-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CS+qG7Qdf9NR54vs83UCJg+ruzg3A0bsYMU0mBBTcrhwXsmmoRUisRxXCoEtMIjh 0vPrPum0yRNJemqUwVyc5Q== 0000929624-97-001407.txt : 19971117 0000929624-97-001407.hdr.sgml : 19971117 ACCESSION NUMBER: 0000929624-97-001407 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESYS TELECOMMUNICATIONS LABORATORIES INC CENTRAL INDEX KEY: 0001036436 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943120525 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22605 FILM NUMBER: 97720015 BUSINESS ADDRESS: STREET 1: 1155 MARKET ST 11TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94103 BUSINESS PHONE: 4154371100 MAIL ADDRESS: STREET 1: 1155 MARKET STREET,11TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94103 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ COMMISSION FILE NUMBER 000-22605 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-3120525 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1155 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 437-1100 Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: TITLE OF EACH CLASS OUTSTANDING AT SEPTEMBER 30, 1997 Common Stock, no par value 19,848,259 shares GENESYS TELECOMMUNICATIONS LABORATORIES, INC. FIRST QUARTER 1998 FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ITEM 1. Financial Statements 3 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 14 ITEM 2. Changes in Securities and Use of Proceeds 14 ITEM 3. Defaults Upon Senior Securities 15 ITEM 4. Submission of Matters to a Vote of Security Holders ITEM 5. Other Information 15 ITEM 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 PART I FINANCIAL INFORMATION ITEM 1. Financial Statements -------------------- Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1997 and June 30, 1997 4 Condensed Consolidated Statements of Operations for the three-month periods ended September 30, 1997 and 1996 5 Condensed Consolidated Statements of Cash Flows for the three-month periods ended September 30, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 3 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS SEPTEMBER 30, JUNE 30, 1997 1997 ---- ---- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents............................. $31,488 $47,180 Short-term investments................................ 16,682 - Accounts receivable, net.............................. 16,042 17,861 Prepaid expenses and other............................ 4,230 3,843 ------ ------ Total current assets......................... 68,442 68,884 PROPERTY AND EQUIPMENT, net................................ 9,131 7,265 OTHER ASSETS............................................... 3,230 3,225 ------ ------ $80,803 $79,374 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Advances from related parties......................... $ - $ - Current portion of long-term obligations.............. 408 411 Accounts payable...................................... 1,878 2,320 Accrued payroll and related benefits.................. 1,752 1,320 Other accrued liabilities............................. 3,641 4,001 Deferred revenues..................................... 10,735 10,504 ------ ------ Total current liabilities................... 18,414 18,556 ------ ------ LONG-TERM OBLIGATIONS...................................... 280 378 ------ ------ SHAREHOLDERS' EQUITY: Common stock......................................... 62,839 62,711 Shareholder notes receivable......................... (375) (434) Cumulative translation adjustment.................... 91 124 Accumulated deficit.................................. (446) (1,961) ------ ------ Total shareholders' equity............................ 62,109 60,440 ------ ------ $80,803 $79,374 ======= =======
4 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER ENDED SEPTEMBER 30, 1997 1996 ---- ---- (UNAUDITED) REVENUES: License.................................... $13,108 $ 3,525 Service.................................... 2,435 711 ------ ----- Total revenues...................... 15,543 4,236 ------ ----- COST OF REVENUES: License.................................... 655 153 Service.................................... 1,821 682 ------ ----- Total cost of revenues.............. 2,476 835 ------ ----- GROSS MARGIN...................................... 13,067 3,401 ------ ----- OPERATING EXPENSES: Research and development................... 2,896 1,571 Sales and marketing........................ 6,797 1,909 General and administrative................. 1,413 684 ------ ----- Total operating expenses........... 11,106 4,164 ------ ----- INCOME (LOSS) FROM OPERATIONS..................... 1,961 (763) INTEREST AND OTHER INCOME (EXPENSE), NET.......... 370 143 ------ ----- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES.................................... 2,331 (620) PROVISION FOR INCOME TAXES........................ 816 - ------ ----- NET INCOME (LOSS)................................. $ 1,515 $ (620) ======= ======= NET INCOME (LOSS) PER SHARE....................... $ 0.06 $ (0.03) ======= ======= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES.................... 26,100 20,200 ======= =======
5 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 1996 ---- ---- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................................................. $ 1,515 $ (620) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Deferred stock compensation expense.............................. 119 - Depreciation and amortization.................................... 972 100 Provision for doubtful accounts.................................. - - Changes in operating assets and liabilities: Accounts receivable.......................................... 1,819 992 Prepaid expenses and other................................... (584) (485) Accounts payable............................................. (442) (35) Accounts payable to related parties.......................... - (268) Accrued payroll and related benefits......................... 432 (625) Other accrued liabilities.................................... (360) 765 Deferred revenues............................................ 231 (724) ------- ------ Net cash provided by (used in) operating activities...... 3,702 (900) ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments, net............................ (16,682) -- Purchases of property and equipment................................. (2,636) (565) (Increase) decrease in other assets................................. (44) (500) ------- ------ Net cash used in investing activities.................... (19,362) (1,065) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank line of credit................................... - 37 Principal payments on capital lease obligations..................... (100) (34) Repayments of advances from related parties......................... - (25) Proceeds from convertible debt to related parties................... - 294 Proceeds (repurchases) from sales of common stock................... 68 (2) ------- ------ Net cash provided by (used in) financing activities..... (32) 270 ------- ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (15,692) (1,695) CASH AND CASH EQUIVALENTS: Beginning of Period................................................. 47,180 5,926 ------- ------ End of Period...................................................... $ 31,488 $ 4,231 ======== =======
6 GENESYS TELECOMMUNICATIONS LABORATORIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements have been prepared by Genesys Telecommunications Laboratories, Inc. (the Company) without audit and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and the results of operations of the Company for the interim periods. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all information and footnotes required by generally accepted accounting principles. The results of operations for the three-month period ended September 30, 1997 are not necessarily indicative of the operating results to be expected for the full fiscal year or future operating periods. The information included in this report should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 1997 and the risk factors as set forth in the Company's Annual Report on Form 10-K, including, without limitation, risks relating to limited operating history, potential fluctuations in quarterly operating results, lengthy sales cycle, lengthy implementation cycle, dependence on third party consultants, dependence on new products, rapid technological change, competition, product concentration, management of growth, dependence on third-party resellers, GeoTel litigation, customer concentration, dependence on emerging ECTI market, risks associated with international sales and operations, dependence on key personnel, government regulation of immigration, dependence on ability to integrate with third-party technology, product liability, protection of intellectual property, concentration of stock ownership, possible volatility of stock price, shares eligible for future sale, registration rights, effect of certain charter provisions, anti-takeover effects of provisions of the by-laws and uncertainty as to use of proceeds. Any party interested in reviewing these publicly available documents should write to the SEC or the Chief Financial Officer of the Company. 2. NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of preferred stock (using the "if converted" method) and stock options and warrants (using the treasury stock method). Common equivalent shares are excluded from the computation only if their effect is anti-dilutive except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins and staff policy, such computations include all common and common equivalent shares issued within the 12 months preceding the initial filing date of the Company's initial public offering as if they were outstanding for all periods presented (using the treasury stock method). In addition, preferred stock is included in the computation even when the effect of its inclusion is anti-dilutive. 3. LITIGATION On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed a lawsuit in the United States District Court for the District of Massachusetts naming the Company as defendant, and alleging infringement of a patent issued to GeoTel. On February 10, 1997, the Company filed an answer in response to the complaint filed by GeoTel, asserting that the GeoTel patent is invalid, denying the alleged patent infringement and seeking dismissal of the complaint with prejudice. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. The Company does not believe that any of its current products infringe any valid claims of GeoTel's patent. However, the outcome of litigation is inherently unpredictable, and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business, financial condition or results of operations. Regardless of the ultimate outcome, the GeoTel litigation could result in substantial expense to the 7 Company and significant diversion of effort by the Company's technical and managerial personnel. If the Court determines that the Company infringes GeoTel's patent and that the GeoTel patent is valid and enforceable, it could issue an injunction against the use or sale of certain of the Company's products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant liabilities and require the Company to seek a license from GeoTel. Although patent and intellectual property disputes in the software area have sometimes been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from GeoTel, if required, would be available to the Company on acceptable terms or at all. Accordingly, an adverse determination in the GeoTel litigation could prevent the Company from licensing certain of its software products, which would have a material adverse effect on the Company's business, financial condition and results of operations. The Company is unable to estimate the range of losses that may result from this matter. 4. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted by the Company in its second quarter of fiscal 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate earnings per share for all prior periods. Under the new requirements for calculating earnings per share, primary earnings per share will be replaced with basic earnings per share and fully diluted earnings per share will be replaced with diluted earnings per share. Under basic earnings per share, the dilutive effect of stock options will be excluded. The Company does not expect the effect of adopting SFAS 128 to have a material impact on earnings per share. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth statement of operations data of the Company expressed as a percentage of total revenues for the years and periods indicated.
THREE MONTHS ENDED SEPTEMBER 30, 1997 1996 ----- ---- Revenues: License................................................... 84.3% 83.2% Service................................................... 15.7 16.8 ----- ---- Total revenues....................................... 100.0 100.0 ------ ----- Cost of revenues: License................................................... 4.2 3.6 Service................................................... 11.7 16.1 ----- ---- Total cost of revenues............................... 15.9 19.7 ----- ---- Operating expenses: Research and development.................................. 18.7 37.1 Sales and marketing....................................... 43.7 45.1 General and administrative................................ 9.1 16.1 ---- ---- Total operating expenses............................. 71.5 98.3 ----- ---- Income (loss) from operations.................................. 12.6 (18.0) Interest and other income (expense), net....................... 2.4 3.4 ---- --- Income (loss) before provision for income taxes................ 15.0 (14.6) Provision for income taxes..................................... 5.3 -- ---- -- Net income (loss).............................................. 9.7% (14.6)% ==== =====
Revenues -------- License. License revenues were $13.1 million and $3.5 million in the three ------- months ended September 30, 1997 and 1996, respectively, an increase of 272%. This increase was due to the market's growing acceptance of the Company's products and underlying technology, an expansion of the Company's product offerings, and a significant increase in the Company's sales, marketing and customer service organizations. The Company does not believe that the historical growth rates of license revenues will be sustainable or are indicative of future results. Service. Service revenues primarily comprise fees from consulting, ------- post-contract support and, to a lesser extent, training services. Service revenues were $2.4 million and $0.7 million in the three months ended September 30, 1997 and 1996, respectively, an increase of 243%. The Company's software license agreements often provide for maintenance and for consulting and training. Accordingly, increases in licensing activity have resulted in increases in revenues from services related to maintenance, consulting and training. Service revenues decreased as a percentage of total revenues, due principally to an increase in licensing of the Company's products. If the Company is successful in implementing its strategy of encouraging third-party organizations such as systems integrators to undertake a greater percentage of implementation of the Company's products, service revenues may decrease as a percentage of total revenues, while maintenance as a percentage of total revenues is expected to increase. The Company does not believe that the historical growth rates of service 9 revenues will be sustainable or are indicative of future results. Cost of Revenues ---------------- License. Cost of license revenues includes the costs of product media, ------- product duplication and manuals, as well as allocated labor and overhead costs associated with the preparation and shipment of products. Cost of license revenues were $655,000 and $153,000 in the three months ended September 30, 1997 and 1996, respectively. This increase in absolute dollar amounts relates primarily to an increase in the volume of products shipped by the Company, and the resulting increase in documentation material costs and personnel necessary to assemble and ship the products. Service. Cost of service revenues primarily comprise employee-related costs ------- incurred in providing consulting, post-contract support and training services. Cost of service revenues were $1.8 million and $682,000 in the three months ended September 30, 1997 and 1996, respectively. This increase in absolute dollars was due primarily to increases in consulting, support and training personnel, and increases in overhead costs associated with travel, computer equipment and facilities. The cost of service revenues as a percentage of service revenues may vary between periods due to the mix of services provided by the Company and the resources used to provide these services. Operating Expenses ------------------ For the three months ended September 30, 1996 and 1997, the Company's operating expenses were $11.1 million and $4.2 million, or 71.5% and 98.3% of total revenues, respectively. Research and Development. Research and development expenses were $2.9 ------------------------ million and $1.6 million, or 18.7% and 37.1% of total revenues in the three months ended September 30, 1997 and 1996, respectively. These expenses increased in absolute dollars primarily as a result of an increase in personnel to support the Company's product development activities. The Company expects that research and development expenditures will continue to increase in absolute dollars. Research and development expenses are generally charged to operations as incurred. In accordance with Statement of Financial Accounting Standards No. 86, the Company capitalized approximately $300,000 of software development costs incurred in the three months ended September 30, 1997 related to the release of its 5.0 product suite. Costs that were eligible for capitalization in the three months ended September 30, 1996 were insignificant, and accordingly the Company charged all software development costs to research and development expense in this period. Sales and Marketing. Sales and marketing expenses were $6.8 million and ------------------- $1.9 million, representing 43.7% and 45.1% of total revenues in the three months ended September 30, 1997 and 1996, respectively. These expenses increased in absolute dollars primarily due to the Company's investment in building a direct sales force in North America and, to a lesser extent, in Europe, and the Company's investment in expanding its channel sales force in North America, Europe and the Asia Pacific. In addition, the Company incurred increased marketing expenses associated with the Company's expanding product line, including trade shows and promotional expenses. The Company expects to continue to expand its direct sales and marketing efforts and to develop a significant channel sales organization, and therefore, anticipates sales and marketing expenditures will continue to increase significantly in absolute dollars. General and Administrative. General and administrative expenses were $1.4 -------------------------- million and $684,000, or 9.1% and 16.1% of total revenues in the three months ended September 30, 1997 and 1996, respectively. These expenses increased in absolute dollars during these periods principally due to the addition of staff and information system investments to support the growth of the Company's business during these periods. In addition, the Company has 10 incurred higher legal costs associated primarily with general corporate matters, trademark matters and patent filings. The Company expects to continue to increase its general and administrative staff and to incur other costs necessary to manage a growing organization, and, accordingly, it expects general and administrative expenses to continue to increase in absolute dollars. General and administrative expenses as a percentage of total revenues have decreased from 16.1% in the first quarter of fiscal 1997 to 9.1% in the first quarter of fiscal 1998, due principally to the significant investments made by the Company in anticipation of significant growth during fiscal 1997. The Company expects to continue to increase general and administrative expenses in absolute dollars, but expects that these expenses as a percentage of total revenues will stabilize. Provision for Income Taxes -------------------------- The Company's effective tax rate for the three months ended September 30, 1997 was 35%, which the Company estimates will be the effective tax rate for fiscal 1998. The Company has recorded a valuation allowance for a portion of its net deferred tax assets related to uncertainties regarding the realization of certain assets. These uncertainties include the limited operating history of the Company, a recent history of losses and the variability of operating results. LIQUIDITY AND CAPITAL RESOURCES In June 1997, the Company completed its initial public offering in which it raised approximately $41.2 million from the sale of 2,375,000 shares of common stock and the exercise of certain Warrants. Prior to its initial public offering, the Company has financed its operations and met its capital expenditure requirements primarily from proceeds from related party advances, a $1.5 million term note (of which $900,000 was converted into Series A Preferred Stock) and the private sale of Preferred Stock, from which the Company raised $17.2 million. At September 30, 1997, the Company's primary sources of liquidity included cash and cash equivalents of $31.5 million and short-term investments of $16.7 million. The Company generated cash from operating activities of $3.7 million in the three months ended September 30, 1997, related primarily to an increase in net income and a decrease in accounts receivable. The Company used cash to purchase $16.7 million of short-term investments and $2.6 million of property and equipment in the three months ended September 30, 1997. The Company has established subsidiaries in foreign countries, including the United Kingdom, France, Canada, Russia, Japan and Australia, which function primarily as sales offices in those locations. The Company expects to establish offices in other foreign countries as it continues to expand its international operations. The capital expenditures necessary to establish a foreign office are not significant, and, accordingly, the Company does not expect that the establishment of these subsidiaries will have a material adverse effect on its liquidity and capital resources. In connection with the sale of Series C Preferred Stock, the Company has committed to the expenditure of approximately $1.0 million toward the development of certain call center technology. The Company's commitment is cancelable by the Company in the event it encounters unforeseen technical obstacles or business challenges. The Company does not believe that this commitment will have a material adverse effect on its liquidity and capital resources. The Company believes that its existing sources of liquidity will satisfy the Company's projected working capital and capital requirements for at least the next twelve months. QUARTERLY RESULTS OF OPERATIONS AND FORWARD LOOKING STATEMENTS The Company's quarterly operating results have in the past fluctuated and may in the future fluctuate 11 significantly, depending on a number of factors, many of which are beyond the Company's control, including: market acceptance of the Company products; the Company's ability to develop and market new products and product enhancements; the size, timing and recognition of revenue from significant orders; the length of sales and implementation cycles; competition; the Company's success in establishing indirect sales channels and expanding its direct sales force; the Company's success in retaining and training third-party support personnel; the timing of new product releases by the Company and its competitors; the delay or deferral of significant revenues until acceptance of software required by an individual license transaction; technological changes in the ECTI market; the deferral of customer orders in anticipation of new products and product enhancements; purchasing patterns of indirect channel partners and customers; changes in pricing policies by the Company and its competitors; the mix of revenues derived from the Company's direct sales force and various indirect distribution and marketing channels; the mix of revenues derived from domestic and international customers; seasonality; changes in operating expenses; changes in relationships with strategic partners; changes in Company strategy; personnel changes; foreign currency exchange rate fluctuations; the ability of the Company to control its costs; and general economic factors. While the Company generally operates with limited backlog from time to time it receives orders from customers that are for project development over an extended period of time. During the three months ended September 30, 1997, the Company received an order from BT totaling $10 million pounds, and the Company estimates that the deployment of this order will occur over a 12 to 24 month period. None of this order has been shipped as of September 30, 1997. The Company derives substantially all of its revenues from licenses of the Company's platform and related applications software and services. The Company believes that the purchase of its products is relatively discretionary and generally involves a significant commitment of capital and other resources by a customer. The Company's typical order size per site ranges from $100,000 to $300,000; however, certain orders during the three months ended September 30, 1997 have exceeded $500,000 each. The timing of the receipt and shipment of a single order can have a significant impact on the Company's revenues and results of operations for a particular quarter. In situations requiring customer acceptance of implementation, the Company does not recognize license revenues until installations are complete and does not recognize the consulting component of service revenues until the services are rendered. As a result, revenue recognition may be delayed in many instances. Historically, the Company has often recognized a substantial portion of its revenues in the last month of a quarter, with these revenues frequently concentrated in the last two weeks of a quarter. As a result, product revenues in any quarter are substantially dependent on orders booked and shipped in that quarter, and revenues for any future quarter are not predictable with any meaningful degree of certainty. Product revenues are also difficult to forecast because the market for ECTI software products is rapidly evolving, and the Company's sales cycle, which may last from three to nine months or more, varies substantially from customer to customer. The Company's quarterly revenues are also subject to seasonal fluctuations, particularly in the quarter ending in September when reduced activity outside North America during the summer months can adversely affect the Company's revenues. The Company's expenses are relatively fixed and are based, in part, on its expectations as to future revenues. Consequently, if future revenue levels are below expectations, net income would be disproportionately affected because a proportionately smaller amount of the Company's expenses varies with its revenues. In addition, the Company expects that sales derived through indirect channels, which are more difficult to forecast and generally have lower gross margins than direct sales, will increase as a percentage of total revenues. Due to all of the foregoing factors, the Company believes that period-to-period comparisons of its results of operations are not meaningful and should not be relied upon as indications of future performance. It is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. Because of these factors, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance. Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," and words of similar import, constitute "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 regarding events, conditions and financial trends that may affect the Company's future plans, business strategy, results of operations and financial position. Readers are referred to the "Risk Factors" section of the Company's Annual Report on Form 10-K filed with the Securities. 12 and Exchange Commission, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Not applicable. 13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed a lawsuit in the United States District Court for the District of Massachusetts naming the Company as defendant, and alleging infringement of a patent issued to GeoTel entitled "Communications System Using a Central Controller to Control at Least One Network and Agent System", U.S. Patent No. 5,546,452 (the "GeoTel Patent"). In the complaint, GeoTel requested injunctive relief, an accounting for damages and an assessment of interest and costs, and other relief as the court deems just and proper. On February 10, 1997, the Company filed an answer in response to the complaint filed by GeoTel, asserting that the GeoTel Patent is invalid, denying the alleged patent infringement and seeking dismissal of the complaint with prejudice. On June 27, 1997, the Company received correspondence from GeoTel's counsel indicating that GeoTel had determined not to file a request for reexamination at that time, contrary to prior correspondences. Since then, the Company has filed a motion to partition discovery and trial on liability into two phases: a first addressing whether the GeoTel Patent is valid and a second, if necessary, addressing whether any of the Company's products infringe any remaining valid claims of the GeoTel Patent. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. GeoTel alleges that the Genesys Call Router, Genesys Call Center Manager and Genesys Call Concentrator products, and the T-Server product, as a necessary element of all Genesys products, infringe the GeoTel Patent. After consultation with patent counsel, the Company does not believe any of the products described under "Business--Products" in the Company's Annual Report on Form 10-K infringe any valid claims of the GeoTel Patent. In connection with the Company's development of the potential new products described under "Business--Research and Development" in the Company's Annual Report on Form 10-K, the Company has sought the advice of such counsel and believes that such potential products can be developed without infringing the GeoTel Patent; however, there can be no assurance that GeoTel will not assert infringement of the GeoTel Patent with respect to such potential new products. Further, the outcome of litigation is inherently unpredictable, and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business, financial condition or results of operations. Regardless of the ultimate outcome, the GeoTel litigation could result in substantial expense to the Company and significant diversion of effort by the Company's technical and managerial personnel. If the Court determines that the Company infringes GeoTel's patent and that the GeoTel patent is valid and enforceable, it could issue an injunction against the use or sale of certain of the Company's products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant liabilities and require the Company to seek a license from GeoTel. Although patent and other intellectual property disputes in the software area have sometimes been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from GeoTel, if required, would be available to the Company on acceptable terms or at all. Accordingly, an adverse determination in the GeoTel litigation could prevent the Company from licensing certain of its software products, which would have a material adverse effect on the Company's business, financial condition and results of operations. ITEM 2. Changes in Securities and Use of Proceeds ----------------------------------------- During the period covered by this report, there were no changes in the rights of holders of any class of securities of the Company and no unregistered sales of equity securities. On June 16, 1997, the Company's registration statement on Form S-1 (SEC File No. 333-24479) was declared effective. The registration statement registered for offer and sale 2,500,000 shares (2,875,000 shares including over- allotments) of the Company's Common Stock, no par value, for an aggregate price of $45 million ($51.75 million including over-allotments) (the "Offering"). Pursuant to the Offering, which was completed in June 1997, the Company sold 2,375,000 shares, including over-allotments, of Common Stock and certain shareholders of the Company sold 500,000 shares of Common Stock. The shares in the Offering were sold in a firm commitment 14 underwriting that was co-managed by Goldman Sachs & Company, Lehman Brothers and Robertson, Stephens & Company (now known as BancAmerica Robertson Stephens). The amount of underwriting discounts in the Offering were $3,622,500 and other expenses incurred by the Company in connection with the Offering were approximately $1,990,500, resulting in net proceeds to the Company in the amount of $37,137,000. As of September 30, 1997, none of the net proceeds from the Offering has been used by the Company, and the net proceeds are held in cash or high-grade short-term investments. The Company's planned use of proceeds is as described in the registration statement. ITEM 3. Defaults Upon Senior Securities ------------------------------- Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. ITEM 5. Other Information ----------------- Not applicable. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit Number Exhibit ------ ------- 27.1 Financial Data Schedule (b) Reports on Form 8-K. Not applicable. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENESYS TELECOMMUNICATIONS LABORATORIES, INC. Date: November 13, 1997 By: \s\ GREGORY SHENKMAN -------------------- Gregory Shenkman President and Chief Executive Officer Date: November 13, 1997 By: \s\ MICHAEL J. MCCLOSKEY ------------------------ Michael J. McCloskey Chief Operating Officer, Chief Financial Officer and Secretary; Vice President, Finance and International 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 3-MOS JUN-30-1997 JUN-30-1996 JUL-01-1997 JUL-01-1996 SEP-30-1997 SEP-30-1996 31,488 47,180 16,682 0 16,419 18,246 377 385 0 0 68,442 68,884 11,474 8,845 2,343 1,580 80,803 79,734 18,414 18,556 0 0 0 0 0 0 62,839 62,711 (730) (2,271) 80,803 79,374 0 0 15,543 4,236 0 0 2,476 835 11,106 4,164 0 0 370 143 2,331 (620) 816 0 0 0 0 0 0 0 0 0 1,515 (620) .06 (.03) 0 0
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