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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission File Number 0-21989
Medialink Worldwide Incorporated
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1481284
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
708 Third Avenue, New York, New York 10017
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 682-8300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on May 14, 2003:
Common Stock - 5,981,449
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of March 31,
2003 (unaudited) and December 31, 2002 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2003 and 2002 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2003 and 2002 5
Notes to Unaudited Condensed Consolidated Financial Statements 6 - 10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities and Use of Proceeds 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 18
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2003 and December 31, 2002
March 31, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,644,853 $ 6,389,650
Accounts receivable, net 8,504,734 6,571,226
Prepaid and refundable income taxes 2,416,488 2,269,804
Prepaid expenses and other current assets 2,378,741 2,101,334
Deferred tax assets 199,000 199,000
------------ ------------
Total current assets 17,143,816 17,531,014
------------ ------------
Property and equipment, net 5,985,543 5,889,840
Goodwill, net 13,234,049 12,854,121
Customer list and other intangibles, net 119,512 139,512
Investment in joint venture 581,604 681,604
Deferred tax assets 1,530,000 1,655,000
Other assets 1,808,274 1,892,243
------------ ------------
Total assets $ 40,402,798 $ 40,643,334
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 29,784 $ 45,291
Borrowings on credit facilities 6,037,501 6,536,665
Accounts payable 2,802,922 2,203,436
Accrued expenses and other current liabilities 4,781,972 4,654,194
------------ ------------
Total current liabilities and total liabilities 13,652,179 13,439,586
------------ ------------
Stockholders' Equity:
Common stock; $.01 par value. Authorized 15,000,000 shares; issued 6,038,573
shares in 2003 and 5,947,036 shares in 2002 60,385 59,470
Additional paid-in capital 25,043,124 24,768,762
Retained earnings 2,252,685 2,930,754
Accumulated other comprehensive loss (405,641) (355,304)
------------ ------------
26,950,553 27,403,682
Less common stock in treasury (at cost, 57,124 shares) (199,934) (199,934)
------------ ------------
Total stockholders' equity 26,750,619 27,203,748
------------ ------------
Total liabilities and stockholders' equity $ 40,402,798 $ 40,643,334
============ ============
See notes to unaudited condensed consolidated financial statements
3
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2003 and 2002
2003 2002
------------ ------------
Revenues $ 10,960,992 $ 11,075,442
Direct costs 3,549,303 3,880,483
------------ ------------
Gross Profit 7,411,689 7,194,959
Operating Expenses:
Selling, general and administrative expenses 7,462,227 7,252,916
Depreciation and amortization 538,815 805,520
Loss from joint venture 100,000 100,000
------------ ------------
Operating loss (689,353) (963,477)
Interest expense, net (88,716) (33,633)
------------ ------------
Loss before income taxes (778,069) (997,110)
Benefit from income taxes (100,000) (300,000)
------------ ------------
Net loss $ (678,069) $ (697,110)
============ ============
Basic and diluted loss per share $ (0.11) $ (0.12)
============ ============
See notes to unaudited condensed consolidated financial statements
4
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three Months Ended March 31, 2003 and 2002
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (678,069) $ (697,110)
----------- -----------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 538,815 805,520
Deferred income taxes 125,000 --
Equity loss from joint venture 100,000 100,000
Changes in assets and liabilities
Accounts receivable (1,983,845) 445,917
Other assets 32,969 73,530
Prepaid expenses and other current assets (277,407) (698,619)
Accounts payable and accrued expenses 938,416 405,104
Prepaid and refundable taxes (146,684) (299,298)
----------- -----------
Net cash (used in) provided by operating activities (1,350,805) 135,044
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for earn out payments on acquisitions (315,803) (225,000)
Purchases of property and equipment (563,518) (159,126)
----------- -----------
Net cash used in investing activities (879,321) (384,126)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock in connection
with the exercise of stock options -- 914
Repayments of long term debt (15,507) (13,499)
Borrowings on line of credit - bank 98,043 55,295
Payments on line of credit - bank (597,207) --
----------- -----------
Net cash (used in) provided by financing activities (514,671) 42,710
----------- -----------
Net decrease in cash and cash equivalents (2,744,797) (206,372)
Cash and cash equivalents at the beginning of period 6,389,650 4,680,075
----------- -----------
Cash and cash equivalents at end of period $ 3,644,853 $ 4,473,703
=========== ===========
Supplemental disclosure of non-cash activities:
Common stock issued in connection with acquisitions $ 275,277 $ 358,400
=========== ===========
See notes to unaudited condensed consolidated financial statements
5
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of presentation
The condensed consolidated financial statements included herein have been
prepared by Medialink Worldwide Incorporated and Subsidiaries (collectively, the
"Company" or "Medialink"), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Form 10-K filing for the year ended December 31, 2002.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly the results for the
three months ended March 31, 2003. The results for the three months ended March
31, 2003 are not necessarily indicative of the results expected for the full
fiscal year.
(2) Loss per Share
Basic loss per common share is computed using net loss applicable to common
stock and the weighted average number of shares outstanding. Diluted loss per
common share is computed using the weighted average number of shares outstanding
adjusted for the incremental shares attributed to outstanding options to
purchase common stock. For the three month periods ended March 31, 2003 and
2002, the Company had common stock equivalents of 41,219 and 26,408,
respectively, related to stock options that were not included in the computation
of loss per common share because they were antidilutive. The weighted average
number of shares for the three months ended March 31, 2003 and 2002 are as
follows:
Weighted Average Shares Outstanding
- -----------------------------------
For the three months ended March 31,
-----------------------------------
2003 2002
---- ----
Basic and diluted 5,913,855 5,849,059
========= ==========
6
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) Comprehensive Loss
The components of comprehensive loss consist of the following:
For the three months ended March 31,
-----------------------------------
2003 2002
---- ----
Net loss $(678,069) $(697,110)
Other comprehensive loss:
Foreign currency translation
adjustments (50,337) (361)
---------- ---------
Comprehensive loss $(728,406) $(697,471)
========= =========
Accumulated other comprehensive loss at March 31, 2003 and December 31, 2002
consists of foreign currency translation adjustments.
(4) Recent Accounting Pronouncements
In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 elaborates on the existing disclosure requirements for most
guarantees, including residual value guarantees issued in conjunction with
operating lease agreements. It also clarifies that at the time a company issues
a guarantee, the company must recognize an initial liability for the fair value
of the obligation it assumes under that guarantee and must disclose that
information in its interim and annual financial statements. The initial
recognition and measurement provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. The adoption of FIN 45 did not have a
significant impact on our financial position and results of operations.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A variable interest entity is a corporation,
partnership, trust, or any other legal structures used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. A variable interest entity often holds
financial assets, including loans or receivables, real estate or other property.
A variable interest entity may be essentially passive or it may engage in
research and development or other activities on behalf of another company. The
consolidation requirements of FIN 46 apply immediately to variable
7
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply to all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company has evaluated the impact
of FIN 46 and does not believe that it has any investment in variable interest
entities.
(5) Investments and Acquisitions
On April 8, 2002, TTX Limited ("Teletrax"), a subsidiary of the Company, entered
into a Technology License Agreement with Koninklijke Philips Electronics N.V.
("Philips"), for the use of Philips' WaterCast technology. Medialink, which owns
76% of Teletrax, has agreed to advance to Teletrax, in the form of a loan, up to
a total of $1.761 million. Through March 31, 2003, Medialink has fulfilled this
commitment. The minority shareholder of Teletrax has no future funding
obligations and, accordingly, the Company has recorded 100% of the loss from
this subsidiary.
On August 1, 1999 the Company entered into a joint venture with Business Wire to
form Business Wire/Medialink, LLC ("Newstream") for the purpose of providing its
clients with distribution of their news to multimedia Internet news sites. The
Company, which has a 50% interest in the joint venture, accounts for its
interest in Newstream under the equity method, as it does not have a controlling
interest in the entity. Although no future funding contractual obligations
exist, the Company, along with its joint venture partner, intends to continue to
fund and operate the joint venture for at least the next twelve months.
For the three month period ended March 31, 2003 and 2002 the Company recorded
goodwill related to earn-out payments on acquisitions of $380,000 and $375,000,
respectively. At March 31, 2003 the Company had no future commitments on any of
its acquisitions that would result in additional goodwill to be recorded.
(6) Line of Credit
The Company has a line of credit facility (the "Credit Facility") for borrowings
of up to $7.50 million expiring April 1, 2004. Loans under the Credit Facility
bear interest at the 30-Day LIBOR Rate plus 2.25% through 3.25%, per annum, as
defined.
Covenants under the line of credit agreement require the Company to meet certain
financial ratios, including minimum tangible net worth and minimum earnings
before interest, taxes, depreciation, amortization and other charges, as defined
in the agreement. Management believes the Company is currently in compliance
with the covenants under the line of credit agreement.
Substantially all of the assets of the Company are pledged as collateral under
the credit facility.
(7) Intangible Assets
8
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Intangible assets consist of the following:
March 31, 2003 December 31, 2002
--------------------------------- -----------------------------------
(in thousands) (in thousands)
Gross Gross
Amortization Carrying Accumulated Carrying Accumulated
Period Amount Amortization Net Amount Amortization Net
------ ------ ------------ --- ------ ------------ ---
Customer List 5 years $4,000 $(4,000) $ -- $4,000 $(4,000) $ --
Non-competes 4-7.5 years 500 (380) 120 500 (360) 140
------ ------- ---- ------ ------- ----
Total $4,500 $(4,380) $120 $4,500 $(4,360) $140
====== ======= ==== ====== ======= ====
Aggregate amortization expense for the three months ended March 31, 2003 and
2002 was $20,000 and $240,090, respectively.
Estimated future amortization expense is as follows:
For the nine months ending December 31, 2003 $60,000
For the year ended December 31, 2004 60,000
--------
Total estimated amortization $120,000
========
(8) Stock Based Compensation
In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation
- - Transition and Disclosure" ("SFAS 148"). SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation as originally provided by SFAS No. 123
"Accounting for Stock-Based Compensation". Additionally, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosure in both the
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The transitional requirements of SFAS 148 are effective for all financial
statements for fiscal years ending after December 15, 2002. We adopted the
disclosure portion of this statement for the current fiscal quarter ended March
31, 2003. The application of the disclosure portion of this standard will have
no impact on our consolidated financial position or results of operations. The
Financial Accounting Standards Board recently indicated that they will require
stock-based employee compensation to be recorded as a charge to earnings
beginning in 2004. We will continue to monitor their progress on the issuance of
this standard as well as evaluate our position with respect to current guidance.
If the Company had elected to recognize compensation cost at the grant date,
based on the fair value of the options granted, in 2003 and 2002, as prescribed
by SFAS 123, the Company's net loss and loss per share for the periods ended
March 31, 2003 and 2002 would approximate the pro forma amounts as indicated
below:
9
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
For the three months ended March 31,
2003 2002
--------- ---------
Net loss - as reported $(678,069) $(697,110)
Deduct: total stock-based
employee compensation expense
determined under the fair
value method, net of related tax
effects (80,210) (94,415)
--------- ---------
Net loss - pro forma $(758,279) $(791,525)
========= =========
Basic and diluted EPS - as reported $ (.11) $ (.12)
Basic and diluted EPS - pro forma $ (.13) $ (.14)
The fair value of each grant is estimated using the Black-Scholes Options
Pricing Model with the following assumptions: dividend yield of 0% for all
grants, expected volatility of 10% in 2002. There were no options granted during
the three months ended March 31, 2003.
(9) Reclassifications
For comparability, certain 2002 amounts have been reclassified, where
appropriate, to conform to the financial statement presentation used in 2003.
10
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 2003 compared to Three months ended March 31, 2002
Revenues for the three months ended March 31, 2003 (the "2003 Quarter") were
$10.96 million as compared $11.08 million for the three months ended March 31,
2002 (the "2002 Quarter"), resulting in a decrease of $114,000, or 1%. Revenue
from the Company's Media Communications Services decreased by $73,000, or 1%,
and the Company's Research Communication Services revenue decreased by $42,000,
or 2%. During the 2003 Quarter, the Company experienced a decrease in demand
from clients for its Media Communications Services products substantially as a
result of the events leading up to the war in Iraq and the commencement of
military action. Events which dominate news broadcasts, such as the war in Iraq,
can cause the Company's clients to delay or in some cases not use the Company's
services because of concern that the impact of their project would be adversely
affected by the focus of the media on such news events.
Direct costs decreased by $331,000, or 9%, from $3.88 million in the 2002
Quarter to $3.55 million in the 2003 Quarter. The Company's gross profit
percentage was 68% and 65% in the 2003 Quarter and the 2002 Quarter,
respectively. The increase in the gross profit percentage was due to a favorable
product mix and the result of adjustments the Company made over the last several
quarters to its direct cost structure, including renegotiating vendor rates and
improving the efficiency of its operating processes.
Selling, general and administrative expenses ("S, G & A") increased by $209,000,
or 3%, from $7.25 million in the 2002 Quarter to $7.46 million in the 2003
Quarter. The increase in S, G & A includes increases in payroll and
payroll-related costs ("Payroll") of approximately $257,000. The increase in
Payroll is substantially the result of Payroll of the Company's subsidiary,
formed in April 2003, Teletrax. Additionally, Teletrax incurred other S, G & A
expenses of approximately $379,000 during 2003. Offsetting the increases in S, G
& A expenses resulting from Teletrax, the Company reduced its S, G & A by
approximately $400,000 in 2003 as compared to 2002, including, but not limited
to advertising and marketing, travel and entertainment and office costs.
Depreciation and amortization expense decreased by $267,000, or 33%, from
$806,000 in the 2002 Quarter to $539,000 in the 2003 Quarter. The decrease was
substantially due to the Company's customer list, acquired in conjunction with
the acquisition of The Corporate Television Group, which was fully amortized in
2002, resulting in a decrease in amortization of $200,000 between the 2003 and
2002 Quarters.
As a result of the foregoing, the Company had an operating loss of $689,000 in
the 2003 Quarter as compared to an operating loss of $963,000 in the 2002
Quarter. The operating loss in 2003 included an operating loss of $619,000 from
the Company's 76% owned subsidiary, Teletrax, which was formed in April 2002.
The minority shareholder of Teletrax has no future funding obligations and,
accordingly, the Company has recorded 100% of the loss from this subsidiary.
11
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Income tax benefit was calculated using Medialink's effective tax rates of 41%
in both 2003 and 2002. In both 2003 and 2002 the Company was also subject to
minimum state and local taxes and taxes on capital. Additionally, in 2003, as a
result of the limited historical results of Teletrax, the Company's newly formed
76% foreign subsidiary, and management's limited ability to project Teletrax's
future results, the Company has recorded a valuation allowance of $188,000
related to the foreign deferred tax asset generated by Teletrax's loss.
The Company had a net loss of $678,000 in the 2003 Quarter as compared to a net
loss of $697,000 in the 2002 Quarter. In 2003 the Company had a loss per share
of $0.11 compared to a loss per share of $0.12 in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Medialink has financed its operations primarily through cash generated from
operations and its line of credit facility. Net cash used in operating
activities amounted to $1.35 million for the three month period ended March 31,
2003, while net cash provided by operating activities for the comparable period
in 2002 was $135,000. The change was the result of the changes in operating
assets and liabilities. Most notably during the 2003 quarter accounts receivable
increased $1.9 million as compared to the 2002 Quarter where we had a decrease
in accounts receivable of $446,000. Capital expenditures which are primarily
incurred to support the Company's sales and operations and the continuing
roll-out of the Teletrax network were $564,000 in 2003 compared to $159,000 in
2002. Cash flows related to earn out payments on the Company's various
acquisitions amounted to $316,000 and $225,000 in 2003 and 2002 Quarters,
respectively. As of March 31, 2003 the Company has no potential earn-out
payments on its acquisitions.
In August 2001 the Company received an unsolicited takeover bid from United
Business Media plc to purchase all of its issued and outstanding common shares.
In connection with this unsolicited offer the Company retained a financial
advisor to assist the Company in analyzing and considering the unsolicited offer
and the various strategic opportunities available to the Company to maximize
shareholder value. The terms of the agreement provided that the Company pay the
financial advisor between $2,000,000 and $2,500,000 by August 20, 2002. In
August 2002 the agreement was amended to decrease the total fees to $1.60
million plus expenses. In accordance with the terms of the amended agreement, as
of March 31, 2003, $1.2 million has been paid with the remaining balance due,
totaling $400,000 included in accounts payable. The remaining balance was
subsequently paid in April 2003.
As of March 31, 2003 Medialink had $3.64 million in cash and cash equivalents as
compared to $6.39 million as of December 31, 2002. In addition, the Company had
a balance due under its line of credit facility of $6.04 million and $6.54
million at March 31, 2003 and December 31, 2002, respectively. The decrease in
cash and cash equivalents of $2.74 million includes purchases of fixed assets of
$564,000, cash earn-out payments on acquisitions of $316,000 and pay downs, net
of borrowings on its line of credit facility aggregating $499,000. The remaining
change was substantially attributable to the increase in accounts receivable,
net of the increase in accounts
12
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
payable and accrued expenses.
The Company believes that it has sufficient capital resources, including cash
flow from operations and availability under its line of credit facility to fund
its net cash needs for at least the next twelve months.
RISK FACTORS
Major News Events
Events which dominate news broadcasts, such as the events of September 11, 2001
and the war in Iraq, may cause the Company's clients to delay or not use the
Company's services for a particular project as such clients may determine that
their messages may not receive adequate attention in light of the coverage of
other new events. Such circumstances could have a material adverse effect on the
Company's business, operating results and financial condition.
Susceptibility to General Economic Conditions
The Company's revenues are affected by its clients' marketing communications
spending and advertising budgets. The Company's revenues and results of
operations may be subject to fluctuations based upon general economic conditions
in the geographic locations where it offers its services or distributes its
material. If there were to be continued economic downturn or a continued
recession in these geographic locations, the Company expects that business
enterprises, including its clients and potential clients, could substantially
and immediately reduce their marketing and communications budgets. In the event
of such an economic climate, there would be a material adverse effect on the
Company's business, operating results, financial condition and ability to
refinance its existing line of credit agreement.
Competition
The markets for the Company's services are highly competitive. The principal
competitive factors affecting the Company are effectiveness, reliability, price,
technological sophistication and timeliness. Numerous specialty companies
compete with the Company in each of its service lines although no single company
competes across all service lines. Some of the Company's competitors or
potential competitors have longer operating histories, longer client
relationships and significantly greater financial, management, technological,
sales, marketing and other resources than the Company. In addition, clients
could perform internally all or certain of the services provided by the Company
rather than outsourcing such services. The Company could face competition from
companies in related communications markets which could offer services that are
similar or superior to those offered by the Company. In addition, national and
regional telecommunications providers could enter the market with materially
lower electronic delivery costs, and radio and television networks could also
begin transmitting business communications separate from their news programming.
The Company's ability to maintain and attract clients depends to a significant
degree on the quality of services provided and its reputation among its clients
and potential clients as compared to that of its competitors. There can be no
assurance that the Company will not face increased competition in the future or
that such competition will not have a material adverse effect
13
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
on the Company's business, operating results and financial condition.
New Services
The Company must develop new services to remain competitive, maintain or grow
market share and to operate in new markets. There can be no assurance that the
Company will be successful in developing new services, or that those new
services will meet customer needs. As a result of the expenses incurred in
developing new services and the potential inability of the Company to market
these services successfully, the Company's operating results may be negatively
affected.
Provisions of Our Charter Documents May Have Anti-takeover Effects that Could
Prevent a Change in Control Even if the Change in Control Would be Beneficial to
our Stockholders.
Provisions of our amended and restated certificate of incorporation, by-laws and
Delaware law could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders.
Line of credit
The Company has a balance due under its line of credit of $6.04 million with a
due date of April 1, 2004, subject to annual renewal thereafter with the
lender's consent. Covenants under the line of credit agreement require the
Company to meet certain financial ratios, including minimum tangible net worth
and minimum earnings before depreciation, amortization, interest and other
charges, as defined in the agreement. While management believes the Company is
currently in compliance with the covenants under the line of credit agreement,
there can be no assurance that the Company will continue to be in compliance in
the future. In that event, the Company may be required to raise additional funds
in order to repay the outstanding balance under the line of credit and there can
be no assurance that, if required, the Company would be able to raise such funds
on favorable terms, if at all.
Capital Requirements
One or more of our businesses could require, or benefit from, additional
investment beyond our current capability. Such additional funding could be
raised by the Company, or one or more of its business units separately, and
could have the effect of diluting shareholders interests.
14
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Other Risk Factors
Other risk factors include our recent history of losses, our ability to achieve
or maintain profitability, effectiveness of our cost reduction programs, our
ability to develop new services and market acceptance of such services, such as
Teletrax, our ability to develop new products and services that keep pace with
technology, our ability to develop and maintain successful relationships with
critical vendors, the potential negative effects of our international operations
on the Company. In addition, future acquisitions or divestitures and the absence
of long term contracts with customers and vendors may adversely effect our
operations and have an adverse effect on pricing, revenues, gross margins and
our customer base.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as significant to our business operations
and the understanding of our results of operations. The impact and any
associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements in the Company's Form 10-K for the year ended December 31, 2002.
Revenue Recognition
Revenue earned from the distribution and monitoring of video news releases and
the distribution of printed news releases is recognized in the period that the
release is distributed. Fees earned for webcasts, satellite media tours and
other live events and the production of video news releases and still
photographs are recognized in the period that the services are performed. Fees
earned from research services are recognized using the percentage of completion
method. Invoices to clients are generated in accordance with the terms of the
applicable contract, which may not be directly related to the performance of
services. Unbilled receivables are subsequently invoiced based upon the
achievement of specific events as defined by each agreement including
deliverables, timetables and incurrence of certain costs. Unbilled receivables
are classified as a current asset. Advanced billings to clients in excess of
revenue earned are recorded as deferred revenues and are classified as a current
liability.
15
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Allowance for Doubtful Accounts
Management must make estimates of the uncollectibility of the Company's accounts
receivable. Management specifically analyzes accounts receivable, historical bad
debt, customer concentrations, customer creditworthiness and current trends when
evaluating the adequacy of the allowance for doubtful accounts.
Goodwill and Intangible Assets
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and intangible assets of businesses acquired.
Effective January 1, 2002, we adopted the provisions of Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, which required us to cease amortizing
goodwill and to assess goodwill for impairment at least annually in the absence
of an indicator of possible impairment and immediately upon an indicator of
possible impairment. The annual impairment testing required by SFAS No. 142 also
requires the Company to use its judgment and could require the Company to write
down the carrying value of its goodwill and other intangible assets in future
periods.
Other intangible assets, including customer lists and covenants not to compete,
are being amortized on a straight-line basis over the term of the agreement or
the estimated future period of benefit, which ranges from 3 to 7 1/2 years.
Long-lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and for operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. We
considered all of the available evidence to arrive at our position on the net
deferred tax assets; however, should circumstances change which would alter our
judgment in this regard it may have an impact on future operating results.
16
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Item 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our chief executive officer,
principal accounting officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our chief executive officer, principal
accounting officer and principal financial officer concluded that our disclosure
controls and procedures, as of the date of the evaluation, are effective in
timely alerting them to material information required to be included in our
periodic SEC reports. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.
In addition, we reviewed our internal controls, and there have been no
significant changes in those controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
17
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None
ITEM 2. Changes in Securities and Use of Proceeds.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
99.1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Report on Form 8-K:
None
18
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to 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.
MEDIALINK WORLDWIDE INCORPORATED
By: /s/ Laurence Moskowitz
-----------------------------
Laurence Moskowitz,
Chairman of the Board, Chief Executive Officer and President
By: /s/ J. Graeme McWhirter
-----------------------------
J. Graeme McWhirter
Executive Vice President, Assistant Secretary,
Chief Financial Officer and Director
Dated: May 14, 2003
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
CERTIFICATION
I, Laurence Moskowitz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medialink Worldwide
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Laurence Moskowitz
- ---------------------------------
Name: Laurence Moskowitz
Title: Chief Executive Officer
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
CERTIFICATION
I, J. Graeme McWhirter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medialink Worldwide
Incorporated;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ J. Graeme McWhirter_
- -----------------------
Name: J. Graeme McWhirter
Title: Chief Financial Officer