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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-21989
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 Identification Number)
organization)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on August 13, 2004:
Common Stock - 5,993,656
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
Consolidated Balance Sheets as of June 30,
2004 (unaudited) and December 31, 2003 3
Unaudited Consolidated Statements of Operations
for the six months ended June 30, 2004 and 2003 4
Unaudited Consolidated Statements of Operations
for the three months ended June 30, 2004 and 2003 5
Unaudited Consolidated Statements of Cash Flows
for the six months ended June 30, 2004 and 2003 6
Notes to Unaudited Consolidated Financial Statements 7 - 14
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 25
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 26
ITEM 4. Controls and Procedures 26
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 27
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities 27
ITEM 3. Defaults Upon Senior Securities 27
ITEM 4. Submission of Matters to a Vote of Security Holders 27
ITEM 5. Other Information 27
ITEM 6. Exhibits and Reports on Form 8-K 27
2
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2004 and December 31, 2003
June 30, December 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,462,553 $ 3,708,130
Accounts receivable, net of allowance for doubtful accounts of
$855,355 and $683,420 7,738,298 7,225,166
Prepaid expenses and other current assets 2,704,482 2,183,011
Prepaid and refundable taxes 754,995 690,657
Deferred tax assets 199,000 199,000
------------ ------------
Total current assets 12,859,328 14,005,964
------------ ------------
Property and equipment, net 5,204,097 5,800,070
Goodwill 13,234,051 13,234,051
Customer list and other intangibles,net of accumulated amortization
of $4,480,481 and $4,440,485 19,519 59,515
Investment in joint venture 229,407 365,483
Deferred tax assets 1,920,000 1,805,000
Other assets 1,218,189 1,441,802
------------ ------------
Total assets $ 34,684,591 $ 36,711,885
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of obligations under capital leases $ 95,139 $ 96,248
Borrowings on credit facilities 4,000,000 5,500,000
Accounts payable 2,573,074 1,692,713
Accrued expenses and other current liabilities 3,626,188 3,948,809
------------ ------------
Total current liabilities 10,294,401 11,237,770
Obligations under capital leases, net of current portion 114,654 173,000
Other long term liabilities 401,406 503,336
------------ ------------
Total liabilities 10,810,461 11,914,106
------------ ------------
Stockholders' Equity:
Common stock; $.01 par value. Authorized 15,000,000 shares; issued
6,050,780 shares in 2004 and 6,040,173 shares in 2003 60,508 60,401
Additional paid-in capital 25,079,155 25,047,284
Retained earnings (accumulated deficit) (769,998) 238,477
Accumulated other comprehensive loss (295,601) (348,449)
------------ ------------
24,074,064 24,997,713
Less common stock in treasury (at cost, 57,124 shares) (199,934) (199,934)
------------ ------------
Total stockholders' equity 23,874,130 24,797,779
------------ ------------
Total liabilities and stockholders' equity $ 34,684,591 $ 36,711,885
============ ============
See notes to unaudited condensed finanical statements
3
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2004 and 2003
2004 2003
------------ ------------
Revenues $ 22,576,007 $ 22,654,155
Direct costs 7,439,461 7,384,696
------------ ------------
Gross Profit 15,136,546 15,269,459
Operating Expenses:
Selling, general and administrative expenses 14,320,360 15,286,167
Depreciation and amortization 1,284,128 1,118,603
Loss from joint venture 136,076 186,964
Loss on impairment of investments 342,000 --
------------ ------------
Operating loss (946,018) (1,322,275)
Interest expense, net (152,457) (153,681)
------------ ------------
Net loss before income taxes (1,098,475) (1,475,956)
Benefit from income taxes (90,000) (200,000)
------------ ------------
Net loss $ (1,008,475) $ (1,275,956)
============ ============
Basic and diluted loss per share $ (0.17) $ (0.21)
============ ============
See notes to unaudited condensed finanical statements
4
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2004 and 2003
2004 2003
------------ ------------
Revenues $ 12,007,987 $ 11,693,163
Direct costs 4,161,314 3,835,393
------------ ------------
Gross Profit 7,846,673 7,857,770
Operating Expenses:
Selling, general and administrative expenses 7,032,216 7,823,940
Depreciation and amortization 630,878 579,788
Loss from joint venture 41,388 86,964
------------ ------------
Operating income (loss) 142,191 (632,922)
Interest expense, net (72,900) (64,965)
------------ ------------
Net income (loss) before income taxes 69,291 (697,887)
Provision for income taxes (income tax benefit) 60,000 (100,000)
------------ ------------
Net income (loss) $ 9,291 $ (597,887)
============ ============
Basic and diluted earnings (loss) per share $ 0.00 $ (0.10)
============ ============
See notes to unaudited condensed finanical statements
5
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,008,475) $(1,275,956)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,284,128 1,118,603
Deferred income taxes (115,000) 250,000
Equity loss from joint venture 136,076 186,964
Loss on impairment of investments 342,000 --
Changes in assets and liabilities
Accounts receivable (460,284) (1,511,244)
Other assets (311,013) 55,446
Prepaid expenses and other current assets (521,471) (304,714)
Accounts payable and accrued expenses 557,740 491,239
Other long term liabilities (101,930) --
Prepaid and refundable taxes (64,338) (371,668)
----------- -----------
Net cash used in operating activities (262,567) (1,361,330)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for earn out payments on acquisitions -- (341,229)
Purchases of property and equipment (455,533) (1,063,879)
----------- -----------
Net cash used in investing activities (455,533) (1,405,108)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock in connection
with the exercise of stock options 31,978 --
Repayments of long term debt (59,455) (31,013)
Borrowings on line of credit - bank 106,203 153,900
Payments on line of credit - bank (1,606,203) (690,565)
----------- -----------
Net cash used in financing activities (1,527,477) (567,678)
----------- -----------
Net decrease in cash and cash equivalents (2,245,577) (3,334,116)
Cash and cash equivalents at the beginning of period 3,708,130 6,389,650
----------- -----------
Cash and cash equivalents at end of period $ 1,462,553 $ 3,055,534
=========== ===========
Supplemental disclosure of non-cash activities:
Common stock issued in connection with acquisitions $ -- $ 275,277
=========== ===========
Transfer of software to property and equipment from other assets $ -- $ 366,000
=========== ===========
6
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of presentation
The 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
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's annual report on Form 10-K filing for the year ended December 31,
2003.
The unaudited 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 six and
three months ended June 30, 2004. The results for the six and three months ended
June 30, 2004 are not necessarily indicative of the results expected for the
full fiscal year.
7
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(2) Earnings (Loss) per Share
Basic earnings (loss) per common share is computed using net income (loss)
applicable to common stock and the weighted average number of shares
outstanding. Diluted earnings (loss) per common share is computed using the
weighted average number of shares outstanding adjusted for the incremental
shares from assumed conversion of all potentially dilutive securities attributed
to outstanding options to purchase common stock. For the six month periods ended
June 30, 2004 and 2003, the Company had common stock equivalents of 143,587 and
36,312, respectively, related to stock options that were not included in the
computation of diluted loss per common share because they were antidilutive. For
the three month period ended June 30, 2003, the Company had common stock
equivalents of 31,663, related to stock options that were not included in the
computation of diluted loss per common share because they were antidilutive. The
weighted average number of shares for the six and three months ended June 30,
2004 and 2003 are as follows:
Weighted Average Shares Outstanding
For the six months ended June 30,
--------------------------------
2004 2003
---- ----
Basic and diluted 5,988,058 5,951,852
========= =========
For the three months ended June 30,
----------------------------------
2004 2003
---- ----
Basic 5,991,546 5,989,849
========= =========
Diluted 6,131,060 5,989,849
========= =========
8
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(3) Accumulated Other Comprehensive Loss and Comprehensive Loss
The components of comprehensive loss consist of the following:
For the six months ended June 30,
--------------------------------
2004 2003
---- ----
Net loss $(1,008,475) $(1,275,956)
Other comprehensive income:
Foreign currency translation
adjustments 52,848 39,991
------------ -----------
Comprehensive loss $ (955,627) $(1,235,965)
============ ===========
For the three months ended June 30,
----------------------------------
2004 2003
---- ----
Net income (loss) $9,291 $(597,887)
Other comprehensive (loss) income:
Foreign currency translation
adjustments $(50,807) 90,328
-------- ---------
Comprehensive loss $(41,516) $(507,559)
======= ========
Accumulated other comprehensive loss at June 30, 2004 and December 31, 2003
consists of foreign currency translation adjustments.
(4) Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", and amended the interpretation
with FIN 46(R) in December 2003. This interpretation and its amendment set forth
a requirement for an investor with a majority of the variable interests in a
variable interest entity ("VIE") to consolidate the entity and also requires
majority and significant variable interest investors to provide certain
disclosures. A VIE is an entity in which the equity investors do not have a
controlling interest, or the equity investment at risk is insufficient to
finance the entity's activities without receiving additional subordinated
financial support from the other parties. The provisions of FIN 46 were
effective immediately for all arrangements entered into with new VIEs created
after January 31, 2003. The Company has not entered into any arrangements with
VIEs after January 31, 2003. For arrangements entered into with VIEs created
prior to January 31, 2003, the provisions of FIN 46 have been delayed to the
first interim or annual period beginning after December 15, 2003. The Company
has evaluated the impact of adoption of FIN 46(R) for its arrangements created
before January 31, 2003. The adoption of this standard did not have a material
impact on the Company's financial statements.
9
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(5) Investments and Acquisitions
On April 8, 2002, TTX Limited ("Teletrax(TM)"), 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 owns
76% of Teletrax(TM). The minority shareholder of Teletrax(TM) has no future
funding obligations and, accordingly, the Company has recorded 100% of the loss
from operations of this subsidiary, which it consolidates.
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.
For the six month period ended June 30, 2003 the Company recorded goodwill
related to earn-out payments on acquisitions of $380,000. As of June 30, 2003
the Company had no future commitments on any of its acquisitions that would
result in additional goodwill to be recorded.
During the six months ended June 30, 2004, the Company recorded a loss on the
impairment of investments of $342,000 related to two investments accounted for
under the cost method.
(6) Line of Credit
The Company has a line of credit facility with a bank which allowed for
borrowings of up to $7.50 million through April 15, 2004. At June 30, 2004
maximum borrowing under the line of credit was $4.00 million. Loans under the
Credit Facility bore interest at the 30-Day LIBOR Rate (1.36% at June 30, 2004)
plus 2.25% through 3.25% per annum, as defined.
Covenants under the line of credit agreement required 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. At December 31, 2003 the Company was not in
compliance with the minimum tangible net worth covenant which was waived by the
bank through April 15, 2004 through the issuance of a forbearance. In
conjunction with the forbearance, the bank required that the Company pay down
the line of credit by $500,000, reduce the maximum borrowings under the facility
to $5.00 million and put into place a minimum cash balance and limits on capital
expenditure covenants, as defined in the forbearance.
10
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In April 2004 the bank issued an additional forbearance (the "Forbearance")
expiring January 31, 2005. The Forbearance reduces the maximum line to the lower
of (i) $4.00 million, $3.75 million, $3.50 million and $3.00 million at April
15, 2004, July 1, 2004, October 1, 2004 and December 31, 2004, respectively, or
(ii) 80% of eligible accounts receivable balances, as defined in the
Forbearance. Interest under the Forbearance is payable monthly at the rate of
the 30-Day LIBOR Rate plus 5.5% per annum. In accordance with the forbearance
agreement, the Company made a principal payment of $250,000 on July 1, 2004.
Covenants under the Forbearance include limits on capital expenditures, minimum
earnings before interest, taxes, depreciation and amortization and minimum
tangible net worth, as defined in the agreement. Additionally, the Forbearance
requires the Company to obtain financing by January 15, 2005, to support
Teletrax(TM)'s operations.
The Company is subject to a forbearance fee of $30,000 for the period from April
15, 2004 through January 31, 2005.
Substantially all of the assets of the Company are pledged as collateral under
the credit facility.
(7) Intangible Assets
Intangible assets consist of the following:
June 30, 2004 December 31, 2003
(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 (480) 20 500 (440) 60
------ ------ -- ------ ------ --
Total $4,500 $(4,480) $20 $4,500 $(4,440) $60
===== ===== == ===== ===== ==
Aggregate amortization expense for the six months ended June 30, 2004 and 2003
was $40,000 for each period.
Aggregate amortization expense for the three months ended June 30, 2004 and 2003
was $20,000 for each period.
Estimated future amortization expense is as follows:
For the six months ending December 31, 2004 $20,000
======
(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
11
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 in the 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 during 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 2004 and 2003, as prescribed
by SFAS 123, the Company's net loss and loss per share for the periods ended
June 30, 2004 and 2003 would approximate the pro forma amounts as indicated
below:
For the six months ended June 30,
2004 2003
----------- -----------
Net loss - as reported $(1,008,475) $(1,275,956)
Deduct: total stock-based
employee compensation expense
determined under the fair
value method, net of related tax
effects (64,332) (140,304)
----------- -----------
Net loss - pro forma $(1,072,807) $(1,416,260)
=========== ===========
Basic and diluted EPS - as reported $ (.17) $ (.21)
Basic and diluted EPS - pro forma $ (.18) $ (.24)
12
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended June 30,
2004 2003
--------- ---------
Net income (loss) - as reported $ 9,291 $(597,887)
Deduct: total stock-based
employee compensation expense
determined under the fair
value method, net of related tax
effects (30,199) (60,094)
--------- ---------
Net loss - pro forma $ (20,908) $(657,981)
========= =========
Basic and diluted EPS - as reported $ .00 $ (.10)
Basic and diluted EPS - pro forma $ .00 $ (.11)
The fair value of each grant is estimated using the Black-Scholes Options
Pricing Model with the following assumptions: risk free interest rate of 4.25%,
expected life of 5 years and dividend yield of 0% for all grants and expected
volatility of 5% in 2003. There were no options granted during the six months
ended June 30, 2004.
(9) Supplemental Cash Flow Information:
Cash paid for interest and income taxes during the six months ended June 30,
2004 and 2003 was as follows:
2004 2003
-------- --------
Interest $152,000 $154,000
======== ========
Income Taxes $ 72,000 $ 78,000
======== ========
13
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(10) Provision for Income Taxes (Income Tax Benefit)
Medialink's effective tax rates were significantly impacted by the accounting
for the losses from foreign operations. The income tax benefit (expense) amounts
in 2004 and 2003 were calculated using Medialink's effective tax rates on its US
pretax earnings of 41% in all periods presented. In addition, both 2004 and 2003
the Company was also subject to minimum state and local taxes and taxes on
capital. Additionally, as a result of the limited historical results of its UK
operations, including Teletrax(TM) and management's limited ability to project
its UK future results, the Company has recorded a valuation allowance of
($5,000) and $174,000 for the three and six month periods ended June 30, 2004,
respectively, and $104,000 and $223,000 for the three and six month periods
ended June 30, 2003, respectively, which completely offset the related foreign
deferred tax asset generated by its UK losses. Recording the additional
valuation allowance and the minimum state and local taxes resulted in
consolidated effective tax rates of 87% and (14%) in the three months ended June
30, 2004 and 2003, respectively and (8%) and (14%) in the six months ended June
30, 2004 and 2003.
(11) Liquidity
The Company had suffered recurring losses for the three-year period ended
December 31, 2003 and through March 31, 2004, and has reported positive net
income for the second quarter ended June 30, 2004. At December 31, 2003, the
Company was not in compliance with the minimum tangible net worth covenant under
the Company's line of credit agreement, which was waived by the lender through
April 15, 2004 through the issuance of a forbearance. The forbearance was
extended through January 31, 2005. The covenants under the forbearance are
discussed further in note 6. Based on its 2004 projections, management
anticipates that it will remain in compliance with these revised covenants.
Management will take all necessary steps to meet these projections. Should the
Company be unable to meet its projections, management will take appropriate
measures, which could include seeking alternative sources of funding, including,
the factoring of receivables or the sale of a division, or headcount reductions.
14
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
RESULTS OF OPERATIONS
Summary and Outlook
For the first half of 2004 revenue for the Company was relatively flat as
compared to 2003. The public relations industry continued to show signs of
rebounding during the second quarter of 2004 and client activity in the
Company's principal media communications and research communications services
recorded strong performance despite a significant decline in demand on its
strategic services as a result of fewer issues-related needs from one client.
For the second quarter of 2004 revenues from Medialink's core services, Media
Communications and Media Research services, increased $96,000, or 1% as compared
to 2003. At the same time, the Company has continued to invest in its new
Teletrax(TM) service and increased revenue from its Teletrax(TM) services,
excluding sales of equipment, by $193,000, from $122,000 in 2003 to $315,000 in
2004.
During the second quarter the Company continued to focus its efforts on
maintaining the operating efficiencies it implemented over the past several
quarters and continued to create new efficiencies, maintaining high gross profit
margins, reducing its headcount, where practicable, and identifying further
savings in selling, general and administrative expenses ("S, G & A").
The Company finances its operations from cash generated from operations and from
its line of credit facility. During 2003 the Company was in default of its
tangible net worth covenant under the line of credit facility and, during 2004,
in accordance with provisions under its line of credit, the Company reduced its
outstanding borrowings under the line by $1.0 million to $4.0 million. The
Company believes the current line of credit facility, in conjunction with the
costs savings implemented in 2003 and 2004, will be adequate to fund the
Company's needs during 2004. The Company has agreed to find additional financing
to fund the operations of Teletrax(TM) by January 15, 2005.
15
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Six months ended June 30, 2004 compared to Six months ended June 30, 2003
Revenues for the six months ended June 30, 2004 ("2004") were $22.58 million as
compared $22.65 million for the six months ended June 30, 2003 ("2003"), broken
out as follows:
(in thousands)
For the Six Months Ended June 30,
--------------------------------------
2004 2003 Change %
------- ------- ------- -------
Media Communication Services $17,469 $18,054 $ (585) (3%)
Research Communication Services 4,286 4,331 (45) (1%)
Teletrax:
Service Revenue 583 215 368 171%
Equipment Sales 238 54 184 341%
------- ------- ------- -------
Total Teletrax 821 269 552 205%
------- ------- ------- -------
Total Revenue $22,576 $22,654 $ (78) (0%)
======= ======= ======= =======
While the Company detected a slight rebound in spending in the public relations
industry during the first quarter and stronger into the second quarter, the
Company experienced a decrease in demand for its strategic services as a
significant client had fewer issue-related needs during 2004 as compared to
2003.
Direct costs increased by $55,000, or 1%, from $7.38 million in 2003 to $7.44
million in 2004. Included in direct costs were direct costs associated with
Teletrax Service Revenue of $440,000 and $249,000, respectively, in 2004 and
2003, and direct costs associated with Teletrax equipment sales of $161,000 and
$46,000, respectively, in 2004 and 2003. The Company's gross profit percentage
was 67% in both 2004 and 2003. The Company was able to maintain its gross profit
margins as a result of continued 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") decreased by $966,000,
or 6%, from $15.29 million in 2003 to $14.32 million in 2004. The decrease in S,
G & A includes decreases in payroll and payroll-related costs ("Payroll") of
approximately $482,000. Included in 2003 Payroll was $430,000 related to
termination costs. Not including the decrease in Payroll, the Company decreased
its S, G & A expenses by $483,000, substantially the result of reduced spending
on advertising and marketing, travel and entertainment, insurance, rent and
office costs.
Depreciation and amortization expense increased by $165,000, or 15%, from $1.12
million in 2003 to $1.28 million in 2004. Included in depreciation and
amortization is depreciation related to Teletrax of $264,000 and $162,000 in
2004 and 2003, respectively. The increase was due to fixed asset additions
during the last twelve months, substantially related to the rollout of
Teletrax(TM).
16
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
During 2004 the Company recorded a loss on the impairment of investments of
$342,000 related to two investments accounted for under the equity cost method.
As a result of the foregoing, the Company had an operating loss of $946,000 in
2004 as compared to an operating loss of $1.32 million in 2003. The operating
loss in 2004 and 2003 included operating losses of $1.00 million and $1.35
million, respectively, from the Company's 76% owned subsidiary, Teletrax(TM),
which was formed in April 2002. The minority shareholder of Teletrax(TM) has no
future funding obligations and, accordingly, the Company has recorded 100% of
the loss from this subsidiary.
Income tax benefit was calculated using Medialink's effective tax rates on US
pretax earnings of 41% in both 2004 and 2003. In both 2004 and 2003 the Company
was also subject to minimum state and local taxes and taxes on capital.
Additionally, as a result of the limited historical results of its UK
operations, including Teletrax(TM) and management's limited ability to project
its UK future results, the Company has recorded a valuation allowance of $1.1
million related to the foreign deferred tax asset generated by its cumulative UK
losses. Tax assets are recognized based upon expected taxable income. Recording
the additional valuation allowance and the minimum state and local taxes reduces
the effective tax rates to 8% and 14% in 2004 and 2003, respectively.
The Company had a net loss of $1.01 million in 2004 as compared to a net loss of
$1.28 million in 2003. In 2004 the Company had a loss per share of $0.17
compared to a loss per share of $0.21 in 2003.
17
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Three months ended June 30, 2004 compared to Three months ended June 30, 2003
Revenues for the three months ended June 30, 2004 (the "2004 Quarter") were
$12.01 million as compared $11.69 million for the three months ended June 30,
2003 (the "2003 Quarter"), broken out as follows:
(in thousands)
For the Three Months Ended June 30,
--------------------------------------
2004 2003 Change %
------- ------- ------- -------
Media Communication Services $ 9,410 $ 9,471 $ (61) (1%)
Research Communication Services 2,206 2,049 157 8%
Teletrax:
Service Revenue 315 122 193 158%
Equipment Sales 77 51 26 51%
------- ------- ------- -------
Total Teletrax 392 173 219 127%
------- ------- ------- -------
Total Revenue $12,008 $11,693 $ 315 3%
======= ======= ======= =======
While the Company experienced strong performances from its core services from a
continuing rebound in spending in the public relations industry, the Company
experienced a significant decrease in demand for its strategic services as one
of its' clients had fewer issue-related needs during the 2004 Quarter as
compared to the 2003 Quarter.
Direct costs increased by $326,000, or 9%, from $3.84 million in the 2003
Quarter to $4.16 million in the 2004 Quarter. Included in direct costs were
direct costs associated with Teletrax Service Revenue of $253,000 and $148,000,
respectively, in the 2004 and 2003 Quarters and direct costs associated with
Teletrax equipment sales of $43,000 and $41,000, respectively, in the 2004 and
2003 Quarters. The Company's gross profit percentage was 65% and 67% in the 2004
Quarter and the 2003 Quarter, respectively. The decrease in the gross profit
percentage was due to product mix, primarily as a result of a decrease in demand
on our strategic services. The Company was able to remain within its desired
gross profit margin range due to 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.
S, G & A decreased by $792,000, or 10%, from $7.82 million in the 2003 Quarter
to $7.03 million in the 2004 Quarter. The decrease in S, G & A includes a
decrease in payroll and payroll-related costs ("Payroll") of approximately
$579,000. Included in Payroll for the 2003 Quarter was $430,000 related to
termination costs. Excluding the decrease in Payroll, the Company decreased its
S, G & A expenses by $212,000. This decrease was substantially the result of
reduced spending in advertising and marketing, travel and entertainment, rent
and office costs.
18
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Depreciation and amortization expense increased by $51,000, or 9%, from $580,000
in the 2003 Quarter to $631,000 in the 2004 Quarter. Included in depreciation
and amortization is depreciation related to Teletrax of $134,000 and $100,000 in
the 2004 Quarter and 2003 Quarter, respectively. The increase was due to fixed
asset additions during the last twelve months, substantially related to the
rollout of Teletrax(TM).
As a result of the foregoing, the Company had an operating income of $142,000 in
the 2004 Quarter as compared to an operating loss of $633,000 in the 2003
Quarter. The operating income (loss) in 2004 and 2003 included operating losses
of $489,000 and $732,000, respectively, from the Company's 76% owned subsidiary,
Teletrax(TM), which was formed in April 2002. The minority shareholder of
Teletrax(TM) has no future funding obligations and, accordingly, the Company has
recorded 100% of the loss from this subsidiary.
Provision for income taxes (income tax benefit) was calculated using Medialink's
effective tax rates on US pretax earnings of 41% in both 2004 and 2003. In both
2004 and 2003 the Company was also subject to minimum state and local taxes and
taxes on capital. Additionally, as a result of the limited historical results of
its UK operations, including Teletrax(TM) and management's limited ability to
project its UK future results, the Company has recorded a valuation allowance of
$1.1 million related to the foreign deferred tax asset generated by its
cumulative UK losses. Tax assets are recognized based upon expected taxable
income. Recording the additional valuation allowance and the minimum state and
local taxes increase the effective tax rate to 86% in the 2004 Quarter and
reduces the effective tax rate to 14% in the 2003 Quarter.
The Company had net income of $9,000 in the 2004 Quarter as compared to a net
loss of $598,000 in the 2003 Quarter. In 2004 the Company had a break-even
earnings per share compared to a loss per share of $0.10 in 2003.
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 $263,000 for the six month period ended June 30, 2004,
while net cash used in operating activities for the comparable period in 2003
was $1.36 million. The change was the result of the changes in operating assets
and liabilities. Most notably, during the six months ended June 30, 2004
accounts receivable increased $460,000 as compared to the comparable period in
2003 where accounts receivable increased $1.51 million. Capital expenditures
which are primarily incurred to support the Company's sales and operations and
the continuing roll-out of the Teletrax(TM) network were $456,000 in 2004
compared to $1.06 million in 2003. Cash flows related to earn out payments on
the Company's various acquisitions amounted to $341,000 in 2003. As of June 30,
2003 and 2004 the Company had no future obligation for earn-out payments on its
acquisitions.
19
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The Company has a line of credit facility with a bank which allowed for
borrowings of up to $7.50 million through April 15, 2004. At June 30, 2004
maximum borrowing under the line of credit was $4.00 million. Loans under the
Credit Facility bore interest at the 30-Day LIBOR Rate (1.36% at June 30, 2004)
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. At
December 31, 2003 the Company was not in compliance with the minimum tangible
net worth covenant which was been waived by the lender through April 15, 2004
through the issuance of a forbearance. In conjunction with the forbearance, the
lender required the Company to pay down its line of credit by $500,000, reduce
the maximum borrowings under the facility to $5.00 million and put into place a
minimum cash balance and limits on capital expenditure covenants, as defined in
the forbearance.
In April 2004 the bank issued an additional forbearance (the "Forbearance")
expiring January 31, 2005. The Forbearance reduces the maximum line to the lower
of (i) $4.00 million, $3.75 million, $3.50 million and $3.00 million at April
15, 2004, July 1, 2004, October 1, 2004 and December 31, 2004, respectively, or
(ii) 80% of eligible accounts receivable balances, as defined in the
Forbearance. Interest under the Forbearance is payable monthly at the rate of
the 30-Day LIBOR Rate plus 5.5% per annum. Covenants under the Forbearance
include limits on capital expenditures, minimum earnings before interest, taxes,
depreciation and amortization and minimum tangible net worth, as defined in the
agreement. Additionally, the Forbearance requires the Company to obtain
financing by January 15, 2005 to support its Teletrax(TM)'s operations.
As of June 30, 2004 Medialink had $1.46 million in cash and cash equivalents as
compared to $3.71 million as of December 31, 2003. In addition, the Company had
a balance due under its line of credit facility of $4.00 million and $5.50
million at June 30, 2004 and December 31, 2003, respectively. The decrease in
cash and cash equivalents of $2.25 million includes purchases of fixed assets of
$456,000, and pay downs, net of borrowings on its line of credit facility
aggregating $1.50 million. The remaining change was substantially attributable
to the changes in its operating assets and liabilities.
The Company believes, based upon its financial forecast, that it has sufficient
capital resources, including availability under its line of credit facility,
alternate sources of funding, and cash flow from operations, to fund its net
cash needs for at least the next twelve months. The Company also believes that
in the event that actual 2004 revenues are lower than its forecast, that the
Company's Direct, Selling, General and Administrative costs can be reduced to
minimize the effect on forecasted results.
Contractual Obligations
There were no material changes to our contractual obligations during the 2004
Quarter. For information regarding our contractual obligations at December 31,
2003, see our Annual Report on Form 10-K for the fiscal year ended December 31,
2003.
20
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
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 these clients may determine that
their messages may not receive adequate attention in light of the coverage of
other news events. These 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 on the Company's
business, operating results and financial condition.
21
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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 line of credit facility with a bank which allowed for
borrowings of up to $7.50 million through April 15, 2004. At June 30, 2004
maximum borrowing under the line of credit was $4.00 million. Loans under the
Credit Facility bore interest at the 30-Day LIBOR Rate (1.36% at June 30, 2004)
plus 2.25% through 3.25%, per annum, as defined in the agreement. 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. At December 31, 2003 the Company was not in compliance with the
minimum tangible net worth covenant which has been waived by the lender through
April 15, 2004 through the issuance of a forbearance. In conjunction with the
forbearance, the lender required the Company to pay down its line of credit by
$500,000, reduce the maximum borrowings under the facility to $5.00 million and
put into place a minimum cash balance and limits on capital expenditure
covenants, as defined in the forbearance.
In April 2004 the bank issued an additional forbearance (the "Forbearance")
expiring January 31, 2005. The Forbearance reduced the maximum line to the lower
of (i) $4.00 million, $3.75 million, $3.50 million and $3.00 million at April
15, 2004, July 1, 2004, October 1, 2004 and December 31, 2004, respectively, or
(ii) 80% of eligible accounts receivable balances, as defined in the
Forbearance. Interest under the Forbearance is payable monthly at the rate of
the 30-Day LIBOR Rate plus 5.5% per annum. Covenants under the Forbearance
include limits on capital expenditures, minimum earnings before interest, taxes,
depreciation and amortization and minimum tangible net worth, as defined in the
agreement. Additionally, the Forbearance requires the Company to obtain
financing by January 15, 2005 to support Teletrax(TM)'s operations.
While management believes the Company is currently in compliance with the
covenants under the line of credit agreement and related forbearance 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.
22
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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.
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(TM), our ability to develop new products and services that keep pace
with technology, our ability to develop and maintain successful relationships
with critical vendors and 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, 2003.
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 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.
23
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.
In 2001 and 2000, goodwill was amortized on a straight-line basis over its
expected useful life, not to exceed 40 years, and we periodically reviewed the
recoverability of goodwill and intangible assets. 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.
The agreements pursuant to which the Company acquired certain companies included
provisions that could require the Company to issue additional cash or shares of
common stock if certain performance targets are met. The value of any such
additional consideration was added to the goodwill related to such acquisition.
As of June 30, 2004 and 2003 the Company had no future commitments on any of its
acquisitions that would result in additional goodwill to be recorded.
Long-lived Assets
Long-lived assets, such as property, plant, and equipment, and purchased
intangibles subject to amortization, 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 estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell and are no longer depreciated. The assets and
liabilities of a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance sheet.
24
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
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.
25
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Debt
The Company has a line of credit agreement which exposes the Company to the risk
of earnings or cash flow loss due to changes in market interest rates. At June
30, 2004, $4.00 million was outstanding on the line of credit which has a
maturity date of January 2005. The interest rate is based upon the 30-day LIBOR
rate plus 5.50%, per annum, as defined in the agreement. All other Company debt
is fixed-rate and, therefore, does not expose the Company to the risk of earning
or cash flow loss due to changes in market interest rate. See footnote 6, "Line
of Credit".
Foreign Operations
In the normal course of business, through its UK operations, the Company is
exposed to the effect of foreign exchange rate fluctuations on the United States
dollar value of its foreign subsidiaries' results of operations and financial
condition. At June 30, 2004, the Company's primary foreign currency market
exposure was the British pound.
Market Risk
Our accounts receivables are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result we do not anticipate any material losses in this area.
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.
26
MEDIALINK WORLDWIDE INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
From time to time, the Company becomes involved in
various legal matters that the Company considers to be in the ordinary
course of business. While the Company is not presently able to
determine the potential liability, if any, related to any such matters,
the Company believes that none of such matters, individually or in the
aggregate, will have a material adverse effect on its financial
position.
ITEM 2. Changes in Securities, and Use of Proceeds and Issuer Purchases of
Equity Securities.
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:
31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.2 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:
Report on Form 8-K dated May 4, 2004 regarding earnings for the
three months ended March 31, 2004.
27
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: August 13, 2004
28