<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-25040
APPLIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2781676
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
112 TURNPIKE ROAD, WESTBORO, MASSACHUSETTS 01581
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(508)870-0300
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
REGISTRANT HAD 9,639,016 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT AUGUST 9, 1996.
<PAGE> 2
APPLIX, INC.
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the three months ended June 30, 1996 and 1995 4
Consolidated Statements of Operations
for the six months ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Signature 13
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIX, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $29,003 $25,380
Accounts receivable, less allowance for doubtful accounts
of $469 and $484 at June 30, 1996 and
December 31, 1995, respectively 7,725 6,007
Other current assets 1,639 834
Deferred tax asset 4,168 4,168
------- -------
Total current assets 42,535 36,389
Property and equipment, at cost 7,882 6,451
Less accumulated amortization and depreciation (4,478) (4,082)
------- -------
Net property and equipment 3,404 2,369
Capitalized software costs, net of accumulated
amortization of $286 and $1,820 at June 30, 1996
and December 31, 1995, respectively 319 201
Other assets 497 539
------- -------
Total assets $46,755 $39,498
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,775 $ 1,862
Accrued liabilities 8,018 7,490
Deferred revenue 11,164 8,795
------- -------
Total current liabilities 20,957 18,147
Stockholders' equity:
Common stock, $.0025 par value; 30,000,000 shares
authorized; 9,866,633 and 9,609,728 shares issued at
June 30, 1996 and December 31, 1995, respectively 25 24
Capital in excess of par value 32,080 31,274
Accumulated deficit (5,134) (8,884)
Treasury stock, 278,698 shares, at cost (933) (933)
Foreign currency translation adjustment (240) (130)
------- -------
Total stockholders' equity 25,798 21,351
------- -------
Total liabilities and stockholders' equity $46,755 $39,498
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-3-
<PAGE> 4
APPLIX, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1996 1995
-------- ---------
<S> <C> <C>
License revenue $ 8,548 $ 5,165
Service revenue 3,567 2,024
------- -------
Total revenues 12,115 7,189
Cost of license revenue 542 545
Cost of service revenue 1,156 760
------- -------
Gross margin 10,417 5,884
Operating expenses:
Selling and marketing 5,201 3,301
Research and development 1,558 954
General and administrative 791 502
------- -------
Total operating expenses 7,550 4,757
------- -------
Operating income 2,867 1,127
Interest income, net 300 335
------- -------
Net income before income taxes 3,167 1,462
Income taxes 1,110 225
------- -------
Net income $ 2,057 $ 1,237
======= =======
Net income per common and common equivalent share
(see Note C) $ 0.19 $ 0.12
======= =======
Weighted average common and common equivalent shares
outstanding 10,767 10,052
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.
-4-
<PAGE> 5
APPLIX, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
License revenue $16,357 $ 9,809
Service revenue 6,546 3,530
------- -------
Total revenues 22,903 13,339
Cost of license revenue 1,063 1,041
Cost of service revenue 2,233 1,441
------- -------
Gross margin 19,607 10,857
Operating expenses:
Selling and marketing 9,789 6,130
Research and development 3,006 1,752
General and administrative 1,671 979
------- -------
Total operating expenses 14,466 8,861
------- -------
Operating income 5,141 1,996
Interest income, net 627 594
------- -------
Net income before income taxes 5,768 2,590
Income taxes 2,018 395
------- -------
Net income $ 3,750 $ 2,195
======= =======
Net income per common and common equivalent share
(see Note c) $ 0.35 $ 0.22
======= =======
Weighted average common and common equivalent shares
outstanding 10,746 10,044
======= =======
</TABLE>
the accompanying notes are an integral part of the consolidated
financial statements.
-5-
<PAGE> 6
APPLIX, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 3,750 $ 2,195
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 396 401
Amortization of capitalized software costs 276 459
Provision for doubtful accounts (15) 25
Changes in operating assets and liabilities:
Accounts receivable (1,703) (1,733)
Other assets (762) (229)
Accounts payable (87) (172)
Accrued liabilities 561 1,369
Deferred revenue 2,369 1,502
------- -------
Cash provided by operating activities 4,785 3,817
Investing activities:
Purchase of property and equipment (1,431) (727)
Capitalized software costs (394) (309)
Investment in securities - (15,281)
------- -------
Cash used in investing activities (1,825) (16,317)
Financing activities:
Principal payments under capital lease obligations (33) (109)
Proceeds from exercise of incentive stock options 806 133
------- -------
Cash provided by (used in) financing activities 773 24
Effect of exchange rate changes on cash (110) 37
------- -------
Net decrease in cash and cash equivalents 3,623 (12,439)
Cash and cash equivalents at beginning of period 25,380 20,092
------- -------
Cash and cash equivalents at end of period $29,003 $ 7,653
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 7 $ -
======= ========
Cash paid during the period for taxes $ 1,155 $ 218
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-6-
<PAGE> 7
APPLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
Applix provides 32-bit software applications and tools for the Real Time
Decision support marketplace in the form of Applixware and Applix Enterprise.
Applixware provides the ability to access, analyze and communicate
dynamically changing information such as stock market data or information from
databases. Applix Enterprise offers customers the ability to research, track and
escalate activities for customer interaction applications.
B. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
The results of the six month period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
C. COMPUTATION OF NET INCOME PER COMMON SHARE
Net income per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares are included in the per share calculations where the effect of their
inclusion would be dilutive. Common equivalent shares result from the assumed
exercise of outstanding common stock options at the average market price during
the period (the treasury stock method). Fully diluted net income per common
share is substantially the same as primary earnings per share.
In this report, all per share amounts and numbers of shares have been
restated to reflect the two-for-one stock split effected in the form of a stock
dividend on December 26, 1995.
D. RECLASSIFICATIONS
Certain reclassifications have been made to prior quarter amounts to
conform to current quarter's presentation.
-7-
<PAGE> 8
APPLIX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1995
License revenue increased 65% to $8,548,000 for the quarter ended June 30,
1996 from $5,165,000 for the quarter ended June 30, 1995. Domestic license
revenue increased 42% to $4,656,000 from $3,276,000 for the same period in 1995.
International license revenue increased 106% to $3,892,000 from $1,888,000 for
the same period in 1995. A portion of the increase was attributable to the
license revenue from Target Systems Corporation (TSC) acquired in October 1995.
Revenue from the financial services sector increased 74% to $5,066,000 from
$2,904,000 for the quarter ended June 30, 1995. Revenues from the government
sector increased 74% to $3,708,000 from $2,129,000 for the quarter ended
June 30, 1995. Revenue from the government sector have fluctuated significantly
in the past, and the Company expects fluctuation to continue.
Service revenue increased 76% to $3,567,000 (or 29% of total revenues) from
$2,024,000 (or 28% of total revenues) for the same period in 1995. This increase
was due to increased maintenance revenue from the Company's growing customer
base, the maintenance revenue attributable to TSC, as well as an increased
emphasis by the Company on selling training and consulting services. The Company
expects that the service component of revenue will remain at approximately this
percentage for the next several quarters.
Gross margin increased to 86% for the quarter ended June 30, 1996 from 82%
for the quarter ended June 30, 1995. License gross margin increased to 94% from
89% for the same period in 1995 due to the reduction of capitalized software
amortization. Service gross margin increased to 68% for the quarter ended June
30, 1996 from 63% for the quarter ended June 30, 1995, due to the relative fixed
costs of operating the service organization combined with the significant
increase in service revenue. The overall gross margin increase was limited by
the increase in service revenue as a proportion of total revenues, as service
revenue has a significantly lower gross margin than license revenue and
therefore has the effect of reducing overall gross margin.
Selling and marketing expenses, which include domestic sales and marketing
expenses and the Company's international operations, increased 58% to $5,201,000
for the quarter ended June 30, 1996 from $3,301,000 for the quarter ended June
30, 1995. The expense increase was due primarily to increased staffing to
support the Company's sales growth and the acquisition of TSC in October 1995.
These expenses decreased as a percentage of total revenues to 43% from 46% for
the same period in 1995.
Research and development expenses, which consist primarily of employee
salaries and benefits and related expenses, increased 63% to $1,558,000 for the
quarter ended June 30, 1996 from $954,000 for the quarter ended June 30, 1995,
but remained consistent as a percentage of total revenues at 13% for both
quarters. The increase in these expenses was primarily due to the hiring of
additional personnel and the acquisition of TSC in October 1995. Total research
and development expenditures, including capitalized software costs, were
$1,733,000, including $175,000 in capitalized software development costs, or 14%
of total revenues for the quarter ended June 30, 1996 and $1,096,000, including
$142,000 in capitalized software development costs, or 15% of total revenues for
the quarter ended June 30, 1995.
General and administrative expenses, which include the costs of the
finance, human resources and administrative functions, increased 58% to $791,000
from $502,000 for the same
-8-
<PAGE> 9
period in 1995, and remained consistent as a percentage of total revenues at
7% for both quarters. The increase in expenses was primarily due to the
acquisition of TSC in October 1995.
Interest income decreased to $301,000 from $335,000 due to lower interest
rates available on the higher cash balances available for investments as a
result of the Company generating funds from operations. Interest expense
increased slightly between the periods as a result of capital asset financing
assumed in the acquisition of TSC.
The Company recorded a provision for income taxes for the quarter ended
June 30, 1996 of $1,110,000 consistent with the Company's estimated annual
effective tax rate of 35% compared to a provision of $225,000 at 15% of net
income for the same period in 1995. In 1996, the Company increased the
effective tax rate after having determined in 1995 that sufficient income would
be realized to utilize its net operating loss carry forwards and tax credit
carryforwards. The deferred tax asset was recognized on the balance sheet as of
December 31, 1995.
The international portion of the Company's business is subject to a number
of inherent risks, including difficulties in building and managing international
operations and international reseller networks, difficulties or delays in
translating products into foreign languages, fluctuations in the value of
foreign currencies, import/export duties and quotas, and unexpected regulatory,
economic or political changes in international markets.
Most of the Company's international sales are denominated in foreign
currencies. Accordingly, a decrease in the value of foreign currencies relative
to the U.S. dollar could result in a significant decrease in U.S. dollar
revenues received by the Company for its international sales. Due to the number
of currencies involved in the Company's international sales and the volatility
of foreign currency exchange rates, the Company cannot predict the effect of the
exchange rate fluctuations on future operating results. To date, foreign
currency fluctuations have not had a material adverse effect on the Company's
operating results. During the second quarter 1996, the Company began entering
into foreign exchange forward contracts to hedge against the risk of changes in
foreign currency exchange rates to the Company's intercompany balances. The
principal currencies hedged are the German mark, British pound and French
franc.
The Company's quarterly operating results have varied and may continue to
vary significantly depending on factors such as the timing of significant
orders, the timing of new product introductions and upgrades by the Company and
its competitors, and the mix of distribution channels through which the products
are sold. Revenues are particularly difficult to predict because of the sales
cycle of the Company's products, which varies substantially from customer to
customer and industry to industry. In addition, the Company's dependence on
international sales may adversely affect revenues in the third quarter, when
European business is traditionally weaker. Substantially all of the Company's
license revenue in a quarter is derived from orders received in that quarter.
Accordingly, delays in orders are likely to result in the associated revenue not
being realized by the Company in that period. Moreover, the Company's expense
levels are based in part on expectations of future revenue levels, and a
shortfall in expected revenue could therefore result in a disproportionate
decrease in the Company's net income.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995
License revenue increased 67% to $16,357,000 for the six months ended June
30, 1996 from $9,809,000 for the six months ended June 30, 1995. Domestic
license revenue increased 63% to $9,219,000 from $5,663,000 for the same period
in 1995. International license revenue increased 72% to $7,138,000 from
$4,146,000 for the same period in 1995. A portion of the increase was
attributable to the license revenue from TSC acquired in October 1995. The
financial services sector revenue increased 81% to $9,910,000 from $5,478,000
for the six months ended
-9-
<PAGE> 10
June 30, 1995. Revenue from the government sector increased 97% to $5,425,000
from $2,760,000 for the six months ended June 30, 1995.
Service revenue increased 85% to $6,546,000 (or 29% of total revenues) from
$3,530,000 (or 26% of total revenues) for the same period in 1995. This increase
was due to increased maintenance revenue from the Company's growing customer
base, the maintenance revenue attributable to TSC, as well as an increased
emphasis by the Company on selling training and consulting services.
Gross margin increased to 86% for the six months ended June 30, 1996 from
81% for the six months ended June 30, 1995. License gross margin increased to
94% from 89% for the same period in 1995 due to the reduction of documentation,
royalty costs and capitalized software amortization. Service gross margin
increased to 66% for the six months ended June 30, 1996 from 59% for the six
months ended June 30, 1995, due to the relative fixed costs of operating the
service organization combined with the significant increase in service revenue.
The overall gross margin increase was limited by the increase in service revenue
as a proportion of total revenues, as service revenue has a significantly lower
gross margin than license revenue and therefore has the effect of reducing
overall gross margin.
Selling and marketing expenses increased 60% to $9,789,000 for the six
months ended June 30, 1996 from $6,130,000 for the six months ended June 30,
1995. The expense increase was due primarily to increased staffing in both
domestic sales and international sales to support the Company's growth and the
acquisition of TSC. These expenses decreased as a percentage of total revenues
to 43% from 46% for the same period in 1995.
Research and development expenses increased 72% to $3,006,000 for the six
months ended June 30, 1996 from $1,752,000 for the six months ended June 30,
1995, and remained consistent as a percentage of total revenues at 13% for both
six month periods. The increase in these expenses was primarily due to the
hiring of additional personnel and the acquisition of TSC. Total research and
development expenditures, including capitalized software costs, were $3,400,000,
including $394,000 in capitalized software costs, or 15% of total revenue for
the six months ended June 30, 1996 and $2,061,000, including $309,000 in
capitalized software development costs, or 15% of total revenues for the six
months ended June 30, 1995.
General and administrative expenses increased 71% to $1,671,000 from
$979,000 for the same period in 1995, and remained consistent as a percentage of
total revenues at 7% for both six month periods. The increase in expenses was
primarily due to the acquisition of TSC in October 1995.
Interest income increased to $632,000 from $594,000 due to the higher cash
balances available for investments a result of the Company generating funds from
operations. Interest expense increased slightly between the periods as a result
of capital asset financing assumed in the acquisition of TSC.
The Company recorded a provision for income taxes for the six months ended
June 30, 1996 of $2,018,000 consistent with the Company's estimated annual
effective tax rate of 35% compared to a provision of $395,000 at 15% of net
income for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated funds from operations of $4,785,000 for the six
months ended June 30, 1996. Approximately $1,400,000 was utilized for the
purchase of property and equipment during the period. As of June 30, 1996, the
Company had cash and cash equivalents of $29,003,000 and working capital of
$21,578,000.
The Company has no commitments or specific plan for any significant capital
expenditures during 1996.
-10-
<PAGE> 11
The Company believes that the funds currently available and funds
expected to be generated from operations, will be sufficient to fund the
Company's operations at least through the next twelve months.
To date, inflation has not had a material adverse effect on the
Company's operating results.
The information contained in the Management's Discussion and Analysis
is provided pursuant to applicable regulations of the Security and Exchange
Commission and is not intended to serve as a basis for projections of future
operating results.
-11-
<PAGE> 12
<TABLE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<CAPTION>
Broker
------
Proposal For Against Abstain Non-Votes
-------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors:
Richard J. Davis 7,522,632 N.A. N.A. N.A.
Alain J. Hanover 7,522,532 N.A. N.A. N.A.
2. Amendment to Articles of
Organization 6,876,197 561,486 73,943 23,525
3. Approval of 1996 Director
Stock Option Plan 6,123,955 1,244,731 84,822 81,643
4. Ratification of Coopers &
Lybrand LLP as independent
auditors 7,452,276 6,643 76,232 0
</TABLE>
A description of each proposal voted upon is set forth in the Company's
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders.
-12-
<PAGE> 13
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIX, INC.
By: /s/ Patrick J. Scannell, Jr.
-----------------------------------------
Patrick J. Scannell, Jr.
Vice President, Finance & Administration,
Chief Financial Officer and Treasurer
Date: August 9, 1996
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 29,003
<SECURITIES> 0
<RECEIVABLES> 8,194
<ALLOWANCES> (469)
<INVENTORY> 0
<CURRENT-ASSETS> 42,535
<PP&E> 7,882
<DEPRECIATION> (4,478)
<TOTAL-ASSETS> 46,755
<CURRENT-LIABILITIES> 20,957
<BONDS> 0
<COMMON> 25
0
0
<OTHER-SE> 25,773
<TOTAL-LIABILITY-AND-EQUITY> 46,755
<SALES> 22,903
<TOTAL-REVENUES> 22,903
<CGS> 3,296
<TOTAL-COSTS> 3,296
<OTHER-EXPENSES> 14,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,768
<INCOME-TAX> 2,018
<INCOME-CONTINUING> 3,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,750
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
