<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 APRIL 30, 1997
--------------
[ ] 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 JUNE 9, 1997
- --------------------------------- ---------------------------
COMMON STOCK, PAR VALUE $.001 PER SHARE 10,896,252
==========
TRANSITIONAL (SMALL BUSINESS DISCLOSURE FORMAT CHECK ONE):
YES ; NO X
----- -----
<PAGE>
LINKON CORPORATION
FORM 10-QSB
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED APRIL 30, 1997
Page to Page
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet April 30,
1997 and 1996 and January 31, 1997 3 - 4
Consolidated Statements of Operations -
Three Months Ended April 30,
1997 and 1996 5
Consolidated Statements of Cash Flows
Three Months Ended April 30,
1997 and 1996 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Exhibit I - Calculation of Earnings per Share 11
PART II. Other Information 12
Signatures 13
-2-
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
A S S E T S
-----------
APRIL 30 APRIL 30 JANUARY 31,
1997 1996 1997
-------- -------- --------
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 29,764 $ 5,272 $630,726
Certificate of Deposit -- 64,869 --
Accounts Receivable (Net of Allowance) 891,489 674,936 433,498
Notes Receivable 51,000 51,000 51,000
Other Receivables -- 37,917 3,359
Inventory 616,977 862,447 628,498
Prepaid Expenses 128,269 33,267 58,513
--------- --------- ---------
Total Current Assets 1,717,499 1,729,708 1,805,594
--------- --------- ---------
MACHINERY & EQUIPMENT
- ---------------------
Machinery & Equipment, at cost 1,271,145 1,051,359 1,262,341
Equipment under Capital Leases 123,157 156,965 123,156
--------- --------- ---------
1,394,302 1,208,324 1,385,497
Less: Accumulated Depreciation (920,902) (737,005) (869,902)
---------- ---------- ----------
Machinery & Equipment, Net 473,400 471,319 (869,902)
--------- --------- ----------
OTHER ASSETS
- ------------
Software (Net of Amortization) 986,011 945,182 990,668
Investments, at cost 34,613 375,665 34,613
Prepaid Financing Costs 26,142 36,599 28,756
Deferred Offering Costs -- -- --
Security Deposits 8,195 7,695 8,195
Organization Costs (Net of
Amortization) -- -- --
Total Other Assets 1,054,961 1,365,141 1,062,232
--------- --------- ---------
$3,245,860 $3,566,168 $3,383,421
========== ========== ==========
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
------------------------------------
APRIL 30 APRIL 30 JANUARY 31,
1997 1996 1997
---------- ---------- -----------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 995,066 $ 881,230 $656,127
Bank Loan Payable -- 22,730 --
Taxes Payable 5,000 18,108 5,000
Interest Payable 119,861 133,750 86,111
Accrued Expenses 109,732 7,272 148,132
---------- ---------- --------
Total Current Liabilities 1,229,659 1,063,090 895,370
---------- ---------- --------
LONG TERM LIABILITIES
- ---------------------
Notes Payable, Net 1,295,690 1,255,144 1,291,810
---------- --------- ---------
COMMITMENTS AND CONTINGENCIES -- -- --
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $.001 Par Value,
25,000,000 shares authorized,
10,896,252 shares issued and
outstanding 10,897 10,754 10,867
Capital in Excess of Par Value 9,374,266 9,129,970 9,329,296
Retained Earnings (Accumulated
Deficit) (8,664,652) (7,892,790) (8,143,922)
---------- ---------- ----------
Total Stockholders' Equity 720,511 1,247,934 1,196,241
---------- ---------- ----------
$3,245,860 $3,566,168 $3,383,421
========== ========== ==========
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)
THREE MONTHS THREE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
1997 1996__
---------------- ----------------
Gross Revenues $ 722,549 $ 404,213
Cost of Goods Sold - Product 423,145 175,260
- Software amortization 96,366 56,883
519,511 232,143
----------- -----------
Gross Margin On Sales 203,038 172,070
Selling, General and
Administrative Expenses 612,297 471,776
Research and Development 73,041 83,573
----------- -----------
685,338 555,349
----------- -----------
Operating Loss ( 482,300) (383,279)
OTHER INCOME (EXPENSE)
Interest Income 25 1,631
Gain (Loss) on Foreign Currency
Translation -- (217)
Gain on Sale of Securities -- --
Interest Expense ( 38,455) (39,006)
----------- -----------
( 38,430) (37,592)
----------- -----------
Loss Before Income Taxes ( 520,730) (420,871)
Income Taxes -- 5,523
----------- -----------
Net Loss $ ( 520,730) $ (426,394)
Loss Per Share $ (.05) $ (.04)
Weighted Average Number of Shares
Outstanding 10,817,252 10,753,252
Fully Diluted Loss Per Share $ (.05) $ (.04)
The accompanying notes to consolidated financial statements are an integral part
of this report.
- 5 -
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED APRIL 30,
1997 ___ 1996___
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- --------------------------------------
Net Income (Loss) $( 520,730) $( 426,394)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 151,246 101,484
Gain on Sale of Securities -- --
Changes in Assets and Liabilities:
(Increase) Decrease in Certificate of Deposit -- ( 935)
(Increase) Decrease in Accounts Receivable ( 457,991) ( 63,549)
(Increase) Decrease in Other Receivables 3,359 13,296
(Increase) Decrease in Inventory 11,521 26,208
(Increase) Decrease in Prepaid Expense ( 69,756) ( 5,861)
(Increase) Decrease in Software ( 91,709) ( 73,917)
(Increase) Decrease in Prepaid Financing Cost 2,614 2,614
(Increase) Decrease in Security Deposits -- 12,236
Increase (Decrease) in Accounts Payable 338,939 ( 122,895)
Increase (Decrease) in Accrued Expenses ( 38,400) --
Increase in Interest Payable 33,750 33,750
Increase (Decrease) in Taxes Payable -- --
---------- ----------
Net Cash Used in Operating Activities ( 637,157) ( 503,963)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Paid to Purchase Equipment ( 8,805) ( 5,351)
Proceeds from Sale of Securities 0 --
Investment in Non-Marketable Securities 0 ( 483)
---------- ----------
Net Cash Provided by (Used in) Investing
Activities ( 8,805) ( 5,834)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from Sale of Common Stock 45,000 --
Borrowings(Payments) on Bank Debt -- ( 7,500)
Net Cash Provided by (Used in) Financing
Activities 45,000 ( 7,500)
---------- ----------
Net Increase (Decrease) in Cash ( 600,962) ( 517,297)
Cash and Cash Equivalents at Beginning of
Period 630,726 522,569
---------- ----------
Cash and Cash Equivalents at End of Period $ 29,764 $ 5,272
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this report.
- 6 -
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
APRIL 30, 1997
--------------
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 April 30,
1997 and 1996, and January 31, 1997, and the results of operations for the three
month periods ended April 30, 1997 and 1996 and cash flows for the three month
periods ended April 30, 1997 and 1996.
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, 1997.
2) ANALYSIS OF STOCKHOLDERS' EQUITY:
----------------------------------
Capital
Outstanding in Excess Accumulated
Shares Amount of Par Value Deficit
----------- ------- ------------ ------------
Balance January 31, 1997 10,866,252 $10,867 $9,329,296 $(8,143,922)
Issuance of 30,000 $ 30 $ 44,970 --
Common Stock, Net of
Expenses
Loss for Three Months
Ended April 30, 1997 -- -- -- ( 520,730)
----------- ------- ------------ -----------
Balance April 30, 1997 10,896,252 $10,897 $9,374,266 $(8,664,652)
=========== ======= ============ ===========
3) RECLASSIFICATION OF THE AMORTIZATION OF CAPITALIZED SOFTWARE COSTS:
--------------------------------------------------------------------
During the quarter ending October 31, 1996 the Company reclassified the
amortization of capitalized software costs from the Research & Development
category to Cost of Goods Sold.
Due to this reclassification the Company has restated all financial statements
being presented to take account of this reclassification for prior periods. This
reclassification had no effect on the results of operations or net loss being
reported on the income statements being presented. All information provided in
the following Management's Discussion and Analysis of Financial Condition and
Results of Operations is being presented after taking into consideration this
reclassification.
4) FINANCING OF OPERATIONS:
-------------------------
See Management's Discussion and Analysis- Liquidity and Capital Resources as to
the Company's need for additional capital and any plans for the future financing
of its operations.
-7-
<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 $520,730 for the first three months of
fiscal 1997 as compared to a net loss of $426,394 for the same period during the
prior year. This increase in the net loss reported by the Company was due to the
following factors:
Selling, General and administrative expenses increased from $471,776 in the
first three months of fiscal year 1996 to $612,297 in the same three months of
fiscal year 1997. This is discussed more fully under the section entitled
"Selling, General and Administrative Expenses" below.
Gross Margin decreased from 43% in the first three months of fiscal year 1996
to 28% in the same three months of fiscal year 1997. This is more fully
discussed under the section entitled "Cost of Goods Sold" below.
REVENUES
- --------
For the three months ended April 30, 1997 revenues increased $318,336 from
the three month period ended April 30, 1996, an increase of 79%. This increase
was due mainly to increased shipments to AT&T. In April of 1997 the Company
received an order from AT&T for the purchase of $815,000 of EscapeTM Platform.
The Company shipped $545,000 of such products during the first quarter of fiscal
1998, and shipped the remainder during May, 1997. The Company's total order
backlog as of 4/30/97 was $496,196. Substantially the entire backlog was for
products scheduled to be shipped during the second quarter of fiscal 1998.
The Company continues to concentrate on developing and expanding its
customer base and is currently working on several new projects for other major
customers which it anticipates will diversify its customer base and increase
revenues in both the near and long-term. While the certainty of these new
projects becoming future revenues for the Company cannot be measured at this
point in time, the management of the Company is encouraged by the inquiries it
is receiving concerning its products.
COST OF GOODS SOLD
- ------------------
Cost of goods sold for products, consisting of parts, supplies and
manufacturing costs for the Company's hardware and software products, including
software amortization, were $519,511 and $232,143 for the quarters ended April
30, 1997 and 1996 respectively. This constituted approximately 72% and 57% of
revenues for the quarters ended April 30, 1997 and 1996 respectively. Management
attributes the change in cost of goods sold to highly competitive pricing
associated with shipments to AT&T during the quarter ended April 30, 1997. 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
also 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.
While management continues to believe that its products can ultimately be
sold with a less than 50% cost of goods sold, management also realizes the need
to gain market share for its products and will, for the near term, be aggressive
in its pricing policy. However, management also believes that the cost of sales
will go down as customers begin to order enhanced software features, which
features carry significantly lower costs than the Company's hardware products,
and as well as a result of research and development projects aimed at increasing
efficiency while reducing cost.
-8-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses for the quarters ended April
30, 1997 and 1996 were $612,297 and $471,776 respectively. This constituted
approximately 85% and 117% of revenues for the quarters ended April 30, 1997 and
1996 respectively. This increase was due primarily to increases in staffing in
Sales, Marketing and Customer Support, expenditures for Marketing and
Advertising programs for the EscapeTM Platform, and legal and administrative
costs associated with the Company's shareholders meeting held on March 25, 1997.
RESEARCH, DEVELOPMENT AND SOFTWARE
- ----------------------------------
The Company incurred research, development and software costs of
approximately $145,941 and $156,473 for the quarters ended April 30, 1997 and
1996 respectively. The decrease was primarily due to the Company's
determination to reduce these costs in fiscal 1998 in light of the of the
Company's continuing losses. 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 from the receipt of proceeds
from private placements of debt and equity, including the exercise of warrants,
interest earned from the investment of such proceeds in interest earning assets,
and revenues from operations. During the fiscal year ended January 31, 1997 the
Company received $169,439 in net proceeds, after payment of offering related
expenses, from exercises of warrants and from the sale of its common stock.
During the first quarter of fiscal 1998, the Company raised approximately
$45,000 of net proceeds from the exercises of warrants. These amounts were
primarily used to fund operations.
During the first quarter of fiscal 1998, net cash used in operating
activities was approximately $637,000. As a result, on April 30, 1997, the
Company held cash and cash equivalents of approximately $30,000, down from cash
of approximately $631,000 as of January 31, 1997, and had a working capital
surplus (current assets minus current liabilities) of approximately $490,000,
down from a working capital surplus of approximately $910,000 as of January 31,
1997 (although as of May 5, 1997 the Company had a cash balance of approximately
$331,000). The Company's cash flow and liquidity continues to be severely
impaired due to ongoing losses from operations. While the Company's Maestro
System has begun to gain acceptance in the market, the Company is mostly finding
strong interest at large call centers with the Company's EscapeTM Platform.
While the Company believes that this will be a good market for the Company's
products over time, the complexity of the EscapeTM Platform, and the size of the
orders, requires longer lead times from first inquiry to sale than with the
Company's other products. While the Company's management continues to believe
that in the near future the Company will be cash flow positive from its
operations as the Maestro System's products continue to gain acceptance and
popularity in the marketplace, there can be no assurances either that such will
in fact occur or exactly when the Company may reach such a cash flow position.
Based primarily on the strength of its recent purchase orders from AT&T,
the Company has begun to be able to finance its operations through receivables
financing, secured by purchase orders from creditworthy customers. In November
of 1996, the Company was able to consummate a receivables debt financing with
IBJS Capital Corporation, secured primarily by the Company's rights under $2.7M
of purchase orders from AT&T. The financing was established specifically for
these AT&T purchase orders. Linkon completed the AT&T order and has fulfilled
its obligations, and this particular financing arrangement with IBJS Capital
Corporation has subsequently been terminated. The Company is currently pursuing
alternative financiers to factor and/or finance future orders from other
customers when and if required (although no such arrangement is in place as of
this date).
-9-
<PAGE>
Provided the Company's Maestro/TM/ System continues to gain market
acceptance, the Company believes that it will be able to rely less on private
equity financings and the exercise of warrants by existing warrant holders and
more on cash flow generated from revenues from increased hardware and software
sales to fund its continuing operations. However, due to the planned
introduction of new and improved products, and the anticipated growth due to,
among other things, the manufacturing of hardware and software products and the
expansion of operations, management anticipates that there will be a continued
need for cash resources from sources other than operations to meet, among other
things, anticipated commitments for raw materials, increased marketing
activities, and personnel.
The Company does not currently contemplate any significant capital
expenditures during fiscal 1998. The Company does not believe that there are any
contingencies which would have a material adverse effect on the Company's
financial condition, future operating results or liquidity.
Statements throughout this report that state the Company's or its
management's intentions, beliefs, expectations or predictions of the future are
forward looking statements. It is important to note that the Company's actual
results could differ materially from those projected in such forward looking
statements.
-10-
<PAGE>
PART 1. FINANCIAL INFORMATION EXHIBIT I
---------------------------------------------
LINKON CORPORATION
------------------
CALCULATION OF EARNINGS PER SHARE
---------------------------------
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, 1997 APRIL 30, 1996
-------------- --------------
Loss for the Period $( 520,730) $( 426,394)
========== ===========
Weighted Number of Shares Outstanding 10,817,252 10,753,252
========== ============
Loss Per Share: $ (.05) $ (.04)
========== ============
- 11 -
<PAGE>
LINKON CORPORATION
------------------
PART II. OTHER INFORMATION
---------------------------
Item 2. Changes in Securities
---------------------
In February 1997, the following individuals exercised warrants to purchase an
aggregate of 30,000 shares of Common Stock of the Company, at a purchase price
per share of $1.50, for aggregate consideration of $45,000: Peter and Susan
Deakins (2,500 shares), Kurt A. Wohl (2,500 shares), Morton S. Ackerman (5,000
shares) and Joao Carvalho (20,000 shares). With respect to such issuances,
based upon representations of such specified individuals, the Company relied
upon exemptions from registration provided by Section 4(2) of the Securities Act
of 1993, as amended, and Rule 506 promulgated thereunder.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
Exhibit
No. DESCRIPTION OF DOCUMENT
------- -----------------------
27 Financial Data Schedule for the period ended
April 30, 1997(1)
____________
(1) Submitted separately, electronically.
b. Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
April 30, 1997.
- 12 -
<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: June 11, 1997 /s/ Lee W. Hill
----------------
BY: LEE W. HILL
CHIEF EXECUTIVE OFFICER
DATED: June 11, 1997 /s/ Thomas V. Cerabona
-----------------------
BY: THOMAS V. CERABONA
VICE PRESIDENT OF OPERATIONS
PRINCIPAL ACCOUNTING OFFICER
- 13 -
<PAGE>
EXHIBIT INDEX
Exhibit No. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
27 Financial Data Schedule for the period ended
April 30, 1997(1)
____________
(1) Submitted separately, electronically.
- 14 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET DATED AS OF APRIL 30, 1997 AND THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL QUARTER ENDED
APRIL 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 29,764
<SECURITIES> 0
<RECEIVABLES> 1,224,787
<ALLOWANCES> 282,298
<INVENTORY> 616,977
<CURRENT-ASSETS> 1,717,499
<PP&E> 1,394,302
<DEPRECIATION> 920,902
<TOTAL-ASSETS> 3,245,860
<CURRENT-LIABILITIES> 1,229,659
<BONDS> 1,295,690
0
0
<COMMON> 10,897
<OTHER-SE> 720,511
<TOTAL-LIABILITY-AND-EQUITY> 3,245,860
<SALES> 722,549
<TOTAL-REVENUES> 722,549
<CGS> 519,511
<TOTAL-COSTS> 519,511
<OTHER-EXPENSES> 685,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,455
<INCOME-PRETAX> (520,730)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520,730)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
