<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 July 2, 2000
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 (I.R.S. Employer
incorporation or organization) Identification No.)
7631 Anagram Drive
Eden Prairie, Minnesota 55344
(Address of principal executive offices)
(Zip Code)
(952) 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 August 9, 2000 was 8,894,426.
--------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
FIELDWORKS, INCORPORATED
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 2, January 2,
2000 2000
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,306,874 $ 86,786
Accounts receivable, net of allowance for doubtful accounts of $231,551 and
$259,600, respectively 2,990,600 5,060,928
Inventories 4,353,843 4,513,664
Prepaid expenses and other 669,960 509,574
----------------------------------------------------------------------------------------------------------------------------
Total current assets 10,321,277 10,170,952
----------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Computers and equipment 2,348,900 2,213,933
Furniture and fixtures 1,104,891 1,093,232
Leasehold improvements 435,813 435,813
Less: Accumulated depreciation (2,445,913) (2,076,345)
----------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 1,443,691 1,666,633
DEPOSITS AND OTHER ASSETS, NET 69,014 175,958
----------------------------------------------------------------------------------------------------------------------------
$ 11,833,982 $ 12,013,543
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 1,266,794 $ 1,761,731
Accounts payable 2,922,549 3,763,468
Accrued warranty and product upgrade 519,868 649,894
Accrued compensation and benefits 291,087 668,309
Other accrued liabilities 317,553 497,117
Deferred revenue 834,963 961,593
Current maturities of capitalized lease obligations 19,813 40,229
----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,172,627 8,342,341
CAPITALIZED LEASE OBLIGATIONS, less current maturities 39,913 39,571
SUBORDINATED NOTES PAYABLE:
Notes payable 5,500,000 3,000,000
Less: Discount on notes payable (988,750) (771,750)
----------------------------------------------------------------------------------------------------------------------------
Notes payable, net 4,511,250 2,228,250
----------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,723,790 10,610,162
----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Series B Convertible Preferred Stock, $.001 par value, 4,250,000 shares authorized;
4,250,000 and 0 issued and outstanding, respectively 4,250 --
Series C Convertible Preferred Stock, $.001 par value, 500,000 shares authorized;
500,000 and 0 issued and outstanding, respectively 500 --
Common stock, $.001 par value, 30,000,000 shares authorized; 8,894,426
issued and outstanding 8,894 8,894
Additional paid-in capital 26,982,755 21,226,081
Accumulated deficit (25,886,207) (19,831,594)
----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,110,192 1,403,381
----------------------------------------------------------------------------------------------------------------------------
$ 11,833,982 $ 12,013,543
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
FIELDWORKS, INCORPORATED
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------- ----------------------------
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 4,049,904 $ 7,119,348 $ 8,397,061 $ 13,528,544
COST OF SALES 3,368,537 5,210,601 6,751,066 9,556,880
-----------------------------------------------------------------------------------------------------------------
Gross profit 681,367 1,908,747 1,645,995 3,971,664
-----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 1,310,240 1,497,508 2,282,302 2,471,952
General and administrative 1,244,413 842,416 2,131,570 1,554,144
Research and development 1,416,438 814,111 2,545,098 1,667,115
Total operating expenses 3,971,091 3,154,035 6,958,970 5,693,211
Operating loss (3,289,724) (1,245,288) (5,312,975) (1,721,547)
INTEREST INCOME (EXPENSE) AND OTHER, net (235,012) (20,311) (491,638) (18,456)
NET LOSS $ (3,524,736) $ (1,265,599) $ (5,804,613) $ (1,740,003)
-----------------------------------------------------------------------------------------------------------------
BENEFICIAL CONVERSION FEATURE
APPLICABLE TO PREFERRED SHAREHOLDERS -- -- (250,000) --
-----------------------------------------------------------------------------------------------------------------
NET LOSS
APPLICABLE TO COMMON SHAREHOLDERS $ (3,524,736) $ (1,265,599) $ (6,054,613) $ (1,740,003)
=================================================================================================================
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Net loss per common share $ (.40) $ (.14) $ (.68) $ (.20)
=================================================================================================================
Weighted average common shares outstanding 8,894,426 8,876,745 8,894,426 8,854,519
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
FIELDWORKS, INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------
July 2, July 4,
2000 1999
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss before beneficial conversion feature $(5,804,613) $(1,740,003)
Adjustments to reconcile net loss to net cash used for
Operating activities-
Depreciation and amortization 369,568 369,859
Accrued product upgrade and restructuring costs (314,704) (174,692)
Non-cash financing 220,500 --
Change in operating items:
Accounts receivable 2,070,329 758,518
Inventories 159,821 (538,351)
Prepaid expenses and other (53,443) 7,313
Accounts payable (840,919) 203,691
Accrued expenses (372,108) (66,004)
Deferred revenue (126,630) 13,320
-----------------------------------------------------------------------------------------------------------
Net cash used for operating activities (4,692,199) (1,166,349)
-----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net purchases of property and equipment (146,626) (430,696)
-----------------------------------------------------------------------------------------------------------
Net cash used for investing activities (146,626) (430,696)
-----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 5,073,924 --
Proceeds from issuance of common stock -- 70,500
Notes Payable 2,500,000 --
Net line of credit borrowings (repayments) (494,937) (152,782)
Payment of capitalized lease obligations (20,074) (11,142)
-----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,058,913 (93,424)
-----------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND CASH EQUIVALENTS 2,220,088 (1,690,469)
CASH AND CASH EQUIVALENTS, beginning of period 86,786 1,690,469
-----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 2,306,874 $ --
===========================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 229,454 $ 45,489
NONCASH FINANCING ACTIVITIES:
Issuance of Warrants $ 437,500 $ --
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
FIELDWORKS, INCORPORATED
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 2, 2000. 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:
July 2, January 2,
2000 2000
---------- ----------
Raw materials $3,078,110 $3,159,548
Work in process 438,308 575,694
Finished goods 837,425 778,422
----------------------------------------------------------------------------
Total $4,353,843 $4,513,664
============================================================================
3. Financing:
On June 29, 2000, the Company entered into a Purchase and Option Agreement
with FWRKS Acquisition Corp., a wholly-owned subsidiary of Kontron Embedded
Computers AG (Kontron). Kontron was granted an option through August 15, 2000 to
purchase 7.75 million shares of FieldWorks common stock at a total purchase
price of $7.75 million. In addition, Kontron and Industrial-Works Holding Co.,
LLC, (IWHC), have executed an option agreement where IWHC is entitled to
purchase 60,000 shares of Kontron Stock in exchange for 2,428,600 shares of
Series B Convertible Preferred Stock of FieldWorks and 285,700 shares of Series
C Convertible Preferred Stock of FieldWorks held by IWHC. These preferred shares
are convertible into 3,000,000 shares of FieldWorks Common Stock. If this option
is exercised, the Company will seek shareholder approval of the issuance of
common stock to Kontron and the exchange of IWHC's shares to Kontron prior to
the closing of these transactions. Following the closing of these transactions,
Kontron would own a controlling interest in the Company owning in excess of 12
million shares on an as if converted basis.
In addition, the Company received $2.5 million on June 30, 2000 and issued
a subordinated note to Kontron which bears interest at 11% per annum and matures
in September 2001. Kontron also received warrants to purchase 1.25 million
shares of common stock exercisable at $1.00 per share. The warrants are
exercisable until November 15, 2000, and were recorded at their estimated fair
value at the date of issuance.
-5-
<PAGE>
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, the long customer sales cycle
and uncertainty regarding whether Kontron Embedded Computers AG will exercise
its option to purchase capital stock in the Company. 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 2, 2000.
-6-
<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 Six
Months Ended Months Ended
------------------- -------------------
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of sales 83 73 80 71
-----------------------------------------------------------------------------------------
Gross profit 17 27 20 29
Operating expenses:
Sales and marketing 32 21 27 18
General and administrative 41 12 30 12
Research and development 25 12 26 12
-----------------------------------------------------------------------------------------
Total operating expenses 98 45 83 42
-----------------------------------------------------------------------------------------
Operating loss (81) (18) (63) (13)
Interest income (expense) and other, net (6) * (6) *
-----------------------------------------------------------------------------------------
Net loss (87) (18) (69) (13)
-----------------------------------------------------------------------------------------
Beneficial Conversion Feature
Applicable to Preferred Shareholders -- -- (3) --
-----------------------------------------------------------------------------------------
Net loss
Applicable to Common Shareholders (87)% (18)% (72)% (13)%
=========================================================================================
</TABLE>
*Less than .5%.
Net Sales. The Company's net sales decreased $3.1 million, or 43%, to $4.0
million in the second quarter of fiscal year 2000 from $7.1 million in the
second quarter of fiscal 1999 and decreased 37% to $8.4 million in the first six
months of fiscal year 2000 from $13.5 million for the comparable period in 1999.
The decrease was due to the delayed introduction of the 8000 Series Workstation
as the result of development and testing delays. Additionally, sales in 1999
included large customer orders of the 5000 Series Workstation. There were no
comparable large customer orders in fiscal year 2000.
The Company is targeting sales in trucking, heavy equipment, public
services and field technologies markets. Two customers accounted for greater
than 10% of net sales in the second quarter of fiscal year 2000, John Deere
Information Systems and the Franklin Police Department, representing $0.5
million and $0.6 million of the Company's net sales, respectively.
International sales were $0.7 million, or 16% of net sales, for the second
quarter of fiscal year 2000 compared to $1.9 million, or 14% of net sales, for
the second quarter in 1999. The decrease is due to the delayed introduction
-7-
<PAGE>
of the 8000 Series Workstation. The majority of international sales, 76% and 72%
of net sales for the second quarter of 2000 and 1999, respectively, are in
Europe.
Gross Profit. Gross profit decreased to $0.7 million, or 17% of net sales,
for the second quarter of fiscal year 2000 from $1.9 million, or 27% of net
sales for the second quarter of 1999. Gross profit decreased to $1.6 million, or
20% of net sales for the first six months of fiscal year 2000 from $4.0 million,
or 29% of net sales, for the first six months of 1999. Gross margin was
negatively impacted by the decreased revenue base in which to allocate fixed
overhead costs. The Company's gross profit margin will fluctuate as a result of
a number of factors, including mix of products sold, inventory obsolescence, the
proportion of international sales, large customer contracts (with the associated
volume discounts) and outsourcing expenses.
The Company has outsourced the final assembly process during the first
quarter of fiscal year 2000. Repair and final integration work will remain
at the Company for the near future. The Company anticipates outsourcing will
moderately reduce future material costs, inventory write-offs and operating
expenses.
Sales and Marketing. Sales and marketing expenses include salaries, sales
commissions, travel, technical support and professional services personnel,
advertising, promotions and trade shows. In addition, these expenses include the
labor and material costs related to maintaining the Company's standard one-year
warranty on its products. Sales and marketing expenses were $1.3 million for the
second quarter of fiscal year 2000 compared to $1.0 million for the second
quarter of 1999. As a percentage of net sales, sales and marketing expenses
increased to 32% for the second quarter of fiscal year 2000 from 21% for the
second quarter of 1999. In the first six months of fiscal year 2000, sales and
marketing expenses were $2.3 million and 27% of net sales as compared to $2.5
million and 18% of net sales in the first six months of 1999. The Company plans
to continue expanding its resale channels through Value Added Resellers (VARs)
as well as moderately increase its advertising and promotion costs within its
target markets.
General and Administrative. General and administrative expenses include the
Company's executive, finance and administration, human resources, and
information services departments. These expenses increased to $1.2 million for
the quarter ended July 2, 2000, from $0.8 million for the quarter ended July 4,
1999. As a percentage of net sales, general and administrative expenses
increased to 31% for the quarter ended July 2, 2000, from 12% for the quarter
ended July 4, 1999. General and administrative expenses were $2.1 million, or
25% of net sales for the first six months of fiscal year 2000 as compared to
$1.6 million, or 12% of net sales for the comparable period in 1999. The
increase is primarily due to the fees associated with the management services
related to the investment by Industrial-Works Holding Co., LLC, legal expenses
and recruitment expenses for changes to the management team.
Research and Development. Research and development expenses are incurred in
the design, development and testing of new or enhanced products, services and
customized computing platforms. These costs are expensed as incurred. Research
and development expenses increased to $1.4 million in the second quarter of
fiscal year 2000 from $0.8 million for the second quarter of 1999. As a
percentage of net sales, research and development costs were 35% and 12% for the
second quarter of 2000 and 1999, respectively. Research and development expenses
increased to $2.5 million for the first six months of fiscal year 2000 from $1.7
million for the comparable period in 1999. As a percentage of net sales,
research and development expenses increased to 30% for the first six months of
fiscal year 2000 from 12% for the first six months of 1999. The increase was
primarily due to the Company's product re-design expenses to incorporate
embedded systems technology and reduce product costs.
Interest Income (Expense) and Other, Net. Net interest expense was
approximately $235,000 for the second quarter of fiscal year 2000 compared to
net interest expense of $20,000 for the comparable period in 1999. Net interest
expense for the first six months of fiscal year 2000 was $492,000 compared to
net interest expense of
-8-
<PAGE>
$18,000 for the comparable period in 1999. The increase in interest expense is
due to borrowings on the Company's line of credit and interest payments on its
subordinated notes. Additionally, financing costs of $882,000 related to
warrants issued in September 1999 will be amortized over the next two years
ending September 2001 and financing costs of $437,500 related to warrants issued
to Kontron in June 2000 will be amortized through September 2001.
Liquidity and Capital Resources
On June 29, 2000, the Company entered into a Purchase and Option Agreement
with FWRKS Acquisition Corp., a wholly-owned subsidiary of Kontron Embedded
Computers AG (Kontron). Kontron was granted an option through August 15, 2000 to
purchase 7.75 million shares of FieldWorks common stock at a total purchase
price of $7.75 million. In addition, Kontron and Industrial-Works Holding Co.,
LLC (IWHC),
have
executed an option agreement where IWHC is entitled to purchase 60,000
shares of Kontron Stock in exchange for 2,428,600 shares of Series B Convertible
Preferred Stock of FieldWorks and 285,700 shares of Series C Convertible
Preferred Stock of FieldWorks held by IWHC. These preferred shares are
convertible into 3,000,000 shares of FieldWorks Common Stock. If this option is
exercised, the Company will seek shareholder approval of the issuance of common
stock to Kontron and the exchange of IWHC's shares to Kontron prior to the
closing of these transactions. Following the closing of these transactions,
Kontron would own a controlling interest in the Company owning in excess of 12
million shares of common stock on an as if converted basis.
In addition, the Company received $2.5 million on June 30, 2000 and issued
a subordinated note to Kontron which bears interest at 11% per annum and matures
in September 2001. Kontron also received warrants to purchase 1.25 million
shares of common stock exercisable at $1.00 per share. The warrants are
exercisable until November 15, 2000, and were recorded at their estimated fair
value at the date of issuance.
On March 31, 2000, the Company issued 500,000 shares of the Company's
Series C Convertible Participating Preferred Stock to Industrial-Works Holding
Co., LLC. The Company recorded a $250,000 charge relating to the beneficial
conversion feature. The Company issued a warrant to Industrial-Works to purchase
100,000 shares of common stock with an exercise price of $2.00 per share in
connection with this transaction. The Company did not close a stock rights
offering with a minimum of $5 million in gross offering proceeds prior to June
30, 2000, therefore, the conversion rate was adjusted to two shares of common
stock for each share of Series C Convertible Participating Preferred Stock.
On February 22, 2000, the Company completed a $4.25 million equity
investment by Industrial-Works Holding Co., LLC. In exchange for the $4.25
million investment, the Company issued 4,250,000 shares of Series B Convertible
Participating Preferred Stock (each share of which is initially convertible into
one share of common stock). Industrial-Works Holding Co., LLC, also received a
warrant to purchase 500,000 shares of common stock at $1.00 per share. The
transaction was approved at a special meeting of shareholders held on February
7, 2000. The Company intends to use the net proceeds for market expansion and
new product development as well as for working capital and general corporate
purposes.
In September 1999, the Company completed a private placement of $3.0
million in subordinated notes. The notes bear interest at 11% per annum and
mature in September 2001. Noteholders also received warrants to purchase 1.5
million shares of common stock exercisable at $1.00 per share. The warrants are
exercisable for five years, and recorded at their estimated fair value at the
date of issuance.
In November 1998, the Company entered into a two-year, $3.0 million line of
credit agreement. Borrowings bear interest at the greater of 4% over prime or
9%. The interest rate changed from 3% over prime to 4% over prime in the third
quarter of 1999 due to default on the Company's profitability covenant. At July
2, 2000, the interest rate was 13.5%. The line of credit balance was $1.3
million as of July 2, 2000, as compared to $1.8 million at January 2, 2000. The
borrowing base consists of 75% of eligible receivables plus the lesser of
$600,000 or 30% of eligible inventory as defined in the agreement. Availability
based on the borrowing base calculation, including accounts receivable and
inventory, was $2.1 million as of July 2, 2000 and was $3.0 million as of
January 2, 2000. The agreement contains a covenant requiring cumulative
year-to-date profit on a quarterly basis. The Company was out of compliance with
the covenant as of July 2, 2000, and has received a written waiver of default.
Failure to comply with this covenant in the future could result in default,
interest rate increases and immediate repayment requirements.
-9-
<PAGE>
Cash used for operating activities totaled $1.1 million for the first six
months of fiscal year 2000. The Company's accounts receivable decreased $2.1
million to $3.0 million at July 2, 2000 from $5.1 million at January 2, 2000 due
to timing of increased sales at the end of the fourth quarter in 1999 and
reduced sales in the second quarter of fiscal year 2000. Inventories decreased
slightly to $4.4 million at July 2, 2000, from $4.5 million at January 2, 2000.
During the first six months of fiscal year 2000, the Company purchased $0.2
million of property, plant and equipment. The expenditures related primarily to
manufacturing tooling for vendors of the Company's FW8000 Series Workstation
Platform, along with software licensing fees used with all of the Platforms.
These purchases were offset by $0.1 million of disposal of assets related to
obsolete tooling for the FW7000 Series Workstation, in addition to disposal of
assets sold due to non-use because of outsourcing.
The Company anticipates that the proceeds from its pending equity
investment from Kontron and from the issuance of preferred shares, together with
its line of credit, and anticipated operating cash flows, should be sufficient
to fund its cash flow needs, for the foreseeable future. Cash requirements for
future periods depend on demand for the Company's products, cash management
operations, growth rate and acquisition strategies, among other factors. In
addition, if Kontron fails to exercise its option, the Company will seek
additional short-term cash resources to finance operations. There can be no
assurances that additional financing, if needed, will be available, or if it is
available, that it would be on terms favorable to the Company and would not be
dilutive to existing shareholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates
on borrowings under the Company's line of credit agreement. The line of credit
bears interest based on the Prime Lending Rate. At July 2, 2000, the Company had
$1.3 million outstanding. Based on analysis, interest rate shifts would have an
immaterial impact on the Company.
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents. The Company invests any excess
cash and cash equivalents in money market instruments. The Company had $2.3
million in cash and cash equivalents at July 2, 2000. Based on analysis, shifts
in money market rates would have an immaterial impact on the Company.
All of the Company's transactions are conducted and accounts are
denominated in United States dollars and as such, the Company does not currently
have exposure to foreign currency risk.
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
On June 29, 2000, the Company entered into a Purchase and Option Agreement
with FWRKS Acquisition Corp., a wholly-owned subsidiary of Kontron Embedded
Computers AG (Kontron). The Company received $2.5 million on June 30, 2000 and
issued a subordinated note to Kontron which bears interest at 11% per annum and
matures in September 2001. Kontron also received warrants to purchase 1.25
million shares of common stock
-10-
<PAGE>
exercisable at $1.00 per share. The warrants are exercisable until November 15,
2000, and were recorded at their estimated fair value at the date of issuance.
The sale and issuance of the securities described above were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities act or Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering, where the purchasers represented their
intention to acquire securities for investment purposes only and not with a view
to or for sale in connection with any distribution thereof, and received or had
access to adequate information about the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Shareholders was held on May 15, 2000. The
shareholders voted on two matters: (1) to elect seven directors, each of whom
will serve until such director's successor shall have been elected and shall
qualify or until such director's earlier death, resignation, removal or
disqualification, and (2) to amend the Company's 1996 Director's Stock Option
Plan (the Plan) increasing the number of shares subject to the Plan from 300,000
to 500,000. The shareholders voted in favor of all matters by the following
votes:
Votes Votes
Election of Board For Withheld
of Directors ----- --------
James A. Bernards 10,656,925 122,801
Richard J. Boyle 10,656,925 122,801
Robert D.D. Forbes 10,651,925 127,801
Marvin W. Goldstein 10,656,275 123,451
Michael E. Johnson 10,656,925 122,801
David C. Malmberg 10,645,925 133,801
David G. Mell 10,651,925 127,801
Votes Votes Votes Broker
For Against Abstained Non Vote
----- ------- --------- --------
Amend the 1996
Directors Stock Option Plan 10,476,798 266,636 36,292 0
ITEM 5. OTHER INFORMATION
None.
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)
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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 10.1 Engagement Agreement with Goldsmith, Agio, Helms &
Lynner, Ltd. dated April 28, 2000 (filed herewith)
Exhibit 10.2 Purchase and Option Agreement between the Company and
FWRKS Acquisition Corp., a wholly owned subsidiary of
Kontron Embedded Computers AG, dated June 29, 2000
(filed herewith)
Exhibit 10.3 Warrant to Purchase Shares of Common Stock Issued to
FWRKS Acquisition Corp., a wholly-owned subsidiary of
Kontron Embedded Computers AG on June 29, 2000 (filed
herewith)
Exhibit 10.4 Subordinated Note issued to FWRKS Acquisition Corp.
on June 29, 2000 (filed herewith)
Exhibit 10.5 Registration Rights Agreement with FWRKS Acquisition
Corp. on June 29, 2000 (filed herewith)
Exhibit 10.6 Option Agreement between FWRKS Acquisition Corp. and
Industrial-Works Holding Co., LLC dated June 29, 2000
(filed herewith)
Exhibit 10.7 Operating Protocol Memorandum with Kontron Embedded
Computers AG dated July 11, 2000 (filed herewith)
Exhibit 10.8 Purchase of Shares; Partial Termination of Agreement
between Kontron Embedded Computers AG and Gary Beeman
dated July 11, 2000 (filed herewith)
Exhibit 27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K: One report on Form 8-K was filed by the Company during
the fiscal quarter ended July 2, 2000. The report, dated June 20, 2000 ,
stated that the Company had entered into an agreement with Kontron Embedded
Computers to provide $2.5 million and an option for Kontron to acquire
majority in FieldWorks shares.
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: August 16, 2000 /s/ Karen L. Engebretson
------------------------------------------
Karen L. Engebretson, Vice President of
Finance and CFO (as authorized officer and
principal financial officer)
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