U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ------
Exchange Act of 1934
For the quarterly period ended September 30, 1997 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 33-60296
Globalink, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 54-1473222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9302 Lee Highway, 12th Floor, Fairfax, VA 22031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 273-5600
Not Applicable
(Former name, address and fiscal year, if changed since last report)
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
Registrant had 8,432,962 shares of common stock outstanding as of September 30,
1997.
GLOBALINK, INC.
TABLE OF CONTENTS
Part I Financial Information: Page No.
Item 1. Financial Statements
Balance Sheets as of September 30, 1997,
and December 31, 1996 1
Statements of Operations for the Three
Months Ended September 30, 1997, and
September 30, 1996 2
Statements of Operations for the Nine
Months Ended September 30, 1997, and
September 30, 1996 3
Statements of Cash Flows for the Nine
Months Ended September 30, 1997, and
September 30, 1996 4
Notes to Interim Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 12
Item 1. Financial Statements
GLOBALINK, INC.
BALANCE SHEETS
September 30, December 31,
1997 1996
---------------- ----------------
ASSETS (Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $ 1,116,827 $ 1,606,088
Marketable securities 0 0
Accounts receivable, net of allowances of
$3,017,832 and $3,004,653 12,270,688 9,040,297
Inventories 636,625 818,294
Prepaid expenses and deposits 354,072 108,745
Other receivables 373,168 126,894
---------------- ----------------
Total Current Assets 14,751,380 11,700,318
Equipment and Furniture, net of accumulated
depreciation of $1,087,859 and $768,629 662,837 879,753
Capitalized Software, net of accumulated
amortization of $5,144,758 and $4,650,197 658,888 817,988
---------------- ----------------
Total Assets $ 16,073,105 $ 13,398,059
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 2,321,455 $ 2,057,002
Accrued and other liabilities 952,790 763,948
Current portion of notes payable 1,294,356 1,279,000
---------------- ----------------
Total Current Liabilities 4,568,601 4,099,950
Long-Term Notes Payable 112,750 216,356
Deferred Rent 47,174 65,706
Stockholders' Equity:
Preferred stock, $.01 par value, 250,000 shares
authorized, 26,771 and 40,224 shares
issued and outstanding 755,354 1,154,658
Common stock, $.01 par value, 20,000,000 shares
authorized, 8,432,962 and 5,341,352 shares
issued and outstanding 84,330 53,413
Additional paid-in capital - common stock 21,398,049 18,702,013
Accumulated deficit (10,893,153) (10,894,037)
---------------- ----------------
Total Stockholders' Equity 11,344,580 9,016,047
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 16,073,105 $ 13,398,059
================ ================
<FN>
The accompanying notes are an integral part of these statements.
1
</FN>
GLOBALINK, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
1997 1996
---------------- ----------------
(Unaudited) (Unaudited)
Product sales (net of returns and allowances) $ 3,819,057 $ 3,650,517
Translation service revenue 371,892 540,176
---------------- ----------------
4,190,949 4,190,693
Costs and Expenses:
Cost of products sold 375,006 496,963
Amortization of capitalized software 136,554 184,073
Direct labor and fringes 218,336 287,642
Development 216,448 347,477
Selling, marketing and other 2,147,235 2,093,365
Administrative 894,512 864,187
---------------- ----------------
3,988,091 4,273,707
---------------- ----------------
Income (Loss) From Operations 202,858 (83,014)
Interest expense, net (2,130) (15,938)
---------------- ----------------
Income (Loss) Before Income Taxes 200,728 (98,952)
Income tax expense 0 0
---------------- ----------------
Net Income (Loss) $ 200,728 $ (98,952)
================ ================
Preferred Stock Dividends (17,787) 0
---------------- ----------------
Net Income (Loss) Applicable to Common Shares $ 182,941 $ (98,952)
================ ================
Earnings (Loss) Per Common Share $ 0.03 $ (0.02)
================ ================
Average number of common shares and common share
equivalents outstanding during the period 6,869,022 5,341,352
================ ================
<FN>
The accompanying notes are an integral part of these statements.
2
</FN>
GLOBALINK, INC.
STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
1997 1996
---------------- ----------------
(Unaudited) (Unaudited)
Product sales (net of returns and allowances) $ 10,387,308 $ 10,925,914
Translation service revenue 970,959 1,019,509
---------------- ----------------
11,358,267 11,945,423
Costs and Expenses:
Cost of products sold 1,236,722 1,363,692
Amortization of capitalized software 494,561 438,215
Direct labor and fringes 440,900 546,223
Development 654,272 1,074,504
Selling, marketing and other 5,809,842 6,079,346
Administrative 2,706,182 2,405,155
---------------- ----------------
11,342,479 11,907,135
---------------- ----------------
Income From Operations 15,788 38,288
Interest expense, net (14,904) (15,557)
---------------- ----------------
Income Before Income Taxes 884 22,731
Income tax expense 0 0
---------------- ----------------
Net Income $ 884 $ 22,731
================ ================
Preferred Stock Dividends (74,330) 0
---------------- ----------------
Net (Loss) Income Applicable to Common Shares $ (73,446) $ 22,731
================ ================
(Loss) Earnings Per Common Share $ (0.01) $ 0.00
================ ================
Average number of common shares and common share
equivalents outstanding during the period 6,115,579 5,340,876
================ ================
<FN>
The accompanying notes are an integral part of these statements.
3
</FN>
GLOBALINK, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
---------------- ----------------
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income (loss) $ 884 $ 22,731
---------------- ----------------
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Amortization of capitalized software 494,561 438,215
Depreciation 319,230 268,282
Change in Assets and Liabilities
Increase in accounts receivable (3,230,391) (2,799,978)
Decrease (increase) in inventories 181,669 (125,907)
Increase in prepaid expenses and deposits (245,327) (93,922)
Increase in other receivables (246,274) (31,190)
Increase in accounts payable 264,453 285,139
Increase in accrued and other liabilities 188,842 53,392
Decrease in deferred rent (18,532) (12,496)
---------------- ----------------
Total Adjustments (2,291,769) (2,018,465)
---------------- ----------------
Net cash used in operating activities (2,290,885) (1,995,734)
---------------- ----------------
Cash flows from investing activities
Decrease in marketable securities 0 1,179,237
Increase in capitalized software (335,461) (341,404)
Capital expenditures for equipment and furniture (102,314) (206,368)
---------------- ----------------
Net cash provided by (used in) investing activities (437,775) 631,465
---------------- ----------------
Cash flows from financing activities
Issuance of preferred stock 2,381,776 0
Issuance of common stock 20,203 162,721
Preferred stock dividends (74,330) 0
(Repayment) Issuance of debt (88,250) 433,750
---------------- ----------------
Net cash provided by financing activities 2,239,399 596,471
---------------- ----------------
Net decrease in cash and cash equivalents (489,261) (767,798)
Cash and cash equivalents at beginning of period 1,606,088 819,846
---------------- ----------------
Cash and cash equivalents at end of period $ 1,116,827 $ 52,048
================ ================
<FN>
The accompanying notes are an integral part of these statements.
4
</FN>
GLOBALINK, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A -- Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the interim period ended September
30, 1997, are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the financial statements and the
related footnotes included in the Company's audited financial statements for the
year ended December 31, 1996.
NOTE B -- Composition of Certain Financial Statement Captions
1. Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with a maturity of
three months or less to be cash equivalents.
2. Marketable Securities
Marketable securities include government debt securities which mature within one
year. The Company classifies debt securities as held-to-maturity.
Held-to-maturity securities are carried at amortized cost which equals estimated
fair value.
3. Inventories
Inventories consist of finished goods and work-in-process which are stated at
the lower of first-in, first-out (FIFO) cost or market.
4. Prepaid Expenses and Deposits
Prepaid expenses and deposits consist of prepaid advertising and brochures and
other prepaid amounts. The Company expenses the costs of first-time advertising
when the material is published. Prepaid advertising and brochures consist of
advertising costs paid in advance of publication. Also included in prepaid
advertising and brochures expense are the costs of developing various marketing
and product materials for new software. These costs are expensed when the
software is released.
5. Equipment and Furniture
Equipment and furniture consist of office and other equipment and furniture and
fixtures. Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives, ranging
from three to seven years. The straight-line method of depreciation is followed
for all assets for financial reporting purposes. Accelerated methods are used
for tax purposes.
6. Capitalized Software
The Company capitalizes certain initial software development costs and
enhancements thereto incurred after technological feasibility has been
demonstrated. To date, all products and enhancements thereto have utilized
proven technology. Such capitalized amounts are amortized commencing with
product introduction over the greater of the ratio of current gross revenue for
a product to the total expected gross revenue over the life of that product, or
the straight-line method over the remaining estimated economic life, ranging
from 18 months to three years. The unamortized capitalized costs by product are
reduced to an amount not to exceed the future net realizable value by product at
each balance sheet date.
5
NOTES TO INTERIM FINANCIAL STATEMENTS -- (Continued)
7. Accrued and Other Liabilities
Accrued and other liabilities consist of accrued salaries, commissions, payroll
taxes and fringe benefits, accrued royalties and other accrued liabilities.
8. Earnings Per Common Share
Earnings per common share are computed by dividing net income, adjusted for
dividends related to the Company's preferred stock, by the weighted average
number of common shares and common share equivalents, unless antidilutive,
outstanding during the period.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings Per
Share," which will be effective for financial statements issued for periods
ending after December 15, 1997. SFAS No. 128 requires that public companies
present basic and diluted earnings per share, which are computed differently
than the currently used primary and fully diluted earnings per share. The most
significant difference in the computation for the Company is the exclusion of
the effect of dilutive stock options from the computation of basic earnings per
share. Basic and diluted earnings per share for the quarters ended September 30,
1997 and 1996, would not have been different than the earnings per common share
reported for those periods.
NOTE C - Related Party Transactions
During 1996, the Company loaned $95,000 to two officers. One officer was loaned
$25,000 at an interest rate of 9-1/4%, which is payable on demand. A second
officer was loaned $70,000 at an interest rate of 8% in two separate promissory
notes, which are both payable on demand. In January and April 1997, the second
officer was loaned an additional $110,000 and $125,000, respectively, at an
interest rate of prime plus 1%, which are both payable on demand.
NOTE D - Employment Agreements
The Company has entered into employment agreements with four of its employees.
The agreements are each for a three-year period commencing between March 1995
and June 1996 and will renew automatically for succeeding periods of one year
unless sooner terminated. In the event the Company terminates without cause the
employment of any of these employees, the employee shall receive an amount equal
to one year's base salary plus accrued benefits and incentive compensation. The
agreements contain a provision which triples certain amounts due in the event of
a hostile takeover. The agreements also contain provisions for the accelerated
vesting of options if certain defined changes to the composition of the Board of
Directors should occur. During 1996, one agreement was terminated by mutual
agreement between the Company and an employee.
NOTE E - Warrants, Options and Other Stock Issued
1. Stock Options Issued
The Company issues options to employees, members of its Board of Directors and
outside vendors based on merit or in payment of debt. The Company has accounted
for its options under APB Opinion No. 25 and related interpretations. The
options, which have a term of five years when issued, are granted at various
times during the year and vest based upon individual grant specifications. The
exercise price of each option equals or exceeds the market price of the
Company's stock on the date of grant. No compensation cost has been recognized
for employee options.
2. Prepaid Warrants Issued
During 1996, the Company sold three prepaid warrants to a private fund in the
amount of $500,000 each for a total of $1,500,000. Each warrant is convertible
into shares of common stock at the lower of $5.25 per share, or 85% of the
arithmetic average of the prior five days closing prices. As part of the
agreement, the Company also issued 33,613 options at an exercise price of $5.25
per share to the private
6
NOTES TO INTERIM FINANCIAL STATEMENTS -- (Continued)
fund. The options have a term of four years. In addition, the Company issued
20,000 options at an exercise price of $5.25 per share to both Tanner Unman
Securities, Inc., and Prudential Securities, Inc., both of whom facilitated the
agreement with the private fund. These options also have a term of four years.
As of September 30, 1997, the private fund had converted the prepaid warrants
into 526,832 shares of common stock.
3. Preferred Stock Issued
During 1996, the Company's Board of Directors approved a private placement of
Series A-2, 8% convertible, redeemable preferred stock and associated stock
warrants. Dividends on the preferred stock are cumulative and payable annually
in arrears, beginning January 1, 1998, in either cash or additional shares of
preferred stock, at the option of the Company. The dividend is calculated as 8%
of the book value of the stock, based on its original trading price. The
preferred stock is convertible into ten shares of common stock any time after 30
days from the date of issuance. Any unconverted preferred stock remaining at
January 1, 2002, will automatically be converted into ten shares of common stock
per preferred share at that time. Each share of preferred stock was also issued
with one warrant entitling the holder to purchase ten shares of common stock
each at $4.18 per share. At September 30, 1997, and December 31, 1996, the
Company had outstanding 26,771 and 40,224 shares of Series A-2 preferred stock
and 44,415 and 40,224 associated stock warrants, respectively.
In March 1997, the Company's Board of Directors approved a private placement of
Series A-3, convertible, redeemable preferred stock and associated stock
warrants. The Company sold 2,502 shares of Series A-3 preferred stock to a
private fund for a total of $2,502,000. Each share is convertible into shares of
common stock at the lower of $3.44 per share, or 85% of the arithmetic average
of the prior five days closing prices. As part of the agreement, the Company
also issued 85,568 options at an exercise price of $4.30 per share to the
private fund. The options have a term of four years. In addition, the Company
issued 25,020 options at an exercise price of $3.44 per share to Tanner Unman
Securities, Inc., and 20,000 options at an exercise price of $4.30 per share to
Prudential Securities, Inc., both of whom facilitated the agreement with the
private fund. These options also have a term of four years. As of September 30,
1997, the private fund had converted the Series A-3 preferred stock into
2,382,268 shares of common stock.
NOTE F - Export Sales
The Company sells software abroad through distributors, dealers and mail orders.
During the nine months ended September 30, 1997, export sales to Brazil totaled
$3,102,000, or approximately 27% of net sales. During the corresponding period
in 1996, export sales to France and Germany totaled $2,096,000 and $1,529,000,
respectively, or approximately 18% and 13% of total sales, respectively. Total
export sales for the nine months ended September 30, 1997 and 1996, were
approximately $6,782,000 and $6,427,000, respectively. Substantially all sales
are completed in U.S. Dollars.
NOTE G - Concentration of Credit Risk
Due to the nature of the Company's business, sales to a few customers, primarily
software distributors, have accounted for a significant percentage of the
Company's sales. During the nine months ended September 30, 1997, two customers
accounted for 30% of net sales. During the corresponding period in 1996, three
customers accounted for 38% of net sales. Accounts receivable at September 30,
1997, and December 31, 1996, include approximately $4,812,000 and $3,981,000,
respectively, in amounts due from three customers.
NOTE H - Software Revenue Recognition
The Accounting Standards Executive Committee has issued SOP 97-2, "Software
Revenue Recognition," which will be effective for financial statements issued
for periods ending after December 15, 1997. SOP 97-2 provides guidance on when
revenue should be recognized and in what amounts for licensing, selling, leasing
or otherwise marketing computer software. The adoption of SOP 97-2 is not
expected to have a material impact on the Company's financial statements.
7
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
This Form 10-QSB contains historical information and forward-looking statements.
Statements looking forward in time are included in this Form 10-QSB pursuant to
the "safe harbor" provision of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks and uncertainties
including, but not limited to, the timely availability of new products, market
acceptance of the Company's existing products and products under development,
the impact of competing products and pricing, the availability of sufficient
resources including short- and long-term financing to carry out the Company's
product development and marketing plans, and quarterly fluctuations in operating
results. The Company's actual results in future periods may be materially
different from any future performance suggested herein. Further, the Company
operates in an industry sector where securities' values may be volatile and may
be influenced by economic and other factors beyond the Company's control. In the
context of the forward-looking information provided in this Form 10-QSB, please
refer to the Company's most recent Form 10-KSB and the Company's other filings
with the Securities and Exchange Commission.
The Company's ability to generate increased revenue and to fund planned
expenditures is dependent on a number of factors, many of which are outside its
control. Revenue growth and profitability, if any, will depend on the ability of
the Company to develop and market new products and product enhancements, demand
for the Company's products, the level of product and price competition, the
success of the Company in attracting and retaining motivated and qualified
personnel, the ability of the Company to control its costs and general economic
conditions. There can be no assurance that the Company will meet such challenges
successfully. Any of these or other factors could have a material adverse effect
on the Company's business, operating results and financial condition.
The Registrant's net income for the three months ended September 30, 1997, was
$201,000 compared to a net loss of $99,000 for the corresponding period in 1996.
Revenues for the same three month period remained unchanged at $4,191,000. For
the nine months ended September 30, 1997, the net income was $1,000 compared to
net income of $23,000 for the corresponding period in 1996. Revenues for the
same nine month period decreased 5% to $11,358,000 from $11,945,000.
Product sales for the three months ended September 30, 1997, increased 5% to
$3,819,000 from $3,651,000 for the corresponding period in the prior year. For
the nine months ended September 30, 1997, product sales decreased 5% to
$10,387,000 from $10,926,000 for the corresponding period in the prior year. The
decrease resulted primarily from the Company's increased efforts to reduce
distributor inventory in the channels, align sell-through campaigns with sales
of products into the channels, and collect existing receivable balances to
provide for more consistent sales cycles. The Company continues to open new
distributor channels, increase growth in the existing distributor channels and
pursue additional OEM opportunities. The Language Assistant Series Localized
version and the Power Translator and Language Assistant Series versions for
Windows in CD-ROM media have been the primary vehicle for sales to the Company's
distributors and have been well accepted. In addition, the Company introduced
Power Translator 6.0 in June 1996, Talk to Me in December 1996, Power Translator
Pro 6.2 in March 1997, and Language Assistant 2.0 in September 1997, all of
which have also been well accepted and contributed to sales during the period
ended September 30, 1997.
International sales for the three months ended September 30, 1997, increased 45%
to $2,774,000 from $1,915,000 for the corresponding period in 1996. For the nine
months ended September 30, 1997, international sales increased 6% to $6,782,000
from $6,427,000 for the corresponding period in 1996. The primary exports have
been to Europe, Canada and Latin America. International sales have been
primarily attributable to further development of the Company's network of
international distributors, along with additional OEM contracts entered into in
Latin America and Europe. In addition, the Company's introduction of a
Portuguese version of Power Translator Pro 6.2 in March 1997 has been very well
accepted in Brazil. The Company has also shifted its focus in Europe away from
the exclusive use of key major distributors towards smaller, more active, second
tier distributors who are better able to promote and sell its products into the
retail channel of their respective geographical locations.
8
Translation service revenue for the three months ended September 30, 1997,
decreased 31% to $372,000 from $540,000 for the corresponding period in the
prior year. For the nine months ended September 30, 1997, translation service
revenue decreased 5% to $971,000 from $1,020,000 for the corresponding period in
1996.
Sales returns and allowances decreased to $2,490,000 for the nine months ended
September 30, 1997, compared to $3,114,000 for the corresponding period in 1996,
primarily due to the decrease in product sales. The Company has continued its
efforts to reduce distributor inventory and align sell-through campaigns with
sales of products into the channels. Distribution agreements typically allow for
the return of certain merchandise to provide for stock balancing. The Company
continuously monitors these programs and makes appropriate accruals monthly to
handle future distribution stock balancing. The following table shows the gross
product sales, returns and net product sales for the periods indicated.
Nine months ended September 30,
1997 1996
--------------------------------------
Gross Product Sales $ 12,877,000 $ 14,040,000
Returns (2,490,000) (3,114,000)
--------------------------------------
Net Product Sales $ 10,387,000 $ 10,926,000
--------------------------------------
Cost of products sold for the three months ended September 30, 1997, decreased
25% to $375,000 from $497,000 for the corresponding period in the prior year.
For the nine months ended September 30, 1997, cost of products sold decreased 9%
to $1,237,000 from $1,364,000 for the corresponding period in the prior year.
The decrease in cost of products sold was primarily due to decreased product
sales. This was partially offset by the increased costs of certain products due
to associated royalties for the licensing of products, such as Talk to Me, and
various features, such as speech recognition and word processing filters in
other products. Gross profit margin was 90% for the three months ended September
30, 1997, compared to 88% for the corresponding period in 1996. For the nine
months ended September 30, 1997, gross profit margin was 89% compared to 89% for
the corresponding period in 1996.
Amortization of capitalized software for the three months ended September 30,
1997, decreased 26% to $137,000 from $184,000 for the corresponding period in
the prior year. For the nine months ended September 30, 1997, amortization of
capitalized software increased 13% to $495,000 from $438,000 for the
corresponding period in the prior year. The increase is due to the release of
new products in the latter part of 1996 and in March and September of 1997 for
which previously capitalized software development costs began to be amortized.
This was partially offset by the impact of certain previously capitalized
software development costs becoming fully amortized in June of 1997.
Direct labor and fringes, which principally include charges for independent and
in-house translators within the translation services group, decreased 24% for
the three months ended September 30, 1997, to $218,000 from $288,000 for the
corresponding period in 1996. For the nine months ended September 30, 1997,
direct labor and fringes decreased 19% to $441,000 from $546,000 for the
corresponding period in 1996. These expenses decreased from 54% to 45% as a
percentage of Translation Services revenues. This decrease was primarily
attributable to fluctuations in the number and relative size of jobs being
performed, as the gross margin varies with the size of the job. The Company has
experienced an increase in the number of larger jobs being performed, which
carry a higher gross margin.
Product development expenses, which consist of the current cost of
non-capitalizable development expenses, decreased 38% for the three months ended
September 30, 1997, to $216,000 from $347,000 for the corresponding period in
the prior year. For the nine months ended September 30, 1997, product
development expenses decreased 39% to $654,000 from $1,075,000 for the
corresponding period in the prior year. The decrease was a result of the
Company's completion of several new products resulting in reduced costs
associated with certain outside consultants who were assisting in the
development of those products.
9
Selling, marketing and other expenses, which include the costs of selling,
marketing, customer support, shipping and administration for product sales,
increased 3%, or $54,000, to $2,147,000 for the three months ended September 30,
1997, from $2,093,000 for the corresponding period in 1996. For the nine months
ended September 30, 1997, selling, marketing and other expenses decreased 4%, or
$269,000, to $5,810,000 from $6,079,000 for the corresponding period in 1996.
This decrease was primarily attributable to the Company's increased focus of
fiscal resources on more effective promotion and advertising programs,
particularly in print media and retail store promotions.
General and administrative expenses consist primarily of payroll and related
expenses, occupancy costs, travel and related expenses for senior management,
finance and accounting, legal and administration. For the three months ended
September 30, 1997, these expenses increased 3%, or $31,000, to $895,000 from
$864,000 for the corresponding period in the prior year. For the nine months
ended September 30, 1997, these expenses increased 13%, or $301,000, to
$2,706,000 from $2,405,000 for the corresponding period in the prior year. The
increases occurred primarily in the areas of payroll, legal fees, insurance
costs, rent and depreciation as a result of additional expenses incurred to
support the anticipated growth of the Company.
Interest expense was $2,000 for the three months ended September 30, 1997,
compared to $16,000 for the corresponding period in 1996. For the nine months
ended September 30, 1997, interest expense was $15,000 compared to $16,000 for
the corresponding period in 1996. This was due to interest expense incurred as a
result of draws on the Company's revolving and equipment lines of credit.
Income Tax Expense
No provision for income taxes was required due to the Company's net operating
loss ("NOL") carryforwards. Approximately $9,084,000 of NOL carryforwards
existed at December 31, 1996. Accordingly, the NOL carryforwards at September
30, 1997, are sufficient to cover any potential income tax expense generated as
a result of the earnings as reported.
Liquidity and Financial Resources
The Company anticipates that the net proceeds from the private placements in
October and December 1996 and March 1997, together with cash flow from
operations, existing cash balances, and periodic borrowings under the Company's
bank line of credit will be adequate to meet the Company's expected cash
requirements through 1997. In addition, the Company raised $1,000,000 in a
private placement of 727,274 units in October 1997. Each unit consisted of one
share of common stock and one warrant which entitles the holder to purchase one
share of common stock at an exercise price of $1.75.
While operating activities may provide cash in certain periods, to the extent
the Company experiences growth in the future, the Company anticipates that its
operating and product development activities may use cash and, consequently,
such growth may require the Company to obtain additional sources of financing.
There can be no assurances that unforeseen events may not require more working
capital than the Company currently has at its disposal.
If additional funds are raised through the issuance of equity or convertible
securities, the Company's current shareholders will experience additional
dilution. While management of the Company believes additional funding will be
available if and when needed, there can be no assurance that additional
financing will be available on terms acceptable to the Company, if at all. The
inability to obtain additional financing, if and when needed, would have a
material adverse effect on the Company, including possibly requiring the Company
to curtail or cease operations.
The Company has experienced certain payment delays from some of its OEM
customers. One European customer, which represents approximately $1,500,000 of
overdue receivables, has stated a need for further delays in payment. Company
executives have held face-to-face meetings with such customer in an attempt to
expedite payment. Concurrent with such efforts, the Company is preparing legal
remedies should business solutions prove unsuccessful or require other future
payment plans. Investigation into the viability and financial strength of this
customer suggests that it is able to meet its financial obligations.
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The Company has secured a $3,000,000 revolving line of credit and a $750,000
equipment line of credit with First Union National Bank. As of September 30,
1997, the Company had $1,000,000 outstanding under the revolving line of credit,
which is being used to finance its short term working capital needs. In
addition, the Company had $488,000 outstanding under the equipment line of
credit, which was used to pay off prior financing of equipment purchases and to
finance additional equipment purchases.
Other than as discussed above, the Company is not aware of any known trends, or
uncertainties, that have had or are reasonably likely to have a material effect
on the Company's liquidity, capital resources or operations.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None.
b. Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GLOBALINK, INC.
(Registrant)
Date: November 12, 1997 By:/s/Mark A. Paiewonsky
------------------------
Mark A. Paiewonsky
Chief Financial & Accounting Officer
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