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Genesys Telecommunications Laboratories Inc – ‘10-Q’ for 9/30/98

As of: Monday, 11/16/98 · For: 9/30/98 · Accession #: 929624-98-1875 · File #: 0-22605

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/16/98  Genesys Telecoms Laboratories Inc 10-Q        9/30/98    2:46K                                    Donneley R R & S… Inc/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      17     88K 
 2: EX-27       Financial Data Schedule                                2      6K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Changes in Securities and Use of Proceeds Defaults Upon Senior Securities Exhibits and Reports on Form 8-K Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Other Information Quantitative and Qualitative Disclosures About Market Risk Research and Development Submission of Matters to a Vote of Security Holders
1	1st Page - Filing Submission
3	Item 1. Financial Statements
10	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
11	Research and Development
14	Item 3. Quantitative and Qualitative Disclosures About Market Risk
15	Item 1. Legal Proceedings
16	Item 2. Changes in Securities and Use of Proceeds
"	Item 3. Defaults Upon Senior Securities
"	Item 4. Submission of Matters to a Vote of Security Holders
"	Item 5. Other Information
"	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 17 TOC ↑Top Previous Next ↓Bottom Just 1st
 
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, 1998 

OR  

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

For the transition period from ________ to ________ 

COMMISSION FILE NUMBER  000-22605 

GENESYS TELECOMMUNICATIONS LABORATORIES, INC. 
(Exact name of registrant as specified in its charter)

                                                                [Download Table]
                                                                                
                 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:                                

                                                                [Download Table]

   TITLE OF EACH CLASS      OUTSTANDING AT SEPTEMBER 30, 1998
   -------------------      ---------------------------------
                                                             
Common Stock, no par value          22,864,155 Shares        

10-Q 2nd Page of 17 TOC 1st Previous Next ↓Bottom Just 2nd
Genesys Telecommunications Laboratories, Inc. 
THIRD QUARTER 1998 FORM 10-Q
TABLE OF CONTENTS 

                                                                [Download Table]

                                                            PAGE
                                                            ----
                                                                
PART I.  FINANCIAL INFORMATION                                  

   ITEM 1.  Financial Statements                               3

   ITEM 2.  Management's Discussion and Analysis of             
            Financial Condition and Results of Operations     10

   ITEM 3.  Quantitative and Qualitative Disclosures            
            About Market Risk                                 15

PART II. OTHER INFORMATION                                      

    ITEM 1. Legal Proceedings                                 15
    ITEM 2. Changes in Securities and Use of Proceeds         16
    ITEM 3. Defaults Upon Senior Securities                   16
    ITEM 4. Submission of Matters to a Vote of                  
            Security Holders                                  16
    ITEM 5. Other Information                                 16
    ITEM 6. Exhibits and Reports on Form 8-K                  16

SIGNATURES                                                    17

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PART I  
FINANCIAL INFORMATION 

ITEM 1.  Financial Statements                                                   
--------------------                                          

Condensed Consolidated Financial Statements                                   

Condensed Consolidated Balance Sheets as of September 30, 1998  
         and June 30, 1998                                                 4
Condensed Consolidated Statements of Operations for the         
         three months ended September 30, 1998 and 1997                    5

Condensed Consolidated Statements of Cash Flows for the three   
         months ended September 30, 1998 and 1997                          6

      Notes to Condensed Consolidated Financial Statements                 7

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

ASSETS  

                                                        [Enlarge/Download Table]

                                                             September 30,              June 30,    
                                                                 1998                     1998      
                                                          -----------------         --------------- 
                                                            (Unaudited)                             
                                                                                                    
CURRENT ASSETS:                                                                                     
     Cash and cash equivalents                            $          42,583         $        30,256 
     Short-term investments                                          10,157                         
     Accounts receivable, net                                        28,007                  28,454 
     Prepaid expenses and other                                       8,719                   8,314 
                                                          -----------------         --------------- 
              Total current assets                                   89,913                  83,562 

PROPERTY AND EQUIPMENT, net                                          17,625                  14,675 

OTHER ASSETS                                                          6,463                   6,742 
                                                          -----------------         --------------- 
                                                            $       114,280             $   104,700 
                                                          =================         =============== 

                               LIABILITIES AND SHAREHOLDERS' EQUITY                                 

CURRENT LIABILITIES:                                                                                
     Note payable                                               $       153         $           243 
     Current portion of long-term obligations                            33                      33 
     Accounts payable                                                 4,520                   2,639 
     Accrued payroll and related benefits                             3,702                   4,539 
     Other accrued liabilities                                        5,674                   8,427 
     Deferred revenues                                               18,820                  16,805 
                                                          -----------------         --------------- 
              Total current liabilities                              34,611                  30,977 
                                                          -----------------         --------------- 

LONG-TERM OBLIGATIONS                                                    93                     102 
                                                          -----------------         --------------- 

SHAREHOLDERS' EQUITY:                                                                               
           Common stock                                              74,402                  72,356 
           Shareholder notes receivable                                (316)                   (440)
           Cumulative translation adjustment                           (222)                   (188)
           Retained Earnings                                          5,712                   1,893 
                                                          -----------------         --------------- 
     Total shareholders' equity                                      79,576                  73,621 
                                                          -----------------         --------------- 
                                                            $       114,280             $   104,700 
                                                          =================         =============== 

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

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

                                                        [Enlarge/Download Table]

                                                               Three Months Ended                        
                                                                 September 30,                           
                                                             1998              1997                      
                                                          ------------    -------------                  
                                                                   (Unaudited)                           
REVENUES:                                                                                                
                                                                                                         
       License                                            $    23,662     $    13,267                    
       Service                                                  5,346           2,973                    
                                                          ------------    -------------                  
              Total revenues                                   29,008          16,240                    
                                                          ------------    -------------                  

COST OF REVENUES:                                                                                        
       License                                                  1,052             671                    
       Service                                                  4,055           1,821                    
                                                          ------------    -------------                  
              Total cost of revenues                            5,107           2,492                    
                                                          ------------    -------------                  

GROSS MARGIN                                                   23,901          13,748                    
                                                          ------------    -------------                  

OPERATING EXPENSES:                                                                                      
       Research and development                                 5,403           3,059                    
       Sales and marketing                                     10,403           6,950                    
       General and administrative                               2,703           1,862                    
                                                          ------------    -------------                  
              Total operating expenses                         18,509          11,871                    
                                                          ------------    -------------                  

INCOME FROM OPERATIONS                                          5,392           1,877                    

INTEREST AND OTHER INCOME (EXPENSE), NET                          484             335                    
                                                          ------------    -------------                  

INCOME BEFORE PROVISION FOR                                                                              
     INCOME TAXES                                               5,876           2,212                    
PROVISION FOR INCOME TAXES                                      2,057             816                    
                                                          ------------    -------------                  

NET INCOME                                                $     3,819        $  1,396                    
                                                          ============    =============                  

BASIC NET INCOME  PER SHARE                               $      0.17        $   0.07                    
                                                          ============    =============                  
DILUTED NET INCOME PER SHARE                                     0.15            0.05                    
                                                          ============    =============                  

BASIC WEIGHTED AVERAGE COMMON SHARES                           22,628          20,510                    
                                                          ============    =============                  
DILUTED WEIGHTED AVERAGE                                                                                 
     COMMON SHARES                                             25,779          26,096                    
                                                          ============    =============                  

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

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

                                                        [Enlarge/Download Table]

                                                                                           For the Three Months       
                                                                                            Ended September 30,       
                                                                                          1998              1997      
                                                                                    ----------------    --------------
                                                                                                (Unaudited)           
                                                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                 
      Net income                                                                         $   3,819        $    1,396  
     Adjustments to reconcile net income to net cash                                                                  
      provided by (used in) operating activities:                                                                     
        Deferred stock compensation expense                                                    119               119  
        Depreciation and amortization                                                        1,918               981  
        Provision for doubtful accounts                                                        100                 5  
        Changes in operating assets and liabilities:                                                                  
            Accounts receivable                                                               (547)            1,801  
            Prepaid expenses and other                                                        (405)             (406) 
            Accounts payable                                                                (1,881)             (543) 
            Accrued payroll and related benefits                                               837               405  
            Other accrued liabilities                                                        2,753              (162) 
            Deferred revenues                                                                2,015               265  
                                                                                    ----------------    --------------
                Net cash provided by (used in) operating activities                          8,728             3,861  
                                                                                    ----------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                 
     Sales of short-term investments                                                        13,408                 -  
     Purchases of short-term investments                                                    (6,580)          (16,682) 
     Purchases of property and equipment                                                    (4,488)           (2,628) 
     (Increase) decrease in other assets                                                      (693)             (240) 
                                                                                    ----------------    --------------
                Net cash provided by (used in) investing activities                          1,647           (19,550) 
                                                                                    ----------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                 
     Proceeds from/(Repayments of) note payable                                                (90)               30  
     Principal payments on capital lease obligations                                            (9)             (124) 
     Proceeds from sales of common stock                                                     2,051                69  
                                                                                    ----------------    --------------
                Net cash used in financing activities                                        1,952               (25) 
                                                                                    ----------------    --------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                   12,327           (15,714) 

CASH AND CASH EQUIVALENTS:                                                                                            
     Beginning of Period                                                                    30,256            47,160  
                                                                                    ----------------    --------------
      End of Period                                                                      $  42,583        $   31,446  
                                                                                    ===============     ==============

         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
(UNAUDITED) 

1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                

The accompanying condensed consolidated financial statements have been
prepared by Genesys Telecommunications Laboratories, Inc. (the Company) without 
audit and reflect all adjustments which are, in the opinion of management,      
necessary for a fair presentation of the financial position and the results of  
operations of the Company for the interim periods. The statements have been     
prepared in accordance with the regulations of the Securities and Exchange      
Commission (SEC). Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles. The results of operations 
for the three months ended September 30, 1998 are not necessarily indicative of 
the operating results to be expected for the full fiscal year or future         
operating periods. The information included in this report should be read in    
conjunction with the audited consolidated financial statements and notes thereto
for the fiscal year ended June 30, 1998 and the risk factors as set forth in the
Company's Annual Report on Form 10-K, including, without limitation, risks      
relating to limited operating history, potential fluctuations in quarterly      
operating results, lengthy sales cycle, lengthy implementation cycle, dependence
on third party consultants, dependence on new products, rapid technological     
change, competition, product concentration, management of growth, dependence on 
third-party resellers, GeoTel litigation, customer concentration, dependence on 
emerging CTI market, risks associated with international sales and operations,  
dependence on key personnel, government regulation of immigration, dependence on
ability to integrate with third-party technology, product liability, protection 
of intellectual property, concentration of stock ownership, possible volatility 
of stock price, shares eligible for future sale, registration rights, effect of 
certain charter provisions, anti-takeover effects of provisions of  the by-laws 
and uncertainty as to use of proceeds. Any party interested in reviewing these  
publicly available documents should write to the SEC or the Chief Financial     
Officer of the Company.                                                         

2.   CONSOLIDATION                                                              

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

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3.   NET INCOME PER SHARE                                                       

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),   
which was adopted by the Company in the quarter ended December 31, 1997, and in 
accordance with this standard all prior periods presented have been restated to 
conform to its provisions. Under the new requirements for calculating earnings  
per share, the dilutive effect of potential common shares is excluded from basic
net income (loss) per share. Diluted net income (loss) per share is computed    
using the weighted average number of common and potential common shares         
outstanding during the period. Potential common shares consist of preferred     
stock (using the "if converted" method) and stock options and warrants (using   
the treasury stock method). Potential common shares are excluded from the       
dilutive computation only if their effect is anti-dilutive.                     

In February 1998, the Securities and Exchange Commission issued Staff 
Accounting Bulletin 98, which included SEC requirements related to the adoption 
of SFAS 128. The Company applied these provisions to the calculation of basis   
and diluted weighted average shares outstanding for all periods presented in the
accompanying statements of operations.                                          

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

                                                        [Enlarge/Download Table]

                                                                       Three Months            
                                                                          Ended                
                                                                      September 30,            
                                                          -------------------------------------
                                                              1998                  1997       
                                                          -------------         ---------------
                                                                                               
Weighted average common shares outstanding                      22,628                  19,843 

Shares issued in acquisition of Forte                                -                     667 

BASIC WEIGHTED AVERAGE COMMON SHARES                            22,628                  20,510 
                                                        ================        ===============

Weighted average options and warrants for common stock           3,151                   5,586 

DILUTED WEIGHTED AVERAGE COMMON SHARES                          25,779                  26,096 
                                                        ================        ===============

4.   LITIGATION                                                                 

  On December 17, 1996, GeoTel Communications Corporation ("GeoTel") filed
a lawsuit in the United States District Court for the District of Massachusetts 
naming the Company as defendant, and alleging infringement of a patent issued to
GeoTel entitled "Communications System Using a Central Controller to Control at 
Least One Network and Agent System", U.S. Patent No. 5,546,452 (the "GeoTel     
Patent"). In the complaint, GeoTel requested injunctive relief, an accounting   
for damages and an assessment of interest and costs, and other relief as the    
court deems just and proper. On February 10, 1997, the Company filed an answer  
in response to the complaint filed by GeoTel, asserting that the GeoTel Patent  
is invalid, denying the alleged patent infringement and seeking dismissal of the
complaint with prejudice. The litigation is currently in early discovery stages,
with depositions to commence fall of 1998 and fact discovery scheduled to be    
completed in January 1999. The Company believes that it has meritorious defenses
to the asserted claims and intends to defend the litigation vigorously. GeoTel  
alleges that the Genesys Call Router, Genesys Call Center Manager and Genesys   
Call Concentrator products, and the T Server product, as a necessary element of 
all Genesys products, infringe the GeoTel Patent. After consultation with       
counsel, the Company does not believe any of the products described under       
"Business--Products" in the Company's Annual Report on Form 10-K infringe any   
valid claims of the GeoTel Patent. In connection with the Company's development 
of the potential new products described under "Business--Research and           
Development" in the Company's Annual Report on Form 10-K, the Company has       
sought the advice of such counsel and believes that such potential products can 
be developed without infringing the GeoTel Patent; however, there can be no     
assurance that GeoTel will not assert infringement of the GeoTel Patent with    
respect to such potential new products. Further, the outcome of litigation is   
inherently unpredictable, and there can be no assurance that the results of     
these proceedings will be favorable to the Company or that they will not have a 
material adverse effect on the Company's business, financial condition or       
results of operations. Regardless of the ultimate outcome, the GeoTel litigation
could result in substantial expense to the Company and significant diversion of 
effort by the Company's technical and managerial personnel. If the Court        
determines that the Company infringes GeoTel's patent and that the GeoTel patent
is valid and enforceable, it could issue an injunction against the use or sale  
of certain of the Company's products and it could assess significant damages    
against the Company. Accordingly, an adverse determination in the proceeding    
could subject the Company to significant liabilities and require the Company to 
seek a license from GeoTel. Although patent and other intellectual property     
disputes in the software area have sometimes been settled through licensing or  
similar arrangements, costs associated with such arrangements may be            
substantial, and there                                                          

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can be no assurance that a license from GeoTel, if required, would be available 
to the Company on acceptable terms or at all. Accordingly, an adverse           
determination in the GeoTel litigation could prevent the Company from licensing 
certain of its software products, which would have a material adverse effect on 
the Company's business, financial condition and results of operations.          

5.   RECENTLY ISSUED ACCOUNTING STANDARDS                                       

 In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"),  
which was adopted by the Company in its first fiscal quarter of 1999.  SOP 97-2 
clarifies and amends certain provisions of Statement of Position 91-1, "Software
Revenue Recognition".  The adoption of the provisions of SOP 97-2 did not have a
material impact on the Company's financial position or results of operations.   

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 
130"), which was adopted by the Company in its first quarter of fiscal 1999.    
Accordingly, the Company is required to disclose, in financial statement format,
all non-owner changes in equity.  Such changes include, for example, cumulative 
foreign currency translation adjustments, certain minimum pension liabilities   
and unrealized gains and losses on available-for-sale securities.  The Company's
only reconciling item to comprehensive income from net income is cumulative     
translation adjustments resulting from foreign currency exchange rates, the net 
effect of which is immaterial to the Company's financial statements for the     
periods presented.                                                              

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an       
Enterprise and Related Information" ("SFAS 131"), which establishes standards   
for reporting information about operating segments in annual financial          
statements and interim financial reports.   It also establishes standards for   
related disclosures about products and services, geographic areas and major     
customers.  As defined in SFAS 131, operating segments are components of an     
enterprise about which separate financial information is available that is      
evaluated regularly by the chief operating decision-maker in deciding how to    
allocate resources and in assessing performance.  Generally, financial          
information is required to be reported on the basis that is used internally for 
evaluating segment performance and deciding how to allocate resources to        
segments.  The Company will adopt SFAS 131 for the year ended June 30, 1998. The
Company believes the adoption of SFAS 131 will not have a material impact on    
its financial statements.                                                       

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments  
and Hedging Activities" ("SFAS 133") which establishes accounting and reporting 
standards for derivative instruments and hedging activities. The Company does   
not expect the adoption of SFAS 133, required beginning the first of quarter of 
2000 to have a material effect on its consolidated financial statements.        

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

OVERVIEW                                                                        

 Genesys Telecommunications Laboratories, Inc (''Genesys'' or the ''Company'')
is a leading provider of enterprise-wide customer interaction, computer         
telephony and e-mail software solutions. The Company's products allow an        
organization to optimally manage its customer interactions and employee         
communications to increase productivity, lower costs and achieve greater        
customer satisfaction and loyalty.  To accomplish this, Genesys' software-based 
solutions integrate and extend the capabilities of an organization's computer,  
telecommunications and database systems, bringing together what were once       
disparate technologies. The Company believes that as customer interactions are  
increasingly viewed as strategic to an organization's mission, call center      
capabilities will be extended beyond traditional agent, site and switch         
boundaries, transforming the entire enterprise into a customer interaction      
network.                                                                        

RESULTS OF OPERATIONS                                                           

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

                                                        [Enlarge/Download Table]

                                                                                Three Months            
                                                                                   Ended                
                                                                               September 30,            
                                                                 ---------------------------------------
                                                                         1998                  1997     
                                                                 ----------------        ---------------
                                                                                                        
Revenues:                                                                                               
     License ...................................................       81.6%                  81.7%     
     Service ...................................................       18.4                    18.3     
                                                                 ----------------        ---------------
          Total revenues........................................      100.0                   100.0     
                                                                 ----------------        ---------------
Cost of revenues:                                                                                       
     License ...................................................         3.6                     4.1    
     Service ...................................................       14.0                    11.2     
                                                                 ----------------        ---------------
          Total cost of revenues................................       17.6                    15.3     
                                                                 ----------------        ---------------
Gross Margin....................................................        82.4                    84.7    
                                                                 ----------------        ---------------
Operating expenses:                                                                                     
     Research and development...................................        18.6                    18.8    
     Sales and marketing........................................        35.9                    42.8    
     General and administrative.................................        9.3                    11.5     
                                                                 ----------------        ---------------
          Total operating expenses..............................       63.8                    73.1     
                                                                 ----------------        ---------------
Income from operations..........................................        18.6                    11.6    
Interest and other income (expense), net........................        1.7                     2.1     
                                                                 ----------------        ---------------
Income before provision for income taxes........................        20.3                    13.6    
Provision for income taxes......................................        7.1                     5.0     
                                                                 ----------------        ---------------
Net income   ...................................................       13.2%                    8.6%    
                                                                 ================        ===============

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Revenues                                                                      
--------                                                                      

License. License revenues increased by 78.4% from $13.3 million in the three
-------                                                                     
months ended September 30, 1997 to $23.7 million in the three months ended      
September 30, 1998.  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 79.8% from $3.0 million in the three months ended September 30,    
1997 to $5.3 million in the three months ended September 30, 1998.  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.                                                                       

If the Company is successful in implementing its strategy of encouraging    
third-party organizations such as systems integrators to undertake a greater    
percentage of implementation of the Company's products, service revenues may    
decrease as a percentage of total revenues, while maintenance as a percentage of
total revenues is expected to increase. The Company does not believe that the   
historical growth rates of service 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 $1.1 million and $0.7 million, in the three months ended          
September 30, 1998 and 1997, 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. Also included in cost    
of license revenues is amortization of capitalized software costs amounting     
to, approximately, $132,000 and $37,500 for the three months ended September    
30, 1998 and 1997, respectively.                                                

 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 $4.1 million and $1.8 million in the    
three months ended September 30, 1998 and 1997, 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, 1998 and 1997, the Company's     
operating expenses were $18.5 million and $11.9 million, or 63.8% and 73.1% of  
total revenues, respectively.                                                   

 Research and Development. Research and development expenses were $5.4 million
and $3.1 million, or 18.6% and 18.8% of total revenues in the three months ended
September 30, 1998 and 1997, 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 $0.4 million and $0.3 million of          

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software development costs incurred in the three months ended September 30, 1998
and 1997, respectively, related to the development of its T-server product      
suite.                                                                          

 Sales and Marketing. Sales and marketing expenses were $10.4 million and $6.9
-------------------                                                         
million, representing 35.9% and 42.8% of total revenues in the three months     
ended September 30, 1998 and 1997, respectively. These expenses increased in    
absolute dollars primarily due to the Company's continuing investment in        
building a direct sales force to support the increasing demand for its products,
and the Company's investment in expanding its channel sales force in North      
America, Europe and the Asia Pacific. In addition, the Company incurred         
increased marketing expenses associated with the Company's expanding product    
line, including trade shows and promotional expenses. The Company expects to    
continue to expand its direct sales and marketing efforts, and therefore,       
anticipates sales and marketing expenditures will continue to increase          
significantly in absolute dollars.                                              

General and Administrative. General and administrative expenses were $2.7   
--------------------------                                                  
million and $1.9 million, or 9.3% and 11.5% of total revenues in the three      
months ended September 30, 1998 and 1997, respectively. These expenses increased
in absolute dollars during these periods principally due to the addition of     
staff and information system investments to support the growth of the Company's 
business during these periods. In addition, the Company has incurred higher     
legal costs associated primarily with general corporate matters, trademark      
matters and patent filings. The Company expects to continue to increase its     
general and administrative staff and to incur other costs necessary to manage a 
growing organization, accordingly, it expects general and administrative        
expenses to continue to increase in absolute dollars. General and administrative
expenses as a percentage of total revenues have decreased from 11.5% in the     
first quarter of fiscal 1998 to 9.3% in the first quarter of fiscal 1999, due   
principally to the significant investments made by the Company in 1998 relative 
to total revenues in anticipation of significant growth during fiscal 1998 and  
1999. The Company expects to continue to increase general and administrative    
expenses in absolute dollars, but expects that these expenses as a percentage of
total revenues will stabilize.                                                  

Provision for Income Taxes                                                  
--------------------------                                                  

The Company's effective tax rate for the three months ended September 30, 
1998 was 35%, which the Company estimates will be the effective tax rate for the
remainder of fiscal 1999. The Company's effective tax rate for the year ended   
June 30, 1998 was 34%.                                                          

Year 2000                                                                   
---------                                                                   

Many computer systems experience problems handling dates beyond the year  
1999. Therefore, some computer hardware and software will need to be modified   
prior to the year 2000 in order to remain functional. The Company is assessing  
both the internal readiness of its computer systems and the compliance of its   
computer products and software sold to customers for handling the year 2000. The
Company has designed and tested current versions of its products to be year 2000
ready. Some of the Company's customers might be running older product versions  
that might not be year 2000 ready. It is possible that the Company may          
experience increased expenses in addressing migration issues for these          
customers. In addition, there can be no assurances that the Company's current   
products do not contain undetected errors or defects associated with year 2000  
date functions that may result in material costs to the Company. Some           
commentators have stated that a significant amount of litigation will arise out 
of year 2000 compliance issues. Because of the unprecedented nature of such     
litigation, it is uncertain whether or to what extent the Company may be        
affected by it. Although the Company does not believe that it will incur any    
material costs or experience material disruptions in its business associated    
with preparing its internal systems for the year 2000, there can be no assurance
that the Company will not experience serious unanticipated negative consequences
and/or material costs caused by undetected errors or defects in the technology  
used in its internal systems, which are composed predominantly of third party   
software and hardware technology with embedded software, and the Company's own  
software products.                                                              

LIQUIDITY AND CAPITAL RESOURCES                                                 

 As of September 30, 1998, the Company's primary sources of liquidity included
cash and cash equivalents of $42.6 million and short-term investments of $10.2  
million.                                                                        

 The Company generated cash from operating activities of $8.7 million in the
three months ended September 30, 1998 related primarily to an increase in net   
income, accrued liabilities and deferred revenues, which was offset in part by a
decrease in accounts payable.  The Company generated cash from operating        
activities of $3.9 million in the three months ended September 30, 1997 related 
primarily to an increase in net income and a decrease in accounts receivable.   

The Company generated cash from the net maturity of $6.8 million of short-
term investments in the three months ended September 30, 1998. The Company used 
cash of $4.5 million for the purchase of property and equipment in the three    
months ended September 30, 1998.  The Company used cash to purchase $16.7       
million of short-term investments and $2.6 million of property and equipment in 
the three months ended September 30, 1997.                                      

The Company has established subsidiaries in foreign countries, including the
United Kingdom, France,  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,                            

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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.                                                             

QUARTERLY RESULTS OF OPERATIONS AND FORWARD LOOKING STATEMENTS                  

 The Company's quarterly operating results have in the past fluctuated and may
in the future fluctuate significantly, depending on a number of factors, many of
which are beyond the Company's control, including:  market acceptance  of the   
Company products; competition; the size, timing and recognition of revenue from 
significant orders; the Company's 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; the length of sales and implementation cycles; 
the Company's ability to integrate acquired business; the Company's success in  
establishing indirect sales channels and expanding its direct sales force; the  
Company's success in retaining and training third-party support personnel; the  
delay or deferral of significant revenues until acceptance of software required 
by an individual license transaction; technological changes in the market for   
the Company's products; the deferral of customer orders in anticipation of new  
products and product enhancements; purchasing patterns of indirect channel      
partners and customers; changes in pricing policies by the Company and its      
competitors; the mix of revenues derived from the Company's direct sales force  
and various indirect distribution and marketing channels; the mix of revenues   
derived from domestic and international customers; seasonality; changes in      
operating expenses; changes in relationships with strategic partners; changes in
Company strategy; personnel changes; foreign currency exchange rate             
fluctuations; the ability of the Company to control its costs; and general      
economic factors.                                                               

While the Company generally operates with limited backlog, from time to time
it receives orders from customers that are for project development over an      
extended period of time.  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; however, several orders during the three months ended     
September 30, 1998 exceeded $500,000 each.  The timing of the receipt and       
shipment of a single order can have a significant impact on the Company's       
revenues and results of operations for a particular quarter.  In situations     
requiring customer acceptance of implementation, the Company does not recognize 
license revenues until installations are complete and does not recognize the    
consulting component of service revenues until the services are rendered.  As a 
result, revenue recognition may be delayed in many instances.  Historically, the
Company has often recognized a substantial portion of its revenues in the last  
month of a quarter, with these revenues frequently concentrated in the last two 
weeks of a quarter.  As a result, product revenues in any quarter are           
substantially dependent on orders booked and shipped in that quarter, and       
revenues for any future quarter are not predictable with any meaningful degree  
of certainty.  Product revenues are also difficult to forecast because the      
market for 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 would likely be          
materially adversely affected.                                                  

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Because of these factors, the Company believes that period-to-period        
comparisons of its results of operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future performance.

  Certain statements contained in this Quarterly Report on Form 10-Q, including,
without limitation, statements containing the words "believes," "anticipates,"  
"estimates," "expects," and words of similar import, constitute "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of 
1934 regarding events, conditions and financial trends that may affect the      
Company's future plans, business strategy, results of operations and financial  
position.  Readers are referred to the "Risk Factors" section of the Company's  
Annual Report on Form 10-K filed with the Securities and Exchange Commission,   
which identify important risk factors that could cause actual results to differ 
from those contained in the forward-looking statements.                         

ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk            
----------------------------------------------------------  

Not applicable.                                             

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PART II. OTHER INFORMATION                                                      

ITEM 1.   Legal Proceedings                                                     
-----------------                                           

        On December 17, 1996, GeoTel Communications Corporation (''GeoTel'')
filed a lawsuit in the United States District Court for the District of         
Massachusetts naming the Company as defendant, and alleging infringement of a   
patent issued to GeoTel entitled ''Communications System Using a Central        
Controller to Control at Least One Network and Agent System'', U.S. Patent No.  
5,546,452 (the ''GeoTel Patent''). In the complaint, GeoTel requested injunctive
relief, an accounting for damages and an assessment of interest and costs, and  
other relief as the court deems just and proper. On February 10, 1997, the      
Company filed an answer in response to the complaint filed by GeoTel, asserting 
that the GeoTel Patent is invalid, denying the alleged patent infringement and  
seeking dismissal of the complaint with prejudice. The litigation is currently  
in early discovery stages, with depositions to commence fall of 1998 and fact   
discovery scheduled to be completed in January 1999. The Company believes that  
it has meritorious defenses to the asserted claims and intends to defend the    
litigation vigorously. GeoTel alleges that the Genesys Call Router, Genesys Call
Center Manager and Genesys Call Concentrator products, and the T Server product,
as a necessary element of all Genesys products, infringe the GeoTel Patent.     
After consultation with counsel, the Company does not believe any of the        
products described under ''Business--Products'' in the Company's Annual Report  
on Form 10-K infringe any valid claims of the GeoTel Patent. In connection with 
the Company's development of the potential new products described under         
''Business--Research and Development'' in the Company's Annual Report on        
Form 10-K, the Company has sought the advice of such counsel and believes that  
such potential products can be developed without infringing the GeoTel Patent;  
however, there can be no assurance that GeoTel will not assert infringement of  
the GeoTel Patent with respect to such potential new products. Further, the     
outcome of litigation is inherently unpredictable, and there can be no assurance
that the results of these proceedings will be favorable to the Company or that  
they will not have a material adverse effect on the Company's business,         
financial condition or results of operations. Regardless of the ultimate        
outcome, the GeoTel litigation could result in substantial expense to the       
Company and significant diversion of effort by the Company's technical and      
managerial personnel. If the Court determines that the Company infringes        
GeoTel's patent and that the GeoTel patent is valid and enforceable, it could   
issue an injunction against the use or sale of certain of the Company's products
and it could assess significant damages against the Company. Accordingly, an    
adverse determination in the proceeding could subject the Company to significant
liabilities and require the Company to seek a license from GeoTel. Although     
patent and other intellectual property disputes in the software area have       
sometimes been settled through licensing or similar arrangements, costs         
associated with such arrangements may be substantial, and there can be no       
assurance that a license from GeoTel, if required, would be available to the    
Company on acceptable terms or at all. Accordingly, an adverse determination in 
the GeoTel litigation could prevent the Company from licensing certain of its   
software products, which would have a material adverse effect on the Company's  
business, financial condition and results of operations.                        

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ITEM 2.   Changes in Securities and Use of Proceeds                             
-----------------------------------------                   

          During the period covered by this report, there were no changes in the
rights of holders of any class of securities of the Company and no unregistered 
sales of equity securities.                                                     

      On June 16, 1997, the Company's registration statement on Form S-1
(SEC File No. 333-24479) was declared effective. The registration statement     
registered for offer and sale 2,500,000 (2,875,000 shares including over-       
allotments) of the Company's Common Stock, no par value, for an aggregate price 
of $45 million ($51.75 million including over-allotments) (the "Offering").     
Pursuant to the Offering, which was completed in June 1997, the Company sold    
2,375,000 shares, including over-allotments, of Common Stock and certain        
shareholders of the Company sold 500,000 shares of Common Stock. The shares in  
the Offering were sold in a firm commitment underwriting that was co-managed by 
Goldman Sachs & Company, Lehman Brothers and Robertson, Stephens & Company (now 
known as BancBoston Robertson Stephens). The amount of underwriting expenses    
incurred by the Company in connection with the Offering were approximately      
$1,990,500, resulting in net proceeds to the Company in the amount of           
$37,137,000.                                                                    

        As of September 30, 1998, none of the net proceeds from the Offering
have been used by the Company, and the net proceeds are held in cash or high-   
grade short-term investments. The Company's planned use of proceeds is as       
described in the registration statement.                                        

ITEM 3.   Defaults Upon Senior Securities                                       
-------------------------------                             

Not applicable.                                             

ITEM 4.   Submission of Matters to a Vote of Security Holders                   
---------------------------------------------------         

Not applicable.                                             

ITEM 5.   Other Information                                                     
-----------------                                           

Not applicable.                                             

ITEM 6.   Exhibits and Reports on Form 8-K                                      
--------------------------------                            

(a)  Exhibits                                               

Exhibit                                                     
Number    Exhibit                                           
------    -------                                           

27.1      Financial Data Schedule                           

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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 13, 1998    By:  /s/ MICHAEL J. McCLOSKEY                        
                       -----------------------------------------
    Michael J. McCloskey
                                President, Chief Financial Officer and Secretary

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

Filed on:	11/16/98
	11/13/98	17
For Period End:	9/30/98	1	16
	6/30/98	7	12	10-K405
	12/31/97	8		10-Q, 8-K
	9/30/97	3	12	10-Q
	6/16/97	16
	2/10/97	8	15
	12/17/96	8	15
				List all Filings

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Genesys Telecommunications Laboratories Inc – ‘10-Q’ for 9/30/98

As of: Monday, 11/16/98 · For: 9/30/98 · Accession #: 929624-98-1875 · File #: 0-22605

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