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 September 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 10/31/96, 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 (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
PART II Other Information 10
Item 1. Legal Proceedings 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>
September 30,
1996 December 31,
(unaudited) 1995
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,121,751 $ 2,720,771
Trade accounts receivable, net of allowance for
doubtful accounts of $7,500 in 1995 and $95,025 in 1996 178,882 70,946
Accrued interest receivable
Minimum lease payments receivable 34,200 34,200
Computer parts and supplies, net of reserve for
obsolescence of $1,000 in 1995 and $4,000 in 1996 57,110 123,463
Prepaid expenses 55,731 63,470
----------- -----------
Total current assets 1,447,674 3,012,850
Property and equipment:
Furniture and equipment 826,473 624,691
Equipment leased to others 314,504 313,664
----------- -----------
1,140,977 938,355
Accumulated depreciation (509,329) (302,551)
----------- -----------
631,648 635,804
Other assets:
Goodwill 640,591 --
Investment in sales type leases 19,468 38,514
Merger costs 62,492 --
Deposits 45,885 11,465
----------- -----------
768,436 49,979
----------- -----------
Total Assets 2,847,758 3,698,633
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 174,350 $ 96,199
Notes payable 10,310 --
Current maturities of long-term debt 54,276 73,844
Accrued expenses 3,004 25,038
Customer deposits 1,642 --
Deferred revenue 50,337 45,147
Other accrued liabilities 244,883 119,662
----------- -----------
Total current liabilities 538,802 359,890
Long-term debt - related parties 3,261 19,380
Long-term debt, net of current maturities 72,844 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 6,346,663 6,081,148
Accumulated deficit (4,143,250) (2,856,017)
----------- -----------
Total shareholders' equity 2,232,851 3,254,445
----------- -----------
Total liabilities and shareholders' equity $ 2,847,758 $ 3,698,633
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
MarketLink, Inc.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 319,917 $ 229,675 $ 743,375 $ 555,069
Cost of revenues 156,621 73,399 334,337 280,127
----------- ----------- ----------- -----------
Gross profit 163,296 156,276 409,038 274,942
Operating expenses:
Selling, general and administrative 456,953 242,872 1,330,770 644,862
Research and development 125,382 125,277 449,631 320,365
N11 application costs -- -- -- 10,203
----------- ----------- ----------- ----------
Total operating expenses 582,335 399,661 1,780,401 1,101,477
----------- ----------- ----------- ----------
Operating loss (419,039) (211,873) (1,371,363) (700,488)
Interest income 26,644 51,500 84,198 66,297
Interest expense (5,761) (5,508) (14,802) (74,652)
Other income -- -- 14,734 7,749
----------- ----------- ----------- ----------
Net loss $ (398,156) $ (165,881) $(1,287,233) $ (701,094)
=========== =========== =========== ==========
Net loss per share $ (0.14) $ (0.06) $ (0.44) $ (0.34)
Weighted average number of shares outstanding 2,925,831 2,930,452 2,921,300 2,044,125
</TABLE>
<PAGE>
MarketLink, Inc.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
------------ ------------
<S> <C> <C>
Operating Activities
Net Loss $(1,287,233) $ (701,094)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 211,320 155,940
Amortization of goodwill 10,860 --
Net gain on sale of property and (4,634) --
equipment
Changes in operating assets and liabilities:
Accounts receivable (107,936) (56,388)
Minimum lease pmts receivable 25,650 (58,682)
Computer parts and supplies 66,353 (149,754)
Prepaid expenses and deposits (9,439) (37,846)
Other assets (86,338) --
Accounts payable 78,151 (178,089)
Accrued liabilities 105,449 (72,791)
Deferred revenue 5,190 35,219
----------- -----------
Net cash used in operating activities (992,607) (1,063,485)
Investing Activities:
Investment in subsidiary 265,645 --
Increase in goodwill (651,451) --
Short term investments -- (3,223,777)
Sale of property and equipment 79,685 --
Capital expenditures (282,215) (110,104)
----------- -----------
Net cash used in investing activities (588,336) (3,333,881)
Financing activities:
Proceeds from issuance of common stock -- 5,556,248
Deferred stock offering costs -- 123,145
Increase in capital leases 23,163 --
Payments on short-term and long-term notes payable (41,240) (1,335,033)
----------- -----------
Net cash (used) provided by financing activities (18,077) 4,344,360
----------- -----------
Decrease in cash and cash equivalents (1,599,020) (53,006)
Cash and cash equivalents at beginning of period 2,720,771 97,931
----------- -----------
Cash and cash equivalents at end of period $ 1,121,751 $ 44,925
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
MarketLink, Inc.
Notes to Financial Statements
September 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 nine months ended September 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.
Reclassifications
Certain prior year items have been reclassified to conform with the 1996
presentation.
<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.
<TABLE>
<CAPTION>
Third Third Nine months ended Nine months ended
Quarter 1996 Quarter 1995 September 30, September 30,
1996 1995
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 49.0 32.0 45.0 50.5
Gross profit 51.0 68.0 55.0 49.5
Operating expense:
Selling, general & 142.8 105.7 179.0 116.2
administrative
Research & development 39.2 54.5 60.5 57.7
N11 costs 0.0 0.0 0.0 1.8
Total other income (expense) 6.5 20.0 11.3 (.1)
Net loss (124.5)% (72.2)% (173.2)% (126.3)%
</TABLE>
Revenues
Revenues for the nine month period ended September 30, 1996 increased 33.9% over
the same period in 1995 to $743,375. For the three month period ended September
30, 1996 revenues increased 39.3% over the same period in 1995 to $319,917. The
Company recognized approximately $57,000 in revenue from the Company's One Call
product in the three months ended September 30, 1996, compared to approximately
$127,000 for the three months ended September 30, 1995. This represents a
decrease of $70,000, or 55.1%, from the same period last year. The decrease is
due primarily to a sale of a One Call system in the third quarter of 1995 and no
comparable sale in 1996. In the three months ended September 30, 1996, the
Company received approximately $76,000 in revenue from operating leases between
MarketLink and various newspaper publishing companies, up from $39,000 for the
same period of 1995, an increase of 94.9%. Revenues from the Geographic
Information Systems (GIS) product were $53,000 in the three months ended
September 30, 1996 compared to $13,000 in the same period of 1995, an increase
of $40,000 or 308%. Revenues from the sale of telephone access cards, the
Company's newest product resulting from the August 1996 acquisition of Provident
Worldwide Communications, Inc. were $76,000 for the three months ended September
30, 1996.
<PAGE>
Gross Profit
The Company's cost of revenues increased $83,222 or 113.4% in the three month
period ended September 30, 1996. A large portion of this increase is due to
telephone access card business which had costs of $64,695. For the nine month
period ended September 30, 1996, the cost of revenues increased $54,210 or 19.4%
when compared to the same period in 1995. The gross profit of $163,296 for the
three month period ended September 30, 1996, is an increase of 132% over the
same period last year after excluding the sale of the One Call system which
occurred in the three month period ended September 30, 1995. Gross profit, as a
percentage of revenues, for the three month period ended September 30, 1996 was
51.0% compared to 68.0%. The higher percentage for the three month period ended
September 30, 1995, is the result of the sale of the One Call system in the
third quarter which had relatively low costs of revenue. Gross profit, as a
percentage of revenues, for the nine month period ended September 30, 1996 was
55.0% compared to 49.5% for the same period in 1995.
Selling, General and Administrative
For the three month period ended September 30, 1996, selling, general and
administrative expenses were $456,953 compared to $242,872 for the same period
in 1995, an increase of 88%. This increase of $214,081 is due to increased sales
staff and the operating costs associated with the acquired telephone access card
business. Selling, general and administrative expenses for the nine month period
ended September 30, 1996 increased $685,908 or 106% compared to the same period
in 1995. In addition to the increased costs in the third quarter, the Company
had increased costs in prior quarters related to legal fees, severance payments,
printing and advertising.
Research and Development
Research and development expenses remained relatively constant in the three
months period ended September 30, 1996 as compared to the same period of 1995.
Research and development expenses increased $129,266 or 40.3% in the nine month
period ended September 30, 1996, compared to the same period in 1995. The
increases which occurred in earlier quarters are related to increases in the
number of employees needed for the continued development and testing of new UNIX
systems, as well as development of Geographic Information Systems mapping
capabilities.
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.
<PAGE>
Other Income and Expense
For the nine month period ended September 30, 1995 the Company incurred interest
expense of $74,652, 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. Interest expense for the nine months ended September 30,
1996 was $14,802, related to interest on notes payable and equipment leases.
Interest income for the nine months ended September 30, 1996 was $84,198
compared to $66,297 for the same period in 1995. For the three month period
ended September 30, 1996, interest income was $26,644 compared to $51,500 for
the same period in 1995, the decrease being due to the reduction of interest
bearing deposits in 1996.
Net Loss
The Company incurred a net loss of $1,287,233 for the nine month period ended
September 30, 1996 compared to a net loss of $701,094 for the same period in
1995. The net loss increased to $398,156 in the three months period ended
September 30, 1996 from $165,881 in the same period last year.
Liquidity and Capital Resources
The Company had positive working capital of $2,652,960 and $908,872 at December
31, 1995 and September 30, 1996 respectively. In the nine month period ended
September 30, 1996, cash used in operations was $992,607 primarily resulting
from a net loss of $1,287,233, partially offset by depreciation of $211,320,
goodwill amortization of $10,860 and a change in working capital of $72,446. In
the nine month period ended September 30, 1996, cash used for investing
activities was $588,336, which included the investment of $265,645 and the
creation of goodwill totaling $651,451, resulting from the acquisition of
Provident Worldwide Communications, Inc., the Company's telephone access card
subsidiary. An additional $282,215 was used for the purchase of property and
equipment offset by the sale of equipment for $79,685.
If the Company continues to incur losses and use cash at the rate established in
the nine months ended September 30, 1996, the Company will need additional
financing by the end of the second quarter of 1997 in order to continue
operations. Although the Company believes that it can reduce its losses and
improve its cash flow, there is no assurance that it will be successful in doing
so. There is no assurance that additional financing will be available to the
Company on acceptable terms or at all. In order to obtain additional financing,
the Company may issue equity securities at a price which would result in
dilution to existing shareholders.
<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 November
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.
On August 27 and August 29, 1996, Ian D. Packer and Allan K. Pray, the
former President and Vice President of Finance and Administration of the
Company, respectively, and the Company entered into agreements resolving all
disputes in connection with the termination of their employment by the Company.
The Company paid each of Messrs. Packer and Pray compensation equal to three
months' base pay, provided for mutual releases of all existing or potential
claims, and agreed that Messrs. Packer's and Pray's incentive stock options had
terminated, without exercise. Total compensation of $52,500 was paid to Messrs.
Packer and Pray during the three month period ended September 30, 1996, and all
of such compensation was accrued as an expense during the three month period
ended June 30, 1996.
Items 2 through 4. Not Applicable
Item 5. Other Information
Subsequent Event
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 $34,900 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
(b) Reports on Form 8-K
The issuer filed a report on Form 8-K dated August 2, 1996 to
report its acquisition of Provident Worldwide Communications,
Inc. and filed an amendment dated October 15, 1996 to file the
following pro forma financial information:
1. Unaudited Proforma consolidated combined balance
sheet at June 30, 1996.
2. Unaudited Proforma Condensed Combined Statement of
Operations for year ended December 31, 1995.
3. Unaudited Proforma Condensed Combined Statement of
Operations - six months ended June 30, 1996.
<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: November 14, 1996 BY: /s/ Nick Bluhm
President and Chief Executive Officer
BY: /s/ Michael D. Ryan
Chief Financial Officer
(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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,121,751
<SECURITIES> 0
<RECEIVABLES> 273,907
<ALLOWANCES> (95,025)
<INVENTORY> 57,110
<CURRENT-ASSETS> 1,447,674
<PP&E> 1,140,977
<DEPRECIATION> (509,329)
<TOTAL-ASSETS> 2,847,758
<CURRENT-LIABILITIES> 538,802
<BONDS> 0
0
0
<COMMON> 29,438
<OTHER-SE> 2,203,413
<TOTAL-LIABILITY-AND-EQUITY> 2,847,758
<SALES> 743,375
<TOTAL-REVENUES> 743,375
<CGS> 334,337
<TOTAL-COSTS> 334,337
<OTHER-EXPENSES> 1,780,401
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,802
<INCOME-PRETAX> (1,287,233)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,287,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,287,233)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
