-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UrrltL3p7YmDZpytdkiK2whuOhT2EV19gNvIerz5yNgbwr7icBiRP7jMnRusCApQ GGRwVf7Hm+twgdZSwNYElQ== 0000927356-96-000255.txt : 19960513 0000927356-96-000255.hdr.sgml : 19960513 ACCESSION NUMBER: 0000927356-96-000255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960509 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRALINK CORP CENTRAL INDEX KEY: 0000894268 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 841141188 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28180 FILM NUMBER: 96558814 BUSINESS ADDRESS: STREET 1: 1650 38TH STREET STREET 2: SUITE 202E CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034405330 MAIL ADDRESS: STREET 1: 1650 38TH ST STREET 2: SUITE 202E CITY: BOULDER STATE: CO ZIP: 80301 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________ to _________ Commission file number 0-28180 ------- SPECTRALINK CORPORATION (Exact name of registrant as specified in charter) Delaware 84-1141188 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 1650 38th Street, Suite 202E, Boulder, Colorado 80301 (Address of principal executive office) (Zip code) 303-440-5330 (Issuer's telephone number) N.A. (Former name, former address and former fiscal year, if changed from last report) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes____ No__X__ - Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: N.A. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes_____ No____ N.A. Applicable only to corporate issuers: As of April 26, 1996 there were outstanding 18,315,718 shares of SpectraLink Corporation Common Stock - par value $.01. Transitional Small Business Disclosure Format (check one): Yes_____No__X__ 1 SPECTRALINK CORPORATION INDEX
Part I Financial Information Page Item 1 Financial Statements Balance Sheets at Quarter ended March 31, 1996 and year ended December 31, 1995 3 Statements of Earnings Quarters ended March 31, 1996 and 1995 5 Statements of Cash Flows Quarters ended March 31, 1996 and 1995 6 Notes to Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Cautionary Statement pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 10 Part II Other Information Item 4 Submission of Matters to a Vote of Security Holders 11
2 SPECTRALINK CORPORATION BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS
MARCH 31, DECEMBER 31, 1996 1995 ----------- ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 2,153 $ 1,729 Short-term investments 25 524 Trade accounts receivable, net of 5,556 4,285 allowance of approximately $254 at March 31, 1996 and $225 at December 31, 1996, respectively, for uncollectible accounts Inventory 2,073 2,239 Deferred offering costs 200 -- Other 70 117 ----------- ------------ Total current assets 10,077 8,894 ----------- ------------ PROPERTY AND EQUIPMENT, at cost: 2,421 2,258 Less--Accumulated depreciation (1,283) (1,176) ----------- ------------ 1,138 1,082 ----------- ------------ OTHER 53 50 ----------- ------------ TOTAL ASSETS $ 11,268 $ 10,026 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 343 $ 428 Accrued payroll and employee benefits 786 593 Accrued warranty expenses 219 184 Other accrued expenses 457 380 Current portion of long-term debt 189 118 ----------- ------------ Total current liabilities 1,994 1,703 LONG-TERM DEBT, net of current portion 500 319 ----------- ------------ Total liabilities 2,494 2,022 ----------- ------------ STOCKHOLDERS' EQUITY: Convertible preferred stock 75 75 Common stock 39 38 Additional paid-in capital 20,440 20,430 Accumulated deficit (11,780) (12,539) ----------- ------------ TOTAL STOCKHOLDERS' EQUITY 8,774 8,004 ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,268 $ 10,026 =========== ============
See notes to financial statements 3 SPECTRALINK CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QUARTER ENDED QUARTER ENDED MARCH 31, 1996 MARCH 31, 1995 -------------- -------------- NET SALES $ 5,551 $ 3,339 COST OF SALES 2,283 1,642 -------------- -------------- Gross profit 3,268 1,697 -------------- -------------- OPERATING EXPENSES Research and development 549 485 Marketing and selling 1,603 961 General and administrative 337 181 -------------- -------------- Total operating expenses 2,489 1,627 -------------- -------------- INCOME FROM OPERATIONS 779 70 INVESTMENT INCOME AND OTHER, net 20 42 -------------- -------------- INCOME BEFORE INCOME TAXES 799 112 INCOME TAX EXPENSE 40 1 -------------- -------------- NET INCOME $ 759 $ 111 ============== ============== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ 0.05 $ 0.01 ============== ============== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 15,900 15,670 ============== ==============
See notes to financial statements 4 SPECTRALINK CORPORATION STATEMENT OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QUARTER ENDED QUARTER ENDED MARCH 31, 1996 MARCH 31, 1995 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 759 $ 111 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 107 1 Changes in assets and liabilities Increase in accounts receivable, net (1,271) (847) Increase (decrease) in inventory 166 (255) (Decrease) increase in other assets (156) 85 Increase in accounts payable (85) (153) Increase (decrease) in other accrued liabilities 305 (28) -------------- -------------- Net cash used in operating activities (175) (1,086) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (163) (93) Maturity of short-term investments 499 2,000 -------------- -------------- Net cash provided by investing activities 336 1,907 -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit and notes payable 275 -- Repayments on line of credit and notes payable (5) -- Payments on capital lease obligations (18) (20) Proceeds from exercise of incentive common stock options 11 12 -------------- -------------- Net cash provided by (used in) financing activities 263 (8) -------------- -------------- INCREASE IN CASH AND CASH EQUIVALENTS 424 813 CASH AND CASH EQUIVALENTS, beginning of period 1,729 140 -------------- -------------- CASH AND CASH EQUIVALENTS, end of period $ 2,153 $ 953 ============== ==============
See notes to financial statements 5 SPECTRALINK CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying financial statements as of March 31, 1996 and 1995 and for the quarters then ended have been prepared from the books and records of the Company and are unaudited. In management's opinion, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 1995 presented in the Company's Prospectus dated April 26, 1996 relating to its Registration Statement on Form SB-2. The accounting policies utilized in the preparation of the financial statements herein presented are the same as set forth in the Company's annual financial statements. 2. Subsequent Event - Initial Public Offering On May 1, 1996 the Company received $24,924,000 in proceeds from a public offering of 3,350,000 shares of common stock. Approximately $900,000 of the proceeds will be used to cover the expenses of the public offering and to pay off the equipment purchase line of credit. The remaining funds will be invested primarily in investment-grade debt securities. Concurrent with the closing of the offering, all outstanding shares of preferred stock were automatically converted to common stock at a ratio of one (1) share of preferred stock to one and a half (1.5) shares of common stock. Subsequent to the completion of the offering, the Company had 18,315,718 shares of common stock outstanding. 3. Inventories Inventories include the cost of raw materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out) or market. Inventories at March 31, 1996 and December 31, 1995 consisted of the following: 1996 1995 ------ ------ Raw materials 1,413 1,413 Work in process 14 11 Finished Goods 646 815 ------ ------ 2,073 2,239 ====== ====== 4. Debt Long-term debt at March 31, 1996 and December 31, 1995 consisted of the following: 1996 1995 ------ ------ Line of credit to purchase equipment $ 488 $----- Note payable to lessor 115 334 Capital lease obligations on leases to finance equipment 85 102 ------ ------ 689 437 Less ---- current portion (189) (118) ------ ------ $ 500 $ 319 ====== ====== 5. Net Income per Common and Common Equivalent Share Net income per common and common equivalent share has been computed using the weighted average number of shares of common stock, common equivalent shares from the convertible preferred stock (using the if converted method at date of issuance ) and common stock equivalent shares from stock options and warrants outstanding (using the treasury stock method). Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common stock and common stock equivalent shares issued by the Company at prices significantly below the assumed public offering price during the twelve month period prior to the offering date (using the treasury stock method) have been included in the calculation as if they were outstanding for all years presented. 6 PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECTRALINK CORPORATION OVERVIEW SpectraLink commenced operations in April 1990 to design, manufacture and sell unlicensed digital wireless telephone communication systems for businesses. The Company sold its first commercial system in June 1992, and has subsequently shipped over 1,040 systems and over 23,600 phones. SpectraLink's primary sales efforts are currently focused on hospital, nursing homes, retail stores, distribution centers, manufacturing facilities, and corporate offices. SpectraLink sells its systems in the United States and Canada through its direct sales force, telecommunications equipment distributors, and specialty dealers. Since inception, the Company has expended considerable effort and resources developing its wireless telephone systems, building its direct and indirect channels of distribution, and managing the effects of rapid growth. This rapid growth has required it to significantly increase the scale of its operations, including the hiring of additional personnel in all functional areas, and has resulted in significantly higher operating expenses. The Company anticipates that its operating expenses will continue to increase. RESULTS OF OPERATIONS The following table sets forth certain income and expense items as a percentage of net sales for the periods indicated. Quarter Ended March 31, 1996 1995 Statement of Operations Data: Net Sales 100.0% 100.0% Cost of Sales 41.1% 49.2% Gross Profit 58.9% 50.8% Operating Expenses: Research and Development 9.9% 14.5% Marketing and Selling 28.9% 28.8% General and Administrative 6.1% 5.4% Total Operating Expenses 44.8% 48.7% Income from Operations 14.0% 2.1% Investment income and other, net .4% 1.3% Income Before Income Taxes 14.4% 3.4% Income Tax Expense .7% .1% Net Income 13.7% 3.3% 7 SPECTRALINK CORPORATION QUARTERS ENDED MARCH 31, 1995 AND 1996 Net Sales. The Company derives its revenue principally from the sale, installation and service of wireless, on-premises telephone systems. Net sales increased by 66% to $5,551,000 for the first quarter 1996 from $3,339,000 in the first quarter 1995. This increase was predominantly due to the growing acceptance of SpectraLink systems in the marketplace. Gross Profit. The Company's cost of sales consists primarily of direct material, direct labor, service expenses and manufacturing overhead. Gross profit increased by 93% to $3,268,000 in the first quarter 1996 from $1,697,000 in the first quarter 1995. The Company's gross profit margin (gross profit as a percentage of net sales) increased to 58.9% in the first quarter 1996 from 50.8% in the first quarter 1995 primarily due to decreasing unit material, labor, and overhead costs. The lower unit material costs were due to improved pricing, increased component integration, and quantity discounts. The lower unit labor costs were due to an improved manufacturing process resulting in better through- put per direct labor hour. The lower unit overhead costs were primarily a result of increased volume. Unit service costs improved from the first quarter 1995 to the first quarter 1996 as a result of improved product design enhancing reliability. Research and Development. Research and development expenses consist primarily of employee costs, professional services, and supplies necessary to develop, enhance and reduce the cost of the Company's systems. Research and development expenses increased by 13% to $549,000 in the first quarter 1996 from $485,000 in the first quarter 1995, representing 9.9% and 14.5%, respectively, of net sales. Research and development expenses in the first quarter 1995 were associated with the introduction of a new generation of pocket telephone and the Series 150 system. In the first quarter 1996, the Company's research and development efforts were concentrated primarily on new product development, improvements to existing products, and manufacturing process improvements. The Company intends to increase its dollar spending on research and development. Marketing and Selling. Sales and Marketing expenses consist primarily of salaries and other expenses for personnel, commissions, travel, advertising, trade shows, and market research. These expenses increased by 66.9% to $1,603,000 in the first quarter 1996 from $961,000 in the first quarter 1995, representing 28.9% and 28.8%, respectively, of net sales. The increase in dollar expense was primarily due to adding sales and marketing personnel to increase sales. General and Administrative. General and administrative expenses consist primarily of salaries and other expenses for management, finance, accounting, contract administration, order processing, and human resources as well as legal and other professional services. General and administrative expenses increased by 86% to $337,000 in the first quarter 1996 from $181,000 in the first quarter 1995, representing 6.1% and 5.4%, respectively, of net sales. The increase in expense was primarily due to the cost of additional resources associated with the higher volume of production and sales and becoming a public company, as well as increasing the provision for bad debt expense due to higher sales and accounts receivable. Investment Income and Other (Net). Investment income is the result of the Company's investment in money market and short-term government securities. Other income is generated primarily from purchase discounts. The decrease in this category from 1995 to 1996 was primarily due to interest expense on borrowings by the Company against its credit facilities. The Company expects interest income to increase substantially in subsequent quarters due to the investment activities associated with net proceeds of approximately $24 million dollars from the public offering completed on May 1, 1996. Income Tax. The Company has available tax loss carryforwards to offset estimated 1996 taxable income. The Company's tax provision in 1996 consists of an accrual for state and federal alternative minimum taxes estimated at 5% of net income. The Company's operating expenses are based in part on its expectations of future sales, and the Company's expense levels are generally committed in advance of sales. The Company currently plans to continue to expand and increase its operating expenses in an effort to generate and support additional future revenue. If sales do not 8 materialize in a quarter as expected, the Company's results of operations for that quarter would be adversely affected. Net income may be disproportionately affected by a reduction of revenues because only a small portion of the Company's expenses vary with its revenue. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its operations primarily through private sales of equity securities, raising a total of $20,100,000 between June 1990 and November 1993. The Company also has a credit facility with Silicon Valley Bank consisting of a revolving line of credit and equipment purchase line. The maximum that can be borrowed against the revolving line of credit is the lesser of $1,250,000 or 75% of eligible accounts receivable. The interest rate is 0.5% over prime. The maximum allowed to be borrowed on the equipment purchase is the lesser of $750,000 or 100% of eligible equipment. The interest rate on the equipment purchase line is 2.0% over prime. Loan covenants for the credit facility provide certain financial restrictions relating to liquidity, leverage, net worth, profitability, debt service, dividend payments, and stock repurchases. Outstanding amounts under the equipment purchase line of the credit facility convert to a term loan on August 7, 1996. The Company has not borrowed against the revolving line of credit, but as of March 31, 1996, had borrowed and outstanding $488,000 against the equipment purchase line. This debt was paid off on May 2, 1996 with proceeds from the public offering (see Subsequent Event). Operating activities used net cash of $1,086,000 and $175,000 in first quarter 1995 and first quarter 1996, respectively. From March 31, 1995 to March 31, 1996, accounts receivable increased by $1,914,000 while inventory increased by $297,000. These increases were primarily due to higher net sales as compared to the corresponding prior period. Investing activities consisted of equipment acquisitions mainly for engineering, manufacturing, computer and phone equipment of $93,000 in the first quarter 1995 and $164,000 in first quarter 1996. There were no purchases of short-term investments in first quarter of 1995 or 1996. Short-term investments of $2,000,000 matured in first quarter 1995 and $499,000 matured in first quarter 1996. Financing activities included proceeds from the exercise of incentive stock options of common stock of $12,000 in the first quarter of 1995 and of $11,000 in first quarter 1996. It also includes net borrowing from a bank line of credit of $270,000 in first quarter 1996 and payments on capital lease obligations of $20,000 in first quarter 1995 and $18,000 in first quarter 1996. As of March 31, 1996, the Company had working capital of $8,080,000 compared to $7,191,000 as of December 31, 1995. Working capital as of March 31, 1996 included $2,178,000, $5,556,000 and $2,073,000 in cash and short-term investments, accounts receivable and inventory, respectively. As of March 31, 1996, the Company's current ratio (ratio of current assets to current liabilities) was 5.1:1, compared with a current ratio of 5.2:1 as of December 31, 1995. The Company believes that cash generated from operations, amounts available under its credit facility and the net proceeds to the Company of the common stock offering (completed on May 1, 1996) will be sufficient to fund necessary capital expenditures, to provide adequate working capital and to finance the Company's expansion for at least the immediate future. SUBSEQUENT EVENT On May 1, 1996 the Company received $24,924,000 in proceeds from a public offering of 3,350,000 shares of common stock. Approximately $900,000 of the proceeds will be used to cover the expenses of the public offering and to pay off the equipment purchase line of credit. The remaining funds will be invested primarily in investment-grade debt securities. Concurrent with the closing of the offering, all outstanding shares of preferred stock were automatically converted to common stock at a ratio of one (1) share of preferred stock to one and a half (1.5) shares of common stock. Subsequent to the completion of the offering, the Company had 18,315,718 shares of common stock outstanding. 9 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995 SPECTRALINK CORPORATION This report contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluation such statements, investors should specifically consider the various factors which could cause actual results to differ materially from those indicated in such forward-looking statements. The most important factors that could cause actual results to differ from those expressed in the forward-looking statements include, but are not limited to the following: * The failure of the market for on-premises wireless telephone systems to grow or to grow as quickly as the Company anticipates. * The intensely competitive nature of the wireless communications industry. * The ability of the Company's distributors to develop and execute effective marketing and sales strategies. * The Company's reliance on sole or limited sources of supply for many components and equipment used in its manufacturing process. * The risk of business interruption arising from the Company's dependence on a single manufacturing facility. * The Company's dependence on a single product line. * The Company's ability to manage potential expansion of operations. * The Company's ability to attract and retain key personnel. * The Company's ability to respond to rapid technological changes within the on-premises wireless telephone industry. * Changes in rules and regulations of the Federal Communications Commission. * The Company's ability to protect its intellectual property rights. * Changes in economic conditions affecting the Company's customers. 10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders A special meeting of the shareholders of the Company's predecessor Colorado corporation was held on February 26, 1996. The first matter voted upon at the meeting was the merger of such corporation into the Company (such corporation's wholly-owned subsidiary) for the purpose of reincorporating in Delaware. The second matter voted upon at the meeting was the approval of an amendment and restatement of the Company's Stock Option Plan. The number of votes cast for each such matter was 14,596,892 and there were no votes withheld, no abstentions and no broker non-votes with respect to either matter. On March 19, 1996, the stockholders of the Company acted by written consent to approve the Company's Employee Stock Purchase Plan. Pursuant to the consent, 14,441,737 votes were cast for such approval. The remaining stockholders of the Company were given notice of such action in accordance with Section 228 (d) of the General Corporation Law of the State of Delaware. 11 SPECTRALINK CORPORATION SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SPECTRALINK CORPORATION Date: May 8, 1996 By: /s/ WILLIAM R. MANSFIELD ---------------------------- William R. Mansfield, Vice-President - Administration, Chief Financial Officer and Secretary (on behalf of the Registrant and as Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS YEAR DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 MAR-31-1996 DEC-31-1995 2,153 1,729 25 524 5,810 4,510 254 225 2,073 2,239 10,077 8,894 2,421 2,258 1,283 1,176 11,268 10,026 1,994 1,703 0 0 0 0 75 75 39 38 8,660 7,891 11,268 10,026 5,551 3,339 5,551 3,339 2,283 1,642 2,489 1,627 20 42 29 109 23 13 799 112 40 1 759 111 0 0 0 0 0 0 759 111 .05 .01 .05 .01
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