Securities & 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 June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-25764
MarketLink, Inc.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1675041
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
10340 Viking Drive, Suite 150
Eden Prairie, MN 55344
(Address of principal executive offices)
612-996-9000
(Issuer's telephone number)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12,13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. NOT APPLICABLE
APPLICABLE TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,943,831 shares
outstanding as of 7/31/96, par value $.01 per share.
Transitional Small Business Disclosure Format (check one); YES [ ] NO [X]
<PAGE>
MarketLink, Inc.
Table of Contents
PART I Financial Information Page No.
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II Other Information 10
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
Part 1. - Financial Information
Item 1. - Financial Statements
MarketLink, Inc.
Balance Sheets
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(unaudited) 1995
------------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,832,842 $2,720,771
Trade accounts receivable, net of
allowance for doubtful accounts of 135,397 70,946
$7,500 in 1995 and $5,025 in 1996 34,200 34,200
Minimum lease payments receivable 100,000 --
Note receivable
Computer parts and supplies, net of
reserve for obsolescence of $1,000 98,296 123,463
in 1995 and $4,000 in 1996 87,463 63,470
----------- ------------
Prepaid expenses 2,288,198 3,012,850
Total current assets
Property and equipment:
Furniture and equipment 675,469 624,691
Equipment leased to others 291,080 313,664
------------ ------------
966,549 938,355
Accumulated depreciation (430,009) (302,551)
------------ ------------
536,540 635,804
Other assets:
Investment in sales type leases 21,414 38,514
Acquisition costs 71,725 --
Deposits 45,885 11,465
------------ -----------
139,024 49,979
Total Assets $2,963,762 $3,698,633
========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $125,021 $96,199
Notes payable 9,690 --
Current maturities of long-term debt 57,849 73,844
Accrued expenses 39,790 25,038
Customer deposits 1,642 --
Deferred revenue 86,037 45,147
Other accrued liabilities 204,366 119,662
------------ ------------
Total current liabilities 524,395 359,890
Long-term debt - related parties 3,594 19,380
Long-term debt, net of current maturities 70,410 64,918
Shareholders' equity:
Common stock, par value $.01 per share
Authorized shares--5,000,000 Issued
and outstanding shares:
1996 and 1995--2,943,831 and 2,931,415 29,438 29,314
Additional paid-in capital 6,081,019 6,081,148
Accumulated deficit (3,745,094) (2,856,017)
------------ ------------
Total shareholders' equity 2,365,363 3,254,445
------------ ------------
Total liabilities and shareholders' equity $2,963,762 $3,698,633
============ ============
</TABLE>
See accompanying notes.
<PAGE>
MarketLink, Inc.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Revenues
Cost of revenues $ 204,813 $ 213,401 $ 423,458 $ 325,395
Gross profit 90,898 57,471 177,716 112,193
----------- ----------- ----------- -----------
113,915 155,930 245,742 213,202
Operating expenses:
Selling, general and administrative 513,318 255,210 873,817 496,525
Research and development 157,921 100,828 324,249 195,089
N11 application costs -- -- -- 10,203
----------- ----------- ----------- -----------
Total operating expenses 671,239 356,038 1,198,066 701,817
----------- ----------- ----------- -----------
Operating loss (557,324) (200,108) (952,324) (488,615)
Interest income 25,456 -- 57,554 --
Interest expense (4,279) (28,554) (9,041) (69,144)
Other income (expense) (1,486) 15,706 14,734 22,546
----------- ----------- ----------- -----------
Loss before income taxes (537,633) (212,956) (889,077) (535,213)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (537,633) $ (212,956) $ (889,077) $ (535,213)
=========== =========== =========== ===========
Net loss per share $ (0.18) $ (0.10) $ (0.30) $ (0.34)
=========== =========== =========== ===========
Weighted average number of shares
outstanding 2,924,603 2,154,984 2,919,009 1,587,933
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
MarketLink, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities
Net Loss $ (889,077) $ (535,213)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 132,002 104,908
Gain on sale of property and equipment (4,634) --
Changes in operating assets and liabilities:
Accounts receivable (64,451) (66,677)
Minimum lease pmts receivable 17,100 29,151
Computer parts and supplies 25,167 (42,779)
Prepaid expenses and deposits (34,164) (62,277)
Other assets (95,974) --
Accounts payable 28,822 (150,340)
Accrued liabilities 101,098 (69,901)
Deferred revenue 40,890 62,042
----------- -----------
Net cash used in operating activities (743,221) (731,086)
Investing Activities:
Note receivable (100,000) --
Money market fund -- (3,538,334)
Sale of property and equipment 79,685 --
Purchases of property and equipment (107,788) (115,268)
----------- -----------
Net cash used in investing activities (128,103) (3,653,602)
Financing activities:
Proceeds from issuance of common stock -- 5,554,708
Payments on short-term and long-term notes
payable (16,605) (1,336,873)
Deferred stock offering costs -- 123,146
----------- -----------
Net cash (used) provided by financing activities (16,605) 4,340,981
----------- -----------
Decrease in cash and cash equivalents (881,929) (43,707)
Cash and cash equivalents at beginning of period 2,720,771 97,931
----------- -----------
Cash and cash equivalents at end of period $ 1,832,842 $ 54,224
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
MarketLink, Inc.
Notes to Financial Statements
June 30, 1996
(Unaudited)
Note. 1. Summary of Significant Accounting Policies.
Interim Financial Information
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. Operating
results for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31,1996. The
accompanying financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the fiscal year ended December 31, 1995, included in the Company's
Form 10-KSB for the year ended December 31, 1995 and the Company's 1995 Annual
Report to Shareholders.
The financial information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth certain Statement of Operations data as a
percentage of revenues.
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 44.4 26.9 42.0 34.5
Gross profit 55.6 73.1 58.0 65.5
Operating expense:
Research & development 77.1 47.2 76.6 60.0
Selling, general and 250.6 119.6 206.4 152.6
administrative
N11 costs 0.0 0.0 0.0 3.1
Total other income (expense) 9.6 (6.0) 14.9 (14.3)
Net loss (262.5)% (99.8)% (210.0)% (164.5)%
</TABLE>
<PAGE>
Revenues
Revenues for the six month period ended June 30, 1996 increased 30.1% over the
same period in 1995 to $423,458. For the three month period ended June 30, 1996
the revenues were $204,813 compared to $213,401 for the same period in 1995, a
decrease of $8,588. Comparing revenues for the Company's one call product, the
Company recognized approximately $41,000 in revenue in the three months ended
June 30, 1996 and approximately $112,000 for the three months ended June 30,
1995. This represents a decrease of $71,000, or 63.4%, from the same period last
year. The decrease is due primarily to a sale of a one call system in the second
quarter of 1995. The decrease is due primarily to a sale of a one call system in
the second quarter of 1995. In the three months ended June 30, 1996, there was
approximately $68,000 in revenue from operating leases between the Company and
various newspaper publishing companies, up from $31,000 for the same period of
1995, an increase of 119.4%. The Company also realized approximately $50,000 in
revenue from its real estate product in the three months ended June 30, 1996
compared to approximately $46,000 in the same period in 1995. Revenues from the
Company's Geographic Information Systems (GIS) product were $31,000 in the three
months ended June 30, 1996 compared to $12,000 in the same period of 1995, an
increase of $19,000 or 158%. The Company's newest product named FirstLink,
enables airlines to provide customers with departure and arrival time
information, generated revenues of $15,000 in the three months ended June 30,
1996.
Gross Profit
The Company's cost of revenues increased $65,523 or 58% for the six month period
ended June 30, 1996 compared to the same period in 1995. Cost of revenues
increased $33,427 in the three month period ended June 30, 1996. The gross
profit of $113,915 for the three month period ended June 30, 1996, is an
increase of 27% over the same period last year after excluding the sale of a one
call system which occurred in the three month period ended June 30, 1995. Gross
profit, as a percentage of revenues, for the six month period ended June 30,
1996 was 58% compared to 65.6% for the same period in 1995. Gross profit, as a
percentage of revenues, for the three month period ended June 30, 1996 was 55.6%
compared to 73.1% for the same period in 1995.
Selling, General and Administrative
Selling, general and administrative expenses for the six month period ended June
30, 1996 increased $377,292 or 76% compared to the same period in 1995. For the
three month period ended June 30, 1996, selling, general and administrative
expenses were $513,318 compared to $255,210 for the same period in 1995, an
increase of 101.1%. This increase of $258,108 is due to increased legal expenses
incurred for assistance in preparation of the Company's first Form 10-KSB,
lawsuit defense, annual meeting and proxy preparation, other securities matters
and the change in management. Other expenses included in this increase are the
accrued liabilities for severance payments, costs of printing the Company's
annual report to shareholders and proxy materials and advertising costs.
Research and Development
Research and development expenses increased from $129,160 or 66.2% in the six
month period ended June 30, 1996, compared to the same period in 1995. The
expense increased $57,093 or 56.6% from $100,828 in the three month period ended
June 30, 1995, to $157,921 in the three month period ended June 30, 1996. These
increases are related to an increase in the number of employees needed for the
continued development, testing, and installations of new UNIX systems, as well
as development of Geographic Information Systems mapping capabilities.
<PAGE>
N11 Expenses
In late 1995, the Company discontinued efforts to obtain and commercialize the
use of abbreviated dialing codes. As a result, N11 expenses were incurred in the
three month period ended March 31, 1995, but none have been incurred in 1996.
Other Income and Expense
Other income and expense for the six months ended June 30, 1996 was a net gain
of $63,247 compared to a net loss of $46,598 in the same period in 1995. For the
three months ended June 30, 1996 the Company had a net gain of $19,690 compared
to a net loss of $46,598 for the same period in 1995. For the six month period
ended June 30, 1995 the Company incurred interest expense of $69,144, primarily
due to outstanding notes for Bridge Loans used to fund the Company until an
initial public offering of its common stock could be completed. Subsequent to
the initial public offering, completed April 27, 1995, the Bridge Loans were
repaid and excess proceeds were invested in interest bearing instruments. For
the six months ended June 30, 1996, the interest income was $57,554 and for the
three month period ended June 30, 1996 interest income was $25,456. No interest
income was earned in the six month period ended June 30, 1995.
Net Loss
The Company incurred a net loss of $889,077 for the six month period ended June
30, 1996 compared to a net loss of $535,213 for the same period in 1995. The net
loss increased to $537,633 in the three months period ended June 30, 1996 from
$212,956 in the same period last year, a change of 152.5%.
Liquidity and Capital Resources
The Company had positive working capital of $2,652,960 and $1,763,803 at
December 31, 1995 and June 30, 1996 respectively. In the six month period ended
June 30, 1996, cash used in operations was $743,221 primarily resulting from a
net loss of $889,077, partially offset by depreciation of $132,002 and a change
in working capital of $13,854. In the six month period ended June 30, 1996, cash
used for investing activities was $128,103, which included an advance of
$100,000 to an acquisition candidate to sustain operations during negotiations,
and $107,788 used for the purchase of property and equipment offset by the sale
of equipment for $79,685. Repayment of the note receivable will come from the
operating cash flow of the acquired entity subsequent to the closing. Procedures
are in the process of being reviewed in an effort to minimize the use of funds
and increase sales activity.
<PAGE>
PART II Other Information
Item 1. Legal Proceedings
On March 8, 1996, Don Lomax, a former employee of the Company, filed suit
against the Company in Hennepin County District Court for the State of
Minnesota. The suit alleges breach of an unsigned employment agreement between
Mr. Lomax and the Company. The terms of the unsigned instrument provide for the
annual payment of salary and for the issuance of a certain number of shares of
Company Common Stock to Mr. Lomax upon the execution of such instrument. Mr.
Lomax is seeking specific performance of the terms of the instrument. The
Company has sought legal counsel with respect to such suit. Management of the
Company believes the suit will be resolved in its favor.
On April 22, 1996, Spanlink Communication Company, Inc. filed suit against
an employee of the Company, David J. Meyer, and the Company in Hennepin County
District Court for the State of Minnesota. The suit alleges breach of a
Confidentiality and Non-Competition Agreement and requests, among other things,
a Temporary Restraining Order prohibiting Mr. Meyer from continuing his
employment with the Company or disclosing any Spanlink confidential information
to the Company. Following a hearing on April 23, 1996, the Court declined to
grant a Temporary Restraining Order. At a second hearing held on May 2, 1996 the
Court declined to grant a Temporary Injunction in this matter. As of August 14,
1996, no dates have been set for any further steps in this matter. Management of
the Company believes the suit will be resolved in its favor.
Items 2 through 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Registrant's shareholders was held on Monday,
May 13, 1996.
At the Annual Meeting the following persons were elected directors of the
Registrant to serve until the next annual meeting of shareholders and
until their successors shall have been duly elected and qualified:
Number of Number of
Nominee Votes For Votes Withheld
Nicholas C. Bluhm 1,458,896 0
Michael P. Corcoran 1,458,896 0
Ronald E. Eibensteiner 1,458,896 0
Vin Weber 1,458,896 0
(b) Subsequent to the Annual Meeting, at a meeting of the directors, the size
of the board was expanded to five (5) persons and Gregory H. Mohn, a
founder of the Company, was elected a director.
<PAGE>
(c) At the Annual Meeting the shareholders approved the appointment of Ernst &
Young LLP as independent auditors for the current fiscal year by a vote of
1,914,138 shares in favor, with 11,500 shares against, 103, 895 shares
abstaining and no shares represented by broker nonvotes.
Item 5. Other Information
(a) Management, since the election of a new executive team on May 13, 1996,
has undertaken a systematic review of the Company's goals, strategies,
products, services, personnel and systems. This review, which was
initiated as part of the change in management, was made essential by the
significant regulatory and market changes occurring in the
telecommunications (i.e. continued deregulation) and computer industries
(i.e. the internet). These changes directly affect the Company's ability
to sell its products.
As a result of its review, management believes the Company must
significantly increase its sales within the next twelve months if it is to
remain a viable entity. Management began the process of significantly
changing the Company's sales organization during the period ending June
30, 1996. Recruiting efforts resulted in the hiring after June 30, 1996,
of a new executive to head the Company's sales efforts.
The acquisition of Provident World-Wide Communications, Inc. is part of
management's evolving strategy for the Company. Management believes
Provident's phone card products provide a valuable tool for increasing
sales of the Company's services and products. Properly employed by the
Company's customers, phone cards can increase customer traffic through the
Company's global network and interactive products.
The Company is investing in its research and development efforts to
improve the data collection, analysis and reporting of customer data
passing through the Company's global network and interactive products.
Improved data processing capabilities are expected to enhance the
perceived value of the Company's existing products as well as provide an
opportunity to generate revenue from customers data processing services
which the Company will provide. The Company believes that revenues from
services will play an increasingly important role as the Company continues
development of its business.
At the present rate at which the Company is using cash, in the absence of
material and sustained increases in revenue, the Company has sufficient
cash resources for another twelve months of operations.
The Company anticipates that mapping customer information as part of the
Company's data processing services can play an important role in increasing
the Company's sales. The Company is evaluating the role of its GIS
Technology in connection with its perception that mapping technology will
be valuable to the Company's customers.
<PAGE>
(b) On August 2, 1996, the Company completed its acquisition of Provident
Worldwide Communications, Inc., a provider of long distance telephone
cards. Under the terms of the agreement, Provident became a wholly-owned
subsidiary of the Company. Shares of Provident common stock were converted
into options to purchase common stock of the Company at the ratio of 1
MarketLink option share for each 10.111 Provident shares at prices
indicated below. The options received by the Provident shareholders are
subject to several conditions including repayment by Provident at any time
prior to February 2, 1999, of certain loans and advances made to it by the
Company. Based upon the exchange ratio and assuming that all conditions to
the exercise of the options are satisfied, upon exercise the Company will
issue a maximum of 200,000 shares of its Common Stock as acquisition
consideration to former Provident shareholders. One half of the options
(100,000) are exercisable at a price equal to the fair market value at the
close of business on the closing date and one half (100,000) of the
options are exercisable at one cent ($0.01) per share. In addition,
Incentive Stock Options totaling 60,000 shares were granted to key
employees of Provident upon consummation of the acquisition. An additional
30,000 non-qualified options were granted in exchange for satisfaction of
certain obligations of Provident to creditors and former Provident
directors.
(c) On May 13, 1996, Ian D. Packer, then President of the Company, and Allan
K. Pray, the Vice President of Finance and Administration of the Company,
voluntarily resigned. At a meeting of the Board of Directors held before
the Annual Meeting of shareholders on May 13, 1996, the Board of Directors
purported to make severance arrangements with Messrs. Packer and Pray
which contemplated paying Messrs. Packer and Pray compensation equal to
three (3) months' base pay and extending the exercise period during which
their Incentive Stock Options could be exercised. A dispute exists between
the Company and Messrs. Packer and Pray concerning the terms of their
severance, if any. The Company accrued $56,000 as a contingent liability
and administrative expense during the second quarter in connection with
the purported severance arrangement.
(d) The Company and Ronald E. Eibensteiner, Chairman of the Company, Nicholas
C. Bluhm, President and CEO of the Company, have not reached an agreement
concerning Messrs. Eibensteiner's and Bluhm's respective compensation as
officers and directors of the Company. Compensation of $12,391 has been
accrued as to Mr. Bluhm at an annual rate of $90,000 per year, although
Mr. Bluhm has agreed the Company may defer payment of such accrued amount
until a compensation arrangement is agreed upon.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (filed only with electronic version)
(a) Reports on Form 8-K
None
<PAGE>
MarketLink, Inc.
SIGNATURES
Pursuant to the registration 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.
MARKETLINK, INC.
(Registrant)
Date: August 14, 1996
By: /s/ Rodney Larson
Rodney Larson
Controller
(Principal Financial &
Accounting Officer)
<PAGE>
Exhibit Index
MarketLink, Inc.
Form 10-QSB
Exhibit Number Description
27 Financial Data Schedule (filed only in electronic format)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,832,842
<SECURITIES> 0
<RECEIVABLES> 140,422
<ALLOWANCES> (5,025)
<INVENTORY> 98,296
<CURRENT-ASSETS> 2,288,198
<PP&E> 966,549
<DEPRECIATION> (430,009)
<TOTAL-ASSETS> 2,963,762
<CURRENT-LIABILITIES> 524,395
<BONDS> 0
0
0
<COMMON> 29,438
<OTHER-SE> 2,335,925
<TOTAL-LIABILITY-AND-EQUITY> 2,963,762
<SALES> 204,813
<TOTAL-REVENUES> 204,813
<CGS> 90,898
<TOTAL-COSTS> 90,898
<OTHER-EXPENSES> 671,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,279
<INCOME-PRETAX> (537,633)
<INCOME-TAX> 0
<INCOME-CONTINUING> (537,633)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (537,633)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
