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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
COMMISSION FILE NUMBER 333-2296
POLYCOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3128324
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2584 JUNCTION AVENUE, SAN JOSE, CA 95134-1902
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(408) 526-9000
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
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 (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 ____
There were 19,310,493 shares of the Company's Common Stock, par value
$.0005, outstanding on June 30, 1996
________________________________________________________________________________
_______________________________________________________________________________
TABLE OF CONTENTS
PAGE
NO.
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PART 1 FINANCIAL INFORMATION
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995....................................................................... 3
Condensed Consolidated Statements of Operations for the Three and
Six Month Periods Ended June 30, 1996 and June 30, 1995................................. 4
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1996 and June 30, 1995........................................... 5
Notes to Condensed Consolidated Financial Statements.................................... 6
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 8
PART II OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K.............................................. 14
SIGNATURE.......................................................................................... 15
2
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POLYCOM, INC.
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
1996 1995
------- -------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,428 $ 3,539
Short-term investments 20,566 2,722
Accounts receivable, net 5,281 3,171
Inventories 6,993 5,308
Other current assets 326 191
------- -------
Total current assets 34,594 14,931
Fixed assets, net 2,887 2,970
Other assets 65 99
------- -------
Total assets $37,546 $18,000
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - $ 1,485
Accounts payable 5,034 3,852
Other current liabilities 2,130 1,765
------- -------
Total current liabilities 7,164 7,102
Notes payable, less current portion - 1,178
------- -------
Total liabilities 7,164 8,280
Convertible redeemable preferred stock - 22,360
Stockholders' equity:
Common stock 10 2
Additional paid-in capital 42,733 285
Notes receivable from stockholders (120) (163)
Accumulated deficit (12,241) (12,764)
------- -------
Total stockholders' equity
(deficit): 30,382 (12,640)
Total liabilities and stockholders'
equity $37,546 $18,000
======= =======
The accompanying notes are an integral part of these financial statements.
3
POLYCOM, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- ------- -------- --------
Net revenues $9,250 $5,824 $17,488 $10,726
Cost of net revenues 4,287 2,574 8,059 4,762
------ ------ ------- -------
Gross profit 4,963 3,250 9,429 5,964
------ ------ ------- -------
Operating expenses:
Sales and marketing 2,199 1,676 4,270 3,132
Research and development 2,023 1,760 3,793 3,210
General and administrative 540 456 1,038 921
------ ------ ------- -------
Total operating expenses 4,762 3,892 9,101 7,263
------ ------ ------- -------
Operating income (loss) 201 (642) 328 (1,299)
Interest income, net 200 81 224 127
Other expense, net (12) (23) (29) (98)
------ ------ ------- -------
Net income (loss) $389 ($584) $523 ($1,270)
====== ====== ======= =======
Net income (loss) per share $0.02 ($0.13) $0.03 ($0.29)
====== ====== ======= =======
Weighted average shares
outstanding 18,975 4,340 18,069 4,324
====== ====== ======= =======
The accompanying notes are an integral part of these financial statements.
4
POLYCOM, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
June 30, December 31,
1996 1995
-------- -------
Operating activities
Net income $ 523 $ (1,270)
Adjustments to reconcile net
income to cash provided by operations:
Depreciation and amortization 726 373
Provision for doubtful accounts - 89
Provision for inventory 164 231
Changes in assets & liabilities:
Accounts receivable (2,110) (230)
Inventories (1,848) (1,345)
Other current assets (100) (53)
Accounts payable 1,182 1,479
Other current liabilities 365 751
-------- -------
Cash flow from operations (1,098) 25
Investment activities:
Acquisition of PPE (315) (540)
Proceeds from sale and maturity of
short term investments 83,929 -
Purchase of short term investments (101,773) -
-------- -------
Cash flow from investment activities (18,159) (540)
Financing activities:
Proceeds from issuance of notes payable 1,824 -
Repayment of notes payable and capital leases (4,816) (288)
Proceeds from sale/(repurchase) of common stock 20,078 -
Proceeds from sale of convertible preferred stock - 5,017
Proceeds from repayment of notes receivable
from stockholders 60 -
-------- -------
Cash flow from financing activities 17,146 4,729
-------- -------
Net increase/(decrease) in cash (2,111) 4,214
======== =======
Cash, beginning balance 3,539 5,792
-------- -------
Cash, ending balance $ 1,428 $10,006
======== =======
Cash paid for interest 101 69
PPE purchased for interest 329 362
Common stock issued for notes from shareholders 17 93
The accompanying notes are an integral part of these financial statements.
5
Polycom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1996 and the
condensed consolidated statements of operations for the three and six month
periods ending June 30, 1996 and 1995 and condensed consolidated statements of
cash flows for the six month periods ending June 30, 1996 and 1995, have been
prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations, and cash flows at
June 30, 1996 and for all periods presented have been made. The condensed
consolidated balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. These condensed financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company's Form S-1 Registration Statement dated April 29, 1996
and filed with the Securities and Exchange Commission.
The Company uses a 52-53 week fiscal year. Each reporting period ends on
the last Sunday of a month. As a result, a fiscal year may not end as of the
same day as the calendar year. For convenience of presentation, the
accompanying consolidated financial statements have been shown as ending on June
30 and December 31 of each applicable period.
This Report on Form 10-Q contains forward looking statements that involve
risks and uncertainties, including possible fluctuations in quarterly results;
the market acceptance of ShowStation and the risks associated with this emerging
market; the timely availability and acceptance of new products; the impact of
competitive products and pricing; and the other risks detailed from time to time
in the Company's SEC reports, including the Form S-1 dated April 29, 1996.
2. INITIAL PUBLIC OFFERING
On April 29, 1996, the Company completed its initial offering of stock to
the public. A total of 2,500,000 shares of Common Stock was sold by the
Company, for net proceeds to the Company of approximately $20.0 million, after
deducting expenses of the offering of approximately $975,000 and underwriters'
discounts and commissions. Upon completion of the offering, all outstanding
shares of Preferred Stock (a total of 13,069,857 shares) were converted into
shares of Common Stock on a one-for-one basis.
6
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on a standard cost basis which approximates the first-in, first-out ("FIFO)
method. Inventories consisted of the following (in thousands):
June 30, December 31,
1996 1995
---- ----
Raw Materials $ 3,548 $ 2,355
Work in process $ 469 $ 650
Finished goods $ 2,976 $ 2,303
------- -------
$ 6,993 $ 5,308
======= =======
4. PER SHARE INFORMATION
Net income (loss) per share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issuable upon the exercise
of stock options, using the treasury stock method. Common stock issued under
stock option plan which are subject to repurchase are excluded from shares
issued in the computation of net loss per share as their effect is antidilutive.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Polycom, Inc. (the "Company") was incorporated in December 1990 to develop,
manufacture and market audioconferencing and dataconferencing products that
facilitate meetings at a distance. The Company was engaged principally in
research and development from inception through September 1992, when it began
volume shipments of its first audioconferencing product, SoundStation. The
Company began selling SoundStation internationally in January 1993. The Company
commenced shipments domestically of an enhanced version of this product,
SoundStation EX, in March 1994 and commenced international shipments in November
1994. Through June 30, 1996, the Company derived substantially all of its net
revenues from sales of its SoundStation products. The Company began customer
shipments of its first dataconferencing product, ShowStation, in November 1995.
The Company anticipates that sales of its SoundStation products will continue to
account for a substantial majority of net revenues at least through the year
ending December 31, 1996. Any factor adversely affecting the demand or supply
for the SoundStation product line could materially adversely affect the
Company's business, financial condition or results of operations.
This Report on Form 10-Q contains forward looking statements that involve
risks and uncertainties, including possible fluctuations in quarterly results;
the market acceptance of ShowStation and the risks associated with this emerging
market; the timely availability and acceptance of new products; the impact of
competitive products and pricing; and the other risks detailed from time to time
in the Company's SEC reports, including the Form S-1 dated April 29, 1996.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenues, condensed
consolidated statement of operations data for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
Net revenues 100% 100% 100% 100%
Cost of net revenues 46% 44% 46% 44%
Gross profit 54% 56% 54% 56%
------ ------ ------ ------
Operating expenses:
Sales and marketing 24% 29% 24% 29%
Research and development 22% 30% 22% 30%
General and administrative 6% 8% 6% 9%
------ ------ ------ ------
Total operating expenses 52% 67% 52% 68%
------ ------ ------ ------
Operating income (loss) 2% (11%) 2% (12%)
Interest income, net 2% 1% 1% 1%
Other expense, net 0% 0% 0% (1%)
------ ------ ------ ------
Net income (loss) 4% (10%) 3% (12%)
====== ====== ====== ======
8
Net revenues. The Company's net revenues increased 59% from $5.82 million in
the second quarter of 1995 to $9.25 million in the second quarter of 1996. Net
revenues increased 63% from $10.73 million in the first six months of 1995 to
$17.49 million in the first six months of 1996. Net revenues increased in each
period primarily due to increased unit sales, resulting primarily from increased
market acceptance of the Company's audioconferencing product line, a large, one-
time order during the second quarter of 1996, and, to a lesser extent, through
the expansion of the Company's North American and international distribution
networks, offset in part by a decline in the list price of its SoundStation
products. In addition, net revenues for the first six months of 1996 included
revenues attributable to ShowStation, which was not introduced until November
1995. The Company twice reduced the list price for its SoundStation products,
effective July 1, 1994 and January 1, 1996, and expects increased competitive
pressure to lead to intensified price-based competition, resulting in lower
prices that could materially adversely affect the Company's net revenues.
Through June 30, 1996, the Company derived substantially all of its net revenues
from sales of its SoundStation products. The Company expects that in the future,
its net revenues may grow at a slower rate than has been experienced in previous
periods and that on a quarter-to-quarter basis, the Company's growth, if any, in
net revenues may be significantly lower than its historical quarterly growth
rate. International net revenues accounted for 28% of total net revenues in the
second quarter of 1995 and 22% of total net revenues in the second quarter of
1996. The reduction in the percentage of international net revenues for the
second quarter of 1996 from the second quarter of 1995 resulted from the growth
in the North American distribution network and large direct procurements by
large domestic National Account customers. The Company anticipates that
international sales will continue to account for a significant portion of total
net revenues for the foreseeable future. However, international net revenues may
fluctuate in the future as the Company introduces new products since the Company
expects to initially introduce such products in North America and also because
of the additional time required for product homologation and regulatory
approvals of new products in international markets. To the extent the Company is
unable to expand international sales in a timely and cost-effective manner, the
Company's business, financial condition or results of operations could be
adversely affected. There can be no assurance that the Company will be able to
maintain or increase international market demand for the Company's products. To
date, substantially all of the Company's international sales have been
denominated in U.S. currency; however, the Company expects that in the future
some international sales may be denominated in local currencies. See "Risk
Factors-International Operations" and "-Distribution Risks" in the Company's SEC
reports, including the Form S-1 dated April 29, 1996.
Gross profit. Cost of net revenues consists primarily of manufacturing costs
of the Company and the Company's contract manufacturer, warranty expense and
allocation of overhead expenses. Gross margin represented 56% and 54% of net
revenues in the second quarter and first six months of 1995 and 1996,
respectively. The decrease in gross margins for the second quarter and first
six months of 1996 was principally due to a reduction in the price of the
Company's SoundStation product line to resellers in the fourth quarter of 1995
and to end users in the first quarter of 1996 and to the lower margins on the
first version of the Company's ShowStation product, which was introduced in
November 1995. The Company expects that gross margin will decline significantly
as a result of the 20% reduction in the North American list price of the
Company's SoundStation product line effective January 1, 1996, as well as
continuing competitive price pressure in the audioconferencing market. The
Company's historical price reductions have been driven by the Company's desire
to expand the market for its products, and the Company expects that in the
future it may further reduce prices or introduce new products that carry lower
margins in order to further expand the market or to respond to competitive
pricing pressures, although there can be no assurance that such actions by the
Company will expand the market for its products or be sufficient to meet
competitive pricing pressures. The Company also expects gross margins to
decline due to the lower gross margin for the Company's initial ShowStation
dataconferencing product. The Company's historical product life cycle has been
for initial product versions to have higher product costs than the Company's
targeted gross margin objectives, product costs decline over time as the Company
introduces follow on versions which incorporate cost savings from design and
material changes. There can be no assurance, however, that the Company will be
successful in introducing lower cost versions of its current products.
9
In the future, gross margin may be affected by price competition and changes in
unit volume, product cost and warranty expenses. Gross margin may also be
impacted by the mix of distribution channels used by the Company, the mix of
products sold and the mix of international versus North American revenues. The
Company typically realizes higher gross margin on direct sales than on sales
through indirect channels and higher gross margin on international revenues than
on North American revenues. If sales through resellers, especially OEMs,
increase as a percentage of total revenues, the Company's gross margin will be
adversely impacted.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and commissions, advertising and promotional expenses, allocation of
overhead expenses and customer service and support costs. Sales and marketing
expenses were $1.7 million and $2.2 million in the second quarter of 1995 and
1996, respectively, representing 29% and 24% of net revenues for each respective
period. Sales and marketing expenses were $3.1 million and $4.3 million in the
first six months of 1995 and 1996, respectively, representing 29% and 24% of net
revenues for each respective period. The increase in absolute dollars in each
of these periods was primarily related to the expansion of the Company's sales
and marketing organization, particularly the increase in spending to generate
direct sales, and increased commission expenses related to higher sales volumes.
The Company expects to continue to increase its sales and marketing expenses in
absolute dollar amounts in an effort to expand North American and international
markets, market new products and establish and expand distribution channels. In
particular, due to the innovative nature of the ShowStation products, the
Company incurred significant expenses during the first six months of 1996 to
develop a sales presence for the ShowStation product and believes it will be
required to incur significant additional expenses for sales and marketing,
including advertising, to educate potential customers as to the desirability of
ShowStation. However, there can be no assurance that the Company will be
successful in establishing a market for its ShowStation product. In addition,
the Company currently expects to incur aggregate costs of approximately $350,000
to implement a new sales and service information system during the latter half
of 1996, although there can be no assurance that such costs will not exceed this
amount.
Research and development. Research and development expenses consist
primarily of compensation costs, consulting fees, allocation of overhead
expense, supplies, depreciation of equipment, and product marketing expenses.
Research and development expenses were $1.8 million and $2.0 million for second
quarter of 1995 and 1996, respectively, representing 30% and 22% of net revenues
for each respective period. Research and development expenses were $3.2 million
and $3.8 million for the fist six months of 1995 and 1996, respectively,
representing 30% and 22% of net revenues for each respective period. The
increase in dollar amount in research and development expenses in each of these
periods was primarily attributable to increased staffing and associated support
to expand and enhance the Company's product lines. During the quarter, the
Company changed the classification of certain test development expenses which
had been included in cost of net revenues in prior periods to research and
development expense. Prior periods have not been restated as the amounts are
not material. As of June 30, 1996, all research and development costs have been
expensed as incurred. The Company believes that technological leadership is
critical to its success. The inability of the Company to develop and introduce
new audioconferencing or dataconferencing products or enhancements on a timely
and cost-effective basis that contribute to net revenues could have a material
adverse effect on the Company's business, financial condition or results of
operations. Therefore, the Company is committed to continuing a high level of
research and development and expects to increase the absolute amount of its
research and development expenses in the future. In addition, in the past the
Company has experienced delays from time to time in the introduction of certain
new products and enhancements and expects that such delays may occur in the
future. For instance, ShowStation shipments were interrupted for approximately
six weeks in the first quarter of 1996 to correct software and other technical
problems and subsequent to the end of the second quarter of 1996, the Company
has placed on back order certain desktop communications software that is sold by
the Company in conjunction with its ShowStation products while the software
vendor corrects certain software bugs. Any such delays could have a material
adverse effect on the Company's results of operations. See "Risk Factors--Rapid
Technological Change; Dependence on New Products" in the Company's SEC reports,
including the Form S-1 dated April 29, 1996.
General and administrative. General and administrative expenses consist of
compensation costs, allocation of overhead expense and outside legal and
accounting expenses. General and administrative expenses were $456,000 and
$540,000 for the second quarter of 1995 and 1996, respectively, representing 8%
and 6% of net revenues for each respective period. General and administrative
expenses were $921,000 and $1.0 million in the first six months of 1995 and
1996, respectively, representing 9% and 6% of net revenues for each respective
period. The increase in dollar amount in each period was primarily due to
increased staffing to support the Company's growth and, during the first six
months of 1996, to costs related to the patent litigation. The Company believes
that its general and administrative expenses will increase in absolute dollar
amounts in the future primarily as a result of expansion of the Company's
administrative staff, the cost of continuing patent litigation and costs related
to being a public company. The cost of the continuing patent litigation also may
vary from quarter to quarter depending upon the activity level associated with
this litigation and therefore may cause the Company's operating results to
fluctuate on a quarterly basis.
10
Provision for income taxes. The Company accounts for income taxes in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
Company incurred a net loss and consequently paid no federal or state income
taxes in 1995 and expects to pay minimal federal and state income taxes in 1996.
As of December 31, 1995, the Company had approximately $8.3 million in federal
net operating loss carryforwards and $943,000 in tax credit carryforwards. The
future utilization of the Company's net operating loss carryforwards may be
subject to certain limitations upon certain changes in ownership. The Company
believes that its initial public offering on April 29, 1996 triggered a change
in ownership pursuant to the Internal Revenue Code of 1986, as amended such that
the annual limitation for utilization of federal net operating loss
carryforwards will be approximately $7.1 million.
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred tax
assets and the level of the valuation allowance. At such time it is determined
that it is more likely than not that deferred tax assets are realizable, the
valuation allowance will be appropriately reduced. See Note 11 of Notes to
Consolidated Financial Statements in the Company's SEC reports, including the
Form S-1 dated April 29, 1996.
OTHER FACTORS EFFECTING FUTURE OPERATIONS
The Company's operating results have fluctuated in the past and will
fluctuate in the future as a result of a number of factors, including market
demand for the Company's audioconferencing products, market acceptance of the
ShowStation products and other products, new product introductions and product
enhancements by the Company or its competitors, the prices of the Company's or
its competitors' products, the mix of products sold, the mix of products sold
directly and through resellers, fluctuations in the level of international
sales, the cost and availability of components, manufacturing costs, the level
of warranty claims, changes in the Company's distribution network, the level of
royalties to third parties and changes in general economic conditions. In
addition, competitive pressure on pricing in a given quarter could adversely
affect the Company's operating results for such period, and such price pressure
over an extended period could materially adversely affect the Company's long-
term profitability. The Company also expects that gross margin will continue to
decline significantly due to several factors, including lower gross margin for
the Company's dataconferencing products, as well as continuing competitive price
pressure in the audioconferencing market. The Company's ability to maintain or
increase net revenues will depend upon its ability to increase unit sales
volumes of its SoundStation, SoundStation EX, ShowStation and any new products
or product enhancements. To the extent that the Company ships a large, one-time
order during a given quarter, as it did during the second quarter of 1996, which
does not reoccur in subsequent quarters, the Company's net revenues could
fluctuate between such periods, resulting in a material adverse effect on the
Company's operating results. There can be no assurance that the Company will be
able to increase unit sales volumes of existing products, introduce and sell new
products or reduce its costs as a percentage of net revenues. The Company
typically ships products within a short time after receipt of an order, does not
usually have a significant backlog and backlog fluctuates significantly from
period to period. As a result, backlog at any point in time is not a good
indicator of future net revenues and net revenues for any particular quarter
cannot be predicted with any degree of accuracy. Accordingly, the Company's
expectations for both short- and long-term future net revenues are based in
large part on its own estimate of future demand and not on firm customer orders.
Expense levels are based, in part, on these estimates and, since the Company is
limited in its ability to reduce expenses quickly if orders and net revenues do
not meet expectations in a particular period, operating results would be
adversely affected. In addition, a seasonal demand may develop for the Company's
products in the future. Due to all of the foregoing factors, it is likely that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected. See
"Risk Factors-Limited Operating History; History of Losses" in the Company's SEC
reports, including the Form S-1 dated April 29, 1996.
11
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its
capital expenditure requirements primarily from proceeds from the private sale
of Preferred and Common Stock. From inception through March 31, 1996, the
Company raised approximately $22.6 million from the sale of Preferred and Common
Stock.
On April 29, 1996, the Company completed its initial offering of stock to
the public. A total of 2,500,000 shares of Common Stock was sold by the
Company, for net proceeds to the Company of approximately $20.0 million, after
deducting expenses of the offering of approximately $975,000 and underwriters'
discounts and commissions. Upon completion of the offering, all outstanding
shares of Preferred Stock (a total of 13,069,857 shares) were converted into
shares of Common Stock on a one-for-one basis.
As of June 30, 1996, the Company's principal sources of liquidity included
cash, cash equivalents and short-term investments of $22.0 million, and a $4.0
million revolving bank line of credit from Silicon Valley Bank (of which $3.5
million was available as of June 30, 1996) which expires on April 15, 1997. The
Company has in the past negotiated an extension of the line of credit annually,
although there can be no assurance that the Company will be successful in
extending the term of the line of credit beyond April 15, 1997. The line of
credit was modified in December 1995 and currently provides for borrowings up to
the lesser of (i) $4.0 million, or (ii) the sum of 80% of eligible domestic and
government accounts receivable and 50% of eligible foreign accounts receivable
minus the sum of the aggregate outstanding face amount of all letters of credit
issued under the line. Eligible accounts receivable are defined as receivables
outstanding less than 90 days. Borrowings under the line bear interest at the
bank's prime rate plus 1.0% (8.25% at June 30, 1996), and are collateralized by
substantially all of the Company's assets. The line of credit facility contains
provisions that require the maintenance of certain financial ratios and
profitability requirements. As of June 30, 1996, the Company was in compliance
with these convenants. See "Use of Proceeds" and Note 7 of Notes to
Consolidated Financial Statements in the Company's SEC reports, including the
Form S-1 dated April 29, 1996.
The Company used $1.1 million in cash from operating activities in the six
month period ending June 30, 1996. The use of cash was primarily attributable
to increased levels of accounts receivables and inventories, partially offset by
an increase in accounts payable and accrued liabilities. The increase in
accounts receivable was primarily due to the increase in net revenues.
Inventories increased as the Company increased raw materials and work-in-process
materials in support of the ShowStation launch. The increase in provision for
excess and obsolete inventories was directly related to increased inventory
levels. The Company generated $25,000 in cash from operating activities in the
six month period ending June 30, 1995. The cash generation was primarily
attributable to the increases in accounts payable and accrued liabilities
associated with the Company build up of finished goods inventory of SoundStation
products in anticipation of the transfer of the SoundStation product line
manufacturing to Flextronics in the first quarter of 1996, offset by operating
losses and the increased inventory levels.
The Company used $540,000 and $18.2 million of net cash in investing
activities in the six months ended June 30, 1995 and 1996, respectively, to
purchase property and equipment and in the six months ended June 30, 1996, to
purchase short-term investments. Financing activities provided $4.7 million and
$17.2 million of net cash in the six months ended June 30, 1995 and 1996, due
primarily to the issuance of Preferred Stock in 1995 and common stock issued as
part of the Company's initial public offering in 1996, net of the repayment of
the Company's outstanding bank debt.
12
The Company has no material commitments other than obligations under its
revolving bank line of credit and operating leases. The Company's revolving
bank line of credit secure two stand-by letters of credit, totaling $600,000,
which have been issued to guarantee certain of the Company's contractual
obligations. The stand-by letters of credit expire on April 15, 1997. The
Company estimates that 1996 capital expenditures will be approximately $1.8
million. See Notes 6 and 7 of Notes to Consolidated Financial Statements in the
Company's SEC reports, including the Form S-1 dated April 29, 1996.
The Company used approximately $2.4 million of the net proceeds from its
initial public offering on April 29, 1996 for the repayment of all amounts
outstanding under a revolving bank line of credit and a term loan agreement with
Silicon Valley Bank. The Company expects that it will use the balance of the
net proceeds for general corporate purposes, including working capital. The
Company believes that the net proceeds from this offering, together with
available cash, will be sufficient to meet the Company's operating expenses and
capital requirements for at least the next twelve months. Thereafter, the
Company may require additional funds to support its working capital requirements
or for other purposes and may seek to raise such additional funds through public
or private equity financing or from other sources. There can be no assurance
that additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company and would not be
dilutive. The Company's future liquidity and cash requirements will depend on
numerous factors, including introduction of new products and potential product
family or technology acquisitions. A portion of the net proceeds may also be
used for the acquisition of, or investments in, businesses, products or
technologies. The Company has no present plans, agreements or commitments and
is not currently engaged in any negotiations with respect to any such
transaction.
13
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
NUMBER EXHIBIT
- - ------ -----------------------------------------------------------------
11.1 Computation of Net Income (Loss) per Common and Common Equivalent
Share
27 Financial data Schedule
99 Report on Form 8-K: 8-K filed on May 14, 1996 regarding Polycom,
Inc. vs. U.S. Robotics.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Dated: August 14, 1996 POLYCOM, INC.
/s/ Michael R. Kourey
--------------------------------------
Michael R. Kourey
Chief Financial Officer
(Duly Authorized Officer and Principle
Financial and Accounting Officer)
15