<PAGE> 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 June 30, 1998
[ ] 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
(Address of Principal Offices)
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 August 1, 1998: 15,192,557 shares.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997. 3
Unaudited Consolidated Statements of Operations for the three months ended June 30, 4
1998 and 1997 and for the six months ended June 30, 1998 and 1997.
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 5
1998 and 1997
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities. 12
Item 3. Defaults Upon Senior Securities. 12
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
</TABLE>
2
<PAGE> 3
MELITA INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,053 $ 6,845
Marketable securities 21,249 23,969
Accounts receivable, net of allowance for doubtful
accounts of $1,345 at June 30, 1998 and $876 at December 31, 1997 23,827 15,796
Inventories 2,412 2,461
Deferred taxes 3,822 2,035
Prepaid expenses and other 649 251
--------- -------------
Total current assets 58,012 51,357
Property and equipment, net of accumulated depreciation 6,113 4,939
Other assets 150 99
--------- -------------
$ 64,275 $ 56,395
========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,521 $ 5,326
Accrued liabilities 10,535 7,763
Deferred revenue 4,766 4,029
Customer deposits 1,840 1,988
--------- -------------
Total current liabilities 21,662 19,106
Stockholders' Equity
Common Stock, no par value, 100,000,000 shares authorized
15,171,395 issued and outstanding at June 30, 1998 and 15,168,395 issued and
outstanding at December 31, 1997 69 69
Additional paid-in capital 36,062 36,046
Accumulated other comprehensive income 62 30
Retained earnings 6,420 1,144
--------- -------------
Total stockholders' equity 42,613 37,289
--------- -------------
Total liabilities and stockholders' equity $ 64,275 $ 56,395
========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
3
<PAGE> 4
MELITA INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1998 1997 1998 1997
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net revenues:
Product $16,012 $ 10,714 $30,832 $ 20,979
Service 6,192 4,816 11,744 9,220
------- -------- ------- --------
Total revenues 22,204 15,530 42,576 30,199
Cost of revenues:
Product 5,164 3,565 9,924 7,401
Service 3,125 2,433 5,912 4,364
------- -------- ------- --------
Total cost of revenues 8,289 5,998 15,836 11,765
------- -------- ------- --------
Gross margin 13,915 9,532 26,740 18,434
Operating expenses:
Research and development 2,515 1,644 4,810 3,025
Selling, general and administrative 7,407 5,231 14,229 10,365
------- -------- ------- --------
Total operating expenses 9,922 6,875 19,039 13,390
------- -------- ------- --------
Income from operations 3,993 2,657 7,701 5,044
Other income (expense), net 277 (9) 550 (60)
------- -------- ------- --------
Income before income taxes 4,270 2,648 8,251 4,984
Income tax provision 1,537 393 2,970 409
Deferred tax adjustment 0 (1,473) 0 (1,473)
------- -------- ------- --------
Net income after income tax $ 2,733 $ 3,728 $ 5,281 $ 6,048
======= ======== ======= ========
Income before income taxes 2,648 4,984
Pro forma income tax provision (Note 5) 983 1,894
-------- --------
Pro forma net income $ 1,665 $ 3,090
======== ========
Earnings per share
Basic $ 0.18 $ 0.30 $ 0.35 $ 0.49
======= ======== ======= ========
Diluted $ 0.17 $ 0.29 $ 0.33 $ 0.47
======= ======== ======= ========
Weighted average common and common
equivalent shares
Basic 15,170 12,272 15,169 12,363
Diluted 16,085 12,868 16,039 12,758
Pro forma earnings per share
Basic $ 0.14 $ 0.25
======== ========
Diluted $ 0.13 $ 0.24
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
MELITA INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,281 $ 6,048
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 839 655
Changes in assets and liabilities:
Accounts receivable, net (8,031) (455)
Inventories 49 1,087
Prepaid expenses and other assets (398) (228)
Accounts payable (805) 397
Accrued liabilities 2,773 1,982
Deferred revenue 737 740
Customer deposits (148) (1,739)
Deferred taxes (1,787) (1,473)
Other, net (51) (38)
-------- --------
Total adjustments (6,823) 928
-------- --------
Net cash (used in) provided by operating activities (1,542) 6,976
Cash flows from investing activities:
Purchases of property and equipment (2,012) (1,389)
Sale of marketable securities 2,747 --
-------- --------
Net cash provided by (used in) investing activities 735 (1,389)
Cash flows from financing activities:
Repayment of capital lease obligations -- (19)
Net proceeds from issuance of common stock 15 36,102
Repayment of note payable to stockholder -- (15,525)
Distributions to stockholders -- (6,010)
-------- --------
Net cash provided by financing activities 15 14,548
Net change in cash and cash equivalents (792) 20,135
Cash and cash equivalents, beginning of period 6,845 9,849
-------- --------
Cash and cash equivalents, end of period 6,053 29,984
Marketable securities 21,249 0
-------- --------
Cash, cash equivalents and marketable securities $ 27,302 $ 29,984
======== ========
Supplemental Disclosures of Cash Flow Information:
Income taxes paid $ 2,990 $ 32
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 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 June 30, 1998, the results of operations and changes in cash
flows for the six months ended June 30, 1998 and 1997. The interim results for
the three months and six months ended June 30, 1998 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, 1997, 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. Completion of Initial Public Offering and Combination
On June 4, 1997, the Company completed its initial public offering ("IPO") of
common stock. The Company sold 4,025 shares of common stock, including the
underwriters' over-allotment of 525 shares, for $40,250 less issuance costs of
$4,148. Concurrently with the IPO, the Company issued 3,143 shares in connection
with the combination of Melita International, Melita Europe Limited and
Inventions, Inc.
4. Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or market
and consist of the following at:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Raw Materials $1,503 $1,251
Work in process 70 457
Finished goods 839 753
------ ------
Total inventories $2,412 $2,461
====== ======
</TABLE>
5. Income Taxes
In connection with the IPO the Company converted from an "S" corporation to a
"C" corporation and, accordingly, is subject to federal and state income taxes.
Upon the conversion, the Company recognized a one-time benefit by recording the
asset related to the future reduction of income tax payments due to timing
differences between the recognition of income for financial statements and
income tax regulations. Pro forma income tax provisions reflect the Company's
anticipated effective annual tax rate of 38.0% for 1997 as of June 30, 1997.
6
<PAGE> 7
6. 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. Also included
for the three months and six months ended June 30, 1997 are (1) common stock and
CSE's issued at a price below the initial public offering price during the 12
month period prior to June 4, 1997, and (2) CSE's in an amount necessary to pay
the stockholder distributions.
During the first quarter of 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS No. 128"). This standard is effective for fiscal years ending
after December 15, 1997. The prior years' earnings per share have been
retroactively restated in accordance with this statement.
<TABLE>
<CAPTION>
For the six months ended
xx June 30,
xx 1997
------------------------
<S> <C>
Net income after income tax $ 6,048
=======
Pro forma net income $ 3,090
=======
Weighted average shares outstanding
Basic weighted average shares outstanding 12,363
Weighted average common equivalent shares 395
------
Diluted weighted average shares outstanding 12,758
======
Earnings Per Share
Basic earnings per share $ 0.49
Diluted earnings per share $ 0.47
Pro forma basic earnings per share $ 0.25
Pro forma diluted earnings per share $ 0.24
</TABLE>
7. 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.
8. Other Comprehensive Income
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income"("SFAS No. 130"). SFAS 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 the first quarter of 1998. The changes in the components of
other comprehensive income are reported as follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1998 1997 1998 1997
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net income as reported $ 2,733 $ 3,728 $5,281 $6,048
======= ======= ====== ======
Pro forma net income as reported $ 1,665 $3,090
======= ======
Other comprehensive income:
Foreign currency translation $ (1) $ (5) $ 20 $ 8
Unrealized gains on securities, net 13 -- 42 --
------- ------- ------ ------
Other comprehensive income $ 12 $ (5) $ 62 $ 8
======= ======= ====== ======
</TABLE>
7
<PAGE> 8
9. Recently Issued Accounting Standards
In June, 1997 the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
certain financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and is not required
in interim financial statements in the initial year of application. The impact
of adoption upon the financial statements is expected to be immaterial.
In June, 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). 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 has not determined the method
or timing of its adoption of SFAS No. 133, but at this time the impact of
adoption on the financial statements would be immaterial.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Total revenues of $22.2 million in the second quarter of 1998 increased 43.0% as
compared to the same period in 1997. Total revenues increased to $42.6 million
in the first six months of 1998, representing growth of 41.0%, as compared to
$30.2 million in the corresponding period of 1997. Product revenue increased
$5.3 million, or 49.5%, to $16.0 million for the second quarter and increased
$9.8 million, or 47.0%, for the six month period ending June 30,1998, as
compared to the corresponding periods in 1997. Service revenue increased $1.4
million or 28.6% to $6.2 million for the second quarter and increased $2.5
million or 27.4% to $11.7 million for the six month period ending June 30, 1998,
as compared to the corresponding periods in 1997. The increase in product
revenues was due to increasing demand for the Company's products and increased
marketing and sales efforts. The growth in service revenues during the
respective periods was due to the continued expansion of the Company's installed
customer base and the increased volume of installations during the period.
Cost of product revenue, as a percentage of product revenue, decreased to 32.3%,
or $5.2 million, for the second quarter and to 32.2%, or $9.9 million for the
first six months of 1998, as compared to 33.3%, or $3.6 million and 35.3%, or
$7.4 million for the corresponding periods in 1997. Cost of product as a
percentage of product revenue decreased during the second quarter and the six
month period, principally due to the continuing engineering of product cost
reduction efforts and an increase in the volume of shipments as compared to
fixed costs. Cost of service revenue, as a percentage of service revenue
remained constant at 50.5% while increasing in total dollars to $3.1 million,
for the second quarter and increased to 50.3%, or $5.9 million for the first six
months of 1998, as compared to 50.5%, or $2.4 million, and 47.3%, or $4.4
million, for the corresponding periods in 1997. The increase in service costs as
a percentage of service revenue was due to an increase in support service
personnel and increases in compensation.
Research and development cost was $2.5 million in the second quarter of fiscal
1998 and $4.8 million in the first six months of 1998, a $871,000 and $1.8
million increase over the corresponding periods of 1997. As a percentage of
revenue, research and development increased to 11.3% from 10.6% for the second
quarter of 1998 and increased to 11.3% from 10.0% for the first six months of
1998 as compared to the corresponding periods in 1997. The overall cost increase
during these periods resulted primarily from the addition of developers to
support the Company's product development efforts and the subcontracting of
certain feature development efforts during 1998.
Selling, general and administrative expenses were $7.4 million for the second
quarter of 1998 and $14.2 million for the first six months of 1998, a $2.2
million and $3.8 million increase over the corresponding periods of 1997. These
increases were the result of an increase in sales commissions correlating to the
increase in revenues, the additional staff required to support the larger sales
levels in 1998 and an increase in advertising and trade show activities.
Selling, general and administrative expenses decreased as a percentage of
revenue to 33.4% from 33.7% for the second quarter of fiscal 1998 and decreased
to 33.4% from 34.3% for the first six months of 1998 as compared to the
corresponding periods in 1997.
8
<PAGE> 9
Income from operations was $4.0 million in the second quarter of 1998,
representing a 50.3% increase over income from operations of $2.7 million in the
first quarter of 1997. Income from operations was $7.7 million in the first six
months of 1998, representing a 52.7% increase over income from operations of
$5.0 million in the corresponding period of 1997. These increases were the
result of the foregoing factors.
Other income (expense), net was a net income of $277,000 in the second quarter
of 1998 compared to net expense of $8,000 in the second quarter of 1997. Other
income (expense), net was a net income of $550,000 in the first six months of
1998 compared to net expense of $60,000 in the first six months of 1997. The
increase in other income reflects the earnings from the higher average cash and
short term investment balances in 1998 as compared to the corresponding periods
in 1997.
Income tax provisions have been recorded for the period subsequent to the IPO.
The Company prior to the IPO was not subject to federal or state income taxes.
As a result of its election to be treated as an "S" Corporation for income tax
purposes prior to the IPO, pro forma net income amounts include additional
provisions for income taxes determined by applying the Company's anticipated
statutory tax rate to income before income taxes, adjusted for permanent tax
differences. The Company's "S" Corporation status was terminated in conjunction
with the completion of its initial public offering in June 1997. Upon the
termination of its "S" Corporation election, the Company recorded certain
deferred tax assets in the amount of $1.5 million. The Company's pro forma
income tax rate was 36.0% in both the second quarter and the first six months of
1998 compared to 38.0% in the corresponding periods of 1997, primarily due to
the impact on operations of a foreign sales corporation.
Pro forma net income increased to $2.7 million in the second quarter of 1998 and
$5.3 million for the first six months of 1998 from $1.7 million in the second
quarter of 1997 and $3.1 million for the first six months of 1997, as a result
of the operational, other income and tax factors described above.
Liquidity And Capital Resources
In June 1997, the Company completed its IPO, in which the Company received net
proceeds of approximately $36.1 million after deducting underwriting discounts
and offering expenses. The Company applied a portion of the net proceeds to (1)
repay outstanding stockholder notes of $15.2 million, (2) payment of $245,000 in
accrued interest on the stockholder notes, and (3) pay undistributed "S"
Corporation earnings of $ 2.4 million. Prior to the IPO date, the Company made
payments of $375,000 to repay stockholder notes and $3.6 million in
distributions to stockholders.
As of June 30, 1998, the Company had $27.3 million in cash, cash equivalents and
marketable securities, compared to $30.8 million as of December 31, 1997. The
Company's working capital was $36.3 million for the period ending June 30, 1998
as compared to $32.3 million for the period ending December 31, 1997. Operating
activities used $1.5 million during the first six months of fiscal 1998. Cash
provided by investing activities totaled $735,000 during the first six months of
fiscal 1998. 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
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 and one half, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements.
9
<PAGE> 10
The Company's State of Readiness
The management of the Company has chartered a Year 2000 Committee (the
"Year 2000 Committee") and charged it with the task of evaluating the Company's
Year 2000 issue and recommending action that the Company should take to minimize
disruption from the Year 2000 issue. The Year 2000 Committee has developed a
comprehensive checklist (the "Plan") to address the Company's Year 2000
readiness with respect to both information technology ("IT") and non-IT systems.
The Plan covers all major and minor IT and non-IT systems potentially impacted
by the Year 2000.
As of June 30, 1998, the Company is conducting a quarterly review of
the status of resolution of any items on the Plan. By December 31, 1998 the
Committee will recommend any actions to the Company's management necessary to
ensure that the Year 2000 event does not materially impact business operations.
To operate its business, the Company relies upon relationships with
third parties over which it 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-information technology systems
on which the Company's operations rely which may contain microcontrollers or
embedded systems technologies which are not Year 2000 compliant.
The Costs to Address the Company's Year 2000 Issues
The Company estimates that the cost to address the Company's Year 2000
issues will not have a material impact on operations.
The Risks of the Company's Year 2000 Issues
The latest versions of the Company's products are designed to be Year
2000 compliant. The Company is in the process of determining the extent to which
its earlier software products as implemented in the Company's installed customer
base are Year 2000 compliant, as well as the impact of any non-compliance on the
Company and its customers. In addition, the Company is in the process of
determining the Year 2000 compliance of the Company's internal information
technology systems, the non-information technology systems on which its
operations rely and, to the extent possible, the systems of its major business
partners and the suppliers of hardware with which its products operate. The
Company does not currently believe that the effects of any Year 2000
non-compliance in the Company's installed base of software will result in a
material adverse effect on the Company's business, financial condition or
results of operations. However, the Company's investigation is in its
preliminary stages, and no assurance can be given that the Company will not be
exposed to potential claims resulting from system problems associated with the
century change. There can also be no assurance that the Company's software
products that are designed to be Year 2000 compliant contain all necessary date
code changes. In addition, Year 2000 non-compliance in the Company's internal
information technology systems, certain non-information technology systems on
which its operations rely or by the Company's business partners may have an
adverse impact on the Company's business, financial condition or results of
operations.
The Company believes 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 recourses 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 the Company. 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 current Company customers, to
reevaluate their current software needs and as a result switch to other systems
or suppliers. Any of the foregoing could result in a material adverse effect on
the Company's business, financial condition and results of operations.
10
<PAGE> 11
The Company's Contingency Plans
The Company is 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, the Company has not yet identified any
business function that is materially at risk of Year 2000 related disruption,
and thus has not yet developed detailed contingency plans specific to Year 2000
events for any business function. The Company is prepared for the possibility,
however, that certain business functions may be hereafter identified as at risk.
The Company 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
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
a) The Annual Meeting of Shareholders (the "Annual Meeting") of Melita
International Corporation (the "Company") was held on May 11, 1998. There were
present at said meeting in person or by proxy, shareholders of the Corporation
who were the holders of 13,492,869 shares or 88.9% of the Common Stock entitled
to vote.
b) The following directors were elected to hold office for a term of
one year or until their successors are elected and qualified, with the vote for
each director being reflected below:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Aleksander Szlam 13,492,129 740
Donald L. House 13,491,969 900
Don W. Hubble 13,492,129 740
</TABLE>
The affirmative vote of the holders of a plurality of the outstanding
shares of Common Stock represented at the Annual Meeting was required to elect
each director.
c) The proposal to amend the Company's 1997 Stock Option Plan was
approved with 11,905,746 affirmative votes, 863,983 negative votes cast and
6,447 abstentions. An affirmative vote of the holders of a majority of the
outstanding shares of Common Stock represented at the annual meeting was
required to approve the amendment.
d) The appointment of Arthur Andersen, LLP as independent public
accountants to audit the accounts of the Company and its subsidiaries for the
year ending December 31, 1998, was ratified with the votes as follows:
13,490,819 affirmative votes, 150 negative votes cast and 1900 abstentions. An
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock represented at the annual meeting was required to ratify the
appointment of Arthur Andersen, LLP.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 Statement re Computation of per share earnings.
Exhibit 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
No Report on Form 8-K was filed during the quarter ended June
30, 1998.
12
<PAGE> 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 hereunto duly authorized.
MELITA INTERNATIONAL CORPORATION
Date: August 14, 1998 By: /s/ Aleksander Szlam
---------------------------------------
Aleksander Szlam
Chairman and Chief Executive Officer
Date: August 14, 1998 By: /s/ Mark B. Adams
--------------------------------------
Mark B. Adams
Vice President, Finance and
Chief Financial Officer
13
<PAGE> 1
EXHIBIT 11
MELITA INTERNATIONAL CORPORATION
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1998 1997
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<S> <C> <C>
DILUTED
Weighted average common stock outstanding 15,169 8,000
Effect of the combination (1) -- 3,143
Effect of issuance of shares in IPO -- 529
Dilutive effect of common stock equivalents 870 395
Cheap stock adjustment (2) -- 94
Effect of shareholder distribution (3) -- 597
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Weighted average common and common equivalent shares 16,039 12,758
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Net income after income tax 5,280 6,048
Earnings per share .13 .47
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Pro forma net income 3,090
Pro forma earnings per share .24
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</TABLE>
(1) Reflects pro forma issuance of 3,143 shares of Common Stock in
connection with the combination of Melita International Corporation,
Melita Europe Limited and Inventions, Inc.
(2) Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and common stock equivalents issued at
prices below the assumed initial public offering price per share
("cheap stock") during the twelve months immediately preceding the
initial filing date of the Company's Registration Statement for its
public offering have been included as outstanding for all periods
presented.
(3) Pursuant to Staff Accounting Bulletin 1B.3, pro forma earnings per
share gives effect to the issuance by the Company of the numbers of
shares that, of the assumed public offering price, would yield proceeds
in the amount necessary to pay the shareholder distribution that is not
covered by the earnings during the period.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,053
<SECURITIES> 21,249
<RECEIVABLES> 25,172
<ALLOWANCES> 1,345
<INVENTORY> 2,412
<CURRENT-ASSETS> 58,012
<PP&E> 12,686
<DEPRECIATION> 6,573
<TOTAL-ASSETS> 64,275
<CURRENT-LIABILITIES> 21,662
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 42,544
<TOTAL-LIABILITY-AND-EQUITY> 64,275
<SALES> 42,576
<TOTAL-REVENUES> 42,576
<CGS> 15,836
<TOTAL-COSTS> 15,836
<OTHER-EXPENSES> 19,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,251
<INCOME-TAX> 2,970
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,281
<EPS-PRIMARY> .35
<EPS-DILUTED> .33
</TABLE>
