<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996
Commission File Number 0-21989
Medialink Worldwide Incorporated
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 4899 52-1481284
- ---------------------------- ---------------------------- ----------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
708 Third Avenue, New York, New York 10017
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(212) 682-8300
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Name of each exchange on
Title of Each Class which registered
------------------- ----------------
Common Stock, $.01 par value The Nasdaq Stock Market
Pursuant to Rule 15d-2 of the Securities Exchange Act of 1934, this Form 10-K
contains only financial statements for the fiscal year ended December 31, 1996.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 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 the 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)
The issuer's revenues for its most recent fiscal year ended December 31, 1996
were $15,831,023.
The aggregate market value of the voting stock held by non-affiliates of the
registrant amounted to $28,402,825 at the close of business on April 25, 1997.
The number of shares outstanding of each of the registrant's classes of common
stock, as of the close of business on April 25, 1997, was 5,047,933.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Medialink Worldwide Incorporated:
We have audited the accompanying balance sheets of Medialink Worldwide
Incorporated as of December 31, 1995 and 1996 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996. 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 Medialink Worldwide
Incorporated as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
February 20, 1997
New York, New York
F-1
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
BALANCE SHEETS
December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 306,678 $ 675,469
Accounts receivable, less allowance for doubtful accounts of
$161,367 and $162,891 in 1995 and 1996, respectively (Note 2) 2,418,029 4,317,177
Prepaid expenses and other current assets 262,492 131,703
Deferred tax assets - current portion (Note 5) 617,314 84,302
----------- -----------
Total current assets 3,604,513 5,208,651
----------- -----------
Property and Equipment:
Furniture and fixtures 184,292 297,458
Office equipment 604,599 942,008
Leasehold improvements 174,621 309,473
----------- -----------
963,512 1,548,939
Less: accumulated depreciation 419,132 637,621
----------- -----------
Net property and equipment 544,380 911,318
Due from officers 6,532 7,000
Goodwill, net of amortization (Note 10) -- 646,668
Deferred tax assets (Note 5) 134,389 55,088
Other intangible assets (Note 10) -- 285,332
Deferred offering costs -- 908,767
Other assets 97,518 98,992
----------- -----------
Total assets $ 4,387,332 $ 8,121,816
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of obligations under capital leases (Note 3) $ -- $ 11,699
Current portion of long-term debt (Note 10) -- 47,143
Current portion of covenant not to compete (Note 10) -- 70,000
Accounts payable 1,586,561 1,964,250
Accrued expenses 229,009 1,969,631
Income taxes payable 67,132 87,381
----------- -----------
Total current liabilities 1,882,702 4,150,104
Commitment not to compete, excluding current portion (Note 10) -- 236,977
Deferred rent payable 79,878 55,418
Obligation under capital leases, excluding current portion (Note 3) -- 27,817
Long-term debt, excluding current portion (Note 10) -- 273,950
----------- -----------
Total liabilities 1,962,580 4,744,266
----------- -----------
Stockholders' Equity (Note 4):
Series A, 10% cumulative convertible preferred stock, $1.50 par value.
Authorized, issued and outstanding 655,417 shares 983,126 983,126
Series B, 10% cumulative convertible preferred stock, $1.35 par value.
Authorized, issued and outstanding 475,185 shares 641,500 641,500
Series C, 10% cumulative convertible preferred stock, $2.75 par value.
Authorized 645,455 shares; issued and outstanding 629,130 shares 1,730,107 1,730,107
Common stock, $.01 par value. Authorized 15,000,000 shares:
issued and outstanding 906,743 and 936,264 shares in 1995
and 1996 respectively 9,067 9,363
Additional paid-in capital 352,524 520,165
Accumulated deficit (1,289,882) (446,254)
Equity adjustment for foreign currency translation (1,690) (60,457)
----------- -----------
Total stockholders' equity 2,424,752 3,377,550
----------- -----------
Total liabilities and stockholders' equity $ 4,387,332 $ 8,121,816
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
STATEMENTS OF OPERATIONS
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $ 7,547,761 $ 10,624,680 $ 15,831,023
Direct costs 3,038,503 4,553,349 6,382,882
-------------- --------------- ---------------
Gross Profit 4,509,258 6,071,331 9,448,141
General and administrative expense (Note 3) 4,068,786 5,373,307 7,952,878
-------------- --------------- ---------------
Operating income 440,472 698,024 1,495,263
Other income (expense):
Interest expense (6,205) -- (29,403)
Interest and other income 7,062 15,273 22,501
-------------- --------------- ---------------
Income before income taxes 441,329 713,297 1,488,361
Income tax (benefit) expense (1,022,963) 332,062 644,733
-------------- --------------- ---------------
Net income $ 1,464,292 $ 381,235 $ 843,628
============== =============== ===============
Net income applicable to common stock $ 1,128,819 $ 45,762 $ 508,155
============== =============== ===============
Pro forma net income per common
and common equivalent share - unaudited (Note 9) $0.11 $0.25
===== =====
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A, 10% Series B, 10% Series C, 10%
cumulative cumulative cumulative
convertible convertible convertible
Common stock preferred stock preferred stock preferred stock
----------------------- --------------------- ---------------------- ------------------------
No. of No. of No. of No. of
shares Par value shares Par value shares Par value shares Par value
---------- ---------- --------- --------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 901,943 $ 9,019 655,417 $ 983,126 475,185 $ 641,500 629,130 $ 1,730,107
Net income -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
---------- ---------- --------- --------- --------- ---------- --------- -----------
Balance at December 31,
1994 901,943 9,019 655,417 983,126 475,185 641,500 629,130 1,730,107
Stock options exercised 4,800 48 -- -- -- -- -- --
Net income -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
---------- ---------- --------- --------- --------- ---------- --------- -----------
Balance at December 31,
1995 906,743 9,067 655,417 983,126 475,185 641,500 629,130 1,730,107
Issuance of common stock 26,521 266 -- -- -- -- -- --
Stock options exercised 3,000 30 -- -- -- -- -- --
Net Income -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
---------- ---------- --------- --------- --------- ---------- --------- -----------
Balance at December 31,
1996 936,264 $ 9,363 655,417 $ 983,126 475,185 $ 641,500 629,130 $ 1,730,107
========== ========== ========= ========= ========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Equity
adjustment
Additional for foreign Total
paid-in Accumulated currency stockholders'
capital deficit translation equity
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1993 $ 346,572 $ (3,135,409) $ (17,955) $ 556,960
Net income -- 1,464,292 -- 1,464,292
Translation adjustment -- -- (4,706) (4,706)
---------- ------------ ---------- ------------
Balance at December 31,
1994 346,572 (1,671,117) (22,661) 2,016,546
Stock options exercised 5,952 -- -- 6,000
Net income -- 381,235 -- 381,235
Translation adjustment -- -- 20,971 20,971
---------- ------------ ---------- ------------
Balance at December 31,
1995 352,524 (1,289,882) (1,690) 2,424,752
Issuance of common stock 163,921 -- -- 164,187
Stock options exercised 3,720 -- -- 3,750
Net Income -- 843,628 -- 843,628
Translation adjustment -- -- (58,767) (58,767)
---------- ------------ ---------- ------------
Balance at December 31,
1996 $ 520,165 $ (446,254) $ (60,457) $ 3,377,550
========== ============ ========== ============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
STATEMENTS OF CASHFLOWS
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,464,292 $ 381,235 $ 843,628
Adjustments to reconcile income to net cash
provided in operating activities:
Depreciation and amortization 127,377 148,509 422,705
Provision for bad debts 5,601 74,701 147,702
Equity adjustment for foreign currency translation (4,706) 20,971 (58,767)
Loss on disposal of assets -- 22,489 --
Deferred income taxes (1,047,983) 296,280 612,313
Deferred rent payable (5,951) 71,445 (24,460)
Increase in accounts receivable (375,383) (1,154,422) (1,758,135)
Decrease in due from officers -- -- (468)
(Increase) decrease in prepaid expenses and other
current assets (41,993) (94,713) 132,322
Increase in accounts payable and accrued expenses 261,133 635,325 1,804,666
Increase in income taxes payable 23,313 33,187 20,249
------------ ------------ ------------
Total adjustments (1,058,592) 53,772 1,298,127
------------ ------------ ------------
Net cash provided by operating activities 405,700 435,007 2,141,755
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in acquisition of PR Data Systems, Inc. -- -- (119,801)
Additions to property and equipment (127,407) (394,496) (647,933)
Increase in other assets (60,117) (2,247) (578)
------------ ------------ ------------
Net cash used in investing activities (187,524) (396,743) (768,312)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred offering costs -- -- (908,767)
Proceeds from exercise of stock options -- 6,000 3,750
Proceeds from issuance of common stock -- -- 9,186
Principal payments under covenant not to compete -- -- (10,059)
Principal payments under capital lease obligations -- -- (4,875)
Repayments of note payable - bank (180,000) -- (84,980)
Repayments of long-term debt -- -- (8,907)
------------ ------------ ------------
Net cash (used) provided by financing activities (180,000) 6,000 (1,004,652)
------------ ------------ ------------
Net increase in cash and cash equivalents 38,176 44,264 368,791
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 224,238 262,414 306,678
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 262,414 $ 306,678 $ 675,469
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) Summary of Significant Accounting Policies
(a) Description of Business
Medialink Worldwide Incorporated (the "Company") is a Delaware
corporation incorporated on September 24, 1986. In August 1996 the Company
changed its name from Video Broadcasting Corporation. The Company is a worldwide
provider of video and audio production and distribution services for business
and other organizations that seek to communicate their news through television,
radio and other media. Since July 18, 1996, as a result of the acquisition of
substantially all of the assets and liabilities of PR Data Systems Inc. ("PR
Data"-see note 10), the Company has expanded its research capabilities and added
print news release distribution services. The Company has seven offices in the
United States and one office in the United Kingdom ("UK").
(b) Revenue Recognition
Fees earned from the distribution and monitoring of video news releases
and the distribution of printed news releases are recognized in the period that
the release is distributed. Fees earned for satellite media tours and producing
video news releases and live broadcasts are recognized in the period that
services are performed.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is computed on the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of
the lease term or estimated useful life of the asset.
(d) Deferred Rent Payable
In accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," the Company recognizes rental costs on a straight-line
basis over the fixed term of the lease period. Deferred rent payable represents
the excess of rental expense recorded over rental payments to date.
(e) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. At December 31, 1995
and 1996, cash equivalents consisted of amounts on deposit in money market
accounts amounting to $109,159 and $55,882, respectively.
(f) Foreign Currency Translation
Foreign operations' financial statements are translated to U.S. dollars
in accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." Assets and liabilities of the foreign bureau are
translated into U.S. dollars at year-end rates of exchange. Statements of
operations accounts are translated at the average exchange rate prevailing
during the year. Resulting translation adjustments are reported as a separate
component of stockholders' equity.
(g) Income Taxes
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Under the asset and liability method of Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to
F-6
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) Summary of Significant Accounting Policies-(Continued)
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(i) Fair Value of Financial Instruments
The carrying values of financial instruments approximate their
estimated fair value because of the short maturity of these instruments.
(j) Stock option plans
Prior to January 1, 1996 the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current value of the underlying stock exceeded the exercise
price. On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS 123 also
allows entities to continue to apply the provisions of APB 25 and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. The Company has elected to continue to
apply the provisions of APB 25 and provide the pro forma disclosure requirements
of SFAS 123.
(2) Note Payable-Bank
In March 1995, the Company entered into a credit facility with a bank.
Under this agreement, the Company can borrow up to the lesser of $500,000 or 70%
of the eligible accounts receivable, as defined in the agreement, through
February 28, 1997. The interest rate for the bank borrowings is the prime rate
plus 1.00% and is payable monthly. The loan is secured by the Company's accounts
receivable and all other assets of the Company. No borrowings were outstanding
under this credit facility at December 31, 1995 and 1996. The loan agreement
requires the Company to meet certain financial ratio tests and prohibits the
payment of cash dividends.
Borrowings in 1994 under a previous credit facility with another bank
bore interest at the prime rate plus 1 3/4%.
F-7
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(3) Lease Commitments
The Company has several noncancelable operating leases for office space
expiring at various dates through 2004. As of December 31, 1996, future minimum
lease payments under noncancelable operating leases are as follows:
Year ending December 31, Amount
------------------------ ------
1997 $762,856
1998 776,198
1999 640,634
2000 509,780
2001 475,940
2002 435,165
Thereafter 879,965
-------
$4,480,538
==========
Total rent expense for operating leases in the years ended December 31,
1994, 1995 and 1996 was $368,171, $326,916 and $637,807, respectively.
The Company leases copier equipment under capital leases. Minimum
future lease payments under capital leases at December 31, 1996 are:
Year ending December 31,
1997 14,963
1998 14,963
1999 17,919
2000 351
-------
Total minimum lease payments 48,196
Less amount representing interest (8,680)
-------
Present value of net minimum lease payments 39,516
Less current portion (11,699)
--------
$ 27,817
========
(4) Stockholders' Equity
Stock Split
In July 1996, the Company effected a 1.2 for one stock split. In
addition, the Company restated its Certificate of Incorporation to increase its
authorized capitalization from 5,000,000 shares of common stock, par value $.0l
per share ("Common Stock"), to 15,000,000 shares. These changes resulted in an
increase in Common Stock and corresponding decrease in additional paid-in
capital. All per share data and references to numbers of shares have been
restated for all periods presented to reflect these changes.
Initial Public Offering
On January 29, 1997 the Company completed a public offering of
2,000,000 shares of its common stock, at a public offering price of $9 per share
(the "Offering"). The net proceeds to the Company of the offering of
approximately $15,600,000 will be used for general corporate purposes and
possible acquisitions.
F-8
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(4) Stockholders' Equity-(Continued)
Preferred Shares
Annual dividends on the Series A, 10% cumulative convertible preferred
stock, Series B, 10% cumulative convertible preferred stock and Series C, 10%
cumulative convertible preferred stock are cumulative, commencing July 1, 1989
for Series A and Series B and October 31, 1989 for Series C, until declared and
paid at the discretion of the Board of Directors. At December 31, 1996,
dividends in arrears on the Series A, Series B and Series C cumulative
convertible preferred stock amounted to approximately $737,312, $481,150 and
$1,190,011, respectively.
Each share of Series A, Series B and Series C cumulative convertible
preferred stock was convertible at any time at the option of the stockholder
into 1.2 shares of Common Stock and was automatically converted into 2,111,669
shares of Common Stock upon the closing of the Offering.
Stock Option Plan for Employees
The Company has a stock option plan (the "Stock Option Plan") that
provides for the granting of options to employees to purchase shares of the
Common Stock. The Company has reserved 670,808 shares for the exercise of these
options. The option price under the Plan shall not be less than 85% of the fair
market value of such share of Common Stock on the date of the grant as
determined by the Company. Under the Stock Option Plan, options issued are
exercisable at such times as determined by the Company but no later than ten
years after the date of the grant.
Options to purchase 569,594 shares of Common Stock at exercise prices
between $1.25 and $6.64 per share were granted and are outstanding at December
31, 1996. Twenty percent of the options become exercisable on the date of grant
and a further 20% become exercisable on each date of grant anniversary. The
options expire between six and ten years from the date of grant. However, upon
the termination of employment of any person, the options will expire 90 days
after the termination date, but no later than the specified expiration date.
Pursuant to the Stock Option Plan 387,494 options were granted in
February, 1996 at an exercise price of $3.54 with a ten-year term and in July,
1996, 24,000 options were granted at an exercise price of $6.46 with a five-year
term.
Activity under the Stock Option Plan is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding options at January 1, 262,500 213,600 251,100
Granted-option of $1.25 per share
in 1994, $2.29 per share in 1995
and $3.54 and $6.46 per share in 1996 14,400 75,000 411,494
Exercised -- (4,800) (3,000)
Cancelled and expired (63,300) (32,700) (90,000)
------- ------- -------
Outstanding (in 1996, exercisable at $1.25 to $6.46
per share) at end of period 213,600 251,100 569,594
======= ======= =======
Exercisable (in 1996, exercisable at $1.25 to $6.46
per share) at end of period 208,740 214,140 189,639
======= ======= =======
Available for grant at end of period 66,848 204,548 63,054
====== ======= ======
</TABLE>
F-9
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(4) Stockholders' Equity-(Continued)
Stock Option Plan for Directors
In February 1996, the Company established a stock option plan (the
"Directors Stock Option Plan") that provides for the granting of options to
non-employee members of the Company's Board of Directors to purchase shares of
the Common Stock. The Company has reserved 180,000 shares for the exercise of
these options. The option price under the Directors Stock Option Plan shall not
be less than the fair market value of such share of Common Stock on the date of
the grant as determined by the Company. Under the Directors Stock Option Plan,
options issued are exercisable at such times as determined by the Company but no
later than fifteen years after the date of the grant.
Options to purchase 62,400 shares of Common Stock at $3.54 per share
were granted to non-employee directors in February 1996 for services rendered
prior to 1996. No individual directors' grant exceeded 14,400 shares. The
options expire fifteen years from the date of grant. However, upon the
termination of board membership of any person, the options will expire 90 days
after the termination date, but no later than the specified expiration date.
These directors will be eligible for additional grants of 3,000 shares per year
in future years if they continue to serve the Company in that capacity. Such
future grants would become exercisable over a three-year period.
Accounting for Stock Option Compensation Expense
The Company applies APB 25 in recording the value of the stock options
granted pursuant to its plans. No compensation cost has been recognized for
stock options granted under the Stock Option Plan in the financial statements.
Had the Company determined compensation cost based on the fair value at the date
of grant for its stock options issued in 1995 and 1996 under SFAS 123, the
Company's net income would have been reduced to the pro-forma amounts indicated
below.
1995 1996
---- ----
Net income As reported $381,235 $843,628
Pro forma $379,285 $814,672
Earnings per share As reported $0.11 $0.25
Pro forma $0.11 $0.24
The fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following assumptions used for the
grants in July, 1995, February, 1996 and July, 1996, respectively: dividend
yield of 0% for all grants, expected volatility of 0% for all grants, risk free
interest rates of 5.98%, 5.29% and 6.55% and expected lives of 6 years, 6 years
and 5 years.
Common Stock Warrants
In 1989, the Company issued warrants to purchase 10,110 shares of its
Common Stock at $2.50 per share. Such warrants expired in 1994.
Deferred Compensation Plan
The Company has a 401(k) plan (the "401(k) Plan") covering all eligible
employees. The 401(k) Plan is currently funded by voluntary salary deductions by
plan members and is limited to the maximum amount that can be
F-10
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(4) Stockholders' Equity-(Continued)
deducted for Federal income tax purposes. The Company is not required to make
contributions to the 401 (k) Plan; however, employer contributions may be made
on a discretionary basis. For the three years ended December 31, 1996, the
Company's expenses in connection with the 401(k) Plan were $20,320, $27,233 and
$40,404 for 1994, 1995 and 1996, respectively, which is reflected in general and
administrative expenses in the accompanying financial statements.
(5) Income Taxes
The provision for income taxes expense (benefit) consists of the following:
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
Current:
Federal $ 12,393 $ 20,000 $ 11,660
State and local 12,627 15,782 20,760
------ ------ ------
25,020 35,782 32,420
Deferred:
Federal (783,341) 221,462 463,090
State and local (264,642) 74,818 149,223
--------- ------ -------
(1,047,983) 296,280 612,313
----------- ------- -------
$(1,022,963) $332,062 $644,733
============ ======== ========
Income tax expense (benefit) differs from the amount computed by multiplying
the statutory rate of 34% to income before income taxes due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate $150,052 $242,929 $506,043
Increase (reduction) in income taxes
resulting from:
State and local income taxes, net of Federal
income tax benefit 40,717 59,796 112,189
Nondeductible expenses 16,159 9,337 21,553
Reduction in valuation allowance (1,242,284) - -
Other 12,393 20,000 4,948
------ ------ -----
$(1,022,963) $332,062 $644,733
============ ======== ========
</TABLE>
F-11
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(5) Income Taxes-(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1994 , 1995 and 1996 are
presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $46,114 $46,290
Leasehold improvements, principally due to differences in
amortization 4,457 18,470
Equipment, principally due to differences
in depreciation 33,441 36,618
Net operating loss carryforward 667,691 38,012
------- ------
Net deferred tax asset $751,703 $139,390
======== ========
</TABLE>
Upon the adoption of Statement 109 in 1993, because of its operating losses
and the level of deferred tax assets, the Company could not conclude that it was
more likely than not that its deferred tax assets would be realized and,
consequently, set up a valuation allowance. At December 31, 1994, 1995 and 1996
based on its earnings for the year and expectations of future earnings, the
Company determined that it was more likely than not that its deferred tax assets
would be realized and, consequently, in 1994 the Company reversed the remaining
valuation allowance.
(6) Foreign Operations
Selected financial information regarding the Company's UK office as of and
for the years ended December 31, 1994, 1995 and 1996 is as follows:
1994 1995 1996
---- ---- ----
Total assets $ 393,878 $ 560,295 $ 1,117,082
========== =========== ============
Total liabilities $ 156,233 $ 327,818 $ 686,231
========== =========== ===========
Revenues $ 834,749 $1,484,670 $ 2,730,336
========== =========== ===========
Operating (loss) income $(103,341) $ (21,606) $ 56,871
========== =========== ===========
(7) Commitments
On April 30, 1990, the Company entered into an agreement for communications
services. The agreement, which was amended and restated on November 1, 1993, was
extended on October 31, 1996 until November 1, 1999. The agreement provides for
guaranteed minimum payments which currently approximate $516,000 per year.
Charges included in direct costs on the accompanying statement of operations
under this agreement amounted to $497,617, $526,516 and $511,961, respectively,
for the years ended December 31, 1994, 1995 and 1996, respectively.
F-12
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(8) Supplemental Cash Flows Information
Cash paid for interest and income taxes during the years ended December 31,
1994, 1995 and 1996 was as follows:
1994 1995 1996
---- ---- ----
Interest $6,205 $ - $13,010
====== ======= =======
Income taxes $2,868 $3,733 $28,805
====== ======= =======
In connection with the acquisition of the operations of PR Data Systems,
Inc. ("PR Data") in July 1996, the Company issued shares of Common Stock to the
sellers valued at $155,000 and assumed certain of the obligations and
liabilities of PR Data as at the closing date with the exception that such
obligations and liabilities assumed could not exceed the book value of assets
acquired by more than $372,000.
(9) Unaudited pro forma information
Pro forma net income per common and common equivalent share is calculated
using the weighted average number of shares of Common Stock outstanding during
the period, plus Common Stock issuable pursuant to options granted under the
Stock Option Plan issued at prices below the assumed initial public offering
price per share during the twelve-month period immediately preceding the initial
filing date of the Company's Registration Statement for its public offering,
assuming such Common Stock was outstanding for all periods presented. In
addition, shares of Common Stock issuable upon the conversion of all shares of
Series A, Series B and Series C Preferred Stock into shares of Common Stock are
included in the calculation as if they were outstanding for all periods
presented. The weighted average number of common equivalent shares outstanding
during the period ended December 31 , 1995 and 1996 after reflecting a 1.2 for 1
stock split effective July 31, 1996 was 3,453,109 and 3,439,088, respectively.
(10) Acquisition of PR Data Systems, Inc.
On July 18, 1996 the company entered into an asset purchase agreement (the
"Agreement") with PR Data and its stockholders. Under the terms of the Agreement
the Company acquired all of PR Data's tangible and intangible assets for cash of
$120,000 and through the issuance of 24,000 shares of the Company's Common Stock
valued at $155,000. The Company also assumed certain of the obligations and
liabilities of PR Data as at the closing date with the exception that such
obligations and liabilities assumed could not exceed the book value of assets
acquired by more than $372,000.
The Company also entered into non-compete agreements with the principal
officers and stockholders of PR Data. These agreements are for periods of five
years and provide for quarterly payments aggregating $410,000 during this
period. The non-compete asset and the present value of the related payment
obligation at December 31, 1996 is $285,332 and $306,977, respectively.
The purchase price exceeds the fair value of the assets acquired and
liabilities assumed by approximately $677,000 which has been allocated to
goodwill. In addition, the non-compete agreements have been recorded as an
intangible asset at the present value of the related payments, calculated using
the Company's estimated borrowing rate at the time of 9.5%. Goodwill is being
amortized over 15 years and the non-compete agreements are being amortized over
5 years.
F-13
<PAGE>
MEDIALINK WORLDWIDE INCORPORATED
NOTES TO FINANCIAL STATEMENTS-(continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(10) Acquisition of PR Data Systems, Inc.-(Continued)
Immediately following the acquisition, the Company converted certain of the
liabilities of PR Data that it assumed, which were payable to a former
stockholder of PR Data, into a note in the amount of $330,000. This note bears
interest at 8% and is payable in equal quarterly installments over seven years.
Aggregate principal payments under this note after December 31, 1996 are as
follows:
Period Amount
------ ------
1997 $47,143
1998 41,341
1999 44,749
2000 48,437
2001 52,430
2002 56,752
2003 30,241
------
Total principal payments 321,093
Less: current portion 47,143
------
$273,950
========
The Company has accounted for this acquisition as a purchase. The
information for the year ended December 31, 1996 contained in the accompanying
1996 financial statements reflect the operating results of PR Data subsequent to
July 18, 1996.
The following unaudited pro forma summary presents the Company's results of
operations as if the acquisition had occurred as of the beginning of fiscal
1995, after giving effect to certain adjustments, including the amortization of
values assigned to the non-compete agreement and goodwill. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisition been made as of
that date or of the results which may occur in the future:
Year ended December 31,
-----------------------
1995 1996
---- ----
Net revenues $ 12,237,144 $ 16,687,172
Net income $ 374,122 $ 831,991
Pro forma net income per common
and common equivalent share $ 0.11 $ 0.24
F-14
<PAGE>
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.
MEDIALINK WORLDWIDE INCORPORATED
By: /s/ LAURENCE MOSKOWITZ
Laurence Moskowitz,
Chairman of the Board, Chief Executive Officer and
President
By: /s/ J. GRAEME MCWHIRTER
J. Graeme McWhirter
Executive Vice President, Assistant Secretary and
Chief Financial Officer
Dated: April 25, 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.
/S/ LAURENCE MOSKOWITZ
Laurence Moskowitz, Chairman
of the Board, Chief Executive April 25, 1997
Officer and President
/S/ DAVID DAVIS
David Davis, Director
Senior Vice President/International April 26, 1997
/S/ HAROLD FINELT
Harold Finelt, Director April 25, 1997
/S/ DONALD KIMELMAN
Donald Kimelman, Director April 29, 1997
/S/ JAMES J. O'NEILL
James J. O'Neill, Director April 25, 1997
/S/ GERALD P. RODEEN
Gerald P. Rodeen, Director April 25, 1997
/S/ THEODORE WM. TASHLIK
Theodore Wm. Tashlik, Director April 25, 1997
/S/ PAUL SAGAN
Paul Sagan, Director April 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 675,469
<SECURITIES> 0
<RECEIVABLES> 4,480,068
<ALLOWANCES> 162,891
<INVENTORY> 0
<CURRENT-ASSETS> 5,208,651
<PP&E> 1,548,939
<DEPRECIATION> 637,621
<TOTAL-ASSETS> 8,121,816
<CURRENT-LIABILITIES> 4,150,104
<BONDS> 0
0
3,354,733
<COMMON> 9,363
<OTHER-SE> 13,454
<TOTAL-LIABILITY-AND-EQUITY> 8,121,816
<SALES> 15,831,023
<TOTAL-REVENUES> 15,831,023
<CGS> 6,382,882
<TOTAL-COSTS> 6,382,882
<OTHER-EXPENSES> 7,975,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,403
<INCOME-PRETAX> 1,488,361
<INCOME-TAX> 644,733
<INCOME-CONTINUING> 843,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 843,628
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
