10-Q 1 e10-q.txt FORM 10-Q 1 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 June 30, 2000 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) 16610 N. Black Canyon Highway, Suite 100, Phoenix, Arizona 85053 (Address of principal executive office) (Zip Code) (602) 789-2800 (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. 11,880,784 shares of common stock, $.01 par value per share, were outstanding on August 11, 2000 1 2 SYNTELLECT INC. AND SUBSIDIARIES INDEX
Page ---- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets - - June 30, 2000 and December 31, 1999 3 Unaudited Condensed Consolidated Statements of Operations -- Three Months and Six Months Ended June 30, 2000 and June 30, 1999 4 Unaudited Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 30, 2000 and June 30, 1999 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 11 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12 ITEM 5. OTHER INFORMATION 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12 SIGNATURES 13 EXHIBITS Exhibit Index 14
2 3 ITEM 1. FINANCIAL STATEMENTS SYNTELLECT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
June 30, December 31, 2000 1999 ---- ---- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,856 $ 6,185 Marketable securities ($1,100 restricted) 1,100 1,100 Trade receivables, net of allowance for doubtful accounts of $605 and $784, respectively 10,368 9,999 Other receivables 1,069 1,406 Inventories, net 1,361 2,041 Prepaid expenses 590 677 -------- -------- Total current assets 20,344 21,408 Property and equipment, net 3,792 4,787 Other assets -- 29 -------- -------- Total assets $ 24,136 $ 26,224 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,092 $ 1,873 Accrued liabilities 2,807 3,268 Customer deposits 776 3,238 Deferred revenue 3,934 2,914 Capital lease obligations 94 248 -------- -------- Total current liabilities 9,703 11,541 Capital lease obligations - less current portion 75 293 -------- -------- Total liabilities 9,778 11,834 -------- -------- 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 14,328,603 and 13,889,487, respectively 143 139 Additional paid-in capital 61,814 61,177 Accumulated deficit (39,740) (41,938) Accumulated other comprehensive income (loss) (142) (32) -------- -------- 22,075 19,346 Treasury stock, at cost, 2,502,432 and 1,897,432 shares, respectively (7,717) (4,956) -------- -------- Total shareholders' equity 14,358 14,390 -------- -------- Total liabilities and shareholders' equity $ 24,136 $ 26,224 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 4 SYNTELLECT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- Net revenues: Licenses and hardware $5,268 $3,768 $11,331 $7,964 Services 5,252 5,284 10,557 10,125 Hosted services 1,541 1,960 2,891 4,171 ------ ------ ------ ------ Total net revenues 12,061 11,012 24,779 22,260 Cost of revenues: Licenses and hardware 1,362 1,378 3,002 2,649 Services 2,223 3,741 5,373 7,212 Hosted services 986 1,386 2,047 2,794 ------ ------ ------ ------ Total cost of revenues 4,571 6,505 10,422 12,655 ------ ------ ------ ------ Gross margin 7,490 4,507 14,357 9,605 Operating expenses: Selling, general and administrative 5,927 6,154 10,720 11,745 Research and development 730 1,191 1,593 2,367 ------ ------ ------ ------ Total operating expenses 6,657 7,345 12,313 14,112 ------ ------ ------ ------ Operating income (loss) 833 (2,838) 2,044 (4,507) Other income (expense), net: Interest income 117 76 175 177 Other 51 23 (21) 2 ------ ------ ------ ------ Total other income 168 99 154 179 ------ ------ ------ ------ Income (loss) before income taxes 1,001 (2,739) 2,198 (4,328) Income taxes - - - - ------ ------ ------ ------ Net income (loss) $ 1,001 $ (2,739) $ 2,198 $(4,328) ======= ========= ======= ======== Net income (loss) per common share - basic $ .08 $ (.20) $.19 $ (.32) ======= ========= ======= ======== Net income (loss) per common share - diluted $ .08 $ (.20) $.17 $ (.32) ======= ========= ======= ======== Weighted average shares - basic 11,793 13,448 11,820 13,476 Weighted average shares - diluted 12,648 13,448 12,746 13,476 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (201) (118) (110) (165) Unrealized gain (loss) on marketable securities - - (2) (7) ------ ------ ------ ------ Other comprehensive income (loss) (201) (120) (110) (172) ------ ------ ------ ------ Comprehensive income (loss) $800 $(2,859) $ 2,088 $(4,500) ======= ========= ======= ========
See accompanying notes to condensed consolidated financial statements. 4 5 SYNTELLECT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, -------- 2000 1999 ---- ---- Cash flows from operating activities: Net income (loss) $ 2,198 $(4,328) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 954 1,223 Provision for doubtful accounts 204 701 Provision for inventory obsolescence 186 - Increase in receivables (573) (1,214) Decrease in other receivables 337 - Decrease in inventories 494 414 Increase (decrease) in accounts payable 219 (117) Increase (decrease) in customer deposits (2,462) 430 Increase in deferred revenue 1,020 757 Increase (decrease) in accrued liabilities (461) 28 Change in other assets and liabilities 116 240 -------- --------- Net cash provided by (used in) operating activities 2,232 (1,866) -------- --------- Cash flows from investing activities: Purchase of marketable securities - (6,545) Maturities of marketable securities - 10,534 Proceeds from sale of property and equipment 532 - Purchase of property and equipment (491) (933) -------- --------- Net cash provided by investing activities 41 3,056 -------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 641 64 Purchase of treasury stock (2,761) (195) Principal payments on long-term debt (372) (130) -------- --------- Net cash used in financing activities (2,492) (261) -------- --------- Effect of exchange rates on cash (110) (172) -------- --------- Net increase (decrease) in cash and cash equivalents (329) 757 Cash and cash equivalents at beginning of period 6,185 3,236 -------- --------- Cash and cash equivalents at end of period $ 5,856 $ 3,993 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest $ 23 $ 35 ========== ==========
See accompanying notes to condensed consolidated financial statements. 5 6 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, 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 1999 Annual Report on Form 10-K. The results of operations for the six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. REVENUE RECOGNITION Syntellect recognizes revenue from sales of systems and services in accordance with Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2") and Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. INCOME TAXES The Company has not recorded income tax expense due to the utilization of Net Operating Loss Carry-forwards against which the Company had recorded a 100% valuation allowance. (2) BUSINESS SEGMENTS Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires that an enterprise disclose certain information about operating segments. An operating segment is defined as a component of an enterprise that engages in business activities which may earn revenues and incur expenses, whose results are regularly reviewed by a chief operating decision maker, and for which discrete financial information is available. The Company has two operating segments which are organized around differences in products and services: Systems, which includes Licenses and Hardware, Services and Patents; and Hosted Services ("HS):
Quarter ended June 30, 2000 SYSTEMS HS TOTAL ---------------------------- ------- -- ----- Revenues from customers $ 10,520 $ 1,541 $ 12,061 Depreciation and amortization 335 150 485 Segment income (loss) before taxes 935 66 1,001 Expenditures for segment assets 269 32 301 As at June 30,2000 Segment assets 20,373 3,763 24,136 Capital lease obligation 169 - 169
6 7
Quarter ended June 30, 1999 SYSTEMS HS TOTAL ---------------------------- ------- -- ----- Revenues from customers $ 9,052 $ 1,960 $ 11,012 Depreciation and amortization 496 116 612 Segment income (loss) before taxes (2,602) (137) (2,739) Expenditures for segment assets 200 214 414 As at June 30,1999 Segment assets 24,524 3,946 28,470 Capital lease obligation 555 - 555 Six months ended June 30, 2000 SYSTEMS HS TOTAL ------------------------------- ------- -- ----- Revenues from customers $ 21,888 $ 2,891 $ 24,779 Depreciation and amortization 654 300 954 Segment income (loss) before taxes 2,525 (327) 2,198 Expenditures for segment assets 309 182 491 SIX MONTHS ENDED JUNE 30, 1999 SYSTEMS HS TOTAL ------------------------------- ------- -- ----- Revenues from customers $ 18,089 $ 4,171 $ 22,260 Depreciation and amortization 990 233 1,223 Segment income (loss) before taxes (4,301) (27) (4,328) Expenditures for segment assets 511 422 933
(3) INVENTORIES Inventories consist of the following:
June 30, December 31, 2000 1999 ---- ---- Finished goods $ 328 $ 705 Purchased components 701 611 Repair, warranty and maintenance inventory 1,062 1,600 ----- ----- 2,091 2,916 Less allowances for obsolescence ( 730) ( 875) ----- ----- $ 1,361 $ 2,041 ======= =======
7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET REVENUES Net revenues for the quarter ended June 30, 2000 were $12.1 million, an increase of 9.5% from the $11 million reported for the second quarter of 1999. For the six-month period ended June 30, 2000, net revenues were $24.8 million, an increase of 11% from $22.3 million in the corresponding period in 1999. Net revenues consist of Licenses and Hardware, Services, and Hosted Services, which represented 44%, 44% and 12% of net revenues, respectively, for the quarter ended June 30, 2000, and 46%, 43%, and 11% of net revenues, respectively, for the six-month period ended June 30, 2000. Revenues from Licenses and Hardware increased $1.5 million, or 40%, over the comparable quarter and increased $3.4 million, or 42%, over the corresponding six-month period. Primary Licenses and Hardware sales include Vista(TM), an open standards-based Interactive Communications Management (ICM) software platform for enterprise customer call centers; VocalPoint, an open architecture Interactive Voice Response ("IVR") platform; VocalPoint Interactive Services, providing computer telephony integration ("CTI") functionality; and Interactive Web Response ("IWR"). ICM, IVR, CTI and IWR are all products to help organizations handle large volumes of incoming telephone, fax and internet traffic. Generally, by interfacing with the organization's computers, they allow the originator of the call, fax or internet transmission to help themselves without operator assistance, or to request human assistance at any time. Legacy products include the Premier and Premier 030 proprietary IVR systems. The largest contributor to the increase in Licenses and Hardware revenues for the quarter was the Company's Vista ICM product with sales of $5 million, or 95% of Licenses and Hardware sales. For the six-month period ended June 30, 2000, Vista ICM product sales were $9 million, or 79% of Licenses and Hardware sales. Services Revenues were flat compared to the same quarter of the prior year, and increased $432,000, or 4% from the comparable six-month period. There are three components of Services Revenue: Applications and Installations, Maintenance, and Other Services, which includes patents. For the quarter, the Applications and Installations component of Services Revenues increased $246,000 or 11% over the prior year period, and for the six-month period increased $611,000 or 16% over the prior year period. The increases in both periods were due primarily to the strength of the Vista ICM product. For the quarter, the Maintenance component of Services Revenues decreased $491,000, or 19% from the prior year, and for the six-month period decreased $1,262,000, or 24% from the prior year. This was consistent with Company expectations because the Company had earlier advised customers that certain products were not Year 2000 compliant and would not be made so, causing some maintenance contracts not to be renewed. Additionally, the Company sold off its Dialer business in 1999 which included maintenance contracts. Another factor was the extension of warranty periods for some early Vista customers. The company expects the Maintenance component of Services Revenues to increase as Vista warranties end and Vista customers enter into maintenance contracts. For the quarter the Other Services component of Services Revenues increased $212,000, or 37% from the prior year, and for the six-month period the component increased $ 1.1 million or 106% from the prior year. The increase for the six-month period was due primarily to the settlement of a patent lawsuit in the first quarter. During the prior year's three and six-month periods, the Company had no revenues from settlements of patent lawsuits. The settlement related to economic rights maintained by the Company after the sale of a patent portfolio in 1997. The Company does not expect any further revenue related to the Company's former patent portfolio. Hosted Services Revenues decreased by $419,000, or 21%, quarter-over-quarter and $1.3 million, or 31%, from the comparable six-month period. The primary reason for the declines rests with the Company's Home Ticket, a pay-per-view service for cable television providers which is offered through SIS. The cable television industry has been deploying new order entry technologies for consumer purchases of pay-per-view events which do not utilize toll free 800 numbers. This has resulted in a downward trend in transaction processing fees for the Company; a trend which is expected to continue. To offset the decline in pay-per-view services, Hosted Services has offered other out-sourced electronic capabilities including benefits enrollment, broadcast faxing, call center processing, audiotext, and dealer locators. 8 9 International revenues for the second quarter of 2000 were $3.9 million, or 32% of total revenues, compared to $1.2 million, or 11%, for the second quarter of 1999. For the current quarter, Hardware and Licenses accounted for $3.3 million of the revenue, and Services accounted for $600,000. For the prior-year quarter, Hardware and Licenses accounted for $449,000 of the revenue, and Services accounted for $730,000. For the six-month period ended June 30, 2000, international revenues were $9.6 million, or 39% of total revenues, as compared to $3.3 million, or 15% for the prior-year period. For the current six-month period, Hardware and Licenses accounted for $8.4 million of the revenue, and Services accounted for $1.2 million. For the prior-year six-month period, Hardware and Licenses accounted for $1.9 million of the revenue, and Services accounted for $1.4 million. International revenues typically consist of a small number of larger orders and are subject to quarter-to-quarter fluctuations. GROSS MARGIN The gross margin percentage for the quarter ended June 30, 2000 was 62% of net revenues compared to 41% in the comparable prior-year quarter. The gross margin percentage for the six months ended June 30, 2000 was 58% of net revenues as compared to 43% in the comparable year ago period. Licenses and Hardware gross margins for the quarter increased to 74% from 63% in the prior-year period. For the six-month period, gross margins on Licenses and Hardware increased to 74% from 67% in the prior year period. The increases in gross margin in both periods were due primarily to decreases in the content of relatively lower margin third party licenses and material. Gross margins on Services for the quarter increased to 58% from 29% in the prior year period, and for the six-month period increased to 49% from 29%. The increase in margins for the three-month period was primarily due to reductions in headcount and outside contractor expense. For the six-month period the increase in margins was due to reductions in headcount and outside contractor expense, and to some relatively high margin revenue from the settlement of a patent lawsuit in the first quarter. There were no such patent lawsuit settlements during the first six months of the prior year. Gross margins on Hosted Services for the quarter increased to 36% from 29% in the prior-year quarter, and decreased to 29% from 33% in the prior-year six-month period. Hosted Services margins for the three-month period of the current year benefited from headcount and other cost reductions that took effect in the period. For the six-month period margins suffered as sales were declining faster than costs during the first three months of the year. Gross margins on international revenues were 73% for the quarter compared to 63% in the prior-year period and 66% for the six-month period, compared to 74% in the prior-year six-month period. 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 second quarter and the first six months of 2000 are not necessarily indicative of the results to be expected for the full year. OPERATING EXPENSES Operating expenses for the second quarter of 2000 were $6.7 million, a decrease of $688,000, or 9%, from the prior-year quarter. Included in the current quarter's expenses are non-recurring charges of nearly $400,000 for the relocation of Phoenix operations and corporate headquarters to a facility which is smaller and better suited to the Company's operations. The comparable quarter of the prior year was affected by a non-recurring accrual of $640,000 for severance pay associated with employees who left during that quarter in part due to the consolidation of the corporate structure, and to moving the corporate headquarters to Phoenix. Additionally, during the prior year's quarter, the Company added $500,000 to the reserve for doubtful accounts, primarily due to certain disputes with domestic accounts. For the six-month period ended June 30, 2000, operating expenses were $12.3 million, a decrease of $1.8 million, or 13%, from the prior-year period. The reductions in operating expenses for the six-month period were primarily the result of the cost reductions that took place during the second quarter of the prior year. 9 10 Selling, general and administrative ("SG&A") expenses decreased $227,000, or 4%, from the comparable quarter and $1 million, or 9%, from the corresponding six-month period. Taking non-recurring expenses into consideration for both the current and prior year periods, SG&A expenses for the quarter increased $513,000, or 10% over the prior-year quarter, and decreased $285,000 or 3% from the prior-year six-month period. The increase for the quarter was due primarily to increases headcount, especially in sales and marketing. Research and development expenses for the second quarter of 2000 decreased $461,000, or 39%, from the prior-year quarter and decreased by $774,000, or 33%, from the comparable six-month period. The spending decreases are primarily the result of the Company's transformation from being a hardware and software company to being primarily a software company. However, the Company believes that R&D spending will probably increase in future periods. NET INCOME (LOSS) Syntellect reported net income of $1.0 million, or $.08 per diluted share, for the second quarter of 2000, compared to a net loss of $2.7 million, or $(.20) per share for the prior-year quarter. For the six-month period ended June 30, 2000, the Company reported net income of $2.2 million, or $.17 per diluted share, compared to a net loss of $4.3 million, or $(.32) per share for the comparable prior-year period. LIQUIDITY AND CAPITAL RESOURCES For the first six months of 2000, the Company had net income of $2.2 million. After adjustment for non-cash activities and the changes in certain balance sheet items, the Company's operations provided positive cash flows of $2.2 million compared to negative cash flows of $1.9 million in the same period of 1999. An increase in accounts receivable and decreases in customer deposits and accrued liabilities were offset by decreases in other receivables and inventories, and by the increases in accounts payable and deferred revenues, and the effects of the non-cash items depreciation, provision for doubtful accounts, and provision for inventory obsolescence. Cash flows from investing activities provided $41,000 during the period. The sale of property and equipment provided $532,000, while the purchase of property and equipment used $491,000. Cash used in financing activities totaled $2.5 million for the period. Proceeds from the issuance of common stock totaled $641,000, while the purchase of treasury stock used $2.8 million, and the repayment of long-term debt used $372,000. Syntellect had working capital of $10.6 million at June 30, 2000, as compared to $9.9 million at December 31, 1999. The current ratio was 2.1:1 and 1.85:1 on such dates, respectively. Cash, cash equivalents and marketable securities at the end of the first quarter totaled $7.0 million as compared with $7.3 million at year end. Syntellect expects that its current cash and cash equivalents, combined with future cash flows from operating activities, will be sufficient to support the Company's operations for the remainder of 2000. The Company has letters of credit totaling $1.1 million pledged as security deposits for the Company's facilities in Phoenix and Chicago. These letters of credit are secured by a U.S. Treasury security held in the Company's available-for-sale portfolio and a bank certificate of deposit which are restricted as to disposal by the letters of credit agreements. On November 5, 1999, the Board of Directors of Syntellect approved the stock buyback plan to purchase up to one million shares of the Company's common stock over a one year period. On August 8, 2000, the Board of Directors of Syntellect increased the authorization by 500,000 shares and extended the buyback period one year. As of August 11, 2000, the Company had repurchased 729,800 shares. OPERATING BUSINESS SEGMENTS An operating segment is defined as a component of an enterprise that engages in business activities which may earn revenues and incur expenses, whose results are regularly reviewed by a chief operating decision maker, and for which discrete financial information is available. The Company has two operating segments which are organized around differences in products and services: Systems, which includes Licenses and Hardware, and Services; and Hosted Services. (see Note 2). 10 11 Systems is the operating segment which has products and services including IVR, IWR, CTI, and maintenance. Additionally, this segment held the Company's patent portfolio. In October 1997, the Company sold the patent portfolio to a third party for $10 million. As additional consideration under the agreement, the Company retained certain economic rights, including the right to pursue certain litigation against third parties. Revenues from customers include payments for settlement of patent lawsuits. The Company recognized $775,000 in revenue in the six months ended June 30, 2000 from a patent lawsuit, but had no such revenue in the prior-year period. The Company does not expect any further patent related revenue. Hosted Services is the operating segment which has products and services including Home Ticket Pay-Per-View, Hot Spots, Call Redirect, Cyberstats, and a variety of out-sourced electronic capabilities such as benefits enrollment and broadcast faxing. YEAR 2000 Many currently installed computer systems and software products were coded to accept only two-digit year entries in the date code field. Consequently, subsequent to December 31, 1999, many of these systems became subject to failure or malfunction. Although the Company is not aware of any material Year 2000 issues at this time, Year 2000 problems may occur or may be made known to the Company in the future. Year 2000 issues may possibly affect software solutions developed by the Company or third-party software incorporated into the Company's solutions. The Company generally does not guarantee that the software licensed from third parties by the Company's clients is Year 2000 compliant, but the Company does sometimes warrant that solutions written and developed by the Company are Year 2000 compliant. FORWARD LOOKING STATEMENTS This report on Form 10-Q contains "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, 1999 for a discussion of important factors that could affect the validity of any such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK FOREIGN CURRENCY EXCHANGE RISK The Company invoices all international customers in U. S. dollars except customers of the Company's United Kingdom (U.K.) subsidiary which are invoiced in pounds sterling. The U.K. subsidiary's financials including balance sheet, revenue, and operating expenses are transacted in pounds sterling. Therefore, the Company's exposure to foreign currency exchange rate risk occurs when translating the financial results of the U.K. subsidiary to U.S. dollars in consolidation. At this time, the Company does not use instruments to hedge its foreign exposure in the U.K. because the effects of foreign exchange rate fluctuations are not material. 11 12 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of stockholders on June 1, 2000. As indicated in the Company's proxy statement, four proposals were presented for stockholder approval. The first proposal was the re-election of Anthony V. Carollo and Michael D. Kaufman as directors of the Company for three-year terms. There were no other nominees. The election results were as follows:
Voted For Withheld --------- -------- Anthony V. Carollo 10,170,299 966,416 Michael D. Kaufman 10,170,299 966,416
The second proposal approved an amendment to the Company's 1995 Long-term Incentive Plan to increase the number of shares of Company common stock authorized for issuance thereunder from 1,500,000 to 2,100,000. The amendment was approved by the following vote: 5,536,013 shares voted for approval; 1,124,816 shares voted against the proposal; and 31,285 shares abstained. The third proposal approved an amendment to the Company's Non-employee Director Stock Plan to increase from 2,000 to 5,000 the number of shares for which options are granted to the Company's directors annually. The amendment was approved by the following vote: 10,634,271 shares voted for approval; 465,859 voted against the proposal; and 45,585 shares abstained. The fourth proposal concerned the ratification of KPMG LLP as the Company's independent auditors for the fiscal year ending December 31, 2000. The proposal was approved by the following vote: 11,099,309 shares voted for approval; 11,350 shares voted against the proposal; and 26,056 shares abstained. In addition to the foregoing proposals, a related matter arose shortly before the annual meeting, and was presented to the meeting for approval. This proposal approved an amendment to the Company's 1995 Long-term Incentive Plan to delete the limitation on the number of options that may be granted to any individual participant. Pursuant to the discretion granted the proxy holders, the amendment was approved by the following vote: 11,099,309 shares voted in favor of the proposal; no shares were voted against the proposal and no shares abstained. ITEM 5: OTHER INFORMATION AUDIT COMMITTEE CHARTER The annual meeting of the Board was held immediately following the annual meeting of the stockholders. Among other matters, the Board adopted a charter for the Audit Committee, which is attached to this report as Exhibit 3(III). The Audit Committee Charter provides basic guidelines for the conduct of the responsibilities of the Audit Committee and establishes a general framework in which those responsibilities will be implemented. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 3(III) -- Audit Committee Charter Exhibit 11 -- Computation of net income per share Exhibit 27.1 -- Financial Data Schedule-2000 b) Reports on Form 8-K No current reports on Form 8-K were filed during the three months ended June 30, 2000. 12 13 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. Date: August 11, 2000 By: /s/ Timothy P. Vatuone ------------------------- Timothy P. Vatuone Vice President, Chief Financial Officer, Secretary and Treasurer By: /s/ Keith A. Pekkala ------------------------- Keith A. Pekkala Vice President and Controller, (Principal Accounting Officer) 13 14 EXHIBIT INDEX Exhibit 3(III) -- Audit Committee Charter Exhibit 11 -- Computation of net income per share Exhibit 27.1 -- Financial Data Schedule-2000 14