<PAGE>
===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-27084
CITRIX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2275152
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
210 UNIVERSITY DRIVE
SUITE 700
CORAL SPRINGS, FLORIDA 33071
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 755-0559
Not Applicable
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year if Changed Since Last Report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
--- ---
As of August 1, 1996, there were 26,433,976 shares of the registrant's Common
Stock, $.001 par value per share, outstanding.
Total Number of Pages: 19__
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<PAGE>
CITRIX SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets:
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations:
Three Months and Six Months ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
Exhibit 11 18
Exhibit 27 19
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $122,048,355 $43,471,491
Short-term investments 2,951,518 -
Accounts receivable, net
of allowances of $1,388,117
and $1,008,425 at June 30,
1996 and December 31,
1995, respectively 3,096,337 2,328,512
Inventories 469,536 194,023
Prepaid expenses 273,778 230,313
Note receivable from
officer, including
accrued interest of
$28,910 at December 31,
1995 - 128,910
Other current assets 470,314 -
-----------------------------
Total current assets 129,309,838 46,353,249
Property and equipment, net 469,126 301,996
Other assets - 59,941
-----------------------------
$129,778,964 $46,715,186
=============================
</TABLE>
See accompanying notes.
3
<PAGE>
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 353,953 $ 546,266
Accrued royalties and
other accounts payable
to shareholder 994,510 521,517
Other accrued expenses 2,114,856 1,137,478
Deferred revenue 959,774 680,767
Deferred revenue on
contract with shareholder 541,000 541,000
Current portion of
capital lease
obligations payable to
related parties 132,330 144,976
Income taxes payable 97,887 93,100
-----------------------------
Total current liabilities 5,194,310 3,665,104
Long-term portion of
capital lease obligations
payable to related parties 28,322 88,379
-----------------------------
Total liabilities 5,222,632 3,753,483
Shareholders' equity:
Preferred stock at $.01
par value--5,000,000
shares authorized, none
issued and outstanding
at June 30, 1996 and
December 31, 1995 - -
Common stock at $.001 par
value--60,000,000 and
30,000,000 shares authorized;
and 26,381,147 and
23,650,916 issued and
outstanding at June 30,
1996 and December 31,
1995, respectively 26,381 23,651
Additional paid-in capital 130,060,062 54,938,583
Accumulated deficit (5,530,111) (12,000,531)
-----------------------------
Total shareholders' equity 124,556,332 42,961,703
-----------------------------
$129,778,964 $ 46,715,186
=============================
</TABLE>
See accompanying notes.
4
<PAGE>
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 9,501,193 $ 2,454,273 $17,272,856 $ 5,140,141
Cost of goods sold 1,233,582 334,892 2,213,525 733,466
---------------------------------------------------------
Gross margin 8,267,611 2,119,381 15,059,331 4,406,675
Operating expenses:
Research and development 960,249 571,714 1,864,078 1,124,652
Sales, marketing and support 2,848,519 1,680,352 5,335,430 3,141,329
General and administrative 747,631 399,982 1,608,357 685,427
---------------------------------------------------------
Total operating expenses 4,556,399 2,652,048 8,807,865 4,951,408
---------------------------------------------------------
Income (loss) from operations 3,711,212 (532,667) 6,251,466 (544,733)
Other income, net 911,798 17,417 1,473,123 26,715
---------------------------------------------------------
Net income (loss) before income taxes 4,623,010 (515,250) 7,724,589 (518,018)
Income taxes 1,006,023 - 1,254,169 -
---------------------------------------------------------
Net income (loss) 3,616,987 (515,250) 6,470,420 (518,018)
Less redeemable convertible preferred
stock accretion - - (12,178,398)
---------------------------------------------------------
Net income (loss) attributable
to common shares $ 3,616,987 $ (515,250) $ 6,470,420 $(12,696,416)
=========================================================
Historical:
Net income (loss) per share $0.14 $(0.16) $0.25 $(3.34)
=========================================================
Weighted average shares outstanding 26,257,711 3,211,190 26,128,124 3,225,250
=========================================================
Supplementary:
Net income (loss) per share $0.14 $(0.03) $0.25 $(0.03)
=========================================================
Weighted average shares outstanding 26,257,711 18,570,578 26,128,124 18,584,638
=========================================================
</TABLE>
See accompanying notes.
5
<PAGE>
CITRIX SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 6,470,420 $ (518,018)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 173,746 82,714
Provision for doubtful accounts 152,189 20,489
Tax benefit related to the
exercise of non-statutory
stock options and disqualified
dispositions of incentive stock
options 1,624,696 -
Changes in operating assets
and liabilities:
Accounts receivable (920,014) (609,229)
Inventories (275,513) (95,380)
Prepaid expenses (43,465) (54,037)
Other assets (410,373) -
Interest on note receivable
from officer 28,910 (4,026)
Deferred revenue 279,007 1,005,749
Accounts payable (192,313) 8,315
Accrued royalties and other
accounts payable to
shareholder 472,993 75,465
Income taxes payable 4,787 -
Other accrued expenses 977,378 246,540
----------------------------
Net cash provided by operating
activities 8,342,448 158,582
INVESTING ACTIVITIES
Purchases of short-term
investments (2,951,518) -
Proceeds from note receivable
from officer 100,000 -
Purchases of property and
equipment (340,876) (7,684)
----------------------------
Net cash used in investing
activities (3,192,394) (7,684)
FINANCING ACTIVITIES
Net proceeds from issuance of
common stock 73,499,513 22,912
Repurchase of common stock
previously issued - (4,856)
Proceeds from line of credit - 600,000
Payments on line of credit - (600,000)
Payments on capital lease
obligations payable to related
parties (72,703) (57,698)
----------------------------
Net cash provided by (used in)
financing activities 73,426,810 (39,642)
----------------------------
Increase in cash and cash
equivalents 78,576,864 111,256
Cash and cash equivalents at
beginning of period 43,471,491 1,912,781
----------------------------
Cash and cash equivalents at end
of period $122,048,355 $ 2,024,037
============================
SUPPLEMENTARY DISCLOSURE OF
NON-CASH INVESTING ACTIVITY
Property and equipment acquired under
capital leases $ - $ 123,409
============================
</TABLE>
See accompanying notes.
6
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All
adjustments which, in the opinion of management, are considered necessary for a
fair presentation of the results of operations for the periods shown have been
included. The results of operations for the periods presented are not
necessarily indicative of the results expected for the full fiscal year or for
any future period. The information included in these unaudited condensed
consolidated financial statements should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and accompanying notes
included in the Citrix Systems, Inc. 1995 Annual Report on Form 10-K.
2. SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the condensed consolidated financial statements
and accompanying notes. While the Company believes that such estimates are fair
when considered in conjunction with the condensed consolidated financial
position and results of operations taken as a whole, the actual amount of such
estimates, when known, may vary from these estimates.
NET INCOME (LOSS) PER SHARE
Historical net income (loss) per share is calculated using the weighted average
number of common and common equivalent shares outstanding during the respective
periods. Pursuant to the requirements of the Securities and Exchange
Commission, common shares and common equivalent shares issued at prices below
the Company's initial public offering price during the twelve months immediately
preceding the date of the initial filing of the Company's October 24, 1995
Registration Statement have been included in the calculation of common shares
and common equivalent shares, using the treasury stock method, as if they were
outstanding for all periods presented. Dilutive common stock equivalents
consist of warrants and stock options calculated using the treasury stock
method. All common share and per share data, except par value per share, have
been retroactively adjusted to reflect the two-for-three reverse stock split of
the Company's Common Stock effective December 7, 1995 and the two-for-one stock
split effective June 4, 1996.
Supplementary net income (loss) per share is computed in the same manner as
historical net income (loss) per share, after giving effect to the conversion of
Redeemable Convertible Preferred Stock into an aggregate of 15,359,388 shares of
Common Stock, which occurred in December 1995, as though it occurred at the
beginning of 1995.
7
<PAGE>
INCOME TAXES
The income taxes recorded in the three months and six months ended June 30, 1996
have been computed based upon the Company's estimated annual effective tax rate
for the fiscal year ending December 31, 1996, giving effect to the utilization
of all of the Company's income tax net operating loss carryforwards and tax
credit carryforwards from prior periods.
The Company recorded income taxes of approximately $1,006,000 during the second
quarter of 1996. In the second quarter of 1996, the Company revised its
estimated annual effective tax rate to 16%. The incremental increase in the
effective tax rate for the first and second quarters of 1996 amounted to
$248,000 and $388,000, respectively, and were recorded in the second quarter of
1996.
SHORT-TERM INVESTMENTS
Short-term investments at June 30, 1996 consist of commercial paper. The
Company adopted the provisions of Statement of Financial Accounting Standards
Board No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FASB No. 115). FASB No. 115 requires investments to be classified
based on management's intent in three categories: held-to-maturity securities,
available-for-sale securities and trading securities. Held-to-maturity
securities are recorded at amortized cost. Available-for-sale securities are
recorded at market value with unrealized gains and losses reported as a separate
component of shareholders' equity. Trading securities are recorded at market
value with unrealized gains and losses reported in the earnings. The Company
classifies its short-term investments as available-for-sale securities. The
market value of these securities at June 30, 1996 approximated cost.
3. SECONDARY OFFERING
In June 1996, the Company issued an additional 2,364,888 shares in connection
with the second public offering of its Common Stock, which generated net
proceeds of approximately $73,200,000.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company develops, markets, sells and supports innovative client and
application server software that enables effective and efficient deployment of
enterprise applications that are designed for Windows operating systems. The
Company was incorporated in April 1989, and shipped its initial products in
1991.
From its introduction in the second quarter of 1993 through the second quarter
of 1995, the WinView product represented the largest source of the Company's
revenues. The Company began shipping WinFrame products in final form in the
third quarter of 1995.
The Company anticipates that the WinFrame product line will constitute a
majority of its revenues for the foreseeable future. The Company anticipates
that revenues from the WinView product will decline over time as the Company's
distribution channels and customer base transition to WinFrame products.
Revenues from WinFrame and WinView products result primarily from license fees
for "shrink wrapped" product sold to distributors and resellers. The Company
also derives revenue from initial license fees and associated quarterly
royalties from original equipment manufacturers ("OEMs"), non-recurring
engineering fees and training, consulting and service revenue.
Product revenues are recognized upon shipment only if no significant Company
obligations remain and collection of the resulting receivable is deemed
probable. In the case of non-cancelable product licensing arrangements under
which certain OEMs have software reproduction rights, recognition of revenue
also requires delivery and customer acceptance of the product master or first
copy. Product returns and sales allowances are estimated and provided for at
the time of sale. Non-recurring engineering fees are recognized ratably as the
work is performed. Revenues from training and consulting are recognized when
the services are performed. Service revenues from customer maintenance fees for
ongoing customer support and product updates are recognized ratably over the
term of the contract, which is typically twelve months. Service revenues, which
are immaterial when compared to net revenues, are included in net revenues on
the face of the income statement.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data of the Company
expressed as a percentage of net revenues and as a percentage of change from
period-to-period for the periods indicated.
<TABLE>
<CAPTION>
CHANGE FROM THREE CHANGE FROM SIX
MONTHS ENDED MONTHS ENDED
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30,
--------------------------- ------------------------- 1996 VS 1996 VS
1996 1995 1996 1995 1995 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 287.1% 236.0%
Cost of goods sold 13.0 13.6 12.8 14.3 268.4 201.8
----- ------ ----- ----- ----- -----
Gross margin 87.0 86.4 87.2 85.7 290.1 241.7
----- ------ ----- ------ ----- -----
Operating expenses:
Research and development 10.1 23.3 10.8 21.9 68.0 65.7
Sales, marketing and
support 30.0 68.5 30.9 61.1 69.5 69.8
General and administrative 7.9 16.3 9.3 13.3 86.9 134.7
----- ------ ----- ------ ----- -----
Total operating expenses 48.0 108.1 51.0 96.3 71.8 77.9
----- ------ ----- ------ ----- -----
Income (loss) from operations 39.0 (21.7) 36.2 (10.6) * *
Other income, net 9.6 0.7 8.5 0.5 * *
----- ------ ----- ------ ----- -----
Income (loss) before income taxes 48.6 (21.0) 44.7 (10.1) * *
Income taxes 10.6 0.0 7.3 0.0 * *
----- ------ ----- ------ ----- -----
Net income (loss) 38.0% (21.0)% 37.4% (10.1)% *% *%
===== ====== ===== ====== ===== =====
</TABLE>
* Not meaningful.
9
<PAGE>
Net Revenues. Net revenues were $9.5 million and $2.5 million for the three
months ended June 30, 1996 and 1995, respectively, representing an increase of
287.1%. For the six months ended June 30, 1996 and 1995, net revenues were
$17.3 million and $5.1 million, respectively, an increase of 236.0%. The
increase in net revenues for both periods primarily reflects revenues generated
from the Company's WinFrame products, whose first production version was shipped
in the third quarter of 1995 and, to a lesser extent, increased OEM revenues.
WinFrame and OEM revenues approximated 58.5% and 27.8% of revenues,
respectively, in the three months ended June 30, 1996 and 51.3% and 33.5% of
revenues, respectively, in the six months ended June 30, 1996. Both the
Company's WinFrame and OEM revenues represent product license fees based upon
the Company's multiuser NT-based technology. These increases in net revenues
were offset by a decline in the Company's WinView product revenues. The Company
anticipates that WinView revenues will continue to account for a decreasing
percentage of revenues in future periods.
Cost of Goods Sold. Cost of goods sold consists primarily of the cost of
royalties, product media and duplication, manuals, packaging materials and
shipping expense. Cost of OEM revenues primarily consists of cost of royalties,
except where the OEM elects to purchase shrink wrapped products in which case
such costs are as described above. Costs associated with non-recurring
engineering fees are included in research and development expenses and are not
separately identifiable. All development costs included in the research and
development of software products and enhancements to existing products have been
expensed as incurred.
Gross Margin. Gross margin increased from 86.4% in the second quarter of
fiscal 1995 to 87.0% in the second quarter of fiscal 1996 and from 85.7% in the
first half of 1995 to 87.2% in the first half of 1996. The increase in gross
margin was primarily attributable to changes in product mix, representing
changes in the mix of OEM revenues versus product sold to distributors and
resellers, different products within the WinFrame family and a lower proportion
of WinView product revenues.
Research and Development Expenses. Research and development expenses were
$960,000 and $572,000, for the three months ended June 30, 1996 and 1995,
respectively, and $1.9 million and $1.1 million for the six months ended June
30, 1996 and 1995, respectively. Increases in research and development expenses
in the second quarter of 1996 compared to the second quarter of 1995 resulted
primarily from expenses associated with the translation and localization of the
WinFrame products and additional staffing and associated expenses. The increase
in research and development expenses for the six months ended June 30, 1996 is
primarily due, in addition to the above, to increased expenses associated with
patent filings relating to certain aspects of the Company's software products
and technology.
Sales, Marketing and Support Expenses. Sales, marketing and support expenses
approximated $2.8 million and $1.7 million for the three months ended June 30,
1996 and 1995, respectively, and $5.3 million and $3.1 million for the six
months ended June 30, 1996 and 1995, respectively. The increase for both
periods resulted primarily from increases in promotional activities, such as
tradeshows and advertising literature. Sales staff and associated salaries,
commissions and related expenses, as well as marketing staff and associated
salaries and related expenses, also increased.
General and Administrative Expenses. General and administrative expenses were
$750,000 and $400,000 for the three months ended June 30, 1996 and 1995,
respectively, and $1.6 million and $685,000 for the six months ended June 30,
1996 and 1995, respectively. The increase in general and administrative
expenses for both periods is primarily due to expenditures associated with
being a public company such as increased legal fees and associated regulatory
filings and expenses as well as expenses associated with investor relations, and
increased staff, associated salaries and related expenses.
Other Income, Net. Other income, net, amounted to $912,000 and $17,000 for the
three months ended June 30, 1996 and 1995, respectively, and $1.5 million and
$27,000 for the six months ended June 30, 1996 and 1995, respectively. The
increase in both periods is primarily due to interest income generated from the
net proceeds of the Company's initial public offering and second public
offering, which were completed in December 1995 and June 1996, respectively.
Income Taxes. During the three months and six months ended June 30, 1996, the
Company incurred income taxes of $1.0 million and $1.3 million, respectively,
based on its estimated annual effective tax rate. Income tax net operating loss
carryforwards and income tax credit carryforwards are included in the
computation of the estimated annual effective tax rate. If the Company
continues to remain profitable, then such loss and tax credit carryforwards will
reduce the amount of taxes payable in the future. The amount of the loss and
tax credit carryforwards which can be utilized in any period may be limited in
the event that a change in ownership exceeding certain limits prescribed by
Section 382 of the Internal Revenue Code is deemed to occur in the future.
10
<PAGE>
In the second quarter of 1996, the Company revised its estimated annual
effective tax rate to 16%. The incremental increase in the effective tax rate
for the first and second quarters of 1996 amounted to $248,000 and $388,000,
respectively, and was recorded in the second quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company generated positive
operating cash flows primarily from increased profitability. The increase in
accounts receivable was funded by corresponding increases in other accrued
expenses and accrued royalties. During the same period, the Company recognized
tax benefit from the exercise of non-statutory stock options and disqualifying
dispositions of incentive stock options of approximately $1.6 million. In June
1996, the Company completed its second public offering, which generated net
proceeds of approximately $73.2 million. Additionally, the Company purchased
short-term investments for approximately $3.0 million during the same period.
The Company also generated positive operating cash flows in the six months ended
June 30, 1995; however, during this period, it was primarily due to an increase
in deferred revenues and other accrued expenses which were partially offset
by an increase in accounts receivable.
The Company has lines of credit for working capital and equipment lease
financing aggregating $2.0 million and $500,000, respectively. These credit
lines expire in February 1997. The working capital credit line is limited to a
defined percentage of eligible accounts receivable. The credit lines are
secured by the accounts receivable and the equipment leased, respectively, and
are subject to certain performance and operating ratios. The credit line
agreement also restricts the Company's ability to pay cash dividends. There
were no borrowings outstanding under the working capital credit line as of June
30, 1996.
At June 30, 1996, the Company had $122.0 million in cash and cash
equivalents, $3.0 million in short-term investments and $124.1 million of
working capital. The Company's cash and cash equivalents and short-term
investments are invested in investment grade, interest bearing securities to
minimize interest rate risk and allow for flexibility in the event of immediate
cash needs. The Company had $3.1 million in accounts receivable, net of
allowances, and $1.5 million of deferred revenues, most of which the Company
anticipates will be earned over the next twelve months.
The Company expects that its requirements for office facilities and equipment
will grow as staffing requirements dictate. The Company plans to increase its
professional staff during 1996 as sales, marketing and support and product
development efforts and associated administrative systems are implemented to
support planned growth. As a result of this planned growth in staff, the
Company entered into a 63-month lease in June 1996 for approximately 46,000
rentable square feet and intends to relocate to the new facility within the next
six months. The Company believes that the cost of moving its operations to such
facilities will not significantly impact its financial position or results of
operations.
The Company believes existing cash and cash equivalents and short-term
investments, together with borrowings available under the Company's lines of
credit, will be sufficient to meet operating and capital expenditures
requirements for at least the next twelve months.
The Company has not paid cash dividends on its common stock.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS
The Company does not provide financial performance forecasts. The Company's
operating results and financial condition have varied and may in the future vary
significantly depending on a number of factors. Except for the historical
information contained herein, the matters contained in this report include
forward-looking statements that involve risks and uncertainties. The following
factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this report and presented
elsewhere by management from time to time. Such factors, among others, may have
a material adverse effect upon the Company's business, results of operations and
financial condition.
Reliance Upon Strategic Relationship with Microsoft. Microsoft Corporation
("Microsoft") is the leading provider of desktop operating systems. The Company
is dependent upon the license of certain key technology from Microsoft,
including certain source and object code licenses, technical support and other
materials. The Company is also dependent on its strategic alliance agreement
with Microsoft which provides for cooperation in the development of
technologies for advanced operating systems, and the promotion of advanced
Windows application program interfaces.
11
<PAGE>
Dependence Upon Broad-Based Acceptance of ICA Protocol. The Company believes
that its success in the markets in which it competes will depend upon its
ability to make its Intelligent Console Architecture ("ICA") protocol a de facto
standard for supporting distributed Windows applications, thereby creating
demand for its server products.
Dependence Upon Strategic Relationships. In addition to its relationship with
Microsoft, the Company has relationships with a number of strategic partners.
The Company is dependent on its strategic partners to successfully incorporate
the Company's technology into their products and to successfully market and sell
such products.
Competition. The markets in which the Company competes are intensely
competitive. Most of the competitors and potential competitors, including a
shareholder, have significantly greater financial, technical, sales and
marketing and other resources than the Company.
Dependence on Proprietary Technology. The Company relies on a combination of
copyright, trademark and trade secret laws, as well as confidentiality
procedures and contractual provisions to protect its proprietary rights.
Despite the Company's precautions, it may be possible for unauthorized third
parties to copy certain portions of the Company's products or to obtain and use
information regarded as proprietary. Additionally, the laws of some foreign
countries do not protect the Company's intellectual property to the same extent
as do the laws of the United States and Canada.
Product Concentration. The Company anticipates that one of its product
technologies and future derivative products and product lines based upon this
technology, if any, will constitute a majority of its revenue for the
foreseeable future. The Company may experience declines in demand for products
based on this technology, whether as a result of new competitive product
releases, price competition, lack of success of its strategic partners,
technological change or other factors.
Management of Growth. The Company has recently experienced rapid growth in the
scope of its operations, the number of its employees, and the geographic area of
its operations. To manage its growth effectively, the Company will be required
to continue to implement additional management and financial systems and
controls, and to expand, train and manage its employee base.
Dependence on Key Personnel. The Company's success will depend, in large part,
upon the services of a number of key employees. The effective management of the
Company's anticipated growth will depend, in large part, upon the Company's
ability to retain its highly skilled technical, managerial and marketing
personnel as well as its ability to attract and maintain replacements for and
additions to such personnel in the future.
New Products and Technological Change. The markets for the Company's products
are relatively new and are characterized by rapid technological change, evolving
industry standards, changes in end-user requirements and frequent new product
introductions and enhancements. Additionally, the Company and others may
announce new products, capabilities or technologies that could replace or
shorten the life cycle of the Company's existing product offerings. These
market characteristics will require the Company to continuously enhance its
current products and develop and introduce new products to keep pace with
technological developments and respond to evolving end-user requirements.
Potential for Undetected Errors. Despite significant testing by the Company
and by current and potential customers, errors may not be found in new products
until after commencement of commercial shipments. Additionally, third party
products, upon which the Company's products are dependent, may contain defects
which could reduce the performance of the Company's products or render them
useless.
Reliance Upon Indirect Distribution Channels and Major Distributors. The
Company relies significantly on independent distributors and resellers for the
marketing and distribution of its products. The Company's distributors and
resellers are not within the control of the Company, are not obligated to
purchase products from the Company, and may also represent other lines of
products.
Need to Expand Channels of Distribution. The Company intends to leverage its
relationships with hardware and software vendors and systems integrators to
encourage these parties to recommend or distribute the Company's products. In
addition, an integral part of the Company's strategy is to expand its direct
sales force and add third-party distributors both domestically and
internationally. The Company is currently investing, and intends to continue to
invest, significant resources to develop these channels, which could adversely
affect the Company's operating margins.
12
<PAGE>
Product Returns and Price Reductions. The Company provides most of its
distributors and resellers with product return rights for stock balancing or
limited product evaluation. The Company also provides most of its distributors
and resellers with price protection rights. The Company has established
reserves for each of these circumstances where appropriate, based on historical
trends and evaluation of current circumstances.
International Operations. The Company's continued growth and profitability
will require expansion of its international operations. To successfully expand
international sales, the Company will need to establish additional foreign
operations, hire additional personnel and recruit additional international
resellers. Such international operations are subject to certain risks, such as
difficulties in staffing and managing foreign operations, dependence on
independent relicensors, fluctuations in foreign currency exchange rates,
compliance with foreign regulatory and market requirements, variability of
foreign economic conditions and changing restrictions imposed by regulatory
requirements, tariffs or other trade barriers or by United States export laws,
costs of localizing products and marketing such products in foreign countries,
longer accounts receivable payment cycles, potentially adverse tax consequences,
including restrictions on repatriation of earnings and the burdens of complying
with a wide variety of foreign laws.
Fluctuations in Economic and Market Conditions. The demand for the Company's
products depends in part upon the general demand for computer hardware and
software, which fluctuates based on numerous factors, including capital spending
levels and general economic conditions.
Fluctuations in Quarterly Operating Results. The Company's quarterly operating
results have in the past varied and may in the future vary significantly
depending on factors such as the success of the Company's recently introduced
WinFrame products, the size, timing and recognition of revenue from significant
orders, increased competition, the proportion of revenues derived from
distributors, OEMs and other channels, changes in the Company's pricing policies
or those of its competitors, the financial stability of major customers, new
product introductions or enhancements by competitors, delays in the introduction
of products or product enhancements by the Company or by competitors, customer
order deferrals in anticipation of upgrades and new products, market acceptance
of new products, the timing and nature of sales and marketing expenses (such as
trade shows and other promotions), other changes in operating expenses,
personnel changes (including the addition of sales personnel), foreign currency
exchange rates and general economic conditions. The Company operates with little
order backlog because its software products typically are shipped shortly after
orders are received. In addition, like many systems level software companies,
the Company has often recognized a substantial portion of its revenues in the
last month of a quarter with these revenues frequently concentrated in the last
weeks or days of the quarter. As a result, the product revenues in any quarter
are substantially dependent on orders booked and shipped in that quarter, and
revenues for any future quarter are not predictable with any degree of
certainty. Any significant deferral of purchases of the Company's products could
have a material adverse effect on the Company's business, results of operations
and financial condition in any particular quarter, and to the extent significant
sales occur earlier than expected, operating results for subsequent quarters may
be adversely affected. Royalty and license revenues are impacted by fluctuations
in OEM licensing activity from quarter to quarter because such initial license
fees generally are recognized upon customer acceptance. The Company's expense
levels are based, in part, on its expectations as to future orders and sales,
and the Company may be unable to adjust spending in a timely manner to
compensate for any sales shortfall. If sales are below expectations, operating
results are likely to be adversely affected. Net income may be
disproportionately affected by a reduction in sales because a significant
portion of the Company's expenses do not vary with revenues. The Company may
also choose to reduce prices or increase spending in response to competition or
to pursue new market opportunities. In particular, if new competitors,
technological advances by existing competitors or other competitive factors
require the Company to invest significantly greater resources in research and
development efforts, the Company's operating margins in the future may be
adversely affected.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Due to all of
the foregoing factors, it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
13
<PAGE>
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held May 17, 1996 (the "1996
Annual Meeting"), the Company's stockholders took the following actions:
(1) The Company's stockholders elected Roger W. Roberts, Tyrone F. Pike and
Robert N. Goldman as Class I directors, each to serve for a three-year
term expiring at the Company's annual meeting of stockholders in 1999 or
until his successor has been duly elected and qualified or until his
earlier resignation or removal. Election of the directors was determined
by a plurality of the votes cast at the 1996 Annual Meeting. With
respects to such matter, the votes were cast as follows: 10,735,294
shares voted for the election of Mr. Roberts and Mr. Goldman and
10,733,106 shares voted for the election of Mr. Pike, and 4,730 shares
were withheld from the election of Mr. Roberts and Mr. Goldman and 6,918
shares were withheld from the election of Mr. Pike. No other persons
were nominated, or received votes, for election as directors of the
Company at the 1996 Annual Meeting. The other directors of the Company
whose term of office continued after the annual meeting were: Edward E.
Iacobucci, Gregory B. Maffei, Kevin R. Compton and Stephen R. Dow.
(2) The Company's stockholders approved and adopted an amendment to the
Company's Amended and Restated Certificate of Incorporation to increase
the number of authorized shares of the Company's Common Stock, par value
$.001 per share, from 30,000,000 to 60,000,000 shares. With respect to
such matter, the votes were cast as follows: 10,444,890 shares voted for
the proposal, 215,364 shares voted against the proposal, 1,150 shares
abstained from voting on the proposal and 78,620 shares were broker non-
votes.
(3) The Company's stockholders ratified the selection of Ernst & Young LLP,
independent certified public accountants, as auditors for the Company's
fiscal year ending December 31, 1996. With respects to such matter, the
votes were cast as follows: 10,736,363 shares voted for the proposal, 961
shares voted against the proposal, 2,700 shares abstained from voting on
the proposal and no shares were broker non-votes.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits which are filed with the report as set forth on the
Exhibit Index appearing on Page 17 of this report and are
incorporated herein by this reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month period
ended June 30, 1996.
15
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITRIX SYSTEMS, INC.
/s/ ROGER W. ROBERTS
--------------------------------------
Roger W. Roberts
President, Chief Executive Officer
and Secretary
(Principal Executive Officer)
/s/ JAMES J. FELCYN, JR.
--------------------------------------
James J. Felcyn, Jr.
Vice-President of Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
Page Number
-----------
11 Computation of Earnings (Losses) Per Share 18
27 Financial Data Schedule 19
17
<PAGE>
CITRIX SYSTEMS, INC.
EXHIBIT 11
Computation of Earnings (Losses) Per Share
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
---------------------------------------------------------
<S> <C> <C> <C> <C>
Historical:
Primary and fully diluted:
Average shares outstanding 24,179 2,421 24,006 2,435
Net effect of dilutive stock
options and warrants based on
the treasury stock method 2,079 - 2,122 -
Net effect of stock options
granted within one year of
initial public offering - 790 - 790
---------------------------------------------------------
Total 26,258 3,211 26,128 3,225
=========================================================
Net income (loss) $ 3,617 (515) $ 6,470 $ (518)
Less Redeemable Convertible
Preferred Stock accretion - - - (12,178)
---------------------------------------------------------
Net income (loss) attributable
to common shares $ 3,617 $ (515) $ 6,470 $(12,696)
=========================================================
Per share amount $ 0.14 $ (0.16) $ 0.25 $(3.94)
=========================================================
Supplementary:
Primary and fully diluted:
Average Shares outstanding 24,179 2,421 24,006 2,435
Net effect of dilutive stock
options and warrants based on
the treasury stock method 2,079 - 2,122 -
Effect of dilutive redeemable
convertible preferred stock - 15,360 - 15,360
Net effect of stock options
granted within one year of
initial public offering - 790 - 790
---------------------------------------------------------
Total 26,258 18,571 26,128 18,585
=========================================================
Net income (loss) $ 3,617 $ (515) $ 6,470 $ (518)
=========================================================
Supplementary per share amount $ 0.14 $ (0.03) $ 0.25 $(0.03)
=========================================================
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 122,048,355 122,048,355
<SECURITIES> 2,951,518 2,951,518
<RECEIVABLES> 4,484,454 4,484,454
<ALLOWANCES> 1,388,117 1,388,117
<INVENTORY> 469,536 469,536
<CURRENT-ASSETS> 129,309,838 129,309,838
<PP&E> 785,419 785,419
<DEPRECIATION> 316,293 316,293
<TOTAL-ASSETS> 129,778,964 129,778,964
<CURRENT-LIABILITIES> 5,194,310 5,194,310
<BONDS> 0 0
0 0
0 0
<COMMON> 26,381 26,381
<OTHER-SE> 124,529,951 124,529,951
<TOTAL-LIABILITY-AND-EQUITY> 129,778,964 129,778,964
<SALES> 9,501,193 17,272,856
<TOTAL-REVENUES> 9,501,193 17,272,856
<CGS> 1,233,582 2,213,525
<TOTAL-COSTS> 1,233,582 2,213,525
<OTHER-EXPENSES> 4,556,399 8,807,865
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,623,010 7,724,589
<INCOME-TAX> 1,006,023 1,254,169
<INCOME-CONTINUING> 3,616,987 6,470,420
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,616,987 6,470,420
<EPS-PRIMARY> 0.14 0.25
<EPS-DILUTED> 0.14 0.25
</TABLE>
