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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
TO
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COMMISSION FILE NUMBER: 0-21761
GEOTEL COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3194255
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
900 CHELMSFORD STREET
TOWER II, 12TH FLOOR
LOWELL, MASSACHUSETTS 01851
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 978-275-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.01 PAR VALUE
(TITLE OF CLASS)
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 [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 23, 1999 there were 27,143,429 shares outstanding of the
registrant's common stock, $0.01 par value. As of that date, the aggregate
market value of voting stock held by non-affiliates of the registrant was
approximately $754,895,000.
DOCUMENTS INCORPORATED BY REFERENCE
PART III -- Portions of the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 12, 1999 are incorporated by reference
into Part III (Items 10, 11, 12 and 13).
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PART I
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its directors, officers or
employees may contain "forward-looking" information, which involve risks and
uncertainties. Actual future results may differ materially from such statements.
Statements indicating that the Company "expects," "estimates," "believes," "is
planning" or "plans to" are forward-looking, as are other statements concerning
future financial results, product offerings or other events that have not yet
occurred. There are several important factors which could cause actual results
or events to differ materially from those anticipated by the forward-looking
statements. Such factors, some of which are described in greater detail in Item
7 under the heading "Risk Factors That May Affect Future Results," include, but
are not limited to, the receipt and shipment of new orders, the timely release
of enhancements to the Company's products, which could be subject to software
release delays, the growth rates of certain market segments, the positioning of
the Company's products in those market segments, variations in the demand for
customer service and technical support, pricing pressures and the competitive
environment in the software industry, and the Company's ability to penetrate
international markets and manage its international operations. Although the
Company has sought to identify the most significant risks to its business, the
Company cannot predict whether, or to what extent, any of such risks may be
realized nor can there be any assurance that the Company has identified all
possible issues, which the Company might face.
ITEM 1: BUSINESS
GeoTel Communications Corporation ("GeoTel or the "Company") is a leading
global provider of customer-interaction software solutions for mission-critical
call center applications. The Company's full-featured Computer Telephony
Integration (CTI) products create an enterprise-wide customer-interaction
platform by integrating multi-vendor networks, automatic call distributors,
voice response systems, databases, desktop applications and other resources.
Solutions are provided for single-site, multi-site and network service provider
deployments. GeoTel's CTI solutions have been deployed by a variety of
companies, including American Express, AT&T Wireless, British Telecom, Capital
One, Carlson Wagonlit Travel, Citicorp, Compaq Computer, Delta Air Lines,
Fidelity Investments, First Union National Bank, First USA, Gateway 2000,
General Motors Acceptance Corporation, IBM, Internal Revenue Service, J.C.
Penney, Optus Communications, Pacific Gas & Electric, Prudential Insurance,
Sprint Communications, and US Airways. The Company's software is distributed via
a direct sales organization with offices throughout the U.S., Europe and
Asia-Pacific, and through selected business partners.
INDUSTRY BACKGROUND
Call Center Market
Companies are increasingly recognizing that excellent customer service can
be used as a strategic weapon to differentiate their firms from competitors. In
order to remain competitive, corporations must continually evaluate their
product and service offerings to expand market share, lower costs and meet
customer expectations. To improve service quality, companies have invested in
technologies that enable them to concentrate customer service representatives,
or agents, into groups known as call centers. Many corporations utilize call
centers as the primary method of interacting with their customers. These call
centers can be deployed in multiple or stand-alone configurations in single or
multiple locations and can be utilized to provide a prioritized level of
services for a company's most valued customers. Call centers allow businesses to
reduce costs and deliver premium customer service.
While call centers have grown both in size and importance, traditional call
center hardware and software products have been focused on tactical solutions
rather than the strategic customer interaction requirements of the entire
corporation. This focus on point solutions has led to a fragmented technology
environment for businesses that have single or multiple call centers, branch
offices and divisions, with call centers evolving as technology "islands" within
the corporation. As a result, corporations have found it difficult to leverage
their customer response resources in a unified fashion whether such resources
are personnel or systems-based. Increasingly, successful organizations are
seeking solutions to address these strategic business requirements through the
implementation of a single, integrated call center enterprise which utilizes all
the relevant resources maintained by the corporation in order to achieve a
unified, controllable and adaptable customer service solution. Enterprise-wide
utilization of resources and technology enables the corporation to maximize
levels of customer service while fully utilizing investments in telephony, IT
technology and personnel.
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Call Center Technology
The technology utilized by call centers has evolved dramatically over the
past several years. Historically, due to the closed nature of public networks,
corporations installed premises-based switching systems at the end of long
distance or local exchange telephone lines. Reliance on these switching systems
requires corporations to use proprietary closed solutions offered by service
providers where multi-vendor switching system interoperability was not possible.
Consequently, the call center solutions employed by most corporations have been
designed around the technological limits of premises-based switching systems and
the limitations of carrier networks, which prevent corporations from realizing
the potential benefits of enterprise call centers. Enterprise call centers draw
upon all of the organization's call response resources and utilize open,
systems-based applications to enhance the capabilities of the existing call
center infrastructure by integrating it with existing business applications and
data.
The primary providers of call center solutions are Automatic Call
Distributor (ACD) switching system vendors including Lucent, Nortel and Aspect;
traditional CTI vendors such as Genesys Labs, Quintus/Nabnasset and numerous
other small to mid-size vendors; and interexchange carriers (IXCs), including
AT&T, MCI and Sprint. Many ACD switching system vendors provide private
networking options that allow calls to flow from one system to another, but
these systems consume network bandwidth and still do not optimize network
resources. To overcome these liabilities, some ACD/PBX vendors have announced
product that directly connects to the IXC, designed to enable call routing
decisions in the network. Traditional CTI vendors, such as Genesys, provide CTI
capabilities such as popping of an agent's screen and softphone features that
enable telephone functions, such as hold, transfer and conference, from an
agent's desktop software application. These offerings typically require a large
integration effort due to the variety of desktop application and back office
database(s). The major IXCs offer basic and enhanced service that route inbound
toll-free calls to more than one call center, but they have limited visibility
as to why the call is being delivered to that location. These services attempt
to distribute calls among multiple call center locations by relying on
percentage allocations based on historical data or call counting. Typically,
IXCs have relied on third-party application providers to develop these types of
software-based solutions. Customers provisioning these services directly from a
carrier are unable to derive benefit from them in a multi-carrier environment.
Due to the migration toward open systems by the IXCs, customers are now
able to control connections across interexchange carrier networks based on
resources, customer profiles and other factors as determined by high-end
enterprise-level software applications. ACDs and other customer premises-based
switching systems have also opened control to computer applications. The
evolution of CTI technology allows computer applications to interface with and
control functions of the ACD or Private Branch Exchange (PBX). These
applications are capable of utilizing business data, legacy systems and
client/server systems and integrating them with existing telecommunications
systems.
To date, few organizations have fully realized the potential benefits
offered by enterprise call-distribution and CTI solutions due to the lack of
enterprise-wide call and data availability. In particular, the need for
enterprise-wide call and data distribution must be addressed as a prerequisite
for a well-managed customer-focused call center. Traditional carrier services,
ACD products, and CTI implementations have limited flexibility and are generally
not scaleable to large enterprises. These solutions do not facilitate
enterprise-wide call and data distribution since they offer only local routing
within a stand-alone ACD, and do not support a multi-vendor, multi-carrier
environment. While a few vendors have introduced products to address
network-level routing, their offerings are constrained by the underlying
architectures of their legacy products. As a result, the Company believes that
the need exists for flexible, scaleable, customer premises-based and
network-based call processing software that will manage the control of
customer-based switching systems, network routing, call queuing , voice services
and data delivery to the agent's desktop.
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GEOTEL SOLUTIONS
GeoTel products allow companies that utilize call center technology to
deliver cost-effective, premium customer service. These capabilities are
independent of the manufacturer of the ACD, PBX, key system or Interactive Voice
Response units (IVR) to which they are attached. GeoTel software also provides
interfaces to multiple carrier networks enabling call routing independent of the
toll-free network provider as well as enterprise CTI functionality that delivers
call-associated data to an agent's desktop independent of agent location
GeoTel products extend the value of a corporation's existing call center
resources with enterprise-wide, intelligent call and data processing directed at
organizations that utilize call center technologies to interact with their
customers. The Company's products allow corporations to blend the logic of
carrier networks, ACDs, IVRs, Web servers and other applications required to
provide high-level customer service and customer contact support. By integrating
all call center applications, a corporation can achieve large group
efficiencies, such as utilizing available resources regardless of location,
instead of physically adding resources to a specific call center. To achieve
enterprise-wide call control, GeoTel software tracks all call answering
resources, enabling the system to route calls and associated data transactions
to the agent, skill group, IVR or other resource that best satisfies the rules
established by the corporation. The software connects all call center resources
into a hierarchical, networked system, so that an enterprise routing application
can receive the real-time status information required to control customer
transactions throughout the enterprise.
The Company's various software products offer the following advantages:
Virtual Call Center. GeoTel software transforms geographically dispersed
agent groups connected to different ACDs and IVRs into a single virtual team,
reducing the number of agents required for a given service level while offering
a more uniform level of service to all callers. Since labor is a significant
cost for service-oriented corporations, the ability to utilize agent resources
more effectively provides significant cost savings for the Company's customers.
Essentially, GeoTel software extends local ACD capabilities to the network
level. Sophisticated enterprise-wide call routing routines, such as those using
customer account numbers or Automatic Number Identification (ANI), can be
developed once and deployed at either the network level or in conjunction with
an ACD or IVR at the customer's premises, or both.
Enterprise CTI. The Company's software delivers a uniquely rich set of data
to business applications, providing enterprise-wide call event and
customer-profile information to a targeted agent's desktop. Agent softphone
controls enable agents to utilize their desktop application to more efficiently
perform telephone functions. Third-party call control features such as transfer
and conferencing, combined with the Company's post-route capabilities, allow
agents to utilize all available resources when a call requires additional
handling. The CTI Server component is fully redundant providing mission-critical
reliability.
Multiple Carrier and Switch Interoperability. The Company's open software
architecture does not require the customer to replace existing premises-based
equipment, switches or carriers, therefore extending their value in a
"plug-and-play" environment. In the U.S., the Company's customers are also able
to select among AT&T, MCI or Sprint, offering them the ability to leverage new
features and cost-saving opportunities from the major 800 providers. Outside the
U.S., the Company's international customers are able to select from a growing
number of supported carriers depending on the country of origin. International
carrier support includes BT (United Kingdom), France Telecom, AT&T-Unisource
(pan-European), Cable & Wireless Optus (Australia), Telecom New Zealand and
Stentor (Canada). In addition, GeoTel software allows customers to remain vendor
independent by supporting the major ACD switches -- Lucent DEFINITY(R), Aspect
CallCenter(R), Northern Telecom Meridian(TM) and DMS-100, Rockwell Galaxy(TM)
and Spectrum(TM), Siemens Rolm 9751 CBX and Siemens HICOM 300E, and Alcatel
A4400 - plus all leading IVR platforms.
Real-Time Routing. The routing of customer calls is a real-time,
mission-critical application. GeoTel software's Pre-Routing feature is the
application of ACD-like call routing at the network level, before the caller
hears ringing and before the call is sent to a given destination. Unlike any
currently available call routing service supplied by carriers, the Pre-ROUTING
feature can route calls based on real-time knowledge of agent availability and
queue status, not on a fixed percentage or allocation basis. The GeoTel software
recognizes where the call originates, gathers real-time information about the
status of all call centers and agents, and then routes calls based on best
available enterprise-wide capabilities and resources at the moment the call is
received. Post-Routing is the control of calls already connected to an ACD or
PBX, such as the intelligent transfer of calls from IVRs, agent-to-agent
transfers and the overflow of calls between call centers. These capabilities
enable the GeoTel software to route calls on an individual call basis, across
different ACDs and multiple carriers.
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Fault Tolerant Open Architecture. GeoTel software products are designed to
be fault tolerant to hardware component failures, communications network
failures, asynchronous software errors and the catastrophic loss of a site. The
Company's technology utilizes an open architecture and is based on industry
standard software, such as Microsoft's Windows NT and SQL Server, and
Powersoft's InfoMaker. GeoTel products have been designed to integrate with
existing call center applications and facilitate support of future applications.
The Company has defined and published application-programming interfaces for
major call center applications such as workforce management, IVRs, and customer
databases as well as support for alternate customer contact channels such as
Web, fax and e-mail.
Consolidated Management Reporting. The Company's software enables customers
to manage their distributed call centers with consolidated, real-time and
historical reporting. GeoTel software provides the ability to access, combine
and normalize data from multiple data sources including multi-vendor ACDs, IVRs,
workforce management applications, third-party databases, agent desktops and
other customer resources while maintaining an enterprise-wide view of the
performance of their call centers.
Scalability. The Company's underlying software architecture is designed to
be fully scaleable from single-to-multi-site solutions and up to carrier class
deployments. This product feature enables customers to protect their initial
investment in the Company's technology as their call center needs grow.
Rapid Implementation. One key element of the Company's offering is the
rapid deployment of the solution. Because the product requires only minimal
customization, customers begin receiving benefits typically within 60 to 90 days
of initial deployment.
STRATEGY
The Company's primary business objective is to become the leading supplier
of customer-interaction software solutions for mission-critical call center
applications. To achieve this objective, the Company is pursuing the following
strategies:
Extend Technology Leadership. Capitalizing on the Company's experience in
call centers, communications and software technologies, the Company was the
first to deliver a client/server-based application solely focused on
enterprise-wide call distribution. The Company intends to continue to utilize
and integrate industry-available technologies whenever appropriate and focus its
development resources on expanding the value-added call processing features
required by its customers. The Company believes it distinguishes itself through
its portfolio of supported ACDs and IVRs, multi-carrier connectivity, product
adaptability to business environments, implementation of industry standards,
open systems platforms, scalability and product integration with most call
center applications.
Expand Enterprise Call Distribution. GeoTel intends to ensure that its call
distribution technology continues to expand to include all of the answering
resources available within a customer's business environment. These answering
resources include high-end production call centers, IVRs, the Internet, e-mail,
network resources and desktop applications. In June 1998, GeoTel introduced a
new software product, GeoTel Enterprise Web, which provides an interface between
GeoTel software and Web server applications to broaden customer-contact options
to include interactive, Web-initiated transactions.
Address Multiple Market Segments. The Company plans to participate in all
tiers of the call center market including single-site, multi-site and
carrier-class call center opportunities through its scaleable product offering.
Network ICR provides a carrier-class version of the ICR for carriers and other
network service providers to offer ICR network routing and CTI capabilities as a
service to their end customers. In February 1998, the Company introduced Site
ICR to address the CTI needs of single-site call centers. Underlying Network ICR
and Site ICR is the same software architecture in the Company's flagship,
Intelligent CallRouter Solutions, ensuring ready scalability to support a
customer's future growth plans.
Leverage Open Architecture. The Company continues to develop interfaces to
both existing and emerging call center solutions provided by the vendors of
market-leading technologies. The Company intends to provide its customers with
the ability to protect their investment in current call center solutions, while
providing value-added services and functionalities beyond their existing
infrastructure. This will be accomplished by adhering to open, industry-standard
interfaces of other vendor products and publishing interfaces to the Company's
call routing software platform for products and services such as ACDs, carrier
networks, interactive IVRs, Web servers, business applications and customer
databases.
Utilize Multiple Distribution Channels. The Company has established a
multi-channel distribution system to more cost-effectively address the potential
market for its products. To date, the Company has generated the majority of its
revenues through its direct sales force, which maintains frequent customer
contacts, and knowledge of customer applications. The Company's direct sales
force is
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complemented by strategic sales channels, including relationships with AT&T,
Lucent, Hewlett-Packard, Sprint and MCI, selected resellers and international
partners. In April, 1998, the Company entered into a distribution agreement with
AT&T whereby AT&T is marketing, selling and supporting AT&T Resource Manager, an
AT&T offering built upon GeoTel's Intelligent CallRouter software. AT&T Resource
Manager replaces AT&T Call Center Transaction Manager, an AT&T product which,
prior to this agreement, was competitive with the Intelligent CallRouter. The
Company intends to expand both its direct and indirect distribution channels and
to penetrate international markets by expanding its relationships with the
market leaders for network services on a country-by-country basis.
Expand International Presence. The Company believes that there is a
significant international market opportunity for its products and services and
plans to establish and grow its direct international marketing, sales and
support presence. The Company has recently established its European Headquarters
in Amsterdam. To date, the Company has been successful selling product to
international carriers in various European and Asia-Pacific markets BT, France
Telecom, AT&T-Unisource, Cable & Wireless Optus and Telecom New Zealand. This
success provides the Company additional opportunity for both ICR and Site ICR
sales in these markets.
Ensure Customer Success. GeoTel believes that superior customer service,
support and training are essential for customer satisfaction and are key to
differentiating its overall product offering. The Company offers installation
services and maintains a professional services organization to assist customers
in designing and deploying call routing applications and also provides training
for end-users and distribution partners. The Company provides 7 day, 24
hour-per-day basic telephone global support through its remote support
technology. GeoTel intends to expand its own customer service, support and
training activities, as well as to encourage third-party organizations, such as
international partners, to become proficient in deploying the Company's
products.
PRODUCT LINES
The Company's software solutions are available in three configurations
composed of various bundled packages of the Company's individual software
products.
Intelligent CallRouter
The GeoTel Intelligent CallRouter is an advanced call-by-call routing
server that supports multiple call routing clients independent of their
location, ACD, IXC or IVR. The multi-carrier, multi-vendor capabilities of the
Intelligent CallRouter allow the user to focus on delivering premium customer
service without the limitations of proprietary or custom-developed solutions.
The Intelligent CallRouter combines real-time call routing capabilities with an
extensive management reporting system. The Intelligent CallRouter is an open
systems product that has been deployed on industry-standard platforms. The
Company designed the system to support a broad range of intelligent
telecommunications interfaces, industry-standard MIS tools, computer platforms
and a growing number of vertical-market applications. The Intelligent CallRouter
uses Windows NT as the core multitasking operating environment. Windows NT
allows customers to select from a variety of hardware platforms recommended by
the Company on which to deploy the Intelligent CallRouter application. The
Intelligent CallRouter open architecture enables interoperability with other
call-processing and call volume management systems within an enterprise and
provides a means for integrating those various stand-alone solutions. The
Intelligent CallRouter can be interfaced to agent scheduling, workflow
management and other call center management tools. The distributed software
fault tolerance implemented in the Intelligent CallRouter provides the
mission-critical reliability required for enterprise-wide call distribution.
The principal function of the Intelligent CallRouter is to route telephone
calls among geographically distributed call centers in a way that optimizes the
use of resources across all call centers or other answering locations. In order
to perform these functions, the Intelligent CallRouter utilizes network-based
information on the origin of the call and information provided by the caller to
match the caller with the skills of the available answering resources. The
primary components of the Intelligent CallRouter are a central routing
controller (the CallRouter), a database (the Database Server), and a user
interface (the Administrative Workstation).
The core of the Intelligent CallRouter is a suite of software processes
called the CallRouter that provides the central intelligence by which customers
translate business goals into call routing decisions. The CallRouter receives
and responds to routing requests from the routing clients (Network Interface
Controllers and Peripheral Gateways), collects call center event activity from
the Peripheral Gateways and communicates with users through desktop
Adminstrative Workstations.
GeoTel's database technology reduces the performance constraints normally
associated with ACD and network data aggregation. Operating in conjunction with
the CallRouter, the Intelligent CallRouter's Database Server stores and manages
historical information, including Pre-Routing and Post-Routing records, routing
scripts, and Intelligent CallRouter configuration data. The Intelligent
CallRouter Database Server is a relational database that can collect and process
large amounts of call and transaction data, including
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call handling, planning and performance data. The database utilized by the
Intelligent CallRouter is Microsoft SQL Server for Windows NT.
The Administrative Workstation, the user interface into the Intelligent
CallRouter, enables system managers, administrators and supervisors to define,
modify or view call routing scripts; manage the system configuration; monitor
call center performance; define and request reports; and ensure system security.
Tools are designed to interact with company personnel in an intuitive manner,
using familiar terminology and simple "point and click" commands.
Network Intelligent CallRouter
In January 1997, the Company introduced the Network ICR to the worldwide
network carrier marketplace. This product, which functions as a Service Control
Point (SCP) or as an intelligent adjunct to an SCP, enables a carrier to embed
the Intelligent CallRouter functionality and components described above in its
network and make those capabilities available to its customers on a
network-service basis. With the Network ICR deployed, a carrier network monitors
the real-time availability and performance of its individual customers'
answering resources and utilizes that information to control the distribution of
calls across each customer's enterprise. At the same time, each customer can
implement unique call distribution logic through routing scripts developed at
the premises level.
Network ICR is a flexible, broad-based solution designed to meet the
individual requirements of each call center customer. The product supports a
service continuum that includes any combination of the following capabilities:
Pre-Routing (dynamic, event-based, virtual-call-center call routing and
reporting); Post-Routing (extending network control to the site level through
third-party call control over customer-premises equipment); network IVR
integration (routing based on caller-entered digits collected in response to
Network IVR prompting); network queuing (call queuing at a network-based IVR);
network agent support (support for remote and non-ACD agents); network CTI
(extending the value of network services through data delivery and integration
with softphone and screen-pop applications); advanced services (time-of-day,
day-of-week, percent allocation, call distribution algorithms, and
workforce-based call distribution); Web-based management (monitor-only access to
Network ICR reports and call-routing scripts using standard Web browsers);
Internet integration (distribution of interactive Web-initiated transactions);
database-lookup routing (triggers to internal or external databases for basic
translation, dealer locator, call origination, and customer-profile-based
routing); and basic/direct translations (number translation and Virtual Private
Network (VPN) services).
To provide the mission-critical reliability needed for routing customer
calls, the Network ICR is fully redundant and fault tolerant across all its
components. In addition, the system uses international network protocol
standards and complies with each Network Service Provider's (NSP's)
certification standards.
Site ICR
In February 1998, the Company introduced Site ICR, which is a specific
bundled configuration of GeoTel software products designed to meet the needs of
single-site call centers. Specifically, Site ICR offers call routing, database
lookup, consolidated real-time and historical reporting, full IVR integration,
and a CTI Server for data delivery to the desktop plus third-party call control.
This multi-purpose platform also enables Internet, e-mail and predictive dialer
applications. If a customer's operation expands to multiple locations, Site
ICR's underlying architecture readily scales to support enterprise-wide CTI,
Pre-Routing and Post-Routing while protecting an initial investment. Fully fault
tolerant, this GeoTel product provides the mission-critical reliability required
for the routing of customer calls. In addition, Site ICR's open interface design
permits rapid, non-intrusive deployment.
INDIVIDUAL SOFTWARE PRODUCTS
The following individual software products are either included in one or
more of the above configurations or can be licensed separately as an add-on to
the primary software product.
Network Interface Controller (NIC). The NIC is the software interface
between the Intelligent CallRouter and the IXC network. It communicates with the
IXC network through the intelligent network control interfaces that have been
made available by the carriers. The NIC receives call routing requests from the
network, forwards them to the CallRouter, and returns responses to the carrier
network. In effect, the NIC transforms the network into a routing client. This
approach allows customers to control routing decisions at the network level and
gain greater flexibility as they seek to further deploy advanced intelligent
network services.
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Peripheral Gateway (PG). The PG software provides the interface between the
CallRouter and the call center system (ACD, PBX, or IVR) that is being monitored
and/or controlled by the Intelligent CallRouter. The PG connects to the CTI link
and/or MIS link and obtains information regarding agent availability, agent
performance, the number of calls in progress, and how they are being handled. To
facilitate Post-Routing, the PG can also exert control over the ACD, PBX or IVR
and instruct it where to route calls.
GeoTel CTI Server. GeoTel CTI Server provides an interface between the
Intelligent CallRouter and desktop or server applications to seamlessly deliver
enterprise-wide call-event and customer-profile information collected by the
Intelligent CallRouter from multiple networks, ACDs, IVRs and workstations to an
agent's desktop. Data elements can include dialed number, calling line ID and
caller-entered digits, as well as information extracted from external databases
or created as a result of call routing, voice processing and agent transactions.
Voice and data collected by an agent at the desktop can be transferred between
agents across multi-vendor switches, allowing customer and transaction data to
accompany a call from IVR to agent and from site to site as required, increasing
the efficiency of a virtual call center workforce by reducing or eliminating
time spent verbally soliciting information that is already available. This CTI
strategy enables the full utilization of corporate data in support of business
rules and objectives at the point of customer transaction fulfillment.
GeoTel CTI Desktop. GeoTel CTI Desktop brings telephony functionality and
the rich data set collected by the Intelligent CallRouter to agent workstations.
The product is a collection of ActiveX controls that provides desktop
applications with full access to GeoTel CTI Server while abstracting the
underlying details of the telephony system, enabling developers and call center
managers to quickly integrate applications into the GeoTel environment without
the need for complex programming or systems integration. The product includes a
fully functional, customizable softphone; a set of softphone controls which can
be placed into existing desktop applications; a developer's toolkit; a fully
compliant TAPI 2.1 interface; a real-time feed of agent statistics to the
desktop; and full fault tolerance.
GeoTel Gateway. GeoTel Gateway extends the sources of information on which
call routing decisions can be based. For example, the product enables the
Intelligent CallRouter to perform a customer database lookup during Pre-Routing
to more effectively determine the optimum destination for each call. Using a
database- and application-independent interface to the Intelligent CallRouter,
values are passed between a routing script and the external database via a
custom application, giving the Intelligent CallRouter access to caller
information without compromising database security.
GeoTel Enterprise IVR. GeoTel Enterprise IVR enables IVRs from multiple
vendors to communicate directly with the Intelligent CallRouter, leveraging
these devices in both the Pre-Routing and Post-Routing of calls. This direct,
two-way communication also allows the Intelligent CallRouter to manage IVR port
utilization and to include IVR data in comprehensive call center performance
reports. GeoTel Enterprise IVR offers caller identification and segmentation,
support for skill-based routing, IVR load balancing, IVR queuing, and delivery
of IVR data to answering resources across the enterprise. The product enables
the Intelligent CallRouter to interact with multi-vendor IVRs by sending and
receiving industry-standard messages. Intelligent CallRouter users can
strategically position premises-based IVRs either behind or in front of the ACD,
and/or utilize network-based IVR capabilities. Regardless of location, the IVR
can initiate and complete call redirection without a PBX/ACD, enhancing call
delivery and customer satisfaction while reducing CPU and trunk utilization on
the ACD. Moreover, users can individually program their IVRs to receive
customized benefits from the interface and ensure that results meet business
objectives.
GeoTel Enterprise Web. GeoTel Enterprise Web is an interface to the
Intelligent CallRouter that broadens customer-contact options to include
interactive, Web-initiated transactions. This industry-standard, open interface
distributes calls originating from the Internet in the same manner as those
arriving from a carrier network, enabling users to keep pace with their
customers' changing preferences and expectations. When voice contact with an
agent is required, a rich set of customer-profile data entered on a Web page can
be delivered to screen pops and other CTI applications.
GeoTel Enterprise Agent. GeoTel Enterprise Agent extends the GeoTel
software environment by providing CTI, call distribution and reporting
capabilities for branch office, SOHO (Small Office/Home Office) and other
non-ACD-based agents. In addition to skill-based routing, the product provides
softphone, screen pop and third-party call control functionality to remote
agents. By incorporating agents from beyond a call center's physical location,
GeoTel Enterprise Agent extends the boundaries of the virtual call center. The
product enables companies to better utilize existing and on-demand answering
resources, fully extend CTI functionality across an entire enterprise regardless
of agent location, and reduce the need for ACD-extension products. The use of
GeoTel Enterprise Agent also expands hiring options, improves agent retention,
and lowers the cost associated with turnover by increasing agent-location
options.
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Software license fees for the Company's products vary significantly based
on a number of factors, including the functionality of the system, the number of
sites, the number of agents at each site and the level of redundancy required.
The customer list price for software license fees for the Intelligent CallRouter
software typically range from approximately $420,000 for a three-site
configuration with some redundancy to approximately $1,000,000 for an eight-site
configuration with extensive redundancy. Pricing for the Network ICR averages
approximately $2,000,000 to $3,000,000 per network service provider. Site ICR
software starts at $60,000 per call center site. The Company typically provides
discounts based on volume purchases. The Company and its customers generally
enter into maintenance agreements providing for ongoing service and product
upgrades for a fixed annual fee. Maintenance services and installation services,
which are not included in the license fee, amount to an additional 15% and 10%,
respectively, of the list price license fee. Maintenance contracts are renewable
on an annual basis.
TECHNOLOGY
The Company has developed a number of innovative technologies to support
its open strategy:
Real-Time Routing. The Intelligent CallRouter's real-time delivery of
enterprise-wide call center data makes use of innovative Local and Wide Area
Network (LAN/WAN) solutions to efficiently distribute information and facilitate
connectivity. A mixed LAN/WAN environment is supplemented by dial capabilities
for both casual access of data from remote premises as well as alarm
notification and paging. All clients are configured with redundant data paths to
central services for both configuring and monitoring the enterprise. The system
is designed to run on single or multiple Windows NT server-class machines.
Interprocess communication is efficient based on native capabilities within
Windows NT integrated with the Company's processes. The architecture can scale
to support very large numbers of customers, call centers, ACDs, IVRs, Web
servers, agents, business applications and other resources.
Distributed Fault Tolerance. To meet rigorous requirements for system
reliability in the customer interaction market, the Company has developed
innovative, industry-standard distributed, fault-tolerant software solutions to
provide not only tolerance of hardware, software and communications failures,
but also for the loss of an entire site. The Company's software technology
relating to virtual time synchronization provides fault tolerance at the process
level and includes protection against single-point hardware failures. Detection
of failures is immediate and the Company has augmented standard TCP/IP protocols
with features designed to minimize outages due to communications failures.
Remote Support and Diagnostics Technology. The Intelligent CallRouter
incorporates extensive system-management capabilities, including alarming with
automatic "phone home" and paging capabilities, symmetric database replication,
intelligent PC Server node management, and tools to provide graphical
representations of system status. Consistent with an open architecture, the
system will export Simple Network Management Protocol (SNMP) "traps" to
management systems. Fully redundant communications paths are enhanced with
real-time detection of communications failures with near instantaneous
switchover to redundant links.
Carrier Connectivity. The Intelligent CallRouter meets the certification
standards of all three of the major U.S. interexchange carrier (IXC) networks,
AT&T, MCI and Sprint, by interfacing with the SS7, UDP/IP, and X.25 networks,
respectively, using the proprietary protocols of each carrier. The Intelligent
CallRouter architecture is designed to support the introduction of other network
interfaces as the Telecommunications Act of 1996 enables the entry of other
providers into the toll-free marketplace. Internationally, GeoTel software
interfaces with the British Telecom, Optus Communications, Stentor, France
Telecom, AT&T-Unisource and Telecom New Zealand networks via their respective
protocols. The Company is also developing interfaces for additional domestic and
international carriers.
Premises-based Switching/Call Processing Interfaces. The Company has
developed event-based interfaces to all of the major ACDs. The Intelligent
CallRouter currently supports nine switches: Lucent DEFINITY, Aspect CallCenter,
NTI Meridian, NTI DMS-100, Rockwell Galaxy, Rockwell Spectrum, Siemens Rolm 9751
CBX ,Siemens HICOM 300E and the Alcatel A4400. By developing event-based
tracking of the ACDs (detecting when any event of interest happens at the ACD),
the Intelligent CallRouter has the capability to report accurate enterprise-wide
statistics and know accurately which agents are available and skilled to handle
incoming calls. The Intelligent CallRouter can also control, via Post-Routing,
how calls directed to or from the switch are subsequently routed and have the
ability to deliver associated call and caller data. By designing the Intelligent
CallRouter to have the capability to interface to all ACDs, PBXs, IVRs, and
other premises-based equipment, the Intelligent CallRouter enables customers to
utilize equipment from multiple vendors allowing effective use of a multi-vendor
switching environment. In contrast, proprietary solutions require all switches
to be purchased from the same vendor.
Visual Script Editor. The Intelligent CallRouter uses visual/object-based
call routing scripts controlled and defined by the customer. The Visual Script
Editor is used to describe how calls are to be routed on a call-by-call basis.
Each dialed number can have
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a unique treatment or can be handled with a collection of other dialed numbers.
Many scripting objects are defined to assist the script designer in choosing an
appropriate algorithm. The Database Lookup and Application Gateway objects
enable the Script editor to import, in real-time, external database information
or arbitrary data that can be used in subsequent script objects.
CTI. Through its open interfaces with the network, ACDs, IVRs, desktop
applications and other information resources, the ICR collects a uniquely rich
set of call related data that can be delivered for use at an agent's desktop. In
addition, utilizing the Company's CTI Server process and through the use of
modern component technology, the product includes the ability to readily embed
softphone controls into a customer's existing desktop business application,
significantly reducing the integration time normally associated with this
effort.
SALES AND MARKETING
The Company's distribution strategy is to sell its Intelligent CallROUTER
and Site ICR software solutions and services to major corporations who are
significant users of inbound toll-free services. The Company sells its Network
ICR software solution and services to Network Service Providers (NSPs),
providing them with the ability to place the Network ICR within their
long-distance network. This allows the NSP to resell the call routing
capabilities of the Network ICR to their customers as a value-added service. The
Company uses a direct sales force in North America and Europe as its primary
distribution channel to market to these companies. There are currently
forty-three direct sales representatives located in eighteen offices in the U.S,
Europe, and Canada. Each sales representative carries a quota for a defined
geographic territory and is compensated for all sales within the territory. The
Company's sales strategy is based on a consultative sales process, working
closely with customers to understand and define their needs and determine how
they can be addressed by the Company's products. This strategy continues after
the initial sale. The Company, through ongoing sales, support, training and
maintenance, maintains close contact with its existing customers in order to
determine the customers' evolving requirements for updates and enhancements.
In addition to the direct sales organization, the Company has signed
agreements with AT&T, Hewlett Packard, Lucent Technologies, Sprint, MCI and
Optus to complement direct sales and provide international distribution. These
arrangements range from co-marketing agreements with Sprint, to distribution
agreements with AT&T, Hewlett Packard, Lucent Technologies and Optus. MCI has
signed a three-year renewable agreement with the Company to offer its products
as a service to customers on a worldwide basis. The Company has notified MCI of
its intent not to renew this agreement. Optus is a distributor of the Company's
products in the Australian and New Zealand markets. AT&T and Lucent Technologies
are distributors of the Company's products on a worldwide basis. Hewlett Packard
is a distributor of the Company's products on a worldwide basis with the
exception of the Company's Network ICR product which it does not have the right
to distribute in the United States. To complement its North American and
European sales strategy, the Company intends to develop sales channels for its
products in additional international markets. The Company plans to address
additional international markets by using its direct sales force and expects to
add several other distribution partners.
The Company supports its distribution strategy with a variety of focused
marketing activities designed to identify qualified prospects and expand the
Company's reputation. The Company attends several industry trade shows, conducts
numerous informational seminars in different cities, regularly speaks at
industry events, publishes articles and white papers, and uses direct mail. In
addition, the telecommunications marketplace is heavily influenced by reference
accounts and, as such, the Company is dependent upon its existing customers for
favorable references.
The Company currently derives substantially all of its revenues from
software licenses and related services. A significant portion of the Company's
revenues to date has been derived from a limited number of customers. Compaq and
Lucent accounted for approximately 21% and 14%, respectively, of the Company's
total revenue in 1998. Compaq and Optus accounted for approximately 19% and 14%,
respectively, of the Company's total revenues in 1997. Fidelity and Optus
accounted for approximately 14% and 11%, respectively, of the Company's total
revenues in 1996. International sales represented 29%, 33% and 15% of revenues
in 1998, 1997 and 1996, respectively. More information regarding the Company's
revenues is included under the heading "Risk Factors That May Affect Future
Results," and Footnote H in Item 8 under "Notes to Consolidated Financial
Statements."
CUSTOMER SERVICE AND SUPPORT
The Company believes that high-quality customer service and support are
integral components of the solutions it offers. The Company's customer service
and support organization provides customers with technical support, training,
professional services and implementation/installation services. The Company
believes that in order to meet its customers' support expectations it must
invest in and leverage technology to build its service infrastructure. As of
December 31, 1998, the Company had 84 employees in its customer
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service and support organization. All of the Company's customers currently have
software maintenance agreements with the Company that provide for one or more of
the following services:
Software Maintenance and Support. The Company's support organization offers
a variety of support services to its customers including telephone, electronic
mail and facsimile customer support through its support services staff. In
addition, the product provides a "call home" application which allows customers
to request service on-line. Initial product license fees do not cover software
maintenance. Through its standard customer support package, the Company provides
its customers with continuous, 7 day, 24 hour-per-day basic telephone support
and 24-hour monitoring and quick response through use of the Company's remote
support technology. The office staffing hours for support is 7 day, 24
hour-per-day basis, excluding Company holidays. Coverage is provided after
normal business hours by one or more Company representatives who are available
via the Company's answering service and/or pager and have remote access to
computer systems to assist in resolution of reported problems. Periodic product
updates and maintenance releases are included with the annual support fees for
the Company's standard support.
Documentation and Training. The Company provides each customer with product
design, documentation and training. The product includes an easy-to-use
graphical user applications interface with on-line help. A complete library of
end-user documentation is also provided with each system. The Company offers
comprehensive training courses in all aspects of the product at its facility in
Lowell, Massachusetts, and at the customer's option, provides on-site customer
training. Fees for education and training services, beyond those services
provided as a part of installation services, are in addition to and separate
from the license fees charged for the Company's software products and are
charged per student, per class or on a time-and-materials basis.
Professional Services. The Company's applications consultants are available
to work closely with customers to provide assistance with a number of activities
including: application and configuration design; script and report
customization; call flow analysis; database, CTI, and host systems integration;
data conversions; custom development; and client/server application programming.
Fees for professional services are charged separately from the Company's
software products on a time-and-materials basis. In addition, the Company
intends to continue to develop relationships with third-party professional
service organizations in order to support its customer base.
Installation Services. The Company provides customers with comprehensive
installation services, including initial application design, implementation
planning, system design support, project management, initial education and
training, and coordination of third-party software and hardware acquisition. The
Company's fee for installation services is charged separately from the Company's
licensing fees and is based on a percentage of the then-current list price of
the products being installed.
PRODUCT DEVELOPMENT
Since its inception, the Company has made substantial investments in
product development. The Company's development organization was built upon a
base of software professionals with extensive experience in operating systems,
communications, fault tolerance, and software quality processes. Customer
experience and direct input into the product planning process is reflected in
all products designed and delivered by the Company.
The Company announced the Intelligent CallRouter in August 1994 and began
customer shipments in May 1995. In January 1997, the Company announced the
Network ICR followed in August 1997 by Enterprise CTI. In February 1998, the
Company introduced Site ICR. In addition to these products, during 1998 the
Company released new versions of its products. The Company plans to introduce
enhancements to its existing products and new products that can be sold to
existing and new customers. The Company is currently working on several projects
that will be designed to enhance its products in the areas of desktop
integration, computer telephony integration, and the use of the Internet and
Intranets. The Company also places significant emphasis on enhancing its
products to work in international markets, and is working to expand its
portfolio of international carrier network interfaces.
The Company intends to expand its existing product offerings and introduce
new products for the customer interaction software market. Although the Company
expects that most of its new products will be developed internally, the Company
may, based on timing and cost considerations, acquire technology and products
from third parties and evaluate third-party applications for inclusion within
its products on an ongoing basis. The Company believes that its future
performance will depend, in large part, on its ability to maintain and enhance
its current product line, develop new products that achieve market acceptance,
maintain technological competitiveness, meet an expanding range of customer
requirements and continue to recruit highly skilled and qualified software
professionals.
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As of December 31, 1998, the Company's product development, quality
assurance and technical writing staff consisted of 74 employees. The Company's
total expenses for research and development for 1998, 1997 and 1996 were
$7,493,000, $4,023,000 and $3,086,000, respectively which represented 16.7%,
21.6% and 34.1% of revenues, respectively. The Company anticipates that it will
continue to commit substantial resources to research and development in the
future and that product development expenses may increase in absolute dollars in
future periods.
COMPETITION
The market for telecommunications software products is intensely
competitive and is subject to rapid technological change. Because of the
Company's broad product offering, it competes in several different segments of
the telecommunications industry. The Company has relatively few competitors in
the multi-site and carrier segments of the market; however, the Company expects
competition to increase significantly in these segments in the future.
Currently, the Company's principal competitors in these market segments include
Genesys Telecommunications Laboratories (Genesys), Lucent Technologies, and
Aspect Telecommunications Corporation. Additional competitors, include ACD
provider Northern Telecommunications, Inc., and technology solutions company,
IEX Corporation, which may enter the market by enhancing their proprietary
private network solutions or by entering into arrangements with the
interexchange carriers.
The Company competes with traditional CTI vendors in the single-site
segment of the market place. This portion of the market is highly fragmented
with no one vendor representing a large share of the market. Most ACD vendors
offer CTI solutions specific to their ACD offering. In addition, other companies
offer CTI products that integrate with third-party ACD products. These companies
include Genesys, Quintus Corporation and a host of others.
In addition, one or more interexchange carriers, including AT&T, MCI, Optus
and Sprint, which are third-party distributors for the Company, could choose to
provide or distribute competitive products and services. For example, in April
1998, the Company entered into a distribution agreement with AT&T whereby AT&T
is now marketing, selling and supporting AT&T Resource Manager, an AT&T offering
built upon GeoTel's Intelligent CallRouter software. AT&T Resource Manager
replaced AT&T Call Center Transaction Manager, an AT&T product which, prior to
this agreement, was competitive with GeoTel's Intelligent CallRouter.
The Company believes that, to date, approximately one-half of the Company's
customers have purchased the Company's products to replace or enhance existing
call routing solutions offered by the interexchange carriers. The Company's
other customers have purchased the Company's products in order to implement a
virtual call center solution for the first time. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business, operating
results and financial condition. Some of the Company's current, and many of the
Company's potential, competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than the Company. Accordingly, there can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, operating results and
financial condition. Moreover, the Company may be subject to potential conflicts
of interest from time to time if a current distributor, such as AT&T, IBM, MCI,
Optus or Sprint, provides or distributes competitive products or services. In
this regard, a customer which elects to provide or distribute competitive
products or services could make strategic decisions with respect to pricing and
other matters relating to products provided or distributed by it which could
adversely affect the Company's business, operating results and financial
condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, copyright,
trademark and trade secrets laws, as well as confidentiality agreements to
protect its proprietary rights. The Company has been issued two patents, which
expire in March 2015, relating to the architecture, operating methodologies and
interfaces of the Company's Intelligent CallRouter ("ICR"), Network ICR and Site
ICR products both in the United States and internationally. The Company also has
one patent application pending in the United States and internationally. While
the Company believes that its pending patent application relates to a patentable
invention, there can be no assurance that such patent application or any future
patent application will be granted or that any patent relied upon by the Company
will not be challenged, invalidated or circumvented, or that rights granted
thereunder will provide competitive advantages to the Company. Moreover, despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain the use of
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to as
great an extent as do the laws of the United States. There can
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be no assurance that the Company's means of protecting its proprietary rights
will be adequate or that the Company's competitors will not independently
develop similar technology.
The Company is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by the Company with respect to current or future
products. The Company expects that software product developers will increasingly
be subject to infringement claims as the number of products and competitors in
the Company's industry segment grows and the functionality of products in
different industry segments overlap. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all, which could have a material adverse effect
upon the Company's business, operating results and financial condition.
Prior to December 16, 1998, the software and network adapter necessary to
enable the Company's Intelligent CallRouter, Network ICR and Site ICR products
to interface with the AT&T network was licensed by the Company from a single
vendor under a perpetual, fully-paid license. On December 16, 1998, the Company
acquired certain assets and assumed certain liabilities of this vendor including
the intellectual property related to such software and network adapters. The
acquisition was the result of a long-standing technical relationship between the
two companies and will enable GeoTel to extend its core competency and
technology leadership to include a broader capability in deploying these network
protocols. This transaction is not expected to be material to the Company's
financial results.
GEOTEL(R), Intelligent CallRouter(R), Pre-Routing(R) and Post-Routing(R)
are registered trademarks of the Company in the United States and other
jurisdictions. Network Intelligent CallRouter, Site ICR, GEOTEL stylized logos
and all product names in the GEOTEL Product family are trademarks of the
Company. All other trademarks and trade names referred to in this Form 10-K are
the property of their respective owners.
EMPLOYEES
As of December 31, 1998, the Company had a total of 261 employees, 246 of
which are based in the United States. Of the total, 74 were in research and
development, 84 were in support and support services, 83 were in sales and
marketing and 20 were in administration and finance. The Company's future
performance depends in significant part upon the continued service of its key
technical, sales and marketing, and senior management personnel and its
continuing ability to attract and retain highly qualified technical, sales and
marketing, and managerial personnel. Competition for such personnel is intense
and there can be no assurance that the Company will be successful in attracting
or retaining such personnel in the future. None of the Company's employees are
represented by a labor union or are subject to a collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
relations with its employees to be good.
The Company has adopted policies with regard to the issuance of stock
options and payment of cash bonuses in years in which the Company has met or
exceeded its internal performance goals. These policies are designed to minimize
turnover and align company and employee goals, although there can be no
assurance that such policies will be successful.
ITEM 2: PROPERTIES
The Company's executive office is located in Lowell, Massachusetts in a
facility consisting of approximately 51,100 square feet, under a sublease, which
expires in December 2006. This sublease provided an additional 15,900 square
feet on January 1, 1999 for a total square footage of 67,000 square feet. The
Company has the right, with proper notice, to terminate this sublease at the end
of the sixth year (2003) of the sublease. In addition, the Company leases office
space in the metropolitan areas of Atlanta, Chicago, Dallas, Philadelphia,
Phoenix, San Francisco, Washington, D.C. and Ontario, Canada.
ITEM 3: LEGAL PROCEEDINGS
On January 31, 1997 the Company filed suit for patent infringement against
Genesys Telecommunications Laboratories, Inc. ("Genesys"), of San Francisco,
California, in the U.S. District Court for the District of Massachusetts. In the
action, the Company, owner of U.S. Patent No. 5,546,452 (the "452 Patent"),
alleges that certain of Genesys' products infringe the Company's patent. On
November 20, 1998, the Company and Genesys entered into a settlement agreement
concerning the patent dispute on terms the Company believes are not material to
its financial results. Pursuant to the settlement, the Company will receive
license fees
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from Genesys and has granted Genesys a nonexclusive, irrevocable license to use
and distribute all present and future Genesys products to the extent they are
covered by the 452 Patent or any related patent.
The Company is a party to certain other legal proceedings. However, the
Company believes that none of these proceedings is likely to have a material
adverse effect on the Company's business, financial condition and results of
operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on the NASDAQ National Market tier of the
NASDAQ Stock Market under the Symbol: "GEOC". The following table sets forth the
range of high and low bid prices, on a quarterly basis, for the Company's common
stock during the past two years as reported by the NASDAQ Stock Market. All
amounts below reflect a two-for-one stock split of the Company's common stock,
effected in the form of a 100% stock dividend on September 22, 1998.
Year Ended Year Ended
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- -------------------------
HIGH LOW HIGH LOW
-------------- ------------ ------------- -----------
First Quarter.............................. $ 14.19 $ 7.38 $ 9.56 $ 5.38
Second Quarter............................. $ 20.44 $ 11.25 $ 7.38 $ 4.75
Third Quarter.............................. $ 30.00 $ 16.75 $ 10.03 $ 6.25
Fourth Quarter............................. $ 42.63 $ 17.75 $ 10.31 $ 6.75
The Company has not declared or paid cash dividends on its common stock and
does not plan to pay cash dividends to its shareholders in the near future. The
Company presently intends to retain its earnings to finance further growth of
its business. As of March 23, 1999, the Company's common stock was held by
approximately 143 shareholders of record. This does not reflect persons or
entities that hold their stock in nominee or street name accounts through
various brokerage firms. The Company estimates that there are over 5,600
shareholders that hold their stock in nominee or street name accounts.
CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 20, 1996, the Company's Registration Statement of Form S-1
(File No. 333-13263) became effective. The net proceeds from the offering were
approximately $26,704,000. To date, the Company has utilized approximately
$756,000 of the proceeds to repay borrowings under its outstanding equipment
lines of credit and $1,800,000, of the $2,000,000 aggregate purchase price, for
the acquisition of Danar Corporation. The Company has not used any of the
remaining proceeds from the effective date (November 20, 1996) through December
31, 1998. No payments were made to directors, officers (except in their capacity
as employees of the Company) or to persons owning ten percent or more of any
class of equity securities of the Company, or to the affiliates of the Company.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and the Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this report.
FOR THE YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996 1995 1994
------- ------- ------ ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $44,852 $18,611 $9,047 $ 1,534
Gross profit.............................. 36,379 15,027 7,336 659
------ ------ ----- -------
Net income (loss)......................... 9,039 6,253 754 (3,862) $(2,966)
Net income (loss) available
(attributable) to common
stockholders............................. $ 9,039 $ 6,253 $ 657 $(3,939) $(3,001)
======= ======= ====== ======= =======
Net income (loss) per share available
(attributable) to common stockholders:
Basic................................. $ 0.34 $ 0.25 $ 0.09 $ (2.79) $ (4.80)
======= ======= ====== ======= =======
Diluted............................... $ 0.32 $ 0.23 $ 0.03 $ (2.79) $ (4.80)
======= ======= ====== ======= =======
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Cash and cash equivalents..................... $54,359 $40,428 $33,263 $ 4,537 $ 3,793
Working capital............................... 49,008 36,177 31,421 4,292 4,249
Total assets.................................. 73,972 50,273 36,924 6,449 5,483
Long-term debt, less current portion.......... -- -- -- 408 338
Convertible preferred stock................... -- -- -- 11,986 7,937
Total stockholders' equity (deficit) $55,757 $39,926 $32,437 $(7,312) $(3,357)
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in June 1993 to develop software solutions
focused on enhanced voice and data routing technology that enables
customer-oriented companies to manage customer interaction in a mission critical
call center environment. From inception through the first half of 1995, the
Company was engaged principally in research and product development of its
Intelligent CallRouter product. The Company's first customer installation of the
Intelligent CallRouter occurred in May 1995 and the Company recognized its first
revenue from customer shipments in the fourth quarter of 1995. The Company
initially achieved profitability in the first quarter of 1996. Unit shipments
have grown due to increasing market acceptance of the Company's product and
increases in the size of the Company's direct sales force. The Company expects
that software licenses and related services will account for substantially all
of its revenues for the foreseeable future. The Company believes that its future
performance will depend in large part on its ability to maintain and enhance its
current Intelligent CallRouter product line, develop new products that achieve
market acceptance, maintain technological competitiveness, meet an expanding
range of customer requirements and continue to recruit highly skilled and
qualified software professionals. The Company primarily markets its products in
the United States through a direct sales force, which is complemented by
strategic sales channels, selected resellers and international partners.
The Company's revenue is derived from three sources: software licenses,
services and customized software development contracts. Software license
revenue, which has historically represented the majority of the Company's total
revenue, is generally payable within thirty days of product acceptance. The
Company recognizes software license fee revenues generally upon shipment unless
there are significant post-delivery obligations or collection is not reasonably
assured. When significant post-delivery obligations exist, typically customer
acceptance criteria, revenues are deferred until such obligations have been
satisfied. The Company recognizes revenue on customized software development
contracts based on reaching specified milestones under the terms of the
respective agreements.
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Where there is an arrangement which includes multiple elements, revenue is
allocated to the various elements based upon objective evidence of fair-value
and is recognized on an element by element basis. Service revenues consist
primarily of maintenance, installation, professional services and training
revenues. Maintenance revenues are recognized ratably over the term of the
support period, which is typically twelve months. Installation, professional
services and training revenues are recognized when the services are performed.
A significant portion of the Company's revenues to date has been derived
from a limited number of customers. Revenues attributable to the Company's five
largest customers accounted for approximately 49.2%, 54.1% and 49.1% of the
Company's total revenues in 1998, 1997 and 1996, respectively. The Company had
two customers in 1998, 1997 and 1996 that individually accounted for over 10% of
the Company's total annual revenues in those years. The Company expects that it
will continue to be dependent upon a limited number of customers for a
significant portion of its revenues in future periods.
Export sales to the United Kingdom, New Zealand, Spain and Australia were
21%, 4%, 3% and 1%, respectively, in 1998. Export sales to Australia and the
United Kingdom were 14% and 19%, respectively in 1997 and 11% and 4%,
respectively in 1996.
The Company's future results are subject to substantial risks and
uncertainties. The Company has experienced substantial revenue growth since
product introduction in 1995 and first achieved profitability in the first
quarter of 1996. Future operating results will depend on many factors, including
the demand for the Company's products, the level of product and price
competition, the Company's success in expanding its direct sales force, indirect
distribution channels and international sales and the ability of the Company to
develop and market new products and control costs. In order to support the
growth of its business, the Company plans to significantly expand its level of
operations. Due to the anticipated increase in the Company's operating expenses
caused by this expansion, the Company's operating results will be adversely
affected if revenues do not increase. The Company currently expects to derive
substantially all of its revenues from software licenses and related services
and that it will continue to be dependent upon a limited number of customers for
a significant portion of its revenues in future periods. Although demand for the
Intelligent CallRouter has grown in recent quarters, the call center market is
still an emerging market. The Company's future financial performance will depend
in large part on continued growth in the number of organizations adopting
software applications to enhance their responsiveness to customers and the
number of applications developed for use in these environments.
The Company's annual operating results may vary significantly in the future
depending on factors such as increased competition from the interexchange
carriers or switching system vendors and other companies, the timing of new
product announcements and changes in pricing policies by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products, the size and timing of significant orders, order cancellations by
customers, the lengthy sales cycle of the Company's products, changes in
operating expenses, changes in Company strategy, personnel changes, the
Company's ability to manage growth, if any, including the continued improvement
in its financial and management controls and growth of its employee work force
and general economic factors. The Company's expense levels are based, in part,
on its expectations of future revenues and to a large extent are fixed in the
short-term. If revenue levels are below expectations, the Company's business,
operating results and financial condition are likely to be materially adversely
affected. Net income may be disproportionately affected by a reduction in
revenues because a proportionately smaller amount of the Company's expenses
varies with its revenues. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
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OPERATING RESULTS
The following table sets forth, for the periods indicated, certain
consolidated financial information in dollars and percentage of revenues.
YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS) (PERCENTAGE OF REVENUES)
Revenues:
Software license.............. $33,523 $14,651 $7,880 74.7% 78.7% 87.1%
Services and other............ 11,329 3,960 1,167 25.3 21.3 12.9
------- ------- ------ ----- ----- -----
Total revenues................ 44,852 18,611 9,047 100.0 100.0 100.0
------- ------- ------ ----- ----- -----
Cost of Revenues:
Cost of software license...... 1,004 514 297 2.2 2.8 3.3
Cost of services and other.... 7,469 3,070 1,414 16.7 16.5 15.6
------- ------- ------ ----- ----- -----
Total cost of revenues........ 8,473 3,584 1,711 18.9 19.3 18.9
------- ------- ------ ----- ----- -----
Gross Profit.................... 36,379 15,027 7,336 81.1 80.7 81.1
------- ------- ------ ----- ----- -----
Operating Expenses:
Research and development...... 7,493 4,023 3,086 16.7 21.6 34.1
Sales and marketing........... 12,824 5,632 2,760 28.6 30.2 30.5
General and administrative.... 4,014 1,916 1,052 8.9 10.3 11.7
------- ------- ------ ----- ----- -----
Total operating costs......... 24,331 11,571 6,898 54.2 62.1 76.3
------- ------- ------ ----- ----- -----
Income from operations.......... 12,048 3,456 438 26.9 18.6 4.8
Interest income, net............ 2,415 1,969 316 5.4 10.6 3.5
------- ------- ------ ----- ----- -----
Income before income........... 14,463 5,425 754 32.3 29.2 8.3
Provision (benefit) for
income taxes.................. 5,424 (828) -- 12.1 (4.4) --
------- ------- ------ ----- ----- -----
Net income...................... $ 9,039 $ 6,253 $ 754 20.2% 33.6% 8.3%
======= ======= ====== ===== ===== =====
REVENUES
Revenues consist of software license fees and services. The Company
recorded no revenues until the fourth quarter of 1995. Revenues increased 141%
to $44,852,000 in 1998 from $18,611,000 in 1997 and $9,047,000 in 1996. Software
license revenue increased 128.8% to $33,523,000 in 1998 from $14,651,000 in
1997, and $7,880,000 in 1996. The Company believes that the increase in license
revenue is attributable to several factors, including revenue recognized under
an international software licensing agreement with Digital Equipment Co., Ltd.
(Digital Equipment Co., Ltd. was acquired by Compaq during 1998, and,
accordingly the agreement will be referred to herein as the "Compaq Agreement");
continued market acceptance of the Company's products indicated by an increase
in unit sales; an increase in the size of the Company's direct sales force;
expansion of the sales channels through the addition of selected resellers and
international partners and the increase in the Company's customer base. The
Compaq Agreement provides, among other things, for the resale of a specified
number of software licenses and one-year maintenance support valued at
approximately $7,800,000. In 1998, under the Compaq Agreement, the Company
recognized approximately $4,167,000 in software licenses and services revenues
compared to $3,278,000 and $355,000 in 1997 and 1996, respectively. As of
December 31, 1998, the Company has recognized all revenues under the Compaq
agreement.
Services and other revenues, consisting primarily of maintenance,
installation and professional services revenues, increased 186.1% to $11,329,000
in 1998 from $3,960,000 in 1997, and $1,167,000 in 1996. Services and other
revenue increased as a percentage of revenues to 25.3% in 1998 from 21.3% in
1997 and 12.9% in 1996. Services and other revenues increased in dollars and as
a percentage of total revenues primarily as the result of an increase in the
Company's customer base. Maintenance revenue, installation services, and
professional services and training revenue represented 43.4%, 26.5% and 30.1%,
respectively, of total services and other revenues in 1998 compared to 59.2%,
28.5% and 12.3%, respectively, in 1997 and 31.4%, 58.9% and 9.7%, respectively,
in 1996. Professional services and training revenue comprises a larger
percentage of total services and other revenues in 1998 due to significant
non-recurring professional services. The Company anticipates that maintenance
revenue as a percentage of total services and other revenues will continue to
grow as the Company's customer base increases. Installation services revenue
will vary based upon software license revenue. Professional services and other
revenue are non-recurring in nature and will fluctuate in dollars and as a
percentage of total services and other revenues from year to year. The Company
performs professional services primarily in situations where such work will
result in additional software license revenue.
International revenues (sales outside of the United States) increased to
$13,038,000 in 1998 compared to $6,240,000 in 1997 and $1,382,000 in 1996.
International revenues decreased to 29.1% of total revenues in 1998 compared to
33.5% in 1997 and 15.3% in 1996. The decrease in percentage of international
revenues compared to total revenues in 1998 was due to domestic revenue growth
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exceeding international revenue growth. The majority of the international
revenue in 1998, 1997 and 1996 were derived from two customers. The Company
believes that it will continue to derive a significant portion of its revenues
from international sales and that international revenue will comprise a larger
percentage of total revenue in future years. To date, the Company's
international sales have been denominated in U.S. currency.
In 1996, an investor who at the time owned over 10% of the Company's total
common shares outstanding, was also a customer of the Company. This customer's
purchases from the Company represented 14% of total revenues in 1996. Gross
profit from these transactions approximated those realized in similar
transactions with unrelated parties. At December 31, 1996, this investor's
ownership percentage was approximately 9% and at December 31, 1997 and 1998 this
investor no longer had a significant ownership percentage in the Company.
COST OF REVENUES
Cost of software license revenue. Cost of software license revenue consists
principally of development costs associated with the Compaq Agreement and the
costs of interface cards. Cost of software license revenue in 1998 increased
95.3% to $1,004,000 compared to $514,000 in 1997 and $297,000 in 1996. Cost of
software licenses as a percentage of software license revenue were 3.0%, 3.5%
and 3.8% for 1998, 1997 and 1996, respectively. The increase in dollars in
software license revenues in 1998 was primarily due to development costs under
the Compaq Agreement and an increase in software license revenue. The Company
believes that in future periods, cost of software license revenue will continue
to range from 3% to 5% of software license revenue.
Cost of services and other revenue. Cost of services and other revenue
consists principally of the costs incurred to provide installation, professional
services, maintenance and training services. The expenses incurred to provide
these services are comprised primarily of personnel costs (salaries, fringe
benefits and recruiting fees), travel and facility costs. Cost of services and
other revenue in 1998 increased 143.3% to $7,469,000 compared to $3,070,000 in
1997 and $1,414,000 in 1996. Cost of services and other revenue as a percentage
of services and other revenues were 65.9%, 77.5% and 121.2% for 1998, 1997 and
1996, respectively. The dollar increase in services and other revenue was
primarily the result of increased personnel and travel costs. These costs
increased as a result of the increase in the number of customers under
maintenance contracts. The percentage decrease in cost of services and other
revenue expenses was primarily the result of the Company's significant revenue
growth. The Company believes that in future periods, cost of services and other
revenue as a percentage of services and other revenue will fluctuate
significantly based upon the mix of the services provided. The Company plans on
continuing to invest in its infrastructure both domestically and internationally
and as a result, the Company anticipates that the cost of services and other
revenue will increase in dollars and as a percentage of services and other
revenues. The Company believes that in future periods, cost of services and
other revenue will increase to 70% to 80% of services and other revenues.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
principally of personnel and facility costs. Research and development expenses
in 1998 increased 86.3% to $7,493,000 compared to $4,023,000 in 1997 and
$3,086,000 in 1996. Research and development expenses as a percentage of total
revenues were 16.7%, 21.6% and 34.1% in 1998, 1997 and 1996, respectively. The
percentage decrease in research and development expenses was primarily the
result of the Company's significant revenue growth. The increase in absolute
dollars in research and development expenses was the result of increases in
personnel and related facility costs. The major product development efforts in
1998 related to the development of interfaces for international carriers,
computer telephony integration for the desktop and enhancements to Company's
existing products. The Company plans to continue to introduce enhancements to
its existing products and new products that can be sold to existing and new
customers. The Company is currently working on several projects that will be
designed to enhance its products in the areas of desktop integration, computer
telephony integration, and the use of the Internet and Intranets. The Company
also places significant emphasis on enhancing its products to work in
international markets and is working to expand its portfolio of international
carrier network interfaces.
The Company anticipates that research and development expenses will
continue to increase in absolute dollars but level off as a percentage of
revenues ranging from 15% to 20% in the foreseeable future.
Sales and Marketing. Sales and marketing expenses consist principally of
personnel costs, commissions, travel, trade shows, promotional expenses and
facility costs. Sales and marketing expenses in 1998 increased 127.7% to
$12,824,000 compared to $5,632,000 in 1997 and $2,760,000 in 1996. Sales and
marketing expenses as a percentage of total revenues were 28.6%, 30.2% and 30.5%
for 1998, 1997 and 1996, respectively. The increase in absolute dollars in sales
and marketing expenses was primarily comprised of increases in personnel,
travel, facility and commission costs. The increase in personnel costs was the
result of adding
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sales personnel to the direct sales force. Direct sales personnel headcount
increased to 43 at the end of 1998 compared to 19 at the end of 1997 and 10 at
the end of 1996. The commission expense increase was attributable to higher
sales. The Company anticipates that sales and marketing expenses will increase
in absolute dollars and as a percentage of total revenues, and ultimately level
off as a percentage of revenues ranging from 30% to 35% in the foreseeable
future.
General and Administrative. General and administrative expenses consist
principally of personnel costs for administrative, finance, information systems,
human resources and general management personnel, as well as legal expenses and
facility costs. General and administrative expenses in 1998 increased 109.5% to
$4,014,000 compared to $1,916,000 in 1997 and $1,052,000 in 1996. General and
administrative expenses as a percentage of total revenues were 8.9%, 10.3% and
11.7% for 1998, 1997 and 1996, respectively. General and administrative expenses
have increased in absolute dollars due to an increase in personnel, travel and
legal costs. These costs have increased due to an increase in employees and
growth of the business. The Company anticipates that general and administrative
expenses will increase in absolute dollars but level off as a percentage of
revenues ranging from 9% to 12% in the foreseeable future.
OTHER INCOME
Interest income, net, of $2,415,000 compared to $1,969,000 and $316,000 for
1998, 1997 and 1996, respectively, resulted from investments of the Company's
cash balances, net of interest expense incurred on bank term notes in 1996. In
the fourth quarter of 1996, the Company raised approximately $26,704,000 in cash
from its initial public offering. The Company used a portion of the proceeds
from the offering to repay in full the Company's outstanding debt and invested
the remainder of the proceeds. Interest income increased significantly due to an
increase in cash available for investment in 1998 compared to 1997 and 1996.
PROVISION (BENEFIT) FOR INCOME TAXES
The Company's effective tax rate was 37.5% for 1998. No income tax
provision was recorded for federal income tax purposes for the years prior to
the year ended December 31, 1997. The Company recorded a benefit for income
taxes in 1997 by eliminating its valuation allowance resulting in net deferred
tax assets of approximately $2,190,000. Prior to the fourth quarter of 1997, the
Company had recorded a full valuation allowance against its deferred tax assets
due to uncertainty regarding the potential realizability of these assets. In the
fourth quarter of 1997, the Company determined that it is more likely than not
that the deferred tax assets will be realized. The factors contributing to the
elimination of the allowance were profitability since 1996 and management's
projections of profitability in the future. See the Consolidated Financial
Statements and Notes thereto. The Company expects its effective tax rate to
approximate 37.5% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company, prior to its initial public offering on November 20, 1996, had
financed its operations since inception primarily by private sales of equity
securities pursuant to which the Company received approximately $12,123,000 and
by bank term notes to finance purchases of equipment. The principal uses of cash
have been to fund research and development of the Company's products and initial
marketing of the products and to purchase capital equipment. On November 20,
1996, the Company completed its initial public offering of common stock, which
generated net proceeds of $26,704,000. The Company used approximately $756,000
of the proceeds to repay borrowings under its outstanding equipment lines of
credit. The Company's cash and cash equivalents increased to $54,359,000 at
December 31, 1998 compared to $40,428,000 at December 31, 1997 and $33,263,000
at December 31, 1996. The increase in cash and cash equivalents was due to the
increase in operating profits and due to an increase in advance customer
payments which are recorded to deferred revenue. The Company's accounts
receivable increased to $8,401,000 at December 31, 1998 compared to $3,685,000
at December 31, 1997 and $2,121,000 at December 31, 1996. The Company's working
capital increased to $49,008,000 at December 31, 1998 compared to $36,177,000 at
December 31, 1997 and $31,421,000 at December 31, 1996.
The Company's operating activities provided $15,413,000, $8,796,000 and
$3,306,000 in 1998, 1997 and 1996, respectively. The improvement in cash flow
from operations is primarily the net result of more profitable operations as a
result of higher revenues, an increase in accounts receivable, an increase
customer advance payments and tax benefits from employees' exercise of stock
options.
The Company's investing activities used cash of $4,337,000, $2,047,000 and
$743,000 in 1998, 1997 and 1996, respectively. In 1998, 1997 and 1996, investing
activities resulted in a use of cash due to the significant increase in capital
expenditures. Capital expenditures increased significantly in 1998, 1997 and
1996 due to the increase in personnel and for product development needs. Capital
expenditures in 1998 included an additional 15,900 square feet of corporate
office space and a minor acquisition and, in 1997,
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the Company's move to a larger corporate office. The acquisition of
substantially all of the assets and assumed certain liabilities of Danar
Corporation occurred in December of 1998 for approximately $2,000,000.
The Company's financing activities provided $2,855,000, $416,000, and
$26,163,000 in 1998, 1997, and 1996, respectively. In 1996, financing activities
consisted primarily of the Company's initial public offering of common stock. In
1998 and 1997, financing activities consisted primarily of sales of equity
securities under the Company's employee stock plans.
As of December 31, 1998, the Company had no material commitments for
capital expenditures.
The Company believes that existing cash balances and funds generated from
operations will be sufficient to meet its anticipated liquidity and working
capital requirements for at least the next twelve months.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"). FAS 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999. FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in either
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. For fair-value hedge transactions in which the Company is
hedging changes in fair value of an asset, liability, or firm commitment,
changes in the fair value of the derivative instrument will generally be offset
in the income statement by changes in the fair value of the hedged item. For
cash flow hedge transactions, in which the Company is hedging the variability of
cash flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument that are
reported in other comprehensive income will be reclassified as earnings in the
periods in which earnings are impacted by the variability of the cash flows of
the hedged item. The ineffective portion of all hedges will be recognized in
current earnings. The Company does not believe that the adoption of this
statement will have a material effect on its financial statements.
IMPACT ON THE YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming code in
existing information technology systems as well as non-information technology
systems (such as building security, voice mail, telephone, electricity, water
and other systems containing embedded microprocessors) as the millennium (Year
2000) approaches. The Company has designed its products to, and has commenced
efforts to ensure that the information technology systems and non-information
technology systems will function properly beyond 1999. Based on an assessment of
its products to date, the Company believes that its current products are
compatible with Year 2000 functionality. The Company's Year 2000 compliance
evaluation stage has been completed and the Company does not foresee a material
impact on its business or operating results from the Year 2000 problem. Before
any new products are introduced, the Company will continue to evaluate the
compatibility with Year 2000 functionality.
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of the Year 2000 issues. However,
if certain critical third-party providers, such as those providing electricity,
water or telephone service, experience difficulties resulting in disruption of
service to the Company, a shut down of the Company's operations at individual
facilities could occur for the duration of the disruption. There can be no
assurance that further assessment of the Company's products and internal systems
and applications will not indicate that additional Company efforts to assure
Year 2000 compliance are necessary, and such efforts may be costly and may
divert the Company's resources from other product development or infrastructure
improvement programs. The foregoing could result in the loss of or delay in
market acceptance of the Company's products and services, increased service and
warranty costs to the Company or payment by the Company of compensatory or other
damages. Further, there can be no assurance that the systems operated by other
companies upon which the Company relies will be Year 2000 compliant on a timely
basis. The Company's business, operating results and financial condition could
be materially adversely affected by the failure of the Company's products and
its internal systems and applications to properly operate or manage data beyond
1999. Costs incurred in the compliance effort have been immaterial and are
expensed as incurred. The Company estimates that the remediation stage was more
than 90% complete at December 31, 1998 and that the remaining stages for the
Year 2000 Program are on schedule to be completed by June 30, 1999. Currently,
the Company has not developed a contingency plan should its products or internal
systems fail to operate after the Year 2000 but plans to develop such a
contingency plan during the second and third quarters of 1999.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a highly competitive and changing environment that
involves a number of risks, some of which are beyond the Company's control. The
following discussion highlights a number of these risks.
The Company does not provide forecasts of future financial performance of
the Company. However, from time to time, information provided by the Company or
statements made by its employees may contain "forward-looking" information that
involves risks and uncertainties. In particular, statements contained in this
Form 10-K that are not historical facts (including, but not limited to,
statements concerning services and other revenue, international revenues,
anticipated cost of revenues levels, anticipated operating expense levels and
such expense levels relative to the Company's total revenues) constitute
forward-looking statements and are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
Limited Operating History; Future Operating Results Uncertain. The Company
was incorporated in June 1993 and did not begin shipping products until May
1995. The Company's future results are subject to substantial risks and
uncertainties. The Company has experienced substantial revenue growth since the
Intelligent CallROUTER product introduction and first achieved profitability in
the first quarter of 1996. However, due to the Company's limited operating
history there can be no assurance that such revenue growth and profitability
will continue in the future on a quarterly or annual basis. Future operating
results will depend on many factors including, without limitation, the risks,
uncertainties and other information discussed below, as well as the accuracy of
the Company's internal estimates of revenue and operating expense levels, the
demand for the Company's products, the level of product and price competition,
the Company's success in expanding its direct sales force, indirect distribution
channels and international sales and the ability of the Company to develop and
market new products and control costs. In order to support the growth of its
business, the Company plans to significantly expand its level of operations. Due
to the anticipated increase in the Company's operating expenses caused by this
expansion, the Company's operating results will be adversely affected if
revenues do not increase. The Company currently expects to derive substantially
all of its revenues from software licenses of the Products and related services
and that it will continue to be dependent upon a limited number of customers for
a significant portion of its revenues in future periods. Although demand for the
Company's products have grown in recent quarters, the market for solutions
focused on enhanced voice and data routing technology that enable
customer-oriented compared to manage customer interaction in a mission critical
call center environment is still an emerging market. The Company's future
financial performance will depend in large part on continued growth in the
number of organizations adopting software applications to enhance their
responsiveness to customers and the number of applications developed for use in
these environments. Each of these factors, and others, are discussed from time
to time in the filings made by the Company with the Securities and Exchange
Commission.
Potential Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results may in the future vary significantly depending on
factors such as: i) increased competition from Genesys, Lucent Technologies, and
Aspect Telecommunications Corporation. Additional competitors, including other
ACD providers, such as, Northern Telecommunications, Inc. and Rockwell
International Corporation and technology solutions companies such as IBM and IEX
Corporation, may enter the market by enhancing their proprietary private network
solutions or by entering into arrangements with the interexchange carriers.
Additionally, the Company competes with traditional CTI vendors in the single
site segment of the market place. This portion of the market is highly
fragmented with no one vendor representing a large share of the market. Most ACD
vendors offer CTI solutions specific to their ACD offering. In addition other
companies offer CTI products that integrate with third-party ACD products, ii)
the timing of new product announcements and changes in pricing policies by the
Company and its competitors, iii) market acceptance of new and enhanced versions
of the Company's products, iv) the size and timing of significant orders, v)
order cancellations by customers, vi) the lengthy sales cycles of the Company's
products, vii) changes in operating expenses, viii) changes in Company strategy,
ix) personnel changes, x) the Company's ability to manage growth, if any,
including the continued improvement in its financial and management controls and
growth of its employee work force and xi) general economic factors. 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 varies
substantially from customer to customer. A significant portion of the Company's
revenues and operating income has been, and is expected to continue to be,
derived from software licensing fees from a limited number of customers.
Variability in the timing of such license fees may cause material fluctuations
in the Company's business, operating results and financial condition. The
Company's products and services generally require capital expenditures by
customers as well as the commitment of resources to implement the Company's
products. Accordingly, the Company is substantially dependent on its customers'
decisions as to the timing and level of such expenditures and resource
commitments. In addition, the Company typically realizes a significant portion
of license revenues in the last month of a quarter. As a result, the magnitude
of quarterly fluctuations may not become evident until late in, or after the
close of, a particular quarter. The Company's expenses are based in part on the
Company's expectations as to future revenue levels and to a large extent are
fixed in the short-term. If revenues do not meet expectations, the Company's
business, operating results and financial condition are likely to be materially
adversely affected. In particular, because only a small portion of the Company's
expenses varies with revenues, net income may be disproportionately affected by
a reduction in revenues. As a result, the Company believes that
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period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to the foregoing factors, it is likely that in some future quarter the
Company's revenue or 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.
Potential Volatility of Stock Price. The market price of the Company's
Common Stock may be volatile and may be significantly affected by factors such
as actual or anticipated fluctuations in the Company's quarterly operating
results, announcements of new products by the Company or its competitors,
developments with respect to conditions and trends in the telecommunications
industry, government regulation, changes in estimates by securities analysts of
the Company's future performance, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have adversely affected the market prices of
securities of companies for reasons unrelated to their operating performance. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. These broad market fluctuations may adversely affect the market
price of the Common Stock.
Risks Associated with Customer Concentration and One-Time License Fees. A
significant portion of the Company's revenues to date has been derived from a
limited number of customers. Revenues attributable to the Company's five largest
customers accounted for approximately 49.1%, 54.1% and 49.2% of the Company's
total revenues in 1996, 1997 and 1998, respectively. Fidelity and Optus
accounted for approximately 14.1% and 11.4%, respectively, of the Company's
total revenues for 1996. Compaq and Optus accounted for approximately 18.9% and
14.3%, respectively, of the Company's total revenues for 1997. Compaq and Lucent
accounted for approximately 20.5% and 13.6%, respectively, of the Company's
total revenues for 1998. The Company expects that it will continue to be
dependent upon a limited number of customers for a significant portion of its
revenues in future periods. None of the Company's customers, other than AT&T,
Hewlett Packard, MCI, and Sprint, is contractually obligated to license or
purchase additional products or services from the Company. As a result of this
customer concentration, the Company's business, operating results and financial
condition could be materially adversely affected by the failure of anticipated
orders to materialize or by deferrals or cancellations of orders. There can be
no assurance that any of the Company's customers will continue to purchase the
Company's products and services in amounts similar to previous periods or that
revenues from customers that have accounted for significant revenues in past
periods, individually or as a group, will continue or, if continued, will reach
or exceed historical levels in any future period. The Company's operating
results may in the future be subject to substantial period-to-period
fluctuations as a consequence of such customer concentration.
Lengthy Sales and Implementation Cycles. The Company's products are
typically intended for use in applications that may be critical to a customer's
business. The license and implementation of the Company's software products
generally involves a significant commitment of resources by prospective
customers. As a result, the Company's sales process is often subject to delays
associated with lengthy approval processes that typically accompany significant
capital expenditures. For these and other reasons, the sales cycle associated
with the license of the Company's products is often lengthy (recently averaging
approximately six months) and subject to a number of significant delays over
which the Company has little or no control. In addition, the Company does not
recognize license revenues until all significant post-delivery obligations have
been satisfied, including the development of specific product features, which,
in certain cases, can take several quarters. The time required to implement the
Company's products can vary significantly with the needs of its customers and is
generally a process that extends for several months. There can be no assurance
that the Company will not experience delays in the future, particularly if the
Company receives orders for large, complex installations.
Product Concentration; Dependence on Growth in CTI Market. The Company
currently derives substantially all of its revenues from software licenses for
its products and related services. Broad market acceptance of the Company's
products is critical to the Company's future success. As a result, a decline in
demand for or failure to achieve broad market acceptance of the Company's
products as a result of competition, technological change or otherwise, would
have a material adverse effect on the business, operating results and financial
condition of the Company. A decline in sales of the Company's products could
also have a material adverse effect on sales of other Company products that may
be sold to the Company's current customers. The Company's future financial
performance will depend in part on the successful development, introduction and
customer acceptance of new and enhanced versions of the Company's current
products and other future products. There can be no assurance that the Company
will continue to be successful in marketing the Company's products or any new or
enhanced products.
The Company's products are utilized in call centers maintained by companies
in a variety of industries. The products are currently expected to account for
substantially all of the Company's future revenues. Although demand for the
products has grown in recent quarters, the call center market is still an
emerging market. The Company's future financial performance will depend in large
part on
22
23
continued growth in the number of organizations adopting software applications
to enhance their responsiveness to customers and the number of applications
developed for use in those environments. There can be no assurance that the
market for the Company's products will continue to grow. In addition, changes in
the business or pricing strategies of the interexchange carriers or ACD vendors
could adversely affect demand for the Company's products. If the call center
market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, operating results and financial condition
would be materially adversely affected. During recent years, segments of the
telecommunications industry have experienced significant economic downturns
characterized by decreased product demand, price erosion, work slowdowns and
layoffs. The Company's operations may in the future experience substantial
fluctuations from period to period as a consequence of such industry patterns,
general economic conditions affecting the timing of orders from major customers,
and other factors affecting capital spending. There can be no assurance that
such factors will not have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION. The market for telecommunications software products is
intensely competitive and is subject to rapid technological change. Because of
the Company's broad product offering, it competes in several different segments
of the telecommunications industry. The Company has relatively few competitors
in the multi-site and carrier segments of the market, however, the Company
expects competition to increase significantly in these segments in the future.
Currently, the Company's principal competitors in these market segments include
Genesys, Lucent Technologies, and Aspect Telecommunications Corporation.
Additional competitors, including other ACD provider Northern
Telecommunications, Inc.,and technology solutions company IEX Corporation, may
enter the market by enhancing their proprietary private network solutions or by
entering into arrangements with the interexchange carriers. The Company competes
with traditional CTI vendors in the single-site segment of the marketplace. This
portion of the market is highly fragmented with no one vendor representing a
large share of the market. Most ACD vendors offer CTI solutions specific to
their ACD offering. In addition other companies offer CTI products that
integrate with third-party ACD products. These companies include Genesys,
Quintus Corporation and a host of others. In addition, one or more interexchange
carriers, including AT&T, MCI, Optus and Sprint, which are third-party
distributors for the Company, could choose to provide or distribute competitive
products and services. For example, in April 1998, the Company entered into a
distribution agreement with AT&T whereby AT&T is now marketing, selling and
supporting AT&T Resource Manager, an AT&T offering built upon GeoTel's
Intelligent CallRouter software. AT&T Resource Manager replaced AT&T Call Center
Transaction Manager, an AT&T product which, prior to this agreement, was
competitive with the Intelligent CallRouter.
The Company believes that, to date, approximately one-half of the Company's
customers have purchased the Company's products to replace or enhance existing
call routing solutions offered by the interexchange carriers. The Company's
other customers have purchased the Company's products in order to implement a
virtual call center solution for the first time. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which could materially adversely affect the Company's business, operating
results and financial condition. Some of the Company's current, and many of the
Company's potential, competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than the Company. Accordingly, there can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, operating results and
financial condition. Moreover, the Company may be subject to potential conflicts
of interest from time to time if a current distributor, such as AT&T, IBM, MCI,
Optus or Sprint, provides or distributes competitive products or services. In
this regard, a customer which elects to provide or distribute competitive
products or services could make strategic decisions with respect to pricing and
other matters relating to products provided or distributed by it which could
adversely affect the Company's business, operating results and financial
condition.
Dependence on New Products and Rapid Technological Change. The market for
the Company's products is characterized by rapid technological change, frequent
new product introductions and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The life cycles of the
Company's products are difficult to estimate. The Company's future success will
depend upon its ability to enhance its current products and to develop and
introduce new products on a timely basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. There can be no assurance that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change or evolving industry standards,
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction and marketing of these products, or
that its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable, for technological or other reasons, to develop and introduce new
products or enhancements of existing products in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition will be materially adversely
23
24
affected. In February 1998, the Company released a new version of its
Intelligent CallRouter product and the Company plans to introduce additional
enhancements in the near term. These enhancements are subject to significant
technical risks. If these enhancements are delayed or if they do not achieve
market acceptance, the Company's business, operating results and financial
condition will be materially adversely affected.
Risk of Product Defects or Development Delays. Software products as complex
as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although the
Company conducts extensive product testing, new products and enhancements could
contain software errors and, as a result, the Company could experience delays in
recognizing revenues during the period required to correct these errors. The
Company could in the future lose revenues as a result of software errors or
defects. The Company's products are typically intended for use in applications
that may be critical to a customer's business. As a result, the Company believes
that its current customers and potential customers have a greater sensitivity to
product defects than the market for software products generally. Although the
Company has not experienced material adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
or releases after commencement of commercial shipments, resulting in the loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs, any
of which could have a material adverse effect upon the Company's business,
operating results and financial condition.
Management of Growth; Dependence Upon Key Personnel. The Company has
experienced a period of rapid growth in revenues that has placed a significant
strain upon its management systems and resources. The Company's ability to
compete effectively and to manage future growth, if any, will require the
Company to continue to improve its financial and management controls, reporting
systems and procedures on a timely basis and expand, train and manage its
employee work force. There can be no assurance that the Company will be able to
do so successfully. The Company's failure to do so could have a material adverse
effect upon the Company's business, operating results and financial condition.
The Company's future performance depends in significant part upon the continued
service of its key technical, sales and senior management personnel, none of
whom is bound by an employment agreement. The loss of the services of one or
more of the Company's executive officers could have a material adverse effect on
the Company's business, operating results and financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical, sales and managerial employees or that it can attract,
assimilate or retain other highly qualified technical, sales and managerial
personnel in the future.
Risks Associated With International Expansion. International sales
accounted for approximately 29.1%, 33.5% and 15.3% of the Company's revenues for
1998, 1997 and 1996, respectively. As part of its business strategy, the Company
is seeking opportunities to expand its products into international markets. The
Company believes that such expansion is important to the Company's ability to
continue to grow and to market its products and services. In marketing its
products and services internationally, however, the Company will face new
competitors, some of whom may have established strong relationships with
carriers. In addition, the ability of the Company to enter the international
markets will be dependent upon the Company's ability to integrate its products
with local proprietary networks in foreign countries. There can be no assurance
that the Company will be successful in integrating its products with these
proprietary networks or marketing or distributing its products abroad or that,
if the Company is successful, its international revenues will be adequate to
offset the expense of establishing and maintaining international operations. To
date, the Company has limited experience in marketing and distributing its
products internationally. In addition to the uncertainty as to the Company's
ability to establish an international presence, there are certain difficulties
and risks inherent in doing business on an international level, such as
compliance with regulatory requirements and changes in these requirements,
export restrictions, export controls relating to technology, tariffs and other
trade barriers, protection of intellectual property rights, difficulties in
staffing and managing international operations, longer payment cycles, problems
in collecting accounts receivable, political instability, fluctuations in
currency exchange rates and potentially adverse tax consequences. There can be
no assurance that one or more of such factors will not have a material adverse
effect on any international operations established by the Company and,
consequently, on the Company's business, operating results and financial
condition.
Dependence on Proprietary Technology; Risks of Infringement. The Company is
dependent upon its ability to protect its proprietary technology. To protect its
proprietary rights, the Company relies on a combination of patents, copyrights,
trademarks, trade secret laws and confidentiality procedures. The Company has
been issued one United States patent and also has one patent application pending
in the United States and internationally. There can be no assurance that patents
will be issued with respect to the pending or future patent applications or that
the Company's existing or future patents will be upheld as valid or will prevent
the development of competitive products. In addition, existing patent,
copyright, trademark and trade secret laws afford only limited protection, and
many countries' laws do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. Accordingly,
24
25
there can be no assurance that the Company will be able to protect its
proprietary rights against unauthorized third-party copying, use or
exploitation, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. Attempts may be made to
copy or reverse engineer aspects of the Company's products, or to obtain, use or
exploit information or methods, which the Company deems proprietary.
Additionally, there can be no assurance that the Company's customers and others
will not develop products which infringe upon the Company's rights, or that
compete with the Company's products. Policing the use of the Company's products
is difficult and expensive, and there is no assurance that such efforts would
prove effective. Litigation or other action may be necessary in the future to
enforce the Company's proprietary rights, to seek and confirm patent protection
for the Company's technologies, or to determine the validity and scope of the
proprietary rights of others. Any litigation could be time-consuming and result
in significant costs. The Company expects that its software products may
increasingly be subject to claims as the number of products and competitors in
the Company's markets grows and the functionality of such products overlaps. Any
such claims, with or without merit, could result in substantial costs and
diversions of resources and management's attention, and could cause product
shipment delays or require the Company to enter into royalty or licensing
agreements, any of which could have a material adverse impact on the Company's
business, operating results and financial condition. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, if at all, which could have a material adverse effect upon the
Company's business, operating results and financial condition.
Product Liability. The Company's license agreements with its customers
generally contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments, Other Financial Instruments, and
Derivative Commodity Instruments. The Company does not participate in derivative
financial instruments, other financial instruments for which the fair value
disclosure would be required under SFAS No. 107, or derivative commodity
instruments. All of the Company's investments are in short-term,
investment-grade commercial paper and money market accounts that are carried at
fair value on the Company's books. Accordingly, the Company has no quantitative
information concerning the market risk of participating in such investments.
PRIMARY MARKET RISK EXPOSURES. The Company's primary market risk exposures
are in the areas of interest rate risk and foreign currency exchange rate risk.
The Company's investment portfolio of cash equivalents in subject to interest
rate fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. Substantially all of the Company's
business outside the United States is conducted in U.S. dollar-denominated
transactions, whereas the Company's operating expenses in Europe and Australia
are denominated in local currency. The Company has no foreign exchange
contracts, option contracts, or other foreign hedging arrangements. However, the
Company believes the operating expenses of its foreign operations are
immaterial, and therefore any associated market risk is unlikely to have a
material adverse effect on the Company's business, results of operations, or
financial condition.
25
26
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Balance Sheets as of December 31, 1998 and 1997..... 27
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996............................. 28
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1998, 1997 and 1996............... 29
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996.............................. 30
Notes to Consolidated Financial Statements....................... 31
Financial Statement Schedule - Schedule II-Valuation and
Qualifying Accounts............................................ 40
Report of Independent Accountants................................ 41
26
27
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------
1998 1997
------- -------
ASSETS
Current assets:
Cash and cash equivalents ................................................. $54,359 $40,428
Accounts receivable, net of allowance of $500 for 1998 and
none in 1997 ............................................................ 8,401 3,685
Prepaid expenses and other current assets ................................. 2,557 1,648
Deferred income taxes ..................................................... 1,906 763
------- -------
Total current assets ................................................. 67,223 46,524
Property and equipment, net .................................................... 4,159 2,322
Deferred income taxes .......................................................... 1,205 1,427
Other assets ................................................................... 1,385 --
------- -------
Total assets ......................................................... $73,972 $50,273
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 1,261 $ 708
Accrued expenses .......................................................... 2,307 967
Accrued compensation and related accruals ................................. 3,088 1,311
Income taxes payable ...................................................... 997 951
Deferred revenue .......................................................... 10,562 6,410
------- -------
Total current liabilities ............................................ 18,215 10,347
------- -------
Commitments and contingencies Stockholders' equity:
Preferred stock, $0.01 par value, authorized 5,000,000 shares,
none issued ............................................................. -- --
Common stock, $0.01 par value, authorized 40,000,000 shares,
issued 27,532,286 and 26,907,706 shares; outstanding
26,915,802 and 26,303,472 shares in 1998 and 1997,
respectively ............................................................ 275 269
Additional paid-in capital ................................................ 48,356 40,759
Retained earnings (deficit) ............................................... 8,837 (202)
Unearned compensation ..................................................... (1,664) (855)
------- -------
55,804 39,971
Less treasury stock, at cost, 616,484 and 604,234 shares in 1998
and 1997, respectively .................................................. (47) (45)
------- -------
Total stockholders' equity ........................................... 55,757 39,926
------- -------
Total liabilities and stockholders' equity ........................... $73,972 $50,273
======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
27
28
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenues:
Software license .................................... $ 33,523 $ 14,651 $ 6,850
Services and other .................................. 11,329 3,960 921
Related party licenses and services (Note I) ........ -- -- 1,276
----------- ----------- -----------
Total revenues ...................................... 44,852 18,611 9,047
----------- ----------- -----------
Cost of Revenues:
Cost of software license ............................ 1,004 514 297
Cost of services and other .......................... 7,469 3,070 1,414
----------- ----------- -----------
Total cost of revenues .............................. 8,473 3,584 1,711
----------- ----------- -----------
Gross profit ............................................. 36,379 15,027 7,336
----------- ----------- -----------
Operating Expenses:
Research and development ............................ 7,493 4,023 3,086
Sales and marketing ................................. 12,824 5,632 2,760
General and administrative .......................... 4,014 1,916 1,052
----------- ----------- -----------
Total operating costs ............................... 24,331 11,571 6,898
----------- ----------- -----------
Income from operations ................................... 12,048 3,456 438
----------- ----------- -----------
Other income ............................................. 2,415 1,969 316
----------- ----------- -----------
Income before income taxes ............................... 14,463 5,425 754
Provision (benefit) for income taxes ..................... 5,424 (828) --
----------- ----------- -----------
Net income ............................................... 9,039 6,253 754
Accretion of convertible preferred stock to
redemption value ....................................... -- -- (97)
----------- ----------- -----------
Net income available to common ........................... $ 9,039 $ 6,253 $ 657
=========== =========== ===========
Net income per common share:
Basic ............................................... $ 0.34 $ 0.25 $ 0.09
=========== =========== ===========
Diluted ............................................. $ 0.32 $ 0.23 $ 0.03
=========== =========== ===========
Weighted average number of common and common
equivalent shares:
Basic shares ........................................ 26,217,871 25,474,910 7,110,636
=========== =========== ===========
Diluted shares ...................................... 28,535,102 27,661,968 22,268,576
=========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
28
29
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
--------------------
NOTES
NUMBER ADDITIONAL RECEIVABLE
OF PAID-IN RETAINED FROM UNEARNED
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS COMPENSATION
---------- ------ ---------- -------- ------------ ------------
Balance December 31, 1995 ............... 5,145,160 $ 52 $ 48 $(7,209) $(180)
Sale of common stock and exercise of
stock options ......................... 54,000 34
Accretion of Convertible Preferred
Stock to redemption value ............. (97)
Issuance of common stock from initial
public offering, net .................. 4,930,000 49 26,620
Conversion of Preferred Stock into
common stock .......................... 16,587,432 166 12,078
Acquisition of treasury stock and
forgiveness of notes receivable ....... 64
Stock options granted below fair
value - net of terminations ........... 1,151 $(1,151)
Amortization of unearned compensation ... 100
Net income .............................. 754
---------- ---- ------- ------- ----- -------
Balance December 31, 1996 ............... 26,716,592 267 39,834 (6,455) (116) (1,051)
Exercise of stock options ............... 134,824 1 46
Issuance of stock under employee
stock purchase plan ................... 56,290 1 317
Acquisition of treasury stock
Offering costs .......................... (62)
Repayment of notes receivable ........... 116
Tax benefits from employees'
exercise of stock options ............. 288
Stock options granted below fair
value - net of terminations ........... 336 (336)
Amortization of unearned compensation ... 532
Net income .............................. 6,253
---------- ---- ------- ------- ----- -------
Balance December 31, 1997 ............... 26,907,706 269 40,759 (202) -- (855)
---------- ---- ------- ------- ----- -------
Exercise of stock options ............... 559,652 5 2,402
Issuance of stock under employee
stock purchase plan ................... 64,928 1 449
Acquisition of treasury stock ...........
Tax benefits from employees' exercise
of stock options ...................... 3,654
Stock options granted below fair value
- net of terminations ................. 1,092 (1,092)
Amortization of unearned compensation ... 283
Net Income .............................. 9,039
---------- ---- ------- ------- ----- -------
Balance December 31, 1998 ............... 27,532,286 $275 $48,356 $ 8,837 $ -- $(1,664)
========== ==== ======= ======= ===== =======
TREASURY STOCK
---------------------
TOTAL
NUMBER STOCKHOLDERS'
OF EQUITY
SHARES AMOUNT (DEFICIT)
-------- ------ -------------
Balance December 31, 1995 ........................ 486,972 $(23) $(7,312)
Sale of common stock and exercise of
stock options .................................. (202,444) 1 35
Accretion of Convertible Preferred
Stock to redemption value ...................... (97)
Issuance of common stock from initial
public offering, net ........................... 26,669
Conversion of preferred stock into
common stock ................................... 12,244
Acquisition of treasury stock and
forgiveness of notes receivable ................ 264,958 (20) 44
Stock options granted below fair
value - net of terminations .................... --
Amortization of unearned compensation ............ 100
Net income ....................................... 754
-------- ---- -------
Balance December 31, 1996 ........................ 549,486 (42) 32,437
Exercise of stock options ........................ 47
Issuance of stock under employee
stock purchase plan ............................ 318
Acquisition of treasury stock .................... 54,748 (3) (3)
Offering costs ................................... (62)
Repayment of notes receivable .................... 116
Tax benefits from employees'
exercise of stock options ..................... 288
Stock options granted below fair
value - net of terminations .................... --
Amortization of unearned compensation ............ 532
Net income ....................................... 6,253
-------- ---- -------
Balance December 31, 1997 ........................ 604,234 (45) 39,926
Exercise of stock options ........................ 2,407
Issuance of stock under employee stock
purchase plan .................................. 450
Acquisition of treasury stock .................... 12,250 (2) (2)
Tax benefits from employees' exercise
of stock options ............................... 3,654
Stock options granted below fair value -
net of terminations ............................ --
Amortization of unearned compensation ............ 283
Net Income ....................................... 9,039
-------- ---- -------
Balance December 31, 1998 ........................ 616,484 $(47) $55,757
======== ==== =======
The accompanying notes are an integral part of the
consolidated financial statements.
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30
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
------- ------- -------
Cash flows from operating activities:
Net income (loss) ............................................. $ 9,039 $ 6,253 $ 754
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Provision for doubtful accounts .......................... 500 -- --
Depreciation and amortization ............................ 1,115 741 517
Deferred income taxes .................................... (921) (2,190) --
Equity compensation ...................................... 283 532 137
Tax benefit from employees' exercise of
stock options .......................................... 3,654 288 --
Changes in operating assets and liabilities:
Accounts receivable and accounts receivable --
related party ..................................... (5,216) (1,564) (1,106)
Prepaid expenses and other current assets ........... (909) (1,124) (417)
Accounts payable .................................... 553 52 496
Accrued expenses and accrued compensation ........... 3,117 736 908
Income taxes payable ................................ 46 951 --
Deferred revenue and deferred revenue
-- related party .................................. 4,152 4,121 2,017
------- ------- -------
Net cash provided by operating activities ..................... 15,413 8,796 3,306
------- ------- -------
Cash flows from investing activities:
Acquisition of business ....................................... (1,385) -- --
Purchases of property and equipment ........................... (2,952) (2,047) (743)
------- ------- -------
Net cash used for investing activities ........................ (4,337) (2,047) (743)
------- ------- -------
Cash flows from financing activities:
Proceeds from sale of common stock, net ....................... 2,857 303 26,704
Proceeds from notes receivable for common stock ............... -- 116 7
Proceeds from sale of convertible preferred stock, net ........ -- -- 161
Proceeds from long-term debt .................................. -- -- 358
Principal payments under long-term debt ....................... -- -- (1,067)
Acquisition of treasury stock ................................. (2) (3) --
------- ------- -------
Net cash provided by financing activities ..................... 2,855 416 26,163
------- ------- -------
Net change in cash and cash equivalents ....................... 13,931 7,165 28,726
Cash and cash equivalents, beginning of year .................. 40,428 33,263 4,537
------- ------- -------
Cash and cash equivalents, end of year ........................ $54,359 $40,428 $33,263
======= ======= =======
Supplemental cash flow information:
Income taxes paid ............................................. $ 2,666 $ 124 $ --
======= ======= =======
Interest paid ................................................. $ -- $ -- $ 66
======= ======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
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31
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
GeoTel Communications Corporation ("GeoTel" or the "Company") is a provider
of Computer Telephony Integration (CTI) software solutions focused on enhanced
voice and data routing technology that enables customer-oriented companies to
deliver responsive and cost-effective customer service. The Company's software
solutions are aimed at decentralized or service-oriented companies that use call
centers, voice response units, the Internet and other answering resources to
interact with their customers. Principal operations of the Company commenced
during 1995. The Company currently derives substantially all of its revenues
from software licenses and related services. The Company primarily markets its
products in the United States through a direct sales force, which is
complemented by strategic sales channels, selected resellers and international
partners.
B. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of GeoTel
Communications Corporation and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated. Certain prior year amounts have
been reclassified to be consistent with current year presentation.
Use of Accounting Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. The Company classifies its
investments as available-for-sale and states them at amortized cost plus accrued
interest, which approximates market value. Unrealized gains and losses as of
December 31, 1998 and 1997 were immaterial. Cash and cash equivalents consist of
the following (in thousands):
DECEMBER 31,
--------------------
1998 1997
------- -------
Cash ....................................... $ 2,375 $ 777
Commercial paper ........................... 32,035 38,269
Money market instruments ................... 474 1,382
US Government securities ................... 19,475 --
------- -------
Total cash equivalents ..................... $54,359 $40,428
======= =======
Income Taxes
The Company provides for income taxes under the liability method, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Under this method, a valuation allowance is
required against net deferred tax assets if, based upon the available evidence,
it is more likely than not that some or all of the deferred tax assets will not
be realized. Tax credits are generally recognized as reductions of income tax
provisions in the year in which the tax credits arise.
31
32
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over their
estimated useful lives as follows:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
Computer and lab equipment ............ 3 years
Furniture and fixtures ................ 3 years
Leasehold improvements ................ Shorter of lease term or
estimated useful life
Repairs and maintenance are charged to expense as incurred. Significant
improvements are capitalized and depreciated. Upon retirement or sale, the cost
of the assets disposed of and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in the results of
operations.
Revenue Recognition
The Company recognizes license fee revenues generally upon shipment unless
there are significant post-delivery obligations or collection is not reasonably
assured. When significant post-delivery obligations exist, typically, customer
acceptance criteria, revenues are deferred until no such significant obligations
remain. The Company recognizes revenue on customized software development
contracts based on reaching specified milestones under the terms of the
respective agreements. Where there is an arrangement which includes multiple
elements, revenue is allocated to the various elements based upon objective
evidence of fair-value and is recognized on an element by element basis. Service
and other revenues have consisted primarily of maintenance, installation and
professional services and training revenues. Maintenance revenues are recognized
ratably over the term of the support period, which is typically twelve months.
Installation and professional services and training revenues generally are
recognized when the services are performed. Amounts received prior to revenue
recognition and for prepaid maintenance revenue are classified as deferred
revenue.
Financial Instruments and Concentrations of Credit Risk
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, trade accounts receivable, accounts
payable, accrued expenses and other liabilities approximate fair value due to
their short maturities. The Company invests its excess cash primarily in highly
rated commercial paper and financial institutions, and does not hold any
derivative financial instruments.
Accounts receivable at December 31, 1998 and 1997 were comprised of a
limited number of customers. Six customer balances comprised 72% of the total
accounts receivable balance at December 31, 1998. Eight customer balances
comprised 94% of the total accounts receivable balance at December 31, 1997. To
reduce risk, the Company routinely assesses the financial strength of its
customers and, as a consequence believes that its trade accounts receivable
credit risk exposure is limited. The Company generally does not require
collateral and historically has not experienced significant losses on trade
receivables.
Research and Development
Research and development costs are charged to operations as incurred. The
Company capitalizes eligible software costs incurred after technological
feasibility of the product has been established. The Company achieves
technological feasibility when a working model has been established. To date,
costs eligible for capitalization have been immaterial and no costs have been
capitalized.
Net Income Per Common Share
Net income per basic common share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period, which includes vested restricted common stock. Net
income per diluted common share is computed based on the weighted average number
of common and dilutive common equivalent shares outstanding during each period.
Common equivalent shares consist of the Company's Preferred Stock, common stock
options and unvested restricted common stock outstanding in the period.
32
33
Acquisition
On December 16, 1998, the Company acquired, for approximately $2,000,000,
substantially all of the assets and assumed certain liabilities of Danar
Corporation ("Danar"), a network interface development and professional service
company. The acquisition was accounted for under purchase accounting and deemed
to be immaterial to the Company's operating results. The majority of the
purchase price was allocated to intangible assets, which will be amortized over
a four year life.
C. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
DECEMBER 31,
---------------------
1998 1997
------- -------
Computer and lab equipment ................ $ 4,862 $ 3,119
Furniture and fixtures .................... 594 173
Leasehold improvements .................... 1,522 734
------- -------
6,978 4,026
Less accumulated depreciation and
amortization ............................ (2,819) (1,704)
------- -------
$ 4,159 $ 2,322
======= =======
D. INCOME TAXES:
Certain items of income and expense are not reported in tax returns and
financial statements in the same year. The tax effects of these differences are
reported as deferred income taxes. Deferred tax assets and liabilities are
recognized for the expected future tax consequences, utilizing enacted statutory
rates applicable to future years, of temporary differences between the tax bases
of assets and liabilities. Deferred tax assets are recognized, net of any
valuation allowance, for the estimated future tax effects of deductible
temporary differences and tax operating loss and credit carryforwards. Deferred
tax expense (benefit) represents the change in the deferred tax asset or
liability balances.
The components of deferred tax assets at December 31, 1998 and 1997 were as
follows (in thousands):
DECEMBER 31,
----------------
1998 1997
------ ------
Deferred tax assets:
Allowance for doubtful accounts .................. $ 202 $ --
Capitalized start-up costs ....................... 399 159
Accrued expenses ................................. 625 532
Deferred revenue ................................. 669 --
Tax credits and other ............................ 11 72
------ ------
Subtotal current portion ......................... 1,906 763
------ ------
Depreciation and amortization .................... 446 248
Capitalized start-up costs........................ 572 1,179
Accrued expenses ................................. 187 --
------ ------
Subtotal long-term portion ....................... 1,205 1,427
------ ------
Deferred tax assets ................................ $3,111 $2,190
====== ======
The income tax provision (benefit) for 1998 and 1997 was comprised of the
following (in thousands):
1998 1997
------ -------
Current:
Federal .......................................... $5,390 $ 1,247
State ............................................ 908 115
------ -------
Total current .................................... 6,298 1,362
------ -------
Deferred:
Federal .......................................... (787) (1,622)
State ............................................ (87) (568)
------ -------
Total deferred ................................... (874) (2,190)
------ -------
Total .............................................. $5,424 $ (828)
====== =======
No income tax provision was recorded for federal income tax purposes for
the year ended December 31, 1996. A valuation allowance was recorded at December
31, 1996 to offset the entire net deferred tax assets as a result of the
uncertainties regarding the realization of these assets due to the Company's
limited history of operating profits. In the fourth quarter of 1997, the Company
33
34
determined that it was more likely than not that these tax assets will be
realized and, accordingly, eliminated the valuation allowance. The differences
between statutory federal income taxes and the provision (benefit) for income
taxes in 1998 and 1997 was as follows:
1998 1997
---- -----
Statutory federal income taxes ................. 35.0% 34.0%
State income taxes, net of federal
tax benefit ............................... 3.7 2.2
Tax benefit from research and
development credits ....................... (1.3) (2.8)
Non deductible expenses ........................ 0.9 1.2
Tax benefit of foreign sales
corporation ............................... (1.1) (1.0)
Other .......................................... 0.3 --
---- -----
Subtotal ....................................... 37.5% 33.6%
==== =====
Change in valuation allowance .................. -- (48.9)
---- -----
Total .......................................... 37.5% (15.3)%
==== =====
E. STOCKHOLDERS' EQUITY:
Initial Public Offering
The Company completed its IPO on November 20, 1996 and sold 4,930,000
shares of common stock at $6.00 per share, resulting in net proceeds, after
deducting underwriting discounts and expenses, of $26,704,000. In addition, the
Company's Board of Directors adopted and the stockholders approved an increase
in the number of authorized shares of capital stock from 21,788,615 shares to
45,000,000 shares, of which 40,000,000 shares have been designated as common
stock and 5,000,000 shares have been designated as preferred stock.
Common Stock
The Company effected a two-for-one stock split of its common stock, on
September 22, 1998 in the form of a 100% stock dividend, payable to shareholders
of record on August 31, 1998. All references to number of shares and to per
share information in the financial statements and related footnotes have been
adjusted to reflect the stock split on a retroactive basis.
Preferred Stock
The Company's Board of Directors has the authority, without further
stockholder approval, to issue such shares of preferred stock in one or more
series and to fix the relative rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series.
Net Income Per Common Share
The calculation of per share earnings is as follows:
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE FIGURES)
Basic:
Net income .................................................... $ 9,039 $ 6,253 $ 657
Weighted average common shares outstanding .................... 26,217,871 25,474,910 7,110,636
Net income per share, basic ................................... $ 0.34 $ 0.25 $ 0.09
=========== =========== ===========
Diluted:
Net income .................................................... $ 9,039 $ 6,253 $ 657
Weighted average common shares outstanding .................... 26,217,871 25,474,910 7,110,636
Common stock equivalents ...................................... 2,317,231 2,187,058 15,157,940
----------- ----------- -----------
Total weighted average shares outstanding ..................... 28,535,102 27,661,968 22,268,576
----------- ----------- -----------
Net income per share, diluted ................................. $ 0.32 $ 0.23 $ 0.03
=========== =========== ===========
34
35
Options to purchase 72,000, 204,000, and 395,300 shares of common stock
were outstanding at December 31, 1998, 1997 and 1996, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
for the respective periods. The option prices for these options were $37.75 for
options outstanding at December 31, 1998, range from $8.84 to $9.63 for options
outstanding at December 31, 1997, and range from $3.20 to $7.38 for options
outstanding at December 31, 1996. These options expire beginning in the year
2005 through 2008.
Restricted Stock Purchase Plan
The Company has adopted, and subsequently amended, a 1993 Restricted Stock
Purchase Plan (the "1993 Plan"), which provides for the issuance of common stock
to directors, officers, consultants and other key personnel at prices determined
by a Committee selected by the Board of Directors. Participants' unvested shares
are subject to repurchase by the Company at the original purchase price for up
to five years. Twenty percent of the shares vest on the first anniversary of the
date of purchase and, thereafter, the remaining shares vest on a monthly basis
through the fifth anniversary of the date of purchase. As of December 31, 1998,
the Company had the right to repurchase up to 225,548 unvested shares. Such
shares may be repurchased at the original purchase price ranging from $0.05 to
$0.09 per share. There are no shares available for further grant under the 1993
Plan. The shares outstanding at December 31, 1998 under the 1993 Plan have a
weighted average repurchase price of $0.07 per share.
Information related to the 1993 Plan is as follows:
DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES SHARE PRICE SHARES SHARE PRICE SHARES SHARE PRICE
--------- ----------- --------- ------------ --------- -----------
Outstanding at beginning
of year........................ 1,917,538 $0.07 1,972,286 $0.07 2,183,244 $0.07
Issued......................... -- -- -- -- 54,000 0.09
Repurchased.................... (12,250) 0.09 (54,748) 0.06 (264,958) 0.07
--------- ----- --------- ----- --------- -----
Outstanding at end of year..... 1,905,288 0.07 1,917,538 $0.07 1,972,286 $0.07
========= ===== ========= ===== ========= =====
1995 Stock Option Plan
The Company's 1995 stock option plan (the "1995 Plan") provides for the
issuance of incentive stock options and nonqualified stock options to eligible
employees, officers, directors and consultants to the Company. The options can
be granted for periods of up to ten years and generally vest ratably over a four
or five year period with initial vesting occurring on the first anniversary from
the grant date and then monthly thereafter. The maximum number of shares
authorized for issuance under the 1995 Plan increases each January 1, beginning
on January 1, 1997 by an amount equal to four percent of the total number of
shares of common stock issued as of the close of business on December 31 of the
preceding year, not exceeding 12,000,000 shares. In addition in 1996, the Board
of Directors adopted and stockholders approved the number of shares of common
stock available for grants under the 1995 Plan to be increased by the number of
shares repurchased by the Company from time to time under the 1993 Plan. At
December 31, 1998, 5,426,380 shares were authorized for issuance under the 1995
Plan. Effective January 1, 1999, the number of authorized shares was increased
to 6,527,671 shares. The option price for incentive stock options shall be the
fair market value at the time the option is granted. In the case of options
granted to a shareholder who at the time of grant owns, directly or indirectly,
stock possessing more than 10% of total combined voting power of any class of
stock of the Company, the exercise price of the options shall not be less than
110% of the fair market value of the common stock as of the date of grant.
In 1998, 1997, and 1996, options to purchase 240,000, 48,978, and 202,444,
respectively, were granted in conjunction with a management incentive program
approved by the Board of Directors. The management incentive program provided
cash and equity compensation to the participants if certain annual performance
criteria were achieved. Under this program, options in 1998 and 1996 were
granted at the beginning of the year at fair market value with vesting occurring
at the end of four or five years subject to one year accelerated vesting from
the grant date if certain annual performance criteria were achieved. A similar
plan was in place for 1997 except the option price was below fair market value
($0.005) and the initial vesting period was four years. The value of the options
granted below fair market value on the grant date was approximately $308,000.
The performance criteria were achieved in each of the years and vesting was
accelerated. Accordingly, $308,000 was recognized as equity compensation in
1997.
35
36
1998 Non-Executive Employee Stock Option Plan
In April 1998, the Board of Directors adopted the Company's 1998
Non-Executive Employee Stock Option Plan (the "1998 Plan"), which provides for
the issuance of nonqualified stock options to eligible employees of the Company.
The options can be granted for periods of up to ten years and generally vest
ratably over a four year period with initial vesting occurring on the first
anniversary from the grant date and then monthly thereafter. The maximum number
of shares originally authorized for issuance under the 1998 Plan was 1,000,000
shares. In December 1998, the Board of Directors increased the authorized shares
under the 1998 Plan to 2,000,000 shares. In December 1998, 75,000 shares were
granted below fair market value ($13.00).
Information related to the 1995 and 1998 Plans is as follows:
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ----------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
Outstanding at beginning
of year.................... 3,251,914 $ 4.31 1,815,592 $1.36 129,000 $0.12
Granted...................... 2,978,950 18.22 1,843,116 6.83 1,964,036 1.31
Canceled..................... (160,176) 7.78 (271,970) 3.67 (75,000) 1.24
Exercised.................... (559,652) 3.82 (134,824) 0.35 (202,444) 0.15
--------- --------- ---------
Outstanding at end of year 5,511,036 11.78 3,251,914 4.31 1,815,592 1.36
========= ====== ========= ===== ========= ====
The following information summarizes information concerning currently
outstanding and exercisable options:
EXERCISABLE
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE PRICE
- -------------------------------- ----------- ---------------- ---------------- ------- ----------------
$0.005 to $0.005................ 28,438 8.20 $ 0.005 28,438 $0.005
$0.090 to $0.150................ 819,106 5.50 0.149 404,425 0.150
$1.500 to $5.313................ 812,567 8.06 4.451 263,891 4.441
$5.905 to $8.000................ 552,243 8.58 7.283 113,775 7.246
$8.125 to $8.375................ 661,500 9.01 8.354 18,666 8.234
$8.435 to $12.375............... 770,532 9.02 10.654 84,351 8.964
$12.938 to $18.906.............. 655,300 9.51 15.643 0 0
$20.031 to $27.625.............. 262,100 9.70 23.364 0 0
$27.688 to $27.688.............. 765,300 9.96 27.688 0 0
$27.844 to $37.750 183,950 9.94 31.727 0 0
--------- --
Total........................... 5,511,036 8.56 11.778 913,546 3.250
========= =======
The Company had options that were exercisable into 913,546, 461,358 and
40,416 shares of common stock with weighted average exercise prices of $3.25,
$2.47 and $0.25 per share at December 31, 1998, 1997 and 1996, respectively. As
of December 31, 1998, 1997 and 1996, the Company had 347,924, 428,932 and
931,416 shares, respectively, available for future option grants under the 1995
Plan. As of December 31, 1998, the Company has 670,500 shares available for
future option grants under the 1998 Plan.
Certain employees have disposed of stock acquired through the exercise of
incentive stock options earlier than the mandatory holding period required for
such options. The tax benefits allowed to the Company because of these
dispositions, together with the tax benefits realized from the exercise of
nonqualified stock options, have been recorded as increases to additional
paid-in capital.
Employee Stock Purchase Plan
In 1996, the Company's Board of Directors adopted and the stockholders
approved the 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan"). The
1996 Purchase Plan covers substantially all employees. The 1996 Purchase Plan
covers an aggregate of up to 500,000 shares of common stock to be issued and
sold to participating employees of the Company through a series of six-month
offerings, beginning January 1, 1997. The 1996 Purchase Plan enables employees,
subject to a defined maximum percentage of base compensation and number of
shares, to purchase common stock at 85% of the lower of the fair market value of
the Company's common stock on the first or last day of each offering period. In
1998 and 1997, purchases of 64,928 and 56,290 shares, respectively, of common
stock generating proceeds of $450,000 and $318,000 were made under the 1996
Purchase Plan. At December 31, 1998 and 1997, 378,782 and 443,710 shares of
common stock were reserved for purchases under the 1996 Purchase Plan.
36
37
Stock-Based Compensation Plans
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
the 1995 Plan, 1998 Plan and the 1996 Purchase Plan. Accordingly, compensation
expense has only been recognized for its stock-based compensation plan for any
options granted below fair value of the common stock. In the year ended December
31, 1998, 1997 and 1996, the Company recorded approximately $1,103,000, $336,000
and $1,151,000, respectively, in unearned compensation for options to purchase
75,000, 111,516 and 1,349,160 shares, respectively, granted at exercise prices
below the fair value of the common stock. The weighted average exercise price of
options granted below fair value was $13.00 in 1998, $4.52 in 1997 and $2.49 in
1996. No options were granted below fair value prior to the year ended December
31, 1996.
The fair value of each option granted during 1998, 1997, and 1996 is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions:
1998 1997 1996
------- ------- -------
Dividend yield None None None
Expected volatility (post IPO) 64% 54% 60%
Risk-free interest rate 5.15% 6.0% 8.25%
Expected life 4 years 5 years 5 years
Weighted average fair value of options
granted at fair market value $ 9.73 $7.62 $0.30
Weighted average fair value of options
granted below fair market value at date
of grant $19.65 $9.16 $4.21
Had compensation cost for the Company's 1998, 1997, and 1996 stock option
grants, restricted stock grants and employee stock purchase plan activity been
determined consistent with Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation," the Company's net income (loss) per share would
approximate the pro forma amounts below:
NET INCOME (LOSS) EARNINGS (LOSS)
(IN THOUSANDS) PER SHARE
------------------- ------------------
BASIC DILUTED BASIC DILUTED
------ ------- ----- -------
As Reported:
$9,039 $9,039 $0.34 $0.32
1997 6,253 6,253 0.25 0.23
1996 657 657 0.09 0.03
Pro forma:
$4,441 $4,441 $0.17 $0.17
1997 5,646 5,646 0.22 0.21
1996 560 560 0.08 0.03
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
F. RETIREMENT SAVINGS PLAN:
In 1994, the Company adopted a Retirement Savings Plan (the "Savings Plan")
for its employees, which has been qualified under Section 401(k) of the Internal
Revenue Code. Eligible employees are permitted to contribute to the Savings Plan
through payroll deductions within statutory limitations and subject to any
limitations included in the Savings Plan. Contributions to the Savings Plan are
made at the discretion of Management. In 1998, the Company contributed $246,000
to the Plan. Prior to 1998, the Company had not made any contributions.
G. OPERATING LEASES:
The Company leases certain equipment and office space under operating
leases that expire through 2006. The Company entered into a sublease agreement
in February 1997 for office space for its new executive office in Lowell,
Massachusetts. The lease provided for 51,105 square feet, which increased by an
additional 15,885 square feet on January 1, 1999. The Company has the right,
with proper notice, to terminate this sublease at the end of the sixth year
(2003) of the sublease.
37
38
At December 31, 1998, future minimum annual lease commitments, including
operating costs, under operating leases are as follows (in thousands):
AMOUNT
-------
1999 $ 886
2000 845
2001 845
2002 896
2003 859
Thereafter 2,546
------
Total $6,877
======
Rent expense was approximately $724,920, $324,000, $170,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.
H. SIGNIFICANT CUSTOMERS AND RELATED PARTY TRANSACTIONS:
The Company is active in one business segment: a provider of CTI software
solutions focused on enhanced voice and data routing technology that enable
customer-oriented companies to deliver responsive and cost-effective customer
service. Revenues attributable to the Company's five largest customers accounted
for 49.2%, 54.1%, and 49.1% in 1998, 1997, and 1996, respectively. The following
table summarizes sales as a percentage of total revenue to significant customers
(more than 10% annually) for the year ended December 31, 1998, 1997, and 1996:
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
---- ---- ----
Related Party ................ -- 14%
Customer A ................... 14% -- --
Customer B -- 14% 11
Customer C ................... 21% 19 --
--- ---
Percentage of total revenue .. 35% 33% 25%
=== === ===
Export sales to the United Kingdom, New Zealand, Spain and Australia were
21%, 4%, 3% and 1%, respectively, in 1998. Export sales to Australia and the
United Kingdom were 14% and 19%, respectively in 1997 and 11% and 4%,
respectively in 1996.
In 1996, an investor who at the time owned over 10% of the Company's total
common shares outstanding, was also a customer of the Company. This customer's
purchases from the Company represented 14% of total revenues. Gross profit from
these transactions approximated those realized in similar transactions with
unrelated parties. At December 31, 1996, this investor's ownership percentage
was approximately 9% and at December 31, 1997 and 1998 this investor no longer
had a significant ownership percentage in the Company.
I. NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("FAS 133"). FAS 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999. FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in either
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction, and, if it is, the type
of hedge transaction. For fair-value hedge transactions in which the Company is
hedging changes in fair value of an asset, liability, or firm commitment,
changes in the fair value of the derivative instrument will generally be offset
in the income statement by changes in the fair value of the hedged item. For
cash flow hedge transactions, in which the Company is hedging the variability of
cash flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument that are
reported in other comprehensive income will be reclassified as earnings in the
periods in which earnings are impacted by the variability of the cash flows of
the hedged item. The ineffective portion of all hedges will be recognized in
current earnings. The Company does not believe that the adoption of this
statement will have a material effect on its financial statements.
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39
J. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------------------------
Q1 1998 Q2 1998 Q3 1998 Q4 1998
- ------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------
Revenues $7,778 $10,059 $12,088 $14,927
- ------------------------------------------------------------------------------
Gross profit 6,154 7,967 9,726 12,532
- ------------------------------------------------------------------------------
Net income 1,353 1,754 2,508 3,424
- ------------------------------------------------------------------------------
Net income per share, (diluted) $ 0.05 $0.06 $ 0.09 $0.12
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Q1 1997 Q2 1997 Q3 1997 Q4 1997
- ------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------
Revenues $3,187 $ 4,008 $ 5,159 $ 6,257
- ------------------------------------------------------------------------------
Gross profit 2,584 3,305 4,128 5,010
- ------------------------------------------------------------------------------
Net income 725 981 1,487 3,060
- ------------------------------------------------------------------------------
Net income per share, (diluted) $ 0.03 $ 0.04 $ 0.05 $ 0.11
- ------------------------------------------------------------------------------
39
40
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGE TO BALANCE AT
DESCRIPTION BEGINNING COSTS AND OTHER DEDUCTIONS END OF
PERIOD EXPENSES ACCOUNTS PERIOD
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998,
Allowance for doubtful accounts......... -- $500 -- -- $500
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
40
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GeoTel Communications Corporation:
In our opinion, the consolidated financial statements listed in the
accompanying index on page 26 present fairly, in all material respects, the
consolidated financial position of GeoTel Communications Corporation at December
31, 1998 and 1997, and the results of its consolidated operations and its cash
flows for each of the three years in the period ending December 31, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform our
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 18, 1999
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with accountants on any matter of accounting
principles, financial statement disclosure, or auditing scope or procedures
required to be reported under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or directors of the Company.
The executive officers of the Company, and their ages as of December 31,
1998, are as follows:
NAME AGE POSITION
---- --- --------
John C. Thibault.............. 45 President, Chief Executive Officer and
Director
Louis J. Volpe................ 49 Senior Vice President of Worldwide
Sales and Marketing and Director
Timothy J. Allen.............. 49 Vice President of Finance, Chief
Financial Officer, Treasurer and
Secretary
G. Wayne Andrews.............. 48 Vice President, Chief Technology
Officer
Judith A. Kelly............... 51 Vice President of Customer Service
Steven H. Webber.............. 54 Vice President of Engineering
- ----------
John C. Thibault has served as President, Chief Executive Officer and
Director of the Company since January 1994. From April 1991 to October 1993, Mr.
Thibault served as President, Chief Executive Officer and Director of Coral
Network Corporation. From April 1988 to April 1991, Mr. Thibault served as an
officer of Motorola, Inc. and Senior Vice President and General Manager of
Motorola's Codex product division. From May 1986 to April 1988, Mr. Thibault was
President and Chief Executive Officer of PBX manufacturer Intecom, Inc., a
subsidiary of Wang Laboratories. Prior to his position at Intecom, he held
several senior management positions over an 11-year period with Wang
Laboratories. Mr Thibault is a director of DSET Corporation, a publicly-traded
company.
Louis J. Volpe has been a Director of the Company since April 1998 and has
served as Senior Vice President of Worldwide Sales and Marketing of the Company
since May 1996. From February 1995 to April 1996, Mr. Volpe served as Vice
President of Marketing of the Company. Mr. Volpe served as Senior Vice President
of Marketing and Operations of Parametric Technology Corporation from May 1993
to January 1995 and as Vice President of Marketing and Operations from September
1989 to May 1993. Prior to Parametric, Mr. Volpe was an executive at Prime
Computer. He also serves on the board of a privately held company.
Timothy J. Allen has served as Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary of the Company since February 1995. From March
1990 to September 1994, Mr. Allen served as Vice President and Chief Financial
Officer of Object Design, Inc. From July 1988 to October 1989, Mr. Allen served
as Vice President of Finance and Chief Accounting Officer for Xyvision Inc. From
January 1983 to June 1988, Mr. Allen served as Xyvision's Corporate Controller.
Prior to joining Xyvision, Mr. Allen was Corporate Controller at Nixdorf
Computer Corporation.
G. Wayne Andrews, a co-founder of the Company, has served as a Director of
the Company since June 1993, as Vice President and Chief Technical Officer of
the Company since January 1994 and as President of the Company from June 1993 to
December 1993. From October 1989 to December 1992, Mr. Andrews was co-founder
and Vice President of Teloquent Communications Corporation. At Teloquent, Mr.
Andrews held positions as Vice President Product Management, Vice President
Engineering and Vice President
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Customer Support. Prior to co-founding Teloquent, Mr. Andrews was Director,
International Development Center, and Director, Advanced Switching Systems at
Teknekron Infoswitch Corp.
Judith A. Kelly has served as Vice President of Customer Service of the
Company since November 1997. From January 1996 to November 1997, Ms. Kelly
served as Director of Marketing Systems Integration for ADC Telecommunications,
Inc. Prior to her position at ADC Telecommunications, Inc. she held several
management positions over a 23-year period with Digital Equipment Corporation.
Steven H. Webber, a co-founder of the Company, has served as Vice President
of Engineering of the Company since October 1993. Prior to joining the Company,
Mr. Webber held a number of key technical and management positions with Stratus
Computer Inc., including Chief Technical Advisor and Director of Strategic
Planning. Prior to Stratus, Mr. Webber held a number of key technical positions
at Honeywell Information Systems, Inc. and at Massachusetts Institute of
Technology.
The information regarding directors set forth under the caption "Election
of Directors" appearing in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 12, 1999, which will be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 1998, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" and
"Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on May 12, 1999, which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1998, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" appearing in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on May 12, 1999,
which will be filed with the Securities and Exchange Commission not later than
120 days after December 31, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" appearing in the Company's definitive Proxy Statement for
the Annual Meeting of Shareholders to be held on May 12, 1999, which will be
filed with the Securities and Exchange Commission not later than 120 days after
December 31, 1998, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial Statements
The financial statements listed in the accompanying Index to Consolidated
Financial Statements and Schedule on page 26 are filed as part of this
report.
2. Schedule
The schedule listed in the accompanying Index to Consolidated Financial
Statements and Schedule on page 26 is filed as part of this report.
3. Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
4. Exhibits
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Documents listed below, except for documents identified by an asterisk, are
being filed as exhibits herewith. Documents identified by parenthetical numbers
are not being filed herewith and, pursuant to Rule 12b-32 of the General Rules
and Regulations promulgated by the Commission under the Securities Exchange Act
of 1934 (the "Act"), reference is made to such documents as previously filed as
exhibits with the Commission.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 By-Laws of the Company, as amended and restated.
*4.1 Specimen of Stock Certificate representing shares of Common Stock.
*10.1 Stock Purchase Agreement between the Company and the Investors named
therein, dated August 9, 1995.
*10.2 Amended and Restated Stockholders Agreement between the Company and
certain stockholders of the Company, dated August 9, 1995.
*10.3 Amended and Restated Founders Registration Rights Agreement between
the Company, G. Wayne Andrews, John C. Thibault and Steven Webber.
*10.4 Development/License Agreement between the Company and DANAR
Corporation, dated March 4, 1996.
*10.5 Software License and Technical Support Agreement between the Company
and MCI Telecommunications Corporation, dated as of June 17, 1996.
*10.6 Software License and Distribution Agreement between the Company and
Optus Systems PTY Ltd. dated as of March 29, 1996.
*10.7 Office lease by and between Nationwide Life Insurance Company and the
Company, dated as of November 22, 1996.
*10.8 Loan Modification Agreement between the Company and Silicon Valley
Bank, dated September 11, 1996.
*10.9 Letter Agreement between Silicon Valley Bank and the Company, dated
September 11, 1996.
*10.10 Letter Agreement between Silicon Valley Bank and the Company, dated
May 1, 1995.
*10.11 Letter Agreement between Silicon Valley Bank and the Company, dated
May 18, 1994.
*10.12 Promissory Note executed by the Company in favor of Silicon Valley
Bank, dated March 1, 1996.
*10.13 Executive Change in Control Agreement between the Company and
Timothy J. Allen, dated September 26, 1996.
*10.14 Executive Change in Control Agreement between the Company and G.
Wayne Andrews, dated September 26, 1996.
*10.15 Executive Change in Control Agreement between the Company and John C.
Thibault, dated September 26, 1996.
*10.16 Executive Change in Control Agreement between the Company and Louis
J. Volpe, dated September 26, 1996.
*10.17 Executive Change in Control Agreement between the Company and
Steven H. Webber, dated September 26, 1996.
****10.18 GeoTel Communications Corporation Second Amended and Restated 1995
Stock Option Plan.
*10.19 GeoTel Communications Corporation 1993 Restricted Stock Purchase
Plan.
10.20 GeoTel Communications Corporation 1996 Employee Stock Purchase Plan.
**+10.22 Software Agreement Incorporating Licensing Rights between the Company
and Digital Equipment Co., Limited, dated December 1, 1996
**10.23 Sublease Agreement between the Company and National Medical Care,
Inc. d/b/k Fresenius Medical Care-North America dated February 7,
1997.
***10.24 First Sublease Amendment between National Medical Care, Inc. d/b/k
Fresenius Medical Care-North America dated October 29, 1997.
10.25 Second Amended and Restated 1998 Non-Executive Employee Stock Option
Plan.
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on the signature pages of the Annual
Report on Form 10-K).
27.1 Financial Data Schedule
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45
- -----------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission (Reg.
No. 333-13263).
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
**** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998.
+ Confidential Treatment Requested.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, Commonwealth of Massachusetts on the 24th day of March, 1999.
GEOTEL COMMUNICATIONS CORPORATION
By: /s/ TIMOTHY J. ALLEN
----------------------------------
TIMOTHY J. ALLEN
VICE PRESIDENT OF FINANCE, CHIEF
FINANCIAL OFFICER, TREASURER AND
SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John C. Thibault President, Chief Executive Officer March 24, 1999
- -------------------------------------- and Director (principal executive officer)
JOHN C. THIBAULT
/s/ Timothy J. Allen Vice President of Finance, Chief Financial Officer, Treasurer March 24, 1999
- -------------------------------------- and Secretary (principal accounting and financial officer)
TIMOTHY J. ALLEN
/s/ Louis J. Volpe Senior Vice President of Worldwide Sales and Marketing March 24, 1999
- -------------------------------------- and Director
LOUIS J. VOLPE
/s/ Alexander V. d'Arbeloff Director March 24, 1999
- --------------------------------------
ALEXANDER V. d'ARBELOFF
/s/ Gary Bowen Director March 24, 1999
- --------------------------------------
GARY BOWEN
/s/ Gardner C. Hendrie Director March 24, 1999
- --------------------------------------
GARDNER C. HENDRIE
/s/ W. Michael Humphreys Director March 24, 1999
- --------------------------------------
W. MICHAEL HUMPHREYS
46