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 March 31, 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 41-167504
(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 4/30/96, 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 (Unaudited)
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 - 8
PART II Other Information 9
SIGNATURES 10
2
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
MarketLink, Inc.
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
----------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $2,251,854 $2,720,771
Trade accounts receivable, net of allowance for
doubtful accounts of $7,500 in 1995 and 1996 141,604 70,946
Minimum lease payments receivable 34,200 34,200
Computer parts and supplies, net of reserve for
obsolescence of $1,000 in 1995 and 1996 114,105 123,463
Prepaid expenses 84,132 63,470
------------------- ----------------
Total current assets 2,625,895 3,012,850
Property and equipment:
Furniture and equipment 681,745 624,691
Equipment leased to others 265,774 313,664
------------------- ----------------
947,519 938,355
Accumulated depreciation (362,710) (302,551)
------------------- ----------------
584,809 635,804
Other assets:
Investment in sales type leases 29,964 38,514
Deposits 35,311 11,465
------------------- ----------------
65,275 49,979
=================== ================
Total Assets $3,275,979 $3,698,633
=================== ================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $79,228 $96,199
Current maturities of long-term debt 57,849 73,844
Accrued expenses 0 25,038
Deferred revenue 25,080 45,147
Other accrued liabilities 123,803 119,662
----------- ----------------
Total current liabilities 285,960 359,890
Long-term debt - related parties 15,497 19,380
Long-term debt, net of current maturities 71,521 64,918
Shareholders' equity:
Common stock, par value $.01 per share
Authorized shares--5,000,000
Issued and outstanding shares:
1996 and 1995--2,931,415 and 2,931,415 29,314 29,314
Additional paid-in capital 6,081,148 6,081,148
Accumulated deficit (3,207,461) (2,856,017)
----------- ----------------
Total shareholders' equity (deficit) 2,903,002 3,254,445
----------- ----------------
Total liabilities and shareholders' equity $3,275,979 $3,698,633
=========== ================
</TABLE>
See accompanying notes.
3
<PAGE>
MarketLink, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
------------- ---------
<S> <C> <C>
Revenues $ 218,645 $ 111,994
Cost of revenues 86,818 54,722
---------- ----------
Gross profit 131,827 57,272
Operating expenses:
Selling, general and administrative 360,499 241,314
Research and delevopment 166,328 94,261
N11 application costs -- 10,203
---------- ----------
Total operating expenses 526,827 345,778
---------- ----------
Operating loss (395,000) (288,506)
Interest income 32,098 0
Interest expense (4,762) (40,590)
Other income 16,220 6,840
---------- ----------
Loss before income taxes (351,444) (322,256)
Provision for income taxes -- --
---------- ----------
Net loss $ (351,444) $ (322,256)
========== ==========
Net loss per share ($ 0.12) ($ 0.32)
Weighted average number of shares outstanding 2,931,415 1,014,583
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
MarketLink, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
--------------- ----------
<S> <C> <C>
Operating Activities:
Net Loss ($ 351,444) ($ 322,256)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 64,522 47,983
Gain on sale of property and equipment (5,520) --
Changes in operating assets and liabilities:
Accounts receivable (70,658) (15,398)
Minimum lease pmts receivable 8,550 16,717
Computer parts and supplies (21,279) 6,266
Prepaid expenses and deposits (44,508) 20,523
Accounts payable (16,971) (39,624)
Accrued liabilities (20,897) 92,400
Deferred revenue (20,067) 33,405
----------- -----------
Net cash used in operating activities (478,272) (159,984)
Investing Activities:
Sale of property and equipment 79,684 --
Purchases of property and equipment (57,054) (99,419)
----------- -----------
Net cash used in operating activities 22,630 (99,419)
Financing activities:
Payments on short-term and long-term notes payable (13,275) (15,730)
Net proceeds from short-term debt -- 460,000
Deferred stock offering costs -- (67,004)
----------- -----------
Net cash used in financing activities (13,275) 377,266
----------- -----------
Decrease in cash and cash equivalents (468,917) 117,863
Cash and cash equivalents at beginning of period 2,720,771 97,931
----------- -----------
Cash and cash equivalents at end of period $ 2,251,854 $ 215,794
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
MarketLink, Inc.
Notes to Financial Statements
March 31, 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 three months ended March 31, 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.
6
<PAGE>
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.
First Quarter First Quarter
1996 1995
Revenues 100.0% 100.0%
Cost of revenues 39.7 48.9
Gross margin 60.3 51.1
Operating expense:
Research & development 76.1 84.2
Selling, general and administrative 164.9 215.5
N11 costs 0.0 9.1
Total other income (expense) 19.9 (30.1)
Net loss (160.7)% (287.8)%
Revenues
Revenues for the quarters ended March 31, 1995, and 1996, were $111,994 and
$218,645, respectively, resulting in an increase of $106,651. The Company
recognized approximately $78,000 in revenue in the first quarter from its One
Call product. This represents an increase of $27,000, or 54%, over the same
period last year. In the first quarter of 1996, there was approximately $54,000
in recurring revenue from operating leases between MarketLink and various
newspaper publishing companies, up from $20,000 in the first quarter of 1995.
The Company also realized approximately $42,000 in revenue from its real estate
product in the first quarter 1996. In the comparable 1995 period, this product
generated $46,000 in revenue.
Gross Margin
While increasing its revenues by 95.2% over the first quarter last year, the
Company's cost of revenues increased from $54,722 in the first quarter of 1995
to $86,818 in the same period in 1996. The resulting gross margin of $131,827
for the first quarter 1996 is an increase of 130.2% over the same period last
year.
Research and Development
Research and development expenses increased from $94,261 in the quarter ended
March 31, 1995, to $166,328 in the quarter ended March 31, 1996. This increase
is 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. This
category of expense declined in relation to sales from 84.2% in the first
quarter of 1995 to 76.1% in the first quarter of 1996.
Selling, General and Administrative
Selling, general and administrative expenses for the quarters ended March 31,
1995, and 1996, were $241,314 and $360,499 respectively, an increase of 49.4%.
This increase of $119,185 is due to various factors, the most significant of
which was an increase in the cost associated with the establishment and
maintenance of a sales and marketing staff. In addition, many of the sales
materials to be used by these employees were purchased during the first quarter
1996.
7
<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
first quarter or 1995, but none were incurred for the same period in 1996.
Other Income and Expense
Other income and expense changed from a loss of $33,750 in the first quarter of
1995 to a gain of $43,856 in the first quarter of 1996. In the 1995 period the
Company incurred net interest expense of $40,590, 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. As a result of the initial public
offering, the bridge loans were repaid and excess proceeds were invested in
interest bearing instruments. During the first quarter of 1996, the net interest
income was $27,336.
Net Loss
MarketLink's net loss increased to $351,444 in the first quarter of 1996 from
$322,256 in the same period last year, a change of 9.1%.
Liquidity and Capital Resources
The Company had working capital of $2,652,960 at December 31, 1995, and working
capital of $2,339,935 at March 31, 1996. In the first quarter of 1996, cash used
in operations was $478,272. Of that amount, $57,935 was used to reduce current
liabilities.
8
<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 MarketLink or disclosing any Spanlink confidential information
to MarketLink. 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 May 8,
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.
Item 5. Other Information
As a result of the Company's May 13, 1996, annual meeting of shareholders
and meetings of its Board of Directors, the Company's Board of Directors now
consists of Ronald Eibensteiner, Nicholas Bluhm, Michael Corcoran, Vin Weber and
Gregory Mohn. On May 13, 1996, Ronald Eibensteiner was elected Chairman of the
Board and Nicholas Bluhm was elected President, Chief Executive Officer and
Chief Financial Officer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(filed with electronic version only)
(b) Reports on Form 8-K
None
9
<PAGE>
MarketLink, Inc.
SIGNATURES
In accordance with 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.
MARKETLINK, INC.
(Registrant)
Date: May 15, 1996 BY: /S/ Nicholas C. Bluhm
Nicholas C. Bluhm
President, Chief Executive Officer
and Chief Financial Officer
(Principal Financial &
Accounting Officer)
10
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule (filed with electronic version only)
11
<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> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,251,854
<SECURITIES> 0
<RECEIVABLES> 149,104
<ALLOWANCES> (7,500)
<INVENTORY> 114,105
<CURRENT-ASSETS> 2,625,895
<PP&E> 947,519
<DEPRECIATION> (362,710)
<TOTAL-ASSETS> 3,275,979
<CURRENT-LIABILITIES> 285,960
<BONDS> 0
0
0
<COMMON> 29,314
<OTHER-SE> 2,873,687
<TOTAL-LIABILITY-AND-EQUITY> 3,275,979
<SALES> 218,645
<TOTAL-REVENUES> 218,645
<CGS> 86,818
<TOTAL-COSTS> 86,818
<OTHER-EXPENSES> 526,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,762
<INCOME-PRETAX> (351,144)
<INCOME-TAX> 300
<INCOME-CONTINUING> (351,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351,444)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
