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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For the Fiscal Year Ended June 30, 2000
Commission File No. 0-24448
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CINTECH TELE-MANAGEMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1200684
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(State of Incorporation) (I.R.S. Employer Identification No.)
2100 Sherman Avenue
Cincinnati, Ohio 45212
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 513-731-6000
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Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
None
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Check whether the registrant (1) 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 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B (Sec. 228.405 of this Chapter) is not contained
herein, and no disclosure will 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-KSB or any amendment to this Form 10-KSB
[ X ].
All amounts specified in this Annual Report are in U.S. Dollars, unless
otherwise specified herein.
The registrant's revenues as of June 30, 2000 were $12,619,503.
The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant as of June 30, 2000 was $10,138,238.
The outstanding voting securities of the registrant at the close of
business on June 30, 2000 were 12,323,328 shares of Common Stock without par
value.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are hereby incorporated by reference herein and
the parts of this Form 10-KSB into which the document is incorporated are shown
beside the respective documents:
Document Part
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A. Registration Statement on Parts I, II and III
Form 10-SB (Release No.
34-32231), as amended, filed
June 27, 1994
B. Proxy Statement Parts II and III
Filed on or about September 23, 2000
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PART I
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by Cintech Tele-Management Systems, Inc., dba Cintech Solutions, Inc.
(the "Company" or "Cintech") or statements made by its directors, officers or
employees may contain "forward-looking" information, which involve risks and
uncertainties. Actual future results may differ materially. Statements
indicating that the Company "expects," "estimates," "believes," "is planning" or
"plans to" are forward-looking, as are other statements concerning future
financial results, product offerings or other events that have not yet occurred.
There are several important factors, which could cause actual results, or events
to differ materially from those anticipated by the forward-looking statements.
Such factors, include, but are not limited to, the receipt and shipment of new
orders, the timely release of enhancements to the Company's products, which
could be subject to software release delays, the growth rates of certain market
segments, the positioning of the Company's products in those market segments,
variations in the demand for customer service and technical support, pricing
pressures and the competitive environment in the software industry, and the
Company's ability to penetrate additional markets and manage operations related
to additional markets. Although the Company has sought to identify the most
significant risks to its business, the Company cannot predict whether, or to
what extent, any of such risks may be realized nor can there be any assurance
that the Company has identified all possible issues, which the Company might
face.
Item 1. Description of Business.
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Cintech was incorporated by means of Articles of Incorporation filed under the
laws of the State of Ohio on March 20, 1987. The Company has operated
continuously since that time and grown through internal development of an array
of computer software products. The Company has not experienced any bankruptcy or
similar proceedings, nor has it been involved in any merger, consolidation, or
purchase or sale of a significant amount of assets not in the ordinary course of
business. The Company's shares are registered on the Toronto Stock Exchange
(TSE) and are traded under the symbol CTM.
Cintech creates Internet technology solutions exclusively for small to mid-size
entities within the Fortune 1000 and small to mid-size businesses to manage and
analyze interactions with their customers, partners and associates for improved
relationships and informed decisions. Cintech applications range from
voice-centric call center solutions to virtual, multi-channel e-contact center
solutions -- all targeted to the small to mid-size entity within an
organization, such as departments, branch offices and remote sites.
Cintech is the market share leader for its voice-centric call center solutions
targeted to small and mid-size entities, with more than 9,000 North American
shipments. The company partners with IBM, Nortel Networks and other technology
leaders.
Cintech's newest solution, NetVIA, is the first virtual e-contact center
designed exclusively for small to mid-size entities. NetVIA unifies all voice,
email and Web interactions for more effective communications and management
information. It connects resources located anywhere to create a virtual,
networked e-contact center. NetVIA maximizes the potential of e-business for
small to mid-size entities by empowering communication anytime, anywhere, in any
way. NetVIA was announced in November 1999 and will be commercially available in
September 2000.
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Cintech's strategy is to further develop and maintain its leadership position as
a provider of call center/contact center solutions to small and mid-size
entities within an enterprise. The key element of its strategy is to utilize the
technology of NetVIA as a means to expand in several areas:
- Build on its North American leadership position
within the global market.
- Develop strategic partnerships for distribution and technology
integration that enable the Company to create practical
solutions for the small to mid-size contact center.
Customers of Cintech's call center software applications range from Fortune 1000
companies through entrepreneurial start-ups. Some of the Company's customers
include American Express, Bank of America, Borders Bookstores, Budget
Rent-a-Car, Carlson Wagonlit Travel, Chrysler Corporation, Johnson & Johnson,
Merrill Lynch, Motorola, The North Face - Canada, Royal Bank of Canada, The
Sharper Image, Snap-On Tools of Canada, Stanford University, Yellow Cab, and
CIBC.
INDUSTRY BACKGROUND
The Company operates in the communications industry which is undergoing profound
change as the Internet, the convergence of voice and data networks, and the
proliferation of e-business revolutionize the landscape. A "new world"
communications model has emerged that encompasses Web, email and voice
interactions. The Company believes this new model for communicating with
customers and partners represents significant opportunity to create
comprehensive technology solutions for evolving e-businesses.
CONVERGENCE OF VOICE AND DATA
Voice and data networks, which were historically separate entities, are
converging into a single, efficient network. In this environment, voice can be
digitized into packets and sent over the data network (Voice over Internet
Protocol or VoIP.) This allows voice to be handled similarly to email and Web
interactions, opening the door to applications that unite these multi-channel
interactions into a single system. Additionally, remote workers and multiple
locations can be cost effectively networked for both voice and data
interactions.
OPEN STANDARDS VIA INTERNET PROTOCOL
A converged voice and data network provides the framework for the rapid
deployment of applications using Internet Protocol (IP.) With IP, business
applications like contact center software move away from proprietary telephone
switches and hardware, operating systems, and client appliances that have
governed application deployment in the traditional business model. IP
applications are based on open standards, supporting multi-vendor operating
systems, enabling integration with other applications and standard hardware
platforms and appliances. This is analogous to the computer environment where
multiple vendors create applications that all interoperate freely on a variety
of platforms. It is this open architecture, hardware independence and
interoperability that drives the development of comprehensive, end-to-end
solutions. The Company believes this open environment will speed application
deployment, provide the framework for application integration, and increase the
opportunities for technology partnering.
THE e-BUSINESS EXPLOSION AND THE NEED FOR SERVICE
The proliferation of the Internet and its inherent capabilities has spawned
e-business and e-commerce, where customers, partners and employees can
efficiently conduct business using the Internet as the backbone. e-Businesses
require new tools to support this infrastructure.
- In 1999, U.S. online businesses lost $6.1 billion in revenue due to
poor online customer service according to Datamonitor's US Markets for
Internet Based Customer Service Report.
The Company believes that as e-business continues to proliferate, the need for
high level, personalized service for tech savvy customers and partners will
become increasingly important.
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MULTI-CHANNEL INTERACTIONS
In the new model for communications, voice will no longer be the primary means
of interacting with customers, business partners and employees.
- By the end of 2001, about 25 percent of contact center traffic will be
through the Web. (GartnerGroup)
- Frost and Sullivan predicts that the Web-based call center market
(capable of handling voice, email and Web interactions) will grow by
more than 40 percent by 2006.
- Voice-on-the-Net, or Voice over IP (VoIP), which accounted for less
than 1 percent of global telecom traffic in 1999, is expected to surge
to 17 percent by 2003 and more than 30 percent by 2005. (U.S. Bancorp
Piper Jaffray)
VIRTUAL CONTACT CENTER EMERGENCE
Until now, the limitations of voice technology meant that a call center had to
be centrally located with all of the agents physically situated in one location.
One of the inherent benefits of a converged voice and data network is that
decentralized, "virtual" contact centers are now feasible and affordable for
businesses of all sizes. A virtual contact center connects employees that may be
physically located anywhere into a single entity for contact handling, reporting
and management. A virtual contact center can be 50 agents in one location or 50
locations each with one agent - the customer experience would be the same. In
today's global business environment, where employees and offices are established
worldwide, the virtual contact center diminishes the physical distance.
- In the U.S., the penetration of virtual contact centers, in relation to
all contact centers, is projected to have a CAGR of more than 40
percent through 2003. (Datamonitor)
SMALL CALL (CONTACT) CENTER GROWTH
Over the years, the status of call centers have grown from backroom cost centers
to mission-critical profit centers. Leading companies build long-term
relationships with their most valued customers and partners. As a result, the
smaller call center market has seen explosive growth as small and large
companies alike utilize call center technology at every level within the
enterprise.
- Small call centers (less than 100 agents) make up 91 percent of the
U.S. call center market according to Datamonitor.
- Another leading research firm, Dataquest, says 87 percent of all
shipments in 1999 were to call centers with fewer than 75 employees.
The Company believes companies will continue to implement smaller call centers
to improve their levels of service and that this segment will continue to
dominate the market. Further, the Company believes businesses with existing
voice-only call centers will evolve to multi-channel contact centers, as
customers and partners demand e-service.
FROM CALL CENTER TO e-CONTACT CENTER
In the 1970's, call centers were born. They revolutionized how businesses
operated and redefined "customer service." Call centers held the promise of
improved customer satisfaction, increased revenues, reduced costs and higher
profitability by conducting business over the telephone instead of through
costly face-to-face contact. It was the first critical step in providing the
convenience, access and information that customers not only expect, but demand
from almost every type of business today. However, for the next 20 years call
centers were the domain of only the largest organizations because of the
prohibitive cost and large-center focus of the existing technology.
In the early 1990's Cintech pioneered PC-based call center solutions that made
it feasible for businesses of any size to deploy call center technology -- from
the small start-up business to the Fortune 1000 with hundreds of satellite
offices. Cintech partnered with Nortel Networks (then Northern Telecom) to
deliver its portfolio of solutions for the Norstar business communications
system that was, and still is, targeted to small and mid-size call centers.
Through Nortel Networks, Cintech partnered with the authorized distributors of
Norstar such as Williams Communications, SBC, Verizon, and Bell Canada as the
call center applications expert. Today, with more than 9,000 shipments, Cintech
is the leading provider of call center solutions to the small to mid-size call
center market. The Company believes the voice-centric call
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center market will continue to grow, especially for smaller call centers, while
in parallel, a growing segment will evolve existing call centers to e-contact
centers.
MARKET DRIVERS FOR THE e-CONTACT CENTER
With the rapid adoption of the e-business model, businesses are evolving the
call center to an e-contact center. As a critical element of an organization's
e-business strategy, the e-contact center enables the enterprise to respond
efficiently to Internet-based as well as voice-based customer contacts and to
reach across the enterprise to connect the customer with the best resource to
meet their need. In addition to this customer-driven multi-channel communication
need, there are a number of other market drivers that are accelerating the
migration to the e-contact center.
ADOPTION OF THE INTERNET/HIGH-SPEED BANDWIDTH - Over half of all
American households have access to the Internet according to a report published
by Media Metrix, Inc. A Nielsen/NetRatings report concurs with those numbers,
indicating 52 percent or 144 million U.S. households have Web access. The report
attributes the spiraling growth to falling prices in PC hardware and to free
Internet Service providers and affordable, high-speed broadband. In particular,
increased competition from cable modem and xDSL (Digital Subscriber Line)
services have made high speed broadband accessible for increasing number of
households and businesses in the U.S. and abroad. For example, combined xDSL and
cable modem penetration to total households is expected to reach up to 30
percent by 2003 in many of the world's leading markets according to a study by
The Strategis Group. The dramatic increase in the use of the Internet means that
businesses must be equipped to interact electronically (i.e., by email and by
Web) to compete in an e-business environment.
DISTRIBUTED ENTERPRISES - Increasingly, employees are not all located
in a single building, much less in the same city, state or even country. Often
the individuals most qualified to work with a set of customers are dispersed
throughout different offices or are working at home. The traditional call center
is becoming "de-centered." According to a report by Ovum, the average number of
agents in a contact center will drop to 50 within five years from today's
average of 100. The e-contact center supports a virtual environment allowing
customer contacts to be distributed to contact center agents regardless of where
they are physically located.
ORGANIZATIONAL TRENDS - An extremely tight labor market has caused
businesses to look for innovative ways to attract talented contact center
employees. A number of organizational trends are emerging that are feasible with
a virtual e-contact center:
- Work-at-home
- Telecommuting
- Flex time
- Smaller distributed offices versus large centralized offices
HIGH-LEVEL FOCUS ON CUSTOMER SERVICE - Of nearly 10,000 online customers
surveyed in a study from the International Customer Service Association, only
36% were satisfied with their online transactions and interactions. Further,
e-customers expected to receive confirmation of contact within one hour but only
42 percent even received acknowledgement within 24 hours. Forty percent of
customers never received a final response to their e-contact. Ultimately, poor
handling of e-customers decreases customer loyalty by 30 - 40 percent according
to the report. The need to deliver a high level of customer service and to build
loyalty, particularly among Internet users who are only a "click" away from a
competitor's site, is driving organizations to implement e-contact centers.
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ONE-ON-ONE MARKETING/UP-SELLING/INCREASED REVENUES - Another study shows
that as many as 66 percent of e-shopping carts are abandoned without a purchase.
A lack of interaction or assistance at the Company's Web site is a likely
contributor. With an e-contact center, a business has the capability to engage
in one-on-one marketing, to educate the customer, learn preferences, build a
database, and cross and up-sell products and services, whether on the phone or
at the Web site. The enterprise can maximize every customer exposure by
gathering data and applying selling skills to increase revenues.
LOWER COSTS - Beyond the dramatic savings an organization will realize by
converging its data and voice networks, there are cost savings associated with
the e-contact center itself. Replacing expensive voice calls with inexpensive
Web self-service, email or Web chat is one example. Another is in the
implementation of remote agents. In the traditional voice network, adding remote
workers meant physically connecting them to the call center, a prohibitively
expensive undertaking. In the IP Network, the physical location of the remote
worker is irrelevant, and so additional costs associated with their
participation are insignificant.
CINTECH APPLICATIONS
Cintech develops and markets applications in the following categories:
1. Multi-channel e-contact center
2. Traditional voice-centric call center
3. Call accounting
An e-Contact Center application expands the basic functionality of the call
center to incorporate multi-channel interactions including voice, email and Web.
The e-contact center distributes contacts to resources that can be located
anywhere in the enterprise, not just in a single location. With multi-channel
and virtual environment capabilities, business information becomes increasingly
important. The e-contact center application provides integrated management
information in both real-time and historical formats on all channels of contact
throughout the center. The e-contact center solution is an IP-based (Internet
Protocol) application and as such can run on open platforms and is switch
independent.
A Call Center application is a specialized software call management system,
which answers, queues and routes incoming telephone calls. It plays
announcements to callers, encouraging them to hold until an agent (a person
qualified to take the call) is available. It also provides statistics about the
status of agents and callers waiting and provides specialized management
information reports.
Call accounting products provide management with various reports that show how a
company's telephone system is being used. These products assist managers and
employees in understanding how time is being spent on the telephone and the
associated costs of the usage, and provide protection against potential abuse by
outsiders gaining access to the telephone system.
1. MULTI-CHANNEL e-CONTACT CENTER APPLICATIONS
In November 1999, Cintech announced its next generation of applications -- the
NetVIA e-contact center. NetVIA is the first virtual e-contact center designed
exclusively for small to mid-size entities
The NetVIA multi-channel e-contact center effectively `de-centers' the
traditional call center by allowing remote resources to join in a virtual
community across the enterprise to participate and drive the customer
interaction process. NetVIA will be commercially available in the first fiscal
quarter of 2001.
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NetVIA is:
- A multi-channel e-contact center solution capable of handling voice,
email and Web interactions
- Location neutral
- A true IP-based solution
- Designed specifically for the Small to Mid-size Entity (SME) such as
departments, remote offices and at-home workers
COMPETITIVE ADVANTAGES FOR MULTI-CHANNEL E-CONTACT CENTER APPLICATIONS
- INTEGRATED MULTI-CHANNEL CONTACT CONTROL - NetVIA delivers
comprehensive control over multiple contact types (voice, email
and Web.) Skills based routing, automated response and text/voice
announcements provide consistent handling regardless of contact
type. Advanced capabilities include chat, instant messaging, Web
page sharing, meet-me and click-for-agent.
- INTEGRATED MANAGEMENT INFORMATION - Comprehensive historical
reports and dynamic real-time status displays deliver critical
e-contact center information. NetVIA's integrated approach allows
information to span contact types, users, groups, queues and
physical locations. Additionally, the ability to trigger alarms
based on user-defined thresholds allows management to quickly
identify and respond to potential areas of concern. Delivered
through thin client (Java applet) architecture, NetVIA's reports
and real-time status display information can be delivered to any
desktop with secure access.
- CONVENIENT ADMINISTRATION & MAINTENANCE - NetVIA's architecture
allows multiple individuals in the organization to participate in
the administration and maintenance of the e-contact center right
at their desktop or even from home. Designed with security in
mind, NetVIA can be configured so that only qualified individuals
in the organization are authorized to make changes.
- UNLIMITED ENVIRONMENTS & INTEGRATION POSSIBILITIES: IP FOUNDATION
WITH OPEN STANDARDS, TRANSPORT INDIFFERENCE, AND VENDOR
INDEPENDENCE - NetVIA leverages existing investments in voice and
data networks because it can be deployed in virtually any
environment. It is not dependent on proprietary switching
equipment and NetVIA is indifferent to the underlying data
transport technology -- Frame Relay, ATM, T-1/T-3, xDSL, and cable
modems are all supported. Additionally, NetVIA is built upon an IP
foundation with open standards, enabling integration with other
applications and systems.
- MODULAR AND SCALABLE = COST EFFECTIVE - NetVIA was developed from
the ground up -- uniquely for the small to mid-size e-contact
center -- to provide the flexibility and scalability required by
this market. A business can deploy the full solution with
integrated multi-channel capabilities, or add single channels as
needed. This modular design enables traditional call centers to
add new channels, such as email and Web, while keeping the
existing voice call center intact.
2. TRADITIONAL VOICE-CENTRIC CALL CENTER APPLICATIONS
Cintech markets a suite of call center solutions to the small to mid-size market
that are developed uniquely for Nortel Network's Norstar business communication
system:
- CINPHONY - Introduced in 1991, CINPHONY is targeted to a sophisticated
small to mid-size call center with advanced needs. Reporting, enhanced
management features, and capacities often become the critical sales
elements.
The CINPHONY user may have experience with call center applications in
a large call center within the organization and wants that same level
of capability in smaller areas such as departments or branch offices.
Or, CINPHONY may be used by a small or mid-sized company with high-end
call center needs.
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- PRELUDE - Introduced in 1993, PRELUDE is a mid-range solution with full
call center capabilities, including advanced call routing and
management information. Like CINPHONY, PRELUDE users may have a
start-up call center or may have experience with call center
applications in a larger call center within the organization and want
that same level of capability in smaller areas. The primary differences
between PRELUDE and CINPHONY lie in their system capacities (15 agents
and 4 groups versus 80 agents and 24 groups respectively) and feature
sets, with CINPHONY offering more advanced functionality. Reporting
often becomes PRELUDE's critical sales element, especially when
migrating from MINUET.
- MINUET - Introduced in 1997, MINUET is targeted at small call centers
with basic call routing and statistical needs. The Company believes
that MINUET is broadening the market for call centers because of its
straightforward feature set and affordability for even the smallest
center. Many departments, branch offices and small businesses do not
believe they are candidates for call centers because of their
reputation as a large-user-only product, historically high cost and
perceived overabundance of features. In July 1998, Cintech and Nortel
Networks began packaging MINUET with every Norstar Voice Mail. This is
consistent with the Company's strategy to introduce users with less
sophisticated requirements to call center technology with MINUET and
then upgrade them to PRELUDE and CINPHONY as their needs expand.
Cintech's call center solutions for Norstar have been shipped to more than 9,000
customers, making Cintech the leading provider of call center systems with fewer
than 75 agents, according to a 2000 North American market share study from
Dataquest.
COMPETITIVE ADVANTAGES FOR TRADITIONAL VOICE-CENTRIC CALL CENTER
APPLICATIONS
- ACCESS TO MANAGEMENT INFORMATION - To address the critical importance
of management information for a call center, PRELUDE and CINPHONY
provide real-time and historical statistics and reporting as a standard
product offering. MINUET also offers limited statistics. LAN and remote
site access via a standard Internet browser is available through an
add-on module called INFOCUS, making it even easier to access
information.
- SIMPLE MIGRATION AND PRICING TO ACCOMMODATE GROWTH - Cintech's call
center solutions are designed to accommodate business growth. A
structured migration path allows a business to upgrade easily from
MINUET to PRELUDE to CINPHONY via simple software installations.
Additionally, Cintech's solutions are priced by system rather than by
agent seat which is the industry norm. This allows a fast-growing
company to add new agents up to the system's capacity, without
investing additional new dollars for each new agent.
- COMPREHENSIVE & ROBUST - Unlike other call center providers that offer
products designed as separate, distinct modules, the Company's call
center solutions are designed and developed as a single, tightly
integrated bundle of applications. The Company's call processing,
announcement, status display, reporting and administration
functionality work seamlessly as a unified system. This provides users
with cohesive features and functionality in one solution.
- TIGHT INTEGRATION - Cintech's call center solutions are uniquely
designed as integrated applications for the Norstar telephone system.
By writing its applications using the Open Application Interface,
Cintech achieves the tightest level of application integration
possible. For example, supervisors can record and change announcements,
monitor and/or join a call, or review call center statistics (MINUET
only), all from their telephone set. Agents can log-in and log-out,
record a call, ask a supervisor for assistance, and enter category
codes for calls from their telephone set. All the features of the
Norstar are available; the call center application adds new
functionality.
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- ADVANCED CALL ROUTING AND HANDLING - The routing and handling of
customer calls are an important -- if not mission-critical --
application for any call center. Cintech's call center solutions
provide intelligent call routing and handling to the small to mid-size
center, enabling businesses to answer more calls, reduce abandoned
calls, cut hold times and improve customer service.
3. CALL ACCOUNTING PRODUCTS
The Company entered the call accounting market in 1987 with its PC-based
Tele-Series call accounting product. The technology of using a Personal Computer
as the call accounting platform was relatively new at the time and allowed the
Company to offer a full-featured package at low cost. This matched the Company's
strategy of bringing high-productivity software to small and mid-sized
businesses.
Tele-Series continues to be sold today through various U.S. and Canadian
dealers. It works with a large number of telephone switches including NEC,
Nortel Networks, AT&T and Mitel.
In February 1993, Cintech introduced Tele-Series for Norstar and expanded its
distribution to include Nortel Network's network of authorized Norstar
distributors. In addition to basic call accounting functions, Tele-Series for
Norstar takes advantage of features unique to Norstar. These advantages include
the ability to: (i) display the incoming caller's telephone number on the
telephone set; (ii) prompt users to enter account codes at the telephone set;
(iii) monitor for possible toll fraud (unauthorized individuals gaining access
to and misusing the Norstar); and (iv) track intercom calls.
DISTRIBUTION & MARKETING STRATEGY
The small to mid-size market for call center and contact center technology
requires a high level of expertise and services to augment a limited amount of
internal technical support within their own organizations. Cintech responds to
this need by partnering with industry leaders, leveraging the strengths of both
companies and delivering practical, comprehensive solutions. By combining its
applications with its partners' hardware, transport, services and distribution
capabilities, Cintech is able to create comprehensive, end-to-end solutions. In
addition, to effectively reach the number of organizations that are prospects
for small to mid-size call centers and contact centers, it is absolutely
critical to build a distribution network with broad geographic reach and strong
sales and marketing capabilities.
Cintech builds strategic alliances in two key areas:
- Technology and marketing partners for creating and promoting
best-in-class solutions. Cintech is currently partnered with two of the
world's technology leaders: IBM and Nortel Networks.
- Distribution partners with the transport, distribution and service
capabilities required by the small to mid-size market.
IBM
In November 1999, Cintech announced its partnership with IBM, the worldwide
leader in e-business solutions. Cintech's NetVIA e-contact center solution is
being marketed as part of an IBM offering that includes Netfinity server
hardware, consulting, data networking, implementation and integration services
supplied by IBM Global Services. Initially, IBM and Cintech will leverage
existing relationships by offering the NetVIA solution to service providers who
will incorporate their own transport, connectivity and services into the
offering.
The relationship with IBM will become increasingly important for expanding into
international markets. The expertise, geographic coverage and international
relationships from IBM's Global Services (which includes more than 100,000
employees worldwide), coupled with the open technology of NetVIA, will enable
Cintech to create the end-to-end solutions demanded by its global target market.
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NORTEL NETWORKS
Cintech has a long relationship with Nortel Networks. Cintech's suite of call
center solutions -- CINPHONY, PRELUDE and MINUET -- designed uniquely for Nortel
Networks' Norstar telephone switch, are distributed and marketed by Nortel
Networks. Cintech's applications, combined with Nortel's switching hardware, are
the most widely used solutions in the small to mid-size call center market.
In April 1991, Cintech began shipping CINPHONY, its full-featured call center
solution for Norstar. This was followed by the introduction of PRELUDE in 1993,
a mid-level offering, and then by MINUET in 1997, an entry level offering. Prior
to 1996, Cintech worked directly with the authorized Norstar distributors to
sell and service its applications.
Cintech and Nortel entered into a joint marketing and distribution arrangement
in April 1996. Under the arrangement, Cintech's call center applications are
included in the Nortel product catalog and marketed jointly through Nortel's
distribution network. This significantly increased penetration of Cintech's
applications as Nortel took a more active role in selling and marketing the
solutions.
OTHERS
With the introduction of NetVIA and its underlying open architecture, the
potential for additional technology partners increases. Cintech will pursue
future relationships in an effort to further expand the market for its solutions
and to create new solutions designed to meet the market's needs.
DISTRIBUTION PARTNERS
Distribution is a major competitive advantage for Cintech. Broad distribution
coverage is critical to reaching Cintech's large and diverse target market that
encompasses both small and mid-size businesses as well as entities within larger
organizations such as branch offices and departments. Currently, Cintech is
partnered with numerous leading distributors in the U.S. and Canada to market
and support its call center solutions including Williams Communications, SBC,
Verizon, and Bell Canada as well as approximately 500 smaller distributors.
Cintech and the distributors work jointly to provide the necessary support
services such as installation, training and maintenance. Cintech has a strong
working history with many of its distributors, complementing the services and
expertise of the respective companies.
Cintech believes the international market for smaller call center and contact
center solutions will continue to develop and will pursue international
expansion with its partners.
WHERE CUSTOMERS GO TO BUY SOLUTIONS IN THE "NEW WORLD" OF GLOBAL COMMUNICATIONS
The lines are graying between traditional data and voice distributors and
service providers. Like the physical networks themselves, companies within the
traditional telecommunications and the data networking industries are converging
and merging. An astonishing number of new players are joining in. The Company
believes this changing, evolving landscape will provide opportunity for Cintech
to broaden its current distribution relationships and build new ones to bring
NetVIA to market.
The diversity and sheer size of the small to mid-size-contact center market
requires expanded distribution capabilities. While the small business may rely
on its telecom provider to recommend and implement an e-contact center, the
large global company with multiple e-contact center locations more likely will
include telecom and data providers in the acquisition process. By partnering
with distributors with both data and telecom expertise, Cintech not only can
package the appropriate skills and support around its applications to create
end-to-end solutions, but also broaden its market coverage.
11
<PAGE> 12
COMPETITIVE POSITION
The competitive landscape for call centers, and particularly for e-contact
centers, has become more intense due to the market's attractive growth. The
market for the Company's products is characterized by rapidly changing
technology and evolving industry standards. The industry also involves a number
of risks, some of which are beyond the Company's control.
For its traditional call center solutions, Cintech competes with numerous
vendors, including Avaya (formerly Lucent), Toshiba, and Siemens. Since
telephone switching equipment has become somewhat of a commodity, it is the
software applications, like Cintech's call center solutions, that differentiate
the overall solution. The combination of Cintech's software and Nortel Networks'
Norstar is the leading solution for the small call center market defined as 75
or fewer agents.
The market for the NetVIA e-contact center solution is highly competitive and
the Company believes it will continue to be as new companies enter this space
and established companies merge. Vendors are approaching the market in a number
of ways. Some of the prominent business models include:
- ASPS (Application Service Providers) "lease" the application software;
- POINT APPLICATIONS address single channel capabilities such as
Web-enabling or email management systems;
- ALL-IN-ONE SOLUTIONS include both applications plus voice switching
infrastructure, thereby displacing existing telephony switching
equipment;
- IP-BASED SOLUTIONS reside on the data network enabling a virtual
environment.
While the majority of vendors address the needs of larger contact centers,
typically with 200 or more agents, Cintech is focused on the small to mid-size
segment.
Several of the Company's current and potential competitors have greater
financial, marketing and technical resources than the Company. In addition, the
Company leverages and relies on its product partners and extensive distribution
channel partners to deliver product to market. While the Company's
competitiveness depends on its ability to enhance its existing products and to
offer new products on a timely basis, the long term success of the Company's
products is based primarily on product features, performance, ease-of-use,
reliability, compatibility, brand name recognition, product reputation, levels
of advertising, pricing, merchandising and training, quality customer support,
excellence and timeliness of product upgrades, the capability of the Company to
introduce complementary new products, the effectiveness of its product and
distribution partners, and, ultimately, continued market growth and acceptance.
It is uncertain whether the Company can maintain its competitive position
against current and potential competitors, especially those with significantly
greater financial, marketing, service, support, distribution, technical and
other resources. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures and market factors faced by the Company will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
12
<PAGE> 13
CUSTOMER SERVICE & SUPPORT
Call centers, and more recently e-contact centers, have gained mission-critical
status within many companies. As a result, the implementation, management and
maintenance of the center is as important, if not more important, than the
technology itself. It is this philosophy that underscores Cintech's on-going
commitment to ensuring customer success. Cintech makes the implementation,
management and maintenance processes effective, thorough and problem-free
through its Support Services programs. These support services allow target
customers to capitalize on Cintech's vast, in-depth knowledge of the unique
business requirements and environments of smaller centers.
Cintech's Support Services offers a host of services that expedite
implementation, management and maintenance:
- Implementation Services --The key to the successful utilization of any
technology lies in the ability to implement the system right the first
time. Cintech, as the developer and primary expert in its own
applications, supplements the services of its distributors by providing
detailed product expertise and knowledge of practical market
deployment. Cintech offers the following services:
- On-site installation and testing
- Application configuration and verification
- Training and certification of personnel
- Training and Education -- Cintech is dedicated to providing
comprehensive technical and operational training of end-users and
distributors. Experience has shown that many customers look for
additional training once the system is installed and operational. This
need comes from changes in personnel, expanded application development
and the desire to understand the software capabilities more thoroughly
to improve efficiencies of operation. Additional training on report
generation and analysis is also key to most organizations for use in
business decisions and for managing and growing the business.
Training can be held on-site at the customer's location, at Cintech's
headquarters or at scheduled regional training courses.
- Customer Response Center -- Cintech is committed to delivering
technical support in a way that is most effective for its customers.
The Customer Response Center assures that a highly responsive team of
service experts will be available to quickly meet its customers' needs.
The Customer Response Center offers a centralized service resource to
channel partners as well as end users, accessible through a toll free
number-- unlimited technical telephone support from service experts is
available Monday through Friday from 8 a.m. to 9 p.m. EST. After hours
emergency support (from 9 p.m. to 8 a.m. weekdays, official holidays,
etc.) is available through the same toll free service.
- Software Maintenance -- Cintech's applications come with a one year
Software Maintenance Plan from date of installation. Software
Maintenance provides:
- Unlimited access to Customer Response Center
- Free software updates
- Educational end user communication programs including news
letters and Web resources
When the first year of Software Maintenance expires, Cintech offers additional
coverage in yearly increments.
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<PAGE> 14
PRODUCT DEVELOPMENT
From its incorporation, Cintech has made substantial investments in the
development of its product lines. The Company has relied on its extensive
customer experiences and a knowledgeable development organization in the
crafting and delivering of its award-winning products. Consistent with the
strategy of expanding its existing product offerings and introducing new product
lines, Cintech has significantly expanded its development organization. The
Company believes that its future performance depends, in part, on its ability to
maintain and extend its existing product lines to meet an expanding range of
customer requirements and deliver new products that successfully gain market
acceptance. At the foundation of this belief is the Company's ability to
maintain and enhance its product development organization and strategy.
DEPENDENCE ON CUSTOMERS/DISTRIBUTION
Cintech currently derives a significant portion of its revenue from its call
center products that are integrated with the Norstar system. Because of this
product concentration, Cintech would be materially adversely affected if users
of the Norstar system determined to use another system or similar device or if
the Norstar system ceased to be competitive in the marketplace. In March 1996,
in order to further increase penetration of call center software sales to
Norstar users, Cintech entered into a joint marketing agreement with Nortel
whereby Nortel's sales and marketing organization has responsibility for selling
the Company's software products through common distribution channels.
Consequently, Cintech's business is, in part, dependent upon the degree of
marketing support and effort provided by Nortel and the various distributors.
Most of Cintech's sales are to large distributors in the telephony industry. For
the year ended June 30, 2000 approximately 68 percent of the Company's sales
were made to one such distributor.
SOURCES AND AVAILABILITY OF RAW MATERIALS/PRINCIPAL SUPPLIERS
The Company, as a supplier primarily of software products, is not dependent upon
availability of raw materials. Hardware components used for bundling with
Company products are readily available for open market purchase and the Company
can acquire such components from any number of available primary and secondary
sources.
PROPRIETARY RIGHTS
CINPHONY and Tele-Series have been copyrighted by the Company with the United
States Copyright Office. The Company has applied for trademarks in respect to
CINPHONY, PRELUDE, Tele-Series, JAZZ2000, MINUET and INFOCUS in the United
States.
GOVERNMENT IMPACT
The Company knows of no material governmental approvals required for the
development, marketing or sale of the Company's principal products or services.
Likewise, the Company knows of no existing or probable governmental regulations,
which have or would have a material adverse effect on the operation of the
Company's business. Finally, the Company knows of no material costs or effects
of compliance with environmental laws (federal, state or local) in the operation
of its business.
RESEARCH AND DEVELOPMENT
The Company's research and development expenses during each of the last two
fiscal years were as follows: $673,000 for the fiscal year ended June 30, 2000,
and $416,000 for fiscal year ended June 30, 1999. The costs of such activities
are considered overhead items that are reflected only indirectly in the pricing
of the Company's products sold into the market.
14
<PAGE> 15
EMPLOYEES
The Company presently has 78 employees, 76 of which are full time. Of these
employees, 19 are involved primarily in sales, marketing and business
development, 21 work on systems support, 26 are involved in product development
and the remaining twelve are responsible for all management and administrative
functions.
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<PAGE> 16
Item 2. Description of Property.
---------------------------------
The Company's plant and its executive offices comprising approximately 21,000
square feet are located at 2100 Sherman Avenue, Cincinnati, Ohio 45212. The
Company leases this facility. The lease extends until April 30, 2002 and calls
for escalating lease payments. Lease payments for the year ended June 30, 2000
amounted to approximately $355,000.
The Company owns minimum amounts of tangible personal property in the form of
equipment, furniture and fixtures, and inventory (comprised of computer hardware
and literature and other documentation.) The value of these items is modest in
comparison to the value of the Company's overall assets, inclusive of cash and
cash equivalents.
All of the Company's leased premises and tangible personal property are in good
condition.
The Company invests its excess cash in marketable securities (generally U.S.
treasury bills or federal agency notes) and follows a conservative investment
philosophy to protect the principal of such assets.
Item 3. Legal Proceedings.
---------------------------
The Company is not a party to any pending legal proceedings which would have a
material adverse impact on the Company's financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
The Company has nothing to report under this Item.
16
<PAGE> 17
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
------------------------------------------------------------------
The Company's common stock is held by approximately 1,200 shareholders of record
as of June 30, 2000, and is traded on The Toronto Stock Exchange. The range of
price quotations in each quarter of the two years ended June 30, 2000 are shown
below. These prices represent actual transactions and do not reflect retail
markup, markdowns or commissions.
FOR THE QUARTER ENDED HIGH(1) LOW(1)
--------------------- ------- ------
September 30, 1998 1.26 0.90
December 31, 1998 2.50 0.99
March 31, 1999 3.84 1.99
June 30, 1999 2.75 1.90
September 30, 1999 2.70 2.00
December 31, 1999 7.40 2.40
March 31, 2000 7.75 3.95
June 30, 2000 5.50 3.30
(1) Based on quotations obtained from the Toronto Stock Exchange. All amounts
are in Canadian dollars.
No dividends were declared or paid during the two years ended June 30, 2000 and
June 30, 1999, and the Company does not anticipate paying dividends in the
foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of Operations.
---------------------------------------------------------------------
Certain statements in this report may contain "forward looking" information (as
defined in the Private Securities Litigation Reform Act of 1995) involving risks
and uncertainties, including without limitation, projections for sales and
expenditures, and various business environment and trend projections. Actual
future results and trends may differ materially depending on a variety of
factors, including, but not limited to, the risks discussed in earlier portions
of this document (see ITEM 1. DESCRIPTION OF BUSINESS). The Company assumes no
obligation to release publicly any changes to any "forward looking" statements
that may arise from the development of unanticipated events or circumstances
that occur after the date of these statements.
LIQUIDITY AND CAPITAL RESOURCES
In January 1994, the Company completed its initial public offering ("IPO") of
2,181,820 shares of common stock. The net proceeds of this offering, after
deducting applicable issuance costs and expenses, were $7.7 million. The
proceeds of the offering were used to retire the debt of the Company incurred
prior to the offering. In addition, the proceeds are continuing to be used for
sales and marketing programs, as well as for product development.
Working Capital increased to $7.7 million in 2000 from $5.6 million in 1999. The
increase of $2.1 million is attributable to the increases in cash and marketable
securities of $2.0 million and deferred income taxes of $285,000 offset by a
decrease in accounts receivable of $153,000 and an increase in deferred
maintenance revenue of $104,000.
During 2000, the Company provided cash of $3.3 million from operating activities
and invested an
17
<PAGE> 18
additional $794,000 and $579,000 in software development and fixed assets,
respectively. The ending cash balance increased by $1,021,000. The Company
purchased additional marketable securities of $963,000.
At the end of 2000, the Company held cash and marketable securities totaling
$8.3 million and had no outstanding long-term debt obligations.
The Company has no material commitments for capital expenditures, nor is the
Company subject to seasonal aspects that could be expected to have a material
effect on the Company's financial condition or its results of operations. The
Company believes that there are no significant elements of income or loss that
do not arise from the Company's continuing operations.
RESULTS OF OPERATIONS
The following selected financial information set forth below has been derived
from the financial statements of the Company. This discussion and analysis
should be read in conjunction with the financial statements and notes thereto
which follow.
RESULTS OF OPERATIONS 2000 VERSUS 1999
In fiscal 2000, sales of current products and services increased by $232,000 or
2% compared with 1999. This increase by product is broken down as follows (in
thousands):
INCREASE
PRODUCT CATEGORY 2000 1999 (DECREASE)
---- ---- ----------
ACD Products $8,947 $9,347 $(400)
Other CTI Products 968 1,103 (135)
Services 2,656 1,859 797
Other 49 79 (30)
------- ------- -----
Total $12,620 $12,388 $232
Sales of the Automatic Call Distribution software products and Other CTI
products decreased by 4% and 12%, respectively. These decreases were offset by a
43% increase in Services. ACD Products accounted for 71% of sales in 2000 as
compared to 75% in 1999 while Services increased to 21% of sales in 2000 as
compared to 15% in 1999.
Cost of products sold decreased $509,000 or 17% while cost of services and other
increased by $167,000 or 27% as compared to 1999. As a percentage of sales,
overall cost of goods sold declined to 25% as compared to 29% in 1999. Gross
Profit increased $574,000 or 6% as compared to 1999. The increase in Gross
Profit is a direct result of the change in sales mix.
Research and development costs of $673,000 were $257,000 or 62% higher than
1999. In addition, the Company capitalized software development costs of
$794,000 during the year, an increase of $284,000 over 1999. The increase in
research and development costs combined with the increase in capitalized
development reflects the Company's emphasis on developing future products while
continuing to improve and maintain existing products.
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<PAGE> 19
Selling, general and administrative expenses increased $812,000 or 16% over
1999. A schedule of the selling, general and administrative expense categories
appears below (in thousands):
EXPENSE CATEGORY 2000 1999 INCREASE
---- ---- --------
Payroll $3,932 $3,358 $574
Professional Services 279 214 65
Sales and Marketing 740 731 9
Occupancy 341 322 19
Other 470 325 145
------ ------ ----
Total $5,762 $4,950 $812
The increase in payroll expense is due to a 30% increase in staffing combined
with the necessity to attract and retain quality employees in a competitive
labor market. The increase in professional services is due to the Company's
outsourcing of various job functions. The increase in occupancy expense is due
to increased operating expenses associated with its leased office facility
combined with additional leased office space in 2000. The increase in other
expenses is due to increasing health insurance costs associated with the
increase in the number of employees and an increase in depreciation expense due
to the increase in fixed assets.
The Company's income from operations of $2,968,000 was $496,000 lower than that
experienced in 1999.
Other income of $327,000 increased by $205,000 due to the increase in the
amount of funds invested in marketable securities.
The income tax provision of $583,000 is due to the continued profitability of
the Company offset by a reduction in the tax valuation allowance.
The net income of $2,712,000 represents a decrease of $1,340,000 compared to
the income reported in 1999. The corresponding earnings per share, basic and
diluted, was $0.22 and $0.21, respectively, in 2000 compared to earnings per
share, basic and diluted, of $0.33 and $0.32, respectively, in 1999.
Item 7. Financial Statements.
-------------------------------
The financial statements attached to the end of this annual report are filed as
part of this annual report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
-------------------------------------------------------------------------
Financial Disclosure.
--------------------
The Company has nothing to report under this Item.
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<PAGE> 20
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance
--------------------------------------------------------------------------------
With Section 16(a) of the Exchange Act.
---------------------------------------
The information required by this Item is incorporated herein by reference to the
Company's 2000 definitive proxy statement to be filed on or about September 23,
2000 with the Securities and Exchange Commission as set forth under the captions
"Voting Shares and Security Ownership of Certain Beneficial Owners and
Management" and "Compensation of Directors and Officers."
EXECUTIVE OFFICERS OF THE COMPANY. The names, ages and positions of the
executive officers of the Company as of June 30, 2000 are as follows:
NAME AGE POSITION
---- --- --------
Diane M. Kamionka 53 President and Chief Executive Officer
Bryant A. Downey 37 Chief Technology Officer
David J. Thibodeau 51 Vice President - Customer Support Services
Charles W. Bowen 55 Sr. Vice President - Distribution Services
Michael E. Freese 44 Director - Finance & Administration
Each of the officers has been engaged in their principal occupation indicated
above for the previous five years, except for Mr. Thibodeau who prior to
becoming an Executive Officer of the Company during 1996 was Director of
Business Development for the Company, Mr. Bowen who prior to becoming an
Executive Officer during 1998 was Director, Business Development for Sprint from
1991 thru 1994 and Vice President & General Manager for Sprint Healthcare
Systems, Inc. from 1995 thru 1998, and Mr. Freese who prior to becoming an
Executive Officer during 2000 was Controller for the Company from 1996 thru 1998
and Controller / Cost Accounting Manager for The Buschman Company from 1992 thru
1995.
Item 10. Executive Compensation.
---------------------------------
The information required by this Item is incorporated herein by reference to the
Company's 2000 definitive proxy statement to be filed on or about September 23,
2000 with the Securities and Exchange Commission as set forth under the caption
"Compensation of Directors and Officers."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
-------------------------------------------------------------------------
The information required by this Item is incorporated herein by reference to the
Company's 2000 definitive proxy statement to be filed on or about September 23,
2000 with the Securities and Exchange Commission as set forth under the caption
"Voting Shares and Security Ownership of Certain Beneficial Owners and
Management."
Item 12. Certain Relationships and Related Transactions.
---------------------------------------------------------
The Company has nothing to report under this item.
20
<PAGE> 21
Item 13. Exhibits and Reports on Form 8-K.
-------- ---------------------------------
<TABLE>
<CAPTION>
(a). EXHIBITS
Exhibit No Description Where Provided
---------- ----------- --------------
<S> <C> <C>
3. Charter and Bylaws................................................................................. *
4. Instruments Defining Rights of Security Holders.................................................... *
4.1 Amended and Restated Stock Option Plan................................................ ***
10. Material Contracts................................................................................. *
10.1 Lease between Cintech Tele-Management Systems, Inc. and Norwood Real
Estate Partners dated October 25, 1994................................................. **
10.2 Amended and Restated Stock Option Plan................................................. ***
13. Portions of the Annual Report to Shareholders
23. Independent Auditor's Consent
23.1 Consent of Deloitte & Touche LLP......................................................... Attached
27. Financial Data Schedule
* Previously provided in original filing of Form 10-SB
** Previously provided in Amendment No. 2 to Form 10-SB
*** Previously provided in Form S-8
(b). REPORTS ON FORM 8-K
The Company has not made any reports on Form 8-K during the last quarter of the
period covered by this report.
</TABLE>
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<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
/s/ Diane M. Kamionka
--------------------------
By: Diane M. Kamionka,
President and Chief Executive Officer
September 25, 2000
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Diane M. Kamionka September 25, 2000
----------------------- ------------------
Diane M. Kamionka, Date
President, Chief Executive Officer and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Michael E. Freese September 25, 2000
----------------------- ------------------
Michael E. Freese Date
Director of Finance and Administration
DIRECTORS:
/s/ Diane M. Kamionka September 25, 2000
----------------------- ------------------
Diane M. Kamionka, Date
President, Chief Executive Officer and Director
/s/ Bryant A. Downey September 25, 2000
----------------------- -------------------
Bryant A. Downey, Date
Chief Technology Officer and Director
/s/ Carter F. Randolph September 27, 2000
----------------------- -------------------
Carter F. Randolph Date
Director
/s/ Frank W. Terrizzi September 27, 2000
----------------------- -------------------
Frank W. Terrizzi Date
Director
</TABLE>
22
