-dilutive and
are, therefore, excluded from the computation of loss per share. In the future,
the warrants may become dilutive. Potential common shares excluded from the per
share computation because they were anti-dilutive are as follows:
THREE MONTHS
ENDED MARCH 31,
---------------
2003 2002
---- ----
Options. . . . . . . . . - -
Warrants . . . . . . . . 111,548 58,494
------- ------
Total. . . . . . . . . . 111,548 58,494
======= ======
The exercise prices on all outstanding options and warrants exceed the market
price of the Common Stock at March 31, 2003 and 2002, except as noted
above.
2. PROPOSED MERGER WITH POLAR
On December 19, 2001, Polar and the Company entered into an Agreement and Plan
of Merger (as amended, the "Merger Agreement"). Under the terms of the Merger
Agreement, the outstanding shares of Polar's common stock will be converted into
the number of shares of Common Stock equal to 80% of the outstanding shares of
the Common Stock as of the effectiveness of the merger and the Company's
shareholders will retain a 20% ownership. The outstanding warrants and options
of the Company will remain outstanding after the completion of the merger and
the outstanding warrants and options of Polar will be converted into warrants
and options to purchase the Common Stock based on the exchange ratio in the
merger.
Polar develops and markets fuel additives. Polar's primary product, DurAltFC, is
a patented fuel additive that has been proven effective at reducing combustion
chamber deposits and reducing octane requirement increase in combustion engines.
Polar had a stockholders' deficit of $4.6 million at December 31, 2002 and
revenues for its fiscal year ended March 31, 2002 were $162,000.
9
One of the conditions to completing the proposed merger is that the Company must
cause its creditors to forgive and/or convert into equity sufficient liabilities
such that the Company's liabilities, excluding loans from Polar and professional
fees directly related to the merger, do not exceed its assets at the time of the
merger. As of March 31, 2003, the Company's liabilities exceeded its assets by
approximately $22.5 million, excluding loans from Polar and professional fees
directly related to the merger. As of May 12, 2003, the Company has reached
agreements with the holders of the Company's debt or other obligations in the
aggregate amount of approximately $21.5 million for the satisfaction of such
liabilities in exchange for approximately 5,398,000 shares of Common Stock and
the payment by the Company of approximately $821,000 in cash, contingent upon
the closing of the merger.
To satisfy the above mentioned closing condition, the Company must reach
additional agreements with its creditors. Any conversions of liabilities to
equity will dilute the outstanding Common Stock held by the current
shareholders. The Company also must raise sufficient funds to make all of the
payments that may be required under the agreements with the Company's creditors,
and there can be no assurance that such funds will be available from Polar or
otherwise. If the Company is not able to satisfy the net worth test, Polar will
have the right to terminate the merger agreement.
The Company filed an S-4 Registration Statement with the SEC in February 2003 in
connection with the proposed merger. The Company filed an amendment to the S-4
Registration Statement with the SEC on May 13, 2003 and the S-4 Registration
Statement was declared effective by the SEC on May 14, 2003.
If the merger is not completed for any reason, the Company will continue to be
subject to a significant amount of past-due debt and other liabilities,
including the costs related to the proposed merger, without any source of
operating cash flow to satisfy its liabilities. The Company also would not be
able to continue to borrow from Polar, which has been the Company's principal
source of cash since the beginning of 2002. Most of the agreements that the
Company has reached with creditors to forgive debt or convert debt to equity are
contingent on the completion of the merger with Polar. The Company can make no
assurance that it would be able to identify another merger transaction or to
reach new agreements with its creditors if the merger is not completed, and in
such event the Company would not be able to continue as a going concern.
3. NOTES PAYABLE AND LONG-TERM DEBT
------------------------------------
The Company's past due debt at March 31, 2003 includes approximately $13.1
million of notes and accrued interest which are believed to have been pledged by
the holders of the notes to a bank as collateral for loans made by the bank to
such holders. The Federal Deposit Insurance Company ("FDIC") liquidated this
bank during 2000. The Company was notified in December 2000 that the FDIC sold
substantially all the loans and related collateral to Republic Credit
Corporation I ("Republic") . In March 2001, the Company received a demand letter
from Republic for approximately $575,000 of principal plus accrued interest on
several of the notes, and on July 5, 2001 Republic obtained a default judgment
against the Company for $781,252 plus interest at the rate of 18% per year from
and after February 6, 2001. A settlement was reached on June 20, 2002 with
Republic to settle approximately $11.4 million of principal and accrued interest
related to the notes as of March 31, 2002 for $500,000. The terms of the
settlement required $15,000 to be paid to Republic upon signing of the agreement
and the remaining $485,000 would be due upon consummation of the Company's
pending merger transaction with Polar. The settlement initially provided that if
the merger transaction with Polar was not completed for any reason on
10
or before December 31, 2002, the agreement with Republic would be terminated
except that Republic would retain the $15,000 paid by the Company. During
November 2002, the Company entered into the first extension agreement with
Republic. Under the terms of the first extension agreement the Company could
request up to three additional one-month extensions of the original settlement
deadline of December 31, 2002. Each one-month extension would be granted to the
Company provided that the Company pay $10,000 prior to the first day of the
month of any such extension to Republic. The Company made an extension payment
of $10,000 for January 2003. During January 2003, the Company entered into the
second extension agreement. Under the terms of the second extension agreement,
the Company could request one additional one-month extension to April 30, 2003.
Additionally, under the terms of the second extension agreement, the Company
postponed payment of the February extension fee in exchange for an extension fee
of $25,000 which was due prior to March 1, 2003 for the February and March
extension fees. The Company was unable to make the $25,000 payment and received
notification from Republic that the Company had defaulted on the agreement. On
May 5, 2003 the Company entered into an amendment with Republic to cure the
default. Under the terms of the amended settlement agreement, Republic agreed to
accept payment of $235,000 in cash (including $35,000 paid upon signing the
amendment), a note payable for $500,000 due one year from the closing of the
proposed merger with Polar, and 350,000 shares of Common Stock in full
satisfaction of all principal and interest due of approximately $11.4 million as
of March 31, 2003, contingent upon the closing of the proposed merger with Polar
prior to October 31, 2003. Until such time as the Company satisfies all of the
conditions of the settlement agreement, the notes and related interest will
remain on the books of the Company and interest will continue to be accrued.
Buckeye Retirement Co., L.L.C. ("Buckeye") acquired loans and related collateral
from the FDIC and on September 1, 2002 agreed to accept payment of $100,000 in
cash and 475,000 shares of Common Stock in full satisfaction of all principal
and interest due under these notes which totaled $992,010 as of March 31, 2003.
The shares to be received by Buckeye include 225,000 shares to be issued by the
Company, 100,000 shares to be transferred by Guy O. Murdock, 75,000 shares to be
transferred by Larry A. Cahill and 75,000 shares to be transferred by Wayne
Wright. The terms of the settlement required $25,000 to be paid to Buckeye upon
signing the agreement and $75,000 and the shares are due upon consummation of
the Company's pending merger transaction with Polar. The terms of the settlement
provided that if the merger transaction with Polar was not completed for any
reason on or before March 31, 2003, the agreement with Buckeye would be
terminated except that Buckeye would retain the $25,000 paid by the Company. As
the merger transaction with Polar was not completed by March 31, 2003, the
settlement agreement with Buckeye terminated. An extension agreement has been
signed to extend the settlement agreement to the closing date of the merger.
Until such time as the Company satisfies all of the conditions of the settlement
agreement, the notes and related interest will remain on the books of the
Company and interest will continue to be accrued.
The total principal amount owed to MCCIC at March 31, 2003 is $577,316. The
borrowings are past due and currently bear interest at 12%.
During the first quarter of 2003, the Company borrowed $44,753 from Polar. The
borrowings are one-year notes bearing interest at 10% and are due January 16,
2004 and February 4, 2004. The total principal amount owed to Polar at March
31, 2003 is $439,540.
11
4. COMMITMENTS AND CONTINGENCIES
-------------------------------
At March 31, 2003 the Company's only operating lease is a month to month lease
of office space with a related party in the amount of $500 per month.
In December 1999, Berthel entered into a Standstill Agreement with the Company.
Under the Standstill Agreement, Berthel indicated its intention to form a
creditors committee to represent the interests of Berthel and other creditors of
the Company. The Company agreed to provide the creditors committee with access
to information regarding the Company and its business and to advise the
creditors committee in advance regarding certain significant corporate
developments. The creditors committee may also demand that the Company take
certain actions with respect to the Company's assets and business. As of March
31, 2003, the Company and Berthel are the only parties to the Standstill
Agreement and Berthel is the only member of the creditors committee.
The Company has guaranteed a facility lease between Actel Integrated
Communications, Inc. ("Actel") and a third party. The lease expires in
September 2009 and total remaining noncancellable lease payments were $765,000
at December 31, 2000. Actel was current on its lease payments as of December
31, 2000. However, on April 11, 2001 Actel filed for Chapter 11 bankruptcy
protection and on September 14, 2001 Actel's bankruptcy case was converted to a
case under Chapter 7. The Company has not received any notification from the
bankruptcy trustee or the third party regarding the guarantee as of March 31,
2003. No loss, if any, has been recorded in the financial statements with
respect to this matter.
The Company was notified by the FDIC of discrepancies between the amount of the
Company's notes payable pledged as collateral by a note holder and the amount of
notes payable recorded by the Company. The FDIC notified the Company on May 10,
2000, that the discrepancies total $770,000. Also, in July 2001, the Company was
notified that Peoples Bank had obtained a judgement against a Company director
and shareholder in the amount of $350,000, and that the collateral was a Company
promissory note in the principal amount of $350,000. Another party has asserted
that he is entitled to $500,000 allegedly outstanding under a note payable.
Management believes that no funds were received by the Company with respect to
these notes and that it has other defenses. No assurance can be given that the
Company's defenses are valid or that the Company will not be liable for any part
or all of the amounts allegedly due under these notes. No loss, if any, has been
recorded in the consolidated financial statements with respect to these matters.
On November 23, 2001 three individuals, one of which was a former officer and
director of the Company, and the purchasers of Incomex, filed suit against the
Company, several former officers and directors of the Company and several
related parties. These lawsuits allege that the named individuals and entities
devised a scheme to defraud the three plaintiffs to personally borrow funds from
a financial institution, invest the proceeds in the Company as a note payable
with the promise of stock options and repayment of the notes, and give the
financial institution a security interest in the notes under the Uniform
Commercial Code. Unspecified damages sought by the plaintiffs include actual,
punitive, and treble damages and court costs and attorney costs. The Company's
Director and Officer ("D&O") insurance carrier has notified the Company that
12
because one of the plaintiffs was a former director of the Company, that the D&O
policy will not provide coverage for claims by that plaintiff. The Company
believes that its D&O policy will provide coverage, up to the policy limit, in
this lawsuit related to the other two plaintiffs. In November 2002, the Company
entered into a settlement agreement providing for the issuance by the Company of
517,000 shares of Common Stock to the three plaintiffs and one other individual
who did not file suit. The effectiveness of the settlement is contingent on the
closing of the proposed merger with Polar. No loss, if any, has been recorded in
the consolidated financial statements with respect to these matters.
As of March 31, 2003 the Company had been notified by several state taxing
authorities that approximately $46,000 of past due taxes and penalties is
allegedly owed. Some of the states have assigned the alleged amounts due to
collection agencies or filed tax warrants. Management believes that it has
meritorious defenses against these amounts. No assurance can be given that the
Company's defenses are valid or that the Company will not be liable for any part
of the amounts. No loss, if any, has been recorded in the consolidated
financial statements with respect to these matters.
As of March 31, 2003 the Company had been notified by several vendors that
approximately $45,600 is owed. Management believes that it has meritorious
defenses against these amounts. No loss, if any, has been recorded in the
consolidated financial statements with respect to these matters.
The Company has divested certain of its businesses during 2000 and 2001. As a
result of such divestitures, there may be lawsuits, claims or proceedings
instituted or asserted against the Company related to the period that the
businesses were owned by the Company. No loss, if any, has been recorded in
financial statements with respect to these matters.
5. SUBSEQUENT EVENTS
------------------
As of May 19, 2003, the Company has borrowed an additional $66,000 from Polar
and $7,170 from MCCIC subsequent to March 31, 2003.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the Company's financial condition, results of
operations and capital resources. The discussion and analysis should be read in
conjunction with the Company's unaudited consolidated financial statements and
notes thereto included elsewhere within this report.
RESULTS OF OPERATIONS
- -----------------------
At March 31, 2003, the Company has no operating activities and no reportable
segments. The Company's current strategic direction is to continue to negotiate
with its creditors to restructure indebtedness and to use the Company's public
shell as a merger vehicle. On December 19, 2001, the Company entered into an
Agreement and Plan of Merger with Polar. The proposed merger is subject to a
number of significant closing conditions, including, among others, approval by
the stockholders of the parties, that shareholders owning no more than 1,000
shares of the Company's or Polar's common stock shall have exercised dissenters'
or appraisal rights with respect to the merger, the conversion of substantially
all of the Company's indebtedness into equity, and the completion of the merger
by July 31, 2003. Because there are significant conditions remaining to be
satisfied with respect to the proposed merger, no assurance can be given that
the proposed merger will be consummated or, if consummated, that the terms of
the proposed merger will be as presently contemplated. If the Company is unable
to restructure its past due liabilities, or if the holders of the Company's past
due liabilities seek to enforce their rights, the Company would not be able to
complete the proposed merger with Polar or to continue as a going concern. See
"Forward-Looking Statements" below.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2003 AND 2002
- -----------------------------------------------------------------
REVENUES AND COST OF SALES - The Company no longer has any revenue producing
- ------------------------------
activity as it sold its remaining operating entity during the third quarter of
2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - Selling, general and
- -----------------------------------------------
administrative expense increased $5,000 to $149,000 for the three months ended
March 31, 2003 from $144,000 for the three months ended March 31, 2002. The
increase in selling, general and administrative expense is primarily related to
legal and other professional fees related with the proposed merger with Polar.
INTEREST EXPENSE - Interest expense, including amortization of debt discount,
- -----------------
increased $10,000 to $563,000 for the three months ended March 31, 2003, from
$553,000 for the three months ended March 31, 2002. The increase is due to
additional debt borrowings used to fund operations.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
At March 31, 2003, the Company's current liabilities of $23.2 million exceeded
current assets of $6,000 resulting in a working capital deficit of $23.2
million. During the three months ended March 31, 2003, the Company used $44,000
in cash for operating activities. The Company received proceeds from new debt
financing of $44,000 from Polar.
14
The Company must raise sufficient funds to make payments that may be required
under agreements with the Company's creditors. The Company also must fund its
current operations which average $50,000 per month and expenses associated with
completing the proposed merger with Polar. The Company's only future source of
cash is expected to come from Polar. The Company has no operating activities
and no source of operating cash flow. If the Company is unsuccessful in
continuing to obtain financing from Polar, the Company may not be able to
continue as a going concern.
The Company's debt totaled $13.8 million as of March 31, 2003 compared with
$13.8 million at December 31, 2002. As of March 31, 2003, the Company was past
due in the payment of approximately $15.1 million in principal and accrued
interest payments on notes payable. The Company was also past due with its trade
vendors in the payment of approximately $1.2 million as of March 31, 2003.
During the three month period ended March 31, 2003, the Company borrowed
approximately $44,000 from Polar. As of March 31, 2003, the Company had
$439,540 principal outstanding under all loans from Polar. The borrowings are
one-year notes bearing interest at 10%. One note for $125,000 is past due.
The Company's past due debt at March 31, 2003 includes approximately $13.1
million of notes and accrued interest which are believed to have been pledged by
the holders of the notes to a bank as collateral for loans made by the bank to
such holders. The FDIC liquidated this bank during 2000. The Company was
notified in December 2000 that the FDIC sold substantially all the loans and
related collateral to Republic. In March 2001, the Company received a demand
letter from Republic for approximately $575,000 of principal plus accrued
interest on several of the notes, and on July 5, 2001 Republic obtained a
default judgment against the Company for $781,252 plus interest at the rate of
18% per year from and after February 6, 2001. A settlement was reached on June
20, 2002 with Republic to settle approximately $11.4 million of principal and
accrued interest related to the notes as of March 31, 2003 for $500,000. The
terms of the settlement required $15,000 to be paid to Republic upon signing of
the agreement and the remaining $485,000 would be due upon consummation of the
Company's pending merger transaction with Polar. The settlement initially
provided that if the merger transaction with Polar was not completed for any
reason on or before December 31, 2002, the agreement with Republic would be
terminated except that Republic would retain the $15,000 paid by the Company.
During November 2002, the Company entered into the first extension agreement
with Republic. Under the terms of the first extension agreement the Company
could request up to three additional one-month extensions of the original
settlement deadline of December 31, 2002. Each one-month extension would be
granted to the Company provided that the Company pay $10,000 prior to the first
day of the month of any such extension to Republic. The Company made an
extension payment of $10,000 for January 2003. During January 2003, the Company
entered into the second extension agreement. Under the terms of the second
extension agreement, the Company could request one additional one-month
extension to April 30, 2003. Additionally, under the terms of the second
extension agreement, the Company postponed payment of the February extension fee
in exchange for an extension fee of $25,000 which was due prior to March 1, 2003
for the February and March extension fees. The Company was unable to make the
$25,000 payment and received notification from Republic that the Company had
defaulted on the agreement. On May 5, 2003 the Company entered into an amendment
with Republic to cure the default. Under the terms of the amended settlement
agreement, Republic agreed to accept payment of $235,000 in cash (including
$35,000 paid upon signing the amendment), a note payable for $500,000 due one
15
year from the closing of the proposed merger with Polar, and 350,000 shares of
Common Stock in full satisfaction of all principal and interest due of
approximately $11.4 million as of March 31, 2003, contingent upon the closing of
the proposed merger with Polar prior to October 31, 2003. Until such time as the
Company satisfies all of the conditions of the settlement agreement, the notes
and related interest will remain on the books of the Company and interest will
continue to be accrued.
The Company continues to engage in discussions with its other creditors to
restructure indebtedness. The obligation of Polar to complete the merger is
subject to the condition that at the effective time of the merger the Company's
liabilities will not exceed its assets, each as determined in accordance with
generally accepted accounting principles, consistent with past practice. Any
loans extended by Polar to the Company and liabilities for professional fees
incurred directly related to the merger will be excluded from the amount of
liabilities for purposes of this net worth test and the Company will also be
entitled to a credit against its liabilities for purposes of the net worth test
equal to any portion of certain amounts Polar is required to loan to the Company
that the Company does not receive or chooses not to accept. As of March 31,
2003, the Company's liabilities exceeded its assets by approximately $22.5
million, excluding loans from Polar and professional fees directly related to
the merger. As of May 12, 2003, the Company had reached agreements with the
holders of the Company's debt or other obligations in the aggregate amount of
approximately $21.5 million for the satisfaction of such obligations in exchange
for the issuance by the Company of an aggregate of 5,398,411 shares of Common
Stock and the payment by the Company of an aggregate of $821,000, contingent on
the closing of the merger. To satisfy the net worth test by closing, the Company
must reach additional agreements with its creditors to forgive or convert into
equity a sufficient amount of liabilities to cause the Company's liabilities not
to exceed its assets as of the closing of the merger. Any conversions of
liabilities to equity will dilute the outstanding Common Stock held by current
Company shareholders. The Company also must raise sufficient funds to make all
of the payments that may be required under the agreements with the Company's
creditors, and there can be no assurance that such funds will be available from
Polar or otherwise. If the Company is not able to satisfy the net worth test,
Polar will have the right to terminate the merger agreement.
Buckeye acquired loans and related collateral from the FDIC and on September 1,
2002 agreed to accept payment of $100,000 in cash and 475,000 shares of Common
Stock in full satisfaction of all principal and interest due under these notes
which totaled $992,010 as of March 31, 2003. The shares to be received by
Buckeye include 225,000 shares to be issued by the Company, 100,000 shares to be
transferred by Guy O. Murdock, 75,000 shares to be transferred by Larry A.
Cahill and 75,000 shares to be transferred by Wayne Wright. The terms of the
settlement required $25,000 to be paid to Buckeye upon signing the agreement and
$75,000 and the shares are due upon consummation of the Company's pending merger
transaction with Polar. The terms of the settlement provided that if the merger
transaction with Polar was not completed for any reason on or before March 31,
2003, the agreement with Buckeye would be terminated except that Buckeye would
retain the $25,000 paid by the Company. As the merger transaction with Polar was
not completed by March 31, 2003, the settlement agreement with Buckeye
terminated. An extension agreement has been signed to extend the settlement
agreement to the closing date of the merger. Until such time as the Company
satisfies all of the conditions of the settlement agreement, the notes and
related interest will remain on the books of the Company and interest will
continue to be accrued.
16
If the merger is not completed for any reason, the Company will continue to be
subject to a significant amount of past-due debt and other liabilities,
including the costs related to the proposed merger, without any source of
operating cash flow to satisfy its liabilities. The Company also would not be
able to continue to borrow from Polar, which has been the Company's principal
source of cash since the beginning of 2002. Most of the agreements that the
Company has reached with creditors to forgive debt or convert debt to equity are
contingent on the completion of the merger with Polar. The Company can make no
assurance that it would be able to identify another merger transaction or to
reach new agreements with its creditors if the merger is not completed, and in
such event the Company would not be able to continue as a going concern.
Based on agreements reached by the Company with its creditors as of May 12,
2003, the Company expects that approximately $821,000 will be needed at or
shortly after the closing of the merger to make required payments to the
Company's creditors. The Company also has other outstanding debt which the
Company is attempting to restructure before the closing of the merger, and any
agreements that the Company may reach with these creditors may require
additional payments at or shortly after the closing of the merger.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported expenses during the reporting period. Management bases its
estimates on historical experience and on various other assumptions and
information that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results may differ from estimates under
different assumptions or conditions.
Management believes that there are not any particular accounting policies that
are more significant than others that are used in the preparation of the
consolidated financial statements as Murdock does not currently have any
continuing operations. Note 1 to the Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2002, describe the significant accounting estimates and policies used in
preparation of the Consolidated Financial Statements.
17
FORWARD-LOOKING STATEMENTS
This report contains statements, including statements of management's belief or
expectation, which may be forward-looking within the meaning of applicable
securities laws. Such statements are subject to known and unknown risks and
uncertainties that could cause actual future results and developments to differ
materially from those currently projected. Such risks and uncertainties
include, among others, the following:
- - the Company's access to adequate funds to meet the Company's financial
needs and to repay its past due debt, and the Company's ability to continue
as a going concern if it is unable to access adequate financing;
- - the possibility that the Company's creditors may take legal action for the
repayment of past due indebtedness and the ability of the Company to
continue as a going concern if any such action is taken;
- - the Company's ability to complete the proposed merger transaction with
Polar and the terms of such transaction if completed;
- - the Company's ability to restructure its past due debt;
- - risks relating to Polar's business operations;
- - the outcome of pending or threatened litigation;
- - the risk that the Company's analyses of these risks could be incorrect
and/or the strategies developed to address them could be unsuccessful; and
- - various other factors discussed in this Quarterly Report on Form 10-Q and
the Company's annual report on Form 10-K.
The Company will not update the forward-looking information to reflect actual
results or changes in the factors affecting the forward-looking information.
The forward-looking information referred to above includes any matters preceded
by the words "anticipates," "believes," "intends," "plans," "expects" and
similar expressions as they relate to the Company and include, but are not
limited to:
- - expectations regarding the Company's financial condition and liquidity, as
well as future cash flows; and
- - expectations regarding alternatives to restructure the Company's business
and reduce its overall debt.
18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any foreign currency exchange risk or commodity price
risk. All of the Company's debt, including past due debt with carrying value at
March 31, 2003 of $13.5 million, was at a fixed interest rate at March 31, 2003
and December 31, 2002 and, therefore, the Company is not impacted by changes in
interest rates related to the debt. The interest rates range from 10% to 18% per
year. The potential loss in fair value on such fixed rate debt obligation from a
hypothetical 10% increase in market interest rates would not be material to the
overall fair value of the debt.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Principal Accounting Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d -14(c) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company required to be
included in the Company's periodic filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not
been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls. There were no
significant deficiencies or material weaknesses noted in our most recent
evaluation and, therefore, there were no corrective actions taken with respect
thereto.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
As of March 31, 2003, the Company was past due in payment of approximately $15.1
million of principal and accrued interest on notes payable. The Company was also
past due with its trade vendors in the payment of approximately $1.2 million as
of March 31, 2003. For additional information, see the notes to the consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders of the Company during the
first quarter of 2003.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger, dated as of December 19, 2001, among
Murdock Communications Corporation, MCC Merger Sub Corporation and
Polar Molecular Corporation. (6)
2.2 First Amendment to Agreement and Plan of Merger, dated as of August 1,
2002, among Murdock Communications Corporation, MCC Merger Sub
Corporation and Polar Molecular Corporation. (6)
2.3 Second Amendment to Agreement and Plan of Merger, dated as of November
26, 2002, among Murdock Communications Corporation, MCC Merger Sub
Corporation and Polar Molecular Corporation. (6)
2.4 Third Amendment to Agreement and Plan of Merger dated as of January
30, 2003, among Murdock Communications Corporation, MCC Merger Sub
Corporation and Polar Molecular Corporation. (6)
2.5 Fourth Amendment to Agreement and Plan of Merger, dated as of May 12,
2003, among Murdock Communications Corporation, MCC Merger Sub
Corporation and Polar Molecular Corporation. (6)
20
3.1 Restated Articles of Incorporation of the Company. (1)
3.2 First Amendment to Restated Articles of Incorporation of the Company.
(2)
3.3 Second Amendment to Restated Articles of Incorporation of the Company.
(2)
3.4 Third Amendment to Restated Articles of Incorporation of Murdock
Communications Corporation. (5)
3.5 Amended and Restated By-Laws of the Company. (3)
4.1 Form of Common Stock Purchase Warrant Agreement between the Company
and Firstar Trust Company. (1)
4.2 Form of Redeemable Warrant. (1)
4.3 First Amendment to Common Stock Purchase Warrant Agreement, dated as
of September 30, 1999, between the Company and Firstar Trust Company.
(4)
4.4 Second Amendment to Common Stock Purchase Warrant Agreement, dated as
of April 14, 2000, between the Company and Firstar Bank, N.A. (5)
4.5 Third Amendment to Common Stock Purchase Warrant Agreement, dated as
of October 9, 2000, between the Company and Firstar Bank, N.A. (5)
4.6 Fourth Amendment to Common Stock Purchase Warrant Agreement, dated as
of October __, 2001, between Murdock Communications Corporation and
Firstar Bank, N.A. (5)
4.7 Fifth Amendment to Common Stock Purchase Warrant Agreement and Joinder
Agreement, dated as of October 18, 2002, between Murdock
Communications Corporation and Computershare Trust Company, Inc. (5)
10.1 Amendment to Compromise, Settlement and Mutual Release Agreement,
dated as of September 1, 2002, among Buckeye Retirement Co., L.L.C.,
Ltd., Murdock Communications Corporation and Guy O. Murdock. (6)
10.1 Third Amendment to Compromise, Settlement and Mutual Release
Agreement, dated as of May 12, 2003, among Republic Credit Corporation
I, Murdock Communications Corporation and Silent Woman, L.L.C. (6)
21
99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, or adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification by Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, or adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(1) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(File No. 333--5422C) and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1997 (File No. 000-21463) and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1997 (File No. 000-21463) and incorporated
herein by reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999 (File No. 000-21463) and incorporated herein
by reference.
(5) Filed as an exhibit to the Company's Registration Statement on Form S-4
(File No. 333-103167) filed with the Securities and Exchange Commission on
February 13, 2003 and incorporated herein by reference.
(6) Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (File No. 333-103167) filed with the Securities and
Exchange Commission on May 13, 2003 and incorporated herein by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the first quarter of 2003.
22
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.
MURDOCK COMMUNICATIONS CORPORATION
By /s/ Eugene Davis
----------------------------------
Eugene Davis
Chief Executive Officer
Date: May 20, 2003
23
CERTIFICATIONS
I, Eugene I. Davis, Chief Executive Officer of Murdock Communications
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Murdock
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/ Eugene I. Davis
____________________________________
Eugene I. Davis
Chief Executive Officer
(Principal Executive Officer)
24
I, Wayne Wright, Principal Accounting Officer of Murdock Communications
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Murdock
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/ Wayne Wright
_______________________________________
Wayne Wright
Principal Accounting Officer
(Principal Financial Officer)
25