UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 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 0-25524
HELLO DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3043208
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5893 RUE FERRARI 95138-1857
SAN JOSE, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 972-1990
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class May 1, 2000
----- -------------
Common Stock, Par Value $.001 5,290,954
<PAGE>
HELLO DIRECT, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - Financial Information
Item 1. -- Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Liquidity and Capital Resources
Additional Factors Affecting Operating Results and Market
Price of Stock
Part II - Other Information
Items 1 through 5 are not applicable with respect to the
current reporting period.
Item 6. - Exhibits and Reports on Form 8-K
Signatures
Part 1. Financial Information
Item 1. Financial Statements
HELLO DIRECT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,164 $7,292
Trade accounts receivable, less allowance for
returns and doubtful accounts 10,977 9,186
Inventories 7,613 7,753
Deferred tax assets 997 874
Other current assets 1,318 1,904
------------- -------------
Total current assets 25,069 27,009
Notes receivable 3,826 3,912
Property and equipment, net 11,774 10,055
Goodwill, net 1,500 1,600
------------- -------------
Total assets $42,169 $42,576
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,194 $6,340
Accrued expenses 2,603 2,553
------------- -------------
Total current liabilities 6,797 8,893
Non-current liabilities 631 472
------------- -------------
Total liabilities 7,428 9,365
Stockholders' equity:
Common stock 5 5
Additional paid-in capital 29,948 29,668
Notes receivable from stock sales (742) (742)
Retained earnings 6,853 5,603
Less treasury stock, at cost (1,323) (1,323)
------------- -------------
Total stockholders' equity 34,741 33,211
------------- -------------
Total liabilities and stockholders' equity $42,169 $42,576
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HELLO DIRECT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales $23,678 $19,450
Cost of goods sold 10,938 8,933
--------- ---------
Gross profit 12,740 10,517
Selling, general and administrative
expenses 10,041 8,649
Product development expenses 862 607
--------- ---------
Operating income 1,837 1,261
Other income, net 245 224
--------- ---------
Income before income taxes 2,082 1,485
Provision for income taxes 832 594
--------- ---------
Net income $1,250 $891
========= =========
Basic per share amounts:
Net income $0.24 $0.17
========= =========
Weighted average common shares
outstanding 5,241 5,158
========= =========
Diluted per share amounts:
Net income $0.23 $0.17
========= =========
Weighted average common shares
outstanding 5,541 5,361
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HELLO DIRECT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,250 $891
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 765 576
Deferred income taxes (9) (217)
Deferred rent 45 45
Provision for returns and doubtful accounts 92 (66)
Changes in items affecting operations: 0 0
Trade accounts receivable (1,882) (1,592)
Inventories 141 562
Other assets 586 1,177
Accounts payable and accrued expenses (2,096) (1,071)
-------- --------
Net cash (used in) provided by operating activities (1,108) 305
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,385) (852)
Decrease (increase) in investments 0 3,256
Payments received on note receivable 85 74
Acquisition of company 0 (1,500)
-------- --------
Net cash (used in) provided by investing activities (2,300) 978
-------- --------
Cash flows from financing activities:
Sale of common stock, net 280 278
Purchase of treasury stock 0 (888)
-------- --------
Net cash provided by (used in) financing activities 280 (610)
-------- --------
Net (decrease) increase in cash and cash equivalents (3,128) 673
Cash and cash equivalents at beginning of period 7,292 5,745
-------- --------
Cash and cash equivalents at end of period $4,164 $6,418
======== ========
Non-cash financing activities:
Issuance of treasury stock for aquisition of company $0 $500
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
HELLO DIRECT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
In the opinion of the management of Hello Direct, Inc. and
Subsidiary (the "Company"), the accompanying unaudited
condensed consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial information set forth
therein.
The condensed consolidated financial statements have been
prepared by the Company without audit and are subject to year-
end adjustment. Certain information and footnote disclosures
normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have
been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission.
It is suggested that these interim statements be read in
conjunction with the audited consolidated financial statements
and notes thereto included in the Company's annual report
(Commission File Number 0-25524) filed on Form 10-K for the
fiscal year ended December 31, 1999.
Results of operations for the three-month period ended March
31, 2000 are not necessarily indicative of future financial
results.
2. Net Income Per Share
There were no adjustments to net income for purposes of the
calculation of diluted net income per share. The table below
reconciles basic weighted average shares outstanding to diluted
weighted average shares outstanding:
Three months ended
March 31,
2000 1999
---------- ----------
Basic weighted average common
shares outstanding 5,241,000 5,158,000
Common stock options utilizing
treasury stock method when dilutive 300,000 203,000
---------- ----------
Diluted weighted average common
shares outstanding 5,541,000 5,361,000
========== ==========
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This Management's Discussion and Analysis section contains
forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference
include, but are not limited to, those discussed below and in
the Company's reports filed with the Securities and Exchange
Commission including the Company's annual report on Form 10-K
for the year ended December 31, 1999 (the "Form 10-K"). The
forward-looking statements contained herein are made as of the
date hereof, and the Company assumes no obligation to update
such forward-looking statements or to update reasons actual
results could differ materially from those anticipated in such
forward-looking statements.
RESULTS OF OPERATIONS
First Quarter 2000 Compared to First Quarter 1999
Net Sales. Net sales reflect total sales less a provision
for returns. Net sales increased $4,228,000, or 21.7%, to
$23,678,000 in the three-month period ended March 31, 2000,
from $19,450,000 for the comparable period in 1999. This
increase was primarily attributable to an increase in both
Internet and outbound telemarketing sales offset by a decrease
in catalog sales. The decrease in catalog sales resulted in
part from an 8% reduction in the number of catalogs
distributed, to 7.5 million from 8.2 million. Average order
size increased 21% to $320 from $264.
Gross Profit. Cost of goods sold includes merchandise cost,
freight and duty, warranty expense, and packaging and shipping
supplies. Gross profit increased $2,223,000, or 21.1%, to
$12,740,000 in the three-month period ended March 31, 2000,
from $10,517,000 for the comparable period in 1999. The gross
margin percentage for the three-month period was 53.8% for 2000
versus 54.1% for 1999. This decrease in gross margin reflects
the strong performance of national branded product sales which
carry lower margins than the Company's proprietary products.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $1,392,000, or
16.1%, to $10,041,000 in the three-month period ended March 31,
2000, from $8,649,000 for the comparable period in 1999. The
dollar increase was associated with planned headcount additions
to the Company's outbound telemarketing and product support
groups. However, as a percentage of net sales, these expenses
for the three-month period declined to 42.4% in 2000, as
compared to 44.5% for the same three-month period in 1999. A
significant portion of the Company's selling, general and
administrative expenses is related to the production, printing
and distribution of its catalog. Any significant increase in
the cost of paper or postage, or deterioration in the response
rates to mailings, would have a material adverse effect on the
Company's operating results.
Product Development Expenses. Product development expenses
increased $255,000, or 42.0%, to $862,000 for the three month
period ended March 31, 2000, from $607,000 for the comparable
period in 1999. As a percentage of net sales, these expenses
for the three-month period were 3.6% for 2000 versus 3.1% for
the same three-month period in 1999. The increase was due to
the increased staffing of the Company's product development
group reflecting the Company's commitment to new product
development. It is anticipated that these expenses will
fluctuate from time to time based upon the number and character
of the products under development; however, the Company
believes these expenses, as a percentage of net sales, will
increase for the year ending December 31, 2000 over the prior
year.
Other Income, Net. Other income includes interest income and
discounts of $245,000 for the three-month period ended March
31, 2000 versus $224,000 for the comparable period in 1999.
The interest income relates to interest earned on cash
investments, short-term investments and on the outstanding note
receivable while discounts are earned on early payment for
products and services.
Net Income. Net income increased $359,000 or 40.3% to
$1,250,000 in the three-month period ended March 31, 2000, from
$891,000 for the comparable period in 1999. This increase was
due to the reasons discussed above.
Quarterly and Seasonal Fluctuations. The Company has
experienced in the past, and will experience in the future,
quarterly variations in net sales and net income as a result of
many factors, including the timing of catalog mailings; catalog
response rates; product mix; the level of selling, general and
administrative expenses; the timing and level of product
development expenses; and the timing and success of new product
introductions by the Company or its competitors. The Company's
planned operating expenditures are based on sales forecasts.
If net sales are below expectations in any given quarter,
operating results would be materially adversely affected. Due
to the foregoing factors, it is possible that in some future
quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would likely be
materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash flow
from operations, debt financing, and borrowings under its
revolving bank line of credit.
Cash used in operating activities during the three-month period
ended March 31, 2000, was $1,108,000. This was the result of
$2,143,000 provided by operations including net income,
depreciation and amortization and other non-cash charges,
offset by $3,251,000 of changes in operating assets and
liabilities. Cash used in investing activities for the three-
month period ended March 31, 2000, was $2,300,000, due
primarily to purchases of property and equipment of $2,385,000,
offset by $85,000 collected on notes receivable. Cash provided
by financing activities during the three-month period ended
March 31, 2000, was $280,000, raised though the issuance of
Common Stock pursuant to the Company's employee stock purchase
and stock option plans.
In the quarter ended March 31, 1999, the Company used $888,000
for the purchase of 111,000 shares of treasury stock at an
average purchase price of $8.00 a share pursuant to a stock
repurchase program approved by the Company's Board of Directors
on October 7, 1998. The Board of Directors authorized the
repurchase of up to 1,000,000 shares of Common Stock in the
open market from time to time subject to market conditions and
other restrictions. Through March 31, 2000, the Company has
purchased 174,000 shares of Common Stock. The number of shares
of Common Stock eventually acquired by the Company will depend
on subsequent developments and corporate needs, and the
repurchase program may be interrupted or discontinued at any
time. Any shares repurchased would be available for re-
issuance under the Company's employee stock plans or for other
purposes as approved by the Board of Directors.
The Company believes that funds generated from operations,
together with available cash, will be sufficient to fund its
needs for working capital for the foreseeable future. However,
should the Company need additional funds, it has an unsecured
line of credit of $7,000,000 with a bank at the bank's prime
lending rate. At March 31, 2000, the Company has not directly
borrowed under this line and was not contingently liable for
any issued and open letters of credit.
ADDITIONAL FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE
OF STOCK
Hello Direct operates in a rapidly changing environment that
involves a number of uncertainties, some of which are beyond
our control. In addition to the uncertainties described
elsewhere in this report, these uncertainties include:
Our Future Operating Results are Uncertain.
We have grown rapidly and achieved profitability as a result of
the growth in net sales generated by our outbound telemarketing
efforts and our Internet site, and the success of our product
offering, particularly of our proprietary headset products. We
may not be able to maintain profitability on a quarterly or
annual basis or continue to increase our net sales. Our net
sales will continue to grow only if we are able to, among other
things, increase sales to existing customers, grow our customer
base and expand our product offering. Our operating results
could be harmed if we were to experience lower than anticipated
sales from our outbound telemarketing efforts and our Internet
site or higher than anticipated product return rates. We may
not be able to continue to achieve growth in net sales, and any
such growth may not offset increases in operating expenses.
Our operating results could also be harmed by delays in new
product introductions, poor product selection and market
acceptance of new products or increased competition. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations".
Our Quarterly Operating Results are Likely to Fluctuate.
We have experienced and will experience quarterly variations in
net sales and net income as a result of many factors, including
the following:
- - the number and timing of catalog mailings,
- - catalog response rates,
- - product mix,
- - the level of selling, general and administrative expenses,
- - the timing and level of product development expenses, and
- - the timing and success of our and our competitors' new
product introductions.
We plan our operating expenditures based on sales forecasts.
If our net sales are below our expectations in any given
quarter, our operating results will suffer. Due to the
foregoing factors, in some future quarter our operating results
may be below the expectations of public market analysts and
investors. In such event, the price of our Common Stock would
likely suffer.
We Need to Develop New Products Successfully.
The market for telecommunications products is generally
characterized by rapidly changing technology that can render
existing products obsolete and unmarketable. We believe our
current and future success will depend on our ability to
identify, develop or source and successfully introduce and
market, in a timely manner, enhancements to our existing
products and new products that respond effectively to
technological change. To accomplish this, we intend to consult
with our direct customer contacts and use our product
development capabilities. We have experienced delays in the
past in introducing certain of our products and could encounter
similar technical difficulties in the future that could result
in delayed product introductions or expensive recalls. We may
not successfully anticipate technological changes or select and
develop new and enhanced products on a timely basis. In
addition, if we are able to develop or source any products,
these products may not gain market acceptance.
We Depend on Headset Products.
We derived almost 50% of our net sales in the first quarter of
2000 from our proprietary telephone headset products. These
products have higher gross margins than our other products. We
anticipate that these headset products will continue to account
for a significant portion of our net sales and profits in the
foreseeable future. If sales of our telephone headset products
were to decline significantly, or the gross margins on such
products were to decrease significantly, as a result of
competitive pressures or technological obsolescence, our
operating results would be harmed.
We Rely on Sole or Limited Source Suppliers and Foreign
Manufacturing.
A relatively small number of manufacturers produce a
substantial portion of our proprietary products. To date, we
have been able to obtain adequate supplies of these products,
although on occasion we have incurred additional delivery costs
to air ship products to obtain inventory in a timely manner.
If we are unable in the future to obtain sufficient quantities
of sole or limited source products, or to develop alternative
sources, shortages of such products would occur. This would
harm our net sales and operating results.
Seo Won K-Tec, Inc., with operations in South Korea and the
Philippines, and Tru-Tech Electronics, located in Malaysia,
manufacture a substantial portion of our proprietary products
to our specifications. Each of these manufacturers is also one
of our substantial suppliers. Products made by these
manufacturers represented almost 50% of our net sales in the
first quarter of 2000. We have contracts of varying terms with
these manufacturing sources, and we compete with other
companies for production facilities. Although we believe that
we have established close relationships with these foreign
manufacturing sources, our future success will depend in large
measure upon our ability to maintain such relationships.
In addition, we face a number of risks inherent in doing
business in international markets, including, among others:
- - unexpected changes in regulatory requirements,
- - potentially adverse tax consequences,
- - tariffs and other trade barriers,
- - fluctuations in currency exchange rates,
- - political unrest,
- - disruptions or delays in shipments, and
- - changes in economic conditions in countries in which our
manufacturing sources are located.
We cannot predict the effect that such factors will have on our
business arrangements with foreign manufacturing sources. If
any of these factors were to render the conduct of business in
a particular country undesirable or impractical, or if our
current foreign manufacturing sources were to cease doing
business with us for any reason, our business and operating
results could suffer.
Our Business is Highly Competitive.
The market for customer premise telecommunications products is
highly competitive. We compete with a variety of traditional
dealers and retailers, including catalog companies, electronics
specialty stores and office products and computer superstores.
A variety of external and internal factors could harm our
ability to compete, including:
- - the functions, performance, price and reliability of the
products offered by us and our competitors,
- - the timing and success of our and our competitors' new
product development efforts, and
- - the effectiveness of our and our competitors' marketing
efforts.
Certain of our competitors have greater financial, technical,
sales and marketing and other resources than we have. We may
not be able to compete effectively against existing competitors
or against new competitors that may enter the market. In
addition, while we currently do not know of any competitor
specializing in distributing a broad line of telecommunications
products directly to business end-users via catalog, outbound
telemarketing and the Internet, we may not be able to compete
successfully in the future in these direct marketing channels,
which may attract new market entrants, or in other channels
that we may enter or that may be developed for the sale of
telecommunications products. Potential Acquisitions Involve
Risks.
We have acquired complementary technologies or businesses in
the past and may or may not do so in the future. Future
acquisitions may involve potentially dilutive issuances of
stock, the incurrence of additional debt and contingent
liabilities or amortization expenses related to goodwill and
other intangible assets. Any of these factors could harm our
results of operations or stock price. Acquisitions involve
numerous risks, including:
- - difficulties in assimilating the operations, products,
technology, information systems and personnel of the
acquired company,
- - diverting Management's attention from other business
concerns,
- - impairing relationships with our customers,
- - being unable to maintain uniform standards, controls,
procedures and policies,
- - entering markets in which we have no direct prior
experience, and
- - losing key employees of the acquired company.
In January 1999, we acquired PhoneZone.com, Inc., an Internet
publisher of a buyer's guide covering telecommunications and
networking products and services. As a result of this
acquisition, we entered into employment contracts with three
key employees. We may not be able to successfully integrate
the business and personnel from other businesses, technologies
or personnel that we acquire in the future.
Our Internet Sales Rely on the Continued Growth In
Electronic Commerce and Internet Infrastructure
Development.
Sales of telecommunications products using the Internet do not
currently represent a significant portion of overall
telecommunications products sales. However, our future growth
may depend on the growing use and acceptance of the Internet as
an effective medium of commerce by end users. Rapid growth in
the use of and interest in the Internet and other on-line
services is a recent development. No one can be certain that
acceptance and use of the Internet and other on-line services
will continue to develop or that a sufficiently broad base of
consumers will adopt, and continue to use, the Internet and
other on-line services as a medium of commerce. We will be able
to achieve increased sales over the Internet only if purchasers
of telecommunications products who have historically used
traditional means of commerce to purchase these products view
the Internet as a preferred alternative. If our Internet
efforts are to be successful, these purchasers must accept and
use the Internet as a means of purchasing telecommunications
products, and we cannot predict the rate at which purchasers
will do so.
The Internet may fail as a commercial marketplace for a number
of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the
number of Internet users or their use of Internet resources
continues to grow, it may overwhelm the existing Internet
infrastructure. Delays in the development or adoption of new
standards and protocols required to handle increased levels of
Internet activity or increased governmental regulation could
also have a similar effect. In addition, growth in Internet
usage that is not matched by comparable growth in the
infrastructure supporting Internet usage could result in slower
response times or adversely affect usage of the Internet.
Costs of Catalog Mailing, Paper and Printing May Increase.
Increases in postal rates and paper and printing costs increase
the cost of our catalog mailings. An increase in postal rates
or higher than anticipated paper and printing costs could harm
our financial position and results of operations to the extent
that we are unable to pass such increase directly on to
customers by raising prices or to offset such increase by
implementing more efficient printing, mailing and delivery
systems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
We Face Risks Associated with Managing a Growing Business.
We have experienced significant growth in our operations that
has placed significant demands on our administrative,
operational and financial resources. The growth in our
customer base and changes in our product offering have placed,
and we expect will continue to place, a significant strain on
our management and operations, including on our product
development, sales, customer service and finance and
administration staffs. Our future performance will depend in
part on our ability to successfully implement enhancements to
our management information systems and to adapt those systems,
as necessary, to respond to changes in our business. If we are
unable to successfully integrate and train new hires, or if we
are unable to respond to and manage changing business
conditions, our business could suffer.
We Rely on a Single Facility.
We house our telemarketing, customer service and distribution
functions in a single facility in San Jose, California. We
have taken precautions to protect ourselves from events that
could interrupt order fulfillment and customer service, such as
storing computer backup data off-site and implementing backup
power sources. Notwithstanding these precautions, a fire,
flood, earthquake or other disaster affecting our facility may
disable these functions. Any significant damage to this
facility would harm our business.
We Rely on Key Personnel.
Our future success depends to a significant extent on the
efforts of our key management personnel. The loss of the
services of any of these individuals could harm our business.
Competition for employees with technical, management, sales,
customer service and other skills is intense. Our failure to
retain and attract additional qualified employees could harm
our business.
We Face Risks Relating to State Sales Tax Collection.
We presently collect retail occupation tax, commonly referred
to as sales tax, or other similar tax, only on sales of
products to residents of the State of California. Several
states have sought to impose on direct marketers the burden of
collecting state sales taxes on the sale of products shipped to
residents of those states. The United States Supreme Court has
held that it is unconstitutional for a state to impose tax
collection obligations on an out-of-state mail order company
whose only contacts with the taxing state are the distribution
of catalogs and other advertisement materials through the mail
and whose subsequent delivery of purchased goods is by United
States mail or interstate common carriers. In the event of a
change in present law, which we have no reason to expect, the
imposition of a tax collection obligation on us by states into
which we ship products may result in additional administrative
expenses to us and price increases to the customer, which could
harm our business.
We Face Government Regulations Relating to Mailing Lists.
We are seeking to expand our in-house list of customers and
potential customers by continually renting appropriate mailing
lists and sending our catalogs to prospects obtained from these
lists. In the event that the federal or state governments
enact privacy legislation resulting in the increased regulation
of mailing lists, we may be unable to enhance and expand our
customer list. In such event, we could also experience
increased costs in complying with potentially burdensome
regulations concerning the solicitation of consents to keep or
add customer names to our mailing lists.
We Face Risks Associated With Intellectual Property Rights.
We rely on a combination of patent, copyright, trademark and
trade secret laws and contractual provisions to protect our
proprietary rights in our products. As part of our
confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, consultants,
distributors and corporate partners, and limit access to and
distribution of our software, documentation and other
proprietary information. Despite these precautions, a third
party may possibly copy or otherwise obtain and use our
products or technology independently. In addition, effective
protection of intellectual property rights may be unavailable
or limited in certain foreign countries.
No material claims are currently pending regarding the
infringement of the proprietary rights of third parties by our
products, trademarks or other proprietary rights. However, we
may receive, in the future, communications from third parties
asserting that our products infringe, or may infringe, the
proprietary rights of third parties. In the event of
litigation to determine the validity of any third-party claims,
such litigation, whether or not determined in our favor, could
result in significant expense to us and divert the efforts of
our technical and management personnel from productive tasks.
In the event of an adverse ruling in such litigation, we might
be required to discontinue the use and sale of infringing
products, expend significant resources to develop
non-infringing technology or obtain licenses to infringing
technology. We may not be able to obtain a license for the
disputed third-party technology on reasonable commercial terms
or at all. If someone asserts a successful claim against us
and we are unable to develop or license a substitute
technology, our business would suffer.
We May Face Product Liability Claims.
Our sale of proprietary and other products entails the risk of
product liability claims, although we have not experienced any
material claims to date. While we believe that our product
liability insurance coverage is currently adequate, this
coverage is limited. We may be unable to maintain this
insurance in the future at a reasonable cost or in amounts
sufficient to protect us against losses due to liability. A
successful product liability claim brought against us in excess
of present insurance coverage could harm our business.
Our Stock Price is Volatile.
The market price of our Common Stock has been volatile and may
be significantly affected by a number of factors, including:
- - actual or anticipated fluctuations in our operating
results,
- - announcements of technological innovations or new products
by us or our competitors,
- - developments with respect to intellectual property and
proprietary rights,
- - conditions and trends in the telecommunications and
telephone headset industries,
- - changes in earnings estimates or recommendations by
securities analysts, and
- - general market conditions.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have
particularly affected the market prices for the common stocks
of emerging growth companies and that have often been unrelated
to the operating performance of particular companies. These
broad market fluctuations may also harm the market price of our
Common Stock.
PART II -- OTHER INFORMATION
Item 1 through 5 are not applicable with respect to the current
reporting period.
Item 6. -- Exhibits and Reports on Form 8-K:
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended March
31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to
be signed by on its behalf by the undersigned thereunto duly
authorized.
HELLO DIRECT, INC.
(Registrant)
May 2, 2000 /s/ Dean Witter III
- -------------- -----------------------
Date Dean Witter III
Chief Financial Officer
and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000
AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,164
<SECURITIES> 0
<RECEIVABLES> 11,660
<ALLOWANCES> 683
<INVENTORY> 7,613
<CURRENT-ASSETS> 25,069
<PP&E> 17,458
<DEPRECIATION> 5,684
<TOTAL-ASSETS> 42,169
<CURRENT-LIABILITIES> 6,797
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 34,736
<TOTAL-LIABILITY-AND-EQUITY> 42,169
<SALES> 23,678
<TOTAL-REVENUES> 23,678
<CGS> 10,938
<TOTAL-COSTS> 10,903
<OTHER-EXPENSES> (245)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,082
<INCOME-TAX> 832
<INCOME-CONTINUING> 1,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,250
<EPS-BASIC> $0.24
<EPS-DILUTED> $0.23
</TABLE>
