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Annual Report · Form 10-K
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10-K · Annual Report
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the
transition period from ____________to ____________
Medialink
Worldwide Incorporated
(Exact
name of registrant as specified in its charter)
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52-1481284
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(State
or other jurisdiction of incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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708
Third Avenue, New York, NY
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10017
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (212) 682-8300
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $0.01 per share
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National
Market System of NASDAQ
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o
No
x
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
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o Accelerated
filer o Non-accelerated
filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o
No
x
The
aggregate market value of the registrant’s voting and non-voting common equity
held by non-affiliates based on the closing market price on June 30, 2006,
was
$22,611,936.
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TABLE
OF CONTENTS
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Item
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Page
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PART
I |
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1
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Business
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2
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1A
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Risk
Factors
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6
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1B
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Unresolved
Staff Comments
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8
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2
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Properties
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8
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| 3 |
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Legal
Proceedings
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8
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| 4 |
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Submission
of
Matters to a Vote of Security Holders |
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8
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Executive
Officers
of the Company |
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9
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PART
II
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5
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Market
for the Registrant's Common Equity, Related Stockholder Matters
and Issuer
Purchases of Equity Securities
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10
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Selected
Financial Data
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11
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7
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Management's
Discussion and Analysis of Financial Condition and Results of Operations
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12
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| 7A |
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Quantitative
and Qualitative Disclosures About Market Risk |
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18
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| 8 |
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Financial
Statements
and Supplementary Data |
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18
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| 9 |
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Changes
in and
Disagreements With Accountants on Accounting and Financial Disclosure
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18
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| 9A |
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Controls
and Procedures
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18
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9B
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Other
Information
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18
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PART
III
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10
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19
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Executive
Compensation
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19
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| 12 |
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Security
Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
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19
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| 13 |
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Certain
Relationships
and Related Transactions |
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19
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14
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Principal
Accountant Fees and Services
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19
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PART
IV
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15
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Exhibits
and Financial Statement Schedules
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20
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Signatures
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21
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PART
I
Certain
statements made in this Annual Report on Form 10-K are “forward looking”
statements (within the meaning of the Private Securities Litigation Reform
Act
of 1995, as amended). Such statements involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from any future results, performance,
or achievements expressed or implied by such forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, our actual results could
differ materially from those set forth in the forward-looking statements. See
“Item 1A - Risk Factors” for a description of certain factors that might cause
such a difference.
General
Medialink
Worldwide Incorporated and its subsidiaries (the “Company”, “Medialink”, “we”,
“us”, “our”) is a leading global provider of media communications services to
corporations and other organizations. Through our media communications
operations in the United States and the United Kingdom, we provide unique news
and marketing media strategies and solutions that enable our clients to inform
and educate their audiences through various media, including television, radio,
and the Internet.
Through
our Teletrax subsidiaries, we provide digital video tracking services to video
content providers, such as entertainment companies, news organizations,
television syndicators, direct-response marketing companies, and a sports
organization. The Teletrax™ service provides broadcast television intelligence
to enable our clients to monitor broadcast usage of their content on a worldwide
basis.
In
September 2006, we sold our U.S. Newswire division, through which we provided
wire services to electronically distribute press releases and photography to
news media and on-line services for domestic governmental, public affairs,
and
non-profit organizations. U.S. Newswire was an operating segment within our
media communications segment.
Medialink
was incorporated in Delaware in 1986. Our website is http://www.medialink.com.
Our Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, and Current
Reports on Forms 8-K along with any amendments to those reports are available,
free of charge, on or through our Web site as soon as reasonably practicable
after we electronically file such reports with the Securities and Exchange
Commission.
Segment
Information
See
Note
22 to Medialink’s consolidated financial statements for financial information
about segments.
Services
Media
Communications Services. Our
media
communications services offer a range of video and audio consultation,
production, electronic storage, distribution, and monitoring services. Our
video
and audio offerings include video news releases, “b-roll” packages, short-form
promotional videos, live event broadcasts, and audio news releases that we
deliver to broadcast and broadband outlets. Our clients can choose individual
service offerings on a stand-alone basis or a suite of our service offerings
and
distribution channels to better reach their intended audience. We provide our
clients with consultative guidance to assist them in identifying potential
interest in their message, and offer our clients all aspects of production
services, including scripting, recording, editing, and narration. Through use
of
our internally-developed digital asset management (DAM) system - a dynamic
video
content management system that enables us to operate in a “tapeless” production
environment - we also offer our clients a subscription-based electronic storage,
management, delivery, and retrieval solution for their video, audio, and other
content. Clients can use this storage solution for all of their video, audio,
still picture, and print content regardless of its format and origination.
The
DAM system allows clients to collaborate with their colleagues, provide archive
access to broadcast and broadband media interested in the client’s content, and
easily post their content on their own or other third-party
websites.
We
distribute our clients’ content to appropriate television and radio stations
through our comprehensive distribution platform and to on-line media outlets
worldwide. In addition, we deliver branded client content in multiple formats
directly to consumers and other specific and general audiences via the Internet
with full disclosure as to its source. Our wide range of standard and customized
services enables our clients to build public recognition, highlight the launch
of new products, explain or respond to crisis situations, and meet their other
communications objectives. We monitor and analyze the extent to which content
is
aired through the use of several distinct services, used either independently
or
in combination. The services we use to monitor broadcasts include our Teletrax™
digital video tracking service and other monitoring services provided by
third-party vendors. This monitoring and analysis provides valuable feedback
to
our clients about the size and type of audience that was reached, and the
context in which the video was aired.
Video
news releases are video productions ranging in length from 90 seconds to several
minutes that are written and produced to communicate a client’s public
relations, public affairs, or corporate message, and are analogous to a printed
press release, transforming the printed word into the sound and pictures that
television newsrooms can use in news programming at their discretion. Video
news
releases have been produced and distributed to television stations for decades
and are used to display new products or services, demonstrate scientific or
technological breakthroughs, and generally offer broadcasters content that
they
may otherwise not be able to obtain on their own, such as motion picture
trailers, wind-tunnel testing of automobiles, or NASA space launches. Video
news
releases are paid for by the client seeking to announce news and they are
delivered to the media without charge. All video news releases are delivered
with “slates” or other labeling at the beginning of the video that identify the
client and provide technical and editorial contact information. Produced in
broadcast news style, video news releases relay the client’s news directly to
television news decision makers who may use the video and audio material either
in full or edited form, just as print media utilize traditional press releases.
Television station journalists decide whether and how to use video news releases
and the corresponding “b-roll” to illustrate or explain products, services, or
issues of interest to their viewers. The “b-roll” is supplementary and back-up
material that is provided with the video and does not contain a narrated audio
track, providing broadcasters with the ability to choose select portions of
the
video and provide their own editorial context.
We
also
provide our clients, through our “In the Know” segments and other narrative
marketing offerings, traditional branded advertising for their content by
directly purchasing the commercial airtime from broadcasters. These narrative
marketing segments, which are standard 30- or 60-second commercials that are
produced more quickly and inexpensively than traditional advertisements, are
intended to inform and educate the audience rather than sell products or
services. We provide our narrative marketing offerings as a stand-alone solution
for clients as well as an adjunct to our traditional earned media offering.
We
also produce short-form promotional videos that clients use for internal and
external presentations, the production of which is similar to that of video
news
releases, and present them on Internet websites, video kiosks, and other
non-broadcast platforms.
Our
service offerings for live event broadcasts include satellite media tours,
radio
media tours, video and audio conferences, webcasts, and special events
broadcasts. Satellite media tours consist of a sequence of one-on-one satellite
interviews with a series of television reporters across the country or around
the world. Satellite media tours typically allow an author, performer,
executive, or other spokesperson to bring attention to an issue or to promote
an
upcoming event, product, movie, or book release. Satellite media tours generally
are conducted from a studio but can originate from remote locations and may
be
aired live by the television station or recorded for a later airing. Radio
media
tours are similar to satellite media tours, but are provided to radio stations.
Both satellite media tours and radio media tours are fully interactive with
broadcast or broadband journalists, who ask their own questions of the guests,
and are effectively no different than traditional in-studio appearances, except
that they do not require the guests to travel from city to city. Broadcasters
are always provided with the identity of the source or entity sponsoring the
satellite media tour or radio media tour.
Audio
news releases are similar to video news releases, but are made available to
radio stations and audio-based websites. Radio stations make editorial decisions
on the use of this content and we provide traditional advertising options
through the direct purchase of commercial airtime.
We
rely
on our long-standing distribution alliances and our relationships with major
news organizations for distributing our media communications services products
to newsroom decision makers. We distribute video news releases, which are
clearly identified as being provided by us on behalf of our clients, via
satellite transmission, which makes the material available to newsrooms for
retrieval and use. We also distribute our clients’ video through a digital
distribution system that is used for distribution directly to affiliates of
national networks, including ABC and CNN. In addition, we have arrangements
with
both CBS and FOX under which we have direct fiber-optic access for delivery
to
the national networks, which then redistribute the labeled content to their
network affiliates. Through an agreement with the Associated Press for the
use
of its AP Express newswire, we alert hundreds of television newsrooms to the
clients’ impending video material so that interested stations can retrieve the
content from their preferred distribution channel. We also notify television
newsrooms of the availability of client content through e-mails and direct
telephone calls made by our trained personnel. All video news releases clearly
identify Medialink as the source of the material and provide the name of our
client, along with contact information so that station personnel may request
additional information or clarification.
We
distribute client material on-line by posting video and audio podcasts on the
Internet through Yahoo!, Google, and a wide range of other websites, and we
have
entered into arrangements with various Internet distribution platforms such
as
Brightcove and Clip Syndicate to provide for the placement of client material
on
an even greater array of news, general information, and interest-specific sites.
Using our internally-developed DAM system, we distribute client video in
multiple formats through multiple on-line distribution channels. We have also
developed a proprietary distribution platform for the advance notification
and
delivery of multi-media content to on-line newsrooms. This proprietary
distribution platform, which leverages off of our DAM system, provides for
the
distribution of broadcast quality video to newsrooms and journalists by
syndicating our clients’ content via RSS feeds and by delivery to the websites
of television news stations. All such video content is clearly identified as
being provided by Medialink, and includes the name of our client and in many
instances includes the client’s website information so viewers can seek
additional information.
For
international distribution, we rely primarily on the services of the Associated
Press, which for international markets provides both the notification of the
availability of client content as well as the infrastructure through which
such
content is distributed.
Revenues
in our media communications services segment are subject to seasonal
fluctuations. The volume of projects from clients declines immediately after
the
year-end holiday season and again during the summer months, with the latter
having a much more significant impact in Europe, resulting in lower revenues
in
the first and third quarters of each calendar year as compared to the second
and
fourth quarters. In addition, although not seasonal in nature, the revenues
from
media communications services decline with the breaking of significant news
events, which pose the risk of crowding out the clients’ message.
Digital
Video Tracking Services. We
provide our Teletrax™ digital video tracking services through our majority-owned
subsidiaries, TTX (US) LLC and TTX Limited, to entertainment companies, news
organizations, television syndicators, direct-response marketing companies,
and
a sports organization. The Teletrax™ service enables owners of video content to
embed an imperceptible and indelible digital watermark into their material
whenever it is edited, transmitted, or duplicated. A global network of detectors
then captures every broadcast incident of the embedded video whether via
satellite, cable, or terrestrially and generates tracking reports for the
original content owners. Reports of individual broadcast airings are delivered
online in near real time to each client’s custom-designed portal or in data file
transfers. Each client’s broadcast activity is updated dynamically throughout
the day, enabling clients to respond immediately to reported results such as
changes in end-user preferences or detections of unauthorized use. The Teletrax™
service is built upon our extensive monitoring network and technology developed
by Royal Philips Electronics.
We
have
expanded the Teletrax network of detectors to monitor the television broadcasts
of more than 1,300 channels worldwide, including full-market coverage of the
top
210 domestic markets. The international network monitors approximately 200
additional channels, broadcast from nearly 50 nations, and is comprised of
12
monitoring stations in North America, Europe, Asia, Australia, the Middle East,
and South America.
Clients
Our
media
communications services’ client base encompasses more than 650 clients in a wide
variety of enterprises and organizations, including automobile manufacturers,
pharmaceutical companies, consumer goods companies, entertainment companies,
and
the public relations firms that represent the various entities. No single media
communications services client accounted for more than 10% of our consolidated
revenues for the years ended December 31, 2006, 2005, and 2004. For the years
ended December 31, 2006, 2005, and 2004, the five largest media communications
services clients accounted for approximately 18.1%, 12.3%, and 18.3%,
respectively, of the segment’s revenues and the fifty largest media
communications services clients accounted for approximately 59.3%, 48.7%, and
52.2%, respectively, of the segment’s revenues. A significant reduction in
business from any of the segment’s clients would not have a material adverse
effect on the segment or on Medialink. We have contracts with certain clients
for media communications services, but in most instances there is no contractual
arrangement that would prevent clients from selecting other means to perform
some or all of their work.
Our
Teletrax™ digital video tracking services client base primarily consists of
entertainment companies, news organizations, television syndicators,
direct-response marketing companies, and a sports organization. The segment
had
a total of 30 clients as of December 31, 2006. For the years ended December
31,
2006, 2005, and 2004, the five largest digital video tracking services clients
accounted for approximately 56.7%, 71.5%, and 84.0%, respectively, of the
segment’s revenues. A significant reduction in business from one of the five
largest clients would have a material adverse effect on the segment, but would
not have such an effect on Medialink. Clients in the digital video tracking
services segment are generally under contract for a period of at least one
year,
and in many instances are under contract for periods up to three
years.
Sales
and Marketing
We
rely
primarily on an internal sales force and support staff of 38 employees to sell
and market our media communications services. In certain instances, because
they
have conducted business together over several years, the members of our internal
sales force have established strong working relationships with their clients.
These strong client relationships enable us to obtain repeat business over
a
long-term period in the absence of any contractual arrangement with our clients.
However, because of these strong client relationships, the loss of any single
member of our internal sales force could result in a decline in revenues if
clients choose to move their business to another provider.
We
rely
on a separate internal sales force of five employees to sell and market our
Teletrax™ digital video tracking services. Since primarily all clients in the
digital video tracking services segment are under contract, the loss of any
member of the internal sales force should not result in a significant decline
in
revenues.
Competition
Media
Communications Services. We
have
competitors in all of our media communications services offerings, although
most
competitors do not offer our whole array of services and therefore only compete
with us for select services. Many of our competitors are specialty organizations
that compete within a narrow band of our service offerings. Certain of our
competitors have available greater financial, technological, marketing, and
other resources, and therefore may pose a more significant challenge. We compete
for media communications services on the basis of quality of service, price
of
service, the ability to satisfy client demands, and the ability to offer a
wide
variety of services, products, and distribution means to better disseminate
our
clients’ messages.
Digital
Video Tracking Services. We
have
competitors for our digital video tracking services, although such competitors
rely on different technologies with different levels of reliability and
integrity and none compete on a worldwide basis. We believe that our Teletrax™
service, which embeds an imperceptible watermark in the video that cannot be
stripped or altered, provides greater reliability and integrity than our
competitors’ offerings, which rely on such means as embedding a marker in an
audio track or other technologies under which the marker can be removed either
intentionally or unintentionally. We compete for digital video tracking services
based on the reliability of the Teletrax™ service, the scale and breadth of our
monitoring network, and the ability for our clients to achieve a return on
their
investment based on this reliability and the domestic and international reach
of
our network.
Employees
We
had
126 employees as of December 31, 2006. In addition, we engage independent
contractors and freelancers to supplement our work force during peak periods
and
on a project-by-project basis. We have no employees who were covered by a
collective bargaining agreement. We believe that our relationships with our
employees are satisfactory.
Geographic
Information
See
Note
22 to Medialink’s consolidated financial statements for financial information
about geographic regions.
Discontinued
Operations
We
sold
U.S. Newswire, our press release wire services division, to PR Newswire
Association, LLC ("PR Newswire") in September 2006 and report it as a
discontinued operation. The final sale price was approximately $22,577,000,
including $270,000 for an adjustment related to working capital transferred
at
closing. Of the total sale price, $16,250,000 was received at closing in 2006,
$4,427,000 was received in February 2007, and $1,900,000 remains deposited
in an
escrow account, which may be used to cover certain contingencies that may arise.
We recognized a pretax gain on sale of U.S. Newswire of approximately $7,566,000
based on the minimum sale price of $18,000,000, with the remaining gain on
sale
of approximately $4,577,000 to be recognized in 2007.
In
connection with the sale of U.S Newswire, we entered into a three-year services
agreement with PR Newswire under which PR Newswire committed to providing us
with media communications services work aggregating a minimum of $750,000,
$600,000, and $500,000 for the fiscal years ended September 30, 2007, 2008,
and
2009, respectively, and we committed to providing PR Newswire with wire and
photography services work aggregating a minimum of $200,000 for each of the
fiscal years then ended. A payment to the other party is required for any
shortfall to the extent either party does not reach its minimum commitment
by
the end of each fiscal year.
U.S.
Newswire provided clients with immediate and simultaneous electronic
distribution of news releases, media advisories, and press statements to the
media and on-line services worldwide. U.S. Newswire distributed these releases
via a direct wire service feed, as well as through e-mail, satellite, the
Internet, and broadcast fax. U.S. Newswire also provided still photography
services, including providing photographers for specific events requested by
clients and consulting with clients to assist them in determining the most
effective way of delivering their message in photographs.
Major
News Events
- Events
that dominate news broadcasts may cause our clients to delay or not use our
services for a particular project as such clients may determine that their
messages may not receive adequate attention in light of the coverage received
by
these other news events. Such circumstances could have a material adverse effect
on our business, operating results, and financial condition.
Susceptibility
to General Economic Conditions
- Our
revenues are affected by our clients’ marketing communications spending and
advertising budgets. Our revenues and results of operations may be subject
to
fluctuations based upon general economic conditions in the geographic locations
where we offer services or distribute content. If there were to be a continued
economic downturn or a continued recession in these geographic locations, then
we expect that business enterprises, including our 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 our business, operating results, and financial
condition.
Receptiveness
of the Media to Our Services; Changes in Our Marketplace
- We are
a leading provider of creative production and distribution services to
corporations and other organizations seeking to communicate with the public
through the news media. If the marketplace for our services should change or
if
the news media, as a result of recent events or a perceived reduction in the
value of our services or otherwise, should not be as receptive to our services
or should decide to reduce or eliminate its use of the news that we distribute,
there would be a material adverse effect on our business, operating results,
and
financial condition.
Competition
- The
markets for our services are highly competitive. The principal competitive
factors affecting us are effectiveness, reliability, price, technological
sophistication, and timeliness. Numerous specialty companies compete with us
in
each of our service lines although no single company competes across all service
lines. Compared to us, some of our competitors or potential competitors have
longer operating histories, longer client relationships, and significantly
greater financial, management, technological, sales, marketing, and other
resources. In addition, clients could perform internally all or certain of
the
services we provide rather than outsourcing such services. We could face
competition from companies in related communications markets, which could offer
services that are similar or superior to those offered by us. 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. Our ability to maintain and attract clients depends to a
significant degree on the quality of services provided and our reputation among
our clients and potential clients as compared to that of our competitors. There
can be no assurance that we will not face increased competition in the future
or
that such competition will not have a material adverse effect on our business,
operating results, and financial condition.
New
Services
- We
must develop new services to remain competitive, maintain or grow market share,
and to operate in new markets. There can be no assurance that we will be
successful in developing new services, or that those new services will meet
client needs. Because of the costs incurred to develop new services, our
potential inability to market these services successfully may have a material
adverse effect on our business, operating results, and financial
condition.
General
Governmental Regulations
-
Changes in governing laws and regulations could, directly or indirectly,
adversely affect our operations. Limitations, restrictions, or conditions
imposed on us by these laws and regulations or on the news media could have
the
effect of reducing the effectiveness of our services and could have a material
adverse effect on our business, operating results, and financial
condition.
Federal
Communications Commission Actions - We
provide broadcasters, free of charge, with our clients' video content, which
contains full identification as to the client or ultimate provider of the video
content. Our narrative marketing offerings are clearly branded and labeled
within the video content itself. Broadcasters that choose to air video content
in its original or edited form may do so with the labeling or attribution that
we provide or they may air the video content with either no labeling or
attribution or with their own labeling and attribution. Actions that the Federal
Communications Commission (“FCC”) may take with regard to broadcasters could
have the effect of reducing the number of broadcasters that air our clients'
material. Such possible FCC actions include rule enforcement and the
promulgation of new rules and regulations requiring broadcasters to include
labeling and attribution in the aired content.
Any
labeling or attribution requirement would not preclude broadcasters from
continuing to use the video content that we provide and would not change the
manner in which we currently provide the video content to the broadcasters
since
we have always provided the broadcasters with this information. Any actions
by
the FCC on this matter, however, could reduce the effectiveness of certain
of
our services and therefore could have a material adverse effect on our business,
operating results, and financial condition.
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 shareholders.
Capital
Requirements
- One or
more of our businesses or service offerings could require, or benefit from,
additional investment beyond our current capability. If such additional funding
was raised by us, or one or more of our business units separately, it could
have
the effect of diluting shareholders’ interests.
History
of operating losses -
We
continue to incur operating losses that are funded with our existing cash
reserves, with such operating losses having increased with the sale of U.S.
Newswire. We have committed to funding the losses in our digital video tracking
services business and continue to invest in this business as we still believe
in
the potential for this operation to be successful. In our media communications
services business, we continue to pursue new service offerings and take cost
cutting measures in an effort to return to profitability. Failure to return
to
profitability in our traditional businesses and achieve profitiabilty in our
developing business could have a material adverse effect on our ability to
continue to fund our operations.
Other
Risk Factors -
Other
risk factors include 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. In addition, future acquisitions or divestitures
and
the absence of long-term contracts with clients and vendors may adversely affect
our operations and have an adverse effect on our pricing, revenues, operating
margins, and client base.
Item
1B. Unresolved
Staff Comments.
Not
applicable.
We
rent
our corporate headquarters in New York City under a lease that expires in 2010.
This New York City location is also our primary facility for providing our
domestic media communications services and serves as the domestic base for
our
digital video tracking services segment. Under a lease that expires in 2011,
we
rent a facility in London that serves as our primary facility for providing
international media communications services and as the international base for
our digital video tracking services segment. We rent a facility in Norwalk,
CT,
under a lease that expires in 2009 that serves as our information technology
base. We also rent various smaller facilities in Washington, DC, Los Angeles,
San Francisco, Chicago, and Dallas that serve as satellite sales offices. We
believe that our facilities are adequate to meet our needs.
Item
3. Legal
Proceedings.
From
time
to time, we become involved in various legal matters that we consider to be
in
the ordinary course of business. While we cannot presently determine the
potential liability, if any, related to any such matters, we believe that no
such matters, individually or in the aggregate, will have a material adverse
effect on our financial position.
Item
4. Submission
of Matters to a Vote of Security Holders.
There
were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2006.
The
following table lists the executive officers of the Company. Officers are
appointed by and serve at the discretion of the Board of Directors.
|
Name
|
|
Age
|
|
Position
|
| |
|
|
|
|
|
Laurence
Moskowitz
|
|
55
|
|
Chairman
of the Board, Chief Executive Officer, and President
|
|
Lawrence
Thomas
|
|
45
|
|
Chief
Operating Officer
|
|
Kenneth
G. Torosian
|
|
45
|
|
Chief
Financial Officer and Secretary
|
|
William
McCarren
|
|
51
|
|
Vice
President, Former President - U.S.
Newswire
|
Laurence
Moskowitz,
a
co-founder of the Company, has served as Chairman of the Board of Directors,
Chief Executive Officer, and President of the Company since its inception in
1986.
Lawrence
Thomas
has
served as Chief Operating Officer of the Company since September 2005. From
March 2005 until his appointment as Chief Operating Officer of the Company,
Mr.
Thomas served as President of MultiVu, a provider of broadcast and multimedia
production and global distribution services. Mr. Thomas previously served at
MultiVu as Senior Vice President of Sales and Operations from September 2003
through March 2005 and as Vice President from April 2002 through September
2003.
Prior to such time, Mr. Thomas served as Vice President of Multimedia Services
at PR Newswire Association LLC, MultiVu’s parent company that provides
electronic delivery of news releases and information.
Kenneth
G. Torosian
has
served as Chief Financial Officer of the Company since August 2005 and as
Secretary since March 2006. From April 2004 until his appointment as Chief
Financial Officer of the Company, Mr. Torosian served as the principal of Kerop
Management Consultants LLC, a consulting firm. Through April 2004, Mr. Torosian
served in various capacities at Applied Graphics Technologies, Inc., a provider
of digital prepress and asset management services, including as Corporate
Controller from January 1997 until August 2000, as Vice President of Finance
from August 2000 until September 2001, and as Senior Vice President and Chief
Financial Officer from September 2001 until August 2003.
William
McCarren
served
as President of the Company’s U.S. Newswire division from 1999, when the Company
acquired the operation, until the sale of the division in September 2006. Mr.
McCarren ceased serving as an executive officer of the Company upon the sale
of
U.S. Newswire, and as of October 2006 has been running the Company’s public
affairs business within the media communications segment.
PART
II
Item
5. Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
The
Company’s common stock is traded on the National Market System of the National
Association of Securities Dealers Automated Quotation System (“NASDAQ”) under
the symbol MDLK. The following table sets forth the high and low closing sales
prices for each period indicated:
| |
|
2006
|
|
2005
|
|
| |
|
High
|
|
Low
|
|
High
|
|
Low
|
|
| |
|
|
|
|
|
|
|
|
|
|
Quarter
ended March 31
|
|
$
|
4.54
|
|
$
|
3.39
|
|
$
|
5.08
|
|
$
|
3.42
|
|
|
Quarter
ended June 30
|
|
$
|
4.40
|
|
$
|
3.71
|
|
$
|
4.18
|
|
$
|
2.91
|
|
|
Quarter
ended September 30
|
|
$
|
4.02
|
|
$
|
2.80
|
|
$
|
3.21
|
|
$
|
2.56
|
|
|
Quarter
ended December 31
|
|
$
|
5.28
|
|
$
|
3.02
|
|
$
|
3.50
|
|
$
|
2.77
|
|
The
following table sets forth certain information as of December 31, 2006, with
respect to the Company’s equity compensation plans under which securities of the
Company are authorized for issuance.
|
Equity
Compensation Plan Information
|
|
| |
|
|
|
|
|
|
|
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
| |
|
(a)
|
|
(b)
|
|
(c)
|
|
| |
|
|
|
|
|
|
|
|
Equity
compensation plans
|
|
|
|
|
|
|
|
|
approved
by security holders
|
|
|
1,012,790
|
|
$
|
5.00
|
|
|
377,572
|
|
The
Company does not have any equity compensation plans that have not been
authorized by its stockholders.
The
Company has neither sold any unregistered securities nor purchased any of its
equity securities during the year ended December 31, 2006.
Item
6. Selected
Financial Data.
| |
|
|
| |
|
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
| |
|
(In
thousands of dollars, except per-share
amounts)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
31,719
|
|
$
|
31,336
|
|
$
|
32,184
|
|
$
|
31,148
|
|
$
|
34,028
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(6,321
|
)
|
$
|
(6,872
|
)
|
$
|
(4,613
|
)
|
$
|
(3,115
|
)
|
$
|
(2,428
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.03
|
)
|
$
|
(1.14
|
)
|
$
|
(0.77
|
)
|
$
|
(0.52
|
)
|
$
|
(0.41
|
)
|
|
Diluted
|
|
$
|
(1.03
|
)
|
$
|
(1.14
|
)
|
$
|
(0.77
|
)
|
$
|
(0.52
|
)
|
$
|
(0.41
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
35,154
|
|
$
|
32,926
|
|
$
|
38,773
|
|
$
|
37,186
|
|
$
|
40,643
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
under capital leases
|
|
|
|
|
|
|
|
$
|
97
|
|
$
|
173
|
|
$
|
217
|
|
|
Convertible
debentures
|
|
$
|
4,273
|
|
$
|
4,045
|
|
|
3,833
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term obligations
|
|
$
|
4,273
|
|
$
|
4,045
|
|
$
|
3,930
|
|
$
|
173
|
|
$
|
217
|
|
No
cash
dividends have been paid or declared on the Company’s common stock.
Item
7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
The
following discussion and analysis (in thousands of dollars) should be read
in
conjunction with the Company’s consolidated financial statements and notes
thereto.
In
September 2006, the Company sold the assets of U.S. Newswire, its wire
distribution and photography services division. The consolidated financial
statements reflect U.S. Newswire as a discontinued operation in all periods
presented. Accordingly, prior period financial statements have been reclassified
to reflect the financial position, results of operations, and cash flows of
U.S.
Newswire separately from continuing operations. The following discussion and
analysis should be read in conjunction with the Company’s consolidated financial
statements and notes thereto.
Results
of Operations
Revenues
in 2006 increased by $383, or 1.2%, as compared to 2005. Revenues from media
communications services in 2006 decreased by $334, or 1.1%, to $28,998. A
decline in domestic media communications revenues of approximately $1,159 were
partially offset by increased revenues of $825 from the Company’s operation in
the United Kingdom. Revenues from Teletrax™ digital video tracking services in
2006 increased by $717, or 35.8%, to $2,721 due primarily to an increase in
service revenues of $804 resulting from an increase in the number of clients
being served. Digital video tracking services revenues also include $97 and
$184
from equipment sales for the years ended December 31, 2006 and 2005,
respectively.
Direct
costs increased by $788 in 2006, and as a percentage of revenue increased to
44.1% from 42.2% in 2005. Direct costs as a percentage of revenue in 2006
increased primarily as a result of additional purchases of commercial airtime
for the broadcast of client video in the domestic media communications
business.
Selling,
general, and administrative (“SG&A”) expenses in 2006 increased by $467 as
compared to 2005, and as a percentage of revenue increased to 77.2% in 2006
from
76.6% in 2005. SG&A expenses in 2005 included $2,010 in severance costs
incurred as a result of the termination of senior operations and executive
management personnel in the fourth quarter of 2005. SG&A expenses in 2006
included $1,186 of transaction-specific compensation related to the sale of
U.S.
Newswire and $219 of severance charges related to certain staff reductions
during the year. SG&A expenses in 2006 also included $300 of stock-based
compensation expense related to stock options, with no comparable amount
recognized in 2005. On January 1, 2006, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based
Payment” (“SFAS No. 123R”), which requires all share-based payments, including
stock options, to be recognized in the financial statements based on the fair
value on the date of grant. The Company has elected to use the modified
prospective application for the transition upon the adoption of SFAS No. 123R,
which requires compensation expense to be recognized on options granted
subsequent to the adoption date as well as on options granted prior to the
adoption date for which the requisite service period had not been completed
as
of December 31, 2005. Periods prior to the date that SFAS No. 123R was adopted
are not adjusted under the modified prospective application.
Exclusive
of transaction-specific compensation, severance charges, and stock-based
compensation expense, SG&A expenses in 2006 increased by $772 as compared to
2005, and as a percent of revenue were 71.8% in 2006 as compared to 70.2% in
2005. SG&A expenses related to Teletrax increased in 2006 by $884 as a
result of additional costs incurred in connection with the continued expansion
of the operation, certain personnel costs incurred in connection with executive
recruiting efforts, and a settlement of outstanding amounts owed by a reseller
of the services for less than the carrying value. Non-Teletrax SG&A expenses
decreased by $112 in 2006 as compared to 2005. Decreases in SG&A costs
resulting from cost reductions achieved in the domestic media communications
services businesses were partially offset by consulting and other related costs
incurred in connection with the termination of a former executive officer,
additional consulting and professional fees incurred in 2006, and certain
refurbishment costs incurred in connection with the expiration of a lease in
the
United Kingdom.
Depreciation
and amortization expense in 2006 increased by $344 as compared to 2005 primarily
as a result of the expansion of the network related to Teletrax™ digital video
tracking services. Such depreciation totaled $821 and $614 for 2006 and 2005,
respectively.
The
Company had an operating loss of $8,739 in 2006 as compared to an operating
loss
of $7,523 in 2005. The operating losses in 2006 and 2005 included operating
losses of $3,408 and $2,651, respectively, from the Company’s 76%-owned Teletrax
subsidiaries. The Company’s results of operations for the years ended December
31, 2006 and 2005, included 100% of the losses from the Teletrax subsidiaries
since the minority shareholder has no future funding obligations.
Interest
expense, net of interest income, decreased by $102 in 2006 as compared to 2005
primarily due to the interest income earned on the proceeds from the sale of
U.S. Newswire.
The
Company established a valuation allowance to reserve for certain of its deferred
tax assets at December 31, 2005, based on its assessment that it was more likely
than not that the benefit associated with the deferred tax assets would not
be
realized in future periods. Although the Company believes that it is more likely
than not that certain benefits will not be realized based on its most recent
projections, the gain on sale of U.S. Newswire will enable the Company to
realize certain deferred tax assets in future periods. Accordingly, the Company
recognized net deferred tax assets totaling $832 at December 31, 2006. The
Company has established a valuation allowance to reserve for the remainder
of
its deferred tax assets at December 31, 2006. The valuation allowance was $4,403
and $4,190 at December 31, 2006 and 2005, respectively.
On
September 29, 2006, the Company sold the assets of its U.S. Newswire division
to
PR Newswire Association, LLC, a wholly-owned subsidiary of United Business
Media
plc. The assets sold represented the Company's entire wire distribution and
photography services businesses, which were an operating segment within the
Company’s media communications services reporting segment. The final sale price
was $22,577, including $270 for an adjustment related to working capital
transferred at closing. Of the total sale price, $16,250 was received at closing
in 2006, $4,427 was received in February 2007, and $1,900 remains deposited
in
an escrow account, the release of which is subject to certain contingencies.
The
Company recognized a gain on the sale of U.S. Newswire of approximately $7,566
in 2006 based on the minimum sale price of $18,000, with the remaining gain
on
sale of approximately $4,577 to be recognized in 2007. The results of operations
for 2006 include income from discontinued operations of $5,375, which included
income from the operations of U.S. Newswire of $921 and the gain on sale of
U.S.
Newswire, net of tax, of $4,390. Income from discontinued operations for 2006
also included $64 of gain on the sale of Delahaye, the Company’s division that
provided research services that was sold in December 2004, as a result of the
satisfaction of certain outstanding contingencies.
Revenues
in 2005 were $848, or 2.6%, lower than in 2004. Revenues from media
communications services in 2004 decreased by $1,228, or 4.0%, to $29,332. A
decline in domestic media communications revenues of approximately $1,556 were
partially offset by increased revenues of $328 from the Company’s operation in
the United Kingdom. Revenues from Teletrax™ digital video tracking services in
2005 increased by $380, or 23.4%, to $2,004 due primarily to an increase in
service revenues of $560 resulting from an increase in the number of clients
being served. Digital video tracking services’ revenues also include $184 and
$364 from equipment sales for the years ended December 31, 2005 and 2004.
Direct
costs decreased by $458 in 2005, and as a percentage of revenues remained
relatively flat, decreasing to 42.2% in 2005 from 42.5% in 2004.
SG&A
expenses in 2005 increased by $4,060 as compared to 2004, and as a percentage
of
revenue increased to 76.6% in 2005 from 62.0% in 2004. SG&A expenses in 2005
included $2,010 in severance costs incurred as a result of the termination
of
senior operations and executive management personnel in the fourth quarter
of
2005. Exclusive of such severance costs, SG&A expenses in 2005 increased by
$2,050 and as a percentage of revenue were 70.2%. SG&A expenses related to
Teletrax increased by $660 due primarily to additional staffing and other
operating costs resulting from the continued expansion of the operation.
Non-Teletrax SG&A expenses increased by $1,953 primarily from additional
promotion costs, professional fees, and non-payroll personnel costs incurred
in
2005 as well as from additions for executive management. Such increase in
non-Teletrax SG&A was partly offset by a decrease of approximately $563 for
transaction-specific bonuses earned in 2004 with no corresponding bonuses being
earned in 2005.
Depreciation
and amortization expense in 2005 decreased by $129 as compared to 2004 primarily
as a result of amortization of intangible assets in 2004 that were fully
amortized by the end of 2004, resulting in no corresponding expense in 2005.
Depreciation and amortization in 2005 and 2004 includes depreciation related
to
Teletrax™ digital video tracking services of $614 and $547, respectively.
The
Company had an operating loss of $7,523 in 2005 as compared to an operating
loss
of $4,164 in 2004. The operating losses in 2005 and 2004 included operating
losses of $2,651 and $2,033, respectively, from the Company’s 76%-owned Teletrax
subsidiaries. The Company’s results of operations for the years ended December
31, 2005 and 2004, included 100% of the losses from the Teletrax subsidiaries
since the minority shareholder has no future funding obligations.
Interest
expense, net of interest income, increased by $98 in 2005 as compared to 2004
primarily due to the issuance of $5,000 convertible debentures in November
2004.
Interest expense in 2005 related to these debentures was $694, which included
$266 of amortization of discount and deferred financing fees, an increase of
$605 as compared to 2004. Prior to the issuance of the convertible debentures,
the Company had available a line of credit, which was repaid in December 2004.
Interest expense on the Company’s line of credit in 2004 totaled $301. The
increase in interest expense was partially offset by an increase in interest
income during 2005 of $191 resulting from higher average cash balances in
2005.
Although
the Company incurred a loss from continuing operations before taxes of $4,557
in
2004, the Company recognized an income tax provision of $56 primarily as a
result of an additional valuation allowance recorded against the Company’s
deferred tax assets and certain state and local taxes. The Company established
a
valuation allowance to reserve for certain of its deferred tax assets at
December 31, 2004, based on its assessment that it was more likely than not
that
the benefit associated with the deferred tax assets will not be realized in
future periods. The Company established a valuation allowance to reserve for
certain of its deferred tax assets at December 31, 2005, based on its continued
belief that it was more likely than not that such benefit will not be realized.
The valuation allowance was $4,190 and $2,803 at December 31, 2005 and 2004,
respectively.
Income
from discontinued operations of $1,326 for the year ended December 31, 2005,
primarily represents the results of operations of U.S. Newswire. Income from
discontinued operations of $3,642 for the year ended December 31, 2004, consists
of a gain, net of taxes and transaction costs, of $3,049 on the sale of
Delahaye, an operating loss from Delahaye of $274, and operating income from
U.S
Newswire of $867.
Liquidity
and Capital Resources
The
Company continues to finance its operations and capital investment requirements
from its existing cash reserves, which totaled $17,031 at December 31, 2006.
The
Company’s cash reserves were primarily generated from the sale of U.S. Newswire
in September 2006. Working capital at December 31, 2006, increased by $8,627
from 2005 primarily as a result of the proceeds from the sale of U.S. Newswire,
partially offset by the Company funding operating losses and capital investments
during the period, including amounts expended for Teletrax. U.S. Newswire
generated $844, $899, and $833 of cash for the years ended December 31, 2006,
2005, and 2004. Although the Company continues to pursue new service offerings
and take cost cutting measures in an effort to increase the cash generated
from
its remaining businesses, the Company anticipates having to continue to fund
its
operations and capital investments from its cash reserves for the foreseeable
future.
During
2006, the Company recognized $1,927 of escrow funds related to the sale of
U.S.
Newswire. Taxes payable increased by $1,927 due to the tax liability associated
with the gain on sale of U.S. Newswire in 2006 with no tax liability in prior
periods.
Cash
flows from operating activities during 2006 decreased by $4,088 as compared
to
2005 primarily as a result of the deposit of escrow funds and the timing of
recording and paying severance for former employees. During 2006, the Company
invested $1,815 in new equipment and new technology products and repaid $80
of
capital lease obligations. These amounts were primarily funded from the proceeds
on the sale of U.S. Newswire and $387 in proceeds received upon the exercise
of
stock options.
The
Company expects to spend approximately $2,000 over the course of the next twelve
months for capital improvements primarily for the continuing build out of the
infrastructure for Teletrax and for modernization of its media communications
services business, including investments to continue the expansion into
broadband. The Company intends to finance these expenditures with working
capital. The Company believes that its working capital will provide sufficient
cash flows to fund its cash needs throughout 2007.
The
Company does not believe that inflation has had a material impact on its
business.
Off-balance
sheet arrangements
The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on its financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
investors.
Contractual
Obligations
| |
|
Payments
due by period
|
| |
|
Total
|
|
Less
than 1 year
|
|
1-3
years
|
|
3-5
years
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations
|
|
$
|
5,000
|
|
|
|
|
$
|
5,000
|
|
|
|
|
|
Operating
lease obligations
|
|
|
8,670
|
|
$
|
2,832
|
|
|
4,271
|
|
$
|
1,567
|
|
|
Purchase
obligations
|
|
|
550
|
|
|
200
|
|
|
350
|
|
|
|
|
|
Other
long-term liabilities
|
|
|
1,381
|
|
|
600
|
|
|
651
|
|
|
130
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,601
|
|
$
|
3,632
|
|
$
|
10,272
|
|
$
|
1,697
|
|
Critical
Accounting Policies
Management
must make certain estimates and assumptions in preparing the financial
statements of the Company. Certain of these estimates and assumptions relate
to
matters that are inherently uncertain as they pertain to future events.
Management believes that the estimates and assumptions used in preparing the
financial statements of the Company were the most appropriate at that time,
although actual results could differ significantly from those estimates under
different conditions.
Note
2,
“Summary of Significant Accounting Policies,” to the Company’s consolidated
financial statements included in this Annual Report on Form 10-K provides a
detailed discussion of the various accounting policies of the Company. We
believe that the following accounting policies are critical since they require
subjective or complex judgments that could potentially affect the financial
condition or results of operations of the Company.
Allowance
for Doubtful Accounts:
The
Company assesses the carrying value of its accounts receivable based on
management's assessment of the collectibility of specific client accounts,
which
includes consideration of the credit worthiness and financial condition of
those
specific clients. The Company also assesses the carrying value of accounts
receivable balances based on other factors, including historical experience
with
bad debts, client concentrations, the general economic environment, and the
aging of such receivables. The Company records an allowance for doubtful
accounts to reduce its accounts receivable balance to the amount that is
reasonably believed to be collectible. Based on the Company’s estimates, an
allowance for doubtful accounts of $347 was established at December 31, 2006,
compared to an allowance of $442 at December 31, 2005. A change in the Company’s
assumptions, including the credit worthiness of clients and the default rate
on
receivables, would result in the Company recovering an amount of its accounts
receivable that differs from its current carrying value. Such difference, either
positive or negative, would be reflected as a component of the Company’s
SG&A expense in future periods.
Valuation
of Long-Lived Assets: In
assessing the carrying value of its property and equipment and other long-lived
assets in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” the Company reviews such assets for impairment
when events or changes in circumstances indicate that the carrying amount of
the
asset may not be recoverable. Recoverability is determined by comparing the
carrying value of the assets to the future undiscounted cash flows the assets
are expected to generate. If it is determined that the carrying amount is not
recoverable, an impairment charge is recognized equal to the amount by which
the
carrying value of the asset exceeds its fair market value. No events or changes
in circumstances have occurred that required the Company to assess the
recoverability of its property and equipment, and therefore the Company has
not
recognized any impairment charges. A change in the Company’s business climate in
future periods, including an inability to effectively market and sell new
service offerings in which significant investments have been made or a general
downturn in one of the Company’s operations, could lead to a required assessment
of the recoverability of the Company’s long-lived assets, which may subsequently
result in an impairment charge.
Valuation
of Goodwill:
In
assessing the carrying value of goodwill in accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets,” the Company compared the carrying value
of its reporting units to their fair values. The Company is required to test
its
goodwill for impairment at least annually, and more frequently if an event
occurs or circumstances change to indicate that an impairment may have occurred.
The Company’s annual testing date is September 30. In accordance with SFAS No.
142, the Company aggregated certain components to arrive at one of its reporting
units. The Company estimated the fair value of its reporting units using a
discounted cash flow approach. In estimating the fair value of its reporting
units, the Company had to make various assumptions, including projections of
future revenues based on assumed long-term growth rates, estimated costs, and
the appropriate discount rates. The estimates used by the Company for long-term
revenue growth and future costs are based on historical data, various internal
estimates, and a variety of external sources, and are developed as part of
the
Company’s routine long-range planning process. The carrying value of the
Company’s goodwill was $3,429 at September 30, 2006. Based on the use of these
assumptions in estimating the fair value of each reporting unit, there was
no
impairment of goodwill as of September 30, 2006, the most recent annual testing
date. A change in the Company’s assumptions, including lower long-term growth
rates, higher operating costs, or higher discount rates could cause a change
in
the estimated fair value of the Company’s reporting units, and therefore could
result in an impairment of goodwill, which would have a significant adverse
effect on the Company’s results of operations.
Stock-Based
Compensation:
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123R and elected
to use the modified prospective application for the transition upon adoption,
which requires compensation expense to be recognized on options granted
subsequent to the adoption date as well as on options granted prior to the
adoption date for which the requisite service period had not been completed
as
of December 31, 2005. The Company determines the fair value of stock options
granted subsequent to the adoption of SFAS No. 123R using a binomial lattice
model. The fair value of stock options granted prior to the adoption of SFAS
No.
123R was determined using the Black-Scholes option-pricing model. The Company
must make certain assumptions in determining the fair value of stock options,
including the volatility of the Company’s common stock, the future dividend
yield on the Company’s common stock, and the term over which stock options will
remain outstanding, including making assumptions about the future behavior
patterns of the holders of stock options in regard to exercising stock options
prior to their expiration. In addition, the Company must make certain
assumptions regarding the rate at which options will be forfeited to estimate
the service period that will be completed by the holders of stock options.
Any
deviation in the actual volatility of the Company’s common stock, the actual
dividend yield, and the actual early exercise behavior of holders of stock
options from that assumed in estimating the fair value of a stock option will
not result in a change in the amount of compensation expense recognized by
the
Company, but will result in the actual value realized by the holder of the
stock
options to be different than the amount of compensation expense recognized.
Any
deviation in the actual forfeitures of nonvested stock options during the
service period from that assumed will result in a change to the amount of
compensation expense recognized, either as additional compensation expense
or a
reversal of previously recognized compensation expense in the period of
change.
Income
Taxes: In
assessing the recoverability of its deferred tax assets, the Company compared
the carrying value of its deferred tax assets to the tax-effected projections
of
its taxable income over future periods in which such assets could be realized.
In estimating its future taxable income, the Company had to make various
assumptions about its future operating performance. Based on the Company’s
projection of future taxable income, which include the effects of recent
operating and tax losses, management believed that it was more likely than
not
that the benefit associated with the deferred tax assets will not be fully
realized in future periods. Accordingly, a valuation allowance in the amount
of
$4,403 and $4,190 at December 31, 2006 and 2005, respectively, was established
to reserve against the carrying value of certain of the Company’s deferred tax
assets. A change in the Company’s assumptions, including better or worse
operating performance than projected, could result in a change in the amount
of
deferred tax assets that will be recovered, and therefore could result in a
reduction or increase to the valuation allowance established at December 31,
2006. Such an adjustment would be reflected as a component of the Company’s
provision for income taxes in the period of the adjustment.
Recent
Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board Interpretation No. ("FIN") 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109," was issued and is effective for fiscal years beginning
after
December 15, 2006. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. Under FIN 48, a two-step
process is used to evaluate a tax position. The first step establishes a
recognition criterion under which the tax position is recognized if it is more
likely than not that it will be sustained upon examination. The second step
establishes a measurement criterion under which the tax position is measured
at
the largest amount of benefit that is greater than 50% likely of being realized
upon ultimate settlement. The Company does not expect the adoption of FIN 48
to
have a material effect on its financial condition or results of
operations.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements,” which
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purposes of
a
materiality assessment. SAB No. 108 requires an entity to use both an income
statement approach and a balance sheet approach to separately quantify and
assess the amount of any misstatements originating in the current period and
the
cumulative amount of any such misstatements. The adoption of SAB No. 108 by
the
Company in 2006 did not have a material effect on its financial condition or
results of operations.
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk.
The
Company’s primary market exposures are interest rate risk and foreign currency
rate risk.
The
Company had convertible debentures with a face value of $5,000 ($4,273 net
of
unamortized discount) outstanding at December 31, 2006. The interest rate on
these debentures is the higher of 7% or the 6-month LIBOR rate (as defined)
plus
4.50%. At December 31, 2006, the interest rate on the convertible debentures
was
9.87%. A change in interest rates of 1.0% would result in a change in the annual
interest costs under the convertible debentures of approximately $50 based
on
the face amount of outstanding borrowings at December 31, 2006.
The
Company has two operations in the United Kingdom that result in foreign currency
exposure to the British pound. As of and for the year ended December 31, 2006,
these operations aggregated approximately 11% of the Company’s current assets,
approximately 20% of the Company’s current liabilities, and approximately 18% of
the Company’s loss from continuing operations before income taxes. A fluctuation
in the United States dollar to the British pound conversion rate would result
in
a change in the amount realized by the Company from the results of these
operations and from the settlement of its monetary assets and liabilities
denominated in British pounds.
Item
8. Financial
Statements and Supplementary Data.
See
Index
to Financial Statements and Financial Statements commencing on page F-1
herein.
Item
9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item
9A. Controls
and Procedures.
The
Company’s management evaluated, with the participation of the Company’s
principal executive and principal financial officers, the effectiveness of
the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of December 31, 2006. Based on their evaluation, the Company’s
principal executive and principal financial officers concluded that the
Company’s disclosure controls and procedures were effective as of December 31,
2006. 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.
There
have been no changes in the Company’s internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the fiscal quarter ended December 31, 2006, that has materially
affected, or is reasonably likely to affect, the Company’s internal control over
financial reporting.
Item
9B. Other
Information.
None.
PART
III
| (b) |
Officers
-
The information with respect to officers required by this item is
included
at the end of Part I of this Annual Report on Form 10-K under the
heading
“Executive Officers of the
Company”.
|
Item
11. Executive
Compensation.
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Except
as
set forth below, the information required by this item is incorporated herein
by
reference to the Company’s 2007 Definitive Proxy Statement to be separately
filed with the Securities and Exchange Commission by April 30,
2007.
The
following table sets forth certain information as of December 31, 2006, with
respect to the Company’s equity compensation plans under which securities of the
Company are authorized for issuance.
|
Equity
Compensation Plan Information
|
| |
|
|
|
|
|
|
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
| |
|
(a)
|
|
(b)
|
|
(c)
|
| |
|
|
|
|
|
|
|
Equity
compensation plans
|
|
|
|
|
|
|
|
approved
by security holders
|
|
1,012,790
|
|
$5.00
|
|
377,572
|
The
Company does not have any equity compensation plans that have not been
authorized by its stockholders.
Item
13. Certain
Relationships and Related Transactions.
Item
14. Principal
Accountant Fees and Services.
PART
IV
Item
15. Exhibits
and Financial Statement Schedules.
| (a) |
Listed
below are the documents filed as part of this
report:
|
| 1. |
Financial
Statements and the Report of Independent Registered Public Accounting
Firm:
|
Report
of
Independent Registered Public Accounting Firm
Notes
to
consolidated financial statements
| 2. |
Financial
Statement Schedules:
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on April 2, 2007.
|
Signature
|
|
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Laurence Moskowitz
Laurence
Moskowitz
|
|
Chairman
of the Board, Chief Executive Officer, and President (Principal Executive
Officer) |
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Kenneth G. Torosian
Kenneth
G. Torosian
|
|
Chief
Financial Officer and Secretary (Principal Financial
Officer)
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Bruce Bishop
Bruce
Bishop
|
|
Director |
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Harold Finelt
Harold
Finelt
|
|
Director
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
John M. Greening
John
M. Greening
|
|
Director
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Donald Kimelman
Donald
Kimelman
|
|
Director
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Douglas S. Knopper
Douglas S. Knopper |
|
Director
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Catherine Lugbauer
Catherine
Lugbauer
|
|
Director
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
James J. O’Neill
James
J. O’Neill
|
|
Director
|
| |
|
|
|
| |
|
|
|
|
By:
|
/s/
Theodore Wm. Tashlik
Theodore
Wm. Tashlik
|
|
Director
|
INDEX
TO FINANCIAL STATEMENTS
| |
Page
|
| |
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
Notes
to consolidated financial statements
|
F-7
|
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors
Medialink
Worldwide Incorporated:
We
have
audited the accompanying consolidated balance sheets of Medialink Worldwide
Incorporated and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2006. In
connection with our audits of the consolidated financial statements, we also
have audited the consolidated financial statement schedule included on page
S-1.
These consolidated financial statements and the consolidated financial statement
schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements and the
consolidated financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Medialink Worldwide
Incorporated and subsidiaries as of December 31, 2006 and 2005, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As
discussed in Note 2 to the consolidated financial statements, Medialink
Worldwide Incorporated and subsidiaries adopted SFAS No. 123 (Revised 2004),
“Share-Based Payment,” as of January 1, 2006.
(signed)
KPMG LLP
New
York,
New York
|
|
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
(In
thousands of dollars, except share and per-share amounts)
|
|
| |
|
|
|
|
|
| |
|
|
|
| |
|
|
|
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
17,031
|
|
$
|
7,303
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of
|
|
|
|
|
|
|
|
|
$347
and $442
|
|
|
5,319
|
|
|
5,014
|
|
|
Inventory
|
|
|
602
|
|
|
371
|
|
|
Prepaid
expenses
|
|
|
287
|
|
|
523
|
|
|
Prepaid
and refundable taxes
|
|
|
701
|
|
|
906
|
|
|
Deferred
income taxes
|
|
|
107
|
|
|
-
|
|
|
Escrow
funds
|
|
|
1,927
|
|
|
-
|
|
|
Other
current assets
|
|
|
78
|
|
|
48
|
|
|
Current
assets of discontinued operations
|
|
|
-
|
|
|
613
|
|
|
Total
current assets
|
|
|
26,052
|
|
|
14,778
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
4,296
|
|
|
4,342
|
|
|
Goodwill
|
|
|
3,429
|
|
|
3,429
|
|
|
Deferred
income taxes
|
|
|
725
|
|
|
-
|
|
|
Other
assets
|
|
|
652
|
|
|
762
|
|
|
Non-current
assets of discontinued operations
|
|
|
-
|
|
|
9,615
|
|
| |
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
35,154
|
|
$
|
32,926
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,981
|
|
$
|
1,663
|
|
|
Accrued
expenses and other current liabilities
|
|
|
6,396
|
|
|
5,807
|
|
|
Income
taxes payable
|
|
|
1,927
|
|
|
-
|
|
|
Current
portion of capital lease obligation
|
|
|
-
|
|
|
70
|
|
|
Current
liabilities of discontinued operations
|
|
|
-
|
|
|
117
|
|
|
Total
current liabilities
|
|
|
10,304
|
|
|
7,657
|
|
| |
|
|
|
|
|
|
|
|
Convertible
debentures, net of unamortized discount of $727 and $955
|
|
|
4,273
|
|
|
4,045
|
|
|
Other
long-term liabilities
|
|
|
1,049
|
|
|
1,586
|
|
|
Total
liabilities
|
|
|
15,626
|
|
|
13,288
|
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Series
A Preferred stock: $.01 par value, authorized 50,000 shares; none
issued
and outstanding
|
|
|
|
|
|
|
|
|
Common
stock: $.01 par value, authorized 15,000,000 shares; issued 6,289,986
shares in 2006 and 6,155,360 shares in 2005
|
|
|
63
|
|
|
62
|
|
|
Additional
paid-in capital
|
|
|
27,327
|
|
|
26,591
|
|
|
Accumulated
deficit
|
|
|
(7,225
|
)
|
|
(6,279
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(294
|
)
|
|
(393
|
)
|
|
Common
stock in treasury (at cost, 101,121 shares)
|
|
|
(343
|
)
|
|
(343
|
)
|
|
Total
stockholders' equity
|
|
|
19,528
|
|
|
19,638
|
|
| |
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
35,154
|
|
$
|
32,926
|
|
See
notes to consolidated financial
statements
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
(In
thousands, except per-share amounts)
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
| |
|
|
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
31,719
|
|
$
|
31,336
|
|
$
|
32,184
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Direct
costs
|
|
|
14,001
|
|
|
13,213
|
|
|
13,671
|
|
|
Selling,
general, and administrative expenses
|
|
|
24,485
|
|
|
24,018
|
|
|
19,958
|
|
|
Depreciation
and amortization
|
|
|
1,972
|
|
|
1,628
|
|
|
1,757
|
|
|
Loss
from joint venture
|
|
|
-
|
|
|
-
|
|
|
247
|
|
|
Impairment
of investments
|
|
|
-
|
|
|
-
|
|
|
715
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
40,458
|
|
|
38,859
|
|
|
36,348
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(8,739
|
)
|
|
(7,523
|
)
|
|
(4,164
|
)
|
|
Interest
expense - net
|
|
|
(389
|
)
|
|
(491
|
)
|
|
(393
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before taxes
|
|
|
(9,128
|
)
|
|
(8,014
|
)
|
|
(4,557
|
)
|
|
Income
tax expense (benefit)
|
|
|
(2,807
|
)
|
|
(1,142
|
)
|
|
56
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(6,321
|
)
|
|
(6,872
|
)
|
|
(4,613
|
)
|
|
Income
from discontinued operations, net of tax
|
|
|
5,375
|
|
|
1,326
|
|
|
3,642
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(946
|
)
|
$
|
(5,546
|
)
|
$
|
(971
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(946
|
)
|
$
|
(5,546
|
)
|
$
|
(971
|
)
|
|
Other
comprehensive income (loss)
|
|
|
99
|
|
|
(197
|
)
|
|
152
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(847
|
)
|
$
|
(5,743
|
)
|
$
|
(819
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1.03
|
)
|
$
|
(1.14
|
)
|
$
|
(0.77
|
)
|
|
Income
from discontinued operations
|
|
|
0.88
|
|
|
0.22
|
|
|
0.61
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(0.15
|
)
|
$
|
(0.92
|
)
|
$
|
(0.16
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - basic and diluted
|
|
|
6,108
|
|
|
6,052
|
|
|
5,998
|
|
See
notes
to consolidated financial statements
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
(In
thousands of dollars)
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
| |
|
|
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(946
|
)
|
$
|
(5,546
|
)
|
$
|
(971
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,972
|
|
|
1,628
|
|
|
1,757
|
|
|
Provision
for bad debts
|
|
|
252
|
|
|
76
|
|
|
75
|
|
|
Impairment
of investments
|
|
|
-
|
|
|
-
|
|
|
715
|
|
|
Deferred
income taxes
|
|
|
(832
|
)
|
|
-
|
|
|
2,004
|
|
|
Loss
from joint venture
|
|
|
-
|
|
|
-
|
|
|
247
|
|
|
Income
from discontinued operations
|
|
|
(5,375
|
)
|
|
(1,326
|
)
|
|
(3,642
|
)
|
|
Other
|
|
|
697
|
|
|
296
|
|
|
32
|
|
|
Changes
in operating assets and liabilities, net of effects of
dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(357
|
)
|
|
740
|
|
|
(336
|
)
|
|
Prepaid
expenses and other assets
|
|
|
(1,876
|
)
|
|
1,019
|
|
|
(968
|
)
|
|
Prepaid
and refundable income taxes and taxes payable
|
|
|
(1,092
|
)
|
|
(681
|
)
|
|
466
|
|
|
Accounts
payable and accrued expenses
|
|
|
535
|
|
|
(908
|
)
|
|
3,469
|
|
|
Other
liabilities
|
|
|
(560
|
)
|
|
1,148
|
|
|
(49
|
)
|
|
Net
cash provided by (used in) operating activities of discontinued
operations
|
|
|
868
|
|
|
928
|
|
|
(663
|
)
|
|
Net
cash (used in) provided by operating activities
|
|
|
(6,714
|
)
|
|
(2,626
|
)
|
|
2,136
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(1,815
|
)
|
|
(1,833
|
)
|
|
(731
|
)
|
|
Proceeds
from sale of division
|
|
|
17,904
|
|
|
-
|
|
|
7,700
|
|
|
Capital
contributions to joint venture
|
|
|
-
|
|
|
-
|
|
|
(255
|
)
|
|
Net
cash used in investing activities of discontinued
operations
|
|
|
(24
|
)
|
|
(29
|
)
|
|
(122
|
)
|
|
Net
cash provided by (used in) investing activities
|
|
|
16,065
|
|
|
(1,862
|
)
|
|
6,592
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on line of credit
|
|
|
-
|
|
|
-
|
|
|
(5,500
|
)
|
|
Proceeds
from issuance of convertible debentures
|
|
|
-
|
|
|
-
|
|
|
4,758
|
|
|
Proceeds
from the issuance of common stock in connection with
the exercise of stock options
|
|
|
387
|
|
|
280
|
|
|
44
|
|
|
Repayments
of obligations under capital lease
|
|
|
(80
|
)
|
|
(117
|
)
|
|
(81
|
)
|
|
Other
financing activities
|
|
|
-
|
|
|
(13
|
)
|
|
-
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
307
|
|
|
150
|
|
|
(779
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
9,658
|
|
|
(4,338
|
)
|
|
7,949
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
70
|
|
|
(34
|
)
|
|
20
|
|
|
Cash
and cash equivalents at the beginning of period
|
|
|
7,303
|
|
|
11,675
|
|
|
3,706
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
17,031
|
|
$
|
7,303
|
|
$
|
11,675
|
|
| |
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial
statements
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
(In
thousands of dollars)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Retained
Earnings (Deficit)
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
Common
Stock in Treasury
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60
|
|
$
|
25,047
|
|
$
|
238
|
|
$
|
(348
|
)
|
$
|
(200
|
)
|
|
Warrants
granted in connection with issuance of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible
debentures
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
Receipt
of 43,997 shares of common stock as
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
repayment
of loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(143
|
)
|
|
Issuance
of 15,257 shares of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with exercise of stock options
|
|
|
1
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain from foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
(971
|
)
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
26,291
|
|
|
(733
|
)
|
|
(196
|
)
|
|
(343
|
)
|
|
Issuance
of 97,773 shares of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with exercise of stock options
|
|
|
1
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss from foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(197
|
)
|
|
|
|
|
Compensation
expense recognized on stock options
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
(5,546
|
)
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
26,591
|
|
|
(6,279
|
)
|
|
(393
|
)
|
|
(343
|
)
|
|
Issuance
of 134,626 shares of common stock in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with exercise of stock options
|
|
|
1
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain from foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
Compensation
expense recognized on stock options
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit associated with the exercise of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
options
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
(946
|
)
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
27,327
|
|
|
(7,225
|
)
|
|
(294
|
)
|
|
(343
|
)
|
See
notes to consolidated financial
statements
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except share and per-share amounts)
1.
Organization
Medialink
Worldwide Incorporated and its subsidiaries (the “Company”) provide media
communications services and digital video tracking services to corporations
and
other organizations. Through its content media operations in the United States
and the United Kingdom, the Company offers news and marketing media strategies
and solutions by providing consultation, production, distribution, and
monitoring services that enable its clients to inform and educate their intended
audiences through various media. Through its Teletrax subsidiaries, the Company
provides digital video tracking services that provide broadcast television
intelligence to video content providers such as entertainment companies, news
organizations, television syndicators, direct-response marketing companies,
and
a sports organization, enabling clients to monitor their content.
In
September 2006, the Company sold the assets of U.S. Newswire, its wire
distribution and photography services division. The consolidated financial
statements reflect U.S. Newswire as a discontinued operation in all periods
presented. Accordingly, prior period financial statements have been reclassified
to reflect the financial position, results of operations, and cash flows of
U.S.
Newswire separately from continuing operations.
2.
Summary of Significant Accounting Policies
Principles
of Consolidation: The
consolidated financial statements include the accounts of the Company and all
of
its subsidiaries. The Company consolidates entities in which it owns greater
than 50% of the voting equity of an entity or otherwise is able to exert
control. The Company consolidates its 76%-owned Teletrax subsidiaries and
includes 100% of the losses from these subsidiaries in its consolidated results
of operations since the minority shareholder has no future funding obligations.
All intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Cash
and Cash Equivalents:
Cash and
cash equivalents include all cash balances and highly liquid investments having
original maturities of three months or less.
Allowance
for Doubtful Accounts:
The
Company recognizes bad debt expense on trade receivables through an allowance
account using estimates based on past experience, and writes off trade
receivables against the allowance account when the Company believes it has
exhausted all available means of collection.
Inventory:
Inventory
consists of equipment for sale and equipment for replacement of devices
requiring service in the Company’s digital video tracking services business.
Inventory is valued at the lower of cost or market, with cost determined on
a
specific identification basis.
Property
and Equipment: Property
and equipment is stated at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets, which generally range
from
three years for certain equipment to ten years for certain furniture and
fixtures. Leasehold improvements and assets recorded under capital leases are
amortized on a straight-line basis over the shorter of their estimated useful
lives or the terms of the leases.
Long-lived
Assets: In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company
evaluates the recoverability of its long-lived assets by comparing their
carrying value to the expected future undiscounted cash flows to be generated
from such assets when events or circumstances indicate that an impairment may
have occurred.
Goodwill
and Other Intangible Assets: In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill
and other intangible assets with indefinite useful lives are not amortized,
but
rather are subject to an annual impairment test. The Company performs its annual
impairment test on September 30 of each year, or more frequently if an event
occurs or circumstances change to indicate than an impairment may have occurred.
Intangible assets with finite useful lives are amortized over their useful
lives.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity
Investments: The
Company accounts for its investments in other entities under the equity method
when it owns between 20% and 50% of the voting equity and does not have the
ability to exercise control over the other entity or is otherwise not required
to consolidate the entity in accordance with Financial Accounting Standards
Board Interpretation No. (“FIN”) 46(R), “Consolidation of Variable Interest
Entities.” The Company accounts for its investments in other entities under the
cost method when it owns less than 20% of the voting equity and does not exert
significant influence. Equity investments are reviewed for impairment whenever
events or changes in circumstances indicate that the fair value of an equity
investment is less than its carrying amount and that such a decline in value
is
determined to be other than temporary.
Revenue
Recognition: Revenue
is recognized when the Company has substantially completed performance and
no
longer has a consequential obligation to its clients.
Media
communications services: Revenue
from the Company’s media communications services offerings, including the
production of video and audio content and the broadcast of live events, is
recognized upon substantial completion of the services being provided. Revenue
from the distribution and monitoring of video and audio news releases is
recognized upon distribution.
Digital
Video Tracking Services: Revenue
from Teletrax™ digital video tracking services is recognized ratably over the
period of service being provided. Revenue from the sale of equipment is
recognized upon installation and acceptance by the client. Revenues include
$97,
$184, and $364 from equipment sales for the years ended December 31, 2006,
2005,
and 2004, respectively.
Operating
Costs: Direct
costs primarily represent incremental third-party costs incurred in connection
with providing services to clients, including production costs, as well as
incremental costs incurred for commissions paid to salaried sales personnel.
Selling, general, and administrative costs include all internal costs, including
payroll-related and other internal costs incurred in connection with providing
services to clients, including all internal production costs.
Advertising
expenses:
Advertising costs are expensed in the period in which the advertising appears
in
print or is broadcast. The Company incurred advertising expense, exclusive
of
sales and marketing efforts, of approximately $131, $73, and $92 for the years
ended December 31, 2006, 2005, and 2004, respectively.
Income
Taxes: The
Company accounts for income taxes under the provisions of SFAS No. 109,
“Accounting for Income Taxes.” Foreign subsidiaries are taxed according to the
regulations existing in the countries in which they do business. Provision
has
not been made for United States income taxes on distributions that may be
received from foreign subsidiaries, which are considered to be permanently
invested overseas. A valuation allowance is recorded if it is more likely than
not that some portion or all of the deferred tax assets will not be realized
in
future periods.
Foreign
Currency Translation: Assets
and liabilities of foreign operations are translated from the functional
currency into United States dollars using the exchange rate in effect at the
balance sheet date. Revenues and expenses of foreign operations are translated
from the functional currency into United States dollars using the average
exchange rate for the period. Adjustments resulting from the translation into
United States dollars are included as a component of “Other comprehensive
loss.”
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based
Compensation: On
January 1, 2006, the Company adopted the provisions of SFAS No. 123 (Revised
2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R requires that all
share-based payments to employees and non-employee directors, including grants
of stock options, be recognized in the financial statements based on their
fair
values on the date of grant. Prior to the adoption of SFAS No. 123R, the Company
accounted for stock-based compensation based on the intrinsic value of the
stock
options granted in accordance with the provisions of Accounting Principles
Board
Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” an
alternative to the fair-value recognition provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation.” The Company has elected to use the
modified prospective application for the transition upon the adoption of SFAS
No. 123R, which requires compensation expense to be recognized on options
granted subsequent to the adoption date as well as on options granted prior
to
the adoption date for which the requisite service period had not been completed
as of December 31, 2005. Periods prior to the date that SFAS No. 123R was
adopted are not adjusted under the modified prospective application. The Company
has also elected to treat option grants with graded vesting as a single award
and accordingly recognizes the associated compensation expense ratably over
the
service period. The pro forma effects had the Company accounted for stock-based
employee compensation based on the fair value of stock options granted in
accordance with SFAS No. 123 for the years ended December 31, 2005 and 2004,
were as follows:
| |
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
Net
loss as reported
|
|
$
|
(5,546
|
)
|
$
|
(971
|
)
|
|
Stock-based
compensation expense, net of tax,
|
|
|
|
|
|
|
|
|
included
in net loss as reported
|
|
|
21
|
|
|
-
|
|
|
Stock-based
compensation expense, net of tax, under
|
|
|
|
|
|
|
|
|
fair
value method
|
|
|
(349
|
)
|
|
(165
|
)
|
| |
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(5,874
|
)
|
$
|
(1,136
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted loss per share as reported
|
|
$
|
(0.92
|
)
|
$
|
(0.16
|
)
|
| |
|
|
|
|
|
|
|
|
Pro
forma basic and diluted loss per share
|
|
$
|
(0.97
|
)
|
$
|
(0.19
|
)
|
| |
|
|
|
|
|
|
|
Estimates:
The
preparation of the Company’s consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications:
Certain
prior-period amounts in the accompanying financial statements have been
reclassified to conform to the 2006 presentation.
Recently
Issued Accounting Standards: In
June
2006, FIN 48, "Accounting for Uncertainty in Income Taxes - an interpretation
of
FASB Statement No. 109," was issued and is effective for fiscal years beginning
after December 15, 2006. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. Under FIN 48,
a
two-step process is used to evaluate a tax position. The first step establishes
a recognition criterion under which the tax position is recognized if it is
more
likely than not that it will be sustained upon examination. The second step
establishes a measurement criterion under which the tax position is measured
at
the largest amount of benefit that is greater than 50% likely of being realized
upon ultimate settlement. The Company does not expect the adoption of FIN 48
to
have a material effect on its financial condition or results of
operations.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 108, “Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements,” which
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purposes of
a
materiality assessment. SAB No. 108 requires an entity to use both an income
statement approach and a balance sheet approach to separately quantify and
assess the amount of any misstatements originating in the current period and
the
cumulative amount of any such misstatements. The adoption of SAB No. 108 by
the
Company in 2006 did not have a material effect on its financial condition or
results of operations.
3.
Discontinued Operations
In
September 2006, the Company sold the assets of its U.S. Newswire division to
PR
Newswire Association, LLC (“PR Newswire”), a wholly-owned subsidiary of United
Business Media plc, for approximately $22,577, which includes $270 for
additional working capital delivered at closing. The assets sold represented
the
Company's entire wire distribution and photography services businesses, which
were an operating segment within the Company’s media communications services
reporting segment. The base sale price was $19,000, of which the Company
received $16,250 in cash at closing, which included $150 for additional working
capital, with the remaining $2,900 deposited into escrow, of which $1,900
represented amounts to cover potential post-closing contingencies and $1,000
represented deferred sale price. The base sale price was subject to adjustment
based on the operating performance of U.S. Newswire for the twelve-month period
ended September 30, 2006, the effective date of the transaction, with the final
sale price to be between $18,000 and $23,000. In addition, the final sale price
was to be adjusted based on the working capital of U.S. Newswire as of September
30, 2006.
The
final
sale price of $22,577 included an increase to the base sale price of $3,307
based on the operating performance of U.S. Newswire for the pertinent period
and
$270 for additional working capital. In February 2007, the Company received
additional cash proceeds of approximately $4,427, of which $3,307 represented
additional sale price received directly from PR Newswire, $1,000 represented
the
release of the escrow balance representing deferred purchase price at closing,
and $120 represented an adjustment for additional working capital. The escrow
account balance of $1,900 to cover potential post-closing contingencies is
scheduled to be released by the fourth quarter of 2007, subject to certain
contingencies. In 2006 the Company recognized a pretax gain on the sale of
U.S.
Newswire of approximately $7,566 based on the minimum sale price of $18,000,
with the remaining gain on sale of approximately $4,577 to be recognized in
2007.
In
connection with the sale of U.S Newswire, the Company entered into a three-year
services agreement with PR Newswire under which PR Newswire committed to provide
media communications services work aggregating a minimum of $750, $600, and
$500
for the fiscal years ended September 30, 2007, 2008, and 2009, respectively,
and
the Company committed to provided PR Newswire with wire and photography services
work aggregating a minimum of $200 for each of the fiscal years then ended.
A
payment to the other party is required for any shortfall to the extent either
party does not reach its minimum commitment by the end of each fiscal
year.
In
December 2004, the Company sold substantially all of the assets and liabilities
of its research division, Delahaye, for approximately $8,000, of which $7,700
was collected at closing and $300 was collected during 2005. The Company also
received an additional $224 related to a purchase price adjustment based on
working capital at closing. In connection with the settlement of all outstanding
claims and contingencies and the receipt of the additional amount for the
purchase price adjustment, the Company recorded additional gain, net of tax,
of
$64 and $194 in 2006 and 2005, respectively, on the sale of Delahaye.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
operations of U.S. Newswire and Delahaye are reported as discontinued
operations
for all periods presented in the accompanying consolidated financial
statements.
The operating results of U.S. Newswire and Delahaye are reflected separately
from the results of continuing operations through the dates of sale.
The results
of operations and the gain on sale of U.S. Newswire and Delahaye are
presented
as discontinued operations for the years ended December 31, 2006, 2005,
and
2004, respectively, as follows:
| |
|
|
| |
|
|
|
|
|
2005
|
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,457
|
|
$
|
5,376
|
|
$
|
13,701
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income
from operations before income taxes
|
|
$
|
1,602
|
|
$
|
1,964
|
|
$
|
1,230
|
|
|
Income
tax expense
|
|
|
681
|
|
|
832
|
|
|
637
|
|
|
Income
from operations
|
|
|
921
|
|
|
1,132
|
|
|
593
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of division before income taxes
|
|
|
7,678
|
|
|
284
|
|
|
4,915
|
|
|
Income
tax expense
|
|
|
3,224
|
|
|
90
|
|
|
1,866
|
|
|
Gain
on sale of division
|
|
|
4,454
|
|
|
194
|
|
|
3,049
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
$
|
5,375
|
|
$
|
1,326
|
|
$
|
3,642
|
|
At
December 31, 2005, the current assets of U. S. Newswire reported as a
discontinued operation consisted of $570 of accounts receivable and $43 of
prepaid expenses; the long-term assets consisted of $38 of property and
equipment and $9,577 of goodwill; the current liabilities consisted entirely
of
accounts payable and accrued expenses. The amount of goodwill attributable
to
U.S. Newswire was determined based on the relative fair value of U.S. Newswire
to the fair value of the Company’s media communications services segment at
September 30, 2006 (see Note 6).
In
connection with the sale of U.S. Newswire, the Company completed certain exit
activities in September 2006 (the “Third Quarter Plan”) that included
terminating one employee and vacating the portion of its facility in Washington,
DC, that served as the primary facility for providing wire distribution and
photography services. The Company also completed certain exit activities in
the
fourth quarter of 2006 (the “Fourth Quarter Plan”) that included terminating one
employee and vacating the portion of its facility in Norwalk, CT, that served
as
a satellite location for certain activities of U.S. Newswire. The results of
operations from discontinued operations for the year ended December 31, 2006,
include charges of $226 and $138 related to the Third Quarter Plan and the
Fourth Quarter Plan, respectively. The Third Quarter Plan consisted of $11
for
employee termination costs and $215 for contract termination costs associated
with the lease for the Washington, DC, facility. The Company continues to occupy
a portion of the Washington, DC, facility for use by its broadcast services
business. The Fourth Quarter Plan consisted of $60 for employee termination
costs and $78 for contract termination costs associated with the lease for
the
Norwalk, CT, facility. The Company continues to occupy a portion of the Norwalk,
CT, facility for use as its information technology base.
4.
Impairment Charges
For
the
year ended December 31, 2004, the Company incurred impairment charges totaling
$715, of which $342 related to two investments previously accounted for under
the cost method. In addition, the Company incurred an impairment charge of
$373
related to its 50% interest in Business Wire/Medialink, LLC (“Newstream”), a
joint venture with Business Wire that provided for the delivery of multi-media
content to on-line newsrooms. During 2004, Business Wire and the Company each
made an additional capital contribution of $255. In December 2004, the joint
venture was dissolved and the Company recognized an impairment charge equal
to
its remaining investment in the joint venture at the time of dissolution. Under
its agreement with Business Wire upon dissolution of the joint venture, the
Company continued to provide services under the Newstream name through December
31, 2005. In January 2006, the Company commenced providing services similar
to
those provided by the joint venture through a new proprietary distribution
platform.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
results of operations of Newstream for the year ended December 31, 2004, were
as
follows:
| |
|
2004
|
|
| |
|
(Unaudited)
|
|
Revenues
|
|
$
|
1,012
|
|
|
Operating
loss
|
|
$
|
(495
|
)
|
5.
Property and Equipment
Property
and equipment at December 31 consisted of the following:
| |
|
|
2006
|
|
|
2005
|
|
| |
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
8,242
|
|
$
|
6,563
|
|
|
Furniture
and fixtures
|
|
|
1,322
|
|
|
1,263
|
|
|
Licenses
and software
|
|
|
2,095
|
|
|
1,712
|
|
|
Leasehold
improvements
|
|
|
3,528
|
|
|
3,444
|
|
| |
|
|
|
|
|
|
|
|
Total
|
|
|
15,187
|
|
|
12,982
|
|
|
Less:
Accumulated depreciation and amortization
|
|
|
10,891
|
|
|
8,640
|
|
| |
|
|
|
|
|
|
|
|
Net
|
|
$
|
4,296
|
|
$
|
4,342
|
|
6.
Goodwill
The
Company’s intangible assets not subject to amortization under SFAS No. 142
consisted entirely of goodwill, all of which related to the media communications
segment. In connection with the sale of U.S. Newswire in September 2006, the
Company allocated $9,577 of the segment’s goodwill to discontinued operations
based on the relative fair value of the division sold to the fair value of
the
remainder of the segment on the date of sale. The remaining goodwill of $3,429
was subjected to the Company’s annual impairment test, which resulted in no
impairment for the year ended December 31, 2006.
7.
Accrued Expenses
Accrued
expenses and other current liabilities at December 31 consisted of the
following:
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
$
|
1,405
|
|
$
|
1,528
|
|
|
Direct
costs
|
|
|
1,710
|
|
|
1,511
|
|
|
Client
prepayments
|
|
|
400
|
|
|
938
|
|
|
Deferred
revenue
|
|
|
789
|
|
|
590
|
|
|
Abandoned
lease obligations
|
|
|
325
|
|
|
128
|
|
|
Leasehold
refurbishments
|
|
|
343
|
|
|
-
|
|
|
Professional
fees
|
|
|
280
|
|
|
319
|
|
|
Other
accruals
|
|
|
1,144
|
|
|
793
|
|
| |
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,396
|
|
$
|
5,807
|
|
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.
Liabilities for Disposal Activities
In
September 2003, the Company completed a plan (the “2003 Plan”) to shut down one
of its office locations in Norwalk, CT, by subleasing the abandoned space.
The
remaining liability for future payments for the 2003 Plan, all of which pertains
to facility closure costs, and the amounts charged against the liability were
as
follows:
|
|
|
$
|
363
|
|
|
Payments
|
|
|
(71
|
)
|
| |
|
|
|
|
|
|
|
|
292
|
|
|
Payments
|
|
|
(135
|
)
|
| |
|
|
|
|
|
|
|
$
|
157
|
|
At
December 31, 2006, the liabilities for disposal activities related to the 2003
Plan as well as the Third Quarter Plan and the Fourth Quarter Plan associated
with the sale of U.S. Newswire (see Note 3) were included in the Company’s
balance sheet as follows:
| |
|
Total
|
|
Current
Liabilities
|
|
Non-current
Liabilities
|
|
|
2003
Plan
|
|
$
|
157
|
|
$
|
135
|
|
$
|
22
|
|
|
Third
Quarter Plan
|
|
|
213
|
|
|
154
|
|
|
59
|
|
|
Fourth
Quarter Plan
|
|
|
78
|
|
|
36
|
|
|
42
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
448
|
|
$
|
325
|
|
$
|
123
|
|
9.
Line of Credit
Prior
to
2005, the Company had a credit facility with a bank under which it borrowed
funds at an interest rate equal to the 30-day LIBOR rate plus 5.5%. The Company
fully repaid amounts outstanding under this credit facility in December 2004
and
the credit facility was terminated. The average variable rate on borrowings
under this credit facility for the 2004 period through the termination of the
facility was 5.7%.
10.
Long-term Debt
Long-term
debt at December 31 consisted of the following:
| |
|
2006
|
|
2005
|
|
|
Convertible
debentures
|
|
$
|
5,000
|
|
$
|
5,000
|
|
|
Unamortized
discount
|
|
|
(727
|
)
|
|
(955
|
)
|
| |
|
|
|
|
|
|
|
|
Net
|
|
$
|
4,273
|
|
$
|
4,045
|
|
In
November 2004, the Company issued redeemable subordinated convertible debentures
with a face value of $5,000. The Debentures, which are unsecured and mature
in
November 2009, bear interest at a rate equal to the higher of 7% or the 6-month
LIBOR rate (as defined) plus 4.5% for the first three years and at an adjustable
rate thereafter. The convertible debentures provide each holder with the option
to convert their securities into shares of the Company’s common stock at a price
of $4.05 per share. In addition, as part of the issuance of the convertible
debentures, each holder received detachable warrants to purchase an aggregate
of
582,929 shares of the Company’s common stock at a price of $3.99 per share. The
Company can call the outstanding convertible debentures at the end of the first,
second, and third years at a price equal to 115%, 110%, and 100%, respectively,
of the face value. In addition, as of November 2005 the Company can force the
holders of the convertible debentures to convert into shares of the Company’s
common stock if the market price of the common stock exceeds $7.09 per share,
subject to certain other conditions.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
gross
proceeds of $5,000 from the issuance of the convertible debentures and the
detachable warrants were allocated between the two financial instruments based
on their relative fair values at the date of issuance. The fair value of the
warrants of $1,200 was estimated using the Black-Scholes option pricing model
and the following assumptions: expected volatility of 81.1%, expected life
of
five years, risk free interest rate of 3.51%, and no dividend yield. The fair
value of the warrants was recorded as additional paid-in capital and a discount
on the convertible debentures, which is being amortized as a component of
interest expense over the life of the convertible debentures. The remaining
gross proceeds of $3,800 were ascribed to the fair value of the convertible
debentures, which accretes in value as the discount is amortized.
In
connection with the issuance of the convertible debentures, the Company incurred
fees totaling $256, which are being amortized as a component of interest expense
over the term of the convertible debentures. Interest expense for the years
ended December 31, 2006, 2005, and 2004, included $228, $212, and $33,
respectively, from the amortization of the discount and $51, $54, and $8,
respectively, from the amortization of the deferred financing fees. The average
interest rate on the convertible debentures was 9.8%, 8.5%, and 7.3% for the
years ended December 31, 2006, 2005, and 2004, respectively.
In
the
first quarter of 2007, convertible debentures with an aggregate face value
of
$650 were converted into 160,494 shares of the Company’s common stock and
warrants to purchase 46,200 shares of the Company’s common stock were
exercised.
11.
Leases
The
Company leases certain property used in its operations under agreements that
are
classified as operating leases. Such agreements generally include provisions
for
inflation-based rate adjustments and, in the case of leases for buildings and
office space, payments of certain operating expenses and property
taxes.
Future
minimum rental payments required under the operating leases that have initial
or
remaining non-cancelable lease terms in excess of one year are as
follows:
|
2007
|
|
$
|
2,832
|
|
|
2008
|
|
|
2,371
|
|
|
2009
|
|
|
1,900
|
|
|
2010
|
|
|
1,543
|
|
|
2011
|
|
|
24
|
|
| |
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
8,670
|
|
The
Company has non-cancelable subleases related to certain properties under which
the Company will receive minimum sublease rental payments through 2009 totaling
approximately $944. Total rental expense under operating leases amounted to
$2,359, $2,271, and $2,022 for the years ended December 31, 2006, 2005, and
2004, respectively.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12.
Preferred Stock
During
2001, the Company’s Board of Directors approved the adoption of a Preferred
Stock Rights Agreement (the “Rights Agreement”), under which a dividend
distribution of one preferred stock purchase right (the “Purchase Right”) was
declared for each outstanding share of the Company’s common stock, payable to
common stockholders of record at the close of business on August 30, 2001.
Each
Purchase Right has an exercise price of $50.00 and entitles the holder to
purchase one one-thousandth of a share of the Company’s Series A Participating
Preferred Stock (the “Series A Preferred”). The Purchase Rights continue to be
represented by, and trade with, the Company's common stock certificates unless
the Purchase Rights become exercisable, which will only occur, with certain
exceptions, in the event that a person or group acquires, or announces a tender
or exchange offer to acquire, a beneficial ownership of 15% or more of the
Company's common stock then outstanding. As of December 31, 2006 and 2005,
the
Company’s Board of Directors had authorized 50,000 shares of the Series A
Preferred, none of which was issued or outstanding.
13.
Income Taxes
The
components of the provision (benefit) for income taxes were as
follows:
| |
|
2006
|
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Current: |
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,260
|
)
|
$
|
(902
|
)
|
$
|
(1,369
|
)
|
|
State
and local
|
|
|
(1,322
|
)
|
|
(240
|
)
|
|
(579
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
current
|
|
|
(4,582
|
)
|
|
(1,142
|
)
|
|
(1,948
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,263
|
|
|
-
|
|
|
1,483
|
|
|
State
and local
|
|
|
512
|
|
|
-
|
|
|
521
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
deferred
|
|
|
1,775
|
|
|
-
|
|
|
2,004
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
provision (benefit) for income taxes
|
|
$
|
(2,807
|
)
|
$
|
(1,142
|
)
|
$
|
56
|
|
The
provision (benefit) for income taxes varied from the Federal statutory income
tax rate due to the following:
| |
|
2006
|
|
2005
|
|
2004
|
|
|
Taxes
at statutory rate
|
|
$
|
(3,104
|
)
|
$
|
(2,725
|
)
|
$
|
(1,549
|
)
|
|
State
and local income taxes, net of Federal benefit
|
|
|
(730
|
)
|
|
(502
|
)
|
|
(271
|
)
|
|
Valuation
allowance on deferred tax assets
|
|
|
213
|
|
|
1,936
|
|
|
1,839
|
|
|
Benefit
for foreign taxes at lower rates
|
|
|
196
|
|
|
-
|
|
|
-
|
|
|
Non-deductible
expenses and other
|
|
|
618
|
|
|
149
|
|
|
37
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
$
|
(2,807
|
)
|
$
|
(1,142
|
)
|
$
|
56
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Federal
statutory rate
|
|
|
34.00
|
%
|
|
34.00
|
%
|
|
34.00
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
Effective
rate
|
|
|
30.75
|
%
|
|
14.25
|
%
|
|
(1.23
|
)%
|
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The
Company generated losses from continuing operations before taxes for the years
ended December 31, 2006, 2005, and 2004, as follows:
| |
|
2006
|
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(7,493
|
)
|
$
|
(6,768
|
)
|
$
|
(2,941
|
)
|
|
Foreign
|
|
|
(1,635
|
)
|
|
(1,246
|
)
|
|
(1,616
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(9,128
|
)
|
$
|
(8,014
|
)
|
$
|
(4,557
|
)
|
The
components of the net deferred tax asset at December 31 were as
follows:
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
|
| Deferred
tax assets: |
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
66
|
|
$
|
230
|
|
|
Property
and equipment
|
|
|
97
|
|
|
77
|
|
|
Goodwill
|
|
|
782
|
|
|
-
|
|
|
Other
intangible assets
|
|
|
748
|
|
|
932
|
|
|
Minority
interest
|
|
|
341
|
|
|
475
|
|
|
Equity
investments
|
|
|
300
|
|
|
304
|
|
|
Accrued
compensation
|
|
|
614
|
|
|
865
|
|
|
Other
accrued expenses
|
|
|
301
|
|
|
225
|
|
|
Net
operating loss carryforwards
|
|
|
2,348
|
|
|
3,084
|
|
|
Total
deferred tax assets
|
|
|
5,597
|
|
|
6,192
|
|
| |
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
2,002
|
|
|
Other
liabilities
|
|
|
362
|
|
|
-
|
|
|
Total
deferred tax liabilities
|
|
|
362
|
|
|
2,002
|
|
| |
|
|
|
|
|
|
|
|
Net
deferred tax asset before valuation allowance
|
|
|
5,235
|
|
|
4,190
|
|
|
Valuation
allowance on deferred tax assets
|
|
|
4,403
|
|
|
4,190
|
|
| |
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
832
|
|
$
|
-
|
|
At
December 31, 2006, the Company had domestic state net operating loss
carryforwards of approximately $1,075 that expire in 2016 through 2020 and
foreign net operating loss carryforwards of $7,540 that do not expire. The
Company had no Federal net operating loss carryforwards at December 31, 2006.
The Company established a valuation allowance to reserve for certain of its
deferred tax assets at December 31, 2005, based on its projections at that
time
leading the Company to believe that it was more likely than not that the benefit
associated with the deferred tax assets would not be realized in future periods.
Based on its most recent projections, the Company continues to believe that
it
is more likely than not that such benefit will not be fully realized. The gain
on sale of U. S. Newswire, however, will enable the Company to realize certain
deferred tax assets in future periods. Accordingly, the Company recognized
net
deferred tax assets totaling $832 at December 31, 2006. The increase in the
valuation allowance of $213 for the year ended December 31, 2006, was recognized
as additional tax provision for the period.
14.
Stock Options
Under
a
stock option plan covering employees and other eligible participants (the
“Employee Plan”), the Company grants stock options to purchase shares of the
Company’s common stock. Stock options granted under the Employee Plan generally
become exercisable under two alternative vesting schedules over a four-year
period. One vesting schedule provides for 20% of the stock options granted
being
exercisable on the grant date and an additional 20% becoming exercisable on
the
anniversary of the grant date in each of the next four years. The second vesting
schedule provides for 25% of the stock options granted becoming exercisable
on
the anniversary of the grant date in each of the next four years. Incentive
stock options granted under the Employee Plan generally have a term of ten
years
and an exercise price equal to the fair market value of the Company’s common
stock on the grant date. Incentive stock options issued to employees who own
more than 10% of the voting power of all classes of equity of the Company have
a
term of five years and an exercise price equal to at least 110% of the fair
market value of the Company’s common stock on the grant date. Non-qualified
stock options granted under the Employee Plan can have a term of up to fifteen
years and an exercise price that is determined for each individual grant by
a
committee appointed by the Company’s board of directors. There are 1,670,808
shares of the Company’s common stock reserved for the issuance of stock options
under the Employee Plan. At December 31, 2006, 355,572 shares remained available
for the issuance of stock options and 788,190 stock options were
outstanding.
MEDIALINK
WORLDWIDE INCORPORATED
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under
a
stock option plan covering members of its board of directors (the “Directors’
Plan”), the Company grants stock options to non-employee directors. Newly
appointed non-employee directors are granted 10,000 stock options upon their
appointment or election to the board of directors, and all non-employee
directors are granted 3,000 stock options on the first business day of each
year. Additional grants of stock options may be made at the discretion of a
committee appointed by the Company’s board of directors. Stock options granted
under the Directors’ Plan generally vest ratably over a three-year period, have
a term of ten years, but cannot have a term that exceeds fifteen years, and
have
an exercise price equal to the fair market value of the Company’s common stock
on the grant date. There are 280,000 shares of 