MOSAIX INC, 10-K405/A, 1998-03-31

MOSAIX INC
10-K405/A, 1998-03-31
COMPUTER PROGRAMMING SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] 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 0-18511

MOSAIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C>
WASHINGTON 91-1273645
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)

6464 185TH AVENUE N.E REDMOND, WASHINGTON 98052
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 881-7544

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the common stock held by nonaffiliates of the
registrant as of February 23, 1998 was $119,717,920 (based on the closing sale
price of $9.75 per share on the Nasdaq National Market on such date).

The number of shares outstanding of the registrant's common stock, $0.01
par value per share as of February 23, 1998 was 12,278,761.

DOCUMENTS INCORPORATED BY REFERENCE

PART III of this Form 10-K incorporates information by reference from the
registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year.
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MOSAIX, INC.

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
PART I
Item One Business.................................................... 1
Item Two Properties.................................................. 9
Item Three Legal Proceeding............................................ 10
Item Four Submission of Matters to a Vote of Security Holders......... 10

PART II
Item Five Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item Six Selected Financial Data..................................... 11
Item Seven Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 12
Item Eight Financial Statements and Supplemental Data.................. 21
Item Nine Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 21

PART III
Item Ten Directors and Executive Officers of the Registrant.......... 21
Item Eleven Executive Compensation...................................... 21
Item Twelve Security Ownership of Certain Beneficial Owners and
Management.................................................. 21
Item Thirteen Certain Relationships and Related Transactions.............. 21

PART IV
Item Fourteen Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 22
</TABLE>

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PART I

ITEM ONE

BUSINESS

Mosaix, Inc. and subsidiaries (hereinafter referred to as "Mosaix" or the
"Company") is a global provider of call management systems and customer
relationship management applications that enable companies to acquire, retain,
and develop customer relationships. With these products, companies can integrate
sales, marketing, and customer services applications in their call centers with
back-office applications throughout the enterprise. The three product areas
include call management systems (CMS), agent effectiveness applications (AEA),
and customer relationship management (CRM) applications. These product offerings
constitute Mosaix's business solutions and are collectively referred to as
Enterprise Customer Management (ECM) solutions.

Mosaix call management systems are sophisticated enterprise-wide systems
for processing and managing outbound and blended inbound/outbound telephone
communications. These enterprise-wide predictive dialing applications allow
customer information to be captured and correlated with a telephone call and
quickly routed to the right person equipped to manage the customer relationship.
With its technology of intelligently predicting the availability of the next
agent available to manage a phone call, either inbound or outbound, Mosaix can
optimally improve call center efficiencies. Mosaix offers a broad range of
professional services and support for these call management systems. In
addition, Mosaix also develops applications designed to enhance the
effectiveness of call center agents once they receive the phone call. Known as
agent effectiveness applications, these products and services lead an agent
through a conversation presenting key information along the way. Mosaix call
management systems are found in a broad range of industries, including financial
services, credit card and consumer collections, telecommunications and
utilities, retail, cable television, healthcare, fundraising, education and
telemarketing.

Customer relationship management applications are client/server-based
software that enables customers to automate and integrate customer-facing
business processes beginning in the call center and extending across the
enterprise. This occurs through the implementation of the Company's workflow
software which is a family of integrated software modules that provide a
complete framework for rapidly designing, developing, and deploying
customer-centric workflow applications across the enterprise. The workflow
software allows for fulfillment processes, or back-office functions, to be
tightly integrated with multiple channels of interaction used by consumers to
communicate with corporations. Whether it be the telephone or the Internet,
Mosaix CRM software will intelligently manage a customer contact in the most
efficient and effective manner by matching the needs of the customer with the
corresponding resources of a company. These solutions are used in a wide variety
of applications, including consumer and mortgage lending, claims processing,
underwriting, trust management, contract management, accounts payable, and
customer service.

Headquartered in Redmond, Washington, Mosaix has sales offices in Alameda
and Costa Mesa, California; Wilmington, Delaware; Atlanta, Georgia; Chicago,
Illinois; Rockville, Maryland; New York, New York; Charlotte, North Carolina;
Cleveland, Ohio; Dallas, Texas; and near London, England. Additionally, Mosaix
has established value-added reseller relationships in North America, Asia, South
America, Africa and Europe.

Mosaix, a Washington corporation, was incorporated in 1984.

INDUSTRY BACKGROUND

Over the past ten years, businesses and other organizations have
increasingly used dedicated centers for processing and managing high volumes of
incoming and outgoing telephone traffic. Call centers have been used extensively
in such fields as credit card and consumer collections, catalog sales,
telemarketing and customer service. In these call centers, activities such as
placing and receiving telephone calls are linked to the computer functions of
relational database management to capture, store and report on relevant customer
information. As the importance of call centers has increased and as more
functions and capabilities have been combined, a parallel industry has emerged
to create and support the evolution of call centers. The industry
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includes vendors who deliver systems, software and services that are designed to
make call centers efficient, effective and well matched to the broader corporate
mission of the enterprise. Call Centers are transforming from functional cost
centers to strategic "profit centers" as their mission evolves to become highly
integrated customer interaction and fulfillment centers that can handle multiple
channels of communication. These multiple channels include correspondence,
documents, faxes, e-mail, Internet calls, as well as traditional telephony
contact. This resulting shift places a higher value on customer care as the
primary call center mission.

Typically, the call center is the primary "hub" within an organization for
placing or receiving a large volume of customer calls. Customer Service
Representatives (CSRs) or Agents are the call center's workforce responsible for
working with customers to meet their needs in a variety of areas including
reservations, product information, service requests, order fulfillment, account
information and problem resolution. The communication objectives are as varied
as the businesses that employ call centers as part of their marketing and/or
services strategy. Mosaix believes that the call center has become a strategic
business asset as well as the logical point of integration for customer
communications within the enterprise.

Call centers can range in size from fewer than five agents in one location
to thousands of agents in multiple locations, networked together via computer
and telecommunications systems. With the significant variability of call center
sizes and call handling objectives, the industry relies on a variety of
suppliers to provide product and service solutions to address their business and
communication needs. Today these product and service solutions include:

- Customer premise telephone call routing and switching systems (ACDs and
PBXs)

- Computer Telephony Integration (CTI) software which brings together data
and voice

- Application software to enhance, facilitate and manage inbound and
outbound customer communications

- Agent coaching and counseling software tools

- Reporting tools to measure and report on agent effectiveness and overall
system performance

- Peripheral products (headsets, speakers, video displays)

- Voice mail and interactive voice response (IVR) systems, which enable
callers to access information in an organization's computer database via
touch-tone dialing

- Computer networking and communications systems, including e-mail and
Internet access systems

- Database/back office information processing systems

BUSINESS PROCESS AUTOMATION IN THE CALL CENTER.

The growth of client/server computing has also had a dramatic effect on the
call center industry and has fueled the need for applications that process and
manage unstructured as well as structured data. Structured data, such as
financial or inventory data, are typically stored in the rows and columns of
databases. Traditional relational database systems and their underlying
technologies are not designed to manage the increasing complexity and variety of
the information content and transaction requirements inherent in most business
processes. According to some industry reports, as much as 80% of corporate data
is unstructured, consisting of imaged documents, faxes, electronic documents,
forms, mainframe-generated reports, digitized voice messages, electronic data
interchange (EDI) records and World Wide Web (Web) documents. For example,
customer service agents as well as loan officers who process loan applications
need access to a variety of structured data, such as customer and product
information, and unstructured data, including images of applications, credit
reports, credit analysis spreadsheets and other documents. The ability to
access, manage and process all relevant information content, including the
seamless integration of structured and unstructured data, has emerged as a key
requirement for call centers today.

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Initial efforts to automate data-intensive processes began with electronic
imaging technologies in the late 1980's. These early image-processing products
provided on-line equivalents to paper-based storage and management of business
information. These systems focused primarily on storage and retrieval
applications and were generally only available on dedicated, expensive and
proprietary platforms.

Workflow technology emerged first with the development of rigid and highly
customized software that addressed transaction-based applications focused on the
automated routing of document images and related information. Although this
software generated significant benefits both in improved operational efficiency
and cost reductions, implementations were costly, limited in scope and difficult
to change. At the same time, document management emerged as a means for managing
electronic documents and certain other types of unstructured business
information. While these solutions provide significant benefits by allowing an
enterprise access to documents, document management systems do not generally
address the fundamental need to improve business processes. This has resulted in
growing market demand for solutions that combine sophisticated business process
functionality with the ability to seamlessly manage both structured and
unstructured business information. These Business Process Automation (BPA)
applications were the next step for workflow and document management offerings.

With the availability of the Internet and intranets, companies have also
recognized the opportunity to provide their employees, business partners, and
customers with even greater access to business information. By combining BPA and
document management with Internet and intranet technologies, companies will be
able to significantly broaden access to automated business processes within
their enterprises. They will extend the reach and value of BPA to include
business transactions with their partners and customers beyond their internal
enterprise. As a result, businesses now seek next-generation business process
automation solutions that include Internet and intranet capabilities.

SERVICE LEADERSHIP.

As companies face increasing pressure to retain and grow their customer
base, corporate call centers, real or virtual, are emerging as a strategic
weapon in the fight for customer loyalty and increased revenue. The new
directive calls for more than efficiency; the call center must be effective in
managing customer relationships. Corporate demand is on the rise for systems
that foster customer relationships and that create a competitive advantage. This
demand is driving the need to integrate telephony and computer-based
applications to provide a "360-degree view" of customer attributes and account
history.

PRODUCTS

CALL MANAGEMENT SYSTEMS (CMS).

Mosaix Call Management Systems are the Company's UNIX-based suite of
combined hardware and software systems used for the processing and management of
a call center's inbound and outbound telephone activity. Integrating directly
with an organization's existing telecommunications system and customer
databases, the Mosaix CMS processes and manages inbound, outbound, and blended
inbound/outbound customer contacts. Typical functions provided by Mosaix
products for outbound calling include: acquiring, reviewing and organizing
customer data; automatically dialing phone numbers quickly; monitoring,
interpreting and acting upon each telephone call's progress; programming redials
at the appropriate time and rate; routing live voice responses immediately to an
operator; and posting and reporting record updates. For customers who want to
efficiently manage incoming as well as outgoing telephone calls, Mosaix's
Intelligent Call Blending technology allows call centers to blend their inbound
(ACD) and outbound (Mosaix systems) call activity into a single environment,
automatically moving calls between inbound and outbound agents to optimally
handle call center traffic.

Mosaix currently has three call center products available: the Mosaix 5000,
Mosaix 4000 and Mosaix 3000 Call Management Systems. The Mosaix 5000 is the
Company's most advanced system and is scaleable to 150 outbound workstations and
300 lines. The Mosaix 5000 performs all of the standard functions described
above and, in addition, has Proactive Agent Blending, a patented technology that
uses sophisticated algorithms to anticipate call volumes and to move agents
before the expected inbound and outbound call workloads

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actually occur. The Mosaix 4000 is similar to the Mosaix 5000 though limited to
60 outbound workstations and 180 lines with no predictive blend capabilities.
The Mosaix 3000 is a limited-functionality predictive dialing solution designed
for the Company's Value Added Reseller Channel.

In order to help companies more effectively manage their call centers,
Mosaix has also developed a variety of software products that work exclusively
with the Mosaix CMS. Campaign Director, which ships with Mosaix systems,
provides customers with the ability to create campaigns using a Microsoft
Windows-based point and click interface. Campaign Director is also used to
monitor, on a real-time basis, the status of the campaign and the effectiveness
of the agents, and to make changes while the campaign is in process. Producer is
a sophisticated configuration tool that enables customers to dynamically manage
the operation and system parameters of their Mosaix CMS. Producer allows
customers to record voice messages, design wait queues, edit agent function
keys, and create and modify completion codes using a simple-to-use PC based
software solution. Campaign Surfer is an Internet browser-based tool that
enables a company or a company's customers to view information about calling
campaigns and agent performance from virtually anywhere over the Internet; and
Agent API simplifies the creation and maintenance of custom agent interfaces,
which allow agents access to disparate information they need to more effectively
serve customers.

Mosaix also provides Campaign Analyst and Guide, software products that
work with Mosaix systems or call management systems provided by Mosaix's
competitors. Campaign Analyst software produces detailed reports, integrating
statistics from various vendor products, including the ACD/PBX (telephone
switch), the IVR system, host computer, dialer and other applications. It can
also integrate with other software programs, such as payroll or executive
reporting systems. This product is designed to assist call center managers in
reviewing the performance of multiple call center systems by integrating and
normalizing raw data and generating key statistics. Analyst also includes
features that allow managers to establish goals for their agents as well as
extracting data which can be utilized by other software programs. An example
might be to generate an extract of all agent hours for use in the payroll system
or an extract of system performance information to be placed into an executive
presentation document.

As part of the AEA product line, Guide is designed to allow a call center
supervisor to control the content and flow of each customer contact. Call guides
(or scripts) for call center employees have historically been programmed by the
vendor or by application specialists, with any changes requiring system shut
down and reprogramming. By contrast, Guide allows call center supervisors with
minimal programming skills to design and maintain complex, sophisticated scripts
without relying on the vendor or third party application specialists.
Supervisors can modify scripts as necessary -- even mid-campaign -- providing
increased flexibility and enabling the organization to tailor scripts based on
agent skill levels and campaign objectives.

All of the Company's currently shipping CMS products are year 2000
compliant. In addition, whenever possible, the Company has made system upgrades
available to certain existing customers, that along with related hardware
upgrades, will enable them to be year 2000 compliant. The Company does have some
customers who have purchased systems in the past, where a hardware upgrade is
not available to allow the customer to become year 2000 compliant and a complete
system change will be the only way for these customers to become year 2000
compliant. Management does not expect the year 2000 to have a material impact on
the operations of the Company.

The Mosaix 4000 and 5000 CMS and related software products are marketed
through Mosaix's telesales and direct sales force as well as a worldwide network
of strategic partners. The Mosaix 4000 and 5000 are designed for mid- and
high-end financial services, telecommunications, insurance, and telemarketing
customers. The Mosaix 3000 and related software are sold by Mosaix's domestic
and international value-added reseller network, who focus on small and
medium-sized collections bureaus, telemarketing service bureaus, and internal
telemarketing, telesales, and teleservicing departments.

Mosaix's CMS are used in a broad range of industries, including financial
services, credit card and consumer collections, insurance, telecommunications,
utilities, retail, cable television, healthcare, fundraising, education and
telemarketing. Historically, the majority of sales has been to the financial
services and telecommunications industries.

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CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE (CRM).

Customer Relationship Management Software is an enterprise-class,
client/server application framework that is built on Windows NT and utilizes
Microsoft's enterprise-computing architecture. It is designed to automate
customer-facing business processes and integrate structured and unstructured
data, including imaged documents, faxes, electronic documents, forms,
mainframe-generated reports, digitized voice messages, EDI records, and Web
documents. In addition, this software will intelligently manage telephone calls
and the systems that route those calls. The current version of CRM Software is
ViewStar 5.0 and it is year 2000 compliant.

ViewStar 5.0 is comprised of the following four components :

Process Architect -- Mosaix's visual workflow and process modeling
application framework that enables interactive definition, configuration and
deployment of complex business processes. Using Process Architect, business
analysts and application designers can define work content, business rules,
workflow maps and user roles and activities. Process Architect provides a
library of predefined business functions and reusable tasks that can be easily
configured to create a workflow map representing the business process from the
interaction in a call center to the back-office fulfillment of a customer's
request. Through Process Architect's simulation feature, "what if" analyses of
the throughput can be undertaken and bottlenecks predicted. Process Architect
can also be used to dynamically change the business process and automatically
rebuild the application with little impact on down-time or re-training.

Application Designer -- Predefined application frameworks that can be
"snapped together" to meet specific user, application, and job function
requirements and that facilitate rapid application delivery. Components such as
workflow tasks, user activities, and document operations are stored in object
libraries and made available for selection and reuse through a standard
Windows-based graphical interface. In addition, Application Designer provides
pre-configured application templates for the most-requested users roles and job
functions, such as document access and display, workpacket creation and
indexing, document workflow processing, exception case handling, and legacy
system integration.

Business Process Interface ("BPI") -- A set of Object Link Embedding
("OLE") automation interfaces that enables the creation of workflow tasks and
user applications using any OLE 2.0-compliant visual programming environments.
BPI consists of high-level automation objects and a set of OLE customer
controls. Any third-party development tool that supports OLE 2.0, such as Visual
Basic, Visual C++, Delphi and PowerBuilder, can be used with BPI. In addition,
BPI's OLE-based component architecture enables integration with third-party
components, including document and data capture subsystems, 3270emulation
packages for accessing mainframe data, and personal productivity applications,
such as Microsoft Word or Excel.

Call Center Edition. -- The CTI solution set which provides the
functionality required to intelligently manage telephone calls and interfaces
with telephony systems. By integrating with an IVR or ACD, ViewStar 5.0 allows
companies to apply consistent business logic in managing calls just like any
other piece of work. Information captured about the caller is compared with
customer information from a company's disparate data repositories across the
enterprise and is used to determine the appropriate resources needed to address
that caller's requirements. System administration times are greatly reduced and
training requirements are simplified. The Call Center Edition also provides the
ability to present call-control tasks at the agent's desktop in conjunction with
the workflow functions relating to the business process at hand.

SERVICES

PROFESSIONAL SERVICES

Mosaix's professional services group provides fee-based business process
consulting and computer/ telephony integration (CTI) services. This group helps
clients plan, budget, design and implement new business processes and
technologies with the goal of improving customer management and call center
workflow. This group also utilizes its network of service providers and system
integration partners to provide

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customers with a broad range of application development, systems planning,
configuration, and system integration services.

CUSTOMER SUPPORT AND SERVICES

Mosaix believes that customer service and support are an integral part of
its strategy. Service capability, availability and responsiveness play an
important role in marketing and selling its products. This is particularly true
as the mission critical nature of the products and services and technological
complexity increases.

Mosaix earns system and software support fees by providing ongoing support
and training for all of its CMS products. Mosaix offers a full range of product
support options, including telephone support from "normal business hours" to "24
hours a day" and on-site response from the "next-half-day" to "immediate service
(four hours or less)." CMS support representatives are able to service customer
call center systems on a remote basis from the customer support center in
Redmond, Washington and London, England. If needed, CMS support representatives
will dispatch on-site support, which is provided by IBM in North America and the
United Kingdom. Mosaix charges separate fees to upgrade CMS products to the
latest version when a new product is released. Mosaix earns other fees by
providing, upon customer request, certain special services, such as system
relocation and additional training. The Company has CMS training facilities
located in Redmond, Washington and at the principal office of its subsidiary in
the United Kingdom.

Customer support for the CRM is provided by customer support
representatives in Alameda, California and London England. Fees are generally
charged on an annual basis and include upgrades to the latest version when a new
product is released. Mosaix earns other fees by providing, upon customer
request, certain special services, such as additional training.

PRODUCT DEVELOPMENT

Mosaix engineers continue to develop new products and new applications of
existing products that will improve the unique enterprise customer management
missions of Mosaix's customers. In recent years, Mosaix increasingly has focused
its development efforts on client/server, Windows NT-based and Internet-enabled
software solutions that address issues and challenges facing call centers and
workflow processes. Mosaix releases new features and enhancements to existing
products, new products and new services on an ongoing basis. Mosaix supplements
its product development efforts by reviewing customer feedback on existing
products and working with customers and potential customers to anticipate future
functionality requirements. Product development efforts are directed at
increasing product functionality, improving product performance, and expanding
product capabilities to shorten the application development and deployment cycle
and further leverage the Microsoft Windows NT platform. Mosaix continues to
identify and prioritize various technologies for potential future product
offerings.

Mosaix has committed and expects to continue to commit substantial
resources to research and development. In 1997, 1996, and 1995, research and
development expenses were $15.2 million, $14.9 million and $13.1 million,
respectively, net of capitalized software development costs. During the same
periods, Mosaix capitalized $0.3 million, $1.0 million and $2.2 million,
respectively, of software development costs.

The Mosaix CMS and Guide products have been localized for sale in the
Japanese market. The ViewStar System has been double-byte enabled for sales in
the Japanese and Korean markets.

MANUFACTURING

Mosaix's manufacturing operations for CMS products are primarily performed
by an independent third party on a turnkey basis. The third party contracts with
other vendors for components and subassemblies. Mosaix's CMS suppliers maintain
quality control by subjecting components and subassemblies to rigorous testing,
including in-circuit automated testing. Mosaix's manufacturing operations for
CRM products are performed in-house and consist mainly of CD disk duplication.

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SALES AND MARKETING

Mosaix markets its CMS and CRM products and services through a direct sales
force operating from Mosaix's headquarters in Redmond, Washington and offices in
Alameda and Costa Mesa, California; Wilmington, Delaware; Atlanta, Georgia;
Chicago, Illinois; Rockville, Maryland; New York, New York; Charlotte, North
Carolina; Cleveland, Ohio; Dallas, Texas; New York, New York; and near London,
England. Mosaix also has established value-added reseller relationships in North
and South America, Asia, Africa, and Europe.

COMPETITION

The market for Mosaix's products and services is highly competitive.
Important competitive factors include price, performance, diversity of product
line, reliability, delivery capabilities, and customer service and support.

Mosaix's principal competitors in the outbound call management systems
market include Davox Corporation, EIS International, Inc. and Melita Electronic
Labs. The potential entry into the market of major ACD and PBX suppliers
(suppliers of customer-premise call routing and switching systems) also presents
a strong competitive threat. These companies may elect to acquire or align with
Mosaix's competitors, increasing their market presence and distribution; resell
principal competitors' products; or elect to develop and market their own
predictive dialing application software. As Mosaix expands its CMS offerings, it
may also encounter increased competition from call center application providers
such as Information Management Associates and Versatility.

The traditional competition for horizontal workflow technology has been
workflow software vendors, including direct competition from a number of public
and private companies or divisions thereof, including Filenet, IBM, Action
Technologies, Staffware, Optika, and Eastman Kodak. As ViewStar 5.0 extends its
value into the customer management market space, it will face competition from
new competitors, including process-oriented applications vendors such as
Pegasystems, Chordiant, and DST. Mosaix's CRM applications may encounter
competition from a number of customer management focused software companies
including, Edify Corporation, Remedy Corporation, and Seibel Systems. Certain of
these companies have announced and others may announce document workflow
capabilities for their existing or future products.

Mosaix relies on a number of system integration firms for implementation
and other services as well as recommendations of its products during the
evaluation stage of the purchasing process. Although Mosaix seeks to maintain
close relationships with these service providers, many of these third parties
have similar, and often more established relationships with Mosaix's principal
competitors. If Mosaix is unable to develop and retain effective, long-term
relationships with these third parties, Mosaix's competitive position would be
materially adversely affected. See "Forward Looking Statements-Risk Factors
Regarding Future Performance -- Competition" in Item Seven.

INTERNATIONAL OPERATIONS

Mosaix's sales to customers in international markets outside the United
States comprised approximately 26.4%, 19.0% and 18.9% of total revenue in 1997,
1996, and 1995, respectively. In most cases, Mosaix markets its products and
services internationally through value-added resellers.

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The following table sets forth certain information relating to Mosaix's
foreign and domestic operations for the years ended December 31, 1997, 1996, and
1995.

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenue -- U.S. operations:
United States........................... $ 89,153 $ 94,870 $75,593
United States export.................... 14,477 12,083 12,289
Revenue-foreign subsidiaries.............. 17,514 10,228 5,366
-------- -------- -------
$121,144 $117,181 $93,248
-------- -------- -------
Operating income:
U.S. operations......................... $ 8,045 $ 4,235 $ 1,355
Foreign subsidiaries.................... 3,936 1,867 382
Eliminations............................ (215) 130 121
-------- -------- -------
$ 11,766 $ 6,232 $ 1,858
-------- -------- -------
Assets:
U.S. operations......................... $ 74,725 $ 85,235 $90,597
Foreign subsidiaries.................... 9,653 5,528 2,974
-------- -------- -------
$ 84,378 $ 90,763 $93,571
======== ======== =======
</TABLE>

SEASONALITY

Mosaix's quarterly operating results may be subject to seasonal influences.
The Company generally has realized lower revenues in the first quarter of the
year than the immediately preceding quarter. The Company believes that this has
been due primarily to the concentration by some customers of larger capital
purchases in the fourth quarter of the calendar year to avoid end-of-year
budgetary limitations, followed by lower purchasing activity during the first
quarter of the next calendar year. Further, to the extent that international
operations in the future constitute a higher percentage of total revenues, the
Company anticipates it will experience relatively weaker demand in the quarter
ending September 30 due to reduced customer activity in Europe during the summer
months.

REGULATORY ENVIRONMENT

Mosaix's CMS hardware and software products are subject to and conform with
FCC regulations under the Communications Act of 1934. Future products developed
by Mosaix also may be required to comply with certain registration and technical
requirements before they can be sold in the United States. As Mosaix expands its
operations in other countries, its products will become subject to regulation by
foreign governments.

While existing industry regulation does not directly regulate the
manufacture and sale of Mosaix's call management products, certain existing laws
and regulations may affect the ability of Mosaix's customers to utilize some of
its product in certain ways. For example, Mosaix's call management systems may
not be used for certain prohibited debt collection and remote telephone
solicitation practices, nor may they be used under certain circumstances to
leave or play artificial or prerecorded messages. These practices are governed
by such federal laws as the Telephone Consumer Protection Act of 1991 and the
Telemarketing and Consumer Fraud and Abuse Prevention Act, which authorize the
FCC and Federal Trade Commission, respectively, to issue additional regulations
and administer such laws. In addition, most states have enacted legislation
limiting certain telephone solicitation practices or restricting use of
automatic dialing and announcement devices.

Other federal and state legislation that has been proposed from time to
time include bills that would, if enacted, recognize certain privacy rights of
employees at the work site and regulate the ability of employers to monitor job
performance, including monitoring employees' telephone communication or
gathering information regarding such communications. It is possible that such
legislation or other legislation, if enacted, might directly or indirectly
affect how Mosaix's products can be used.

8
<PAGE> 11

Mosaix fully supports legislation designed to promote the responsible use
of auto dialing equipment, and laws which otherwise restrict abusive collections
or telemarketing activities. Mosaix endeavors to design its products to enable
its customers to comply with the requirements of current and anticipated
regulations.

PROPRIETARY RIGHTS

As new products are identified and created, Mosaix has sought, and will
continue to seek, patent protection, where appropriate, for inventions arising
out of its development efforts. On March 30, 1992, U.S. Patent (No. 5,101,425)
was issued to Mosaix on Realtime Monitor, a device enabling real time monitoring
of predictive dialing systems. On November 14, 1995, Mosaix obtained a U.S.
Patent (No. 5,467,391) on its Integrated Intelligent Call Blending technology,
which describes a system and method for sharing a pool of CSRs in a telephone
call servicing operation so that CSRs are utilized effectively. Mosaix also
intends to pursue, where appropriate, patent protection for these inventions in
the international markets where they are offered.

Although Mosaix has not registered its copyrighted software, such software
is protected by copyright and trade secret laws. In addition, Mosaix enters into
confidentiality agreements with certain of its employees, consultants,
distributors, value-added resellers and customers; limits access to and
distribution of its software, documentation and other proprietary information;
and enters into noncompete agreements with certain of its employees.

Mosaix further seeks the protection of trademark registration in the United
States and various foreign jurisdictions for certain of its product trademarks
including Adapts, Analyst, Campaign Director, Campaign Manager, Infostore@Work,
Mosaix, Predictive Blend, Producer, Process Architect, Screenbuilder,
Searchlink, the Foresight Report and ViewStar.

Despite Mosaix's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy Mosaix's products or to obtain and use Mosaix's
proprietary information. Policing unauthorized use of Mosaix's products is
difficult, and since Mosaix is unable to determine the extent to which piracy of
its software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect Mosaix's
proprietary rights to as great an extent as the laws of the United States. There
can be no assurance that Mosaix's means of protecting its proprietary rights
will be adequate or that competitors will not independently develop similar
technology.

Mosaix also relies on certain software licensed from third parties,
including software that is integrated with internally developed software and
used in the Company's products to perform key functions. There can be no
assurance that such third parties will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to Mosaix on commercially reasonable terms. The loss or
inability to maintain any of these software licenses could materially adversely
affect the Company's business. See "Forward Looking Statements-Risk Factors
Regarding Future Performance -- Dependence on Proprietary Rights; Infringement
Claims; Uncertainty of Obtaining Licenses" in Item Seven.

EMPLOYEES

As of December 31, 1997 Mosaix employed approximately 600 persons (not
including independent contractors and temporary employees) on a full-time basis.
None of Mosaix's employees are covered by collective bargaining agreements, nor
has it ever experienced a work stoppage. Mosaix considers its employee relations
to be good.

ITEM TWO

PROPERTIES

Mosaix's corporate offices are located in Redmond, Washington in an 84,000
square-foot leased office facility at 6464 185th Avenue N.E., Redmond,
Washington 98052. The lease expires March 31, 1999. In December 1997, Mosaix's
entered into a new 104,000 square foot lease at a different location in Redmond,

9
<PAGE> 12

Washington for its corporate headquarters. The Company anticipates moving into
the new facility during the fourth quarter of 1998. The corporate offices
include sales and marketing, professional service and customer support,
engineering, and finance.

The Company also leases offices which occupy approximately 55,000 square
feet in Alameda, California, under a lease which expires in May 1999 but has
renewal options through September of 2004. Additional sales, marketing,
engineering and service functions are located in Alameda. Mosaix also leases
domestic sales offices in Atlanta, Charlotte, Chicago, Cleveland, Costa Mesa,
Dallas, New York, Rockville and Wilmington. The Company's sales, marketing,
service and administrative function for Europe, the Middle East and Africa is
located in rented office space near London, England. The London facility lease
expires in 2017.

ITEM THREE

LEGAL PROCEEDINGS

Mosaix is subject to various legal proceedings that arise in the ordinary
course of its business. While the outcome of these proceedings cannot be
predicted with certainty, the Company believes that none of such proceedings,
individually or in the aggregate, will have a material adverse effect on the
Company's business or financial condition.

ITEM FOUR

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

10
<PAGE> 13

PART II

ITEM FIVE

MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Mosaix common stock, $0.01 par value per share, is traded over the counter
under the symbol "MOSX" and is an authorized security for quotation on the
National Association of Securities Dealers, Inc. Automated Quotations National
Market ("Nasdaq/NM").

The market prices of a share of Mosaix common stock are set forth below.
The prices reflect the high and low trading prices for each quarter as reported
by Nasdaq/NM. Over-the-counter market quotations reflect interdealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997:
4th Quarter................................ $11.313 $ 7.938
3rd Quarter................................ $15.000 $ 9.000
2nd Quarter................................ $15.250 $11.750
1st Quarter................................ $16.000 $ 9.750
1996:
4th Quarter................................ $23.000 $10.000
3rd Quarter................................ $18.375 $12.000
2nd Quarter................................ $24.000 $13.500
1st Quarter................................ $16.750 $10.500
</TABLE>

There were approximately 4,760 shareholders of the Company's common stock
as of February 23, 1998. This includes approximately 4,200 street-name holders
and 560 registered certificate holders.

No cash dividends were declared or paid by Mosaix during any of the periods
presented. Mosaix presently does not anticipate paying any cash dividends in the
foreseeable future.

ITEM SIX

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue........................................ $121,144 $117,181 $93,248 $76,090 $69,237
Operating income (loss)........................ 11,766 6,232 1,858 (8,357) (7,349)
Net earnings (loss)............................ 9,757 3,618 (563) (6,482) (9,081)
Earnings (loss) per share:
Basic........................................ 0.74 0.29 (0.06) (0.65) (0.94)
Diluted...................................... 0.71 0.27 (0.06) (0.65) (0.94)
Weighted average common shares outstanding:
Basic........................................ 13,169 12,677 9,846 9,998 9,681
Diluted...................................... 13,667 13,570 9,846 9,998 9,681

Working capital................................ $ 46,257 $ 46,804 $37,624 $38,738 $38,555
Total assets................................... 84,378 90,763 93,571 95,796 86,156
Long-term obligations.......................... 97 575 1,085 1,123 1,924
Shareholders' equity........................... 55,805 57,343 48,683 52,799 55,360
</TABLE>

11
<PAGE> 14

ITEM SEVEN

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

The following table sets forth certain operating data for 1997, 1996 and
1995 expressed as a percentage of revenue for all items except cost of revenue
and gross profit which are shown as a percentage of the corresponding revenue:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenue:
System sales.............................................. 40.6% 45.6% 46.3%
Software licenses......................................... 19.8 17.6 16.0
Services and other........................................ 39.6 36.8 37.7
----- ----- -----
100.0 100.0 100.0
Cost of revenue:
System sales.............................................. 37.6 35.2 40.8
Software licenses......................................... 10.1 6.6 4.1
Services and other........................................ 51.1 50.0 48.9
----- ----- -----
37.5 35.6 38.0
Gross profit:
System sales.............................................. 62.4 64.8 59.2
Software licenses......................................... 89.9 93.4 95.9
Services and other........................................ 48.9 50.0 51.1
----- ----- -----
62.5 64.4 62.0
Operating expenses:
Selling, general and administrative....................... 39.4 38.7 44.2
Research and development.................................. 12.6 12.7 14.0
Restructuring charges..................................... 0.8 -- 1.3
Write-off of capitalized software costs................... -- 0.6 --
Purchase of in-process research and development........... -- 3.7 --
Merger related............................................ -- 3.3 0.5
----- ----- -----
Total operating expenses.................................... 52.8 59.0 60.0
----- ----- -----
Operating income............................................ 9.7 5.4 2.0
Interest and other income, net.............................. 1.8 1.4 1.9
----- ----- -----
Earnings before income taxes................................ 11.5 6.8 3.9
Income tax expense.......................................... 3.4 3.7 4.5
----- ----- -----
Net earnings (loss)......................................... 8.1% 3.1% (0.6)%
===== ===== =====
</TABLE>

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

For 1997, Mosaix reported net earnings of $9.8 million, or $0.71 diluted
earnings per share, compared to $3.6 million, or $0.27 diluted earnings per
share, for 1996. During 1997, Mosaix incurred restructuring charges of $0.9
million ($0.6 million after tax). During 1996, Mosaix incurred the following
charges: (a) the write-off of $4.3 million ($4.3 million after tax) of acquired
in-process research and development costs; (b) $0.7 million ($0.5 million after
tax) of previously capitalized software development costs related to the 1996
acquisition of Caleo; and (c) $3.9 million ($3.9 million after tax) related to
the merger with ViewStar. Excluding these charges, net earnings for 1997 were
$10.4 million, or $0.76 diluted earnings per share, compared to $12.3 million,
or $0.91 diluted earnings per share, for 1996.

12
<PAGE> 15

Revenue.

Revenue of $121.1 million for 1997 represented a 3.3% increase over 1996
revenue of $117.2 million. System sales, however, decreased $4.2 million, or
7.8%, to $49.2 million in 1997. Historically, system sales have come from the
large formal call center market segment, with a high percentage representing
repeat business with established customers. During 1997, Mosaix experienced a
decline in the number of large system sales, a decline in sales from its
domestic installed base and fewer new name customers than in prior years.

Software licenses revenue increased by 15.9% to $23.9 million for 1997.
This increase was primarily due to increased sales of workflow products.

Services and other revenue increased by $4.9 million, or 11.3%, for 1997 as
a result of increased professional services related to large CRM projects.
Customer support revenue increased as a result of new system and software sales.

International revenue increased 43.4% to $32.0 million in 1997 and
accounted for 26.4% of total revenue. This increase was primarily due to
increased sales in the United Kingdom and continuing acceptance of Mosaix
products in international markets.

Currently, backlog is not significant in relation to Mosaix's revenue and
may not be indicative of future performance.

Gross Profit.

Gross profit decreased to 62.5% in 1997 from 64.4% in 1996. System sales
gross profit, which were 62.4% in 1997 and 64.8% in 1996, was influenced by the
decrease in sales volume as well as product mix. Mosaix's highest gross margins
occur on large system sales. During 1997, Mosaix sold fewer large systems than
in 1996, which negatively impacted margins.

Gross profit on software licenses decreased to 89.9% in 1997 from 93.4% in
1996, primarily due to increased amortization of previously capitalized software
costs.

Gross profit on services and other revenue for 1997 was 48.9% compared to
50.0% in the prior year, due to the growth in professional services which have a
lower margin and have been growing faster than systems and software support
fees.

Selling, General and Administrative.

For 1997, selling, general and administrative expenses were $47.8 million,
or 39.4% of revenue, compared to $45.4 million, or 38.7% of revenue, in the
prior year. The increase in spending was due primarily to the expansion of
marketing activities, investments in sales and employee training and recruiting.

Research and Development.

For 1997, research and development expenses, net of amounts capitalized,
were $15.2 million, or 12.6% of revenue, compared to $14.9 million, or 12.7% of
revenue, in 1996. Research and development spending, without regard to amounts
capitalized, was $15.5 million in 1997 compared to $15.9 million in 1996.

Software costs capitalized were $0.3 million in 1997 and $1.0 million in
1996. Capitalized software continues to decrease, and as of December 31, 1997,
has been reduced to $0.9 million versus $2.0 million as of December 31, 1996.

Mosaix is committed to the ongoing development of enhancements to existing
products as well as the development of new products. Mosaix is also pursuing the
acquisition of new technologies and/or licensing of products from third parties.

13
<PAGE> 16

Restructuring Charges.

As a result of the December 1996 ViewStar merger, Mosaix streamlined the
management structure and consolidated the sales, support and service operations
in 1997. These changes resulted in a charge of $0.9 million for severance and
other employee related costs.

Interest and Other Income, Net.

Interest and other income, net increased from $1.7 million in 1996 to $2.2
million in 1997. The increase is primarily the result of increased yields on
investments and increased cash available for investment. Mosaix intends to
continue to invest excess cash in interest bearing instruments with maturities
of one year or less.

Income Taxes.

The effective income tax rate for 1997 was 30.2% compared to 54.2% in 1996.
The 1997 variance from the statutory rate of 34% was primarily related to the
utilization of ViewStar net operating loss carryforwards. The unusually high
effective tax rate in 1996 was primarily the result of non-deductible merger
related expenses and purchased in-process research and development costs.

YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

Revenue.

Revenue of $117.2 million for 1996 represented a 25.7% increase over 1995
revenue of $93.2 million. System sales increased $10.2 million, or 23.7%, to
$53.4 million in 1996. The increase was primarily the result of multiple
purchases of large systems by a few of the Company's major customers.

Software licenses revenue increased by 38.2% to $20.7 million for 1996. The
primary reason for the growth was increased sales of the Company's workflow
products and additional software products sold in conjunction with call
management systems.

Services and other revenue increased by $8.0 million, or 22.8%, to $43.1
million for 1996 as a result of increased professional services and system and
software support fees. System and software support fees also increased due to
additional support contracts sold in conjunction with a greater number of
systems and software licenses.

International revenue increased to $22.3 million in 1996, from $17.7
million in 1995, due to first time sales in Mexico, South America, and South
Africa combined with increased sales in the United Kingdom and Japan.

Gross Profit.

Gross profit improved to 64.4% in 1996 from 62.0% in 1995. System sales
gross profit, which increased to 64.8% in 1996 as compared to 59.2% in 1995, was
primarily influenced by the increase in sales volume, product mix and software
amortization expense. During 1996, Mosaix sold a greater proportion of large
call management systems products which have a higher sales price and a greater
gross margin percentage than other system products. In addition, 1995 system
sales gross margins were negatively impacted by accelerated software
amortization expense resulting from the replacement of earlier versions of the
Company's call management system products with the newest versions of the
Company's products. During 1996, Mosaix expensed $1.4 million related to
software amortization compared to $2.8 million in 1995.

Gross profit on software licenses decreased slightly to 93.4% in 1996 from
95.9% in 1995, primarily due to a referral fee paid to a partner on a license
transaction. The decrease was partially offset by a decrease in royalty payments
to third-party software vendors.

Gross profit on services and other revenue for 1996 was 50.0% compared to
51.1% in the prior year. The change was due to a higher mix of lower-margin
professional service revenues and a lower mix of system and software support
fees than in prior years.

14
<PAGE> 17

Selling, General and Administrative.

For 1996, selling, general and administrative expenses were $45.4 million,
or 38.7% of revenue, compared to $41.2 million, or 44.2% of revenue, in the
prior year. While selling, general and administrative expenses decreased as a
percentage of revenue, the increase in spending was due to the expansion of
marketing activities and increased travel, advertising and personnel costs.

Research and Development.

For 1996, research and development expenses, net of amounts capitalized,
were $14.9 million, or 12.7% of revenue, compared to $13.1 million, or 14.0% of
revenue, in 1995. Gross research and development spending increased to $15.9
million from $15.3 million primarily due to increases in engineering staff and
outside contractors. Software costs capitalized were $1.0 million in 1996 and
$2.2 million in 1995.

Write-Off of Capitalized Software Costs.

When the Company completed the acquisition of Caleo as discussed below,
certain technology the Company was developing was replaced by technology
acquired in the Caleo purchase. The Company had previously capitalized $0.7
million of costs related to the replaced technology and, consequently, the costs
were expensed.

Purchase of In-Process Research and Development.

In February 1996, the Company purchased Caleo Software, Inc. (Caleo) for
approximately $4.8 million. The business combination was accounted for as a
purchase and, accordingly, the purchase price was allocated to the underlying
net assets based on the asset's fair values. Of the total purchase price, $4.3
million was allocated to in-process research and development and expensed at the
time of the combination.

Merger Related.

In December 1996, the Company issued approximately 3.8 million shares of
stock for ViewStar Corporation, a provider of workflow software. The business
combination was accounted for as a pooling of interest and, accordingly, the
merger related costs of $3.9 million were expensed.

Interest and Other Income, Net.

Interest and other income, net is comprised primarily of interest income
and remained constant at $1.7 million for 1996 and 1995.

Income Taxes.

Mosaix's income tax expense was $4.3 million and $4.2 million in 1996 and
1995, respectively. The effective tax rate was 54.2% in 1996 and 115.7% in 1995.
The unusually high effective tax rates were the result of non-deductible merger
related expenses and purchased in-process research and development costs. The
effective tax rates were also impacted by the merger with ViewStar because
operating losses generated by ViewStar prior to the merger provided no income
tax benefit to the consolidated organization in 1996 and 1995.

LIQUIDITY AND CAPITAL RESOURCES

Mosaix's financial condition remained strong as of December 31, 1997, with
cash and cash equivalents and short-term investments totaling $36.1 million. The
short-term investment portfolio is invested in corporate notes and bonds, and is
diversified among security types and issuers. It does not include any derivative
products. At December 31, 1997, Mosaix's working capital was $46.3 million, the
current ratio was 2.6 to 1.0 and during 1997, Mosaix generated $10.5 million of
cash from operations.

15
<PAGE> 18

Historically, working capital used to finance Mosaix has been provided by
cash flow from operations, leases, and various forms of stock including the
exercise of stock options by employees. During 1997, Mosaix invested $4.8
million to purchase furniture and equipment including investments in internal
customer management hardware and software systems. Additionally, Mosaix made
repayments on long-term lease obligations of $1.0 million.

On July 16, 1997, the Mosaix Board of Directors authorized, subject to
certain terms and conditions, the repurchase of up to 1,700,000 shares of common
stock. As of December 31, 1997, the Company had repurchased 1,437,500 shares at
a total cost of $14.0 million. In February 1998, the Mosaix Board of Directors
authorized the repurchase of an additional 1,000,000 shares of the Company's
common stock.

In addition to its cash and short-term investment balances, Mosaix has a
$10 million domestic line of credit available to meet cash flow needs. The line
of credit expires on May 31, 1998, however, the Company intends to renew the
line of credit for another year. Management believes that existing cash and
short-term investments and cash flow from operations, together with its
available credit line, will continue to be sufficient to meet ongoing operating
requirements as well as Mosaix's investment in capital assets and research and
development activities. In connection with research and development and market
expansion, cash may be used to acquire technology or to fund strategic ventures.

FORWARD LOOKING STATEMENTS -- RISK FACTORS REGARDING FUTURE PERFORMANCE

Certain statements in this Annual Report on Form 10-K contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risks and uncertainties. Actual future results
may differ materially depending on a variety of factors, including, without
limitation, the following:

Uncertainties Relating to the Management of Remote Operations.

In December of 1996, the Company completed a merger with ViewStar, and
during 1997, several administrative and management functions were combined.
Certain sales, customer support, professional service and development functions
remain in Alameda, California, and the Company does not have significant
experience in the management of remote operations. The geographical separation
of Alameda operations may hinder efforts to integrate operations and product
development. The failure to effectively manage the operations in Alameda or to
realize the potential product synergies could have a material adverse effect on
the Company's business.

Uncertainty of Future Operating Results; Fluctuations in Operating Results;
Seasonality.

The Company's system sales and software license revenues are difficult to
forecast because sales cycles are relatively long, and quarterly revenues depend
on a relatively few large contracts that are subject to changes in customer
budgets and general economic conditions. Furthermore, because the Company's
products generally are shipped as orders are received, revenues in any quarter
are substantially dependent on orders booked and shipped in that quarter.

The Company's operating results have fluctuated in the past and are likely
to do so in the future, particularly on a quarterly basis. In addition, changes
in levels of the Company's consulting activity and seasonality in its consulting
revenues have resulted in variability of service revenues from quarter to
quarter. Historically, the Company often has recognized a substantial portion of
its revenues in the last month of the quarter, with these revenues frequently
concentrated in the last week of the quarter. In addition, the Company generally
has realized lower revenues from system sales and software license fees in the
first quarter of the year than in the immediately preceding quarter. Mosaix
believes that this has been due primarily to the concentration by some customers
of larger capital purchases in the fourth quarter of the calendar year to avoid
end-of-year budgetary limitations, followed by lower purchasing activity during
the first quarter of the next calendar year.

16
<PAGE> 19

Further, to the extent that international operations in the future
constitute a higher percentage of total revenues, the Company anticipates that
it ordinarily will experience relatively weaker demand in the quarter ending
September 30, due to reduced customer activity in Europe during the summer
months. The Company is in the process of adding additional functionality to
workflow products to closely align with current CMS customers. The additional
functionality may not be accepted by traditional workflow customers and not only
license revenue but customer support revenues could be negatively impacted in
the future.

As a result of these and other factors, revenues for any quarter are
difficult to forecast and are subject to significant variation. Moreover,
results of operations for any particular period are not necessarily indicative
of future performance. Due to all of the foregoing factors, it is likely that
without advance warning or notice, in some future quarter the Company's
operating results will be below the expectations of market analysts and
investors.

Lengthy Sales and Implementation Cycle; Complex Service Requirements.

The purchase or license of the Company's products is usually a significant
decision by prospective customers, requiring the Company to engage in a lengthy
sales cycle, typically between six and twelve months, without any assurance that
a sale will result. Moreover, the cost to the customer of the Company's products
typically is only a portion of the cost of implementing a large-scale CMS or CRM
solution. For these and other reasons, the sales cycle is subject to a number of
significant delays over which the Company has little or no control. Successful
implementation of the Company's products may also require lengthy and complex
implementation and integration services, which services may be provided by the
Company or by a third-party. In addition, it is becoming increasingly
competitive to recruit the talent required to perform the required services. The
Company's future operating results will depend upon its ability to coordinate
these complex service resources and ensure successful implementation of its
products, while managing costs.

Competition.

The market for Mosaix's products is highly competitive. Important
competitive factors include price, performance, diversity of product line,
reliability, delivery capabilities, customer support and service. Some of the
Company's competitors have significantly greater financial, technical,
manufacturing, marketing and other resources. Competitors may develop products
and technologies that are less expensive or technologically superior to the
Company's products.

Many of the Company's current or potential competitors have greater
financial, technical and marketing resources. As the Company's markets mature
and new and existing companies compete for the same customers, price competition
is likely to intensify, which could adversely affect the operating results of
the Company.
17
<PAGE> 20

Mosaix also relies on a number of system integration firms for
implementation and other services as well as recommendations of its products
during the evaluation stage of the purchasing process. Although Mosaix seeks to
maintain close relationships with these service providers, many of these third
parties have similar, and often more established relationships with Mosaix's
principal competitors. If Mosaix is unable to develop and retain effective,
long-term relationships with these third parties, Mosaix's competitive position
would be materially adversely affected.

Technological Change and New Products.

The document management and workflow software market and the call
management market are characterized by rapid technological change and frequent
product introductions and improvements. Accordingly, the success of Mosaix will
depend to a great extent upon its ability to develop product enhancements and
new products that keep pace with continuing changes in technology and customer
preferences while remaining price competitive.

Mosaix has incurred, and expects to continue to incur, substantial expenses
associated with the introduction and promotion of new products. There can be no
assurance that the expenses incurred will not exceed development budgets, that
Mosaix will introduce products in a timely fashion, if at all, or that such
products will achieve market acceptance and generate sales sufficient to offset
development costs. In addition, the success of the Company's products which are
designed for use on the Internet or intranets will depend upon the acceptance of
the Internet, intranets and World Wide Web technologies, as well as the
products' compatibility with such technologies.

Competition for Employees.

Competition for engineers, professional services, customer support and
sales employees has continued to increase in the high tech industry. In order
for the Company to develop new and enhanced versions of existing products and to
properly support customers, the Company must continue to successfully retain
existing employees and recruit additional skilled people. In the event the
Company is not able to attract the skill sets required in a reasonable time
frame or as the cost of acquiring those skill sets increase, the Company could
be materially adversely affected.

Limited Source of Supply.

The Company purchases two principal components for its system product from
sole-source vendors. One vendor has announced that it will discontinue a
component. The Company has a next generation replacement part in testing which
will replace the discontinued component, but if this is unsuccessful and the
existing component becomes unavailable, the establishment of an alternate source
could not be accomplished quickly and would require investment of additional
resources. This would affect the Company's ability to manufacture its call
center system products. Any such delay could materially adversely affect the
operating results of the Company.

Dependence on Windows NT and Other Core Microsoft Technologies.

The success of many of the Company's products and potential products
depends upon the continued acceptance and use in critical business applications
of Microsoft's Windows NT platform and other core Microsoft technologies, such
as the Windows NT Server, the Microsoft SQL Server database and related Back
Office software on which such products are, or will be, based. If the Windows NT
platform market fails to grow, grows more slowly than anticipated or becomes
obsolete, the Company's business, results of operations and financial condition
would be materially adversely affected.

Lack of Product Revenue Diversification.

While the Company has developed new software products and services and has
multiple distribution channels, the Company expects that its CMS and CRM
products will continue to account for a significant amount of the Company's
revenues in the future. A decline in demand for those products as a result of
18
<PAGE> 21

competition, technological change or other factors would have a material adverse
effect on the Company's results of operations.

International Sales.

Mosaix sells products to customers in international markets, with such
sales accounting for 26.4% of the Company's total sales in 1997, and accordingly
is subject to the normal risks of international sales, such as currency
fluctuations, longer payment cycles, greater difficulties in accounts receivable
collections and compliance with export laws and a wide variety of foreign laws.
Any difficulties with respect to foreign export or other laws would have a
material adverse effect on the Company's international sales. The current year
financial crisis in Asia did not have a material effect on the Company but
anticipated growth in Asia may be negatively impacted. Because the Company
invoices certain of its foreign sales in local currency and does not hedge these
transactions, fluctuations in exchange rates could adversely affect the
Company's revenues and costs and could create significant foreign currency
losses.

Dependence on Proprietary Rights; Infringement Claims; Uncertainty of
Obtaining Licenses.

Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy the Company's products or to obtain and
use the Company's proprietary information. Policing unauthorized use of the
Company's products is difficult, and since Mosaix is unable to determine the
extent to which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to as great an extent
as the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that its
competitors will not independently develop similar technology.

The Company has received communications from time to time, asserting that
its products infringe the proprietary rights of third parties, or seeking
indemnification against such infringement. Although the Company believes that
none of its products infringe the proprietary rights of third parties, there can
be no assurance that third parties will not claim infringement with respect to
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors grows and the functionality of products in different markets
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, adversely affect revenues, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all, which could have a material adverse effect
on the Company's business, results of operations and financial condition.

Mosaix also relies on certain software licensed from third parties,
including software that is integrated with internally developed software and
used in the Company's products to perform key functions. There can be no
assurance that such third parties will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could materially
adversely affect the Company's business.

Risk of Product Defects.

Software and other products as internally complex, with as many interfaces
to third party vendors as those offered by the Company, frequently contain
errors or defects, especially when first introduced or when new versions are
released. Although Mosaix conducts extensive product testing during product
development, it has experienced delays in the commercial release of products
pending the correction of software problems and, in some cases, has provided
product enhancements to correct errors or defects in released products due to
the difficulty in testing for all possible conditions that may be encountered at
a customer site. The Company could therefore, in the future, lose revenues as a
result of software errors or other product defects. The Company's products and
future products are intended for use in applications that are critical to a
customer's business. As a

19
<PAGE> 22

result, Mosaix expects that its customers and potential customers have a greater
sensitivity to product defects than the market for software products generally.

Governmental Regulation.

While existing industry legislation does not directly regulate the
manufacture and sale of Mosaix's call management products, certain existing
legislation may affect the ability of Mosaix's customers to utilize some of its
products in certain ways. For example, Mosaix's call management systems may not
be used for certain prohibited debt collection and remote telephone solicitation
practices, nor may they be used under certain circumstances to leave or play
artificial or prerecorded messages. These practices are governed by such federal
laws as the Telephone Consumer Protection Act of 1991 and the Telemarketing and
Consumer Fraud and Abuse Prevention Act, which authorize the FCC and Federal
Trade Commission, respectively, to issue additional regulations and administer
such laws. In addition, most states have enacted legislation limiting certain
telephone solicitation practices or restricting use of automatic dialing and
announcement devices. Other federal and state legislation that has been proposed
from time to time include bills that would, if enacted, recognize certain
privacy rights of employees at the work site and regulate the ability of
employers to monitor job performance, including monitoring employees' telephone
communication or gathering information regarding such communications. It is
possible that such legislation or other legislation, if enacted, might directly
or indirectly affect how Mosaix's call management systems, or some feature
thereof, can be used. Mosaix fully supports legislation designed to promote the
responsible use of auto dialing equipment. Mosaix endeavors to design its
products to enable its customers to comply with the requirements of current and
anticipated regulations. Similarly, international regulations and laws,
particularly in Europe and Asia, could have a negative impact on the Company.

Change in Accounting for Software Revenue Recognition.

In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 "Software Revenue Recognition," which
Mosaix will be required to adopt beginning January 1, 1998. SOP 97-2 provides
guidance on software revenue recognition and the allocation of revenue when
multiple products and services are bundled. In the past, Mosaix has deferred
revenue on delivered software that required more than minor modifications but in
the event that bundled products and services can no longer be separated, Mosaix
will be required to recognize revenue using the percentage of completion method
instead of upon shipment of the software. Mosaix intends to continue to separate
software licenses from professional service contracts but if Mosaix is unable to
maintain the separation, a material adverse effect could occur in the Company's
results of operations.

Year 2000 Computer Problems.

The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value, 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause system
failure.

All of the Company's currently shipping products are year 2000 compliant.
In addition, whenever possible, the Company has made software upgrades available
to existing customers, that along with related hardware upgrades, will enable
them to be year 2000 compliant. The Company does have some customers who have
purchased systems in the past, where a hardware upgrade is not available to
allow the customer to become year 2000 compliant. The Company has, and will
continue to encourage such customers to migrate to current product versions. It
is possible that the Company may incur additional expenses in addressing these
migration issues. Additionally, there can be no assurances that the Company's
current products do not contain undetected errors related to year 2000 that may
result in material additional costs or liabilities which could have a material
adverse effect on the Company.

20
<PAGE> 23

With regard to the Company's internal processing and operational systems,
the Company is in the process of installing an enterprise-wide financial and
operational system from a major vendor that is year 2000 compliant. Significant
portions of the system are currently operational and the Company anticipates all
critical components of the system will be operational by December, 1998. The
Company has capitalized the price of the system and third party consulting costs
incurred to date and will continue to do so as the system is completed. With
regard to other systems, the Company is identifying, reprogramming and testing
all systems for year 2000 compliance. Although the Company is not aware of any
additional material operational issues or costs associated with preparing the
internal systems for the year 2000, there can be no assurances that the Company
will not experience material adverse effects from undetected errors or the
failure of such systems to be year 2000 compliant.

ITEM EIGHT

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

For financial statements, see F-1 to F-19.

ITEM NINE

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM TEN

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.

ITEM ELEVEN

EXECUTIVE COMPENSATION

ITEM TWELVE

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM THIRTEEN

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

21
<PAGE> 24

PART IV

ITEM FOURTEEN

EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

CONSOLIDATED FINANCIAL STATEMENTS:

See F-1 to F-18.

FINANCIAL STATEMENTS SCHEDULES:

Independent Auditors' Report (contained on page F-19)

Schedule II Valuation and Qualifying Accounts (contained on page F-20)

All other Schedules are omitted because they are inapplicable or because the
requested information is shown in the Consolidated Financial Statements of
the Company or in the related Notes thereto.

22
<PAGE> 25

<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
10.16 ViewStar Corporation Amended 1986 Incentive Stock Plan and
form of agreement thereunder* (I)
10.17 ViewStar Corporation Amended 1994 Stock Plan, as amended,
and form of agreement thereunder* (I)
10.18 ViewStar Corporation 1996 Incentive Stock Plan* (I)
10.19 Sublease Agreement between the ASK Group, Inc. and ViewStar
Corporation, dated October 8, 1993, for ViewStar's facility
located at 1101 Marina Village Parkway, Alameda, California (I)
10.20 First Amendment to Sublease Agreement between the ASK Group,
Inc. and ViewStar Corporation, dated September 8, 1994, for
ViewStar's facility located at 1101 Marina Village Parkway,
Alameda, California (A)
10.21 Promissory Note issued by Kamran Kheirolomoom to ViewStar
Corporation dated July 2, 1996* (I)
10.22 Executive Employment Agreement, dated October 14, 1996,
between Kamran Kheirolomoom and the Registrant* (I)
10.23 Executive Employment Agreement, dated October 14, 1996,
between Robert I. Pender, Jr. and the Registrant* (I)
10.24 Executive Employment Agreement, dated October 14, 1996,
between Gayle A. Crowell and the Registrant* (I)
10.25 Executive Employment Agreement, dated October 14, 1996,
between Steve Russell and the Registrant* (A)
10.26 Executive Employment Agreement, dated February 14, 1996,
between Steve L. Adams and the Registrant* (A)
10.27 Executive Employment Agreement, dated July 1, 1997, between
Omar Saleh and the Registrant* (A)
10.28 Executive Employment Agreement, dated February 5, 1998,
between Jeff Jarvis and the Registrant* (A)
10.29 Executive Employment Agreement, dated February 5, 1998,
between Bruce Leader and the Registrant* (A)
10.30 Executive Employment Agreement, dated February 5, 1998,
between Nicholas A. Tiliacos and the Registrant* (A)
10.31 Lease Agreement between Millennium Corporate Park, L.L.C.
and the Registrant, dated December 11, 1997, for the
Company's corporate headquarters in Redmond, Washington (A)
10.32 1998 Management and Performance Bonus Plans* (A)
21.1 List of Subsidiaries of the Registrant (A)
23.1 Consent of KPMG Peat Marwick LLP (A)
27.1 Financial Data Schedule (A)
</TABLE>

- ---------------

* Management contract or compensation plan.

** Confidential treatment has been requested with respect to portions of the
agreement.

23
<PAGE> 26

(A) Filed herewith.

(B) Incorporated by reference from exhibits filed in connection with the
Registrant's Registration Statement on Form S-1 (Registration No. 33-34561)
filed with the Securities and Exchange Commission on April 26, 1990, as
amended.

(C) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.

(D) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992.

(E) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.

(F) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K/A for the year ended December 31,
1994.

(G) Incorporated by reference from exhibits filed in connection with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.

(H) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.

(I) Incorporated by reference from exhibits filed in connection with the
Registrant's Registration Statement on Form S4 (Registration No. 333-14887)
initially filed with the Securities and Exchange Commission on October 25,
1996.

(J) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.

24
<PAGE> 27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

MOSAIX, INC.

By: /s/ NICHOLAS A. TILIACOS
------------------------------------
Nicholas A. Tiliacos
Director and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ HARVEY N. GILLIS Chairman of the Board and March 2, 1998
- ----------------------------------------------------- Director
Harvey N. Gillis

/s/ NICHOLAS A. TILIACOS President, Chief Operating March 2, 1998
- ----------------------------------------------------- Officer and Director
Nicholas A. Tiliacos

/s/ JOHN J. FLAVIO Senior Vice President and Chief March 2, 1998
- ----------------------------------------------------- Financial Officer
John J. Flavio

/s/ MICHAEL A. JACOBSEN Controller and Principal March 2, 1998
- ----------------------------------------------------- Accounting Officer
Michael A. Jacobsen

/s/ TOM A. ALBERG Director March 2, 1998
- -----------------------------------------------------
Tom A. Alberg

/s/ H. ROBERT GILL Director March 2, 1998
- -----------------------------------------------------
H. Robert Gill

/s/ UMANG GUPTA Director March 2, 1998
- -----------------------------------------------------
Umang Gupta

/s/ PATRICK S. HOWARD Director March 2, 1998
- -----------------------------------------------------
Patrick S. Howard

/s/ DAVID J. LADD Director March 2, 1998
- -----------------------------------------------------
David J. Ladd

/s/ ROBERT S. LEVENTHAL Director March 2, 1998
- -----------------------------------------------------
Robert S. Leventhal
</TABLE>

25
<PAGE> 28

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Mosaix, Inc.:

We have audited the accompanying consolidated balance sheets of Mosaix,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mosaix, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

Seattle, Washington
February 2, 1998

F-1
<PAGE> 29

MOSAIX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenue:
Systems sales............................................ $ 49,198 $ 53,384 $ 43,169
Software licenses........................................ 23,947 20,654 14,949
Services and other....................................... 47,999 43,143 35,130
-------- -------- --------
Total revenue......................................... 121,144 117,181 93,248
-------- -------- --------
Cost of revenue:
System sales............................................. 18,510 18,813 17,627
Software licenses........................................ 2,416 1,364 612
Services and other....................................... 24,504 21,588 17,178
-------- -------- --------
Total cost of revenue................................. 45,430 41,765 35,417
-------- -------- --------
Gross profit............................................... 75,714 75,416 57,831
-------- -------- --------
Operating expenses:
Selling, general and administrative...................... 47,774 45,355 41,179
Research and development................................. 15,226 14,912 13,054
Restructuring charge..................................... 948 -- 1,240
Write-off of capitalized software costs.................. -- 705 --
Purchase of in-process research and development.......... -- 4,307 --
Merger related........................................... -- 3,905 500
-------- -------- --------
Total operating expenses.............................. 63,948 69,184 55,973
-------- -------- --------
Operating income........................................... 11,766 6,232 1,858
Interest and other income, net............................. 2,208 1,674 1,730
-------- -------- --------
Earnings before income taxes............................... 13,974 7,906 3,588
Income tax expense......................................... 4,217 4,288 4,151
-------- -------- --------
Net earnings (loss)........................................ $ 9,757 $ 3,618 $ (563)
======== ======== ========
Earnings (loss) per share:
Basic.................................................... $ 0.74 $ 0.29 $ (0.06)
Diluted.................................................. $ 0.71 $ 0.27 $ (0.06)
Weighted average common shares outstanding:
Basic.................................................... 13,169 12,677 9,846
Diluted.................................................. 13,667 13,570 9,846
</TABLE>

See accompanying notes to consolidated financial statements.
F-2
<PAGE> 30

MOSAIX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,532 $10,984
Short-term investments.................................... 30,548 31,825
Trade accounts receivable, less allowance for doubtful
accounts of $1,749 in 1997 and $1,593 in 1996.......... 30,325 26,061
Inventories............................................... 2,532 2,814
Current installments of contracts receivable, less
allowance for doubtful accounts of $497 in 1997........ 1,555 1,764
Deferred income taxes..................................... 1,338 1,560
Prepaid expenses and other current assets................. 2,881 4,277
------- -------
Total current assets................................... 74,711 79,285
Furniture, equipment and leasehold improvements, net........ 7,449 7,393
Contracts receivable, less allowance for doubtful contracts
of $423 in 1996, excluding current installments........... -- 670
Capitalized software costs, net of accumulated amortization
of $701 in 1997 and $3,464 in 1996........................ 930 1,993
Deferred income taxes....................................... 837 178
Other assets, net........................................... 451 1,244
------- -------
Total assets...................................... $84,378 $90,763
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,455 $ 5,064
Accrued compensation...................................... 8,762 9,097
Other accrued expenses.................................... 6,413 7,272
Current portion of long-term obligations.................. 381 934
Customer deposits and unearned revenue.................... 7,443 10,114
------- -------
Total current liabilities.............................. 28,454 32,481
Long-term obligations, excluding current installments....... 97 575
Unearned revenue, less current portion...................... 22 364
------- -------
Total liabilities...................................... 28,573 33,420
Shareholders' equity:
Common stock, $.01 par value. Authorized 25,000 shares;
issued and outstanding 12,229 shares in 1997 and 13,237
shares in 1996......................................... 122 132
Additional paid-in-capital................................ 50,040 61,841
Cumulative translation adjustments........................ (3) (201)
Notes receivable from shareholders........................ (272) (590)
Accumulated earnings (deficit)............................ 5,918 (3,839)
------- -------
Total shareholders' equity............................. 55,805 57,343
------- -------
Total liabilities and shareholders' equity........ $84,378 $90,763
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.
F-3
<PAGE> 31

MOSAIX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE STOCK OPTION
--------------- --------------- PAID-IN FROM TRANSLATION COMPENSATION
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS ADJUSTMENT EXPENSE
------- ------- ------ ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994...... 1,847 $ 18 10,160 $102 $ 60,116 $(119) $(339) $(85)
Exercise of stock options........ -- -- 187 2 537 (180) -- --
Amortization of deferred
compensation expense........... -- -- -- -- -- -- -- 54
Tax benefit realized upon
exercise of stock options...... -- -- -- -- 103 -- -- --
Common stock sold pursuant to
employee stock purchase plan... -- -- 29 -- 226 -- -- --
Translation adjustment........... -- -- -- -- -- -- 5 --
Repurchase of common stock....... -- -- (608) (6) (4,294) -- -- --
Net loss......................... -- -- -- -- -- -- -- --
------ ---- ------ ---- -------- ----- ----- ----
Balances at December 31, 1995...... 1,847 18 9,768 98 56,688 (299) (334) (31)
Issuance of preferred stock...... 3,293 33 -- -- 3,294 -- -- --
Exercise of stock options........ -- -- 369 4 1,440 (136) -- --
Amortization of deferred
compensation expense........... -- -- -- -- -- -- -- 31
Tax benefit realized upon
exercise of stock options...... -- -- -- -- 1,051 -- -- --
Common stock sold pursuant to
employee stock purchase plan... -- -- 33 -- 388 -- -- --
Translation adjustment........... -- -- -- -- -- -- 133 --
Restricted stock issued in
exchange for note receivable... -- -- 311 3 152 (155) -- --
Conversion of preferred stock to
common stock................... (5,140) (51) 2,797 28 23 -- -- --
Exercise of stock warrants....... -- -- 42 -- 30 -- -- --
Repurchase of common stock....... -- -- (83) (1) (1,225) -- -- --
Net earnings..................... -- -- -- -- -- -- -- --
------ ---- ------ ---- -------- ----- ----- ----
Balances at December 31, 1996...... -- -- 13,237 132 61,841 (590) (201) --
Exercise of stock options........ -- -- 409 4 1,161 -- -- --
Tax benefit realized upon
exercise of stock options...... -- -- -- -- 700 -- -- --
Common stock sold pursuant to
employee stock purchase plan... -- -- 38 1 365 -- -- --
Translation adjustment........... -- -- -- -- -- -- 198 --
Collection of shareholder
notes.......................... -- -- -- -- -- 318 -- --
Repurchase of common stock....... -- -- (1,455) (15) (14,027) -- -- --
Net earnings..................... -- -- -- -- -- -- -- --
------ ---- ------ ---- -------- ----- ----- ----
Balances at December 31, 1997...... -- $ -- 12,229 $122 $ 50,040 $(272) $ (3) $ --
====== ==== ====== ==== ======== ===== ===== ====

ACCUMULATED TOTAL
EARNINGS SHAREHOLDERS'
(DEFICIT) EQUITY
----------- -------------
<S> <C> <C>
Balances at December 31, 1994...... $(6,894) $ 52,799
Exercise of stock options........ -- 359
Amortization of deferred
compensation expense........... -- 54
Tax benefit realized upon
exercise of stock options...... -- 103
Common stock sold pursuant to
employee stock purchase plan... -- 226
Translation adjustment........... -- 5
Repurchase of common stock....... -- (4,300)
Net loss......................... (563) (563)
------- --------
Balances at December 31, 1995...... (7,457) 48,683
Issuance of preferred stock...... -- 3,327
Exercise of stock options........ -- 1,308
Amortization of deferred
compensation expense........... -- 31
Tax benefit realized upon
exercise of stock options...... -- 1,051
Common stock sold pursuant to
employee stock purchase plan... -- 388
Translation adjustment........... -- 133
Restricted stock issued in
exchange for note receivable... -- --
Conversion of preferred stock to
common stock................... -- --
Exercise of stock warrants....... -- 30
Repurchase of common stock....... -- (1,226)
Net earnings..................... 3,618 3,618
------- --------
Balances at December 31, 1996...... (3,839) 57,343
Exercise of stock options........ -- 1,165
Tax benefit realized upon
exercise of stock options...... -- 700
Common stock sold pursuant to
employee stock purchase plan... -- 366
Translation adjustment........... -- 198
Collection of shareholder
notes.......................... -- 318
Repurchase of common stock....... -- (14,042)
Net earnings..................... 9,757 9,757
------- --------
Balances at December 31, 1997...... $ 5,918 $ 55,805
======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 32

MOSAIX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................... $ 9,757 $ 3,618 $ (563)
Depreciation and amortization............................ 6,028 6,315 7,266
Trade and other receivables.............................. (3,385) 1,181 (3,174)
Other assets............................................. 1,927 (2,162) (466)
Accounts payable and accrued expenses.................... (803) 2,977 4,439
Customer deposits and unearned revenue................... (3,013) (7,023) (1,270)
-------- -------- --------
Net cash provided by operating activities........ 10,511 4,906 6,232
-------- -------- --------
Cash flows from investing activities:
Purchase of short-term investments....................... (35,978) (40,635) (50,433)
Proceeds from maturities of short-term investments....... 37,255 42,658 16,585
Purchases of furniture and equipment..................... (4,778) (3,456) (2,781)
Increase in capitalized software costs................... (256) (976) (2,157)
Other.................................................... 820 207 588
-------- -------- --------
Net cash used in investing activities............ (2,937) (2,202) (38,198)
-------- -------- --------
Cash flows from financing activities:
Payments of borrowings under bank line of credit......... -- -- (1,500)
Proceeds from subordinated notes issued to
shareholders.......................................... -- -- 2,000
Collection of shareholder notes receivable............... 318 -- --
Repayment of long-term obligations....................... (1,031) (1,262) (2,151)
Common stock repurchased................................. (14,042) (1,226) (4,299)
Proceeds from issuance of preferred and common stock..... 1,531 2,905 585
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... (13,224) 417 (5,365)
-------- -------- --------
Effect of exchange rate changes on cash.................... 198 117 12
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... (5,452) 3,238 (37,319)
Cash and cash equivalents, beginning of year............... 10,984 7,746 45,065
-------- -------- --------
Cash and cash equivalents, end of year..................... 5,532 10,984 7,746
Short-term investments..................................... 30,548 31,825 33,848
-------- -------- --------
Cash and cash equivalents and short-term investments....... $ 36,080 $ 42,809 $ 41,594
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes.......................................... $ 1,816 $ 5,611 $ 3,255
Interest.............................................. $ 105 $ 290 $ 568
Noncash investing and financing activities:
Equipment transferred from inventory..................... $ 14 $ 363 $ 238
Tax benefit realized upon exercise of stock options...... $ 700 $ 1,051 $ 103
Equipment acquired under capital leases.................. $ -- $ 554 1,058
Issuance of common stock in exchange for notes
receivable............................................ $ -- $ 291 $ 180
Issuance of preferred stock in exchange for subordinated
notes payable and related accrued interest............ $ -- $ 2,148 $ --
</TABLE>

See accompanying notes to consolidated financial statements.
F-5
<PAGE> 33

MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Description of Business.

Mosaix, Inc. and subsidiaries (hereinafter referred to as "Mosaix" or the
"Company") is a global provider of predictive dialing systems, workflow software
and enterprise customer management solutions that automate and optimize an
organization's interactions with its customers. By employing Mosaix' customer
interaction software, call management applications and business process
applications, companies are creating and managing profitable customer
relationships. Mosaix maintains a global professional service and customer
support organization and a network of development, co-marketing, and strategic
partnerships.

Mosaix' principal markets are North America, Europe, and Asia. Credit is
extended to customers in the normal course of business.

b. Basis of Presentation.

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

c. Cash Equivalents and Short-Term Investments.

All short-term investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents. The Company's investment
securities are classified as held-to-maturity and, as such, are carried at
amortized cost.

d. Inventories.

Inventories are stated at the lower of cost (first-in, first-out) or market
(replacement cost for raw materials and net realizable value for finished goods,
work-in-process and spare parts).

e. Furniture, Equipment and Leasehold Improvements.

Furniture, equipment and leasehold improvements are stated at cost.
Depreciation of furniture and equipment (including rental systems) is provided
on the straight-line method over the three to five year estimated useful lives
of the assets. Leasehold improvements and assets recorded under capital leases
are amortized over the shorter of their estimated useful lives or the related
lease term. Maintenance and repairs are expensed as incurred. When furniture,
equipment and leasehold improvements are retired or otherwise disposed, gains
and losses are reflected in the consolidated statement of operations.

f. Capitalized Software Costs.

Software development costs incurred in conjunction with product development
are charged to research and development expense until technological feasibility
has been established. Once technological feasibility of a software product to be
marketed has been established, development and enhancement costs are capitalized
and reported at the lower of unamortized cost or net realizable value. Net
realizable value for a particular product is assessed based on anticipated gross
margins applicable to sales of the related product in future periods. Fully
amortized software development costs are removed from the Company's accounts.

Amortization of capitalized software costs begins when the related product
is available for general release to customers and is computed for each product
based on the greater of (a) the ratio of current gross revenue for a product to
the total of current and anticipated future gross revenue for the product or (b)
the straight line method over the estimated life of the product. Amortization
expense related to capitalized software costs

F-6
<PAGE> 34
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

amounted to $1,318, $1,448 and $2,823 for 1997, 1996 and 1995, respectively.
These amounts are included in cost of systems and software revenue.

g. Revenue Recognition.

The Company's revenues are primarily derived from: systems sales, software
licenses and services. Systems sales are comprised of revenue related to
products sold that include both hardware and software. Software licenses include
revenue related to software-only applications that operate on industry standard
hardware available from the Company and other vendors. Services revenue consists
of consulting services and recurring software and system support fees.

Revenue on system sales is generally recognized when the units are shipped
and the Company has no significant remaining obligations. For system sales
requiring significant customization or for new products, revenue is recognized
upon completion of the customization or customer acceptance. Installation fees
relating to system sales are recognized when the related system is installed.
Revenue from the sale of software licenses is recognized when (i) a signed
contract exists, (ii) delivery has occurred, (iii) collectibility is probable,
and (iv) remaining Company obligations are insignificant. Generally, revenues
from the sale of software licenses through distributors are recognized after
contract signing and shipment, and upon the earlier of sale to the end user or
upon receipt of nonrefundable cash payments from the distributors. Revenue from
system and software support service is recognized using the straight-line method
over the term of the contract. Revenue from professional services is recognized
as the related work is performed.

Customer payment terms vary. Amounts billed in advance of satisfying
revenue recognition criteria are classified in "customer deposits and unearned
revenue." Costs incurred prior to satisfying revenue recognition criteria are
deferred and are classified as a component of inventories.

The Company has historically sold and licensed systems pursuant to lease
agreements which qualify as sales type leases with an initial term of three
years or more. Revenue from these contracts was recognized when units were
shipped, at the present value of the minimum payments at the beginning of the
contract discounted at the Company's incremental borrowing rate. No such
contracts were sold in 1997 or 1996.

h. Research and Development Costs.

Research and development costs are charged to expense as incurred, except
as described in f.

i. Income Taxes.

The Company computes income taxes using the asset and liability method,
under which deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred tax assets and liabilities are measured using
currently enacted tax rates that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is established when necessary to reduce deferred
tax assets to the amounts expected to be realized.

j. Product Warranties.

The Company generally provides a 90-day warranty for all systems sold and a
30 day warranty for software products. A charge to the statement of operations
is made at the time of sale for estimated costs of repair or replacement of the
products during the warranty period.

F-7
<PAGE> 35
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

k. Net Earnings (Loss) Per Share.

During 1997, Mosaix adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share," and restated earnings (loss) per share for
all prior periods. In accordance with SFAS No. 128, basic net earnings (loss)
per share is computed using the weighted average number of common shares
outstanding. Diluted net earnings (loss) per share is computed using the
weighted average number of common shares plus dilutive common share equivalents
outstanding during the period using the treasury stock method. Common share
equivalents consist of employee stock options and convertible preferred stock.

l. Foreign Currency Translation.

Assets and liabilities of foreign operations are translated into U.S.
dollars using rates of exchange in effect at the end of the year. Income and
expense accounts are translated into U.S. dollars using annual average rates of
exchange. The net gain or loss resulting from translation is shown as a
cumulative translation adjustment in shareholders' equity. Gains and losses from
foreign currency transactions are included in other income (expense), net.

m. Financial Instruments and Concentrations of Credit Risk.

The Company's financial instruments consist of cash and cash equivalents,
short-term investments, trade accounts and contracts receivable, accounts
payable, and long-term obligations. The Company's cash and cash equivalents and
short-term investments are diversified among security types and issuers, and
approximate fair value. The fair value of financial instruments that are
short-term and/or that have little or no risk are considered to have a fair
value equal to book value. Assets and liabilities that are included in this
category are receivables, accounts payable, accrued liabilities and long term
obligations.

Concentrations of credit risk with respect to receivables are limited due
to the diversity in geographic location of customers as well as diversity in
industries. In addition, the Company performs initial and ongoing evaluations of
its customers' financial position, and generally extends credit on open account
without requiring collateral.

n. Stock Based Compensation.

In 1996, Mosaix adopted SFAS No. 123, "Accounting for Stock Based
Compensation." In accordance with the provisions of SFAS No. 123, Mosaix has
elected to continue to apply the provisions of Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its stock option
and stock purchase plans and, accordingly, does not recognize compensation
expense for options granted with an exercise price equal to or in excess of fair
value at the date of grant. Note 8 to the consolidated financial statements
contains a summary of pro forma results of operations for 1997, 1996 and 1995 as
if Mosaix had recognized compensation expense based on the fair value of the
options and stock purchase rights granted at grant date as required by SFAS No.
123.

o. New Accounting Pronouncements.

In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
supersedes SOP 91-1. The Company will be required to adopt SOP 97-2 beginning
January 1, 1998. SOP 97-2 provides guidance on software revenue recognition and
the allocation of revenue when multiple products and services are bundled. In
the past, the Company has deferred revenue on delivered software that required
more than minor modifications. In the event that bundled products and services
can no longer be separated, the Company will be required to defer revenue
recognition on both product and service elements until revenue recognition
criteria have been satisfied for all elements.

F-8
<PAGE> 36
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

The Company intends to continue to separate software licenses from professional
service contracts and accordingly the impact on the consolidated financial
statements is not expected to be material.

p. Use of Estimates.

The preparation of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

q. Reclassifications.

Certain reclassifications have been made to the prior period financial
statements to conform with the current year presentation.

2. BUSINESS COMBINATIONS

a. ViewStar Corporation.

In December 1996, the Company issued 3,777,078 shares of $.01 par value
common stock in exchange for all of the outstanding common shares of ViewStar
Corporation, a provider of client/server document management and workflow
software. This business combination was accounted for as a pooling-of-interests
and, accordingly, the consolidated financial statements for all periods prior to
the combination were restated to include the accounts and results of operations
of ViewStar. In connection with the business combination, $3,905 of merger
related costs were incurred.

During 1995, ViewStar incurred $500 of costs associated with the
termination of a proposed merger.

b. Caleo Software, Inc.

In February 1996, the Company purchased Caleo Software, Inc. (Caleo) for
$4,750 in cash. The business combination was accounted for using the purchase
method whereby the purchase price was allocated to the underlying net assets
based on their relative fair values. Of the total purchase price, $4,307 was
charged to operations as the purchase of in-process research and development.
The results of operations of Caleo were not significant in relation to the
Company. At the time of the combination, the Company also wrote off $705 of
previously capitalized software costs for duplicative technology.

F-9
<PAGE> 37
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company's cash and cash equivalents and short-term investments as of
December 31 consist of the following:

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cash and cash equivalents:
Cash...................................................... $ 1,682 $ 5,973
Money market instruments.................................. 3,850 5,011
------- -------
Total cash and cash equivalents........................ 5,532 10,984
------- -------
Short-term investments:
Municipal securities...................................... -- 10,212
Corporate notes and bonds................................. 30,548 21,613
------- -------
Total short-term investments........................... 30,548 31,825
------- -------
Total cash and cash equivalents and short-term
investments..................................... $36,080 $42,809
======= =======
</TABLE>

The short-term investments are classified as held-to-maturity. Due to the
short-term nature of these investments, changes in market interest rates would
not have a significant impact on the fair value of these securities. These
securities are carried at amortized cost which approximates fair value.

At December 31, 1997, all short-term investments have contractural
maturities of one year or less. Interest income, net for 1997, 1996 and 1995 was
$2,355, $1,665 and $1,393, respectively.

4. INVENTORIES

A summary of inventories at December 31 are as follows:

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................... $ 759 $ 1,879
Work-in-process............................................. 64 333
Finished goods.............................................. 501 136
Installations in progress................................... 853 257
Spare parts................................................. 355 209
------- -------
$ 2,532 $ 2,814
======= =======
</TABLE>

5. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Furniture, equipment and leasehold improvements consist of the following as
of December 31:

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Furniture and fixtures...................................... $ 1,814 $ 2,620
Computer equipment.......................................... 14,907 15,012
Equipment under capital lease............................... 5,327 6,500
Office equipment............................................ 825 1,684
Leasehold improvements...................................... 1,859 1,390
------- -------
24,732 27,206
Less accumulated depreciation and amortization.............. 17,283 19,813
------- -------
$ 7,449 $ 7,393
======= =======
</TABLE>

F-10
<PAGE> 38
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

During 1997, 1996 and 1995, amortization expense related to equipment under
capital leases was $717, $627 and $239, respectively. Accumulated amortization
for equipment under capital leases at December 31, 1997 and 1996 was $4,913 and
$5,383, respectively.

6. BANK LINE OF CREDIT

At December 31, 1997, the Company had available a $10,000 unsecured
domestic bank line of credit. Restrictive terms of this line of credit require,
among other things, that the Company maintain minimum net worth and working
capital. The Company was in compliance with all terms and conditions of this
line of credit as of December 31, 1997. There were no borrowings outstanding
under this line as of December 31, 1997.

7. LONG-TERM OBLIGATIONS

A summary of long-term obligations as of December 31 follows:

<TABLE>
<CAPTION>
1997 1996
---- ------
<S> <C> <C>
Capital lease obligations................................... $433 $1,329
Other....................................................... 45 180
---- ------
Total long-term obligations................................. 478 1,509
Less current installments................................... 381 934
---- ------
Long-term obligations, excluding current
installments.......................................... $ 97 $ 575
==== ======
</TABLE>

Principal maturities of long-term obligations at December 31, 1997 are as
follows:

In May 1995, ViewStar obtained $2.0 million in cash from certain of its
shareholders in exchange for 9% subordinated notes payable upon demand at any
time after April 15, 1996. In March 1996, the subordinated notes were exchanged
for shares of preferred stock which were in turn exchanged for shares of common
stock as described in Note 8(e).

8. SHAREHOLDERS' EQUITY

a. Stock Option Plans.

In 1997, the Board of Directors authorized a 1997 Stock Incentive
Compensation Plan (1997 Plan) which allowed for the reservation of 520,031
shares of common stock. These shares are primarily intended to replace the
Restated 1987 Stock Option Plan (1987 Plan) shares related to the repricing (see
below) and the balance is to be used for other general employee retention
purposes. Shares granted under the 1997 Plan are non-qualified options for
non-officer employees.

Prior to the merger in 1996, the shareholders of ViewStar approved a plan
amendment to increase the shares available for grant by 1,159,000. Additionally,
as part of the business combination, the shareholders of Mosaix approved the
1996 Stock Incentive Compensation Plan (1996 Plan) to replace the 1987 Plan. The
1996 Plan, which allowed for the reservation of 1,500,000 shares of common
stock, was intended primarily to replace expired options under the 1987 Plan, to
replace ViewStar options with Mosaix options and to grant new options to
officers of ViewStar. As part of the business combination, 1,559,000 shares
authorized under the ViewStar Plans expired.

F-11
<PAGE> 39
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

The Company's 1987 Plan allowed for the reservation of 2,800,000 shares of
common stock for grants. Options granted under the 1987 Plan were designated as
qualified or non-qualified at the discretion of the Board of Directors. The 1987
Plan expired in 1996 and 165,000 and 412,000 shares that were authorized under
the 1987 Plan expired in 1997 and 1996, respectively.

In January 1998, the Company offered certain employees the right to have
their outstanding stock options repriced in exchange for a 20% reduction in the
options outstanding and an agreement not to exercise any of the repriced options
for one year. The repricing took place January 14, 1998 and 776,802 options with
exercise prices of $10.88 to $19.75, were returned and canceled, and 621,480 new
options were issued at $9.50. Of the options returned and canceled, 320,031 were
1987 Plan options that could not be regranted under the expired 1987 Plan and
accordingly, 256,025 replacement options were issued under the 1997 and 1996
Plans.

Generally, options vest over a four-year period in cumulative increments of
25% beginning one year from the date of grant or, in certain instances, one year
from the individual's employment date. All options expire ten years or less from
the date of grant and are currently granted at prices not less than fair market
value.

The Company applies APB Opinion No. 25 in accounting for its plans. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options and stock purchase rights under SFAS No. 123 for options
and purchase rights granted in 1997, 1996 and in 1995, the Company's net
earnings (loss) would have been adjusted to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net earnings (loss):
As reported........................................ $9,757 $3,618 $ (563)
Pro forma.......................................... 6,517 1,786 (931)

Basic earnings (loss) per share:
As reported........................................ 0.74 0.29 (0.06)
Pro forma.......................................... 0.49 0.14 (0.09)

Diluted earnings (loss) per share:
As reported........................................ 0.71 0.27 (0.06)
Pro forma.......................................... 0.48 0.13 (0.09)
</TABLE>

The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $6.78, $5.30 and $2.97, respectively on the date of
grant using the Black Scholes option-pricing model with the following
assumptions:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected dividend yield.............................. 0.0% 0.0% 0.0%
Volatility........................................... 76.0% 62.0% 62.0%
Expected weighted average life (in years)............ 3.8 4.5 4.5
Weighted average risk free interest rate............. 5.8% 6.3% 6.2%
</TABLE>

F-12
<PAGE> 40
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

The per share weighted-average fair value of stock purchase rights during
1997, 1996 and 1995 was $5.52, $4.44 and $3.31, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
assumptions:

<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Expected dividend yield.............................. 0.0% 0.0% 0.0%
Volatility........................................... 76.0% 62.0% 62.0%
Expected weighted average life (in years)............ 0.5 0.5 0.5
Weighted average risk free interest rate............. 5.6% 5.2% 5.2%
</TABLE>

Pro forma net earnings (loss) and earnings (loss) per share reflect only
options granted after January 1, 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net earnings (loss) and net earnings (loss) per share amounts
presented above because compensation cost is reflected over the options' vesting
period of four to five years, and compensation cost for options granted prior to
January 1, 1995 is not considered.

A summary of stock options follows:

<TABLE>
<CAPTION>
SHARES NUMBER OF
AVAILABLE OPTIONS WEIGHTED
FOR GRANT OUTSTANDING AVERAGE
(IN 000'S) (IN 000'S) EXERCISE PRICE
---------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1994..................... 428 2,116 $ 4.41
Plan amendment................................. 400 -- --
Granted........................................ (521) 521 4.74
Exercised...................................... -- (187) 2.88
Canceled....................................... 504 (504) 4.08
------ ----- ------
Balance at December 31, 1995..................... 811 1,946 4.70
Plan amendment................................. 2,659 -- --
Granted........................................ (721) 721 11.19
Exercised...................................... -- (369) 3.91
Expired:
1987 Plan................................... (412) -- --
ViewStar Plans.............................. (1,559) -- --
Canceled....................................... 240 (240) 4.99
------ ----- ------
Balance at December 31, 1996..................... 1,018 2,058 6.62
Additional authorization....................... 520 -- --
Granted........................................ (1,459) 1,459 11.91
Exercised...................................... -- (409) 2.85
Expired........................................ (165) -- --
Canceled....................................... 479 (479) 10.51
------ ----- ------
Balance at December 31, 1997..................... 393 2,629 $ 9.98
====== ===== ======
</TABLE>

As discussed previously, a stock option repricing took place on January 14,
1998. Of the options returned and canceled, 320,031 were 1987 Plan Options that
could not be regranted from the 1987 Plan because the 1987 Plan had expired.
These options were replaced with 256,025 options that were available for grant
at December 31, 1997 and, after this reissuance, approximately 182,000 shares
remain available to grant to employees under the 1996 and 1997 Plans. The 1992
Director's Plan shares were not repriced and 46,000 shares are available for
grant at December 31, 1997.

F-13
<PAGE> 41
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

The following table summarizes options outstanding and exercisable at
December 31, 1997.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE WEIGHTED -------------------------------
RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.51 - 0.51 186,413 3.65 $ 0.51 125,878 $ 0.51
3.79 - 6.75 503,192 5.93 4.52 434,231 4.41
7.58 - 10.38 510,784 9.04 9.50 87,206 8.66
10.69 - 12.25 706,238 8.03 11.77 138,651 11.01
12.62 - 15.00 502,447 8.67 13.74 81,259 13.50
15.06 - 19.75 220,320 8.72 17.29 61,047 17.98
-------------- --------- ---- ------ ------- ------
$ 0.51 - 19.75 2,629,394 7.69 $ 9.98 928,272 $ 6.96
============== ========= ==== ====== ======= ======
</TABLE>

b. Stock Option Plan for Non-Employee Directors.

Under the Company's 1992 Stock Option Plan for Non-Employee Directors (1992
Plan), 125,000 shares of the Company's common stock are reserved for issuance to
non-employee directors of the Company.

An initial grant of 5,000 options is automatically made to each
non-employee director upon appointment as a director of the Company. Initial
grants vest over a five-year period in cumulative increments of 20% each year
beginning from the date of the first subsequent annual meeting of shareholders
following grant. An additional 2,000 options are granted following each annual
shareholders' meeting. Each additional grant is immediately vested and
exercisable.

All options expire ten years from the date of grant or, if earlier, five
years after termination as a director of the Company. Options are exercisable at
the fair market value of the stock at the date of grant. At December 31, 1997,
72,000 options were outstanding under the 1992 Plan at a weighted average
exercise price of $11.77 per share and 58,000 options were exercisable at a
weighted average price of $11.73 per share.

c. Employee Stock Purchase Plan.

The Company's 1991 Employee Stock Purchase Plan provides for 200,000 shares
of the Company's common stock to be reserved for issuance upon exercise of
purchase rights granted to participating employees of the Company. The purchase
rights are exercisable semiannually on June 30 and December 31 of each year at a
price equal to the lesser of 85% of the fair market value of the Company's stock
at the beginning or end of the respective semi-annual periods. At December 31,
all authorized shares had been issued.

d. Stock Repurchase Plan.

In 1997, the Company's Board of Directors authorized a plan to repurchase
up to 1,700,000 shares of the Company's common stock, subject to certain
limitations and conditions. The repurchased shares are used primarily to service
the Company's employee stock plans. During 1997, the Company repurchased
1,437,500 shares for a total cost of $14,035. In January 1998, the Company's
Board of Directors authorized an additional 1,000,000 shares to be repurchased
under the same limitations and conditions.

In 1995, the Company's Board of Directors had authorized a similar plan to
repurchase up to 1,600,000 shares of the Company's common stock. The Company had
purchased 691,000 shares at a total cost of $5,526 when the plan was
discontinued on October 2, 1996.

F-14
<PAGE> 42
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

e. ViewStar Preferred Shares.

In March and June 1996, ViewStar completed a preferred stock financing
transaction in which a total of 3,293,467 shares were issued. ViewStar issued
2,126,024 shares in repayment of $2,000 subordinated notes outstanding plus the
related accrued interest of $148 and issued 1,167,444 shares for $1,179 in cash.
All preferred shares were converted to common stock in 1996.

9. INCOME TAXES

The components of earnings before income taxes are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
U.S. operations......................................... $10,073 $6,524 $2,906
Foreign................................................. 3,901 1,382 682
------- ------ ------
$13,974 $7,906 $3,588
======= ====== ======
</TABLE>

Components of income tax expense are summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $ 2,871 $4,053 $3,493
State................................................. 544 446 522
Foreign............................................... 1,239 705 276
------- ------ ------
Total current................................. 4,654 5,204 4,291
Deferred -- Federal..................................... (437) (916) (140)
------- ------ ------
$ 4,217 $4,288 $4,151
======= ====== ======
</TABLE>

Income tax expense on earnings before income taxes differs from "expected"
income tax expense as computed by applying the U.S. federal income tax rate of
34% as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Computed "expected" tax expense......................... $ 4,751 $2,688 $1,220
Research and experimentation tax credits and foreign
tax credits........................................... (462) (387) (100)
State income taxes, net of federal benefit.............. 359 296 355
Reduction of valuation allowance........................ (1,065) -- --
Losses of subsidiary not currently deductible........... -- 301 2,503
Purchase of in-process research and development......... -- 1,464 --
Merger related costs.................................... -- 438 --
Foreign taxes withheld.................................. -- 161 226
Other................................................... 634 (673) (53)
------- ------ ------
$ 4,217 $4,288 $4,151
======= ====== ======
</TABLE>

F-15
<PAGE> 43
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

Deferred income tax assets and liabilities are comprised of the following
at December 31:

<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Capitalized software development costs, net of
amortization.............................................. $ 316 $ 678
Contract revenue............................................ 233 415
------- --------
Deferred tax liabilities.................................. 549 1,093
------- --------
Provision for doubtful receivables.......................... 655 940
Provision for inventory obsolescence........................ 161 219
Provision for warranties and returns........................ 230 143
Unearned revenue............................................ 1,284 1,130
Provision for accrued compensation.......................... 1,595 1,580
Net operating loss carryforwards............................ 7,064 8,649
Research and experimentation tax credit carryforwards....... 1,211 1,086
Other....................................................... 736 454
------- --------
Gross deferred tax assets................................. 12,936 14,201
Deferred tax asset valuation allowance.................... (10,212) (11,370)
------- --------
Deferred tax assets....................................... 2,724 2,831
------- --------
Net deferred tax assets................................... $ 2,175 $ 1,738
======= ========
</TABLE>

As of December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $20,053, expiring in the years
2004 through 2011, and net operating loss carryforwards for state income tax
purposes of approximately $7,605, expiring in the years 1999 through 2009. The
Company also had federal and state research and experimentation tax credit
carryforwards of approximately $997 and $630, respectively, which expire in the
years 2000 through 2009. Utilization of the Company's net operating loss
carryforwards and research and experimentation tax credit carryforwards and
other deferred income tax assets which relate primarily to ViewStar are subject
to Internal Revenue Code Section 382 limitations due to a change of ownership.
Due to uncertainty regarding their recoverability, the Company has established
valuation allowances for the related deferred income tax assets. With regard to
the remaining deferred income tax assets, it is more likely than not that the
results of future operations will generate sufficient taxable income to
recognize the net deferred income tax assets.

The deferred income tax valuation allowance decreased $1,158 and $940 in
1997 and 1996, respectively.

F-16
<PAGE> 44
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

10. EARNINGS PER SHARE

The following table reconciles the numerator and the denominator of the
basic and diluted per share computations for earnings (loss) per share.

<TABLE>
<CAPTION>
NET EARNINGS WEIGHTED
(LOSS) AVERAGE SHARES EARNINGS
(IN 000'S) (IN 000'S) (LOSS) PER
(NUMERATOR) (DENOMINATOR) SHARE
------------ -------------- ----------
<S> <C> <C> <C>
1997:
Basic earnings per share.................... $9,757 13,169 $ 0.74
Effect of dilutive stock options............ -- 498
------ ------
Diluted earnings per share.................. $9,757 13,667 $ 0.71
====== ======
1996:
Basic earnings per share.................... $3,618 12,677 $ 0.29
Effect of dilutive stock options and
convertible preferred stock.............. -- 893
------ ------
Diluted earnings per share.................. $3,618 13,570 $ 0.27
====== ======
1995:
Basic and dilutive loss per share........... $ (563) 9,846 $(0.06)
====== ======
</TABLE>

Stock options and convertible preferred stock were not included in the
computation of diluted loss per share for 1995 because the representative share
increments would be anti-dilutive. In addition, options to purchase shares of
common stock where the exercise price exceeded the average market price were
excluded from the computations in 1997 and 1996 because they would be
anti-dilutive. Anti-dilutive stock options and convertible preferred stock
excluded from the computations are as follows:

<TABLE>
<CAPTION>
ANTI-DILUTIVE
OPTIONS AND STOCK
(IN 000'S) EXERCISE PRICE
----------------- ---------------
<S> <C> <C>
1997.............................................. 1,154 $12.13 - $19.75
1996.............................................. 251 $16.06 - $19.75
1995.............................................. 3,793 $ 0.51 - $12.88
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

a. Profit Sharing and Deferred Compensation Plan.

The Company has a Profit Sharing and Deferred Compensation Plan (Profit
Sharing Plan) under Section 401(k) of the Internal Revenue Code of 1986, as
amended. Substantially all full-time employees are eligible to participate. The
Company, at its discretion, may elect to match the participants' contributions
to the Profit Sharing Plan. Participants will receive their share of the value
of their investments upon retirement or termination, subject to a vesting
schedule. The Company's matching contributions to the Profit Sharing Plan were
$752, $471 and $409 for 1997, 1996 and 1995, respectively.

b. Lease Commitments.

The Company leases its office and warehouse space under terms of
noncancelable operating leases expiring at various dates through 2009.

F-17
<PAGE> 45
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

Future minimum lease payments under noncancelable operating leases at
December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998....................................................... $ 3,134
1999....................................................... 2,684
2000....................................................... 1,950
2001....................................................... 1,811
2002....................................................... 1,811
Thereafter................................................. 13,258
-------
$24,648
=======
</TABLE>

Rent expense under noncancelable operating leases amounted to $3,176,
$2,712 and $2,907 for 1997, 1996 and 1995, respectively.

c. Litigation.

The Company is subject to various legal proceedings that arise in the
ordinary course of its business. While the outcome of these proceedings cannot
be predicted with certainty, the Company believes that none of such proceedings,
individually or in the aggregate will have a material adverse effect on the
Company's business or financial condition.

12. GEOGRAPHIC SEGMENT INFORMATION

The Company's products are marketed internationally through its
subsidiaries in the United Kingdom, the U.S. parent and independent
distributors.

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue -- U.S. operations:
United States.................................... $ 89,153 $ 94,870 $ 75,593
United States export............................. 14,477 12,083 12,289
Revenue -- International operations:
Foreign subsidiaries............................. 17,514 10,228 5,366
-------- -------- --------
$121,144 $117,181 $ 93,248
======== ======== ========
Operating income:
U.S. operations.................................. $ 8,045 $ 4,235 $ 1,355
Foreign subsidiaries............................. 3,936 1,867 382
Eliminations..................................... (215) 130 121
-------- -------- --------
$ 11,766 $ 6,232 $ 1,858
======== ======== ========
Assets:
U.S. operations.................................. $ 74,725 $ 85,235 $ 90,597
Foreign subsidiaries............................. 9,653 5,528 2,974
-------- -------- --------
$ 84,378 $ 90,763 $ 93,571
======== ======== ========
</TABLE>

13. RESTRUCTURING CHARGES

During 1997, Mosaix incurred $948 of expenses for severance pay and related
costs from streamlining operations. During 1995, ViewStar incurred $1,240 for a
similar reduction in headcount.

F-18
<PAGE> 46
MOSAIX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED)

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes the unaudited statement of operations for
each quarter of 1997 and 1996:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1997:
Revenue....................... $30,614 $31,674 $28,043 $30,813 $121,144
Operating income.............. 3,600 4,412 991 2,763 11,766
Net earnings.................. 2,918 3,336 1,149 2,354 9,757
Basic earnings per share...... 0.22 0.25 0.09 0.19 0.74
Diluted earnings per share.... 0.21 0.24 0.08 0.18 0.71
1996:
Revenue....................... $26,997 $28,585 $30,202 $31,397 $117,181
Operating income (loss)....... (1,829) 3,569 4,083 409 6,232
Net earnings (loss)........... (2,413) 2,643 3,292 96 3,618
Basic earnings (loss) per
share...................... (0.21) 0.21 0.25 0.01 0.29
Diluted earnings (loss)
per share.................. (0.21) 0.19 0.24 0.01 0.27
</TABLE>

The quarterly earnings (loss) per share presented above may not total to
the year end totals due to changes in the weighted average common shares and
common equivalent shares outstanding during the year.

F-19
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Mosaix, Inc.:

Under date of February 2, 1998, we reported on the consolidated balance
sheets of Mosaix, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997, as
contained in the 1997 annual report on Form 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule of valuation and qualifying
accounts. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.

In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respect the, information set forth
therein.

KPMG Peat Marwick LLP

Seattle, Washington
February 2, 1998

F-20
<PAGE> 48

MOSAIX, INC.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ------------ ---------- --------
BALANCE
AT CHARGED TO BALANCE
BEGINNING OTHER COSTS (1) AT END
DESCRIPTION OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
----------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Valuation accounts deducted from assets:
Allowance for doubtful receivables........ $2,016 $694 $464 $2,246
====== ==== ==== ======
Year ended December 31, 1996:
Valuation accounts deducted from assets:
Allowance for doubtful receivables........ $1,863 $395 $242 $2,016
====== ==== ==== ======
Year ended December 31, 1995:
Valuation accounts deducted from assets:
Allowance for doubtful receivables........ $1,581 $794 $512 $1,863
====== ==== ==== ======
</TABLE>

- ---------------

(1) Represents amounts written off.

F-21
<PAGE> 49

EXIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated October 14, 1996, among
the Registrant, Vision Merger Corporation and ViewStar
Corporation (I)
3.1 Restated Articles of Incorporation of the Registrant (B)
3.2 Restated Bylaws of the Registrant (D)
4.1 Form of Certificate Evidencing Common Stock, par value $0.01
per share (B)
4.2 Warrant to purchase 12,245 shares of ViewStar Common Stock
issued to Comdisco, Inc. dated May 31, 1996 (I)
10.1 Restated 1987 Stock Option Plan, as amended* (H)
10.2 1996 Management and Company Performance Bonus Plan* (H)
10.3 1997 Management and Company Performance Bonus Plan* (J)
10.4 Restated 1992 Stock Option Plan for Non-Employee Directors,
as amended* (H)
10.5 1991 Employee Stock Purchase Plan, as amended* (F)
10.6 Executive Employment Agreement dated as of November 8, 1994
with Patrick S. Howard* (E)
10.7 Executive Employment Agreement dated as of March 1, 1995
with Thomas R. Clark* (G)
10.8 Executive Employment Agreement dated as of March 1, 1995
with John J. Flavio* (G)
10.9 Executive Employment Agreement dated as of March 1, 1995
with Edmund D. Wilsbach* (G)
10.10 Lease for Building 17 dated January 15, 1991 among Michael
E. Mastro, Redmond East Associates and the Registrant (C)
10.11 Business Loan Agreement dated June 25, 1997 with
Seattle-First National Bank (A)
10.12 Customer Purchase Agreement dated December 27, 1990 with
Summa Four, Inc.** (D)
10.13 Software Source Code and Manufacturing Data Deposit and
Escrow Agreement dated December 27, 1990 with Summa Four,
Inc. and Data Securities International Ind.** (D)
10.14 Purchase Agreement (AWA 99) with Hewlett Packard, dated
March 1, 1995 (H)
10.15 Shareholders Agreement, dated October 14, 1996, with certain
former shareholders of ViewStar Corporation (I)
10.16 ViewStar Corporation Amended 1986 Incentive Stock Plan and
form of agreement thereunder* (I)
10.17 ViewStar Corporation Amended 1994 Stock Plan, as amended,
and form of agreement thereunder* (I)
10.18 ViewStar Corporation 1996 Incentive Stock Plan* (I)
10.19 Sublease Agreement between the ASK Group, Inc. and ViewStar
Corporation, dated October 8, 1993, for ViewStar's facility
located at 1101 Marina Village Parkway, Alameda, California (I)
10.20 First Amendment to Sublease Agreement between the ASK Group,
Inc. and ViewStar Corporation, dated September 8, 1994, for
ViewStar's facility located at 1101 Marina Village Parkway,
Alameda, California (A)
10.21 Promissory Note issued by Kamran Kheirolomoom to ViewStar
Corporation dated July 2, 1996* (I)
10.22 Executive Employment Agreement, dated October 14, 1996,
between Kamran Kheirolomoom and the Registrant* (I)
</TABLE>
<PAGE> 50

<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
10.23 Executive Employment Agreement, dated October 14, 1996,
between Robert I. Pender, Jr. and the Registrant* (I)
10.24 Executive Employment Agreement, dated October 14, 1996,
between Gayle A. Crowell and the Registrant* (I)
10.25 Executive Employment Agreement, dated October 14, 1996,
between Steve Russell and the Registrant* (A)
10.26 Executive Employment Agreement, dated February 14, 1996,
between Steve L. Adams and the Registrant* (A)
10.27 Executive Employment Agreement, dated July 1, 1997, between
Omar Saleh and the Registrant* (A)
10.28 Executive Employment Agreement, dated February 5, 1998,
between Jeff Jarvis and the Registrant* (A)
10.29 Executive Employment Agreement, dated February 5, 1998,
between Bruce Leader and the Registrant* (A)
10.30 Executive Employment Agreement, dated February 5, 1998,
between Nicholas A. Tiliacos and the Registrant* (A)
10.31 Lease Agreement between Millennium Corporate Park, L.L.C.
and the Registrant, dated December 11, 1997, for the
Company's corporate headquarters in Redmond, Washington (A)
10.32 1998 Management and Performance Bonus Plans* (A)
21.1 List of Subsidiaries of the Registrant (A)
23.1 Consent of KPMG Peat Marwick LLP (A)
27.1 Financial Data Schedule (A)
</TABLE>

- ---------------

* Management contract or compensation plan.

** Confidential treatment has been requested with respect to portions of the
agreement.

(A) Filed herewith.

(C) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1990.

(D) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992.

(E) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.

(F) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K/A for the year ended December 31,
1994.

(G) Incorporated by reference from exhibits filed in connection with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.

(H) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.

(J) Incorporated by reference from exhibits filed in connection with the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOSAIX, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 10,984 12,970 15,478 5,811
<SECURITIES> 31,825 31,429 32,373 38,319
<RECEIVABLES> 27,654 31,547 29,775 28,925
<ALLOWANCES> 1,593 1,678 1,586 1,929
<INVENTORY> 2,814 2,206 2,489 2,701
<CURRENT-ASSETS> 79,285 82,542 84,330 81,214
<PP&E> 27,206 28,465 29,237 30,555
<DEPRECIATION> 19,813 21,026 21,937 22,964
<TOTAL-ASSETS> 90,763 93,414 94,375 91,105
<CURRENT-LIABILITIES> 32,481 32,295 29,323 28,036
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 132 133 133 98
<OTHER-SE> 57,211 60,299 64,512 62,656
<TOTAL-LIABILITY-AND-EQUITY> 90,763 93,414 94,375 91,105
<SALES> 74,038 18,684 38,574 54,119
<TOTAL-REVENUES> 117,181 30,614 62,288 90,331
<CGS> 20,177 5,295 10,587 15,691
<TOTAL-COSTS> 41,765 11,371 22,658 33,729
<OTHER-EXPENSES> 69,184 15,643 31,618 47,599
<LOSS-PROVISION> 395 139 301 535
<INTEREST-EXPENSE> 290 36 29 24
<INCOME-PRETAX> 7,906 4,042 8,969 10,611
<INCOME-TAX> 4,288 1,124 2,715 3,208
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,618 2,918 6,254 7,403
<EPS-PRIMARY> 0.29 0.22 0.47 0.55
<EPS-DILUTED> 0.27 0.21 0.45 0.53

</TABLE>