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 March 31, 1998
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 May 14, 1998, there were 5,081,500
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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
SPANLINK COMMUNICATIONS, INC.
CONDENSED BALANCE SHEET
ASSETS
March 31, December 31,
1998 1997
(unaudited) (audited)
----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 378,366 $ 703,658
Marketable securities 0 0
Accounts receivable, net of allowances 1,958,088 2,113,271
Inventory 516,858 345,775
Costs and estimated earnings in excess of billings 865,807 554,572
Other current assets 363,446 261,572
----------- -----------
Total current assets 4,082,565 3,978,848
Property and equipment, net 1,265,349 1,264,160
Purchased intangibles 583,538 611,619
----------- -----------
Total assets $ 5,931,452 $ 5,854,627
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 893,090 $ 631,263
Accrued expenses 470,645 560,933
Current portion of long term liabilities 410,186 300,570
Deferred maintenance revenue 338,071 432,809
Other current liabilities 398,160 452,466
----------- -----------
Total current liabilities 2,510,152 2,378,041
Capital lease obligations 181,219 195,083
Royalties payable 142,094 250,000
Shareholders' equity (deficit):
Common stock 8,193,663 8,193,663
Accumulated deficit (5,095,676) (5,162,160)
----------- -----------
Total shareholders' equity 3,097,987 3,031,503
----------- -----------
Total liabilities and shareholders' equity $ 5,931,452 $ 5,854,627
=========== ===========
</TABLE>
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED STATEMENT OF OPERATIONS
For the three months ended
March 31
<TABLE>
<CAPTION>
Three Months
(Unaudited)
%
1998 1997 Change
<S> <C> <C> <C>
Revenue $2,332,861 $1,527,635 52.7
Cost of revenue 998,069 688,306 45.0
--------- ---------
Gross profit 1,334,792 839,329 59.0
Gross profit as a percentage of revenues 57.2% 54.9%
Operating expenses:
Sales, general and administrative 968,238 1,300,328 (25.5)
Research and product development 300,330 443,401 (32.3)
--------- ---------
1,268,568 1,743,729 (27.2)
--------- ---------
Income (loss) from operations 66,224 (904,400) --
Interest income 260 46,975 --
--------- ---------
Income (loss) before income taxes 66,484 (857,425) --
========= ==========
Provision for income taxes
Net income (loss) $ 66,484 $ (857,425) --
Basic and diluted net income
(loss) per common share $ 0.01 $ (0.17) --
Diluted weighted average common shares
outstanding 5,182,804 5,080,500 --
</TABLE>
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED STATEMENT OF CASH FLOWS
For the three months ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 66,484 $ (857,425)
Reconciliation of net loss to net cash used by
operating activities:
Depreciation and amortization 120,580 94,250
Changes in current assets and liabilities (406,514) (193,673)
----------- -----------
Net cash used by operating activities (219,450) (956,848)
----------- -----------
Cash flows from investing activities:
Purchases of marketable securities (1,402,179)
Maturities of marketable securities 1,500,000
Additions to property and equipment (93,688) (127,474)
----------- -----------
Net cash used by investing activities (93,688) (29,653)
----------- -----------
Cash flows from financing activities:
Repayments on capital lease obligation (12,154) (20,616)
Net cash used by financing activities (12,154) (20,616)
----------- -----------
Net decrease in cash and cash equivalents (325,292) (1,007,117)
Cash and cash equivalents at beginning of period 703,658 2,284,952
----------- -----------
Cash and cash equivalents at end of period $ 378,366 $ 1,277,835
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,069 $ 6,348
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Capital lease obligation incurred $ -- $ 300,400
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(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 for 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, 1997. The results of operations of the periods ended March 31 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 Income (Loss) per Share
The Company has adopted SFAS No. 128, "Earnings Per Share" and all net
earnings per share data presented has been restated and complies with this
statement.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
Revenues
Total revenues increased 52.7% from $1,527,635 for the three-month
period ended March 31, 1997 compared to $2,332,861 for the comparable period
ended March 31, 1998 due primarily to increased revenue of packaged software
applications. Royalties from the FastCall(R) product line, acquired in December
1997, are included in the 1998 numbers. Royalties and sales revenue from
packaged software applications accounted for over 50% of total revenue in the
quarter ended March 31, 1998.
Cost of Revenues
Cost of revenue increased 45.0% from $688,306 for the three-month
period ended March 31, 1997 to $998,069 for the three-month period ended March
31, 1998. The increase was due primarily to labor and materials related to the
higher revenue levels.
Gross Profit
Gross profit increased 59.0% to $1,334,792 for the three-month period
ended March 31, 1998, as compared to the comparable quarter in 1997. Gross
profit as a percentage of total revenue increased from 54.9% for the three-month
period ended March 31, 1997 to 57.2% for the three-month period ended March 31,
1998 due primarily to an increase in revenue from higher margin packaged
software applications.
Sales, General and Administrative
Sales, general and administrative expenses decreased 25.5% to $968,238
for the three-month period ended March 31, 1998 from $1,300,328 for the
three-month period ended March 31, 1997. The decrease is due primarily to
reduced staffing in marketing and administrative departments. The costs of
attending trade shows and providing advertising materials were also lower in
1998.
Research and Product Development
Research and product development expenses decreased 32.3% from $443,401
for the three-month period ended March 31, 1997 to $300,330 for the three-month
period ended March 31, 1998. The decrease is due primarily to reduced consulting
and independent contractor expenses in 1998.
<PAGE>
Interest Income (Expense)
The Company recorded net interest income of $260 for the three-month
period ended March 31, 1998, versus net interest income of $46,975 for the
comparable period in 1997. The reduction in interest income was a result of
lower cash and marketable securities levels in 1998.
Income Taxes
The Company did not record a tax benefit for the three-month periods
ended March 31, 1998 and 1997 as the likelihood of realization of the benefit is
presently not assured.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $378,366 as of March 31,
1998, primarily representing the remaining funds from the public offering
completed in the second quarter of 1996. The Company established a $1,000,000
line of credit, subject to certain asset levels, with its bank in April 1998.
The Company believes that its current cash resources combined with projected
operating cash flow and its credit line will be sufficient to fund its
operations and capital expenditures through 1998.
Private Securities Litigation Reform Act of 1995
Statements made in this report regarding the sufficiency of funds for
1998 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 include: the availability of
sufficient capital to finance the Company's business plan on terms satisfactory
to the Company; the ability of the Company to meet its revenue goals which
depends on competitive factors, such as the introduction of new products in the
same markets; and changes in operating costs including labor and general
business and economic conditions. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
<PAGE>
Item 2. Changes in Securities and Use of Proceeds.
In connection with the sale of the Company's Common Stock in a public
offering registered with the Securities and Exchange Commission and effective as
of April 29, 1996, the Company hereby reports the use of the net proceeds of
$7,536,789 as follows:
$1,280,898 Purchase and installation of machinery and equipment
$ 348,784 Repayment of indebtedness
$1,264,947 Working capital
$2,793,309 Sales and marketing
$1,848,851 Research and development
----------
$7,536,789
No payments were made directly or indirectly to affiliates of the
Company, including officers, directors and more than 10 percent holders. All
other information relating to the use of proceeds was previously reported in a
Form SR, as amended, and in the Company's Form 10-KSB for the year ended
December 31, 1997.
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) Exhibits. Exhibit 27 - Financial Data Schedule (electronic
version only)
(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: May 13, 1998 /s/ Brett A. Shockley
Brett A. Shockley
Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1998 /s/ Timothy E. Briggs
Timothy E. Briggs
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
SPANLINK COMMUNICATIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
For the Quarterly Period Ended March 31, 1998
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 378,366
<SECURITIES> 0
<RECEIVABLES> 2,175,717
<ALLOWANCES> 217,629
<INVENTORY> 516,858
<CURRENT-ASSETS> 4,082,565
<PP&E> 1,978,047
<DEPRECIATION> 712,698
<TOTAL-ASSETS> 5,931,452
<CURRENT-LIABILITIES> 2,510,152
<BONDS> 0
0
0
<COMMON> 8,193,663
<OTHER-SE> (5,095,676)
<TOTAL-LIABILITY-AND-EQUITY> 5,931,452
<SALES> 2,332,861
<TOTAL-REVENUES> 2,332,861
<CGS> 998,069
<TOTAL-COSTS> 998,069
<OTHER-EXPENSES> 1,268,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (260)
<INCOME-PRETAX> 66,484
<INCOME-TAX> 0
<INCOME-CONTINUING> 66,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,484
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
