-----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, AORcmj+W9LYPTgqh9TJEVI/oXri5Zrg/zw0USXZ/b4QkufG1z2qXg+I+DMScrWvB BA6SUAHW6kGT86/7oBnmnA== 0001035704-97-000348.txt : 19971111 0001035704-97-000348.hdr.sgml : 19971111 ACCESSION NUMBER: 0001035704-97-000348 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 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: 97711877 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 DATED 9/30/97 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 September 30, 1997 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 (I.R.S.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 N.A. ----- ----- Applicable only to corporate issuers: As of September 30, 1997 there were outstanding 19,154,370 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 September 30, 1997 and December 31, 1996 3 Statements of Operations Three months and nine months ended September 30, 1997 and 1996 4 Statements of Cash Flows Nine months ended September 30, 1997 and 1996 5 Notes to Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 10 Part II Other Information Item 6 Exhibits and Reports on Form 8-K 11
3 SPECTRALINK CORPORATION BALANCE SHEETS (IN THOUSANDS) ASSETS
SEPTEMBER 30, DECEMBER 31, ------------- ------------ 1997 1996 ------------- ------------ CURRENT ASSETS: (UNAUDITED) Cash and cash equivalents $ 6,455 $ 7,334 Short-term investments 13,012 14,960 Trade accounts receivable, net of allowance of approximately $297 at September 30, 1997 and $315 at December 31, 1996, respectively 7,041 4,393 Inventory 5,021 3,634 Other 565 452 ------------- ------------ Total current assets 32,094 30,773 ------------- ------------ INVESTMENT IN GOVERNMENT SECURITIES 6,006 8,016 PROPERTY AND EQUIPMENT, at cost: Furniture and fixtures 1,209 731 Equipment 3,064 2,308 Leasehold improvements 567 255 ------------- ------------ 4,840 3,294 Less - Accumulated depreciation (2,358) (1,673) ------------- ------------ Net property and equipment 2,482 1,621 OTHER 88 54 ============= ============ TOTAL ASSETS $ 40,670 $ 40,464 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 427 $ 358 Accrued payroll, commissions, and employee benefits 1,158 552 Accrued warranty expenses 549 314 Other accrued expenses 1,035 705 Current portion of long-term debt - 31 ------------- ------------ Total current liabilities 3,169 1,960 ------------- ------------ Total liabilities 3,169 1,960 ------------- ------------ STOCKHOLDERS' EQUITY: Common stock 194 191 Additional paid-in capital 48,548 48,300 Accumulated deficit (10,669) (9,987) Treasury stock at cost (572) - ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 37,501 38,504 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,670 $ 40,464 ============= ============
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 NINE MONTHS ENDED ------------------ ----------------- SEPT 30, 1997 SEPT 30, 1996 SEPT 30, 1997 SEPT 30, 1996 ------------- ------------- ------------- ------------- NET SALES $ 7,002 $ 5,068 $ 20,242 $ 16,829 COST OF SALES 3,213 1,919 9,647 6,412 ------------- ------------- ------------- ------------- Gross profit 3,789 3,149 10,595 10,417 OPERATING EXPENSES Research and development 886 870 2,598 2,223 Marketing and selling 2,996 1,819 8,274 5,162 General and administrative 484 456 1,555 1,162 ------------- ------------- ------------- ------------- Total operating expenses 4,366 3,145 12,427 8,547 ------------- ------------- ------------- ------------- (LOSS) INCOME FROM OPERATIONS (577) 4 (1,832) 1,870 INVESTMENT INCOME AND OTHER, net 339 480 1,138 766 ------------- ------------- ------------- ------------- (LOSS) INCOME BEFORE INCOME TAXES (239) 484 (694) 2,636 INCOME TAX EXPENSE (BENEFIT) 11 24 (12) 132 ------------- ------------- ------------- ------------- NET (LOSS) INCOME $ (249) $ 460 $ (682) $ 2,504 ============= ============= ============= ============= NET (LOSS) INCOME PER COMMON AND COMMON EQUIVALENT SHARES $ (0 .01) $ 0.02 $ (0.03) $ 0.14 ============= ============= ============= ============= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 19,900 19,920 19,760 18,210 ============= ============= ============= =============
The accompanying notes to financial statements are an integral part of these statements. 4 5 SPECTRALINK CORPORATION STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED SEPT 30, 1997 SEPT 30, 1996 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 682) $ 2,504 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 737 462 Loss (gain) on sale/disposal of assets 14 (31) Changes in assets and liabilities Increase in accounts receivable, net ( 2,648) (630) Increase in inventory (1,387) (1,111) Increase in other assets (147) (291) Increase (decrease) in accounts payable 69 (22) Increase in other accrued liabilities 1,171 485 ----------------- ----------------- Net cash (used in) provided by operating activities (2,873) 1,366 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,614) (1,054) Proceeds from disposal of property and equipment 2 58 Purchases of investments (10,042) ( 22,332) Maturity of investments 14,000 1,000 Purchases of treasury stock (572) - ----------------- ----------------- Net cash provided by (used in) investing activities 1,774 (22,328) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit and notes payable - 275 Repayments on line of credit and notes payable - (610) Payments on capital lease obligations (31) (53) Proceeds from exercise of incentive common stock options 27 63 Proceeds from sale of common stock 224 27,684 ----------------- ----------------- Net cash provided by financing activities 220 27,359 ----------------- ----------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (879) 6,397 CASH AND CASH EQUIVALENTS, beginning of period 7,334 1,729 ----------------- ----------------- CASH AND CASH EQUIVALENTS, end of period $ 6,455 $ 8,126 ================= =================
The accompanying notes to financial statements are an integral part of these statements. 5 6 SPECTRALINK CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997 UNAUDITED 1. Basis of Presentation The accompanying financial statements as of September 30, 1997 and 1996 and for the quarters and nine 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, 1996 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. 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 September 30, 1997 and December 31, 1996 consisted of the following:
1997 1996 --------- --------- Unaudited --------- Raw materials $ 2,494 $ 1,674 Work in process 70 5 Finished goods 2,457 1,955 --------- ---------- $ 5,021 $ 3,634 ========= ==========
3. Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per common and common equivalent share has been computed using the weighted average number of shares of common stock 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 initial public offering date of April 26, 1996 (using the treasury stock method) have been included in the calculation as if they were outstanding for all periods prior to April 26, 1996. The Company will be required to adopt the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share" effective for the year ending December 31, 1997. For all companies, SFAS 128 requires presentation of a basic earnings per share and a diluted earnings per share that are based upon calculations that may result in differences from previously reported net income (loss) per common and common equivalent shares. The Company has not quantified the impact of SFAS 128, but does not believe that diluted earnings per share will substantially differ from previously reported results. 4. Stockholders' Equity In April and May 1996, the Company issued 3,805,100 shares of common stock pursuant to an initial public offering. Proceeds of $27,371,000 were received by the Company, net of offering costs of approximately $939,000. 6 7 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 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.
Statement of Operations Data: Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 45.9% 37.9% 47.7% 38.1% Gross Profit 54.1% 62.1% 52.3% 61.9% Operating Expenses: Research and Development 12.7% 17.1% 12.8% 13.2% Marketing and Selling 42.8% 35.9% 40.9% 30.7% General and Administrative 6.9% 9.0% 7.7% 6.9% Total Operating Expenses 62.4% 62.0% 61.4% 50.8% (Loss) Income from Operations (8.2)% .1% (9.1)% 11.1% Investment Income and Other, net 4.8% 9.5% 5.6% 4.6% (Loss) Income Before Income Taxes (3.4)% 9.6% (3.4)% 15.7% Income Tax Expense (Benefit) 0.2% .5% (0.1)% .8% Net (Loss) Income (3.6)% 9.1% (3.4)% 14.9%
7 8 SPECTRALINK CORPORATION QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 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 38% to $7,002,000 in the third quarter of 1997 from $5,068,000 in the third quarter of 1996. Net sales for the nine months ended September 30, 1997 increased by 20% to $20,242,000 from $16,829,000 for the comparable nine months in 1996. Sales increases for both periods were mainly due to increased penetration of the retail store market, but additionally the sales in the healthcare and manufacturing sectors of the market have also increased. Gross Profit. The Company's cost of sales consists primarily of direct material, direct labor, service expenses and manufacturing overhead. Gross profit increased by 20% to $3,789,000 in the third quarter of 1997 from $3,149,000 in the third quarter of 1996. For the nine months ended September 30, 1997 gross profit increased by 2% to $10,595,000 from $10,417,000 for the same period last year. The Company's gross profit margin (gross profit as a percentage of net sales) decreased to 54.1% in the third quarter of 1997 from 62.1% in the third quarter of 1996. For the nine months ended September 30, 1997 gross profit margin decreased to 52.3% from 61.9% in the same period last year. The quarterly and nine month decreases in gross profit margin were primarily due to ( i ) volume pricing concessions, ( ii ) service costs associated with the series 300 product line, ( iii ) warranty accruals, and ( iv ) customer mix. 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 2% to $886,000 in the third quarter of 1997 from $870,000 in the third quarter of 1996, representing 12.6% and 17.1%, respectively, of net sales. Research and development expenses in the third quarter of 1997 were associated with new products, development of additional digital interfaces to existing PBX systems, and new manufacturing process development in conjunction with new product designs. In the third quarter of 1996, research and development efforts were concentrated on new product development, improvements to existing products, and manufacturing process improvements. For the nine months ended September 30, 1997 research and development increased by 17% to $2,598,000 from $2,223,000 for the same period last year. 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. These expenses increased by 65% to $2,996,000 in the third quarter of 1997 from $1,819,000 in the third quarter of 1996, representing 42.8% and 35.9%, respectively, of net sales. For the nine months ended September 30, 1997 sales and marketing expenses increased by 60% to $8,274,000 from $5,162,000 for the same period last year, representing 40.9% and 30.7%, respectively, of net sales. These increases were primarily the result of adding sales personnel to increase market penetration. 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 6% to $484,000 in the third quarter of 1997 from $456,000 in the third quarter of 1996, representing 6.9% and 9.0%, respectively, of net sales. For the nine months ended September 30, 1997 general and administrative expenses increased by 34% to $1,555,000 from $1,162,000 for the same period last year, representing 7.7% and 6.9%, respectively, of net sales. The increases in expenses were associated with support for increased staffing and public company activities. 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. The increase in this category from the third quarter of 1996 to the third quarter of 1997 was primarily due to interest income from investment activities associated with net proceeds of approximately $27 million from the public offering completed in May, 1996. Income Tax. The Company has available tax loss carryforwards to offset estimated 1997 taxable income. The Company's tax provision in 1997 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. 8 9 SPECTRALINK CORPORATION NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 LIQUIDITY AND CAPITAL RESOURCES Operating activities used net cash of $2,873,000 in the nine months ended September 30, 1997, and provided net cash of $1,366,000 in the comparable period last year. For the nine months ended September 30,1997, accounts receivable increased by $2,648,000 while inventory increased by $1,387,000. The increase in accounts receivable was primarily due to increased sales of new products and slower payments on the average from customers. Other accrued liabilities increased by $1,171,000 compared to an increase of $485,000 for the same period last year. This year's increase was mainly attributable to an increase in accrued payroll expenses and commissions. Investing activities included property and equipment acquisitions of modular office furniture, leasehold improvements, computer equipment, and software of $1,614,000 in the nine months ended September 30, 1997. Property and equipment acquisitions in the same period for last year consisted of manufacturing equipment, engineering equipment, computer equipment and phone equipment and were $1,054,000. Investment purchases in the nine months ended September 30, 1997 were $10,042,000, compared to $22,332,000 for the nine months ended September 30, 1996. Investments maturing in the nine months ended September 30, 1997 were $14,000,000 and $1,000,000 matured in the nine months ended September 30, 1996. 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 September 30, 1997 the Company had acquired 148,500 shares of the Company's common stock at a cost of $572,000. In the nine months ended September 30, 1997 financing activities included proceeds of $224,000 from the issuance of stock under the provisions of the Employee Stock Purchase Plan, and proceeds of $27,000 from the issuance of common stock from the exercise of stock options. In the nine months ended September 30, 1996 a bank line of credit and note payable to lessor were paid off entirely, resulting in a net repayment of $335,000. Also in the nine months ended September 30, 1996 financing activities consisted of net proceeds from the IPO of $27,380,000, proceeds from the issuance of stock under the provisions of the Employee Stock Purchase Plan of $304,000 and from the exercise of stock options of $63,000. There were also payments on capital lease obligations of $31,000 in the nine months ended September 30, 1997 and $53,000 in the same period of 1996. As of September 30, 1997, the Company had working capital of $28,925,000 compared to $28,813,000 as of December 31, 1996. Working capital as of September 30, 1997 included $19,467,000 in cash and short-term investments, $7,041,000 in accounts receivable and $5,021,000 in inventory. As of September 30, 1997, the Company's current ratio (ratio of current assets to current liabilities) was 10.1:1, compared with a current ratio of 15.7:1 as of December 31, 1996. In addition the Company has $6,006,000 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. 9 10 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM 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 speak only as of the date such written and oral statements are made and that actual events or results may differ materially. In evaluating 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 and it'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. * The assertion of intellectual property infringement claims against the Company * Changes in economic conditions affecting the Company's customers. * Other factors over which the Company has little or no control. 10 11 SPECTRALINK CORPORATION
Part II Other Information Page Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule 14 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed.
11 12 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: November 10, 1997 By: /s/ WILLIAM R. MANSFIELD ------------------------- William R. Mansfield, Principal Financial and Accounting Officer and on behalf of the Registrant 12 13 SPECTRALINK CORPORATION EXHIBIT INDEX
Part II Other Information Page Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule
13 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 SEP-30-1997 6,455 13,012 7,041 297 5,021 32,094 4,840 2,358 40,670 3,169 0 0 0 194 37,307 40,670 7,002 7,002 3,213 3,213 4,366 1 1 (238) 11 (249) 0 0 0 (249) (.01) 0
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