<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21761
GEOTEL COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of 04-3194255
Incorporation or Organization) (IRS Employer Identification Number)
25 Porter Road, Littleton, Massachusetts 01460
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (508) 486-1100
No change since last report
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
================================================================================
Class Outstanding at May 9, 1997
- ------------------------------------------- ------------------------------------
Common Stock, $0.01 par value 13,112,261 shares
================================================================================
<PAGE> 2
GEOTEL COMMUNICATIONS CORPORATION
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
Exhibit 11.1 16
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GEOTEL COMMUNICATIONS CORPORATION
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,408 $ 33,263
Accounts receivable 2,216 2,121
Prepaid expenses 719 524
-------- --------
Total current assets 36,343 35,908
-------- --------
Property and equipment, net 1,070 1,016
-------- --------
Total assets $ 37,413 $ 36,924
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 356 $ 656
Accrued expenses 711 857
Accrued compensation and related accruals 739 685
Deferred revenue and deferred revenue-related party 2,360 2,289
-------- --------
Total current liabilities 4,166 4,487
liabilities -------- --------
Stockholders' equity:
Preferred stock -- --
Common stock 134 134
Additional paid-in capital 39,905 39,967
Accumulated deficit (5,730) (6,455)
Notes receivable from stockholders (27) (116)
Unearned compensation (993) (1,051)
-------- --------
33,289 32,479
Less treasury stock, at cost (42) (42)
-------- --------
Total stockholders' equity 33,247 32,437
-------- --------
Total liabilities and stockholders' equity $ 37,413 $ 36,924
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
GEOTEL COMMUNICATIONS CORPORATION
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Revenues:
Software license $ 2,360 $ 1,318
Services and other 629 105
Related party licenses and services (Note 3) 198 416
------- -------
Total revenues 3,187 1,839
------- -------
Cost of Revenues:
Cost of software licenses 99 75
Cost of services and other 504 278
------- -------
Total cost of revenues 603 353
------- -------
Gross profit 2,584 1,486
------- -------
Operating Expenses:
Research and development 867 656
Sales and marketing 1,027 621
General and administrative 368 204
------- -------
Total operating expenses 2,262 1,481
------- -------
Income from operations 322 5
Interest income 424 40
------- -------
Income before income taxes 746 45
Provision for income taxes 21 --
------- -------
Net income 725 45
Accretion of convertible preferred stock to redemption value -- (27)
======= =======
Net income available to common stockholders $ 725 $ 18
======= =======
Net income per common and common equivalent share $ 0.05 $ 0.00
======= =======
Weighted average number of common and common
equivalent shares outstanding 13,769 11,556
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
GEOTEL COMMUNICATIONS CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 725 $ 45
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 169 116
Equity compensation 58 --
Changes in operating assets and liabilities:
Accounts receivable (95) (1,058)
Prepaid expenses (195) 35
Accounts payable (300) (2)
Accrued expenses and other current liabilities (92) 279
Deferred revenue and deferred revenue - related party 71 510
-------- --------
Net cash provided by (used in) operating activities 341 (75)
-------- --------
Cash flows used in investing activities:
Purchases of property and equipment, net (223) (105)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock and option exercises 1 35
Offering costs of registering common stock (63) --
Proceeds from notes receivable for common stock 89 3
Proceeds from sale of convertible preferred stock -- 161
Acquisition of treasury stock -- (3)
Principal payments under long-term debt -- (51)
-------- --------
Net cash provided by financing activities 27 145
-------- --------
Net increase (decrease) in cash and cash equivalents 145 (35)
Cash and cash equivalents, beginning of period 33,263 4,537
======== ========
Cash and cash equivalents, end of period $ 33,408 $ 4,502
======== ========
</TABLE>
The accompanying footnotes are an integral part of these consolidated financial
statements.
<PAGE> 6
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the three months ended March 31,
1997 and the related footnote information are unaudited and have been prepared
on a basis substantially consistent with the 1996 audited consolidated financial
statements, and in the opinion of management include all adjustments (consisting
of only normal recurring adjustments) necessary for fair presentation of the
results of this interim period. These statements should be read in conjunction
with the consolidated financial statements and related notes for the year ended
December 31, 1996 included in the Company's Form 10-K. The results of operations
for the three month period ended March 31, 1997 are not necessarily indicative
of the results to be expected for the entire year.
GeoTel Communications Corporation (the "Company") develops and markets
telecommunications software solutions, consisting primarily of one product, that
enable enhanced call center applications. The Company currently derives
substantially all of its revenues from licenses of the Intelligent CallRouter
and related services.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. COMPUTATION OF INCOME PER SHARE
Net income per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding (using the treasury
stock method) after certain adjustments described below. Common equivalent
shares consist of the Company's Series A, B and C Convertible Participating
Preferred Stock (collectively, the "Convertible Preferred Stock"). The
Convertible Preferred Stock converted to common stock upon the closing of
Company's initial public offering ("IPO") of common stock on November 20, 1996.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 83 (SAB No. 83), all Convertible Preferred Stock, common and common
equivalent shares issued during the twelve month period prior to the IPO have
been included in the calculation as if they were outstanding for all periods
prior to the IPO, using the treasury stock method at the IPO price of $12.00
per share. Fully diluted net income per common share is not presented as the
dilutive effect is immaterial.
3. RELATED PARTY TRANSACTIONS
An investor, representing approximately 9% of the Company's total common
shares outstanding, is also a customer of the Company. This customer's purchases
from the Company represented 6% and 23% of total revenue for the first quarters
of 1997 and 1996, respectively. Gross profit from these transactions
approximated those realized in similar transactions with unrelated parties.
4. INCOME TAXES
The Company's effective tax rate for the first quarter of 1997 was 2.8%
representing a tax liability for the Company's two subsidiaries, GeoTel
Communications Foreign Sales Corporation and GeoTel Communications Securities
Corporation. The difference between the statutory income tax rate and the
Company's effective tax rate is due to the use of capitalized start-up costs,
net operating losses and tax credits. No income tax provision was recorded for
federal income tax purposes through the year ended December 31, 1996 as the
Company had not reported taxable income in those periods.
<PAGE> 7
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, the Company will be required to
present both basic net income per share and diluted net income per share. Basic
net income per share for the quarters ended March 31, 1997 and 1996 would have
been $0.06 and $0.01 per share, respectively. The Company is assessing the
effect of SFAS No. 128 on a diluted basis but believes the effect will not be
material. The Company plans to adopt SFAS 128 in its quarter ending December
31, 1997 and at that time all historical net income per share data presented
will be restated to conform to the provisions of SFAS No. 128.
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying consolidated
financial statements for the periods specified and the associated notes. Further
reference should be made to GeoTel Communications Corporation's ( the "Company")
1996 Form 10-K for the year ended December 31, 1996.
OPERATING RESULTS
The following table presents selected unaudited financial information for
the Company's quarters ended March 31, 1997 and 1996 as well as the percentage
of the Company's total revenues represented by each item. The Company's
operating results for any one quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
First Quarter,
- --------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(dollars in thousands) (percentage of revenue)
---------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Software license.......................... $ 2,474 $ 1,705 77.6% 92.7%
Services and other........................ 713 134 22.4 7.3
------- ------- ------- -------
Total revenues............................ 3,187 1,839 100.0 100.0
------- ------- ------- -------
Cost of Revenues:
Cost of software licenses................. 99 75 3.1 4.1
Cost of services and other................ 504 278 15.8 15.6
------- ------- ------- -------
Total cost of revenues.................... 603 353 18.9 19.2
------- ------- ------- -------
Gross Profit................................... 2,584 1,486 81.1 80.8
------- ------- ------- -------
Operating Expenses:
Research and development.................. 867 656 27.2 35.7
Sales and marketing....................... 1,027 621 32.2 33.8
General and administrative ............... 368 204 11.6 11.1
------- ------- ------- -------
Total operating costs..................... 2,262 1,481 71.0 80.6
------- ------- ------- -------
Income from operations......................... 322 5 10.1 0.2
Interest income................................ 424 40 13.3 2.2
------- ------- ------- -------
Income before income taxes..................... 746 45 23.4 2.4
Provision for income taxes..................... 21 -- 0.7 --
------- ------- ------- -------
Net income..................................... $ 725 $ 45 22.7% 2.4%
======= ======= ======= =======
</TABLE>
REVENUES
Total revenues for the first quarter of 1997 increased by 73.3% to
$3,187,000 from $1,839,000 for the first quarter of 1996. Software license
revenue for the first quarter of 1997 increased by 45.1% to $2,474,000 from
$1,705,000 for the first quarter of 1996. The Company believes that the increase
in software license revenue is attributable to several factors, including the
continued market acceptance of the Company's product, an increase in the size of
the Company's direct sales force and the expansion of the sales channels through
the addition of selected resellers and international partners since the first
quarter of 1996.
Services and other revenue for the first quarter of 1997 increased by
432.1% to $713,000 from $134,000 for the first quarter 1996. Maintenance
revenue, installation services revenue and consulting and other revenue
represented 36.5%, 35.1% and 28.4%, respectively, of services and other revenue
for the first quarter of 1997. Service and other revenue for the first quarter
of 1996 were derived solely from installation services. Services and other
revenue increased to 22.4% of total revenues in the first quarter of 1997 from
7.3% of total revenues in the first quarter of 1996. Services and other revenue
increased in dollars and as a percentage of total revenues in the first quarter
of 1997 as a result of the increase in Company's customer base. The Company
anticipates that maintenance revenue will increase as a percentage of total
revenues as the Company's customer base increases. Installation services
revenue will vary based upon software license revenue. Consulting and other
revenue for the
<PAGE> 9
first quarter 1997 consisted primarily of custom development work for one of the
Company's strategic partners. Revenue and expenses related to custom development
work are recognized upon the customer acceptance of such work. Consulting and
other revenue are non recurring in nature and will fluctuate in dollars and as a
percentage of total revenues from quarter to quarter. The Company performs
consulting work primarily in situations where such work will result in
additional software license revenue.
International revenues for the first quarter of 1997 increased 10% to
$550,000 from $500,000 for the first quarter of 1996 and decreased as a
percentage of total revenues to 17.3% from 27.2%. The increase in absolute
dollars was due to the increase in the number of international partners since
the first quarter of 1996. The Company believes that it will continue to derive
a significant portion of its total revenues from international revenues and that
international revenues will comprise a larger percentage of total revenues in
the future. To date, the Company's international revenues have been denominated
in U.S. currency.
An investor, representing approximately 9% of the Company's total common
shares outstanding, is also a customer of the Company. This customer's purchases
from the Company represented 6% and 23% of total revenues for the first quarters
of 1997 and 1996, respectively. Gross profit from these transactions
approximated those realized in similar transactions with unrelated parties.
A significant portion of the Company's total revenues to date has been
derived from a limited number of customers. Revenues attributable to the five
largest customers in each quarter accounted for approximately 71.7% and 88.3% of
the Company's total revenues for the quarters ended March 31, 1997 and 1996,
respectively. Only one customer, an unrelated third party, was one of the five
largest customers in each of the quarters ended March 31, 1997 and 1996. The
Company expects that it will continue to be dependent upon a limited number of
customers for a significant portion of its revenues in future periods.
COST OF REVENUES
Cost of software licenses. Cost of software licenses consists principally
of product warranty costs and the cost of interface cards. Cost of software
licenses for the first quarter of 1997 increased by 32% to $99,000 from $75,000
for the first quarter of 1996. Cost of software licenses as a percentage of
software license revenue were 4.0% and 4.4% for the first quarters of 1997 and
1996, respectively. The Company believes that in future periods, the percentage
of cost of software licenses will range from 3% to 5% of software license
revenue.
Cost of services. Cost of services consists principally of the costs
incurred to provide installation, consulting, maintenance and training services.
The expenses incurred to provide these services are comprised primarily of
personnel costs, travel and facility costs. Cost of services for the first
quarter of 1997 increased by 81.3% to $504,000 from $278,000 for the first
quarter of 1996. Cost of services as a percentage of services and other revenue
were 70.7% and 207.5% for the first quarters of 1997 and 1996, respectively. The
increase in absolute dollars from the first quarter of 1996 was a result of
start-up costs associated with building a customer support infrastructure to
handle the anticipated future growth in customers. Cost of services on a
quarterly basis has been increasing in absolute dollars, while decreasing as a
percentage of services and other revenue. The Company believes that in future
periods, the percentage of cost of services to services and other revenue will
fluctuate significantly based upon the mix of the services provided, but in
general the Company anticipates the percentage will decrease as the Company
experiences efficiencies from a growing customer base and as maintenance
customer renewals increase.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
principally of personnel and facility costs. Research and development expenses
for the first quarter of 1997 increased by 32.2% to $867,000 from $656,000 for
the first quarter of 1996. Research and development expenses as a percentage of
total revenues were 27.2% and 35.7% for the first quarters of 1997 and 1996,
respectively. The decrease in percentage from the first quarter of 1996 was
primarily the result of the Company experiencing significant revenue growth. The
increase in absolute dollars from the first quarter of 1996 was the result of an
increase in employees and related facility costs.
<PAGE> 10
The major product development efforts in the first quarter of 1997 related to
final testing of version 1.6 of the Intelligent CallRouter ("ICR"), development
of significant enhancements to the ICR such as expanding the products' interface
compatibility through the addition of new ACD interfaces and interfaces to Voice
Response Units. In February 1997, the Company released the first commercial
shipment of version 1.6 of the ICR. The Company anticipates that research and
development expenses will continue to increase in absolute dollars, while
decreasing as a percentage of total revenues to 20% to 25% in the foreseeable
future.
Sales and Marketing. Sales and marketing expenses consist principally of
personnel costs, travel, trade shows, promotional expenses and facility costs.
Sales and marketing expenses for the first quarter of 1997 increased by 65.4% to
$1,027,000 from $621,000 for the first quarter of 1996. Sales and marketing
expenses as a percentage of total revenues were 32.2% and 33.8% for the first
quarters of 1997 and 1996, respectively. The decrease in percentage was the
result of a non recurring charge associated with the termination of an employee
in the first quarter of 1996. Excluding this charge, sales and marketing
expenses as a percentage of total revenues would have been 28.3% for the first
quarter of 1996. The increase in absolute dollars from the first quarter of 1996
was the result of an increase in personnel and expenses associated with the
expansion of the domestic sales staff, commissions attributable to higher
revenues and increased promotional costs. The Company anticipates that sales and
marketing expenses will continue to increase in absolute dollars but level off
as a percentage of total revenues ranging from 30% to 35% in the foreseeable
future.
General and Administrative. General and administrative expenses consist
principally of personnel costs for administrative, finance, information systems,
human resources and general management personnel. General and administrative
expenses for the first quarter of 1997 increased by 80.4% to $368,000 from
$204,000 for the first quarter of 1996. General and administrative expenses as a
percentage of total revenues were 11.6% and 11.1% for the first quarters of 1997
and 1996, respectively. The increase in absolute dollars from the first quarter
of 1996 was the result of an increase in personnel and other costs associated
with being a public company. The Company anticipates that general and
administrative expenses will increase in absolute dollars but level off as a
percentage of total revenues ranging from 10% to 12% in the foreseeable future.
INTEREST INCOME, NET
Interest income, net, of $424,000 and $40,000 for the first quarters of
1997 and 1996, respectively, resulted from investments of the Company's cash
balances, net of interest expense incurred on bank term notes in 1996. In the
fourth quarter of 1996, the Company raised approximately $26,669,000 in cash
from its initial public offering. The Company used a portion of the proceeds
from the offering to repay in full the Company's outstanding debt and invested
the remainder of the proceeds. Interest income increased significantly in the
first quarter of 1997 due to the increase in cash available for investment.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the first quarter of 1997 was 2.8%
representing a tax liability for the Company's two subsidiaries, GeoTel
Communications Foreign Sales Corporation and GeoTel Communications Securities
Corporation. The difference between the statutory income tax rate and the
Company's effective tax rate is due to the use of capitalized start-up costs,
net operating losses and tax credits. No income tax provision was recorded for
federal income tax purposes through the year ended December 31, 1996 as the
Company had not reported taxable income in those periods.
LIQUIDITY AND CAPITAL RESOURCES
On November 20, 1996, the Company completed its initial public offering of
common stock, which generated net proceeds of approximately $26,669,000. The
Company used approximately $756,000 of the proceeds to repay borrowings under
its outstanding equipment lines of credit. At March 31, 1997, the Company had
cash and cash equivalents of $33,408,000. As of March 31, 1997, the Company had
$2,216,000 in accounts receivable. The Company's working
<PAGE> 11
capital increased to $32,176,000 at March 31, 1997 from $31,421,000 at December
31, 1996.
The Company generated cash in the amount of $341,000 from operations in
the first quarter of 1997 and used cash in an amount of $75,000 in operations in
the first quarter of 1996. The Company was in the development stage up until the
fourth quarter of 1995 which resulted in a negative cash flow from operations.
The improvement in cash flow from operations is primarily the result of an
increase in total revenues and associated profitability.
The Company used cash in investing activities of $223,000 and $105,000 in
the first quarters of 1997 and 1996, respectively. Capital expenditures were
made due to the increase in personnel and for product development related needs.
The Company generated cash in financing activities of $27,000 and $145,000 in
the first quarters of 1997 and 1996, respectively. Financing activities
consisted primarily of sales of equity securities.
As of March 31, 1996, the Company had outstanding loans which aggregated to
$658,000 under several equipment lines of credit with a bank. All of the
outstanding debt was repaid in November 1996 from a portion of the proceeds the
Company received from its IPO.
At March 31, 1997, the Company's existing equipment line of credit allowed
the Company to borrow the lesser of $800,000 or a 90% advance rate against the
invoice price of approved equipment purchased after May 31, 1996. No borrowings
were outstanding as of March 31, 1997. The borrowing period ends on June 30,
1997. Borrowings under this agreement bear interest at the bank's prime rate
(8.50% at March 31, 1997). Any borrowings will be collateralized by
substantially all of the Company's assets. This agreement contains restrictive
covenants that require certain levels of equity and liquidity and prohibit the
payment of cash dividends without the bank's consent. At March 31, 1997, the
Company was in compliance with all related covenants.
As of March 31, 1997, the Company had capital expenditure commitments of
approximately $600,000 related to the build out of its new corporate office in
Lowell, Massachusetts.
The Company believes that existing cash balances, funds available under the
equipment line and funds generated by operations will be sufficient to meet its
anticipated liquidity and working capital requirements for at least the next
twelve months.
NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, the Company will be required to
present both basic net income per share and diluted net income per share. Basic
net income per share for the quarters ended March 31, 1997 and 1996 would have
been $0.06 and $0.01 per share, respectively. The Company is assessing the
effect of SFAS No. 128 on a diluted basis but believes the effect will not be
material. The Company plans to adopt SFAS 128 in its quarter ending December
31, 1997 and at that time all historical net income per share data presented
will be restated to conform to the provisions of SFAS No. 128.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of future financial performance of
the Company. However, from time to time, information provided by the Company or
statements made by its employees may contain "forward-looking" information that
involve risks and uncertainties. In particular, statements contained in this
Form 10-Q that are not historical facts (including, but not limited to,
statements concerning services and other revenue, international revenues,
anticipated operating expense levels and such expense levels relative to the
Company's total revenues) constitute forward-looking statements and are made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results of operations and financial condition have
varied and may in the future vary significantly from those stated in any
forward-looking statements. Factors that may cause
<PAGE> 12
such differences include, without limitation, the risks, uncertainties and other
information discussed below, as well as the accuracy of the Company's internal
estimates of revenue and operation expense levels. Each of these factors, and
others, are discussed from time to time in the filings made by the Company with
the Securities and Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company has experienced substantial revenue growth since the
ICR product introduction and first achieved profitability in the first quarter
of 1996. However, due to the Company's limited operating history there can be no
assurance that such revenue growth and profitability will continue in the future
on a quarterly or annual basis. Future operating results will depend on many
factors, including the demand for the Company's products, the level of product
and price competition, the Company's success in expanding its direct sales
force, indirect distribution channels and international sales and the ability of
the Company to develop and market new products and control costs. In order to
support the growth of its business, the Company plans to significantly expand
its level of operations. Due to the anticipated increase in the Company's
operating expenses caused by this expansion, the Company's operating results
will be adversely affected if revenues do not increase. The Company currently
expects to derive substantially all of its revenues from licenses of the ICR
product and related services and that it will continue to be dependent upon a
limited number of customers for a significant portion of its revenues in future
periods. Although demand for the ICR has grown in recent quarters, the call
center market is still an emerging market. The Company's future financial
performance will depend in large part on continued growth in the number of
organizations adopting software applications to enhance their responsiveness to
customers and the number of applications developed for use in these
environments.
The Company is dependent upon its ability to protect its proprietary
technology and relies upon a combination of patents, copyrights, trademarks,
trade secret laws and confidentiality procedures. There can be no assurance that
the protections put in place by the Company will be adequate. The Company
believes that international expansion is important to the Company's ability to
continue its growth. There can be no assurance that the Company will be
successful in integrating its product in international markets and such revenues
are subject to a number of risks including compliance with regulatory
requirements, export restrictions and controls, trade barriers, protection of
intellectual property rights, management of international operations, collection
of receivables, political instability, currency exchange rate fluctuation and
potentially adverse tax consequences. The Company depends on a single vendor for
the software and network adapter necessary for the ICR to interface with the
AT&T network. Although the Company has a perpetual, fully-paid license, with
access to the underlying source code for this software and the rights to
manufacture the network adapter, if for any reason the vendor does not make the
software or network adapter available to the Company, there can be no assurance
that the Company will be able to develop these products on a timely basis.
The Company's quarterly operating results may in the future vary
significantly depending on factors such as increased competition from the
interexchange carriers, Automatic Call Distribution switching system vendors and
other companies, the timing of new product announcements and changes in pricing
policies by the Company and its competitors, market acceptance of new and
enhanced versions of the Company's products, the size and timing of significant
orders, order cancellations by customers, changes in operating expenses, changes
in Company strategy, personnel changes, the Company's ability to manage growth,
if any, including the continued improvement in its financial and management
controls and growth of its employee work force and general economic factors. The
Company's expense levels are based, in part, on its expectations of future
revenues and to a large extent are fixed in the short-term. If revenue levels
are below expectations, the Company's business, operating results and financial
condition are likely to be materially adversely affected. Net income may be
disproportionately affected by a reduction in revenues because a proportionately
smaller amount of the Company's expenses varies with its revenues. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Additional information on the factors that
could affect the Company's financial results is included in the Company's 1996
From 10-K which is filed with the Securities and Exchange Commission.
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11.1 Weighted Shares Used in Computation of Earnings per Share
(b) Report on Form 8-K.
The Company did not file a Form 8-K during the quarter ended March 31, 1997.
<PAGE> 14
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.
GEOTEL COMMUNICATIONS CORPORATION
(Registrant)
May 14, 1997 /s/ Timothy J. Allen .
--------------------------------------------
Timothy J. Allen
Vice President of Finance, Chief Financial Officer
Treasurer and Assistant Secretary
(Principal Financial and Chief Accounting Officer)
<PAGE> 15
EXHIBIT INDEX
Page No.
--------
11.1 Weighted Shares Used in Computation of
Earnings Per Share .......................................... 16
<PAGE> 1
EXHIBIT 11.1
GEOTEL COMMUNICATIONS CORPORATION
STATEMENT REGARDING COMPUTATION OF NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------------
1997 1996
------------ ----------
<S> <C> <C>
Historical - Primary:
Weighted average common stock
outstanding ........................... 13,086,372 2,315,846
Cheap stock(1) ........................... -- 850,595
Weighted average common stock
equivalents ........................... 682,747 8,389,820
Weighted average number of common
and common equivalent shares
outstanding ........................... ------------ -----------
13,769,119 11,556,261
============ ============
Net income .................................. $ 725 $ 45
Less: accretion of redeemable convertible
preferred stock to redemption value ....... -- (27)
------------ -----------
Net income available to common
shareholders .............................. $ 725 $ 18
============ ============
Net income per common and common
equivalent shares ........................... $ 0.05 $ 0.00
============ ============
</TABLE>
- -----------------------------------
(1) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, issuances of common stock, common stock equivalents and
Convertible Preferred Stock within one year prior of the initial filing of
the registration statement, at share prices below the assumed initial
public offering price of $12.00 per share are considered to have been made
in anticipation of the contemplated public offering. Accordingly, these
stock issuances are treated as if issued and outstanding, using the
treasury stock method for options, since inception of the Company.
(2) Fully diluted net income per share is not presented as it is the same as
that disclosed in historical net income per share for the periods
presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 33,408
<SECURITIES> 0
<RECEIVABLES> 2,216
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,343
<PP&E> 2,274
<DEPRECIATION> (1,204)
<TOTAL-ASSETS> 1,070
<CURRENT-LIABILITIES> 4,166
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 33,113
<TOTAL-LIABILITY-AND-EQUITY> 37,413
<SALES> 3,187
<TOTAL-REVENUES> 3,187
<CGS> 603
<TOTAL-COSTS> 603
<OTHER-EXPENSES> 2,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 746
<INCOME-TAX> 21
<INCOME-CONTINUING> 725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
