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, 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 August 5, 1998, there were 5,083,170 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
June 30, 1998 and December 31, 1997
Condensed Statement of Operations 4
for the three and six month periods
ended June 30, 1998 and 1997
Condensed Statement of Cash Flows 5
for the six month periods ended
June 30, 1998 and 1997
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis 7-8
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 9-10
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SPANLINK COMMUNICATIONS, INC.
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited) (Audited)
------------------ -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 88,822 $ 703,658
Accounts receivable, net of allowances 2,757,377 2,113,271
Inventory 333,840 345,775
Costs and estimated earnings in excess of billings 1,174,662 554,572
Other current assets 300,013 261,572
------------------ -------------------
Total current assets 4,654,714 3,978,848
Property and equipment, net 1,220,588 1,264,160
Purchased intangibles 552,697 611,619
------------------ -------------------
Total assets $ 6,427,999 $ 5,854,627
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIT)
Current liabilities:
Advances on bank credit line $ 850,000 $ 0
Accounts payable 568,625 631,263
Accrued expenses 394,130 560,933
Current portion of long term liabilities 304,043 300,570
Deferred maintenance revenue 432,765 432,809
Other current liabilities 364,100 452,466
------------------ -------------------
Total current liabilities 2,913,663 2,378,041
Capital lease obligations 166,892 195,083
Royalties payable 40,411 250,000
Shareholders' equity:
Common stock 8,198,603 8,193,663
Accumulated deficit (4,891,570) (5,162,160)
------------------ -------------------
Total shareholders' equity 3,307,033 3,031,503
------------------ -------------------
Total liabilities and shareholders' equity $ 6,427,999 $ 5,854,627
================== ===================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
For the three months and six months ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
% %
1998 1997 Change 1998 1997 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Revenue $2,865,657 $1,131,832 153.2 $5,198,518 $2,659,467 95.5
Cost of Revenue 1,171,119 602,140 94.5 2,169,188 1,290,446 68.1
---------- ---------- ---------- ----------
Gross Profit 1,694,538 529,692 219.9 3,029,330 1,369,021 121.3
Gross profit as a
percentage of revenue 59.1% 46.8% 58.3% 51.5%
Operating expenses:
Sales, general and
administrative 1,122,990 1,369,235 (18.0) 2,091,228 2,669,563 (21.7)
Research and product
development 353,219 427,059 (17.3) 653,549 870,460 (24.9)
---------- ---------- ---------- ----------
1,476,209 1,796,294 (17.8) 2,744,777 3,540,023 (22.4)
---------- ---------- ---------- ----------
Income (loss) from 218,329 (1,266,602) -- 284,553 (2,171,002) --
operations
Interest income (14,223) 22,118 -- (13,963) 69,093 --
(expense)
---------- ---------- ---------- ----------
Income (loss) before
income taxes 204,106 (1,244,484) -- 270,590 (2,101,909) --
Provision (benefit)
for income taxes 0 0 -- 0 0 --
---------- ---------- ---------- ----------
Net income (loss) $ 204,106 $(1,244,484) $ 270,590 $(2,101,909)
=========== =========== =========== ===========
Basic and diluted net
income (loss) per share $ 0.04 $ (0.24) -- $ 0.05 $ ( 0.41) --
Diluted weighted average
common shares outstanding 5,280,183 5,080,500 -- 5,231,494 5,080,500 --
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC.
CONDENSED STATEMENT OF CASH FLOWS
For the six months ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 270,590 $(2,101,909)
Reconciliation of net income (loss) to net cash
used by operating activities:
Depreciation and amortization 215,847 187,638
Changes in current assets and liabilities (1,611,313) (560,022)
----------- -----------
Net cash used by operating activities (1,124,876) (2,474,293)
----------- -----------
Cash flows from investing activities:
Net change in marketable securities 0 1,092,839
Additions to property and equipment (110,593) (305,352)
----------- -----------
Net cash (used) provided by investing activities (110,593) 787,487
----------- -----------
Cash flows from financing activities:
Advances on bank credit line 850,000 0
Repayments on capital lease obligation (24,718) (31,617)
Reduction of royalties payable (209,589) 0
Proceeds from exercise of incentive stock options 4,940 0
----------- -----------
Net cash provided (used) by financing activities 620,633 (31,617)
----------- -----------
Net decrease in cash and cash equivalents (614,836) (1,718,423)
Cash and cash equivalents at beginning of period 703,658 2,284,952
----------- -----------
Cash and cash equivalents at end of period $ 88,822 $ 566,529
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 26,561 $ 15,570
=========== ===========
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
June 30, 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 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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
Results of Operations
Revenues
Total revenue increased 153.2% to $2,865,657 for the three-month period
ended June 30, 1998 from $1,131,832 for the comparable period in 1997. The
increase was due primarily to increased revenue from packaged and custom
software applications. Revenue for the six-month period ended June 30, 1998
increased 95.5% over the comparable period in 1997 due primarily to higher
revenues from packaged software applications.
Cost of Revenue
Cost of revenue increased 94.5% to $1,171,119 for the three-month period
ended June 30, 1998 from $602,140 for the three-month period ended June 30,
1997. The increase was due primarily to higher costs to support the increase in
sales. Cost of revenue increased 68.1% for the six-month period ended June 30,
1998 versus the comparable period in 1997 due primarily to the same reason as
the three-month period.
Gross Profit
Gross profit increased 219.9% to $1,694,538 for the three-month period
ended June 30, 1998. Gross profit as a percentage of total revenue increased
from 46.8% for the three-month period ended June 30, 1997 to 59.1% for the
three-month period ended June 30, 1998. Gross margin as a percentage of total
revenue improved to 58.3% for the six- month period ended June 30, 1998 from
51.5% for the comparable period in 1997. The improved gross margin for both the
three-month and six-month periods as a percentage of total revenue was due
primarily to increased revenue levels and a product mix shift to higher margin
packaged software applications.
Sales, General and Administrative
Sales, general and administrative expenses decreased 18.0% to $1,122,990
for the three-month period ended June 30, 1998 from $1,369,235 for the
three-month period ended June 30, 1997. The decrease is due primarily to
approximately $200,000 in non-recurring expenses related to severance and other
restructuring charges in the three-month period ended June 30, 1997. Sales,
general and administrative expenses decreased 21.7% for the six-month period
ended June 30, 1998 to $2,091,228 from $2,669,563 for the same period in 1997.
The decrease resulted from reduced sales and marketing costs in 1998 together
with the 1997 non-recurring costs discussed in the three-month comparison.
<PAGE>
Research and Product Development
Research and product development expenses decreased 17.3% to $353,219 for
the three-month period ended June 30, 1998 from $427,059 for the three-month
period ended June 30, 1997. The decrease is due primarily to the Company's cost
containment efforts implemented in the last half of 1997. Research and
development expenses decreased 24.9% for the six month period ended June 30,
1998 to $653,549 from $870,460 for the comparable period in 1997 due primarily
again to the Company' cost containment efforts.
Interest Income (Expense)
The Company recorded net interest expense of $14,223 for the three-month
period ended June 30, 1998, versus net interest income of $22,118 for the
comparable period in 1997. Net interest expense for the six-month period ended
June 30, 1998 was $13,963 versus net interest income of $69,093 for the
comparable period in 1997. The changes from 1997 to 1998 in each case reflect
the Company's borrowing levels under its bank credit line in 1998 compared to
the Company's invested cash balances in 1997.
Income Taxes
The Company did not record a tax benefit for the three-month and
six-month periods ended June 30, 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 $88,822 as of June 30, 1998.
The Company established a $1,000,000 line of credit, subject to certain asset
levels, with its bank in April, 1998. At June 30, 1998, the remaining available
borrowing under this line was $150,000. 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.
Forward-Looking Statements
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 are: 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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on
Wednesday, May 13, 1998, at 4:00 p.m. local time, at the
offices of the Company. The following items were approved by a
majority of the shareholders:
a) Election of Bruce E. Humphrey as a director to hold office
for a term expiring at the annual meeting in 2001. The
vote totals were 5,001,461 FOR nominee and 12,800 shares
WITHHELD. Other current board members, with terms shown,
are as follows:
Term Expiring
Joseph D. Mooney 2000
Loren A. Singer, Jr. 2000
Brett A Shockley 1999
Thomas F. Madison 1999
b) The 1998 Employee Stock Purchase Plan. The vote totals
were 4,929,161 FOR; 59,400 AGAINST; and 25,700 ABSTAIN.
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: August 13, 1998 /s/ Brett A. Shockley
Brett A. Shockley
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 /s/ Timothy E. Briggs
Timothy E. Briggs
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 88,822
<SECURITIES> 0
<RECEIVABLES> 2,757,377
<ALLOWANCES> 0
<INVENTORY> 333,840
<CURRENT-ASSETS> 4,654,714
<PP&E> 1,220,588
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,427,999
<CURRENT-LIABILITIES> 2,913,663
<BONDS> 0
0
0
<COMMON> 8,198,603
<OTHER-SE> (4,891,570)
<TOTAL-LIABILITY-AND-EQUITY> 6,427,999
<SALES> 5,198,518
<TOTAL-REVENUES> 5,198,518
<CGS> 2,169,188
<TOTAL-COSTS> 2,169,188
<OTHER-EXPENSES> 2,744,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,963
<INCOME-PRETAX> 270,590
<INCOME-TAX> 0
<INCOME-CONTINUING> 270,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270,590
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
