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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission File Number 0-11630
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INTELECT COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0471342
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS
75081
(Address of Principal Executive Offices and Zip Code)
972-367-2100
(Registrant's Telephone Number, Including Area Code)
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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 [ ]
There were 86,083,850 shares of Common Stock outstanding as of August 4, 2000.
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INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION
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ITEM 1 FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets of the Company
at June 30, 2000 (unaudited) and December 31, 1999 2
Consolidated Condensed Statements of Operations of the
Company (unaudited) for the three months and six months ended
June 30, 2000 and 1999
3
Consolidated Condensed Statements of Cash Flows of the Company
(unaudited) for the six months ended June 30, 2000 and 1999 4
Notes to Consolidated Condensed Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
PART II OTHER INFORMATION
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ITEM 1 LEGAL PROCEEDINGS 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5 OTHER INFORMATION 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Thousands of dollars, except share data)
June 30, December 31,
2000 1999
------------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 19,830 $ --
Investments 252 195
Accounts receivable net of allowances of $487 in 2000 and $1,288 in 1999 4,983 5,316
Inventories 7,582 5,972
Prepaid expenses 311 378
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Total current assets 32,958 11,861
Property and equipment, net 5,114 5,094
Goodwill, net 3,779 4,115
Software development costs, net 1,798 2,093
Other intangible assets, net 444 561
Other assets 607 618
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$ 44,700 $ 24,342
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Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 300 $ 2,340
Accounts payable 2,457 3,203
Accrued liabilities 1,712 3,131
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Total current liabilities 4,469 8,674
Notes payable -- 15,264
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4,469 23,938
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Stockholders' equity:
$2.0145, 10% cumulative convertible preferred stock, series A,
$.01 par value (aggregate involuntary liquidation preference
$7,438,818 in 1999). Authorized 10,000,000 shares; 3,719,409 -- 37
issued and outstanding in 1999
Common stock, $.01 par value. Authorized 200,000,000 shares;
86,089,050 and 65,936,573 shares issued in 2000 and 1999,
respectively 861 659
Additional paid-in capital 181,381 131,511
Accumulated deficit (140,914) (130,706)
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41,328 1,501
Less 191,435 shares of common stock in treasury (1,097) (1,097)
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Total stockholders' equity 40,231 404
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$ 44,700 $ 24,342
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See accompanying notes to consolidated condensed financial statements.
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INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Thousands of dollars, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999* 2000 1999*
------------ ------------ ------------ ------------
(unaudited)
Net revenues $ 5,030 $ 7,193 $ 9,614 $ 10,316
Cost of revenue 5,355 5,347 9,589 9,075
------------ ------------ ------------ ------------
Gross profit (loss) (325) 1,846 25 1,241
------------ ------------ ------------ ------------
Expenses:
Engineering and development 1,335 2,730 2,575 5,503
Selling and administrative 3,206 3,071 6,137 6,553
Amortization of goodwill 168 168 336 336
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4,709 5,969 9,048 12,392
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Operating loss (5,034) (4,123) (9,023) (11,151)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (35) (441) (773) (1,248)
Interest income and other 379 (123) 554 (186)
------------ ------------ ------------ ------------
344 (564) (219) (1,434)
------------ ------------ ------------ ------------
Loss before income taxes (4,690) (4,687) (9,242) (12,585)
Income tax expense -- -- -- 6
------------ ------------ ------------ ------------
Net loss $ (4,690) $ (4,687) $ (9,242) $ (12,591)
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Dividends on preferred stock -- 1,357 966 1,828
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Loss allocable to common stockholders $ (4,690) $ (6,044) $ (10,208) $ (14,419)
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Basic and diluted loss per share:
Net loss per share $ (0.06) $ (0.16) $ (0.13) $ (0.40)
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Weighted average number of common shares outstanding
(thousands) 85,284 38,081 80,712 36,307
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*Certain amounts have been reclassified to conform to current classifications.
See accompanying notes to consolidated condensed financial statements.
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INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Thousands of dollars)
Six Months Ended June 30,
------------------------
2000 1999
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(unaudited)
Cash flows from operating activities:
Net loss $ (9,242) $(12,591)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,136 2,160
Amortization of loan discount 426 512
Loss on disposal of discontinued operations -- 66
Noncash operating expenses 628 (136)
Other 308 --
Changes in operating assets and liabilities:
Accounts receivable 333 (1,347)
Inventories (1,610) (208)
Other assets 67 519
Accounts payable and accrued liabilities (2,165) 2,477
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Net cash used in operating activities (9,119) (8,548)
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Cash flows from investing activities:
Capital expenditures (1,006) (441)
Software development costs (535) (331)
Proceeds from sale of marketable securities -- 486
Investment and other (555) (59)
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Net cash used in investing activities (2,096) (345)
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Cash flows from financing activities:
Proceeds from issuance of notes payable 400 --
Proceeds from issuance of common shares 42,642 3,550
Proceeds from issuance of preferred shares -- 5,518
Principal payments on notes payable (9,654) (529)
Redemption of preferred stock (7,493) --
Principal payments under capital lease obligations (14) (60)
Proceeds from exercise of common stock warrants 5,180 --
Proceeds from exercise of employee stock options 950 --
Dividends paid (966) --
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Net cash provided by financing activities 31,045 8,479
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Net increase (decrease) in cash and cash equivalents 19,830 (414)
Cash and cash equivalents, beginning of period -- 991
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Cash and cash equivalents, end of period $ 19,830 $ 577
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See accompanying notes to consolidated condensed financial statements.
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INTELECT COMMUNICATIONS, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
June 30, 2000
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by the Company without audit in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and
with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.
The accompanying consolidated financial statements do not include
certain footnotes and financial presentations normally required under accounting
principles generally accepted in the United States of America and, therefore,
should be read in conjunction with the audited financial statements included in
the Company's Annual Report on Form 10-K as of December 31, 1999.
INVENTORIES
The components of inventories are as follows:
June 30, December 31,
2000 1999
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($ Thousands)
Raw materials $ 3,958 $ 2,896
Work in progress 1,283 1,010
Finished goods 2,341 2,066
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$ 7,582 $ 5,972
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SEGMENTS OF BUSINESS
Revenue by business segment:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
($ Thousands)
Optical networking equipment $ 2,394 $ 4,760 $ 4,468 $ 5,807
Design services 1,679 1,172 3,188 2,723
Digital signal processors (DSP) 560 805 1,400 911
Video network products and other 397 456 558 875
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$ 5,030 $ 7,193 $ 9,614 $10,316
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Segment-specific margins (Gross profit less total engineering and
development costs, including capitalized software, for the segment):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
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($ Thousands)
Optical networking equipment $ (1,400) $ 57 $ (2,651) $ (1,791)
Design services 43 153 125 236
Digital signal processors (DSP) (380) 112 (319) (219)
Video network products and other (150) (1,379) (241) (2,818)
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Subtotal segment specific (1,887) (1,057) (3,086) (4,592)
Capitalized software 227 174 535 331
All other expenses (3,374) (3,240) (6,472) (6,890)
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Operating loss $ (5,034) $ (4,123) $ (9,023) $ (11,151)
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Assets are identifiable only by combined segments as follows:
At June 30, At December 31,
2000 1999
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($ Thousands)
Optical networking equipment, video network
products and other $ 35,374 $ 15,638
Design services and DSP 7,801 6,790
Not allocable to a segment 1,525 1,914
------------ ------------
Total $ 44,700 $ 24,342
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RECLASSIFICATIONS
Certain engineering costs which were previously classified as cost of
sales are now classified as engineering and development costs. For the three and
six months ended June 30, 1999 $549,000 and $889,000, respectively, of such
costs have been reclassified from cost of sales to engineering and development
costs.
FINANCING MATTERS
In April, 2000 SJMB L. P. ("SJMB") converted $1,500,000 due under its
note payable from the Company into 767,573 shares of the Company's common stock.
In June, 2000 SJMB converted all remaining balances due under the note,
approximately $800,000, into 445,683 shares of the Company's common stock. Both
SJMB conversions were pursuant to the terms of the loan agreement. Accordingly,
as of June 30, 2000 there are no amounts outstanding under the SJMB note. During
the quarter, the Company completed the redemption of all of the remaining
outstanding shares of Series A Convertible Preferred Stock, which had been
effective as of March 31, 2000.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENT
This Form 10-Q contains certain 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 forward looking
statements involve risks and uncertainties that could cause actual results to
differ materially from those expressed in, or implied by, the forward looking
statements. Factors that might cause such a difference include, but are not
limited to, those relating to: general economic conditions in the markets in
which the Company operates, success in the development and market acceptance of
new and existing products; dependence on suppliers, third party manufacturers
and channels of distribution; customer and product concentration; fluctuations
in customer demand; maintaining access to external sources of capital; ability
to execute management's margin improvement and cost control plans; overall
management of the Company's expansion; and other risk factors detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
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COMPARISON OF SECOND QUARTER AND FIRST HALF 2000 TO 1999
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The following table shows the net revenue and gross profit for the
Company's products:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
($ Thousands)
Net revenue:
Optical networking equipment $ 2,394 $ 4,760 $ 4,468 $ 5,807
Design services 1,679 1,172 3,188 2,723
Digital signal processors (DSP) 560 805 1,400 911
Video network products and other 397 456 558 875
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$ 5,030 $ 7,193 $ 9,614 $ 10,316
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Gross profit (loss):
Optical networking equipment $ (192) $ 1,326 $ (215) $ 659
Design services 43 153 125 236
Digital signal processors (DSP) (34) 317 337 227
Video network products and other (142) 50 (222) 119
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$ (325) $ 1,846 $ 25 $ 1,241
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NET REVENUE
Net revenue from the sale of optical networking equipment was lower
during the three and six-month periods of 2000 as compared to the same periods
in 1999. However, the 1999 periods include approximately $4,300,000 related to
two large projects which were completed and shipped in the second quarter of
1999. Activity in the markets for the Company's OmniLynx product line continues
to be strong. The Company's ability to obtain component parts, and therefore
complete customer orders, has improved materially over the past six months;
however, the availability of certain components continues to be a challenge.
Shortages and long lead times for certain components is a wide-spread problem
within the telecommunications industry. The Company is taking various steps to
mitigate this issue including pre-ordering some components and stockpiling other
items when appropriate. These challenges have had an impact on the Company's
ability to complete certain customer orders and has impacted its ability to
provide potential customers with test equipment within a given time period. This
in turn has had a negative impact on revenues for the second quarter of 2000 and
may continue to do so for the balance of 2000. Management does not believe that
any significant sales prospects have been lost so far due to this situation, but
rather the timing of such sales may be affected.
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Revenue for design services increased in the second quarter of 2000 as
compared to the second quarter of 1999 as well as in the first six months of
2000 versus the first six months of 1999. This reflects the on-going recovery of
such business from the effects of the aborted sale of such operations to Cadence
Design Systems, Inc. That transaction was being actively negotiated during the
second quarter of 1999 and resulted in a decline in design services revenues
during that and subsequent periods.
Revenue from the sale of digital signal processor ("DSP") products,
while showing a slight decline between the second quarter of 1999 and 2000, has
increased more than 50% over the first six months of 2000 as compared to the
same period in 1999. This rising level of activity reflects a significant
increase in product availability and growing demand from existing customers, as
well as new customers.
GROSS PROFIT
Gross profit from optical networking equipment was lower in the three
and six months ended June 30, 2000 as compared to the same periods of 1999. This
decline is due to a number of factors. Revenues in the 2000 periods were lower
than in the 1999 periods resulting in less absorption of fixed overhead costs.
However, during the 2000 periods the Company has been implementing a program to
reduce this fixed overhead and outsource certain manufacturing functions. The
reduction of overhead results primarily from reduced workforce. These headcount
reductions occurred in June and July of 2000 and, accordingly, their effect will
not be seen until the second half of 2000. In addition, during the second
quarter of 2000 the Company sold evaluation equipment to certain potential
customers and business partners at greatly discounted sales prices, and in
certain cases at no cost. These transactions had the effect of significantly
reducing gross profit during the 2000 periods.
Gross profit from design services was lower in the 2000 periods due to
costs associated with rebuilding and expanding the design engineering staff.
These costs include utilization inefficiencies as new engineers are brought into
the billing pool, as well as hiring and overhead costs associated with a larger
employee base.
Gross profit from digital signal processor sales was lower for the
second quarter of 2000 as compared to the second quarter of 1999, yet increased
for the first six months of 2000 as compared to the same period in 1999. The
increase results from higher sales in the 2000 period. Offsetting the effect of
the sales growth was certain infrastructure and overhead costs which the Company
has put in place in anticipation of significantly higher sales volumes during
the balance of 2000 and in 2001.
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ENGINEERING AND DEVELOPMENT (E&D) EXPENSE
Engineering and development costs decreased significantly during the
first and second quarters of 2000 as compared to those same periods in 1999.
Certain engineering costs had previously been classified as cost of sales. All
periods presented below have been restated to present these costs as engineering
and development costs on a consistent basis. Engineering and development costs
by product line are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
($ Thousands)
Optical networking equipment $ 980 $ 1,096 $ 1,900 $ 2,119
CS4 -- 745 -- 1,981
Digital signal processor (DSP) 346 205 656 446
Video network products and other 9 684 19 957
---------- ---------- ---------- ----------
E & D expense $ 1,335 $ 2,730 $ 2,575 $ 5,503
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The decrease in engineering and development costs between 2000 and 1999
is a result of management's decisions during 1999 to suspend activities related
to the CS4 intelligent switching platform and to severely curtail activities
related to video networking products. Optical networking equipment expenditures
relate primarily to continued refinement and enhancements to the Company's
OmniLynx product line and design efforts related to future versions of the
OmniLynx product. Recently the Company has been reorganizing its engineering
activities and organization related to optical networking products in order to
outsource certain functions and projects and therefore more effectively utilize
resources and to improve time to market for product enhancements. Engineering
and development activities related to DSP during 2000 relate primarily to the
on-going development of products based on Power PC processors, specifically the
"quad" processor.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expenses increased slightly (approximately
4%) in the second quarter of 2000 as compared to the second quarter of 1999. For
the first six months of 2000 such expenses decreased approximately 6% as
compared to the first six months of 1999. In April of 1999 the Company
implemented a plan to reduce selling and administrative costs. This plan
included the closing of offices involved in the video networking business and a
reduction of activities related to that business. These reductions were offset
to some degree by increased marketing and selling activities related to the
OmniLynx product line beginning in the first quarter of 2000.
OTHER INCOME AND EXPENSE
During the three and six-month periods ended June 30, 2000 interest
expense declined significantly as compared to the same periods in 1999. This
decline resulted from the reduction of interest bearing debt in the first
quarter of 2000 with the proceeds from equity offerings and the conversion of
certain debt into common stock pursuant to the terms of the underlying credit
agreement. During these same periods other income increased as a result of the
investment of proceeds from the equity offerings.
DIVIDENDS ON PREFERRED STOCK
All of the Company's remaining preferred stock was redeemed as of March
31, 2000; therefore, there are no preferred dividends subsequent to that date.
Preferred dividends of $966,000 in the first quarter of 2000 represent accrued
dividends and a 10% redemption premium on the Company's Series A Preferred
Stock. Dividends in the three and six months ended June 30, 1999 include
dividends on Series A, C, D and E Preferred Stock. The 1999 three and six-month
periods also include $1,037,000 and $1,185,000, respectively, related to
non-cash financing costs attributable to the value of beneficial conversion
features granted to the holders of such preferred stock in connection with the
settlement of certain disputes.
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LIQUIDITY AND CAPITAL RESOURCES
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As of June 30, 2000 the Company had cash and temporary investments of
$19,830,000 and working capital of $28,489,000. For the six months ended June
30, 2000 earnings before interest, taxes, depreciation and amortization
("EBITDA") was approximately negative $6,400,000. During the second quarter of
2000 the balance of approximately $2,300,000 due under the Company's note
payable to SJMB, L.P. was converted into 1,213,256 shares of common stock
pursuant to the terms of the loan agreement. Therefore, as of June 30, 2000 the
Company has no material amounts of funded indebtedness.
Over the past 12 to 18 months the Company has significantly reduced and
stabilized its cost structure, primarily by focusing operations and efforts on
its core businesses. In recent months the Company has taken further steps to
reduce its fixed overhead structure by beginning to outsource certain
manufacturing and engineering functions. These recent actions have resulted in a
reduction in the Company's personnel by more than 30 full-time employees since
the beginning of 2000. While the absolute level of expenditures may vary in the
future based on production levels and product development activities, these
recent steps, management believes, will result in greater efficiency and more
effective utilization of resources.
Although the Company has not yet produced positive cash flow from
operations, given the Company's current liquidity position and the level of
recurring and fixed expenses, management believes that the Company has adequate
capital resources with which to continue to pursue its business plan for the
next 12 to 18 months.
Should the demand for the Company's products increase significantly the
Company could need additional working capital to finance the resulting growth in
accounts receivable and inventories. Furthermore, should the costs to market the
Company's products and to develop further product enhancements exceed
management's expectations, the Company could need additional operating capital
sooner than otherwise anticipated. Management believes that working capital
financing could be obtained through bank credit facilities, the issuance of debt
or equity securities, or a combination of these sources. Potential sources for
additional operating capital would include the issuance of debt or equity
securities in either public or private transactions. There can be no assurance,
however, that such resources would be available to the Company or would be
available in sufficient amounts or under terms which the Company would find
acceptable.
Net cash used in operating activities for the six months ended June 30,
2000 amounted to $9,119,000. This consisted primarily of the net loss of
$9,242,000 offset by depreciation and amortization of $2,136,000. Additional
cash flow was utilized to reduce accounts payable and accrued liabilities by
$2,165,000 and increase inventories by $1,610,000. The increase in inventory was
undertaken in order to stockpile certain long lead-time component parts and to
begin to accumulate a supply of completed products in order to meet customer
demand.
Investing activities during the six months ended June 30, 2000 utilized
$2,096,000 of cash flow related primarily to capital expenditures for office and
engineering test equipment and certain software development costs. During this
same period financing activities produced $31,045,000 of cash flow. This
positive cash flow resulted from proceeds of $42,642,000 from two private
placements of common stock, as well as $6,130,000 of proceeds from the exercise
of various stock options and warrants during the period. A portion of these
proceeds was utilized to repay $9,654,000 of notes payable and $7,493,000 was
used to redeem preferred stock.
As discussed in "Legal Proceedings" here and in the Company's Annual
Report on Form 10-K, the Company is exposed to certain contingent liabilities
which, if resolved adversely to the Company, could adversely affect its
liquidity, results of operations and financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 2000 the Financial Accounting Standards Board issued
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and is effective July 1, 2000;
however, certain conclusions in FIN 44 cover specific events from December 15,
1998 to July 1, 2000. FIN 44 provides, in part, that should the terms of an
employee stock option be modified after December 15, 1998 in a way which reduces
the exercise price of the options, then those options shall be accounted for as
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variable. In October, 1999 the Company reduced the exercise price of certain
outstanding employee stock options to $1.00 per share from $2.00 per share and
revised the vesting schedule such that the options would vest over a three year
period from the date of the re-pricing. Accordingly, beginning July 1, 2000, the
effective date of FIN 44, these options will be accounted for as variable on a
prospective basis. To the extent the market price of the Company's common stock
is greater than $2.31 per share, the market price of the stock at July 1, 2000,
such excess times the number of shares subject to such accounting treatment
shall be accounted for as compensation expense over the remaining vesting period
of the options. As of July 1, 2000 options for approximately 1,300,000 shares
are subject to such treatment.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its excess cash in a professionally managed
institutional money market fund. The primary investments of this fund are high
quality, short-term money market instruments such as commercial paper, bank
obligations and deposit notes. All investments are denominated in U.S. dollars.
As of June 30, 2000 approximately $19.8 million was invested in this fund. The
return on these investments is dependent in large part on general interest rate
conditions in the United States. Based on the investment level as of June 30,
2000, a 100 basis point change in the average return from this fund would result
in a change in the Company's interest income in the amount of approximately
$50,000 per quarter.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In June, 2000 Savage Arms, Inc. ("Savage") filed suit against the
Company in Superior Court in Hampton County, Massachusetts seeking reimbursement
from the Company of approximately $1,100,000 related to a settlement of various
product liability claims between Savage and Emhart Industries, Inc. Among other
things, Savage is claiming a breach of contract and is also seeking declaratory
relief. These matters have previously been referred to by the Company as the
"Emhart litigation." The Company believes it has, and is asserting, defenses
against Savage related to these matters. Additionally, should the Company have
any liability related to these matters, it believes it is entitled to
indemnification from other parties. At this time the Company cannot predict the
outcome of this matter.
In July, 2000 the Company was served with a lawsuit in a case styled
St. James Capital Partners, L.P. and SJMB, L.P. v. Intelect Communications, Inc.
filed in state district court in Harris County, Texas. As has been previously
disclosed, the Company and St. James Capital Partners, L.P. ("SJCP") and SJMB,
L.P. ("SJMB")(SJCP and SJMB collectively "St. James") are in disagreement as to
the operation of the anti-dilution provisions in warrants which the Company
issued to St. James. The dispute in question relates to warrants originally
issued to St. James in April 1998 at an exercise price of $7.50 per share to
purchase an aggregate of 1.5 million shares, and an additional 535,000 shares
issued to them in January 1999 at an exercise price of $3.20 per share. St.
James has petitioned the court for declaratory relief, among other claims, to
require the Company to acknowledge that St. James is entitled to a re-set of the
exercise price on each of the warrants to a price of $0.561 per share and would
be entitled to an aggregate of approximately 25 million shares to be issued upon
exercise of such warrants. The Company intends to vigorously dispute St. James'
allegations and believes that it has significant affirmative claims against St.
James as well.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on June 2, 2000. At the
Annual Meeting, Herman M. Frietsch was re-elected as a director of the Company.
Robert H. Garrison, II and Anton von Liechtenstein continue to serve as
directors pursuant to their prior election. In addition, stockholders approved a
proposal to increase the number of shares of Common Stock reserved for issuance
under the Company's Stock Incentive Plan from 6,000,000 to 8,000,000, approved
the appointment of Grant Thornton LLP as the independent auditor of the Company,
and approved an increase in the authorized shares of the Company's Common Stock
from 100,000,000 to 200,000,000 shares.
The Director was elected by a vote of 75,581,904 shares for and 935,673
shares withheld. The proposal to increase shares reserved for the Stock
Incentive Plan was approved by a vote of 74,094,663 shares for, 2,230,964 shares
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against and 191,950 shares abstained. The appointment of Grant Thornton LLP as
independent auditors was approved by a vote of 76,188,430 shares for, 182,952
shares against and 146,195 shares abstained. The proposal to increase the number
of authorized shares of Common Stock was approved by a vote of 75,607,119 shares
for, 764,801 shares against and 145,657 shares abstained.
ITEM 5 - OTHER INFORMATION
Effective July 11, 2000 David Yedwab became a director of the Company
to serve in an existing vacancy on the Board. Mr. Yedwab's term will expire at
the 2001 Annual Meeting of Stockholders. Mr. Yedwab has also been appointed to
serve on the Audit and Compensation Committees of the Company's Board of
Directors. Separately, Mr. Anton von Liechtenstein, a director of the company,
has also agreed to serve on the Audit Committee of the Company's Board of
Directors.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Listed below are all Exhibits filed as part of this report.
Exhibit No. Exhibit
- ----------- -------
4.1 Amended and Restated Certificate of Incorporation
27.1 Financial Data Schedule
B. The Company has not filed any report on Form 8-K during the period
covered by this Report, except as follows:
Form 8-K filed May 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELECT COMMUNICATIONS, INC.
(Registrant)
Date: August 11, 2000 By: /s/ ROBERT P. CAPPS
--------------------------------------------
Robert P. Capps
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 11, 2000 By: /s/ HERMAN M. FRIETSCH
--------------------------------------------
Herman M. Frietsch
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ---------- -----------
4.1 Amended and Restated Certificate of Incorporation
27.1 Financial Schedule