Genesys Telecommunications Laboratories Inc – ‘10-Q’ for 9/30/99

On:  Monday, 11/15/99   ·   For:  9/30/99   ·   Accession #:  929624-99-1982   ·   File #:  0-22605

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Quarterly Report   —   Form 10-Q
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      24    127K 
 2: EX-27.1     Financial Data Schedule                                2      5K 

10-Q   —   Quarterly Report
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UNITED STATES 
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, 1999 

OR

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

For the transition period from June 30 to September 30, 1999

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 Identification No.)   
incorporation or organization)                                                  

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, 1999
   -------------------                   ---------------------------------
Common Stock, no par value                     25,458,013 Shares          

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PART I.   FINANCIAL INFORMATION                                                 

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                            

GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS 
(In thousands)

                                                        [Enlarge/Download Table]

-------------------------------------------------------------------------------------------------------- 
                                                                       September 30,        June 30,     
                             ASSETS                                        1999               1999       
                                                                 --------------------------------------- 
                                                                      (Unaudited)                        
                                                                                                         
CURRENT ASSETS:                                                                                          
  Cash and cash equivalents                                                 $ 65,080            $ 44,271 
  Short-term investments                                                       7,629              17,426 
  Accounts receivable, net                                                    52,165              44,802 
  Prepaid expenses and other                                                   7,794               8,229 
                                                                 --------------------------------------- 
     Total current assets                                                    132,668             114,728 

PROPERTY AND EQUIPMENT, net                                                   16,679              17,026 
INTANGIBLES, net                                                               7,832               8,190 
OTHER ASSETS                                                                   8,260               7,563 
                                                                 --------------------------------------- 
                                                                            $165,439            $147,507 
                                                                 ======================================= 

           LIABILITIES AND SHAREHOLDERS' EQUITY                                                          

CURRENT LIABILITIES:                                                                                     
  Current portion of long-term obligations                                  $     66            $     65 
  Accounts payable                                                             4,482               3,328 
  Accrued payroll and related benefits                                         5,399               5,585 
  Other accrued liabilities                                                   11,409               7,236 
  Deferred revenues                                                           22,132              21,259 
                                                                 --------------------------------------- 
     Total current liabilities                                                43,488              37,473 

LONG-TERM OBLIGATIONS                                                             57                  66 
                                                                 --------------------------------------- 

STOCKHOLDERS' EQUITY                                                                                     
  Common stock                                                                117,610            112,920 
  Deferred stock compensation                                                   (707)               (964)
  Stockholder notes receivable                                                  (631)               (686)
  Cumulative translation adjustment                                               74                (572)
  Retained earnings                                                            5,548                (730)
                                                                 --------------------------------------- 
     Total stockholders' equity                                              121,894             109,968 
                                                                 --------------------------------------- 
                                                                            $165,439            $147,507 
                                                                 ======================================= 
-------------------------------------------------------------------------------------------------------- 

The accompanying notes are an integral part of these condensed consolidated 
financial statements. 

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GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 
CONDENSED CONSOLIDTED STATEMENTS OF OPERATIONS  
(In thousands, except per share amounts)  

                                                        [Enlarge/Download Table]

 --------------------------------------------------------------------------------------------------------
                                                                            Three Months Ended           
                                                                               September 30              
                                                                -----------------------------------------
                                                                         1999                 1998       
                                                                -----------------------------------------
                                                                                                         
REVENUES:                                                                             (Unaudited)        
   License                                                                   $36,606              $23,662
   Service                                                                     9,272                5,346
                                                                -----------------------------------------
       Total revenues                                                         45,878               29,008
                                                                -----------------------------------------

COST OF REVENUES:                                                                                        
   License                                                                     1,568                1,052
   Service                                                                     6,158                4,055
                                                                -----------------------------------------
       Total cost of revenues                                                  7,726                5,107
                                                                -----------------------------------------

GROSS MARGIN                                                                  38,152               23,901
                                                                -----------------------------------------

OPERATING EXPENSES:                                                                                      
   Research and development                                                    6,847                5,403
   Sales and marketing                                                        17,918               10,403
   General and administrative                                                  4,275                2,703
                                                                -----------------------------------------
       Total operating expenses                                               29,040               18,509
                                                                -----------------------------------------

INCOME FROM OPERATIONS                                                         9,112                5,392

INTEREST AND OTHER INCOME (EXPENSE), net                                         547                  484
                                                                -----------------------------------------

INCOME BEFORE PROVISION FOR TAXES                                              9,659                5,876
PROVISION FOR INCOME TAXES                                                     3,381                2,057
                                                                -----------------------------------------
NET INCOME                                                                   $ 6,278              $ 3,819
                                                                =========================================

NET INCOME PER SHARE:                                                                                    
   BASIC                                                                       $0.25                $0.17
                                                                =========================================
   DILUTED                                                                     $0.21                $0.15
                                                                =========================================

WEIGHTED AVERAGE SHARES OUTSTANDING:                                                                     
   BASIC                                                                      25,178               22,628
                                                                =========================================
   DILUTED                                                                    29,936               25,779
                                                                =========================================
---------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these condensed consolidated 
financial statements. 

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GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands)  

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--------------------------------------------------------------------------------------------------------  
                                                                       Three Months Ended September 30    
                                                                   -------------------------------------- 
                                                                            1999               1998       
                                                                   -------------------------------------- 
                                                                                                          
CASH FLOWS FROM OPERATING ACTIVITIES:                                                 (Unaudited)         
  Net income                                                                  $  6,278            $ 3,819 
  Adjustments to reconcile net income to net cash provided by                                             
   operating activities:                                                                                  
     Deferred stock compensation expense                                           257                119 
     Depreciation and amortization                                               3,245              1,918 
     Provision for doubtful accounts                                                 -                100 
     Changes in operating assets and liabilities:                                                         
       Accounts receivable                                                      (7,363)              (547)
       Prepaid expenses and other                                                  435               (405)
       Accounts payable                                                          1,154             (1,881)
       Accrued payroll and related benefits                                       (186)               837 
       Other accrued liabilities                                                 4,173              2,753 
       Deferred revenues                                                           873              2,015 
                                                                   -------------------------------------- 
          Net cash provided by operating activities                              8,866              8,728 
                                                                   -------------------------------------- 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                     
  Sales of short-term investments                                               36,759             13,408 
  Purchases of short-term investments, net                                     (26,962)            (6,580)
  Purchases of property and equipment                                           (1,848)            (4,488)
  Increase in other assets                                                      (1,388)              (693)
                                                                   -------------------------------------- 
          Net cash provided by investing activities                              6,561              1,647 
                                                                   -------------------------------------- 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                     
  Repayments of advances from related parties                                        -                (90)
  Principal payments on capital lease obligations                                   (9)                (9)
  Payment of shareholder notes receivable                                          550                  - 
  Proceeds from sales of common stock                                            4,195              2,051 
                                                                   -------------------------------------- 
          Net cash provided by financing activities                              4,736              1,952 
                                                                   -------------------------------------- 

  Effect of exchange rate changes on cash                                          646                  - 
                                                                   -------------------------------------- 

NET INCREASE IN CASH AND CASH EQUIVALENTS                                       20,809             12,327 

CASH AND CASH EQUIVALENTS:                                                                                
  Beginning of Period                                                           44,271             30,256 
                                                                   -------------------------------------- 
  End of Period                                                               $ 65,080            $42,583 
                                                                   ====================================== 
--------------------------------------------------------------------------------------------------------- 

The accompanying notes are an integral part of these condensed consolidated 
financial statements. 

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GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

1.   BASIS OF PRESENTATION AND CONSOLIDATION                                    

The accompanying condensed consolidated financial statements have been    
prepared by Genesys Telecommunications Laboratories, Inc. (the "Company" or     
"Genesys") 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 months ended September 30, 1999 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 as set forth in the Company's Annual Report on Form 10-K/A for the      
fiscal year ended June 30, 1999.                                                

These condensed consolidated financial statements include the accounts of 
the Company and its wholly owned subsidiaries. All intercompany accounts and    
transactions have been eliminated.                                              

2.   NET INCOME PER SHARE                                                       

Basic and Diluted Weighted Average Shares Outstanding presented in the    
accompanying statements of operations (as rounded) are comprised of the         
following (in thousands):                                                       

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--------------------------------------------------------------------------------------------------------
                                                                                Three Months Ended      
                                                                                   September 30         
                                                                       ---------------------------------
                                                                               1999            1998     
                                                                       ---------------------------------
                                                                                                        
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING                                          25,178         22,628

Dilutive effect of employee stock options and employee stock purchase                                   
 plan options                                                                       4,758          3,151

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

DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                                        29,936         25,779
                                                                       =================================
--------------------------------------------------------------------------------------------------------

  Approximately 31,150 common stock equivalents were excluded from the diluted
weighted average common shares for the quarter ended September 30, 1999 as their
effect would have been anti-dilutive.                                           

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3.   COMPREHENSIVE INCOME                                                       

 Comprehensive income includes foreign currency translation gains and losses
and unrealized gains and losses on equity securities that have been previously  
excluded from net income and reflected instead in stockholders' equity. The     
following table sets forth the calculation of comprehensive income on an interim
basis (in thousands):                                                           

                                                        [Enlarge/Download Table]

--------------------------------------------------------------------------------------------------------  
                                                                               Three Months Ended         
                                                                                  September 30            
                                                                     ------------------------------------ 
                                                                             1999               1998      
                                                                     ------------------------------------ 
                                                                                                          
Net income                                                                        $6,278           $3,819 
Foreign currency translation gains (losses)                                          646              (34)
                                                                     ------------------------------------ 
TOTAL COMPREHENSIVE INCOME                                                        $6,924           $3,785 
                                                                     ==================================== 
--------------------------------------------------------------------------------------------------------- 

4.    SEGMENT INFORMATION                                                       

The Company adopted Statement of Financial Accounting Standards No. 131   
("SFAS No. 131"), "Disclosures about Segments of an Enterprise and Related      
Information", in fiscal 1999. SFAS No. 131 established standards for reporting  
information about operating segments in the Company's financial statements.     
Operating segments are defined as components of an enterprise about which       
separate financial information is available that is evaluated regularly by the  
chief operating decision makers, or decision making group, in deciding how to   
allocate resources and in assessing performance. The Company's chief operating  
decision making group is the Executive Committee, which is comprised of the     
Chief Executive Officer, the Chief Financial Officer and various Vice Presidents
of the Company.                                                                 

   The Company is organized geographically and by line of business.  The Company
has two major lines of business operating segments: license and service.  The   
Company also evaluates certain subsets of business segments by service          
categories.  While the Executive Committee evaluates results in a number of     
different ways, the line of business management structure is the primary basis  
for which it assesses financial performance and allocates resources.  The       
Company does not track assets by operating segments.  Consequently, it is not   
practical to show assets by operating segments.                                 

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------------------------------------------------------------------------------------------ 
                                                        Three Months Ended September 30,   
                                                               (in thousands)              
                                               --------------------------------------------
                                                         1999                  1998        
                                               --------------------------------------------
                                                                                           
Revenues from unaffiliated customers:                                                      
License revenue                                               $36,606               $23,662

Service revenue:                                                                           
 Professional service                                           4,412                 3,100
 Maintenance service                                            4,860                 2,246
                                               --------------------------------------------
   Total service revenue                                        9,272                 5,346
                                               --------------------------------------------
                                                              $45,878               $29,008
                                               --------------------------------------------

Cost of revenue:                                                                           
License                                                       $ 1,568               $ 1,052
Service                                                         6,158                 4,055
                                               --------------------------------------------
                                                              $ 7,726               $ 5,107
                                               --------------------------------------------
Gross Margin                                                   38,152                23,901
                                               ============================================
-------------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

 ------------------------------------------------------------------------------------------
                                    Three Months Ended September 30 (in thousands)         
                       --------------------------------------------------------------------
                                       1999                              1998              
                       --------------------------------------------------------------------
                                               Total                             Total     
                            Revenues          Assets          Revenues          Assets     
                       --------------------------------------------------------------------

                                                                                           
United States                    $24,632         $112,478          $16,004         $ 87,956
United Kingdom                     5,945           25,677            6,438           14,601
France                             5,600           13,086            1,079            4,189
Germany                            1,653            5,294              731              578
Canada                               855            3,594            1,796            3,784
Japan                              1,463            2,244              606            1,340
Other Foreign Countries            5,730            3,066            2,354            1,832
                       --------------------------------------------------------------------
  Total                          $45,878         $165,439          $29,008         $114,280
                       ====================================================================
-------------------------------------------------------------------------------------------

  Revenues generated from international sales of the Company's products, which
includes export shipments originating in the United States to unaffiliated      
customers and sales to unaffiliated customers from the Company's foreign        
offices, represented 46 % and 45% of total revenues in the first quarters of    
fiscal 2000 and 1999, respectively.                                             

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5.  ACQUISITION OF GENESYS BY ALCATEL                                           

 On September 27, 1999, Genesys entered into an Agreement and Plan of Merger
and Reorganization (the "Merger Agreement") with Alcatel, a company organized   
under the laws of France ("Alcatel"), pursuant to which Alcatel has agreed to   
acquire Genesys (the "Acquisition").  The Acquisition will be effected through  
the issuance of 1.667 American Depositary Shares of Alcatel (the "ADSs"), each  
of which ADS represents one-fifth of a share, nominal value 10 Euros per share  
of Alcatel, in exchange for each share of common stock of Genesys outstanding   
immediately prior to the consummation of the Acquisition, subject to the collar 
provision described below.  The exchange ratio is subject to a collar such that 
the value provided to each Genesys share, based on the 10 day trading average   
ADS price for the period ending 2 trading days prior to Genesys' shareholder    
meeting, shall not exceed $55.00 or be less than $45.00.  Alcatel will have the 
option to pay $45.00 in cash per share if such trading average ADS price does   
not exceed $24.00.  Alcatel will also assume Genesys' stock options outstanding 
at the effective date of the Acquisition, based on such exchange ratio.  The    
amount of such consideration was determined based upon arm's-length negotiations
between Alcatel and Genesys.  The Merger Agreement also provides for the payment
by Genesys to Alcatel under certain circumstances of a fee of $45 million in the
event the Merger Agreement is terminated.                                       

Unless Alcatel exercises its option to pay cash instead of exchanging     
stock, the Acquisition is intended to qualify as a tax-free reorganization under
the Internal Revenue Code of 1986, as amended, and is intended to be accounted  
for as a French pooling of interests.                                           

The consummation of the Acquisition is subject to the satisfaction of     
certain conditions, including certain regulatory approvals and the approval of  
the shareholders of Genesys.                                                    

6.   LITIGATION                                                                 

From time to time, the Company may be involved in litigation relating to  
claims arising out of its operations in the normal course of business.  As of   
September 30, 1999, the Company was not a party of any legal proceedings that,  
if decided adversely to the Company, would, individually or in the aggregate,   
have a material adverse effect on the Company's business, financial condition or
results of operations.                                                          

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                      
CONDITION AND RESULTS OF OPERATIONS                           

   The following discussion and analysis for Genesys focuses on material changes
in financial conditions from June 30, 1999 and in results of operations for the 
quarters ended September 30, 1999 and 1998.  Please read the following          
discussion and analysis with management's discussion and analysis included in   
the Company's 1999 Annual Report on Form10-K/A and with the Company's           
Consolidated Financial Statements and accompanying Notes included herein.       

  On September 27, 1999, Genesys entered into a Merger Agreement with Alcatel.
See Notes to Condensed Consolidated Financial Statements for further discussion.

Results of Operations                                                           

The following table sets forth statement of operations data of the Company
expressed as a percentage of total revenues for the periods indicated.          

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------------------------------------------------------------------------------------- 
                                                              Three Months Ended      
                                                                 September 30         
                                                        ----------------------------- 
                                                              1999           1998     
                                                        ----------------------------- 
                                                                                      
Revenues:                                                                             
  License                                                         79.8%          81.6%
  Service                                                         20.2           18.4 
                                                        ----------------------------- 
     Total revenues                                              100.0          100.0 
                                                        ----------------------------- 
Cost of revenues:                                                                     
  License                                                          3.4            3.6 
  Service                                                         13.4           14.0 
                                                        ----------------------------- 
     Total cost of revenues                                       16.8           17.6 
                                                        ----------------------------- 
Gross Margin                                                      83.2           82.4 
                                                        ----------------------------- 
Operating expenses:                                                                   
  Research and development                                        14.9           18.6 
  Sales and marketing                                             39.1           35.9 
  General and administrative                                       9.3            9.3 
                                                        ----------------------------- 
     Total operating expenses                                     63.3           63.8 
                                                        ----------------------------- 
Income from operations                                            19.9           18.6 
Interest and other income (expense), net                           1.2            1.7 
                                                        ----------------------------- 
Income before provision for income taxes                          21.1           20.3 
Provision for income taxes                                         7.4            7.1 
                                                        ----------------------------- 
Net income                                                        13.7%          13.2%
                                                        ============================= 
------------------------------------------------------------------------------------- 

Revenues                                                                      

   License.  License revenues increased by 54.7% from $23.6 million in the three
months ended September 30, 1998 to $36.6 million in the three months ended      
September 30, 1999.  This increase resulted from 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   
increased by 73.4% from $5.3 million in the three months ended September 30,    
1998 to $9.2 million in the three months ended September 30, 1999.  The         
Company's software license agreements often provide for maintenance, consulting 
and training. Accordingly, increases in licensing activity have resulted in     
increases in revenues from services related to maintenance, consulting and      
training.                                                                       

Service revenues are largely dependent upon the extent to which product   
implementation services are performed by the Company's internal professional    
services personnel versus third party organizations such as systems integrators.
To the extent that the Company utilizes more internal resources to perform      
product implementations, service revenues could increase as a percentage of     
total revenues. Conversely, if the Company utilizes to a greater extent third-  
party organizations such as systems integrators to implement the Company's      
products, service revenues may decrease as a percentage of total revenues.      
Maintenance revenues as a percentage of                                         

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total revenues are expected to increase due to continued expansion of the       
Company's installed base. The Company does not believe that the historical      
growth rates of service 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 $1.5 million and $1.1 million, in the three months ended September
30, 1999, and 1998, respectively. The 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 are primarily comprised of employee-   
related costs incurred in providing consulting, post-contract support and       
training services. Cost of service revenues were $6.1 million and $4.1 million  
in the three months ended September 30, 1999, and 1998, respectively. The       
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, 1999, and 1998, the Company's    
operating expenses were $29 million and $18.5 million, or 63.3% and 63.8% of    
total revenues, respectively.                                                   

   Research and Development. Research and development expenses were $6.8 million
and $5.4 million, or 14.9% and 18.6% of total revenues in the three months ended
September 30, 1999 and 1998, 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 $0.8 and $0.4 million of software         
development costs incurred in the three months ended September 30, 1999 and     
1998, respectively.                                                             

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Sales and Marketing. Sales and marketing expenses were $17.9 million and  
$10.4 million, representing 39.1% and 35.9% of total revenues in the three      
months ended September 30, 1999 and 1998, respectively. These expenses increased
in absolute dollars primarily due to the Company's investment in building a     
direct sales force in North America and in Europe. During the first quarter     
ended September 30, 1999, the Company increased the number of its sales and     
marketing personnel from approximately 246 to 272 worldwide, and incurred higher
commission expenses related to higher sales levels. 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     
continue to invest in its 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 $4.3 
million and $2.7 million, or 9.3% of total revenues in each of the three months 
ended September 30, 1999, and 1998, 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. 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 remain consistent.              

Provision for Income Taxes                                                  

   The Company's effective tax rates have historically differed from the federal
statutory rate primarily because of tax credits, certain foreign sales          
corporation income that is not taxed, state taxes, foreign income taxes provided
at rates greater than the federal statutory rate, as well as foreign losses that
could not be utilized. The effective tax rate was 35% in the first quarters of  
fiscal 2000 and 1999.                                                           

Liquidity and Capital Resources                                                 

   As of September 30, 1999, the Company's primary sources of liquidity included
cash and cash equivalents of $65 million and short-term investments of $7.6     
million.                                                                        

Working capital increased $33 million in the first quarter of fiscal 2000 
over the corresponding quarter in fiscal 1999, due primarily to increased cash  
flow from operations, which resulted in higher cash and cash investment levels. 

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-----------------------------------------------------------------------------------------------------------
                                                                         Three Months Ended                
                                                                     September 30 (in thousands)           
                                                        -------------------------------------------------- 
                                                                1999             1998           % Change   
                                                        -------------------------------------------------- 
                                                                                                           
 Working Capital                                                   $89,180          $55,302           61.3%
 Cash and cash investments                                         $72,709          $52,740           37.9%
 Cash provided by operating activities                             $ 9,511          $ 8,728            9.0%
 Cash provided by investing activities                             $ 5,912          $ 1,647            259%
 Cash provided by financing activities                             $ 4,736          $ 1,952            143%
-----------------------------------------------------------------------------------------------------------


 Operating Activities. The Company generated higher positive cash flows from
operating activities in the three months ended September 30, 1999 over the      
corresponding period ended September 30, 1998, related primarily to an improved 
profitability as well as an increase in accrued liabilities and accounts        
payable.                                                                        

Investing Activities. The Company generated cash from the net maturity of 
$9.8 million of short-term investments in the three months ended September 30,  
1999, and $6.8 million in the three months ended September 30, 1998. The Company
used cash of $3.2 million and $5.2 million for the purchase of property,        
equipment and other assets in the three months ended September 30, 1999, and    
1998, respectively. The Company expects to continue to invest in capital and    
other assets to support its growth.                                             

Financing Activities. The Company generated cash of $4.7 million and $2.0 
million from financing activities in the three months ended September 30, 1999, 
and 1998, respectively, related primarily to proceeds from the exercise of stock
options and the sale of stock under the Employee Stock Purchase Plan.           

  The Company has established subsidiaries in foreign countries, including the
United Kingdom, France, Germany, Sweden, Canada, Russia, Japan, Singapore 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.                 

  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.                                                             

Year 2000                                                                       

The Year 2000 computer issue creates risks for Genesys; the full extent and 
scope of which have not yet been fully assessed.  To address Year 2000 issues   
Genesys initiated a Year 2000 program, managed by a team of internal staff,     
designed to identify and address potential Year 2000 problems that could effect 
the Genesys Products, internal operating systems and critical third party       
relationships.                                                                  

The Company has put in place a program to verify the Year 2000 compliance of
its products.  In 1998 the company's analysis and testing confirmed that the    
Genesys 5.0 and 5.1 Suite are Year 2000 ready.  The company has established, and
continues to expand, a comprehensive set of Year 2000 test cases.  As part of   
the company's normal test process Genesys verifies new products for Year 2000   
compliance prior to release and the company continues to regression test Genesys
5.0 and 5.1 maintenance releases relative to Year 2000.  The costs incurred to  
test the Company's products for Year 2000 compliance were incurred as normal    
product development expenses.                                                   

 While the Company believes that its currently developed and actively marketed
products are Year 2000 compliant, some of Genesys' customers might be running   
older versions of the Company's products that might not be Year 2000 compliant. 
It is possible that Genesys may experience increased expenses in addressing     
mitigation issues for these customers.  In addition, the Company's products     
frequently are integrated into larger networks involving sophisticated hardware 
and software products supplied by other vendors.  Each of the Company's         
customers' networks involves different combinations of third party products.    
The Company cannot evaluate whether a customer's third party products are Year  
2000 compliant.  Genesys may face claims based on Year 2000 problems in other   
companies' products or based on issues arising from the integration of multiple 
products within the overall network.  Although no such claims have been made,   
the Company may in the future be required to defend its products in legal       
proceedings, which could be expensive regardless of the merits of such claims.  

  The Company has implemented a plan to test internal operating systems, such as
computer hardware and software, telephone/PBX systems, fax machines as well as  
facilities systems such as building access and other miscellaneous systems.  The
company has approached its Year 2000 internal readiness review by following a   
methodology of assessing, implementing and monitoring the Year 2000 compliance  
of Genesys' internal operating systems.  This methodology includes taking an    
inventory of the company's internal systems prioritized by risk, gathering      
appropriate vendor information and identifying risks, defining a solution       
strategy to ensure readiness and finally, testing and fixing the operating      
systems to resolve any Year 2000 issues discovered.  The internal readiness     
review has been executed and continues to be monitored by the company.  Costs   
incurred to complete this process have not been material.                       

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Genesys does not believe that the Year 2000 issue will pose significant     
operational problems to its internal operating systems.  However, new           
developments may occur that could affect Genesys' estimates for Year 2000       
readiness.  The failure to correct a material Year 2000 problem could result in 
an interruption in, or a failure of, certain normal business activities or      
operations of Genesys.  Such failures could materially and adversely affect     
Genesys' business, operating results and financial condition.                   

The Company has been in contact with its key third-party relationships      
regarding their Year 2000 compliance.  The Company has received responses from  
its critical third-party relationships who have stated that they expect to      
address all of their significant Year 2000 issues in a timely manner.  The      
company is working to identify and analyze the most reasonably likely worst case
scenarios for key third party relationships affected by Year 2000.  These       
scenarios could include possible infrastructure collapse, the failure of water  
and power supplies, major transportation disruptions and failures of            
communications or financial systems - any of which could have a material adverse
effect on the Company's ability to deliver its products and services to its     
customers.  While the Company has contingency plans in place to address most    
issues under its control, an infrastructure problem outside of its control could
result in a delay in product shipments, depending on the nature and severity of 
the problems.  The Company has analyzed its key third party systems and believes
all of them to be largely Year 2000 compliant.  Costs incurred to complete this 
process have not been material.                                                 

Although the Company has spent time and resources to address potential Year 
2000 problems, there is no assurance that the company will be successful in its 
efforts to identify and address all Year 2000 issues. Even though the Company   
has acted in a timely manner to complete all of its assessments and planned     
solutions, some problems may not have been identified or corrected in time to   
prevent material adverse consequences to the company. The reasonably likely     
worst case of a Year 2000 problem is that (a) Genesys' operations could be      
disrupted for a few days before the problem could be identified and remediated  
and (b) a customer project including Genesys products could be delayed for a    
short period of time before the problem can be identified and remediated by     
Genesys' support process. Genesys uses contract terms to limit direct and       
indirect damages that may be incurred by customers, although no assurance can be
given that such terms are enforceable. In addition, there could be Year 2000    
problems or issues relating to the possible failure in third party systems over 
which the Company has no control and which the Company has no ready substitute, 
such as, but not limited to, power and telecommunications services.             

The discussion above includes forward-looking statements regarding Year 2000
and is based on the Company's best estimates given information that is currently
available and is subject to change.  As the Company continues to progress with  
its Year 2000 programs, it may discover that actual results will differ         
materially from these estimates.  Such results could materially and adversely   
effect the Company's business, operating results and financial condition.       

RISK FACTORS                                                                    

In addition to the other information contained in this Quarterly Report on
Form 10-Q, the following additional risk factors should be considered carefully 
in evaluating the Company and its business. 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. Such forward-
looking statements involve known and unknown risks, uncertainties and other     
factors that may cause the actual results, performance or achievements of the   
Company, or industry results, to be materially different from any future        
results, performance or achievements expressed or implied by such forward-      
looking statements. Given these uncertainties, readers are cautioned not to     
place undue reliance on such forward-looking statements.                        

Quarterly Results of Operations and Forward Looking Statements                  

The Company's quarterly operating results have varied significantly in the
past. The Company's quarterly revenues and operating results may fluctuate      
significantly in the future as a result of a variety of factors, many of which  
are outside the Company's control. These factors include:                       

.   market acceptance of the Company products                             
.   competition                                                           
.   size, timing and recognition of revenue from significant orders       
.   ability to develop and market new products and product enhancements   
   .   new product releases by the Company and its competitors and the timing of
such releases                                                     
.   length of sales and implementation cycles                             
.   ability to integrate acquired businesses                              
  .   success in establishing indirect sales channels and expanding its direct
sales force                                                       
.   success in retaining and training third-party support personnel       
.   delay or deferral of significant revenues until acceptance of software
required by any specific license transaction                      
 .   deferral of customer orders in anticipation of new products and product
enhancements                                                      
.   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                                                           

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.   changes in relationships with strategic partners                      
.   personnel changes                                                     
.   foreign currency exchange rate fluctuations                           
.   ability to control 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.  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 ranges from    
$200,000 to $400,000.  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 the      
Company's 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 expectations as to future revenues.  Consequently, if    
future revenue levels were 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 could 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.

Lengthy Sales Cycle                                                         

   The long sales and implementation cycles for the Company's products may cause
revenues and operating results to vary significantly from quarter to quarter.  A
customer's decision to purchase the Company's products involves a significant   
commitment of its resources and a lengthy evaluation process.  Throughout the   
sales cycle, Genesys often spends considerable time educating and providing     
information to prospective customers regarding the use and benefits of the      
Company's products.  The cost of the Company's products is typically only a     
small portion of the related hardware, software, development, training and      
integration costs associated with implementing an overall solution. As a result,
the Company's sales cycle may be lengthy.  Although it varies substantially from
customer to customer, Genesys' sales cycle generally lasts from three to nine   
months or more.  Even after making the decision to purchase the Company's       
products, its customers tend to deploy them slowly.  Deployment of the          

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Company's products extends from a few weeks to several months depending on the  
complexity of a customer's telecommunications and computing infrastructure.     
Deployment also may involve a pilot implementation phase, the successful        
completion of which is typically a prerequisite for full-scale deployment. This 
deployment may present significant technical challenges, particularly as large  
numbers of employees of a customer attempt to use the Company's products        
concurrently. Because of their complexity, larger implementations, especially   
multi-site or enterprise-wide implementations, can take several quarters.       
Genesys generally relies upon internal resources or third-party consultants to  
assist in the implementation of the Company's products. The Company has         
experienced difficulty implementing customer orders on a timely basis in the    
past due to the limited personnel resources available to the Company. The       
Company cannot guarantee that it will not experience delays in the              
implementation of orders in the future, or that third-party consultants will be 
available as needed by the Company. As a result of this lengthy sales and       
deployment cycle, the Company may experience a delay in the recognition of      
applicable license revenue. In addition, the delays inherent in such a lengthy  
sales and deployment cycle raise the risks that the Company's customers may     
decide to cancel or change their orders, which could result in the loss of      
anticipated revenue. The Company's business, financial condition and results of 
operations would suffer if the customers reduce or delay their orders or choose 
not to release products using our technology.                                   

Customer Concentration                                                          

A significant portion of the Company's revenues has been recognized from a
limited number of customers. In fiscal 1999, no customer accounted for more than
10% of total revenues.  In fiscal 1998 and 1997, MCI Telecommunications         
accounted for 14.1% and 11.1%, respectively, of total revenues. The Company     
expects that a majority of its revenues will continue to depend on sales of     
products to a small number of customers.  The Company also expects that         
customers will vary from period-to-period.  In general, the Company's customers 
have acquired fully paid licenses to the installed product and are not          
contractually obligated to license or purchase additional products or services  
from us.  If the Company fails to successfully sell its products to one or more 
targeted customers in any particular period, or one or more customers defer or  
cancel their orders, the Company's revenues and results of operations could be  
harmed.                                                                         

Competition                                                                     

If the Company were unable to maintain its market share in the intensely  
competitive software market, its financial condition and results of operations  
would be harmed.  Genesys' competitors include companies such as:               

.  computer telephony platform developers;                                    
.  computer telephony applications software developers; and                   
.  telecommunications equipment vendors.                                      

These competitors include Aspect Communications, Cisco Systems, Davox     
Corporation, Dialogic Corporation, Hewlett-Packard, IBM Corporation, IEX        
Corporation, Kana Communications, Lucent Technologies, Melita International     
Corporation, Nortel Networks and Quintus Corporation. Several of these          
competitors have longer operating histories, significantly greater resources,   
greater name recognition and a larger customer base than the Company. Genesys   
expects to continue to encounter significant competition from these and other   
sources.  In addition, as the market for the Company's products develops,       
companies with greater resources may attempt to increase their presence in the  
market by acquiring or forming strategic alliances with the Company's           
competitors.  If new competitors or alliances among current competitors emerge  
and acquire significant market share, the Company's business and results of     
operations could be seriously harmed.                                           

Dependence on New Products; Rapid Technological Change                          

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Rapid technological change, frequent new product introductions, changes in
customer requirements and evolving industry standards characterize the market   
for the Company's products. The introduction by competitors of products         
embodying new technologies and the emergence of new industry standards could    
render the Company's existing products obsolete. Genesys' future success also   
will depend upon its ability to develop and manage key customer relationships in
order to introduce a variety of new products and product enhancements that      
address the increasingly sophisticated needs of its customers. The Company's    
failure to establish and maintain these customer relationships may adversely    
affect the ability to develop new product and product enhancements.  In         
addition, the Company may experience delays in releasing new products and       
product enhancements in the future.  Material delays in introducing new products
and enhancements or the Company's inability to introduce competitive new        
products may cause customers to forego purchases of the Company's products and  
purchase those of competitors.  Due to the complexity of Genesys' software and  
the difficulty in gauging the engineering effort required to produce new        
products and product enhancements, these planned products and product           
enhancements can require long development and testing periods.  As a result,    
significant delays in the general availability of such new releases or          
significant problems in the installation or implementation of such new releases 
could have a material adverse effect on the Company's business, operating       
results and financial condition. The Company has experienced delays in the past 
releasing new products and new product enhancements.  The Company cannot        
guarantee that it will be successful in the future in:                          

 .  developing and marketing, on a timely and cost-effective basis, new products
or new product enhancements that respond to technological change, evolving
industry standards or customer requirements;                              
 . avoiding difficulties that could delay or prevent the successful development,
introduction or marketing of these products; or                           
.  achieving market acceptance for the Company's new products and product     
enhancements.                                                             

   Software products, like those offered by the Company, might contain errors or
defects, which are sometimes called ''bugs''.  These bugs are particularly      
common when new products are first introduced or as new versions or enhancements
to old products are released. In the past, the Company has discovered software  
errors in certain of its new products after their introduction.  Despite        
testing, current versions, new versions or enhancements may still have defects  
and errors after they are shipped to customers.  The presence of such bugs could
lead to lost revenues or delays in market acceptance, which could harm the      
Company's business and operating results.                                       

Integration of Acquired Businesses into the Company; Risks Associated with      
Acquisitions                                                                    

The Company continually evaluates strategic acquisitions of businesses and
technologies that would complement its products or enhance its market coverage  
or technological capabilities.  In December 1998, Genesys acquired Plato        
Software Corporation and in June 1999, it acquired Next Age Technology, Inc.    
The Company may continue to make such acquisitions and investments in the future
and there are a number of risks that future transactions could entail.  These   
risks include the following:                                                    

 . inability to successfully integrate or commercialize acquired technologies or
otherwise realize anticipated synergies or economies of scale on a timely 
basis;                                                                    
.  the diversion of management's attention;                                   
.  the disruption of the Company's ongoing business;                          
.  inability to retain technical and managerial personnel for both companies; 
.  inability to establish and maintain uniform standards, controls, procedures
and processes;                                                            
.  negative response by the government or our competitors to the proposed     
transactions; and                                                         
.  the impairment of our relationships with employees, vendors, and/or        
customers.                                                                

In connection with the Acquisition of Genesys by Alcatel, the Merger      
Agreement provides for the payment by Genesys to Alcatel under certain          
circumstances of a fee of $45 million in the event the Merger Agreement is      
terminated.  See Notes to Condensed Consolidated Financials for further         
discusssion.                                                                    

   In addition, the Company could affect future acquisitions without shareholder
approval.  Acquisitions could                                                   

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dilute shareholder equity, or cause the Company to incur debt and contingent    
liabilities and amortize acquisition expenses related to goodwill and other     
intangible assets. The occurrence of any of the foregoing risks could have a    
material adverse effect on the Company's business, financial condition and      
results of operations.                                                          

Management of Growth                                                            

 The Company has experienced a period of rapid growth and expansion that has
placed and will continue to place a significant strain on its resources.  During
this period, the Company has experienced revenue growth, an increase in the     
number of employees, an expansion in the scope of its operating and financial   
systems and an expansion in the geographic area of its operations. As of        
September 30, 1999, the Company had approximately 765 employees, as compared to 
approximately 730 on June 30, 1999 and 538 on June 30, 1998. The Company        
anticipates that it will expand further to address potential growth in its      
customer base and market opportunities.  The Company expects to add additional  
key personnel in the near future.  To manage this anticipated growth, the       
Company will be required to successfully do the following things:               

.  improve and enhance its operational, financial and management information  
controls, reporting systems and procedures;                               
.  hire, train and manage additional qualified personnel;                     
.  expand and upgrade its core technologies; and                              
 . effectively manage multiple relationships with customers, suppliers and other
third parties.                                                            

   The Company's systems, procedures and controls may not be adequate to support
its operations.  If the Company fails to improve its operational, financial and 
management information systems, or to hire, train, motivate or manage its       
employees, the business, financial condition and results of operations could    
suffer.                                                                         

Dependence on Third-Party Resellers                                             

  The Company's success depends on its ability to continue to develop channels
with third-party resellers such as original equipment manufacturers, systems    
integrators and telecommunications switch vendors.  The Company has entered into
reseller agreements with some of the telecommunications switch vendors,         
including those that compete with Genesys.  Genesys is also seeking to establish
strategic relationships with independent software vendors.  Genesys does not    
have a substantial direct sales force and derives a significant portion of its  
revenue from its third-party resellers.  Many of these third-party resellers do 
not have minimum purchase or resale requirements and can cease marketing the    
Company's products at any time.  These sales channels could be affected by a    
number of additional factors including:                                         

.  pressures placed on  third-party resellers to sell competing products;     
.  competing product lines offered by certain third-party resellers;          
.  failure to adequately support the third-party resellers;                   
 . failure of current third-party resellers to provide the level of services and
technical support required by Genesys' customers;                         
.  loss of a significant number of third-party resellers; and                 
.  failure to attract and retain third-party resellers who have the expertise 
necessary to successfully sell the Company's products.                    

   Even if Genesys is able to increase its sales through third-party reseller's,
those sales may be at more discounted rates.  This would result in lower        
revenues to the Company than what it would generate by licensing the same       
products to customers directly.                                                 

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The Company is also seeking to incorporate its products into the products 
offered by telecommunications switch vendors and local and long distance network
carriers.  In the near term, the Company is focused on enabling network service 
providers to offer computer telephony integration services to their business    
customers.  The Company cannot guarantee that it will be able to establish      
relationships with network service providers or telecommunication switch vendors
or that they will successfully incorporate Genesys' products into theirs.  The  
Company also cannot guarantee that its corporate partners or its business       
customers will be interested in purchasing products that incorporate Genesys    
software and are offered by network service providers or telecommunications     
switch vendors.  If the Company fails to develop this sales channel, its        
business and results of operations could be harmed.                             

Dependence on Emerging Market                                                   

The market for customer interaction software, particularly across multiple
media channels, is an emerging market that is extremely competitive and highly  
fragmented.  This market is currently evolving and subject to rapid             
technological change. The Company's success will depend in large part on        
continued growth in the number of organizations adopting customer interaction   
solutions across multiple media channels. The market for Genesys' products is   
relatively new and undeveloped, and recent customers and prospective customers  
have little experience with deploying, maintaining or managing customer         
interaction solutions. If this market demand fails to develop, or develops more 
slowly than the Company currently anticipates, this could have a material       
adverse effect on the demand for the Company's products and on its business,    
financial condition and results of operations.                                  

Risks Associated With International Sales and Operations                        

For the first quarter of fiscal 2000 and 1999, the Company derived 46% and
45% of its total revenues, respectively, from sales outside the United States.  
The Company anticipates that a significant portion of its revenues will continue
to be concentrated in international markets for the foreseeable future. The     
Company intends to expand operations in its existing international markets and  
to enter new international markets, which will require management attention and 
resources. The Company may not be successful in expanding its international     
operations. In addition, a successful international expansion of Genesys'       
software solutions will be limited to those countries where there is regulatory 
approval of the third-party telephony hardware supported by Genesys' products.  
The Company expects to commit additional development resources to customizing   
its products for selected international markets and to developing international 
sales and support channels.                                                     

   Furthermore, to increase revenues in international markets, Genesys will need
to continue to establish foreign operations, to hire additional personnel to run
such operations and to maintain good relations with the Company's foreign       
systems integrators and distributors.  To the extent that Genesys is unable to  
successfully do so, its growth in international sales will be limited.  The     
failure to expand international sales could have a material adverse effect on   
the Company's business, operating results and financial condition.              

A substantial portion of the Company's business is conducted in currencies
other than the U.S. dollar. Changes in the value of major foreign currencies    
relative to the value of the U.S. dollar could potentially have an adverse      
affect on revenues and operating results. The Company has established a foreign 
currency hedging program to manage its foreign currency exchange rate risk. In  
certain instances, the Company finds it impractical to hedge all foreign        
currencies in which it conducts business, as a result, the Company may continue 
to experience foreign currency gains and losses. (See Item 3. Quantitative and  
Qualitative Disclosure about Market Risk)                                       

   In addition to currency fluctuation risks, international operations involve a
number of risks not typically present in domestic operations. Such risks        
include:                                                                        

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.  changes in regulatory requirements;                                        
.  costs and risks of deploying systems in foreign countries;                 
.  timing and availability of export licenses;                                
.  tariffs and other trade barriers;                                          
.  political and economic instability;                                        
.  difficulties in staffing and managing foreign operations;                  
.  potentially adverse tax consequences;                                      
.  difficulties in obtaining governmental approvals for products;             
.  the burden of complying with a wide variety of complex foreign laws and    
treaties;                                                                 
.  the possibility of difficult accounts receivable collections; and          
.  difficulties in managing distributors.                                     

   Foreign laws that may differ significantly from laws of the United States may
govern distributors' customers purchase agreements. The Company is also subject 
to the risks associated with the imposition of legislation and regulations      
relating to the import or export of high technology products.  The Company      
cannot predict whether quotas, duties, taxes or other charges or restrictions   
upon the importation or exportation of its products will be implemented by the  
United States or other countries, leading to a reduction in sales and           
profitability in that country.  Future international activity may result in     
sales dominated by foreign currencies.  Gains and losses on the conversion to   
United States dollars of accounts receivables, accounts payable and other       
monetary assets and liabilities arising from international operations may       
contribute to fluctuations in the Company's operating results.  Any of these    
factors could materially affect the Company's business, operating results and   
financial condition.                                                            

Product Concentration                                                           

   Substantially all of the Company's revenues to date have been attributable to
the license of the Company's platform and related applications software and     
services and, in particular, revenues from the license of the Company's platform
products accounted for 45% of total revenues in fiscal 1999. Genesys' platform  
and related applications software and services are currently expected to account
for substantially all of the Company's revenues for the foreseeable future.     
Consequently, a decline in pricing or demand for, or failure to achieve broad   
market acceptance of, Genesys' platform and related applications software       
products, as a result of competition, technological change or otherwise, would  
have a material adverse effect on the Company's business, financial condition   
and results of operations. The Company's application products, other than the   
Adante e-mail and Next Age Work Force Management products can only be used in   
conjunction with the Company's platform products. As a result, a decline in     
demand for the Company's platform products would materially adversely affect    
sales of the Company's application products. Furthermore, if customers          
experience problems with the Company's platform products, it would adversely    
affect their ability to utilize the Company's application products. The         
Company's future financial performance will depend in part on the successful    
development, introduction and customer acceptance of new and enhanced versions  
of its platform and related applications software products. There can be no     
assurance that the Company will continue to be successful in marketing its      
platform products, related applications software or any new or enhanced         
products.                                                                       

Government Regulation of Immigration                                            

As of June 30, 1999, over 26% of the Company's employees, including       
approximately 57% of the Company's technical staff, are foreign citizens.       
Accordingly, the Company must comply with the immigration laws of the United    
States. Most of the Company's foreign employees are working in the United States
under H-1 temporary work visas ("H-1 Visas"). An H-1 Visa allows the holder to  
work in the United States for three years and, thereafter,                      

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to apply for a three-year extension. If the H-1 Visa holder has not become a    
Lawful Permanent United States Resident or has obtained some other legal status 
permitting continued employment before expiration of this six-year period, the  
holder must spend at least one year abroad before reapplying for an H-1 Visa.   
Furthermore, Congress and administrative agencies with jurisdiction over        
immigration matters have periodically expressed concerns over the level of      
immigration into the United States. The inability of the Company to utilize the 
continued services of such employees would have a material adverse effect on the
Company's business, financial condition and results of operations.              

Dependence on Ability to Integrate with Third-Party Technology                  

  The Company's products currently integrate with most major telephony systems
and interoperate across most major computing platforms, operating systems and   
databases. If the Company's platform did not readily integrate with major       
telephone systems and computing platforms, operating systems or databases, (for 
instance, as a result of technology enhancements or upgrades of such systems)   
the Company could be required to redesign its platform product to ensure        
compatibility with such systems. The Company cannot guarantee that it would be  
able to redesign its products or that any redesign would achieve market         
acceptance. If the Company's platform products did not integrate with third-    
party technology, there would be a material adverse effect on the Company's     
business, financial condition and results of operations.                        

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK             

Disclosures about Market Risk                                                   

Interest Rate Risk.  The Company's exposure to market risk for changes in 
interest rates relates primarily to the Company's investment portfolio.  The    
Company's investments consist primarily of tax-exempt debt securities, are      
classified as available for sale and are stated at fair value.  The Company is  
averse to principal loss and seeks to preserve its invested funds by limiting   
default risk, market risk and reinvestment risk.                                

Table of Investment Securities:                                                 

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------- 
                      (in thousands)                            Principal       Average Interest  
                                                                 Amount               Rate        
                                                          --------------------------------------- 
                                                                                                  
Cash and cash equivalents                                             $65,080                2.63%
Short-term investments                                                  7,629                3.35%
                                                          --------------------------------------- 
Total cash and investment securities                                  $72,709                  -- 
                                                          ======================================= 
------------------------------------------------------------------------------------------------- 

  Currency Rate Risk.  The Company's subsidiaries primarily operate in foreign
markets and predominantly have their local currencies as their functional       
currencies.  These subsidiaries do not have third party borrowings in currencies
other than their local currencies, and therefore there are no appropriate       
quantitative disclosures.                                                       

The Company's primary currency rate risk exposures relates to:            

.  decentralized operations, whereby approximately 50% of the Company's   
revenues are derived from operations outside the United States,     
denominated in currencies other than the U.S. dollar,               
   .  investments in foreign subsidiaries being primarily directly from the U.S.
parent, resulting in U.S. dollar investments in foreign currency    
functional companies, and                                           
   .  location of operating subsidiaries in a number of countries that have seen
significant exchange rate changes against the U.S. dollar.          

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The Company has established a foreign currency hedging program, utilizing 
foreign currency forward exchange contracts (forward contracts) to hedge certain
foreign currency transaction exposures. Under this program, gains and losses on 
the forward contracts offset increases or decreases in the Company's foreign    
currency transactions, so as to mitigate the possibility of foreign currency    
transaction gains and losses. The Company does not use forward contracts for    
trading purposes. All outstanding forward contracts at the end of a period are  
marked-to-market with unrealized gains and losses included in other income and  
thus are recognized in income in advance of the actual foreign currency cash    
flows. As these forward contracts mature, the realized gains and losses are     
recorded and are included in net income as a component of other income. The     
Company's ultimate realized gain or loss with respect to currency fluctuations  
will depend on the currency exchange rates and other factors in effect as the   
contracts mature. The unrealized loss on the outstanding forward contracts at   
September 30, 1999 was immaterial to the Company's consolidated financial       
statements.                                                                     

The Company's outstanding forward contracts as of September 30, 1999 are  
presented in the following table. The table presents the contract amounts and   
the contractual foreign currency exchange rates. These exchange rates are quoted
using market conventions where the currency is expressed in currency units per  
U.S. dollar, except for the UK. All of these forward contracts and equity hedges
mature in ninety days or less as of September 30, 1999.                         

Table of Forward Contracts                                                      

                                                        [Enlarge/Download Table]

Functional Currency                       Contract Amount         Contract Exchange Rate   
-------------------------------------------------------------------------------------------

                                                                                           
Canadian Dollar                                    $   300,000                       1.5235
French Franc                                         4,000,000                       6.3210
German Mark                                          1,250,000                       1.8830
UK Pound                                             8,800,000                       1.5738
                                                   -----------                             
Total                                              $14,350,000                             
                                                   ===========                             
-------------------------------------------------------------------------------------------

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PART II.   OTHER INFORMATION                                                    

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                       

(a) Exhibits                                                  

            Incorporated herein by reference to the list of Exhibits contained
     in the Exhibit Index that begins on Page 24 of this Report.

(b) Reports on Form 8-K                                       

       The Company filed a Form 8-K with the Securities and Exchange
Commission on September 29, 1999.                     

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SIGNATURES  

Pursuant to the requirements of the Securities Exchange Act of 1934, the        
registrant has duly caused this report to be signed on its behalf by the        
undersigned, thereunto duly authorized.                                         

                     GENESYS TELECOMMUNICATIONS LABORATORIES, INC.

Date: November 12, 1999     By: /s/ Christopher C. Brennan                      
                ----------------------------------
    Christopher C. Brennan
                             Chief Financial Officer, Senior Vice President,
                              Finance & Administration and Principal Financial
Officer           

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INDEX TO EXHIBITS 

                                                                [Download Table]

Exhibit                                                     Exhibit
 Number                                                            

                                                                   
27.1          Financial Data Schedule (submitted for SEC use only).

24

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
Filed on:		11/15/99
		11/12/99		23
For Period End:		9/30/99		1		21
		9/29/99		22					8-K
		9/27/99		8
		6/30/99		5		19			10-K,  10-K/A
		9/30/98		8		12			10-Q
		6/30/98		17					10-K405
									List all Filings