<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
-------------
[ ] 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 0-19705
LINKON CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 13-3469932
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 Sherman Street,
Fairfield, Connecticut 06430
----------------------------
(Address of principal executive offices)
(203) 319-3175
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
------- -------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at August 8, 1996
- --------------------------------- -----------------------------
Common Stock, Par Value $.001 Per Share 10,753,252
==========
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
----- -----
<PAGE>
LINKON CORPORATION
FORM 10-QSB
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JULY 31, 1996
Page to Page
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet - July 31, 1996 and 1995
and January 31, 1996 3 - 4
Statements of Operations - Six Months
Ended July 31, 1996 and 1995 5
Statements of Operations - Three Months
Ended July 31, 1996 and 1995 6
Statements of Cash Flows - Six Months
Ended July 31, 1996 and 1995 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations 9 - 10
PART II. Other Information 11
Signatures 12
Exhibit Index 13
Calculation of Earnings per Share 14
Financial Data Schedule 15
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
A S S E T S
-----------
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31
1996 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 357,258 $ 175,636 $ 522,569
Certificate of Deposit 65,838 62,065 63,934
Accounts Receivable (Net of Allowance) 424,527 1,093,904 611,387
Notes Receivable 51,000 51,000 51,000
Other Receivables 21,852 67,014 51,213
Inventory 778,143 872,692 888,655
Prepaid Expenses 78,200 38,039 27,406
---------- ----------- ----------
Total Current Assets 1,776,818 2,360,350 2,216,164
---------- ----------- ----------
MACHINERY & EQUIPMENT
- ---------------------
Machinery & Equipment, at cost 1,060,166 928,175 1,046,008
Equipment under Capital Leases 156,965 156,965 156,965
---------- ----------- ----------
1,217,131 1,085,140 1,202,973
Less: Accumulated Depreciation 777,505 612,274 696,283
---------- ----------- ----------
Machinery & Equipment, Net 439,626 472,866 506,690
---------- ----------- ----------
OTHER ASSETS
- ------------
Software (Net of Amortization) 962,130 847,135 928,148
Investments, at cost 34,613 375,182 375,182
Prepaid Financing Costs 33,985 44,442 39,213
Deferred Offering Costs -- 49,019 --
Security Deposits 7,695 25,915 19,931
Organization Costs (Net of
Amortization) -- -- --
---------- ----------- ----------
Total Other Assets 1,038,424 1,341,693 1,362,474
---------- ----------- ----------
$3,254,867 $4,174,909 $4,085,328
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this report.
-3-
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31,
1996 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 326,524 $ 699,174 $1,004,125
Bank Loan Payable 52,730 30,000 30,230
Taxes Payable 8,108 15,035 18,108
Capital Leases Payable -
Current Portion -- 338 --
Interest Payable 143,750 110,806 100,000
Officers' Salary Payable 7,272 7,272 7,272
---------- ---------- ----------
Total Current Liabilities 538,383 862,625 1,159,735
---------- ---------- ----------
LONG TERM LIABILITIES
- ---------------------
Notes Payable, Net 1,215,274 1,283,988 1,251,265
---------- ---------- ----------
Total Long Term Liabilities 1,215,274 1,283,988 1,251,265
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES -- -- --
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $.001 Par Value,
25,000,000 shares authorized,
10,753,252 shares issued and
outstanding (1996),
9,452,002 shares issued and
outstanding (1995) 10,754 9,452 10,754
Capital in Excess of Par Value 9,129,970 7,816,636 9,129,970
Retained Earnings (Accumulated Deficit) (7,639,514) (5,797,792) (7,466,396)
---------- ---------- ----------
Total Stockholders' Equity 1,501,210 2,028,296 1,674,328
---------- ---------- ----------
$3,254,867 $4,174,909 $4,085,328
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this report.
-4-
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
1996 1995
---------- ----------
<S> <C> <C>
Revenues $ 864,981 $ 980,897
Cost of Goods Sold 377,083 477,752
---------- ----------
Gross Margin On Sales 487,898 503,145
---------- ----------
Selling, General and
Administrative Expenses 967,719 1,211,388
Research and Development 274,975 345,479
---------- ----------
1,242,694 1,556,867
---------- ----------
Operating Loss ( 754,796) (1,053,722)
---------- ----------
OTHER INCOME (EXPENSE)
- ----------------------
Interest Income 4,163 4,641
Recovery of Bad Debt 22,400 --
Gain (Loss) on Foreign Currency
Translation ( 445) 972
Gain on Sale of Marketable Securities 679,909 --
Interest Expense ( 118,826) ( 79,775)
---------- ----------
587,201 ( 74,162)
---------- ----------
Loss Before Income Taxes ( 167,595) (1,127,884)
Income Taxes 5,523 --
---------- ----------
Net Loss $( 173,118) $(1,127,884)
========== ==========
Loss Per Share $ (.02) $ (.13)
========== ==========
Weighted Average Number of Shares
Outstanding 10,753,252 8,820,073
========== ==========
Fully Diluted Loss Per Share $ (.02) $ (.13)
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this report.
-5-
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED JULY 31, ENDED JULY 31,
1996 1995
-------------- --------------
<S> <C> <C>
Revenues $ 460,768 $ 275,203
Cost of Goods Sold 201,823 207,383
---------- ----------
Gross Margin On Sales 258,945 67,820
---------- ----------
Selling, General and
Administrative Expenses 495,943 678,604
Research and Development 134,519 174,721
---------- ----------
630,462 853,325
---------- ----------
Operating Loss ( 371,517) (785,505)
---------- ----------
OTHER INCOME (EXPENSE)
- ----------------------
Interest Income 2,532 1,801
Recovery of Bad Debt 22,400 --
Gain (Loss) on Foreign Currency
Translation ( 228) ( 98)
Gain on Sale of Marketable
Securities 679,909 --
Interest Expense ( 79,820) ( 51,412)
---------- ----------
624,793 ( 49,709)
---------- ----------
Loss Before Income Taxes 253,276 (835,214)
Income Taxes -- --
---------- ----------
Net Income (Loss) $ 253,276 $ (835,214)
========== ==========
Income (Loss) Per Share $ .02 $ (.09)
========== ==========
Weighted Average Number of Shares
Outstanding 10,753,252 9,033,048
========== ==========
Fully Diluted Income (Loss) Per Share $ .02 $ (.09)
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-6-
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Income (Loss) $( 173,118) $(1,127,884)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 83,691 85,063
Gain on Sale of Marketable Securities ( 679,909) --
Changes in Assets and Liabilities:
Increase in Certificate of Deposit ( 1,904) ( 2,065)
(Increase) Decrease in Accounts Receivable 186,860 ( 166,837)
(Increase) Decrease in Other Receivables 29,361 30,245
(Increase) Decrease in Inventory 110,512 241,517
(Increase) Decrease in Prepaid Expense ( 50,794) (26,593)
Increase in Software ( 33,982) ( 127,371)
Increase in Prepaid Financing Costs 5,228 --
Increase in Deferred Offering Costs -- ( 20,000)
(Increase) Decrease in Security Deposits 12,236 ( 235)
Increase (Decrease) in Accounts Payable ( 677,601) ( 101,055)
Increase (Decrease) in Officers Salary
Payable -- ( 60)
Increase in Interest Payable 43,750 67,047
Increase (Decrease) in Taxes Payable ( 10,000) 2,840
---------- ----------
Net Cash Used in Operating Activities (1,155,670) (1,145,388)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Paid to Purchase Equipment ( 14,158) ( 98,600)
Proceeds from Sale of Marketable Securities 1,020,000 --
Investment in Non-Marketable Securities ( 483) ( 357)
---------- ----------
Net Cash Provided by (Used in) Investing Activities 1,005,359 ( 98,957)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from Sale of Common Stock -- 833,766
Principal Payments on Debt ( 15,000) --
Principal Payments Under Capital Lease Obligations -- ( 6,245)
---------- ----------
Net Cash Provided by (Used in) Financing Activities ( 15,000) 827,521
---------- ----------
Net Increase (Decrease) in Cash ( 165,311) ( 416,824)
Cash and Cash Equivalents at Beginning of Year 522,569 592,460
---------- ----------
Cash and Cash Equivalents at End of Period $ 357,258 $ 175,636
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this report.
-7-
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JULY 31, 1996
-------------
1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of July 31, 1996
and 1995, and January 31, 1996, and the results of operations for the six month
and three month periods ended July 31, 1996 and 1995 and cash flows for the six
month periods ended July 31, 1996 and 1995.
The accounting policies followed by the Company are set forth in Note 3
to the Company's financial statements in the Linkon Corporation. Annual Report -
January 31, 1996.
2) ANALYSIS OF STOCKHOLDERS' EQUITY:
---------------------------------
<TABLE>
<CAPTION>
Capital
Outstanding in Excess Accumulated
Shares Amount of Par Value Deficit
---------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Balance January 31, 1996 10,753,252 $10,754 $9,129,970 $(7,466,396)
Loss for Six Months
Ended July 31, 1996 -- -- -- ( 173,118)
---------- ------- ---------- -----------
Balance - July 31, 1996 10,753,252 $10,754 $9,129,970 $(7,639,514)
========== ======= ========== ===========
</TABLE>
-8-
<PAGE>
LINKON CORPORATION
------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
NET INCOME (LOSS)
- -----------------
The Company reported a net loss of $117,118 for the first six months of fiscal
1997 as compared to a net loss of $1,127,884 for the same period during the
prior year. This was primarily due to the sale of the Company's investment in
Concentric Network Corporation which resulted in a $680,000 capital gain and a
$314,000 reduction in operating expenses. For the second quarter ended July 31,
1996, the Company reported net income of $253,276 compared to a net loss of
$835,214 for the same period during the prior year. This was the result of
increased sales of 67%, reduced expenses of 26% and the Company's sale of its
investment in Concentric Network Corporation.
REVENUES
- --------
For the six months ended July 31, 1996 revenues decreased approximately $116,000
from the six month period ended July 31, 1995, a decrease of 12%. This was
partially the result of decreased sales of the Company's products resulting from
a delay in the release of the Company's Maestro (TM) System. Revenues for the
three months ended July 31, 1996 increased approximately $185,500 from the three
month period ended July 31, 1995, an increase of 67%. This is primarily as a
result of the Maestro (TM) System sales beginning in May 1996.
During the six months ended July 31, 1996, the Company added a new Vice
President of Operations. As the Company grows or as finances will permit,
additional sales, administrative, technical and customer service staff will be
hired. Subject to adequate financing, efforts have been made and implemented to
maintain a streamlined operation utilizing external support arrangements where
practicable or necessary.
COST OF SALES
- -------------
Cost of goods sold, consisting of parts, supplies and manufacturing costs for
the Company's hardware and software products, constituted approximately 44% and
49% of revenues for the six months ended July 31, 1996 and 1995 respectively.
Management attributes the change in cost of goods sold to the changes in the
mixture of products sold. The Company anticipates that its cost of goods sold
will remain in the 35-45% of revenues range. The cost of goods sold varies with
each product line, with software having little or no material cost
(approximately 5-10%). The primary costs incurred by the Company are for
materials and equipment relating to its hardware products, which carry lower
profit margins than the Company's software products. The Company manufactures
and assembles all hardware through contracted third party suppliers under the
direct supervision of the Company's management. Management anticipates
opportunities for increased gross profit from research and development projects
aimed at increasing efficiency while decreasing cost. Gross profit margins for
the Company's hardware and software products, currently in the 55% - 65% range,
may not, however, materially change with increased revenues (notwithstanding
anticipated lower costs of production), due to anticipated increased market
competition.
-9-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses decreased $243,000, or 20% for the
6 months ended July 31, 1996 compared to the same period in the prior year.
Management attributes this decrease in selling, general and administrative
expenses to planned reductions in operating expenses including the closing of
the Company's New York City office. Selling, general and administrative expenses
for the six months ended July 31, 1996 and 1995 constituted approximately 123%
and 112% of sales for such periods, respectively. For the three months ended
July 31, 1996 and 1995 selling, general and administrative expenses constituted
108% and 246% of sales for such periods, respectively. This decrease for the
first 3 months of 1997 when compared with the first 3 months of 1996 was due
primarily to the planned reduction of expenses.
RESEARCH, DEVELOPMENT AND SOFTWARE
- ----------------------------------
The Company incurred research, development and software costs of approximately
$275,000 and $345,000 for the six month periods ended July 31, 1996 and 1995
respectively. Management attributes this decrease in cost to planned
restructuring of research, development and software resources. These amounts
consist of internal salaries, outside consulting services, equipment and fixed
overhead costs. The Company expects research, development and software costs to
increase in future periods as finances permit.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
To date, the Company has funded operations principally from receipt of proceeds
from the private placements of debt and equity securities, the exercise of
warrants, the sale of marketable securities, interest income earned from the
investment of the proceeds in interest earning assets and revenues from
operations. As a result of a delay in the release of the Company's new Maestro
(TM) system, the Company's revenues and cash flow took a marked drop in the
second half of fiscal 1996. The Company is still feeling the effects of this
delay, but anticipates that the current year's operations will provide the
Company with sufficient operating capital to meet the Company's obligations.
On June 6, 1996, the Company sold its investment in Concentric Network
Corporation for $1,020,000. The Company reported a capital gain in its second
quarter of approximately $680,000 as a result of this transaction.
Management believes it has sufficient resources available to meet its liquidity
needs for the next year. Management believes that long-term liquidity needs will
be met from increased hardware and software sales as well as additional
financing from investors either through private placements of the Company's
securities, exercise of outstanding warrants, or borrowing from outside third
parties. Due to the planned introduction of new and improved products and the
anticipated growth related to, among other things, the manufacturing of hardware
and software products and the expansion of operations, management anticipates
there will be a continuing trend and need for cash resources. Such demand on the
Company's resources will require the Company, in the long term, to obtain
additional financing and increased sales volume to meet anticipated commitments
for raw materials and personnel.
-10-
<PAGE>
LINKON CORPORATION
------------------
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
11. Calculation of Earnings per Share (1)
27. Financial Data Schedule (2)
-------
(1) Submitted electronically.
(2) Submitted electronically for information only and not filed.
b. Reports on Form 8-K - There were no reports on Form 8-K
filed for the three months ended July 31, 1996.
-11-
<PAGE>
LINKON CORPORATION
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINKON CORPORATION
------------------
Registrant
DATED: August 15, 1996 /s/ Lee W. Hill
-----------------------------
BY: LEE W. HILL
CHIEF EXECUTIVE OFFICER
DATED: August 15, 1996 /s/ Thomas V. Cerabona
------------------------------
BY: THOMAS V. CERABONA
VICE PRESIDENT OF OPERATIONS
-12-
<PAGE>
Index to Exhibits
Exhibit
No. Description of Document
------- -----------------------
11 Calculation of Earnings per Share (1)
27 Financial Data Schedule for the period ended
July 31, 1996 (2)
--------
(1) Submitted electronically.
(2) Submitted electronically for information only and not filed.
-13-
<PAGE>
EXHIBIT 11
LINKON CORPORATION
------------------
CALCULATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
JULY 31, 1996 JULY 31, 1995
------------- -------------
Loss for the Period $( 173,118) $(1,127,884)
========== ===========
Weighted Number of Shares Outstanding 10,753,252 8,820,073
========== ==========
Loss Per Share: $ (.02) $ (.13)
========== ===========
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
LINKON CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX
MONTHS ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 357,258
<SECURITIES> 65,838
<RECEIVABLES> 535,270
<ALLOWANCES> 37,891
<INVENTORY> 778,143
<CURRENT-ASSETS> 1,776,818
<PP&E> 1,217,131
<DEPRECIATION> 777,505
<TOTAL-ASSETS> 3,254,867
<CURRENT-LIABILITIES> 538,383
<BONDS> 1,215,274
<COMMON> 10,754
0
0
<OTHER-SE> 1,490,456
<TOTAL-LIABILITY-AND-EQUITY> 3,254,867
<SALES> 864,981
<TOTAL-REVENUES> 864,981
<CGS> 377,083
<TOTAL-COSTS> 377,083
<OTHER-EXPENSES> 1,242,694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,826
<INCOME-PRETAX> (167,595)
<INCOME-TAX> 5,523
<INCOME-CONTINUING> (173,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (173,118)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
