<PAGE>
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
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SPECTRALINK CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page
<S> <C> <C>
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
</TABLE>
2
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SPECTRALINK CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
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
=========== ============
</TABLE>
See notes to financial statements
3
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SPECTRALINK CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
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
============== ==============
</TABLE>
See notes to financial statements
4
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SPECTRALINK CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
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
============== ==============
</TABLE>
See notes to financial statements
5
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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
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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
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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
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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
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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
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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
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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)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 2,153 1,729
<SECURITIES> 25 524
<RECEIVABLES> 5,810 4,510
<ALLOWANCES> 254 225
<INVENTORY> 2,073 2,239
<CURRENT-ASSETS> 10,077 8,894
<PP&E> 2,421 2,258
<DEPRECIATION> 1,283 1,176
<TOTAL-ASSETS> 11,268 10,026
<CURRENT-LIABILITIES> 1,994 1,703
<BONDS> 0 0
0 0
75 75
<COMMON> 39 38
<OTHER-SE> 8,660 7,891
<TOTAL-LIABILITY-AND-EQUITY> 11,268 10,026
<SALES> 5,551 3,339
<TOTAL-REVENUES> 5,551 3,339
<CGS> 2,283 1,642
<TOTAL-COSTS> 2,489 1,627
<OTHER-EXPENSES> 20 42
<LOSS-PROVISION> 29 109
<INTEREST-EXPENSE> 23 13
<INCOME-PRETAX> 799 112
<INCOME-TAX> 40 1
<INCOME-CONTINUING> 759 111
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 759 111
<EPS-PRIMARY> .05 .01
<EPS-DILUTED> .05 .01
</TABLE>
