-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0216xsh8ZkrVDvTKU+s3mTL8X4xU/qK/HQtpsbF+18V0fMHZvXXRoiIHWrVp7Pp 5tAcjO3H5q6mjH/If2jDWQ== 0000891020-98-000478.txt : 19980401 0000891020-98-000478.hdr.sgml : 19980401 ACCESSION NUMBER: 0000891020-98-000478 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOSAIX INC CENTRAL INDEX KEY: 0000853266 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 911273645 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-18511 FILM NUMBER: 98582475 BUSINESS ADDRESS: STREET 1: 6464 185TH AVE NE CITY: REDMOND STATE: WA ZIP: 98052-5032 BUSINESS PHONE: 2068817544 MAIL ADDRESS: STREET 1: 6464 185TH AVENUE NE CITY: REDMOND STATE: WA ZIP: 98052-5032 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K405 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-18511 MOSAIX, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ WASHINGTON 91-1273645 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.) OR ORGANIZATION) 6464 185TH AVENUE N.E REDMOND, WASHINGTON 98052 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 881-7544 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common stock held by nonaffiliates of the registrant as of February 23, 1998 was $119,717,920 (based on the closing sale price of $9.75 per share on the Nasdaq National Market on such date). The number of shares outstanding of the registrant's common stock, $0.01 par value per share as of February 23, 1998 was 12,278,761. DOCUMENTS INCORPORATED BY REFERENCE PART III of this Form 10-K incorporates information by reference from the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year. ================================================================================ 2 MOSAIX, INC. TABLE OF CONTENTS PART I Item One Business.................................................... 1 Item Two Properties.................................................. 9 Item Three Legal Proceeding............................................ 10 Item Four Submission of Matters to a Vote of Security Holders......... 10 PART II Item Five Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 11 Item Six Selected Financial Data..................................... 11 Item Seven Management's Discussion and Analysis of Results of Operations and Financial Condition.......................... 12 Item Eight Financial Statements and Supplemental Data.................. 21 Item Nine Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 21 PART III Item Ten Directors and Executive Officers of the Registrant.......... 21 Item Eleven Executive Compensation...................................... 21 Item Twelve Security Ownership of Certain Beneficial Owners and Management.................................................. 21 Item Thirteen Certain Relationships and Related Transactions.............. 21 PART IV Item Fourteen Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 22
i 3 PART I ITEM ONE BUSINESS Mosaix, Inc. and subsidiaries (hereinafter referred to as "Mosaix" or the "Company") is a global provider of call management systems and customer relationship management applications that enable companies to acquire, retain, and develop customer relationships. With these products, companies can integrate sales, marketing, and customer services applications in their call centers with back-office applications throughout the enterprise. The three product areas include call management systems (CMS), agent effectiveness applications (AEA), and customer relationship management (CRM) applications. These product offerings constitute Mosaix's business solutions and are collectively referred to as Enterprise Customer Management (ECM) solutions. Mosaix call management systems are sophisticated enterprise-wide systems for processing and managing outbound and blended inbound/outbound telephone communications. These enterprise-wide predictive dialing applications allow customer information to be captured and correlated with a telephone call and quickly routed to the right person equipped to manage the customer relationship. With its technology of intelligently predicting the availability of the next agent available to manage a phone call, either inbound or outbound, Mosaix can optimally improve call center efficiencies. Mosaix offers a broad range of professional services and support for these call management systems. In addition, Mosaix also develops applications designed to enhance the effectiveness of call center agents once they receive the phone call. Known as agent effectiveness applications, these products and services lead an agent through a conversation presenting key information along the way. Mosaix call management systems are found in a broad range of industries, including financial services, credit card and consumer collections, telecommunications and utilities, retail, cable television, healthcare, fundraising, education and telemarketing. Customer relationship management applications are client/server-based software that enables customers to automate and integrate customer-facing business processes beginning in the call center and extending across the enterprise. This occurs through the implementation of the Company's workflow software which is a family of integrated software modules that provide a complete framework for rapidly designing, developing, and deploying customer-centric workflow applications across the enterprise. The workflow software allows for fulfillment processes, or back-office functions, to be tightly integrated with multiple channels of interaction used by consumers to communicate with corporations. Whether it be the telephone or the Internet, Mosaix CRM software will intelligently manage a customer contact in the most efficient and effective manner by matching the needs of the customer with the corresponding resources of a company. These solutions are used in a wide variety of applications, including consumer and mortgage lending, claims processing, underwriting, trust management, contract management, accounts payable, and customer service. Headquartered in Redmond, Washington, Mosaix has sales offices in Alameda and Costa Mesa, California; Wilmington, Delaware; Atlanta, Georgia; Chicago, Illinois; Rockville, Maryland; New York, New York; Charlotte, North Carolina; Cleveland, Ohio; Dallas, Texas; and near London, England. Additionally, Mosaix has established value-added reseller relationships in North America, Asia, South America, Africa and Europe. Mosaix, a Washington corporation, was incorporated in 1984. INDUSTRY BACKGROUND Over the past ten years, businesses and other organizations have increasingly used dedicated centers for processing and managing high volumes of incoming and outgoing telephone traffic. Call centers have been used extensively in such fields as credit card and consumer collections, catalog sales, telemarketing and customer service. In these call centers, activities such as placing and receiving telephone calls are linked to the computer functions of relational database management to capture, store and report on relevant customer information. As the importance of call centers has increased and as more functions and capabilities have been combined, a parallel industry has emerged to create and support the evolution of call centers. The industry 1 4 includes vendors who deliver systems, software and services that are designed to make call centers efficient, effective and well matched to the broader corporate mission of the enterprise. Call Centers are transforming from functional cost centers to strategic "profit centers" as their mission evolves to become highly integrated customer interaction and fulfillment centers that can handle multiple channels of communication. These multiple channels include correspondence, documents, faxes, e-mail, Internet calls, as well as traditional telephony contact. This resulting shift places a higher value on customer care as the primary call center mission. Typically, the call center is the primary "hub" within an organization for placing or receiving a large volume of customer calls. Customer Service Representatives (CSRs) or Agents are the call center's workforce responsible for working with customers to meet their needs in a variety of areas including reservations, product information, service requests, order fulfillment, account information and problem resolution. The communication objectives are as varied as the businesses that employ call centers as part of their marketing and/or services strategy. Mosaix believes that the call center has become a strategic business asset as well as the logical point of integration for customer communications within the enterprise. Call centers can range in size from fewer than five agents in one location to thousands of agents in multiple locations, networked together via computer and telecommunications systems. With the significant variability of call center sizes and call handling objectives, the industry relies on a variety of suppliers to provide product and service solutions to address their business and communication needs. Today these product and service solutions include: - Customer premise telephone call routing and switching systems (ACDs and PBXs) - Computer Telephony Integration (CTI) software which brings together data and voice - Application software to enhance, facilitate and manage inbound and outbound customer communications - Agent coaching and counseling software tools - Reporting tools to measure and report on agent effectiveness and overall system performance - Peripheral products (headsets, speakers, video displays) - Voice mail and interactive voice response (IVR) systems, which enable callers to access information in an organization's computer database via touch-tone dialing - Computer networking and communications systems, including e-mail and Internet access systems - Database/back office information processing systems BUSINESS PROCESS AUTOMATION IN THE CALL CENTER. The growth of client/server computing has also had a dramatic effect on the call center industry and has fueled the need for applications that process and manage unstructured as well as structured data. Structured data, such as financial or inventory data, are typically stored in the rows and columns of databases. Traditional relational database systems and their underlying technologies are not designed to manage the increasing complexity and variety of the information content and transaction requirements inherent in most business processes. According to some industry reports, as much as 80% of corporate data is unstructured, consisting of imaged documents, faxes, electronic documents, forms, mainframe-generated reports, digitized voice messages, electronic data interchange (EDI) records and World Wide Web (Web) documents. For example, customer service agents as well as loan officers who process loan applications need access to a variety of structured data, such as customer and product information, and unstructured data, including images of applications, credit reports, credit analysis spreadsheets and other documents. The ability to access, manage and process all relevant information content, including the seamless integration of structured and unstructured data, has emerged as a key requirement for call centers today. 2 5 Initial efforts to automate data-intensive processes began with electronic imaging technologies in the late 1980's. These early image-processing products provided on-line equivalents to paper-based storage and management of business information. These systems focused primarily on storage and retrieval applications and were generally only available on dedicated, expensive and proprietary platforms. Workflow technology emerged first with the development of rigid and highly customized software that addressed transaction-based applications focused on the automated routing of document images and related information. Although this software generated significant benefits both in improved operational efficiency and cost reductions, implementations were costly, limited in scope and difficult to change. At the same time, document management emerged as a means for managing electronic documents and certain other types of unstructured business information. While these solutions provide significant benefits by allowing an enterprise access to documents, document management systems do not generally address the fundamental need to improve business processes. This has resulted in growing market demand for solutions that combine sophisticated business process functionality with the ability to seamlessly manage both structured and unstructured business information. These Business Process Automation (BPA) applications were the next step for workflow and document management offerings. With the availability of the Internet and intranets, companies have also recognized the opportunity to provide their employees, business partners, and customers with even greater access to business information. By combining BPA and document management with Internet and intranet technologies, companies will be able to significantly broaden access to automated business processes within their enterprises. They will extend the reach and value of BPA to include business transactions with their partners and customers beyond their internal enterprise. As a result, businesses now seek next-generation business process automation solutions that include Internet and intranet capabilities. SERVICE LEADERSHIP. As companies face increasing pressure to retain and grow their customer base, corporate call centers, real or virtual, are emerging as a strategic weapon in the fight for customer loyalty and increased revenue. The new directive calls for more than efficiency; the call center must be effective in managing customer relationships. Corporate demand is on the rise for systems that foster customer relationships and that create a competitive advantage. This demand is driving the need to integrate telephony and computer-based applications to provide a "360-degree view" of customer attributes and account history. PRODUCTS CALL MANAGEMENT SYSTEMS (CMS). Mosaix Call Management Systems are the Company's UNIX-based suite of combined hardware and software systems used for the processing and management of a call center's inbound and outbound telephone activity. Integrating directly with an organization's existing telecommunications system and customer databases, the Mosaix CMS processes and manages inbound, outbound, and blended inbound/outbound customer contacts. Typical functions provided by Mosaix products for outbound calling include: acquiring, reviewing and organizing customer data; automatically dialing phone numbers quickly; monitoring, interpreting and acting upon each telephone call's progress; programming redials at the appropriate time and rate; routing live voice responses immediately to an operator; and posting and reporting record updates. For customers who want to efficiently manage incoming as well as outgoing telephone calls, Mosaix's Intelligent Call Blending technology allows call centers to blend their inbound (ACD) and outbound (Mosaix systems) call activity into a single environment, automatically moving calls between inbound and outbound agents to optimally handle call center traffic. Mosaix currently has three call center products available: the Mosaix 5000, Mosaix 4000 and Mosaix 3000 Call Management Systems. The Mosaix 5000 is the Company's most advanced system and is scaleable to 150 outbound workstations and 300 lines. The Mosaix 5000 performs all of the standard functions described above and, in addition, has Proactive Agent Blending, a patented technology that uses sophisticated algorithms to anticipate call volumes and to move agents before the expected inbound and outbound call workloads 3 6 actually occur. The Mosaix 4000 is similar to the Mosaix 5000 though limited to 60 outbound workstations and 180 lines with no predictive blend capabilities. The Mosaix 3000 is a limited-functionality predictive dialing solution designed for the Company's Value Added Reseller Channel. In order to help companies more effectively manage their call centers, Mosaix has also developed a variety of software products that work exclusively with the Mosaix CMS. Campaign Director, which ships with Mosaix systems, provides customers with the ability to create campaigns using a Microsoft Windows-based point and click interface. Campaign Director is also used to monitor, on a real-time basis, the status of the campaign and the effectiveness of the agents, and to make changes while the campaign is in process. Producer is a sophisticated configuration tool that enables customers to dynamically manage the operation and system parameters of their Mosaix CMS. Producer allows customers to record voice messages, design wait queues, edit agent function keys, and create and modify completion codes using a simple-to-use PC based software solution. Campaign Surfer is an Internet browser-based tool that enables a company or a company's customers to view information about calling campaigns and agent performance from virtually anywhere over the Internet; and Agent API simplifies the creation and maintenance of custom agent interfaces, which allow agents access to disparate information they need to more effectively serve customers. Mosaix also provides Campaign Analyst and Guide, software products that work with Mosaix systems or call management systems provided by Mosaix's competitors. Campaign Analyst software produces detailed reports, integrating statistics from various vendor products, including the ACD/PBX (telephone switch), the IVR system, host computer, dialer and other applications. It can also integrate with other software programs, such as payroll or executive reporting systems. This product is designed to assist call center managers in reviewing the performance of multiple call center systems by integrating and normalizing raw data and generating key statistics. Analyst also includes features that allow managers to establish goals for their agents as well as extracting data which can be utilized by other software programs. An example might be to generate an extract of all agent hours for use in the payroll system or an extract of system performance information to be placed into an executive presentation document. As part of the AEA product line, Guide is designed to allow a call center supervisor to control the content and flow of each customer contact. Call guides (or scripts) for call center employees have historically been programmed by the vendor or by application specialists, with any changes requiring system shut down and reprogramming. By contrast, Guide allows call center supervisors with minimal programming skills to design and maintain complex, sophisticated scripts without relying on the vendor or third party application specialists. Supervisors can modify scripts as necessary -- even mid-campaign -- providing increased flexibility and enabling the organization to tailor scripts based on agent skill levels and campaign objectives. All of the Company's currently shipping CMS products are year 2000 compliant. In addition, whenever possible, the Company has made system upgrades available to certain existing customers, that along with related hardware upgrades, will enable them to be year 2000 compliant. The Company does have some customers who have purchased systems in the past, where a hardware upgrade is not available to allow the customer to become year 2000 compliant and a complete system change will be the only way for these customers to become year 2000 compliant. Management does not expect the year 2000 to have a material impact on the operations of the Company. The Mosaix 4000 and 5000 CMS and related software products are marketed through Mosaix's telesales and direct sales force as well as a worldwide network of strategic partners. The Mosaix 4000 and 5000 are designed for mid- and high-end financial services, telecommunications, insurance, and telemarketing customers. The Mosaix 3000 and related software are sold by Mosaix's domestic and international value-added reseller network, who focus on small and medium-sized collections bureaus, telemarketing service bureaus, and internal telemarketing, telesales, and teleservicing departments. Mosaix's CMS are used in a broad range of industries, including financial services, credit card and consumer collections, insurance, telecommunications, utilities, retail, cable television, healthcare, fundraising, education and telemarketing. Historically, the majority of sales has been to the financial services and telecommunications industries. 4 7 CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE (CRM). Customer Relationship Management Software is an enterprise-class, client/server application framework that is built on Windows NT and utilizes Microsoft's enterprise-computing architecture. It is designed to automate customer-facing business processes and integrate structured and unstructured data, including imaged documents, faxes, electronic documents, forms, mainframe-generated reports, digitized voice messages, EDI records, and Web documents. In addition, this software will intelligently manage telephone calls and the systems that route those calls. The current version of CRM Software is ViewStar 5.0 and it is year 2000 compliant. ViewStar 5.0 is comprised of the following four components : Process Architect -- Mosaix's visual workflow and process modeling application framework that enables interactive definition, configuration and deployment of complex business processes. Using Process Architect, business analysts and application designers can define work content, business rules, workflow maps and user roles and activities. Process Architect provides a library of predefined business functions and reusable tasks that can be easily configured to create a workflow map representing the business process from the interaction in a call center to the back-office fulfillment of a customer's request. Through Process Architect's simulation feature, "what if" analyses of the throughput can be undertaken and bottlenecks predicted. Process Architect can also be used to dynamically change the business process and automatically rebuild the application with little impact on down-time or re-training. Application Designer -- Predefined application frameworks that can be "snapped together" to meet specific user, application, and job function requirements and that facilitate rapid application delivery. Components such as workflow tasks, user activities, and document operations are stored in object libraries and made available for selection and reuse through a standard Windows-based graphical interface. In addition, Application Designer provides pre-configured application templates for the most-requested users roles and job functions, such as document access and display, workpacket creation and indexing, document workflow processing, exception case handling, and legacy system integration. Business Process Interface ("BPI") -- A set of Object Link Embedding ("OLE") automation interfaces that enables the creation of workflow tasks and user applications using any OLE 2.0-compliant visual programming environments. BPI consists of high-level automation objects and a set of OLE customer controls. Any third-party development tool that supports OLE 2.0, such as Visual Basic, Visual C++, Delphi and PowerBuilder, can be used with BPI. In addition, BPI's OLE-based component architecture enables integration with third-party components, including document and data capture subsystems, 3270emulation packages for accessing mainframe data, and personal productivity applications, such as Microsoft Word or Excel. Call Center Edition. -- The CTI solution set which provides the functionality required to intelligently manage telephone calls and interfaces with telephony systems. By integrating with an IVR or ACD, ViewStar 5.0 allows companies to apply consistent business logic in managing calls just like any other piece of work. Information captured about the caller is compared with customer information from a company's disparate data repositories across the enterprise and is used to determine the appropriate resources needed to address that caller's requirements. System administration times are greatly reduced and training requirements are simplified. The Call Center Edition also provides the ability to present call-control tasks at the agent's desktop in conjunction with the workflow functions relating to the business process at hand. SERVICES PROFESSIONAL SERVICES Mosaix's professional services group provides fee-based business process consulting and computer/ telephony integration (CTI) services. This group helps clients plan, budget, design and implement new business processes and technologies with the goal of improving customer management and call center workflow. This group also utilizes its network of service providers and system integration partners to provide 5 8 customers with a broad range of application development, systems planning, configuration, and system integration services. CUSTOMER SUPPORT AND SERVICES Mosaix believes that customer service and support are an integral part of its strategy. Service capability, availability and responsiveness play an important role in marketing and selling its products. This is particularly true as the mission critical nature of the products and services and technological complexity increases. Mosaix earns system and software support fees by providing ongoing support and training for all of its CMS products. Mosaix offers a full range of product support options, including telephone support from "normal business hours" to "24 hours a day" and on-site response from the "next-half-day" to "immediate service (four hours or less)." CMS support representatives are able to service customer call center systems on a remote basis from the customer support center in Redmond, Washington and London, England. If needed, CMS support representatives will dispatch on-site support, which is provided by IBM in North America and the United Kingdom. Mosaix charges separate fees to upgrade CMS products to the latest version when a new product is released. Mosaix earns other fees by providing, upon customer request, certain special services, such as system relocation and additional training. The Company has CMS training facilities located in Redmond, Washington and at the principal office of its subsidiary in the United Kingdom. Customer support for the CRM is provided by customer support representatives in Alameda, California and London England. Fees are generally charged on an annual basis and include upgrades to the latest version when a new product is released. Mosaix earns other fees by providing, upon customer request, certain special services, such as additional training. PRODUCT DEVELOPMENT Mosaix engineers continue to develop new products and new applications of existing products that will improve the unique enterprise customer management missions of Mosaix's customers. In recent years, Mosaix increasingly has focused its development efforts on client/server, Windows NT-based and Internet-enabled software solutions that address issues and challenges facing call centers and workflow processes. Mosaix releases new features and enhancements to existing products, new products and new services on an ongoing basis. Mosaix supplements its product development efforts by reviewing customer feedback on existing products and working with customers and potential customers to anticipate future functionality requirements. Product development efforts are directed at increasing product functionality, improving product performance, and expanding product capabilities to shorten the application development and deployment cycle and further leverage the Microsoft Windows NT platform. Mosaix continues to identify and prioritize various technologies for potential future product offerings. Mosaix has committed and expects to continue to commit substantial resources to research and development. In 1997, 1996, and 1995, research and development expenses were $15.2 million, $14.9 million and $13.1 million, respectively, net of capitalized software development costs. During the same periods, Mosaix capitalized $0.3 million, $1.0 million and $2.2 million, respectively, of software development costs. The Mosaix CMS and Guide products have been localized for sale in the Japanese market. The ViewStar System has been double-byte enabled for sales in the Japanese and Korean markets. MANUFACTURING Mosaix's manufacturing operations for CMS products are primarily performed by an independent third party on a turnkey basis. The third party contracts with other vendors for components and subassemblies. Mosaix's CMS suppliers maintain quality control by subjecting components and subassemblies to rigorous testing, including in-circuit automated testing. Mosaix's manufacturing operations for CRM products are performed in-house and consist mainly of CD disk duplication. 6 9 SALES AND MARKETING Mosaix markets its CMS and CRM products and services through a direct sales force operating from Mosaix's headquarters in Redmond, Washington and offices in Alameda and Costa Mesa, California; Wilmington, Delaware; Atlanta, Georgia; Chicago, Illinois; Rockville, Maryland; New York, New York; Charlotte, North Carolina; Cleveland, Ohio; Dallas, Texas; New York, New York; and near London, England. Mosaix also has established value-added reseller relationships in North and South America, Asia, Africa, and Europe. COMPETITION The market for Mosaix's products and services is highly competitive. Important competitive factors include price, performance, diversity of product line, reliability, delivery capabilities, and customer service and support. Mosaix's principal competitors in the outbound call management systems market include Davox Corporation, EIS International, Inc. and Melita Electronic Labs. The potential entry into the market of major ACD and PBX suppliers (suppliers of customer-premise call routing and switching systems) also presents a strong competitive threat. These companies may elect to acquire or align with Mosaix's competitors, increasing their market presence and distribution; resell principal competitors' products; or elect to develop and market their own predictive dialing application software. As Mosaix expands its CMS offerings, it may also encounter increased competition from call center application providers such as Information Management Associates and Versatility. The traditional competition for horizontal workflow technology has been workflow software vendors, including direct competition from a number of public and private companies or divisions thereof, including Filenet, IBM, Action Technologies, Staffware, Optika, and Eastman Kodak. As ViewStar 5.0 extends its value into the customer management market space, it will face competition from new competitors, including process-oriented applications vendors such as Pegasystems, Chordiant, and DST. Mosaix's CRM applications may encounter competition from a number of customer management focused software companies including, Edify Corporation, Remedy Corporation, and Seibel Systems. Certain of these companies have announced and others may announce document workflow capabilities for their existing or future products. Mosaix relies on a number of system integration firms for implementation and other services as well as recommendations of its products during the evaluation stage of the purchasing process. Although Mosaix seeks to maintain close relationships with these service providers, many of these third parties have similar, and often more established relationships with Mosaix's principal competitors. If Mosaix is unable to develop and retain effective, long-term relationships with these third parties, Mosaix's competitive position would be materially adversely affected. See "Forward Looking Statements-Risk Factors Regarding Future Performance -- Competition" in Item Seven. INTERNATIONAL OPERATIONS Mosaix's sales to customers in international markets outside the United States comprised approximately 26.4%, 19.0% and 18.9% of total revenue in 1997, 1996, and 1995, respectively. In most cases, Mosaix markets its products and services internationally through value-added resellers. 7 10 The following table sets forth certain information relating to Mosaix's foreign and domestic operations for the years ended December 31, 1997, 1996, and 1995.
1997 1996 1995 -------- -------- ------- Revenue -- U.S. operations: United States........................... $ 89,153 $ 94,870 $75,593 United States export.................... 14,477 12,083 12,289 Revenue-foreign subsidiaries.............. 17,514 10,228 5,366 -------- -------- ------- $121,144 $117,181 $93,248 -------- -------- ------- Operating income: U.S. operations......................... $ 8,045 $ 4,235 $ 1,355 Foreign subsidiaries.................... 3,936 1,867 382 Eliminations............................ (215) 130 121 -------- -------- ------- $ 11,766 $ 6,232 $ 1,858 -------- -------- ------- Assets: U.S. operations......................... $ 74,725 $ 85,235 $90,597 Foreign subsidiaries.................... 9,653 5,528 2,974 -------- -------- ------- $ 84,378 $ 90,763 $93,571 ======== ======== =======
SEASONALITY Mosaix's quarterly operating results may be subject to seasonal influences. The Company generally has realized lower revenues in the first quarter of the year than the immediately preceding quarter. The Company believes that this has been due primarily to the concentration by some customers of larger capital purchases in the fourth quarter of the calendar year to avoid end-of-year budgetary limitations, followed by lower purchasing activity during the first quarter of the next calendar year. Further, to the extent that international operations in the future constitute a higher percentage of total revenues, the Company anticipates it will experience relatively weaker demand in the quarter ending September 30 due to reduced customer activity in Europe during the summer months. REGULATORY ENVIRONMENT Mosaix's CMS hardware and software products are subject to and conform with FCC regulations under the Communications Act of 1934. Future products developed by Mosaix also may be required to comply with certain registration and technical requirements before they can be sold in the United States. As Mosaix expands its operations in other countries, its products will become subject to regulation by foreign governments. While existing industry regulation does not directly regulate the manufacture and sale of Mosaix's call management products, certain existing laws and regulations may affect the ability of Mosaix's customers to utilize some of its product in certain ways. For example, Mosaix's call management systems may not be used for certain prohibited debt collection and remote telephone solicitation practices, nor may they be used under certain circumstances to leave or play artificial or prerecorded messages. These practices are governed by such federal laws as the Telephone Consumer Protection Act of 1991 and the Telemarketing and Consumer Fraud and Abuse Prevention Act, which authorize the FCC and Federal Trade Commission, respectively, to issue additional regulations and administer such laws. In addition, most states have enacted legislation limiting certain telephone solicitation practices or restricting use of automatic dialing and announcement devices. Other federal and state legislation that has been proposed from time to time include bills that would, if enacted, recognize certain privacy rights of employees at the work site and regulate the ability of employers to monitor job performance, including monitoring employees' telephone communication or gathering information regarding such communications. It is possible that such legislation or other legislation, if enacted, might directly or indirectly affect how Mosaix's products can be used. 8 11 Mosaix fully supports legislation designed to promote the responsible use of auto dialing equipment, and laws which otherwise restrict abusive collections or telemarketing activities. Mosaix endeavors to design its products to enable its customers to comply with the requirements of current and anticipated regulations. PROPRIETARY RIGHTS As new products are identified and created, Mosaix has sought, and will continue to seek, patent protection, where appropriate, for inventions arising out of its development efforts. On March 30, 1992, U.S. Patent (No. 5,101,425) was issued to Mosaix on Realtime Monitor, a device enabling real time monitoring of predictive dialing systems. On November 14, 1995, Mosaix obtained a U.S. Patent (No. 5,467,391) on its Integrated Intelligent Call Blending technology, which describes a system and method for sharing a pool of CSRs in a telephone call servicing operation so that CSRs are utilized effectively. Mosaix also intends to pursue, where appropriate, patent protection for these inventions in the international markets where they are offered. Although Mosaix has not registered its copyrighted software, such software is protected by copyright and trade secret laws. In addition, Mosaix enters into confidentiality agreements with certain of its employees, consultants, distributors, value-added resellers and customers; limits access to and distribution of its software, documentation and other proprietary information; and enters into noncompete agreements with certain of its employees. Mosaix further seeks the protection of trademark registration in the United States and various foreign jurisdictions for certain of its product trademarks including Adapts, Analyst, Campaign Director, Campaign Manager, Infostore@Work, Mosaix, Predictive Blend, Producer, Process Architect, Screenbuilder, Searchlink, the Foresight Report and ViewStar. Despite Mosaix's efforts to protect its proprietary rights, unauthorized parties may attempt to copy Mosaix's products or to obtain and use Mosaix's proprietary information. Policing unauthorized use of Mosaix's products is difficult, and since Mosaix is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect Mosaix's proprietary rights to as great an extent as the laws of the United States. There can be no assurance that Mosaix's means of protecting its proprietary rights will be adequate or that competitors will not independently develop similar technology. Mosaix also relies on certain software licensed from third parties, including software that is integrated with internally developed software and used in the Company's products to perform key functions. There can be no assurance that such third parties will remain in business, that they will continue to support their products or that their products will otherwise continue to be available to Mosaix on commercially reasonable terms. The loss or inability to maintain any of these software licenses could materially adversely affect the Company's business. See "Forward Looking Statements-Risk Factors Regarding Future Performance -- Dependence on Proprietary Rights; Infringement Claims; Uncertainty of Obtaining Licenses" in Item Seven. EMPLOYEES As of December 31, 1997 Mosaix employed approximately 600 persons (not including independent contractors and temporary employees) on a full-time basis. None of Mosaix's employees are covered by collective bargaining agreements, nor has it ever experienced a work stoppage. Mosaix considers its employee relations to be good. ITEM TWO PROPERTIES Mosaix's corporate offices are located in Redmond, Washington in an 84,000 square-foot leased office facility at 6464 185th Avenue N.E., Redmond, Washington 98052. The lease expires March 31, 1999. In December 1997, Mosaix's entered into a new 104,000 square foot lease at a different location in Redmond, 9 12 Washington for its corporate headquarters. The Company anticipates moving into the new facility during the fourth quarter of 1998. The corporate offices include sales and marketing, professional service and customer support, engineering, and finance. The Company also leases offices which occupy approximately 55,000 square feet in Alameda, California, under a lease which expires in May 1999 but has renewal options through September of 2004. Additional sales, marketing, engineering and service functions are located in Alameda. Mosaix also leases domestic sales offices in Atlanta, Charlotte, Chicago, Cleveland, Costa Mesa, Dallas, New York, Rockville and Wilmington. The Company's sales, marketing, service and administrative function for Europe, the Middle East and Africa is located in rented office space near London, England. The London facility lease expires in 2017. ITEM THREE LEGAL PROCEEDINGS Mosaix is subject to various legal proceedings that arise in the ordinary course of its business. While the outcome of these proceedings cannot be predicted with certainty, the Company believes that none of such proceedings, individually or in the aggregate, will have a material adverse effect on the Company's business or financial condition. ITEM FOUR SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 10 13 PART II ITEM FIVE MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Mosaix common stock, $0.01 par value per share, is traded over the counter under the symbol "MOSX" and is an authorized security for quotation on the National Association of Securities Dealers, Inc. Automated Quotations National Market ("Nasdaq/NM"). The market prices of a share of Mosaix common stock are set forth below. The prices reflect the high and low trading prices for each quarter as reported by Nasdaq/NM. Over-the-counter market quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
HIGH LOW ------- ------- 1997: 4th Quarter................................ $11.313 $ 7.938 3rd Quarter................................ $15.000 $ 9.000 2nd Quarter................................ $15.250 $11.750 1st Quarter................................ $16.000 $ 9.750 1996: 4th Quarter................................ $23.000 $10.000 3rd Quarter................................ $18.375 $12.000 2nd Quarter................................ $24.000 $13.500 1st Quarter................................ $16.750 $10.500
There were approximately 4,760 shareholders of the Company's common stock as of February 23, 1998. This includes approximately 4,200 street-name holders and 560 registered certificate holders. No cash dividends were declared or paid by Mosaix during any of the periods presented. Mosaix presently does not anticipate paying any cash dividends in the foreseeable future. ITEM SIX SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993 -------- -------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue........................................ $121,144 $117,181 $93,248 $76,090 $69,237 Operating income (loss)........................ 11,766 6,232 1,858 (8,357) (7,349) Net earnings (loss)............................ 9,757 3,618 (563) (6,482) (9,081) Earnings (loss) per share: Basic........................................ 0.74 0.29 (0.06) (0.65) (0.94) Diluted...................................... 0.71 0.27 (0.06) (0.65) (0.94) Weighted average common shares outstanding: Basic........................................ 13,169 12,677 9,846 9,998 9,681 Diluted...................................... 13,667 13,570 9,846 9,998 9,681 Working capital................................ $ 46,257 $ 46,804 $37,624 $38,738 $38,555 Total assets................................... 84,378 90,763 93,571 95,796 86,156 Long-term obligations.......................... 97 575 1,085 1,123 1,924 Shareholders' equity........................... 55,805 57,343 48,683 52,799 55,360
11 14 ITEM SEVEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth certain operating data for 1997, 1996 and 1995 expressed as a percentage of revenue for all items except cost of revenue and gross profit which are shown as a percentage of the corresponding revenue:
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 1995 ----- ----- ----- Revenue: System sales.............................................. 40.6% 45.6% 46.3% Software licenses......................................... 19.8 17.6 16.0 Services and other........................................ 39.6 36.8 37.7 ----- ----- ----- 100.0 100.0 100.0 Cost of revenue: System sales.............................................. 37.6 35.2 40.8 Software licenses......................................... 10.1 6.6 4.1 Services and other........................................ 51.1 50.0 48.9 ----- ----- ----- 37.5 35.6 38.0 Gross profit: System sales.............................................. 62.4 64.8 59.2 Software licenses......................................... 89.9 93.4 95.9 Services and other........................................ 48.9 50.0 51.1 ----- ----- ----- 62.5 64.4 62.0 Operating expenses: Selling, general and administrative....................... 39.4 38.7 44.2 Research and development.................................. 12.6 12.7 14.0 Restructuring charges..................................... 0.8 -- 1.3 Write-off of capitalized software costs................... -- 0.6 -- Purchase of in-process research and development........... -- 3.7 -- Merger related............................................ -- 3.3 0.5 ----- ----- ----- Total operating expenses.................................... 52.8 59.0 60.0 ----- ----- ----- Operating income............................................ 9.7 5.4 2.0 Interest and other income, net.............................. 1.8 1.4 1.9 ----- ----- ----- Earnings before income taxes................................ 11.5 6.8 3.9 Income tax expense.......................................... 3.4 3.7 4.5 ----- ----- ----- Net earnings (loss)......................................... 8.1% 3.1% (0.6)% ===== ===== =====
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 For 1997, Mosaix reported net earnings of $9.8 million, or $0.71 diluted earnings per share, compared to $3.6 million, or $0.27 diluted earnings per share, for 1996. During 1997, Mosaix incurred restructuring charges of $0.9 million ($0.6 million after tax). During 1996, Mosaix incurred the following charges: (a) the write-off of $4.3 million ($4.3 million after tax) of acquired in-process research and development costs; (b) $0.7 million ($0.5 million after tax) of previously capitalized software development costs related to the 1996 acquisition of Caleo; and (c) $3.9 million ($3.9 million after tax) related to the merger with ViewStar. Excluding these charges, net earnings for 1997 were $10.4 million, or $0.76 diluted earnings per share, compared to $12.3 million, or $0.91 diluted earnings per share, for 1996. 12 15 Revenue. Revenue of $121.1 million for 1997 represented a 3.3% increase over 1996 revenue of $117.2 million. System sales, however, decreased $4.2 million, or 7.8%, to $49.2 million in 1997. Historically, system sales have come from the large formal call center market segment, with a high percentage representing repeat business with established customers. During 1997, Mosaix experienced a decline in the number of large system sales, a decline in sales from its domestic installed base and fewer new name customers than in prior years. Software licenses revenue increased by 15.9% to $23.9 million for 1997. This increase was primarily due to increased sales of workflow products. Services and other revenue increased by $4.9 million, or 11.3%, for 1997 as a result of increased professional services related to large CRM projects. Customer support revenue increased as a result of new system and software sales. International revenue increased 43.4% to $32.0 million in 1997 and accounted for 26.4% of total revenue. This increase was primarily due to increased sales in the United Kingdom and continuing acceptance of Mosaix products in international markets. Currently, backlog is not significant in relation to Mosaix's revenue and may not be indicative of future performance. Gross Profit. Gross profit decreased to 62.5% in 1997 from 64.4% in 1996. System sales gross profit, which were 62.4% in 1997 and 64.8% in 1996, was influenced by the decrease in sales volume as well as product mix. Mosaix's highest gross margins occur on large system sales. During 1997, Mosaix sold fewer large systems than in 1996, which negatively impacted margins. Gross profit on software licenses decreased to 89.9% in 1997 from 93.4% in 1996, primarily due to increased amortization of previously capitalized software costs. Gross profit on services and other revenue for 1997 was 48.9% compared to 50.0% in the prior year, due to the growth in professional services which have a lower margin and have been growing faster than systems and software support fees. Selling, General and Administrative. For 1997, selling, general and administrative expenses were $47.8 million, or 39.4% of revenue, compared to $45.4 million, or 38.7% of revenue, in the prior year. The increase in spending was due primarily to the expansion of marketing activities, investments in sales and employee training and recruiting. Research and Development. For 1997, research and development expenses, net of amounts capitalized, were $15.2 million, or 12.6% of revenue, compared to $14.9 million, or 12.7% of revenue, in 1996. Research and development spending, without regard to amounts capitalized, was $15.5 million in 1997 compared to $15.9 million in 1996. Software costs capitalized were $0.3 million in 1997 and $1.0 million in 1996. Capitalized software continues to decrease, and as of December 31, 1997, has been reduced to $0.9 million versus $2.0 million as of December 31, 1996. Mosaix is committed to the ongoing development of enhancements to existing products as well as the development of new products. Mosaix is also pursuing the acquisition of new technologies and/or licensing of products from third parties. 13 16 Restructuring Charges. As a result of the December 1996 ViewStar merger, Mosaix streamlined the management structure and consolidated the sales, support and service operations in 1997. These changes resulted in a charge of $0.9 million for severance and other employee related costs. Interest and Other Income, Net. Interest and other income, net increased from $1.7 million in 1996 to $2.2 million in 1997. The increase is primarily the result of increased yields on investments and increased cash available for investment. Mosaix intends to continue to invest excess cash in interest bearing instruments with maturities of one year or less. Income Taxes. The effective income tax rate for 1997 was 30.2% compared to 54.2% in 1996. The 1997 variance from the statutory rate of 34% was primarily related to the utilization of ViewStar net operating loss carryforwards. The unusually high effective tax rate in 1996 was primarily the result of non-deductible merger related expenses and purchased in-process research and development costs. YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 Revenue. Revenue of $117.2 million for 1996 represented a 25.7% increase over 1995 revenue of $93.2 million. System sales increased $10.2 million, or 23.7%, to $53.4 million in 1996. The increase was primarily the result of multiple purchases of large systems by a few of the Company's major customers. Software licenses revenue increased by 38.2% to $20.7 million for 1996. The primary reason for the growth was increased sales of the Company's workflow products and additional software products sold in conjunction with call management systems. Services and other revenue increased by $8.0 million, or 22.8%, to $43.1 million for 1996 as a result of increased professional services and system and software support fees. System and software support fees also increased due to additional support contracts sold in conjunction with a greater number of systems and software licenses. International revenue increased to $22.3 million in 1996, from $17.7 million in 1995, due to first time sales in Mexico, South America, and South Africa combined with increased sales in the United Kingdom and Japan. Gross Profit. Gross profit improved to 64.4% in 1996 from 62.0% in 1995. System sales gross profit, which increased to 64.8% in 1996 as compared to 59.2% in 1995, was primarily influenced by the increase in sales volume, product mix and software amortization expense. During 1996, Mosaix sold a greater proportion of large call management systems products which have a higher sales price and a greater gross margin percentage than other system products. In addition, 1995 system sales gross margins were negatively impacted by accelerated software amortization expense resulting from the replacement of earlier versions of the Company's call management system products with the newest versions of the Company's products. During 1996, Mosaix expensed $1.4 million related to software amortization compared to $2.8 million in 1995. Gross profit on software licenses decreased slightly to 93.4% in 1996 from 95.9% in 1995, primarily due to a referral fee paid to a partner on a license transaction. The decrease was partially offset by a decrease in royalty payments to third-party software vendors. Gross profit on services and other revenue for 1996 was 50.0% compared to 51.1% in the prior year. The change was due to a higher mix of lower-margin professional service revenues and a lower mix of system and software support fees than in prior years. 14 17 Selling, General and Administrative. For 1996, selling, general and administrative expenses were $45.4 million, or 38.7% of revenue, compared to $41.2 million, or 44.2% of revenue, in the prior year. While selling, general and administrative expenses decreased as a percentage of revenue, the increase in spending was due to the expansion of marketing activities and increased travel, advertising and personnel costs. Research and Development. For 1996, research and development expenses, net of amounts capitalized, were $14.9 million, or 12.7% of revenue, compared to $13.1 million, or 14.0% of revenue, in 1995. Gross research and development spending increased to $15.9 million from $15.3 million primarily due to increases in engineering staff and outside contractors. Software costs capitalized were $1.0 million in 1996 and $2.2 million in 1995. Write-Off of Capitalized Software Costs. When the Company completed the acquisition of Caleo as discussed below, certain technology the Company was developing was replaced by technology acquired in the Caleo purchase. The Company had previously capitalized $0.7 million of costs related to the replaced technology and, consequently, the costs were expensed. Purchase of In-Process Research and Development. In February 1996, the Company purchased Caleo Software, Inc. (Caleo) for approximately $4.8 million. The business combination was accounted for as a purchase and, accordingly, the purchase price was allocated to the underlying net assets based on the asset's fair values. Of the total purchase price, $4.3 million was allocated to in-process research and development and expensed at the time of the combination. Merger Related. In December 1996, the Company issued approximately 3.8 million shares of stock for ViewStar Corporation, a provider of workflow software. The business combination was accounted for as a pooling of interest and, accordingly, the merger related costs of $3.9 million were expensed. Interest and Other Income, Net. Interest and other income, net is comprised primarily of interest income and remained constant at $1.7 million for 1996 and 1995. Income Taxes. Mosaix's income tax expense was $4.3 million and $4.2 million in 1996 and 1995, respectively. The effective tax rate was 54.2% in 1996 and 115.7% in 1995. The unusually high effective tax rates were the result of non-deductible merger related expenses and purchased in-process research and development costs. The effective tax rates were also impacted by the merger with ViewStar because operating losses generated by ViewStar prior to the merger provided no income tax benefit to the consolidated organization in 1996 and 1995. LIQUIDITY AND CAPITAL RESOURCES Mosaix's financial condition remained strong as of December 31, 1997, with cash and cash equivalents and short-term investments totaling $36.1 million. The short-term investment portfolio is invested in corporate notes and bonds, and is diversified among security types and issuers. It does not include any derivative products. At December 31, 1997, Mosaix's working capital was $46.3 million, the current ratio was 2.6 to 1.0 and during 1997, Mosaix generated $10.5 million of cash from operations. 15 18 Historically, working capital used to finance Mosaix has been provided by cash flow from operations, leases, and various forms of stock including the exercise of stock options by employees. During 1997, Mosaix invested $4.8 million to purchase furniture and equipment including investments in internal customer management hardware and software systems. Additionally, Mosaix made repayments on long-term lease obligations of $1.0 million. On July 16, 1997, the Mosaix Board of Directors authorized, subject to certain terms and conditions, the repurchase of up to 1,700,000 shares of common stock. As of December 31, 1997, the Company had repurchased 1,437,500 shares at a total cost of $14.0 million. In February 1998, the Mosaix Board of Directors authorized the repurchase of an additional 1,000,000 shares of the Company's common stock. In addition to its cash and short-term investment balances, Mosaix has a $10 million domestic line of credit available to meet cash flow needs. The line of credit expires on May 31, 1998, however, the Company intends to renew the line of credit for another year. Management believes that existing cash and short-term investments and cash flow from operations, together with its available credit line, will continue to be sufficient to meet ongoing operating requirements as well as Mosaix's investment in capital assets and research and development activities. In connection with research and development and market expansion, cash may be used to acquire technology or to fund strategic ventures. FORWARD LOOKING STATEMENTS -- RISK FACTORS REGARDING FUTURE PERFORMANCE Certain statements in this Annual Report on Form 10-K contain "forward-looking" information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. Actual future results may differ materially depending on a variety of factors, including, without limitation, the following: Uncertainties Relating to the Management of Remote Operations. In December of 1996, the Company completed a merger with ViewStar, and during 1997, several administrative and management functions were combined. Certain sales, customer support, professional service and development functions remain in Alameda, California, and the Company does not have significant experience in the management of remote operations. The geographical separation of Alameda operations may hinder efforts to integrate operations and product development. The failure to effectively manage the operations in Alameda or to realize the potential product synergies could have a material adverse effect on the Company's business. Uncertainty of Future Operating Results; Fluctuations in Operating Results; Seasonality. The Company's system sales and software license revenues are difficult to forecast because sales cycles are relatively long, and quarterly revenues depend on a relatively few large contracts that are subject to changes in customer budgets and general economic conditions. Furthermore, because the Company's products generally are shipped as orders are received, revenues in any quarter are substantially dependent on orders booked and shipped in that quarter. The Company's operating results have fluctuated in the past and are likely to do so in the future, particularly on a quarterly basis. In addition, changes in levels of the Company's consulting activity and seasonality in its consulting revenues have resulted in variability of service revenues from quarter to quarter. Historically, the Company often has recognized a substantial portion of its revenues in the last month of the quarter, with these revenues frequently concentrated in the last week of the quarter. In addition, the Company generally has realized lower revenues from system sales and software license fees in the first quarter of the year than in the immediately preceding quarter. Mosaix believes that this has been due primarily to the concentration by some customers of larger capital purchases in the fourth quarter of the calendar year to avoid end-of-year budgetary limitations, followed by lower purchasing activity during the first quarter of the next calendar year. 16 19 Further, to the extent that international operations in the future constitute a higher percentage of total revenues, the Company anticipates that it ordinarily will experience relatively weaker demand in the quarter ending September 30, due to reduced customer activity in Europe during the summer months. The Company is in the process of adding additional functionality to workflow products to closely align with current CMS customers. The additional functionality may not be accepted by traditional workflow customers and not only license revenue but customer support revenues could be negatively impacted in the future. As a result of these and other factors, revenues for any quarter are difficult to forecast and are subject to significant variation. Moreover, results of operations for any particular period are not necessarily indicative of future performance. Due to all of the foregoing factors, it is likely that without advance warning or notice, in some future quarter the Company's operating results will be below the expectations of market analysts and investors. Lengthy Sales and Implementation Cycle; Complex Service Requirements. The purchase or license of the Company's products is usually a significant decision by prospective customers, requiring the Company to engage in a lengthy sales cycle, typically between six and twelve months, without any assurance that a sale will result. Moreover, the cost to the customer of the Company's products typically is only a portion of the cost of implementing a large-scale CMS or CRM solution. For these and other reasons, the sales cycle is subject to a number of significant delays over which the Company has little or no control. Successful implementation of the Company's products may also require lengthy and complex implementation and integration services, which services may be provided by the Company or by a third-party. In addition, it is becoming increasingly competitive to recruit the talent required to perform the required services. The Company's future operating results will depend upon its ability to coordinate these complex service resources and ensure successful implementation of its products, while managing costs. Competition. The market for Mosaix's products is highly competitive. Important competitive factors include price, performance, diversity of product line, reliability, delivery capabilities, customer support and service. Some of the Company's competitors have significantly greater financial, technical, manufacturing, marketing and other resources. Competitors may develop products and technologies that are less expensive or technologically superior to the Company's products. Mosaix's principal competitors in the outbound call management systems market include Davox Corporation, EIS International, Inc. and Melita Electronic Labs. The potential entry into the market of major ACD and PBX suppliers (suppliers of customer-premise call routing and switching systems) also presents a strong competitive threat. These companies may elect to acquire or align with Mosaix's competitors, increasing their market presence and distribution; resell principal competitors' products; or elect to develop and market their own predictive dialing application software. As Mosaix expands its CMS offerings, it may also encounter increased competition from call center application providers such as Information Management Associates and Versatility. The traditional competition for horizontal workflow technology has been workflow software vendors, including direct competition from a number of public and private companies or divisions thereof, including Filenet, IBM, Action Technologies, Staffware, Optika, and Eastman Kodak. As ViewStar 5.0 extends its value into the customer management market space, it will face competition from new competitors, including process-oriented applications vendors such as Pegasystems, Chordiant, and DST. Mosaix's CRM applications may encounter competition from a number of customer management focused software companies including, Edify Corporation, Remedy Corporation, and Seibel Systems. Certain of these companies have announced and others may announce document workflow capabilities for their existing or future products. Many of the Company's current or potential competitors have greater financial, technical and marketing resources. As the Company's markets mature and new and existing companies compete for the same customers, price competition is likely to intensify, which could adversely affect the operating results of the Company. 17 20 Mosaix also relies on a number of system integration firms for implementation and other services as well as recommendations of its products during the evaluation stage of the purchasing process. Although Mosaix seeks to maintain close relationships with these service providers, many of these third parties have similar, and often more established relationships with Mosaix's principal competitors. If Mosaix is unable to develop and retain effective, long-term relationships with these third parties, Mosaix's competitive position would be materially adversely affected. Technological Change and New Products. The document management and workflow software market and the call management market are characterized by rapid technological change and frequent product introductions and improvements. Accordingly, the success of Mosaix will depend to a great extent upon its ability to develop product enhancements and new products that keep pace with continuing changes in technology and customer preferences while remaining price competitive. Mosaix has incurred, and expects to continue to incur, substantial expenses associated with the introduction and promotion of new products. There can be no assurance that the expenses incurred will not exceed development budgets, that Mosaix will introduce products in a timely fashion, if at all, or that such products will achieve market acceptance and generate sales sufficient to offset development costs. In addition, the success of the Company's products which are designed for use on the Internet or intranets will depend upon the acceptance of the Internet, intranets and World Wide Web technologies, as well as the products' compatibility with such technologies. Competition for Employees. Competition for engineers, professional services, customer support and sales employees has continued to increase in the high tech industry. In order for the Company to develop new and enhanced versions of existing products and to properly support customers, the Company must continue to successfully retain existing employees and recruit additional skilled people. In the event the Company is not able to attract the skill sets required in a reasonable time frame or as the cost of acquiring those skill sets increase, the Company could be materially adversely affected. Limited Source of Supply. The Company purchases two principal components for its system product from sole-source vendors. One vendor has announced that it will discontinue a component. The Company has a next generation replacement part in testing which will replace the discontinued component, but if this is unsuccessful and the existing component becomes unavailable, the establishment of an alternate source could not be accomplished quickly and would require investment of additional resources. This would affect the Company's ability to manufacture its call center system products. Any such delay could materially adversely affect the operating results of the Company. Dependence on Windows NT and Other Core Microsoft Technologies. The success of many of the Company's products and potential products depends upon the continued acceptance and use in critical business applications of Microsoft's Windows NT platform and other core Microsoft technologies, such as the Windows NT Server, the Microsoft SQL Server database and related Back Office software on which such products are, or will be, based. If the Windows NT platform market fails to grow, grows more slowly than anticipated or becomes obsolete, the Company's business, results of operations and financial condition would be materially adversely affected. Lack of Product Revenue Diversification. While the Company has developed new software products and services and has multiple distribution channels, the Company expects that its CMS and CRM products will continue to account for a significant amount of the Company's revenues in the future. A decline in demand for those products as a result of 18 21 competition, technological change or other factors would have a material adverse effect on the Company's results of operations. International Sales. Mosaix sells products to customers in international markets, with such sales accounting for 26.4% of the Company's total sales in 1997, and accordingly is subject to the normal risks of international sales, such as currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collections and compliance with export laws and a wide variety of foreign laws. Any difficulties with respect to foreign export or other laws would have a material adverse effect on the Company's international sales. The current year financial crisis in Asia did not have a material effect on the Company but anticipated growth in Asia may be negatively impacted. Because the Company invoices certain of its foreign sales in local currency and does not hedge these transactions, fluctuations in exchange rates could adversely affect the Company's revenues and costs and could create significant foreign currency losses. Dependence on Proprietary Rights; Infringement Claims; Uncertainty of Obtaining Licenses. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy the Company's products or to obtain and use the Company's proprietary information. Policing unauthorized use of the Company's products is difficult, and since Mosaix is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to as great an extent as the laws of the United States. There can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that its competitors will not independently develop similar technology. The Company has received communications from time to time, asserting that its products infringe the proprietary rights of third parties, or seeking indemnification against such infringement. Although the Company believes that none of its products infringe the proprietary rights of third parties, there can be no assurance that third parties will not claim infringement with respect to current or future products. The Company expects that software product developers will increasingly be subject to infringement claims as the number of products and competitors grows and the functionality of products in different markets overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, adversely affect revenues, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, if at all, which could have a material adverse effect on the Company's business, results of operations and financial condition. Mosaix also relies on certain software licensed from third parties, including software that is integrated with internally developed software and used in the Company's products to perform key functions. There can be no assurance that such third parties will remain in business, that they will continue to support their products or that their products will otherwise continue to be available to the Company on commercially reasonable terms. The loss or inability to maintain any of these software licenses could materially adversely affect the Company's business. Risk of Product Defects. Software and other products as internally complex, with as many interfaces to third party vendors as those offered by the Company, frequently contain errors or defects, especially when first introduced or when new versions are released. Although Mosaix conducts extensive product testing during product development, it has experienced delays in the commercial release of products pending the correction of software problems and, in some cases, has provided product enhancements to correct errors or defects in released products due to the difficulty in testing for all possible conditions that may be encountered at a customer site. The Company could therefore, in the future, lose revenues as a result of software errors or other product defects. The Company's products and future products are intended for use in applications that are critical to a customer's business. As a 19 22 result, Mosaix expects that its customers and potential customers have a greater sensitivity to product defects than the market for software products generally. Governmental Regulation. While existing industry legislation does not directly regulate the manufacture and sale of Mosaix's call management products, certain existing legislation may affect the ability of Mosaix's customers to utilize some of its products in certain ways. For example, Mosaix's call management systems may not be used for certain prohibited debt collection and remote telephone solicitation practices, nor may they be used under certain circumstances to leave or play artificial or prerecorded messages. These practices are governed by such federal laws as the Telephone Consumer Protection Act of 1991 and the Telemarketing and Consumer Fraud and Abuse Prevention Act, which authorize the FCC and Federal Trade Commission, respectively, to issue additional regulations and administer such laws. In addition, most states have enacted legislation limiting certain telephone solicitation practices or restricting use of automatic dialing and announcement devices. Other federal and state legislation that has been proposed from time to time include bills that would, if enacted, recognize certain privacy rights of employees at the work site and regulate the ability of employers to monitor job performance, including monitoring employees' telephone communication or gathering information regarding such communications. It is possible that such legislation or other legislation, if enacted, might directly or indirectly affect how Mosaix's call management systems, or some feature thereof, can be used. Mosaix fully supports legislation designed to promote the responsible use of auto dialing equipment. Mosaix endeavors to design its products to enable its customers to comply with the requirements of current and anticipated regulations. Similarly, international regulations and laws, particularly in Europe and Asia, could have a negative impact on the Company. Change in Accounting for Software Revenue Recognition. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2 "Software Revenue Recognition," which Mosaix will be required to adopt beginning January 1, 1998. SOP 97-2 provides guidance on software revenue recognition and the allocation of revenue when multiple products and services are bundled. In the past, Mosaix has deferred revenue on delivered software that required more than minor modifications but in the event that bundled products and services can no longer be separated, Mosaix will be required to recognize revenue using the percentage of completion method instead of upon shipment of the software. Mosaix intends to continue to separate software licenses from professional service contracts but if Mosaix is unable to maintain the separation, a material adverse effect could occur in the Company's results of operations. Year 2000 Computer Problems. The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (year 2000) approaches. The "year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value, 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause system failure. All of the Company's currently shipping products are year 2000 compliant. In addition, whenever possible, the Company has made software upgrades available to existing customers, that along with related hardware upgrades, will enable them to be year 2000 compliant. The Company does have some customers who have purchased systems in the past, where a hardware upgrade is not available to allow the customer to become year 2000 compliant. The Company has, and will continue to encourage such customers to migrate to current product versions. It is possible that the Company may incur additional expenses in addressing these migration issues. Additionally, there can be no assurances that the Company's current products do not contain undetected errors related to year 2000 that may result in material additional costs or liabilities which could have a material adverse effect on the Company. 20 23 With regard to the Company's internal processing and operational systems, the Company is in the process of installing an enterprise-wide financial and operational system from a major vendor that is year 2000 compliant. Significant portions of the system are currently operational and the Company anticipates all critical components of the system will be operational by December, 1998. The Company has capitalized the price of the system and third party consulting costs incurred to date and will continue to do so as the system is completed. With regard to other systems, the Company is identifying, reprogramming and testing all systems for year 2000 compliance. Although the Company is not aware of any additional material operational issues or costs associated with preparing the internal systems for the year 2000, there can be no assurances that the Company will not experience material adverse effects from undetected errors or the failure of such systems to be year 2000 compliant. ITEM EIGHT FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA For financial statements, see F-1 to F-19. ITEM NINE CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM TEN DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the Company's fiscal year. ITEM ELEVEN EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the Company's fiscal year. ITEM TWELVE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the Company's fiscal year. ITEM THIRTEEN CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 21 24 PART IV ITEM FOURTEEN EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K CONSOLIDATED FINANCIAL STATEMENTS: See F-1 to F-18. FINANCIAL STATEMENTS SCHEDULES: Independent Auditors' Report (contained on page F-19) Schedule II Valuation and Qualifying Accounts (contained on page F-20) All other Schedules are omitted because they are inapplicable or because the requested information is shown in the Consolidated Financial Statements of the Company or in the related Notes thereto.
EXHIBITS -------- 2.1 Agreement and Plan of Merger, dated October 14, 1996, among the Registrant, Vision Merger Corporation and ViewStar Corporation (I) 3.1 Restated Articles of Incorporation of the Registrant (B) 3.2 Restated Bylaws of the Registrant (D) 4.1 Form of Certificate Evidencing Common Stock, par value $0.01 per share (B) 4.2 Warrant to purchase 12,245 shares of ViewStar Common Stock issued to Comdisco, Inc. dated May 31, 1996 (I) 10.1 Restated 1987 Stock Option Plan, as amended* (H) 10.2 1996 Management and Company Performance Bonus Plan* (H) 10.3 1997 Management and Company Performance Bonus Plan* (J) 10.4 Restated 1992 Stock Option Plan for Non-Employee Directors, as amended* (H) 10.5 1991 Employee Stock Purchase Plan, as amended* (F) 10.6 Executive Employment Agreement dated as of November 8, 1994 with Patrick S. Howard* (E) 10.7 Executive Employment Agreement dated as of March 1, 1995 with Thomas R. Clark* (G) 10.8 Executive Employment Agreement dated as of March 1, 1995 with John J. Flavio* (G) 10.9 Executive Employment Agreement dated as of March 1, 1995 with Edmund D. Wilsbach* (G) 10.10 Lease for Building 17 dated January 15, 1991 among Michael E. Mastro, Redmond East Associates and the Registrant (C) 10.11 Business Loan Agreement dated June 25, 1997 with Seattle-First National Bank (A) 10.12 Customer Purchase Agreement dated December 27, 1990 with Summa Four, Inc.** (D) 10.13 Software Source Code and Manufacturing Data Deposit and Escrow Agreement dated December 27, 1990 with Summa Four, Inc. and Data Securities International Ind.** (D) 10.14 Purchase Agreement (AWA 99) with Hewlett Packard, dated March 1, 1995 (H) 10.15 Shareholders Agreement, dated October 14, 1996, with certain former shareholders of ViewStar Corporation (I)
22 25
EXHIBITS -------- 10.16 ViewStar Corporation Amended 1986 Incentive Stock Plan and form of agreement thereunder* (I) 10.17 ViewStar Corporation Amended 1994 Stock Plan, as amended, and form of agreement thereunder* (I) 10.18 ViewStar Corporation 1996 Incentive Stock Plan* (I) 10.19 Sublease Agreement between the ASK Group, Inc. and ViewStar Corporation, dated October 8, 1993, for ViewStar's facility located at 1101 Marina Village Parkway, Alameda, California (I) 10.20 First Amendment to Sublease Agreement between the ASK Group, Inc. and ViewStar Corporation, dated September 8, 1994, for ViewStar's facility located at 1101 Marina Village Parkway, Alameda, California (A) 10.21 Promissory Note issued by Kamran Kheirolomoom to ViewStar Corporation dated July 2, 1996* (I) 10.22 Executive Employment Agreement, dated October 14, 1996, between Kamran Kheirolomoom and the Registrant* (I) 10.23 Executive Employment Agreement, dated October 14, 1996, between Robert I. Pender, Jr. and the Registrant* (I) 10.24 Executive Employment Agreement, dated October 14, 1996, between Gayle A. Crowell and the Registrant* (I) 10.25 Executive Employment Agreement, dated October 14, 1996, between Steve Russell and the Registrant* (A) 10.26 Executive Employment Agreement, dated February 14, 1996, between Steve L. Adams and the Registrant* (A) 10.27 Executive Employment Agreement, dated July 1, 1997, between Omar Saleh and the Registrant* (A) 10.28 Executive Employment Agreement, dated February 5, 1998, between Jeff Jarvis and the Registrant* (A) 10.29 Executive Employment Agreement, dated February 5, 1998, between Bruce Leader and the Registrant* (A) 10.30 Executive Employment Agreement, dated February 5, 1998, between Nicholas A. Tiliacos and the Registrant* (A) 10.31 Lease Agreement between Millennium Corporate Park, L.L.C. and the Registrant, dated December 11, 1997, for the Company's corporate headquarters in Redmond, Washington (A) 10.32 1998 Management and Performance Bonus Plans* (A) 21.1 List of Subsidiaries of the Registrant (A) 23.1 Consent of KPMG Peat Marwick LLP (A) 27.1 Financial Data Schedule (A)
- --------------- * Management contract or compensation plan. ** Confidential treatment has been requested with respect to portions of the agreement. 23 26 (A) Filed herewith. (B) Incorporated by reference from exhibits filed in connection with the Registrant's Registration Statement on Form S-1 (Registration No. 33-34561) filed with the Securities and Exchange Commission on April 26, 1990, as amended. (C) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (D) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (E) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (F) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1994. (G) Incorporated by reference from exhibits filed in connection with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (H) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (I) Incorporated by reference from exhibits filed in connection with the Registrant's Registration Statement on Form S4 (Registration No. 333-14887) initially filed with the Securities and Exchange Commission on October 25, 1996. (J) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 24 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOSAIX, INC. By: /s/ NICHOLAS A. TILIACOS ------------------------------------ Nicholas A. Tiliacos Director and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ HARVEY N. GILLIS Chairman of the Board and March 2, 1998 - ----------------------------------------------------- Director Harvey N. Gillis /s/ NICHOLAS A. TILIACOS President, Chief Operating March 2, 1998 - ----------------------------------------------------- Officer and Director Nicholas A. Tiliacos /s/ JOHN J. FLAVIO Senior Vice President and Chief March 2, 1998 - ----------------------------------------------------- Financial Officer John J. Flavio /s/ MICHAEL A. JACOBSEN Controller and Principal March 2, 1998 - ----------------------------------------------------- Accounting Officer Michael A. Jacobsen /s/ TOM A. ALBERG Director March 2, 1998 - ----------------------------------------------------- Tom A. Alberg /s/ H. ROBERT GILL Director March 2, 1998 - ----------------------------------------------------- H. Robert Gill /s/ UMANG GUPTA Director March 2, 1998 - ----------------------------------------------------- Umang Gupta /s/ PATRICK S. HOWARD Director March 2, 1998 - ----------------------------------------------------- Patrick S. Howard /s/ DAVID J. LADD Director March 2, 1998 - ----------------------------------------------------- David J. Ladd /s/ ROBERT S. LEVENTHAL Director March 2, 1998 - ----------------------------------------------------- Robert S. Leventhal
25 28 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Mosaix, Inc.: We have audited the accompanying consolidated balance sheets of Mosaix, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mosaix, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Seattle, Washington February 2, 1998 F-1 29 MOSAIX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue: Systems sales............................................ $ 49,198 $ 53,384 $ 43,169 Software licenses........................................ 23,947 20,654 14,949 Services and other....................................... 47,999 43,143 35,130 -------- -------- -------- Total revenue......................................... 121,144 117,181 93,248 -------- -------- -------- Cost of revenue: System sales............................................. 18,510 18,813 17,627 Software licenses........................................ 2,416 1,364 612 Services and other....................................... 24,504 21,588 17,178 -------- -------- -------- Total cost of revenue................................. 45,430 41,765 35,417 -------- -------- -------- Gross profit............................................... 75,714 75,416 57,831 -------- -------- -------- Operating expenses: Selling, general and administrative...................... 47,774 45,355 41,179 Research and development................................. 15,226 14,912 13,054 Restructuring charge..................................... 948 -- 1,240 Write-off of capitalized software costs.................. -- 705 -- Purchase of in-process research and development.......... -- 4,307 -- Merger related........................................... -- 3,905 500 -------- -------- -------- Total operating expenses.............................. 63,948 69,184 55,973 -------- -------- -------- Operating income........................................... 11,766 6,232 1,858 Interest and other income, net............................. 2,208 1,674 1,730 -------- -------- -------- Earnings before income taxes............................... 13,974 7,906 3,588 Income tax expense......................................... 4,217 4,288 4,151 -------- -------- -------- Net earnings (loss)........................................ $ 9,757 $ 3,618 $ (563) ======== ======== ======== Earnings (loss) per share: Basic.................................................... $ 0.74 $ 0.29 $ (0.06) Diluted.................................................. $ 0.71 $ 0.27 $ (0.06) Weighted average common shares outstanding: Basic.................................................... 13,169 12,677 9,846 Diluted.................................................. 13,667 13,570 9,846
See accompanying notes to consolidated financial statements. F-2 30 MOSAIX, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ------------------ 1997 1996 ------- ------- (IN THOUSANDS) Current assets: Cash and cash equivalents................................. $ 5,532 $10,984 Short-term investments.................................... 30,548 31,825 Trade accounts receivable, less allowance for doubtful accounts of $1,749 in 1997 and $1,593 in 1996.......... 30,325 26,061 Inventories............................................... 2,532 2,814 Current installments of contracts receivable, less allowance for doubtful accounts of $497 in 1997........ 1,555 1,764 Deferred income taxes..................................... 1,338 1,560 Prepaid expenses and other current assets................. 2,881 4,277 ------- ------- Total current assets................................... 74,711 79,285 Furniture, equipment and leasehold improvements, net........ 7,449 7,393 Contracts receivable, less allowance for doubtful contracts of $423 in 1996, excluding current installments........... -- 670 Capitalized software costs, net of accumulated amortization of $701 in 1997 and $3,464 in 1996........................ 930 1,993 Deferred income taxes....................................... 837 178 Other assets, net........................................... 451 1,244 ------- ------- Total assets...................................... $84,378 $90,763 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 5,455 $ 5,064 Accrued compensation...................................... 8,762 9,097 Other accrued expenses.................................... 6,413 7,272 Current portion of long-term obligations.................. 381 934 Customer deposits and unearned revenue.................... 7,443 10,114 ------- ------- Total current liabilities.............................. 28,454 32,481 Long-term obligations, excluding current installments....... 97 575 Unearned revenue, less current portion...................... 22 364 ------- ------- Total liabilities...................................... 28,573 33,420 Shareholders' equity: Common stock, $.01 par value. Authorized 25,000 shares; issued and outstanding 12,229 shares in 1997 and 13,237 shares in 1996......................................... 122 132 Additional paid-in-capital................................ 50,040 61,841 Cumulative translation adjustments........................ (3) (201) Notes receivable from shareholders........................ (272) (590) Accumulated earnings (deficit)............................ 5,918 (3,839) ------- ------- Total shareholders' equity............................. 55,805 57,343 ------- ------- Total liabilities and shareholders' equity........ $84,378 $90,763 ======= =======
See accompanying notes to consolidated financial statements. F-3 31 MOSAIX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
NOTES DEFERRED PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE STOCK OPTION --------------- --------------- PAID-IN FROM TRANSLATION COMPENSATION SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS ADJUSTMENT EXPENSE ------- ------- ------ ------ ---------- ------------ ----------- ------------ Balances at December 31, 1994...... 1,847 $ 18 10,160 $102 $ 60,116 $(119) $(339) $(85) Exercise of stock options........ -- -- 187 2 537 (180) -- -- Amortization of deferred compensation expense........... -- -- -- -- -- -- -- 54 Tax benefit realized upon exercise of stock options...... -- -- -- -- 103 -- -- -- Common stock sold pursuant to employee stock purchase plan... -- -- 29 -- 226 -- -- -- Translation adjustment........... -- -- -- -- -- -- 5 -- Repurchase of common stock....... -- -- (608) (6) (4,294) -- -- -- Net loss......................... -- -- -- -- -- -- -- -- ------ ---- ------ ---- -------- ----- ----- ---- Balances at December 31, 1995...... 1,847 18 9,768 98 56,688 (299) (334) (31) Issuance of preferred stock...... 3,293 33 -- -- 3,294 -- -- -- Exercise of stock options........ -- -- 369 4 1,440 (136) -- -- Amortization of deferred compensation expense........... -- -- -- -- -- -- -- 31 Tax benefit realized upon exercise of stock options...... -- -- -- -- 1,051 -- -- -- Common stock sold pursuant to employee stock purchase plan... -- -- 33 -- 388 -- -- -- Translation adjustment........... -- -- -- -- -- -- 133 -- Restricted stock issued in exchange for note receivable... -- -- 311 3 152 (155) -- -- Conversion of preferred stock to common stock................... (5,140) (51) 2,797 28 23 -- -- -- Exercise of stock warrants....... -- -- 42 -- 30 -- -- -- Repurchase of common stock....... -- -- (83) (1) (1,225) -- -- -- Net earnings..................... -- -- -- -- -- -- -- -- ------ ---- ------ ---- -------- ----- ----- ---- Balances at December 31, 1996...... -- -- 13,237 132 61,841 (590) (201) -- Exercise of stock options........ -- -- 409 4 1,161 -- -- -- Tax benefit realized upon exercise of stock options...... -- -- -- -- 700 -- -- -- Common stock sold pursuant to employee stock purchase plan... -- -- 38 1 365 -- -- -- Translation adjustment........... -- -- -- -- -- -- 198 -- Collection of shareholder notes.......................... -- -- -- -- -- 318 -- -- Repurchase of common stock....... -- -- (1,455) (15) (14,027) -- -- -- Net earnings..................... -- -- -- -- -- -- -- -- ------ ---- ------ ---- -------- ----- ----- ---- Balances at December 31, 1997...... -- $ -- 12,229 $122 $ 50,040 $(272) $ (3) $ -- ====== ==== ====== ==== ======== ===== ===== ==== ACCUMULATED TOTAL EARNINGS SHAREHOLDERS' (DEFICIT) EQUITY ----------- ------------- Balances at December 31, 1994...... $(6,894) $ 52,799 Exercise of stock options........ -- 359 Amortization of deferred compensation expense........... -- 54 Tax benefit realized upon exercise of stock options...... -- 103 Common stock sold pursuant to employee stock purchase plan... -- 226 Translation adjustment........... -- 5 Repurchase of common stock....... -- (4,300) Net loss......................... (563) (563) ------- -------- Balances at December 31, 1995...... (7,457) 48,683 Issuance of preferred stock...... -- 3,327 Exercise of stock options........ -- 1,308 Amortization of deferred compensation expense........... -- 31 Tax benefit realized upon exercise of stock options...... -- 1,051 Common stock sold pursuant to employee stock purchase plan... -- 388 Translation adjustment........... -- 133 Restricted stock issued in exchange for note receivable... -- -- Conversion of preferred stock to common stock................... -- -- Exercise of stock warrants....... -- 30 Repurchase of common stock....... -- (1,226) Net earnings..................... 3,618 3,618 ------- -------- Balances at December 31, 1996...... (3,839) 57,343 Exercise of stock options........ -- 1,165 Tax benefit realized upon exercise of stock options...... -- 700 Common stock sold pursuant to employee stock purchase plan... -- 366 Translation adjustment........... -- 198 Collection of shareholder notes.......................... -- 318 Repurchase of common stock....... -- (14,042) Net earnings..................... 9,757 9,757 ------- -------- Balances at December 31, 1997...... $ 5,918 $ 55,805 ======= ========
See accompanying notes to consolidated financial statements. F-4 32 MOSAIX, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net earnings (loss)...................................... $ 9,757 $ 3,618 $ (563) Depreciation and amortization............................ 6,028 6,315 7,266 Trade and other receivables.............................. (3,385) 1,181 (3,174) Other assets............................................. 1,927 (2,162) (466) Accounts payable and accrued expenses.................... (803) 2,977 4,439 Customer deposits and unearned revenue................... (3,013) (7,023) (1,270) -------- -------- -------- Net cash provided by operating activities........ 10,511 4,906 6,232 -------- -------- -------- Cash flows from investing activities: Purchase of short-term investments....................... (35,978) (40,635) (50,433) Proceeds from maturities of short-term investments....... 37,255 42,658 16,585 Purchases of furniture and equipment..................... (4,778) (3,456) (2,781) Increase in capitalized software costs................... (256) (976) (2,157) Other.................................................... 820 207 588 -------- -------- -------- Net cash used in investing activities............ (2,937) (2,202) (38,198) -------- -------- -------- Cash flows from financing activities: Payments of borrowings under bank line of credit......... -- -- (1,500) Proceeds from subordinated notes issued to shareholders.......................................... -- -- 2,000 Collection of shareholder notes receivable............... 318 -- -- Repayment of long-term obligations....................... (1,031) (1,262) (2,151) Common stock repurchased................................. (14,042) (1,226) (4,299) Proceeds from issuance of preferred and common stock..... 1,531 2,905 585 -------- -------- -------- Net cash provided by (used in) financing activities..................................... (13,224) 417 (5,365) -------- -------- -------- Effect of exchange rate changes on cash.................... 198 117 12 -------- -------- -------- Increase (decrease) in cash and cash equivalents........... (5,452) 3,238 (37,319) Cash and cash equivalents, beginning of year............... 10,984 7,746 45,065 -------- -------- -------- Cash and cash equivalents, end of year..................... 5,532 10,984 7,746 Short-term investments..................................... 30,548 31,825 33,848 -------- -------- -------- Cash and cash equivalents and short-term investments....... $ 36,080 $ 42,809 $ 41,594 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes.......................................... $ 1,816 $ 5,611 $ 3,255 Interest.............................................. $ 105 $ 290 $ 568 Noncash investing and financing activities: Equipment transferred from inventory..................... $ 14 $ 363 $ 238 Tax benefit realized upon exercise of stock options...... $ 700 $ 1,051 $ 103 Equipment acquired under capital leases.................. $ -- $ 554 1,058 Issuance of common stock in exchange for notes receivable............................................ $ -- $ 291 $ 180 Issuance of preferred stock in exchange for subordinated notes payable and related accrued interest............ $ -- $ 2,148 $ --
See accompanying notes to consolidated financial statements. F-5 33 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Description of Business. Mosaix, Inc. and subsidiaries (hereinafter referred to as "Mosaix" or the "Company") is a global provider of predictive dialing systems, workflow software and enterprise customer management solutions that automate and optimize an organization's interactions with its customers. By employing Mosaix' customer interaction software, call management applications and business process applications, companies are creating and managing profitable customer relationships. Mosaix maintains a global professional service and customer support organization and a network of development, co-marketing, and strategic partnerships. Mosaix' principal markets are North America, Europe, and Asia. Credit is extended to customers in the normal course of business. b. Basis of Presentation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. c. Cash Equivalents and Short-Term Investments. All short-term investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. The Company's investment securities are classified as held-to-maturity and, as such, are carried at amortized cost. d. Inventories. Inventories are stated at the lower of cost (first-in, first-out) or market (replacement cost for raw materials and net realizable value for finished goods, work-in-process and spare parts). e. Furniture, Equipment and Leasehold Improvements. Furniture, equipment and leasehold improvements are stated at cost. Depreciation of furniture and equipment (including rental systems) is provided on the straight-line method over the three to five year estimated useful lives of the assets. Leasehold improvements and assets recorded under capital leases are amortized over the shorter of their estimated useful lives or the related lease term. Maintenance and repairs are expensed as incurred. When furniture, equipment and leasehold improvements are retired or otherwise disposed, gains and losses are reflected in the consolidated statement of operations. f. Capitalized Software Costs. Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility has been established. Once technological feasibility of a software product to be marketed has been established, development and enhancement costs are capitalized and reported at the lower of unamortized cost or net realizable value. Net realizable value for a particular product is assessed based on anticipated gross margins applicable to sales of the related product in future periods. Fully amortized software development costs are removed from the Company's accounts. Amortization of capitalized software costs begins when the related product is available for general release to customers and is computed for each product based on the greater of (a) the ratio of current gross revenue for a product to the total of current and anticipated future gross revenue for the product or (b) the straight line method over the estimated life of the product. Amortization expense related to capitalized software costs F-6 34 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) amounted to $1,318, $1,448 and $2,823 for 1997, 1996 and 1995, respectively. These amounts are included in cost of systems and software revenue. g. Revenue Recognition. The Company's revenues are primarily derived from: systems sales, software licenses and services. Systems sales are comprised of revenue related to products sold that include both hardware and software. Software licenses include revenue related to software-only applications that operate on industry standard hardware available from the Company and other vendors. Services revenue consists of consulting services and recurring software and system support fees. Revenue on system sales is generally recognized when the units are shipped and the Company has no significant remaining obligations. For system sales requiring significant customization or for new products, revenue is recognized upon completion of the customization or customer acceptance. Installation fees relating to system sales are recognized when the related system is installed. Revenue from the sale of software licenses is recognized when (i) a signed contract exists, (ii) delivery has occurred, (iii) collectibility is probable, and (iv) remaining Company obligations are insignificant. Generally, revenues from the sale of software licenses through distributors are recognized after contract signing and shipment, and upon the earlier of sale to the end user or upon receipt of nonrefundable cash payments from the distributors. Revenue from system and software support service is recognized using the straight-line method over the term of the contract. Revenue from professional services is recognized as the related work is performed. Customer payment terms vary. Amounts billed in advance of satisfying revenue recognition criteria are classified in "customer deposits and unearned revenue." Costs incurred prior to satisfying revenue recognition criteria are deferred and are classified as a component of inventories. The Company has historically sold and licensed systems pursuant to lease agreements which qualify as sales type leases with an initial term of three years or more. Revenue from these contracts was recognized when units were shipped, at the present value of the minimum payments at the beginning of the contract discounted at the Company's incremental borrowing rate. No such contracts were sold in 1997 or 1996. h. Research and Development Costs. Research and development costs are charged to expense as incurred, except as described in f. i. Income Taxes. The Company computes income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax assets and liabilities are measured using currently enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. j. Product Warranties. The Company generally provides a 90-day warranty for all systems sold and a 30 day warranty for software products. A charge to the statement of operations is made at the time of sale for estimated costs of repair or replacement of the products during the warranty period. F-7 35 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) k. Net Earnings (Loss) Per Share. During 1997, Mosaix adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," and restated earnings (loss) per share for all prior periods. In accordance with SFAS No. 128, basic net earnings (loss) per share is computed using the weighted average number of common shares outstanding. Diluted net earnings (loss) per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. Common share equivalents consist of employee stock options and convertible preferred stock. l. Foreign Currency Translation. Assets and liabilities of foreign operations are translated into U.S. dollars using rates of exchange in effect at the end of the year. Income and expense accounts are translated into U.S. dollars using annual average rates of exchange. The net gain or loss resulting from translation is shown as a cumulative translation adjustment in shareholders' equity. Gains and losses from foreign currency transactions are included in other income (expense), net. m. Financial Instruments and Concentrations of Credit Risk. The Company's financial instruments consist of cash and cash equivalents, short-term investments, trade accounts and contracts receivable, accounts payable, and long-term obligations. The Company's cash and cash equivalents and short-term investments are diversified among security types and issuers, and approximate fair value. The fair value of financial instruments that are short-term and/or that have little or no risk are considered to have a fair value equal to book value. Assets and liabilities that are included in this category are receivables, accounts payable, accrued liabilities and long term obligations. Concentrations of credit risk with respect to receivables are limited due to the diversity in geographic location of customers as well as diversity in industries. In addition, the Company performs initial and ongoing evaluations of its customers' financial position, and generally extends credit on open account without requiring collateral. n. Stock Based Compensation. In 1996, Mosaix adopted SFAS No. 123, "Accounting for Stock Based Compensation." In accordance with the provisions of SFAS No. 123, Mosaix has elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option and stock purchase plans and, accordingly, does not recognize compensation expense for options granted with an exercise price equal to or in excess of fair value at the date of grant. Note 8 to the consolidated financial statements contains a summary of pro forma results of operations for 1997, 1996 and 1995 as if Mosaix had recognized compensation expense based on the fair value of the options and stock purchase rights granted at grant date as required by SFAS No. 123. o. New Accounting Pronouncements. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which supersedes SOP 91-1. The Company will be required to adopt SOP 97-2 beginning January 1, 1998. SOP 97-2 provides guidance on software revenue recognition and the allocation of revenue when multiple products and services are bundled. In the past, the Company has deferred revenue on delivered software that required more than minor modifications. In the event that bundled products and services can no longer be separated, the Company will be required to defer revenue recognition on both product and service elements until revenue recognition criteria have been satisfied for all elements. F-8 36 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) The Company intends to continue to separate software licenses from professional service contracts and accordingly the impact on the consolidated financial statements is not expected to be material. p. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. q. Reclassifications. Certain reclassifications have been made to the prior period financial statements to conform with the current year presentation. 2. BUSINESS COMBINATIONS a. ViewStar Corporation. In December 1996, the Company issued 3,777,078 shares of $.01 par value common stock in exchange for all of the outstanding common shares of ViewStar Corporation, a provider of client/server document management and workflow software. This business combination was accounted for as a pooling-of-interests and, accordingly, the consolidated financial statements for all periods prior to the combination were restated to include the accounts and results of operations of ViewStar. In connection with the business combination, $3,905 of merger related costs were incurred. During 1995, ViewStar incurred $500 of costs associated with the termination of a proposed merger. b. Caleo Software, Inc. In February 1996, the Company purchased Caleo Software, Inc. (Caleo) for $4,750 in cash. The business combination was accounted for using the purchase method whereby the purchase price was allocated to the underlying net assets based on their relative fair values. Of the total purchase price, $4,307 was charged to operations as the purchase of in-process research and development. The results of operations of Caleo were not significant in relation to the Company. At the time of the combination, the Company also wrote off $705 of previously capitalized software costs for duplicative technology. F-9 37 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) 3. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company's cash and cash equivalents and short-term investments as of December 31 consist of the following:
1997 1996 ------- ------- Cash and cash equivalents: Cash...................................................... $ 1,682 $ 5,973 Money market instruments.................................. 3,850 5,011 ------- ------- Total cash and cash equivalents........................ 5,532 10,984 ------- ------- Short-term investments: Municipal securities...................................... -- 10,212 Corporate notes and bonds................................. 30,548 21,613 ------- ------- Total short-term investments........................... 30,548 31,825 ------- ------- Total cash and cash equivalents and short-term investments..................................... $36,080 $42,809 ======= =======
The short-term investments are classified as held-to-maturity. Due to the short-term nature of these investments, changes in market interest rates would not have a significant impact on the fair value of these securities. These securities are carried at amortized cost which approximates fair value. At December 31, 1997, all short-term investments have contractural maturities of one year or less. Interest income, net for 1997, 1996 and 1995 was $2,355, $1,665 and $1,393, respectively. 4. INVENTORIES A summary of inventories at December 31 are as follows:
1997 1996 ------- ------- Raw materials............................................... $ 759 $ 1,879 Work-in-process............................................. 64 333 Finished goods.............................................. 501 136 Installations in progress................................... 853 257 Spare parts................................................. 355 209 ------- ------- $ 2,532 $ 2,814 ======= =======
5. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Furniture, equipment and leasehold improvements consist of the following as of December 31:
1997 1996 ------- ------- Furniture and fixtures...................................... $ 1,814 $ 2,620 Computer equipment.......................................... 14,907 15,012 Equipment under capital lease............................... 5,327 6,500 Office equipment............................................ 825 1,684 Leasehold improvements...................................... 1,859 1,390 ------- ------- 24,732 27,206 Less accumulated depreciation and amortization.............. 17,283 19,813 ------- ------- $ 7,449 $ 7,393 ======= =======
F-10 38 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) During 1997, 1996 and 1995, amortization expense related to equipment under capital leases was $717, $627 and $239, respectively. Accumulated amortization for equipment under capital leases at December 31, 1997 and 1996 was $4,913 and $5,383, respectively. 6. BANK LINE OF CREDIT At December 31, 1997, the Company had available a $10,000 unsecured domestic bank line of credit. Restrictive terms of this line of credit require, among other things, that the Company maintain minimum net worth and working capital. The Company was in compliance with all terms and conditions of this line of credit as of December 31, 1997. There were no borrowings outstanding under this line as of December 31, 1997. 7. LONG-TERM OBLIGATIONS A summary of long-term obligations as of December 31 follows:
1997 1996 ---- ------ Capital lease obligations................................... $433 $1,329 Other....................................................... 45 180 ---- ------ Total long-term obligations................................. 478 1,509 Less current installments................................... 381 934 ---- ------ Long-term obligations, excluding current installments.......................................... $ 97 $ 575 ==== ======
Principal maturities of long-term obligations at December 31, 1997 are as follows: 1998................................................... $381 1999................................................... 97 ---- $478 ====
In May 1995, ViewStar obtained $2.0 million in cash from certain of its shareholders in exchange for 9% subordinated notes payable upon demand at any time after April 15, 1996. In March 1996, the subordinated notes were exchanged for shares of preferred stock which were in turn exchanged for shares of common stock as described in Note 8(e). 8. SHAREHOLDERS' EQUITY a. Stock Option Plans. In 1997, the Board of Directors authorized a 1997 Stock Incentive Compensation Plan (1997 Plan) which allowed for the reservation of 520,031 shares of common stock. These shares are primarily intended to replace the Restated 1987 Stock Option Plan (1987 Plan) shares related to the repricing (see below) and the balance is to be used for other general employee retention purposes. Shares granted under the 1997 Plan are non-qualified options for non-officer employees. Prior to the merger in 1996, the shareholders of ViewStar approved a plan amendment to increase the shares available for grant by 1,159,000. Additionally, as part of the business combination, the shareholders of Mosaix approved the 1996 Stock Incentive Compensation Plan (1996 Plan) to replace the 1987 Plan. The 1996 Plan, which allowed for the reservation of 1,500,000 shares of common stock, was intended primarily to replace expired options under the 1987 Plan, to replace ViewStar options with Mosaix options and to grant new options to officers of ViewStar. As part of the business combination, 1,559,000 shares authorized under the ViewStar Plans expired. F-11 39 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) The Company's 1987 Plan allowed for the reservation of 2,800,000 shares of common stock for grants. Options granted under the 1987 Plan were designated as qualified or non-qualified at the discretion of the Board of Directors. The 1987 Plan expired in 1996 and 165,000 and 412,000 shares that were authorized under the 1987 Plan expired in 1997 and 1996, respectively. In January 1998, the Company offered certain employees the right to have their outstanding stock options repriced in exchange for a 20% reduction in the options outstanding and an agreement not to exercise any of the repriced options for one year. The repricing took place January 14, 1998 and 776,802 options with exercise prices of $10.88 to $19.75, were returned and canceled, and 621,480 new options were issued at $9.50. Of the options returned and canceled, 320,031 were 1987 Plan options that could not be regranted under the expired 1987 Plan and accordingly, 256,025 replacement options were issued under the 1997 and 1996 Plans. Generally, options vest over a four-year period in cumulative increments of 25% beginning one year from the date of grant or, in certain instances, one year from the individual's employment date. All options expire ten years or less from the date of grant and are currently granted at prices not less than fair market value. The Company applies APB Opinion No. 25 in accounting for its plans. Had the Company determined compensation cost based on the fair value at the grant date for its stock options and stock purchase rights under SFAS No. 123 for options and purchase rights granted in 1997, 1996 and in 1995, the Company's net earnings (loss) would have been adjusted to the pro forma amounts indicated below:
1997 1996 1995 ------ ------ ------ Net earnings (loss): As reported........................................ $9,757 $3,618 $ (563) Pro forma.......................................... 6,517 1,786 (931) Basic earnings (loss) per share: As reported........................................ 0.74 0.29 (0.06) Pro forma.......................................... 0.49 0.14 (0.09) Diluted earnings (loss) per share: As reported........................................ 0.71 0.27 (0.06) Pro forma.......................................... 0.48 0.13 (0.09)
The per share weighted-average fair value of stock options granted during 1997, 1996 and 1995 was $6.78, $5.30 and $2.97, respectively on the date of grant using the Black Scholes option-pricing model with the following assumptions:
1997 1996 1995 ------ ------ ------ Expected dividend yield.............................. 0.0% 0.0% 0.0% Volatility........................................... 76.0% 62.0% 62.0% Expected weighted average life (in years)............ 3.8 4.5 4.5 Weighted average risk free interest rate............. 5.8% 6.3% 6.2%
F-12 40 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) The per share weighted-average fair value of stock purchase rights during 1997, 1996 and 1995 was $5.52, $4.44 and $3.31, respectively, on the date of grant using the Black Scholes option-pricing model with the following assumptions:
1997 1996 1995 ------ ------ ------ Expected dividend yield.............................. 0.0% 0.0% 0.0% Volatility........................................... 76.0% 62.0% 62.0% Expected weighted average life (in years)............ 0.5 0.5 0.5 Weighted average risk free interest rate............. 5.6% 5.2% 5.2%
Pro forma net earnings (loss) and earnings (loss) per share reflect only options granted after January 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings (loss) and net earnings (loss) per share amounts presented above because compensation cost is reflected over the options' vesting period of four to five years, and compensation cost for options granted prior to January 1, 1995 is not considered. A summary of stock options follows:
SHARES NUMBER OF AVAILABLE OPTIONS WEIGHTED FOR GRANT OUTSTANDING AVERAGE (IN 000'S) (IN 000'S) EXERCISE PRICE ---------- ----------- -------------- Balance at December 31, 1994..................... 428 2,116 $ 4.41 Plan amendment................................. 400 -- -- Granted........................................ (521) 521 4.74 Exercised...................................... -- (187) 2.88 Canceled....................................... 504 (504) 4.08 ------ ----- ------ Balance at December 31, 1995..................... 811 1,946 4.70 Plan amendment................................. 2,659 -- -- Granted........................................ (721) 721 11.19 Exercised...................................... -- (369) 3.91 Expired: 1987 Plan................................... (412) -- -- ViewStar Plans.............................. (1,559) -- -- Canceled....................................... 240 (240) 4.99 ------ ----- ------ Balance at December 31, 1996..................... 1,018 2,058 6.62 Additional authorization....................... 520 -- -- Granted........................................ (1,459) 1,459 11.91 Exercised...................................... -- (409) 2.85 Expired........................................ (165) -- -- Canceled....................................... 479 (479) 10.51 ------ ----- ------ Balance at December 31, 1997..................... 393 2,629 $ 9.98 ====== ===== ======
As discussed previously, a stock option repricing took place on January 14, 1998. Of the options returned and canceled, 320,031 were 1987 Plan Options that could not be regranted from the 1987 Plan because the 1987 Plan had expired. These options were replaced with 256,025 options that were available for grant at December 31, 1997 and, after this reissuance, approximately 182,000 shares remain available to grant to employees under the 1996 and 1997 Plans. The 1992 Director's Plan shares were not repriced and 46,000 shares are available for grant at December 31, 1997. F-13 41 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) The following table summarizes options outstanding and exercisable at December 31, 1997.
OPTIONS OUTSTANDING ------------------------------------------------- WEIGHTED OPTIONS EXERCISABLE AVERAGE WEIGHTED ------------------------------- RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ----------------- ----------- ---------------- -------------- ----------- ---------------- $ 0.51 - 0.51 186,413 3.65 $ 0.51 125,878 $ 0.51 3.79 - 6.75 503,192 5.93 4.52 434,231 4.41 7.58 - 10.38 510,784 9.04 9.50 87,206 8.66 10.69 - 12.25 706,238 8.03 11.77 138,651 11.01 12.62 - 15.00 502,447 8.67 13.74 81,259 13.50 15.06 - 19.75 220,320 8.72 17.29 61,047 17.98 -------------- --------- ---- ------ ------- ------ $ 0.51 - 19.75 2,629,394 7.69 $ 9.98 928,272 $ 6.96 ============== ========= ==== ====== ======= ======
b. Stock Option Plan for Non-Employee Directors. Under the Company's 1992 Stock Option Plan for Non-Employee Directors (1992 Plan), 125,000 shares of the Company's common stock are reserved for issuance to non-employee directors of the Company. An initial grant of 5,000 options is automatically made to each non-employee director upon appointment as a director of the Company. Initial grants vest over a five-year period in cumulative increments of 20% each year beginning from the date of the first subsequent annual meeting of shareholders following grant. An additional 2,000 options are granted following each annual shareholders' meeting. Each additional grant is immediately vested and exercisable. All options expire ten years from the date of grant or, if earlier, five years after termination as a director of the Company. Options are exercisable at the fair market value of the stock at the date of grant. At December 31, 1997, 72,000 options were outstanding under the 1992 Plan at a weighted average exercise price of $11.77 per share and 58,000 options were exercisable at a weighted average price of $11.73 per share. c. Employee Stock Purchase Plan. The Company's 1991 Employee Stock Purchase Plan provides for 200,000 shares of the Company's common stock to be reserved for issuance upon exercise of purchase rights granted to participating employees of the Company. The purchase rights are exercisable semiannually on June 30 and December 31 of each year at a price equal to the lesser of 85% of the fair market value of the Company's stock at the beginning or end of the respective semi-annual periods. At December 31, all authorized shares had been issued. d. Stock Repurchase Plan. In 1997, the Company's Board of Directors authorized a plan to repurchase up to 1,700,000 shares of the Company's common stock, subject to certain limitations and conditions. The repurchased shares are used primarily to service the Company's employee stock plans. During 1997, the Company repurchased 1,437,500 shares for a total cost of $14,035. In January 1998, the Company's Board of Directors authorized an additional 1,000,000 shares to be repurchased under the same limitations and conditions. In 1995, the Company's Board of Directors had authorized a similar plan to repurchase up to 1,600,000 shares of the Company's common stock. The Company had purchased 691,000 shares at a total cost of $5,526 when the plan was discontinued on October 2, 1996. F-14 42 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) e. ViewStar Preferred Shares. In March and June 1996, ViewStar completed a preferred stock financing transaction in which a total of 3,293,467 shares were issued. ViewStar issued 2,126,024 shares in repayment of $2,000 subordinated notes outstanding plus the related accrued interest of $148 and issued 1,167,444 shares for $1,179 in cash. All preferred shares were converted to common stock in 1996. 9. INCOME TAXES The components of earnings before income taxes are as follows:
1997 1996 1995 ------- ------ ------ U.S. operations......................................... $10,073 $6,524 $2,906 Foreign................................................. 3,901 1,382 682 ------- ------ ------ $13,974 $7,906 $3,588 ======= ====== ======
Components of income tax expense are summarized as follows:
1997 1996 1995 ------- ------ ------ Current: Federal............................................... $ 2,871 $4,053 $3,493 State................................................. 544 446 522 Foreign............................................... 1,239 705 276 ------- ------ ------ Total current................................. 4,654 5,204 4,291 Deferred -- Federal..................................... (437) (916) (140) ------- ------ ------ $ 4,217 $4,288 $4,151 ======= ====== ======
Income tax expense on earnings before income taxes differs from "expected" income tax expense as computed by applying the U.S. federal income tax rate of 34% as follows:
1997 1996 1995 ------- ------ ------ Computed "expected" tax expense......................... $ 4,751 $2,688 $1,220 Research and experimentation tax credits and foreign tax credits........................................... (462) (387) (100) State income taxes, net of federal benefit.............. 359 296 355 Reduction of valuation allowance........................ (1,065) -- -- Losses of subsidiary not currently deductible........... -- 301 2,503 Purchase of in-process research and development......... -- 1,464 -- Merger related costs.................................... -- 438 -- Foreign taxes withheld.................................. -- 161 226 Other................................................... 634 (673) (53) ------- ------ ------ $ 4,217 $4,288 $4,151 ======= ====== ======
F-15 43 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) Deferred income tax assets and liabilities are comprised of the following at December 31:
1997 1996 ------- -------- Capitalized software development costs, net of amortization.............................................. $ 316 $ 678 Contract revenue............................................ 233 415 ------- -------- Deferred tax liabilities.................................. 549 1,093 ------- -------- Provision for doubtful receivables.......................... 655 940 Provision for inventory obsolescence........................ 161 219 Provision for warranties and returns........................ 230 143 Unearned revenue............................................ 1,284 1,130 Provision for accrued compensation.......................... 1,595 1,580 Net operating loss carryforwards............................ 7,064 8,649 Research and experimentation tax credit carryforwards....... 1,211 1,086 Other....................................................... 736 454 ------- -------- Gross deferred tax assets................................. 12,936 14,201 Deferred tax asset valuation allowance.................... (10,212) (11,370) ------- -------- Deferred tax assets....................................... 2,724 2,831 ------- -------- Net deferred tax assets................................... $ 2,175 $ 1,738 ======= ========
As of December 31, 1997, the Company had net operating loss carryforwards for federal income tax purposes of approximately $20,053, expiring in the years 2004 through 2011, and net operating loss carryforwards for state income tax purposes of approximately $7,605, expiring in the years 1999 through 2009. The Company also had federal and state research and experimentation tax credit carryforwards of approximately $997 and $630, respectively, which expire in the years 2000 through 2009. Utilization of the Company's net operating loss carryforwards and research and experimentation tax credit carryforwards and other deferred income tax assets which relate primarily to ViewStar are subject to Internal Revenue Code Section 382 limitations due to a change of ownership. Due to uncertainty regarding their recoverability, the Company has established valuation allowances for the related deferred income tax assets. With regard to the remaining deferred income tax assets, it is more likely than not that the results of future operations will generate sufficient taxable income to recognize the net deferred income tax assets. The deferred income tax valuation allowance decreased $1,158 and $940 in 1997 and 1996, respectively. F-16 44 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) 10. EARNINGS PER SHARE The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings (loss) per share.
NET EARNINGS WEIGHTED (LOSS) AVERAGE SHARES EARNINGS (IN 000'S) (IN 000'S) (LOSS) PER (NUMERATOR) (DENOMINATOR) SHARE ------------ -------------- ---------- 1997: Basic earnings per share.................... $9,757 13,169 $ 0.74 Effect of dilutive stock options............ -- 498 ------ ------ Diluted earnings per share.................. $9,757 13,667 $ 0.71 ====== ====== 1996: Basic earnings per share.................... $3,618 12,677 $ 0.29 Effect of dilutive stock options and convertible preferred stock.............. -- 893 ------ ------ Diluted earnings per share.................. $3,618 13,570 $ 0.27 ====== ====== 1995: Basic and dilutive loss per share........... $ (563) 9,846 $(0.06) ====== ======
Stock options and convertible preferred stock were not included in the computation of diluted loss per share for 1995 because the representative share increments would be anti-dilutive. In addition, options to purchase shares of common stock where the exercise price exceeded the average market price were excluded from the computations in 1997 and 1996 because they would be anti-dilutive. Anti-dilutive stock options and convertible preferred stock excluded from the computations are as follows:
ANTI-DILUTIVE OPTIONS AND STOCK (IN 000'S) EXERCISE PRICE ----------------- --------------- 1997.............................................. 1,154 $12.13 - $19.75 1996.............................................. 251 $16.06 - $19.75 1995.............................................. 3,793 $ 0.51 - $12.88
11. COMMITMENTS AND CONTINGENCIES a. Profit Sharing and Deferred Compensation Plan. The Company has a Profit Sharing and Deferred Compensation Plan (Profit Sharing Plan) under Section 401(k) of the Internal Revenue Code of 1986, as amended. Substantially all full-time employees are eligible to participate. The Company, at its discretion, may elect to match the participants' contributions to the Profit Sharing Plan. Participants will receive their share of the value of their investments upon retirement or termination, subject to a vesting schedule. The Company's matching contributions to the Profit Sharing Plan were $752, $471 and $409 for 1997, 1996 and 1995, respectively. b. Lease Commitments. The Company leases its office and warehouse space under terms of noncancelable operating leases expiring at various dates through 2009. F-17 45 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) Future minimum lease payments under noncancelable operating leases at December 31, 1997 are as follows: 1998....................................................... $ 3,134 1999....................................................... 2,684 2000....................................................... 1,950 2001....................................................... 1,811 2002....................................................... 1,811 Thereafter................................................. 13,258 ------- $24,648 =======
Rent expense under noncancelable operating leases amounted to $3,176, $2,712 and $2,907 for 1997, 1996 and 1995, respectively. c. Litigation. The Company is subject to various legal proceedings that arise in the ordinary course of its business. While the outcome of these proceedings cannot be predicted with certainty, the Company believes that none of such proceedings, individually or in the aggregate will have a material adverse effect on the Company's business or financial condition. 12. GEOGRAPHIC SEGMENT INFORMATION The Company's products are marketed internationally through its subsidiaries in the United Kingdom, the U.S. parent and independent distributors.
1997 1996 1995 -------- -------- -------- Revenue -- U.S. operations: United States.................................... $ 89,153 $ 94,870 $ 75,593 United States export............................. 14,477 12,083 12,289 Revenue -- International operations: Foreign subsidiaries............................. 17,514 10,228 5,366 -------- -------- -------- $121,144 $117,181 $ 93,248 ======== ======== ======== Operating income: U.S. operations.................................. $ 8,045 $ 4,235 $ 1,355 Foreign subsidiaries............................. 3,936 1,867 382 Eliminations..................................... (215) 130 121 -------- -------- -------- $ 11,766 $ 6,232 $ 1,858 ======== ======== ======== Assets: U.S. operations.................................. $ 74,725 $ 85,235 $ 90,597 Foreign subsidiaries............................. 9,653 5,528 2,974 -------- -------- -------- $ 84,378 $ 90,763 $ 93,571 ======== ======== ========
13. RESTRUCTURING CHARGES During 1997, Mosaix incurred $948 of expenses for severance pay and related costs from streamlining operations. During 1995, ViewStar incurred $1,240 for a similar reduction in headcount. F-18 46 MOSAIX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS, UNLESS OTHERWISE INDICATED) 14. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes the unaudited statement of operations for each quarter of 1997 and 1996:
FIRST SECOND THIRD FOURTH TOTAL ------- ------- ------- ------- -------- 1997: Revenue....................... $30,614 $31,674 $28,043 $30,813 $121,144 Operating income.............. 3,600 4,412 991 2,763 11,766 Net earnings.................. 2,918 3,336 1,149 2,354 9,757 Basic earnings per share...... 0.22 0.25 0.09 0.19 0.74 Diluted earnings per share.... 0.21 0.24 0.08 0.18 0.71 1996: Revenue....................... $26,997 $28,585 $30,202 $31,397 $117,181 Operating income (loss)....... (1,829) 3,569 4,083 409 6,232 Net earnings (loss)........... (2,413) 2,643 3,292 96 3,618 Basic earnings (loss) per share...................... (0.21) 0.21 0.25 0.01 0.29 Diluted earnings (loss) per share.................. (0.21) 0.19 0.24 0.01 0.27
The quarterly earnings (loss) per share presented above may not total to the year end totals due to changes in the weighted average common shares and common equivalent shares outstanding during the year. F-19 47 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Mosaix, Inc.: Under date of February 2, 1998, we reported on the consolidated balance sheets of Mosaix, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in the 1997 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule of valuation and qualifying accounts. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respect the, information set forth therein. KPMG Peat Marwick LLP Seattle, Washington February 2, 1998 F-20 48 MOSAIX, INC. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- --------- ------------ ---------- -------- BALANCE AT CHARGED TO BALANCE BEGINNING OTHER COSTS (1) AT END DESCRIPTION OF YEAR AND EXPENSES DEDUCTIONS OF YEAR ----------- --------- ------------ ---------- -------- Year ended December 31, 1997: Valuation accounts deducted from assets: Allowance for doubtful receivables........ $2,016 $694 $464 $2,246 ====== ==== ==== ====== Year ended December 31, 1996: Valuation accounts deducted from assets: Allowance for doubtful receivables........ $1,863 $395 $242 $2,016 ====== ==== ==== ====== Year ended December 31, 1995: Valuation accounts deducted from assets: Allowance for doubtful receivables........ $1,581 $794 $512 $1,863 ====== ==== ==== ======
- --------------- (1) Represents amounts written off. F-21 49 EXIBIT INDEX
EXHIBITS -------- 2.1 Agreement and Plan of Merger, dated October 14, 1996, among the Registrant, Vision Merger Corporation and ViewStar Corporation (I) 3.1 Restated Articles of Incorporation of the Registrant (B) 3.2 Restated Bylaws of the Registrant (D) 4.1 Form of Certificate Evidencing Common Stock, par value $0.01 per share (B) 4.2 Warrant to purchase 12,245 shares of ViewStar Common Stock issued to Comdisco, Inc. dated May 31, 1996 (I) 10.1 Restated 1987 Stock Option Plan, as amended* (H) 10.2 1996 Management and Company Performance Bonus Plan* (H) 10.3 1997 Management and Company Performance Bonus Plan* (J) 10.4 Restated 1992 Stock Option Plan for Non-Employee Directors, as amended* (H) 10.5 1991 Employee Stock Purchase Plan, as amended* (F) 10.6 Executive Employment Agreement dated as of November 8, 1994 with Patrick S. Howard* (E) 10.7 Executive Employment Agreement dated as of March 1, 1995 with Thomas R. Clark* (G) 10.8 Executive Employment Agreement dated as of March 1, 1995 with John J. Flavio* (G) 10.9 Executive Employment Agreement dated as of March 1, 1995 with Edmund D. Wilsbach* (G) 10.10 Lease for Building 17 dated January 15, 1991 among Michael E. Mastro, Redmond East Associates and the Registrant (C) 10.11 Business Loan Agreement dated June 25, 1997 with Seattle-First National Bank (A) 10.12 Customer Purchase Agreement dated December 27, 1990 with Summa Four, Inc.** (D) 10.13 Software Source Code and Manufacturing Data Deposit and Escrow Agreement dated December 27, 1990 with Summa Four, Inc. and Data Securities International Ind.** (D) 10.14 Purchase Agreement (AWA 99) with Hewlett Packard, dated March 1, 1995 (H) 10.15 Shareholders Agreement, dated October 14, 1996, with certain former shareholders of ViewStar Corporation (I) 10.16 ViewStar Corporation Amended 1986 Incentive Stock Plan and form of agreement thereunder* (I) 10.17 ViewStar Corporation Amended 1994 Stock Plan, as amended, and form of agreement thereunder* (I) 10.18 ViewStar Corporation 1996 Incentive Stock Plan* (I) 10.19 Sublease Agreement between the ASK Group, Inc. and ViewStar Corporation, dated October 8, 1993, for ViewStar's facility located at 1101 Marina Village Parkway, Alameda, California (I) 10.20 First Amendment to Sublease Agreement between the ASK Group, Inc. and ViewStar Corporation, dated September 8, 1994, for ViewStar's facility located at 1101 Marina Village Parkway, Alameda, California (A) 10.21 Promissory Note issued by Kamran Kheirolomoom to ViewStar Corporation dated July 2, 1996* (I) 10.22 Executive Employment Agreement, dated October 14, 1996, between Kamran Kheirolomoom and the Registrant* (I)
50
EXHIBITS -------- 10.23 Executive Employment Agreement, dated October 14, 1996, between Robert I. Pender, Jr. and the Registrant* (I) 10.24 Executive Employment Agreement, dated October 14, 1996, between Gayle A. Crowell and the Registrant* (I) 10.25 Executive Employment Agreement, dated October 14, 1996, between Steve Russell and the Registrant* (A) 10.26 Executive Employment Agreement, dated February 14, 1996, between Steve L. Adams and the Registrant* (A) 10.27 Executive Employment Agreement, dated July 1, 1997, between Omar Saleh and the Registrant* (A) 10.28 Executive Employment Agreement, dated February 5, 1998, between Jeff Jarvis and the Registrant* (A) 10.29 Executive Employment Agreement, dated February 5, 1998, between Bruce Leader and the Registrant* (A) 10.30 Executive Employment Agreement, dated February 5, 1998, between Nicholas A. Tiliacos and the Registrant* (A) 10.31 Lease Agreement between Millennium Corporate Park, L.L.C. and the Registrant, dated December 11, 1997, for the Company's corporate headquarters in Redmond, Washington (A) 10.32 1998 Management and Performance Bonus Plans* (A) 21.1 List of Subsidiaries of the Registrant (A) 23.1 Consent of KPMG Peat Marwick LLP (A) 27.1 Financial Data Schedule (A)
- --------------- * Management contract or compensation plan. ** Confidential treatment has been requested with respect to portions of the agreement. (A) Filed herewith. (B) Incorporated by reference from exhibits filed in connection with the Registrant's Registration Statement on Form S-1 (Registration No. 33-34561) filed with the Securities and Exchange Commission on April 26, 1990, as amended. (C) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (D) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (E) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (F) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1994. (G) Incorporated by reference from exhibits filed in connection with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (H) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (I) Incorporated by reference from exhibits filed in connection with the Registrant's Registration Statement on Form S4 (Registration No. 333-14887) initially filed with the Securities and Exchange Commission on October 25, 1996. (J) Incorporated by reference from exhibits filed in connection with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOSAIX, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K. 1000 US DOLLARS 12-MOS 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1997 DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997 1 1 1 1 10,984 12,970 15,478 5,811 31,825 31,429 32,373 38,319 27,654 31,547 29,775 28,925 1,593 1,678 1,586 1,929 2,814 2,206 2,489 2,701 79,285 82,542 84,330 81,214 27,206 28,465 29,237 30,555 19,813 21,026 21,937 22,964 90,763 93,414 94,375 91,105 32,481 32,295 29,323 28,036 0 0 0 0 0 0 0 0 0 0 0 0 132 133 133 98 57,211 60,299 64,512 62,656 90,763 93,414 94,375 91,105 74,038 18,684 38,574 54,119 117,181 30,614 62,288 90,331 20,177 5,295 10,587 15,691 41,765 11,371 22,658 33,729 69,184 15,643 31,618 47,599 395 139 301 535 290 36 29 24 7,906 4,042 8,969 10,611 4,288 1,124 2,715 3,208 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,618 2,918 6,254 7,403 0.29 0.22 0.47 0.55 0.27 0.21 0.45 0.53
-----END PRIVACY-ENHANCED MESSAGE-----