<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 4, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 000-22221
FIELDWORKS, INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota 41-1731723
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7631 Anagram Drive
Eden Prairie, Minnesota 55344
(Address of principal executive offices)
(Zip Code)
(612) 974-7000
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of the registrant's Common Stock, $.001 par value,
outstanding as of November 10, 1998 was 8,820,926.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIELDWORKS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 4, January 4,
1998 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 1,697,440 $ 3,218,759
Accounts receivable, net of allowance for doubtful
accounts of $366,400 and $384,600 .................................... 2,888,300 6,402,023
Inventories .............................................................. 3,946,026 5,009,137
Prepaid expenses and other ............................................... 140,975 186,298
------------ ------------
Total current assets ........................................ 8,672,741 14,816,217
------------ ------------
PROPERTY AND EQUIPMENT:
Computers and equipment .................................................. 1,485,059 1,628,949
Furniture and fixtures ................................................... 1,083,565 378,821
Leasehold improvements ................................................... 458,216 184,446
Less: Accumulated depreciation ........................................... (1,219,172) (913,918)
------------ ------------
Property and equipment, net ................................. 1,807,668 1,278,298
DEPOSITS AND OTHER ASSETS, net ................................................ 18,675 25,555
------------ ------------
$ 10,499,084 $ 16,120,070
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................................... $ 1,307,970 $ 1,489,982
Accrued compensation and benefits ........................................ 394,721 410,758
Accrued warranty and other ............................................... 2,264,118 1,350,610
Current maturities of capitalized lease obligations ...................... 19,319 47,409
------------ ------------
Total current liabilities ................................... 3,986,128 3,298,759
CAPITALIZED LEASE OBLIGATIONS, less current maturities ........................ 11,227 22,693
------------ ------------
Total liabilities ........................................... 3,997,355 3,321,452
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 30,000,000 shares authorized; 8,820,926 and
8,725,426 issued and outstanding ..................................... 8,821 8,725
Common stock warrants .................................................... 150,640 150,640
Additional paid-in capital ............................................... 20,082,014 19,966,602
Accumulated deficit ...................................................... (13,739,746) (7,327,349)
------------ ------------
Total shareholders' equity .................................. 6,501,729 12,798,618
------------ ------------
$ 10,499,084 $ 16,120,070
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------- ----------------------------
October 4, October 5, October 4, October 5,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES ................................... $ 4,412,312 $ 6,012,019 $ 13,632,083 $ 16,642,491
COST OF SALES ............................... 2,969,855 3,647,540 9,945,144 10,031,551
------------ ------------ ------------ ------------
Gross profit ..................... 1,442,457 2,364,479 3,686,939 6,610,940
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Sales and marketing ...................... 1,290,331 1,172,389 4,154,229 3,710,355
General and administrative ............... 647,101 771,696 2,229,629 2,255,013
Research and development ................. 813,435 548,918 2,379,811 1,382,068
Product upgrade and restructuring costs .. 187,720 -- 1,472,530 --
------------ ------------ ------------ ------------
Total operating expenses ......... 2,938,587 2,493,003 10,236,199 7,347,436
------------ ------------ ------------ ------------
Operating loss ................... (1,496,130) (128,524) (6,549,260) (736,496)
INTEREST INCOME (EXPENSE) AND OTHER, net .... 33,927 75,580 136,863 (319,658)
------------ ------------ ------------ ------------
NET LOSS .................................... $ (1,462,203) $ (52,944) $ (6,412,397) $ (1,056,154)
============ ============ ============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Net loss per common share ................ $ (.17) $ (.01) $ (.73) $ (.13)
============ ============ ============ ============
Weighted average common shares outstanding 8,809,497 8,684,614 8,791,513 8,136,366
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------
October 4, October 5,
1998 1997
------------ ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss .................................................. $ (6,412,397) $ (1,056,154)
Adjustments to reconcile net loss to net cash used for
operating activities-
Depreciation and amortization ....................... 517,516 638,444
Product upgrade and restructuring costs ............. 1,010,001 --
Change in operating items:
Accounts receivable ........................... 3,513,723 (2,158,947)
Inventories ................................... 1,063,111 (968,068)
Prepaid expenses and other .................... 50,265 241,127
Accounts payable .............................. (182,012) 399,320
Accrued expenses .............................. (112,530) 619,758
------------ ------------
Net cash used for operating activities ........ (552,323) (2,284,520)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (1,044,948) (385,389)
Collection of loan to related party ....................... -- 92,175
------------ ------------
Net cash used for investing activities .............. (1,044,948) (293,214)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock .................... 115,508 11,897,827
Payment of notes payable to related parties ............... -- (6,350,000)
Payment of capitalized lease obligations .................. (39,556) (44,528)
------------ ------------
Net cash provided by financing activities ........... 75,952 5,503,299
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................... (1,521,319) 2,925,565
CASH AND CASH EQUIVALENTS, beginning of period ............... 3,218,759 2,132,089
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ..................... $ 1,697,440 $ 5,057,654
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest ............................. $ 5,962 $ 264,037
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital leases $ -- $ 7,154
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FIELDWORKS, INCORPORATED AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited consolidated financial statements of FieldWorks,
Incorporated (FieldWorks or the Company), should be read in conjunction with the
consolidated financial statements and notes thereto filed with the Securities
and Exchange Commission in the Company's Annual Report on Form 10-K, for the
fiscal year ended January 4, 1998. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly the financial results for the interim periods presented. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the entire fiscal year.
2. Inventories:
Inventories are stated at the lower of cost or market value, as determined
by the first-in, first-out cost method, and consisted of the following:
October 4, January 4,
1998 1998
--------- ----------
Raw materials.............. $2,818,671 $3,268,558
Work in process............ 495,306 859,172
Finished goods............. 632,049 881,407
---------- ----------
Total............ $3,946,026 $5,009,137
========== ==========
3. Initial Public Offering:
In March 1997, the Company completed an initial public offering (IPO) of
2,125,000 shares of common stock with proceeds of approximately $11.8 million,
net of related offering costs. The Company used $6.4 million of the proceeds to
repay bridge financing arrangements and the remaining proceeds will be used to
fund capital expenditures and for working capital purposes. In connection with
the offering, the Company issued warrants to the underwriter to purchase 212,500
shares of common stock at an exercise price of $7.80 per share. At the
completion of the IPO, the Company's articles of incorporation were amended to
authorize 30 million shares of common stock, $.001 par value, and five million
shares of undesignated preferred stock, $.001 par value.
4. Earnings (Loss) Per Share:
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128) effective in the quarter and year ended
January 4, 1998. SFAS No. 128 establishes accounting standards for computing and
presenting earnings (loss) per share (EPS). Basic EPS is computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the period. No dilution for potentially dilutive securities is included.
Diluted EPS is calculated using the treasury stock method and reflects the
dilutive effect of outstanding options, warrants and other securities. In the
Company's calculations, the impact of common stock equivalents has been excluded
from the computation of weighted average common shares outstanding as the effect
would be antidilutive. As a result, basic and diluted EPS are equal for all
periods presented in the accompanying Statements of Operations.
<PAGE>
5. Product Upgrade and Restructuring Costs:
These costs relate to the discontinuation of the 5000 Series I product
line, as well as other internal restructuring efforts. The internal
restructuring efforts include certain reorganization and severance costs. In the
second quarter of 1998, the company introduced the 5000 Series II product line,
which has expanded features and increased reliability. In connection with this
introduction, the Company established reserves to address customer warranty and
upgrade issues related to the Series I product line.
6. Reclassifications:
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation, with no effect on previously reported net loss
or shareholders' equity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer, the words or phrases
"believes," "anticipates," "expects," "intends," "estimates," "should," "may" or
similar expressions are intended to identify such forward-looking statements,
but are not the exclusive means of identifying such statements. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the following: risks associated with the development of
new products, market acceptance of new products, technological obsolescence,
dependence on third-party manufacturers and suppliers, risks associated with the
Company's dependence on proprietary technology, and the long customer sales
cycle. The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to revise any forward-looking statements in
order to reflect events or circumstances after the date of such statements.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. The Company's
forward-looking statements are qualified in their entirety by the cautions and
risk factors set forth under the "Cautionary Statement" filed as Exhibit 99.1 to
its Form 10-K for the year ended January 4, 1998.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
--------------------- ---------------------
October 4, October 5, October 4, October 5,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales .................................. 100% 100% 100% 100%
Cost of sales .............................. 67 61 73 60
---- ---- ---- ----
Gross profit .......................... 33 39 27 40
Operating expenses:
Sales and marketing ................... 29 19 30 22
General and administrative ............ 15 13 16 14
Research and development .............. 19 9 18 8
Product upgrade and restructuring costs 4 -- 11 --
---- ---- ---- ----
Total operating expenses .......... 67 41 75 44
---- ---- ---- ----
Operating loss ............................. (34) (2) (48) (4)
Interest income (expense) and other, net ... 1 1 1 (2)
---- ---- ---- ----
Net loss ................................... (33)% (1)% (47)% (6)%
==== ==== ==== ====
</TABLE>
Net Sales. The Company's net sales decreased 27% from $6.0 million in the
third quarter of fiscal 1997 to $4.4 million for the comparable period in 1998
and decreased 18% from $16.6 million in the first nine months of fiscal 1997 to
$13.6 million for the comparable period in 1998. The decrease was primarily due
to the Company's increased focus on system sales in which the Company partners
with the customer to develop, test and deliver a total solution, including
custom hardware, software and service and support programs. Although these sales
are typically high volume, they tend to have long lead times. In addition,
technology advances in the market place negatively impacted sales. In response,
the Company introduced the 5000 Series II and upgraded the standard features of
the 7000 Series in the second quarter of 1998. The Company anticipates an
improvement in net sales for the fourth quarter of 1998 as a result of these
product changes. Unit volumes decreased 29% for the third quarter of 1998 as
compared to the third quarter of 1997 and decreased 22% for the first nine
months of 1998 as compared to the first nine months of 1997. The average selling
prices are comparable for both the third quarter of 1998 and the third quarter
of 1997and for the first nine months of 1998 as compared to the first nine
months of 1997. Sales of the 5000 Series represented 35% and 43% of net sales
for the nine months ended October 4, 1998 and October 5, 1997, respectively. One
customer, Navistar, represented 11% of net sales for the third quarter of 1998.
International sales increased from 15% of net sales for the first quarter
of 1997 to 22% of net sales for the third quarter of 1998 and increased from 20%
of net sales for the first nine months of 1997 to 26% for the first nine months
of 1998 as the Company realized benefits from existing international customer
relationships. The majority of international sales, approximately 60%, are in
Europe. The Company believes that international sales as a percentage of total
net sales will be in the mid to upper 20% range for the remainder of 1998, with
little impact on the Company's results of operations or liquidity.
Gross Profit. Gross profit of $1.4 million, or 32.7% of net sales, for the
third quarter of 1998 reflects a decrease from the third quarter of 1997 of $2.4
million, or 39.3% of net sales due to decreased volume. Gross profit decreased
from $6.6 million, or 40% of net sales, for the first nine months of 1997 to
$3.7 million, or 27% of net sales, for the first nine months of 1998. Gross
profit was negatively impacted by a $1.0 million write down of inventory during
the second quarter of 1998. These charges were due to discontinuation of the
5000 Series I product line and other product changes in response to
technological and market developments. The Company is taking steps to strengthen
its materials management as well as taking other actions in order to reduce the
risk of future large write
<PAGE>
downs of inventory. In addition, gross profit was negatively affected by the
relative impact of fixed manufacturing overhead costs in a period of reduced
production volume.
During the second quarter of 1998, the Company also enhanced its standard
features on the 5000 and 7000 Series platforms as well as reduced pricing on the
highest performance standard configuration. These actions were taken to upgrade
its platforms with current technology, improve performance and reliability and
increase sales. These pricing actions have not and are not anticipated to have a
significant impact on gross profit margins in the future as the Company expects
customers to purchase more options and accessories. With anticipated unit volume
increases offset by potential pricing reductions on larger customer orders, the
Company believes gross profit margins should be maintained in the mid 30% range
by the end of 1998.
Gross profit, for all periods presented, also reflects the Company's
reclassification of certain warranty related costs from cost of goods sold to
sales and marketing expense. The impact of this reclassification was to decrease
cost of goods sold and increase gross profit by $33,270, or 1.0% of net sales,
for the quarter ended October 4, 1998 and by $160,925, or 2.7% of net sales, for
the quarter ended October 5, 1997.
Sales and Marketing. Sales and marketing expenses include salaries, sales
commissions, travel and related expenses for the Company's marketing, sales and
technical support personnel, as well as programs aimed at increasing revenues,
such as advertising and trade shows. In addition, these expenses include the
costs related to maintaining the Company's standard one year warranty on its
products. Sales and marketing expenses increased from $1.2 million, or 19% of
net sales, for the third quarter of 1997 to $1.3 million, or 29% of net sales,
for the comparable period in 1998. In the first nine months of 1997, sales and
marketing expenses were $3.7 million, or 22% of net sales, as compared to $4.2
million, or 30% of net sales, in the first nine months of 1998. The increases
were primarily due to increased staffing and travel as the Company continued to
expand its direct sales force, partially offset by decreases in warranty
expenses due to efficiencies gained in the repair of units under warranty. The
Company is restructuring its Sales and Marketing organization to strengthen its
focus on professional services, expand its vertical marketing strategy and
enhance its competitive position. Accordingly, moderate increases in sales and
marketing expenditures are anticipated in future periods, although expenses are
projected to decrease slightly as a percentage of net sales.
General and Administrative. General and administrative expenses include the
Company's finance, human resources, contracts and other administrative
management operations. These expenses were comparable at $0.8 and $0.6 million
for the third quarter of 1997 and 1998 and 13% and 15% of net sales,
respectively. In the first nine months of 1997, general and administrative
expenses were $2.3 million, or 14% of net sales, as compared to $2.2 million, or
16% of net sales, in the first nine months of 1998. Additional compensation
expenses as the Company added to its general and administrative infrastructure
and expenses incurred for moving into a larger facility during the fourth
quarter of 1997 and the first quarter of 1998 were offset by reduced bad debt
allowances, as the Company continued to have excellent collection results. The
Company anticipates holding the growth of general and administrative expenses to
a level less than the growth of sales in the future.
Research and Development. Research and development expenses are incurred in
the development and testing of new or enhanced products, providing professional
services relating to customized computing platforms for special applications.
These costs are expensed as incurred. Research and development expenses
increased from $0.6 million, or 9% of net sales, during the third quarter of
1997 to $0.8 million, or 19% of net sales, for the third quarter of 1998.
Research and development expenses increased from $1.4 million, or 8% of net
sales, for the first nine months of 1997 to $2.4 million, or 18% of net sales,
for the first nine months of 1998. The increase was primarily due to salaries
and supplies and services used in the product development process. The Company's
development effort during the first nine months of 1998 was primarily attributed
to ongoing development of the 2000 Series mobile embedded server and
enhancements to the 5000 and 7000 Series. The Company has introduced the 5000
Series II, which has increased processor speed, memory and other standard
feature enhancements. Additionally, the 5000 Series II has a new technology
module designed to improve reliability of the platform. Standard features on the
7000 Series have also been upgraded. The Company expects research and
development expenses to increase for the foreseeable future as it continues to
expand its technical resources to develop new platforms, provide professional
services on systems sales and enhance existing product lines. As a percentage of
net sales, research and development expenses are expected to slightly decrease
as sales increase.
<PAGE>
Product Upgrade and Restructuring Costs. Product upgrade and restructuring
costs were $0.2 million, or 4% of net sales, for the third quarter of 1998 and
$1.5 million, or 11% of net sales, for the first nine months of 1998. There were
no such costs during 1997. These costs relate to the discontinuation of the 5000
Series I product line, as well as other internal reorganization efforts. During
the second quarter of 1998, the Company introduced the 5000 Series II product
line, which has expanded features and increased reliability. The Company has
established reserves to address any customer warranty or upgrade issues with
respect to the 5000 Series I product line. In addition, in the third quarter of
1998, the Company incurred costs relating to restructuring, including additional
severance costs. The Company does not anticipate any further significant
restructuring charges in the foreseeable future.
Interest Income (Expense) and Other, Net. Net interest income was
approximately $76,000 for the third quarter of 1997 compared to $34,000 for the
comparable period in 1998. Net interest expense was $320,000 for the first nine
months of 1997 compared to net interest income of $137,000 for the comparable
period in 1998. This was primarily due to the repayment of debt in March and
April of 1997 using initial public offering proceeds and the subsequent
investment of the remaining proceeds. The Company expects to continue reporting
net interest income for the remainder of 1998.
LIQUIDITY AND CAPITAL RESOURCES
From inception to March 1997, the Company primarily financed its operations
and capital expenditures through the private sale of equity and debt securities,
loans and bank lines of credit. In the first quarter of 1997, the Company
completed an initial public offering of common stock and received net proceeds
of $11.8 million from the sale of 2,125,000 shares. From the proceeds, the
Company repaid $1.4 million of $6.4 million of loans outstanding during the
first quarter of 1997. The Company repaid the remaining $5.0 million in the
second quarter of 1997. There were no loans outstanding or bank credit
facilities open as of October 4, 1998.
The Company's cash balance as of October 4, 1998 was $1.7 million as
compared to the January 4, 1998 balance of $3.2 million. Cash used for operating
activities totaled $0.6 million for the first nine months of 1998. The Company's
accounts receivable decreased $3.5 million from $6.4 million at January 4, 1998
to $2.9 million at October 4, 1998, primarily due to collections from increased
sales in the fourth quarter of 1997 and reduced sales for the first nine months
of 1998. Net inventories decreased $1.1 million from $5.0 million at January 4,
1998 to $3.9 million at October 4, 1998. Gross inventories decreased $0.7
million during the same period due to reduced production volume and increased
inventory controls. Additionally, inventory reserves were established due to the
discontinuation of the 5000 Series I product line and other product changes in
response to technological and market developments. Accrued expenses increased
from $1.8 million at January 4, 1998 to $2.7 million at October 4, 1998. The
increase was mainly due to reserves established for product upgrade costs
relating to the 5000 Series I and deferred revenue related to the sale of
extended warranties.
During the first nine months of 1998, the Company purchased $1.0 million of
property, plant and equipment. The expenditures related primarily to leasehold
improvements, equipment, operating system software and furniture and fixtures
for the new facility as well as manufacturing tooling expenditures. The Company
anticipates property, plant and equipment expenditures relating to tooling to
increase in the foreseeable future as it expands its product line offerings and
enhances existing platforms.
The Company has obtained approval for a $3.0 million asset-backed line of
credit with closing anticipated in the fourth quarter of 1998. The Company
believes that this line of credit, together with existing cash, interest
expected to be earned thereon and anticipated operating cash flows, will be
sufficient to fund its operations for the next six to twelve months. Cash
requirements depend on the Company's profitability, its ability to manage
working capital requirements and its rate of growth, among other factors.
<PAGE>
YEAR 2000
The year 2000 issue is the result of computer programs using only the last
two digits to identify the year. These programs may not be able to interpret
dates beyond the year 1999, which could cause computer system failure or other
errors disrupting operations. The Company is aware of the potential computing
difficulties that the issue presents for the Company's operations in the year
2000.
The Company has identified certain individuals internally to address all
aspects of the year 2000 issue, including internal computer systems, products
sold and supplier capabilities. The Company is currently evaluating the
possibility of using external resources to assist the Company with resolving
certain aspects of these issues.
The Company's major internal information systems software was upgraded
during the first quarter of 1998 to ensure year 2000 compliance and provide
enhanced systems capabilities. The total cost of the implementation was
$110,000. The Company plans to perform other minor upgrades to its software and
hardware by the end of 1998. Approximately 90% of the expected costs associated
with internal systems software alterations has been incurred to date.
The Company's internal production processes and non-information systems
software are in the process of being assessed. The cost is anticipated to be
minimal.
Management believes its current products are year 2000 compliant and is
offering updated configuration software for products shipped in prior periods.
Notification to customers of the availability of updated software has occurred.
Associated costs are expected to be under $100,000. Approximately 75% of the
expected costs associated with ensuring the Company's products are year 2000
compliant has been incurred to date.
The source of funds for upgrades to internal software, production processes
and previously sold products is existing cash. There are currently no other
projects within the Company that are affected by the outlay of resources to
ensure year 2000 compliance.
The Company's operations with respect to the year 2000 may also be affected
by other entities with which the Company transacts business. The Company has
requested documentation from its vendors regarding their year 2000 compliance,
and will evaluate alternative courses of action relating to any vendors who are
not or will not be year 2000 compliant. To date, confirmations have been
received from some of the Company's vendors that plans are being developed to
address processing of transactions in the year 2000. Until such time as the
Company has received a larger number of replies, however, the Company is unable
to determine the potential consequences, if any, that could result from such
entities' failure to effectively address this issue.
The year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from the Company's vendors. Although the Company
does not believe that the year 2000 issue will have a material impact on its
business, financial position, results of operations or liquidity, it is
uncertain as to what extent any failure of the Company's or its vendors'
computer systems may have on its operations.
The Company will continue to review the status of the program to address
the year 2000 issue and develop appropriate contingency plans, as necessary, in
1999.
Although the Company fully intends to address the year 2000 issue, without
further assessment or resources assigned, the Company believes the year 2000
issue could cause significant business disruption, including delays in parts
availability resulting in potential shipping delays.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in legal actions in the ordinary course of its
business. Although the Company cannot predict the outcome of any such legal
actions, management believes that there is no pending legal proceeding against
or involving the Company for which the outcome is likely to have a material
adverse effect upon the Company's financial position, results of operations or
cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS
The Company's registration statement on Form S-1, file number 333-18335,
was declared effective on March 19, 1997. The Company registered an aggregate of
2,443,750 shares of common stock, $.001 par value (including 316,250 shares
covered by a registration statement filed pursuant to Rule 462(m) on March 20,
1997, file number 333-23637) with R.J. Steichen & Company as the managing
underwriter. The offering commenced on March 20, 1997, and on March 25, 1997,
the Company closed on aggregate proceeds of $13,812,500 from the sale of
2,125,000 of these shares. The remainder of the shares registered were subject
to an underwriters' over-allotment option that subsequently expired unexercised.
The following expenses were incurred in connection with the issuance and
distribution of the securities:
Underwriters discount and commission $ 967,000
Expenses paid to underwriters 276,000
Other expenses 809,000
-----------
Total expenses $ 2,052,000
===========
Net offering proceeds $11,760,000
===========
The net offering proceeds have been used as follows as of October 4, 1998:
Construction of plant, building and facilities $ 348,000
Purchase of machinery and equipment 1,248,000
Repayment of indebtedness 6,597,000
Working capital 1,447,000
Temporary investment in Norwest
Advantage Cash Investment Account 2,120,000
-----------
$11,760,000
===========
All such amounts were direct payments to third parties. The Company has
spent $1.6 million on capital expenditures since its initial public offering as
compared to $1.0 million estimated at the time of the offering. This difference
is mainly due to the level of expenditures for leaseholds and other costs
related to the Company's move into its new facility.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 Second Amended and Restated Articles of Incorporation of
the Company (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement filed on Form S-1,
File No. 333-18335)
Exhibit 3.2 Second Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the
Company's Registration Statement filed on Form S-1,
File No. 333-18335)
Exhibit 11.1 Statement Re Computation of Per Share Earnings
(filed herewith)
Exhibit 27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements 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.
FIELDWORKS, INCORPORATED
Date: November 18, 1998 /s/ Karen L. Engebretson
------------------------------------------
Karen L. Engebretson, Vice President of
Finance and CFO (as authorized officer and
principal financial officer)
<PAGE>
Exhibit 11.1
FIELDWORKS, INCORPORATED AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- --------------------------
October 4, October 5, October 4, October 5,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC AND DILUTED
Net loss ................................... $(1,462,203) $ (52,944) $(6,412,397) $(1,056,154)
=========== =========== =========== ===========
Weighted average common shares outstanding . 8,809,497 8,684,614 8,791,513 7,926,646
Effect of conversion of preferred shares (1) -- -- -- 156,382
Effect of cheap shares issued (2) ......... -- -- -- 53,338
----------- ----------- ----------- -----------
8,809,497 8,684,614 8,791,513 8,136,366
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE ....................... $ (.17) $ (.01) $ (.73) $ (.13)
=========== =========== =========== ===========
</TABLE>
(1) Gives effect to preferred shares which converted to common shares
concurrent with the company's initial public offering.
(2) Warrants issued and options granted from March 1, 1996 to February 28, 1997
are included in the calculation for certain periods presented, using the
treasury stock method, in accordance with Staff Accounting bulletin Topic
4(D).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> JAN-05-1998
<PERIOD-END> OCT-04-1998
<CASH> 1,697,440
<SECURITIES> 0
<RECEIVABLES> 2,888,300
<ALLOWANCES> 0
<INVENTORY> 3,946,026
<CURRENT-ASSETS> 8,672,741
<PP&E> 3,026,840
<DEPRECIATION> 1,219,172
<TOTAL-ASSETS> 10,499,084
<CURRENT-LIABILITIES> 3,986,128
<BONDS> 0
0
0
<COMMON> 8,821
<OTHER-SE> 6,492,908
<TOTAL-LIABILITY-AND-EQUITY> 10,499,084
<SALES> 13,632,083
<TOTAL-REVENUES> 13,632,083
<CGS> 9,945,144
<TOTAL-COSTS> 9,945,144
<OTHER-EXPENSES> 2,379,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,863
<INCOME-PRETAX> (6,412,397)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,412,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,412,397)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
