<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A-1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
[ ] TRANSITION REPORT UNDER 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
------------------
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 13-3469932
------ ------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
140 SHERMAN STREET, FAIRFIELD, CT 06430
- --------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(203) 319-3175
(ISSUER 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:
COMMON STOCK, $.001 PAR VALUE
-------------------------------------------
(TITLE OF CLASS)
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 PAST 90 DAYS. YES X NO ___
---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $3,862,594.
As of April 28, 1998 the aggregate market value of the voting stock held by
non-affiliates was $14,928,084.
Number of shares outstanding of the issuer's common stock, as of April 28,
1998 was 13,296,252.
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after January 31, 1998 is incorporated by
reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
---
<PAGE>
This amendment to the Annual Report on Form 10-KSB of Linkon Corporation
(the "Company") for the fiscal year ended January 31, 1998 (the "Original Form
10-KSB") amends and modifies the Original Form 10-KSB by restating Item 7. of
Part II in its entirety in order to correct certain errors that occurred during
the EDGAR processing and transmission of the Original 10-KSB that resulted in
the misplacement of certain paragraphs and footnote headings of the notes to the
financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -------
The financial statements are included herein following the Signature Page
to this Annual Report on Form 10-KSB commencing on Page F-1.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: July 8, 1998 LINKON CORPORATION
By:/s/ Thomas V. Cerabona
-------------------------------------
Thomas V. Cerabona, Vice President
of Operations, Chief Accounting Officer
and Secretary
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LINKON CORPORATION
Index to Financial Statements and Schedules.............................. F-1
Report of Independent Certified Public Accountants....................... F-2
Consolidated Balance Sheets--January 31, 1998 and 1997................... F-3
Consolidated Statements of Operations--Two years ended January 31, 1998
and 1997................................................................ F-4
Consolidated Statements of Cash Flows--Two years ended January 31, 1998
and 1997................................................................ F-5
Consolidated Statements of Stockholders' Equity--Two years ended January
31, 1998 and 1997....................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders
Linkon Corporation
Fairfield, Connecticut
We have audited the accompanying consolidated balance sheets of Linkon
Corporation as of January 31, 1998 and 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the years then ended. 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 audit.
We conducted our audit 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 audit provides 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 Linkon Corporation as of
January 31, 1998 and 1997 and the results of operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Radin Glass & Co., LLP
Radin Glass & Co., LLP
Certified Public Accountants
New York, New York
April 6, 1998
F-2
<PAGE>
LINKON CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents (Note 3): ................ $ 511,961 $ 630,726
Accounts Receivable (Note 3): ...................... 37,135 433,498
Notes Receivable.................................... -- 51,000
Other Receivables................................... 1,972 3,359
Inventory (Note 3): ................................ 400,625 628,498
Prepaid Expenses.................................... 16,773 58,513
---------- ----------
Total Current Assets.............................. 968,466 1,805,594
---------- ----------
Machinery & Equipment (Note 3):
Machinery & Equipment, at cost...................... 1,307,397 1,262,341
Equipment under Capital Leases...................... 123,156 123,156
---------- ----------
1,430,553 1,385,497
Less: Accumulated Depreciation...................... (1,020,066) (869,902)
---------- ----------
Machinery & Equipment, Net.......................... 410,487 515,595
---------- ----------
Other Assets
Software--Net (Note 3): ............................ 957,200 990,668
Investments, at cost................................ -- 34,613
Prepaid Financing Costs............................. 18,300 28,756
Security Deposits................................... 10,688 8,195
---------- ----------
986,188 1,062,232
---------- ----------
$2,365,141 $3,383,421
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts Payable...................................... $ 591,538 $ 656,127
Taxes Payable (Notes 5, 8): .......................... 1,377 5,000
Interest Payable (Notes 7, 8): ....................... 234,865 86,111
Customer Advances..................................... 154,679 --
Accrued Expenses...................................... 451,248 148,132
Notes Payable......................................... 350,000 --
---------- ----------
Total Current Liabilities......................... 1,783,707 895,370
---------- ----------
Long Term Liabilities
Notes Payable (Notes 7,10): .......................... 957,328 1,291,810
---------- ----------
Commitments and Contingencies......................... -- --
Stockholders Equity (Notes 4,10):
Common Stock. $.001 Par Value, 25,000,000 shares
authorized, 10,896,252 shares issued and outstanding
(1998) 10,753,252 shares issued and outstanding
(1997)............................................... 10,897 10,867
Capital in Excess of Par Value........................ 9,404,266 9,329,296
Retained Earnings (Accumulated Deficit)............... (9,791,057) (8,143,922)
---------- ----------
Total Stockholders Equity......................... (375,894) 1,196,241
---------- ----------
$2,365,141 $3,383,421
========== ==========
</TABLE>
The accompanying footnotes are an integral part of these financial statements
F-3
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Revenues (Note 2): .................................... 3,862,594 $4,405,315
Cost of Goods Sold
Product.............................................. 1,842,064 2,210,835
Software amortization (Notes 3, 9): ................. 385,464 336,670
----------- ----------
Gross Margin On Sales.................................. 1,635,066 1,857,810
----------- ----------
Selling, General and Administrative Expenses........... 2,723,876 2,400,660
Research and Development............................... 256,877 305,864
Provision for Doubtful Accounts........................ 33,724 271,216
----------- ----------
3,014,477 2,977,740
----------- ----------
Operating Loss......................................... (1,379,411) (1,119,930)
----------- ----------
Other Income (Expense)
Interest Income...................................... 326 6,661
Interest Expense..................................... (264,050) (233,152)
Loss on Foreign Currency Translation................. -- (491)
Gain on Sale of Securities........................... -- 679,909
----------- ----------
(263,724) 452,927
----------- ----------
Loss Before Income Taxes............................... (1,643,135) (667,003)
Income Taxes........................................... 4,000 10,523
=========== ==========
Net Loss............................................... ($1,647,135) ($677,526)
=========== ==========
Loss Per Share (Note 3): .............................. ($0.15) ($0.06)
=========== ==========
Weighted Average Number of Shares Outstanding.......... 10,896,252 10,781,502
=========== ==========
</TABLE>
The accompanying footnotes are an integral part of these financial statements
F-4
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss)..................................... $(1,647,135) $(677,526)
Add: Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation & Amortization......................... 582,983 546,019
Warrants issued for services........................ 30,000 --
Less: Gain on Sale Marketable Securities.............. -- (679,909)
Changes in Assets and Liabilities:
(Increase) Decrease in Certificate of Deposit....... -- 63,934
(Increase) Decrease in Accounts Receivable.......... 396,363 177,889
(Increase) Decrease in Other Receivables............ 1,387 47,854
(Increase) Decrease in Inventory.................... 227,873 260,157
(Increase) Decrease Prepaid Expenses................ 41,740 (31,107)
(Increase) Decrease in Software..................... (351,997) (399,190)
(Increase) Decrease in Notes Receivable............. 51,000 --
(Increase) Decrease in Investments.................. 34,613 --
(Increase) Decrease in Security Deposits............ (2,493) 11,736
Decrease in Prepaid Financing Costs................. 10,456 10,457
Increase (Decrease) in Accounts Payable............. (64,589) (347,998)
Increase (Decrease) in Interest Payable............. 148,754 (13,889)
Increase (Decrease) in Taxes Payable................ (3,623) (13,108)
Increase (Decrease) in Customer Deposits............ 154,679 --
Increase (Decrease) in Accrued Expenses............. 303,116 140,860
----------- ---------
Net Cash Used in Operating Activities............. $ (86,873) $(903,821)
----------- ---------
Cash Flows From Investing Activities:
Cash Paid to Purchase Equipment..................... (76,892) (147,710)
Investment in Non-Marketable Securities............. -- 479
Proceeds from Sale of Marketable Securities......... -- 1,020,000
----------- ---------
Net Cash Provided by (Used in) Investing
Activities....................................... (76,892) 872,769
----------- ---------
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock.................. 45,000 169,439
Repayment of Bank Debt--net......................... -- (30,230)
----------- ---------
Net Cash Provided by (Used in) Financing Activities... 45,000 139,209
----------- ---------
Net Increase (Decrease) in Cash....................... (118,765) 108,157
Cash and Cash Equivalents at Beginning of Year........ 630,726 522,569
----------- ---------
Cash and Cash Equivalents at End of Period............ $ 511,961 $ 630,726
=========== =========
</TABLE>
The accompanying footnotes are an integral part of these financial statements
F-5
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------
CAPITAL IN
EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT TOTALS
---------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES JANUARY 31,
1996................... 10,753,252 $10,754 $9,129,970 $(7,466,396) $ 1,674,328
Issuance of Warrants.... -- -- 30,000 -- 30,000
Issuance of Common
Stock, Net of
Expenses............... 113,000 113 169,326 -- 169,439
Net Loss for Year Ended
January 31, 1997....... -- -- -- (677,526) (677,526)
---------- ------- ---------- ----------- -----------
BALANCES JANUARY 31,
1997................... 10,866,252 $10,867 $9,329,296 $(8,143,922) $ 1,196,241
Issuance of Warrants.... -- -- 30,000 -- 30,000
Issuance of Common
Stock, Net of
Expenses............... 30,000 30 44,970 -- 45,000
Net Loss for Year Ended
January 31, 1997....... -- -- -- (1,647,135) (1,647,135)
---------- ------- ---------- ----------- -----------
BALANCES JANUARY 31,
1998................... 10,896,252 $10,897 $9,404,266 $(9,791,057) $ (375,894)
========== ======= ========== =========== ===========
</TABLE>
The accompaning footnotes are an integral part of these financial statements
F-6
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1--ORGANIZATION, CAPITALIZATION, BUSINESS DESCRIPTION
The Company is engaged in the business of manufacturing and marketing
computer peripheral hardware and software products for the automated voice
response, telecommunications, computer and multimedia communications
industries.
NOTE 2--ECONOMIC DEPENDENCY
Two of the Company's customers accounted for approximately 67% and 9% of
consolidated revenues, or approximately $2,594,480 and $354,980, for the year
ended January 31, 1998. The first of these customers accounted for 70% or
approximately $3,084,415 of revenue for the year ended January 31, 1997.
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Method of Accounting
The Company utilizes the accrual basis method of accounting for financial
reporting purposes.
Cash and Cash Equivalents
The Company considers all short-term debt securities purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable
The Company believes all receivables are collectible unless information to
the contrary is obtained. In the event such information is received the
Company establishes an allowance for uncollectible portions. At January 31,
1998 the allowance was $39,465 and at January 31, 1997 the allowance was
$282,298.
Inventory
Inventory is valued at the lower of cost or market value, using the first-
in, first-out (FIFO) method, and consists of:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Raw Materials......................................... $ 213,865 $ 173,955
Work in Process....................................... 100,730 62,874
Finished Goods........................................ 261,030 641,669
Less: Allowance Account............................... (175,000) (250,000)
----------- -----------
$ 400,625 $ 628,498
=========== ===========
</TABLE>
Machinery and Equipment and Capital Leases
Machinery and equipment are stated at cost. Capital leases are stated at the
lesser of the present value of the minimum lease payments or the fair market
value. Property, equipment and capital leases are comprised
F-7
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
predominantly of computer equipment. Expenditures for maintenance and repairs
are charged to operations as incurred. Depreciation and amortization are
provided for utilizing the straight-line method over the estimated useful
lives of the property and equipment. Depreciation expense for the years ended
January 31, 1998 and 1997 was $182,000 and $193,612, respectively.
Capitalized Software Costs
Costs related to the conceptual formulation and design of licensed programs
are expensed as research and development. Costs incurred subsequent to the
establishment of technological feasibility to produce the finished product are
generally capitalized. The Company has capitalized software costs included in
Other Assets in the Consolidated Balance Sheet. Such amounts capitalized were
$351,997 and $399,189 for the years ended January 31, 1998 and 1997,
respectively. Amortization of prior years capitalized software costs are
included in the Cost of Goods Sold section of the Consolidated Statement of
Operations and amounted to $385,464 and $336,670 for the years ended January
31, 1998 and 1997, respectively.
Advertising Costs
Advertising costs are expensed as incurred.
Fair Value of Financial Instruments
Effective March 31, 1996, the Company adopted SFAS No. 107 "Disclosures
About Fair Value of Financial Instruments", that requires disclosure of fair
value information about financial instruments whether or not recognized in the
balance sheet. The carrying amounts reported in the balance sheet for cash,
trade receivables, accounts payable and accrued expenses approximate fair
value based on the short-term maturity of these instruments. In view of the
lack of market for the Notes it is not practicable to estimate their value.
Accounting for Long-Lived Assets
The Company reviews long-lived assets, certain identifiable assets and any
goodwill related to those assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts
may not be recoverable. At January 31, 1998, the Company believes that there
has been no impairment of its long-lived assets.
Income Taxes
The Company has adopted Financial Accounting Standards Board Statement No.
109, "Accounting for Income Taxes", which requires an asset and liability
approach to accounting for income taxes. Deferred income taxes are recorded
for temporary differences between taxable income and pretax financial income
and the tax bases of assets or liabilities and their reported amounts in the
financial statements.
Earnings per Share
Earnings per common share are computed by dividing net income by the
weighted average number of shares outstanding during the period adjusted for
common stock equivalents when such adjustment results in dilution of earnings
per share. The computation assumes that the outstanding stock options and
warrants were exercised and the proceeds used to purchase common shares of the
Company.
Under SFAS No. 128, "Earnings per Share", the disclosure of Primary Earnings
per Share, giving effect to common stock equivalents, would no longer be
presented. For the two years ended January 31, 1998 and 1997, earnings per
share under the new Standard would be $(.15) and $(.06), respectively.
Stock Based Compensation
The Company accounts for stock transactions in accordance with APB Opinion
No. 25, "Accounting For Stock Issued To Employees". Accordingly, no
compensation is recorded on the issuance of employee stock options at fair
market value.
F-8
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--CAPITAL CONTRIBUTION
Accounting for Employee Stock Options
During the year ended January 31, 1997, the Board of Directors of the
Company adopted, and the stockholders approved in March 1997, the Linkon
Corporation 1996 Stock Option and Performance Incentive Plan (the "Option
Plan"). This plan provides for awards of up to 1,000,000 options to purchase
Common Stock of the Company to employees of the Company and its subsidiaries
during the term of the Option Plan. These shares have been reserved by the
Board of Directors from the Company's authorized but unissued shares of Common
Stock.
On December 19, 1997, and May 31, 1996 the Company granted, under the above
"Option Plan", 191,000 and 682,400 incentive stock options to employees and
directors. These options are exercisable at $.56 and $0.75 per share until
April 30, 2006 and will qualify for incentive stock option treatment under the
Internal Revenue Code of 1986. There is no compensation recorded as a result
of the grant of these options as the Company is following accounting
prescribed in APB Opinion #25 and the stock price at the time of the grant was
$0.56 and $0.75 per share.
The Company also issued 100,000 warrants during the year ending January 31,
1998 to two outside financial consultants in connection with investment and
financial advisory services being provided to the Company. These options have
been valued at $30,000.
During the year ended January 31, 1997 the Company retired 340,000 options
at an exercise price of $2.00 per share held by various employees of the
Company, and reissued these options to the same employees on May 31, 1996 at
an exercise price of $0.75 per share. No compensation was recorded on the
reissuance of these options as the exercise price granted on May 31, 1996 was
equal to the common stock market price.
Options and warrants to purchase 2,379,358 shares of the Company's common
stock were exercisable at prices ranging from $0.56 to $3.50 per share at
January 31, 1998. Outstanding options and warrants expire at various dates
through April 2006.
The following table summarizes the changes in options and warrants
outstanding and the related price ranges for shares of the Company's common
stock.
<TABLE>
<CAPTION>
STOCK OPTIONS AND WARRANTS
---------------------------
SHARES PRICE
---------------------------
<S> <C> <C>
Outstanding at
January 31, 1996.................................. 2,009,384 $ 0.75 to $3.50
Granted......................................... 1,152,298 $ 0.75 to $1.50
Exercised....................................... (113,000) $ 1.50
Expired......................................... (140,000) $ 0.75 to $2.05
Retired......................................... (340,000) $ 2.00
----------
Outstanding at
January 31, 1997.................................. 2,568,682
Granted......................................... 291,000 $ 0.56
Exercised....................................... (30,000) $ 1.50
Expired......................................... (450,324) $ 0.75 to $1.50
Retired......................................... --
----------
Outstanding at
January 31, 1998.................................. 2,379,358 $ 0.56 to $3.50
==========
</TABLE>
F-9
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company accounts for its stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", under which no compensation
expense is recognized. In fiscal 1997, the Company adopted SFAS No. 123
"Accounting for Stock-Based Compensation" for disclosure purposes;
accordingly, no compensation expense has been recognized in the results of
operations for its stock option plan as required by APB Opinion No. 25.
For disclosure purposes the fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for stock options granted
during the years ended January 31, 1998 and 1997, respectively: annual
dividends of $0.00 and expected volatility of 40.0 for both years, risk free
interest of 5.60% and 5.70% and expected life of five years for all grants.
The weighted-average fair value of the stock options granted during the years
ended January 31, 1998 and 1997 was $0.25 and $0.33, respectively.
If the Company recognized compensation cost for the employee stock option
plan in accordance with SFAS No. 123, the Company's pro forma net loss and
loss per share would have been $1.7 million and $0.16 for the year ending
January 31, 1998 and $0.8 million and $0.07 in 1997. The SFAS No.123 method of
accounting does not apply to options granted prior to January 31, 1995 and,
accordingly, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
NOTE 5--INCOME TAXES
As at January 31, 1998, the Company had net operating loss carryforwards of
approximately $9,400,000, for both book and tax purposes, expiring from 2005
to 2013. As a result of the Tax Reform Act of 1986, the Company is obligated
to pay an alternative minimum tax on its alternative minimum taxable income,
even though it has a loss carryforward. These carryforwards are subject to
possible limitations on annual utilization if there are "equity structural
shifts" or "owner shifts" involving "5% shareholders" (as these terms are
defined in Section 382 of the Internal Revenue Code), which result in more
than a 50% point change in ownership.
At this time, the Company does not believe it can reliably predict
profitability beyond the current fiscal year. Accordingly, the deferred tax
asset applicable to operations subsequent to January 31, 1998 has been reduced
in its entirety by the valuation allowance. For the period ending January 31,
1998, the provision for taxes is comprised only of appropriate state income
taxes.
Reconciliation of income taxes shown in the financial statements and amounts
computed by applying the Federal income tax rate of 35% for the years ended
January 31, 1998 and 1997, respectively is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Loss Before Income Taxes............................... ($1,527,522) ($667,003)
=========== =========
Computed expected tax credit........................... 534,633 233,451
Operating loss for which no benefits were provided..... (534,633) (233,451)
State and local tax provision.......................... (4,000) (10,523)
----------- ---------
Provision for income taxes............................. ($4,000) ($10,523)
=========== =========
</TABLE>
NOTE 6--COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated for approximately 5,700 square feet of office space
under non-cancelable operating leases. The office lease expires August 31,
1998 and is currently being re-negotiated by the Company. Minimum lease
payments remaining under the lease total $64,817. Rent expense charged to
operations was $94,791 and $106,975 for the years ending January 31, 1998 and
1997, respectively.
F-10
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Royalty Agreements
The Company acquires the rights to certain software algorithims from various
developers under renewable contracts of varying terms. Royalties are based on
a per unit charge based on sales of products utilizing such algorithims.
Warranties
The Company warrants that all equipment manufactured by it will be free from
defects in material and workmanship under normal use for a period of two years
from the date of shipment. The Company's expenses in connection with such
warranties have been minimal.
NOTE 7--NOTES PAYABLE
During the year ended January 31, 1995, the Company issued $1,350,000 in
principal amount of convertible debentures. The notes bear interest at a rate
of 10% per annum, payable quarterly. The first interest payment was not due
until October 31, 1995. The notes are accompanied by detachable warrants to
purchase 316,664 shares of the Company's common stock at an exercise price of
$2.00 per share. The warrants will expire on October 31, 2001. Such warrants
were valued at $93,103. The unamortized discount is carried as a reduction of
notes payable on the balance sheet. The Company's rights to issue dividends
are restricted under this agreement.
At January 31, 1998 interest amounting to $234,865 has been accrued on these
liabilities.
The following table shows the maturities, at January 31, 1998, of the
remaining principal less the discount still to be amortized in future periods.
<TABLE>
<S> <C>
Year ending January 31, 2000...................................... 1,000,000
Less Unamortized Discount @ January 31, 1998...................... (42,672)
---------
Total........................................................... $ 957,328
=========
</TABLE>
NOTE 8--SUPPLEMENTAL CASH FLOWS DISCLOSURES
Cash flows from operating activities for the year ended January 31, 1998
reflects interest paid of $99,779, interest earned of $326 and taxes paid of
$8,207. The year ended January 31, 1997 reflected interest paid of $217,635,
interest earned of $6,661 and taxes paid of $5,523.
During the year ended January 31, 1998, 30,000 options were exercised to
purchase the Common Stock of the Company. These options had an exercise price
of $1.50 per option.
NOTE 9--RECLASSIFICATION OF THE AMORTIZATION OF CAPITALIZED SOFTWARE COSTS:
During the year ended January 31, 1997 the Company reclassified the
amortization of capitalized software costs from the Research and Development
category of expenses to the 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 years. This reclassification had no
effect on the results of operations or net loss being reported on the income
statements being presented.
F-11
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--SUBSEQUENT EVENTS:
On April 6, 1998 the Company entered into three transactions with RG Capital
Fund, LLC and Roberts and Green, Inc.
1) Subscription and Stock Purchase Agreement with RG Capital Fund, LLC.
Under this agreement the Company issued an aggregate of 1,680,000
shares of common stock to the RG Fund for an aggregate of $1,260,000
($0.75 per share). Thereafter, on April 14, 1998, the Company issued
an additional 720,000 shares of common stock pursuant to the RG
Subscription Agreement to ten investors designated by the RG Fund for
an aggregate consideration of $540,000. The aggregate 2,400,000
shares of common stock issued to the RG Fund and the investors
designated by it were issued pursuant to the exemptions from
registration afforded by Section 4 (2) of the Securities Act. The
holders of the RG shares, however, have registration rights that
require the Company to file a registration statement under the
Securities Act with the Securities and Exchange Commission covering
the RG shares on or before May 15, 1998.
2) Promissory Note with RG Capital Fund, LLC.
Under this agreement RG Capital Fund, LLC advanced the Company
$1,100,000. This is a two year note payable with interest due on a
quarterly basis commencing April 30, 1998 at a rate of eight percent
(8%). The proceeds from this note were used to repay monies borrowed
by the Company in October 1994 from IBJS Capital Corporation pursuant
to the terms of a 10% Senior Secured Convertible Debenture in the
principal amount of $1,000,000 (plus the accrued interest owed on
this debenture). Upon such repayment, the IBJS Debenture was
cancelled along with 279,081 warrants to purchase the Company's
common stock previously issued to IBJS pursuant to the terms of a
Securities Purchase Agreement, dated October 27, 1994, between the
Company and IBJS. As a result of the cancellation of the IBJS
Debenture, the Company is no longer subject to the restrictions on
payment of dividends contained in the IBJS Debenture; however, the
Company is prohibited from paying dividends under the terms of the RG
note until the note is repaid (including accrued interest) unless the
Company obtains prior written consent from the RG Fund, LLC.
3) Warrant Certificate with Roberts and Green, Inc.
The Company issued to Roberts and Green, Inc. warrants to purchase
1,000,000 shares of the Company's common stock in connection with its
entry into an investment banking financial advisory services
agreement with Roberts and Green, Inc. The warrants were issued
pursuant to the exemptions from registration afforded by Section 4
(2) of the Securities Act and the shares of the common stock issuable
upon the exercise of such warrants will be included in the
registration statement covering the RG shares.
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