<PAGE>
PROSPECTUS Filed Pursuant
to Rule 424(b)(4)
Registration No. 333-4515
2,432,582 SHARES
(LOGO)
COMMON STOCK
Of the 2,432,582 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 432,582 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. See "Principal and Selling
Stockholders." On June 12, 1996, the last reported sale price for the Common
Stock, as reported in the Nasdaq National Market, was $33.75 per share. See
"Price Range of Common Stock."
The Company's Board of Directors recently declared a two-for-one stock split
in the form of a stock dividend which was paid on June 4, 1996 to holders of
record of the Company's Common Stock on May 28, 1996. The 2,432,582 shares of
Common Stock offered hereby reflect the stock dividend. Purchasers of Common
Stock in this offering will not be entitled to receive the stock dividend in
respect of any shares so purchased.
----------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 5.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $32.75 $1.55 $31.20 $31.20
- -------------------------------------------------------------------------------
Total (3)............. $79,667,060 $3,770,502 $62,400,000 $13,496,558
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 364,888 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $91,617,142,
$4,336,078 and $73,784,506, respectively. See "Underwriting."
----------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about June 18, 1996 at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
NEEDHAM & COMPANY, INC.
June 13, 1996
<PAGE>
At the top of the page centered is the Company's name "CITRIX," underneath
which is the phrase "Extending the Reach of Microsoft Windows(R)." The next two
lines state the following "Citrix develops, markets, sells and supports
innovative client and server software that enables effective and efficient
deployment of enterprise applications designed for Windows operating systems."
Centered on the page is a circle inside of which are three cogs on which
are printed "CITRIX ICA Technology," "Citrix Multi-User Windows Technology," and
"Microsoft Windows NT License."
On the outside edge of the circle are five arrows, each pointing away from
the center of the circle towards a Microsoft Windows screen (each a "Screen").
Written inside the Screens are "Wireless Windows Computing" and overlapping the
upper left corner of such Screen is a small depiction of a wireless computer;
"Remote Windows Computing" and overlapping the upper left corner of such Screen
is a small depiction of a laptop computer; "Interactive Windows on the Internet"
and overlapping the lower left corner of such Screen is a small cloud with the
word "Internet" written on it and a lightning bolt rising out of the top of the
cloud; "Windows for DOS, Macintosh, and UNIX" and overlapping the upper left
corner of such Screen is a small depiction of a desk-top computer; "Specialized
Windows Terminal" and overlapping such Screen in the upper left corner is a
small depiction of a computer terminal.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE>
This graphic is a two page gatefold (the "Gatefold"). In the center of the
Gatefold is a large cog, in the center of the cog is the depiction of a WinFrame
Server, in the upper left corner is the depiction of a File Server and in the
lower right corner is the depiction of a Web Server. In the lower left corner of
the large cog are three small cogs arranged in a diagonal fashion from top-left
to bottom-right. Moving from top to bottom the smaller cogs have the following
text written on them "Citrix ICA Technology," "Citrix Multi-User Windows
Technology," and "Microsoft Windows NT License," respectively.
Evenly spaced across the Gatefold are five circles, each connected to the
large cog. Written above the upper left circle is "Specialized Windows
Terminals" and inside of such circle are depictions of a Windows Point-of-Sale
Terminal, three Windows Desktop Terminals and a Windows Kiosk Terminal. Net to
the circle is the following statement: "Citrix products allow its strategic
partners' special-purpose terminals to access standard and custom Windows
applications."
Written above the upper center circle is "Wireless Windows Computing" and
inside of such circle are depictions of Wireless LAN-Based Desktop PCs, a
Portable Windows Tablet and a Windows Personal Digital Assistant. Next to the
circle is the following statement: "Citrix products and technology enable
wireless devices to access Windows applications."
Written above the upper right circle is "Remote Windows Computing" and
inside of such circle are depictions of dial-up ISDN and WAN computer terminals
for mobile professionals, telecommuters and branch office workers, respectively.
Next to the circle is the following statement: "Citrix products provide remote
users with high-performance access to LAN-based enterprise Windows applications
over dial-up, ISDN and WAN connections."
Written above the lower right circle is "Interactive Windows on the
Internet" and inside of such circle are depictions of four overlapping Windows
screens and a cloud with the word "Internet" written on it. Next to the circle
is the following statement: "Citrix products allow standard web servers to
provide Internet users interactive access to standard and custom Windows
applications."
Written above the lower left circle is "Windows for DOS, Macintosh and
UNIX" and inside of such circle are depictions of a Legacy DOS PC, a UNIX
Workstation, a UNIX X-Terminal and a Macintosh computer. Next to the circle is
the following statement: "Citrix and its strategic partners' products and
technology provide access to Windows, Windows 95, and Windows NT applications
from non-Windows platforms."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
Citrix Systems, Inc. ("Citrix" or the "Company") is a leading supplier of
multi-user application server products that enable the effective and efficient
enterprise-wide deployment of applications that are designed for Windows(R)
operating systems. The Company's WinFrame and WinView product lines, developed
under license and strategic alliance agreements with Microsoft, permit
organizations to deploy advanced Windows applications without regard to
location or type of client hardware platforms.
Microsoft is the leading provider of desktop operating systems. With the
introduction of Windows 95 and Windows NT, Microsoft is rapidly gaining
significant industry acceptance for its 32-bit operating systems as the
preferred environment for enterprise applications. Technical and operational
challenges have impeded effective deployment of Windows enterprise applications
to essential user communities. These user communities may include remote users,
Internet users and users of various non-Windows platforms and emerging
technologies, including PDAs and other wireless devices.
To meet these users' demands, the Company has developed two primary
technologies: the Intelligent Console Architecture ("ICA") protocol and multi-
user extensions to Windows NT. The ICA protocol separates a program's graphical
user interface from its logic, allowing the interface to be displayed on the
user's device while the program executes on a separate application server. The
multi-user extensions to Windows NT allow multiple users to concurrently share
the application server, with each user receiving a "virtual" Windows
environment through a dedicated ICA session. This distributed approach
minimizes the communications, memory and processing requirements of the client
system, thereby providing a highly scaleable, bandwidth-independent solution
for deploying enterprise Windows applications across a range of client
platforms and network environments, including the Internet.
The Company intends to leverage the Windows momentum, in cooperation with
Microsoft, by strictly adhering to Windows standards while continuing to foster
widespread acceptance of its ICA technology as a de facto standard. As a part
of this strategy, in March 1996, the Company entered into a non-binding letter
of intent with Microsoft relating to the inclusion of ICA as an embedded
component in future versions of Windows 95, Windows 3.x, Windows NT and the
Microsoft Windows Internet Explorer. An additional important element of the
Company's strategy is to establish strategic relationships with key technology
and marketing partners. In addition to its relationship with Microsoft, the
Company has strategic relationships with Novell, Insignia, NCD, Tektronix, Wyse
and Zenith Data Systems.
The Company's WinView product, introduced in April 1993, is marketed to
departments and workgroups to implement remote applications. To date, the
Company has delivered over 11,500 WinView systems, licensed for approximately
120,000 concurrent users supporting an estimated 1,200,000 remote users. The
Company's WinFrame product, an application server that is marketed to
enterprises for advanced Windows application deployment, was first shipped in
August 1995. To date, the Company has delivered over 4,500 WinFrame servers
which are licensed for approximately 75,000 concurrent users. The Company, in
conjunction with its strategic and OEM partners, markets a family of products
based on its WinFrame technology that will ultimately include solutions for a
number of targeted markets, including remote computing, Internet services,
Windows terminals and special purpose devices, wireless Windows servers and
PDAs, and UNIX, X Terminal, DOS and Macintosh support for Windows markets.
The Company was incorporated in Delaware in 1989. The Company's principal
executive offices are located at 210 University Drive, Suite 700, Coral
Springs, Florida 33071. The Company's telephone number is (954) 755-0559.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 432,582 shares
Common Stock to be outstanding after the
offering................................ 25,996,746 shares (1)
Use of proceeds.......................... For working capital and other general
corporate purposes
Nasdaq National Market symbol............ CTXS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues........... $ 301 $ 1,801 $ 5,164 $10,085 $14,568 $ 2,686 $ 7,772
Gross margin........... 179 1,303 4,235 7,948 12,612 2,287 6,792
Income (Loss) from
operations............ (3,733) (3,736) (2,723) 197 1,815 (12) 2,540
Net income (loss)...... $(3,704) $(3,687) $(2,722) $ 242 $ 1,895 $ (3) $ 2,853
Historical net income
(loss) per share(2)... $ (1.60) $ (1.54) $ (1.54) $ (0.16) $ 0.09 $ (3.76) $ 0.11
Supplementary net
income (loss) per
share(2).............. $ (0.37) $ (0.26) $ (0.17) $ 0.01 $ 0.09 $ -- $ 0.11
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................................... $45,575 $107,475
Total assets............................................ 51,262 113,162
Long-term portion of capital lease obligations.......... 66 66
Shareholders' equity.................................... 45,877 107,777
</TABLE>
- ------------
(1) Excludes 2,167,454 shares of Common Stock issuable upon the exercise of
outstanding options as of June 12, 1996.
(2) Historical net income (loss) per share reflects the deduction of the
redeemable convertible preferred stock accretion from net income (loss) and
does not assume the conversion of the redeemable convertible preferred
stock into Common Stock in 1991, 1992, 1993, 1994 and during the three
months ended March 31, 1995. See Note 6 of the Notes to Consolidated
Financial Statements. Supplementary net income (loss) per share is
calculated using the weighted average number of common and common
equivalent shares outstanding during the respective periods adjusted for
the conversion of the redeemable convertible preferred stock into an
aggregate of 15,359,388 shares of Common Stock on the issuance dates of the
various series.
(3) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby and the application of the estimated net
proceeds thereof. See "Use of Proceeds."
--------------------
Except as otherwise noted, all information contained in this Prospectus (i)
reflects a two-for-one stock split of the Common Stock in the form of a stock
dividend paid on June 4, 1996 to stockholders of record of the Company's Common
Stock on May 28, 1996 and (ii) assumes no exercise of the Underwriters' over-
allotment option. See "Description of Capital Stock" and "Underwriting."
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
--------------------
The Citrix(R) logo, WinView(R) and ICA(R) are registered trademarks of the
Company. WinFrame(TM) is a trademark of the Company for which there is a
pending application for registration in the U.S. Patent and Trademark Office.
All other trademarks and registered trademarks used in this Prospectus are the
property of their respective owners.
4
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby:
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, 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 materially 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 materially
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 materially 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. See "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Limited Operating History; Future Operating Results Uncertain. The Company
was incorporated in April 1989 and shipped its initial products in 1991. The
Company has significantly increased its operating expenses in recent periods
as it has continued to expand its organization to support sales growth and
product development. To date, the Company has had only six profitable quarters
and had an accumulated deficit of $9.1 million as of March 31, 1996. There can
be no assurance that the Company will be able to grow its level of revenues or
sustain its level of profitability, or even achieve profitability, in the
future. Increases in operating expenses are expected to continue and, together
with pricing pressures, may result in a decrease in operating income. In
addition, the Company's limited operating history, the recent introduction of
the Company's WinFrame product line and fluctuations in OEM revenues make the
prediction of future operating results difficult or impossible. Future
operating results will depend on many factors, including the Company's ability
to attract and retain strategic partners, the degree and rate of growth of the
markets in
5
<PAGE>
which the Company competes and the accompanying demand for the Company's
products, the level of product and price competition, the ability of the
Company to develop and market new products and to control costs, the ability
of the Company to expand its direct sales force and indirect distribution
channels and the ability of the Company to attract and retain key personnel.
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's license agreements had an initial
term which expired in September 1994, and have been extended for a period of
five years. The Company may further extend the agreements until September
2001. The agreements can be terminated by Microsoft in the event of an
assignment of the agreements without the consent of Microsoft (including,
without limitation and with certain exceptions, as a result of a merger or the
acquisition by any third party of more than 25% of the Company's voting stock
or more than 50% of the assets of the Company) or in the event of a breach by
the Company of a material provision, including, but not limited to, non-
performance and confidentiality. In the event Microsoft were to terminate such
license, the Company would be unable to continue the development, production,
marketing or sale of any of its products that are designed to operate on
Windows NT, which would have a material adverse effect on the Company's
business, results of operations and financial condition. In addition to its
contractual agreements, the Company and Microsoft are cooperating in
connection with the application of Citrix technology to vertical, educational
and the Internet markets. The Company entered into a non-binding letter of
intent with Microsoft to incorporate ICA as an embedded component in future
versions of Windows 95, Windows 3.x, Windows NT and the Microsoft Windows
Internet Explorer. Pursuant to the letter of intent, the parties agreed to
engage in good faith negotiations to execute a definitive, royalty-free
license agreement within 60 days of execution of the letter of intent.
Although such 60-day period has expired, the parties continue to negotiate the
terms of a definitive agreement. There can be no assurance that the Company
will enter into a binding agreement with Microsoft or that Microsoft will
include ICA functionality with respect to such future versions.
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. The strategic alliance agreement remains in
effect unless terminated by Microsoft in the event of a breach by the Company
of a material provision. In the event Microsoft terminates the strategic
alliance agreement for any reason, the Company's ability to maintain and
market current products and to produce new products would be impaired, which
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Strategic Relationships."
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 ICA protocol a de facto standard for supporting
distributed Windows applications, thereby creating demand for its server
products. The creation of a standard is difficult even for companies with
substantially greater resources than the Company and, accordingly, there can
be no assurance that the Company's target markets will adopt the Company's
protocol for supporting distributed Windows applications. In addition, while
the Company has entered into a non-binding letter of intent with Microsoft to
incorporate ICA as an embedded component in future versions of Windows 95,
Windows 3.x, Windows NT and the Microsoft Windows Internet Explorer, there can
be no assurance that the Company will enter into a binding agreement with
Microsoft or that Microsoft will include ICA functionality with respect to
such future versions. The Company believes that a number of factors will
affect its ability to win broad market acceptance, including product
performance, pricing, the degree of success achieved by the Company's
strategic partners in marketing their respective platforms and the customers'
assessment of the Company's financial resources and its technical, managerial,
service and support expertise. Failure to achieve broad market acceptance of
the Company's products will have a material adverse effect on the Company's
business, results of operations and financial condition.
6
<PAGE>
Dependence Upon Strategic Relationships. In addition to its relationship
with Microsoft, the Company has strategic relationships with Novell, Insignia,
NCD, Tektronix, Wyse and Zenith Data Systems. Under its agreements with
Novell, which can be terminated by Novell without cause, the Company was
granted a license to certain Novell technology and agreed to provide remote
access server products for use with Novell NetWare environments. In the event
Novell terminates its strategic relationship with the Company for any reason,
such action would impair the Company's ability to maintain current products or
produce new products that provide remote access for use in the Novell NetWare
environment, which would have a material adverse effect on the Company's
business, results of operations and financial condition. The Company is also
working with Novell to expand the Citrix reseller channel. A majority of the
Company's WinView sales have been, and are expected to continue to be, to
customers running Novell's NetWare network operating system. Under its
agreements with Insignia, NCD, Tektronix, Wyse and Zenith Data Systems, the
Company has granted each such party a license to incorporate the Company's ICA
technology in products to be marketed by such party. The Company is dependent
on these strategic partners to successfully incorporate the Company's
technology into their products and to successfully market and sell such
products. The Company believes that industry acceptance of its ICA protocol is
critical to the success of the Company and that the acceptance of such
protocol is substantially dependent upon its success with these strategic
partners as well as its ability to enter into and capitalize on additional
strategic relationships. In the event that one or more of the markets for the
products developed under these relationships does not develop or that one or
more of such relationships is unsuccessful or discontinued, the Company will
lose any potential for future royalties associated with the applicable license
agreements, and the Company's business, results of operations and financial
condition may be materially adversely affected. See "Business--Strategic
Relationships."
Competition. The markets in which the Company competes are intensely
competitive. Microsoft is potentially a significant competitor to the Company.
Microsoft currently sells its Remote Access Server remote node product as part
of Windows NT and competes with the Company's products in certain markets. In
the event Microsoft were, as part of its strategy, to expand its operating
systems' support of distributed Windows and multi-user server capabilities
substantially similar to those provided by the Company's products for the
Windows NT operating system, or future operating systems, such action would
have a material adverse effect on the Company's business, results of
operations and financial condition. In the remote computing market, the
Company faces competition from organizations that seek to provide remote
computing solutions based on a variety of approaches that may differ from
those employed by the Company, including 3Com, Bay Networks, Cisco, Microsoft,
Novell, Shiva and Symantec. While the Company does not presently compete with
makers of Internet World Wide Web ("WWW" or the "Web") browsers or other
Internet utilities, to the extent existing Web server and browser companies
seek to offer users Internet functionality similar to that which may be
provided by the Company's application server software, the Company may in the
future compete with companies such as Lucent Technologies, Microsoft,
Netscape, Quarterdeck, Silicon Graphics, Spyglass, Sun Microsystems, and other
makers of Web server, browser and other applications, systems or networking
software, to the extent such companies seek to expand the functionality of
their Web browsers and other utilities. The Company anticipates that the
Internet market will become increasingly competitive as companies attempt to
address market opportunities on the Internet. The Company competes in certain
markets with The Santa Cruz Operation, and other manufacturers of UNIX
application servers. The Company will encounter competition from The Santa
Cruz Operation to the extent that it is able to provide a low-cost graphical
computing platform for Windows applications. In the wireless market, the
Company believes that its products will provide core technology which will
permit hardware vendors to provide Windows functionality on personal digital
assistants ("PDAs"), which products may compete with other approaches,
including proprietary PDA and wireless operating systems.
As markets for the Company's products continue to develop, additional
companies, including companies in the computer hardware, software and
networking industries with significant market presence, may enter the markets
in which the Company competes and further intensify competition. Most of these
competitors and potential competitors have significantly greater financial,
technical, sales and marketing and other resources than the Company. There can
be no assurance that the Company will be able to establish and
7
<PAGE>
maintain a market position in the face of increased competition. Although the
Company believes that price has historically been a less significant
competitive factor than product performance, reliability and functionality,
the Company believes that price competition, with a resultant diminution of
profit margins, may become more significant in the future. The Company may not
be able to maintain its historic prices, and an inability to do so could
adversely affect the Company's business, results of operations and financial
condition. See "Business--Competition."
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon proprietary technology. The Company relies primarily on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality procedures and contractual provisions to protect its
proprietary rights. There can be no assurance that such measures will be
adequate to protect the Company from infringement of its technologies. While
the Company has recently filed nine patent applications, to date the Company
has no patents and existing copyright laws afford only limited protection for
the Company's software. There can be no assurance that patents will be issued
with respect to the pending applications or that the Company's patents will be
upheld as valid or will prevent the development of competitive products.
Despite the Company's efforts to protect its proprietary rights, attempts may
be made to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. 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 that the
Company regards as proprietary. A substantial portion of the Company's sales
are derived from the licensing of Company products under "shrink wrap" license
agreements that are not signed by licensees and therefore may be unenforceable
under the laws of certain jurisdictions. In addition, 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. The loss of any
material trademark, trade name, trade secret or copyright could have a
material adverse effect on the Company's business, results of operations and
financial condition. Although the Company does not believe that its products
infringe on the rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future
or that any such assertion will not result in costly litigation or require the
Company to obtain a license to intellectual property rights of such third
parties. In addition, there can be no assurance that such licenses will be
available on reasonable terms or at all, which could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Proprietary Technology."
Product Concentration. The Company anticipates that the WinFrame product
line will constitute a majority of its revenue for the foreseeable future.
Declines in the market for Windows NT or in demand for the Company's WinFrame
products, whether as a result of new competitive products, price competition,
the lack of success of its strategic partners, technological change, a
significant increase in the market acceptance of Macintosh OS, IBM OS/2 or
UNIX operating systems or other factors could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Business--Products" and "--Competition."
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. This growth has resulted in an increase in
responsibilities placed upon the Company's management and has placed added
pressures on the Company's operating and financial systems. For example,
expanding the international scope of its operations introduces significant
legal, tax and accounting complexities, as well as the challenges associated
with geographically dispersed 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. There can be no assurance that the management skills and
systems currently in place will be adequate if the Company continues to grow,
or that the Company will be able to implement additional systems successfully
and in a timely manner as required. Although the Company is not currently
involved in negotiations for any strategic transactions such as acquisitions
or equity investments, the Company may undertake such transactions in the
future. Any such transaction would place additional strains upon the Company's
management resources. See "Business--Employees," "Management--Executive
Officers and Directors" and "Use of Proceeds."
8
<PAGE>
Dependence on Key Personnel. The Company's success will depend in large part
upon the services of a number of key employees, including Roger W. Roberts,
its President and Chief Executive Officer, and Edward E. Iacobucci, its co-
founder, Chairman of the Board and Chief Technology Officer. The loss of the
services of one or more of these key employees could have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company believes that its future success will also depend in
large part on its ability to retain its highly skilled technical, managerial
and marketing personnel, as well as its ability to attract and retain
replacements for or additions to such personnel in the future. Competition for
such personnel in the computer software and services industry is intense and
there can be no assurance that the Company will be successful in attracting
and retaining such personnel. The Company's agreements with its employees
generally provide for employment that can be terminated by either party
without cause at any time, subject to certain notice requirements. The loss of
certain key employees or the Company's inability to attract and retain other
qualified employees could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Employees" and "Management--Executive Officers and Directors."
New Products and Technological Change. The market for the Company's products
is relatively new and is characterized by rapid technological change, evolving
industry standards, changes in end-user requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards could render the
Company's existing products and products currently under development obsolete
and unmarketable. From time to time, the Company and others may announce new
products, capabilities or technologies that have the potential to replace or
shorten the life cycle of the Company's existing product offerings. There can
be no assurance that announcements of currently planned or other new product
offerings will not cause customers to defer purchasing existing Company
products. For example, in the two quarters prior to the release of the
Company's new WinFrame products, interest in the new products led to a decline
in revenues relating to the Company's existing products.
While the Company believes that the Windows NT server operating system will
become and remain a standard for the next several years, there can be no
assurance that such operating system will not be replaced by a new or enhanced
operating system. In addition, there can be no assurance that the Company will
be successful in developing products for new or enhanced operating systems, or
that such systems will not obviate the need for the Company's products. If any
new or enhanced operating system gains widespread use and the Company fails to
develop and provide its products for this operating system on a timely basis,
the Company's competitive position, sales and operating results would be
materially adversely affected. The Company's future success will depend upon
its ability to enhance its current products and to develop and introduce new
products that keep pace with technological developments and respond to
evolving end-user requirements. There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements on a timely basis, or that new products or product enhancements
developed by the Company will achieve market acceptance. See "Business--
Company Strategy" and "--Research and Development" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Potential for Undetected Errors. Software products as complex as those
offered by the Company may contain undetected errors or failures when first
introduced or as new versions are released. There can be no assurance that,
despite significant testing by the Company and by current and potential
customers, errors will not be found in new products after commencement of
commercial shipments. In addition, third-party products, upon which the
Company's products are dependent, such as Windows 95, Windows NT and various
hardware components, may contain defects which could reduce the performance of
the Company's products or render the Company's products useless. Because the
Company does not develop application programs and is dependent upon third-
party applications, errors in any application that is deemed critical to the
Company's customers could adversely impact the marketability of the Company's
application server software. Although the Company has not experienced material
adverse affects resulting from any such errors or defects to date, there can
be no assurance that errors or defects will not be discovered in the future,
causing delays in product introduction and shipments or requiring design
modifications that could materially adversely affect the Company's competitive
position, business, results of operations and financial condition.
9
<PAGE>
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 agreements with its
independent distributors and resellers, in large part, are nonexclusive and
may be terminated by either party without cause. 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. There can be no assurance that these distributors and resellers will
continue their current relationships with the Company or that they will not
give higher priority to the sale of other products, which could include
products of competitors. In addition, there can be no assurance that the
Company's resellers and distributors will be successful in selling the
Company's recently introduced WinFrame line of products. A reduction in sales
efforts or discontinuance of sales of the Company's products by its
distributors and resellers could lead to reduced sales and could materially
adversely affect the Company's business, results of operations and financial
condition. In addition, there can be no assurance as to the continued
viability or financial stability of the Company's distributors and resellers,
the Company's ability to retain its existing distributors and resellers or the
Company's ability to add distributors and resellers in the future. Moreover,
from time to time, the Company has experienced difficulties in collection of
accounts receivable from certain resellers and distributors. Although the
Company monitors its distributors and resellers closely, and it believes that
it has made adequate provision for doubtful accounts of distributors and
resellers, there can be no assurance that such provision will be adequate or
that it will not encounter such problems in the future. Any such problems
could lead to reduced sales and could materially adversely affect the
Company's business, results of operations and financial condition.
The Company's distribution channels have historically maintained limited
inventory levels and the Company has not experienced any significant product
returns. The Company does not believe that this practice is likely to change
in the future. However, in the event the Company's distributors and resellers
were to increase their general levels of inventory of the Company's products,
the Company could face an increased risk of product returns or stock rotation
from its distribution channels. Any such activities could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Customers" and "--Sales, Marketing and Support."
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. There can be no assurance
that the Company will be able to attract sufficient direct sales personnel,
third-party distributors, hardware and software vendors, or systems
integrators to market the Company's products effectively. The inability to
recruit, or the loss of, important direct sales personnel, third-party
distributors, hardware and software vendors, or systems integrators could have
a material adverse effect on the Company's business, results of operations and
financial condition.
Potential Adverse Impact of 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. Stock balancing
rights permit distributors to return products to the Company for credit,
within specified limits and subject to ordering an equal amount of additional
Citrix products. Reserves for product returns were $836,000 at March 31, 1996.
Although the Company believes that it has adequate reserves to cover product
returns, there can be no assurance that the Company will not experience
significant returns in the future or that such reserves will be adequate to
cover such returns. The Company also provides most of its distributors and
resellers with price protection rights. Price protection rights require that
the Company grant retroactive price adjustments for inventories of the
Company's products held by distributors or resellers if the Company lowers its
prices for such products. In the event that the Company determines to reduce
its prices, it will establish a reserve to cover exposure to distributor
inventory. There can be no assurance that product returns or price protection
rights would not have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Sales, Marketing
and Support."
10
<PAGE>
International Revenues; International Operations. International revenues
represented approximately 18% of the Company's revenues for fiscal 1995 and
14% for the three months ended March 31, 1996. The Company believes that its
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. There can be no assurance that the
Company will be able to maintain or increase international sales of its
products or that the Company's international distribution channels will be
able to adequately service and support the Company's products. International
operations generally are subject to certain risks, including 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 United States export laws.
Additional risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
currency fluctuations, potentially adverse tax consequences including
restrictions on the repatriation of earnings and the burdens of complying with
a wide variety of foreign laws. There can be no assurance that such factors
will not have a material adverse effect on the Company's future international
sales and, consequently, the Company's business, results of operations and
financial condition. All of the Company's sales are made in United States
dollars. The Company does not engage in any hedging transactions through the
purchase of derivative securities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Uncertainty as to Use of Proceeds. The principal purposes of this offering
are to obtain additional working capital. The Company expects to use the net
proceeds of this offering for working capital and other general corporate
purposes. A portion of the net proceeds of the offering may also be used to
acquire or invest in products, technologies or businesses which broaden or
enhance the Company's current product offerings or expand its distribution
channels. There are no current agreements or negotiations with respect to any
acquisitions, investments or other transactions. As of the date of this
Prospectus, the Company has no specific plans as to the use of the net
proceeds from this offering, and will have broad discretion in the application
of the proceeds. Pending any such uses, the net proceeds will be invested in
investment grade, interest-bearing securities. See "Use of Proceeds."
Potential Volatility of Share Price and Adverse Effect of Fluctuations in
Economic and Market Conditions. The market price of the Company's Common
Stock, which is quoted on the Nasdaq National Market, may be subject to
significant fluctuations in response to operating results, announcements of
new or enhanced products by the Company or its competitors and other factors.
The demand for the Company's products depends in part upon the general demand
for computer hardware and software. General demand for computing related
equipment fluctuates from time to numerous factors, including capital spending
levels and general economic conditions. The markets for the Company's products
are relatively new and, therefore, the Company believes that current economic
conditions have not had an adverse effect on its business. However, there can
be no assurance that future declines of computer and related equipment sales,
as a result of general economic conditions, or any other reason, would not
have a material adverse effect on the Company's business, results of
operations and financial condition.
Shares Eligible for Future Sale. Substantially all of the Company's Common
Stock will be eligible for sale in the public market following this offering.
Sales of substantial amounts of the Company's Common Stock could adversely
affect the prevailing market price of the Common Stock. The Company and its
executive officers, directors and certain current stockholders, who in the
aggregate own beneficially 2,667,448 of the remaining outstanding shares of
Common Stock and stock options exercisable for an additional 1,227,154 shares
of Common Stock, have agreed pursuant to lock-up agreements that they will not
sell or otherwise dispose of any shares of Common Stock beneficially owned by
them for a period of 90 days from the date of this Prospectus. Such agreements
provide that Hambrecht & Quist LLC may, in its sole discretion and at any
11
<PAGE>
time without notice, release all or a portion of the shares subject to these
lock-up agreements. As of March 31, 1996, options to purchase a total of
2,365,930 shares of Common Stock were outstanding, substantially all of which
options were then exercisable, subject to the Company's right to repurchase
unvested shares under certain circumstances. Of the total shares issuable
pursuant to such options, 1,227,154 are subject to lock-up agreements. An
additional 7,930,000 shares of Common Stock are available for future grants
under the Company's stock option and employee stock purchase plan.
Substantially all of such shares are eligible for resale under Rule 701 or
pursuant to registration statements filed by the Company on Form S-8. In
addition, the holders of 3,668,504 shares of Common Stock, are entitled to
certain registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales may have a material
adverse effect on the market price for the Common Stock. In addition, if the
Company is required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their "incidental" registration
rights, such sales may have an adverse effect on the Company's ability to
raise needed capital. See "Management," "Principal and Selling Stockholders,"
"Shares Eligible for Future Sale" and "Underwriting."
Immediate and Substantial Dilution. Purchasers in this offering will suffer
an immediate and substantial dilution in the net tangible book value of the
Common Stock from the public offering price. Additional dilution is likely to
occur upon exercise of options granted by the Company.
Absence of Dividends. The Company has never paid dividends and does not
intend to pay any dividends in the foreseeable future. See "Dividend Policy."
Anti-Takeover Effect of Charter, By-Law and Contractual Provisions;
Availability of Preferred Stock for Issuance. The Company's Amended and
Restated Certificate of Incorporation and By-laws, as amended, contain
provisions that could discourage a proxy contest or make more difficult the
acquisition of a substantial block of the Company's Common Stock. In addition,
the Company's agreements with Microsoft contain prohibitions on assignment
which could have the effect of deterring an acquisition of the Company by a
third party. See "Business--Strategic Relationships--Microsoft Corporation."
Such provisions could limit the price that investors might be willing to pay
in the future for shares of the Company's Common Stock. The Board of Directors
is authorized to issue, without stockholder approval, up to 5,000,000 shares
of Preferred Stock, $0.01 par value, of the Company (the "Preferred Stock")
with voting, conversion and other rights and preferences that may be superior
to the Common Stock and that could adversely affect the voting power or other
rights of the holders of Common Stock. The issuance of Preferred Stock or of
rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. See "Description of Capital Stock--Anti-Takeover
Measures" and "--Preferred Stock."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, after deducting the underwriting
discount and estimated offering expenses payable by the Company, are estimated
to be approximately $61,900,000 ($73,300,000 if the Underwriters' over-
allotment option is exercised in full). The Company expects to use the net
proceeds for working capital and other general corporate purposes as well as
possible acquisitions of products, technologies or businesses. While the
Company continually evaluates potential acquisitions, the Company has no
present agreements or commitments with respect to any acquisition, nor are any
negotiations regarding any acquisition currently ongoing. Pending such uses,
the net proceeds will be invested in investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings for future growth
and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company is restricted under its bank line
of credit agreement from paying any cash dividends without the prior written
consent of the bank.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on The Nasdaq National Market under the
symbol "CTXS." Public trading of the Common Stock commenced on December 8,
1995. Prior to that time there was no public market for the Company's Common
Stock. The following table sets forth the high and low bid prices for the
Common Stock reported by Nasdaq for the periods indicated, as adjusted to the
nearest 1/16 to reflect the two-for-one stock split in the form of a stock
dividend paid on or about June 4, 1996 to holders of record of the Company's
Common Stock on May 28, 1996. Such information reflects inter-dealer prices,
without retail markup, markdown or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1995:
Fourth Quarter (from December 8, 1995).................... $17 1/2 $12 3/8
FISCAL YEAR 1996:
First Quarter............................................. 27 7/8 11 3/4
Second Quarter (through June 12, 1996) ................... 44 3/4 21 7/8
</TABLE>
On June 12, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $33.75 per share. As of such date, there were
approximately 501 holders of record of the Common Stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at March 31,
1996, and as adjusted to give effect to the amendment to the Company's
certificate of incorporation filed on May 17, 1996 and the receipt by the
Company of the net proceeds from the sale of the 2,000,000 shares of Common
Stock offered hereby.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term portion of capital lease obligations(1)......... $ 66 $ 66
Shareholders' equity(2):
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................ -- --
Common Stock, $.001 par value, 60,000,000 shares
authorized; 23,698,616 shares issued and outstanding
actual, 25,698,616 shares issued and outstanding as
adjusted............................................... 24 26
Additional paid-in capital.............................. 55,000 116,898
Accumulated deficit..................................... (9,147) (9,147)
------- --------
Total shareholders' equity............................ 45,877 107,777
------- --------
Total capitalization................................ $45,943 $107,843
======= ========
</TABLE>
- ---------------------
(1) For information concerning the Company's long-term debt, see Notes 4 and 5
of Notes to Consolidated Financial Statements.
(2) Excludes 2,365,930 shares of Common Stock issuable upon the exercise of
stock options at a weighted average exercise price of $2.035 per share and
96,704 shares of Common Stock issued pursuant to warrants exercised after
March 31, 1996. See "Management--Stock Plans" and Notes 6 and 7 of Notes
to Consolidated Financial Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for the three
years ended December 31, 1995 and the consolidated balance sheet data as of
December 31, 1994 and 1995 are derived from financial statements of the
Company, included herein, which have been audited by Ernst & Young LLP,
independent certified public accountants. The consolidated statement of
operations data for the years ended December 31, 1991 and 1992 and the
consolidated balance sheet data as of December 31, 1991, 1992 and 1993, have
been derived from financial statements not included herein. The consolidated
statement of operations data for the three months ended March 31, 1995 and
1996 and the consolidated balance sheet data as of March 31, 1996 are derived
from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for these periods. The consolidated results of
operations for the three months ended March 31, 1995 and 1996 are not
necessarily indicative of the results to be expected for the entire year
ending December 31, 1996 or any future period. The following selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenues........... $ 301 $ 1,801 $ 5,164 $10,085 $14,568 $ 2,686 $7,772
Cost of goods sold..... 122 498 929 2,137 1,956 399 980
------- ------- ------- ------- ------- -------- ------
Gross margin........... 179 1,303 4,235 7,948 12,612 2,287 6,792
------- ------- ------- ------- ------- -------- ------
Operating expenses:
Research and
development........... 1,464 1,529 1,722 1,912 2,343 553 904
Sales, marketing and
support............... 1,772 2,678 3,866 4,444 6,670 1,461 2,487
General and
administrative........ 676 832 1,370 1,395 1,784 285 861
------- ------- ------- ------- ------- -------- ------
Total operating
expenses............. 3,912 5,039 6,958 7,751 10,797 2,299 4,252
------- ------- ------- ------- ------- -------- ------
Income (Loss) from
operations............ (3,733) (3,736) (2,723) 197 1,815 (12) 2,540
Other income, net...... 29 49 1 45 173 9 561
------- ------- ------- ------- ------- -------- ------
Income (Loss) before
provision for income
taxes................. (3,704) (3,687) (2,722) 242 1,988 (3) 3,101
Provision for income
taxes................. -- -- -- -- 93 -- 248
------- ------- ------- ------- ------- -------- ------
Net income (loss)...... $(3,704) $(3,687) $(2,722) $ 242 $ 1,895 $ (3) $2,853
======= ======= ======= ======= ======= ======== ======
Net income (loss)
attributable to common
share(1).............. $(3,960) $(3,885) $(4,188) $ (474) $ 1,895 $(12,181) $2,853
======= ======= ======= ======= ======= ======== ======
Net income (loss) per
share................. $ (1.60) $ (1.54) $ (1.54) $ (0.16) $ 0.09 $ (3.76) $ 0.11
======= ======= ======= ======= ======= ======== ======
Supplementary net
income (loss) per
share(2).............. $ (0.37) $ (0.26) $ (0.17) $ 0.01 $ 0.09 $ -- $ 0.11
======= ======= ======= ======= ======= ======== ======
Weighted average shares
outstanding:
Historical............. 2,482 2,530 2,720 3,042 20,404 3,240 25,954
======= ======= ======= ======= ======= ======== ======
Supplementary(1)....... 10,016 14,430 16,488 20,194 20,404 18,598 25,954
======= ======= ======= ======= ======= ======== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital
(deficiency).......... $ 3,320 $ (443) $ 366 $ 1,989 $42,688 $45,575
Total assets........... 3,822 1,043 2,306 3,932 46,715 51,262
Long-term portion of
capital lease
obligations........... -- -- -- 68 88 66
Redeemable convertible
preferred stock....... 11,428 11,627 16,630 18,608 -- --
Shareholders' equity
(deficit)(3).......... (8,063) (11,932) (16,103) (16,473) 42,962 45,877
</TABLE>
- -------
(1) Prior to October 1995, the terms of the Company's redeemable convertible
preferred stock provided for the redemption of such preferred stock at an
amount equal to the greater of the original purchase price plus declared
dividends or the fair market value. The amount by which such fair market
value exceeded the original purchase price was accreted by charges against
the Company's additional paid-in capital and accumulated deficit and for
the years ended December 31, 1991, 1992, 1993 and 1994 and the three
months ended March 31, 1995 are reflected in the net income (loss)
attributable to common shares and net income (loss) per share. In October
1995, the preferred stock terms were amended to fix the redemption price
at the original purchase price plus declared dividends, if any, and to
delete the fair market value provision. Upon adoption of this amendment,
the values accreted from the Company's additional paid-in capital and
accumulated deficit were restored to additional paid-in capital and
accumulated deficit. See Note 6 of the Notes to Consolidated Financial
Statements.
(2) Supplementary net income (loss) per share and the supplementary weighted
average shares outstanding are calculated using the weighted average
number of common and common equivalent shares outstanding during the
respective periods after giving effect to the conversion of the redeemable
convertible preferred stock into an aggregate of 15,359,388 shares of
Common Stock on the issuance dates of the various series.
(3) At December 31, 1991, 1992, 1993 and 1994 the common shareholders' equity
(deficit) included certain amounts attributable to the accretion of
redeemable convertible preferred stock. See Note 6 of the Notes to
Consolidated Financial Statements.
15
<PAGE>
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 inception until the introduction of WinView in 1993, substantially all
of the Company's revenue was derived from its initial products. 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 revenue.
The Company's WinFrame products began to be shipped in the third quarter of
1995 and represented approximately 34% of the Company's revenue in 1995. The
Company anticipates that the WinFrame product line will constitute a majority
of its revenue 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. 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") based on the Company's WinFrame
technology, 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 noncancelable 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.
The Company's limited operating history and the recent introduction of the
Company's WinFrame product line make the prediction of future operating
results difficult or impossible. Future operating results will depend on many
factors, including the Company's ability to attract and retain strategic
partners, the degree and rate of growth of the markets in which the Company
competes and accompanying demand for the Company's products, the level of
product and price competition, the ability of the Company to expand its direct
sales force and indirect distribution channels and the ability of the Company
to attract and retain key personnel.
During 1995 and 1996, the Company focused its efforts on the marketing and
sale of its products by increasing staffing and promotional expenses. The
Company expects to continue increasing such expenses.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data of the Company
expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............. 18.0 21.2 13.4 14.8 12.6
------- ------- ------- ------- -------
Gross margin.................... 82.0 78.8 86.6 85.2 87.4
------- ------- ------- ------- -------
Operating expenses:
Research and development...... 33.3 19.0 16.1 20.6 11.6
Sales, marketing and support.. 74.9 44.1 45.8 54.4 32.0
General and administrative.... 26.5 13.8 12.2 10.6 11.1
------- ------- ------- ------- -------
Total operating expenses.... 134.7 76.9 74.1 85.6 54.7
------- ------- ------- ------- -------
Income (Loss) from operations... (52.7) 1.9 12.5 (0.4) 32.7
Other income, net............... -- 0.4 1.2 0.3 7.2
------- ------- ------- ------- -------
Income (Loss) before income
taxes.......................... (52.7) 2.3 13.6 (0.1) 39.9
Income taxes.................... -- -- 0.6 -- 3.2
------- ------- ------- ------- -------
Net income (loss)............... (52.7)% 2.3% 13.0% (0.1)% 36.7%
======= ======= ======= ======= =======
</TABLE>
Net Revenues. Net revenues were $5.2 million, $10.1 million and $14.6
million in 1993, 1994 and 1995, respectively, representing increases of 95.3%
and 44.5% from 1993 to 1994 and from 1994 to 1995, respectively. The Company's
net revenues during these periods were derived from two sources, primarily
product license revenues and in 1993 and 1994, certain developmental work
(non-recurring engineering fees) for strategic partners of the Company.
Increases in net revenues from 1993 to 1994 resulted from the introduction
of WinView 2.3 as well as certain other product additions and enhancements.
The increase also reflected net revenues from the first shipment of the
NetWare Access Server ("NAS") product by the Company in connection with its
strategic relationship with Novell. Increases in 1994 were partially offset by
a decline in royalties and payments made by Novell. The increase in net
revenues from 1994 to 1995 primarily reflects the introduction of the
Company's WinFrame products and increased OEM revenue. Such increases were
offset by a decline in the Company's NAS, WinView, and other product revenues
and by an increase in the Company's provision for stock rotation and product
returns.
Net revenues were $2.7 million and $7.8 million for the three months ended
March 31, 1995 and 1996, respectively, representing an increase of 189.4%. The
increase in net revenues primarily reflects revenues generated from the
Company's WinFrame products, whose first production version was shipped in the
third quarter of 1995, and increased OEM revenues. These items represented
approximately 43.9% and 41.9% of revenues, respectively, in the three months
ended March 31, 1996. Both the Company's WinFrame and OEM revenues represent
product license fees based upon the Company's multiuser NT-based technology.
Increases in net revenues were offset by a decline in the Company's WinView
revenues and an increase in the Company's provision for stock rotation and
product returns. 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 product in
which case such costs are as described above. Costs associated with non-
recurring engineering fees are included in research and
17
<PAGE>
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 decreased from 82.0% in 1993 to 78.8% in 1994 but
increased to 86.6% in 1995. The decrease in the Company's gross margin in 1994
reflected increased sales of the Company's NAS product line, first shipped in
the fourth quarter of 1993, which had higher associated royalties. This
decrease was also related to a reduction in engineering fees included in net
revenues in 1993 which did not have an associated cost of revenue. The
increase in gross margin in 1995 was primarily attributable to decreased
shipments of the Company's NAS product line.
Gross margin increased from 85.2% in the first quarter of fiscal 1995 to
87.4% in the first quarter of fiscal 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
$1.7 million, $1.9 million and $2.3 million, representing 33.3%, 19.0%, and
16.1% of revenues, for the years ended December 31, 1993, 1994 and 1995,
respectively. Research and development expenditures consisted primarily of
personnel-related costs and, in 1993, also included significant expenses
related to the acquisition of source code licenses used to develop certain of
the Company's products. Increases in expenses in 1994 and in 1995 resulted
primarily from additional staffing and associated support costs for engineers
required to expand and enhance the Company's product line. In 1994, such
increases were partially offset by the absence of certain one-time source code
license costs incurred in 1993.
Research and development expenses were $553,000 and $904,000, representing
20.6% and 11.6% of revenues, for the three months ended March 31, 1995 and
1996, respectively, and an increase of 63.4%. Increases in research and
development expenses resulted primarily from increased expenses associated
with patent filings relating to certain aspects of the Company's software
products and technology, expenditures relating to the termination of certain
operating leases of development equipment and increased staffing.
Sales, Marketing and Support Expenses. Sales, marketing and support expenses
approximated $3.9 million, $4.4 million and $6.7 million, representing 74.9%,
44.1%, and 45.8% of revenues for the years ended December 31, 1993, 1994 and
1995, respectively.
The increase in sales, marketing, and support expenses in 1994 resulted
primarily from increased marketing and sales salaries and related expenses, as
well as increases in commissions and co-op advertising programs. The increase
in sales, marketing and support expenses in 1995 resulted primarily from
increases in promotional and advertising activities, including co-op
advertising programs and other promotional activities, such as those directed
at resellers, training programs, tradeshows and other direct mail and
advertising activities. In 1995, marketing and sales salaries, commissions and
related expenses, as well as recruiting and relocation expenses, also
increased.
Sales, marketing and support expenses approximated $1.5 million and $2.5
million, representing 54.4% and 32.0% of revenues, for the three months ended
March 31, 1995 and 1996, respectively, and an increase of 70.2% from the prior
year. The increase resulted primarily from increases in promotional and
advertising activities, including co-op advertising programs and other
promotional activities, such as those directed at resellers, training
programs, tradeshows and other direct mail and advertising activities. Sales
salaries, commissions and related expenses, as well as marketing salaries and
related expenses, also increased.
General and Administrative Expenses. General and administrative expenses
were $1.4 million, $1.4 million and $1.8 million representing 26.5%, 13.8% and
12.2% of revenues, for the years ended December 31, 1993, 1994 and 1995,
respectively. General and administrative expenses in 1994 reflect a decrease
in the provision for doubtful accounts and management consulting fees, offset
by a provision for
18
<PAGE>
unreimbursed engineering fees incurred on behalf of a customer, increased
salaries and related expenses and increased occupancy expenses. The provision
for doubtful accounts decreased in 1994 primarily as a result of the increased
market acceptance of the Company's products during this period. This increased
market acceptance, which resulted from improvements to and enhancements of the
Company's products, as well as the development of a reseller channel providing
direct support to end users, allowed the Company to improve its customer base
to include more creditworthy customers. The increase in general and
administrative expenses in 1995 is primarily due to increased salaries and
related expenses as well as an increase in the provision for doubtful
accounts.
General and administrative expenses were $285,000 and $861,000, representing
10.6% and 11.1% of revenue for the three months ended March 31, 1995 and 1996,
respectively, an increase of 201.5% over the prior year. The increase in
general and administrative expenses is primarily due to expenditures
associated with being a public company such as increased legal fees and
associated regulatory filings and expenses, an increase in the provision for
doubtful accounts and increased salaries and related expenses.
Other Income, Net. Other income, net, amounted to approximately $9,000 and
$561,000, for the three months ended March 31, 1995 and 1996, respectively.
The increase is primarily due to interest income generated from the net
proceeds of the Company's initial public offering, which was completed in
December 1995.
Provision for Income Taxes. The Company has not incurred any income tax
expense since its inception through the year ended December 31, 1994. In 1995,
the Company incurred income taxes expense of $93,000, representing only
alternative minimum taxes due to limitations in using the Company's net
operating loss carryforwards. At December 31, 1995, the Company had
approximately $9.0 million in income tax net operating loss carryforwards and
$589,000 in income tax credit carryforwards.
During the three months ended March 31, 1996, the Company incurred income
taxes of $248,000 based on its estimated annual effective tax rate.
Utilization of 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, such net operating loss and
tax credit carryforwards will reduce the amount of taxes payable in the
future. The amount of the net operating loss and tax credit carryforwards
which can be utilized in any year may be limited in the event that a change in
ownership exceeding certain limits prescribed by Section 382 of the Internal
Revenue Code has occurred or is deemed to occur in the future.
19
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables present unaudited financial information for the
Company's eight most recent quarters. The following selected quarterly
information includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation. In
view of the Company's recent growth and other factors, the Company believes
that quarter-to-quarter comparisons of its financial results are not
necessarily meaningful and that such comparisons should not be relied upon as
an indication of future performance. In addition, the Company's results of
operations may fluctuate from quarter to quarter in the future.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 2,493 $ 2,818 $ 3,013 $ 2,686 $ 2,454 $ 4,278 $ 5,150 $ 7,772
Cost of goods sold...... 694 516 486 398 335 523 700 980
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ 1,799 2,302 2,527 2,288 2,119 3,755 4,450 6,792
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 444 483 497 553 572 575 643 904
Sales, marketing and
support............... 1,075 1,158 1,123 1,462 1,680 1,748 1,780 2,487
General and
administrative........ 216 243 403 285 400 455 644 861
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,735 1,884 2,023 2,300 2,652 2,778 3,067 4,252
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) from
operations............. 64 418 504 (12) (533) 977 1,383 2,540
Other income (expense),
net.................... 10 17 20 9 18 7 139 561
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) before
provision for income
taxes.................. 74 435 524 (3) (515) 984 1,522 3,101
Provision for income
taxes.................. -- -- -- -- -- -- 93 248
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 74 $ 435 $ 524 $ (3) $ (515) $ 984 $ 1,429 $ 2,853
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 27.8 18.3 16.1 14.8 13.7 12.2 13.6 12.6
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ 72.2 81.7 83.9 85.2 86.3 87.8 86.4 87.4
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 17.8 17.1 16.5 20.6 23.3 13.5 12.5 11.6
Sales, marketing and
support............... 43.1 41.1 37.3 54.4 68.5 40.9 34.6 32.0
General administrative. 8.7 8.6 13.4 10.6 16.3 10.6 12.5 11.1
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 69.6 66.8 67.2 85.6 108.1 65.0 59.6 54.7
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) from
operations............. 2.6 14.9 16.7 (0.4) (21.8) 22.8 26.8 32.7
Other income (expense),
net.................... 0.4 0.6 0.7 0.3 0.8 0.2 2.7 7.2
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) before
provision for income
taxes.................. 3.0 15.5 17.4 (0.1) (21.0) 23.0 29.5 39.9
Provision for income
taxes.................. -- -- -- -- -- -- 1.8 3.2
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... 3.0% 15.5% 17.4% (0.1)% (21.0)% 23.0% 27.7% 36.7%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Changes in net revenues of the Company during the eight quarters ended March
31, 1996 generally reflect the introduction of product revisions, enhancements
and new products. Increases in the quarters ended September 30, 1994 and
December 31, 1994 reflect, in particular, the introduction of WinView 2.3 and
associated options. Sales and marketing efforts directed to introducing "pre-
release" versions of the Company's new WinFrame product, which created only
deferred revenues, resulted in declining revenues during the quarters ended
March 31 and June 30, 1995.
Sales increased in the quarter ended September 30, 1995 primarily as a
result of the final WinFrame product introduction. Initial stocking orders of
this product accounted for approximately 24% of the Company's revenues in the
quarter ended September 30, 1995 and deliveries of the WinFrame products to
new and pre-release customers accounted for approximately 47% of the Company's
revenues in the same quarter. Sales increases were partially offset by reduced
shipments of the Company's WinView product. Increased sales in the quarter
ended December 31, 1995 primarily represented increases in OEM revenues
20
<PAGE>
(approximately 36.4% of total revenues) offset by a decline in WinFrame and
WinView revenue. The decline in WinFrame revenue as compared to the previous
quarter reflected the absence of initial stocking orders and pre-release
deliveries discussed above. Revenue increases in the quarter ended March 31,
1996 primarily represent increases in WinFrame and OEM revenues representing
43.9% and 41.9% of revenues, respectively, in the three months ended March 31,
1996.
Research and development expenses increased in amount and as a percentage of
net revenue in the quarters ended March 31 and June 30, 1995. These increases
are related to a lower level of revenue in those quarters as well as a higher
level of research and development expenditures. Increases in research and
development expense in the quarters ended December 31, 1995 and March 31, 1996
reflect increased salaries and related expenses. In the quarter ended March
31, 1996, such expenses also reflect increased expenses associated with patent
filings relating to certain aspects of the Company's software products and
technology and expenditures relating to the termination of certain operating
leases of development equipment.
Increased sales, marketing and support expenses reflect a higher level of
marketing activities, trade show attendance, promotional activities directed
toward the introduction of the Company's WinFrame product and, in the quarters
ended June 30 and September 30, 1995, expenses associated with the recruitment
of marketing personnel. In the quarter ended March 31, 1996 increased sales
marketing and support expense primarily reflect increased marketing
activities, including advertising literature, reseller directed promotional
activities and co-op advertising.
Changes in general and administrative expenses generally reflect adjustments
in the Company's provision for doubtful accounts. Increased general and
administrative expenses in the quarter ended December 31, 1994 also reflect a
provision for refund of engineering revenues associated with product
development. Increases in general and administrative expenses in the quarter
ended December 31, 1995 primarily represent increases in salaries and related
expenses. In the quarter ended March 31, 1996 the increase in these expenses
primarily represent expenditures associated with being a public company such
as increased legal fees and associated regulatory filings and expenses.
Increases in other income (expenses) net in the quarters ended December 31,
1995 and March 31, 1996 primarily represent interest income from the proceeds
of the Company's initial public offering in December 1995.
The Company's quarterly operating results have varied and may in the future
vary significantly depending on a number of factors, including the size and
timing of significant orders; market acceptance of new products, applications
and product enhancements; changes in pricing policies by the Company and its
competitors; the ability of the Company to develop, introduce and market new
products, applications and product enhancements in a timely fashion; the
Company's success in expanding its sales and marketing programs; technological
changes in the market; variations in the Company's sales expenses or mix of
product sales; the financial stability of major customers; deferrals of
customer orders in anticipation of new products, applications or product
enhancements; changes in Company strategy; personnel changes; and general
economic factors.
The Company's future revenues are difficult to predict. The Company operates
with little order backlog because its software products typically are shipped
shortly after orders are received. In addition, 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 a quarter. As a result, product revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter, and revenues for any
future quarter are not predictable with any degree of certainty.
Product revenues are also difficult to forecast because the market is
rapidly evolving and the Company's sales cycle varies substantially from
customer to customer. In addition, the Company recently introduced its
WinFrame product line in March of 1995. Revenues are substantially dependent
upon sales by OEMs of
21
<PAGE>
products that incorporate the Company's software. Accordingly, such revenues
are subject to OEMs' product cycles, which are also difficult to predict.
Revenues are further impacted by fluctuations in OEM licensing activity from
quarter to quarter. The Company's expense levels are based, in part, on its
expectations as to future revenues. If revenue levels are below expectations,
operating results are likely to be adversely affected. Net income may be
disproportionately affected by a reduction in revenues because a
proportionately smaller amount of the Company's expenses varies with its
revenues. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to all of the foregoing
factors, it is possible 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.
The Company does not anticipate any significant adverse impact on its future
operating results and liquidity resulting from the Company's currently planned
expansion of its international operations because such expansion will arise
from an increase in the number of established national and local distributors
and resellers in the targeted markets, and will not require significant
capital investments. Although expenses may increase, the Company expects that
additional revenues generated from the expanded operations will exceed the
increase in expenses.
The Company does not anticipate any significant legal or other restrictions
upon the flow of funds from international sources to the Company because the
subsidiary will not take title to any substantial assets of the Company and
will be remunerated based on the level of international sales that it
generates.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1989 through 1993, the Company has funded its
operations, working capital needs and capital expenditures primarily through
private placements of preferred stock and conversion of notes payable into
preferred stock.
The Company generated positive cash flow from operations in 1994 primarily
from increases in deferred revenue and accrued royalties and other accounts
payable to a shareholder. Such increase was partially offset by an increase in
accounts receivable. In 1995 and in the quarter ended March 31, 1996, the
Company generated positive operating cash flows primarily by increased
profitability. The increase in accounts receivable was funded by a
corresponding increase in deferred revenue and accounts payable and other
accrued expenses. In December 1995, the Company completed its initial public
offering, the net proceeds of which were approximately $38.9 million.
The Company generated positive operating cash flows in the three months
ended March 31, 1995, however during this period, it was primarily due to an
increase in deferred revenues and a decrease in accounts receivable. During
the three months ended March 31, 1996, the Company also generated positive
operating cash flows primarily from increased profitability. The increase in
accounts receivable was funded by corresponding increases in deferred revenue
and payables and other accrued expenses.
The Company also 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
March 31, 1996.
At March 31, 1996, the Company had $46.5 million in cash and cash
equivalents and $45.6 million of working capital. The Company's cash and cash
equivalents 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
22
<PAGE>
Company had $3.4 million in accounts receivable, net of allowances, and $1.7
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 its
operations to the new facility during 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, 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.
23
<PAGE>
BUSINESS
THE COMPANY
Citrix is a leading supplier of multi-user application server products that
enable the effective and efficient enterprise-wide deployment of applications
that are designed for Windows operating systems. The Company's WinFrame and
WinView product lines, developed under license and strategic alliance
agreements with Microsoft, permit organizations to deploy advanced Windows
applications without regard to location or type of client hardware platforms.
INDUSTRY BACKGROUND
New information technologies have enabled enterprises to provide their
employees with broad access to business-critical information, including sales,
technical, human resources, vendor and supplier information. Because of their
many diverse end-user requirements, enterprises have made significant
investments in information systems infrastructure, frequently incorporating a
variety of software operating environments, computing platforms and
communications protocols. Business-critical enterprise applications and
personal productivity tools have historically been supplied by a variety of
different vendors, often resulting in incompatible systems and applications
within and among company locations. As a result of this proliferation of
technology, demand has increased for systems that offer users a standard
interface, transparent communications and the ability to integrate enterprise
and personal productivity applications to local and remote enterprise users.
Microsoft is the leading provider of desktop operating systems, with over
135 million DOS and Windows installations worldwide, supported by a broad base
of independent software developers who develop applications for the Microsoft
operating systems. With the introduction of Windows 95 and Windows NT,
Microsoft is rapidly gaining significant industry acceptance for its 32-bit
operating systems as the preferred environment for enterprise applications. In
January 1996, Microsoft publicly announced that it had sold over 18 million
units of its Windows 95 operating system since its introduction in August
1995. In Windows 95 and Windows NT, Microsoft introduced a number of features
that are particularly important to information systems professionals,
including sophisticated memory management, multi-tasking, integrated
communications support and security features. The continuing trend to adopt
Windows by application developers and the introduction of advanced features
has enhanced the appeal of the Microsoft Windows family to both horizontal and
enterprise application developers.
Organizations seeking to broadly deploy advanced Windows applications are
faced with a diverse set of challenges, including:
. Client and Platform Diversity. In addition to Windows, desktop computing
systems within an enterprise may include DOS systems, UNIX workstations,
X-Terminals, Macintosh systems and OS/2 workstations, many of which do
not support 32-bit Windows applications.
. Remote Users. The diversity of network connection types, protocols and
transmission speeds limits the ability of organizations to deploy
Windows applications on a cost-effective and efficient basis among
remote users such as mobile workers, telecommuters and branch office
personnel.
. Extended Enterprise. The extension of enterprise information systems to
suppliers, distributors, customers and prospects creates Windows
application deployment issues that are outside the control of
information systems managers, such as the quality and security of the
network connection, the client platform involved and the technical
expertise of the external user.
. Specialized Windows Terminals. Certain organizations require simpler,
relatively low-cost devices, such as PDAs, information kiosks and fixed
function terminals for certain enterprise applications, but these
devices currently cannot be effectively utilized because Windows support
is not available.
24
<PAGE>
Despite the increasing demand for Windows by end-users and the resulting
market momentum, these challenges have impeded effective deployment of Windows
enterprise applications to essential user communities.
THE CITRIX SOLUTION
Citrix develops, markets, sells and supports innovative client and
application server software that enable the effective and efficient
enterprise-wide deployment of applications that are designed for Windows
operating systems. The Company's WinFrame and WinView product lines, developed
under license and strategic alliance agreements with Microsoft, permit
organizations to deploy advanced Windows applications without regard to
location or type of client hardware platforms. These products operate by
executing the Windows applications on a multi-tasking, multi-user server that
provides end-users access to the server applications from a variety of
transparent, cross-platform client programs that incorporate the Company's ICA
technology. This approach minimizes the communications, memory and processing
requirements of the client system, resulting in a highly scaleable, bandwidth-
independent solution for deployment of enterprise Windows applications across
a range of platforms and network environments, including the Internet.
Leveraging its core technologies and strategic relationships, Citrix has
developed products which enable the broad deployment of Windows applications
in a variety of environments, including:
. Low bandwidth connections, such as dial-up, wide area networks, wireless
and the Internet.
. Existing Intel-based computer systems, such as 286, 386, 486 and Pentium
computers.
. Non-Intel platforms, such as UNIX workstations, X-Terminals, RISC-based
NT Workstations and Macintosh systems.
. Emerging platforms, such as hand-held wireless devices, PDAs,
information kiosks and Windows terminals.
To address deployment in these diverse environments, the Company has
developed two proprietary technologies: (i) the ICA protocol and (ii) multi-
user Windows NT extensions developed under a source code license from
Microsoft.
25
<PAGE>
[A graphic representation of the use of the Company's ICA protocol to display
the Windows application graphical user interface on one computer or device while
the application logic itself is executed on a Windows application server.]
ICA Protocol
The Company's ICA protocol separates the application's graphical user
interface from the Windows application logic, allowing the user interface to
be displayed on one computer or device while the application logic itself is
executed on a Windows application server. This distributed architecture allows
16- and 32-bit Windows applications to run remotely over a wide range of
connection speeds permitting advanced Windows applications to be deployed with
minimal client hardware. For example, even using a DOS PC with a 286 processor
and less than one megabyte of RAM, a user can access advanced applications
developed for Windows NT and Windows 95. The Company believes that the ICA
protocol significantly reduces many of the difficulties associated with the
manageable deployment of Windows applications to a broad array of local and
remote users.
Multi-user Windows NT Extensions
The Company's multi-user Windows NT extensions, developed under source code
license and strategic alliance agreements with Microsoft, are integrated into
the Windows NT operating system in a manner that is transparent to the end-
user. These extensions allow multiple users to share an application server,
with each user receiving a "virtual" Windows environment through a dedicated
ICA session. The systems management and security extensions are fully
integrated with the standard Windows NT administrative features, allowing for
consistent and integrated multi-user server management facilities.
26
<PAGE>
COMPANY STRATEGY
Citrix's objective is to be the leading supplier of multi-user application
server products for the Windows environment. To achieve this objective, the
Company intends to employ the following key strategies:
Leverage Windows Momentum. The Company believes that Windows will continue
to gain industry acceptance and, consequently, the Company has developed all
of its products in strict adherence to the Windows standard. This standards-
based strategy is in contrast to many remote computing solutions which require
the use of proprietary tools, network protocols or applications to support
remote users. Moreover, the Company believes that the benefits to end-users of
this strategy will increase over time with the increased availability of
advanced Windows applications from a broad range of independent software
developers. The Company believes that its products will facilitate the
deployment of Windows applications on a variety of platforms and over a
variety of networks.
Leverage Microsoft Relationship. The Company intends to utilize its
Microsoft licenses and technology relationships to continue to develop
functional enhancements to Microsoft Windows operating systems. In March 1996,
the Company entered into a non-binding letter of intent with Microsoft
relating to the inclusion of ICA as an embedded component in future versions
of Windows 95, Windows 3.x, Windows NT and the Microsoft Windows Internet
Explorer. The Company also intends to continue to pursue and enhance
relationships with Microsoft's independent software vendors ("ISVs"), OEMs and
channel partners.
Establish Broad-Based Acceptance of ICA. With the objective of establishing
its ICA protocol as a de facto standard, the Company intends to continue to
license its ICA protocol to a variety of hardware and software vendors for
inclusion in their respective product lines. Customers who purchase these
products must purchase a separate license from the Company for the application
server software to obtain distributed Windows functionality. The Company
intends to enhance its ICA protocol to incorporate native support for advanced
data types such as sound and video.
Develop New Windows Platforms. The Company is developing strategic
relationships that it believes will produce new ICA client platforms that will
create demand for the Company's application servers. The Company currently has
such relationships with a number of independent manufacturers including
Insignia, NCD, Tektronix, Wyse and Zenith Data Systems.
Develop New Markets. The Company intends to continue developing new markets
for Citrix application servers using strategic relationships and working with
key strategic partners to develop products that benefit from the Company's
core technologies. These markets include the Internet Web server, wireless and
other remote computing markets.
PRODUCTS
Citrix has two primary product lines:
WinView, first shipped in April 1993, is a Windows application server that
is marketed to departments and workgroups to implement remote applications
systems. To date, the Company has delivered over 11,500 WinView systems,
licensed for approximately 120,000 concurrent users supporting an estimated
1,200,000 remote users.
WinFrame, first shipped in August 1995, is a Windows application server that
is marketed to enterprises to deploy advanced Windows applications remotely,
provide Windows applications to a broad array of client platforms and publish
enterprise applications on the Internet. To date, over 4,500 WinFrame systems
have been shipped to a variety of organizations, licensed for approximately
75,000 concurrent users. The Company, in conjunction with its strategic
partners, intends to market a family of products based on its WinFrame
technology that will ultimately include solutions for a number of targeted
markets, including remote computing, Internet services, Windows terminals and
special purpose devices, wireless Windows servers and PDAs, and UNIX, X-
Terminal, DOS and Macintosh support for Windows markets.
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<PAGE>
The WinView and WinFrame product lines consist of the following two
components:
Application Server Software. WinView and WinFrame application servers run on
industry-standard personal computers containing one or more Intel processors.
These proprietary application servers were created using source code licenses
for Microsoft's OS/2 and Windows NT Server operating systems. The application
server provides three areas of functionality: operating system extensions that
allow each user to receive a "virtual" Windows environment, communications
support to allow the Company's ICA protocol to operate on a variety of analog
and digital network connections and management configuration software. The
application server is configured at the time of sale to support a pre-
specified number of concurrent users. This number can be increased easily with
the purchase of additional concurrent user licenses, sold as add-on kits. The
Company's application server software runs with off-the-shelf, industry
standard server hardware peripherals which are purchased from third parties.
Client Software. Each client that accesses a WinView or WinFrame server
requires software that runs the ICA protocol. The client software establishes
a communications link with the server over dial-up, LAN, WAN or Internet
connections, and has three basic functions: establishing a server connection
over the specified network connection, sending and receiving ICA protocol data
over the network link and providing compatibility with DOS, Windows 3.x,
Windows for Workgroups, Windows 95 and Windows NT operating systems.
The following table shows the Company's principal products:
<TABLE>
<CAPTION>
INITIAL NUMBER OF MAXIMUM NUMBER
LICENSED CONCURRENT OF CONCURRENT USERS
PRODUCT USERS PER SERVER(1) PER SERVER(2) SUGGESTED LIST PRICE
- ------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
WinView for Networks.... 10 20 $2,995
WinFrame/Enterprise..... 15 100+ $5,995
WinFrame Remote Node
Application Server..... 15 100+ $4,995
WinFrame Access......... 10 100+ $2,995
</TABLE>
- ---------------------
(1) The number of licensed concurrent users for any WinView or WinFrame
products can be increased with a separately purchased Citrix User License
Pack. Additional per-concurrent-user license fees range from $140 to $200
per user, depending on the product.
(2) These are estimated numbers. The actual number of maximum concurrent users
on a server is determined by a number of factors, including the processor
and memory requirements of the application, the speed, type and number of
processors and the amount of system memory available.
TARGET MARKETS
Remote Computing
In the remote computing market, the Company's products are used by
workgroups, departments and enterprises to deploy applications whose scale,
performance, reliability and security requirements are more demanding than
those associated with simple remote access. Citrix markets its application
servers as a secure, scaleable platform for the widespread deployment of
enterprise applications. Without the use of WinView or WinFrame, remote
deployment of these applications is slow and expensive because LAN
applications typically require adequate memory, fast processors, relatively
high-speed communication bandwidth and local, network and application
management.
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<PAGE>
Citrix divides the remote computing market into three related segments:
dial-in remote access for large field workforces, branch office automation and
deployment of applications over an enterprise WAN. For enterprises with any of
these deployment requirements, scaleable implementation of legacy and
client/server applications can be an issue.
[A graphic representation of the Company's remote computing target markets that
divides such market into three segments consisting of (i) dial-in remote access
for large field workforces, (ii) branch office automation, and (iii) deployment
of applications over an enterprise WAN.]
Internet Services
The Company views the Internet as an important potential market for its
application server products. Within the Internet, the World Wide Web, a
widely-used client/server system of hyperlinked multimedia databases, is being
used by companies to electronically deliver a variety of information to
Internet end-users. Companies such as Lucent Technologies, Microsoft,
Netscape, Quarterdeck, Silicon Graphics, Spyglass and Sun Microsystems are
developing versions of the WWW server software and related utilities for
commercial services. Although the WWW is rapidly gaining in popularity and
companies are developing commercial applications, it lacks functions and
features that allow Internet users access to standard Windows applications. A
WinFrame application server, when used in conjunction with a Web server,
allows an organization to provide interactive Internet access to standard and
custom developed Windows applications. For example, using this approach, an
organization could add secure interactive access to a large Lotus Notes
database directly from an Internet home page without developing any new
programs or changing the existing Lotus Notes application program.
The Company believes that there are a number of opportunities to market its
line of WinFrame servers as a system platform for the deployment of enhanced
WWW services. These capabilities are intended to permit organizations to
publish Windows applications using their standard Web server infrastructure.
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<PAGE>
Specialized Windows Terminals
Citrix has licensed its ICA technology to Wyse for inclusion in its WinTerm
products, which the Company believes to be the first low-cost Windows
terminals. In addition, the Company intends to continue to develop strategic
relationships and work with key strategic partners to deploy Windows
applications on point of sale terminals and information kiosks. The Company
believes that WinFrame, when coupled with these new devices, will provide an
effective alternative to character-based UNIX implementations and will
capitalize on existing Windows applications, tools and development facilities.
Wireless Windows Servers and PDAs
The Company believes that there is a strong and growing demand for wireless,
collaborative computing. Many device manufacturers, including Apple, Motorola,
Sharp, Sony, Zenith Data Systems and others have announced and are shipping
portable wireless devices. In most cases, the acceptance of these devices
requires low-cost, long battery life and portability. These requirements are
inconsistent with the latest generation of Windows applications and Windows
development tools, which need substantial RAM, processing power and
communications bandwidth for adequate performance. The Company believes the
application of its technology will enable these devices to access the latest
generation of Windows 95 and Windows NT applications. Citrix has licensed
technology to Zenith Data Systems for inclusion in the MultiCruise line of
portable wireless devices.
UNIX, X-Terminal, DOS and Macintosh Support for Windows
The introduction of Windows 95 has caused a major transition in the Windows
application software market. As ISVs move to develop applications which
capitalize on the new features of the Windows 95 system, they are expecting
organizations to upgrade client systems in order to run these applications. In
many large establishments, there is a heterogeneous mix of computing
platforms, including DOS systems, Windows 3.x systems, UNIX workstations, X-
Terminals and Macintosh computers. In conjunction with the appropriate ICA
client software, Citrix application server products can deliver Windows 95
applications, running on the server, to most types of network-attached client
systems. The Company has granted licenses to Insignia, NCD and Tektronix to
incorporate ICA technology into their products and to resell application
servers to deliver Windows 95 applications to UNIX systems, X-Terminals and
Macintosh systems. In addition to the clients supported by these OEM
relationships, the standard Citrix products deliver Windows 95 applications to
DOS, Windows 3.x, Windows for Workgroups and OS/2 systems.
STRATEGIC RELATIONSHIPS
The Company has entered into a number of strategic relationships to develop
its existing and future product lines, develop markets for the application of
its technology and to broaden deployment and acceptance of ICA as a de facto
industry standard protocol for distributed Windows computing. In connection
with the Company's development of the WinFrame and WinView product lines and
markets, the Company has entered into strategic relationships with the
following key partners:
Microsoft Corporation. Since its inception, the Company has been a party to
a number of license agreements with Microsoft, including licenses to Microsoft
OS/2, Windows 3.x, Windows for Workgroups and Windows NT. Under these
agreements, the Company has access to certain Microsoft source and object
codes, technical support and other materials. In addition, the Company is
permitted to sublicense Microsoft Windows NT server as a part of its WinFrame
line of products, pursuant to which the Company pays royalties to Microsoft.
The license agreements had an initial term which expired in September 1994,
and have been extended for a period of five years. The Company may further
extend these agreements until September 2001. The license agreements may not
be assigned by the Company without the prior written consent of Microsoft,
which consent shall not be unreasonably withheld, provided that Microsoft's
refusal to permit assignment to a competitor shall not be considered
"unreasonably withheld." For purposes of the agreements, an assignment shall
be deemed to include, with certain exceptions, a merger of the Company with
another party, whether or
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<PAGE>
not the Company is the surviving entity, the acquisition by a third party of
more than 25% of the Company's voting stock or the sale of more than 50% of
the Company's assets. These provisions may impede the Company's ability to
enter into certain transactions with third parties, such as mergers with or
acquisitions by third parties. In addition to its contractual agreements, the
Company and Microsoft are cooperating in connection with the application of
Citrix technology in vertical, educational and the Internet markets.
In March 1996, the Company entered into a non-binding letter of intent with
Microsoft relating to the inclusion of ICA as an embedded component in future
versions of Windows 95, Windows 3.x, Windows NT and the Microsoft Internet
Explorer. Pursuant to the letter of intent, the parties agreed to engage in
good faith negotiations to execute a definitive royalty-free license agreement
within 60 days of execution of the letter of intent. Although such 60-day
period has expired, the parties continue to negotiate the terms of a
definitive agreement.
Prior to the Company's initial public offering in December 1995, Microsoft
made equity investments in each of the Company's preferred stock financings
since December 1991, pursuant to which Microsoft invested approximately $2.4
million. Microsoft has had a representative on the Company's Board of
Directors since 1991.
Novell, Inc. Citrix and Novell entered into a strategic relationship in June
1992 under which the Company licenses certain Novell technology and provides
remote access server products for use with Novell NetWare environments. In
addition, in July 1993, the Company licensed rights to the Novell NetWare
Access Server and agreed to sell and support the product. The Company is also
working with Novell to expand the Citrix reseller channel. A majority of the
Company's WinView sales have been, and are expected to continue to be, made to
customers running the Novell NetWare network operating system.
Insignia Solutions Inc. In August 1995, the Company entered into a software
license agreement with Insignia pursuant to which the Company granted a
license to Insignia to incorporate its ICA technology in products designed for
X-Terminals, UNIX workstations and Macintosh platforms. Insignia is authorized
to market products incorporating ICA technology through their software
channels. Insignia is re-marketing the enhanced Citrix WinFrame server under
the trademark of "NTrigue."
Network Computing Devices. In March 1996, the Company entered into a
software license with Network Computing Devices ("NCD") to deliver Windows
applications to X devices. The agreement allows NCD to implement a native-X
driver for WinFrame and remarket the driver and the WinFrame server under the
name of "WinCenter Pro."
Tektronix, Inc. In September 1994, the Company entered into a software
license agreement with Tektronix pursuant to which the Company granted a
license to Tektronix to incorporate its ICA technology to enable PC
application access from X-Terminals and UNIX workstations. The Company
believes that its collaboration with Tektronix has resulted in the first
product line to deliver Windows 95 applications to X-Terminals and UNIX
workstations. Tektronix implemented a native-X version of the ICA client
program and is re-marketing the Citrix WinFrame server under the name of
"WinDD."
Wyse Technology. In June 1995, the Company entered into a software license
agreement with Wyse pursuant to which the Company and Wyse began cooperative
efforts concerning the design and development of a new class of Windows-
capable client devices that function in conjunction with the Company's
application server. In the first quarter of 1996, Wyse began shipments of its
ICA-based WinTerm products. Citrix and Wyse are also working to build sales
and marketing channels to deliver the combined products to the UNIX
marketplace.
Zenith Data Systems Corp. In June 1995, the Company entered into a software
license agreement with Zenith Data Systems Corp. ("ZDS") pursuant to which the
Company granted a license to incorporate the
31
<PAGE>
Company's technology for use in their "MultiCruise" product, which began
shipping in January of 1996. ZDS was recently acquired by Packard Bell
Corporation and, accordingly, there can be no assurance that Packard Bell
Corporation will continue the development of products incorporating the
Company's technology.
CUSTOMERS
The Company's customers span a broad range of industries. A representative
list of multiple server end-user customers of WinView or WinFrame servers
includes:
TECHNOLOGY, COMMUNICATIONS AND GOVERNMENT AND UTILITIES
AEROSPACE Army Corps of Engineers
AT&T CMS Energy Corp.
CBS Inc. Central Vermont Public Service Corp.
IBM Defense Logistics Agency
MCI Communications Corp. Florida Power & Light Co.
Spar Aerospace Limited Nova Scotia Power
US Sprint United States House of
Unitel Video, Inc. Representatives
United States Senate
FINANCIAL
Bankers Trust Company MANUFACTURING/CONSUMER GOODS
The Bear Stearns Companies Inc. Amoco Corporation
Chemical Financial Corp. BP Oil Pipe Line Co.
Citicorp Bristol-Myers Squibb
Donaldson, Lufkin & Jenrette Brown & Root
First Interstate Bancorp CanAmera Foods
GE Capital Fleet Services Chevron Corporation
Guarantee Mutual Life Co. Church & Dwight Co., Inc.
Long Beach Mortgage Ciba Vision
Milliman & Robertson Lipton
PHH US Mortgage Corporation Meridian Oil
TransAmerica Corporation Mobil Oil Corp.
Weyerhaeuser Co. Pfizer Inc.
Unocal Corp.
Tektronix and NCD accounted for approximately 8% and 5%, respectively, of
the Company's net revenues in 1995, and approximately 14% and 21%,
respectively, for the three months ended March 31, 1996.
Tech Data Corporation ("Tech Data") and Unique Co-operative Solutions, Inc.
("UCSI"), distributors of the Company's products pursuant to distributor
agreements, accounted for approximately 22% and 6%, respectively, of the
Company's net revenues in 1995 and approximately 18% and 10%, respectively,
for the three months ended March 31, 1996. The Company's agreements with Tech
Data and UCSI are not exclusive, have no stated minimum purchase obligations
and may be terminated by either party without cause. The Company believes that
in the event of a termination of either relationship, the Company could
replace such relationship with an alternate distributor and that such
replacement would not have a material adverse effect on the Company's
business, results of operations and financial condition.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on developing new
products and core technologies for its markets and further enhancing the
functionality, reliability, performance and flexibility of existing products.
Extensive input concerning product development is obtained from users, both
directly and indirectly through its channel distributors.
The Company believes that its software development team and core
technologies represent a significant competitive advantage for the Company.
The software development team includes a number of key members
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<PAGE>
from the engineering team that developed the original version of OS/2 at IBM.
Since May 1993, this team has been involved in the development of system
software products utilizing Windows NT technology. The Company has made
significant development investments in two key core technologies: its ICA
protocol and multi-user Windows NT extensions.
At March 31, 1996, the Company's research and development group consisted of
24 employees, including 16 senior software engineers. In 1993, 1994, 1995 and
the first three months of 1996, the Company's research and development
expenses were approximately $1.7 million, $1.9 million, $2.3 million and
$900,000, respectively, or 33.3%, 19.0% 16.1% and 11.6% of revenue,
respectively. To date, all software development costs have been expensed as
incurred.
SALES, MARKETING AND SUPPORT
Citrix markets its products through multiple indirect channels worldwide,
including distributors, value-added resellers, system integrators and OEM
licensees. In January 1996, Citrix announced its Citrix Solutions Network
("CSN"), which provides training and certification to integrators, VARs,
resellers and consultants for a full-range of WinFrame based application
deployment solutions and services. As of May 20, 1996, the Company had
sales/marketing relationships with four national distributors, three regional
distributors, approximately 240 CSN Authorized Gold Solutions Providers,
approximately 170 CSN Authorized Silver Solutions Providers in addition to
over 200 other Citrix-authorized value-added resellers, system integrators and
OEM licensees. Internationally, the Company had relationships with
approximately 50 distributors. A number of the Company's strategic partners
and OEM licensees provide additional indirect sales channels for Citrix
products under either a Citrix brand or a private brand name.
Citrix's sales and marketing organization actively supports its distributors
and resellers. The Company's marketing department provides training, sales
event support, sales collateral, advertising, direct mail and public relations
coverage to its indirect channels to aid in market development and in
attracting new customers. The Company's sales organization consists of field-
based systems sales engineers and corporate sales professionals. These field
personnel are supported by an inside sales group based in Coral Springs,
Florida. Inside sales personnel recruit prospective customers, provide
technical advice with respect to Citrix products and work closely with key
distributors and resellers of the Company's products. In addition, the Company
plans to hire a number of direct sales personnel to increase product demand
among large corporate accounts.
Citrix provides most of its distributors and resellers with product return
rights for stock balancing or limited product evaluation. Stock balancing
rights permit distributors to return products to Citrix for credit, within
specified limits and subject to ordering an equal amount of additional Citrix
products. Although the Company believes that it has adequate reserves to cover
product returns, there can be no assurance that Citrix will not experience
significant returns in the future or that such reserves will be adequate. The
Company also provides most of its distributors and resellers with price
protection rights. Price protection rights require that Citrix grant
retroactive price adjustments for inventories of Citrix products held by
distributors or resellers if Citrix lowers its prices for such products. In
the event that the Company determines to reduce its prices, it will establish
a reserve to cover exposure to distributor inventory.
The majority of Citrix's service and support activities are related to
software and network integration issues. Due to the nature of Citrix products,
remote access via a telephone connection can often be used to troubleshoot and
diagnose network problems. Citrix also provides technical support and training
to channel and strategic partners, who are utilized as the first line of
support for their own customers. Additionally, users can choose from a
comprehensive fee-based support program which ranges from one-time incident
charges to an annual support agreement covering multiple sites and servers.
Citrix also provides on-line services to distribute technical advice and
software updates. These services include a bulletin board service, fax service
and access via Compuserve, the Internet and electronic mail.
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<PAGE>
Citrix conducts its sales, marketing and support activities from its
principal offices in Coral Springs, Florida as well as through an employee in
the United Kingdom. At March 31, 1996, the Company's sales, marketing and
support organization consisted of 49 employees.
OPERATIONS
The Company controls all purchasing, inventory, scheduling, order processing
and accounting functions related to its operations. All production and
warehousing is performed by an independent contractor. Shipping is made
primarily from the location of the independent contractor, although limited
shipments are made from the Company's facilities. Master software diskettes,
development of user manuals, packaging designs, initial product quality
control and testing are performed at the Company's facilities. Diskette and
CD-ROM duplication, printing of documentation, packaging and assembly are
performed by the independent contractor to the Company's specifications. To
date, the Company has not experienced any material difficulties or delays in
the manufacture and assembly of its products.
The Company has identified and evaluated alternative manufacturing vendors
and believes that such alternative vendors are capable of producing the
requisite quality and volumes at competitive prices. However, if difficulties
and delays were to be encountered, and transition to an alternate manufacturer
was not completed promptly, the Company's business, results of operations and
financial condition could be materially adversely affected.
The Company generally ships products upon receipt of an order. As a result,
the Company has relatively little backlog at any given time, and does not
consider backlog to be a significant indicator of future performance.
COMPETITION
The markets in which the Company competes are intensely competitive. Remote
computing products range from simple remote control software for a single PC
to remote node hardware products to branch office routers. Competitive factors
in the remote computing market include completeness of features, product
quality and functionality, marketing and sales resources and customer service
and support. While the Company believes that it presently competes on a
favorable basis with respect to these factors, there can be no assurance that
the Company will be able to establish and maintain a market position in the
face of increased competition. The Company faces competition from
organizations that seek to provide remote computing solutions based on a
variety of approaches that may differ from those employed by the Company,
including 3Com, Bay Networks, Cisco, Microsoft, Novell, Shiva and Symantec,
all of whom are significantly larger than the Company and have greater
financial resources.
In addition, alternative products exist for Internet commerce that directly
or indirectly compete with the Company's products. Existing or new products
that extend Web site software to provide database access or interactive
computing can materially impact the Company's ability to sell its products in
this market. Competitors in this market include Lucent Technologies,
Microsoft, Netscape, Quarterdeck, Silicon Graphics, Spyglass and Sun
Microsystems and other makers of Web Server, browser and other applications,
systems or networking software, to the extent such companies seek to expand
the functionality of their Web browsers and other utilities. In the multi-user
graphical platform market, the key competitor is The Santa Cruz Operation and,
to a lesser extent, other manufacturers of UNIX application servers. The
Company will encounter competition from The Santa Cruz Operation to the extent
it is able to provide a low-cost graphical computing platform for Windows
applications. In addition, Lucent Technologies recently announced a product
which it plans to ship in the fall of 1996 that may incorporate certain of the
features of WinFrame. As markets for the Company's products continue to
develop, additional companies, including companies with significant market
presence in the computer hardware, software and networking industries, may
enter the markets in which the Company competes and further intensify
competition. Most of these competitors and potential competitors have
significantly greater financial, technical, sales, marketing, support and
other
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<PAGE>
resources than the Company. There can be no assurance that the Company will be
able to establish and maintain a market position in the face of increased
competition. Although the Company believes that price has historically been a
less significant competitive factor than product performance, reliability and
functionality, the Company believes that price competition, with a resultant
diminution of profit margins, may become more significant in the future. The
Company may not be able to maintain its historic prices, and an inability to
do so could adversely affect the Company's business, results of operations and
financial condition.
PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon proprietary technology.
While the Company has recently filed nine patent applications, to date the
Company has no patents, and existing copyright laws afford only limited
protection for the Company's software. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States. Accordingly, the Company relies primarily
on trade secret protection and confidentiality and proprietary information
agreements to protect its proprietary technology. The loss of any material
trade secret, trademark, trade name or copyright could have a material adverse
effect on the Company. There can be no assurance that the Company's efforts to
protect its proprietary technology rights will be successful. 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 that the Company regards as proprietary. Substantially all of the
Company's sales are derived from the licensing of Company products under
"shrink wrap" license agreements that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions.
Although the Company does not believe that its products infringe on the rights
of third parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such
assertion will not result in costly litigation or require the Company to
obtain a license to proprietary technology rights of such parties. In
addition, there can be no assurance that such licenses will be available on
reasonable terms or at all.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that because of the
rapid pace of technological change in the industry, factors such as the
technical expertise, knowledge and innovative skill of the Company's
management and technical personnel, its strategic relationships, name
recognition, the timeliness and quality of support services provided by the
Company and its ability to rapidly develop, enhance and market software
products may be more significant in maintaining the Company's competitive
position.
EMPLOYEES
At March 31, 1996, the Company had a total of 88 employees, all but one of
which were based in the United States. Of the total, 24 were in research and
development, 49 were engaged in sales, marketing and customer support, and 15
were in administration and finance. In addition, the Company employs a number
of temporary and contract personnel to augment departmental employees and work
on selected projects.
FACILITIES
The Company occupies approximately 17,300 square feet of leased and
subleased office space in Coral Springs, Florida. The leases expire on
September 30, 1996 and June 30, 1996. To accommodate planned future growth,
the Company entered into a 63-month lease in June 1996 for approximately
46,000 rentable square feet and intends to relocate its operations to the new
facility during the next six months. The Company believes that the new
facility will be adequate for its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any pending or threatened litigation that it believes would have a
material adverse effect upon the Company's business, results of operations or
financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Roger W. Roberts 51 President, Chief Executive Officer,
Secretary and Director
Edward E. Iacobucci 42 Chairman of the Board, Vice President--
Strategy & Technology and Chief Technical
Officer
James J. Felcyn, Jr. 53 Chief Financial Officer, Treasurer, Vice
President of Finance and Administration
and Assistant Secretary
Barry J. Dockswell 49 Vice President--Business Development
Michael F. Passaro 52 Vice President--Worldwide Sales and Support
Bruce C. Chittenden 48 Vice President--Engineering
Mark B. Templeton 43 Vice President--Marketing
Kevin R. Compton(1)(2) 37 Director
Stephen M. Dow(1) 40 Director
Robert N. Goldman(2) 47 Director
Gregory B. Maffei(2) 36 Director
Tyrone F. Pike 41 Director
</TABLE>
- ---------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Roger W. Roberts joined the Company as its President and Chief Executive
Officer in June 1990. Prior to joining Citrix, Mr. Roberts was employed for
over twenty years by Texas Instruments, a diversified electronics company,
where he held technical, marketing and general management positions. Most
recently at Texas Instruments, Mr. Roberts was Director of Marketing for the
Peripheral Products Division, responsible for the MicroLaser printers and
TravelMate notebooks.
Edward E. Iacobucci, co-founder of the Company, has served as a director
since the Company's inception in 1989 and as Chairman of the Board since
September 1991. From the Company's inception, Mr. Iacobucci served as Chief
Technical Officer and Vice President--Strategy & Technology. Mr. Iacobucci is
author of the well-known OS/2 Programmer's Guide. Prior to forming the Company
in 1989, Mr. Iacobucci was employed for eleven years by IBM, where he was most
recently responsible for the design and architecture of IBM PC operating
systems and led the joint IBM/Microsoft design team that conceived the
original OS/2 product. Earlier at IBM, Mr. Iacobucci had overall
responsibility for the design and architecture of the IBM network management
product, NetView.
James J. Felcyn, Jr. joined the Company as its Chief Financial Officer and
Treasurer in July 1994. Prior to joining the Company, beginning in April 1994,
Mr. Felcyn served as Chief Financial Officer of NDL Products, Inc. ("NDL"), a
manufacturer of sporting goods. Mr. Felcyn accepted the position of Chief
Financial Officer at the request of the secured lender of NDL, and as a
condition to debtor-in-possession financing for NDL, which filed a Chapter 11
bankruptcy proceeding in the United States Bankruptcy Court for the Southern
District of Florida. Mr. Felcyn served as Vice President--Finance of Boca
Research, Inc., a manufacturer of computer peripheral products, from April
1992 to December 1993. From January 1992 to April 1992, Mr. Felcyn served as
Controller of Boca Research, Inc. From April 1991 to January 1992, Mr. Felcyn
was employed by World Omni Financial Corp., an automobile finance and leasing
company, where he served as Director of Operations--Accounting. Mr. Felcyn is
a Certified Public Accountant.
Barry J. Dockswell joined the Company in June 1990 as the Director of
Marketing. Since April 1994, he has served as Vice President--Business
Development. Prior to joining the Company, Mr. Dockswell was
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<PAGE>
employed by IBM for 20 years where he served in various senior management
positions, including PC-DOS Product Manager and Manager of OS/2 Planning,
Architecture, Strategy and Performance.
Michael F. Passaro has served as Vice President--Worldwide Sales and
Services since joining the Company in October 1992. From 1988 to 1992, Mr.
Passaro was employed by Novell, Inc., a provider of network and application
software, serving as Vice President for Worldwide Major Markets from 1988 to
1990 and Vice President International from 1990 to 1992.
Bruce C. Chittenden joined the Company in 1993 as Vice President--
Engineering. Prior to joining the Company, he served as Vice President,
Engineering and Manufacturing of Uniquest, Inc., a network software
manufacturer, from March to November 1993. From July 1991 to March 1993, Mr.
Chittenden served as Executive Vice President of Computone Corporation, a
computer peripherals manufacturer, and from April 1984 to July 1991, he served
as Vice President, Engineering of The Santa Cruz Operation, Inc., a systems
software manufacturer.
Mark B. Templeton has served as Vice President--Marketing since joining the
Company in June 1995. From April 1994 to June 1995, Mr. Templeton served first
as a marketing consultant and then as Group Director, Corporate Marketing for
UB Networks, Inc., a computer network hardware manufacturer. From November
1993 to April 1994 he served as Executive Vice President for Softblox, Inc., a
software company, and from July 1990 to November 1993 Mr. Templeton served as
Vice President, Marketing for Keyfile Corporation, a group collaboration
software company.
Kevin R. Compton has served as a director of the Company since March 1993.
Since 1990, Mr. Compton has served as a general partner of Kleiner Perkins
Caufield & Byers, a venture capital investment firm. From May 1985 to December
1990, Mr. Compton was the vice president and general manager of the network
systems team at Businessland, Inc., a computer retailer, and at AmeriSource
Corporation prior to its acquisition by Businessland. Mr. Compton is a
director of Global Village Communications, Inc. and Digital Generation
Systems, and is also a director of several privately-held companies.
Stephen M. Dow has served as a director of the Company since 1989. Since
1983, Mr. Dow has served as a general partner of Sevin Rosen Funds, a venture
capital investment firm. Mr. Dow serves as a director of several privately-
held companies.
Robert N. Goldman has served as a director of the Company since June 1995.
In November 1995, Mr. Goldman was named President, Chairman and Chief
Executive Officer of Object Design, Inc., a developer of object data
management software. From 1986 to August 1995, Mr. Goldman served as Chairman
of the Board of Trinzic, Inc. and its predecessor, software companies that
were engaged in the development and marketing of client/server middleware
software products. Trinzic was formed by the merger of AICorp and AION
Corporation in 1992. Mr. Goldman served as AICorp President and Chief
Executive Officer from 1986 to 1992. From 1983 to 1986, Mr. Goldman served as
President and Chief Operating Officer of Cullinet Software, Inc., a software
developer. Mr. Goldman is Chairman of the Board of Directors of SystemSoft
Corporation, a developer and marketer of PCMCIA software and other system
level software products, and a director of InterSolv Inc., Parametric
Technology Corporation and several privately-held companies.
Gregory B. Maffei has served as a director of the Company since February
1994. Since April 1994, Mr. Maffei has served as the Treasurer of Microsoft.
Mr. Maffei is responsible for Microsoft's external financial activities,
including capital markets, acquisitions and strategic investments, credit use
management, SEC reporting, investor relations and strategic business
decisions. Prior to being named Treasurer in 1994, Mr. Maffei was Director,
Business Development & Investments at Microsoft. Prior to joining Microsoft in
April 1993, Mr. Maffei was a consultant for several companies, including
Microsoft. From April 1991 to September 1992, Mr. Maffei was Executive Vice
President and Chief Financial Officer of Pay'N Pak Stores, Inc. Mr. Maffei was
also a director of Pay'N Pak. In September 1991, Pay'N Pak filed Chapter 11
bankruptcy proceedings. From May 1988 to March 1991, Mr. Maffei was a vice
president of Citicorp Venture Capital,
37
<PAGE>
Ltd. Mr. Maffei serves as a director of Mobile Telecommunications Technologies
Corporation, CORT Business Services Corporation and several privately-held
companies.
Tyrone F. Pike has served as a director of the Company since 1993. From
January 1994 to the present, Mr. Pike has served in various positions at UB
Networks, Inc., including Senior Vice President and Chief Technical Officer
from April 1995 to the present, Senior Vice President and General Manager
Network Products Division from August 1994 to April 1995, and Senior Vice
President and General Manager Network Services Division from January to August
1994. Prior to joining UB Networks, Mr. Pike served as a partner of Pike
Associates from September 1992 to January 1994. From March to September 1992,
Mr. Pike served as President and CEO of Global Village Communications, Inc.
From May 1991 to June 1992 he served as Manager, Strategic Planning & Business
Development of Intel Corporation. From April 1983 to May 1991, Mr. Pike served
as Founder, Chairman and President of LANSystems, Inc., of which he served as
a director until February 1994.
The Board of Directors is currently fixed at seven members. The
Corporation's By-laws divide the Board of Directors into three classes. The
members of each class of directors serve for staggered three-year terms. The
Board of Directors is composed of (i) three Class I directors (Messrs.
Goldman, Pike and Roberts), whose terms expire upon the election and
qualification of directors at the Annual Meeting of Stockholders to be held in
1999, (ii) two Class II directors (Messrs. Iacobucci and Maffei), whose terms
expire upon the election and qualification of directors at the Annual Meeting
of Stockholders to be held in 1997 and (iii) two Class III directors (Messrs.
Compton and Dow), whose terms expire upon the election and qualification of
directors at the Annual Meeting of Stockholders to be held in 1998.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive
officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
In June 1995, the Board of Directors established a Compensation Committee
and in September 1995, the Board of Directors established an Audit Committee.
The Compensation Committee makes recommendations concerning the salaries and
incentive compensation of employees of and consultants to the Company, and
oversees and administers the 1989 Stock Option Plan, 1995 Stock Plan, the 1995
Non-Employee Director Stock Option Plan and the 1995 Employee Stock Purchase
Plan. The Audit Committee is responsible for reviewing the results and scope
of audits and other services provided by the Company's independent auditors.
DIRECTOR COMPENSATION
Non-employee directors receive a fee of $1,500 for each meeting of the Board
and $500 for each committee meeting that they attend and are to be reimbursed
for their reasonable out-of-pocket expenses incurred in attending such
meetings. No director who is an employee of the Company will receive separate
compensation for services rendered as a director. Non-employee directors are
also eligible for participation in the Company's 1995 Non-Employee Director
Stock Option Plan. See "Management--Stock Plans."
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid or earned for services rendered to the Company in all
capacities during the fiscal years ended December 31, 1995 and 1994 to (i) the
Company's Chief Executive Officer and (ii) each of the other four most highly
compensated executive officers of the Company who received total annual salary,
bonus and other compensation in excess of $100,000 in fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM/
ANNUAL COMPENSATION COMPENSATION AWARDS(3)
--------------------------------- ----------------------
OTHER ANNUAL SECURITIES UNDERLYING/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS (#) COMPENSATION
- --------------------------- ---- ------ -------- --------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Roger W. Roberts........ 1995 $150,000 $50,000 -- -- --
President and Chief 1994 135,000 -- -- 80,000 --
Executive Officer
Edward E. Iacobucci..... 1995 135,000 40,000 -- -- --
Chairman of the Board, 1994 120,000 -- -- 80,000 --
Vice President--
Strategy & Technology
and Chief Technical
Officer
Michael F. Passaro...... 1995 130,000 10,000 $63,585 -- --
Vice President-- 1994 130,000 -- 61,533 80,000 --
Worldwide Sales and
Services
Bruce C. Chittenden..... 1995 120,000 30,000 -- -- --
Vice President-- 1994 120,000 -- -- 66,666 --
Engineering
Mark B. Templeton(4).... 1995 69,602 25,000 -- 133,334 $99,667(5)
Vice President--
Marketing 1994 -- -- -- -- --
</TABLE>
- ---------------------
(1) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(2) Consists of amounts paid pursuant to commissions.
(3) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long term incentive plan payouts during the fiscal years
ended December 31, 1995 and December 31, 1994.
(4) Mr. Templeton commenced employment with the Company in June 1995.
(5) Consists of relocation expenses.
39
<PAGE>
OPTION GRANTS IN 1995
The following table sets forth each grant of stock options made during the
year ended December 31, 1995 pursuant to the Company's 1989 Stock Option Plan
(the "1989 Plan") to each of the executive officers named in the Summary
Compensation Table above (the "Named Executive Officers"). The Company did not
grant any stock options or any stock appreciation rights pursuant to the
Company's 1995 Stock Plan to the Named Executive Officers during the fiscal
year ended December 31, 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED(#) IN 1995 SHARE(2) DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Roger W. Roberts........ -- -- -- -- -- --
Edward E. Iacobucci..... -- -- -- -- -- --
Michael F. Passaro...... -- -- -- -- -- --
Bruce C. Chittenden..... -- -- -- -- -- --
Mark B. Templeton....... 106,668 21.12% $2.25 6/12/05 $ 150,935 $ 382,498
26,666 5.28 3.75 9/28/05 62,885 159,368
</TABLE>
- ---------------------
(1) The options, which were granted under the 1989 Plan, are fully exercisable
at the time of grant, subject to a right of repurchase in favor of the
Company for all exercised but unvested shares, and vest at the rate of 25%
of the shares underlying the options one year from the date of grant and
2.08% monthly thereafter.
(2) The exercise price per share of each option was determined by the Board of
Directors to be equal to the fair market value per share of Common Stock
on the date of grant.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation of the
Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercises and the future performance of the Company's
Common Stock. There can be no assurance that the rates of appreciation
assumed in this table can be achieved or that the amounts reflected will
be received by the individuals.
40
<PAGE>
AGGREGATE OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, information with respect to the exercise
of stock options during the year ended December 31, 1995 and the year-end
value of unexercised options:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBERS OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1995 DECEMBER 31, 1995(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED (2) EXERCISABLE UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE(3)
- ---- ------------ ------------ ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Roger W. Roberts........ -- -- 305,000 101,668 $4,991,378 $1,626,730
Edward E. Iacobucci..... -- -- 131,666 101,668 2,144,367 1,626,730
Michael F. Passaro...... -- -- 60,554 86,114 983,660 1,385,356
Bruce C. Chittenden..... 5,334 $16,002 11,332 50,002 178,479 787,532
Mark B. Templeton....... -- -- -- 133,334 -- 1,860,011
</TABLE>
- ---------------------
(1) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1995, the fiscal year-end ($16.50 per
share), multiplied by the number of shares underlying the option.
(2) Amounts disclosed in this column were calculated based on the difference
between the fair market value of the Corporation's Common Stock on the
date of exercise and the exercise price of the options in accordance with
regulations promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and do not reflect amounts actually received
by the named officers.
(3) Exercisable subject to the vesting provisions described above in Note 1 to
the table entitled "Option Grants in 1995."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1995, the Company had no separate compensation or stock option
committee or other board committee performing equivalent functions, and these
functions were performed by the Company's Board of Directors. In June 1995 the
Company's Board of Directors appointed a Compensation Committee which
currently consists of Kevin R. Compton, a general partner of Kleiner Perkins
Caufield & Byers, and Stephen M. Dow, a general partner of Sevin Rosen Fund
III L.P.
STOCK PLANS
1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was adopted
by the Board in September 1995 and approved by the Company's stockholders in
October 1995. Under the terms of the 1995 Plan, the Company is authorized to
make stock awards, provide eligible individuals with the opportunity to
purchase stock and grant incentive and non-statutory stock options
(collectively, "Stock Rights") to employees, directors and officers of and
consultants to the Company. The aggregate number of shares of Common Stock
which may be issued pursuant to the Plan is 6,000,000 plus, effective as of
January 1, 1997 and each year thereafter, a number of shares of Common Stock
equal to 5% of the total number of shares of Common Stock issued and
outstanding as of December 31 of the preceding year. Notwithstanding the
foregoing, no more than an aggregate of 10,000,000 shares of Common Stock may
be issued pursuant to the exercise of incentive stock options granted under
the 1995 Plan. As of March 31, 1996, options to purchase an aggregate of
110,000 shares of Common Stock were outstanding under the 1995 Plan.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors, which currently consists of two outside directors, Kevin R. Compton
and Stephen M. Dow. Subject to the provisions of the 1995 Plan, the
Compensation Committee has the authority to determine the terms of Stock
Rights awarded or granted under the 1995 Plan, including: (i) the number of
shares subject to each Stock Right, (ii) when the Stock Right becomes
exercisable, (iii) the exercise or purchase price of the Stock Right (which in
41
<PAGE>
the case of an incentive stock option cannot be less than the fair market
value of the Common Stock as of the date of grant), (iv) the duration of the
Stock Right and (v) the time, manner and form of payment upon exercise of a
Stock Right. Generally, a Stock Right is not transferable by the recipient
except by will or by the laws of descent and distribution.
1995 Employee Stock Purchase Plan. The 1995 Employee Stock Purchase Plan
(the "1995 Purchase Plan") was adopted by the Board of Directors in September
1995 and approved by the Company's stockholders in October 1995. The 1995
Purchase Plan provides for the issuance of a maximum of 1,500,000 shares of
Common Stock pursuant to the exercise of nontransferable options granted to
participating employees.
The 1995 Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company whose customary employment is
more than 20 hours per week and for more than five months in any calendar year
and who have completed at least one year of employment are eligible to
participate in the 1995 Purchase Plan. Employees who would immediately after
the grant own 5% or more of the total combined voting power or value of the
Company's stock and directors who are not employees of the Company may not
participate in the 1995 Purchase Plan. To participate in the 1995 Purchase
Plan, an employee must authorize the Company to deduct an amount (not less
than one percent nor more than five percent of a participant's total cash
compensation) from his or her pay during six-month periods (each a "Plan
Period"). The maximum number of shares of Common Stock an employee may
purchase in any Plan Period is 2,000 shares. The exercise price for the option
for each Plan Period is 85% of the lesser of the market price of the Common
Stock on the first or last business day of the Plan Period. If an employee is
not a participant on the last day of the Plan Period, such employee is not
entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded. An employee's rights under
the 1995 Purchase Plan terminate upon his or her voluntary withdrawal from the
plan at any time or upon termination of employment. No options have been
granted to date under the 1995 Purchase Plan.
1995 Non-Employee Director Stock Option Plan. The 1995 Non-Employee Director
Stock Option Plan (the "Director Option Plan") was adopted by the Board of
Directors in September 1995 and approved by the Company's stockholders in
October 1995. The Director Option Plan provides for the grant of options to
purchase a maximum of 600,000 shares of Common Stock of the Company to non-
employee directors of the Company.
The Director Option Plan is administered by the Compensation Committee of
the Board of Directors. Under the Director Option Plan, each director who is
not an employee of the Company and who is first elected as a director after
the date of the Company's initial public offering will receive upon the date
of his or her initial election an option to purchase 30,000 shares of Common
Stock. Options granted under the Director Option Plan will vest as to 33.33%
of the shares underlying the option one year from the date of grant and will
vest as to an additional 2.78% of the shares underlying the option monthly
thereafter. Each non-employee director will also receive, on each three-year
anniversary of such director's first election to the Board of Directors, an
option to purchase 30,000 shares of Common Stock, vesting in accordance with
the aforementioned schedule, provided that such director continues to serve on
the Board of Directors at the time of grant. All options granted under the
Director Option Plan have an exercise price equal to the fair market value of
the Common Stock on the date of grant and a term of ten years from the date of
grant. Options may not be transferred except by will or by the laws of descent
and distribution and generally are exercisable to the extent vested only while
the optionee is serving as a director or within 90 days after the optionee
ceases to serve as a director of the Company. As of March 31, 1996, 60,000
options have been granted under the Director Option Plan.
1989 Stock Option Plan. The Company's 1989 Stock Option Plan (the "1989
Stock Plan") was approved by the Company's Board of Directors in July 1989 and
by its stockholders in June 1990. Options granted under
42
<PAGE>
the 1989 Stock Plan may be either incentive or non-statutory stock options.
Stock options may be granted under the 1989 Stock Plan to officers, directors
and other employees of the Company.
The 1989 Stock Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the 1989 Stock Plan, the
Compensation Committee has the authority to determine the terms of the options
granted, including the persons to whom options will be granted, the type of
option to be granted (incentive or non-statutory), the number of shares to be
covered by each option and the terms and conditions upon which an option may
be granted. An option granted under the 1989 Stock Plan is exercisable, during
the optionholder's lifetime, only by the optionholder and generally is not
transferable except by will or by the laws of descent and distribution.
All options granted under the 1989 Stock Plan are immediately exercisable,
subject to a right of repurchase in favor of the Company for all exercised
unvested shares. Generally, this right lapses as to 25% of the shares
underlying the option one year after the grant date and as to 2.08% monthly
thereafter. All options were granted at fair market value on the date of
grant.
As of March 31, 1996, options to purchase an aggregate of 2,195,930 shares
of Common Stock were outstanding under the 1989 Stock Plan. The Company does
not intend to grant any additional options under the 1989 Stock Plan.
CERTAIN TRANSACTIONS
The Company is a party to a license agreement with Microsoft Corporation,
the beneficial owner of more than 5% of the outstanding capital stock of the
Company, pursuant to which the Company has recognized $962,000 of royalty
expense in cost of goods sold and $60,000 of offsetting royalty credits in net
revenues since the beginning of fiscal 1995. In addition, the Company had
accrued royalties and other accounts payable of $521,000 at December 31, 1995
in connection with this agreement.
During 1991 and 1992, the Company advanced an aggregate of $100,000 to
Edward E. Iacobucci, Chairman of the Board of Directors and Vice President--
Strategy and Technology of the Corporation. This loan was evidenced by a
promissory note and was on a non-recourse basis. The loan carried an interest
rate of 6.73%, compounded annually, and was to be repaid on or before
September 13, 1996. On February 29, 1996, Mr. Iacobucci repaid the loan in
full and all accrued but unpaid interest then outstanding under the note.
The Company has adopted a policy that all future transactions between the
Company and its officers, directors, principal shareholders and their
affiliates shall be on terms no less favorable to the Company than could be
obtained by the Company from unrelated third parties, and shall be approved by
a majority of the outside independent and disinterested directors.
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 12, 1996, as adjusted to
reflect the sale by the Company and the Selling Stockholders of the shares of
Common Stock offered by this Prospectus, (i) by each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) by each director and Named Executive Officer of the
Company, (iii) by all directors and executive officers of the Company as a
group and (iv) by other Selling Stockholders. Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING(1)
-----------------------SHARES TO -----------------------
5% STOCKHOLDERS NUMBER PERCENT BE OFFERED NUMBER PERCENT
- --------------- ------------ -------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Microsoft Corporation... 1,625,426 6.8% -- 1,625,426 6.3%
One Microsoft Way
Redmond, WA 98052
EXECUTIVE OFFICERS AND
DIRECTORS
- ----------------------
Roger W. Roberts(2)..... 480,004 2.0 73,332 406,672 1.5
Edward E. Iacobucci(3).. 665,302 2.7 145,000 520,302 2.0
James J. Felcyn, Jr.(4). 135,336 * 48,666 86,670 *
Michael F. Passaro(5)... 189,336 * 20,000 169,336 *
Bruce C. Chittenden(6).. 146,936 * 20,000 126,936 *
Barry J. Dockswell(7)... 110,340 * 20,000 90,340 *
Mark B. Templeton(8).... 133,334 * 26,666 106,668 *
Kevin R. Compton(9)..... 31,514 * -- 31,514 *
Stephen M. Dow.......... 61,486 * -- 61,486 *
Robert N. Goldman(10)... 39,334 * -- 39,334 *
Gregory B. Maffei....... 3,600 * -- 3,600 *
Tyrone F. Pike(11)...... 123,484 * 40,000 83,484 *
All executive officers
and directors as a
group (12 persons)(12). 2,120,006 8.4% 393,664 1,726,342 6.4%
OTHER SELLING
STOCKHOLDERS
- -------------
Amanda A. North......... 38,918 * 38,918 -- *
</TABLE>
- ---------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable, or become exercisable within
60 days following June 12, 1996, are deemed outstanding. However, such
shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(2) Includes 406,668 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(3) Includes 233,334 shares of Common Stock issuable pursuant to presently
exercisable stock options. Also includes 115,000 shares which Mr.
Iacobucci has agreed to transfer pursuant to a divorce settlement.
(4) Includes 80,002 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(5) Includes 146,668 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(6) Includes 33,334 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(7) Includes 69,338 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(8) Includes 106,668 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(9) Includes 13,334 shares of Common Stock issuable pursuant to presently
exercisable stock options
(10) Includes 33,334 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(11) Includes 44,474 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(12) Includes 1,167,154 shares of Common Stock issuable pursuant to presently
exercisable stock options.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, $.001 par value per share, and 5,000,000 shares of Preferred
Stock, $.01 par value per share (the "Preferred Stock").
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate of Incorporation, as amended (the "Certificate") and by the
provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive ratable dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
Upon the liquidation, dissolution or winding up of the Company, holders of
Common Stock share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any
then outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All shares of Common Stock
outstanding upon the effective date of this Prospectus, and the shares offered
hereby will, upon issuance and sale, be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors have the authority, without further
stockholder approval, to issue up to 5,000,000 shares of Preferred Stock in
one or more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
Preferred Stock in certain circumstances may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage
bids for the Company's Common Stock or a premium over the market price of the
Common Stock and may adversely affect the market price of, and the voting and
other rights of the holders of, the Common Stock. No shares of Preferred Stock
will be outstanding immediately following the closing of this offering. The
Company has no present plans to issue any shares of Preferred Stock.
ANTI-TAKEOVER MEASURES
In addition to the directors' ability to issue shares of Preferred Stock in
one or more series, the Certificate and By-Laws of the Company contain several
other provisions that are commonly considered to have an anti-takeover effect.
The Company's Certificate includes a provision classifying the Board of
Directors into three classes with staggered three-year terms, a provision
prohibiting stockholder action by written consent except as otherwise provided
by law and a provision requiring 75% stockholder approval for certain actions
taken with respect to the Certificate. Under the Company's Certificate and By-
Laws, the directors may enlarge the size of the Board and fill any vacancies
on the Board. The Company's By-Laws provide that nominations for directors may
not be made by stockholders at any annual or special meeting unless the
stockholder intending to make a nomination notifies the Company of its
intention a specified period in advance and furnishes certain information. The
Company's By-Laws also provide that special meetings of the Company's
stockholders may be called only by the President or the directors and require
advance notice of business to be brought by a stockholder before the annual
meeting.
In February 1988, a law regulating corporate takeovers (the "Anti-Takeover
Law") took effect in Delaware. In certain circumstances, the Anti-Takeover Law
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested
45
<PAGE>
stockholder" (a stockholder who owns 15% or more of the corporation's
outstanding voting stock) for three years following the date on which such
stockholder became an "interested stockholder" subject to certain exceptions,
unless the transaction is approved by the board of directors and the holders
of at least 66 2/3% of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder). The statutory ban does
not apply if, upon consummation of the transaction in which any person becomes
an interested stockholder, the "interested stockholder" owns at least 85% of
the outstanding voting stock of the corporation (excluding shares held by
persons who are both directors and officers or by certain employee stock
plans). A Delaware corporation may "opt out" of the Anti-Takeover Law with an
express provision either in its original certificate of incorporation or in
its certificate of incorporation or by-laws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
The Company is a Delaware corporation that is subject to the Anti-Takeover Law
and has not "opted out" of its provisions.
The foregoing provisions of Delaware law and the Company's Certificate and
By-Laws could have the effect of discouraging others from attempting hostile
takeovers of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might
result from actual or rumored hostile takeover attempts. Such provisions may
also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
Limited Partnership.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 25,996,746 shares of
Common Stock outstanding (assuming no exercise of outstanding options).
Substantially all of such shares will be freely tradable without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 ("Rule 144") under the Securities
Act, may generally only be sold in compliance with the limitations of Rule
144. As of March 31, 1996, options to purchase a total of 2,365,930 shares of
Common Stock were outstanding, substantially all of which options were then
exercisable subject to the Company's right to repurchase unvested shares under
certain circumstances. Of the total shares issuable pursuant to such options
1,227,154 are subject to lock-up agreements. An additional 7,930,000 shares of
Common Stock are available for future grants under the Company's stock option
and employee stock purchase plans. Substantially all of such shares are
eligible for resale under Rule 701 or pursuant to registration statements
filed by the Company on Form S-8. See "Management--Stock Plans."
The Company and its executive officers, directors and certain current
securityholders, who in the aggregate hold 2,667,448 shares of Common Stock
and options to purchase 1,227,154 shares of Common Stock, have agreed,
pursuant to the lock-up agreements, not to directly or indirectly, without the
prior written consent of Hambrecht & Quist LLC, offer, sell, offer to sell or
otherwise dispose of any shares of Common Stock beneficially owned by them for
a period of 90 days after the date of this Prospectus.
In addition, holders of an aggregate of 3,668,504 shares of Common Stock are
entitled to register such shares under the Securities Act if the Company
proposes to register any of its securities under the Securities Act. Such
holders may also require the Company to file registration statements under the
Securities Act at its expense with respect to their shares of Common Stock. In
connection with this offering, the rights of such holders to have shares of
Common Stock registered under the Securities Act as part of this offering were
duly waived pursuant to the terms of the agreements providing for such
registration rights.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
prevailing market price for the Common Stock. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
Company's future ability to obtain capital through an offering of equity
securities.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Hambrecht
& Quist LLC, Robertson, Stephens & Company LLC and Needham & Company, Inc.
have severally agreed to purchase from the Company and the Selling
Stockholders, the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Hambrecht & Quist LLC................................................. 810,861
Robertson, Stephens & Company LLC..................................... 810,861
Needham & Company, Inc. .............................................. 810,860
---------
Total........................................................... 2,432,582
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of $.86 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $.10 per share to certain other dealers.
After the public offering of the shares, the offering price and other selling
terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 364,888
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell shares
to the Underwriters to the extent the option is exercised. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
Certain existing stockholders of the Company, including the executive
officers and directors, who will own in the aggregate 2,667,448 shares of
Common Stock after the offering, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares
of common stock or securities exchangeable for or convertible into shares of
Common Stock owned by them during the 90-day period following the date of this
Prospectus. The Company has agreed that it will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities exchangeable
for or convertible into shares of Common Stock during the 90-day period,
following the date of
48
<PAGE>
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its stock and employee stock purchase
plans and under currently outstanding options. Sales of such shares in the
future could adversely affect the market price of the Common Stock.
In connection with the offering, certain Underwriters and members of the
selling group, if any, may engage in passive market making transactions in the
Common Stock on Nasdaq in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of, among other things, displaying bids limited
by the bid prices of independent market makers and purchases limited by such
prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and all possible market activity must be discontinued
when such limit is reached. Passive market making may stabilize the market
price of the Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"CTXS."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. As of the date of this Prospectus, certain attorneys of Testa,
Hurwitz & Thibeault, LLP, own an aggregate of approximately 11,800 shares of
the Company's Common Stock. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Hale and Dorr, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994
and 1995 and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement and the related
financial statement schedule included elsewhere in the Registration Statement,
have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their reports thereon appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports,
proxy statements and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may
be inspected and copies at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048, and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock of
the Company is traded on the Nasdaq National Market. Reports and other
information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
49
<PAGE>
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act (the
"Registration Statement") with respect to the Common Stock offered hereby.
This Prospectus, which constitutes part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the Common Stock, reference is hereby made to the Registration
Statement and the exhibits and schedules filed therewith. Statements contained
in this Prospectus as to the contents of any contract or other document are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission in Washington, D.C. and copies of all or any part of which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may be obtained at prescribed rates by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
50
<PAGE>
CITRIX SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements for the Fiscal Years Ended December 31, 1993, 1994 and
1995:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants...................... F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statements of Operations................................... F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and
Common Shareholders' Equity (Deficit).................................. F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
Unaudited Financial Statements for the Three Months Ended March 31, 1995
and 1996:
Unaudited Condensed Consolidated Balance Sheet as of March 31, 1996..... F-20
Unaudited Condensed Consolidated Statements of Operations for the Three
Months Ended
March 31, 1995 and 1996................................................ F-21
Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months Ended
March 31, 1995 and 1996................................................ F-22
Notes to Unaudited Condensed Consolidated Financial Statements.......... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Citrix Systems, Inc.
We have audited the accompanying consolidated balance sheets of Citrix
Systems, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, redeemable convertible preferred stock and common
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 consolidated financial position
of Citrix Systems, Inc. at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
West Palm Beach, Florida
January 13, 1996, except as to the second paragraph of Note 14,
as to which the date is May 17, 1996
F-2
<PAGE>
CITRIX SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,912,781 $43,471,491
Accounts receivable, net of allowances of $462,480
and $1,008,425 at December 31, 1994 and 1995,
respectively....................................... 1,455,479 2,328,512
Inventories......................................... 128,847 194,023
Prepaid expenses.................................... 100,310 230,313
Note receivable from officer, including accrued
interest of $20,820 and $28,910 at December 31,
1994 and 1995, respectively........................ 120,820 128,910
----------- -----------
Total current assets................................. 3,718,237 46,353,249
Property and equipment:
Computer equipment under capital leases............. 154,387 365,725
Computer equipment and software..................... 100,483 146,745
Office equipment and furniture...................... 56,934 66,534
Leasehold improvements.............................. 10,220 16,640
----------- -----------
322,024 595,644
Less accumulated depreciation and amortization...... (108,492) (293,648)
----------- -----------
213,532 301,996
Other assets......................................... -- 59,941
----------- -----------
$ 3,931,769 $46,715,186
=========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 290,179 $ 546,266
Accrued royalties and other accounts payable to
shareholder........................................ 356,440 521,517
Other accrued expenses.............................. 610,508 1,137,478
Deferred revenue.................................... 71,457 680,767
Deferred revenue on contract with shareholder....... 336,663 541,000
Current portion of capital lease obligations payable
to related parties................................. 63,468 144,976
Income taxes payable................................ -- 93,100
----------- -----------
Total current liabilities............................ 1,728,715 3,665,104
Long-term portion of capital lease obligations
payable to related parties.......................... 68,192 88,379
----------- -----------
Total liabilities.................................... 1,796,907 3,753,483
Commitments
Redeemable Convertible Preferred Stock, $.01 par
value:
Series A, 3,039,000 and -0- shares authorized,
issued and outstanding; and $3,039,000 and $-0-
aggregate liquidation preference at 1994 and 1995,
respectively....................................... 4,444,160 --
Series B, 2,479,200 and -0- shares authorized,
2,431,200 and -0- shares issued and outstanding;
and $3,039,000 and $-0- aggregate liquidation
preference at 1994 and 1995, respectively.......... 3,756,581 --
Series C, 4,834,483 and -0- shares authorized,
3,455,173 and -0- shares issued and outstanding;
and $5,010,000 and $-0- aggregate liquidation
preference at 1994 and 1995, respectively.......... 5,608,386 --
Series D, 2,594,168 and -0- shares authorized,
issued and outstanding; and $4,799,213 and $-0-
aggregate liquidation preference at 1994 and 1995,
respectively....................................... 4,799,213 --
----------- -----------
18,608,340 --
Shareholders' equity (deficit):
Preferred stock at $.01 par value: -0- and 5,000,000
shares authorized, none issued and outstanding at
1994 and 1995, respectively........................ -- --
Common stock at $.001 par value--16,750,000 and
30,000,000 shares authorized; and 2,174,366 and
23,650,916 issued and outstanding at 1994 and 1995,
respectively....................................... 2,174 23,651
Additional paid-in capital.......................... -- 54,938,583
Accumulated deficit................................. (16,475,652) (12,000,531)
----------- -----------
Total shareholders' equity (deficit)................. (16,473,478) 42,961,703
----------- -----------
$ 3,931,769 $46,715,186
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................ $ 5,163,590 $10,085,562 $14,567,922
Cost of goods sold...................... 928,925 2,137,589 1,955,838
----------- ----------- -----------
Gross margin............................ 4,234,665 7,947,973 12,612,084
Operating expenses:
Research and development.............. 1,721,684 1,912,362 2,343,313
Sales, marketing and support.......... 3,866,395 4,443,472 6,669,560
General and administrative............ 1,369,389 1,395,343 1,784,011
----------- ----------- -----------
Total operating expenses................ 6,957,468 7,751,177 10,796,884
----------- ----------- -----------
Income (loss) from operations........... (2,722,803) 196,796 1,815,200
Other income (expense):
Interest income....................... 27,211 58,320 209,029
Interest expense...................... (25,951) (13,385) (36,114)
----------- ----------- -----------
1,260 44,935 172,915
----------- ----------- -----------
Net income (loss) before income taxes... (2,721,543) 241,731 1,988,115
Income taxes............................ -- -- 93,100
----------- ----------- -----------
Net income (loss)....................... (2,721,543) 241,731 1,895,015
Less redeemable convertible preferred
stock accretion........................ (1,466,111) (716,441) --
----------- ----------- -----------
Net income (loss) attributable to common
shares................................. $(4,187,654) $ (474,710) $ 1,895,015
=========== =========== ===========
Historical:
Net income (loss) per share........... $ (1.54) $ (.16) $ .09
=========== =========== ===========
Weighted average shares outstanding..... 2,719,262 3,041,384 20,403,230
=========== =========== ===========
Supplementary:
Net income (loss) per share........... $ (.17) $ .01 $ .09
=========== =========== ===========
Weighted average shares outstanding..... 16,488,994 20,193,694 20,403,230
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND COMMON SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE PREFERRED STOCK
------------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
----------------------- ---------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1992............ 3,039,000 $ 3,464,654 2,431,200 $3,151,921 3,455,173 $ 5,010,000 -- $ --
Exercise of
stock options...
Issuance of
Series D
redeemable
convertible
preferred stock
for cash and
conversion of
notes payable... 1,912,040 3,537,276
Accretion to
redemption
value........... 667,700 408,174 390,237
Net loss........
---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
Balance at
December 31,
1993............ 3,039,000 4,132,354 2,431,200 3,560,095 3,455,173 5,400,237 1,912,040 3,537,276
Exercise of
stock options...
Issuance of
Series D
redeemable
convertible
preferred stock
for cash and
conversion of
notes payable... 682,128 1,261,937
Accretion to
redemption
value........... 311,806 196,486 208,149
---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
Balance at
December 31,
1994............ 3,039,000 4,444,160 2,431,200 3,756,581 3,455,173 5,608,386 2,594,168 4,799,213
Exercise of
stock options...
Repurchase and
cancellation of
common stock
previously
issued..........
Accretion to
redemption
value........... 10,275,789 7,788,333 10,303,373 6,167,449
Restoration of
previous
accretion....... (11,680,949) (8,505,914) (10,901,759) (6,167,449)
Exercise of
warrants........ 66,661 450
Issuance of
common stock
through public
offering (net of
offering costs
of $4,237,717)..
Conversion of
preferred stock
to common stock. (3,039,000) (3,039,000) (2,431,200) (3,039,000) (3,521,834) (5,010,450) (2,594,168) (4,799,213)
Net income......
---------- ----------- ---------- ---------- ---------- ----------- ---------- ----------
Balance at
December 31,
1995............ -- $ -- -- $ -- -- $ -- -- $ --
========== =========== ========== ========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
COMMON SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at
December 31,
1992............ 958,022 $ 958 $ -- $(11,933,009)
Exercise of
stock options... 193,954 194 16,189
Issuance of
Series D
redeemable
convertible
preferred stock
for cash and
conversion of
notes payable...
Accretion to
redemption
value........... (16,189) (1,449,922)
Net loss........ (2,721,543)
---------- ------- ----------- ------------
Balance at
December 31,
1993............ 1,151,976 1,152 -- (16,104,474)
Exercise of
stock options... 1,022,390 1,022 103,532
Issuance of
Series D
redeemable
convertible
preferred stock
for cash and
conversion of
notes payable...
Accretion to
redemption
value........... (103,532) (612,909)
Net income...... 241,731
---------- ------- ----------- ------------
Balance at
December 31,
1994............ 2,174,366 2,174 -- (16,475,652)
Exercise of
stock options... 313,276 313 48,636
Repurchase and
cancellation of
common stock
previously
issued.......... (35,000) (35) (4,821)
Accretion to
redemption
value........... (29,360) (34,505,584)
Restoration of
previous
accretion....... 170,381 37,085,690
Exercise of
warrants........
Issuance of
common stock
through public
offering (net of
offering costs
of $4,237,717).. 5,750,000 5,750 38,881,533
Conversion of
preferred stock
to common stock. 15,448,274 15,449 15,872,214
Net income...... 1,895,015
---------- ------- ----------- ------------
Balance at
December 31,
1995............ 23,650,916 $23,651 $54,938,583 $(12,000,531)
========== ======= =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $(2,721,543) $ 241,731 $ 1,895,015
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization......... 21,496 55,368 185,157
Provision for doubtful accounts....... 479,561 61,000 241,253
Changes in operating assets and
liabilities:
Accounts receivable.................. (953,237) (491,332) (1,114,286)
Inventories.......................... (314) (90,161) (65,176)
Prepaid expenses..................... 4,409 (85,345) (130,003)
Other assets......................... -- (361) (59,941)
Interest on note receivable from
officer............................. (13,165) (7,294) (8,090)
Deferred revenue..................... 100,000 (28,543) 609,310
Deferred revenue on contract with
shareholder......................... -- 336,663 204,337
Accounts payable..................... 27,394 (49,042) 256,087
Accrued royalties and other accounts
payable to shareholder.............. -- 356,440 165,077
Income taxes payable................. -- -- 93,100
Other accrued expenses............... 147,830 178,761 526,970
----------- ---------- -----------
Net cash provided (used) by operating
activities............................. (2,907,569) 477,885 2,798,810
INVESTING ACTIVITIES
Purchases of property and equipment..... (31,960) (87,827) (62,282)
Proceeds from sale of property and
equipment.............................. -- 21,092 --
----------- ---------- -----------
Net cash used in investing activities... (31,960) (66,735) (62,282)
FINANCING ACTIVITIES
Net proceeds from issuance of common
stock.................................. 16,383 104,554 38,936,681
Repurchase of common stock previously
issued................................. -- -- (4,856)
Proceeds from sale of preferred stock... 2,034,276 353,667 --
Proceeds from line of credit............ -- 25,000 600,000
Payment on line of credit............... -- (25,000) (600,000)
Payments on capital lease obligations... -- (22,727) (109,643)
Proceeds from issuance of notes payable. 1,658,270 -- --
----------- ---------- -----------
Net cash provided by financing
activities............................. 3,708,929 435,494 38,822,182
----------- ---------- -----------
Increase in cash and cash equivalents... 769,400 846,644 41,558,710
Cash and cash equivalents at beginning
of year................................ 296,737 1,066,137 1,912,781
----------- ---------- -----------
Cash and cash equivalents at end of
year................................... $ 1,066,137 $1,912,781 $43,471,491
=========== ========== ===========
</TABLE>
Continued on next page.
F-6
<PAGE>
CITRIX SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of approximately $26,000, $13,000 and $36,000
during the years ended December 31, 1993, 1994 and 1995, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES ----------- --------- ---------
<S> <C> <C> <C>
Property and equipment acquired under capital
lease......................................... $ -- $ 154,387 $ 211,338
=========== ========= =========
Conversion of notes payable to Series D
redeemable convertible preferred stock........ $ 1,503,000 $ 908,270 $ --
=========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
Citrix Systems, Inc. (the Company), a Delaware corporation, was founded on
April 17, 1989 for the purpose of designing, developing and selling personal
computer-based operating system software. Customers for the Company's products
span a broad range of industries. The Company markets its products through
multiple indirect channels such as distributors, value-added resellers and
original equipment manufacturers, primarily in the United States and in
Europe.
During 1995, the Company formed a wholly-owned subsidiary, Citrix Systems
U.K. Limited, a United Kingdom corporation, for the purpose of expanding its
European presence.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements of the Company include the accounts of
its wholly-owned subsidiary. All significant transactions between the Company
and its subsidiary have been eliminated in consolidation.
Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, cash and cash
equivalents include marketable securities which are primarily money market
funds, treasury bills and commercial paper consisting of various instruments
with original maturities of three months or less. The cost associated with
such securities approximates fair market value. The Company minimizes its
credit risk associated with cash and cash equivalents by using high quality
credit instruments.
Accounts Receivable
Substantially all of the Company's accounts receivable are due from
distributors and value-added resellers of microcomputer software. Collateral
is not required. Credit losses are provided for in the consolidated financial
statements and have been within management's expectations.
Inventories
Inventories, consisting primarily of finished goods, are stated at the lower
of cost (determined by the first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Assets
under capital lease are amortized over the shorter of the asset life or the
remaining lease term. Amortization of assets under capital lease is included
in depreciation expense.
Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position
(SOP) 91-1, "Software Revenue Recognition," issued by the American Institute
of Certified Public Accountants (AICPA).
Revenue from product sales is recognized upon product shipment only if no
significant Company obligations remain and collection of the resulting
receivable is deemed probable. Revenue from advance
F-8
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
payments of license revenue and fees from products licensed to original
equipment manufacturers is recognized when all significant obligations of
performance under the terms of the license agreement have been completed and
any amounts received are no longer refundable; in the event that advance
payments are not received, revenue is recognized when collectibility is
reasonably assured. Revenue from fees representing charges to third parties to
incorporate the Company's products into their systems, and fees for research
and development services integral to facilitating licensing arrangements are
recognized as development efforts are completed or contract milestones are
achieved.
The Company provides most of its distributors and resellers with product
return rights for stock balancing and price protection rights. Stock balancing
rights permit distributors and resellers to return products to the Company for
credit within specified limits and subject to ordering an equal amount of the
Company's products. Price protection rights require that the Company grant
retroactive price adjustments for inventories of the Company's products held
by distributors or resellers if the company lowers its prices for such
products. Reserves for product returns amounted to approximately $297,000 and
$609,000 at December 31, 1994 and 1995, respectively. The Company has not and
has no plan to reduce its prices for inventory currently held by distributors
or resellers; accordingly, there are no reserves for price protection at
December 31, 1994 and 1995. Revenue from training programs and software
maintenance, service and support arrangements totaling $0, $283,365 and
$591,368 for the years ended December 31, 1993, 1994 and 1995, respectively,
is recognized when the services are provided. Such items are included in net
revenue. The costs of providing training and services are included in sales,
marketing and support expenses.
Royalty Expense
The Company is a party to licensing agreements with various entities which
require no minimum payment commitment and give the Company the right to use
certain software object code in the development of its products in exchange
for the payment of certain amounts based upon the sales of the related
products. The licensing agreements have terms ranging from one to five years,
and include renewal options. Royalty expense related to these agreements is
included in cost of sales.
Advertising Expense
Effective January 1, 1995, the Company adopted SOP 93-7, "Reporting on
Advertising Costs," issued by the AICPA. Adoption of SOP 93-7 had no effect on
the consolidated financial statements.
The Company expenses advertising costs as incurred. The Company recognized
advertising expenses of $150,000, $300,000 and $576,000 during the years ended
December 31, 1993, 1994 and 1995, respectively. These amounts are included in
sales, marketing and support expenses. The Company did not incur any direct
response advertising cost, as defined by SOP 93-7, during 1995.
Income Taxes
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes."
Adoption of FASB Statement No. 109, as of January 1, 1993, had no material
effect on income from continuing operations and did not require any cumulative
effect adjustments.
F-9
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31,1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Software Development Costs
FASB No. 86 "Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed" requires software development costs to be
capitalized upon the establishment of technological feasibility. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management
with respect to certain external factors such as
anticipated future revenue, estimated economic life, and changes in software
and hardware technologies. Capitalizable software development costs have not
been significant and have been expensed as incurred.
Risks and Uncertainties
The Company's operating results and financial condition have varied and may
in the future vary significantly depending on a number of factors. The
following factors may have a material adverse effect upon the Company's
business, results of operations and financial conditions.
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 consolidated financial
statements and accompanying notes. While the Company believes that such
estimates are fair when considered in conjunction with the consolidated
financial position and results of operations taken as a whole, the actual
amount of such estimates when known may vary from these estimates.
Reliance Upon Strategic Relationship
A shareholder is the leading provider of desktop operating systems. The
Company is dependent upon the license of certain key technology from this
shareholder including certain source and object code licenses, technical
support and other materials. The Company is also dependent on its strategic
alliance agreement with this shareholder which provides for cooperation in the
development of technologies for advanced operating systems, and the promotion
of advanced application program interfaces.
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.
Accounting for Stock-Based Compensation
In October 1995, FASB issued Statement of Financial Accounting Standard
(SFAS) No. 123, "Accounting for Stock-Based Compensation," which requires
adoption of the disclosure provisions no later than fiscal years beginning
after December 15, 1995 and adoption of the measurement and recognition
provisions for nonemployee transactions for transactions entered into after
December 15, 1995. The new standard defines a fair value method of accounting
for issuance of stock options and other equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the
fair value of the award and is
F-10
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized over the service period, which is usually the vesting period.
Pursuant to SFAS No. 123, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
consolidated financial statements proforma net income and per share amounts as
if the Company had applied the new method of accounting. Additionally, SFAS
No. 123 requires increased disclosure for stock-based compensation
arrangements regardless of the method chosen to measure and recognize
compensation for employee stock-based arrangements.
The Company has not had any transactions which would require it to elect or
change the method of reporting such options or to disclose the effect of such
change, if any. Accordingly, the Company has not yet determined if it will
elect to change its method of accounting for the issuance of stock options and
other equity instruments to the fair value method, nor has it determined the
effect the new standard will have on its operating results and per share
results should it elect to make such a change.
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, after giving effect to the conversion of the Redeemable
Convertible Preferred Stock (described in Note 6) into an aggregate of
15,359,388 shares of Common Stock as though it occurred at the beginning of
1995. 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 12 months immediately
preceding the date of the initial filing of the 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 modified treasury stock method in 1993 and
1994, and the treasury stock method in 1995). All common share and per share
data, except par value per share, have been retroactively adjusted to reflect
the two-for-three stock split of the Company's Common Stock effective December
7, 1995 and the two-for-one stock split discussed in Note 14. Supplementary
net income (loss) per share is computed in the same manner as historical net
income (loss) per share adjusted for the aforementioned conversion of the
Redeemable Convertible Preferred Stock as though the conversion had occurred
at the beginning of each period or at the date of issuance, if later.
3. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- ----------
<S> <C> <C>
Accrued employee benefits............................... $250,908 $ 624,950
Accrued sales commissions............................... 105,049 120,391
Accrued cooperative advertising......................... 79,966 226,528
Other................................................... 174,585 165,609
-------- ----------
$610,508 $1,137,478
======== ==========
</TABLE>
F-11
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
4. NOTES PAYABLE
During 1992, the Company issued $753,000 of short-term bridge notes, due on
demand, with interest at 7%, and convertible into preferred stock at $1.85 per
share. During 1993, the Company issued an additional $750,000 of short-term
bridge notes with similar terms.
On February 26, 1993, all of the previously issued short-term bridge notes
were converted into the Company's Series D Redeemable Convertible Preferred
Stock, at a conversion price of $1.85 per share. On November 30, 1993, the
Company issued $908,270 of short-term bridge notes due on demand with interest
at 7%. On February 28, 1994, these notes were converted into Series D
Redeemable Convertible Preferred Stock at a conversion price of $1.85 per
share.
5. WORKING CAPITAL AND LEASE CREDIT LINES
The Company has a working capital credit line aggregating $2,000,000 at
December 31, 1995 with a bank which is a shareholder of the Company.
Borrowings under this line of credit are payable on demand and are limited to
a percentage of eligible receivables. The Company is required to pay the bank
a commitment fee equal to .5% per annum of the daily average unused portion of
the line of credit. The interest rate on borrowings is computed at the greater
of the bank's prime rate plus 1.5% or the overnight federal funds rate plus
2.0%. Borrowings under the line of credit are secured by substantially all of
the Company's assets and are subject to the Company meeting certain
performance and restrictive covenants, including the requirement that all
dividend payments must be approved by the bank. During the years ended
December 31, 1994 and 1995, the Company borrowed a total of $25,000 and
$600,000, respectively, on the line of credit. No borrowings under this
arrangement were outstanding at December 31, 1994 and 1995. This arrangement
matures on February 28, 1997.
The Company has available a $500,000 lease credit facility with the same
bank. During the years ended December 31, 1993, 1994 and 1995, the Company
leased approximately $0, $101,000, and $211,000, respectively, of computer
equipment and software, under the terms of this facility. The leases are
collateralized by the related equipment. These leases have been accounted for
as capitalized lease obligations and are for a term of 30 months. An average
interest rate of 9.5% is implicit in the leases.
Future minimum lease payments under all of the Company's capitalized lease
obligations are as follows:
<TABLE>
<S> <C>
Year ended December 31,
-----------------------
1996............................................................ $160,712
1997............................................................ 90,527
1998............................................................ 6,574
--------
257,813
Imputed interest.................................................. (24,458)
--------
Present value of obligations under capital leases for financial
reporting purposes............................................... 233,355
Less current maturities........................................... (144,976)
--------
Long-term capital lease obligations............................... $ 88,379
========
</TABLE>
The related computer equipment is included in property and equipment, and
the related amortization is included in depreciation expense.
F-12
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND RELATED WARRANTS
The Company issued an aggregate 1,912,040 and 682,128 shares of Series D
Redeemable Convertible Preferred Stock during 1993 and 1994, respectively.
These shares were sold at $1.85 per share in exchange for the following:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Cash................................................ $2,034,276 $ 353,667
Conversion of short-term bridge notes............... 1,503,000 908,270
---------- ----------
$3,537,276 $1,261,937
========== ==========
</TABLE>
No shares of preferred stock were issued during 1995. Prior to October 1995,
the carrying value of the Company's Redeemable Convertible Preferred Stock
(the Preferred Stock) was equal to the original issuance proceeds from the
various series plus periodic accretions to redemption value. In October 1995,
the terms of the Preferred Stock were amended to provide that the redemption
price be equal to the original purchase price of the Preferred Stock plus any
declared Preferred Stock dividends. As a result of this amendment, the Company
restored all previously accreted amounts.
On December 7, 1995, all outstanding preferred stock was converted into the
Company's Common Stock at a ratio of three shares of preferred stock for four
shares of Common Stock (adjusted to reflect the stock splits discussed in Note
14).
Dividends on all series of the Preferred Stock are determined solely by the
Board of Directors and are noncumulative. No dividends have been declared as
of December 31, 1995.
The Company has issued warrants to purchase 48,000 shares of Series B
Redeemable Convertible Preferred Stock at an exercise price of $1.25 per
share, warrants to purchase 27,586, 25,966 and 51,928 shares of Series C
Redeemable Convertible Preferred Stock at an exercise price of $1.45 per
share. The warrants expire on June 7, 1998, March 13, 2000, November 2, 1997
and January 25, 1998, respectively. Upon the consummation of the Company's
initial public offering and the automatic conversion of the Redeemable
Convertible Preferred Stock, the warrants became exercisable on a four-for-
three basis into the Company's Common Stock (adjusted to reflect the stock
splits discussed in Note 14) at an exercise price of $.94 per common share for
the Series B warrants and $1.09 per common share for the Series C warrants.
The exercise price of the outstanding warrants is subject to adjustment in the
event of recapitalizations, reorganizations, stock splits and combinations and
in the event of dilutive issuances of capital stock by the Company.
On December 7, 1995, 77,914 warrants to purchase Series C Redeemable
Convertible Preferred Stock were exercised, of which 77,604 warrants were
exercised on a net basis to obtain 68,350 shares of Preferred Stock. Upon the
automatic conversion of the Preferred Stock into Common Stock, the Company
issued 88,886 shares of Common Stock to the former warrant holders.
7. SHAREHOLDERS' EQUITY
Stock Options
The Company's 1995 Stock Plan (the 1995 Plan) was adopted by the Board on
September 28, 1995 and approved by the Company's stockholders in October 1995.
The 1995 Plan provides for the issuance of a maximum of 6,000,000 shares of
Common Stock, plus, effective January 1, 1997 and each year thereafter, a
number of shares of Common Stock equal to 5% of the total number of shares of
Common Stock issued and outstanding as of December 31 of the preceding year,
up to a maximum of 10,000,000 shares. Under the terms
F-13
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
7. SHAREHOLDERS' EQUITY (CONTINUED)
of the 1995 Plan, the Company is authorized to grant incentive stock options
(ISOs) and nonqualified stock options (NSOs), make stock awards, and provide
the opportunity to purchase stock to employees, directors and officers and
consultants of the Company. Under the 1995 Plan, ISOs may be granted at
exercise prices no less than market value at the date of grant, except for
ISOs' granted to employees who own more than 10% of the Company's combined
voting power, for which the exercise prices will be no less than 110% of the
market value at the date of grant. NSOs stock awards or stock purchases may be
granted or authorized, as applicable, at prices no less than the minimum legal
consideration required. ISOs and NSOs expire ten years from the date of grant.
All options are exercisable upon vesting. The options vest at a rate of 25.00%
of the shares underlying the option one year from the date of grant and at
2.08% monthly thereafter. As of December 31, 1995, 30,000 options have been
granted under the 1995 Plan of which none were vested.
The 1995 Employee Stock Purchase Plan (the 1995 Purchase Plan) was adopted
by the Board of Directors on September 28, 1995 and approved by the Company's
stockholders in October 1995. The 1995 Purchase Plan took effect upon
completion of the Company's initial public offering. The 1995 Purchase Plan
provides for the issuance of a maximum of 1,500,000 shares of Common Stock
pursuant to the exercise of nontransferable options granted to participating
employees. All employees of the Company, whose customary employment is 20
hours or more per week and more than 5 months in any calendar year and who
have completed at least 1 year of employment are eligible to participate in
the 1995 Purchase Plan. Employees who would immediately after the grant own 5%
or more of the Company's Common Stock and directors who are not employees of
the Company may not participate in the 1995 Purchase Plan. To participate in
the 1995 Purchase Plan, an employee must authorize the Company to deduct an
amount (not less than 1% nor more than 5% of a participant's total cash
compensation) from his or her pay during six-month periods (each a Plan
Period), the first such period to commence upon the date of the Company's
initial public offering and to end on the last market trading day on or before
June 30, 1996. The maximum number of shares of Common Stock an employee may
purchase in any Plan Period is 2,000 shares subject to certain other
limitations. The exercise price for the option for each Plan Period is 85% of
the lesser of the market price of the Common Stock on the first or last
business day of the Plan Period. If an employee is not a participant on the
last day of the Plan Period, such employee is not entitled to exercise his or
her option, and the amount of his or her accumulated payroll deductions will
be refunded. An employee's rights under the 1995 Purchase Plan terminate upon
his or her voluntary withdrawal from the 1995 Purchase Plan at anytime or upon
termination of employment. No options have been granted to date under the 1995
Purchase Plan.
The 1995 Non-Employee Director Stock Option Plan (the Director Option Plan)
was adopted by the Board of Directors on September 28, 1995 and approved by
the Company's stockholders in October 1995. The Director Option Plan provides
for the grant of options to purchase a maximum of 600,000 shares of Common
Stock of the Company to nonemployee directors of the Company.
Under the Director Option Plan, each director who is not also an employee of
the Company and who is first elected as a director after the date of the
Company's initial public offering will receive, upon the date of his or her
initial election, an option to purchase 30,000 shares of Common Stock. Options
granted under the Director Option Plan will vest as to 33.33% one year from
the date of grant and will vest as to an additional 2.78% monthly thereafter.
In addition, on each three-year anniversary of such director's first election
to the Board of Directors, such director will receive an additional option to
purchase 30,000 shares of Common Stock, vesting in accordance with the
aforementioned schedule, provided that such director continues to serve on the
Board of Directors at the time of grant. All options granted under the
Director Option Plan will have an exercise price equal to the fair market
value of the Common Stock on the date of grant and a term of ten
F-14
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
7. SHAREHOLDERS' EQUITY (CONTINUED)
years from the date of grant. Options are exercisable to the extent vested
only while the optionee is serving as a director of the Company or within 90
days after the optionee ceases to serve as a director of the Company. No
options have been granted to date under the Director Option Plan.
On July 11, 1989, the Company adopted its 1989 Stock Option Plan (the 1989
Plan). The 1989 Plan, as amended, permitted the Company to grant ISOs and NSOs
to purchase up to 4,209,424 shares of the Company's Common Stock. Under the
1989 Plan, options may be granted at exercise prices no less than market value
at the date of grant as determined by the Board of Directors and, therefore,
no compensation expense is recognized. All options are fully exercisable from
the date of grant and are subject to a repurchase option in favor of the
Company which lapses as to 25.00% of the shares underlying the option one year
from the date of grant and as to 2.08% monthly thereafter. If the purchaser of
stock pursuant to the 1989 Plan is terminated from employment with the
Company, the Company has the right and option to purchase from the employee,
at the price paid for the shares by the employee, the number of unvested
shares at the date of termination. As of December 31, 1993, 1994 and 1995,
2,429,334, 2,317,316 and 2,298,484 options, respectively, were exercisable. As
of December 31, 1993, 1994 and 1995, 968,322, 1,438,930 and 1,946,606 options,
respectively, which have been exercised or are exercisable, were vested. The
Company does not intend to grant any additional options under the 1989 Plan.
During the years ended December 31, 1993, 1994 and 1995, the following
represents the activity under all of the Company's stock option plans:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
OPTIONS PRICE
---------- --------------
<S> <C> <C>
Options outstanding at December 31, 1992......... 1,734,668 $0.075--$0.109
Options granted during 1993.................... 1,106,666 $0.109--$0.139
Options forfeited during 1993.................. (218,046) $0.075--$0.139
Options exercised during 1993.................. (193,954) $0.075--$0.109
----------
Options outstanding at December 31, 1993......... 2,429,334 $0.075--$0.139
Options granted during 1994.................... 975,334 $0.139--$0.750
Options forfeited during 1994.................. (64,962) $0.075--$0.139
Options exercised during 1994.................. (1,022,390) $0.075--$0.139
----------
Options outstanding at December 31, 1994......... 2,317,316 $0.075--$0.750
Options granted during 1995.................... 504,526 $1.500--$7.500
Options forfeited during 1995.................. (210,028) $0.139--$3.750
Options exercised during 1995.................. (313,330) $0.075--$2.250
----------
Options outstanding at December 31, 1995......... 2,298,484 $0.075--$3.750
==========
</TABLE>
COMMON STOCK
The following shares of Common Stock have been reserved for future issuance:
<TABLE>
<S> <C>
Upon exercise of warrants........................................ 100,782
Upon exercise of stock options outstanding or available for
grant........................................................... 10,368,484
----------
10,469,266
==========
</TABLE>
F-15
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
7. SHAREHOLDERS' EQUITY (CONTINUED)
In December 1995, the Company issued an additional 5,750,000 shares in
connection with the initial public offering of its Common Stock.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock,
$0.01 par value per share. The Company has no present plans to issue such
shares.
8. COMMITMENTS
The Company leases certain office space, equipment and software under
various noncancelable operating leases. Certain of these leases contain stated
escalation clauses while others contain renewal options.
Rental expense for the years ended December 31, 1993, 1994 and 1995 totaled
approximately $396,000, $416,000 and $327,000, respectively. Lease commitments
under these noncancelable operating leases for the years ended December 31 are
as follows:
<TABLE>
<S> <C>
1996............................................................... $408,167
1997............................................................... 48,459
1998............................................................... 16,512
1999............................................................... 16,512
--------
Total future minimum lease payments................................ $489,650
========
</TABLE>
Included in the above are amounts pursuant to lease agreements with an
entity that holds warrants to purchase 100,782 shares of Common Stock of the
Company for approximately $100,000. Rent expenses attributed to the leases
amounted to approximately $140,000, $127,000 and $113,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. Lease commitments to this
entity for the years ended December 31, included in the above table, are as
follows: 1996--$79,847; 1997--$25,803.
9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994 1995
----- ----- -------
<S> <C> <C> <C>
Current federal............................................. $ -- $ -- $93,100
===== ===== =======
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $8,960,000 available for income tax purposes that expire in
years 2006 through 2008. In addition, the Company had tax credits of $496,000
that expire in years 2004 through 2010 and $93,100 of tax credits that have no
expiration date.
F-16
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 4,746,000 $ 3,400,000
Tax credits........................................... 439,000 589,000
Revenue deferred for book but not for tax purposes.... 155,000 464,000
Accounts receivable allowances........................ 176,000 383,000
Other................................................. 180,000 236,000
----------- -----------
5,696,000 5,072,000
Less valuation allowance for deferred tax assets...... (5,696,000) (5,072,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1994 and 1995 consisted of a decrease of $36,000 and $624,000, respectively.
Due to the net operating loss carryforward, there is no provision for income
taxes for the years ended December 31, 1993 and 1994. The differences between
the provision for income taxes and the amount which results from applying the
federal and state statutory tax rate of 34% and 4%, respectively, to income
(loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory
rate........................................ $ (925,325) $ 82,189 $ 675,959
State income tax expense (benefit), net...... (108,862) 9,669 79,525
Meals and entertainment not deductible for
tax purposes................................ 3,063 13,598 19,812
Recognized benefit of net operating loss
carryforwards............................... -- (105,456) (682,196)
Unrecognized benefit of net operating loss
carryforwards............................... 1,031,124 -- --
---------- --------- ---------
$ -- $ -- $ 93,100
========== ========= =========
</TABLE>
10. BENEFIT PLAN
The Company has a 401(k) benefit plan allowing an employee to contribute up
to a maximum of 15% of gross salary, limited to the maximum allowed by the
Internal Revenue Service. To date, the Company has made no contributions to
the Plan.
F-17
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
11. SIGNIFICANT CUSTOMERS
The Company had net revenue attributed to individual customers in excess of
10% of total net sales as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Customer A........................................ 5% 27% 22%
Customer B........................................ 20 26 6
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Company has entered into an agreement to provide products and
engineering support to an entity which is a stockholder of the Company. The
Company received $520,000 and $296,000 of minimum royalties and engineering
fees from the entity during the years ended December 31, 1994 and 1995,
respectively, of which $337,000 and $541,000 is included in deferred revenue
at December 31, 1994 and 1995, respectively. There were no such royalties and
engineering fees in 1993.
An entity which held a greater than 5% interest in the Company at December
31, 1994 and 1995 is a party to one of the licensing agreements discussed in
Note 2. The Company recognized $232,000, $531,000 and $962,000 of royalty
expense in cost of sales and $332,000, $296,000 and $60,000 of offsetting
royalty credits in net revenue in the years ended December 31, 1993, 1994 and
1995, respectively, and has accrued royalties and other accounts payable of
$0, $356,000 and $521,000 at December 31, 1993, 1994 and 1995, respectively,
in connection with this agreement.
During 1991 and 1992, the Company advanced an aggregate $100,000 to an
officer who is also a shareholder. This note is evidenced by a promissory note
and bears interest at 6.73% with principal and interest due in August 1996.
The note is secured by 213,334 shares of Common Stock of the Company. The
related accrued interest amounts to approximately $14,000, $21,000 and $29,000
at December 31, 1993, 1994 and 1995, respectively.
During 1993, the Company entered into a consulting agreement with a director
of the Company. The Company paid the director approximately $130,000, $10,000
and $0 during the years ended December 31, 1993, 1994 and 1995, respectively,
for management consulting services pursuant to this agreement. At December 31,
1994 and 1995, no amounts were owed to the director under this agreement.
13. INFORMATION RELATING TO EXPORT REVENUE
Export revenue representing shipments of finished goods and services
provided to international customers, by geographical area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Europe........................................... $168,495 $1,439,631 $1,678,454
Pacific Rim...................................... 141,440 552,909 637,912
Other............................................ 153,048 261,851 350,747
-------- ---------- ----------
$462,983 $2,254,391 $2,667,113
======== ========== ==========
</TABLE>
F-18
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
14. STOCK SPLITS
In September 1995, the Board of Directors approved an increase in authorized
Common Stock from 16,750,000 shares, $0.001 par value per share to 30,000,000
shares, $0.001 par value per share. In October 1995, the Company declared a
two-for-three stock split effective December 7, 1995.
On May 17, 1996, the shareholders approved an increase in authorized Common
Stock from 30,000,000 shares, $0.001 par value per share to 60,000,000 shares,
$0.001 par value per share. On May 17, 1996, the Board of Directors declared a
two-for-one stock split in the form of a stock dividend to be paid on or about
June 4, 1996 to stockholders of record of the Company's Common Stock on May
28, 1996. The number of options issuable and previously granted and their
respective exercise prices under the Company's stock option plans have been
proportionately adjusted to reflect this stock split.
The accompanying consolidated financial statements have been retroactively
restated to reflect these stock splits.
F-19
<PAGE>
CITRIX SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $46,476,354
Accounts receivable, net of allowances of $1,332,971............. 3,427,370
Inventories...................................................... 326,237
Prepaid expenses................................................. 415,367
Other current assets............................................. 248,146
-----------
Total current assets.............................................. 50,893,474
Property and equipment, net....................................... 368,153
-----------
$51,261,627
===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 592,607
Accrued royalties and other accounts payable to shareholder...... 684,305
Other accrued expenses........................................... 1,651,434
Deferred revenue................................................. 1,206,869
Deferred revenue on contract with shareholder.................... 541,000
Current portion of capital lease obligations payable to related
parties......................................................... 148,007
Income taxes payable............................................. 494,392
-----------
Total current liabilities......................................... 5,318,614
Long-term portion of capital lease obligations payable to related
parties.......................................................... 65,814
-----------
Total liabilities................................................. 5,384,428
Shareholders' equity:
Preferred Stock at $.01 par value--5,000,000 shares authorized,
none issued and outstanding..................................... --
Common stock at $.001 par value--30,000,000 shares authorized;
and 23,698,616 issued and outstanding .......................... 23,699
Additional paid-in capital....................................... 55,000,598
Accumulated deficit.............................................. (9,147,098)
-----------
Total shareholders' equity........................................ 45,877,199
-----------
$51,261,627
===========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-20
<PAGE>
CITRIX SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Net revenues..................................... $ 2,685,869 $ 7,771,663
Cost of goods sold............................... 398,574 979,943
-------------- -------------
Gross margin..................................... 2,287,295 6,791,720
Operating expenses:
Research and development....................... 552,938 903,829
Sales, marketing and support................... 1,460,978 2,486,911
General and administrative..................... 285,445 860,726
-------------- -------------
Total operating expenses......................... 2,299,361 4,251,466
-------------- -------------
Income (Loss) from operations.................... (12,066) 2,540,254
Other income, net................................ 9,298 561,325
-------------- -------------
Net income (loss) before income taxes............ (2,768) 3,101,579
Income taxes..................................... -- 248,146
-------------- -------------
Net income (loss)................................ (2,768) 2,853,433
Less redeemable convertible preferred stock
accretion....................................... (12,178,398) --
-------------- -------------
Net income (loss) attributable to common shares.. $ (12,181,166) $ 2,853,433
============== =============
Historical:
Net income (loss) per share.................... $ (3.76) $ .11
============== =============
Weighted average shares outstanding............ 3,239,310 25,954,440
============== =============
Supplementary:
Net income (loss) per share.................... $ -- $ .11
============== =============
Weighted average shares outstanding............ 18,598,698 25,954,440
============== =============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-21
<PAGE>
CITRIX SYSTEMS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1995 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................. $ (2,768) $ 2,853,433
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 35,364 57,907
Provision for doubtful accounts.............. (83,234) 222,393
Changes in operating assets and liabilities:
Accounts receivable......................... 178,091 (1,423,404)
Inventories................................. (77,551) (132,214)
Prepaid expenses............................ (81,834) (56,144)
Other assets................................ -- (188,205)
Interest on note receivable from officer.... (3,623) --
Deferred revenue............................ 143,138 526,102
Deferred revenue on contract with
shareholder................................ 204,337 --
Accounts payable............................ 124,792 46,341
Accrued royalties and other accounts payable
to shareholder............................. 3,808 162,788
Income taxes payable........................ -- 401,292
Other accrued expenses...................... (7,592) 513,956
------------- --------------
Net cash provided by operating activities...... 432,928 2,984,245
INVESTING ACTIVITY
Purchases of property and equipment............ (78,440) (21,911)
------------- --------------
Net cash used in investing activity............ (78,440) (21,911)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock..... 18,788 62,063
Payments on capital lease obligations payable
to related parties............................ (3,584) (19,534)
------------- --------------
Net cash provided by financing activities...... 15,204 42,529
------------- --------------
Increase in cash and cash equivalents.......... 369,692 3,004,863
Cash and cash equivalents at beginning of
quarter....................................... 1,912,781 43,471,491
------------- --------------
Cash and cash equivalents at end of quarter.... $ 2,282,473 $ 46,476,354
============= ==============
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
ACTIVITY
Property and equipment acquired under capital
leases........................................ $ 71,800 $ --
============= ==============
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
F-22
<PAGE>
CITRIX SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 elsewhere in this Prospectus.
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 (IPO) price during the
twelve months immediately preceding the date of the initial filing of the
Registration Statement related to the IPO 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 stock split of the Company's Common stock effective December 7, 1995 and
the two-for-one stock split to be paid on or about June 4, 1996 to
stockholders of record of the Company's Common Stock on May 28, 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.
Income Taxes
The income taxes recorded in the three months ended March 31, 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 operating loss carryforwards and tax credit
carryforwards from prior periods.
F-23
<PAGE>
In this graphic, the Company's name "Citrix" is centered and underneath it
is the phrase "Extending the Reach of Microsoft Windows(R)". In the upper left
corner of the page is a large depiction of a Windows screen which illustrates
the Company's Internet Home Page. On the right of such screen is the following
statement: "The Citrix Internet Home Page demonstrates interactive access to
windows applications over the Internet. The Company's customers, prospects and
business partners access Citrix product information and demonstrations via the
World Wide Web. Information contained on the Company's Web site shall not be
deemed a part of this Prospectus."
In the lower right corner of the page is a picture of the Company's
WinFrame product line. On the left of such picture is the following statement:
"The WinFrame product family permits organizations to deploy advanced Windows
applications without regard to type or location of client hardware platforms."
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICI-
TATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Price Range of Common Stock............................................... 13
Capitalization............................................................ 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 24
Management................................................................ 36
Certain Transactions...................................................... 43
Principal and Selling Stockholders........................................ 44
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 47
Underwriting.............................................................. 48
Legal Matters............................................................. 49
Experts................................................................... 49
Additional Information.................................................... 49
Index to Consolidated Financial Statements................................ F-1
</TABLE>
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2,432,582 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
NEEDHAM & COMPANY, INC.
JUNE 13, 1996
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