<PAGE> 1
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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 September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________________to________________________
Commission File Number: 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.
13,442,328 shares of common stock, $.01 par value, were
outstanding on October 31, 1996
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SYNTELLECT INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations-
Three Months and Nine Months Ended
September 30, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1996 and
September 30, 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion & Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBITS
Exhibit 11 - Schedule of Computation of Net Income (Loss) Per
Share 14
Exhibit 27 - Financial Data Schedule 15
2
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SYNTELLECT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,002 $ 5,125
Marketable securities 3,799 4,225
Receivables, net 11,297 14,881
Inventories 5,126 5,293
Prepaid expenses 1,071 2,154
Deferred contract costs 1,046 1,133
-------- --------
Total current assets 25,341 32,811
Property and equipment, net 7,292 5,821
Other assets 936 1,087
-------- --------
$ 33,569 $ 39,719
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,136 $ 3,660
Accrued liabilities 6,032 7,168
Customer deposits 405 482
Deferred revenue 3,009 3,311
Current portion of long-term debt 333 747
-------- --------
Total current liabilities 11,915 15,368
Long-term debt, less current portion 245 175
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 2,500,000 -- --
shares; no shares issued or outstanding
Common stock, $.01 par value. Authorized 135 134
25,000,000 shares; issued and outstanding,
13,439,976 and 13,381,753, respectively
Additional paid-in capital 60,414 60,246
Deferred compensation (61) (91)
Accumulated deficit (37,757) (34,815)
Foreign currency translation adjustment (156) (140)
Unrealized holding gain (loss) on marketable securities (25) (17)
-------- --------
22,550 25,317
Treasury stock, at cost, 175,732 shares (1,141) (1,141)
-------- --------
21,409 24,176
-------- --------
$ 33,569 $ 39,719
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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SYNTELLECT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues:
System sales $ 6,075 $ 9,020 $ 21,702 $ 23,990
Service bureau 2,323 1,928 6,830 4,751
Maintenance and other services 3,775 3,455 10,591 10,125
-------- -------- -------- --------
Total net revenues 12,173 14,403 39,123 38,866
Cost of revenues:
System sales 3,650 5,566 12,981 14,438
Service bureau 1,528 1,018 4,002 2,639
Maintenance and other services 901 782 2,752 2,371
-------- -------- -------- --------
Total cost of revenues 6,079 7,366 19,735 19,448
-------- -------- -------- --------
Gross margin 6,094 7,037 19,388 19,418
Operating expenses:
Selling, marketing and administrative 5,309 6,235 15,652 16,235
Research and development 1,492 1,151 4,492 3,496
Depreciation and amortization 815 767 2,382 2,252
-------- -------- -------- --------
Total operating expenses 7,616 8,153 22,526 21,983
-------- -------- -------- --------
Operating income (loss) (1,522) (1,116) (3,138) (2,565)
Other income (expense)
Interest income 69 130 271 399
Other (12) (21) (75) (35)
-------- -------- -------- --------
Total other income 57 109 196 364
-------- -------- -------- --------
Income (loss) before income taxes (1,465) (1,007) (2,942) (2,201)
Income taxes -- 68 -- 93
-------- -------- -------- --------
Net income (loss) $ (1,465) $ (1,075) $ (2,942) $ (2,294)
======== ======== ======== ========
Net income (loss) per common share $ (.11) $ (.08) $ (.22) $ (.17)
======== ======== ======== ========
Shares used in per share calculations 13,435 13,178 13,412 13,148
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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SYNTELLECT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,942) $(2,294)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,383 2,252
Provision for doubtful accounts 180 278
Provision for inventory obsolescence 27 129
Stock option compensation expense 29 414
(Increase) decrease in receivables 3,982 1,927
(Increase) decrease in inventories (233) (882)
Increase (decrease) in accounts payable (1,524) 786
Increase (decrease) in accrued liabilities (1,362) 13
Change in other assets and liabilities 850 1,593
------- -------
Total adjustments 4,332 6,510
------- -------
Net cash provided by operating activities 1,390 4,216
Cash flows from investing activities:
Purchase of marketable securities (9,542) (528)
Sales of marketable securities 851 190
Maturities of marketable securities 9,109 1,043
Purchase of property and equipment (3,770) (3,085)
Proceeds from disposition of SNS product line 30 --
Proceeds from disposition of Dytel product line -- 39
------- -------
Net cash used in investing activities (3,322) (2,341)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 169 278
Payment on note payable to bank -- (200)
Additions to long-term debt 319 --
Principal payments on long-term debt (663) (456)
------- -------
Net cash used in financing activities (175) (378)
------- -------
Effect of exchange rates on cash (16) 31
------- -------
Net increase (decrease) in cash and cash equivalents (2,123) 1,528
Cash and cash equivalents at beginning of period 5,125 5,921
------- -------
Cash and cash equivalents at end of period $ 3,002 $ 7,449
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 32 $ 89
======= =======
Cash paid for income taxes $ 276 $ 68
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except shares and per share amounts)
(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, Pinnacle Investment Associates Inc. ("Pinnacle"),
Syntellect Canada Inc., Syntellect Europe Ltd., Syntellect Technology Corp.
(formerly Dytel, Inc.) and Syntellect Network Systems Inc. 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 1995 annual report on Form 10-K. The
results of operations for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
(2) ACQUISITION OF PINNACLE INVESTMENT ASSOCIATES INC.
On March 14, 1996, Syntellect completed its acquisition of Pinnacle in
a transaction that has been accounted for as a pooling of interests. Pursuant to
the terms of the merger, Syntellect issued 4,685,838 shares of common stock and
assumed outstanding options belonging to Pinnacle stockholders for the purchase
of an additional 740,848 shares of common stock at a weighted average exercise
price of $1.04 per share. The common stock issued in this transaction had a
total value of $20.5 million based on the fair market value of the common stock
on the date of issuance. Pinnacle is a holding company that owns all of the
outstanding capital stock of Telecorp Systems, Inc. ("Telecorp"). Telecorp
develops and distributes inbound and outbound call center systems worldwide,
primarily in the cable television, newspaper and health care industries.
The financial position and results of operations of Syntellect and
Pinnacle for all periods presented have been restated to give effect to the
merger. The following presents supplemental disclosure of the separate results
of Syntellect and Pinnacle for those periods presented in the accompanying
financial statements prior to the date of the merger.
Combined Condensed Balance Sheets
As of December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
SYNTELLECT PINNACLE COMBINED
---------- -------- --------
<S> <C> <C> <C>
Assets
Current assets $24,893 $ 7,918 $32,811
Property and equipment 3,785 2,036 5,821
Other assets 1,040 47 1,087
------- ------- -------
$29,718 $10,001 $39,719
======= ======= =======
Liabilities
Current liabilities $ 9,614 $ 5,754 $15,368
Long-term debt 175 -- 175
------- ------- -------
9,789 5,754 15,543
Shareholders' equity 19,929 4,247 24,176
------- ------- -------
$29,718 $10,001 $39,719
======= ======= =======
</TABLE>
6
<PAGE> 7
Combined Condensed Statements of Operations
For The Three Months Ended September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
SYNTELLECT PINNACLE COMBINED
---------- -------- --------
<S> <C> <C> <C>
Net revenues $ 9,714 $ 4,689 $ 14,403
Cost of revenues 5,306 2,060 7,366
-------- -------- --------
Gross margin 4,408 2,629 7,037
Operating expenses 5,528 2,625 8,153
-------- -------- --------
Operating income (loss) (1,120) 4 (1,116)
Other income (expense) 98 11 109
-------- -------- --------
Income (loss) before taxes (1,022) 15 (1,007)
Income tax expense 68 -- 68
-------- -------- --------
Net income (loss) $ (1,090) $ 15 $ (1,075)
======== ======== ========
Net income (loss) per share $ (.13) $ -- $ (.08)
======== ======== ========
Shares used in per share calculation 8,492 5,147 13,178
======== ======== ========
</TABLE>
Combined Condensed Statements of Operations
For The Nine Months Ended September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
SYNTELLECT PINNACLE COMBINED
---------- -------- --------
<S> <C> <C> <C>
Net revenues $ 27,217 $ 11,649 $ 38,866
Cost of revenues 13,797 5,651 19,448
-------- -------- --------
Gross margin 13,420 5,998 19,418
Operating expenses 16,273 5,710 21,983
-------- -------- --------
Operating income (loss) (2,853) 288 (2,565)
Other income (expense) 321 43 364
-------- -------- --------
Income (loss) before taxes (2,532) 331 (2,201)
Income tax expense 93 -- 93
-------- -------- --------
Net income (loss) $ (2,625) $ 331 $ (2,294)
======== ======== ========
Net income (loss) per share $ (.31) $ .06 $ (.17)
======== ======== ========
Shares used in per share calculation 8,462 5,147 13,148
======== ======== ========
</TABLE>
7
<PAGE> 8
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Finished goods $ 3,882 $ 5,499
Purchased components 4,290 6,729
Repair, warranty and maintenance inventory 2,137 2,090
-------- --------
10,309 14,318
Less allowances for obsolescence (5,183) (9,025)
-------- --------
$ 5,126 $ 5,293
======== ========
</TABLE>
(4) DISPOSITION OF SYNTELLECT NETWORK SYSTEMS INC. SUBSIDIARY
The Company sold its Syntellect Network Systems Inc. ("SNS") subsidiary
on April 1, 1996 under a stock purchase agreement with an unrelated third party.
Under the Agreement, the Company sold all of the issued and outstanding shares
of SNS common stock for $720. The Company received $30 of the sales price at
closing with the remaining $690 to be received in 23 monthly installments of
$30, without interest, beginning May 1996. The completion of this transaction
did not significantly impact the Company's results of operations.
(5) LEASE COMMITMENT
The Company entered into a ten year lease in June 1996 for a new 60,000
square foot facility in Phoenix. The lease is scheduled to commence in March
1997 and will require the Company to provide the lessor with a $934 letter of
credit as a security deposit until certain net worth levels are achieved. The
letter of credit will be funded from the line of credit described in Note 6.
(6) SHORT-TERM DEBT
During July 1996, the Company negotiated a $2.0 million revolving
credit agreement with a commercial bank to replace its existing credit
facilities. The new credit line, which will be used to provide working capital
financing, is collateralized by accounts receivable and accrues interest at
prime. The agreement is renewable annually and requires the Company to maintain
certain operating ratios with respect to working capital and net worth.
8
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SYNTELLECT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF PINNACLE INVESTMENT ASSOCIATES, INC.
On March 14, 1996, Syntellect completed its acquisition of Pinnacle
Investment Associates, Inc. ("Pinnacle") in a transaction that has been
accounted for as a pooling of interests. Pursuant to the terms of the merger,
Syntellect issued 4,685,838 shares of common stock and assumed outstanding
options belonging to Pinnacle stockholders for the purchase of an additional
740,848 shares of common stock at a weighted average exercise price of $1.04 per
share. The common stock issued in this transaction had a total value of $20.5
million based on the fair market value of the common stock on the date of
issuance. Pinnacle is a holding company that owns all of the outstanding capital
stock of Telecorp Systems, Inc. ("Telecorp"). Telecorp develops and distributes
inbound and outbound call center systems worldwide, primarily in the cable
television, newspaper and health care industries. The financial position and
results of operations of Syntellect and Pinnacle for all periods presented have
been restated to give effect of the merger.
The merger provides the combined company with several distinct
marketing advantages including: (i) a more diversified product line which
includes both inbound voice processing technology and outbound predictive dialer
products; (ii) a larger sales force and distribution network together with
improved access into new vertical markets; and (iii) the formation of the
Syntellect Interactive Services Division ("SIS Division") which combines the
voice response outsourcing, on-site facilities management and disaster recovery
services offered through Syntellect's transaction-based service bureau with the
processing capacity of Telecorp's National Transaction Center. In addition, the
merger provides the combined company with greater financial resources and access
to a new management team with substantial expertise in the voice processing
industry.
NET REVENUES
Net revenues for the third quarter ended September 30, 1996 were $12.2
million, a decrease of 15% from the $14.4 million reported for the third quarter
of 1995. For the nine month period ended September 30, 1996, net revenues were
$39.1 million, an increase of less than 1% from the $38.9 million reported for
the corresponding period of 1995. Net revenues consist of SYSTEM SALES, SERVICE
BUREAU REVENUES and MAINTENANCE AND OTHER SERVICE REVENUES, which represented
56%, 17% and 27% of net revenues, respectively, for the nine month period ended
September 30, 1996, and 62%, 12%, and 26% of net revenues, respectively, in the
comparable prior year period.
SYSTEM SALES decreased $2.9 million, or 33%, between the comparable
quarters, and $2.3 million, or 10% between the corresponding nine month periods.
System sales include the Company's primary inbound product lines, VocalPoint, an
open architecture IVR platform; the Premier and Premier 030 proprietary IVR
systems; and the VocalPoint System 6000 Audio Response Unit for the cable
television industry; and an outbound predictive dialer, the VocalPoint System
9000. VocalPoint IVR sales were flat quarter-over-quarter, but increased $1.2
million, or 15%, between the comparable nine month periods, primarily in the
Company's domestic and European markets. The Company experienced an unexpected
shift in its product mix during Q3-96 as more than 80% of all sales orders
received were for VocalPoint IVR. In addition, the Q3-96 order rate for this
product line more than doubled from Q2-96 levels. The VocalPoint IVR is a
complex solution that requires longer lead times than the Company's earlier
product offerings. This large shift in product sales mix, together with the
receipt of several large VocalPoint IVR orders near the end of the quarter,
exceeded the Company's capacity to deliver solutions and recognize revenue. The
systems backlog at the end of Q3-96 was in excess of $9 million, the largest in
Company history, and included more than $8 million in VocalPoint IVR orders.
Sales of the Premier and Premier 030 product lines decreased $696,000
and $1.5 million, respectively, quarter-over-quarter, and $1.5 million and $3.7
million between the comparable nine month periods. Sales of the older Premier
lines continue to decrease as these product lines are in their final phase-out
stage. Premier 030 sales decreased $1.8 million in the Company's domestic
install base, and by $1.5 million in the Far East and Latin American markets
where the Company has recently introduced and is actively marketing VocalPoint
IVR solutions. The Company reorganized the management of its international sales
operation during Q2-96 to facilitate
9
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the transition of its product sales mix in these markets. VocalPoint System 6000
sales decreased $465,000 quarter-over-quarter, and increased $2.6 million
between the comparable nine month periods. The nine month results for 1996
include a $3.0 million call center installation in the United Kingdom. Sales of
the Company's outbound predictive dialer, the VocalPoint System 9000 were flat
between the comparable quarter and nine month periods.
System sales were further impacted between the comparable nine month
periods by a $1 million decrease in sales of the Dytel product line and the
System 2000 digital voice system manufactured by the SNS subsidiary. The Company
sold the Dytel product line to a third party purchaser in February 1995. The SNS
subsidiary was sold to an unrelated value added reseller on April 1, 1996.
SERVICE BUREAU REVENUES increased $395,000, or 20%,
quarter-over-quarter, and $2.1 million, or 44%, between the comparable nine
month periods. These increases result from the continued growth of the Company's
Home Ticket(TM) service, a pay-per-view order processing service for cable
television providers which is offered through the SIS Division in Atlanta.
MAINTENANCE AND OTHER SERVICE REVENUES increased $320,000 and $466,000,
respectively between the comparable quarters and nine month periods. These
results reflect increased revenues from the Company's patent portfolio.
DOMESTIC AND INTERNATIONAL SALES for Q3-96 were $10.1 million, or 83%,
and $2.1 million, or 17%, of total revenues, respectively. For the nine month
period ended September 30, 1996, domestic and international sales were $29.8
million, or 76%, and $9.3 million, or 24%, respectively. The international sales
figures for the nine month period include a $3.0 million VocalPoint System 6000
call center installation and a $1.1 million VocalPoint System 9000 outbound
predictive dialer installation to a customer in the United Kingdom.
GROSS MARGIN
The gross margin percentage for the quarter ended June 30, 1996 was 50%
of net revenues, as compared with 49% in the comparable prior year quarter. The
gross margin percentage for each of the nine month periods ended September 30,
1996 and 1995 was 50%. Gross margins on system sales improved between periods as
a result of changes in the Company's sales discounting policies and lower
material costs. Gross margins for the Service Bureau decreased between the
comparable quarters with the Company's decision to increase spending on
infrastructure that will facilitate continued growth of the Home Ticket
pay-per-view service and other service bureau applications. 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 Q3-96 and the nine month period ended September
30, 1996 are not necessarily indicative of the results to be expected for the
full year.
OPERATING EXPENSES
Operating expenses for Q3-96 were $7.6 million, a decrease of $537,000,
or 7%, from the prior year quarter. For the nine month period ended September
30, 1996, operating expenses were $22.5 million, an increase of $543,000, or 2%,
over the prior year period. Selling, marketing and administrative expenses
decreased $926,000, or 15% between the comparative quarters and by $583,000, or
4%, between the corresponding nine month periods. These decreases result
primarily from economies of scale related to the integration of the Company's
sales function and a reduction in administrative salaries and benefit costs.
Research and development expenses for Q3-96 increased $341,000, or 30%, over the
prior year quarter and by $996,000, or 28%, between the comparative nine month
periods. The Company has allocated additional resources during 1996 for the
development of market-driven features and upgrades for the Company's existing
product lines. Depreciation and amortization expense increased $130,000, or 6%,
during the first nine months of 1996 in connection with the Company's purchase
of $3.8 million in computer and voice processing equipment. These capital
expenditures will be used to integrate the operations of the merged Company and
to expand the capacity of the SIS Division.
10
<PAGE> 11
NET INCOME (LOSS)
Syntellect reported a net loss of $1.5 million, or $(.11) per share for
Q3-96, compared to a net loss of $1.1, or $(.08 ) per share for Q3-95. For the
nine month period ended September 30, 1996, the Company reported a net loss of
$2.9 million, or $(.22) per share, compared to a net loss of $2.3 million, or
$(.17) per share for the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Syntellect had working capital of $13.4 million at September 30, 1996,
as compared with $17.4 million at December 31, 1995. The current ratio at both
these dates was 2.1:1. Cash, cash equivalents and marketable securities at the
end of the third quarter totaled $6.8 million as compared with $9.4 million at
year end. Syntellect generated a $1.4 million positive cash flow from operating
activities during the first nine months of 1996, reduced its investment in
marketable securities by $418,000, received $169,000 in proceeds from the sale
of common stock, and added $319,000 in long-term debt related to a capital
lease. Cash was used during the period to make $3.8 million in capital
expenditures and $663,000 in principal payments on long-term debt. Receivables,
net of reserves were $11.3 million at September 30, 1996, a decrease of $3.6
million from the $14.9 million reported at December 31, 1995. This decrease
results from the Company's improved collection efforts which lowered the average
collection period for trade receivables from 143 days at December 31, 1995 to 88
days by end of the third quarter. The reserve for doubtful accounts was $990,000
at September 30, 1996, a decrease of $538,000 over the year end balance.
Inventories have decreased $167,000 since December 31, 1995 as a result of the
Company's improved processing controls and stock reduction plan. The working
capital balance was also impacted during the first nine months of 1996 by the
recognition of $930,000 in deferred revenues and $1.1 million in deferred costs
related to the completion of the large VocalPoint System 6000 call center
installation in the United Kingdom.
Syntellect expects that its current cash, cash equivalents and
marketable securities, combined with future cash flows from operating activities
and existing credit facilities, will be sufficient to support the Company's
operations for the remainder of 1996 and 1997. In July 1996, Syntellect
negotiated a new $2.0 million revolving credit agreement with a commercial bank
to replace its prior credit facilities. The new credit line, which will be used
to provide working capital financing, is collateralized by accounts receivable
and accrues interest at prime. The Company has used $934,000 of the credit line
to fund a letter of credit that is being used as a security deposit on a new
facility in Phoenix, Arizona.
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SYNTELLECT INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
Syntellect has settled a lawsuit filed by the former owners of Telecorp
in the State Court of Fulton County, Georgia in October 1995. The lawsuit
alleged that Telecorp breached certain Consulting/Noncompetition Agreements with
the former owners that had been executed in connection with the sale of Telecorp
to Pinnacle. Syntellect settled the litigation for an amount within the accrual
that had been established for potential legal and other cost relating to this
litigation.
Syntellect is a defendant in a patent infringement suit filed on May
24, 1996, by Elk Industries, Inc., in the United States District Court for the
Southern District of Florida. The suit alleges that Syntellect's systems,
including VocalPoint, infringe U.S. Patent No. 4,124,773 on an "Audio Storage
and Distribution System". The suit seeks damages and an injunction. Syntellect
is vigorously defending against the suit.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Schedule of Computation of Net Income (Loss) Per
Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the three
months ended September 30, 1996:
12
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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: November 8, 1996 By /s/ Neal L. Miller
-----------------------
Neal L. Miller
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
13
<PAGE> 1
EXHIBIT 11
SYNTELLECT INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (1,465) $ (1,075) $ (2,942) $ (2,294)
======== ======== ======== ========
Weighted average shares:
Common shares outstanding 13,435 13,178 13,412 13,148
Common equivalent shares representing shares
issuable upon exercise of stock options (1) -- -- -- --
-------- -------- -------- --------
Total weighted average shares - primary 13,435 13,178 13,412 13,148
Incremental common equivalent shares (calculated using
the higher of end of period or average market value (2) -- -- -- --
-------- -------- -------- --------
Total weighted average shares - fully diluted 13,435 13,178 13,412 13,148
======== ======== ======== ========
Primary net income (loss) per common and equivalent
share $ (.11) $ (.08) $ (.22) $ (.17)
======== ======== ======== ========
Fully diluted net income (loss) per common and equivalent
share (2) $ (.11) $ (.08) $ (.22) $ (.17)
======== ======== ======== ========
Additional adjustments to fully diluted weighted average shares (3):
Total weighted average shares - fully diluted 13,435 13,178 13,412 13,148
======== ======== ======== ========
Common equivalent shares representing shares
issuable upon exercise of stock options (1) -- -- -- --
Total weighted average shares - fully
diluted, as adjusted 13,435 13,178 13,412 13,148
======== ======== ======== ========
Fully diluted net income (loss) per common and equivalent
share, as adjusted (3) $ (.11) $ (.08) $ (.22) $ (.17)
======== ======== ======== ========
</TABLE>
- ------
Notes:
(1) Amount calculated using the treasury stock method and fair market
values.
(2) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
Incremental amounts are zero; calculation is shown for presentation
purposes only.
(3) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No.
15 because it produces an anti-dilutive result.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF SYNTELLECT, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1996 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS OF
SYNTELLECT, INC. AND SUBSIDIARIES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 3,002
<SECURITIES> 3,799
<RECEIVABLES> 12,287
<ALLOWANCES> 990
<INVENTORY> 5,126
<CURRENT-ASSETS> 25,341
<PP&E> 23,284
<DEPRECIATION> 15,992
<TOTAL-ASSETS> 33,569
<CURRENT-LIABILITIES> 11,915
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 21,274
<TOTAL-LIABILITY-AND-EQUITY> 33,569
<SALES> 21,702
<TOTAL-REVENUES> 39,123
<CGS> 12,981
<TOTAL-COSTS> 19,735
<OTHER-EXPENSES> 22,526
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (2,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,942)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
