<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______ to ______
Commission File Number: 0-28180
SPECTRALINK CORPORATION
(Name of small business issuer in its charter)
DELAWARE 84-1141188
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1650 38TH STREET, SUITE 202E
BOULDER, COLORADO 80301
(303) 440-5330
(Address and telephone number of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenue for its most recent fiscal year. $21,491,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $24,178,777 as of March 6, 1997.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 19,146,588 shares of common
stock, $.01 par value, were outstanding as of March 5, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Items 9, 10, 11 and 12 of Part III of this Form 10-KSB are incorporated by
reference from the issuer's definitive proxy statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
issuer's fiscal year.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
OVERVIEW
SpectraLink Corporation ("SpectraLink" or the "Company") was incorporated
in Colorado in April 1990, and was reincorporated in Delaware in March 1996.
SpectraLink designs, manufactures and sells on-premises wireless telephone
systems which complement existing telephone systems by providing mobile
communications in a building or campus environment. The SpectraLink Pocket
Communications System increases the efficiency of employees by enabling them to
remain in telephone contact while moving throughout the workplace. The system
uses a micro-cellular design consisting of three components: a Master Control
Unit ("MCU"), Remote Cell Units ("RCUs") and Pocket Telephones. The Company's
proprietary MCU interfaces directly with a PBX, Centrex or key/hybrid system.
The MCU also connects with the system's RCUs, which are small radio
transceivers located throughout the customer's facility that relay calls
between the six-ounce Pocket Telephones and the telephone system. Calls are
handed off from one RCU to another as a user moves throughout the facility.
MARKET BACKGROUND
A growing number of business environments require certain employees to
have a high degree of mobility yet remain readily accessible by telephone to
customers or co-workers. Retailers seek competitive advantage by quickly
responding to customers' requests for information and service from employees
dispersed throughout the store. Healthcare workers in clinical settings can
benefit from real-time communications with mobile healthcare professionals in
order to deliver quality healthcare efficiently. Manufacturers and distributors
seek to operate more efficiently by enabling workers in the factory or
distribution center to solve problems or answer questions more rapidly. Service
organizations seek to decrease customer hold or response time by allowing
immediate communications with the person who can solve a problem or answer a
question. MIS, maintenance and other corporate office support personnel can
work more productively if they remain mobile in the workplace without losing
communications contact with other office workers who need their services.
Traditionally, businesses have attempted to maintain communications with
mobile, on-premises employees by using overhead paging systems and electronic
pagers. These indirect types of communication create delays because access to a
wired phone is still needed. Delays are exacerbated in high mobility
environments, such as hospitals, manufacturing facilities and distribution
centers, where both parties may be mobile and repeated pages are required.
Additionally, overhead paging can be difficult to understand and creates
ambient noise which can be disruptive and stressful.
Alternatives to paging include the use of two-way radios, cordless phones
and traditional cellular phones, all of which have various shortcomings.
Two-way radios can be cumbersome and do not provide an adequate link to the
wireline telephone system. Cordless phones are typically single-cell systems
and have a limited calling range, and only a limited number of cordless phones
can be deployed in a given area without interfering with each other.
Traditional cellular phones often provide inconsistent indoor reception and use
analog radio transmissions which are easily intercepted. Unless specifically
designed for on-premises use, cellular phones cannot be directly interfaced
with a company's PBX system and, therefore, cannot offer the system's
functionality. Furthermore, current monthly usage fees and airtime charges make
cellular phones prohibitively expensive in many applications.
A number of cellular service providers offer products that specifically
address on-premises applications. These analog, micro-cellular systems operate
as a subset of the public cellular network, and attach to a business phone
system to provide wireless phones to on-premises users. Although these systems
operate in the public cellular frequency band (824-894 MHz), a user cannot
access them with a traditional cellular phone. Proprietary dual-mode phones are
required to access the business phone system when used on the premises, or the
public cellular network when used off the premises. Currently, calls cannot be
handed off between the on-premises network and the public cellular network.
Because these micro-cellular systems use the same frequency band as public
cellular telephone service, they may have limited capacity in areas with a
large number of cellular subscribers. In addition, the use of analog
transmissions may diminish conversation privacy.
Because the majority of business employees, such as retail store clerks,
nurses and service personnel, require wireless phones only while in the
workplace, economic considerations such as the cost of dual-mode phones and
monthly charges may limit the utility of these systems. In order to avoid
calling abuse and air-time charges, some businesses do not want business phones
that can be used off the premises. Further, many applications require that the
phones remain on site for use over multiple shifts.
Products dedicated to unlicensed, on-premises use first appeared in the
1990s in the 902-928 MHz band. These adjunct products attach directly to
business telephone systems and provide wireless phone extensions that can be
used on the premises. Because these systems are unlicensed, they can be
installed or re-located without prior approval from the FCC. The 902-928 MHz
band has been set aside for unlicensed products which employ either narrow-band
or spread-spectrum technology. Because
1
<PAGE> 3
systems in the 902-928 MHz band that employ narrow band technology are required
to operate at lower power levels than spread-spectrum systems, they generally
have inferior range and are more susceptible to interference. Multi-cellular
wireless business phone systems are available in the 902-928 MHz band, as well
as systems that restrict wireless phones to a single base station and thus do
not provide hand-off.
In 1994, the FCC allocated additional spectrum in the 1900 MHz range for
unlicensed on-premises applications. Although the FCC originally proposed to
allocate 20 MHz of new spectrum to meet on-premises wireless telephone system
requirements, only 10 MHz from 1920-1930 MHz ultimately was assigned for this
purpose. The products which have been introduced for this new spectrum are
commonly referred to as unlicensed personal communications systems ("U-PCS").
This comparatively limited new spectrum is currently occupied by microwave
radios which must be cleared for full unlicensed use of the band. According to
the FCC, the U-PCS manufacturers or providers that intend to clear the spectrum
must pay the microwave radio operator all costs associated with the relocation
of its microwave equipment. Typically, the relocation costs will be borne by a
fee assigned to each U-PCS radio device, including handsets and base stations.
While U-PCS products are designed to operate as unlicensed systems,
installation of a system may require a frequency coordination study of the area
to insure the U-PCS system will not interfere with a fixed microwave system,
and the U-PCS user cannot move or expand the system without an additional
coordination study. Furthermore, the radio propagation characteristics of this
band compared to those of lower frequencies may require a greater number of
base stations for in-building applications.
PRODUCTS
The Pocket Communications System uses a micro-cellular design consisting
of three components: an MCU, RCUs and Pocket Telephones. The MCU is installed
near the PBX or key/hybrid system, or at the Centrex demarcation location.
There are two ways in which the MCU connects to the phone system. It can either
interface directly with the analog ports of the host telephone switching
system, or, in some cases, it can connect via a digital interface to certain
PBX systems and key/hybrid systems. Currently, the Company supports digital
interfaces to: Definity PBX systems and Merlin Legend key systems from Lucent
Technologies, Meridian(R) PBX Systems and Norstar(R) key systems from Northern
Telecom, Ltd., and Comdial key systems from Comdial, Inc.
The MCU is also connected to the RCUs. The RCUs are small radio
transceivers connected to the MCU via twisted-pair telephone wiring and provide
the wireless link to the Pocket Telephones. The Pocket Telephone is a six-ounce
portable phone with an alphanumeric display. When the SpectraLink system is
connected to the phone system using analog ports, the Pocket Telephone will
provide many of the calling features of a desk phone, including transfer,
conference calling and hold. When the system is digitally interfaced to the
phone system, the Pocket Telephone will also support the advanced features of
the host phone system such as calling party identification or calling party
name display. The Pocket Telephone provides up to four hours of talk time or up
to eighty hours of standby time between battery recharges.
Each RCU supports multiple users and covers a transmission area in excess
of 50,000 square feet depending on transmission obstructions present in the
building. A call is handed off from one RCU to another as a user walks
throughout the coverage area. The Pocket Communications System is designed to
provide seamless coverage, enabling real-time hand-off of an active telephone
call as the user walks about. A key attribute of the SpectraLink Pocket
Communications System is that the hand-off implementation has been designed to
be non-disruptive to the call in progress, thus minimizing degradation to the
telephone conversation while the user is moving throughout the facility.
SpectraLink offers a family of Pocket Communications Systems: the PCS 50,
the PCS 150, and the PCS 2000. The three systems are targeted to meet the needs
of a variety of applications.
The PCS 50 supports up to 8 Pocket Telephones and includes one RCU. It
was designed for facilities of less than 50,000 square feet such as small
retail stores, branch banks, small offices and small manufacturing facilities.
The PCS 150 supports up to 64 Pocket Telephones and up to 16 RCUs. A
total of four MCU controllers can be interconnected to support the maximum
complement of Pocket Telephones and RCUs. The typical applications for the PCS
150 are retail stores, healthcare clinics and nursing homes.
The PCS 2000 supports up to 720 Pocket Telephones and up to 180 RCUs. Its
typical applications are hospitals, corporate offices, manufacturing facilities
and convention centers.
The PCS 50, PCS 150 and PCS 2000 support analog or digital integration
with a PBX or key/hybrid system.
2
<PAGE> 4
TECHNOLOGY
The Company devotes significant planning and resources to development and
use of advanced technology. This focus on technology is necessary to meet the
requirements for delivery of portability, indoor radio and system performance,
high reliability, low cost and manufacturability.
Spread Spectrum Technology and Frequency Hopping. Spread spectrum is a radio
frequency transmission technique in which the transmitted information is spread
over a relatively wide bandwidth. The Company also uses a form of spread
spectrum transmission called frequency hopping, a technique that combines an
information signal with a radio carrier whose frequency assignment changes
rapidly in a pseudorandom manner at the transmitter. The signal resulting from
frequency hopping is decoded at the receiving end using the same pseudorandom
frequency pattern. The use of frequency hopping spread spectrum technology
makes transmissions more immune to interference, reduces the possibility of
interference with others, provides privacy against eavesdropping and improves
the quality of voice transmission. The FCC rules governing spread spectrum
operation permit higher RF transmitter power levels, thus improving indoor
propagation over a wide range of interior building construction types and
simplifying system planning and implementation. While there are many advantages
to the spread spectrum technique, it is more complex to implement than the more
commonly used narrowband modulation techniques. The Company believes that its
Pocket Communications System is currently the only micro-cellular spread
spectrum wireless telephone system in the 902-928 MHz band.
Radio Technology. SpectraLink has designed radio transceivers and digital
circuits to implement the complex spread spectrum technique at an economical
cost and in a small form factor. The Company's radio transceiver and digital
circuit architectures also minimize power consumption and enhance
manufacturability and reliability.
ASIC Design. SpectraLink's expertise in digital ASIC technology allows its
systems to be miniaturized, power efficient and cost effective. ASICs are used
in the Company's Pocket Telephone, RCU and MCU designs. The Company expects to
develop additional ASICs and to incorporate these devices into future systems.
Wireless Access Protocols. Combining frequency hopping with a micro-cellular
design presents unique challenges as compared to single-link spread spectrum
implementations, such as advanced home wireless telephones or traditional
cellular telephones. To this end, the Company has applied its software design
expertise to develop robust networking protocols that allow multiple users to
have simultaneous telephone access in a frequency hopping, spread spectrum
radio environment without interfering with each other. SpectraLink has
implemented a sophisticated set of software resources, including micro-coded
software, digital signal processing software, network architecture software,
telephone switching software and user application software to address many of
the unique challenges of in-building wireless environments, such as
interference, multipath degradation, signal absorption, near/far receiver
desensitizing, security, busy hour capacity demands, and shared operation with
other radio systems.
Call Hand-off. Critical to the acceptance of on-premises wireless systems by
users accustomed to high-quality telephone performance is a hand-off from cell
to cell which has virtually no disruptive effect on the call in progress.
SpectraLink has developed proprietary software to address the frequent and
unpredictable nature of on-premises inter-cell hand-offs due to interference,
multipath degradation and interior obstructions. Software resident in the
Pocket Telephones automatically selects the best cell among available RCUs. The
unique digital implementation of the SpectraLink Pocket Communications System
results in a seamless hand-off.
Operation at 902-928 MHz. SpectraLink selected the 902-928 MHz frequency band
due to its availability for the application of spread spectrum technology to
Part 15 (unlicensed) equipment. SpectraLink believes this band offers the
following advantages: (i) the band is free of any microwave radio systems, thus
eliminating the need to conduct frequency coordination studies prior to product
deployment; (ii) the band provides 26 MHz of spectrum which is a significant
advantage for systems expected to provide capacity during periods of heavy user
demand; (iii) 26 MHz of spectrum allows systems to be implemented with lower
order modulation schemes that result in more reliable performance; and (iv)
free-space propagation is superior at 902-928 MHz compared to that at 1920-1930
MHz, so that an area may be covered by fewer base stations.
3
<PAGE> 5
SALES, MARKETING AND CUSTOMER SUPPORT
SALES AND MARKETING
SpectraLink sells and supports its systems in the United States, Canada
and Mexico through direct, distributor and dealer sales forces. This strategy
is intended to reduce SpectraLink's dependence on a single channel and to
permit broad marketing of the SpectraLink systems.
Direct Sales. As of February 28, 1997, the Company has fifty-two
employees in its direct sales organization. The Company has direct sales
offices in the metropolitan areas of Atlanta, Boston, Charlotte, Chicago,
Cleveland, Dallas, Denver, Los Angeles, Milwaukee, New York, Philadelphia,
Phoenix, San Francisco, Seattle, and Washington, D.C.
Distributors. SpectraLink distributes its entire product line through a
number of telecommunications distributors in the United States and Canada,
currently including Ameritech, Bell Atlantic, Fujitsu Business Communication
Systems, GTE Communication Systems, InteCom, Inc., and Mitel Telecommunications
Systems, Inc. Each of these companies has a non-exclusive distribution
relationship with SpectraLink. The Company does not restrict its distributors
from selling in the same geographical areas.
In 1995, SpectraLink entered into a distribution and marketing agreement
with Hill-Rom Company, Inc. ("Hill-Rom"), a subsidiary of Hillenbrand
Industries, Inc., a leading manufacturer and distributor of patient-care
systems. This agreement provided that Hill-Rom would sell the Company's systems
to hospitals, medical clinics, and medical office buildings. Hill-Rom's sales
of SpectraLink equipment were slower than expected in 1996. Accordingly,
SpectraLink and Hill-Rom have modified their agreement in 1997, such that
SpectraLink's direct sales representatives will now have primary responsibility
for sales to this market.
Dealers. SpectraLink has established a dealer network primarily comprised
of local phone interconnect companies and two-way radio dealers. SpectraLink
dealers are restricted to selling the Pocket Communications System 150, have a
non-exclusive dealer relationship with SpectraLink, and generally are
restricted from selling into the healthcare market.
The Company's dealer network currently is comprised of 44 dealers in 117
locations.
The Company currently sells its systems in the United States, Canada and
Mexico. In the future, the Company may consider selling its systems in
countries which permit operation in the 902-928 MHz band using spread spectrum
radio transmissions. The Company has no current plans to market its systems in
Asia or Europe.
CUSTOMER SUPPORT
The Company has established a customer support department dedicated to
planning, installing and maintaining the SpectraLink systems. Customer support
personnel are located at the Company's facilities in Boulder, Colorado;
Atlanta, Georgia; Chicago, Illinois; and Washington, D.C.
Because of the relative complexity of designing on-premises wireless
telephone systems, the customer support department is a critical factor in the
Company's overall product and market strategy. The customer support department
is involved with the customers during early customer contact, the system
configuration and installation phases, and the on-going maintenance period.
After installation, the customer support department provides various
levels of support, based on the maintenance level selected by the customer. The
Premium Warranty and Maintenance coverage program provides 24 hour, 7 days per
week toll-free telephone support, with expedited replacement of defective
equipment. The Standard Warranty and Maintenance coverage program provides
business hour, weekday toll-free telephone support, with standard replacement
of defective equipment.
CUSTOMER DEPENDENCE
While the Company has a diverse customer base, during 1996 two customers
comprised more than 10% of total sales. Direct sales to Lowe's Company were 19%
of total sales, and sales to Hill Rom, a distributor, were 18% of sales.
BACKLOG
The Company generally ships its systems promptly upon the receipt of an
order. The Company's backlog of orders is generally less than 30 days at any
given time. Some of the Company's distributors and larger customers place
orders for systems in advance of the scheduled delivery date; however, these
orders are subject to rescheduling or cancellation. As a result, the Company
currently does not consider backlog to be a meaningful indicator of future
sales.
4
<PAGE> 6
COMPETITION
The on-premises wireless telephone system industry is intensely
competitive. The competitive factors affecting the market for the Company's
systems include product functionality and features, frequency band of
operation, ease-of-use, quality of support, product quality and performance,
price and the effectiveness of marketing and sales efforts. Most of the
Company's competitors have significantly greater financial, technical, research
and development, and marketing resources than the Company. As a result, they
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the development,
promotion, sale and support of their products than the Company. In addition,
purchasers may prefer to buy all of their telephone communications systems from
a single source provider, such as Lucent Technologies, Northern Telecom
Limited, LM Ericsson Telephone Co., Harris Corporation, or Siemens Rolm
Communications, Inc., all of whom manufacture and sell PBX or key/hybrid
systems. Because the Company focuses on wireless on-premises telephone
communications, it cannot serve as the sole source for a complete telephone
communications system. There can be no assurance that the Company will be able
to compete successfully in the future.
Because there are different methods and different radio frequency bands
by which wireless communications can be delivered, the Company believes there
are four primary categories of direct competition: (i) the 902-928 MHz band,
where the Company's systems operate; (ii) unlicensed PCS, or U-PCS, in the
1920-1930 MHz band; (iii) licensed low-power, in-building cellular in the
824-894 MHz band; and (iv) licensed PCS in the 1850-1990 MHz band. In the
902-928 MHz band, the Company believes that LM Ericsson Telephone Co. and
Siemens Rolm Communications, Inc. are the only companies other than SpectraLink
which offer micro-cellular telephone systems and that competitors offering
single-cell, single-user products include Lucent Technologies and Uniden
America Corporation. The Company believes that competitors offering U-PCS in
the 1920-1930 MHz band present the greatest potential threat of competition to
the Company because the products in this band will be able to provide similar
functionality to that of the Company's systems. Currently Lucent Technologies,
Northern Telecom Ltd. and Harris Corporation offer wireless U-PCS systems. The
Company also believes that LM Ericsson Telephone Co., NEC, and Siemens Rolm
Communications, Inc. will be competitors offering U-PCS products. Various
leading manufacturers are attempting to establish a number of common air
interface standards for unlicensed, on-premises operation in the 1920-1930 MHz
band. Two of these standards have been approved, and the Company believes that
at least one more common air interface standard will be approved. The primary
status accorded to U-PCS products that will eventually occupy the 1920-1930 MHz
band and the existence of air interface standards may make these products more
attractive to certain customers. Low-power, on-premises cellular systems
operating in the 824-894 MHz band are manufactured and distributed principally
by Mitsubishi Corporation and Panasonic Communications and Systems Company, and
potentially can be offered through all cellular operators. The Company believes
that licensed PCS operators such as Bell South Mobility DCS, Centennial
Cellular Corporation, Omnipoint Communications, Pacific Bell Mobile Services,
Powertel, Inc., PrimeCo Personal Communications, Sprint PCS, and Western
Wireless Corporation, operating in the 1850-1990 MHz band, intend to target the
in-building, on-premises market with service offerings similar to the
low-power, in-building cellular derivatives. While there are many differences
in the technologies used to deliver wireless telephone communications in these
categories, all of the competitive factors described in the preceding paragraph
are applicable, particularly the significantly greater financial, technical,
research and development and marketing resources of such competitors.
The Company considers the existing technologies of overhead and
electronic paging, two-way radios and cordless telephones to be competitive
factors as well. To the extent such a system is already in use, a potential
customer may not be willing or able to make the investment necessary to replace
such a system with SpectraLink's Pocket Communications System. In addition,
there may be potential customers who choose one of these other technologies
because of cost or their belief that their needs do not require the full
functionality provided by SpectraLink's Pocket Communications System.
PROPRIETARY RIGHTS
The Company's future success depends, in part, upon its proprietary
technology. The Company relies on a combination of patent, copyright, trade
secret and trademark laws, confidentiality procedures and nondisclosure and
other contractual provisions to protect its proprietary rights. As part of
these confidentiality procedures, the Company enters into confidentiality and
non- disclosure agreements with its employees and limits access to and
distribution of its proprietary information. The Company has been awarded five
United States patents in the areas of radio frequency and spread spectrum
digital communication, with various expiration dates, none earlier than 2011.
In addition, the Company has four United States patent applications pending.
There can be no assurance that the Company's pending patent applications will
be allowed or that the issued or pending patents will not be challenged or
circumvented by competitors or provide meaningful protection against
competition. The Company may in the future be notified that it is infringing
certain patent and/or other intellectual property rights of others. Although
there are no such pending lawsuits against the Company or unresolved notices
that the Company is infringing intellectual property rights of others, there
can be no assurance that litigation or infringement claims will not occur in
the future.
5
<PAGE> 7
MANUFACTURING
SpectraLink's manufacturing operations consist primarily of the
fabrication and assembly of components and subassemblies, which are
individually tested and integrated into full systems or shipped as individual
items for expansion orders. In order to facilitate initial start-up and
manufacturing process improvements, the Company conducts in-house prototype
development and has established pilot line capabilities. The Company maintains
complete in-house materials procurement, assembly, testing and quality control
functions. The Company utilizes only a minimal number of subcontract
manufacturers to assemble its components.
The principal components of SpectraLink's systems are unpopulated printed
circuit boards, electronic components, including microprocessors and ASICs, and
metal or plastic housings, all of which are purchased from outside vendors.
Although alternate suppliers are available for most of the components,
qualifying replacement suppliers and receiving components could take up to
several months. Many components are available only from sole source suppliers
and embody such parties' proprietary technologies. There can be no assurance
that any sole source supplier will continue to provide the required components
in sufficient quantities with adequate quality and at acceptable prices. The
Company would be adversely affected if, in order to develop alternative
suppliers, a redesign of the Company's subassemblies were necessary. The
Company does maintain, or requires suppliers to maintain, inventory to allow it
to fill customer orders without significant interruption during the period that
the Company believes would be required to obtain alternate supplies of many
replacement components. However, there can be no assurance that the Company
will have sufficient inventory supply to meet every possible contingency. Any
shortage or discontinuation of, or manufacturing defect in, the supply of these
components would have a material adverse effect on the Company's operations.
The Company manufactures and assembles all of its systems in a leased
10,764 square foot facility located in Boulder, Colorado. In May 1997, the
Company will move its manufacturing operation to its new corporate
headquarters, a 37,000 square foot leased facility in Boulder, Colorado. Since
the Company relies on a sole manufacturing facility, a major catastrophe could
result in a prolonged interruption of the Company's business.
RESEARCH AND PRODUCT DEVELOPMENT
The wireless telecommunications industry is subject to rapid
technological change, frequent new product introductions and enhancements,
product obsolescence and changes in end-user requirements. The Company believes
its future success and ability to compete in the on-premises wireless telephone
market are largely dependent upon its ability to augment current product lines
and develop, introduce and sell new features and products while maintaining
technological competitiveness through the advancement of its core technologies.
As of February 28, 1997, the Company employed 26 people in support of its
research and development activities. The Company invested approximately
$3,073,000, $1,930,000 and $1,904,000 in 1996, 1995 and 1994, respectively, in
research and development. The Company expects to increase its investment in
research and development. The inability of the Company to introduce in a timely
manner new products or enhancements to existing products that contribute to
sales could have a material adverse effect on the Company's business and
financial condition.
GOVERNMENT REGULATION
The wireless communications industry, regulated by the Federal
Communications Commission, is subject to changing political, economic and
regulatory influences. Regulatory changes, including changes in the allocation
of available frequency spectrum, could significantly impact the Company's
operations.
The 902-928 MHz Band. In 1985, the FCC permitted the use of
spread-spectrum technology under Part 15 Rules in the 902-928 MHz band. Part 15
Rules refer to the section of the FCC regulations that permit the use of
radio-based systems without requiring the user to obtain an operating license
from the FCC. For this reason, Part 15 Rules permit devices to be deployed
expediently without the inherent delays associated with the traditional radio
equipment licensing procedure. A significant industry has developed around the
Part 15 Rules for commercial products. The Company's systems are all certified
by the FCC for unlicensed operation under Part 15 Rules.
In the federal regulatory framework, Part 15 spread spectrum systems are
accorded secondary status in the 902-928 MHz band, which means that their
operators must accept interference received and correct any interference caused
to other systems, even if it requires the operator to cease operating in the
band. This status has been modified somewhat by an FCC rule in Docket 93-61
which established an irrebuttable presumption of non-interference in favor of
Part 15 devices which meet certain requirements. The Company believes its
Pocket Communications System satisfies these requirements. In addition,
SpectraLink has received a waiver, which provides SpectraLink with additional
flexibility to resolve interference under certain circumstances. This waiver is
not permanent and may be rescinded. The FCC has proposed certain changes to its
permanent rules that are consistent with SpectraLink's waiver.
6
<PAGE> 8
The 1920-1930 MHz Band. In 1994, the FCC designated a 20 MHz segment from
1910-1930 MHz as unlicensed spectrum out of the total of 140 MHz set aside for
Personal Communications Systems (PCS). 1910-1920 MHz is specifically allocated
for asynchronous wireless systems such as data based communications, while
1920-1930 MHz is specifically allocated for isochronous wireless systems such
as voice communications. Unlicensed PCS equipment which operates in this range
falls under Subpart D of the Part 15 Rules. These rules provide eventual
primary status for unlicensed devices. However, the incumbent point-to-point
microwave systems currently situated in this frequency range must be relocated
to other frequency bands. Each relocated microwave radio operator is entitled
to comparable alternative facilities to replace the existing 1900 MHz radio
link, and the U-PCS manufacturers or providers must pay all costs associated
with the relocation of the incumbent microwave radio equipment. Typically,
these relocation costs will be borne by a fee assigned to each U-PCS radio
device, including handsets and base stations. Until all of the microwave
systems are removed from this band, on-premises wireless systems must be
frequency coordinated or accounted for prior to installation and activation.
According to industry organizations, it will take many years to remove all
microwave stations from this band.
The technical rules which pertain to the 1920-1930 MHz band are designed
to lessen the likelihood of interference between systems through a mechanism
referred to as "Listen Before Transmit," or LBT. The LBT criteria requires that
a U-PCS device first monitor and locate unused spectrum within the 1920-1930
MHz range prior to transmitting. This serves to protect any other U-PCS device
or system then in use from any unwanted interference. However, in locations
where multiple U-PCS systems are in use and the frequency spectrum becomes
increasingly congested, this LBT mechanism may prevent systems from realizing
their full capacity potential, as competing systems find fewer available
channels.
EMPLOYEES
As of February 28, 1997, the Company employed 160 persons, 153 of whom
were full time employees.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate headquarters and research and development
activities are situated in Boulder, Colorado, in three buildings located in the
same office park. The status of the leases on these buildings is as follows:
(i) a sublease at 1650 38th Street (4,130 square feet) is on a month-to-month
basis, (ii) a sublease also at 1650 38th Street (1,000) square feet is on a
month-to-month basis, (iii) a lease at 1650 38th Street (2,110 square feet)
expires on May 1, 1998, (iv) the lease at 1680 38th Street (7,700 square feet)
runs through April 30, 1998, and (v) the lease at 1790 38th Street (1350 square
feet) is on a month-to-month basis. The Company's manufacturing facility is
also in Boulder, Colorado, at a 10,764 square foot facility near the Company's
headquarters, the lease for which runs through November 15, 2000 (with certain
renewal options). On May 1, 1997, the Company intends to consolidate most
Boulder office and manufacturing activities into a single corporate
headquarters location in a 37,000 square foot leased facility in Boulder,
Colorado. The Company intends to sublease vacated Boulder leased space. In
addition, the Company has short-term leases for its sales offices. With the
addition of the new Corporate facility, the Company believes that its
facilities are adequate to meet its current and foreseeable needs or that
suitable additional or substitute space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No meetings of the Company's stockholders were held during the fourth
quarter of 1996.
7
<PAGE> 9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the Nasdaq Stock Market under the
symbol "SLNK." The following table sets forth for the quarterly periods
indicated, the high and low bid prices for the Company's common stock as
reported by Nasdaq. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
1996 HIGH LOW
<S> <C> <C>
Second quarter* $12.87 $7.62
Third quarter 9.62 5.00
Fourth quarter 6.87 2.50
</TABLE>
*The common stock began trading on Nasdaq on April 26, 1996.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for the expansion and operation of its business and does not
anticipate paying cash dividends in the foreseeable future.
On March 5, 1997, the Company had approximately 135 shareholders of
record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS.
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 sold over 1700 systems and shipped over 37,000 phones.
SpectraLink's primary sales efforts are currently focused on home improvement
and other retail store chains, hospitals, nursing homes, distribution centers,
manufacturing facilities, and corporate offices. SpectraLink sells its systems
in the United States, Canada, and Mexico through its direct sales force,
telecommunications equipment distributors, and certain specialty dealers. In
the future, the Company may consider selling its systems in countries outside
the United States which permit operation in the 902-928 MHz band using spread
spectrum radio transmissions. The Company has no current plans to market its
systems in Asia or Europe.
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 the Company 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.
Expansion of the Company's operations may cause a significant strain on the
Company's management, financial and other resources. The inability of the
Company to manage additional growth, should it occur, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
8
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
STATEMENT OF OPERATIONS DATA: 1996 1995 1994
------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 38.5 48.2 50.4
------------------------
Gross profit 61.5 51.8 49.6
Operating expenses:
Research and development 14.3 11.6 23.0
Marketing and selling 32.9 27.8 37.4
General and administrative 7.4 6.0 8.9
------------------------
Total operating expenses 54.6 45.3 69.2
------------------------
Income (loss) from operations 6.9 6.4 (19.6)
Investment income and other, net 5.6 1.0 0.9
------------------------
Income (loss) before income taxes 12.5 7.4 (18.7)
Income tax expense .6 0.3 --
------------------------
Net income (loss) 11.9% 7.1% (18.7)%
========================
</TABLE>
FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Sales. The Company derives its revenue principally from the sale,
installation and service of wireless, on-premises telephone systems. Net sales
increased by 29% to $21,491,000 in 1996 from $16,676,000 in 1995. These
increases were 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 53% to $13,225,000 in 1996 from $8,631,000 in 1995. The
Company's gross profit margin (gross profit as a percentage of net sales)
increased to 61.5% in 1996 from 51.8% in 1995. The increase in gross profit
margin was primarily due to decreasing unit material, labor, and overhead
costs. The lower unit material costs were due to improved pricing 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 for both periods as a result of product design and process
improvements.
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 59% to $3,073,000 in 1996 from $1,930,000 in
1995, representing 14.3% and 11.6%, respectively, of net sales. Research and
development expenses in 1995 were associated with the introduction of a new
generation of Pocket Telephone and the Series 150 system. In 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 expects to increase its dollar 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 53% to $7,073,000
in 1996 from $4,628,000 in 1995, representing 32.9% and 27.8%, respectively, of
net sales. These increases in dollar expense for both periods were 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, investor relations, and human
resources as well as legal and other professional services. General and
administrative expenses increased by 59% to $1,590,000 in 1996 from $1,000,000
in 1995, representing 7.4% and 6.0%, respectively, of net sales. The increases
in expenses were primarily associated with becoming a public company and with
the higher volume of production and sales.
Investment Income and Other (Net). Investment income is the result of the
Company's investment in money market, investment-grade debt securities, and
government securities. Other income is generated primarily from purchase
discounts. The
9
<PAGE> 11
increase in this category from 1995 to 1996 was primarily due to interest
income from investment activities associated with net proceeds of approximately
$27 million dollars from the public offering completed in May, 1996.
Income Tax. As of December 31, 1996, the Company had a total net
operating loss carryforward of $ 7,185,000 and approximately $864,000 of
research and development and alternative minimum tax credit carryforwards
available to offset future federal taxable income and liabilities. The tax
credit and net operating loss carryforwards expire between 2007 and 2011 and
are subject to examination by the tax authorities. The Company's tax provision
in 1995 consists of an accrual for state and federal minimum taxes. The
Company's tax provision in 1996 consists primarily of an accrual for state and
federal alternative minimum taxes estimated at 5% of income before taxes.
The Company's operating expenses are based in part on its expectations of
future sales, and the Company's expense levels are generally determined 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.
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Sales. The Company derives its revenue principally from the sale,
installation and service of wireless, on-premises telephone systems. Net sales
increased 101% to $16,676,000 in 1995 from $8,294,000 in 1994. This increase
was predominantly due to the growing acceptance of SpectraLink systems which
resulted in increased unit shipments of the Company's systems.
Gross Profit. The Company's cost of sales consists primarily of direct
material, direct labor, service expenses and manufacturing overhead. The
Company's gross margin (gross profit as a percentage of net sales) increased to
51.8% in 1995 from 49.6% in 1994 due to decreasing unit material, labor, and
overhead costs. The lower unit material costs were due to improved pricing and
increased component integration. 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. As a percentage of net sales, service costs were relatively flat from
1994 to 1995. The Company's gross margin may be affected by a variety of other
factors.
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 1% to $1,930,000 in 1995 from $1,904,000 in
1994, and declined as a percentage of net sales to 11.6% in 1995 from 23.0% in
1994. Research and development expenses in 1994 were associated with the second
generation of the Company's Pocket Telephone as well as development of the PCS
150 system and cost reduction on PCS 200 and PCS 2000 systems. In 1995, the
Company added features and enhancements to the PCS 150 system and continued
product cost reduction efforts. The decline in research and development
expenses as a percentage of net sales was due to the increase in net sales. The
Company intends to increase its dollar spending on research and development.
Marketing and Selling. Marketing and selling expenses consist primarily
of salaries and other personnel expenses, commissions, travel, advertising,
trade shows and market research. These expenses increased 49% to $4,628,000 in
1995 from $3,101,000 in 1994, and declined as a percentage of net sales to
27.8% in 1995 from 37.4% in 1994. The increase in dollar expense was primarily
due to additional sales and marketing personnel. The decline in these expenses
as a percent of net sales was a result of higher average net sales per
salesperson.
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
36% to $1,000,000 in 1995 from $736,000 in 1994, and declined as a percentage
of net sales to 6.0% in 1995 from 8.9% in 1994. The increase in expense was
primarily due to additional resources associated with the higher volume of
production and sales, as well as increasing the provision for bad debt expense
due to higher sales and accounts receivable. The decrease in general and
administrative expenses as a percent of net sales reflected net sales rising
faster than these expenses.
Investment Income and Other (Net). Investment income is generated from
the Company's investment of cash from financing and operations in money market
and short term government securities. Other income was generated primarily from
purchase discounts.
Income Tax. As of December 31, 1995, the Company had a total net
operating loss carryforward of $10,400,000 and approximately $705,000 of
research and development and alternative minimum tax credit carryforwards
available to offset future federal taxable income and liabilities. The
Company's tax provision in 1995 consists of an accrual for state and federal
minimum taxes.
10
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering (IPO), the Company financed its
operations primarily through private sales of equity securities, raising a
total $20,100,000 between June 1990 and November 1993. The Company also had a
credit facility with Silicon Valley Bank consisting of a revolving line of
credit and equipment purchase line. The Company did not borrow against the
revolving line of credit, but as of December 31, 1995, had borrowed and had
outstanding $213,000 against the equipment purchase line. In 1996, the Company
drew an additional $275,000 against the equipment purchase line for a total of
$488,000 which the Company paid off in full in 1996 with the proceeds from the
IPO.
Operating activities provided net cash of $1,446,000 in 1996. From
December 31, 1995, to December 31, 1996, accounts receivable increased $108,000
while inventory increased $1,395,000. The increase in accounts receivable was
primarily due to higher 1996 net sales, as compared to the corresponding period
in 1995. The increase in inventory was required to support the higher 1996 net
sales. Investing activities consisted of equipment acquisitions mainly for
engineering, manufacturing, computer and phone equipment of $1,224,000 in 1996.
Purchases of investments were $28,744,000 in 1996. Investments of $6,525,000
matured in 1996. Financing activities in 1996 included net proceeds from the
IPO of $27,371,000 (see Initial Public Offering below), proceeds from the
issuance of stock under the provisions of the Employee Stock Purchase Plan of
$495,000, and issuance of common stock of $82,000 from the exercise of
incentive stock options. In 1996, the bank line of credit and note payable to
lessor were paid off entirely, resulting in a repayment of $610,000. Financing
activities also included payments on capital lease obligations of $71,000 in
1996.
As of December 31, 1996, the Company had working capital of $28,813,000
compared to $7,191,000 as of December 31, 1995. Working capital as of December
31, 1996, included $22,294,000, $4,393,000 and $3,634,000 in cash and short
term investments, accounts receivable and inventory, respectively. As of
December 31, 1996, the Company's current ratio (ratio of current assets to
current liabilities) was 15.7:1, compared with a current ratio of 5.2:1 as of
December 31, 1995.
The Company believes that its current cash, cash equivalents and
investments, and cash generated from operations will be sufficient, based on
the Company's presently anticipated needs, to fund necessary capital
expenditures, to provide adequate working capital and to finance the Company's
expansion for the foreseeable future. There can be no assurance, however, that
the Company will not require additional financing. There can be no assurance
that any additional financing will be available to the Company on acceptable
terms, or at all, when required by the Company. If additional funds are raised
by issuing equity securities, further dilution to the existing stockholders
will result. If adequate funds are not available, the Company may be required
to delay, scale back or eliminate one or more of its research and development
or manufacturing programs or obtain funds through arrangements that may require
the Company to relinquish rights to certain of its technologies or potential
products or other assets that the Company would not otherwise relinquish.
Accordingly, the inability to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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. Of the proceeds,
approximately $939,000 were used to cover the expenses of the initial public
offering and an additional $610,000 to pay off the equipment purchase line of
credit and the note payable to lessor. The remaining funds were invested in
investment-grade debt securities. Concurrent with the closing of the offering,
(a) 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 and (b) all outstanding warrants converted into
shares of common stock. On May 20, 1996, the IPO underwriters exercised their
option to purchase an additional 455,100 shares from the Company for
$3,386,000; the Company also invested these proceeds in investment-grade
securities. The Company had 19,146,588 shares of common stock outstanding as of
March 5, 1997.
11
<PAGE> 13
OTHER
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-KSB Annual Report 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").
Such forward-looking statements 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
distributors 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) any production problems or delays associated with
the moving of the Company's manufacturing facility to a new location, now
scheduled for April and May, 1997, (vii) the Company's dependence on a single
product line, (viii) the Company's ability to manage potential expansion of
operations, (ix) the Company's ability to attract and retain key personnel, (x)
the Company's ability to respond to rapid technological changes within the
on-premises wireless telephone industry, (xi) changes in rules and regulations
of the FCC, (xii) the Company's ability to protect its intellectual property
rights, (xiii) the assertion of intellectual property infringement claims
against the Company, (xiv) changes in economic and business conditions
affecting the Company's customers, and (xv) other factors over which the
Company has little or no control.
12
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants F - 1
Balance Sheets as of December 31, 1996 and 1995 F - 2
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F - 3
Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 F - 4
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F - 5
Notes to Financial Statements F - 6
</TABLE>
13
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SpectraLink Corporation:
We have audited the accompanying balance sheets of SPECTRALINK
CORPORATION (a Delaware corporation) as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SpectraLink
Corporation as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado
January 31, 1997
F-1
<PAGE> 16
SPECTRALINK CORPORATION
BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
<TABLE>
<CAPTION>
As of December 31,
--------------------
1996 1995
--------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,334 $ 1,729
Short-term investments 14,960 524
Trade accounts receivable, net of allowance of
approximately $315 at December 31, 1996, and $225
at December 31, 1995, respectively, for uncollectible accounts 4,393 4,285
Inventory 3,634 2,239
Other 452 117
--------------------
Total current assets 30,773 8,894
--------------------
INVESTMENTS IN GOVERNMENT SECURITIES 8,016 --
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures 731 560
Equipment 2,308 1,515
Leasehold improvements 255 183
--------------------
3,294 2,258
Less-- Accumulated depreciation (1,673) (1,176)
--------------------
Net property and equipment 1,621 1,082
--------------------
OTHER 54 50
--------------------
TOTAL ASSETS $ 40,464 $ 10,026
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 358 $ 428
Accrued payroll, commissions, and employee benefits 552 593
Accrued sales and use taxes 231 196
Accrued warranty expenses 314 184
Other accrued expenses 205 105
Deferred revenue 269 79
Current portion of long-term debt 31 118
--------------------
Total current liabilities 1,960 1,703
LONG-TERM DEBT, net of current portion -- 319
--------------------
Total liabilities 1,960 2,022
--------------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Note 4):
Voting convertible preferred stock, $.01 par value; Series A, B, C, D,
and E; 7,522 shares authorized in the aggregate and 7,415 issued and
outstanding at December 31, 1995 -- 75
Preferred stock, $.01 par value; 5,000 shares authorized; none issued -- --
Common stock, $.01 par value; 50,000 shares authorized;
19,145 and 3,773 shares issued and outstanding, respectively 191 38
Additional paid-in capital 48,300 20,430
Accumulated deficit (9,987) (12,539)
--------------------
TOTAL STOCKHOLDERS' EQUITY 38,504 8,004
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,464 $ 10,026
====================
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-2
<PAGE> 17
SPECTRALINK CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
NET SALES $21,491 $16,676 $ 8,294
COST OF SALES 8,266 8,045 4,180
--------------------------------
Gross profit 13,225 8,631 4,114
OPERATING EXPENSES
Research and development 3,073 1,930 1,904
Marketing and selling 7,073 4,628 3,101
General and administrative 1,590 1,000 736
--------------------------------
Total operating expenses 11,736 7,558 5,741
--------------------------------
INCOME (LOSS) FROM OPERATIONS 1,489 1,073 (1,627)
INVESTMENT INCOME AND OTHER, net 1,197 163 73
--------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,686 1,236 (1,554)
INCOME TAX EXPENSE 134 57 --
--------------------------------
NET INCOME (LOSS) $ 2,552 $ 1,179 (1,554)
================================
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.14 $ 0.08 $ (0.42)
================================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 18,560 15,640 3,710
================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE> 18
SPECTRALINK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Series A Series B Series C
Common Stock Preferred Stock Preferred Stock Preferred Stock
-------------- --------------- --------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1993 3,253 $ 33 2,100 $21 2,333 $ 23 1,366 $14
Exercise of incentive common
stock options 323 3 -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- --
-------------------------------------------------------------------
BALANCES, December 31, 1994 3,576 36 2,100 21 2,333 23 1,366 14
Exercise of incentive common
stock options 147 1 -- -- -- -- -- --
Sale of restricted common stock
to related party (Note 7) 50 1 -- -- -- -- -- --
Exercise of warrants -- -- -- -- -- -- 41 --
Issuance of Series E preferred
stock to related party on
July 28, 1995
and September 5, 1995
for cash at $5.00
per share (Note 7) -- -- -- -- -- -- -- --
Subsidized rent from related party -- -- -- -- -- -- -- --
Net income -- -- -- -- -- -- -- --
-------------------------------------------------------------------
BALANCES, December 31, 1995 3,773 38 2,100 21 2,333 23 1,407 14
Exercise of incentive common
stock options 232 2 -- -- -- -- -- --
Conversion of preferred stock 11,130 111 (2,100) (21) (2,333) (23) (1,407) (14)
Proceeds from sale of common stock
pursuant to Employee Stock Purchase Plan 205 2 -- -- -- -- -- --
Net proceeds from sale of common stock
in initial public offering
(net of offering costs of $939) 3,805 38 -- -- -- -- -- --
Net income -- -- -- -- -- -- -- --
-------------------------------------------------------------------
BALANCES, December 31, 1996 19,145 $191 -- $-- -- $ -- -- $--
===================================================================
<CAPTION>
Series D Series E
Preferred Stock Preferred Stock Additional
--------------- --------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1993 1,550 $16 -- -- $20,001 $(12,164)
Exercise of incentive common
stock options -- -- -- -- 28 --
Net loss -- -- -- -- -- (1,554)
-------------------------------------------------------
BALANCES, December 31, 1994 1,550 16 -- -- 20,029 (13,718)
Exercise of incentive common
stock options -- -- -- -- 22 --
Sale of restricted common stock
to related party (Note 7) -- -- -- -- 99 --
Exercise of warrants -- -- -- -- 150 --
Issuance of Series E preferred
stock to related party on
July 28, 1995
and September 5, 1995
for cash at $5.00
per share (Note 7) -- -- 25 1 124 --
Subsidized rent from related party -- -- -- -- 6 --
Net income -- -- -- -- -- 1,179
-------------------------------------------------------
BALANCES, December 31, 1995 1,550 16 25 1 20,430 (12,539)
Exercise of incentive common
stock options -- -- -- -- 80 --
Conversion of preferred stock (1,550) (16) (25) (1) (36) --
Proceeds from sale of common stock
pursuant to Employee Stock Purchase Plan -- -- -- -- 493 --
Net proceeds from sale of common stock
in initial public offering
(net of offering costs of $939) -- -- -- -- 27,333 --
Net income -- -- -- -- -- 2,552
-------------------------------------------------------
BALANCES, December 31, 1996 -- $-- -- $-- $48,300 $ (9,987)
=======================================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 19
SPECTRALINK CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,552 $ 1,179 $(1,554)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 656 389 271
Amortization of discount/premium on investment
in debt securities (233) -- --
Gain on sale/disposal of assets (31) (8) --
Subsidized rent from related party -- 6 --
Changes in assets and liabilities
Increase in accounts receivable, net (108) (1,489) (1,425)
Increase in inventory (1,395) (718) (1,008)
Increase in other assets (339) (11) (66)
Increase (decrease) in accounts payable (70) (156) 395
Increase in other accrued liabilities 414 380 343
--------------------------------
Net cash provided by (used in) operating activities 1,446 (428) (3,044)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,224) (899) (441)
Proceeds from disposal of property and equipment 60 9 --
Purchases of investments, at cost (28,744) (499) (3,604)
Maturity of investments 6,525 2,751 6,978
--------------------------------
Net cash (used in) provided by investing activities (23,383) 1,362 2,933
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and notes payable 275 336 --
Repayments on line of credit and notes payable (610) (2) --
Payments on capital lease obligations (71) (77) (74)
Proceeds from issuance of preferred stock -- 125 --
Proceeds from issuance of restricted common stock -- 100 --
Proceeds from exercise of preferred stock warrants -- 150 --
Proceeds from exercise of incentive common stock options 82 23 31
Proceeds from issuance of common stock, net of expenses 27,866 -- --
--------------------------------
Net cash provided by (used in) financing activities 27,542 655 (43)
--------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,605 1,589 (154)
CASH AND CASH EQUIVALENTS, beginning of year 1,729 140 294
--------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 7,334 $ 1,729 $ 140
================================
NONCASH TRANSACTIONS:
In May, 1996, 7,415 shares of Series A, B, C, D, & E voting
convertible preferred stock and 4 Series C warrants were
converted into 11,130 shares of common stock.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 28 $ 13 $ 20
================================
Cash paid for income taxes $ 143 $ 15 $ --
================================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 20
SPECTRALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION
SpectraLink Corporation (the "Company") was incorporated in Colorado on
April 25, 1990, and subsequently reincorporated in Delaware effective on March
1, 1996, to develop and market wireless business communications systems. The
Company grants credit to its customers, who are primarily (i) end-users such as
retail store chains, hospitals and other healthcare-related entities, as well
as industrial concerns, and (ii) distributors in the telecommunications
industry who re-sell the product. The vast majority of customers are located in
the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid instruments purchased with original maturity dates of 90 days or less to
be cash equivalents.
Short-term Investments and Investments in Government Securities
Short-term investments and investments in government securities consist of U.S.
Government or U.S. Government Agency notes as well as corporate commercial
paper. The Company has classified these investments as held-to-maturity
securities in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." As
such, these investments are stated at amortized cost at December 31, 1996 and
1995. Following is information related to these investments:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1996 1995
-----------------------
(In thousands)
<S> <C> <C>
Commercial Paper:
Fair value $ 988 $ --
Gross unrealized holding gains --
Gross unrealized holding losses 5 --
Amortized cost 993 --
U.S.Government and Agency Obligations:
Fair value 22,017 524
Gross unrealized holding gains 38 --
Gross unrealized holding losses 4 --
Amortized cost 21,983 524
</TABLE>
No investments were sold prior to maturity in 1996 or 1995. The contractual
maturity of the held-to-maturity investments as of December 31, 1996, ranges
from one month to two years.
Concentrations of Credit Risk
The Company's revenues generally are concentrated among customers in the
healthcare and retail industries. The Company establishes an allowance for
uncollectible accounts based upon factors surrounding the credit risk of
specific customers, historical trends and other information.
Inventory
Inventory includes the cost of raw materials, direct labor and manufacturing
overhead, and is stated at the lower of cost (first-in, first-out) or market.
Inventories at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
------------------
1996 1995
------------------
(In thousands)
<S> <C> <C>
Raw materials $ 1,674 $ 1,413
Work in progress 5 11
Finished goods 1,955 815
------------------
$ 3,634 $ 2,239
==================
</TABLE>
F-6
<PAGE> 21
Depreciation and Amortization
Depreciation is provided using the straight-line method over estimated useful
lives of one to ten years for property and equipment. Amortization of leasehold
improvements is provided over the shorter of the estimated useful life of the
improvements or the remaining term of the related lease.
Research and Development Costs
Research and development costs are expensed as incurred. These costs consist
primarily of salaries, parts, supplies and contract services.
Revenue Recognition
Sales revenue is recorded on transfer of title which is generally upon shipment
of product or customer acceptance if such is a condition of the contract.
Revenue from service agreements is recorded as deferred revenue when paid by
the customer and
recognized as revenue over the lives of the respective agreements.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes" (see Note 5).
SFAS 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences based on enacted
tax laws of temporary differences between the financial reporting and tax bases
of assets, liabilities and carryforwards. SFAS 109 requires recognition of
deferred tax assets for the expected future effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards. Deferred tax
assets are then reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which are more likely, based on current
circumstances, not expected to be realized.
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 (when dilutive using the if converted
method at date of issuance) and common stock equivalent shares from stock
options and warrants outstanding (when dilutive 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 proposed offering date (using the treasury
stock method for common stock equivalents and an assumed offering price of
$9.00 per share) have been included in the calculation as if they were
outstanding for the years ended December 31, 1996, 1995 and 1994 regardless of
whether they were antidilutive.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities as well as disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. SFAS 121 is effective for fiscal years
beginning after December 15, 1995. The adoption of SFAS 121 on January 1, 1996,
had no impact on the Company's financial position or results of operations.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). Effective in 1996, the Company adopted the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that companies which
do not choose to account for stock-based compensation as prescribed by the
statement, shall disclose the pro forma effects on earnings and earnings per
share as if SFAS 123 had been adopted. Additionally, certain other disclosures
are required with respect to stock compensation and the assumptions used to
determine the pro forma effects of SFAS 123 (Note 4).
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
F-7
<PAGE> 22
<TABLE>
<CAPTION>
As of December 31,
----------------------
3. LONG-TERM DEBT 1996 1995
----------------------
(In thousands)
<S> <C> <C>
Line of credit to purchase equipment of $750,000, maturing June 7, 1999.
Interest is due monthly at the bank's prime rate (8.5% at December 31, 1995)
plus 2% through August 7, 1996, (the end of the equipment advance period), at
which time the outstanding balance is due in 36 equal monthly installments of
principal and interest. Interest after August 7, 1996, is at either a fixed
rate of the bank's prime rate at August 7, 1996, plus 2.2%, or a variable
rate at the bank's prime rate plus 1.5%, at the option of the Company. At
December 31, 1995, the rate was 10.5%. Amount was paid in full and line of
credit was closed in 1996. $ -- $213
Note payable to lessor, maturing November 14, 2000. Interest at 9%, with 60
equal principal and interest payments due monthly. Collateralized by all
leasehold improvements financed under the note payable. Note payable was paid
in full in 1996. -- 122
Capital lease obligations on leases to finance equipment, maturing through June
1997. Interest on monthly payments is approximately 7% at December 31, 1996
and 1995. Collateralized by the related equipment with a net book value of
$33,000 and $100,000 at December 31, 1996 and 1995, respectively. 31 102
---------------------
31 437
Less -- current portion (31) (118)
---------------------
$ -- $319
=====================
</TABLE>
F-8
<PAGE> 23
4. STOCKHOLDERS' EQUITY
Common Stock
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.
Convertible Preferred Stock
At December 31, 1995, the Company had outstanding 2,100,000 shares of Series A
convertible preferred stock, 2,333,333 shares of Series B convertible preferred
stock, 1,407,102 shares of Series C convertible preferred stock, 1,550,388
shares of Series D convertible preferred stock, and 25,000 shares of Series E
convertible preferred stock.
Each share of Series A, B, C, D and E preferred stock was convertible
into 1.5 shares of the Company's common stock at the option of the shareholder.
Each share of Series A, B, C, D and E preferred stock was converted into common
stock upon completion of a public offering of the Company's common stock in
May, 1996.
Warrants
In connection with the issuance of notes payable to certain shareholders in
1992, warrants to purchase 40,982 shares of the Company's Series C preferred
stock were issued. The warrants were exercised at $3.66 per share in 1995.
In connection with a lease financing in 1993, warrants to purchase 5,750
shares of the Company's Series C preferred stock were issued to the lessor. The
warrants were exercised at $3.66 per share in 1996.
Stock Option Plan
Effective June 7, 1990, the Company adopted a Stock Option Plan (the "Plan") to
provide key employees, consultants and directors options to purchase up to
1,500,000 shares of common stock of the Company. Effective July 25, 1995, the
number of shares of common stock of the Company reserved for options was
increased to 3,000,000 shares.
Under the terms of the Plan, the board of directors may grant key
employees, consultants and directors either nonqualified or incentive stock
options, as defined by the Internal Revenue Service. The purchase price per
share of a nonqualified stock option will not be less than 85% of the fair
market value of each share at the time of grant. The purchase price per share
of an incentive stock option will not be less than 100% of the fair market
value of each share at the time of grant. If the grantee of an incentive stock
option owns more than 10% of the total combined voting power of all classes of
stock on the date of grant, the purchase price will be at least 110% of the
fair market value of the shares at the date of grant. Options granted under the
Plan are exercisable up to 8 years from the date of the grant or 5 years from
the date of the grant for a holder of 10% or greater of the Company's stock.
Options granted become exercisable at a rate of 25% after 12 months from
the date of grant and ratably per month thereafter, conditioned upon continued
employment. Full vesting occurs after 48 months from the date of grant. A
summary of activity of the Plan for the years ended December 31, 1994, 1995 and
1996, is as follows.
F-9
<PAGE> 24
<TABLE>
<CAPTION>
Non-Qualified Stock Options Incentive Stock Options
--------------------------- -----------------------
Number of Shares Number of Shares
---------------- Weighted Average ---------------- Weighted Average
Officers & Consultants Exercise Price Officers Employees Exercise Price
---------------------- -------------- -------- --------- --------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1993 -- -- 282 681 $0.13
Granted during 1994 -- -- -- 136 $0.43
Canceled during 1994 -- -- -- (11) $0.18
Exercised during 1994 -- -- (219) (104) $0.10
----------------------------------------------------------------------------------------
Outstanding at December 31, 1994 -- -- 63 702 $0.20
Granted during 1995 112 $3.29 415 194 $2.61
Canceled during 1995 -- -- -- (20) $1.44
Exercised during 1995 -- -- (17) (130) $0.16
----------------------------------------------------------------------------------------
Outstanding at December 31, 1995 112 $3.29 461 746 $1.40
Granted during 1996 -- -- -- 208 $5.32
Canceled during 1996 -- -- -- (24) $2.61
Exercised during 1996 -- -- -- (232) $0.35
Outstanding at December 31, 1996 112 $3.29 461 698 $2.29
========================================================================================
Exercisable at December 31, 1996 33 $3.29 173 356 $1.04
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------
1996 1995
--------------------
<S> <C> <C>
Weighted average fair value of options granted during the year $2.49 $1.31
</TABLE>
A summary of additional information related to the options as of December 31,
1996, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- -----------------------------------
Number Outstanding Weighted Average Number Exercisable
Range of at 12/31/96 Remaining Weighted Average at 12/31/96 Weighted Average
Exercise Prices (in thousands) Contractual Life Exercise Price (in thousands) Exercise Price
------------- ---------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$0.07 95 1.8 years $ 0.07 95 $ 0.07
$0.20 156 2.9 years $ 0.20 156 $ 0.20
$0.24 - $0.30 86 4.8 years $ 0.27 57 $ 0.27
$0.60 56 5.9 years $ 0.60 31 $ 0.60
$2.00 - $3.00 432 6.5 years $ 2.33 143 $ 2.20
$3.30 - $3.50 286 5.7 years $ 3.42 80 $ 3.42
$3.81 - $5.25 93 7.8 years $ 4.36 -- --
$6.00 - $8.63 67 7.3 years $ 8.08 -- --
Total 1,271 5.5 years $ 2.38 562 $ 1.17
</TABLE>
The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, as all options
have been granted with an exercise price equal to the fair value of the
Company's common stock on the date of the grant. The Company adopted SFAS 123
for disclosure purposes in 1996. For SFAS 123 purposes, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants
in 1996 and 1995, respectively: risk-free interest rates of 6.0% and 6.1%; no
expected dividend yields; expected lives of 3.8 years and 4.3 years; and
expected volatility of 55% and 55%.
Employee Stock Purchase Plan
Effective November 1, 1995, the Company adopted an Employee Stock Purchase Plan
(the "Stock Purchase Plan") covering a maximum of 250,000 shares of the
Company's common stock. In December 1996 the Board of Directors of the Company
amended the Stock Purchase Plan to increase the authorized shares available for
issuance to 500,000 shares, subject to shareholder approval. Subject to certain
maximum stock ownership restrictions, employees are eligible to participate in
the Stock Purchase Plan if employed by the Company at the beginning of each
offering period, on a full-time or part-time basis, and regularly scheduled to
work more than 20 hours per week. Participating employees may have up to 10% of
their base pay in effect at the commencement of each offering period withheld
pursuant to the Stock Purchase Plan. Common stock purchased under the Stock
Purchase Plan will be equal to 85% of the lower of the fair market value on the
commencement date or termination date of each offering period (usually six
months). Under the Stock Purchase Plan, the Company sold 204,977 shares in 1996
and no shares in 1995 to employees. The fair value of each purchase right is
estimated, for disclosure purposes, on the date of grant using the Black-Scholes
model with the fol-
F-10
<PAGE> 25
lowing assumptions for 1996: no dividend yield; an expected life of six months
(eight months for the initial offering period ended June 30, 1996); expected
volatility of 55%; and a risk-free interest rate of 5.26%. The weighted average
fair value of the right to purchase those shares in 1996 was $1.69 per share.
Pro Forma Disclosure of Stock-Based Compensation
Using these assumptions, the fair value of the stock options granted in 1996
and 1995 was approximately $518,000 and $947,000 respectively, which would be
amortized as compensation expense over the graded vesting period of the
options. Pro forma stock-based compensation expense for stock options, net of
the effect of forfeitures, was $487,000 and $166,000 in 1996 and 1995,
respectively, and for the Stock Purchase Plan was $318,000 and $28,000 in 1996
and 1995, respectively. If compensation cost had been determined consistent
with SFAS 123, utilizing the assumptions detailed above, the Company's net
income and net income per share would have been reduced to the following pro
forma amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
------------------------
<S> <C> <C>
Net income
As reported $2,552 $1,179
Pro forma $1,747 $ 985
Net income per common and common equivalent share
As reported $ .14 $ .08
Pro forma $ .09 $ .07
</TABLE>
Weighted average shares used to calculate pro forma net income per share
were determined as described in Note 2, except in applying the treasury stock
method to outstanding options, net proceeds assumed received upon exercise were
increased by the amount of compensation cost attributable to future service
periods and not yet recognized as pro forma expense.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
5. INCOME TAXES
The provision for income taxes for the years ended December 31, 1996,
1995 and 1994, is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1996 1995 1994
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Federal $ 63 $ 35 $ --
State and local 71 22 --
---------------------------------------
$ 134 $ 57 $ --
=======================================
Current $ 134 $ 57 $ --
Deferred -- -- --
---------------------------------------
$ 134 $ 57 $ --
=======================================
</TABLE>
The following reconciles the Company's effective tax expense to the
federal statutory expense for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
(In thousands)
<S> <C> <C> <C>
Income tax expense per federal statutory rate (34%) $ 913 $ 422 $ --
Alternative minimum tax 63 -- --
State income taxes, net of federal deduction 47 15 --
Permanent differences and other (1) 101 --
Reduction of valuation allowance (888) (481) --
----------------------------------------
$ 134 $ 57 $ --
========================================
</TABLE>
For federal income tax reporting purposes at December 31, 1996, the
Company has approximately $7,185,000 of net operating loss carryforwards,
approximately $770,000 of research and development tax credit carryforwards and
approximately $94,000 of alternative minimum tax credit carryforwards available
to offset future federal taxable income and liabilities, respectively. The tax
credit and net operating loss carryforwards expire between 2007 and 2011 and
are subject to examination by the tax authorities.
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryovers available to be used in any given year upon the
occurrence of certain events, including significant changes in ownership
interests.
F-11
<PAGE> 26
The Company's deferred income taxes are summarized as follows:
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------
1996 Change 1995
-----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current deferred tax assets (liabilities)
Warranty reserve $ 119 $ 49 $ 70
Allowance for uncollectible accounts 120 35 85
Inventory reserve 139 34 105
Accrued vacation 116 16 100
Other 32 49 (17)
Less--Valuation allowance (526) (183) (343)
Long-term deferred tax assets (liabilities)
Depreciation 186 12 174
Capital leases (94) (27) (67)
Net operating loss carryforwards 2,730 (1,215) 3,945
Tax credit carryforwards 864 159 705
Less--Valuation allowance (3,686) 1,071 (4,757)
-----------------------------------------------
$ --- $ --- $ ---
===============================================
</TABLE>
Given the historical net losses of the Company (1995 represented the
first profitable year of the Company), management believes that the future tax
benefits as of December 31, 1996 and 1995, do not satisfy the realization
criteria set forth in SFAS 109 and has recorded a valuation allowance for the
entire net deferred tax asset.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
Cash and Cash Equivalents
The carrying amounts approximate fair value.
Short-Term Investments and Investments in Government Securities
The carrying amount of investments is at amortized cost (Note 1), and fair
values are based on market prices at year-end, or for certain investments with
a short maturity, amortized cost approximates fair values.
Debt
An estimate of rates currently available to the Company for debt with similar
terms was used to determine the fair value of the Company's debt.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------
(In thousands)
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Financial Assets
Cash and Cash Equivalents $ 7,334 $ 7,334 $ 1,729 $ 1,729
Short-term investments and
investments in government securities 22,976 23,005 524 524
Financial Liabilities
Debt 31 31 437 415
</TABLE>
7. RELATED PARTIES
During 1995, the Company sold approximately $55,000 of inventory to a
related party in exchange for equipment from the related party.
In September 1995, the Company sold 50,000 shares of restricted common
stock at $2 per share to a new director of the Company. These shares vest at a
rate of 25% after 12 months from the measuring date (July 28, 1995), and
ratably thereafter, conditioned upon continuing service on the Board of
Directors. Full vesting occurs after 48 months from the measuring date. Any
F-12
<PAGE> 27
shares not vested may be repurchased, at the option of the Company, upon the
termination of service as a director. Additionally, in July and September 1995,
the Company sold 12,500 and 12,500 shares respectively, of Series E preferred
stock to the director at $5 per share.
The Company rents office space, on a month-to-month basis, from an
affiliated company owned by one of the Company's shareholders. Total rent paid
to related parties was approximately $65,000, $64,000 and $64,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
During 1992, the Company issued convertible notes payable in the
principal amount of $1,000,000 to certain of its shareholders. Interest on the
notes was computed at 6% and was paid to the shareholders in cash upon closing
of the sale of Series C preferred stock. The principal amount of the notes was
converted into shares of Series C preferred stock in October 1992. In
connection with the issuance of the convertible notes payable, the Company
issued warrants to purchase 40,982 shares of Series C preferred stock at $3.66
per share (Note 4). The warrants were converted to Series C preferred stock at
$3.66 per share during 1995.
8. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain research and office
equipment under noncancelable operating lease agreements. In October, 1996, the
Company signed a lease for a new manufacturing and office facility beginning
May 1997, and continuing through June 2005. No subleases for existing lease
agreements have been obtained, but management believes the impact of any losses
related to subleasing activities would not be significant. Minimum future
annual lease payments under these leases as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 632
1998 705
1999 640
2000 647
2001 595
Thereafter 2,273
------
$5,492
======
</TABLE>
Total rent expense for noncancelable, cancelable and month-to-month
operating leases for the years ended December 31, 1996, 1995 and 1994 was
approximately $465,000, $382,000 and $323,000, respectively.
9. MAJOR CUSTOMERS
The Company's sales to major customers which individually comprised more
than 10% of total net sales for the years ended December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Customer A 1% 4% 12%
Customer B 1% 2% 12%
Customer C 19% 16% 1%
Customer D 18% 5% --%
----------------------------------------
39% 27% 25%
========================================
</TABLE>
10. RETIREMENT PLAN
The Company has a 401(k) Profit Sharing Plan (the "401(k) Plan") which
covers all eligible employees who have completed one month of service, as
defined in the 401(k) Plan, and are age 18 or older. Participants may defer
from 2% to 15% of their compensation, as defined, up to a maximum limit
determined by law. Participants are always fully vested in their contributions.
The Company may make discretionary matching contributions up to a maximum
of 6% of each participant's compensation. Additionally, the Company may make
discretionary contributions to eligible employees in proportion to the
employee's compensation and unrelated to any employee contributions. Vesting in
the Company discretionary contributions is based on years of service, with a
participant fully vested after four years of credited service. The Company has
not made any contributions to the 401(k) Plan for the years ended December 31,
1996, 1995 and 1994.
F-13
<PAGE> 28
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Company's Proxy Statement
for its 1997 Annual Meeting of Stockholders to be held on or about May 1, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Company's Proxy Statement
for its 1997 Annual Meeting of Stockholders to be held on or about May 1, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Company's Proxy Statement
for its 1997 Annual Meeting of Stockholders to be held on or about May 1, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Company's Proxy Statement
for its 1997 Annual Meeting of Stockholders to be held on or about May 1, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
4.1 Specimen Common Stock Certificate.(1)
10.1 SpectraLink Corporation Stock Option Plan, as amended.(1)
10.2 Form of Incentive Stock Option Agreement under the Company's Stock Option Plan.(1)
10.3 Form of Non-Qualified Stock Option Agreement under the Company's Stock Option Plan.(1)
10.4 Form of Indemnification Agreement with directors and executive officers of the Registrant.(1)
10.5 Stock Restriction Agreement dated September 5, 1995, between the Company and Wellington
Trust.(1)
10.6 Non-Exclusive Distributor Agreement for Purchase of Wireless Communication Products between
SpectraLink Corporation and Hill-Rom Company, Inc., effective June 1, 1995, and Amendment to
Distributor Agreement dated as of December 5, 1995.(1)
10.7 Lease Agreement dated September 29, 1995, between the Company and Walnut Prairie Joint
Venture.(1)
10.8 Amended and Restated Registration Rights Agreement dated July 28, 1995, among the Company and
purchasers of the Company's Preferred Stock.(1)
10.9 Form of Consultant Non-Disclosure Agreement used between the Company and consultants.(1)
10.10 Form of Employee Non-Disclosure Agreement used between the Company and its employees.(1)
10.11 Sublease Agreement dated May 1, 1990, between Incubix, Inc., and the Company.(1)
10.12 Loan and Security Agreement dated July 7, 1995, between Silicon Valley Bank and the Company.(1)
10.13 Lease agreement dated October 17, 1996, between the Company and Flatiron Park Company.*
23.1 Consent of Arthur Andersen LLP*
27 Financial Data Schedule*
</TABLE>
* Filed herewith.
14
<PAGE> 29
(1) Incorporated by reference from the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-2696-D).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1996.
SpectraLink(R), Pocket Communications System(TM), and Pocket Telephone(TM) are
trademarks of the Company. Norstar and Meridian are registered trademarks of
Northern Telecom, Ltd., Definity and Merlin Legend are registered trademarks of
Lucent Technologies.
15
<PAGE> 30
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPECTRALINK CORPORATION
By: /s/ BRUCE M. HOLLAND
----------------------
Bruce M. Holland
President
Dated: March 13, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ BRUCE M. HOLLAND
- ---------------------------
Bruce M. Holland Principal Executive Officer March 13, 1997
and Director
/s/ WILLIAM R. MANSFIELD
- ---------------------------
William R. Mansfield Principal Financial Officer March 13, 1997
and Principal Accounting Officer
/s/ CARL D. CARMAN
- ---------------------------
Carl D. Carman Director March 13, 1997
/s/ ROBERT COHN
- ---------------------------
Robert Cohn Director March 13, 1997
/s/ JOHN W. JARVE
- ---------------------------
John W. Jarve Director March 13, 1997
/s/ BURTON J. MCMURTRY
- ---------------------------
Burton J. McMurtry Director March 13, 1997
/s/ F. GIBSON MYERS, JR.
- ---------------------------
F. Gibson Myers, Jr. Director March 13, 1997
</TABLE>
16
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
4.1 Specimen Common Stock Certificate.(1)
10.1 SpectraLink Corporation Stock Option Plan, as amended.(1)
10.2 Form of Incentive Stock Option Agreement under the Company's Stock Option Plan.(1)
10.3 Form of Non-Qualified Stock Option Agreement under the Company's Stock Option Plan.(1)
10.4 Form of Indemnification Agreement with directors and executive officers of the Registrant.(1)
10.5 Stock Restriction Agreement dated September 5, 1995, between the Company and Wellington
Trust.(1)
10.6 Non-Exclusive Distributor Agreement for Purchase of Wireless Communication Products between
SpectraLink Corporation and Hill-Rom Company, Inc., effective June 1, 1995, and Amendment to
Distributor Agreement dated as of December 5, 1995.(1)
10.7 Lease Agreement dated September 29, 1995, between the Company and Walnut Prairie Joint
Venture.(1)
10.8 Amended and Restated Registration Rights Agreement dated July 28, 1995, among the Company and
purchasers of the Company's Preferred Stock.(1)
10.9 Form of Consultant Non-Disclosure Agreement used between the Company and consultants.(1)
10.10 Form of Employee Non-Disclosure Agreement used between the Company and its employees.(1)
10.11 Sublease Agreement dated May 1, 1990, between Incubix, Inc., and the Company.(1)
10.12 Loan and Security Agreement dated July 7, 1995, between Silicon Valley Bank and the Company.(1)
10.13 Lease agreement dated October 17, 1996, between the Company and Flatiron Park Company.*
23.1 Consent of Arthur Andersen LLP*
27 Financial Data Schedule*
</TABLE>
* Filed herewith.
(1) Incorporated by reference from the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-2696-D).
<PAGE> 1
EXHIBIT 10.13
LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into this 17th day of October, 1996,
between Flatiron Park Company, hereinafter called "Lessor," and SpectraLink,
Corporation, hereinafter called "Lessee."
1. Introduction. The Lessor has the legal right to lease the
real property and improvements (hereinafter called "Premises") described in
Exhibit "A," which exhibit is attached hereto and incorporated by reference.
The Premises comprise all of 5755 Central Avenue, Boulder, Colorado. The
parties now desire to enter into an agreement providing for the Lessee's lease
of the Premises, and this document sets forth in writing the terms of their
agreement.
2. Premises, Term of Lease, Rental. The Lessor hereby leases
the Premises to the Lessee, and the Lessee hereby leases the Premises from the
Lessor, for a term commencing at 12:01 A.M. on the 1st day of May, 1997 and
ending at 11:59 P.M. on the 30th day of June, 2005, unless sooner terminated as
herein set forth. The Lessee agrees to pay Lessor as rent for the Premises
according to the terms of the RENT SCHEDULE in paragraph 31 of this lease. Said
rent is payable, in advance, by 12:00 noon on the first day of each and every
month of the term hereof at the office of the Lessor.
In the event that the tenancy commences on a date other than the first
day of a month, the rent for the first and last months of the tenancy shall be
prorated and paid on the date of commencement and the first day of the last
month, respectively.
3. Condition of Premises. The Lessor, shall deliver the
Premises to Lessee clean and free of debris on the Lease commencement date
(unless the Lessee is already in possession) and the Lessor warrants to the
Lessee that the plumbing, lighting, air-conditioning, and heating in the
Premises shall be in good operating condition on the Lease commencement date.
In the event that it is determined that this warranty has been violated, then
it shall be the obligation of the Lessor, after receipt of written notice from
the Lessee setting forth with the specificity nature of the violation, to
promptly rectify such violation. The Lessee's failure to give
<PAGE> 2
such written notice within thirty (30) days after the Lease commencement date
shall cause the conclusive presumption that the Lessor has complied with all of
the Lessor's obligations hereunder. The warranty contained in this paragraph
shall be of no force or effect if, prior to this date, the Lessee was an
occupant of the Premises. Except as otherwise set forth in this paragraph, the
Lessee accepts the Premises in the condition existing as of the Lease
commencement date or the date that the Lessee takes possession of the Premises,
whichever is earlier, and the Lessee hereby waives any and all warranties of
condition or habitability, suitability for occupancy, use, or habitation,
merchantability or fitness for a particular purpose, whether express or
implied, relating to the Premises.
4. Use of Premises. The Lessee covenants and agrees that it
will not without Lessor's previous written consent, use, suffer or permit the
Premises, or any part thereof, to be used for any purpose other than that of
conducting thereon an electronic research and development and manufacturing
business. Lessee acknowledges that its use of the Premises is subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and further subject to any
covenants or restrictions of record (a copy of such covenants and restrictions
are attached as Exhibit "B" and incorporated by reference). Lessee shall have
no right to grant utility easements or rights of way on the Premises or to
permit the construction or location on the Premises of utility equipment or
infrastructure without Lessor's prior written consent. Lessee further agrees
that no materials (including toxic chemicals) other than trash and rubbish in
sanitary containers approved by Lessor will be placed outside the building. No
vehicles of any kind will be parked on the Premises except in the designated
parking areas. No vehicles will be parked at the loading docks other than
while being actively loaded or unloaded. No vehicles, trailers, or other
equipment of Lessee or its agents, employees, or invitees shall be parked
overnight on the Premises without the written
2
<PAGE> 3
permission of Lessor, except that Lessee may park overnight two of its vehicles
in designated parking spots
5. Assignment. It is expressly understood and agreed by the
Lessee that the Lessee's leasehold interest may not be assigned or sublet in
whole or in part without in each case having first obtained the written consent
of the Lessor. Such consent will not be unreasonably withheld.
6. Access to Premises. It is expressly understood and agreed
by the Lessee that the Lessor or their agents shall have free access at all
reasonable hours to the Premises for the purpose of examining the same or
exhibiting the same to prospective buyers or lessees (Lessor will use
reasonable efforts to screen all prospective buyers or Lessees to determine
that they are not competitors of Lessee and will give Lessee 24 hour notice
before exhibiting the Premises) or for making repairs on the Premises which the
Lessor may desire to make, or for accessing, servicing or installing utility
equipment, transmission lines, or other infrastructure on the Premises, Lessor
will make reasonably diligent efforts not to disturb Lessee's business during
any Lessor's access. Lessor shall have the right to use any and all means that
Lessor may deem necessary and proper to enter any portion of the Premises in an
emergency, and such entry shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises
or an eviction, actual or constructive, of the Lessee from the Premises.
7. Alterations. Lessee shall not make any alterations,
additions, or improvements including, but not limited to painting and signs, in
or to the Premises without Lessor's prior written consent, which may be
withheld without cause. In particular, and not by way of limitation, Lessee
agrees that: (a) Lessee will submit to Lessor all plans for signs to be
erected, substituted, changed or modified on the Premises, including color,
site, location, height, and lighting; (b) No temporary structure, tent, or
trailer shall be constructed or permitted to remain on the Premises; (c) No
apparatus of any kind may be added to the exterior of the building by Lessee;
3
<PAGE> 4
and (d) No locks may be changed on the Premises without Lessor's consent. Any
alterations, additions, or improvements that the Lessee shall desire to make
and which require the consent of the Lessor shall be presented to the Lessor in
written form with scaled, detailed plans showing modifications of all
electrical, heating, ventilating, air-conditioning, plumbing and other systems
as well as modifications to walls, permanent partitions, doors and other
structures, and the Lessee shall furnish as-built scaled plans upon the
completion of the modifications. Lessee agrees that it shall be solely
responsible for all costs and expenses incurred in connection with any
alterations, additions, or improvements desired by Lessee, including, without
limitation, the cost of any additional construction, modifications, or
improvements mandated under federal, state, or local law as a result of
Lessee's alterations, additions, or improvements.
8. Landlord Not Liable. Lessor shall not be liable for any
damages occasioned by failure to keep the Premises in repair, and shall not be
liable for any damage done or occasioned by or from electrical current,
plumbing, gas, water, steam, or sewage, or the bursting, leaking, running or
failure of operation of any radiator, tank, water closet, wash stand, waste
pipe, air conditioning, or any other apparatus, above, upon, or about the
Premises or the Building, nor the damage occasioned by water, snow, or ice
being upon any sidewalk or entrance way, or being upon or coming through the
roof, sky light, trap door or any other opening in the Premises or the
Building, nor from loss suffered by fire, regardless of origin, wind, rain,
flood or other elements, nor from any damage arising from the action or
negligence of Lessee or other occupants of the Building or of any owners or
occupants of its adjacent or contiguous property. Lessee hereby releases,
discharges, and agrees to indemnify Lessor of and from any and all claims,
demands, and liability for any loss, damage, injury, or other casualty to
property, whether it be that of either of the parties hereto or of third
persons, whether they be third persons of Lessee or agents or employees of
Lessee, caused by, arising from, or happening in connection with Lessee's use
or occupancy of the Premises or Lessee's use of any equipment, facilities, or
property in, on, or
4
<PAGE> 5
adjacent to the Premises or the Building. Not-withstanding anything else in
this Paragraph 8, if any of the damages are caused by the gross negligence or
willful misconduct of Lessor, its agents, employees, guests, or invitees,
Lessor is liable and Lessee does not indemnify Lessor for claims related to
such acts or omissions.
9. Additional Areas. It is expressly understood and agreed by
Lessee that if the Lessor shall furnish any automobile parking spaces, common
areas, or any other facilities, equipment or appliances outside of and in
addition to the Lessee's Premises, the same shall be deemed gratuitously
furnished by the Lessor and that if any person shall use the same, such person
does so at his or her own risk and upon the express understanding and
stipulation that the Lessor shall not be liable for any loss of property
through theft, casualty, or otherwise, or for any damage or injury whatsoever
to person or property. Maintenance of such additional areas for normal wear
and tear shall be the responsibility of Lessor, but Lessee agrees to be
responsible for any additional damage caused by its agents, employees, guests
or invitees.
10. Additional Rent.
10.1 Utilities. Whenever possible, all utility services
to the leased premises, including, without limitation, gas, electricity,
telecommunications, water, and sewer, shall be contracted directly in the name
of the Lessee, and the Lessee shall be solely responsible for the direct
payment of all utility fees and service charges for such utilities. If, for
any reason, it is not possible for the Lessee to contract directly for any
utility service, and the cost of such service is billed to the Lessor, the
Lessee shall pay Lessor additional annual rent equal to the full amount of such
utility fees and service charges paid by Lessor. Where such a utility service
is metered by a common meter, the Lessor shall apportion the total cost among
the tenants serviced by such meter, taking into account the area leased, type
of business conducted, and any other factors deemed relevant by the Lessor.
Such apportionment shall be made in the Lessor's sole, good faith judgment, and
shall be final and binding upon Lessee.
5
<PAGE> 6
10.2 Operating Expenses. In addition, the Lessee shall
pay Lessor additional annual rent equal to the cost of all operating expenses
for the Building multiplied by 100% percent. Operating expenses shall be
limited to: (a) taxes, assessments and governmental taxes, whether federal,
state, county or municipal, which are levied on or charged against the Premises
and any other taxes and assessments attributable to the Premises and its
operation excluding, however, federal and state income taxes; (b) all insurance
premiums paid by the Lessor attributable to the Premises; (c) all expenses
incurred in connection with the maintenance, operation, and repair of the
Building, associated equipment, adjacent walks, parking areas, and landscaped
areas; (d) Building and cleaning supplies and materials; (e) the cost of all
charges for cleaning, maintenance and service contracts, trash collection, snow
removal, and other services with independent contractors; (f) the reasonable
amortization of any capital improvements which are made or installed by Lessor
after the commencement of this Lease for the purpose of saving labor or
otherwise reducing applicable operating expenses; (g) all other costs and
expenses reasonably necessary in the operation and maintenance of a first class
Building; (h) the cost of all common area utility and service charges for the
Premises, including, without limitation, gas, electricity, water, and sewer.
Operating costs shall not include the cost of any work or service performed
specially by the Lessor for any lessee at the cost of such lessee, damages
caused by Lessor's gross negligence or willful misconduct, depreciation (except
as provided in "f" above), or financing costs (including interest or principal
amortization) paid by Lessor.
10.3 Payment of Additional Rent. Such additional rent
shall be paid at monthly intervals in advance within fifteen days after receipt
of statements of charges and/or estimated charges from Landlord. At the end of
each calendar year, or, at Lessor's option, at any other more frequent
interval, Lessor shall provide an accounting of the utility fees and service
charges for the leased premises paid by Lessor, if any, total operating
expenses for the Building, Lessee's share of operating expenses, and Lessee's
payments toward such amounts during the year or
6
<PAGE> 7
interval. During the thirty-day period following such accounting, Lessor shall
pay any excess to the Lessee if payments exceed expenses, and the Lessee shall
pay additional rent to Lessor if expenses exceed payments.
11. Personal Property Taxes. The Lessee shall pay and discharge
all personal property taxes which are levied, assessed, imposed or charged upon
its personal property and inventory or which arise out of or result from the
activities carried on by the Lessee at or upon the leased Premises.
12. Insurance. The Lessee shall, at its expense, acquire a
general liability insurance policy effective as of the date of this Lease
Agreement. Said policy shall be acquired from a company qualified and
permitted to do business in the State of Colorado. Said policy shall be in the
minimum total amounts of $1,000,000.00 combined single limits for bodily injury
and property damage. Said policy shall be maintained in full force and effect
during the entire lease term and shall contain a provision prohibiting
cancellation thereof without at least ten (10) days' notice to the Lessor, who
shall be a named insured. A copy of the Policy and Current Declaration of
coverage shall be provided to the Lessor within ten (10) days after
commencement of the lease and each renewal date.
The Lessor shall maintain on the Building and other improvements (but
not Lessee's personal property, fixtures, equipment, and tenant improvements)
in which the Premises are located a policy of standard fire and extended
coverage insurance to the extent of at least ninety percent (90%) of full
replacement value. The insurance policy shall be issued in the names of Lessor
and Lessor's lender, as their interest appear, and any proceeds shall be made
payable to Lessor. The cost of such insurance shall be passed on to the Lessee
as part of the operating expenses for the Building.
The parties release each other, and their respective authorized
representatives, from any claims for damages arising out of or incident to the
perils insured against or under the insurance
7
<PAGE> 8
policies carried by the parties and in force at the time of such damage,
whether due to the negligence of Lessor or Lessee or their agents, employees,
or invitees. The parties shall, upon obtaining the policies of insurance
required herein, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Agreement.
13. Indemnification. The Lessee agrees to indemnify and hold
the Lessor harmless from any claims, damages, liens, or judgments that may be
filed, entered or asserted against it by virtue of the Lessee's use of the
Premises or by virtue of any act of the Lessee, its agents, servants or
employees.
14. Condemnation. If all or a substantial part of the Premises
is taken or condemned for a public or quasi-public use (or any transfer is made
in lieu thereof), and the part thereof which remains is not suitable for the
Lessee's business use, then this Lease shall, upon written notice from Lessee,
terminate as of the date that title is taken by the condemnor. Lessor shall,
after the taking of all or any portion of the Premises, provide the same amount
of square feet of usable building space for Lessee's operations in the
immediate vicinity of the Premises, and, in the event Lessor cannot do so,
Lessee shall have the right to terminate this Lease, but shall not receive
payment in any form of compensation. All compensation awarded upon any such
condemnation or taking shall go to the Lessor except that the Lessee shall be
entitled to that part of the total award, if any, specifically allocated to
the value of the Lessee's fixtures so taken.
15. Release of Liens. Lessee expressly covenants and agrees
that it will, during the term hereof, promptly remove or release, by the
posting of a bond or otherwise, as required or permitted by law, any lien
attached to or upon the Premises or any portion thereof by reason of any act or
omission on the part of the Lessee, and it hereby expressly agrees to save and
hold harmless the Lessor from or against any such lien or claim of lien. In
the event any such lien does attach, or any claim of lien is made against the
Premises, which may be occasioned by any act or omission upon the part of the
Lessee, and it is not thus removed or released within thirty (30)
8
<PAGE> 9
days after notice thereof, Lessor, in its sole discretion, (but nothing herein
contained shall be construed as requiring it so to do) may pay and discharge
the said lien and relieve the said demised Premises from any such lien, and the
Lessee agrees to pay and reimburse Lessor upon demand for or on account of any
expense which may be incurred by Lessor in connection with such lien of claim,
including reasonable attorney's fees.
16. Repair and Maintenance. The Lessor shall be responsible for
all repair, maintenance, and replacements required to maintain and keep the
Building in good condition and shall receive reimbursement of such costs as
part of the operating expenses for the Building; provided, however, that the
Lessee shall be wholly responsible for replacement of cracked or broken glass,
replacement of all incandescent and fluorescent lights and maintenance of all
light fixtures on the Premises and all damage to the Building resulting from
acts or omissions of the Lessee, its agents, employees or invitees. The Lessee
shall not be responsible for maintenance or repair resulting from acts or
omissions of other tenants, their agents, employees, or invitees.
17. Compliance With Laws and Regulation. The Lessee shall
comply with all laws and regulations of governmental entities, agencies or
authorities having jurisdiction over the Premises and the uses made therein.
The Lessee shall not permit a nuisance to exist on the leased Premises.
18. Payments to Lessor. Until notice to the contrary is given
to the Lessee, all payments to be made to the Lessor hereunder shall be made by
delivering the same at the address of the Lessor as set forth in Paragraph 19
hereof so that payment is received by the Lessor on or before the due date.
19. Notice. Whenever notice is required to be given to a party
hereunder, said notice shall be in writing and shall be given to the party
entitled thereto by delivering a copy thereof to the party entitled thereto or
by mailing a copy thereof to the party entitled thereto by registered or
certified mail, return receipt requested. If such notice is given by
delivering a copy to the person
9
<PAGE> 10
entitled thereto, said notice shall be complete and effective on the date of
such delivery. If such notice is given by mailing a copy to the person
entitled thereto, said notice shall be complete and effective on the date it is
received by the following persons at the addresses indicated:
Lessor: Flatiron Park Company
5540 Central Avenue
Boulder, Colorado 80301
Lessee: V. P. of Finance
SpectraLink, Corporation
5755 Central Avenue Suite 100
Boulder, Colorado 80301
20. Surrender of Premises. The Lessee shall, upon the
termination of this lease, whether said termination occurs due to the
expiration of the lease term or otherwise, surrender the Premises in as good a
condition as when entered upon, subject only to ordinary wear and tear. Upon
the surrender of the Premises, the Lessee shall, if it is not then in default
hereunder, have the right to remove its inventory, furnishings, equipment and
trade fixtures from the leased Premises provided that it repair all damage done
to the leased Premises in accomplishing said removal so as to leave the
Premises in the same condition as when entered upon, ordinary wear and tear
excepted.
21. This paragraph intentionally left blank.
22. Premises Damages or Destroyed. In the event the Premises
are damaged or rendered wholly or partially unusable by fire, flood, windstorm,
explosion or any other casualty, then the rights and obligations of the parties
shall be as follows:
10
<PAGE> 11
Lessor shall a) within ten days of the Casualty give Lessee a good
faith estimate of the time to repair or replace the damaged Premises, b) and if
reasonably possible complete the repair or replace said premises within 120
from date of the damage. In the event the repairs or replacements will not be
or are not completed within 120 days, the Lessee may at its option terminate
this lease, and all the Lessee's obligation for further rent payments shall
cease as of the date of said termination. Rent shall not be abated unless more
than 20 percent of the interior floor space in the Premises is rendered
untenantable and the total repairs are not completed in 30 days, in which event
there shall be an abatement of rent from the casualty date in proportion to
the portion of the interior floor space rendered untenantable. In no event
shall there be an abatement of rent if the damage is caused by any casualty on
the Premises as a result of acts or omissions of the Lessee.
The parties recognize that the Lessee on most occasions will be
storing valuable materials and equipment within the Premises. In the event the
Premises are so damaged by such casualty that Lessee's property would be
endangered by exposure to the elements, and in the further event that Lessee
desires to complete emergency repairs, the restoration of any alterations to
the Premises occasioned by emergency repairs shall also be borne by the Lessee.
Lessor shall have no obligation to make such emergency repairs nor any
liability for damage directly or indirectly caused to Lessee's property by such
casualty.
23. Default and Abandonment. If the Lessee defaults in any of
its obligations hereunder and fails to correct said default within ten days
after written notice thereof from the Lessor, or, if such breach is not in
payment of money, has not within said ten-day period of time commenced
substantial efforts to cure said breach and thereafter continued its efforts to
cure said breach with due diligence, or, if the Lessee abandons the Premises,
which shall be conclusively deemed to occur if Lessee makes no use of the
Premises for fifteen consecutive days during the term of this lease (except in
the case of causality to this Premises or any other reason not within
11
<PAGE> 12
the control of Lessee, in which case Lessor has no such right), then the Lessor
shall have the right to declare this agreement terminated and to re-enter and
take immediate possession of the demised Premises, or, without in any way being
obligated so to do, the Lessor may elect to retake possession of said Premises
and rent the same for such rent and pursuant to such conditions as the Lessor
believes best, making such changes and repairs as may be required, and giving
credit for the amount of rent so received less all expenses for reletting,
advertising, cleaning, removal or storage of Lessee's property, and repairs,
and in such event, said Lessee shall be liable for the balance of the rent
herein reserved until the expiration of the term of this lease.
The Lessee shall pay unto the Lessor additional rent for late rent
payments as to all rental payments not made on or before the fifth (5th) day of
the month in which they are due, said additional rent to be five percent (5%)
of the rent payment so delinquent for each month or fraction thereof that such
payment is late; however the Lessor shall give Lessee 24 hours notice before
imposing said late fee. The parties agree that this late charge is reasonable
liquidated damages taking into account the time spent by Lessor, its agents and
employees because of such late rent payments, processing and accounting
charges, and late charges that may be imposed on Lessor under the trust deed
covering the Premises.
In the event of a default by the Lessee in the performance of any of
its duties and obligations hereunder, the Lessee shall pay all costs incurred
by the Lessor in the enforcement of the provisions of this lease (including
this provision) as against said Lessee, said costs to include reasonable
attorneys' fees whether or not litigation is commenced.
24. Holding Over. If Lessee remains in possession of the
Premises after the expiration of this lease and without the execution of a new
lease, it shall be deemed to be occupying said Premises as Lessee from month to
month at a rent equal to one and one half times the monthly rental being paid
by it at the time of said expiration of lease.
12
<PAGE> 13
25. Bankruptcy. If at any time during the term hereof the
Lessee shall file a voluntary petition in Bankruptcy, or if an involuntary
petition in Bankruptcy shall be filed against Lessee if the same shall not be
dismissed within sixty (60) days, or if the Lessee makes an assignment for the
benefit of creditors, or if a receiver shall be appointed for Lessee, then the
Lessor may, at its option, in any of such events, immediately take possession
of the demised Premises and terminate this lease. Upon such termination, all
installments of rent earned to the date of termination and unpaid shall at once
become due and payable, and in addition thereto Lessor shall have all rights
provided by the Bankruptcy Code relative to the proof of claims on an
anticipatory breach on an executory contract.
26. Rent Regulations. If the rent to be paid by the Lessee
to the Lessor hereunder, whether pursuant to Paragraph 2 or Paragraph 24, is
subject to regulation by law, then the rent to be so paid shall be the maximum
rental permitted by said laws but in no event in excess of the rent provided
for or determined in accordance with the applicable provisions of this Lease
Agreement.
27. Meaning of Words. Unless the context clearly indicates a
contrary intention, all words used herein in one gender shall extend to and
include the other gender; all words in the singular number shall extend to and
include the plural; and all words used in the plural number shall extend to and
include the singular.
28. Remedies Not Exclusive. It is agreed that each and every one
of the rights, remedies and benefits provided by this lease shall be
cumulative, and shall not be exclusive of any other of said rights, remedies
and benefits, or of any other rights, remedies and benefits allowed by law.
29. Waiver. One or more waivers of any covenant or condition by
the Lessor shall not be construed as a waiver of a further breach of the same.
13
<PAGE> 14
30. Lease Binding. The covenants, conditions and agreements
contained in this lease shall bind and inure to the benefit of the Lessor and
Lessee and their respective heirs, personal representatives and successors, and
except as otherwise provided in this lease, their assigns.
14
<PAGE> 15
<TABLE>
<CAPTION>
31. Rent Schedule.
-------------
<S> <C> <C> <C>
May 1, 1997 through June 30, 1997 $0.00 per month
July 1, 1997 through June 30, 1998 $43,225.00 per month
July 1, 1998 through June 30, 1999 $44,954.00 per month
July 1, 1999 through June 30, 2000 $46,752.00 per month
July 1, 2000 through June 30, 2001 $48,622.00 per month
July 1, 2001 through June 30, 2002 $50,567.00 per month
July 1, 2002 through June 30, 2003 $52,590.00 per month
July 1, 2003 through June 30, 2004 $54,693.00 per month
July 1, 2004 through June 30, 2005 $56,881.00 per month
</TABLE>
15
<PAGE> 16
32. Quiet Enjoyment. Subject to the terms and conditions of
this lease, Lessor covenants that so long as the rental is current for the
demised Premises and there is no default in any of the covenants to be
performed by Lessee, the Lessee shall peaceably and quietly hold and enjoy the
demised Premises for the entire term of this lease and any renewals thereof.
33. Subordination. This lease is and shall be subordinate to any
mortgage, deed of trust, or other security agreement now of record or recorded
after the date of this lease affecting the Premises. Such subordination is
effective without any further act of Lessee. Lessee shall from time to time on
request from Lessor execute and deliver any documents that may be required by a
lender to effectuate any subordination. If Lessee fails to execute and deliver
such documents, Lessee irrevocably constitutes and appoints Lessor as Lessee's
special attorney-in-fact to execute and deliver such documents on Lessee's
behalf. Lessor will use reasonable effort to get a non-disturbance agreement
from applicable lenders.
34. Security Deposit. On execution of this lease, Lessee shall
deposit with Lessor $43,225.00 to be held by Lessor without liability for
interest, as a security deposit for the performance by Lessee of all its
obligations under this lease. If Lessee is in default, Lessor can use the
security deposit, or any portion of it, to cure the default or to compensate
Lessor for all damage sustained by Lessor resulting from Lessee's default.
Lessee shall, within fifteen (15) days of demand pay such amount to Lessor as
is necessary to restore the security deposit to the amount set forth above. At
the expiration or termination of this lease, Lessor shall return to Lessee that
portion of the security deposit remaining after application of such amounts as
are necessary to compensate Lessor for Lessee's defaults, if any.
35. Additional Rent and Interest. Any monetary obligations of
Lessee to Lessor under the terms of this lease shall be deemed to be rent. Any
amount due to Lessor under any of the provisions of this lease shall bear
interest from the date due at fifteen (15%) percent per annum,
16
<PAGE> 17
provided, however, that interest shall not be payable on late charges nor any
amounts upon which late charges are paid. Payment of such interest shall not
cure or excuse any default by Lessee.
36. Severability. The invalidity of any provision of this Lease
as determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
37. Prohibition on Animals. Lessee, its employees, authorized
representatives, and invitees shall not permit any access to or use of the
Premises or any part of the Premises by any animals, whether domestic or
agricultural. Any such use shall constitute a default under this lease, and
Lessee shall be fully responsible for any damages caused thereby.
38. Environmental Matters.
38.1 Definitions.
38.1.1 Hazardous Material. Hazardous Material means any substance:
(a) which is or becomes defined as a "hazardous material,"
"hazardous waste," "hazardous substance," "regulated substance," pollutant
or contaminant under any federal, state or local statute, regulation, rule,
order, or ordinance or amendments thereto; or
(b) the presence of which on the Premises causes or threatens
to cause a nuisance upon the Premises or to adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on or about the
Premises or requires investigation or remediation under any federal, state or
local statute, regulation, rule, order, or ordinance or amendments thereto.
38.1.2 Environmental Requirements. Environmental Requirements
means all applicable present and future statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans, authorization,
concessions, franchises, and similar items, of all governmental agencies,
departments, commissions, boards, bureaus, or instrumentalities, of the United
States, states and political subdivisions thereof and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders relating to the
protection of human health or the environment.
17
<PAGE> 18
38.1.3 Environmental Damages. Environmental Damages means all
claims, judgments, injuries, damages (including without limitation damages for
diminution in the value of the Premises and adjoining property and for the loss
of business from the Premises and adjoining property), losses, penalties,
fines, liabilities (including strict liability), encumbrances, liens, costs,
and expenses of investigation and defense of any claim, and of any good faith
settlement of judgment, of whatever kind or nature, contingent or otherwise,
matured or unmatured, foreseeable or unforeseeable, including without
limitation reasonable attorneys' fees and disbursements and consultants' fees,
any of which are incurred at any time as a result of the existence of
"Hazardous Material" upon, about, beneath the Premises or migrating or
threatening to migrate to or from the Premises or the existence of a violation
of "Environmental Requirements" pertaining to the Premises.
38.2 Obligation To Indemnify, Defend And Hold Harmless.
38.2.1 Lessee, its successors, assigns and guarantors, agree to
indemnify, defend, reimburse and hold harmless the following persons from and
against any and all "Environmental Damages" arising from activities of Lessee
or its employees, agents, or invitees which (a) result in the presence of
"Hazardous Materials" upon, about or beneath the Premises or migrating to or
from the Premises, or (b) result in the violation of any "Environmental
Requirements" pertaining to the Premises and the activities thereon:
(i) Lessor;
(ii) any other person who acquires a portion of the Premises
in any manner, including but not limited to through purchase, at a foreclosure
sale or otherwise through the exercise of the rights and remedies of Lessor
under this Agreement; and
(iii) the directors, officers, shareholders, employees,
partners, agents, contractors, subcontractors, experts, licensees, affiliates,
lessees, mortgagees, trustees, heirs, devisees, successors, assigns and
invitees of such persons.
18
<PAGE> 19
38.2.2 This obligation shall include, but not be limited to, the
burden and expense of defending all claims, suits and administrative
proceedings (with counsel reasonably approved by the indemnified parties), and
conducting all negotiations of any description, and paying and discharging,
when and as the same become due, any and all judgments, penalties or other sums
due against such indemnified persons. Lessee, at its sole expense, may employ
additional counsel of its choice to associate with counsel representing Lessor.
38.2.3 The obligations of Lessee in this section shall survive the
expiration or termination of this Lease.
38.3 Notification.
38.3.1 If Lessee shall become aware of or receive notice or other
communication concerning any actual, alleged, suspected or threatened violation
of "Environmental Requirements," or liability of Lessee for "Environmental
Damages" in connection with the Premises or past or present activities of any
person thereon, or that any representation set forth in this Agreement is not
or is no longer accurate, then Lessee shall deliver to Lessor, within ten days
of the receipt of such notice, or communication or correcting information by
Lessee, a written description of such information or condition, together with
copies of any documents evidencing same.
38.4 Negative Covenants.
38.4.1 No Hazardous Material on Premises. Except in strict
compliance with all Environmental Requirements, Lessee shall not cause, permit
or suffer any "Hazardous Material" to be brought upon, treated, kept, stored,
disposed of, discharged, released, produced, manufactured, generated, refined
or used upon, about or beneath the Premises or any portion thereof by Lessee,
its agents, employees, contractors, tenants or invitees, on any other person
without prior written consent of Lessor.
38.4.2 No Violations of Environmental Requirements.
19
<PAGE> 20
Lessee shall not cause, permit or suffer the existence or the commission by
Lessee, its agents, employees, contractors, or invitees, or by any other person
of a violation of any "Environmental Requirements" upon, about or beneath the
Premises or any portion thereof.
38.5 Right To Inspect.
38.5.1 Lessor shall have the right in its sole and
absolute discretion, but not the duty, to enter and conduct an inspection of
the Premises at any reasonable time to determine whether Lessee is complying
with the terms of this Agreement, including but not limited to the compliance
of the Premises and the activities thereon with "Environmental Requirements"
and the existence of "Environmental Damages." Lessee hereby grants to Lessor
the right to enter the Premises and to perform such tests on the Premises as
are reasonably necessary in the opinion of Lessor to conduct such reviews and
investigations. Lessor shall use its best efforts to minimize interference
with the business of Lessee but Lessor shall not be liable for any interference
caused thereby.
38.6 Right To Remediate.
38.6.1 Should Lessee fail to perform or observe any of its
obligations or agreements pertaining to "Hazardous Materials" or "Environmental
Requirements," then Lessor shall have the right, but not the duty, without
limitation upon any of the rights of Lessor pursuant to this Agreement, to
enter the Premises personally or through its agents, consultants or contractors
and perform the same. Lessee agrees to indemnify Lessor for the costs thereof
and liabilities therefrom as set forth in Section 38.2.
39. Monitoring Equipment. Should equipment for monitoring fire
systems and/or security systems be deemed necessary by the Lessee or be
required for the Premises by Federal, State, or Local Governing Agencies
because of Lessee's equipment, the nature of Lessee's business, or Lessee's
modification of the Premises, Lessee shall be responsible for installation of
such monitoring system, for any required building permits, and monthly
monitoring fees. Should such
20
<PAGE> 21
monitoring systems be otherwise required by Federal, State, or Local Governing
Agencies, Lessor shall be responsible for installation of such monitoring
systems, but Lessee shall pay for monthly monitoring fees as additional rent.
40. Force Majeure. In the event that Lessor shall be delayed or
hindered in, or prevented from, the performance of any act required hereunder
by reason of strikes, lock-outs, labor troubles, inability to procure
materials, the inability to obtain building inspections, approvals, or permits,
stop work orders, the inability to obtain a certificate of occupancy, failure
of power or unavailability of utilities, riots, insurrection, war or other
reason of like nature not the fault of Lessor or not within its control, the
performance of such acts shall be excused for the period of delay, and the
period for the performance of any such act shall be extended for a period
equivalent to the period of such delay (including extension of both the
commencement and termination dates of this Lease); provided, however, that if
Lessee is not in any way responsible for the delay and does not have use or
occupancy of the Premises during the period of delay, the rent payable
hereunder shall be abated for such period of delay.
41. Other. Exhibit "A" shall additionally serve as an exhibit of
the tenant improvements to be made to the Premises.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this date and year above written.
LESSOR: Flatiron Park Company
BY: /s/ Richard L. Hedges
---------------------------------
LESSEE: SpectraLink, Corporation
BY: /s/ William R. Mansfield
------------------------------
ITS: Vice President
22
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the previously
filed Registration Statement on Form S-8 (No. 333-4650) of SpectraLink
Corporation of our report dated January 31, 1997 included in this Form 10-KSB.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000894268
<NAME> SPECTRALINK CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,334
<SECURITIES> 14,960
<RECEIVABLES> 4,393
<ALLOWANCES> 315
<INVENTORY> 3,634
<CURRENT-ASSETS> 30,773
<PP&E> 3,294
<DEPRECIATION> 1,673
<TOTAL-ASSETS> 40,464
<CURRENT-LIABILITIES> 1,960
<BONDS> 0
0
0
<COMMON> 191
<OTHER-SE> 38,313
<TOTAL-LIABILITY-AND-EQUITY> 40,464
<SALES> 21,491
<TOTAL-REVENUES> 21,491
<CGS> 8,266
<TOTAL-COSTS> 8,266
<OTHER-EXPENSES> 11,736
<LOSS-PROVISION> 93
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 2,686
<INCOME-TAX> 134
<INCOME-CONTINUING> 2,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,552
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
