<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
--------- ---------
Commission file number 0-28180
---------
SPECTRALINK CORPORATION
(Exact name of registrant as specified in charter)
Delaware 84-1141188
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5755 Central Avenue, Boulder, Colorado 80301-2848
(Address of principal executive office) (Zip code)
303-440-5330
(Issuer's telephone number)
1650 38th Street, Suite 202E, Boulder, Colorado
(Former name, former address and former fiscal year,
if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years: N.A.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No N.A.
----- ----
Applicable only to corporate issuers:
As of March 31, 1997 there were outstanding 19,146,608 shares of SpectraLink
Corporation Common Stock - par value $.01.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
1
<PAGE> 2
SPECTRALINK CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Balance Sheets at
March 31, 1997 and December 31, 1996 3
Statements of Operations
Three months ended March 31, 1997 and 1996 4
Statements of Cash Flows
Three months ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Cautionary Statement Pursuant to Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995 10
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule 12
(b) Form 8-K
None
</TABLE>
2
<PAGE> 3
SPECTRALINK CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,375 $ 7,334
Short-term investments 13,990 14,960
Trade accounts receivable, net of allowance of approximately $333 at
March 31, 1997 and $315 at December 31, 1996, respectively 5,707 4,393
Inventory 3,702 3,634
Other 547 452
-------- --------
Total current assets 29,321 30,773
-------- --------
INVESTMENT IN GOVERNMENT SECURITIES 9,026 8,016
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures 790 731
Equipment 2,615 2,308
Leasehold improvements 264 255
-------- --------
3,669 3,294
Less - Accumulated depreciation (1,928) (1,673)
-------- --------
Net property and equipment 1,741 1,621
OTHER 55 54
-------- --------
TOTAL ASSETS $ 40,143 $ 40,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 717 $ 358
Accrued payroll, commissions, and employee benefits 816 552
Accrued warranty expenses 416 314
Other accrued expenses 475 705
Current portion of long-term debt 13 31
-------- --------
Total current liabilities 2,437 1,960
LONG-TERM DEBT, net of current portion -- --
-------- --------
Total liabilities 2,437 1,960
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 191 191
Additional paid-in capital 48,301 48,300
Accumulated deficit (10,622) (9,987)
Treasury stock at cost (164) --
-------- --------
TOTAL STOCKHOLDERS' EQUITY 37,706 38,504
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,143 $ 40,464
======== ========
</TABLE>
3
<PAGE> 4
SPECTRALINK CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
NET SALES $ 5,566 $ 5,551
COST OF SALES 2,712 2,283
-------- --------
Gross profit 2,854 3,268
OPERATING EXPENSES
Research and development 840 549
Marketing and selling 2,537 1,603
General and administrative 534 337
-------- --------
Total operating expenses 3,911 2,489
-------- --------
(LOSS) INCOME FROM OPERATIONS (1,057) 779
INVESTMENT INCOME AND OTHER, net 388 20
-------- --------
(LOSS) INCOME BEFORE INCOME TAXES (669) 799
INCOME TAX (BENEFIT) EXPENSE (34) 40
-------- --------
NET (LOSS) INCOME $ (635) $ 759
======== ========
NET (LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARES $ (0.03) $ 0.05
======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
19,700 15,900
======== ========
</TABLE>
4
<PAGE> 5
SPECTRALINK CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (635) $ 759
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 269 107
Changes in assets and liabilities
Increase in accounts receivable, net (1,314) (1,271)
(Increase) decrease in inventory (68) 166
Increase in other assets (96) (156)
Increase (decrease) in accounts payable 359 (85)
Increase in other accrued liabilities 136 305
------- -------
Net cash used in operating activities (1,349) (175)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (389) (163)
Purchases of investments (4,040) --
Maturity of investments 4,000 499
Purchases of treasury stock (164) --
------- -------
Net cash (used in) provided by investing activities (593) 336
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and notes payable -- 275
Repayments on line of credit and notes payable -- (5)
Payments on capital lease obligations (18) (18)
Proceeds from exercise of incentive common stock options 3 11
(Expenses) proceeds from sale of common stock (2) --
------- -------
Net cash (used in) provided by financing activities (17) 263
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,959) 424
CASH AND CASH EQUIVALENTS, beginning of period 7,334 1,729
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 5,375 $ 2,153
======= =======
</TABLE>
5
<PAGE> 6
SPECTRALINK CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
UNAUDITED
1. Basis of Presentation
The accompanying financial statements as of March 31, 1997 and 1996 and for the
quarters then ended have been prepared from the books and records of the
Company and are unaudited. In management's opinion, these financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1996 presented in the
Company's filings with the Securities and Exchange Commission. The accounting
policies utilized in the preparation of the financial statements herein
presented are the same as set forth in the Company's annual financial
statements.
2. Inventories
Inventories include the cost of raw materials, direct labor and manufacturing
overhead, and are stated at the lower of cost (first-in, first-out) or market.
Inventories at March 31, 1997 and December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
Unaudited
---------
<S> <C> <C>
Raw materials $ 1,684 $ 1,674
Work in process 29 5
Finished Goods 1,989 1,955
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$ 3,702 $ 3,634
======= -======
</TABLE>
3. Debt
Long-term debt at March 31, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
Unaudited
---------
<S> <C> <C>
Capital lease obligations on leases to finance equipment 13 31
------ -----
13 31
Less -- current portion (13) (31)
------ -----
Net -- long term debt $ - $ -
====== =====
</TABLE>
4. Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share has been computed using the
weighted average number of shares of common stock, common equivalent shares
from the convertible preferred stock (using the if converted method at date of
issuance) and common stock equivalent shares from stock options and warrants
outstanding (using the treasury stock method). Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and common
stock equivalent shares issued by the Company at prices significantly below the
assumed public offering price during the twelve month period prior to the
proposed offering date (using the treasury stock method) have been included in
the calculation as if they were outstanding for all periods presented.
5. Stockholders' Equity
In April and May 1996, The Company issued 3,805,100 shares of common stock
pursuant to an initial public offering. Proceeds of $27,371,000 were received
by the Company, net of offering costs of approximately $939,000.
6
<PAGE> 7
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECTRALINK CORPORATION
OVERVIEW
SpectraLink commenced operations in April 1990 to design, manufacture
and sell unlicensed digital wireless telephone communication systems for
businesses. The Company sold its first commercial system in June of 1992.
SpectraLink's primary sales efforts are currently focused on retail stores,
hospitals, nursing homes, distribution centers, manufacturing facilities, and
corporate offices. SpectraLink sells its systems in the United States and
Canada through its direct sales force, telecommunications equipment
distributors, and specialty dealers.
Since inception, the Company has expended considerable effort and
resources developing its wireless telephone systems, building its direct and
indirect channels of distribution, and managing the effects of rapid growth.
This rapid growth has required it to significantly increase the scale of its
operations, including the hiring of additional personnel in all functional
areas, and has resulted in significantly higher operating expenses. The Company
anticipates that its operating expenses will continue to increase.
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
=================================================================================
Three Months Ended March 31,
=================================================================================
1997 1996
- ---------------------------------------------- ----------------- ----------------
<S> <C> <C>
Statement of Operations Data:
- ---------------------------------------------- ----------------- ----------------
Net Sales 100.0% 100.0%
- ---------------------------------------------- ----------------- ----------------
Cost of Sales 48.7% 41.1%
- ---------------------------------------------- ----------------- ----------------
Gross Profit 51.3% 58.9%
- ---------------------------------------------- ----------------- ----------------
Operating Expenses:
- ---------------------------------------------- ----------------- ----------------
Research and Development 15.1% 9.9%
- ---------------------------------------------- ----------------- ----------------
Marketing and Selling 45.6% 28.9%
- ---------------------------------------------- ----------------- ----------------
General and Administrative 9.6% 6.1%
- ---------------------------------------------- ----------------- ----------------
Total Operating Expenses 70.3% 44.9%
- ---------------------------------------------- ----------------- ----------------
(Loss) Income from Operations (19.0%) 14.0%
- ---------------------------------------------- ----------------- ----------------
Investment Income and Other, net 7.0% 0.4%
- ---------------------------------------------- ----------------- ----------------
(Loss) Income Before Income Taxes (12.0%) 14.4%
- ---------------------------------------------- ----------------- ----------------
Income Tax (Benefit) Expense (0.6%) 0.7%
- ---------------------------------------------- ----------------- ----------------
Net (Loss) Income (11.4%) 13.7%
- ---------------------------------------------- ----------------- ----------------
</TABLE>
7
<PAGE> 8
SPECTRALINK CORPORATION
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net Sales. The Company derives its revenue principally from the sale,
installation and service of wireless, on-premises telephone systems. Net sales
increased to $5,566,000 in the first quarter of 1997 from $5,551,000 in the
first quarter of 1996.
Gross Profit. The Company's cost of sales consists primarily of direct
material, direct labor, service expenses and manufacturing overhead. Gross
profit decreased by 13% to $2,854,000 in the first quarter of 1997 from
$3,268,000 in the first quarter of 1996. The Company's gross profit margin
(gross profit as a percentage of net sales) decreased to 51.3% in the first
quarter of 1997 from 58.9% in the first quarter of 1996. The decrease in gross
profit margin was primarily due to ( i ) volume pricing concessions, ( ii ) the
new product introductions, ( iii ) warranty accruals, and ( iv ) adjustments in
realizable value of a sublease of a Company facility. As of May 5, 1997 the
Company consolidated most operations into a new facility.
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 53% to $840,000 in the first quarter of 1997 from
$549,000 in the first quarter of 1996, representing 15.1% and 9.9%,
respectively, of net sales. Research and development expenses in the first
quarter of 1997 were associated with the introduction of new products, and new
digital interfaces to existing PBX systems. In the first quarter of 1996,
research and development efforts were concentrated 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 58% to $2,537,000
in the first quarter of 1997 from $1,603,000 in the first quarter of 1996,
representing 45.6% and 28.9%, respectively, of net sales. These increases were
primarily the result of adding sales personnel to increase market penetration.
General and Administrative. General and administrative expenses consist
primarily of salaries and other expenses for management, finance, accounting,
contract administration, order processing, and human resources as well as legal
and other professional services. General and administrative expenses increased
by 59% to $534,000 in the first quarter of 1997 from $337,000 in the first
quarter of 1996, representing 9.6% and 6.1%, respectively, of net sales. The
increases in expenses were associated with support for increased staffing and
public company activities.
Investment Income and Other (Net). Investment income is the result of the
Company's investments in money market, investment-grade debt securities, and
government securities. Other income is generated primarily from purchase
discounts. The increase in this category from the first quarter of 1996 to the
first quarter of 1997 was primarily due to interest income from investment
activities associated with net proceeds of approximately $27 million from the
public offering completed in May, 1996.
Income Tax. The Company has available tax loss carryforwards to offset
estimated 1997 taxable income. The Company's tax provision in 1997 consists of
an accrual for state and federal alternative minimum taxes estimated at 5% of
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 committed in
advance of sales. The Company currently plans to continue to expand and
increase its operating expenses in an effort to generate and support additional
future revenue. If sales do not materialize in a quarter as expected, the
Company's results of operations for that quarter would be adversely affected.
Net income may be disproportionately affected by a reduction of revenues
because only a small portion of the Company's expenses vary with its revenue.
8
<PAGE> 9
SPECTRALINK CORPORATION
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering (IPO) in May 1996, the Company
financed its operations primarily through private sales of equity securities,
raising a total of $20,100,000 between June 1990 and November 1993. In May of
1996 the Company became a public company and has funds available from the
proceeds of the public offering. (see IPO below)
Operating activities used net cash of $1,349,000 and of $175,000 in the
first quarter of 1997 and 1996, respectively. From the first quarter of 1996 to
the first quarter of 1997, accounts receivable increased by $1,314,000 while
inventory increased by $68,000. The increase in accounts receivable was
primarily due to an increased portion of sales of new products shipped at the
end of the quarter. Investing activities included property and equipment
acquisitions of mainly manufacturing equipment, engineering equipment, computer
equipment, and software of $389,000 in the first quarter of 1997. Property and
equipment acquisitions in the first quarter of 1996 consisted of manufacturing
equipment, engineering equipment, computer equipment and phone equipment and
were $163,000. Investment purchases in the first quarter 1997 were $4,040,000,
compared to none for the first quarter 1996. Investments maturing in the first
quarter 1997 were $4,000,000 and $499,000 matured in the first quarter of 1996.
On February 26, 1997, the board of directors authorized the Company to
repurchase up to 500,000 shares of the Company's common stock through open
market transactions. As of March 31, 1997 the Company had acquired 42,500
shares of the Company's common stock at a cost of $164,000. Financing
activities included the proceeds from the exercise of stock options of $3,000
in the first quarter of 1997 and of $11,000 in the first quarter of 1996. There
were also payments on capital lease obligations of $18,000 in the first quarter
of 1997 and $18,000 in the first quarter of 1996. In the first quarter 1996
financing activities included net borrowing from a bank line of credit of
$270,000. The first quarter of 1997 also included $2,000 in legal expenses
associated with the initial public offering.
As of March 31, 1997, the Company had working capital of $26,884,000
compared to $28,813,000 as of December 31, 1996. Working capital as of March
31, 1997 included $19,365,000 in cash and short-term investments, $5,707,000 in
accounts receivable and $3,702,000 in inventory. As of March 31, 1997, the
Company's current ratio (ratio of current assets to current liabilities) was
12.0:1, compared with a current ratio of 15.7:1 as of December 31, 1996. In
addition the Company has $9,026,000 in government securities which have
maturities greater than 12 months; however no maturity exceeds 24 months.
The Company believes that cash generated from operations and the net
proceeds to the Company of the initial public offering will be sufficient to
fund necessary capital expenditures, to provide adequate working capital and to
finance the Company's expansion for at least the immediate future.
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.
9
<PAGE> 10
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1996
SPECTRALINK CORPORATION
This report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
investors should specifically consider the various factors which could cause
actual results to differ materially from those indicated in such
forward-looking statements. The most important factors that could cause actual
results to differ from those expressed in the forward-looking statements
include, but are not limited to the following:
o The failure of the market for on-premises wireless telephone
systems to grow or to grow as quickly as the Company
anticipates.
o The intensely competitive nature of the wireless communications
industry.
o The ability of the Company and it's distributors to develop and
execute effective marketing and sales strategies.
o The Company's reliance on sole or limited sources of supply for
many components and equipment used in its manufacturing
process.
o The risk of business interruption arising from the Company's
dependence on a single manufacturing facility.
o Any production problems or delays associated with the moving of
the Company's manufacturing facility to a new location in April
and May of 1997.
o The Company's dependence on a single product line.
o The Company's ability to manage potential expansion of
operations.
o The Company's ability to attract and retain key personnel.
o The Company's ability to respond to rapid technological changes
within the on-premises wireless telephone industry.
o Changes in rules and regulations of the Federal Communications
Commission.
o The Company's ability to protect its intellectual property
rights.
o The assertion of intellectual property infringement claims
against the Company
o Changes in economic conditions affecting the Company's
customers.
o Other factors over which the Company has little or no control.
10
<PAGE> 11
SPECTRALINK CORPORATION
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPECTRALINK CORPORATION
Date: May 14, 1997 By: /s/ WILLIAM R. MANSFIELD
---------------------------
William R. Mansfield,
Principal Financial and Accounting Officer
and on behalf of the Registrant
11
<PAGE> 12
SPECTRALINK CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Part II Other Information Page
<S> <C> <C>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule 13
(b) Form 8-K
None
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,375
<SECURITIES> 13,990
<RECEIVABLES> 5,707
<ALLOWANCES> 333
<INVENTORY> 3,702
<CURRENT-ASSETS> 29,321
<PP&E> 3,669
<DEPRECIATION> 1,928
<TOTAL-ASSETS> 40,143
<CURRENT-LIABILITIES> 2,437
<BONDS> 0
0
0
<COMMON> 191
<OTHER-SE> 37,515
<TOTAL-LIABILITY-AND-EQUITY> 40,143
<SALES> 5,566
<TOTAL-REVENUES> 5,566
<CGS> 2,712
<TOTAL-COSTS> 2,712
<OTHER-EXPENSES> 3,911
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (669)
<INCOME-TAX> (34)
<INCOME-CONTINUING> (635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (635)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
