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 September 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 November 5, 1997, there were 5,080,500 shares of the issuer's no par value,
Common Stock, outstanding.
Check 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
September 30, 1997 and December 31, 1996
Condensed Statement of Operations 4
for the three and nine month periods
ended September 30, 1997 and 1996
Condensed Statement of Cash Flows 5
for the nine month periods ended
September 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 9
SIGNATURES 10
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS (UNAUDITED) (AUDITED)
SEPTEMBER 30 DECEMBER 31
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalent $ 1,341,119 $ 2,284,952
Marketable securities 0 2,092,553
Accounts receivable, net of allowances 1,320,329 1,993,667
Costs and estimated earnings in excess of billings 812,346 61,641
Other current assets 473,679 364,399
------------- -------------
Total current assets 3,947,473 6,797,212
Property and equipment, net 1,213,198 837,488
------------- -------------
Total assets $ 5,160,671 $ 7,634,700
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion capital lease obligation $ 45,085 $ 0
Accounts payable 400,946 924,590
Accrued expenses 549,466 802,421
Other current liabilities 1,072,599 730,656
------------- -------------
Total current liabilities 2,068,096 2,457,667
Capital lease obligation 212,325 0
------------- -------------
Total liabilities 2,280,421 2,457,667
------------- -------------
Shareholders' equity:
Common stock 8,193,663 8,193,663
Accumulated deficit (5,313,413) (3,016,630)
------------- -------------
Total shareholders' equity 2,880,250 5,177,033
------------- -------------
Total liabilities and shareholders' equity $ 5,160,671 $ 7,634,700
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
% %
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,782,940 $ 1,341,090 32.9 $ 4,442,407 $ 3,420,800 30.0
Cost of Revenue 665,139 507,452 31.1 1,955,585 1,389,083 40.8
----------- ----------- --------- ----------- ----------- --------
Gross Profit 1,117,801 833,638 34.1 2,486,822 2,031,717 22.4
Gross profit as a percentage of 62.7% 62.2% 56.0% 59.4%
revenues
Operating expenses:
Sales, general and administrative 996,628 1,385,095 -28.0 3,666,191 3,531,912 3.8
Research and product development 324,595 314,190 3.3 1,195,055 569,201 110.0
----------- ----------- --------- ----------- ----------- --------
1,321,223 1,699,285 -22.2 4,861,246 4,101,113 18.5
----------- ----------- --------- ----------- ----------- --------
(Loss) income from operations (203,422) (865,647) (2,374,424) (2,069,396)
Interest income (expense) 8,549 78,665 77,642 86,225
----------- ----------- ----------- -----------
(Loss) income before income taxes (194,873) (786,982) (2,296,782) (1,983,171)
Provision (benefit) for income taxes 0 0 0 0
----------- ----------- ----------- -----------
Net (loss) income $ (194,873) $ (786,982) $(2,296,782) $(1,983,171)
=========== =========== =========== ===========
Net (loss) income per common share $ (0.04) $ (0.15) $ (0.45) $ (0.49)
Weighted average common shares 5,080,500 5,080,500 5,080,500 4,039,555
Supplementary Data:
Supplementary net loss per
common and common equivalent shares $ (0.46)
Supplemental weighted average
common and common equivalent shares 4,138,753
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net Loss $ (2,296,782) $ (1,983,171)
Reconciliation of net loss to net cash used
by operating expenses
Depreciation and amortization 251,333 147,300
Common stock grant recognized as compensation 246,750
Amortization of original issue discount recognized as
interest expense 32,516
Changes in current assets and liabilities (621,304) (79,061)
------------ ------------
Net cash used by operating activities (2,666,753) (1,635,666)
------------ ------------
Cash flows from investing activities:
Net change in marketable securities 2,092,553 (4,566,582)
Additions to property and equipment (326,643) (594,944)
------------ ------------
Net cash provided (used) by investing activities 1,765,910 (5,161,526)
------------ ------------
Cash Flows from financing activities:
Dividends paid to shareholders (39,000)
Repayments capital lease obligation (42,990)
Repayments on note payable - bank (230,531)
Repayments on note payable - other (343,683)
Proceeds from issuance of notes payable - convertible 336,000
Offering costs for notes payable - convertible (52,268)
Proceeds from sale of stock warrants 64,000
Proceeds from sale of common stock, net issuance costs 7,537,640
------------ ------------
Net cash provided (used) by financing activities (42,990) 7,272,158
------------ ------------
Net increase (decrease) in cash and cash equivalents (943,833) 474,966
Cash and cash equivalents at beginning of period 2,284,952 344,689
------------ ------------
Cash and cash equivalents at end of period $ 1,341,119 $ 819,655
============ ============
Supplemental disclosure of cash flow information:
Cash paid during period for interest $ 24,420 $ 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
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 September 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
Revenue increased 32.9% to $1,782,940 for the three month period ended
September 30, 1997 compared to $1,341,090 for the comparable period in 1996. The
increase resulted from higher revenue levels of hardware, packaged software and
OEM royalties from packaged software sales, partially offset by lower revenue
from custom software. Revenue for the nine month period ended September 30, 1997
increased 30.0% over the comparable period in 1996. Increases in hardware and
packaged software sales accounted for the higher revenue for the nine months.
COST OF REVENUE
Cost of revenue was 37.3% of revenue for the three months ended September
30, 1997 a slight improvement from 37.8% for the same period in 1996. Cost of
revenue for the nine months ended September 30, 1997 increased to 44.0% of
revenue compared to 40.6% for the same period last year. Increased lower margin
hardware components accounted for the change.
GROSS PROFIT
Gross Profit increased 34.1% for the three months ended September 30, 1997
when compared to the same period in 1996, primarily a result of the higher
revenue levels. Gross profit for the nine months ended September 30, 1997
increase 22.4% compared to the same period last year. The improvement primarily
results from the higher revenue levels achieved in 1997.
SALES, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expenses decreased 28.0% in the third
quarter ended September 30, 1997 resulting primarily from cost reduction efforts
implemented in the marketing, general and administrative areas by the company
earlier this year. Sales, general and administrative expenses for the nine
months ended September 30, 1997, increased 3.8% when compared to the same period
in 1996. The increase was partially accounted for by approximately $200,000 in
non-recurring expenses related to severance and other restructuring changes in
the second quarter of 1997.
<PAGE>
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses increased 3.3% from $314,190 for
the three month period ended September 30, 1996 to $324,595 for the three month
period ended September 30, 1997. The increase is due primarily to increased
payroll costs. Research and development expenses increased 110.0% for the nine
month period ended September 30, 1997 to $1,195,055 from $569,201 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 $8,549 for the three month
period ended September 30, 1997 versus net interest income of $78,665 for the
comparable period in 1996. The lower level of marketable securities and cash
balances in the third quarter of 1997 accounted for the lower interest income.
Net interest income for the nine month period ended September 30, 1997 was
$77,642 versus net interest income of $86,225 for the comparable period in 1996.
INCOME TAXES
The Company did not record a tax benefit for the three month and nine month
periods ended September 30, 1997 and 1996 as the likelihood of realization of
the benefit is presently not assured.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $1,341,119 as of September 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 for the forseeable
future.
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 statements
are made pursuant to the Private Securities Litigation Reform Act of 1995, and
as such, speak only as of the date made.
<PAGE>
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.
None
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.
None.
<PAGE>
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: November 12, 1997 /s/ Brett A. Shockley
--------------------------------------------
Brett A. Shockley
Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1997 /s/ Timothy E. Briggs
--------------------------------------------
Timothy E. Briggs
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,341,119
<SECURITIES> 0
<RECEIVABLES> 1,320,329
<ALLOWANCES> 0
<INVENTORY> 225,489
<CURRENT-ASSETS> 3,947,473
<PP&E> 1,919,292
<DEPRECIATION> 706,094
<TOTAL-ASSETS> 5,160,671
<CURRENT-LIABILITIES> 2,068,096
<BONDS> 0
0
0
<COMMON> 8,193,663
<OTHER-SE> (5,313,413)
<TOTAL-LIABILITY-AND-EQUITY> 5,160,671
<SALES> 4,442,407
<TOTAL-REVENUES> 4,442,407
<CGS> 1,955,585
<TOTAL-COSTS> 1,955,585
<OTHER-EXPENSES> 4,861,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,420
<INCOME-PRETAX> (2,296,782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,296,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,296,782)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
