-----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, JBEykwoK5kfb4yj/a4OZuCNzTxMU6cwnqqQTm605kCFSGSPXaeYJej2eUOzud3PO 1Lqy4m+QUKJ2usEYaZKM4A== 0000950134-98-006832.txt : 19980814 0000950134-98-006832.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950134-98-006832 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-28180 FILM NUMBER: 98685346 BUSINESS ADDRESS: STREET 1: 5755 CENTRAL AVENUE STREET 2: SUITE 202E CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034405330 MAIL ADDRESS: STREET 1: 5755 CENTRAL AVENUE STREET 2: SUITE 202E CITY: BOULDER STATE: CO ZIP: 80301 10QSB 1 FORM 10-QSB FOR QUARTER ENDED JUNE 30, 1998 1 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 June 30, 1998 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 (IRS Employer incorporation or organization) Identification Number) 5755 Central Avenue, Boulder, Colorado 80301-2848 (Address of principal executive office) (Zip code) 303-440-5330 (Issuer's telephone number) (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 X No --- --- 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 . --- --- Applicable only to corporate issuers: As of June 30, 1998, there were outstanding 19,369,300 shares of SpectraLink Corporation Common Stock, par value $.01. Transitional Small Business Disclosure Format (check one): Yes No X --- --- 2 SPECTRALINK CORPORATION INDEX
Part I Financial Information Page Item 1 Financial Statements Balance Sheets at June 30, 1998 and December 31, 1997 3 Statements of Operations Three months and six months ended June 30, 1998 and 1997 4 Statements of Cash Flows Six months ended June 30, 1998 and 1997 5 Notes to Financial Statements 6 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 11 Part II Other Information Item 4 Submission of Matters to a Vote of Security Holders 14 Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule 15 (b) Form 8-K None
2 3 SPECTRALINK CORPORATION BALANCE SHEETS (IN THOUSANDS) UNAUDITED ASSETS
JUNE 30, DECEMBER 31, 1998 1997 -------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 4,942 $ 5,674 Short-term investments 12,968 12,980 Trade accounts receivable, net of allowance of $357 and $354, respectively 9,137 7,671 Inventory 4,258 4,766 Other 523 554 -------- -------- Total current assets 31,828 31,645 -------- -------- INVESTMENT IN GOVERNMENT SECURITIES 7,002 6,944 PROPERTY AND EQUIPMENT, at cost: Furniture and fixtures 1,277 1,200 Equipment 4,008 3,203 Leasehold improvements 583 580 -------- -------- 5,868 4,983 Less - Accumulated depreciation (2,878) (2,355) -------- -------- Net property and equipment 2,990 2,628 OTHER 90 82 -------- -------- TOTAL ASSETS $ 41,910 $ 41,299 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 678 $ 492 Accrued payroll, commissions, and employee benefits 1,208 1,168 Accrued sales and use tax 459 358 Accrued warranty expenses 330 531 Other accrued expenses 55 141 Deferred revenue 1,433 1,052 -------- -------- Total current liabilities 4,163 3,742 -------- -------- LONG-TERM LIABILITIES 165 131 -------- -------- Total liabilities 4,328 3,873 -------- -------- STOCKHOLDERS' EQUITY: Common stock 197 194 Additional paid-in capital 49,231 48,803 Accumulated deficit (10,506) (10,547) Treasury stock at cost (1,340) (1,024) -------- -------- TOTAL STOCKHOLDERS' EQUITY 37,582 37,426 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,910 $ 41,299 ======== ========
The accompanying notes to financial statements are an integral part of these statements. 3 4 SPECTRALINK CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- NET SALES $ 8,442 $ 7,674 $ 15,559 $ 13,240 COST OF SALES 4,041 3,722 6,789 6,434 -------- -------- -------- -------- Gross profit 4,401 3,952 8,770 6,806 OPERATING EXPENSES Research and development 976 872 1,834 1,711 Marketing and selling 3,458 2,740 6,626 5,278 General and administrative 432 538 1,032 1,072 -------- -------- -------- -------- Total operating expenses 4,866 4,150 9,492 8,061 -------- -------- -------- -------- LOSS FROM OPERATIONS (465) (198) (722) (1,255) INVESTMENT INCOME AND OTHER, net 377 411 765 799 -------- -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (88) 213 43 (456) INCOME TAX (BENEFIT) EXPENSE (4) 11 2 (23) -------- -------- -------- -------- NET (LOSS) INCOME $ (84) $ 202 $ 41 $ (433) ======== ======== ======== ======== BASIC (LOSS) EARNINGS PER SHARE (Note 3) $ (0.00) $ 0.01 $ 0.00 $ (0.02) ======== ======== ======== ======== BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 19,240 19,070 19,210 19,100 ======== ======== ======== ======== DILUTED (LOSS) EARNINGS PER SHARE (Note 3) $ (0.00) $ 0.01 $ 0.00 $ (0.02) ======== ======== ======== ======== DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 19,240 19,710 19,740 19,100 ======== ======== ======== ========
The accompanying notes to financial statements are an integral part of these statements. 4 5 SPECTRALINK CORPORATION STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 41 $ (433) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 526 501 Changes in assets and liabilities Increase in accounts receivable, net (1,466) (3,525) Decrease (increase) in inventory 508 (661) Decrease (increase) in other assets 23 (181) Increase in accounts payable 186 284 Increase in other accrued liabilities and deferred revenue 269 970 ------- ------- Net cash provided by (used in) operating activities 87 (3,045) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (892) (1,303) Proceeds from disposal of property and equipment 4 -- Purchases of investments (7,046) (5,041) Maturity of investments 7,000 9,000 Purchases of treasury stock (316) (437) ------- ------- Net cash (used in) provided by investing activities (1,250) 2,219 CASH FLOWS FROM FINANCING ACTIVITIES: Payments on capital lease obligations -- (31) Proceeds from exercise of incentive common stock options 170 20 Proceeds from sale of common stock 261 224 ------- ------- Net cash provided by financing activities 431 213 ------- ------- DECREASE IN CASH AND CASH EQUIVALENTS (732) (613) CASH AND CASH EQUIVALENTS, beginning of period 5,674 7,334 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 4,942 $ 6,721 ======= =======
The accompanying notes to financial statements are an integral part of these statements. 5 6 SPECTRALINK CORPORATION NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 UNAUDITED 1. Basis of Presentation The accompanying financial statements as of June 30, 1998 and 1997 and for the quarters and six months 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, 1997 presented in the Company's filings with the Securities and Exchange Commission. 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. New Accounting Pronouncements Statement of Financial Accounting Standards No. 131 In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 15, 1997. This statement requires that a public company report financial and descriptive information about its reportable operating segments on the same basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company expects to adopt SFAS No. 131 for the year ended December 31, 1998. Statement of Financial Accounting Standards No. 133 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. It also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Management believes that the impact of SFAS No. 133 will not have a material impact on the financial statements Statement of Position 98-5 In April 1998, the AICPA issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities". This statement is effective for financial statements for fiscal years beginning after December 15, 1998. In general, SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. Initial application of SOP 98-5 should be reported as the cumulative effect of a change in accounting principle. Management believes that adoption of SOP 98-5 will not have a material impact on the financial statements. 2. 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 June 30, 1998 and December 31, 1997 consisted of the following:
1998 1997 ---- ---- Raw materials $2,747 $2,529 Work in process 41 57 Finished goods 1,470 2,180 ------ ------ $4,258 $4,766 ====== ======
6 7 SPECTRALINK CORPORATION NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 UNAUDITED 3. Earnings per share Effective December 15, 1997, the Company has adopted the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". SFAS 128 requires entities to present both Basic Earnings Per Share ("EPS") and Diluted EPS. Basic EPS excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. All earnings per share amounts and weighted average shares outstanding for 1997 have been restated to reflect the adoption of SFAS 128. Potential dilution of securities exercisable into common stock were computed using the treasury stock method based on the average fair market value of the stock.
------------------------------------------------------ --------------------------------------------------- Three months ended June 30, Six months ended June 30, ------------------------------------------------------ --------------------------------------------------- 1998 1997 1998 1997 ------------------------- ------------------------ ------------------------ ----------------------- Loss Shares Per Income Shares Per Income Shares Per Loss Shares Per Share Share Share Share Basic EPS--- $ (84) 19,240 $0.00 $ 202 19,070 $ 0.01 $ 41 19,210 $ 0.00 $(433) 19,100 $(0.02) Effect of dilutive securities: Stock purchase plan -- 75 55 -- Stock options outstanding -- 565 475 -- ----- ------ ----- ------ ------- ------ ------ ------ ------ ------ ------ ------ Diluted EPS--- $ (84) 19,240 $0.00 $ 202 19,710 $ 0.01 $ 41 19,740 $ 0.00 $ (433) 19,100 $(0.02) ----- ------ ----- ------ ------- ------ ------ ------ ------ ------ ------ ------
Assumed conversions of approximately 635,000 shares were not included in the calculation for diluted EPS in the three months ending June 30, 1998 as they would have been anti-dilutive due to the net loss for that period. Assumed conversions of approximately 600,000 shares were not included in the calculation for diluted EPS in the six months ending June 30, 1997 as they would have been anti-dilutive due to the net loss for that period. 4. Stockholders' Equity In the second quarter of 1998, the company purchased 38,697 shares of Treasury Stock at a cost of $139,000 compared to 76,000 shares at a cost of $273,000 in the second quarter of 1997. Of the 38,697 shares purchased in the second quarter of 1998, 15,630 unvested shares of restricted stock were repurchased from a former director of the company pursuant to a pre-existing agreement, and 23,067 shares were repurchased from a broker and were related to a cashless exercise of stock options by a former executive officer. 7 8 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 of 1992. SpectraLink's primary sales efforts are currently focused on retail stores, hospitals, nursing homes, distribution centers, manufacturing facilities, and corporate offices. SpectraLink sells its systems in the United States and Canada through its direct sales force, telecommunications equipment resellers, and specialty dealers. Since inception, the Company has expended considerable effort and resources developing its wireless telephone systems, building its direct and reseller 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.
Statement of Operations Data: ----------------------------- THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- -------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net Sales 100.0% 100.0% 100.0% 100.0% -------------------------------- ----- ----- ----- ----- Cost of Sales 47.9% 48.5% 43.6% 48.6% -------------------------------- ----- ----- ----- ----- Gross Profit 52.1% 51.5% 56.4% 51.4% -------------------------------- ----- ----- ----- ----- Operating Expenses: -------------------------------- ----- ----- ----- ----- Research and Development 11.6% 11.4% 11.8% 12.9% -------------------------------- ----- ----- ----- ----- Marketing and Selling 41.0% 35.7% 42.6% 39.9% -------------------------------- ----- ----- ----- ----- General and Administrative 5.1% 7.0% 6.6% 8.1% -------------------------------- ----- ----- ----- ----- Total Operating Expenses 57.6% 54.1% 61.0% 60.9% -------------------------------- ----- ----- ----- ----- (Loss) Income from Operations (5.5)% (2.6)% (4.6)% (9.5)% -------------------------------- ----- ----- ----- ----- Investment Income and Other, net 4.5% 5.4% 4.9% 6.1% -------------------------------- ----- ----- ----- ----- (Loss) Income Before Income Taxes (1.0)% 2.8% 0.3% (3.4)% -------------------------------- ----- ----- ----- ----- Income Tax (Benefit) Expense (0.0)% 0.2% 0.0% (0.1)% -------------------------------- ----- ----- ----- ----- Net (Loss) Income (1.0)% 2.6% 0.3% (3.3)% -------------------------------- ----- ----- ----- -----
8 9 SPECTRALINK CORPORATION QUARTERS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Net Sales. The Company derives its revenue principally from the sale, installation and service of wireless, on-premises telephone systems. Net sales increased by 10% to $8,442,000 in the second quarter of 1998 from $7,674,000 in the second quarter of 1997. This sales increase was the result of increased penetration of the healthcare and retail markets. Net sales for the six months ended June 30, 1998 increased by 18% to $15,559,000 from $13,240,000 for the comparable six months in 1997. The increase in sales for the six month period was mainly due to increases in healthcare and commercial sales. Gross Profit. The Company's cost of sales consists primarily of direct material, direct labor, service expenses and manufacturing overhead. Gross profit increased by 11% to $4,401,000 in the second quarter of 1998 from $3,952,000 in the second quarter on 1997. For the six months ended June 30, 1998 gross profit increased by 29% to $8,770,000 from $6,806,000 for the same period last year. The Company's gross profit margin (gross profit as a percentage of net sales) increased to 52.1% in the second quarter of 1998 from 51.5% in the second quarter of 1997. The increase in gross profit margin was the result of a reduction in the provision for warranty expenses . For the six months ended June 30, 1998, gross profit margin increased to 56.4% from 51.4% in the same period last year. The increases in gross profit margin for the six months were primarily due to reduced warranty costs, and material cost reductions from volume buying and design improvements. Factors increasing gross margin were somewhat offset in the quarter ended and the six months ended by decreases in the average unit sales price. 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 12% to $976,000 in the second quarter of 1998 from $872,000 in the second quarter of 1997, representing 11.6% and 11.4%, respectively, of net sales. Research and development efforts in the second quarter of 1998 were primarily associated with new products. In the second quarter of 1997, research and development efforts were associated with the introduction of new products and development of new digital interfaces to existing PBX systems. For the six months ended June 30, 1998 research and development increased by 7% to $1,834,000 from $1,711,000 for the same period last year, representing 11.8% and 12.9% , respectively, of net sales. The Company expects to increase its current level of spending on research and development. Marketing and Selling. Marketing and selling expenses consist primarily of salaries and other expenses for personnel, commissions, travel, advertising, trade shows, and market research. Marketing and selling expenses increased by 26% to $3,458,000 in the second quarter of 1998 from $2,740,000 in the second quarter of 1997, representing 41.0% and 35.7%, respectively, of net sales. For the six months ended June 30, 1998 sales and marketing expenses increased by 26% to $6,626,000 from $5,278,000 for the same period last year, representing 42.6% and 39.9%, respectively, of net sales. The increase in dollars spent was primarily the result of adding sales personnel to increase market penetration and increased commission expenses. 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 decreased by 20% to $432,000 in the second quarter of 1998 from $538,000 in the second quarter of 1997, representing 5.1% and 7.0%, respectively, of net sales. For the six months ended June 30, 1998 general and administrative expenses decreased by 4% to $1,032,000 from $1,072,000 for the same period last year, representing 6.6% and 8.1%, respectively, of net sales. The reduction in expense was the result of lower projected costs for the publication of the annual report for 1998 and a reduction in the estimate for bad debts. The decrease as a percentage of sales was the result of economies of scale resulting from increased sales. Investment Income and Other (Net). Investment income is the result of the Company's investments in money market, investment-grade debt securities, and government securities. Other income is generated primarily from purchase discounts. Investment income and other decreased by 8% to $377,000 in second quarter of 1998 from $411,000 in the second quarter of 1997. For the six months ended June 30, 1998 investment income and other decreased by 4% to $765,000 from $799,000 for the same period last year. The reduction in investment income and other was primarily the result of lower cash and short-term investments. Income Tax. The Company has available tax loss carryforwards to offset estimated 1998 taxable income. The Company's tax provision in 1998 consists of an accrual for state and federal alternative minimum taxes estimated at 5% of taxable 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 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. 9 10 SPECTRALINK CORPORATION SIX MONTHS ENDED JUNE 30, 1998 AND 1997 LIQUIDITY AND CAPITAL RESOURCES Operating activities provided net cash of $87,000 in the six months ended June 30, 1998, and used net cash of $3,045,000 in the comparable period last year. For the six months ended June 30, 1998, accounts receivable increased by $1,466,000 while inventory decreased by $508,000. The increase in accounts receivable was primarily due to increased sales of new products. The decrease in inventory was due to increased sales and installation of new manufacturing equipment. Other accrued liabilities and deferred revenue increased by $269,000 compared to an increase of $970,000 for the same period last year. This year's increase was mainly attributable to an increase in deferred revenue from maintenance contracts; however, partially offsetting this increase was a decrease in accrued warranty. Investing activities included property and equipment acquisitions of manufacturing equipment, manufacturing tooling, engineering equipment, and computer software of $892,000 in the six months ended June 30, 1998. Property and equipment acquisitions in the same period for last year were $1,303,000 and consisted of modular office furniture, manufacturing equipment, leasehold improvements, computer equipment and software. Investment purchases in the six months ended June 30, 1998 were $7,046,000, compared to $5,041,000 for the six months ended June 30, 1997. Investments maturing in the six months ended June 30, 1998 were $7,000,000, while $9,000,000 matured in the six months ended June 30, 1997. On February 26, 1997, the board of directors authorized the Company to repurchase up to 500,000 shares of the Company's common stock through open market transactions. As of June 30, 1998 the Company had acquired 374,197 shares of the Company's common stock at a cost of $1,340,000. In the six months ended June 30, 1998 financing activities included proceeds of $170,000 from the issuance of common stock from the exercise of stock options and $261,000 from the issuance of stock under the provisions of the Employee Stock Purchase Plan. Of the $170,000 from the exercise of stock options, $108,000 was from the exercise of stock options by a former executive officer. In the six months ended June 30, 1997, financing activities consisted of proceeds of $20,000 from the issuance of common stock from the exercise of stock options and $224,000 from the issuance of stock under the provisions of the Employee Stock Purchase Plan. There were also payments on capital lease obligations of $31,000 in the six months ended June 30, 1997. As of June 30, 1998, the Company had working capital of $27,665,000 compared to $27,903,000 as of December 31, 1997. Working capital as of June 30, 1998 included $17,910,000 in cash and short-term investments, $9,137,000 in accounts receivable and $4,258,000 in inventory. As of June 30, 1998, the Company's current ratio (ratio of current assets to current liabilities) was 7.6:1, compared with a current ratio of 8.5:1 as of December 31, 1997. In addition the Company has $7,002,000 in government securities which have maturities greater than 12 months; however no maturity exceeds 24 months. The Company believes that its current resources and cash generated from operations 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. 10 11 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SPECTRALINK CORPORATION Certain statements in this Quarterly Report on Form 10-QSB, as well as statements made by the Company in periodic press releases, oral statements made by the Company's officials to analysts and stockholders in the course of presentations about the Company and conference calls following quarterly earnings releases, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date of the making of such statements and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (i) the failure of the market for on-premises wireless telephone systems to grow or to grow as quickly as the Company anticipates, (ii) the intensely competitive nature of the wireless communications industry, (iii) the ability of the Company and its resellers to develop and execute effective marketing and sales strategies, (iv) the Company's reliance on sole or limited sources of supply for many components and equipment used in its manufacturing process, (v) the risk of business interruption arising from the Company's dependence on a single manufacturing facility, (vi) the Company's dependence on a single product line, (vii) the Company's ability to manage potential expansion of operations, (viii) the Company's ability to attract and retain key personnel, (ix) the Company's ability to respond to rapid technological changes within the on-premises wireless telephone industry, (x) changes in rules and regulations of the FCC, (xi) the Company's ability to protect its intellectual property rights, (xii) the assertion of intellectual property infringement claims against the Company, (xiii) changes in economic and business conditions affecting the Company's customers, (xiv) potential business interruptions associated with the year 2000 issue, (xv) other factors over which the Company has little or no control, and (xvi) potential fluctuations in the Company's future operating results. The Company has experienced, and may in the future continue to experience, significant quarterly fluctuations in revenue, gross margins and operating results due to numerous factors, some of which are outside the Company's control. These factors include (a) fluctuating market demand for, and declines in the average selling prices of, the Company's products, (b) the timing of and delay of significant orders from customers, and (c) seasonality in demand. Historically, the Company has not operated with a significant order backlog and a substantial portion of the Company's revenue in any quarter has been derived from orders booked and shipped in that quarter. Accordingly, the Company's revenue expectations are based almost entirely on its internal estimates of future demand and not on firm customer orders. Planned expense levels are relatively fixed in the short term and are based in large part on these estimates, and if orders and revenue do not meet expectations, the Company's operating results could be materially adversely affected. In addition, due to the timing of orders from customers, the Company has often recognized a substantial portion of its revenue in the last month of a quarter. As a result, minor fluctuations in the timing of orders and the shipment of products may, in the future, cause operating results to vary significantly from quarter to quarter. It is possible that due to such fluctuations or other factors, the Company's future operating results could be below the expectations of securities analysts and investors. In such an event, or in the event that adverse market conditions prevail or are perceived to prevail either generally or with respect to the Company's business, the price of the Company's common stock would likely be materially adversely affected. 11 12 SPECTRALINK CORPORATION
Part II Other Information Page Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule 15 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed.
12 13 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: August 13, 1998 By: /s/ WILLIAM R. MANSFIELD ------------------------- William R. Mansfield, Principal Financial and Accounting Officer and on behalf of the Registrant 13 14 SPECTRALINK CORPORATION PART II - OTHER INFORMATION Item 4. Submission of matters to a Vote of Security Holders At SpectraLink's Annual Meeting of Stockholders held on May 12, 1998, the following proposals were adopted by the margins indicated. 1. To elect a Board of Directors to serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified.
Number of Shares Voted For Withheld ---------- ---------- Bruce M. Holland 17,893,323 45,388 ---------- ---------- Carl D. Carman 17,893,323 45,388 ---------- ---------- Burton J. McMurtry 17,893,323 45,388 ---------- ---------- F. Gibson Myers, Jr 17,893,323 45,388 ---------- ----------
2. To amend the Company's Employee Stock Purchase Plan to increase the number of shares of Common Stock available for purchase thereunder to 800,000 and to add a provision for annual replenishment of Common Stock issued during the year. Number of shares voted: For 13,857,824; Against 132,865; Abstained 11,055; Broker non-votes 3,956,967. 3. To amend the Company's Stock Option Plan to increase the number of shares of Common Stock available for grant thereunder to 5,000,000. Number of shares voted: For 13,818,009 ; Against 169,353; Abstained 14,382; Broker non-votes 3,956,967. 4. To ratify the selection of Arthur Andersen LLP, independent public accountants, as auditors for the Company for the fiscal year ending December 31, 1998. Number of shares voted: For 17,913,066; Against 20,564; Abstained 5,081; Broker non-votes 0 . Item 5. Other Information On May 12, 1998, Anthony V. Carollo, Jr. was appointed to the Board of Directors of the Company, to hold such position until his successor is elected and qualified. Currently the chairman and CEO of Xantel Corporation, Mr. Carollo was formerly president and chief operating officer of Fujitsu Business Communications Systems. Before joining Fujitsu, Mr. Carollo spent more than 13 years at ROLM Corporation in various executive capacities. 14 15 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------- ------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 4,942 12,968 9,137 357 4,258 31,828 2,990 2,878 41,910 4,328 0 0 0 197 37,385 41,910 15,559 15,559 6,789 6,789 0 0 0 43 (2) 0 0 0 0 41 0 0
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