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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
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 No. 0-18323
SYNTELLECT(R) INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 86-0486871
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20401 North 29th Avenue, Phoenix, Arizona 85027
(Address of principal executive office)
(Zip Code)
(602) 789-2800
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OR CLASS NAME OF EXCHANGE ON WHICH REGISTERED
-------------- ------------------------------------
Common Stock, $.01 par value Nasdaq National Market System
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 by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 20, 2000, the aggregate market value of common stock held by
non-affiliates of the Registrant was $54,330,493.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, par value $.01 per share ("Common Stock"), as of the
latest practicable date.
11,782,242 shares of Common Stock outstanding on March 20, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Materials from the Registrant's Proxy Statement relating to its 2000 Annual
Meeting of Shareholders (the "Proxy Statement") have been incorporated by
reference into Part III, Items 10, 11, 12 and 13.
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TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS...................................................... 1
ITEM 2. PROPERTIES.................................................... 9
ITEM 3. LEGAL PROCEEDINGS............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 10
ITEM 6. SELECTED FINANCIAL DATA....................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 36
ITEM 11. EXECUTIVE COMPENSATION........................................ 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K...................................................... 36
SIGNATURES 40
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PART I
ITEM 1 -- BUSINESS
GENERAL
Syntellect Inc. (together with its subsidiaries, collectively referred to
as "Syntellect" or the "Company") develops, markets and integrates voice,
internet, and call processing software and services worldwide. The Company
offers a diversified product line which includes Interactive Voice Response
("IVR"), Interactive Web Response ("IWR"), Computer Telephony Integration
("CTI"), Advanced Speech Recognition ("ASR"), and a worldwide distribution
network. While focused on enterprise call centers, the Company has developed
industry technologies for financial services, media (cable/satellite TV and
newspapers), and utilities. Syntellect also provides an interactive
transaction-based hosted services center for those customers who prefer to
outsource their voice processing or web transaction-based applications,
including cable and satellite pay-per-view orders, employee benefits enrollment,
and utility outage applications. Syntellect currently employs a total of 251
people, and in addition to its primary office facilities in Phoenix, maintains
five sales and support offices in the United States and one in London.
This report on Form 10-K may contain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
include, without limitation, certain statements contained in Part I, Item 1 --
"Business" under the captions "Historical Development of the Company", "Industry
and Market Background", "Products", "Services", "Sales, Marketing, Service &
Support", "Product Development", "Manufacturing and Suppliers", "Backlog",
"Proprietary Rights and Intellectual Property" and "Employees"; Part I, Item 3
- -- "Legal Proceedings"; Part II, Item 5, "Market for the Company's Common Equity
Securities and Related Stockholder Matters"; and Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
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" for a discussion of
important factors that could affect the validity of any such forward-looking
statements.
HISTORICAL DEVELOPMENT OF THE COMPANY
Founded in 1984, Syntellect was an early pioneer in the IVR industry, and
by 1995 had become the fourth largest provider of IVR technologies in North
America and the largest IVR provider in Europe. Virtually all of the Company's
growth during this period was attributable to its proprietary IVR systems
(Infobot and Premier). In the early 1990's, the IVR industry experienced a major
shift in product demand as the market began to move from proprietary hardware
and software applications to advanced, open architecture products. These
products increased functionality with a wider range of options for self-service
- -- including telephones using speech recognition, personal computers and the
Internet, to faxes, pagers and mobile phones. In 1993, the Company introduced
its first open architecture product, the VocalPoint IVR, and announced the
phase-out of its proprietary lines.
On March 14, 1996, Syntellect acquired Pinnacle Investment Associates Inc.
("Pinnacle") in a transaction that was accounted for as a pooling of interests.
Pinnacle subsequently was merged into its wholly owned subsidiary, Telecorp
Systems, Inc. ("Telecorp"). Telecorp developed and distributed inbound and
outbound call center systems worldwide, primarily in the cable television,
newspaper and healthcare industries, and operated a transaction-based hosted
application center designed primarily to process pay-per-view orders for the
cable television industry. Subsequent to the merger, all systems functions were
merged into Syntellect Inc. and all hosted application center functions were
consolidated into Syntellect Interactive Services ("SIS"), a wholly owned
subsidiary of Telecorp.
In 1998, the Company introduced VocalPoint Interactive Services Transaction
Architecture ("Vista(TM)"). Vista combines call center technologies with a
distributed client-server architecture, powerful open standards components, a
web-based management system and a graphical application development tool. This
combination provides customers with flexibility, scalability and efficiency,
redundancy, and excellent processing performance in comparison to previous
proprietary solutions.
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INDUSTRY AND MARKET BACKGROUND
Evolution of the Call Center. Traditionally, consumers contacting
organizations to obtain data or services did so by talking with someone in
person. While these "call centers" enabled a company to provide a personal touch
with its customers, they also created inefficiencies and disadvantages such as
(i) the high cost of maintaining a large pool of agents to answer calls and
provide service, (ii) the practical limits on the amount of information and
level of service that could be given to individual callers, and (iii) the
increased potential for service delays and agent error as call volume increased
or substantially varied with the time of day. As a result, organizations have
increasingly turned to various methods of automation to process these calls and
have redefined the role of their call centers by expanding the definition of a
"call" from a person-to-person voice transaction to a range of transactions
involving voice, data and workflow automation. Call centers have become
"customer contact centers," linking multiple sites and geographically dispersed
resources through wide area networks, corporate intranets, extranets, and the
Internet.
Customer Contact Management has become a major business requirement as
companies realize that fast, friendly and cost efficient service offers distinct
competitive advantages. Customer Contact Management eliminates hold times,
provides increased accuracy in transaction processing, and allows for expanded
service offerings. Customer Contact applications can effectively handle up to
60% of most interactive customer transactions. Many issues still require the
assistance of a customer service agent; however, technology has helped to
automate the agent's interaction with the customer through the use of solutions
such as CTI which integrates the transmission of voice and data in a single
telephone call. For example, an inbound solution may involve a "screen pop" of
customer information at the agent's workstation.
The use of IVR systems has allowed businesses to broaden the type of
transactions that can be conducted in this manner. These transactions now
include order entry, package tracking, home banking, customer service, hospital
patient information requests, student registration, catalog sales, benefits
enrollment, dealer locator services, airline schedule information, pay-per-view
ordering, automated stock transactions, and fax-on-demand. As the market
continues to evolve, the increased emphasis on cross-industry applications will
require the IVR industry to develop solutions that will allow data to be
accessible from an even wider range of database systems. This requires
multi-vendor networking and application integration capabilities based on open
architecture platforms. Standardization and interoperability are expected to
facilitate the evolution of the IVR industry's next generation of products.
Market Potential and Industry Rank. The Gartner Group, an industry analyst
firm, reports that the $3 billion call center market in North America is growing
at a rate of 20% per year. The group estimates that there are approximately
55,000 call centers worldwide with 30,000 of those call centers operated in the
United States. In-Stat, a market research firm, estimates that the market growth
for web-enabling call centers will exceed 35% in the year 2000.
Competition. The voice processing industry is highly competitive and the
Company believes that competition will continue to intensify in the future. The
industry is characterized by rapid technological advances, frequent
introductions of new products, options and features, constant improvement in the
performance of IVR products, and downward pressure on prices. Failure to keep
pace with technological advances could adversely affect the Company's
competitive position and results of operations. Syntellect believes the
principal competitive factors affecting the voice processing industry are price,
functionality, service and reputation in the industry. Although management
believes that the Company competes favorably with respect to these factors,
there can be no assurance that Syntellect can maintain its competitive position
against current and potential competitors.
Syntellect's principal domestic competitors for IVR and web products
include Lucent Technologies, InterVoice-Brite, Aspect Telecommunications,
Periphonics Corporation, Edify, a subsidiary of Security First, and IBM
Corporation. Internationally, Syntellect's primary competitors include
InterVoice-Brite, Telsis, Aspect Telecommunications, Periphonics, and IBM
Corporation. Many of the Company's competitors have more extensive engineering,
manufacturing, and marketing capabilities, in addition to their substantially
greater financial, technological and personnel resources. The Company also
expects new competitors to enter its markets.
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PRODUCTS
In 1998, the Company introduced its third generation software platform,
Vista, using Microsoft's Windows NT(R) operating system and JAVA(R) as the
programming language for customer application development. Vista, as
Syntellect's contact center software platform, is a broad suite of
communications features for companies automating customer transactions. Vista
provides an all-in-one solution for interactive voice response, interactive web
response, computer telephony integration, fax on demand, advanced speech
recognition, and more. With this platform, transactions can be processed from
callers using almost any communication device including telephones, web
browsers, fax machines, and pagers.
Vista is built on an open, scalable, standards-based framework to form a
unified foundation for many different types of customer transactions. The Vista
platform allows Syntellect customers to deliver powerful new capabilities to
their contact centers while leveraging their existing telecommunications and
information technology infrastructure. The Vista framework supports inbound and
outbound telephone (touch-tone, voice, and fax), host, and web transactions. The
framework also provides extensive interface capability and reporting options as
well as a standard set of application development, administration and management
tools. An extensive range of object-oriented applications can be installed on
the framework that interacts with a customer's specific business needs within
the context of today's multimedia contact centers.
Vista can be configured for virtually every company, from small,
single-premise contact centers up to multi-site global enterprise networks.
Because Vista is open and standards-based, Syntellect customers receive the
Information Technology ("IT") flexibility they need to adapt to changing
business and technology conditions.
The standards used in the Vista framework include: Windows NT(R) operating
system, JAVA(R) application development language, Intel Dialogic(R) Voice
Boards, Sybase(TM) relational database, and Intel(R)-based computer hardware.
Vista components are sold as software-centric products. Syntellect provides the
base software along with connections to a customer's PBX or ACD and host
environment. Syntellect has also established partnerships with third party
integrators who provide high quality, cost effective, industry standard platform
components for Vista customers.
Vista components include: Interactive Voice Response (IVR), Interactive
Web Response (IWR), Computer Telephony Integration (CTI), Advanced Speech
Recognition (ASR), Fax, Proactive Outbound Notification and a Speech Enabled
Directory (SPEED).
Vista IVR automates customer self-service inquiries and is sometimes
considered the "voice" of an automated customer contact center. As part of the
Vista software architecture, Vista IVR is designed to be highly scaleable and
can be integrated into existing telecommunication and data processing
environments. The same software and hardware components are utilized for all
system or networked configurations, facilitating modular growth. Vista also is
designed to be particularly effective in environments supporting multiple
applications.
Vista IWR allows companies to take advantage of the Internet with
self-service solutions designed exclusively for the World Wide Web. Just as IVR
allows a customer to conduct self-service transactions by telephone, IWR makes
the same options available on the Internet. Rather than providing voice prompts,
IWR provides visual instructions on the customer's computer screen. The IWR
component of Vista incorporates all the features the customer needs to perform
transaction processing on the Internet - - scalability, performance, security,
access to enterprise data, and the ability to integrate with other Vista
features.
Syntellect's Advanced Speech Recognition and speaker authentication
provide the recognition accuracy, scalability, and robustness required to deploy
successful natural language and large vocabulary speech applications. Leveraging
JAVA(R), Syntellect and Nuance Communications have partnered to create those
applications by utilizing Nuance's SpeechObjects(TM) along with Vista's JAVA(R)
Application Framework.
Vista Proactive Notification is used to create, configure, and manage
completely automated outbound calling campaigns while generating progress
reports along the way. Proactive Notification applications can range from simple
campaigns that deliver straightforward messages, to more complex self-service
applications that involve questions to and answers from respondents.
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In January of 2000, Syntellect announced its Vista Speech Enabled
Directory (SPEED). SPEED automates call routing tasks by allowing callers to
speak the name of a specific individual (or department) they wish to reach
instead of speaking to an operator or entering an extension number using the
touch-tone keypad. The system then relies on advanced speech recognition
algorithms to recognize the spoken name as well as advanced voice processing
capabilities to transfer the call appropriately. When multiple employees have
the same name, SPEED prompts the caller for additional information, such as the
individual's department, then makes the appropriate routing decision. SPEED can
be configured as a stand-alone product residing on the Vista platform or it can
be configured as a part of a Vista IVR application.
Vista Fax Server receives fax requests from inbound or outbound agents and
IVR and IWR applications. With Syntellect's Fax option, customers may obtain a
facsimile of the information they desire using a Vista system. Data from a host
screen or database that callers access during a transaction can be merged with
forms, graphics, or logos stored on the IVR system before being faxed to the
caller. Callers can retrieve pre-defined documents such as product brochures,
catalog information, or stock reports.
Vista CTI assists in optimizing contact center agents' productivity by
allowing them to handle telephone calls more intelligently and efficiently. For
example, by using CTI technology, customer data collected by the IVR at the
initiation of a customer contact session can be delivered to an agent's
workstation at the same time the telephone connection is transferred to that
agent's telephone. The simultaneous transfer of a caller's voice and account
data results in increased agent productivity, greater effectiveness in resolving
customer inquiries, and efficiencies in providing what consumers perceive to be
personalized, integrated support.
Vista tools include VistaView and VistaGen. VistaView allows users to
monitor their Vista servers and applications. Using VistaView, system
administrators have the ability to examine all aspects of their system, whether
the data resides on an individual platform or at numerous locations. VistaView
can act as a single point of access for both consolidated and itemized system
information. VistaView supports all Vista system components. VistaGen
Application Generator is an object oriented application development tool for
Vista which simplifies the customer's process of building simple IVR
applications into a sophisticated application which incorporates natural
language speech recognition, IWR and CTI technologies.
SERVICES
Hosted Services. The Company operates a hosted services transaction center
through SIS. Telemarketing(R) and Call Center Solutions(TM) magazines ranked SIS
fifth among interactive service providers in the United States for 1999. The
ranking was based on the cumulative number of transactions processed over a
12-month period. The SIS National Transaction Center ("NTC"), with nearly 5,000
ports of IVR capacity, database and web servers, offers telephony and Internet
based automated transaction outsourcing and is designed with full system
redundancy and fault-tolerant power protection for operation 24-hours a day,
7-days a week.
The NTC call center is an automated "lights out" facility which handles
more than four million telephone and Internet-based transactions each month for
its customers. The NTC is used for the Company's Home Ticket(TM) pay-per-view
service, the largest application hosted by SIS.
Home Ticket combines the speed and convenience of 800 numbers, the
user-friendly nature of IVR technology and real-time connectivity with cable
system billing mainframes to process orders for over 500 cable and satellite
television operators in North America including AT&T/TCI, Time Warner,
Cablevision Systems, and Comcast. Home Ticket is the pay-per-view service
utilized by approximately 8 million households in the United States alone. The
Company has added additional features to the Home Ticket service, including Hot
Spots advertising and promotion messaging, commercial ordering for hotels and
motels, and Call Redirect which transfers an incoming call to a second
destination for enhanced customer service and retailing options.
New ordering technologies for pay-per-view in the cable and satellite
industries have resulted in a decline in the overall utilization of 800 number
services for ordering, and thus a decline in the Company's Home Ticket revenues.
As a result, SIS has focused more of its sales and marketing efforts toward new
application capabilities for the cable and utility industries, as well as
direct-to-consumer marketing, human resources, and Internet based application
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areas. In 1999, SIS introduced several new branded services, outlined below.
Additionally, SIS invested in its present infrastructure to position itself as a
solution provider for e-Commerce, and to offer application hosting services to
third party Independent Software Vendors (ISV's) who wish to offer their
products on an Application Service Provider (ASP) basis to end customers. During
1999, SIS entered into partnerships with two ISV's to offer their software
products in a hosted services model.
In 1997, SIS introduced CyberStats(TM), an online reporting tool for its
hosted services customers. CyberStats provides real-time reports on transaction
details through the SIS system. Users can access CyberStats on the Internet and
select the report delivery method of choice: to their desktop screen, by e-mail,
or to a fax machine.
In 1999, SIS introduced the following new products and features targeted
at the hosted IVR services market:
DialExpress(TM) - - high volume outbound calling capabilities used
for promotional messaging and other proactive customer contacts.
EasyPay(TM) - - real-time credit card authorization used for
automated bill payment and e-Commerce payment transaction
processing.
OutageTicket(TM) -- high volume call handling to respond to major
outage situations in the electric utility industry.
SIS also offers a variety of other outsourced electronic commerce
capabilities including audiotext, dealer locator, lead capture, broadcast
faxing, call center processing, call center activation, benefits enrollment, and
fulfillment. These transactions are typically billed on a per minute and per
transaction basis.
On September 15, 1999, the Company sold its predictive dialer product line
to Nobel Systems Corporation contributing $509,000 net to other income.
The Company has three operating business segments. See Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Operating Business Segments for description of these business segments.
SALES, MARKETING, SERVICE & SUPPORT
General. Syntellect provides voice processing technologies to customers in
a variety of industries, including banking, education, insurance, service
providers, transportation, healthcare, media, telecommunications, public
utilities, retailing, government agencies, oil and gas, financial services,
manufacturing and newspaper publishing. Syntellect's customer base includes some
of the largest domestic banking firms, some of the ten largest insurance
companies, most major domestic cable television providers and numerous Fortune
500 companies. There can be no assurance that the Company's existing customers
will continue their current buying patterns or that changes within those
industries will not adversely affect the Company's ability to retain or attract
new customers. Syntellect's products are sold through a direct sales force and
through domestic and international distributors and value added resellers
("VARs"). The Company currently maintains five sales offices in the United
States and one in London.
Domestic Sales. Domestic sales including maintenance fees represented 81%,
78% and 76% of the Company's total revenues for 1999, 1998 and 1997,
respectively. During these years no single distributor or customer accounted for
more than 10% of total revenues. More than 93% of the Company's 1999 domestic
sales were made by its direct sales force. A substantial portion of these direct
sales are made by a limited number of sales representatives, the loss of whom
could adversely affect future operating results.
International Sales. Revenues from international sales and maintenance fees
represented 19%, 22% and 24% of the Company's total revenues for 1999, 1998 and
1997, respectively. For additional information regarding international
operations, see Note 12 of Notes to Consolidated Financial Statements. All of
the Company's product lines and services are sold world-wide and are offered in
15 different languages. Syntellect maintains a direct sales force in London to
market its systems in various countries around the world. Sales in the United
Kingdom are
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denominated in pounds sterling, and are subject to foreign currency adjustments.
Sales in all other foreign countries are denominated in United States dollars.
Syntellect conducts business in international markets in compliance with each
country's applicable laws and regulations, including safety and
telecommunication laws, import duties and quotas. Syntellect has not experienced
any difficulty in obtaining export licenses for foreign sales from the United
States Department of Commerce.
Marketing Organization and Vertical Market Focus. Syntellect's marketing
organization is charged with (i) enhancing the Company's corporate image; (ii)
increasing demand for the Company's voice processing products; (iii) creating
market differentiation; and (iv) identifying future development opportunities
for market-driven features. The marketing organization conducts market and
competitive research, participates in industry trade shows and conferences,
creates sales literature and presentations, and maintains relationships with key
industry analysts and media contacts. Syntellect's strategic marketing plan is
focused on four vertical markets -- financial services, media (cable/satellite
television and newspaper), utilities and healthcare industries. Sales to these
markets represented approximately 79% of the Company's total revenues for 1999;
84% for 1998; and 81% for 1997. Syntellect markets its products to industry
leaders within these vertical markets as management believes the industry
leaders have the greatest need for self-service and transaction processing
technologies, are most likely to require system expansion and additional
services, and serve as an important source of customer referrals.
Professional Services. Syntellect has enhanced its customer support service
in the areas of consulting services, project management, application services,
installation, education services, helpline warranty and maintenance,
moves/adds/changes, scripting and voice file production, and database
maintenance services for cable television IVR customers. These services are
generally sold as part of the initial sale of a system or in some cases as post
implementation add-ons. Syntellect provides warranties on its various product
lines for periods generally ranging from three to six months after system
installation. After the initial warranty period, hardware and software
maintenance services are available on both a contractual and on-demand time and
material basis. Hardware maintenance and support provided to domestic customers
is performed on-site under contractual arrangements with independent third party
service providers. Internationally, the Company provides training, service and
support through a combination of its direct customer support function, third
party service providers and distributors.
PRODUCT DEVELOPMENT
Product development consists of system and software specification, software
design and coding, and third party software integration. All product development
is performed by employees of, and contractors managed by, the Company's research
and development organization. Syntellect performs rigorous testing prior to
releasing new products and features. Nevertheless, products as complex as those
produced by the Company often contain undetected errors, or "bugs" when first
released. These "bugs" are often discovered only after the product has been used
by many different customers and in varying applications. There can be no
assurance that errors will not be discovered in the future, causing delays in
product introductions and shipments or requiring design modifications which
could adversely affect the Company's results of operations.
The Company continually strives to identify and develop new products and
new features for existing products to expand its market. However, there can be
no assurance that any new product or its features will receive market
acceptance; and future announcements of new products may cause customers to
defer purchases of existing products, which could adversely affect the Company's
results of operations.
Syntellect's product development organization consisted of 41, 55, and 61
individuals at December 31, 1999, 1998 and 1997, respectively. The Company spent
$4.4 million, $5.6 million, and $5.9 million for research and development during
1999, 1998 and 1997, respectively.
MANUFACTURING AND SUPPLIERS
Syntellect's manufacturing operation consists of limited in-house
configuration, product assembly, product testing and quality control of some
legacy products. The Company obtains hardware components from third parties for
its products, including telephony interface and voice recognition boards. The
Company does not believe it is
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dependent on single source suppliers for components used in any of its product
lines. Syntellect is currently able to obtain key components in a timely manner
from a variety of sources; however, any inability to secure alternate suppliers
of key components or alternate assembly sources in a timely manner could
adversely affect the Company's results of operations.
BACKLOG
The Company's backlog at December 31, 1999 and 1998 was approximately $9.3
million and $15.4 million, respectively. The Company believes that all orders in
backlog at December 31, 1999 are firm and will be delivered within the fiscal
year. Because the possibility exists for customers to make changes to their
original order, to alter or significantly delay delivery schedules or to cancel
their order, the backlog total as of any particular date may not be indicative
of actual revenues for any future period.
PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY
Syntellect establishes and protects proprietary rights in its products and
technologies through a combination of registered copyrights, trademarks, service
marks, trade secret and patent protection. The Company also enters into
confidentiality agreements with its employees, distributors and customers, and
seeks to limit access to the distribution of its software, documentation and
other proprietary information. Syntellect can provide no assurance that the
steps it has taken to protect its licensing and proprietary rights will be
adequate to deter misappropriation and/or development of its technologies and
products by independent third parties or that third parties will not assert that
Syntellect's products infringe upon the rights of others. The Company believes
that factors such as technological innovation and expertise and market
responsiveness can be as important as the legal protections described above.
VocalPoint is a registered trademark and Vista, VistaGen, VistaView, Home
Ticket and Interactive Web Response are trademarks of Syntellect. All other
products mentioned in this Form 10-K are trademarks or registered trademarks of
their respective owners.
Syntellect's new Vista product line uses a licensed third party software.
This software provides a portion of the architectural foundation for Vista. The
Company has full rights to modify all components as necessary to meet the
requirements of its customers and business. The initial agreement with the third
party extends to December 31, 2000. Subsequent terms extend automatically each
year on January 1 for an additional year unless either party gives written
notice to the contrary to the other party prior to January 1 of any year, in
which case the agreement terminates at the end of the most recently extended
five-year term.
EMPLOYEES
At December 31, 1999, Syntellect employed a total of 251 employees, 246 on
a full-time basis and 5 on a part-time basis: 42 in sales, 10 in marketing, 46
in customer support, 49 in production, 41 in product development, 32 in the
hosted services operation, and 31 in administration. The Company's success
depends on a number of technical employees. Competition for highly skilled
people with extensive experience in systems and applications software and
advanced electronics is intense. Syntellect's inability to retain these
employees could severely impact the Company's ability to conduct its business.
The Company has never had a work stoppage and none of its employees are
represented by a labor organization.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information with respect to the names, ages, positions
and offices held with Syntellect by the Executive Officers as of March 30, 2000.
Anthony V. Carollo, Jr., 58 became Syntellect's Chairman and Chief
Executive Officer (CEO) on November 4, 1999 after serving as Chairman and
interim CEO since May 14, 1999. He has served as a director since August 1998.
Mr. Carollo was the President of Xantel Corporation from April 1998 to November
1999. Previously Mr. Carollo was the President and Chief Operating Officer of
Fujitsu Business Communication Systems and a former Vice President and General
Manager of ROLM Corporation. He has also held numerous financial positions, both
at ROLM, Arcata Communications and Arthur Andersen & Company. Mr. Carollo
currently serves as a director of Marshall & Ilsley Trust Company of Arizona and
Spectralink Corporation. Mr. Carollo holds a Bachelor's of Science degree from
the University of Santa Clara and a Master of Business Administration degree
from UCLA.
Timothy P. Vatuone, 50, was named Vice President and Chief Financial
Officer on February 14, 2000. Before coming to Syntellect, he served as Vice
President and Chief Financial Officer of Vivid Semiconductor. Previously, he was
Vice President and Chief Financial Officer of Capetronic International Holdings,
Ltd. He has held other financial management positions with Hewlett-Packard and
Roche. Mr. Vatuone received a B.S. degree in Economics and an MBA from the
University of Santa Clara.
W. Scott Coleman, 44, has served as Syntellect's President -- Call Center
Systems since May 5, 1997. Mr. Coleman, together with a former director, served
in Syntellect's Office of the Chief Executive Officer from November 10, 1995 to
March 14, 1996. On February 1, 1996, Mr. Coleman was promoted to the position of
Syntellect's Senior Vice President and General Manager -- Call Center Systems.
Previously, Mr. Coleman served as Syntellect's Vice President of Product
Development from 1993 to 1995. Mr. Coleman has been involved in the voice
processing industry since 1982, serving as Vice President of American
Telesystems Corporation, where he was responsible for product strategy, business
development and product development activities. Mr. Coleman holds a Master of
Science Degree in Electrical Engineering from the Georgia Institute of
Technology.
Michael L. Talley, 44, became Syntellect's Executive Vice President
Professional Services on June 15, 1998. From October 1991 to June 1998, Mr.
Talley served as Vice President of Professional Services and as Vice President
of Operations at Fujitsu Business Communications Systems. Previously, he was
Vice President of Customer Support at Mitel. Between 1980 and 1989 Mr. Talley
held various executive customer support and operations positions with ROLM
Corporation including Vice President of Operations. Mr. Talley holds an MBA
degree from the Kellog Graduate School of Management at Northwestern University.
Keith A. Pekkala, 51, became Syntellect's Vice President and Controller on
March 29, 1999. From September 1994 until March 1999, Mr. Pekkala was Corporate
Controller of STM Wireless, Inc. in Irvine, California. From June, 1988 to
August, 1994, he was Vice President of Operations at PSC, a privately held
manufacturing firm in Valencia California. From July, 1985 to February, 1988 he
was Vice President - Finance of STM Wireless, Inc. Previously Mr. Pekkala held
various finance and accounting positions at Shared Use Network Services, Inc.,
Phelps Dodge Corp., and the Office of the Auditor General. Mr. Pekkala is a
Certified Public Accountant and received a B.S. degree in Business
Administration from Arizona State University.
Steven M. Pizzagoni, 36, became Syntellect's Executive Vice President of
Sales on October 11, 1999. Mr. Pizzagoni oversees all direct and indirect sales
activities in North America, Latin America, and the Asian Pacific market. Before
coming to Syntellect, he was Vice President of Worldwide Sales at Teledirect
International. Previously, he was a Regional Vice President at Davox
Corporation, and has held other sales management positions at Wang Information
Services Corporation and GTE Telemessager. Mr. Pizzagoni has a B.S. degree in
Computer Science from California State University.
J. Lawrence Bradner, Neal L. Miller, and Peter W. Pamplin served as
Chairman and CEO, Division President of SIS, and Vice President and Chief
Financial Officer, respectively, during 1999. Mr. Bradner resigned May 12, 1999,
Mr. Pamplin on December 31, 1999, and Mr. Miller on March 3, 2000.
8
<PAGE> 11
ITEM 2 -- PROPERTIES
Syntellect's principal corporate offices are located in a 70,564 square
foot office facility in Phoenix, Arizona. This lease commenced in April 1997 and
continues for a 10 year term. This facility also houses the Company's systems
business, and includes space for customer support, research and development,
sales, marketing, production, training and administrative functions.
Syntellect leases 38,904 square feet of office space in Roswell, Georgia
for the Company's hosted services functions; the lease extends through June of
2001. In addition, the Company leases a 1,619 square foot facility in Atlanta,
Georgia for the NTC. This facility is used for the Home Ticket pay-per-view
service and other hosted services applications offered through SIS. The Company
also leases five sales and support offices in the United States and one in
London. Aggregate monthly rental payments for Syntellect's office facilities are
approximately $124,000.
ITEM 3 -- LEGAL PROCEEDINGS
Syntellect is from time to time involved in legal proceedings of a
character normally incident to its business. Syntellect is not currently a party
to any material pending legal proceedings.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Syntellect's shareholders during the
fourth quarter of 1999.
9
<PAGE> 12
PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Syntellect's common stock has been traded in the over-the-counter market and
quoted through The Nasdaq Stock Market ("NASDAQ") since March 29, 1990, under
the symbol "SYNL". The following table sets forth the high and low sale prices
of the common stock for the two most recent fiscal years as reported on NASDAQ.
<TABLE>
<CAPTION>
YEAR ENDED 1999 HIGH LOW
--------------- ---- ---
<S> <C> <C>
1st Quarter.... $ 3 5/8 $1 1/8
2nd Quarter.... 1 27/32 1 1/8
3rd Quarter.... 2 5/8 1
4th Quarter.... 3 3/8 1 5/16
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 1998 HIGH LOW
--------------- ---- ---
<S> <C> <C>
1st Quarter.... $ 2 13/32 $1 5/8
2nd Quarter.... 2 7/8 1 15/16
3rd Quarter.... 2 1/2 1 1/16
4th Quarter.... 3 15/16
</TABLE>
On March 20, 2000, the closing sale price for Syntellect's common stock was
$5.2812 per share. On that date there were 232 holders of record of
Syntellect's common stock. This figure does not reflect beneficial ownership of
shares held in nominee names. Syntellect has never declared or paid a cash
dividend on its common stock. Syntellect presently intends to retain earnings
for use in its business and does not anticipate paying cash dividends on its
outstanding shares in the foreseeable future.
As is frequently the case with stock of high technology companies, the
market price of Syntellect's common stock has been and may continue to be quite
volatile. Factors such as quarterly fluctuations in results of operations,
announcements of technological innovations or the introduction of new products
by Syntellect or its competitors, and macroeconomic conditions in the computer
hardware and software industries generally, may have a significant impact on the
market price of Syntellect's common stock. In addition, if revenue or earnings
in any quarter were to fail to meet expectations of the investment community,
there could be an immediate impact on Syntellect's stock price. Further, the
stock market has from time to time experienced extreme price and volume
fluctuations which have affected the market price for many high technology
companies and which, on occasion, have been unrelated to the operating
performance of those companies. These broad market fluctuations may adversely
affect the market price of Syntellect's common stock.
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Syntellect's consolidated financial statements and related
notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The selected consolidated
financial data presented below under the captions "Statement of Operations Data"
and "Balance Sheet Data" for, and as of the end of, each of the years in the
five-year period ended December 31, 1999, are derived from the consolidated
financial statements of Syntellect, which financial statements have been audited
by KPMG LLP, independent certified public accountants. The consolidated
financial statements as of December 31, 1999 and 1998, and for each of the years
in the three-year period ended December 31, 1999, and the report thereon, are
included elsewhere herein.
10
<PAGE> 13
STATEMENT OF OPERATIONS DATA (in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues ........................... $47,831 $47,953 $ 48,182 $ 55,305 $ 49,510
Cost of revenues ....................... 24,712 22,658 25,678 27,783 26,147
------- ------- -------- -------- --------
Gross margin ................. 23,119 25,295 22,504 27,522 23,363
Operating expenses:
Selling, marketing and administrative 18,854 20,386 19,463 21,383 23,026
Product development ................. 4,448 5,573 5,874 5,943 4,884
Depreciation and amortization ....... 2,489 2,538 3,908 3,229 3,079
Fixed asset write-down .............. -- -- 1,303 -- --
Special charge ...................... -- -- -- -- 8,800
------- ------- -------- -------- --------
Total operating expenses ..... 25,791 28,497 30,548 30,555 39,789
------- ------- -------- -------- --------
Operating income (loss) ................ (2,672) (3,202) (8,044) (3,033) (16,426)
Gain on sale of patent portfolio ....... -- -- 7,860 -- --
Other income, net ...................... 806 584 304 253 302
------- ------- -------- -------- --------
Income (loss) before income taxes ...... (1,866) (2,618) 120 (2,780) (16,124)
Income tax expense (benefit) ........... -- -- (21) -- 134
------- ------- -------- -------- --------
Net income (loss) ...................... $ (1,866) $(2,618) $ 141 $ (2,780) $(16,258)
======== ======= ======= ======== ========
Earnings (loss) per share - diluted .... $ (.14) $ (.19) $ .01 $ (.21) $ (1.24)
======== ======= ======= ======== ========
Shares used in per share calculation ... 13,034 13,441 13,788 13,256 13,159
======== ======= ======= ======== ========
</TABLE>
BALANCE SHEET DATA (in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital .................... $ 9,867 $14,797 $13,488 $13,677 $17,443
Total assets ....................... 26,224 32,133 34,808 34,808 39,719
Long-term debt, less current portion 293 445 530 229 175
Shareholders' equity ............... 14,390 19,813 22,186 22,021 24,176
</TABLE>
11
<PAGE> 14
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET REVENUES
Net revenues for 1999 remained stable at $47.8 million as compared to $48.0
million reported for 1998. Net revenues consist of System Sales, Hosted Services
Revenues, and Maintenance and Other Service Revenues, which represented 52%, 16%
and 32% of net revenues, respectively, for 1999, and 47%, 19% and 34% of net
revenues, respectively, for 1998.
The Company's primary core product is Vista(TM), an open standards-based
Interactive Communications Management ("ICM") software platform for enterprise
customer call centers. Vista combines several call center technologies with a
distributed client-server architecture, open standard components, web-based
management system and a graphical application development tool. It provides
customers with flexibility, scalability and efficiency, high degrees of
redundancy, and superior processing performance. Vista Interactive Voice
Response ("IVR") and Vista Computer Telephony Integration ("CTI") are currently
available. Other core products include VocalPoint, an open architecture
Interactive Voice Response ("IVR") platform; VocalPoint Interactive Services,
providing computer telephony integration ("CTI") functionality, and Interactive
Web Response ("IWR"). Non-core products include the Premier and Premier 030
proprietary IVR systems.
System Sales for 1999 were $25.1 million, an increase of $2.5 million, or
11%, over the $22.6 million reported for 1998. The increase for the year was due
primarily to the strength of the Vista(TM) product line, which has shown
increased sales in every quarter since revenues commenced in the third quarter
of 1998. In 1999, the Vista(TM) product line accounted for 64% of systems sales.
VocalPoint systems sales declined 52% in 1999 as the Vista product line gained
acceptance.
Hosted Services Revenues decreased $1.2 million, or 16%, from 1998. The
primary reason for the decline rests with the Company's Home Ticket, a
pay-per-view service for cable television providers which is offered through the
Company's SIS subsidiary. The cable TV 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 outsourced electronic capabilities including benefits enrollment,
broadcast faxing, call center processing, audiotext, and dealer locators.
Maintenance and Other Service Revenues declined $1.4 million, or 9%, from
the prior year. The primary reason for the decline was a $2.1 million, or 18%
reduction in maintenance revenues. This was consistent with Company expectations
as 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. Partially offsetting the decline in maintenance was a $1.2
million, or 59% increase in other services. Additionally, patent revenues
decreased 18% from $2.9 million in 1998 to $2.4 million in 1999. The Company is
still pursuing certain litigation against third parties but the timing and
payments, if any, from potential settlements are uncertain after 1999.
Domestic and International Sales for 1999 were $39 million, or 81%, and
$8.8 million, or 19%, of total revenues, respectively, compared to $37.5
million, or 78%, and $10.5 million, or 22% of total revenues, respectively, for
1998.
12
<PAGE> 15
GROSS MARGIN
The gross margin percentage for the year ended December 31, 1999 was
48% of net revenues, as compared with 53% for the year ended December 31, 1998.
Gross margins on System Sales, compared to the prior year, were flat at 42%.
Gross margins for Hosted Services decreased on reduced sales from 44% to 34%,
primarily due to the relatively fixed nature of Hosted Services costs. Gross
margins for Maintenance and Other Service Revenues decreased from 73% to 66%
between years and may continue to decline because patent revenues maintain a
high gross margin and are doubtful beyond the fourth quarter of 1999. 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 year-to-year 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 1999 are not necessarily
indicative of the results to be expected for future periods.
OPERATING EXPENSES
Operating expenses for 1999 were $25.8 million, a decrease of $2.7
million, or 9%, from the $28.5 million reported for 1998. Selling, marketing,
and administrative expenses decreased $1.5 million, or 7%, primarily due to the
consolidation of the corporate structure and general cost reductions which
started during the second quarter of the current year. Research and development
costs decreased $1.1 million, or 20%. The prior year was impacted by the
development of the Vista product which was released in May of 1998.
NET INCOME (LOSS)
Syntellect reported a net loss of $1.9 million, or $(.14) per share, for
1999, compared to a net loss of $2.6 million, or $(.19) per share for 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUES
Net revenues for 1998 remained stable at $48.0 million as compared to $48.2
million reported for 1997. Net revenues consist of System Sales, Hosted Services
Revenues and Maintenance and Other Service Revenues, which represented 47%, 19%
and 34% of net revenues, respectively, for 1998, and 51%, 20% and 29% of net
revenues, respectively, for 1997.
On May 12, 1998, the Company announced the release of Vista(TM), an open
standards-based Interactive Communications Management ("ICM") software platform
for enterprise customer call centers. Vista combines several call center
technologies with a distributed client-server architecture, open standard
components, web-based management system and a graphical application development
tool. It provides customers with flexibility, scalability and efficiency, high
degrees of redundancy, and superior processing performance. Vista Interactive
Voice Response ("IVR") and Vista Computer Telephony Integration ("CTI") are
currently available. Other available products include VocalPoint IVR, an open
architecture system; Predictive Dialer, an outbound system; and Interactive Web
Response ("IWR").
System Sales for 1998 were $22.6 million, a decrease of $1.7 million, or
7%, from the $24.3 million reported for 1997. The third quarter of 1998 marked
the first recognition of revenues from the Company's Vista IVR product in the
amount of $1.5 million. The fourth quarter of 1998 included $1.9 million of
Vista revenues for a total of $3.4 million for 1998, or 15% of total System
Sales.
The decrease in System Sales was caused by strong System Sales revenue in
the first quarter of 1997 of $8.7 million relative to the first quarter of 1998
of $4.3 million. Revenues from the other major product lines decreased in 1998
including VocalPoint IVR which declined from $14.6 million to $13.6 million, or
7%. With the introduction of Vista, the Company's backlog at December 31, 1998
includes $9 million of Vista orders out of a total of $15.4
13
<PAGE> 16
million. As the Vista product line gains acceptance, the Company will continue
to experience a decline in sales and system revenues from its VocalPoint
products.
Hosted Services Revenues decreased $824,000, or 8.5%, between the
comparable years which includes the Company's Home Ticket, a pay-per-view
service for cable television providers which is offered through the Company's
SIS subsidiary. The cable TV industry has experienced a decline in the consumer
purchases of pay-per-view events which resulted in lower than expected
transaction processing fees by the Company. Offsetting the decline in
pay-per-view buy rates, Hosted Services has offered other outsourced electronic
capabilities including benefits enrollment, broadcast faxing, call center
processing, audiotext, and dealer locators. The Company expects that these
outsourced services of the business will continue to grow in 1999.
Maintenance and Other Service Revenues increased $2.4 million, or 17%,
between the comparable years. The increase is primarily due to settlements of
patent lawsuits for which the Company retained economic rights after the sale of
the patent portfolio in October 1997. Patent revenues increased 142% from $1.2
million in 1997 to $2.9 million in 1998. The Company is still pursuing certain
litigation against third parties but the timing and payments, if any, from
potential settlements are uncertain after 1998.
Domestic and International Sales for 1998 were $37.5 million, or 78%, and
$10.5 million, or 22%, of total revenues, respectively, compared to $36.8
million, or 76%, and $11.4 million, or 24% of total revenues, respectively, for
1997.
GROSS MARGIN
The gross margin percentage for the year ended December 31, 1998 was 53% of
net revenues, as compared with 47% for the year ended December 31, 1997. Gross
margins on System Sales increased from 34% to 42% between years primarily due to
the proportion of fixed costs in overhead relative to the decline in revenues
and change in product mix caused by the introduction of the Vista product line.
Gross margins for Hosted Services increased from 39% to 44% between years as a
result of lower fixed costs, lower negotiated transport rates and an increase in
revenues that did not have incremental transport costs. Gross margins for
Maintenance and Other Service Revenues decreased from 74% to 73% between years
and may continue to decline because patent revenues maintain a high gross margin
and are doubtful beyond the fourth quarter of 1998. 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 year-to-year 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 1998 are not necessarily indicative of the
results to be expected for future periods.
OPERATING EXPENSES
Operating expenses for 1998 were $28.5 million, a decrease of $2 million,
or 7%, from the $30.5 million reported for 1997. Included in 1997 was a fixed
asset write-down of $1.3 million which partially caused the decrease in
depreciation and amortization expense in 1998 by $1.4 million, or 35%. Selling,
marketing, and administrative expenses increased $923,000, or 5%, primarily due
to costs associated with the increase in revenues from patent lawsuit
settlements and an increase in allowance for doubtful accounts. Research and
development costs decreased $301,000, or 5%.
NET INCOME (LOSS)
Syntellect reported a net loss of $2.6 million, or $(.19) per share, for
1998, compared to a net income of $141,000, or $.01 per share, for 1997. Net
income for 1997 included a fixed asset write-down and a gain on the sale of the
patent portfolio. Excluding these effects, the Company incurred a net loss of
$6.4 million for 1997, or $(.48) per share.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Syntellect had working capital of $9.9 million at December 31, 1999,
compared with $14.8 million at December 31, 1998, and the current ratio was
1.9:1 and 2.2:1 on such dates, respectively. Cash, cash equivalents and
marketable securities available-for-sale at the end of 1999 totaled $7.3 million
compared with the $11.5 million reported at the end of 1998.
The Company had a net loss of $1.9 million in 1999. After adjustment for
non-cash activities and the change in certain balance sheet accounts, the
Company's operations provided cash flows of $1.3 million in 1999. The primary
factors affecting this difference between net loss and cash provided by
operating activities were the non-cash items of depreciation, the provisions for
doubtful accounts, and the provision for inventory obsolescence. A decrease in
inventory provided cash but was more than offset by increases in accounts
receivable and decreases in accounts payable.
Cash provided by investing activities totaled $5.3 million in 1999
compared to $2.2 million in 1998. Maturities of marketable securities net of
purchases of same provided $7.2 million, while the purchase of property and
equipment used $1.8 million.
Cash used in financing activities totaled $3.7 million in 1999 compared to
$10,000 in 1998. The purchase of treasury stock used $3.8 million, the repayment
of long-term debt used $144,000, while proceeds from the issuance of common
stock provided $262,000.
Syntellect expects that its current cash, cash equivalents and marketable
securities, combined with future cash flows from operating activities will be
sufficient to support the Company's operations during 2000. The Company does not
believe that inflation has had a material effect on its business, however, there
can be no assurance that inflation in the future will not cause an adverse
effect on operating results. The Company uses a $1 million letter of credit,
secured by a mortgage-backed security, to secure the lease on its facility in
Phoenix. In addition, the Company uses a letter of credit, secured by a $100,000
certificate of deposit, to secure the lease on its Chicago facility.
Accordingly, the disposal of both the mortgage-backed security and the
certificate of deposit are restricted by the letters of credit agreements.
On November 13, 1998, the Board of Directors of Syntellect approved the
stock buyback plan to purchase up to 1.5 million shares of its stock over the
following two years. The Company completed the buyback plan during the third
quarter of 1999. On November 5, 1999, the Company announced a new buyback plan
pursuant to which the Company may acquire up to 1 million shares over a one year
period. As of March 20, 2000, the Company had repurchased 724,800 shares under
that plan.
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 three
operating segments ("Segments") which are organized around differences in
products and services: Systems; Hosted Services; and Patents (see Note 12 to the
consolidated financial statements).
Systems is the operating segment which has products and services including
IVR, IWR, CTI, and maintenance. Expenditures for Systems Segment Assets for the
year ended December 31, 1999 were $971,000 as compared to $1.1 million for the
year ended December 31, 1998. The decrease is due to the Company's effort to
control the expenditures for capital assets. Systems Segment Assets as of
December 31, 1999 were $21 million as compared to $28 million as of December 31,
1998.
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 outsourced electronic capabilities such as benefits enrollment and
broadcast faxing. Expenditures for Hosted Services Segment Assets for the year
ended December 31, 1999 were $876,000 as compared to $915,000 for the year ended
December 31, 1998. The decrease is due to the Company's effort to control the
expenditures for capital assets.
15
<PAGE> 18
Patents is the operating segment which held the Company's patent portfolio.
In October 1997, the Company sold the patent portfolio to a third party for $10
million. The Company received cash of $5 million paid at closing and a $5
million promissory note which was paid in September 1998. 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
is still pursuing certain litigation against third parties but the timing and
payments, if any, from potential settlements are uncertain after 1999.
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 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.
ITEM 7A. -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relates
to its cash investment portfolio. The Company's general policy is to limit the
risk of principal loss and to ensure the safety of invested funds by limiting
market and interest rate risk. Investments are placed in instruments with high
credit quality issuers. All liquid investments with a maturity date of three
months or less are classified as cash equivalents and investments with a
maturity date between three and twelve months are classified as marketable
securities (see Note 3 to the consolidated financial statements). The average
interest rate on marketable securities is 5.2%. The Company does not expect any
material loss with respect to its cash investment portfolio since marketable
securities have generally been held until maturity and unrealized gains and
losses are negligible.
The Company's only long-term liabilities are capital lease obligations at a
fixed rate. Therefore, the Company does not believe there is any material
exposure to market risk changes in interest rates as it relates to its current
or long-term liabilities.
FOREIGN CURRENCY EXCHANGE RATE 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 effect of foreign exchange rate
fluctuations are not material.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This report on Form 10-K may contain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
The Independent Auditors' Report of KPMG LLP and the Consolidated Financial
Statements of Syntellect, Inc. and subsidiaries as of December 31, 1999 and
1998, and for each of the years in the three-year period ended December 31,
1999, follows:
16
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Syntellect Inc.:
We have audited the accompanying consolidated balance sheets of Syntellect
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Syntellect
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/S/ KPMG LLP
Phoenix, Arizona
February 7, 2000
17
<PAGE> 20
SYNTELLECT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 6,184 $ 3,236
Marketable securities ($1.1 million restricted at December 31, 1999 and $1.2 million re-
stricted at December 31, 1998) ....................................................... 1,101 8,298
Trade receivables, net of allowance for doubtful accounts of $784 and $932 at
December 31, 1999 and 1998, respectively ............................................. 9,999 11,202
Other receivables ...................................................................... 1,406 --
Inventories ............................................................................ 2,041 2,973
Prepaid expenses ....................................................................... 677 963
-------- --------
Total current assets ............................................................ 21,408 26,672
-------- --------
Property and equipment, net ............................................................... 4,787 5,429
Other assets .............................................................................. 29 32
-------- --------
Total Assets ............................................................... $ 26,224 $ 32,133
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................................... $ 1,873 $ 2,560
Accrued liabilities .................................................................... 3,268 3,278
Customer deposits ...................................................................... 3,238 3,080
Deferred revenue ....................................................................... 2,914 2,717
Capital lease obligations .............................................................. 248 240
-------- --------
Total current liabilities ....................................................... 11,541 11,875
-------- --------
Capital lease obligations, less current portion ........................................... 293 445
-------- --------
Total liabilities ............................................................... 11,834 12,320
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 2,500,000 shares; no shares issued or
outstanding .......................................................................... -- --
Common stock, $.01 par value. Authorized 25,000,000 shares; issued 13,899,487 and
13,699,095, respectively ............................................................. 139 137
Additional paid-in capital ............................................................. 61,177 60,917
Accumulated deficit .................................................................... (41,938) (40,072)
Accumulated other comprehensive loss ................................................... 32) (21)
-------- --------
19,346 20,961
Treasury stock, at cost, 1,885,732 and 179,232 shares, respectively ....................... (4,956) (1,148)
-------- --------
Total shareholders' equity ...................................................... 14,390 19,813
-------- --------
Commitments (note 7) ...................................................................... -- --
Total liabilities and shareholders' equity ................................................ $ 26,224 $ 32,133
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
SYNTELLECT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
System sales ................................... $ 25,059 $ 22,585 $ 24,349
Hosted services ................................ 7,732 8,925 9,749
Maintenance and other services ................. 15,040 16,443 14,084
-------- -------- --------
Total net revenues ...................... 47,831 47,953 48,182
-------- -------- --------
Cost of revenues:
System sales ................................... 14,581 13,189 16,093
Hosted services ................................ 5,083 5,025 5,967
Maintenance and other services ................. 5,048 4,444 3,618
-------- -------- --------
Total cost of revenues .................. 24,712 22,658 25,678
-------- -------- --------
Gross margin ...................................... 23,119 25,295 22,504
-------- -------- --------
Operating expenses:
Selling, marketing and administrative .......... 18,854 20,386 19,463
Research and development ....................... 4,448 5,573 5,874
Depreciation and amortization .................. 2,489 2,538 3,908
Fixed asset write-down ......................... -- -- 1,303
-------- -------- --------
Total operating expenses ................ 25,791 28,497 30,548
-------- -------- --------
Operating loss .......................... (2,672) (3,202) (8,044)
-------- -------- --------
Other income (expense), net:
Interest income, net ........................... 264 629 355
Gain on sale of patent portfolio ............... -- -- 7,860
Gain on sale of SNS ............................ -- -- 47
Gain on sale of Dialer Product Line ............ 509 -- --
Other income (expense), net .................... 33 (45) (98)
-------- -------- --------
Total other income, net ................. 806 584 8,164
-------- -------- --------
Income (loss) before income taxes ....... (1,866) (2,618) 120
Income tax benefit ................................ -- -- (21)
-------- -------- --------
Net income (loss) ....................... $ (1,866) $ (2,618) $ 141
======== ======== ========
Earnings (loss) per common share -- basic ......... $ (.14) $ (.19) $ .01
======== ======== ========
Earnings (loss) per common share -- diluted ....... $ (.14) $ (.19) $ .01
======== ======== ========
Weighted average shares -- basic .................. 13,034 13,441 13,328
======== ======== ========
Weighted average shares -- diluted ................ 13,034 13,441 13,788
======== ======== ========
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment ....... (5) 16 (179)
Unrealized gain (loss) on marketable securities (6) 12 1
-------- -------- --------
Other comprehensive income (loss) ................. (11) 28 (178)
-------- -------- --------
Comprehensive loss ................................ $ (1,877) $ (2,590) $ (37)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
SYNTELLECT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN DEFERRED
COMMON STOCK CAPITAL COMPENSATION
------------ ------- ------------
$.01 PAR
SHARES VALUE
------ -----
<S> <C> <C> <C> <C>
Balance at January 1, 1997 .................... 13,478,127 135 60,545 (52)
Issuance of common stock upon exercise of stock
options ............................................ 13,739 -- 34 --
Issuance of common stock under employee stock
purchase plan ..................................... 84,895 1 148 --
Amortization of deferred compensation related to
stock options ...................................... -- -- -- 19
Net income ......................................... -- -- -- --
Foreign currency translation adjustment ............ -- -- -- --
Net unrealized holding gain on marketable
securities ......................................... -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1997 .................. 13,576,761 136 60,727 (33)
Issuance of common stock upon exercise of stock
options ............................................ 31,193 -- 33 --
Issuance of common stock under employee stock
purchase plan ...................................... 91,141 1 157 --
Amortization of deferred compensation related to
stock options ...................................... -- -- -- 33
Net loss ........................................... -- -- -- --
Foreign currency translation adjustment ............ -- -- -- --
Net unrealized holding gain on marketable securities -- -- -- --
Purchase of 3,500 shares of treasury stock ......... -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1998 .................. 13,699,095 $ 137 $ 60,917 $ --
Issuance of common stock upon exercise of stock
options ............................................ 97,825 1 158 --
Issuance of common stock under employee stock
purchase plan ...................................... 102,567 1 102 --
Net loss ........................................... -- -- -- --
Foreign currency translation adjustment ............ -- -- -- --
Net unrealized holding loss on marketable securities -- -- -- --
Purchase of 1,706,500 shares of treasury stock ..... -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1999 .................. 13,899,487 $ 139 $ 61,177 $ --
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
ACCUMULATED COMPREHENSIVE TREASURY SHAREHOLDERS'
DEFICIT INCOME(LOSS) STOCK EQUITY
------- ------------ ----- ------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 .................... (37,595) 129 (1,141) 22,021
Issuance of common stock upon exercise of stock
options ............................................ -- -- -- 34
Issuance of common stock under employee stock
purchase plan ..................................... -- -- -- 149
Amortization of deferred compensation related to
stock options ...................................... -- -- -- 19
Net income ......................................... 141 -- -- 141
Foreign currency translation adjustment ............ -- (179) -- (179)
Net unrealized holding gain on marketable
securities ......................................... -- 1 -- 1
----------- ----------- ----------- -----------
Balance at December 31, 1997 .................. (37,454) (49) (1,141) 22,186
Issuance of common stock upon exercise of stock
options ............................................ -- -- -- 33
Issuance of common stock under employee stock
purchase plan ...................................... -- -- -- 158
Amortization of deferred compensation related to
stock options ...................................... -- -- -- 33
Net loss ........................................... (2,618) -- -- (2,618)
Foreign currency translation adjustment ............ -- 16 -- 16
Net unrealized holding gain on marketable securities -- 12 -- 12
Purchase of 3,500 shares of treasury stock ......... -- -- (7) (7)
----------- ----------- ----------- -----------
Balance at December 31, 1998 .................. $ (40,072) $ (21) $ (1,148) $ 19,813
Issuance of common stock upon exercise of stock
options ............................................ -- -- -- 159
Issuance of common stock under employee stock
purchase plan ...................................... -- -- -- 103
Net loss ........................................... (1,866) -- -- (1,866)
Foreign currency translation adjustment ............ -- (5) -- (5)
Net unrealized holding loss on marketable securities -- (6) -- (6)
Purchase of 1,706,500 shares of treasury stock ..... -- -- (3,808) (3,808)
----------- ----------- ----------- -----------
Balance at December 31, 1999 .................. $ (41,938) $ (32) $ (4,956) $ 14,390
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
SYNTELLECT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $ (1,866) $ (2,618) $ 141
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Gain on sale of patent portfolio ............................ -- -- (7,860)
Depreciation and amortization ............................... 2,489 2,538 3,908
Fixed asset write-down ...................................... -- -- 1,303
Provision for doubtful accounts ............................. 1,806 597 493
Provision for inventory obsolescence ........................ 416 -- 30
Stock option compensation expense ........................... -- 33 19
(Increase) decrease in accounts receivable .................. (2,009) (905) 1,908
(Increase) decrease in inventories .......................... 516 (380) 1,462
Increase (decrease) in accounts payable ..................... (687) 400 858
Decrease in accrued liabilities ............................. (10) (2,193) (858)
Change in other assets and liabilities ...................... 644 1,292 691
-------- -------- --------
Net cash provided by (used in) operating activities ......... 1,299 (1,236) 2,095
-------- -------- --------
Cash flows from investing activities:
Purchase of marketable securities ................................ (14,190) (23,289) (23,851)
Maturities of marketable securities .............................. 21,381 23,236 16,894
Purchase of property and equipment ............................... (1,713) (1,988) (2,717)
Proceeds from notes receivable ................................... -- 4,217 --
Proceeds from sale of patent portfolio ........................... -- -- 5,000
Proceeds from disposition of SNS subsidiary ...................... -- -- 300
-------- -------- --------
Net cash provided by (used in) investing activities ......... 5,478 2,176 (4,374)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock ............................... 262 191 183
Purchase of treasury stock ....................................... (3,808) (7) --
Payments on capital lease obligations ............................ (278) (194) (363)
-------- -------- --------
Net cash used in financing activities ....................... (3,824) (10) (180)
Effect of exchange rates on cash .................................... (5) 16 (179)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ 2,948 946 (2,638)
Cash and cash equivalents at beginning of year ...................... 3,236 2,290 4,928
-------- -------- --------
Cash and cash equivalents at end of year ............................ $ 6,184 $ 3,236 $ 2,290
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................... $ 47 $ 68 $ 97
======== ======== ========
Cash paid for income taxes .................................. $ 29 $ 2 $ 5
======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital leases: ............... $ 134 $ 166 $ 559
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) Summary of Significant Accounting Policies
Nature of Business and Principles of Consolidation
Syntellect Inc. develops, markets, and integrates voice and information
processing systems and application software worldwide. The Company offers an
inbound voice processing product line, a worldwide distribution network, and a
vertical market focus in the financial services, media, telecommunications and
healthcare industries. Syntellect also provides interactive transaction-based
hosted services for those customers who prefer to outsource their voice
processing applications, including cable and satellite pay-per-view orders and
employee benefits enrollment.
The consolidated financial statements include the accounts of Syntellect
Inc. and its wholly-owned subsidiaries ("Syntellect" or the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues, expenses and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
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"). Prior to January 1, 1998, Syntellect recognized revenue in accordance
with SOP 91-1.
Cash Equivalents
Cash equivalents consist of money market accounts and overnight deposits
with original maturities of three months or less, and marketable securities with
original maturities of three months or less.
Marketable Securities
Marketable securities (see Note 3) are classified as available-for-sale and
are available to support current operations. These securities are stated at
estimated fair value based on market quotes with any net unrealized holding gain
or loss included in the consolidated financial statements as a component of
shareholders' equity until realized.
Inventories
Inventories are stated at the lower of cost or market. Cost is primarily
determined using the weighted average method.
22
<PAGE> 25
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Property and Equipment
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the lower of the present value of minimum lease payments or
fair value at the inception of the lease. Property and equipment are depreciated
using the straight-line method over estimated useful lives ranging from three to
five years. Equipment held under capital leases and leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful life of the asset.
The Company accounts for impairment of long-lived assets under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of." This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Warranty Expense
Syntellect generally provides customers with product warranties for periods
ranging from three months to six months after shipment. The Company has provided
a reserve for estimated warranty expense.
Product Development
Development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established. After technological feasibility is established, any additional
costs would be capitalized in accordance with SFAS No. 86. Because Syntellect
believes its current process for developing software is essentially completed
concurrent with the establishment of technological feasibility, no costs have
been capitalized to date.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
23
<PAGE> 26
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Foreign Currency Translation
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and an average exchange rate for the revenues and expenses reported
in each fiscal period. Foreign currency translation adjustments are recorded as
a separate component of shareholders' equity.
Stock Based Compensation
In accordance with the provisions of Accounting Principals Board Opinion
No. 25, "Accounting for Stock Issued to Employees," the Company measures stock
based compensation expense as the excess of the market price at the grant date
over the amount the employee must pay for the stock. The Company's policy is to
grant stock options at fair market value at the date of grant; accordingly, no
compensation expense is recognized. As permitted, the Company has elected to
adopt the pro forma disclosure provisions only of SFAS No. 123, "Accounting for
Stock Based Compensation." ("SFAS No. 123").
Reclassifications
Certain 1997 and 1998 balances have been reclassified to conform to 1999
presentation.
(2) Disposition of Syntellect Network Systems Inc. Subsidiary and Patent
Portfolio
In April 1996, the Company sold its Syntellect Network Systems Inc.
subsidiary ("SNS") 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 $720,000. The Company received $30,000 of the
sales price in cash at closing with the remaining $690,000 to be received in 23
monthly installments of $30,000, without interest, beginning May 1996. The
Company recognized the gain on this transaction on a cash collected basis. In
1998, the third party filed bankruptcy and the Company was unable to collect and
recognize the balance of $180,000 in deferred gain on sale.
In October 1997, the Company sold its patent portfolio to a third party for
$10 million. The Company received cash of $5 million paid at closing and a $5
million promissory note payable in 20 equal quarterly installments of $250,000,
maturing on December 31, 2002. This note bore no interest and consequently had a
present value of approximately $4 million based on the Company's incremental
borrowing rate of 8.5%. As additional consideration under the agreement, the
Company retained certain economic rights, including the right to pursue certain
litigation against third parties. As a result of this transaction, the Company
reported a gain on the patent portfolio sale of $7.9 million in 1997. In
September 1998, the third party paid in full the remaining balance of the
promissory note.
(3) Marketable Securities
The Company has classified all marketable securities as available-for-sale
at December 31, 1999 and 1998. The amortized cost, gross unrealized holding
gains and losses and fair value of the available-for-sale securities by major
security type are as follows:
24
<PAGE> 27
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(IN THOUSANDS)
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
As of December 31, 1999
Mortgage-backed securities: restricted 1,001 -- -- 1,001
Certificate of deposit: restricted ... 100 -- -- 100
------ ------ ------ ------
$1,101 $ -- $ -- $1,101
====== ====== ====== ======
As of December 31, 1998
Mortgage-backed securities ........... $7,073 $ 6 $ -- $7,079
Mortgage-backed securities: restricted 1,088 -- -- 1,088
Certificate of deposit: restricted ... 131 -- -- 131
------ ------ ------ ------
$8,292 $ 6 $ -- $8,298
====== ====== ====== ======
</TABLE>
All marketable securities held at December 31, 1999 have contractual
maturities of one year or less.
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Finished goods ............................. $ 705 $ 795
Purchased components ....................... 611 1,746
Repair, warranty and maintenance inventories 1,600 2,695
------- -------
2,916 5,236
Less allowance for obsolescence ............ (875) (2,263)
------- -------
$ 2,041 $ 2,973
======= =======
</TABLE>
The Company contracts with several third parties to perform on-site hardware
maintenance for customers in certain geographic areas. Inventory held by the
Company for the third party maintenance program is included in repair, warranty
and maintenance inventory.
(5) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1999 1998
-------- --------
<S> <C> <C>
Furniture, fixtures and computer equipment ... $ 6,141 $ 8,521
Service bureau equipment ..................... 6,246 5,371
Leasehold improvements ....................... 528 492
-------- --------
12,915 14,384
Less accumulated depreciation and amortization (8,128) (8,955)
-------- --------
$ 4,787 $ 5,429
======== ========
</TABLE>
During 1999, the Company wrote off certain fully depreciated property and
equipment.
25
<PAGE> 28
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(6) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1999 1998
------ ------
<S> <C> <C>
Accrued compensation and benefits $2,299 $1,671
Accrued legal and accounting .... 226 223
Accrued royalties ............... 138 239
Other accrued liabilities ....... 605 1,145
------ ------
$3,268 $3,278
====== ======
</TABLE>
(7) Credit Facilities and Lease Commitments
Credit facilities:
The Company secures the lease on its Phoenix facility with a $1 million
letter of credit which is in turn secured by a marketable security held in the
Company's available-for-sale portfolio. In addition, the Company uses a letter
of credit, secured by a $100,000 certificate of deposit, to secure the lease on
its Chicago facility.
Capital leases consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1999 1998
----- -----
<S> <C> <C>
Capital lease obligations with interest ranging from 9.43% to
10%, collateralized by equipment .................................... $ 541 $ 685
Less current portion ................................................... (248) (240)
----- -----
$ 293 $ 445
===== =====
</TABLE>
Equipment held under capital lease is included in property and equipment as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Furniture, fixtures and computer equipment $ 1,203 $ 1,069
Less accumulated amortization ............ (716) (432)
------- -------
$ 486 $ 637
======= =======
</TABLE>
The Company leases office facilities and various equipment under
non-cancelable operating leases that expire at various dates through 2007. In
June 1996, the Company entered into a ten year lease for a new 70,564 square
foot office facility in Phoenix. The lease commenced in April 1997 at an initial
monthly rate of $61,000. Rental expense under operating leases was $1.6 million
in 1999, $1.8 million in 1998, and $1.6 million in 1997. Future minimum lease
payments under non-cancelable operating leases (with initial or remaining lease
terms in excess of one year) and the present value of future minimum capital
lease payments at December 31, 1999 are as follows:
26
<PAGE> 29
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR CAPITAL LEASES OPERATING LEASES
---- -------------- ----------------
<S> <C> <C>
2000 ............................. $ 289 $1,550
2001 ............................. 237 1,240
2002 ............................. 76 1,061
2003 ............................. -- 1,063
2004 ............................. -- 1,017
Thereafter ....................... -- 2,375
-----
Total minimum lease payments ..... $ 602 $8,306
------ ======
Less amounts representing interest (61)
------
Net minimum lease payments ....... $ 541
======
</TABLE>
(8) Litigation
Syntellect is involved in various legal proceedings and claims arising in
the ordinary course of business. Management believes that the disposition of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
27
<PAGE> 30
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(9) Shareholders' Equity
Stock Option Plans
Syntellect maintains various stock option plans for employees, consultants
and non-employee directors as follows:
Syntellect adopted a stock option plan in 1984 that provides for the issuance of
up to 1,590,000 shares of common stock to employees under incentive and
non-statutory stock option grants. The plan was amended in July 1994 to include
Syntellect's consultants and advisors as eligible participants. Incentive stock
options may be granted at a price not less than the fair market value of the
common stock at the date of grant. Non-statutory stock options may be granted at
a price not less than 50% of the fair market value of the common stock at the
date of grant. The options generally become exercisable over a 50 month period
commencing at the date of grant and expire in six years. The plan terminates in
September 2004, and as of December 31, 1995, all options under this plan have
been granted.
Syntellect adopted a long-term incentive plan effective February 1, 1995,
as amended, that provides for the issuance of up to 750,000 shares of common
stock to employees, consultants and advisors under incentive stock options,
non-qualified stock options, stock appreciation rights, performance shares,
restricted stock, dividend equivalents and other stock-based awards. Incentive
and non-qualified stock options may be granted at a price not less than the fair
market value of the common stock at the date of grant, generally become
exercisable over a 50 month period commencing at the date of grant, and expire
in six years. In no case shall the term of any option issued under this plan
exceed ten years from the date of grant. The plan terminates in February 2005.
On May 20, 1997, the number of shares authorized for issuance under the plan
increased from 750,000 to 1,500,000.
Syntellect adopted a non-employee directors stock option plan in 1990 that
provides for the issuance of up to 60,000 shares of common stock to eligible
participants. Options may be granted at a price not less than the fair market
value of the common stock at the date of grant, generally become exercisable
over a 50 month period commencing at the date of grant, and expire in six years.
As of December 31, 1995, all options under this plan have been granted. The plan
terminated in December 1998.
Syntellect adopted a non-employee director stock plan in 1995 that provides
for the issuance of up to 50,000 shares of common stock to eligible participants
under non-qualified stock option grants. Under the plan, non-employee directors
receive a one time grant to purchase 10,000 shares upon appointment to the Board
of Directors and an annual grant to purchase 2,000 shares from June 1995 through
June 1998. Options may be granted at a price not less than the fair market value
at the date of grant, become exercisable over a 50 month period commencing at
the date of grant, and expire in six years. The plan has no scheduled
termination date. On May 21, 1998, the number of shares authorized for issuance
under the plan increased from 50,000 to 150,000.
In 1996, Syntellect acquired Pinnacle Investment Associates, Inc
("Pinnacle"), which through its wholly owned subsidiary, Telecorp Systems, Inc.,
developed and distributed inbound and outbound call center systems world wide,
and operated a hosted services center. Subsequent to the merger, all systems
functions were merged into Syntellect, Inc. and all hosted services were
consolidated into SIS. In connection with the acquisition of Pinnacle,
Syntellect assumed outstanding options for the purchase of 740,848 shares of
common stock. A portion of these options were granted to certain executive
officers in connection with the negotiation of their employment agreements.
These options, covering 565,702 shares, were granted fully vested and
immediately exercisable. The Company recognized compensation expense of $394,000
in 1995 related to these options and credited the same to paid-in capital. The
remaining options are accounted for as non-compensatory stock options, and
generally become exercisable over a 48 month period commencing at the date of
grant, and expire in 10 years. Unexercised options will be terminated and not
available for future grants in the event an employee holding such options
terminates his employment.
28
<PAGE> 31
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
At December 31, 1999, 1,134,795 options with a weighted average exercise
price of $2.09 were exercisable under the above plans at prices ranging from
$0.87 to $7.00. A summary of the combined stock option activity for all plans
during the three-year period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS
------------------------------------------------
WEIGHTED AVERAGE
AVAILABLE OUTSTANDING EXERCISE PRICE PER
FOR GRANT SHARES SHARE
--------- ----------- ------------------
<S> <C> <C> <C>
Balance, January 1, 1997 ....... 94,080 1,801,229 $ 3.10
Increase in reserved shares 750,000 -- --
Granted ................... (315,500) 315,500 3.04
Canceled .................. 248,283 (248,283) 4.49
Exercised ................. -- (13,338) 2.54
Plan shares expired ....... (68,316) (68,316) --
------- ---------
Balance, December 31, 1997 ..... 708,547 1,786,792 2.94
Increase in reserved shares 100,000 -- --
Granted ................... (729,300) 729,300 1.77
Canceled .................. 405,219 (405,219) 3.48
Exercised ................. -- (31,193) 1.73
Plan shares expired ....... (36,788) (36,788) --
------- ---------
Balance, December 31, 1998 ..... 447,678 2,042,892 2.42
Granted ................... (740,500) 740,500 1.95
Canceled .................. 656,733 (656,733) 3.01
Exercised ................. -- (97,825) 1.63
Plan shares expired ....... (4,420) (4,420) --
------- ---------
Balance, December 31, 1999 ..... 359,491 2,024,414 $ 2.09
======= =========
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Options exercisable at year-end (in thousands) ............... 1,135 1,156 831
Weighted average fair value of options granted during the year $ 1.21 $ 1.23 $ 1.60
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Remaining Weighted Weighted
Range of Exercise Options Contractual Life Average Options Average
Prices Outstanding in Years Exercise Price Exercisable Exercise Price
----------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.87 -- $1.94 1,412,884 7.66 $1.37 709,000 $1.04
$2.06 -- $3.00 219,530 7.52 $2.61 77,300 $2.85
$3.13 -- $4.63 299,450 6.29 $3.82 256,265 $3.88
$5.13 -- $7.00 92,550 5.01 $6.27 92,230 $6.27
--------- ----- ----- --------- -----
$0.87 -- $7.00 2,024,414 7.32 $2.09 1,134,795 $2.23
========= ==== ===== ========= =====
</TABLE>
29
<PAGE> 32
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Syntellect has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation cost for Syntellect's stock option grants and stock purchase plan
discussed below been determined based on the fair value at the grant date, as
prescribed by the provisions of SFAS No. 123, the Company's net income (loss)
and net income (loss) per common share would have been:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) -- as reported ..................... $(1,866) $(2,618) $ 141
Net loss -- pro forma ................................ $(2,092) $(3,143) $ (762)
Net income (loss) per common share -- as reported .... $ (0.14) $ (0.19) $ 0.01
Net loss per common share -- pro forma ............... $ (0.16) $ (0.23) $ (0.06)
The fair value of each option grant is estimated
on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
Expected dividend yield .............................. 0% 0% 0%
Expected stock price volatility ...................... 87% 87% 50%
Risk-free interest rate .............................. 5.98% 5.7% 5.88%
Expected life of options ............................. 5 years 2.35 years 3 years
</TABLE>
On February 5, 1998, the Board of Directors amended all option plans to
extend the expiration date for all unexpired options from six years to ten years
from the original grant date.
Employee Stock Purchase Plan
Syntellect has an employee stock purchase plan that provides for the
purchase of up to 800,000 shares of common stock. The number of shares was
increased by 400,000 as approved by the shareholders on May 21, 1998. Under the
plan, eligible participants may purchase common stock semi-annually at the lower
of 85% of the fair market value on either the first day or last day of the
offering period, whichever is lower. During 1999, 57,101 and 45,466 shares were
purchased at $0.96 and $1.06 per share, respectively. During 1998, 49,825 and
41,316 shares were purchased at $1.59 and $1.91 per share, respectively. During
1997, 31,627 and 53,268 shares were purchased at $2.13 and $1.54 per share,
respectively. At December 31, 1999, 234,229 shares of common stock were
available for issuance under the plan. Amounts that would be expensed under SFAS
No. 123 are included in pro forma net loss above.
(10) Employee Benefit Plans
Effective January 1, 1997, Syntellect adopted a 401(k) plan covering all
eligible employees of the Company. Under the plan, participants may contribute
up to 15% of their total compensation, subject to certain limitations. For the
years ended 12/31/97, 12/31/98 and 12/31/99, the Company provided matching
contributions equal to one third of employee contributions up to a maximum of 7%
of the employee's total compensation. Syntellect made matching contributions to
the 401(k) plan of $260,000 in 1999, $249,000 in 1998 and $244,000 in 1997. In
November, 1999, the Board of Directors moved to amend the plan so as to qualify
it as a 401(k) Safe Harbor Plan, effective January 1, 2000. As amended, the
Company will match each employee's elective deferral up to 4% of compensation
for the year 2000. All such qualified matchings will be immediately 100% vested.
The matching contribution is subject to annual review and adjustment by the
Board of Directors. Additional discretionary contributions may also be made to
the plan in amounts determined by the Board of Directors.
30
<PAGE> 33
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) Income Taxes
The provision for income taxes includes income taxes currently payable
(receivable) and those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future and any increase or decrease in the
valuation allowance for deferred income tax assets.
Income (loss) before income tax expense (benefit) for the years ended
December 31, 1999, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
U.S. operations ........ $(2,938) $(3,603) $ 216
International operations 1,072 985 (96)
------- ------- -------
$(1,866) $(2,618) $ 120
======= ======= =======
</TABLE>
The components of income tax expense (benefit) included in the
Consolidated Statement of Operations are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998 1997
-------- -------- ----
<S> <C> <C> <C>
Current income tax expense (benefit):
Federal ........................... $ -- $ -- $ --
Foreign ........................... -- -- (21)
State ............................. -- -- --
-------- -------- ----
-- -- (21)
-------- -------- ----
Deferred income tax expense (benefit):
Federal ........................... -- -- --
Foreign ........................... -- -- --
State ............................. -- -- --
-------- -------- ----
Total income tax expense (benefit) -- -- $(21)
-------- -------- ====
</TABLE>
31
<PAGE> 34
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Income tax expense (benefit) differed from the amounts computed by applying
the statutory U.S. federal income tax rate of 34% to income (loss) before income
taxes as a result of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)............................. $ (634) $ (890) $ 41
Increase (decrease) in income tax expense resulting from:
State income tax expense (benefit) net of federal income tax effect ...... -- (146) 18
Increase (decrease) in valuation allowance ............................... 916 1,349 (252)
Utilization of foreign net operating losses not previously recognized... (364) (306) --
Other, net ....................................................... 82 (7) 172
------- ------- -------
Total income tax expense (benefit) ................................ $ -- $ -- $ (21)
======= ======= =======
</TABLE>
The income tax effects of temporary differences that give rise to the
Company's deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998
-------- --------
<S> <C> <C>
Deferred income tax assets:
Net operating loss and tax credit carryforwards ......... $ 13,402 $ 12,584
Warranty and inventory allowances ....................... 1,086 1,094
Accrued expenses ........................................ 747 568
Allowance for doubtful accounts ......................... 321 358
Property and equipment due to differences in depreciation -- 36
-------- --------
Gross deferred income tax assets ........................ 15,556 14,640
-------- --------
Less valuation allowance ................................ (15,556) (14,640)
-------- --------
Net deferred income tax asset ........................... $ -- $ --
======== ========
</TABLE>
The increases in the valuation allowance for the net deferred income tax
asset for the years ended December 31, 1999 and 1998 were $916,000 and
$1,349,000 respectively. Under SFAS No. 109, deferred income tax assets and
liabilities are recognized for differences between the financial statement
carrying amounts and the tax bases of assets and liabilities which will result
in future deductible or taxable amounts and for net operating loss and tax
credit carryforwards. A valuation allowance is then established to reduce the
deferred income tax assets to the level at which it is "more likely than not"
that the income tax benefits will be realized. Realization of income tax
benefits of deductible temporary differences and operating loss and tax credit
carryforwards depends on having sufficient taxable income within the carry-back
and carry-forward periods. Sources of taxable income that may allow for
realization of income tax benefits include (1) taxable income in the current
year or prior years that is available through carry-back, (2) future taxable
income that will result from the reversal of existing taxable temporary
differences, and (3) future taxable income generated by future operations.
As of December 31, 1999 the Company had net operating loss, investment tax
credit, alternative minimum tax credit, and research and development tax credit
carryforwards of approximately $30.1 million, $15,000, $77,000, and $1.2
million, respectively, which expire at various dates through the year 2019.
32
<PAGE> 35
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12) Business Segments, Geographic Data and Major Customers
Syntellect develops, markets, and integrates voice and information
processing systems and application software worldwide. The Company offers a
diversified product line which includes inbound voice processing, a worldwide
distribution network, and a vertical market focus on the financial services,
media, telecommunications and healthcare industries. The Company also provides
hosted services for those customers who prefer to outsource their voice
processing applications. In addition to its primary office facility in Phoenix,
the Company also maintains five sales offices in the United States and one in
London.
Effective for financial statements for fiscal periods beginning after
December 15, 1997, 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 three operating
segments in 1999, 1998 and 1997 which are organized around differences in
products and services: Systems, Hosted Services ("HS"), and Patents:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
YEAR ENDED DECEMBER 31, 1999 SYSTEMS HS PATENTS TOTAL
- ---------------------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues from customers $ 37,690 $ 7,732 $ 2,408 $ 47,831
Depreciation and amortization 1,967 522 -- 2,489
Segment income (loss) (3,097) (284) 1,515 (1,866)
Expenditures for segment assets 971 876 -- 1,847
AS OF DECEMBER 31, 1999
Segment assets $ 21,105 $ 3,726 $ 1,393 26,224
Capital lease obligation 541 -- -- 541
YEAR ENDED DECEMBER 31, 1998
Revenues from customers $ 36,098 $ 8,925 $ 2,930 $ 47,953
Depreciation and amortization 1,893 645 -- 2,538
Segment income (loss) (5,517) 900 1,999 (2,618)
Expenditures for segment assets 1,073 915 -- 1,988
AS OF DECEMBER 31, 1998
Segment assets $ 28,023 $ 4,110 $ -- $ 32,133
Capital lease obligation 685 -- -- 685
YEAR ENDED DECEMBER 31, 1997
Revenues from customers $ 37,212 $ 9,749 $ 1,221 $ 48,182
Depreciation and amortization 2,878 968 62 3,908
Fixed asset write-down 733 570 -- 1,303
Segment income (loss) (7,777) (779) 8,697 141
Expenditures for segment assets 2,046 671 -- 2,717
AS OF DECEMBER 31, 1997
Segment assets $ 26,811 $ 3,958 $ 4,039 $ 34,808
Notes receivable 178 -- 4,039 4,217
Capital lease obligation 713 -- -- 713
</TABLE>
33
<PAGE> 36
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Net revenues, by geographic area, for the three-year period ended December
31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Geographic Area 1999 1998 1997
- --------------- -------- -------- --------
<S> <C> <C> <C>
United States........... $ 38,885 $ 37,471 $ 36,836
United Kingdom.......... 8,335 8,448 7,154
Other................... 611 2,034 4,192
-------- -------- --------
$ 47,831 $ 47,953 $ 48,182
======== ======== ========
</TABLE>
No single customer accounted for more than 10% of the Company's revenues in
1999, 1998 or 1997.
Long lived assets, by geographic area, for the two-year period ended
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Geographic Area 1999 1998
- --------------- ------- -------
<S> <C> <C>
United States........... $ 4,579 $ 5,241
United Kingdom.......... 208 188
------- -------
$ 4,787 $ 5,429
======= =======
</TABLE>
The Company conducted business with a major media company who was also a
significant shareholder of the Company during the years ended 1998 and 1997.
Revenues from this customer were $1.4 million, and $1 million for the years
ended December 31, 1998 and 1997, respectively. The Company was due $138,000 and
$247,000 in outstanding accounts receivable from the customer at December 31,
1998 and 1997, respectively.
(13) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that Syntellect disclose
estimated fair values for its financial instruments. The carrying amount of cash
and cash equivalents approximates fair value because their maturity is generally
less than three months. The fair value of marketable securities classified as
available-for-sale is based on quoted market prices at the reporting date for
those or similar investments. The carrying amount of accounts receivable,
accounts payable and accrued liabilities approximates fair value as they are
expected to be collected or paid within 90 days of year-end.
34
<PAGE> 37
SYNTELLECT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(14) Supplemental Financial Information
A summary of additions and deductions related to the allowances for
accounts receivable and inventories for the years ended December 31, 1999, 1998
and 1997 follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AT END
OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
------- ------------ ---------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1999 $ 932 $ 1,806 $(1,954) $ 784
1998 1,199 597 (864) 932
1997 1,233 493 (527) 1,199
Allowance for inventory obsolescence:
1999 $ 2,263 $ 416 $(1,804) $ 875
1998 3,408 -- (1,145) 2,263
1997 4,145 30 (767) 3,408
</TABLE>
35
<PAGE> 38
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding continuing directors and nominees of Syntellect is
set forth under the caption "Information Concerning Directors and Nominees" in
the Registrant's Proxy Statement relating to its 2000 Annual Meeting of
Shareholders (the "2000 Proxy Statement") incorporated by reference into this
Form 10-K, which will be filed with the Securities and Exchange Commission. With
the exception of the foregoing information and other information specifically
incorporated by reference into this Form 10-K, the 2000 Proxy Statement is not
being filed as a part hereof. Information concerning executive officers of the
Registrant is set forth in Part I of this Form 10-K.
ITEM 11 -- EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the information furnished under the caption "Executive
Compensation" in the 2000 Proxy Statement, provided, however, that the "Board
Compensation Committee Report on Executive Compensation" and the "Stock Price
Performance Graph" contained in the 2000 Proxy Statement are not incorporated by
reference herein.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management of Syntellect is incorporated herein by reference to the information
furnished under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the 2000 Proxy Statement.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.
The following consolidated financial statements of Syntellect Inc. and
Subsidiaries are filed as part of this report on Form 10-K:
<TABLE>
<CAPTION>
PAGE OR
METHOD
OF FILING
<S> <C>
Independent Auditors' Report -- KPMG LLP Page 17
Consolidated Balance Sheets -- December 31, 1999 and 1998 Page 18
Consolidated Statements of Operations and Comprehensive Income -- Years ended December 31, 1999,
1998 and 1997 Page 19
Consolidated Statements of Shareholders' Equity -- Years ended December 31, 1999, 1998 and 1997 Page 20
Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997 Page 21
Notes to Consolidated Financial Statements Page 22
</TABLE>
36
<PAGE> 39
2. CONSOLIDATED SUPPLEMENTAL SCHEDULES
All schedules have been omitted because the information required to be set
forth therein is not applicable or is included in the Consolidated Financial
Statements or notes thereto.
(B) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE OR METHOD OF FILING
--- ----------- ------------------------
<S> <C> <C>
2 Agreement and Plan of Reorganization as of Incorporated by reference to Exhibit No. 2 to
December 6, 1995, between Syntellect Inc., Syntellect's Registration Statement on
Syntellect Acquisition Co., and Pinnacle Form S-4 dated February 9, 1996 (the "S-4")
Investment Associates Inc.
3.1(a) Restated Certificate of Incorporation of Incorporated by reference to Exhibit No. 3-A
Registrant to Syntellect's Registration Statement on
Form S-1 dated February 23, 1995 (the "S-1")
3.1(b) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit
of Incorporation of Registrant, filed with the No. 3.1(b) to Syntellect's S-4
Delaware Secretary of State on May 18, 1993
3.1(c) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit 3.1(c) to
of Incorporation of Registrant filed with the Syntellect's 1995 Form 10-K
Delaware Secretary of State on March 14, 1996
3.2 Amended and Restated Bylaws of Registrant Incorporated by reference to Exhibit No. 3-B
to Syntellect's S-1
4 Specimen Certificate representing Common Stock Incorporated by reference to Exhibit No. 4 to
Amendment No. 1 of Syntellect's S-1
10.1 Restated Stock Option Plan, as amended through Incorporated by reference to Exhibit 10.1 to
May 23, 1995 Syntellect's 1995 Form 10-K
10.2 Employee Stock Purchase Plan Incorporated by reference to Exhibit No. 10-B
to Amendment No. 1 of Syntellect's S-1
10.3 Long-term Incentive Plan, as amended August 8, Incorporated by reference to Exhibit 10.4 to
1996 Syntellect's 1996 Form 10-K
10.4 1997 Management Incentive Plan Incorporated by reference to Exhibit 10.4 to
Syntellect's 1997 Form 10-K
10.5 Non-employee Director Stock Plan Incorporated by reference to Exhibit B to
Syntellect's Proxy Statement for the 1995
Annual Meeting of Stockholders
10.6(c) Lease Agreement dated June 28, 1996, together Incorporated by reference to Exhibit 10.6(c) to
with first amendment to lease dated October 6, Syntellect's 1996 Form 10-K
1996, between Opus Southwest Corporation and
Syntellect for an office facility in Phoenix,
Arizona
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE OR METHOD OF FILING
--- ----------- ------------------------
<S> <C> <C>
10.7 Form of Indemnification Agreement between Incorporated by reference to Exhibit No. 10-L
Syntellect and its directors and officers to Syntellect's S-1
10.8(a) Agreement for Licensing of IBM Software Incorporated reference to Exhibit 10-I of
Technology dated February 3, 1993 between Syntellect's 1992 Form 10-K
Syntellect and IBM
10.8(b) Amendment Number One (1) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(b) to Syntellect's S-4
Number JWQ9308, dated March 25, 1993
10.8(c) Amendment Number Two (2) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(c) to Syntellect's S-4
Number JWQ9308, dated June 8, 1993
10.8(d) Amendment Number Three (3) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(d) to Syntellect's S-4
Number JWQ9308, dated December 16, 1993
10.8(e) Amendment Number Four (4) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(e) to Syntellect's S-4
Number JWQ9308, dated October 4, 1994
10.8(f) Amendment Number Five (5) to Agreement for Incorporated by reference to Exhibit 10.8(f) to
the licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
Number JWQ9308, dated February 13, 1995
10.8(g) Amendment Number Six (6) to Agreement for Incorporated by reference to Exhibit 10.8(g) to
the Licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
number JWQ9308, dated June 6, 1995
10.8(h) Amendment Number Seven (7) to Agreement for Incorporated by reference to Exhibit 10.8(h) to
the Licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
Number JWQ9308, dated September 9, 1996
10.8(i) Amendment Number Eight (8) to Agreement for Incorporated by reference to Exhibit 10.8(i) to
Licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
Number JWQ9308, dated March 11, 1997
10.9 Asset Purchase Agreement dated February 21, Incorporated by reference to Exhibit 10-K of
1995 between Syntellect Technology Corp. Syntellect's 1994 Form 10-K
(formerly known as Dytel Inc.) and Dytel
Incorporated
10.10 Form of Affiliate Agreement between Syntellect Incorporated by reference to Exhibit No.10.10
Inc. and affiliates of Pinnacle Investment to Syntellect's S-4
Associates Inc.
10.11 Employment Agreement between J. Lawrence Incorporated by reference to Exhibit No. 10.11
Bradner and Syntellect Inc. dated March 14, 1996 to Syntellect's S-4
10.12 Separation Agreement between Steve Nussrallah Incorporated by reference to Exhibit No. 10.12
and Syntellect Inc. dated February 20, 1998 to Syntellect's 1997 Form 10-K
10.13 Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.13 to
Syntellect's S-4
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE OR METHOD OF FILING
--- ----------- ------------------------
<S> <C> <C>
10.14 Stock Purchase Agreement, dated April 1, 1996, Incorporated by reference to Exhibit 10.14 to
between Syntellect Inc. and Atlas Telecom, Inc. Syntellect's quarterly report on Form 10-Q,
dated May 13, 1996.
10.15 Employment Agreement between Peter W. Pamplin Incorporated by reference to Exhibit 10.15 to
and Syntellect Inc. dated November 1, 1998 Syntellect's Form 10-K
10.16 Employment Agreement between Neal L. Miller Incorporated by reference to Exhibit 10.16 to
and Syntellect Inc. dated August 24, 1998 Syntellect's Form 10-K
Employment Agreement between Scott Coleman and Incorporated by reference to Exhibit 10.17 to
Syntellect Inc. dated September 19,1998 Syntellect's Form 10-K
Employment Agreement between J. Lawrence Incorporated by reference to Exhibit 10.18 to
Bradner and Syntellect Inc. dated November 1, Syntellect's Form 10-K
1998
11 Computation of Net Loss Per Share
21 Subsidiaries of Registrant
23 Independent Auditors' Consent
27.1 Financial Data Schedule -- 1999
</TABLE>
(C) REPORTS ON FORM 8-K.
No Report on Form 8-K was filed during 1999.
39
<PAGE> 42
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, Syntellect has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SYNTELLECT INC.
By: /S/ TIMOTHY P. VATUONE
--------------------------------------
Timothy P. Vatuone
Vice President and Chief Financial Officer
By: /S/ KEITH A. PEKKALA
--------------------------------------
Keith A. Pekkala
Vice President and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities of the
dated indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE:
------------------ ----- -----
<S> <C> <C>
/S/ ANTHONY V. CAROLLO Chairman of the Board, Chief March 29, 2000
- ------------------------------ Executive Officer (Principal
ANTHONY V. CAROLLO Executive Officer)
/S/ TIMOTHY P. VATUONE Vice President and Chief Financial March 29, 2000
- ------------------------------ Officer
TIMOTHY P. VATUONE
/S/ KEITH A. PEKKALA Vice President and Controller March 29, 2000
- ------------------------------ (Principal Accounting Officer)
KEITH A. PEKKALA
/S/ WILLIAM P. CONLIN Director March 29, 2000
- ------------------------------
WILLIAM P. CONLIN
/S/ MICHAEL R. BRUCE Director March 29, 2000
- ------------------------------
MICHAEL R. BRUCE
/S/ MICHAEL D. KAUFMAN Director March 29, 2000
- ------------------------------
MICHAEL D. KAUFMAN
</TABLE>
40
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE OR METHOD OF FILING
--- ----------- ------------------------
<S> <C> <C>
2 Agreement and Plan of Reorganization as of Incorporated by reference to Exhibit No. 2 to
December 6, 1995, between Syntellect Inc., Syntellect's Registration Statement on
Syntellect Acquisition Co., and Pinnacle Form S-4 dated February 9, 1996 (the "S-4")
Investment Associates Inc.
3.1(a) Restated Certificate of Incorporation of Incorporated by reference to Exhibit No. 3-A
Registrant to Syntellect's Registration Statement on
Form S-1 dated February 23, 1995 (the "S-1")
3.1(b) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit
of Incorporation of Registrant, filed with the No. 3.1(b) to Syntellect's S-4
Delaware Secretary of State on May 18, 1993
3.1(c) Certificate of Amendment to Restated Certificate Incorporated by reference to Exhibit 3.1(c) to
of Incorporation of Registrant filed with the Syntellect's 1995 Form 10-K
Delaware Secretary of State on March 14, 1996
3.2 Amended and Restated Bylaws of Registrant Incorporated by reference to Exhibit No. 3-B
to Syntellect's S-1
4 Specimen Certificate representing Common Stock Incorporated by reference to Exhibit No. 4 to
Amendment No. 1 of Syntellect's S-1
10.1 Restated Stock Option Plan, as amended through Incorporated by reference to Exhibit 10.1 to
May 23, 1995 Syntellect's 1995 Form 10-K
10.2 Employee Stock Purchase Plan Incorporated by reference to Exhibit No. 10-B
to Amendment No. 1 of Syntellect's S-1
10.3 Long-term Incentive Plan, as amended August 8, Incorporated by reference to Exhibit 10.4 to
1996 Syntellect's 1996 Form 10-K
10.4 1997 Management Incentive Plan Incorporated by reference to Exhibit 10.4 to
Syntellect's 1997 Form 10-K
10.5 Non-employee Director Stock Plan Incorporated by reference to Exhibit B to
Syntellect's Proxy Statement for the 1995
Annual Meeting of Stockholders
10.6(c) Lease Agreement dated June 28, 1996, together Incorporated by reference to Exhibit 10.6(c) to
with first amendment to lease dated October 6, Syntellect's 1996 Form 10-K
1996, between Opus Southwest Corporation and
Syntellect for an office facility in Phoenix,
Arizona
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE OR METHOD OF FILING
--- ----------- ------------------------
<S> <C> <C>
10.7 Form of Indemnification Agreement between Incorporated by reference to Exhibit No. 10-L
Syntellect and its directors and officers to Syntellect's S-1
10.8(a) Agreement for Licensing of IBM Software Incorporated reference to Exhibit 10-I of
Technology dated February 3, 1993 between Syntellect's 1992 Form 10-K
Syntellect and IBM
10.8(b) Amendment Number One (1) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(b) to Syntellect's S-4
Number JWQ9308, dated March 25, 1993
10.8(c) Amendment Number Two (2) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(c) to Syntellect's S-4
Number JWQ9308, dated June 8, 1993
10.8(d) Amendment Number Three (3) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(d) to Syntellect's S-4
Number JWQ9308, dated December 16, 1993
10.8(e) Amendment Number Four (4) to Agreement for Incorporated by reference to Exhibit No.
the Licensing of IBM Technology, Agreement 10.8(e) to Syntellect's S-4
Number JWQ9308, dated October 4, 1994
10.8(f) Amendment Number Five (5) to Agreement for Incorporated by reference to Exhibit 10.8(f) to
the licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
Number JWQ9308, dated February 13, 1995
10.8(g) Amendment Number Six (6) to Agreement for Incorporated by reference to Exhibit 10.8(g) to
the Licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
number JWQ9308, dated June 6, 1995
10.8(h) Amendment Number Seven (7) to Agreement for Incorporated by reference to Exhibit 10.8(h) to
the Licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
Number JWQ9308, dated September 9, 1996
10.8(i) Amendment Number Eight (8) to Agreement for Incorporated by reference to Exhibit 10.8(i) to
Licensing of IBM Technology, Agreement Syntellect's 1996 Form 10-K
Number JWQ9308, dated March 11, 1997
10.9 Asset Purchase Agreement dated February 21, Incorporated by reference to Exhibit 10-K of
1995 between Syntellect Technology Corp. Syntellect's 1994 Form 10-K
(formerly known as Dytel Inc.) and Dytel
Incorporated
10.10 Form of Affiliate Agreement between Syntellect Incorporated by reference to Exhibit No.10.10
Inc. and affiliates of Pinnacle Investment to Syntellect's S-4
Associates Inc.
10.11 Employment Agreement between J. Lawrence Incorporated by reference to Exhibit No. 10.11
Bradner and Syntellect Inc. dated March 14, 1996 to Syntellect's S-4
10.12 Separation Agreement between Steve Nussrallah Incorporated by reference to Exhibit No. 10.12
and Syntellect Inc. dated February 20, 1998 to Syntellect's 1997 Form 10-K
10.13 Form of Registration Rights Agreement Incorporated by reference to Exhibit 10.13 to
Syntellect's S-4
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE OR METHOD OF FILING
--- ----------- ------------------------
<S> <C> <C>
10.14 Stock Purchase Agreement, dated April 1, 1996, Incorporated by reference to Exhibit 10.14 to
between Syntellect Inc. and Atlas Telecom, Inc. Syntellect's quarterly report on Form 10-Q,
dated May 13, 1996.
10.15 Employment Agreement between Peter W. Pamplin Incorporated by reference to Exhibit 10.15 to
and Syntellect Inc. dated November 1, 1998 Syntellect's Form 10-K
10.16 Employment Agreement between Neal L. Miller Incorporated by reference to Exhibit 10.16 to
and Syntellect Inc. dated August 24, 1998 Syntellect's Form 10-K
Employment Agreement between Scott Coleman and Incorporated by reference to Exhibit 10.17 to
Syntellect Inc. dated September 19,1998 Syntellect's Form 10-K
Employment Agreement between J. Lawrence Incorporated by reference to Exhibit 10.18 to
Bradner and Syntellect Inc. dated November 1, Syntellect's Form 10-K
1998
11 Computation of Net Loss Per Share
21 Subsidiaries of Registrant
23 Independent Auditors' Consent
27.1 Financial Data Schedule -- 1999
</TABLE>
<PAGE> 1
EXHIBIT 11
SYNTELLECT INC.
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted income (loss) per
share -- net income (loss) $ (1,866,000) $ (2,618,000) $ 141,000
============ ============ ============
Denominator:
Denominator for basic income (loss) per share -
weighted average number of common shares
outstanding during the period 13,034,000 13,441,000 13,328,000
Incremental common shares attributable to exercise
of outstanding common stock options -- -- 460,000
------------ ------------ ------------
Denominator for diluted income (loss) per share 13,034,000 13,441,000 13,788,000
============ ============ ============
Basic net income (loss) per share $ (0.14) $ (0.19) $ 0.01
============ ============ ============
Diluted net income (loss) per share $ (0.14) $ (0.19) $ 0.01
============ ============ ============
</TABLE>
The computation of diluted loss per share for 1999 and 1998 excluded the effect
of incremental common shares numbering 565,400 and 317,933, respectively,
attributable to the exercise of common stock options because their effect would
be anti-dilutive.
<PAGE> 1
EXHIBIT 21
SYNTELLECT INC.
SUBSIDIARIES OF REGISTRANT
Syntellect Canada Inc., an Ontario Corporation
Syntellect Europe Limited, a Corporation formed under the laws of the United
Kingdom
Syntellect Deutschland GmbH
Syntellect Technology Corp.
Syntellect Interactive Services, Inc.
<PAGE> 1
[KPMG Letterhead]
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Syntellect Inc.:
We consent to the incorporation by reference in the registration statements
(333-58029, 333-58027, 333-44587, 333-2368, 333-2302, 33-96472, 33-96464,
33-63642, 33-48638, 33-35976, 33-48637, 33-35973, 33-42704 and 33-35974) on
Form S-8 of Syntellect, Inc. of our report dated February 7, 2000, relating to
the consolidated balance sheets of Syntellect Inc. and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations and comprehensive income, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1999, and all
related schedules, which report appears in the December 31, 1999, annual report
on Form 10-K of Syntellect Inc.
KPMG LLP
Phoenix, Arizona
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SYNTELLECT, INC. AND SUBSIDIARIES AS OF DECEMBER
31, 1999, AND THE CONSOLIDATED STATEMENT OF OPERATIONS OF SYNTELLECT, INC. AND
SUBSIDIARIES FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 6184
<SECURITIES> 1101
<RECEIVABLES> 12189
<ALLOWANCES> 784
<INVENTORY> 2041
<CURRENT-ASSETS> 21408
<PP&E> 12915
<DEPRECIATION> 8128
<TOTAL-ASSETS> 26224
<CURRENT-LIABILITIES> 11541
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 19207
<TOTAL-LIABILITY-AND-EQUITY> 26224
<SALES> 25059
<TOTAL-REVENUES> 47831
<CGS> 14581
<TOTAL-COSTS> 24712
<OTHER-EXPENSES> 25791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1866)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
