-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NEL/bj49V6SrYQIq0a9zf9sa65WGJ0IQbUj5Y4Q6Cpksxh1c+/bQ3lRxNBt4J/3J 4trTVc3zcF2Lj3zXuTUdtA== 0000950144-99-006266.txt : 19990518 0000950144-99-006266.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950144-99-006266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELITA INTERNATIONAL CORP CENTRAL INDEX KEY: 0001034956 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 581378534 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22317 FILM NUMBER: 99626279 BUSINESS ADDRESS: STREET 1: 5051 PEACHTREE CORNERS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30092-2500 BUSINESS PHONE: 7702394000 MAIL ADDRESS: STREET 1: 5051 PEACHTREE CORNERS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30092-2500 10-Q 1 MELITA INTERNATIONAL CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ] 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 0-22317 ------- MELITA INTERNATIONAL CORPORATION (Exact Name of Registrant as Specified in its Charter) GEORGIA 58-1378534 (State or other Jurisdiction of Incorporation (I.R.S. Employer Identification or Organization) Number)
5051 PEACHTREE CORNERS CIRCLE NORCROSS, GEORGIA 30092-2500 (770) 239-4330 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 --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value, outstanding as of May 12, 1999: 15,651,102 shares. 2 PART 1 - FINANCIAL INFORMATION
Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998. 3 Unaudited Consolidated Statements of Operations for the three months ended March 31, 1999 4 and 1998. Unaudited Consolidated Statement of Cash Flows for the three months ended March 31, 1999 5 and 1998. Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and 9 Results of Operations. Item 3. Quantitative and Qualitative Disclaimers About Market Risk 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits 13 Signatures 14
2 3 MELITA INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
March 31, December 31, 1999 1998 --------- ------------ (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $10,344 $ 7,684 Marketable securities 22,917 22,756 Accounts receivable, net of allowance for doubtful accounts of $3,074 at March 31, 1999 and $2,450 at December 31, 1998 36,546 32,287 Inventories 442 1,260 Deferred taxes 3,731 3,731 Prepaid expenses and other 414 403 ------- ------- Total current assets 74,394 68,121 Property and equipment, net of accumulated depreciation 7,342 7,008 Other assets 262 179 ------- ------- $81,998 $75,308 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,057 $ 6,624 Accrued liabilities 12,774 11,835 Deferred revenue 7,071 5,965 Customer deposits 1,223 815 ------- ------- Total current liabilities 27,125 25,239 Stockholders' Equity Common Stock, no par value, 100,000,000 shares authorized 15,633,615 outstanding at March 31, 1999 and 15,270,738 issued and outstanding at December 31, 1998 69 69 Additional paid-in capital 38,372 37,075 Accumulated other comprehensive income 70 96 Retained earnings 16,362 12,829 Total stockholders' equity 54,873 50,069 ------- ------- Total liabilities and stockholders' equity $81,998 $75,308 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. 3 4 MELITA INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED)
For the three months ended March 31, 1999 1998 ------- ------- Net revenues: Product $19,828 $14,820 Service 7,716 5,552 ------- ------- Total revenues 27,544 20,372 Cost of revenues: Product 6,139 4,760 Service 4,013 2,787 ------- ------- Total cost of revenues 10,152 7,547 ------- ------- Gross margin 17,392 12,825 Operating expenses: Research and development 3,050 2,295 Selling, general and administrative 9,112 6,822 ------- ------- Total operating expenses 12,162 9,117 ------- ------- Income from operations 5,230 3,708 Other income (expense), net 290 273 ------- ------- Income before income taxes 5,520 3,981 Income tax provision 1,987 1,433 ------- ------- Net income after income tax $ 3,533 $ 2,548 ======= ======= Earnings per share Basic $ 0.23 $ 0.17 ======= ======= Diluted $ 0.22 $ 0.16 ======= ======= Weighted average common and common equivalent shares Basic 15,501 15,168 Diluted 16,178 15,992
The accompanying notes are an integral part of these consolidated statements. 4 5 MELITA INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
For the three months ended March 31, 1999 1998 ------- ------- Cash flows from operating activities: Net income $ 3,533 $ 2,548 Adjustments to reconcile net income to net cash provided by(used in) operating activities: Depreciation and amortization 584 386 Changes in assets and liabilities: Accounts receivable, net (4,258) (4,284) Inventories 818 (158) Prepaid expenses and other assets (11) (130) Accounts payable (567) (31) Accrued liabilities 939 1,210 Deferred revenue 1,106 1,043 Customer deposits 408 (1,258) Other, net (59) (47) ------- ------- Total adjustments (1,040) (3,269) ------- ------- Net cash provided by operating activities 2,493 (721) Cash flows from investing activities: Purchases of property and equipment (919) (1,166) Purchase of marketable securities (211) 953 ------- ------- Net cash (used in) investing activities (1,130) (213) Cash flows from financing activities: Repayment of capital lease obligations -- -- Net proceeds from issuance of common stock 1,297 6 Repayment of note payable to stockholder -- -- Distributions to stockholders -- -- ------- ------- Net cash provided by financing activities 1,297 6 Net change in cash and cash equivalents 2,660 (928) Cash and cash equivalents, beginning of period 7,684 6,845 ------- ------- Cash and cash equivalents, end of period 10,344 5,917 Marketable securities 22,917 23,030 ------- ------- Cash, cash equivalents and marketable securities $33,261 $28,947 ======= ======= Supplemental Disclosures of Cash Flow Information: Income taxes paid $ 1,276 $ 203 ======= =======
The accompanying notes are an integral part of these consolidated statements. 5 6 MELITA INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) 1. Basis of Presentation The unaudited consolidated financial statements presented herein have been prepared in accordance with generally accepted accounting principles applicable to interim financial statements. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, these consolidated financial statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position as of March 31, 1999 and 1998. The interim results for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company's combined financial statements for the fiscal year ended December 31, 1998, as filed in its annual report on form 10-K. 2. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. 3. Inventories Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following at:
March 31, 1999 December 31, 1998 -------------- ----------------- Raw Materials $ 157 $ 143 Work in process 28 37 Finished goods 257 1,080 ----- ------- Total inventories $ 442 $ 1,260 ===== =======
6 7 4. Earnings Per Share Earnings per share are computed using the weighted-average number of common stock and diluted common stock equivalents ("CSE") shares from stock options (using the treasury stock method) outstanding during each period. The following table presents the components of diluted weighted average shares outstanding.
For the three months ended For the three months ended March 31, 1999 March 31, 1998 -------------------------- -------------------------- Weighted average shares outstanding Basic weighted average shares outstanding 15,501 15,168 Weighted average common equivalent shares 677 824 ------- ------- Diluted weighted average shares outstanding 16,178 15,992 ======= =======
5. Revenue Recognition In October, 1997 the American Institute of Certified Public Accountants issued Statement Of Position 97-2, Software Revenue Recognition ("SOP 97-2"). The Company adopted SOP 97-2 in the first quarter of 1998. The Company believes that its revenue recognition practices are consistent with those required by SOP 97-2. 7 8 6. Other Comprehensive Income In June, 1997 the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income. Statement of Financial Accounting Standards No. 130 establishes standards for the disclosure of all components of comprehensive income. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company adopted SFAS No. 130 in 1998. The changes in the components of other comprehensive income are reported as follows (in thousands):
For the three months ended March 31, 1999 1998 ------- ------- Net income as reported $ 3,533 $ 2,548 ======= ======= Other comprehensive income: Foreign currency translation $ (24) $ 21 Unrealized gains on securities, net (50) 29 ------- ------- Other comprehensive income $ (74) $ 50 ======= =======
7. Recently Issued Accounting Standards In June, 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 is required for fiscal years beginning after June 15, 1999. The Company does not believe that the adoption of this standard will have a material impact on its financial position or results of operations. 8 9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended March 31, 1999 and 1998 Revenues Product. We increased our product revenues by 33.8% from $14.8 million in the first quarter 1998 to $19.8 million in the same period 1999. The increase in product revenues was due to continued strong demand for our PhoneFrame Explorer product line, increased marketing and sales efforts, increased international sales through the direct channel and increased sales through distribution channels. Service. We increased our service revenues by 39.0% from $5.5 million in the first quarter 1998 to $7.7 million in the same quarter 1999. Service revenues increased primarily due to an increase in the number of maintenance and support agreements and, to a lesser degree, from revenues generated by installation of new systems, upgrades to existing systems and consulting services. Cost of Revenues Product. The cost of product revenues includes the cost of material, the cost of sublicensing third-party software, personnel-related costs for internal product assembly and fees paid to third parties for outsourced product assembly. Cost of product revenues increased from $4.8 million, or 32.1% of related product revenues, in the first quarter 1998, to $6.1 million, or 31.0% of related product revenues in the first quarter of 1999. The increase in absolute dollars in the cost of product revenues was due to the increase in the volume of shipments of our products. The decrease, as a percentage of product revenues, was primarily due to product design improvements, reduced material purchase costs, and lower hardware content of the systems. Service. The cost of service revenues primarily consists of employee-related costs for customer support, consulting and field service personnel and fees paid to third parties for installation services and post- installation hardware maintenance services. Cost of service revenues increased from $2.8 million, or 50.2% of related service revenues, in the first quarter 1998, to $4.0 million, or 52.0% of related services revenues, in the first quarter of 1999. The increase in absolute dollars in the cost of service revenues was primarily due to the increase in service personnel to support the larger installed customer base and higher volume of installations. The increase as a percentage of service revenues, was primarily due to increased infrastructure spending for international operations and to support expansion of domestic indirect distribution channels. Operating Expenses Engineering, research and development. Engineering, research and development expenses primarily consist of employee-related costs for engineering personnel involved with software, voice processing and CTI technology development. Also included are outside contractor costs for development projects and expendable equipment purchases. Engineering, research and development costs increased from $2.3 million, or 11.3% of total revenues, in the first quarter of 1998, to $3.0 million, or 11.1% of total revenues, in the first quarter of 1999. The increase in absolute dollars resulted primarily from the addition of developers and outside contractors to support our new product development efforts, which were focused on continued enhancements to PhoneFrame Explorer and ongoing development of future products, including Enterprise Explorer. The decrease as a percentage of total revenue was due to the increased volume of revenue. We intend to continue to invest heavily in product development activities. As a result, we expect that engineering, research and development costs will increase in absolute dollars and may increase as a percentage of revenues in the future. Selling, general and administrative. Selling, general and administrative expenses consist primarily of employee-related costs for sales, marketing, administrative, finance and human resources personnel. Also included are marketing expenditures for trade shows, advertising and other promotional expenditures. Selling, general and administrative costs increased from $6.8 million, or 33.5% of total revenues, in the first quarter of 1998, to $9.1 million, or 33.1% of total revenues, in the same period 1999. This increase in absolute dollars was primarily related to the expansion of our sales and marketing resources, increased commission expenses due to higher sales, and increased levels of marketing activities. The decrease as a percentage of total revenues was primarily a result of leveraging the infrastructure and improvements to operating efficiencies. We intend to continue to expand our sales, marketing and sales support operations in 1999. As a result, we expect selling, general and administrative costs will increase in absolute dollars and may increase as a percentage of revenue in the future. 9 10 Other Income (Expense), Net Other income (expense), net increased from $273,000 in the first quarter of 1998 to $290,000 in the first quarter of 1999. This income was primarily due to interest income earned on our investments in marketable securities. FINANCIAL CONDITION Total assets as of March 31, 1999, were $82.0 million, an increase of $6.7 million from December 31, 1998. The increase was primarily due to increases in cash, accounts receivable and net property and equipment. Accounts receivable increased $4.3 million primarily due to an increased proportion of sales through distribution and international channels as well as a large percentage of sales activity occurring late in the quarter. Historically, bad debt write-offs have been less that 1% of total revenue. Net property and equipment increased by $.3 million primarily due to purchases of equipment and software to support the increased number of employees and purchases of equipment used for development purposes. Current liabilities as of March 31, 1999 were $27.1 million, an increase of $1.9 million from December 31, 1998. The increase was primarily due to an increase in accrued income taxes, employee related compensation and deferred revenue. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, the Company had $33.3 million in cash, cash equivalents and marketable securities, compared to $30.4 million as of December 31, 1998. The Company's working capital was $47.3 million for the period ending March 31, 1999 as compared to $42.9 million for period ending December 31, 1998. Operating activities provided $2.5 million during the first three months of fiscal 1999. Cash used in investing activities totaled $1.1 million during the first three months of fiscal 1999. Such investing activities consisted of purchases of property and equipment and an increase in short term interest bearing investments. The Company anticipates that existing cash and cash equivalents will be adequate to meet its cash requirements for the next twelve months. IMPACT OF THE YEAR 2000 ISSUE YEAR 2000 READINESS Introduction Many currently installed computer systems and software products are coded to accept only two digit entries in date code fields. Beginning in the year 2000, many of these systems will need to be modified to accept four digit entries or otherwise distinguish twenty-first century dates from twentieth century dates. As a result, over the next year, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. The Company's State of Readiness Our management has chartered a Year 2000 Committee and charged it with the task of evaluating our Year 2000 readiness and recommending action that we should take to minimize disruption from the Year 2000 issue. The Year 2000 Committee has developed a comprehensive checklist, or Year 2000 Plan, to address our Year 2000 readiness with respect to both IT and non-IT systems. The Year 2000 Plan covers all major and minor IT and non-IT systems potentially impacted by the Year 2000. Beginning in the second quarter of 1998, we initiated a quarterly review of the status of resolution of any items in the Year 2000 Plan. The latest versions of our products are designed to be Year 2000 compliant. We are in the process of determining the extent to which our earlier software products as implemented in our installed customer base are Year 2000 compliant, as well as the impact of any non-compliance on us and our customers. 10 11 To operate our business, we rely upon relationships with third parties over which we can assert little control. The Year 2000 Committee is in the process of assessing the risks associated with the failure of such third parties to adequately address the Year 2000 issue. The Year 2000 Committee is also assessing the risks associated with non-IT systems on which our operations rely that may contain microcontrollers or embedded systems technologies that are not Year 2000 compliant. The Costs to Address Our Year 2000 Issues We estimate that the cost to address our Year 2000 issues will not have a material impact on operations. The Risks of Our Year 2000 Issues We do not currently believe that the effects of any Year 2000 non-compliance in our installed base of software adversely affect our business, financial condition and results of operations. However, our investigation is not yet completed, and no assurance can be given that we will not be exposed to potential claims resulting from system problems associated with the century change. There can also be no assurance that our software products that are designed to be Year 2000 compliant contain all necessary date code changes. In addition, Year 2000 non-compliance in our internal IT systems and certain non-IT systems on which our operations rely or non-compliance by our business partners could adversely affect our business, financial condition and results of operations. We believe that the purchasing patterns of customers and potential customers may be affected by Year 2000 issues in a variety of ways. Many companies are expending significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by us. Potential customers may also choose to defer purchasing Year 2000 compliant products until they believe it is absolutely necessary, thus potentially resulting in stalled market sales within the industry. Conversely, Year 2000 issues may cause other companies to accelerate purchases, thereby causing an increase in short-term demand and a consequent decrease in long-term demand for software products. Additionally, Year 2000 issues could cause a significant number of companies, including our current customers, to reevaluate their current software needs and as a result switch to other systems or suppliers. Any of the foregoing could adversely affect our business, financial condition and results of operations. Our Contingency Plans We are prepared to develop contingency plans for business functions that are susceptible to a substantive risk of disruption resulting from a Year 2000 related event. However, we have not yet identified any business function that is materially at risk of Year 2000 related disruption, and thus have not yet developed detailed contingency plans specific to Year 2000 events for any business function. We are prepared for the possibility, however, that certain business functions may be hereafter identified as at risk. We will develop contingency plans for such business functions as and if such determinations are made. FORWARD LOOKING STATEMENTS Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements related to plans for future business development activities, anticipated costs of revenues, product mix and service revenues, research and development and selling, general and administrative activities, and liquidity and capital needs and resources. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Investors are cautioned that any forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward looking statements. 11 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLAIMERS ABOUT MARKET RISK. FOREIGN EXCHANGE During the three months ended March 31, 1999, total revenues for the Company's international operations were approximately 30% of the Company's total revenues for all operations. The Company's international business is subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, the Company's future results could be materially adversely impacted by changes in these or other factors. The effect of foreign exchange rate fluctuations on the Company during the first quarter of 1999 was not material. INTEREST RATES The Company invests its cash in a variety of financial instruments, including taxable and tax-advantaged variable rate and fixed rate obligations of corporations, municipalities, and local, state and national governmental entities and agencies. These investments are denominated in U.S. dollars. Cash balances in foreign currencies overseas are operating balances. Interest income on the Company's investments is carried in "Other income, net" on our Consolidated Financial statements. The Company accounts for its investment instruments in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). All of the cash equivalents and short-term investments are treated as available-for-sale under SFAS 115. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates, or the Company may suffer losses in principal if forced to sell securities which have seen a decline in market value due to changes in interest rates. The weighted-average interest rate on investment securities at March 31, 1999 was approximately 3.77% based on predominately tax free instruments. The fair value of securities held at March 31, 1999 was $22,863 million. 12 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is not party to any material legal proceedings Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits. (a) Exhibit 27 Financial Data Schedule (for SEC use only). 13 14 SIGNATURES 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 undersigned hereunto duly authorized. MELITA INTERNATIONAL CORPORATION Date: May 17, 1999 By: /s/ Aleksander Szlam ------------------------------------- Aleksander Szlam Chairman and Chief Executive Officer Date: May 17, 1999 By: /s/ Dan K. Lowring ------------------------------------- Dan K. Lowring Vice President, Administration and Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 10,344 22,917 39,620 3,074 442 74,394 15,873 8,531 81,998 27,125 0 0 0 69 54,804 81,998 27,544 27,544 10,152 10,152 12,162 0 0 5,520 1,987 0 0 0 0 3,533 .23 .22
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