U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT
For the transition period from _____________ to _____________
Commission File No. 0-28138
SPANLINK COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1618845
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7125 Northland Terrace, Minneapolis, MN
(Address of principal executive offices)
(612) 971-2000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.
At August 8, 1997, there were 5,080,500 shares of the issuer's no par value,
Common Stock, outstanding.
whether this is a transitional small business disclosure format: Yes ___ No _X_
<PAGE>
SPANLINK COMMUNICATIONS, INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheet as of 3
June 30, 1997 and December 31, 1996
Condensed Statement of Operations 4
for the three and six month periods
ended June 30, 1997 and 1996
Condensed Statement of Cash Flows 5
for the nine month periods ended
June 30, 1997 and 1996
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 8
SIGNATURES 10
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED BALANCE SHEET
ASSETS (UNAUDITED) (AUDITED)
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
Current assets:
Cash and cash equivalents $ 566,529 $ 2,284,952
Marketable securities 999,714 2,092,553
Accounts receivable, net of allowances 1,058,711 1,993,667
Costs and estimated earnings in excess of billings 380,673 61,641
Other current assets 891,577 364,399
----------- -----------
Total current assets 3,897,204 6,797,212
Property and equipment, net 1,255,602 837,488
----------- -----------
Total assets $ 5,152,806 $ 7,634,700
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion capital lease obligation $ 46,284
Accounts payable 473,733 $ 924,590
Accrued expenses 599,036 802,421
Other current liabilities 736,131 730,656
----------- -----------
Total current liabilities 1,855,184 2,457,667
Capital lease obligation 222,499
----------- -----------
Total liabilities 2,077,683 2,457,667
----------- -----------
Shareholders' equity:
Common stock 8,193,663 8,193,663
Accumulated deficit (5,118,540) (3,016,630)
----------- -----------
Total shareholders' equity 3,075,123 5,177,033
----------- -----------
Total liabilities and shareholders' equity $ 5,152,806 $ 7,634,700
=========== ===========
See accompanying notes to financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED STATEMENT OF OPERATIONS
SECOND QUARTER AND SIX MONTHS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 % Change 1997 1996 % Change
-------------------------- ------- -------------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,131,832 $ 1,045,417 8.3% $ 2,659,467 $ 2,079,710 27.9%
Cost of Revenues 602,140 412,906 45.8% 1,290,446 881,631 46.4%
----------- ----------- ------- ----------- ----------- ------
Gross Profit 529,692 632,511 -16.3% 1,369,021 1,198,079 14.3%
Gross profit as a percentage of revenues 46.8% 60.5% 51.5% 57.6%
Operating expenses:
Sales, general and administrative 1,369,235 1,114,327 22.9% 2,669,563 2,146,817 24.3%
Research and product development 427,059 172,163 148.1% 870,460 255,011 241.3%
----------- ----------- ------- ----------- ----------- ------
1,796,294 1,286,490 39.6% 3,540,023 2,401,828 47.4%
----------- ----------- ------- ----------- ----------- ------
Loss from operations (1,266,602) (653,979) 93.7% (2,171,002) (1,203,749) 80.4%
Interest income 22,118 35,002 -36.8% 69,093 7,560 813.9%
----------- ----------- ------- ----------- ----------- ------
Loss before income taxes (1,244,484) (618,977) 101.1% (2,101,909) (1,196,189) 75.7%
Provision (benefit) for income taxes 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Net loss $(1,244,484) $ (618,977) 101.1% $(2,101,909) $(1,196,189) 75.7%
=========== =========== ------- =========== ===========
Net loss per common share $ (0.24) $ (0.14) 71.4% $ (0.41) $ (0.34) 20.6%
Weighted average common shares 5,080,500 4,301,159 5,080,500 3,513,363
Supplementary Data:
Supplementary net loss per common and
common equivalent shares $ (0.13) $ (0.31)
Supplemental weighted average
common and common equivalent shares 4,414,246 3,626,450
See accompanying notes to financial statements.
</TABLE>
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(2,101,909) $(1,196,189)
Reconciliation of net loss to net cash used by
operating activities:
Depreciation and amortization 187,638 72,300
Common stock grant recognized as compensation 0 246,750
Amortization of original issue discount recognized as
interest expense 0 32,516
Changes in current assets and liabilities (560,022) (155,290)
----------- -----------
Net cash used by operating activities (2,474,293) (999,913)
----------- -----------
Cash flows from investing activities:
Net change in marketable securities 1,092,839 (5,537,959)
Additions to property and equipment (305,352) (362,031)
----------- -----------
Net cash provided (used) by investing activities 787,487 (5,899,990)
----------- -----------
Cash flows from financing activities:
Dividends paid to shareholders 0 (39,000)
Repayments on capital lease obligation (31,617)
Repayments on note payable - bank 0 (230,531)
Repayments on note payable - other 0 (343,683)
Proceeds from issuance of notes payable - convertible, net
of issuance costs 0 283,732
Proceeds from sale of stock warrants 0 64,000
Proceeds from sale of common stock, net of issuance costs 0 7,537,640
----------- -----------
Net cash (used) provided by financing activities (31,617) 7,272,158
----------- -----------
Net (decrease) increase in cash and cash equivalents (1,718,423) 372,255
Cash and cash equivalents at beginning of period 2,284,952 344,689
----------- -----------
Cash and cash equivalents at end of period $ 566,529 $ 716,944
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 15,570 $ 23,465
=========== ===========
Cash paid during the period for income taxes $ 75,000
===========
Supplemental disclosure of noncash investing and financing activities:
Conversion of notes payable to common stock, net of
unamortized original issue discount and offering
costs $ 342,273
===========
Capital lease obligation incurred $ 300,400
===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1- CONDENSED FINANCIAL STATEMENTS
The unaudited condensed financial information contained in this report
reflects all adjustments (consisting of normal recurring adjustments) considered
necessary, in the opinion of management, for a fair presentation of results of
the interim periods presented of Spanlink Communications, Inc. (the "Company").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the most recent audited financial statements and notes thereto
included in the Company's Form 10-KSB for the fiscal year ended December 31,
1996. The results of operations of the periods ended June 30 are not necessarily
indicative of the results of operations for a full year.
NOTE 2 - USE OF ESTIMATES
The preparation of condensed interim financial statements 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 revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 3 - SHAREHOLDERS' EQUITY
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of
common and common equivalent shares outstanding for the period. Common
equivalent shares which include options and warrants using the treasury stock
method have been excluded as their effect would be anti-dilutive.
Supplementary loss per share data reflects certain adjustments for: (i) the
issuance of 71,420 shares of common stock in connection with the repayment of a
note payable from certain net proceeds received from the Company's IPO that
closed on May 2, 1996; (ii) the conversion of the Bridge Notes originally issued
on February 28, 1996 into 125,000 shares of common stock that occurred in
connection with the IPO; and (iii) the decrease of net loss by $39,630 for the
three months ended March 31, 1996 for interest expense, amortization of the
Bridge Notes debt issuance costs, and amortization of original issue discount
related to the issuance of the Bridge Notes. These adjustments were made as
though these items had occurred on January 1, 1996 for (i) and February 28, 1996
for (ii).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
Total revenue increased 8.3% from $1,045,417 for the three month period
ended June 30, 1996 to $1,131,832 for the comparable period in 1997. The
increase was due primarily to increased system sales by the Company's direct
sales force. Revenue for the six month period ended June 30, 1997 increased
27.9% over the comparable period in 1996 due primarily to the same reason as the
current period.
COST OF REVENUE
Cost of revenue increased 45.8% from $412,906 for the three month period
ended June 30, 1996 to $602,140 for the three month period ended June 30, 1997.
The increase was due primarily to an increase in the hardware component of
system sales, as well as higher operations expenses to support the increase in
sales. Cost of revenue increased 46.4% for the six month period ended June 30,
1997 versus the comparable period in 1996 due primarily to the same reason as
the three month period.
GROSS PROFIT
Gross profit decreased 16.3% to $529,692 for the three month period ended
June 30, 1997. Gross profit as a percentage of total revenue decreased from
60.5% for the three month period ended June 30, 1996 to 46.8% for the three
month period ended June 30, 1997. The decreased gross margin as a percentage of
total revenue was due primarily to a an increase in the lower margin hardware
component of system sales as well as a ramp up in operations expenses to support
higher sales levels. Gross profit as a percentage of total revenue decreased to
51.5% for the six month period ended June 30, 1997 from 57.6% for the comparable
period in 1996. The decrease was due primarily to the same reason as the three
month period.
SALES, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expenses increased 22.9% to $1,369,235
for the three month period ended June 30, 1997 from $1,114,327 for the three
month period ended June 30, 1996. The increase is due primarily to increased
expenses related to the buildup of the domestic sales force as well as as well
as approximately $200,000 in non-recurring expenses related to severance and
other restructuring charges. Sales, general and administrative expenses
increased 24.3% for the six month period in 1997 to $2,669,563 from $2,146,817
for the same period in 1996 primarily for the same reason as the three month
period. Sales, general and administrative expenses for the three month period
ended March 31, 1996, includes $246,750 of noncash expense associated with the
<PAGE>
granting of 70,500 shares of common stock to the Company's president and outside
board of directors.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses increased 148.1% from $172,163
for the three month period ended June 30, 1996 to $427,059 for the three month
period ended June 30, 1997. The increase is due to the Company's continuing
focus on developing configurable software packages. Research and development
expenses increased 241.3% for the six month period ended June 30, 1997 to
$870,460 from $255,011 for the comparable period in 1996 due primarily to the
Company's focus on developing configurable software packages.
INTEREST INCOME / EXPENSE
The Company recorded net interest income of $22,118 for the three month
period ended June 30, 1997 versus net interest income of $35,002 for the
comparable period in 1996. Net interest income for the six month period ended
June 30, 1997 was $69,093 versus net interest income of $7,560 for the
comparable period in 1996.
INCOME TAXES
The Company did not record a tax benefit for the three month and six month
periods ended June 30, 1997 and 1996 as the likelihood of realization of the
benefit is presently not likely.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and marketable securities of
$1,566,243 as of June 30, 1997 resulting from the remaining net proceeds of its
public offering completed in the second quarter of 1996. The Company took action
to reduce its operating expenses in June in excess of 20% for the balance of the
year and believes that its current cash resources combined with projected
operating cash flow will be sufficient to fund its operations and capital
expenditures through 1997.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts are based on
current expectations. These statements are forward looking in nature and involve
a number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the Company's
business plan on terms satisfactory to the Company; competitive factors, such as
the introduction of new products in the same markets; changes in operating costs
including labor and general business and economic conditions; and other risk
factors described from time to time in the Company's reports filed with the
Securities and Exchange Commission. The Company wishes to caution readers not to
place undue reliance on any such forward looking statements, which
<PAGE>
statements are made pursuant to the Private Securities Litigation Reform Act of
1995, and as such, speak only as of the date made.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on Tuesday, May 13, 1997,
at 3:30 p.m. local time, at the offices of the Company. The following
items were approved by a majority of the shareholders:
a) An increase in the number of shares reserved under the Company's
1996 Omnibus Stock Plan from 750,000 to 1,000,000. The vote
totals were 4,810,763 shares FOR; 83,826 shares AGAINST and
20,400 shares ABSTAIN.
b) Amendment of Section 3 of the 1996 Omnibus Stock Plan to
Incorporate recent changes to Section 16 of the Securities act of
1934. The vote totals were 4,871,289 shares FOR; 26,200 shares
AGAINST and 17,500 shares ABSTAIN.
c) Election of Joseph D. Mooney and Loren A. Singer as directors to
hold office for terms expiring at the annual meeting in 2000. The
vote totals were 4,887,989 for both nominees; 700 shares WITHHELD
for both nominees and 26,300 shares ABSTAIN.
d) Ratification of the appointment of Price Waterhouse LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1997. The vote totals were 4,895,939 shares FOR;
7,550 shares AGAINST and 11,500 shares ABSTAIN.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
(i) July 8, 1997 - Announcing the resignation of Patrick P.
Irestone from the positions of Director, President and Chief
Operating Officer and the assumption of such responsibilities by
Brett A. Shockley.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
SPANLINK COMMUNICATIONS, INC.
-----------------------------
(Registrant)
Date: August 11, 1997 Brett A. Shockley
--------------- -----------------
Brett A. Shockley
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1997 Brian P. King
---------------- -----------------
Brian P. King
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 566,529
<SECURITIES> 999,714
<RECEIVABLES> 1,058,711
<ALLOWANCES> 0
<INVENTORY> 285,697
<CURRENT-ASSETS> 3,897,204
<PP&E> 1,867,445
<DEPRECIATION> 611,843
<TOTAL-ASSETS> 5,152,806
<CURRENT-LIABILITIES> 1,855,184
<BONDS> 0
0
0
<COMMON> 8,193,663
<OTHER-SE> (5,118,540)
<TOTAL-LIABILITY-AND-EQUITY> 5,152,806
<SALES> 2,659,467
<TOTAL-REVENUES> 2,659,467
<CGS> 1,369,021
<TOTAL-COSTS> 1,369,021
<OTHER-EXPENSES> 3,540,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,570
<INCOME-PRETAX> (2,101,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,101,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,101,909)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
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