<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 0-18708
MICROGRAFX, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1952080
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1303 ARAPAHO 75081
RICHARDSON, TEXAS (Zip Code)
(Address of principal executive offices)
(214) 234-1769
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class May 9, 1996
- ----- -----------
<S> <C>
Common Stock 10,069,544
</TABLE>
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<PAGE> 2
MICROGRAFX, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
March 31, 1996 and June 30, 1995
Condensed Consolidated Statements of Income for the 4
Three and Nine Months Ended March 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the 5
Three and Nine Months Ended March 31, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
MICROGRAFX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,368 $ 11,180
Short-term investments 5,913 5,312
Accounts receivable, less allowances of $3,664 and $1,928 11,611 8,786
Inventories 1,113 1,204
Other current assets 2,842 1,803
-------- --------
Total current assets 33,847 28,285
Property and equipment, net 3,228 4,374
Capitalized software development costs, net 3,458 3,453
Acquired product rights, net 1,867 1,302
Other assets 186 604
-------- --------
Total assets $ 42,586 $ 38,018
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,710 $ 5,485
Accrued compensation and benefits 1,457 1,356
Accrued liabilities and other 3,958 3,311
Income taxes payable 1,980 710
-------- --------
Total current liabilities 11,105 10,862
Noncurrent deferred income taxes and other 896 903
Shareholders' equity:
Preferred stock, voting, $.10 par value, 10,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value,
20,000 shares authorized; 9,571 and 9,338 shares
issued; 8,989 and 8,836 shares outstanding 96 93
Additional capital 23,046 21,334
Retained earnings 11,327 7,272
Cumulative translation adjustment (748) (279)
Less - treasury stock (582 and 502 shares), at cost (3,136) (2,167)
-------- --------
Total shareholders' equity 30,585 26,253
-------- --------
Total liabilities and shareholders' equity $ 42,586 $ 38,018
======== ========
</TABLE>
See accompanying notes.
3
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MICROGRAFX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 17,356 $ 14,563 $ 52,747 $ 45,931
Cost of revenues 4,216 3,626 12,472 11,473
--------- --------- --------- ---------
Gross profit 13,140 10,937 40,275 34,458
Operating expenses:
Sales and marketing 7,706 7,686 24,270 24,267
General and administrative 1,901 1,706 5,590 5,389
Research and development 1,443 1,138 4,587 3,235
--------- --------- --------- ---------
Total operating expenses 11,050 10,530 34,447 32,891
--------- --------- --------- ---------
Income from operations 2,090 407 5,828 1,567
Interest income, net (293) (128) (654) (419)
Other (income) expense, net 104 (252) 689 (230)
--------- --------- --------- ---------
Total non operating (income) expense (189) (380) 35 (649)
--------- --------- --------- ---------
Income before income taxes 2,279 787 5,793 2,216
Income taxes 684 230 1,738 665
--------- --------- --------- ---------
Net income $ 1,595 $ 557 $ 4,055 $ 1,551
========= ========= ========= =========
Income per share $ 0.17 $ 0.06 $ 0.44 $ 0.18
========= ========= ========= =========
Shares used in computing
income per share 9,369 8,935 9,234 8,817
========= ========= ========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
MICROGRAFX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
-------- --------
<S> <C>
Cash flows from operating activities:
Net income $ 4,055 $ 1,551
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,247 5,959
Deferred income taxes and other (6) 328
Changes in assets and liabilities:
Increase in accounts receivable (2,825) (2,404)
Decrease in inventories 91 719
Decrease in payables, accruals and other (797) (1,815)
-------- --------
Total adjustments 2,710 2,787
-------- --------
Net cash provided by operating activities 6,765 4,338
-------- --------
Cash flows from investing activities:
(Purchases of) proceeds from short-term investments, net (601) 2,064
Capitalization of software development costs and
purchases of acquired product rights (4,583) (3,560)
Purchases of property and equipment (1,088) (1,288)
Other (51) 593
-------- --------
Net cash used in investing activities (6,323) (2,191)
-------- --------
Cash flows from financing activities:
Payments of notes payable, net - (1,029)
Proceeds from employee stock programs 1,442 434
Tax benefits realized from stock transactions 273 45
Purchases of treasury stock and other (969) (564)
-------- --------
Net cash provided by (used in) financing
activities 746 (1,114)
-------- --------
Net increase in cash and cash equivalents 1,188 1,033
Cash and cash equivalents, beginning of period 11,180 10,802
-------- --------
Cash and cash equivalents, end of period $ 12,368 $ 11,835
======== ========
Supplemental disclosures of cash flow information:
Cash paid for --
Interest $ 8 $ 33
Income taxes 364 4
</TABLE>
See accompanying notes.
5
<PAGE> 6
MICROGRAFX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements contain all the adjustments, which are normal and
recurring in nature, necessary to present fairly, in all material respects,
the financial position of Micrografx, Inc. and subsidiaries. ("Micrografx"
or "the Company") as of March 31, 1996 and June 30, 1995, and the results
of its operations and its cash flows for the periods presented. The
accompanying financial statements and notes thereto should be read in
conjunction with the Company's audited financial statements for the year
ended June 30, 1995, included in the 1995 Annual Report to Shareholders.
The results of operations for the period ended March 31, 1996 are not
necessarily indicative of results to be expected for the year ending June
30, 1996.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Raw materials $ 838 $ 749
Finished goods 275 455
-------- ---------
$ 1,113 $ 1,204
======== =========
</TABLE>
3. DEBT
The Company's $6 million line of credit, which expired December 31, 1995,
was renewed effective January 1, 1996. The renewed line of credit remains
secured by certain receivables and fixed assets and contains financial
covenants, including limitations on minimum tangible net worth, net liquid
assets and quick ratio, as defined. The revolving line of credit is due on
demand on January 5, 1997 and bears interest at the bank's prime rate
(8.25% at March 31, 1996). At March 31, 1996 and June 30, 1995, no
borrowings under the line of credit were outstanding.
4. COMMITMENTS AND CONTINGENCIES
Forward Contracts
The Company periodically enters into foreign exchange contracts to hedge
against certain exposure to changes in foreign currency exchange rates.
This exposure results from the Company's foreign operations that are
denominated in currencies other than the U.S. dollar. The Company revalues
foreign exchange contracts at each balance sheet date, which approximates
fair value, and records the exchange differences as an unrealized gain or
loss. This gain or loss is included in other (income) expense, net. As of
March 31, 1996, the Company had a foreign exchange option contract
outstanding, representing the option to purchase 150,000,000 Yen at $105.26
expiring September 1996. The cost of the option is being amortized over
the option period.
6
<PAGE> 7
MICROGRAFX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. COMMON STOCK REPURCHASE
On May 10, 1994, the board of directors authorized the purchase of up to
one million shares of Micrografx common stock on the open market over a
five year period as market conditions warrant. The purpose of the program
is to fund existing employee stock benefit programs and will be funded by
normal working capital. Approximately 40,000 shares were purchased during
the quarter ended March 31, 1996 at an average price of $13.41 per share.
As of March 31, 1996, the Company had repurchased approximately 315,100
shares at an average price of $7.65 per share under the repurchase program.
6. INCOME PER SHARE
Income per share (in thousands) for all periods presented is based on the
weighted average common and dilutive equivalent shares outstanding using
the treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average common stock
outstanding during the period 8,963 8,876 8,904 8,792
Common stock equivalents of employee
stock programs 406 59 330 25
----- ----- ----- -----
Shares used in primary income per
share calculation 9,369 8,935 9,234 8,817
===== ===== ===== =====
</TABLE>
Fully diluted income per share was not materially different from primary
income per share for all periods presented.
7. ACQUISITION OF VISUAL SOFTWARE, INC.
On April 2, 1996, the Company acquired all of the issued and outstanding
capital stock and options of Visual Software, Inc., a California
corporation ("Visual"). In connection with the acquisition, Micrografx
also agreed to exchange shares of its common stock for the 20% outstanding
minority interest in Visual Worlds Development Corporation ("VWD") owned by
persons other than Visual. VWD was an 80% owned subsidiary of Visual prior
to the acquisition. Visual and its subsidiaries are engaged in the
development and marketing of 3-D graphics software and Micrografx intends
to continue the business of Visual. Micrografx issued approximately
0.36547 shares of common stock for each outstanding share of common stock
of Visual, including the VWD shares, issuing a total of approximately
882,536 shares of common stock of Micrografx. The acquisition of Visual
will be accounted for as a pooling of interests. The terms of the
Acquisition were derived through arm's length negotiations between the
parties.
7
<PAGE> 8
MICROGRAFX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements do not reflect
the accounts and operations of Visual as the merger was consummated
subsequent to March 31, 1996. Separate results for the period prior to the
acquisition are presented below. The summary below is not necessarily
indicative of results that may be obtained in the future.
<TABLE>
<CAPTION>
Net Income Earnings
Net Revenues (Loss) Per Share
------------ ----------- ----------
<S> <C> <C> <C>
Year ended June 30, 1993
Micrografx $ 55,865 $ (2,792) $ (0.33)
Visual 612 (680) (0.85)
---------- ---------- ---------
Combined 56,477 (3,472) (0.40)
Year ended June 30, 1994
Micrografx 60,732 (4,816) (0.56)
Visual 773 (952) (2.83)
---------- ---------- ---------
Combined 61,505 (5,768) (0.64)
Year ended June 30, 1995
Micrografx 60,444 1,778 0.20
Visual 3,901 (1,083) (1.66)
---------- ---------- ---------
Combined $ 64,345 $ 695 $ 0.07
</TABLE>
The information above includes the combined results of Micrografx, Inc. and
Visual Software, Inc. for the previous three fiscal years. Interim
financial statements of the combined entity will be presented in the
Company's current report on Form 8-K/A, which will be filed pursuant to
Item 7(a)(1) of Form 8-K including the pro forma financial statements
required to be filed pursuant to Item 7(b)(1) of Form 8-K. Such financial
statements will be filed by amendment to this current report as soon as
practicable, but in no event later than June 2, 1996.
8
<PAGE> 9
MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three months ended March 31, 1996, the Company reported net revenues of
$17.4 million and net income of $1.6 million, or $0.17 per share, compared to
net income of $0.6 million, or $0.06 per share, on net revenues of $14.6
million, for the three months ended March 31, 1995. The Company reported net
revenues of $52.7 million and net income of $4.1 million, or $0.44 per share,
for the nine months ended March 31, 1996. This compares to net revenues of
$45.9 million and net income of $1.6 million, or $0.18 per share, for the nine
months ended March 31, 1995.
Revenues by customer category for the three and nine months ended March 31,
1996 and 1995 are shown below (in thousands). The Business category includes
the ABC Graphics Suite(TM), Micrografx Designer(TM), Picture Publisher(R),
Designer Power Pack, ABC FlowCharter(R), ABC ToolKit(TM) and ABC
SnapGraphics(TM). The Consumer category includes Crayola(TM) Amazing Art
Adventure(TM), Crayola(TM) Art Studio(TM), Crayola(TM)Art Studio(TM)2,
Crayola(TM)Art(TM), Hallmark Connections(TM) Card Studio(TM), Windows Draw(R)
and PhotoMagic(R). Legacy products include Micrografx Charisma(TM), Windows
OrgChart(R), Graphics Works(R) and revenues from clipart libraries and support
services.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
----------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Business $ 10,574 $ 12,856 $ 36,443 $ 38,890
Consumer 6,403 1,442 15,248 5,703
Legacy 379 265 1,056 1,338
----------- ----------- -------- ----------
Total $ 17,356 $ 14,563 $ 52,747 $ 45,931
=========== =========== ======== ==========
</TABLE>
The Company markets and sells business products for the Windows(R) 3.1,
Windows(R) 95 and Windows(R) NT operating systems. Revenues from the Company's
business products designed for the Windows 3.1 operating system, the
predecessor to Windows 95, declined and were partially offset by revenue from
ABC Graphics Suite. The ABC Graphics Suite is designed specifically for the
Windows 95 and Windows NT operating systems and includes new versions of the
Company's traditional business products: ABC FlowCharter, Designer and Picture
Publisher. During the quarter ended March 31, 1996, revenue from the ABC
Graphics Suite represented 19% of the Company's business products revenues.
The Company released localized versions of ABC Graphics Suite in French and
Spanish during the quarter ended March 31, 1996. The Company's future business
products revenues are expected to become substantially dependent upon sales of
ABC Graphics Suite as companies migrate to Windows 95 and Windows NT software
applications. The decline in overall business revenue from the prior year
reflects the delay in corporations adopting Windows 95 and Window NT, as the
Company's principal business product is designed for these operating
environments.
Revenues from the Company's consumer products continued to increase during the
quarter, led by revenues from Hallmark Connections(TM) Card Studio(TM), which
were $3.0 million for the quarter ended March 31. 1996. In addition, revenue
from Windows Draw grew 187% year over year, from $0.6 million to $1.8 million,
for the quarters ended March 31, 1995 and 1996, respectively. During the
quarter ended March 31, 1996, the Company released Windows Draw 4.0 in
Japanese. Revenues from Crayola Art Studio 2 were $1.2 million in the quarter
ended March 31, 1996, compared to $0.5 million in the prior year, consisting of
earlier versions of the Crayola products, resulting in an increase of 135% year
over year.
9
<PAGE> 10
MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenues by geographical region for the three and nine months ended March 31,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Americas 51% 41% 49% 42%
Europe 35% 45% 36% 45%
Pacific Rim 14% 14% 15% 13%
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
</TABLE>
Revenue growth during the quarter ended March 31, 1996 was greatest in
Australia and the United States, which grew 49% and 43% respectively, over the
same quarter in fiscal 1995. Revenues were positively impacted by the release
of the ABC Graphics Suite in English and the Company's consumer product
offerings, which are available only in English.
Cost of revenues for the three months ended March 31, 1996 was $4.2 million, or
24% of net revenues, compared to $3.6 million, or 25% of net revenues, for the
three months ended March 31, 1995. Cost of revenues for the nine months ended
March 31, 1996 was $12.5 million, or 24% of net revenues, compared to $11.5
million, or 25% of net revenues, for the nine months ended March 31, 1995. The
improvement in cost of revenues for the three and nine months ended March 31,
1996 is attributable to a product mix that includes more OEM (products bundled
by original equipment manufacturers) and license revenues, which have lower
cost of revenues than full product versions. This improvement was offset in
part by increased external royalties associated with certain of the Company's
consumer products.
Sales and marketing expenses for the three months ended March 31, 1996 were
$7.7 million, or 44% of revenues, compared to $7.7 million, or 53% of revenues
for the same period in the previous year. For the nine months ended March 31,
1996, sales and marketing expenses were $24.3 million or 46% of net revenues,
compared to $24.3 million or 53% of net revenues for the nine months ended
March 31, 1995. The decrease in sales and marketing expense as a percentage of
revenue reflects the efficiencies gained by marketing fewer products as a
result of their combination into suite offerings.
General and administrative expenses were $1.9 million, or 11% of net revenues,
for the three months ended March 31, 1996, compared to $1.7 million, or 12% of
net revenues, for the three months ended March 31, 1995. For the nine months
ended March 31, 1996, general and administrative expenses were $5.6 million, or
11% of net revenues, compared to $5.4 million, or 12% of net revenues for the
same period in the prior year. The decrease in general and administrative
expenses as a percentage of net revenues reflects efficiencies realized by
leveraging the Company's organization over a larger revenue base.
Net research and development expenses for the three months ended March 31, 1996
were $1.4 million, or 8% of net revenues, compared to $1.1 million, or 8% of
net revenues, for the quarter ended March 31, 1995. Net research and
development costs for the nine months ended March 31, 1996 were $4.6 million,
or 9% of net revenues, compared to $3.2 million, or 7% of net revenues, for the
nine months ended March 31, 1995. Gross research and development expenses,
before capitalization, for the three months ended March 31, 1996 were $2.4
million, or 14% of net revenues, compared to $2.1 million, or 14% of net
revenues for the quarter ended March 31, 1995. For the nine months ended March
31, 1996, gross research and development costs were $7.0 million or 13% of net
revenues compared to $5.7 million or 12% of net revenues for the nine months
ended March 31, 1995.
10
<PAGE> 11
MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the nine months ended March 31, 1996, the Company capitalized
approximately $2.3 million in software development costs and amortized $2.4
million in software development costs. This compares to capitalization of $2.4
million and amortization of $2.5 million in the nine months ended March 31,
1995.
For the three months ended March 31, 1996, interest income of $0.3 million was
partially offset by other expense of $0.1 million, consisting primarily of
foreign exchange losses. Non operating income was $0.4 million for the three
months ended March 31, 1995 and consisted primarily of foreign exchange gains.
For the nine months ended March 31, 1996, interest income of $0.7 million was
offset by foreign exchange losses of $0.7 million. This compares to non
operating income of $0.7 million for the nine months ended March 31, 1995.
ACQUISITION OF VISUAL SOFTWARE, INC.
On April 2, 1996, the Company acquired all of the issued and outstanding
capital stock and options of Visual Software, Inc., a California corporation
("Visual"). In connection with the acquisition, Micrografx also agreed to
exchange shares of its common stock for the 20% outstanding minority interest
in Visual Worlds Development Corporation ("VWD") owned by persons other than
Visual. VWD was an 80% owned subsidiary of Visual prior to the acquisition.
Visual and its subsidiaries are engaged in the development and marketing of 3-D
graphics software and Micrografx intends to continue the business of Visual.
Micrografx issued approximately 0.36547 shares of common stock for each
outstanding share of common stock of Visual, including the VWD shares, issuing
a total of approximately 882,536 shares of common stock of Micrografx. The
acquisition of Visual will be accounted for as a pooling of interests. The
terms of the Acquisition were derived through arm's length negotiations between
the parties.
As a result of the acquisition, the Company expects to record a one-time
charge of approximately $3 million in the quarter ending June 30, 1996, of
which approximately $1 million will be non-cash related. The one-time charge
consists of severance and lease costs related to duplicate facilities and
excess capacity, inventory associated with discontinued products, duplicative
marketing costs, and closing costs. In addition, the Company paid off
approximately $2 million in debt held by Visual at closing.
11
<PAGE> 12
MICROGRAFX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $12.4 million, short-term investments of $5.9
million, and a $6.0 million line of credit. No borrowings were outstanding
under the line of credit as of March 31, 1996.
As discussed in Notes to Condensed Consolidated Financial Statements, the
Company renewed its line of credit agreement effective January 1, 1996. The
renewed line of credit remains secured by certain receivables and fixed assets
and contains financial covenants, including limitations on minimum tangible net
worth, net liquid assets and quick ratio, as defined. The revolving line of
credit is due on demand on January 5, 1997 and bears interest at the bank's
prime rate (8.25% at March 31, 1996).
For the nine months ended March 31, 1996, cash provided by operating and
financing activities exceeded cash used in investing activities, resulting in
an increase of $1.2 million in cash and cash equivalents. Operating activities
provided $6.8 million in cash during the nine months ended March 31, 1996,
consisting primarily of net income of $4.1 million and depreciation and
amortization of $6.2 million, offset by an increase in accounts receivable of
$2.8 million. Accounts receivable increased primarily due to significant sales
to U.S. customers near the end of the quarter. Investing activities used $6.3
million in cash during the nine months ended March 31, 1996 primarily due to
capitalized software development costs and purchases of acquired product rights
of $4.6 million. Financing activities provided $0.7 million in cash during
the nine months ended March 31, 1996, consisting primarily of proceeds from
employee stock programs.
The Company believes that cash flow from operations, existing cash, and
existing and future borrowing arrangements will be sufficient to meet the
Company's capital expenditures, debt repayments, and any other working capital
requirements in the short term (the next 12 months). The Company believes that
thereafter its liquidity requirements will be met with cash flow from
operations and existing cash and short-term investment balances.
As a result of the acquisition of Visual Software, Inc., as described above,
the Company expects to record a one-time charge of approximately $3 million in
the quarter ending June 30, 1996, of which approximately $2 million will be
cash related. In addition, the Company paid off approximately $2 million in
debt held by Visual at closing. The Company will fund these costs with its
existing cash reserves.
FORWARD-LOOKING STATEMENTS
The Company notes that each of the above forward-looking statements are subject
to change based on various important factors including, without limitation,
competitive actions in the market place. Further information on potential
factors which could affect the Company's financial results are included in the
Company's 1995 Annual Report to Shareholders.
12
<PAGE> 13
MICROGRAFX, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's product offerings in fiscal 1995 included Crayola Amazing Art
Adventure and Crayola Art Studio, which embody copyrights, trademarks, trade
names and other proprietary designs and characters that are the property (the
"Licensed Intellectual Property") of Binney & Smith Properties, Inc. (the
"Licensor") pursuant to a license agreement between the Company and the
Licensor (the "License Agreement"). The License Agreement expired on December
31, 1995, and the Company was required to cease using the Licensed Intellectual
Property in connection with these products by March 31, 1996. Revenues from the
sale of these products were not material for the quarter ended March 31, 1996.
In August 1995, the Company released Crayola Art, a new product specifically
designed for original equipment manufacturers, and in October 1995, the Company
released another product, Crayola Art Studio 2. The Company believed that it
was entitled to a license agreement from the Licensor for these new products.
As a result, the Company initiated litigation in February 1996 against Hallmark
Cards, Inc. and Binney & Smith asserting various claims of relief, including
monetary damages and a declaration that the Company is entitled to a license to
sell Crayola Art and Crayola Art Studio 2. The Company settled the contractual
dispute with Binney & Smith Properties, Inc., on February 23, 1996. The
settlement clarifies the license agreement between Micrografx and Binney &
Smith and extends to Micrografx the right to sell and market Crayola(TM) Art
and Crayola(TM) Art Studio(TM) 2 through March 31, 1997. See discussion of
revenues for the Crayola products in the accompanying Management's Discussion
and Analysis of Financial Condition and Results of Operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K.
A Form 8-K dated April 2, 1996 was filed by the Company reporting its
acquisition of Visual Software, Inc. The Company acquired all of the
issued and outstanding capital stock of Visual, a California
corporation. Micrografx issued 882,536 shares of common stock of
Micrografx. The acquisition was accounted for as a pooling of
interests. See "Acquisition of Visual Software, Inc." in Notes to
Condensed Consolidated Financial Statements.
13
<PAGE> 14
MICROGRAFX, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROGRAFX, INC.
Date: May 15, 1996 By /s/ J. Paul Grayson
-----------------------------------
J. Paul Grayson
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 15, 1996 By /s/ Gregory A. Peters
----------------------------------
Gregory A. Peters
Chief Financial Officer
and Treasurer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 12,368
<SECURITIES> 5,913
<RECEIVABLES> 15,275
<ALLOWANCES> 3,664
<INVENTORY> 1,113
<CURRENT-ASSETS> 33,847
<PP&E> 14,323
<DEPRECIATION> 11,095
<TOTAL-ASSETS> 42,586
<CURRENT-LIABILITIES> 11,105
<BONDS> 0
<COMMON> 96
0
0
<OTHER-SE> 30,489
<TOTAL-LIABILITY-AND-EQUITY> 42,586
<SALES> 52,747
<TOTAL-REVENUES> 52,747
<CGS> 12,472
<TOTAL-COSTS> 12,472
<OTHER-EXPENSES> 34,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 5,793
<INCOME-TAX> 1,738
<INCOME-CONTINUING> 4,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,055
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
