<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 000-22605
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3120525
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1155 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 437-1100
Not Applicable
(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:
TITLE OF EACH CLASS OUTSTANDING AT SEPTEMBER 30, 1997
Common Stock, no par value 19,848,259 shares
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GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
FIRST QUARTER 1998 FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities and Use of Proceeds 14
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
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PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997
and June 30, 1997
4
Condensed Consolidated Statements of Operations for the three-month
periods ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the three-month
periods ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
3
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GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, JUNE 30,
1997 1997
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $31,488 $47,180
Short-term investments................................ 16,682 -
Accounts receivable, net.............................. 16,042 17,861
Prepaid expenses and other............................ 4,230 3,843
------ ------
Total current assets......................... 68,442 68,884
PROPERTY AND EQUIPMENT, net................................ 9,131 7,265
OTHER ASSETS............................................... 3,230 3,225
------ ------
$80,803 $79,374
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances from related parties......................... $ - $ -
Current portion of long-term obligations.............. 408 411
Accounts payable...................................... 1,878 2,320
Accrued payroll and related benefits.................. 1,752 1,320
Other accrued liabilities............................. 3,641 4,001
Deferred revenues..................................... 10,735 10,504
------ ------
Total current liabilities................... 18,414 18,556
------ ------
LONG-TERM OBLIGATIONS...................................... 280 378
------ ------
SHAREHOLDERS' EQUITY:
Common stock......................................... 62,839 62,711
Shareholder notes receivable......................... (375) (434)
Cumulative translation adjustment.................... 91 124
Accumulated deficit.................................. (446) (1,961)
------ ------
Total shareholders' equity............................ 62,109 60,440
------ ------
$80,803 $79,374
======= =======
</TABLE>
4
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GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
REVENUES:
License.................................... $13,108 $ 3,525
Service.................................... 2,435 711
------ -----
Total revenues...................... 15,543 4,236
------ -----
COST OF REVENUES:
License.................................... 655 153
Service.................................... 1,821 682
------ -----
Total cost of revenues.............. 2,476 835
------ -----
GROSS MARGIN...................................... 13,067 3,401
------ -----
OPERATING EXPENSES:
Research and development................... 2,896 1,571
Sales and marketing........................ 6,797 1,909
General and administrative................. 1,413 684
------ -----
Total operating expenses........... 11,106 4,164
------ -----
INCOME (LOSS) FROM OPERATIONS..................... 1,961 (763)
INTEREST AND OTHER INCOME (EXPENSE), NET.......... 370 143
------ -----
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.................................... 2,331 (620)
PROVISION FOR INCOME TAXES........................ 816 -
------ -----
NET INCOME (LOSS)................................. $ 1,515 $ (620)
======= =======
NET INCOME (LOSS) PER SHARE....................... $ 0.06 $ (0.03)
======= =======
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES.................... 26,100 20,200
======= =======
</TABLE>
5
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GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 1,515 $ (620)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Deferred stock compensation expense.............................. 119 -
Depreciation and amortization.................................... 972 100
Provision for doubtful accounts.................................. - -
Changes in operating assets and liabilities:
Accounts receivable.......................................... 1,819 992
Prepaid expenses and other................................... (584) (485)
Accounts payable............................................. (442) (35)
Accounts payable to related parties.......................... - (268)
Accrued payroll and related benefits......................... 432 (625)
Other accrued liabilities.................................... (360) 765
Deferred revenues............................................ 231 (724)
------- ------
Net cash provided by (used in) operating activities...... 3,702 (900)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments, net............................ (16,682) --
Purchases of property and equipment................................. (2,636) (565)
(Increase) decrease in other assets................................. (44) (500)
------- ------
Net cash used in investing activities.................... (19,362) (1,065)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit................................... - 37
Principal payments on capital lease obligations..................... (100) (34)
Repayments of advances from related parties......................... - (25)
Proceeds from convertible debt to related parties................... - 294
Proceeds (repurchases) from sales of common stock................... 68 (2)
------- ------
Net cash provided by (used in) financing activities..... (32) 270
------- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (15,692) (1,695)
CASH AND CASH EQUIVALENTS:
Beginning of Period................................................. 47,180 5,926
------- ------
End of Period...................................................... $ 31,488 $ 4,231
======== =======
</TABLE>
6
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GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared by Genesys Telecommunications Laboratories, Inc. (the Company) without
audit and reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position and the results of
operations of the Company for the interim periods. The statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles. The results of operations
for the three-month period ended September 30, 1997 are not necessarily
indicative of the operating results to be expected for the full fiscal year or
future operating periods. The information included in this report should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the fiscal year ended June 30, 1997 and the risk factors as set
forth in the Company's Annual Report on Form 10-K, including, without
limitation, risks relating to limited operating history, potential fluctuations
in quarterly operating results, lengthy sales cycle, lengthy implementation
cycle, dependence on third party consultants, dependence on new products, rapid
technological change, competition, product concentration, management of growth,
dependence on third-party resellers, GeoTel litigation, customer concentration,
dependence on emerging ECTI market, risks associated with international sales
and operations, dependence on key personnel, government regulation of
immigration, dependence on ability to integrate with third-party technology,
product liability, protection of intellectual property, concentration of stock
ownership, possible volatility of stock price, shares eligible for future sale,
registration rights, effect of certain charter provisions, anti-takeover effects
of provisions of the by-laws and uncertainty as to use of proceeds. Any party
interested in reviewing these publicly available documents should write to the
SEC or the Chief Financial Officer of the Company.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares consist of preferred stock (using the "if converted"
method) and stock options and warrants (using the treasury stock method). Common
equivalent shares are excluded from the computation only if their effect is
anti-dilutive except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins and staff policy, such computations include all
common and common equivalent shares issued within the 12 months preceding the
initial filing date of the Company's initial public offering as if they were
outstanding for all periods presented (using the treasury stock method). In
addition, preferred stock is included in the computation even when the effect of
its inclusion is anti-dilutive.
3. LITIGATION
On December 17, 1996, GeoTel Communications Corporation ("GeoTel")
filed a lawsuit in the United States District Court for the District of
Massachusetts naming the Company as defendant, and alleging infringement of a
patent issued to GeoTel. On February 10, 1997, the Company filed an answer in
response to the complaint filed by GeoTel, asserting that the GeoTel patent is
invalid, denying the alleged patent infringement and seeking dismissal of the
complaint with prejudice. The Company believes that it has meritorious defenses
to the asserted claims and intends to defend the litigation vigorously. The
Company does not believe that any of its current products infringe any valid
claims of GeoTel's patent. However, the outcome of litigation is inherently
unpredictable, and there can be no assurance that the results of these
proceedings will be favorable to the Company or that they will not have a
material adverse effect on the Company's business, financial condition or
results of operations. Regardless of the ultimate outcome, the GeoTel litigation
could result in substantial expense to the
7
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Company and significant diversion of effort by the Company's technical and
managerial personnel. If the Court determines that the Company infringes
GeoTel's patent and that the GeoTel patent is valid and enforceable, it could
issue an injunction against the use or sale of certain of the Company's products
and it could assess significant damages against the Company. Accordingly, an
adverse determination in the proceeding could subject the Company to significant
liabilities and require the Company to seek a license from GeoTel. Although
patent and intellectual property disputes in the software area have sometimes
been settled through licensing or similar arrangements, costs associated with
such arrangements may be substantial, and there can be no assurance that a
license from GeoTel, if required, would be available to the Company on
acceptable terms or at all. Accordingly, an adverse determination in the GeoTel
litigation could prevent the Company from licensing certain of its software
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is unable to estimate
the range of losses that may result from this matter.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), which is required to be adopted by the Company in its second quarter of
fiscal 1998. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate earnings per share
for all prior periods. Under the new requirements for calculating earnings per
share, primary earnings per share will be replaced with basic earnings per share
and fully diluted earnings per share will be replaced with diluted earnings per
share. Under basic earnings per share, the dilutive effect of stock options will
be excluded. The Company does not expect the effect of adopting SFAS 128 to have
a material impact on earnings per share.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth statement of operations data of the Company
expressed as a percentage of total revenues for the years and periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
1997 1996
----- ----
<S> <C> <C>
Revenues:
License................................................... 84.3% 83.2%
Service................................................... 15.7 16.8
----- ----
Total revenues....................................... 100.0 100.0
------ -----
Cost of revenues:
License................................................... 4.2 3.6
Service................................................... 11.7 16.1
----- ----
Total cost of revenues............................... 15.9 19.7
----- ----
Operating expenses:
Research and development.................................. 18.7 37.1
Sales and marketing....................................... 43.7 45.1
General and administrative................................ 9.1 16.1
---- ----
Total operating expenses............................. 71.5 98.3
----- ----
Income (loss) from operations.................................. 12.6 (18.0)
Interest and other income (expense), net....................... 2.4 3.4
---- ---
Income (loss) before provision for income taxes................ 15.0 (14.6)
Provision for income taxes..................................... 5.3 --
---- --
Net income (loss).............................................. 9.7% (14.6)%
==== =====
</TABLE>
Revenues
--------
License. License revenues were $13.1 million and $3.5 million in the three
-------
months ended September 30, 1997 and 1996, respectively, an increase of 272%.
This increase was due to the market's growing acceptance of the Company's
products and underlying technology, an expansion of the Company's product
offerings, and a significant increase in the Company's sales, marketing and
customer service organizations. The Company does not believe that the historical
growth rates of license revenues will be sustainable or are indicative of future
results.
Service. Service revenues primarily comprise fees from consulting,
-------
post-contract support and, to a lesser extent, training services. Service
revenues were $2.4 million and $0.7 million in the three months ended September
30, 1997 and 1996, respectively, an increase of 243%. The Company's software
license agreements often provide for maintenance and for consulting and
training. Accordingly, increases in licensing activity have resulted in
increases in revenues from services related to maintenance, consulting and
training.
Service revenues decreased as a percentage of total revenues, due
principally to an increase in licensing of the Company's products. If the
Company is successful in implementing its strategy of encouraging third-party
organizations such as systems integrators to undertake a greater percentage of
implementation of the Company's products, service revenues may decrease as a
percentage of total revenues, while maintenance as a percentage of total
revenues is expected to increase. The Company does not believe that the
historical growth rates of service
9
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revenues will be sustainable or are indicative of future results.
Cost of Revenues
----------------
License. Cost of license revenues includes the costs of product media,
-------
product duplication and manuals, as well as allocated labor and overhead costs
associated with the preparation and shipment of products. Cost of license
revenues were $655,000 and $153,000 in the three months ended September 30, 1997
and 1996, respectively. This increase in absolute dollar amounts relates
primarily to an increase in the volume of products shipped by the Company, and
the resulting increase in documentation material costs and personnel necessary
to assemble and ship the products.
Service. Cost of service revenues primarily comprise employee-related costs
-------
incurred in providing consulting, post-contract support and training services.
Cost of service revenues were $1.8 million and $682,000 in the three months
ended September 30, 1997 and 1996, respectively. This increase in absolute
dollars was due primarily to increases in consulting, support and training
personnel, and increases in overhead costs associated with travel, computer
equipment and facilities. The cost of service revenues as a percentage of
service revenues may vary between periods due to the mix of services provided by
the Company and the resources used to provide these services.
Operating Expenses
------------------
For the three months ended September 30, 1996 and 1997, the Company's
operating expenses were $11.1 million and $4.2 million, or 71.5% and 98.3% of
total revenues, respectively.
Research and Development. Research and development expenses were $2.9
------------------------
million and $1.6 million, or 18.7% and 37.1% of total revenues in the three
months ended September 30, 1997 and 1996, respectively. These expenses increased
in absolute dollars primarily as a result of an increase in personnel to support
the Company's product development activities. The Company expects that research
and development expenditures will continue to increase in absolute dollars.
Research and development expenses are generally charged to operations as
incurred. In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalized approximately $300,000 of software development costs
incurred in the three months ended September 30, 1997 related to the release of
its 5.0 product suite. Costs that were eligible for capitalization in the three
months ended September 30, 1996 were insignificant, and accordingly the Company
charged all software development costs to research and development expense in
this period.
Sales and Marketing. Sales and marketing expenses were $6.8 million and
-------------------
$1.9 million, representing 43.7% and 45.1% of total revenues in the three months
ended September 30, 1997 and 1996, respectively. These expenses increased in
absolute dollars primarily due to the Company's investment in building a direct
sales force in North America and, to a lesser extent, in Europe, and the
Company's investment in expanding its channel sales force in North America,
Europe and the Asia Pacific. In addition, the Company incurred increased
marketing expenses associated with the Company's expanding product line,
including trade shows and promotional expenses. The Company expects to continue
to expand its direct sales and marketing efforts and to develop a significant
channel sales organization, and therefore, anticipates sales and marketing
expenditures will continue to increase significantly in absolute dollars.
General and Administrative. General and administrative expenses were $1.4
--------------------------
million and $684,000, or 9.1% and 16.1% of total revenues in the three months
ended September 30, 1997 and 1996, respectively. These expenses increased in
absolute dollars during these periods principally due to the addition of staff
and information system investments to support the growth of the Company's
business during these periods. In addition, the Company has
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incurred higher legal costs associated primarily with general corporate matters,
trademark matters and patent filings. The Company expects to continue to
increase its general and administrative staff and to incur other costs necessary
to manage a growing organization, and, accordingly, it expects general and
administrative expenses to continue to increase in absolute dollars. General and
administrative expenses as a percentage of total revenues have decreased from
16.1% in the first quarter of fiscal 1997 to 9.1% in the first quarter of fiscal
1998, due principally to the significant investments made by the Company in
anticipation of significant growth during fiscal 1997. The Company expects to
continue to increase general and administrative expenses in absolute dollars,
but expects that these expenses as a percentage of total revenues will
stabilize.
Provision for Income Taxes
--------------------------
The Company's effective tax rate for the three months ended September 30,
1997 was 35%, which the Company estimates will be the effective tax rate for
fiscal 1998. The Company has recorded a valuation allowance for a portion of its
net deferred tax assets related to uncertainties regarding the realization of
certain assets. These uncertainties include the limited operating history of the
Company, a recent history of losses and the variability of operating results.
LIQUIDITY AND CAPITAL RESOURCES
In June 1997, the Company completed its initial public offering in which it
raised approximately $41.2 million from the sale of 2,375,000 shares of common
stock and the exercise of certain Warrants. Prior to its initial public
offering, the Company has financed its operations and met its capital
expenditure requirements primarily from proceeds from related party advances, a
$1.5 million term note (of which $900,000 was converted into Series A Preferred
Stock) and the private sale of Preferred Stock, from which the Company raised
$17.2 million. At September 30, 1997, the Company's primary sources of liquidity
included cash and cash equivalents of $31.5 million and short-term investments
of $16.7 million.
The Company generated cash from operating activities of $3.7 million in
the three months ended September 30, 1997, related primarily to an increase in
net income and a decrease in accounts receivable.
The Company used cash to purchase $16.7 million of short-term investments
and $2.6 million of property and equipment in the three months ended September
30, 1997.
The Company has established subsidiaries in foreign countries, including
the United Kingdom, France, Canada, Russia, Japan and Australia, which function
primarily as sales offices in those locations. The Company expects to establish
offices in other foreign countries as it continues to expand its international
operations. The capital expenditures necessary to establish a foreign office are
not significant, and, accordingly, the Company does not expect that the
establishment of these subsidiaries will have a material adverse effect on its
liquidity and capital resources.
In connection with the sale of Series C Preferred Stock, the Company has
committed to the expenditure of approximately $1.0 million toward the
development of certain call center technology. The Company's commitment is
cancelable by the Company in the event it encounters unforeseen technical
obstacles or business challenges. The Company does not believe that this
commitment will have a material adverse effect on its liquidity and capital
resources.
The Company believes that its existing sources of liquidity will satisfy
the Company's projected working capital and capital requirements for at least
the next twelve months.
QUARTERLY RESULTS OF OPERATIONS AND FORWARD LOOKING STATEMENTS
The Company's quarterly operating results have in the past fluctuated and
may in the future fluctuate
11
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significantly, depending on a number of factors, many of which are beyond the
Company's control, including: market acceptance of the Company products; the
Company's ability to develop and market new products and product enhancements;
the size, timing and recognition of revenue from significant orders; the length
of sales and implementation cycles; competition; the Company's success in
establishing indirect sales channels and expanding its direct sales force; the
Company's success in retaining and training third-party support personnel; the
timing of new product releases by the Company and its competitors; the delay or
deferral of significant revenues until acceptance of software required by an
individual license transaction; technological changes in the ECTI market; the
deferral of customer orders in anticipation of new products and product
enhancements; purchasing patterns of indirect channel partners and customers;
changes in pricing policies by the Company and its competitors; the mix of
revenues derived from the Company's direct sales force and various indirect
distribution and marketing channels; the mix of revenues derived from domestic
and international customers; seasonality; changes in operating expenses; changes
in relationships with strategic partners; changes in Company strategy; personnel
changes; foreign currency exchange rate fluctuations; the ability of the Company
to control its costs; and general economic factors.
While the Company generally operates with limited backlog from time to time
it receives orders from customers that are for project development over an
extended period of time. During the three months ended September 30, 1997, the
Company received an order from BT totaling $10 million pounds, and the Company
estimates that the deployment of this order will occur over a 12 to 24 month
period. None of this order has been shipped as of September 30, 1997. The
Company derives substantially all of its revenues from licenses of the Company's
platform and related applications software and services. The Company believes
that the purchase of its products is relatively discretionary and generally
involves a significant commitment of capital and other resources by a customer.
The Company's typical order size per site ranges from $100,000 to $300,000;
however, certain orders during the three months ended September 30, 1997 have
exceeded $500,000 each. The timing of the receipt and shipment of a single order
can have a significant impact on the Company's revenues and results of
operations for a particular quarter. In situations requiring customer acceptance
of implementation, the Company does not recognize license revenues until
installations are complete and does not recognize the consulting component of
service revenues until the services are rendered. As a result, revenue
recognition may be delayed in many instances. Historically, the Company has
often recognized a substantial portion of its revenues in the last month of a
quarter, with these revenues frequently concentrated in the last two weeks of a
quarter. As a result, product revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter, and revenues for any
future quarter are not predictable with any meaningful degree of certainty.
Product revenues are also difficult to forecast because the market for ECTI
software products is rapidly evolving, and the Company's sales cycle, which may
last from three to nine months or more, varies substantially from customer to
customer. The Company's quarterly revenues are also subject to seasonal
fluctuations, particularly in the quarter ending in September when reduced
activity outside North America during the summer months can adversely affect the
Company's revenues. The Company's expenses are relatively fixed and are based,
in part, on its expectations as to future revenues. Consequently, if future
revenue levels are below expectations, net income would be disproportionately
affected because a proportionately smaller amount of the Company's expenses
varies with its revenues. In addition, the Company expects that sales derived
through indirect channels, which are more difficult to forecast and generally
have lower gross margins than direct sales, will increase as a percentage of
total revenues. Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not meaningful and
should not be relied upon as indications of future performance. It is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future performance.
Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
"forward looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 regarding events, conditions and financial trends that may
affect the Company's future plans, business strategy, results of operations and
financial position. Readers are referred to the "Risk Factors" section of the
Company's Annual Report on Form 10-K filed with the Securities.
12
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and Exchange Commission, which identify important risk factors that could cause
actual results to differ from those contained in the forward-looking statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Not applicable.
13
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
On December 17, 1996, GeoTel Communications Corporation ("GeoTel")
filed a lawsuit in the United States District Court for the District of
Massachusetts naming the Company as defendant, and alleging infringement of a
patent issued to GeoTel entitled "Communications System Using a Central
Controller to Control at Least One Network and Agent System", U.S. Patent No.
5,546,452 (the "GeoTel Patent"). In the complaint, GeoTel requested injunctive
relief, an accounting for damages and an assessment of interest and costs, and
other relief as the court deems just and proper. On February 10, 1997, the
Company filed an answer in response to the complaint filed by GeoTel, asserting
that the GeoTel Patent is invalid, denying the alleged patent infringement and
seeking dismissal of the complaint with prejudice. On June 27, 1997, the Company
received correspondence from GeoTel's counsel indicating that GeoTel had
determined not to file a request for reexamination at that time, contrary to
prior correspondences. Since then, the Company has filed a motion to partition
discovery and trial on liability into two phases: a first addressing whether the
GeoTel Patent is valid and a second, if necessary, addressing whether any of the
Company's products infringe any remaining valid claims of the GeoTel Patent. The
Company believes that it has meritorious defenses to the asserted claims and
intends to defend the litigation vigorously. GeoTel alleges that the Genesys
Call Router, Genesys Call Center Manager and Genesys Call Concentrator products,
and the T-Server product, as a necessary element of all Genesys products,
infringe the GeoTel Patent. After consultation with patent counsel, the Company
does not believe any of the products described under "Business--Products" in the
Company's Annual Report on Form 10-K infringe any valid claims of the GeoTel
Patent. In connection with the Company's development of the potential new
products described under "Business--Research and Development" in the Company's
Annual Report on Form 10-K, the Company has sought the advice of such counsel
and believes that such potential products can be developed without infringing
the GeoTel Patent; however, there can be no assurance that GeoTel will not
assert infringement of the GeoTel Patent with respect to such potential new
products. Further, the outcome of litigation is inherently unpredictable, and
there can be no assurance that the results of these proceedings will be
favorable to the Company or that they will not have a material adverse effect on
the Company's business, financial condition or results of operations. Regardless
of the ultimate outcome, the GeoTel litigation could result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and managerial personnel. If the Court determines that the Company
infringes GeoTel's patent and that the GeoTel patent is valid and enforceable,
it could issue an injunction against the use or sale of certain of the Company's
products and it could assess significant damages against the Company.
Accordingly, an adverse determination in the proceeding could subject the
Company to significant liabilities and require the Company to seek a license
from GeoTel. Although patent and other intellectual property disputes in the
software area have sometimes been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial, and
there can be no assurance that a license from GeoTel, if required, would be
available to the Company on acceptable terms or at all. Accordingly, an adverse
determination in the GeoTel litigation could prevent the Company from licensing
certain of its software products, which would have a material adverse effect on
the Company's business, financial condition and results of operations.
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
During the period covered by this report, there were no changes in the
rights of holders of any class of securities of the Company and no unregistered
sales of equity securities.
On June 16, 1997, the Company's registration statement on Form S-1 (SEC
File No. 333-24479) was declared effective. The registration statement
registered for offer and sale 2,500,000 shares (2,875,000 shares including over-
allotments) of the Company's Common Stock, no par value, for an aggregate price
of $45 million ($51.75 million including over-allotments) (the "Offering").
Pursuant to the Offering, which was completed in June 1997, the Company sold
2,375,000 shares, including over-allotments, of Common Stock and certain
shareholders of the Company sold 500,000 shares of Common Stock. The shares in
the Offering were sold in a firm commitment
14
<PAGE>
underwriting that was co-managed by Goldman Sachs & Company, Lehman Brothers and
Robertson, Stephens & Company (now known as BancAmerica Robertson Stephens).
The amount of underwriting discounts in the Offering were $3,622,500 and other
expenses incurred by the Company in connection with the Offering were
approximately $1,990,500, resulting in net proceeds to the Company in the amount
of $37,137,000.
As of September 30, 1997, none of the net proceeds from the Offering
has been used by the Company, and the net proceeds are held in cash or
high-grade short-term investments. The Company's planned use of proceeds is as
described in the registration statement.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
ITEM 5. Other Information
-----------------
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Exhibit
------ -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K. Not applicable.
15
<PAGE>
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.
GENESYS TELECOMMUNICATIONS LABORATORIES, INC.
Date: November 13, 1997 By: \s\ GREGORY SHENKMAN
--------------------
Gregory Shenkman
President and Chief Executive Officer
Date: November 13, 1997 By: \s\ MICHAEL J. MCCLOSKEY
------------------------
Michael J. McCloskey
Chief Operating Officer, Chief Financial
Officer and Secretary; Vice President,
Finance and International
16
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<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 31,488 47,180
<SECURITIES> 16,682 0
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<ALLOWANCES> 377 385
<INVENTORY> 0 0
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<PP&E> 11,474 8,845
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<BONDS> 0 0
0 0
0 0
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<TOTAL-LIABILITY-AND-EQUITY> 80,803 79,374
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<TOTAL-COSTS> 2,476 835
<OTHER-EXPENSES> 11,106 4,164
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 370 143
<INCOME-PRETAX> 2,331 (620)
<INCOME-TAX> 816 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
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<NET-INCOME> 1,515 (620)
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