<PAGE> 1
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, 1999
[ ] 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)
<TABLE>
<CAPTION>
NEVADA 13-3469932
------ ----------
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
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.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT SEPTEMBER 17, 1999
----- ---------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.001 PER SHARE 13,674,478
==========
</TABLE>
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES ; NO X
<PAGE> 2
LINKON CORPORATION
FORM 10-QSB
QUARTERLY REPORT
FOR THE SIX MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Page to Page
------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet - July 31, 1999 and 3-4
January 31, 1999
Consolidated Statements of Operations - Six months 5
Ended July 31, 1999 and 1998
Consolidated Statements of Operations - Three months
Ended July 31, 1999 and 1998 6
Consolidated Statements of Cash Flows - Six months
Ended July 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Exhibit I - Calculation of Earnings per Share 12
PART II. Other Information 13-14
Item 1 Legal Proceedings 13
Item 3 Defaults upon Senior Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART 1- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LINKON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
A S S E T S
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 12,456 $ 376,596
Accounts Receivable (Net of Allowance) 25,940 191,358
Notes Receivable -- --
Other Receivables -- --
Inventory 388,257 879,366
Prepaid Expenses 31,530 20,496
----------- -----------
Total Current Assets 458,183 1,467,816
----------- -----------
MACHINERY & EQUIPMENT
Machinery & Equipment, at cost 1,629,967 1,629,018
Less: Accumulated Depreciation (1,329,467) (1,227,467)
----------- -----------
Machinery & Equipment, Net 300,500 401,551
----------- -----------
OTHER ASSETS
Software (Net of Amortization) 779,186 894,845
Investments, at cost 25,000 25,000
Prepaid Financing Costs 2,614 7,843
Security Deposits 17,964 18,563
----------- -----------
Total Other Assets 824,764 946,251
----------- -----------
$ 1,583,447 $ 2,815,618
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
3
<PAGE> 4
LINKON CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1999 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 1,326,195 $ 1,341,743
Notes Payable-Current 812,619 559,678
Customer Advance Deposits 21,000 216,128
Accrued Salaries 21,706 --
Taxes Payable (365) 1,000
Interest Payable 137,542 54,245
Accrued Expenses 226,806 369,495
------------ ------------
Total Current Liabilities 2,545,503 1,783,707
------------ ------------
LONG TERM LIABILITIES
Notes Payable, Net 1,069,662 1,020,094
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common Stock, $.001 Par Value,
24,900,000 shares authorized,
13,674,478 shares issued and
outstanding 13,675 13,522
Preferred Stock, $.001 Par Value
1,000,000 shares authorized,
none issued and outstanding
Capital in Excess of Par Value 11,880,072 11,717,549
Retained Earnings (Accumulated Deficit) (13,925,464) (12,477,836)
Total Stockholders' Equity (2,031,718) (746,765)
------------ ------------
$ 1,583,447 $ 2,815,618
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
4
<PAGE> 5
LINKON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
1999 1998
------------ ------------
<S> <C> <C>
Gross Revenues $ 705,506 $ 3,299,629
Cost of Goods Sold - Product 448,004 2,066,597
- Software amortization 192,240 192,240
------------ ------------
640,244 2,258,837
------------ ------------
Gross Margin On Sales 65,262 1,040,792
Selling, General and
Administrative Expenses 1,210,178 1,719,366
Research and Development 179,207 165,272
------------ ------------
1,389,385 1,884,638
------------ ------------
Operating Income (Loss) (1,324,123) (843,846)
OTHER INCOME (EXPENSE)
Interest Income 380 6,525
Interest Expense (123,886) (85,346)
------------ ------------
(123,506) (78,821)
------------ ------------
Income(Loss) Before Income Taxes (1,447,628) (922,667)
Income Taxes -- 1,000
------------ ------------
Income (Loss)Before Extraordinary Item (1,447,628) (923,667)
Extraordinary item - net gain on pay off
of note payable -- 109,914
------------ ------------
Net Income(Loss) $ (1,447,628) $ (813,753)
============ ============
Earnings(Loss)per share
Before extraordinary item ($ 0.11) ($ 0.08)
Extraordinary Item -- $ 0.01
------------ ------------
Net Earnings(Loss) ($ 0.11) ($ 0.07)
------------ ------------
Average shares outstanding 13,593,721 12,121,252
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
5
<PAGE> 6
LINKON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED JULY 31, ENDED JULY 31,
1999 1998
------------ ------------
<S> <C> <C>
Gross Revenues $ 309,405 $ 2,431,006
Cost of Goods Sold - Product 159,626 1,522,514
- Software amortization 96,120 96,120
------------ ------------
255,746 1,618,634
------------ ------------
Gross Margin On Sales 53,659 812,372
Selling, General and
Administrative Expenses 424,836 934,968
Research and Development 81,974 85,417
------------ ------------
506,810 1,020,385
------------ ------------
Operating Income (Loss) (453,152) (208,013)
OTHER INCOME (EXPENSE)
Interest Income 101 4,750
Interest Expense (48,361) (36,240)
------------ ------------
(48,260) (31,490)
------------ ------------
Income(Loss) Before Income Taxes (501,412) (239,503)
Income Taxes -- --
------------ ------------
Net Income(Loss) $ (501,412) $ (239,503)
============ ============
Earnings(Loss)per share
Net Earnings(Loss) $(0.04) $(0.02)
------------ ------------
Average shares outstanding 13,593,721 12,121,252
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
6
<PAGE> 7
LINKON CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)- Before Extraordinary Item $(1,447,628) $ (923,667)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 359,129 319,658
Stock and Warrants issued for services 82,500 12,500
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 165,418 (321,717)
(Increase) Decrease in Other Receivables -- (3,028)
(Increase) Decrease in Inventory 491,109 (265,013)
(Increase) Decrease in Prepaid Expenses (11,034) (40,062)
(Increase) Decrease in Software (76,581) (156,086)
(Increase) Decrease in Prepaid Financing Cost 5,229 5,229
(Increase) Decrease in Security Deposits 599 (6,744)
Increase (Decrease) in Accounts Payable (15,548) 83,667
Increase (Decrease) in Accrued Expenses (142,689) 536,160
Increase (Decrease) in Interest Payable 83,297 (234,626)
Increase (Decrease) in Accrued Salaries 21,706 --
Increase (Decrease) in Customer Deposits (195,128) (116,642)
Increase (Decrease) in Taxes Payable (1,365) (377)
----------- -----------
Net Cash Used in Operating Activities (680,986) (1,110,747)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Paid to Purchase Equipment (949) (106,170)
Investment in Non-Marketable Securities -- (25,000)
----------- -----------
Net Cash Provided by (Used in) Investing Activities (949) (131,170)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock 80,175 1,917,076
Proceeds from issuance of Note Payable 300,000 1,100,000
Principal payments on Notes Payable (62,381) (1,000,000)
----------- -----------
Net Cash Provided by (Used in) Financing Activities 317,794 2,017,076
-----------
Net Increase (Decrease) in Cash (364,141) 775,157
Cash and Cash Equivalents at Beginning of Period 376,596 511,961
----------- -----------
Cash and Cash Equivalents at End of Period $ 12,456 $ 1,287,118
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
7
<PAGE> 8
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999
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, 1999 and 1998,
and January 31, 1999, and the results of operations for the six and three month
periods ended July 31, 1999 and 1998 and cash flows for the six month periods
ended July 31, 1999 and 1998.
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 on
Form 10-KSB for the fiscal year ended January 31, 1999.
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, 1999 13,521,578 $ 13,522 $ 11,717,549 $(12,477,836)
Issuance of 129,900 $ 130 $ 80,045 --
Common Stock, Net of
Expenses
Value assigned to stock and 23,000 23 $ 82,477 --
Warrants issued for services
Loss for Six months
Ended July 31, 1998 -- -- -- (1,411,996)
------------ ------------ ------------ ------------
Balance - July 31, 1999 13,674,478 $ 13,675 $ 11,880,072 $(13,889,832)
============ ============ ============ ============
</TABLE>
3) FINANCING OF OPERATIONS:
Liens have been placed on the Company's assets and bank accounts. This is
described in detain in Part II, Item 1- Legal Proceedings. 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.
4) VALUE ASSIGNED TO WARRANTS
See Management's Discussion and Analysis- Liquidity and Capital Resources,
Issuance of Notes Payable/Gain on Payoff of Note Payable, as to issuance of
warrants.
8
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On May 10, 1999, Linkon Corporation (hereinafter referred to as "Linkon" or the
"Company") laid off all but one employee due to the fact that the Company has
run out of cash. While the Company still hopes to attract equity capital, rehire
employees and continue its business plan, and while the Company's officers are
actively endeavoring to raise equity capital, there can be no assurances that it
will be able to do so. The remainder of this Item 1 describes the Company's
business on the assumption that the Company will be able to continue its
operations.
NET INCOME (LOSS)
The Company reported a net loss of $1,447,628 for the first
six months of fiscal 2000 as compared to a net loss of $813,753 for the same
period during the prior year. This increase in the net loss reported by the
Company was due to the following factors:
Revenues decreased from $3,299,629 in the first six months of
fiscal 1999 to $705,506 in the same six months of fiscal 2000. This is discussed
more fully under the section entitled "Revenues" below.
Gross Margin decreased from 32% in the first six months of
fiscal year 1999 to 9% in the same six months of fiscal year 2000. This is more
fully discussed under the section entitled "Cost of Goods Sold" below.
REVENUES
For the six months ended July 31, 1999 revenues decreased by
$2,594,123 from the six month period ended July 31, 1998, a decrease of 79%.
This decrease was due to a) a lay off of all but one employee on May 11, 1999,
including the sales force, and b) a loss of sales activity from AT&T and Sequel,
which combined provided approximately 69% of the Company's revenues in Fiscal
1999. The Company's total order backlog as of July 31, 1999 was approximately
$40,000, and as of September 17, 1999 was approximately $159,000. Substantially
the entire backlog is for products scheduled to be shipped during the third
quarter of fiscal 1999. However, the Company does not have the cash to complete
production of products necessary to fulfill the existing backlog.
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 $640,244 and $2,258,837, or 91% and 68% of
revenues, for the six months ended July 31, 1999 and 1998, respectively.
Excluding software amortization, Cost of goods sold for products, consisting of
parts, supplies and manufacturing costs for the Company's hardware and software
products were $448,004 and $2,066,597, or 64% and 63% of revenues, for the six
months ended July 31, 1999 and 1998, respectively.
Management attributes the increase in cost of goods sold, as a
percentage of revenues, to the effect of a fixed amount of software amortization
on a much smaller amount of sales. The cost of goods sold varies with each
product line, with software having less material cost than hardware. The primary
costs incurred by the Company are for materials and equipment relating to its
hardware products. The Company manufactures and assembles all hardware through
contracted third party suppliers under the direct supervision of the Company's
management.
Software amortization costs for the six months ending July 31,
1999 and 1998, were $192,240 and $192,240, respectively. These amounts were 27%
and 6% of revenues for the six months ending July 31, 1999 and 1998, and are
included in the Cost of Goods Sold total percentage of 91% and 68% for the above
periods being presented.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses for the six
months ended July 31, 1999 and 1998 were $1,210,178 and $1,719,366,
respectively. This decrease was due to a lay off of all but one employee on May
11, 1999, inc. This
9
<PAGE> 10
constituted approximately 172% and 52% of revenues for the six months ended July
31, 1999 and 1998, respectively. Selling, General and Administrative expenses
will be greatly reduced going forward unless and until the Company is able to
rehire its workforce.
RESEARCH, DEVELOPMENT AND SOFTWARE
The Company incurred total research, development and software
costs of approximately $252,107 and $311,072 for the six months ended July 31,
1999 and 1998, respectively. It is the policy of the Company to capitalize
research and development costs that are incurred subsequent to the establishment
of technological feasibility to produce the finished product. For the periods
ending July 31, 1999 and 1998 the amounts capitalized were $72,900 and $145,800
respectively. These amounts consist of internal salaries, outside consulting
services, equipment and fixed overhead costs. Research and Development expenses
will be greatly reduced going forward unless and until the Company is able to
rehire its personnel. The decrease in research and development costs was
primarily due to a lay off of all but one employee on May 11, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements to date have been
to fund losses from operations. In addition, from time to time the Company has
required capital to fund increases in inventory of certain products necessary
for the Company to sell such products. The Company has funded its capital
requirements through the receipt of proceeds from private placements of
convertible debt and equity (see below), the exercise of warrants, interest
earned from the investment of such proceeds in interest earning assets,
factoring facilities (see below) and revenues from operations. During the six
months ended July 31, 1999 the net cash deficit from operating activities was
approximately $680,986, net cash provided by financing activities was $317,794,
and net cash used for investment activities was approximately $1,000. This
resulted in a net decrease in cash during the six months ended July 31, 1999 of
approximately $364,000, decreasing the Company's cash and cash equivalents from
approximately $377,000 as of January 31, 1999 to approximately $12,000 as of
July 31, 1999. As of July 31, 1999, the Company's working capital position
(current assets minus current liabilities) was negative by approximately
$2,087,320 as compared to January 31, 1999 when it was negative by approximately
$1,074,473. As of September 17, 1999, the Company had cash on hand of
approximately $100.00. By any measure, the Company is currently insolvent.
The Company needs to raise cash through financing activities
(presumably through the sale of equity securities and/or convertible debt,
and/or the sale or licensing of its technology) in the very near future in order
to be able to fund its continuing losses and recommence its operations. In fact,
if the Company is not able to raise a substantial amount of new capital by the
end of September, 1999, it will probably have little choice other than allowing
its assets to be seized by creditors or seeking protection under federal
bankruptcy law.
During the period of 2/1/99 thru 4/30/99, the Company raised
approximately $380,000 through a combination of stock option and warrant
exercises($80,000) and short term debt financing($300,000).
The Company does not currently contemplate any significant
capital expenditures during fiscal 2000.
The Company's ability to have adequate capital for the fiscal
year ending on January 31, 2000 and periods thereafter (including the ability to
repay the $1,100,000 due to the RG Fund in April 2000) will be dependent upon
the Company's ability to both raise additional capital and, after recommencing
operations, gain market acceptance of its products and/or raise additional
capital.
YEAR 2000 ISSUES
The "Year 2000 Issue" results from computer programs being written using two
digits, instead of four, to define a given year. Programs running time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in disruptions to various activities and operations,
miscalculations and even system failures.
The Company believes, after investigation, that all software and hardware
products that it is currently in the process of manufacturing (directly or
through vendors) are Year 2000 compliant. However, the Company usually sells
such products "bundled" with hardware and software components obtained from
third party vendors. Due to the lay-off of personnel, the
10
<PAGE> 11
Company is not currently able to continue its investigation and written inquiry
of its suppliers as to whether all of these bundled components are Year 2000
compliant, and that all such components are Year 2000 compliant, or will after
modification be compliant, during the first half of fiscal 2000. The Company
believes, after investigation, that its own software operating systems are Year
2000 compliant. Funds for such costs have not been reserved for, and therefore
as expended, will have a direct negative impact on the Company's future income.
If, however, the Company, its suppliers and other third parties with whom the
Company maintains business relations are unable to resolve any arising Year 2000
problems in a timely manner, risk to the Company's financial condition could
result. In addition, in the event that the economy as a whole is materially and
adversely effected by widespread interruptions, or by failures of key
infrastructure providers (such as banks and utilities), or in the event that the
computer and software industry are disrupted generally by Year 2000 problems, it
is likely that the Company's financial condition and results of operations would
be materially adversely effected.
Based upon preliminary data currently in its possession, the Company does not
expect the costs of Year 2000 compliance to have a material adverse effect on
the Company or its results of operation, financial condition or future cash
flows. Nonetheless, in the event that the company is able to recommence its
operations, employee hours that could otherwise be utilized for other purposes
will have to be spent resolving Year 2000 issues and making bundled products
Year 2000 compliant.
FORWARD LOOKING INFORMATION
The statements in this Annual Report on Form 10-KSB that are not statements
of historical fact constitute "forward-looking statements." Said forward-
looking statements involve risks and uncertainties which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performances or achievements, expressly predicted or
implied by such forward-looking statements. These forward-looking statements are
identified by their use of forms of such terms and phrases as "expects,"
"intends," "goals," "estimates," "projects," "plans," "anticipates," "should,"
"future," "believes," and "scheduled."
The important factors which may cause actual results to differ from the
forward-looking statements contained herein include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain key management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
11
<PAGE> 12
EXHIBIT I
LINKON CORPORATION
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JULY 31, 1999 JULY 31, 1998
------------- ------------
<S> <C> <C>
Loss for the Period $ (1,447,628) $ (813,753)
============= ============
Weighted Number of Shares Outstanding 13,593,721 12,121,252
============= ============
Loss Per Share: $ (.11) $ (.07)
============= ============
</TABLE>
12
<PAGE> 13
LINKON CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
By complaint dated January 4, 1999, Syrinx Speech Systems Pty. Limited
commenced a civil action against Linkon in the Connecticut Superior Court,
Syrinx Speech Systems Pty. Ltd. v. Linkon Corp., CV-99-0358989-S, alleging
payment due and owing on invoices for services performed. In conjunction with
and based upon the complaint, Syrinx applied for a prejudgment attachment
against Linkon in the amount of $1 million. Following negotiations, including
with respect to the quality and nature of services performed and to be performed
by Syrinx, Linkon and Syrinx entered into a settlement agreement dated April 5,
1999. Under the terms of the settlement agreement, Linkon agreed to have
judgment entered against it in the amount of $802,500.00, and judgment in that
amount has been entered against Linkon. As part of the settlement agreement,
Syrinx agreed that it would not execute upon the judgment until June 1, 1999,
provided that Linkon remained in compliance with the conditions of the
settlement agreement, which include that Linkon make an installment payment of
$10,000 by April 5, 1999, make an installment payment of $30,000 by May 1, 1999
and pay to Syrinx an adjustable percentage of new equity investment toward
satisfaction of the judgment, and pay the remaining balance of the judgement in
its entirety by May 31, 1999. While Linkon timely paid installment payments as
well as a percentage of new equity as required under the settlement agreement,
the Company was unable to pay the remaining balance by May 31, 1999. Because
Linkon failed to comply with the conditions of the settlement agreement, Syrinx
is currently entitled to execute immediately upon the judgment to recover from
Linkon the amount of the judgment (less any payments made by Linkon toward the
judgment pursuant to the settlement agreement), plus reasonable costs of
execution, including attorneys' fees. Until such time as the judgment amount of
$802,500.00 is paid to Syrinx in accordance with the terms of the settlement
agreement, the restrictions set forth in the settlement agreement remain in
effect, including that Linkon will not incur or assume debt, encumbrances,
liens, conditional sales, lease commitments or a disposal of assets except as
provided for in the settlement agreement.
On June 28, 1999, Syrinx placed a lien on the Company's bank accounts.
On August 6, 1999, Syrinx filed for and received a judgement lien on Linkon
Corporation's personal property, including inventory, fixed assets, patents,
trademarks and copyrights, accounts receivable, and any profits and proceeds
resulting from the sale thereof.
In a separate matter, Linkon has entered into a settlement agreement
with Devendra Bhagat ("Bhagat"). In response to a demand for payment on a
Convertible Subordinated Debenture previously issued to Bhagat by Linkon in the
amount of $100,000.00, Linkon agreed to make payment on the debenture. By
agreement dated December 22, 1998, Linkon agreed to pay Bhagat $106,335.62 in
principal and interest in four (4) installments, the last installment to be paid
no later than May 17, 1999. Linkon has paid the first three (3) installments in
the aggregate amount of $78,616.44, leaving a balance of $25,219.18. As part of
the consideration for the settlement agreement with Bhagat, Linkon signed an
affidavit of confession of judgment which would allow Bhagat, upon a default by
Linkon under the settlement agreement, to have judgment entered in New York
Supreme Court against Linkon for any remaining balance due under the December
22, 1998 settlement agreement. Linkon has defaulted on the last payment and
Bhagat has seized $12,381.27 thus far in Linkon's bank account to satisfy such
default, leaving a balance due of $13,464.40
In a separate matter, Linkon has entered into a settlement agreement
with Cube Computer Corporation on June 10, 1999. In response to a demand for
payment on trade debt in the amount of $75,000.00 including interest, Linkon
agreed to pay Cube $40,000, plus (6) installments of $5,000 over 6 months
beginning July 15, 1999. Linkon has paid the $40,000 and the first installment
in the aggregate amount of $45,000, leaving a balance of $25,000. Per the
settlement agreement, Linkon is in default and the balance of $25,000 is
immediately due.
In addition, lawsuits were filed in the State of Connecticut on behalf
of Trinity Design and Staffing, Graphic Express and Russo Associates in the
amounts of $5,557, $2,440, and $2,500, respectively. There have also been
numerous other threats of legal action by collection agencies, as well as direct
contacts by attorneys.
Item 3. Defaults Upon Senior Securities
13
<PAGE> 14
Linkon is currently in default of the following:
- Promissory note to RG Capital Fund in the amount of $1,100,000 for
interest payments due July 31, 1999.
- Promissory note to James Scibelli in the amount of $200,000, for
principal and interest payments due May 17, 1999.
- Promissory note to Woodland Partners in the amount of $300,000,
for principal and interest payments due June 9, 1999.
- Promissory note to James Scibelli in the amount of $100,000, for
principal and interest payments due September 17, 1999.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description of Document
------- -----------------------
<S> <C>
27 Financial Data Schedule for the period ended
July 31, 1999 (filed separately herewith)
b. Reports on Form 8-K
</TABLE>
There were no reports on Form 8-K filed for the six months ended July 31, 1999.
14
<PAGE> 15
LINKON CORPORATION
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
LINKON CORPORATION
Registrant
DATED: September 20, 1999 /s/ Charles Castelli
-----------------------
BY: Charles Castelli
CHAIRMAN OF THE BOARD
DATED: September 20, 1999 /s/ Thomas V. Cerabona
-----------------------
BY: THOMAS V. CERABONA
SENIOR VICE PRESIDENT
PRINCIPAL ACCOUNTING OFFICER
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Document
------- -----------------------
<S> <C>
27 Financial Data Schedule for the period ended
July 31, 1999(1)
</TABLE>
- ------------------
(1) Submitted separately, electronically.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET DATED AS OF JULY 31, 1999 AND THE COMPANY'S
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JULY 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 12,456
<SECURITIES> 0
<RECEIVABLES> 30,940
<ALLOWANCES> 5,000
<INVENTORY> 388,257
<CURRENT-ASSETS> 458,183
<PP&E> 1,629,967
<DEPRECIATION> 1,329,467
<TOTAL-ASSETS> 1,583,447
<CURRENT-LIABILITIES> 2,545,503
<BONDS> 1,069,662
0
0
<COMMON> 13,675
<OTHER-SE> (2,031,718)
<TOTAL-LIABILITY-AND-EQUITY> 1,583,447
<SALES> 705,506
<TOTAL-REVENUES> 705,506
<CGS> 640,244
<TOTAL-COSTS> 640,244
<OTHER-EXPENSES> 1,389,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,886
<INCOME-PRETAX> (1,447,628)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,447,628)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
