<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-25040
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 10,022,898 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT AUGUST 7, 1997.
<PAGE> 2
APPLIX, INC.
INDEX
PAGE NO.
--------
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
for the three months ended June 30, 1997 and 1996 4
Consolidated Statements of Operations
for the six months ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIX, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED)
ASSETS ----------- -----------
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,522 $ 19,882
Accounts receivable, less allowance for doubtful accounts
of $517 and $518 at June 30, 1997 and
December 31, 1996, respectively 11,016 12,704
Other current assets 3,144 2,706
Deferred tax asset 2,946 2,946
-------- --------
Total current assets 34,628 38,238
Property and equipment, at cost 10,442 10,057
Less accumulated amortization and depreciation (6,275) (5,401)
-------- --------
Net property and equipment 4,167 4,656
Capitalized software costs, net of accumulated
amortization of $1,000 and $549 at June 30, 1997
and December 31, 1996, respectively 482 482
Other assets 903 1,138
-------- --------
Total assets $ 40,180 $ 44,514
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 1,535 $ 3,012
Accrued liabilities 3,909 6,098
Deferred revenue 8,013 8,004
-------- --------
Total current liabilities 13,457 17,114
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized
Common stock, $.0025 par value; 30,000,000 shares
authorized; 10,239,026 and 10,182,562 shares issued at
June 30, 1997 and December 31, 1996, respectively 26 25
Capital in excess of par value 40,516 40,053
Accumulated deficit (12,719) (11,519)
Treasury stock, 278,698 shares, at cost (933) (933)
Foreign currency translation adjustment (167) (226)
-------- --------
Total stockholders' equity 26,723 27,400
-------- --------
Total liabilities and stockholders' equity $ 40,180 $ 44,514
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 4
APPLIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
License revenue $ 8,367 $ 8,548
Service revenue 3,338 3,567
------- -------
Total revenues 11,705 12,115
Cost of license revenue 792 542
Cost of service revenue 1,715 1,156
------- -------
Gross margin 9,198 10,417
Operating expenses:
Selling and marketing 6,995 5,201
Research and development 2,282 1,558
General and administrative 989 791
------- -------
Total operating expenses 10,266 7,550
------- -------
Operating (loss) income (1,068) 2,867
Interest income, net 244 300
------- -------
Net (loss) income before income taxes (824) 3,167
Provision for (benefit from) income taxes (305) 1,110
------- -------
Net (loss) income $ (519) $ 2,057
======= =======
Net (loss) income per common and common equivalent share
(see Note C) $ (0.05) $ 0.19
======= =======
Weighted average common and common equivalent shares
outstanding 9,986 10,767
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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APPLIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1997 1996
------------------------
<S> <C> <C>
License revenue $ 15,877 $16,357
Service revenue 6,924 6,546
-------- -------
Total revenues 22,801 22,903
Cost of license revenue 1,605 1,063
Cost of service revenue 3,250 2,233
-------- -------
Gross margin 17,946 19,607
Operating expenses:
Selling and marketing 13,941 9,789
Research and development 4,545 3,006
General and administrative 1,846 1,671
-------- -------
Total operating expenses 20,332 14,466
-------- -------
Operating (loss) income (2,386) 5,141
Interest income, net 474 627
-------- -------
Net (loss) income before income taxes (1,912) 5,768
Provision for (benefit from) income taxes (712) 2,018
-------- -------
Net (loss) income $ (1,200) $ 3,750
======== =======
Net (loss) income per common and common equivalent share
(see Note C) $ (0.12) $ 0.35
======== =======
Weighted average common and common equivalent shares
outstanding 9,945 10,746
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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APPLIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JUNE 30, JUNE 30,
1997 1996
--------------------------
<S> <C> <C>
Operating activities:
Net (loss) income $(1,200) $ 3,750
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 874 396
Amortization of capitalized software costs 451 276
Amortization of goodwill 234 32
Provision for doubtful accounts (1) (15)
Changes in operating assets and liabilities:
Accounts receivable 1,689 (1,703)
Other assets (438) (794)
Accounts payable (1,477) (87)
Accrued liabilities (2,189) 561
Deferred revenue 9 2,369
------- -------
Cash (used in) provided by operating activities (2,048) 4,785
Investing activities:
Purchase of property and equipment (385) (1,431)
Capitalized software costs (451) (394)
------- -------
Cash used in investing activities (836) (1,825)
Financing activities:
Principal payments under capital lease obligations -- (33)
Proceeds from exercise of incentive stock options 464 806
------- -------
Cash provided by financing activities 464 773
Effect of exchange rate changes on cash 60 (110)
------- -------
Net (decrease) increase in cash and cash equivalents (2,360) 3,623
Cash and cash equivalents at beginning of period 19,882 25,380
------- -------
Cash and cash equivalents at end of period $17,522 $29,003
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes $ 89 $ 1,155
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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APPLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. NATURE OF BUSINESS:
Applix is a leading provider of software for managing customer interaction,
real time decision support and office productivity across globally networked,
extended enterprise environments. The Company provides cross-platform
client/server, network-centric, webtop and thin-client computing solutions
throughout its core offerings: Applix Enterprise, customer satisfaction
software; Applix TM1, real time multi-dimensional analysis software for
financial decision support systems; Applix office automation solutions,
including Applixware, an open suite of desktop and development tools for
accessing, analyzing and communicating information in real time; Applix Office
for UNIX(R) and Windows NT and Anyware Office for Java-based desktops; and
Applix Anyware, an application development and deployment solution that
leverages Java to customize and deploy Applix's full suite of applications.
B. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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, 1996.
The results of the three month and six month periods ended June 30,
1997 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.
D. RECENTLY ISSUED ACCOUNTING STANDARD
In February, 1997, The Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). This statement attempts to simplify current standards used in the United
States for computing earnings per share and make them more comparable with
international standards. SFAS 128 replaces APB Opinion 15 and related
interpretations (APB 15). APB 15 requires the dual presentation of primary and
fully diluted earnings per share. Primary EPS shows the amount of income
attributed to each share of common stock if every common stock equivalent were
converted into common stock.
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APPLIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. RECENTLY ISSUED ACCOUNTING STANDARD (CONTINUED)
Fully-diluted EPS considers common stock equivalents and all other securities
that could be converted into common stock.
SFAS 128 simplifies the computation of EPS by replacing the presentation of
primary EPS and fully-diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by all the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully-diluted EPS. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. SFAS 128 requires restatement of all prior period
earnings per share data. The Company will adopt SFAS 128 in 1997, but management
believes it will not have a material impact on the EPS.
In June 1997, the Financial Accounting Standard Board also issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This Statement requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new standard
beginning in the first quarter of the fiscal year ending December 31, 1998.
In June 1997, the Financial Accounting Standard Board also issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. The Company is in the process of evaluating the
impact of the new standard on the presentation of the financial statements and
the disclosures therein. The Statement will become effective for fiscal years
beginning after December 13, 1997. The Company will adopt the new standard for
the fiscal year ending December 31, 1998.
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APPLIX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1996
For each quarter from the second quarter of 1993 through the fourth quarter
of 1996, the Company's revenues increased over the prior quarter. In support of
that growth, the Company's infrastructure and employee base grew accordingly.
For both of the quarters ended March 31, 1997 and June 30, 1997, the Company
experienced disappointing revenues, which did not continue the growth that the
Company had been experiencing. Such revenues, combined with the Company's
existing expense levels, resulted in a net loss.
In response to these results, the Company in the quarter ended June 30,
1997 effected a reorganization and reduced its European headcount by
approximately 10 people and its domestic headcount by 10 people. The cost of
these reductions was approximately $250,000 and has been included in the
operating expenses for the quarter. Although the Company reported increased
revenues for the quarter ended June 30, 1997 as compared to the quarter ended
March 31, 1997, it nonetheless reported a loss of $519,000. The Company
continues to focus on the emerging business of Applix Enterprise and Applix TM1
while striving to maintain the Applixware and Applix Anyware business.
License revenue decreased 2% to $8,367,000 for the quarter ended June 30,
1997 from $8,548,000 for the quarter ended June 30, 1996. Domestic license
revenue was relatively flat as compared to the same period in 1996.
International license revenue decreased 5% to $3,683,000 from $3,892,000 for the
same period in 1996. Revenue from the financial services sector decreased 29% to
$3,572,000 from $5,066,000 for the quarter ended June 30, 1996. Revenue from the
government sector decreased 26% to $2,738,000 from $3,708,000 for the quarter
ended June 30, 1996. Revenue from the government sector has fluctuated
significantly in the past, and the Company expects fluctuations to continue. The
Company's future operating results will be partially dependent on the continued
acceptance of Applix Enterprise, Applix TM1, Applixware and the success of
Applix Anyware.
Service revenue decreased 6% to $3,338,000 (or 29% of total revenues) from
$3,567,000 (or 29% of total revenues) for the same period in 1996. This decrease
was due to a decline in the orders for training and consulting services.
Of the total revenue for the quarter ended June 30, 1997, 74% was derived
from the Decision Support Software (DSS) product line (i.e. Applixware, Anyware
and TM1), and 26% was derived from the Customer Interaction Software (CIS)
product line (i.e. Enterprise). For the quarter ended June 30, 1996, the revenue
was derived 89% from the DSS product line, and 11% from the CIS product line.
Gross margin decreased to 79% for the quarter ended June 30, 1997 from 86%
for the quarter ended June 30, 1996. License revenue gross margin decreased to
91% from 94% for the same period in 1996 primarily due to an increase in royalty
and documentation costs. A portion of the royalty increase was attributable to
the increased sales of the Applix Enterprise and Applix TM1 product lines, which
have a higher royalty expense than the Applixware product line. Service revenue
gross margin decreased to 49% for the quarter ended June 30, 1997 from 68% for
the quarter ended June 30, 1996, due to the net increase in the number of
support employees and consultants and the cost of outside consultants used for
the Enterprise product line.
Selling and marketing expenses, which include domestic sales and marketing
expenses and the cost of the Company's international operations, increased 34%
to $6,995,000 for the quarter ended June 30, 1997 from $5,201,000 for the
quarter ended June 30, 1996. The expense increase was primarily due to increased
staffing and marketing programs to support the Company's anticipated sales
growth and the acquisition of Sinper Corporation in October 1996. These expenses
increased as a percentage of
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<PAGE> 10
total revenues to 60% for quarter ended June 30, 1997 from 43% for quarter ended
June 30, 1996. Additionally, the Company is refocusing its investment in
marketing activities for the emerging products groups, represented by the Applix
Enterprise and Applix TM1 product lines. The Company expects to maintain current
levels of spending for the remainder of 1997. However, the current spending
level as a percentage of revenue may not be indicative of spending levels for
future years due to this marketing investment.
Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 46% to $2,282,000 for the
quarter ended June 30, 1997 from $1,558,000 for the quarter ended June 30, 1996,
and increased as a percentage of total revenues to 19% for the quarter ended
June 30, 1997 from 13% for the quarter ended June 30, 1996. The increase in
these expenses was primarily due to the acquisition of Sinper Corporation in
October 1996. Total research and development expenditures, including capitalized
software costs, were $2,475,000, including $193,000 in capitalized software
development costs, or 21% of total revenues for the quarter ended June 30, 1997
compared to $1,733,000, including $175,000 in capitalized software development
costs, or 14% of total revenues for the quarter ended June 30, 1996.
General and administrative expenses, which include the costs of the
finance, human resources and administrative functions, increased 25% to $989,000
from $791,000 for the same period in 1996, and increased as a percentage of
total revenues between these periods to 8% from 7%. The increase in these
expenses was primarily due to the hiring of additional personnel and the
acquisition of Sinper Corporation in October 1996.
Interest income decreased to $244,000 from $300,000 due to lower cash
balances available for investments as a result of the purchase of Sinper
Corporation in October 1996 and the use of operating cash during the six months
ended June 30, 1997.
The Company recorded a provision for income tax benefit for the quarter
ended June 30, 1997 of $305,000 based on the Company's estimated annual
effective tax rate of 37%, compared to a provision of $1,110,000 or 35% of net
income for the same period in 1996. In 1997, the Company increased the effective
tax rate after determining that anticipated income would be sufficient to enable
the Company to utilize substantially all its net operating loss carryforwards
and tax credit carryforwards.
This Form 10-Q contains a number of forward-looking statements. Any
statements contained herein (including without limitation statements to the
effect that the Company or its management "believes", "expects", "anticipates",
"plans", and similar expressions) that are not statements of historical fact
should be considered forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated by such forward- looking statements. These factors include,
without limitation, those set forth below.
During the past several years, the Company has derived the substantial
majority of its revenue from its Applixware product family; however, Applixware
sales have been declining in recent quarters. The Company introduced the Applix
Enterprise product line, based on technology acquired in its acquisition of
Target Systems Corporation in late 1995, and introduced the Applix TM1 product
line, acquired through its acquisition of Sinper Corporation, in late 1996. In
addition, the Company has developed and introduced the Applix Anyware product
line. The future success of the Company is substantially dependent upon these
product lines, and there can be no assurance that these product lines will
achieve the sales levels anticipated by the Company. Moreover, it is possible
that the introduction of certain of these new product lines may have an adverse
affect on the sales of the Company's existing products. In addition, the
existence of a number of different product lines presents management, sales and
marketing, and product development challenges that the Company has not had to
address in the past, and there can be no assurance that the Company will be
successful in addressing these challenges.
The Company's DSS product line is marketed as real time decision support
software. Accordingly, the Company's future success is substantially dependent
upon the growth of the demand for real time decision support solutions in a
number of industry sectors and the Company's ability to identify this demand,
develop solutions for the industry-specific needs and successfully market its
products to
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<PAGE> 11
customers requiring such solutions. In addition, the Company's success within
any particular market for real time decision support applications is dependent
in large part upon its ability to establish strategic marketing relationships
with leading vendors within that market.
Substantially all of the Applixware licenses sold by the Company are for
use on UNIX operating systems. As a result, the Company's financial performance
is significantly dependent upon the continued market acceptance of this
operating system and continued sales of UNIX-based workstations, particularly by
Sun Microsystems. With newer operating systems that permit 32-bit processing on
the desktop, such as Microsoft Windows/NT and Windows 95, the Company is now
competing directly with vendors of PC software applications such as Microsoft,
Lotus and Corel. This represents a more competitive environment than the Company
has faced in its UNIX market and will likely result in lower prices and lower
gross margins for the Company's products. Since the acquisition of Sinper
Corporation, the Company now has offerings which compete with Arbor Software and
Oracle Corporation.
The Company is still dependent to a significant degree on revenue from
domestic and international customers in the securities trading industry, which
has been the first industry to embrace real time decision support solutions.
License revenue from the financial services sector comprises over 32% of the
Company's total license revenue, and the Company believes that the substantial
majority of its financial services sector revenue was derived from companies
engaged in the trading of securities. The securities trading industry is
volatile as a result of its dependence upon unpredictable factors such as
economic conditions and securities market conditions. The Company's financial
performance will be subject to, and may be adversely affected by, factors
affecting the economic performance and capital expenditure levels of the
securities trading industry.
Future revenue growth will also depend significantly on sales from the
Applix Enterprise product line in the CIS market. This market is growing
rapidly, but the Company faces intense competition from larger companies also in
this market, such as Remedy, Vantive, and Clarify.
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. The majority 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
the expected revenue could therefore result in a disproportionate decrease in
the Company's net income.
Most of the Company's international sales through subsidiaries 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 revenue 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 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. The Company has engaged in hedging transactions
to cover its currency translation exposure on intercompany balances for the
purpose of mitigating the effect of foreign currency fluctuations. The
international portion of the Company's business is also subject to a number of
inherent risks, including difficulties in building and managing foreign
operations and foreign reseller networks, difficulties or delays in translating
products into foreign languages, import/export duties and quotas, and unexpected
regulatory, economic or political changes in foreign markets.
License revenue from sales (directly or indirectly) to branches or agencies
of the U.S. Government represented approximately 26%, 20%, 28% and 14% of total
license revenue during the six months ended June 30, 1997, and during 1996, 1995
and 1994, respectively. The Company typically derives its government contract
revenue from a relatively small number of subcontract awards which tend to be
significant in amount for a company of Applix's size. Consequently, any failure
to obtain a particular
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<PAGE> 12
subcontract award, or any delay on the part of the government agency in making
the award or ordering products under an awarded contract, could have a material
adverse effect on the financial performance of the Company within a given
period, and the Company's government contract revenue is therefore likely to
continue to fluctuate significantly from period to period.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996
License revenue decreased 3% to $15,877,000 for the six months ended June
30, 1997 from $16,357,000 for the six months ended June 30, 1996. Domestic
license revenue increased 3% to $9,509,000 from $9,219,000 for the same period
in 1996. International license revenue decreased 11% to $6,368,000 from
$7,138,000 for the same period in 1996. Revenue from the financial services
sector decreased 26% to $7,320,000 from $9,910,000 for the six months ended June
30, 1996. Revenue from the government sector decreased 6% to $5,119,000 from
$5,425,000 for the six months ended June 30, 1996.
Service revenue increased 6% to $6,924,000 (or 30% of total revenues) from
$6,546,000 (or 29% of total revenues) for the same period in 1996. This increase
was primarily due to increased maintenance revenue from the Company's growing
customer base.
Of the total revenue for the six months ended June 30, 1997, 74% was
derived from the Decision Support Software (DSS) product line (i.e. Applixware,
Anyware and TM1), and 26% was derived from the Customer Interaction Software
(CIS) product line (i.e. Enterprise). For the six months ended June 30, 1996,
the revenue was derived 89% from the DSS product line, and 11% from the CIS
product line.
Gross margin decreased to 79% for the six months ended June 30, 1997 from
86% for the six months ended June 30, 1996. License gross margin decreased to
90% from 94% for the same period in 1996 primarily due to the reduction in
license revenue, and the increase in capitalized software amortization, royalty
and documentation costs. Service gross margin decreased to 53% for the six
months ended June 30, 1997 from 66% for the six months ended June 30, 1996, due
to the increase in the number of support employees and consultants and the cost
of outside consultants used for the Enterprise product line.
Selling and marketing expenses increased 42% to $13,941,000 for the six
months ended June 30, 1997 from $9,789,000 for the six months ended June 30,
1996. The expense increase was primarily due to increased staffing and marketing
programs to support the Company's anticipated sales growth and the acquisition
of Sinper Corporation in October 1996. These expenses increased as a percentage
of total revenues to 61% from 43% for the same period in 1996. Additionally, the
Company is refocusing its investment in marketing activities for the emerging
products groups, represented by the Applix Enterprise and Applix TM1 product
lines.
Research and development expenses increased 51% to $4,545,000 for the six
months ended June 30, 1997 from $3,006,000 for the six months ended June 30,
1996, and increased as a percentage of total revenues to 20% for the six months
ended June 30, 1997 from 13% for the six months ended June 30, 1996. The
increase in these expenses was primarily due to the hiring of additional
personnel and the acquisition of Sinper Corporation in October 1996. Total
research and development expenditures, including capitalized software costs,
were $4,996,000, including $451,000 in capitalized software costs, or 22% of
total revenue for the six months ended June 30, 1997 and $3,400,000, including
$394,000 in capitalized software development costs, or 15% of total revenues for
the six months ended June 30, 1996.
General and administrative expenses increased 10% to $1,846,000 from
$1,671,000 for the same period in 1996, and increased as a percentage of total
revenues between these periods to 8% from 7%.
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<PAGE> 13
The increase in these expenses was primarily due to the hiring of additional
personnel and the acquisition of Sinper Corporation in October 1996.
Interest income decreased to $474,000 from $627,000 due to lower cash
balances available for investments as a result of the purchase of Sinper
Corporation in October 1996 and the use of operating cash during the six months
ended June 30, 1997.
The Company recorded a provision for income tax benefit for the six months
ended June 30, 1997 of $712,000 based on the Company's estimated annual
effective tax rate of 37%, compared to a provision of $2,018,000 or 35% of net
income for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company used funds from operations of $2,048,000 for the six months
ended June 30, 1997. An additional $836,000 was used in investing activities for
the purchase of equipment and in capitalized software costs. $464,000 was
generated from proceeds of the exercise of incentive stock options and employee
stock purchase plans. As of June 30, 1997, the Company had cash and cash
equivalents of $17,522,000 and working capital of $21,171,000.
The Company believes that the funds currently available will be
sufficient to fund the Company's operations at least through the next twelve
months. The Company has no commitments or specific plans for any significant
capital expenditures in 1997.
To date, inflation has not had a material adverse effect on the Company's
operating results.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 8, 1997, the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain Non-Votes
-------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors:
David C. Mahoney 7,818,364 N.A. N.A. N.A.
2. Amendment to Company's
1994 Equity Incentive Plan 7,781,775 906,827 39,127 52,813
3. Ratification of Coopers &
Lybrand LLP as independent
auditors 8,748,258 20,795 10,689 --
</TABLE>
A description of each proposal voted upon is set forth in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The exhibit filed as a part of this Form 10-Q is the following:
EXHIBIT 27.1: Financial Data Schedule
-14-
<PAGE> 15
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.
Executive Vice President
Chief Financial Officer and Treasurer
Date: August 11, 1997
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,522
<SECURITIES> 0
<RECEIVABLES> 11,533
<ALLOWANCES> (517)
<INVENTORY> 0
<CURRENT-ASSETS> 6,090
<PP&E> 10,442
<DEPRECIATION> (6,275)
<TOTAL-ASSETS> 40,180
<CURRENT-LIABILITIES> 13,457
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 26,697
<TOTAL-LIABILITY-AND-EQUITY> 40,180
<SALES> 22,801
<TOTAL-REVENUES> 22,801
<CGS> 4,855
<TOTAL-COSTS> 4,855
<OTHER-EXPENSES> 20,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,912)
<INCOME-TAX> (712)
<INCOME-CONTINUING> (1,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,200)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
