-----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, D6LOkN7MEKfJg7gH8l4opwmlLI1CG9LdJmUZ81mb33+nnzSkVuw/JjU54ih0o9MY 7gO5QzpMnlDRDzAXeldMQA== 0000931763-98-001401.txt : 19980518 0000931763-98-001401.hdr.sgml : 19980518 ACCESSION NUMBER: 0000931763-98-001401 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNTELLECT INC CENTRAL INDEX KEY: 0000758830 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 860486871 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18323 FILM NUMBER: 98623826 BUSINESS ADDRESS: STREET 1: 1000 HOLCOMB WOODS PARKWAY STREET 2: SUITE 410A CITY: ROSWELL STATE: GA ZIP: 30076 BUSINESS PHONE: 7705870700 MAIL ADDRESS: STREET 1: 1000 HOLCOMB WOODS PARKWAY STREET 2: SUITE 410A CITY: ROSWELL STATE: GA ZIP: 30076 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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, 1998 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: 0-18323 SYNTELLECT INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 86-0486871 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER) INCORPORATION) 1000 HOLCOMB WOODS PARKWAY, SUITE 410A, ROSWELL, GEORGIA 30076 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) (770) 587-0700 (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 [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 13,581,073 shares of common stock, $.01 par value per share, were outstanding on May 14, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SYNTELLECT INC. AND SUBSIDIARIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets--March 31, 1998 and December 31, 1997...................................................... 3 Unaudited Condensed Consolidated Statements of Operations--Three Months Ended March 31, 1998 and March 31, 1997................................ 4 Unaudited Condensed Consolidated Statements of Cash Flows--Three Months Ended March 31, 1998 and March 31, 1997................................ 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.................................. 10 SIGNATURES................................................................ 11 EXHIBITS Exhibit 27.1--Financial Data Schedule--1998............................. 12 Exhibit 27.2--Financial Data Schedule--1997............................. 13
2 SYNTELLECT INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ ASSETS Current assets: Cash and cash equivalents............................. $ 3,950 $ 2,290 Marketable securities ($1.1 million restricted)....... 5,770 8,233 Trade receivables, net of allowance for doubtful accounts of $912 and $1,199, respectively............ 10,949 10,894 Notes receivables--current portion.................... 872 856 Inventories........................................... 2,837 2,593 Prepaid expenses...................................... 1,023 714 -------- -------- Total current assets................................ 25,401 25,580 Property and equipment, net............................. 5,657 5,813 Notes receivable--noncurrent portion.................... 3,182 3,361 Other assets............................................ 99 54 -------- -------- $ 34,339 $ 34,808 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable...................................... $ 2,749 $ 2,160 Accrued liabilities................................... 4,944 5,471 Customer deposits..................................... 1,681 1,081 Deferred revenue...................................... 3,448 3,197 Capital lease obligations--current portion............ 188 183 -------- -------- Total current liabilities........................... 13,010 12,092 Capital lease obligations--noncurrent portion........... 481 530 -------- -------- Total liabilities................................... 13,491 12,622 -------- -------- Shareholders' equity: Preferred stock, $.01 par value per share. Authorized 2,500,000 shares; no shares issued or outstanding.... -- -- Common stock, $.01 par value per share. Authorized 25,000,000 shares; issued and outstanding, 13,581,073 and 13,576,761, respectively......................... 136 136 Additional paid-in capital............................ 60,743 60,727 Deferred compensation................................. (33) (33) Accumulated deficit................................... (38,879) (37,454) Accumulated other comprehensive income................ 22 (49) -------- -------- 21,989 23,327 Treasury stock, at cost, 175,732 shares............... (1,141) (1,141) -------- -------- Total shareholder's equity.......................... 20,848 22,186 -------- -------- $ 34,339 $ 34,808 ======== ========
See accompanying notes to unaudited condensed consolidated financial statements. 3 SYNTELLECT INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- Net revenues: System sales........................................... $ 4,300 $ 8,726 Service bureau......................................... 2,220 2,564 Maintenance and other services......................... 4,541 3,581 --------- --------- Total net revenues................................... 11,061 14,871 Cost of revenues: System sales........................................... 2,867 4,531 Service bureau......................................... 1,371 1,683 Maintenance and other services......................... 1,158 1,011 --------- --------- Total cost of revenues............................... 5,396 7,225 --------- --------- Gross margin......................................... 5,665 7,646 Operating expenses: Selling, marketing and administrative.................. 5,156 5,183 Research and development............................... 1,449 1,458 Depreciation and amortization.......................... 677 950 --------- --------- Total operating expenses............................. 7,282 7,591 --------- --------- Operating income (loss).................................. (1,617) 55 Other income (expense) Interest income........................................ 196 73 Other.................................................. (4) (18) --------- --------- Total other income................................... 192 55 --------- --------- Income (loss) before income taxes........................ (1,425) 110 Income taxes........................................... -- 4 --------- --------- Net income (loss)...................................... $ (1,425) $ 106 ========= ========= Net income (loss) per common share--basic................ $ (.10) $ .01 ========= ========= Net income (loss) per common share--diluted.............. $ (.10) $ .01 ========= ========= Weighted average shares--basic........................... 13,579 13,485 ========= ========= Weighted average shares--diluted......................... 13,579 14,042 ========= ========= Other comprehensive income, net of tax: Foreign currency translation adjustment................ 65 (223) Unrealized (loss) on marketable securities............. 6 3 --------- --------- Other comprehensive income (loss)........................ 71 (220) --------- --------- Comprehensive income (loss).............................. $ (1,354) $ (114) ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 4 SYNTELLECT INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- Cash flows from operating activities: Net income (loss)...................................... $ (1,425) $ 106 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................ 677 950 Provision for doubtful accounts...................... 81 80 Provision for inventory obsolescence................. -- 10 Stock option compensation expense.................... -- 9 (Increase) in receivables............................ (136) (792) (Increase) decrease in inventories................... (244) 538 Increase in accounts payable......................... 589 469 (Decrease) in accrued liabilities.................... (527) (587) Change in other assets and liabilities............... 411 95 --------- --------- Net cash provided (used) by operating activities... (574) 878 --------- --------- Cash flows from investing activities: Purchase of marketable securities...................... (3,196) (5,030) Maturities of marketable securities.................... 5,665 3,160 Proceeds from notes receivable......................... 250 Purchase of property and equipment..................... (521) (927) --------- --------- Net cash provided (used) in investing activities... 2,198 (2,797) --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock................. 16 10 Principal payments on long-term debt................... (45) (148) --------- --------- Net cash used in financing activities.............. (29) (138) --------- --------- Effect of exchange rates on cash......................... 65 (223) --------- --------- Net increase (decrease) in cash and cash equivalents..... 1,660 (2,280) Cash and cash equivalents at beginning of period......... 2,290 4,928 --------- --------- Cash and cash equivalents at end of period............... $ 3,950 $ 2,648 ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest................................. $ 14 $ 33 ========= ========= Cash paid for income taxes............................. $ -- $ 20 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 5 SYNTELLECT INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Syntellect Inc. ("Syntellect" or the "Company") and its wholly-owned subsidiaries, Telecorp Systems, Inc., Syntellect Canada Inc., Syntellect Europe Ltd., Syntellect Deutschland GmbH, Syntellect Technology Corporation and Syntellect Interactive Services, Inc. ("SIS"). All significant intercompany balances and transactions have been eliminated in consolidation. The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the financial statements include all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures are adequate to make information presented not misleading, it is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 1997 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. REVENUE RECOGNITION In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, Software Revenue Recognition. On January 1, 1998, the Company adopted SOP 97-2 which is effective for financial statements for fiscal years beginning after December 15, 1997. The implementation of this statement did not have a material impact on the Company's unaudited consolidated financial statements for the period ended March 31, 1998. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. On January 1, 1998, the Company adopted SFAS No. 130 which is effective for fiscal years beginning after December 15, 1997. Comprehensive income includes all changes in equity during a period except those resulting in investments by owners and distribution to owners. OTHER The Company continues to evaluate the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which was issued in June, 1997. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 but does not apply to interim financial statements in the initial year of application. (2) INVENTORIES Inventories consist of the following:
MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ Finished goods........................................ $ 1,018 $ 913 Purchased components.................................. 3,058 2,742 Repair, warranty and maintenance inventory............ 2,256 2,346 ------- ------- 6,332 6,001 Less allowances for obsolescence...................... (3,495) (3,408) ------- ------- $ 2,837 $ 2,593 ======= =======
6 (3) YEAR 2000 COMPLIANCE The Company has addressed the Year 2000 Compliance issues, both the software that it licenses and its internal use of software, and believes there will be no material effect on the Company's operations or financial condition since the cost of remediation has been incurred or those costs to be incurred are not expected to be material. However, because costs related to this project are based on estimates of the Company, there is no assurance that actual costs will not differ materially from the current expectations which could cause an adverse effect on the Company's results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET REVENUES Net revenues for the quarter ended March 31, 1998 were $11.0 million, a decrease of 26% from the $14.9 million reported for the first quarter of 1997. Net revenues consist of SYSTEM SALES, SERVICE BUREAU REVENUES and MAINTENANCE AND OTHER SERVICES REVENUES, which represented 39%, 20% and 41% of net revenues, respectively, for the quarter ended March 31, 1998, and 59%, 17%, and 24% of net revenues, respectively, for the comparable prior year period. SYSTEM SALES for the period ended March 31, 1998 were $4.3 million, a decrease of approximately $4.4 million, or 51%, over the $8.7 million reported for the same prior year period. Core product sales include the Company's primary inbound product line, VocalPoint, an open architecture Interactive Voice Response ("IVR") platform; an outbound system, the VocalPoint Predictive Dialer; VocalPoint Interactive Services, providing computer telephony integration ("CTI") functionality; and Interactive Web Response ("IWR"). Non- core products include the Premier and Premier 030 proprietary IVR systems and the VocalPoint ARU (Audio Response Unit) for the cable television industry. The decrease in SYSTEM SALES was related to several factors. First, as a result of the Company's changes in product strategy introduced in 1997, both product sales and delivery cycles for the Company's core products have been longer than past experience while recent growth in the order rates and the Company's backlog have not yet resulted in increased revenues. Second, the Company continues to show a decline in non-core product revenue which began two years ago. In the current quarter, non-core revenues declined $2 million to $700,000 from the prior year quarter. SERVICE BUREAU REVENUES decreased by $344,000, or 13%, quarter-over-quarter. The cable TV industry has been experiencing a decline in consumer purchases of pay-per-view events which results in lower than historical transaction processing fees by the Company. In addition, in the prior year quarter, the Company processed a one-time campaign for a large customer that generated approximately $300,000 in revenue. MAINTENANCE AND OTHER SERVICES REVENUES increased by $960,000 between the comparable quarters. The maintenance component remained stable quarter-over- quarter. Revenues from patents and other services increased $999,000, or 170%, as compared to the same prior year period. During the quarter, the Company settled one of the patent suits for which it retained economic rights after the sale of the patent portfolio in October 1997. Revenue recognized on this transaction was $1 million in the quarter ended March 31, 1998. The Company expects, based on the terms of the settlement, to recognize an additional $1.75 million in revenues on this transaction during the remainder of 1998. INTERNATIONAL REVENUES for the first quarter of 1998 were $2.1 million, or 19% of total revenues, compared to $4.0 million, or 27% of total revenues, for the first quarter of 1997. International revenues typically consist of a small number of larger orders and are subject to quarter-to-quarter fluctuations. Specifically, the period ended March 31, 1997 included significant revenues from large customer orders received late in 1996. 7 GROSS MARGIN The gross margin percentage for the quarter ended March 31, 1998 remained stable at 51% of net revenues as compared to the prior year quarter. Gross margins for system sales decreased to 33% from 48% between comparable quarters primarily as a result of decreased system revenues and the proportion of fixed costs in cost of sales. Gross margins for the service bureau increased from 34% to 38% between the comparable quarters as a result of the mix of business and lower variable costs. Gross margins on maintenance and other services increased to 75% from 72% between the comparable quarters. The Company includes those costs directly associated with the generation of revenue in its computation of gross margin, including direct labor, application development, travel, maintenance, customer support, supplies and hardware. Gross margins will fluctuate on a quarterly basis due to changes in competitive pressures, sales volume, product mix, variations in the ratio of domestic versus international sales, or changes in the mix of direct and indirect sales activity. Accordingly, the gross margins reported for the first quarter of 1998 are not necessarily indicative of the results to be expected for the full year. OPERATING EXPENSES Operating expenses for the first quarter of 1998 were $7.3 million, a decrease of $309,000, or 4%, from the prior year quarter of $7.6 million. This decrease is primarily due to the fixed asset write-down of $1.3 million in 1997 causing depreciation and amortization expense to decrease $273,000, or 29% , quarter-over-quarter. Selling, marketing and administrative expenses and research and development costs were stable as compared to the prior year quarter of $5.2 million and $1.4 million, respectively. NET INCOME (LOSS) Syntellect reported a net loss of $1.4 million, or $(.10) per share, for the first quarter of 1998, compared to a net income of $106,000, or $.01 per share, for the prior year quarter. The decline was caused by the decrease in revenues while fixed costs remained stable as compared to the prior year quarter. LIQUIDITY AND CAPITAL RESOURCES Syntellect had working capital of $12.4 million at March 31, 1998, as compared with $13.5 million at December 31, 1997. The current ratio was 2.0:1 and 2.1:1, respectively. Cash, cash equivalents and marketable securities at the end of the first quarter totaled $9.7 million as compared with $10.5 million at year end. Syntellect used $574,000 in cash flows for operating activities during the first three months of 1998 and received $16,000 in proceeds from the issuance of common stock. Cash used during the three month period consisted of $521,000 in capital expenditures and $45,000 in principal payments on long-term debt. Receivables, net of reserves, were $10.9 million at March 31, 1998 and at December 31, 1997. Inventories increased $244,000 since December 31, 1997 in preparation of orders to be delivered early in the second quarter of 1998. Syntellect expects that its current cash, cash equivalents and marketable securities, combined with future cash flows from operating activities, will be sufficient to support the Company's operations for the remainder of 1998. The Company has a $1.1 million letter of credit pledged as a security deposit for the Company's facility in Phoenix, Arizona. This $1.1 million letter of credit is secured by a U.S. Treasury security held in the Company's available-for- sale portfolio and accordingly, this marketable security is restricted as to the disposal by such letter of credit agreement. This report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Also see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 for a discussion of important factors that could affect the validity of any such forward-looking statements. 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27.1--Financial Data Schedule-1998 Exhibit 27.2--Financial Data Schedule-1997 (b) Reports on Form 8-K No current reports on Form 8-K were filed during the three months ended March 31, 1998. 9 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 thereunto duly authorized. SYNTELLECT INC. /s/ Neal L. Miller By___________________________________ Neal L. Miller Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) /s/ Peter W. Pamplin By___________________________________ Peter W. Pamplin Vice President and Controller (Principal Accounting Officer) Date: May 14, 1998 10 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SYNTELLECT, INC. AND SUBSIDIARIES AS OF MARCH 31, 1998, AND THE CONSOLIDATED STATEMENT OF OPERATIONS OF SYNTELLECT, INC. AND SUBSIDIARIES FOR THE THREE MONHTS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 3,950 5,770 11,861 912 2,837 25,401 5,657 677 34,339 13,010 0 0 0 136 20,712 34,339 4,300 11,061 2,867 5,396 7,282 81 14 (1,425) 0 (1,425) 0 0 0 (1,425) (.10) (.10)
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SYNTELLECT, INC. AND SUBSIDIARIES AS OF MARCH 31, 1997, AND THE CONSOLIDATED STATEMENT OF OPERATIONS OF SYNTELLECT,INC. AND SUBSIDIARIES FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 2,648 3,145 15,638 1,182 3,537 25,311 8,242 950 34,394 11,799 0 0 0 135 21,791 34,394 8,726 14,871 4,531 7,225 7,591 80 33 110 4 106 0 0 0 106 .01 .01
-----END PRIVACY-ENHANCED MESSAGE-----