<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For Annual and Transitional Reports Pursuant to Sections 13 or 15(d) of The
Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 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 No.)
112 TURNPIKE ROAD, WESTBORO, MASSACHUSETTS 01581-2831
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(508) 870-0300
--------------------------------------------------
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.0025 par value per share
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S- K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
On March 18, 1999, the aggregate market value of Common Stock held by
non-affiliates of the registrant was $48,491,230 based on the closing price of
the Common Stock on the Nasdaq National Market on March 18, 1999.
The number of shares of Common Stock outstanding as of March 18, 1999 was
10,508,910.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART FORM 10-K
- ------------- ---------
Definitive Proxy Statement with respect to the Annual Part III
Meeting of Stockholders to be held on May 7, 1999 to be filed
with the Securities and Exchange Commission
-2-
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Applix, Inc. ("Applix" or the "Company") develops, markets and supports
front office business software applications which allow organizations to improve
decision-making and corporate productivity. The front office business
applications include a suite of thin-client Customer Relationship Management
("CRM") applications, which include Applix Enterprise and Enterprise Anyware
product lines, and a set of real-time Business Intelligence tools and
applications, which include the Applix TM1 product line. In addition to its
front office business applications, Applix also provides a set of decision
support applications, consisting of Applixware and Applix Anyware products. Most
of the Company's products are available on a variety of software platforms,
including Windows, Windows NT, UNIX and Linux environments.
INDUSTRY BACKGROUND
As the economic environment faced by companies world-wide becomes more
competitive, the manner in which an organization interacts with its customers
has become an increasingly important part of remaining competitive. Providing
superior customer service and developing a high sense of customer loyalty among
its customers have become significant factors in customer retention. Therefore,
organizations all around the world are beginning to focus on their information
infrastructures to obtain a better understanding of their customers' behavior,
buying patterns and service objectives. In addition to tracking customer-related
events, organizations need to be able to manage and analyze on a regular basis
the financial implications of customer data, such as customer profitability and
effectiveness of channel and marketing programs. Applix's line of front office
business applications address this need for tracking, managing and analyzing
external and internal customer information.
THE APPLIX CRM SOLUTION - APPLIX ENTERPRISE
Applix Enterprise is a suite of internet-architected, CRM solutions that
can be easily customized and rapidly deployed. Applix Enterprise products are
based on an architecture called Enterprise Solutions Platform (ESP), which
provides the following benefits:
- INTERNET-ARCHITECTED. The architected employs a thin-client
technology and a multi-tier server architecture to provide
scalability, deployability and a lower total cost of ownership.
- RAPID CUSTOMIZATION AND DEPLOYMENT. The ESP platform enables CRM
applications to be easily customized and rapidly deployed, thereby
enabling customers to adapt the application to their specific
requirements and deploy the applications rapidly.
-3-
<PAGE> 4
- INTEGRATION. The Applix CRM applications have a common database
permitting all departments and personnel to access the same customer
data so that information is consistent across all work groups.
- CONFIGURABILITY. The applications can be easily configured and
customized to adapt to the unique processes of an organization or
department.
Applix Enterprise consists of the following modules:
APPLIX SALES is a sales automation solution that enables companies to
manage every phase of their sales cycle -- from initial lead generation through
qualification, close and fulfillment. Applix Sales enables users to perform
functions such as lead tracking, forecasting, quote generation and account
management.
APPLIX SERVICE is an application for service departments. It offers
resource allocation and auto-assignment features for the management of requests
received via telephone, the Internet, e-mail and fax; maintains information
about customer calls, resolutions, escalation status, and notifications;
provides customer feedback on product performance, function and features
directly to an organization's product development and quality assurance
departments; and displays customer history so customer service representatives
are always informed and ready to answer questions. Applix Service allows
customers of an organization to use the Internet to report problems and access
information to assist them in solving problems.
APPLIX HELPDESK is an enterprise-wide incident management system which
helps manage customer problems, from initial log-in through resource allocation,
escalation, modification and resolution. The Applix Quicksolve resolution
technology allows users to search multiple databases simultaneously. Like Applix
Service, Applix HelpDesk enables an organization to collect problems and access
solutions, and it also provides feedback on product performance, function and
features directly to an organization's product development and quality assurance
departments.
The Applix Enterprise applications listed above are typically bundled with
the following third-party applications:
KNOWLEDGE-PAKS (licensed from ServiceWare, Inc.) are pre-packaged solutions
to commonly asked questions/problems encountered by end users of many of the
applications used in today's business environment. Knowledge-Paks are
automatically bundled with the HelpDesk application when sold in North America,
and are available as an option for HelpDesk outside of North America, or for
sales of other Enterprise applications.
CRYSTAL REPORTS (licensed from Seagate Software Company) is an application
which gives help-desk or customer service managers the ability to report on
information within their support database.
-4-
<PAGE> 5
WINBEEP (licensed from Integra Technology International, Inc.) is a
wireless messaging product which sends alphanumeric messages from a PC to either
alphanumeric pagers or mobile PCs with pager cards.
The list price of licenses for each of Applix Sales, Applix Service and
Applix HelpDesk is $1,995 per concurrent user. The products are typically sold
in packaged versions ranging in prices from $14,995 to $44,995 for a five-user
license. The suggested price of licenses for the third-party applications listed
above range from $100 per concurrent user to $799 per concurrent user. Volume
discounts are available.
ENTERPRISE ANYWARE
Enterprise Anyware allows browser-based clients to access Applix Enterprise
applications. Enterprise Anyware enables users to connect, from any location
worldwide, to server-based applications and information resources, via
Java-enabled Web browsers, thus providing real-time access to important customer
information from anywhere.
The list price of licenses for the Enterprise Anyware server is $14,995 and
for the Enterprise Anyware client is $295 per concurrent user.
APPLIX BUSINESS INTELLIGENCE TOOLS AND APPLICATIONS - APPLIX TM1
Applix's Business Intelligence tools and applications consist of the Applix
TM1 family of products. The Applix TM1 product line provides real-time
analytical processing of numerical data from multiple databases or from live
data feeds. Applix TM1 is based on a multi-dimensional database that is capable
of calculating and storing large amounts of rapidly changing data in
multi-dimensional cubes, and allows end-users to perform in-depth analysis as
information changes, thereby enabling faster decision making.
The Applix TM1 product line consists of the following modules:
TM1 SERVER is a scalable, high performance, multi-user OLAP (on-line
analytical processing) database server. TM1 Server's dynamic, on-demand
calculations deliver exceptional performance and up-to-the-minute results.
TM1 CLIENT is a spreadsheet-based interface that allows users to "slice,
dice, and rotate" data and "drill-down" to supporting detail data. It provides
intuitive and ad hoc access to shared TM1 server data using either Microsoft
Excel or Lotus 1-2-3. TM1 Client is not sold separately, but is bundled with TM1
Server.
TM1 PERSPECTIVES is a high performance, single-user OLAP database server
with seamless integration to the spreadsheet in a stand-alone scalable OLAP
environment.
TM1 DATA CONTROL is a utility program that allows for the extraction of
data from an existing relational database, manipulation of the extracted data as
needed, and loading the data into the Applix TM1 product.
-5-
<PAGE> 6
The suggested list prices of licenses for Applix TM1 products are sold on a
concurrent user basis and are as follows: TM1 Server starts at $17,500 for a
five-user system, TM1 Perspectives is $2,500 per concurrent user, and TM1 Data
Control is $3,000 per server. Volume discounts are available.
APPLIX DECISION SUPPORT PRODUCTS - APPLIXWARE
Applixware is a suite of applications that allows customers to access,
analyze, present and publish information from various data sources. Such sources
may include real-time information providers, such as Reuters, major relational
databases, legacy databases and multi-dimensional databases. Information from
various data sources can be dynamically integrated and presented or published
using Applixware applications or other vendors' applications.
Applixware includes the following modules:
APPLIX REAL TIME is a robust, secure, high performance gateway for
accessing real-time data using "live" data feeds to Applix Spreadsheets.
APPLIX DATA integrates data from one or more databases, such as Oracle,
Sybase or Informix, into other Applixware products.
APPLIX BUILDER offers a rapid application development environment.
APPLIX REAL TIME DEVELOPER'S TOOLKIT is a tool that allows Applix customers
to create gateways to proprietary real-time data sources, thus creating a custom
version of Applix Real Time.
APPLIX SPREADSHEETS is a customizable, graphical spreadsheet that is
capable of integrating and presenting large amounts of dynamic numerical data
and that supports "live-links" to other Applixware modules.
APPLIX WORDS is a customizable, graphical word processor that serves as the
underlying framework for compound documents. Applix Words includes Applix
Graphics, a full-feature drawing, charting and graphics editing package.
APPLIX MAIL and APPLIX OPENMAIL provide user and developer interfaces and
management functions for use with UNIX SendMail and HP OpenMail.
APPLIX FILTER PACKS extend the interoperability of Applix applications
with Microsoft Office and other popular productivity applications.
APPLIX HTML Author is an easy-to-use product for the creation of World-Wide
Web documents, and the conversion of documents to and from HTML (HyperText
Markup Language).
-6-
<PAGE> 7
APPLIX PRESENTS is a full-feature, cross-platform presentation tool for
creating and viewing full-color presentations.
APPLIX OFFICE BUNDLE is the combination of Applix Words, Applix
Spreadsheets, Applix Presents, Applix Mail and Applix Filter Packs.
Applix also offers Applixware for Linux, a "shrink-wrap" version of
Applixware for the Linux platform.
The list prices of licenses for Applixware modules include $1,995 for
Applix Real Time, $995 for Applix Data, $2,495 for Applix Builder, $695 for
Applix Spreadsheets, $695 for Applix Office Bundle and $195 to $995 for other
module licenses. The Real Time Developer's Toolkit is priced at $10,000. The
list price of Applixware for Linux is $99 per user, with upgrades available for
$79 per user. Volume discounts are available.
APPLIX ANYWARE
The Applix Anyware product family is a suite of thin-client applications
that deliver the functionality of Applixware utilizing Java technology. Applix
Anyware enables users to access, from any location worldwide, server-based
applications and information resources, via any Java-enabled browser.
The list price of licenses for Applix Anyware modules is $2,495 for Anyware
Innovators Workbench, $295 for Anyware Office, $195 for Anyware Web Data Gateway
and $995 for Anyware Web Real Time Gateway, with volume discounts available.
MARKETING AND SALES
The Company focuses its marketing efforts for its CRM products on growing,
midsize companies that emphasize customer service and enhancing customer
relations. The Company has traditionally focused its marketing efforts for its
CRM products on five industry sectors: financial services,
manufacturing/engineering, telecommunications, healthcare and the federal
government. A key part of the Company's marketing strategy is to emphasize its
internet-architected product capabilities, rapid deployment and lower total cost
of ownership.
An important part of the Company's sales and marketing strategy is to
continue to establish strategic marketing relationships with leading hardware
and software vendors and systems integrators within targeted industry sectors.
This can assist the Company in penetrating both new accounts within its existing
markets and into new market segments.
The CRM products are sold primarily though a direct sales force and a
network of Value Added Resellers (VARs). The Company's sales teams operate out
of the Company's offices in major metropolitan cities in the U.S. as well as its
offices in the United Kingdom, France, Germany, Canada, The Netherlands and
Singapore. These efforts are
-7-
<PAGE> 8
supplemented both domestically and abroad with support from strategic marketing
partners and resellers such as Computer Data Systems, the Interchange Group,
Unihold Technologies and Sharp Systems. While the sales cycle for CRM products
varies substantially from customer to customer, it typically requires six to
nine months.
Applix TM1 products are sold primarily through a few original equipment
manufacturers (OEMs) and a network of VARs, including JBA Software, IQ Software,
Dimension Data, Armstrong-Laing and Revelwood. The efforts of the VARs and OEMs
are supplemented by the Company's own major account-oriented sales team. The
sales cycle for Applix TM1 products varies from customer to customer, but is
typically three to six months.
The Company's family of Applixware products are sold primarily through VARs
such as Loral Federal Systems. Applixware for Linux is also sold directly
through the Company's e-Commerce site.
The Company's marketing programs consist of direct mail and seminars and
ongoing customer communications programs. These efforts are supplemented by
listings in relevant trade directories, exhibitions at trade shows and industry
conference appearances.
Delivery lead times for the Company's products are short, and consequently,
the majority of the Company's product revenue in each quarter results from
orders received in that quarter. Accordingly, the Company believes that its
order backlog at any given point in time is neither a reliable indicator of
future sales and earnings nor material to an understanding of the Company's
business. The absence of significant backlog may contribute to unpredictability
of the Company's results of operations.
CUSTOMER TRAINING, SUPPORT AND CONSULTING SERVICES
The Company believes that superior consulting services and customer support
is a critical part of the Company's sales and marketing efforts, particularly in
the CRM market. Many of the Company's customers use the Company's products to
develop and support "mission critical" applications, and the Company recognizes
that quality training, support and consulting services are therefore especially
important to its customers.
The Company's consultants assist in the sales process by helping customers
understand the benefits of the Company's products. In addition, the Company's
consultants work directly with customer personnel in information technology
departments and in the functional areas relevant to the application to assist
them in planning and deploying solutions.
The Company offers several training programs, which are available at the
Company's headquarters in Westboro, MA, and in its Vienna, VA office and at
certain of its foreign subsidiaries, either directly or via resellers. On-site
customer training is also offered.
The Company provides product support from its Westboro, MA headquarters and
its wholly-owned subsidiaries. Certain of the Company's resellers provide
various levels of customer support, depending upon the terms of their agreements
with the Company.
-8-
<PAGE> 9
Customers may choose from a variety of maintenance plans for a fixed annual fee
that is generally 12% to 18% of the license fee for covered products. Included
in maintenance plans are free product upgrades and interim fixes to reported
problems. In 1998, maintenance accounted for approximately 70% of the Company's
service revenue.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend upon its ability
to continue to enhance and broaden its product lines. The Company's total
product development expenses (including capitalized software development costs)
in 1996, 1997 and 1998 were $7,551,000, $9,476,000 and $9,492,000, respectively.
Capitalized software development costs are amortized over the estimated life of
the product (generally one year) and amounts amortized are included in the cost
of license revenue.
COMPETITION
The market for the Company's products is highly competitive and subject to
rapid change. The Company faces competition from product offerings of other
companies, as well as customers' internal development efforts. In the front
office business applications market, the Company's CRM products compete
principally with products from Clarify, IBM, Onyx Software, Oracle, Remedy,
Siebel Systems and Vantive; and the Business Intelligence products compete
principally with products from Hyperion Solutions, Oracle and Microsoft. The
Applixware family of products competes with offerings from Corel, IBM, Microsoft
and Star Office Systems.
The Company believes that it competes principally on the basis of product
features and functionality (including cross-platform availability,
interoperability, integration and extensibility), product price, reliability,
ease of use and supportability. Most of the Company's competitors have
significantly greater financial, technological and marketing resources than the
Company. No assurance can be given that the Company will be able to compete
successfully against current and future competition or that the competitive
pressures faced by the Company will not adversely affect its financial
performance.
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright law and trade
secret law to protect its proprietary technology. The Company has internal
policies and systems to ensure limited access to, and the confidential treatment
of, its trade secrets. The Company generally distributes its products under
"shrink-wrap" software license agreements, which contain various provisions to
protect the Company's ownership of and the confidentiality of the underlying
technology. The Company also requires its employees and other parties with
access to its confidential information to execute agreements prohibiting the
unauthorized use or disclosure of the Company's technology. Despite these
precautions, it may be possible for a third party to misappropriate the
Company's technology or to independently develop similar technology. In
addition, effective copyright and trade secret protection may not be
-9-
<PAGE> 10
available in every foreign country in which the Company's products are
distributed, and "shrink-wrap" licenses, which are not signed by the customer,
may be unenforceable in certain jurisdictions.
Certain technologies used in or added onto the Company's products are
licensed from third parties. The Company generally pays royalties on such
technologies on a percentage of revenue basis (the amount of which is not
material to the Company). The Company believes that if the license for any such
third-party technology were terminated, it would be able to develop such
technology internally or license equivalent technology from another vendor
without significant expense. If the Company's rights to distribute such
third-party products were terminated, sales of the Company's products could be
adversely affected.
The Company believes that, due to the rapid pace of technological
innovation for software applications, the Company's ability to establish and
maintain a position of technology leadership in the industry is dependent more
upon the skills of its development personnel than upon the legal protections
afforded its existing technology.
The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology.
However, there can be no assurance that other parties will not assert technology
infringement claims or other claims against the Company in the future. The
litigation of such a claim may involve significant expense and management time.
In addition, if any such claim were successful, the Company could be required to
pay monetary damages and may also be required to either refrain from
distributing the infringing product or obtain a license from the party asserting
the claim (which license may not be available on commercially reasonable terms).
EMPLOYEES
As of December 31, 1998, the Company had 286 employees, including 53 in
sales and marketing, 36 in customer services/support, 73 in product development,
29 in finance, administration and facilities, and 95 in the Company's
international subsidiaries. None of the Company's employees is represented by a
labor union, and the Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Westboro, MA with 54,600 square
feet leased under lease agreements which expire on December 31, 2001. The
Company also leases smaller facilities in a number of metropolitan areas within
the United States and in the United Kingdom, France, Germany, Canada, Singapore
and The Netherlands. The Company believes its existing facilities are adequate
for its current needs and that suitable additional or substitute space will be
available as needed.
-10-
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings material to the Company's
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of all
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jitendra S. Saxena 53 Chairman and Chief Executive Officer
James J. Waldron 41 President and Chief Operating Officer
Craig Cervo 52 Vice President, Product Development
Barry M. Zane 43 Vice President, Technology
Gary P. Bouchard 45 Corporate Controller
</TABLE>
Mr. Saxena, a founder of the Company, has been Chief Executive Officer and
a director of the Company since its inception in 1983. Mr. Saxena has served as
Chairman of the Company since April 1997 and served as its President from its
inception until April 1997.
Mr. Waldron joined the Company in 1995 as Vice President of International
Sales and was elected Executive Vice President, Product and Market Development
in January 1997. He was elected as President and Chief Operating Officer of the
Company in April 1997 and elected to the board in May 1997. Prior to joining the
Company, Mr. Waldron served as Vice President of New Business Development at
MicroTouch Systems, Inc. from 1993 to 1995. From 1986 to 1993, Mr. Waldron
worked for Visage, Inc., first as Vice President of Engineering and later as
President and Chief Executive Officer.
Mr. Cervo joined the Company in October 1992 as Vice President, Research &
Development and was elected Vice President, Product Development in October 1994.
Mr. Zane has been with the Company in a number of product development
capacities since 1983. Mr. Zane was elected Vice President, Technology in April
1991.
-11-
<PAGE> 12
Mr. Bouchard joined the Company in January 1994 as Corporate Controller.
There are no family relationships among any of the executive officers.
-12-
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDENDS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"APLX."
The following table sets forth, for the periods indicated, the high and low
prices per share of the Common Stock as reported on the Nasdaq National Market
between January 1, 1997 and December 31, 1998.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1997 26 1/2 5 7/8
June 30, 1997 9 3 1/8
September 30, 1997 12 1/2 5 1/2
December 31, 1997 10 1/4 4 11/16
March 31, 1998 7 1/16 4 13/16
June 30, 1998 7 3 1/2
September 30, 1998 4 1/4 2 1/16
December 31, 1998 5 1/2 2
</TABLE>
The number of holders of record of the Common Stock on March 18, 1999 was
212.
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for future growth and therefore does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from EXHIBIT A attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from EXHIBIT B attached hereto.
-13-
<PAGE> 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company exports products to diverse geographic areas. Most of the
Company's international sales through subsidiaries are denominated in foreign
currencies. To date, foreign currency fluctuations have not had a material
effect on the Company's operating results. The Company has engaged in hedging
transactions to cover its currency exposure on inter-Company balances for the
purpose of mitigating the effect of foreign currency fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from EXHIBIT C attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Company" in Part I of this Annual Report on Form 10-K, and in
part in the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 7, 1999 (the "1999 Proxy Statement") in the sections entitled
"Election of Directors" and "Other Matters -- Section 16(a) Beneficial Ownership
Reporting Compliance," which sections are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the 1999 Proxy Statement in the
sections entitled "Election of Directors - Compensation of Directors" and "-
Executive Compensation," which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the 1999 Proxy Statement in the
section entitled "Beneficial Ownership of Voting Stock," which section is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
-14-
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements.
1. The following documents are filed as Exhibit C hereto and
are included as part of this Annual Report on Form 10-K.
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 1997 and
1998.
Consolidated Statements of Operations for the years
ended December 31, 1996, 1997 and 1998.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998.
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1997 and 1998.
Notes to Consolidated Financial Statements.
2. The following documents are filed as part of this Annual
Report on Form 10-K.
Financial Statement Schedules:
All schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission (the "Commission") are not required
under the related instructions or are inapplicable and
therefore have been omitted.
3. The Exhibits filed as a part of this Annual Report on Form
10-K are the following:
*3.1 -- Restated Articles of Organization.
*3.2 -- By-laws.
*+10.1 -- 1994 Equity Incentive Plan.
*+10.2 -- 1984 Stock Option Plan.
**10.3 -- Commercial Lease between the Registrant
and Westboro II-III, Inc. dated January
5, 1996.
-15-
<PAGE> 16
**10.4 -- Commercial Lease between the Registrant
and Westboro I Real Estate Corp. dated
January 15, 1996.
10.5 -- 1996 Director Stock Option Plan, as
amended.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP
27.1 -- Financial Data Schedule.
- -----------------------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (File no. 33-85688).
** Incorporated by reference to the Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1995, as filed with the Commission
on April 1, 1996.
+ Management contract or compensatory plan.
(b) Reports on Form 8-K.
The Company filed no Reports on Form 8-K during the last quarter of
the period covered by this report.
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf as of March 26, 1999 by the undersigned, thereunto duly authorized.
APPLIX, INC.
By: /s/ Jitendra Saxena
-------------------
Jitendra Saxena
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jitendra S. Saxena Chairman and Chief Executive March 26, 1999
- ---------------------- Officer and Director (Principal
Jitendra S. Saxena executive officer)
/s/ Gary P. Bouchard Corporate Controller (Principal March 25, 1999
- ---------------------- accounting officer)
Gary P. Bouchard
/s/ James J. Waldron Director March 26, 1999
- ----------------------
James J. Waldron
/s/ Paul J. Ferri Director March 23, 1999
- ----------------------
Paul J. Ferri
/s/ Alain J. Hanover Director March 30, 1999
- ----------------------
Alain J. Hanover
/s/ David C. Mahoney Director March 23, 1999
- ----------------------
David C. Mahoney
</TABLE>
-17-
<PAGE> 18
EXHIBIT A
A-1
<PAGE> 19
- --------------------------------------------------------------------------------
APPLIX, INC. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, (in thousands, except per share data) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenue $50,180 $ 48,498 $ 51,237 $ 32,343 $18,495
Operating income (loss) 873 (1,606) 507 (662) 1,310
Net income (loss) 1,187 (404) (2,636) 664 1,409
PER SHARE DATA
Basic earnings (loss) per share $ 0.12 $ (0.04) $ (0.27) $ 0.07 $ 0.22
Diluted earnings (loss) per share $ 0.11 $ (0.04) $ (0.27) $ 0.07 $ 0.20
Weighted average number of shares outstanding
Basic 10,191 9,988 9,611 9,121 6,328
Diluted 10,699 9,988 9,611 10,055 6,934
- ------------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, (IN THOUSANDS) 1998 1997 1996 1995 1994
BALANCE SHEET DATA
Cash, cash equivalents and short-term investments $21,445 $ 21,368 $ 19,882 $ 25,380 $20,092
Working capital 24,866 22,632 21,124 18,242 15,780
Total assets 45,613 44,365 44,514 39,498 26,228
Capital lease obligations -- -- -- -- 3
Total stockholders' equity $29,575 $ 27,987 $ 27,400 $ 21,351 $18,250
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 20
EXHIBIT B
B-1
<PAGE> 21
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
The Company was incorporated in 1983 to develop and market software applications
for the workstation market. In 1986, the Company introduced Alis, its first
office automation product, which accounted for substantially all of the
Company's revenue through 1990. Alis was replaced in 1991 by the Aster*x product
family, which represented the next generation of UNIX applications and tools. In
September, 1993, the Company introduced its Applixware suite of desktop and
development tools for accessing, analyzing and communicating information in
real time, to replace the Company's Aster*x product family, on which it was
based.
In October, 1995, the Company acquired Target Systems Corporation, which
develops and markets customer interaction software, in a transaction accounted
for under the purchase method of accounting. Beginning November 1, 1995, the
Company's operating results have included the operating results of Target
Systems.
In October, 1996, the Company acquired Sinper Corporation, doing
business under the name TM1, which develops and markets software used for
on-line analytical processing (OLAP), in a transaction accounted for under the
purchase method of accounting. Beginning November 1, 1996, the Company's
operating results have included the operating results of Sinper Corporation.
These two acquisitions enabled Applix to expand its product offerings to
include front office business applications. Front office business applications
include Applix Enterprise, the Company's offering in the customer relationship
management (CRM) market and Applix TM1, the Company's real time
multi-dimensional analysis software for business intelligence applications.
The other addition to the Applix product family was the introduction in
1996 of the Applix Anyware product line, an application development and
deployment solution that leverages Java to customize and deploy Applixware's
full suite of applications. Applix Anyware delivers the functionality of
Applixware, Applix TM1 and Applix Enterprise to "thin-client" computing
environments (i.e. systems running a Java-enabled browser such as Netscape
Navigator or Microsoft Explorer).
Approximately 58% of 1998 revenues were from the front office business
applications (Applix Enterprise and Applix TM1) and 42% were from the decision
support products (Applixware family of products).
The following table sets forth, for the periods indicated, certain
financial data of the Company as a percentage of total revenue.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS / FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
<S> <C> <C> <C>
License revenue 66.6% 69.2% 72.4%
Service revenue 33.4 30.8 27.6
----------------------------
Total revenue 100.0 100.0 100.0
Cost of license revenue 5.4 6.3 4.4
Cost of service revenue 16.9 14.0 10.3
----------------------------
Gross margin 77.7 79.7 85.3
Operating Expenses
Selling and marketing 51.2 57.2 43.6
Research and development 17.4 17.9 13.1
General and administrative 7.3 7.9 6.5
In-process research and development -- -- 21.1
----------------------------
Total operating expenses 75.9 83.0 84.3
----------------------------
Operating income (loss) 1.8 (3.3) 1.0
Interest income - net 2.0 2.0 2.5
Income taxes (benefit) 1.4 (0.5) 8.6
----------------------------
Net income (loss) 2.4% (0.8%) (5.1%)
============================
- --------------------------------------------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1998 / COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total revenue increased to $50,180,000 in 1998 from $48,498,000 in 1997. License
revenue in 1998 of $33,431,000 was approximately level with 1997 at $33,577,000.
License revenue from the front office business applications products which,
consist of Applix Enterprise and Applix TM1, increased 26% to $21,153,000 (or
63% of total license revenue) from $16,825,000 (or 50% of total license revenue)
in 1997. Domestic license revenue decreased 28% to $13,907,000 from $19,195,000
in 1997. Domestic license revenue declined in 1998 primarily due to Applixware
license revenue in the government sector declining 72% to $1,698,000 in 1998
from $5,990,000 in 1997. Revenue in the government sector has fluctuated
significantly in the past, and the
B-2
<PAGE> 22
Company expects fluctuations to continue. International license revenue
increased 36% to $19,524,000 in 1998 from $14,382,000 in 1997 due to continued
demand for the Company's products in the international marketplace and to an
expanded international presence. Applixware license revenue decreased by 27% to
$12,279,000 (or 37% of total license revenue) from $16,752,000 (or 50% of total
license revenue) in 1997. The Company's future operating results will be
particularly dependent on the increased acceptance of Applix Enterprise and
Applix TM1 product lines. The Company's three largest customers (including
resellers) comprised 12% of total license revenue during 1998 and 16% of total
license revenue in 1997, although one of the largest customers was different in
these two years.
Service revenue increased 12% to $16,749,000 (or 33% of total revenue)
in 1998 from $14,921,000 (or 31% of total revenue) in 1997. This increase was
due to increased maintenance revenue from Applix Enterprise and Applix TM1 as
well as a continued emphasis by the Company on selling training and consulting
services for these products. The Company expects service revenue to continue to
grow slightly as a proportion of total revenue.
Gross margin decreased to 78% in 1998 from 80% in 1997. License revenue
gross margin increased to 92% in 1998 from 91% in 1997 due to the reduction of
documentation and support operations expense, which was partially offset by an
increase in royalty costs. The increase in royalty expense was due to higher
royalty costs associated with Applix TM1, which was partially offset by a
decline in Applixware royalties. Service revenue gross margin decreased to 49%
in 1998 from 54% in 1997, due to an increase in the number of support employees
servicing the growing customer base and the cost of outside consultants used for
the Applix Enterprise product line. The increase in service revenue, which has a
significantly lower gross margin than license revenue, as a percentage of total
revenue also contributed to the decrease in gross margin.
Selling and marketing expenses, which include domestic sales and
marketing expenses and the Company's international operations, decreased 7% to
$25,719,000 in 1998 from $27,753,000 in 1997. Selling and marketing expenses
decreased as a percentage of total revenues to 51% from 57% in 1997. The expense
decrease was primarily due to decreased staffing for the Applixware and Applix
Enterprise product lines, but partially offset by increased marketing in the
Applix Enterprise and Applix TM1 product lines. The Company continues to focus
its investment in marketing activities toward the front office business
applications sector.
Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 1% to $8,709,000 in 1998 from
$8,661,000 in 1997, decreasing as a percentage of total revenue to 17% from 18%
in 1997. Total research and development expenditures were $9,492,000, including
$783,000 in capitalized software development costs, or 19% of total revenue, in
1998 and $9,476,000, including $815,000 in capitalized software development
costs, or 20% of total revenue, in 1997.
General and administrative expenses, which include the costs of the
Company's finance, human resources and administrative functions, decreased 4% to
$3,677,000 in 1998 from $3,838,000 in 1997, and decreased as a percentage of
total revenue between these years to 7% from 8%. The decrease in expenses was
primarily due to the change in staffing levels and the decrease in related
expenses.
Net interest income increased to $1,013,000 in 1998 from $973,000 in 1997
due to slightly higher interest rates and slightly higher cash balances
available for investments during the current year.
The Company provided for income taxes at a rate of 37% for 1998.
YEAR ENDED DECEMBER 31, 1997 / COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenue decreased to $48,498,000 in 1997 from $51,237,000 in 1996. License
revenue decreased 9% to $33,577,000 in 1997 from $37,094,000 in 1996. During
1997, license revenue from the front office business applications products which
consist of Applix Enterprise and Applix TM1 increased 179% to $16,825,000 (or
50% of total license revenue) from $6,026,000 (or 16% of total license revenue)
in 1996. Domestic license revenue decreased 8% to $19,195,000 in 1997 from
$20,960,000 in 1996. International license revenue decreased 11% to $14,382,000
in 1997 from $16,134,000 in 1996. License revenue decreased from the prior year
due to a decline in the demand for the mature Applixware product line and slower
than anticipated growth of the Applix Enterprise and Applix TM1 product line.
Applixware license revenue from the Applixware product lines decreased 46% to
$16,752,000 (or 50% of total license revenue) from $31,068,000 (or 84% of total
license revenue) in 1996. Applixware license revenue from the government sector
decreased 25% to $5,990,000 in 1997 from $7,941,000 in 1996. The Company's three
largest customers (including resellers) comprised 16% of total license revenue
during 1997 and 19% of total license revenue in 1996, although all three of the
largest customers were different in these two years.
Service revenue increased 6% to $14,921,000 (or 31% of total revenue) in
1997 from $14,143,000 (or 28% of total revenue) in 1996. This increase was due
to increased maintenance revenue from the Company's growing customer base, the
new maintenance revenue attributable to the Applix Enterprise and Applix TM1
products, and a continued emphasis by the Company on selling training and
consulting services.
Gross margin decreased to 80% in 1997 from 85% in 1996. License revenue
gross margin decreased to 91% in 1997 from 94% in 1996 due to an increase in
royalty costs and increased capitalized software amortization. A portion of the
royalty increase was attributable to the change of product sales mix where
Applix Enterprise and Applix TM1 product lines have a higher royalty expense
rate than the Applixware product line. Service revenue gross margin decreased to
54% in 1997 from 63% in 1996, due to an increase in the number of support
employees to service the growing customer base and the cost of outside
consultants used for the Applix Enterprise product line.
Selling and marketing expenses, which include domestic sales and
marketing expenses and the Company's international operations, increased 24% to
$27,753,000 in 1997 from $22,318,000 in 1996. These expenses increased as a
percentage of total revenue to 57% for 1997 from 44% for 1996. The majority of
the expense increase was due to investment in product
B-3
<PAGE> 23
marketing to increase product awareness and channel development. International
sales expense also increased due to a full year's operation of Netherlands
subsidiary established in August 1996 and an overall increase in the number of
international employees. The Company refocused its investment in marketing
activities on the emerging segments of the front office business applications
and business intelligence product lines during 1997.
Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 29% to $8,661,000 in 1997
from $6,731,000 in 1996, and increased as a percentage of total revenue to 18%
from 13%. The increase in these expenses was primarily due to the increased cost
of personnel and the additional operating expense from the acquisition of Sinper
Corporation in October 1996. Total research and development expenditures were
$9,476,000, including $815,000 in capitalized software development costs, or
20% of total revenue in 1997 and $7,551,000, including $820,000 in capitalized
software development costs, or 15% of total revenue, in 1996.
General and administrative expenses, which include the costs of the
Company's finance, human resources and administrative functions, increased 15%
to $3,838,000 in 1997 from $3,347,000 in 1996, and increased as a percentage of
total revenue to 8% from 7%. The increase in expenses was primarily due to the
hiring of additional personnel and the acquisition of Sinper Corporation in
October 1996.
On October 31, 1996, the Company acquired Sinper Corporation for an
aggregate cost of $11,500,000 consisting of cash of $5,000,000, Common Stock
valued at $5,000,000 and the estimated acquisition costs of approximately
$1,500,000. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the balance sheet accounts of Sinper and the results of
its operations have been included in the consolidated financial statements of
the Company since the date of acquisition.
In the fourth quarter of 1996 the Company took a charge of $10,821,000
for in-process research and development acquired as part of the Sinper
Corporation acquisition. Of the remaining purchase price, $489,000 was allocated
to completed technology, and $190,000 was allocated to net assets acquired.
Completed technology will be amortized over a period of seven years from the
acquisition date.
Net interest income decreased to $973,000 in 1997 from $1,265,000 in 1996
due to lower average cash balances and lower interest rates available on
investments and an increase in interest expense between the periods as a result
of capitalized lease obligation entered into during 1997. The Company provided
for income taxes benefit at a rate of 36% for 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated cash from operations in each of the last three years.
In 1998, the Company generated $2,220,000 from operating activities, which was
primarily the result of operating income of $1,187,000 and depreciation and
amortization of $2,982,000, which were partially offset by working capital
increases of $2,234,000. Investing activities generated cash totaling
$7,253,000, comprised primarily of maturities of short-term investments in the
amount of $45,930,000, which were partially offset by the purchase of short-term
investments in the amount of $36,242,000. Financing activities provided cash of
$621,000, comprised primarily of proceeds from exercise of incentive stock
options and purchases under the employee stock purchase plan of $730,000.
As of December 31, 1998, the Company had cash, cash equivalents and
short-term investments of $21,445,000 and working capital of $24,866,000.
The Company has no commitments or specific plans for any significant
capital expenditures during 1999.
The Company believes that funds currently available and funds expected to
be generated from operations will be sufficient to fund the Company's operations
for at least the next 12 months.
To date, inflation has not had a material adverse effect on the
Company's operating results.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits and is effective for the Company's fiscal year ending December 31,
1999. SFAS No. 132 relates to disclosure only and will not affect the Company's
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect SFAS No. 133 to have a material effect on
its financial position or results of operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. The Company
adopted SOP 98-1, during the year ended December 31, 1998 and the adoption has
not had a material effect on its financial position or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting for the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for the Company beginning January 1, 1999 and the Company
does not expect its adoption to have a material effect on its financial position
or results of operations.
In December 1998, the AcSEC issued SOP 98-9, "Modification of SOP
B-4
<PAGE> 24
97-2, Software Revenue Recognition, With Respect to Certain Transactions," which
will retain the limitations of SOP 97-2 on what constitutes vendor specific
objective evidence of fair value. SOP 98-9 will be effective for transactions
entered into in fiscal years beginning after March 15, 1999. The Company does
not expect SOP 98-9 to have a material effect on its financial position or
results of operations.
RISK FACTORS
This Annual Report contains a number of forward-looking statements. Any
statements contained in this Annual Report (including statements to the effect
that the Company or its management "believes", "expects", "anticipates", "plans"
and similar expressions) that are not statements relating to historical matters
should be considered forward-looking statements. There are a number of important
factors that could cause actual events or the Company's actual operating results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below.
In the several years preceding 1997, the Company derived the majority of
its revenue from its Applixware product family; however, Applixware sales have
been declining in recent years. The Company expanded its product offerings with
the introduction of Applix Enterprise, based on technology acquired in its
acquisition of Target Systems Corporation in late 1995, and Applix TM1, acquired
through its acquisition of Sinper Corporation in late 1996. In addition, the
Company has developed and introduced the Applix Anyware product line, which
delivers the functionality of Applixware, Applix TM1 and Applix Enterprise to
"thin-client" computing environments (i.e., systems running a Java-enabled
browser such as Netscape Navigator or Microsoft Explorer). The future success of
the Company is substantially dependent upon these newer product lines, and there
can be no assurance that these new product lines will achieve the sales levels
anticipated by the Company. In addition, the short-term financial performance of
the Company will be largely contingent on its ability to continue to generate
substantial profit from its Applixware product line until its newer product
lines achieve greater revenue and profitability, and there can be no assurance
that the Company will be able to do so. Moreover, the existence of a number of
different product lines presents management, sales and marketing, and product
development challenges, and there can be no assurance that the Company will be
successful in addressing these challenges.
The Company's financial performance will also depend significantly on
sales of the Applix Enterprise product line, which addresses the CRM market. The
Company believes this market is growing rapidly, but the Company is a relatively
new entrant into this market and faces intense competition from larger companies
such as Clarify, Inc., IBM, Onyx Software, Oracle, Remedy Corporation, Siebel
Systems, Inc., Vantive Corporation, and others.
The Company's Applix TM1 product line competes with product offerings
from Oracle Corporation and Hyperion Solutions (formally known as Arbor
Software) and Microsoft. This represents a more competitive environment than the
Company has historically faced in its UNIX market and will likely result in
lower prices and lower gross margins for the Company's products.
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 98, the
Company is now competing directly with vendors of PC software applications such
as Corel, IBM, Microsoft and Star Office Systems.
For the Company's Applix TM1 product line, the Company relies
significantly on original equipment manufacturers (OEMs) and value added
resellers (VARs) to distribute products. The Company's revenue is dependent,
among other things, upon the ability of the OEMs and VARs to sell the Company's
products to end-users. Factors affecting the ability of these distribution
channels to develop and sell their products include competition, their ability
to offer products that meet user requirements at acceptable prices and overall
economic conditions in both the United States and foreign markets. In addition,
there can be no assurance that OEMs and VARs currently using the Company's
software in their products will continue to use the Company's products and will
not select a third party's software products to replace that of the Company.
Hyperion Solutions, which had been a significant OEM of the Company's TM1
products, has merged with Arbor Software Corporation, is now offering a product
using Arbor's OLAP technology and has ceased purchasing the Company's products.
The Company's business, results of operations and financial condition would be
materially and adversely affected if the Company's OEMs and VARs are
unsuccessful in selling their products or discontinue using the Company's
software in their products.
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. A 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 are difficult to
adjust in the short term, and a shortfall in the expected revenue for a
particular quarter would therefore have a disproportionate adverse effect on the
Company's net income for that quarter.
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
B-5
<PAGE> 25
Company cannot predict the effect of exchange rate fluctuations on future
operating results. To date, foreign currency fluctuations have not had a
material effect on the Company's operating results. The Company has engaged in
hedging transactions to cover its currency 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.
On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and the euro. The participating countries agreed to adopt
the euro as their common legal currency on that date. The euro now trades on
currency exchanges and is available for non-cash transactions. The participating
countries issue sovereign debt exclusively in euros, and have redenominated
outstanding sovereign debt. The participating countries no longer control their
own monetary policies by directing independent interest rates for the legacy
currencies. Instead, the authority to direct monetary policy, including money
supply and official interest rates for the euro is exercised by the new European
Central Bank. The legacy currencies are scheduled to remain legal tender in the
participating countries as denominations of the euro between January 1, 1999 and
January 1, 2002 (the "transition period"). During the transition period, public
and private parties may pay for goods and services using either the euro or the
participating country's legacy currency on the "no compulsion, no prohibition"
basis. However, conversion rates are no longer computed directly from one legacy
currency to another. Instead, a triangular process applies whereby an amount
denominated in one legacy currency will first be converted into the euro. The
resultant euro-denominated amount will then be converted into the second legacy
currency. The currency will be handled in the same manner as other functional
currencies.
License revenue from sales (directly or indirectly) to branches or
agencies of the U.S. Government represented approximately 8%, 21%, and 20% of
total license revenue during 1998, 1997, and 1996, 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, the Company's government contract revenue is likely
to continue to fluctuate significantly from period to period, and any failure
to obtain a particular 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.
YEAR 2000 ISSUES
The Company is currently addressing what is commonly referred to as the "Year
2000" problem. Many computer programs and systems recognize dates using
two-digit year data (rather than four-digit year data), and therefore may be
unable to determine the correct century for the year. Failure to properly
recognize and process date information may cause such programs and systems to
fail to operate or to operate with erroneous results.
The Company has created a company-wide Year 2000 plan to identify and
resolve Year 2000 issues associated with (i) products and services sold by the
Company, (ii) the Company's internal systems and (iii) products and services
provided to the Company by third parties.
The current versions of the Company's products were architected to
generally avoid Year 2000 problems. For example, certain of the current
versions of the Company's products use 4 character years and / or 32-bit
integer internal representation of dates, while others use a sequential dating
system that is not affected by the year 2000. To ensure the functionality of
these products, the Company has performed code review, testing and function
verification. The Company believes that all of the current versions of its
products are currently Year 2000 compliant. However, the Company's products are
often used by its customers in systems that contain third party products.
Therefore, even though the current versions of the Company's current products
may be Year 2000 compliant, the failure of such third party products to be Year
2000 compliant, or to properly interface with the Company's products, may result
in operating problems. In addition although the Company has notified its
customers of the availability of Year 2000 compliant products, certain of the
Company's customers are using non-compliant, older versions of the Company's
products. The Company is encouraging these customers to migrate to current
versions which is covered under maintenance agreements.
The Company has also evaluated its internal information technology
systems for Year 2000 compliance. The Company believes that its principal
internal systems, main servers, principal business databases and external
payroll services are Year 2000 compliant. With respect to those systems that are
not currently Year 2000 compliant, including certain information systems and
e-mail, the Company has completed the identification, planning and procurement
phases, and is currently in the implementation and testing phases. The Company
expects to complete implementation and testing of these information technology
systems at different stages throughout 1999.
The Company is investigating each of its significant vendors, suppliers,
financial service organizations and service providers to confirm that the
Company's operations will not be materially adversely affected by the failure of
any such third party to have Year 2000 compliant computer programs. With respect
to any third party products which the Company distributes with its products, the
Company has sought information from the product manufacturers regarding such
products' Year 2000 status, and, when available, has provided a reference to
such information on the Company's web site. The Company has directed those
customers who use Company products containing third-party products to the
respective product manufacturer for detailed Year 2000 status information.
The Company's Year 2000 compliance efforts have primarily been
incorporated into its general product development efforts for new product
releases. The Company's additional Year 2000 related expenses, which
B-6
<PAGE> 26
include identification, code review, testing, and implementation, have not been
substantial. The Company's total cost related to the Year 2000 compliance has
not been, and is not expected to be, material to the Company's financial
position, results of operations, or cash flows.
The Company currently does not have a contingency plan in the event that
any Year 2000 problems arise in any of the Company's products which it believes
to be Year 2000 compliant, any of the Company's internal systems or any third
party products or services on which the Company relies. The Company intends to
develop an alternative plan should such problems arise.
Although the Company believes that the current versions of its products
are Year 2000 compliant, there can be no assurance that one or more of the
current versions of the Company's products do not contain Year 2000 problems
that could result in material adverse effect to the Company or to its customers.
In addition, the Company does not currently have any information with regard to
Year 2000 compliance of any of its customers. The Company's results of
operations could be materially impacted if its customers encounter Year 2000
problems unrelated to the Company's products and services.
Because it is in the business of selling software products, the Company's
risk of being subjected to lawsuits relating to Year 2000 issues with its
software products is likely to be greater than that of companies in other
industries. Because computer systems may involve different hardware, firmware,
and software components from different manufacturers, it may be difficult to
determine which component in a computer system is a cause of a Year 2000
problem. As a result, the Company may be subjected to year 2000 lawsuits
independent of whether its products and services are Year 2000 compliant. The
outcome of any such lawsuits and the impact on the Company cannot be determined
at this time.
The Company believes that completion of its modifications to its internal
information technology systems will be made on a timely basis. However, there
can be no assurance that there will not be a delay in, or increased costs
associated with, the implementation of such modifications. Any such delays or
increased costs could impact the Company's ability to deliver products or
services to its customers and could have a material adverse impact on the
Company's operations and financial results.
There can be no assurance that third party suppliers of products that are
used by the Company will provide Year 2000 compliant products on a timely basis,
or that the Company will be able to procure alternative Year 2000 compliant
products. The failure to obtain such products could have a material adverse
effect on the Company's operations and financial results.
B-7
<PAGE> 27
EXHIBIT C
C-1
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Applix, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and retained earnings and of cash
flows present fairly, in all material respects, the financial position of
Applix, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 30, 1999
C-2
<PAGE> 29
- --------------------------------------------------------------------------------
APPLIX, INC. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AS OF DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,404 $ 7,639
Short-term investments 4,041 13,729
Accounts receivable, less allowance for doubtful accounts of
$566 and $531 at December 31, 1998 and 1997, respectively 14,032 12,147
Other current assets 2,832 2,872
Deferred tax asset 2,595 2,623
---------------------
TOTAL CURRENT ASSETS 40,904 39,010
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment 7,977 6,696
Office furniture, equipment and leasehold improvements 4,954 4,583
---------------------
12,931 11,279
Less accumulated amortization and depreciation (9,315) (7,268)
---------------------
Net property and equipment 3,616 4,011
CAPITALIZED SOFTWARE COSTS, net of accumulated amortization of $2,159
and $1,368 at December 31, 1998 and 1997, respectively 470 478
Other assets 623 866
---------------------
TOTAL ASSETS $ 45,613 $ 44,365
=====================
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,995 $ 2,676
Accrued liabilities 6,852 5,550
Deferred revenue 7,191 8,152
---------------------
TOTAL CURRENT LIABILITIES 16,038 16,378
COMMITMENTS (NOTE E)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized
Common stock, $.0025 par value; 30,000,000 shares authorized;
10,551,338 and 10,344,063 shares issued at December 31, 1998
and 1997, respectively 26 26
Capital in excess of par value 41,689 40,959
Accumulated deficit (10,736) (11,923)
Accumulated other comprehensive loss (471) (142)
---------------------
30,508 28,920
Less 278,698 shares of treasury stock, at cost (933) (933)
---------------------
TOTAL STOCKHOLDERS' EQUITY 29,575 27,987
---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,613 $ 44,365
=====================
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
C-3
<PAGE> 30
- -------------------------------------------------------------------------------
APPLIX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1996
<S> <C> <C> <C>
License revenue $33,431 $33,577 $37,094
Service revenue 16,749 14,921 14,143
------------------------------
Total revenue 50,180 48,498 51,237
Cost of license revenue 2,734 3,055 2,238
Cost of service revenue 8,468 6,797 5,275
------------------------------
Gross margin 38,978 38,646 43,724
Operating expenses:
Selling and marketing 25,719 27,753 22,318
Research and development 8,709 8,661 6,731
General and administrative 3,677 3,838 3,347
In-process research and development -- -- 10,821
------------------------------
Total operating expenses 38,105 40,252 43,217
Operating income (loss) 873 (1,606) 507
Interest income - net 1,013 973 1,265
------------------------------
Net income (loss) before income taxes 1,886 (633) 1,772
Income taxes (benefit) 699 (229) 4,408
------------------------------
Net income (loss) $ 1,187 $ (404) $(2,636)
==============================
Basic earnings (loss) per share $ 0.12 $ (0.04) $ (0.27)
Diluted earnings (loss) per share $ 0.11 $ (0.04) $ (0.27)
Weighted average number of shares outstanding
Basic 10,191 9,988 9,611
Diluted 10,699 9,988 9,611
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
C-4
<PAGE> 31
- --------------------------------------------------------------------------------
APPLIX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, CAPITAL ACCUMULATED OTHER
1997 AND 1996, (IN THOUSANDS, EXCEPT PER COMMON IN EXCESS OF ACCUMULATED COMPREHENSIVE TREASURY
SHARE DATA) STOCK PAR VALUE DEFICIT (LOSS) INCOME STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 $24 $31,273 $ (8,883) $(130) $(933) $21,351
Stock issued under stock option
and purchase plans (420,395 shares) 1 1,706 -- -- -- 1,707
Stock issued for purchase of
Sinper Corp. (152,439 shares) -- 5,000 -- -- -- 5,000
Stock option income tax benefits -- 2,074 -- -- -- 2,074
Comprehensive loss:
Net loss -- -- (2,636) -- -- (2,636)
Foreign exchange translation adjustment -- -- -- (96) -- (96)
------
Comprehensive loss (2,732)
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 25 40,053 (11,519) (226) (933) 27,400
Stock issued under stock option and
purchase plans (161,501 shares) 1 906 -- -- -- 907
Comprehensive loss:
Net loss -- -- (404) -- -- (404)
Foreign exchange translation adjustment -- -- -- 84 -- 84
------
Comprehensive loss (320)
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 26 40,959 (11,923) (142) (933) 27,987
Stock issued under stock option and
purchase plans (207,509 shares) -- 730 -- -- -- 730
Comprehensive income:
Net income -- -- 1,187 -- -- 1,187
Foreign exchange translation adjustment -- -- -- (329) -- (329)
------
Comprehensive income 858
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1998 $26 $41,689 $(10,736) $(471) $(933) $29,575
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
C-5
<PAGE> 32
- --------------------------------------------------------------------------------
APPLIX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) 1,187 $ (404) $ (2,636)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 2,047 1,867 1,231
Amortization of capitalized software costs 791 819 539
Amortization of goodwill 144 420 228
Provision for doubtful accounts 100 13 (5)
Charge for acquired in-process research and development -- -- 10,821
Deferred tax asset 28 323 2,056
Changes in operating assets and liabilities:
Accounts receivable (1,985) 544 (6,467)
Other assets 139 (314) (1,396)
Accounts payable (681) (336) 1,013
Accrued liabilities 1,411 (773) (721)
Deferred revenue (961) 148 (791)
-----------------------------------
Cash provided by operating activities 2,220 2,307 3,872
INVESTING ACTIVITIES:
Purchase of property and equipment (1,652) (893) (3,439)
Capitalized software costs (783) (815) (820)
Purchase of short-term investments (36,242) (27,810) --
Maturities of short-term investments 45,930 14,081 --
Purchase of foreign subsidiary -- -- (389)
Purchase of Sinper Corp., net of cash acquired -- -- (6,270)
-----------------------------------
Cash provided by (used in) investing activities 7,253 (15,437) (10,918)
FINANCING ACTIVITIES:
Proceeds from exercise of incentive stock options
and employee stock purchase plan 730 907 1,707
Principal payments under capital lease obligations (109) (104) (63)
-----------------------------------
Cash provided by financing activities 621 803 1,644
-----------------------------------
Effect of exchange rate changes on cash (329) 84 (96)
-----------------------------------
Net (decrease) increase in cash and cash equivalents 9,765 (12,243) (5,498)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,639 19,882 25,380
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,404 $ 7,639 $ 19,882
===================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 15 $ 19 $ 9
Taxes 126 104 1,886
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
C-6
<PAGE> 33
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. NATURE OF BUSINESS
- --------------------------------------------------------------------------------
Applix is a leading provider of software for front office business applications
and decision support software. Front office business applications include
customer relationship management (CRM) and business intelligence applications.
The Company provides cross-platform client/server, network-centric, webtop and
thin-client computing solutions throughout its core offerings. The Company
offers the following array of front office business applications: Applix
Enterprise, the Company's product offering in the CRM market and Applix TM1,
the Company's real time multi-dimensional analysis software for business
intelligence applications. The Company's decision support family of products
provides an open suite of desktop and development tools for accessing, analyzing
and communicating information in real time and includes the following: Applix
Office for UNIX, LINUX, 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. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Applix, Inc. and
its wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated.
REVENUE RECOGNITION
Revenue is recognized from the license of software upon shipment when collection
of the resulting receivables is deemed probable and no significant vendor and
post-contract support obligations remain. Revenue arrangements where multiple
products or services are sold together under one contract is allocated to each
element based on their relative value with these fair values being determined
using the price charged when that element is sold separately. Service revenue
includes revenue from training, consulting and support. Support revenue is
recognized ratably over the contract term, typically one year. Revenue from
training and consulting is recognized as the services are performed. Payments
received in advance for support contracts are initially recorded as deferred
revenue and are recognized ratably over the term of the contract. Allowance for
estimated future product returns and costs of warranties is provided in the same
period as the related revenue.
CAPITALIZED SOFTWARE COSTS
Costs related to research, design and development of computer software are
charged to research and development expense as incurred. The Company capitalizes
eligible software costs incurred between the time that the product's
technological feasibility is established and the general release of the product
to customers. Such capitalized costs are then amortized on a product-by-product
basis over the one year.
The Company evaluates the net realizable value of capitalized software
and other intangibles on an ongoing basis, relying on a number of factors
including operating results, business plans, budgets and economic projections.
In addition, the Company's evaluation considers nonfinancial data such as market
trends, product development cycles, and changes in management's market emphasis.
Amortization expense totaled $791,358, $818,715, and $538,780 for the
years ended December 31, 1998, 1997 and 1996, respectively, and is included in
the cost of license revenue.
CASH EQUIVALENTS
The Company considers all short-term investments with original maturities of
less than 90 days to be cash equivalents. The Company's investment portfolio is
diversified and consists of cash equivalents and investments placed with high
credit qualified institutions.
SHORT-TERM INVESTMENTS
All short-term investments are classified as available-for-sale, and are in
liquid high-grade commercial paper with original maturities beyond three months
and less than twelve months. Securities are marked to market and the resulting
unrealized gains and losses have been insignificant.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated by use of the
straight-line and double declining balance methods over the estimated useful
lives of the related assets (2 to 6 years). Assets recorded under capital leases
are amortized by the straight-line method over their respective useful lives or
the lease term, whichever is shorter. The Company did not retire any fully
depreciated assets in 1998 or 1997. Upon sale or retirement, the asset cost and
related accumulated depreciation are removed from the respective accounts, and
any related gain or loss is reflected in operations. Repair and maintenance
costs are expensed as incurred.
C-7
<PAGE> 34
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for all of the locations in which the Company has a
foreign operation is the applicable local currency.
Assets and liabilities of all foreign subsidiaries are translated at
period end rates of exchange. The resulting translation adjustments are excluded
from net income and accumulated as a separate component of stockholders' equity.
Translation gains and losses that arise from exchange rate changes included in
income, net of foreign currency contract translation gains or losses, are
immaterial for all periods presented.
The Company uses foreign currency forward contracts to help offset the
effects of exchange rate changes on the intercompany balances. In 1998, a
significant portion of the billing in the Netherlands subsidiary was denominated
in US dollars and to offset any potential exchange rate exposure for the US
dollar receivables, the Company uses foreign currency contracts. The foreign
currency exposures are denominated in European currencies. The Company normally
hedges intercompany and receivable balances for a 90 day period. Foreign
currency contracts are marked to market on a monthly basis and the resulting
unrealized gains/losses are recognized in the statement of operations. The net
contract hedges for intercompany balances were $2.5 million in British pounds,
$1.3 million in French francs, $4.1 million in German marks and $1.7 million in
Netherland guilders. The net contract hedges for US dollar receivables were $1.8
million in Netherland guilders.
LONG-LIVED ASSETS
The Company evaluates the net realizable value of capitalized software, goodwill
and other intangibles on an ongoing basis, relying on a number of factors
including operating results, business plans, budgets and economic projections.
In addition, the Company's evaluation considers nonfinancial data such as market
trends, product development cycles, and changes in management's market emphasis.
The Company assesses the potential impairment of such long-lived assets
by comparing the expected future operating cash flows of the assets in relation
to its carrying value. If the carrying value is greater than the undiscounted
cash flows, then the carrying value is reduced to the net present value of the
future cash flows.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
Basic net earnings per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net earnings per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of common stock equivalents. Common stock
equivalent shares consist of stock options. The dilutive computations do not
include common stock equivalents for the years ended December 31, 1997 and 1996
as their inclusion would be antidilutive.
REPORTING COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." SFAS 130 establishes rules for the
reporting of comprehensive income and its components. Comprehensive income
consists of net income and foreign currency translation adjustment and is
presented in the Consolidated Statements of Stockholder's Equity. The adoption
of SFAS 130 had no impact on total stockholder's equity. Prior year financial
statements have been reclassified to conform to the SFAS 130 requirement.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 standardized the
disclosure requirements for pensions and other postretirement benefits and is
effective for the Company's fiscal year ending December 31, 1999. SFAS No. 132
relates to disclosure only and will not affect the Company's financial position
or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company does not expect SFAS No. 133 to have a material effect on
its financial position or result of operations.
In February 1998, the AcSEC issued SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1
establishes the accounting for costs of software products developed or purchased
for internal use, including when such costs should be capitalized. The Company
adopted SOP 98-1 in 1998 and it has not had a material effect on its financial
position or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting for the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for the Company beginning January 1, 1999 and the Company
does not expect its adoption to have a material effect on its financial position
or results of operations.
C-8
<PAGE> 35
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statement basis and the tax basis of assets and
liabilities using tax rates in effect for the years in which the differences are
expected to reverse.
RISKS AND UNCERTAINTIES
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
that affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates and
assumptions in these financial statements relate to, among other items,
valuation of deferred tax assets, the allowance for doubtful accounts and
accrued liabilities.
- --------------------------------------------------------------------------------
C. ACCRUED LIABILITIES
- --------------------------------------------------------------------------------
AS OF DECEMBER 31, (IN THOUSANDS) 1998 1997
ACCRUED LIABILITIES CONSIST OF:
Commissions $1,503 $ 833
Employee Stock Purchase Plan 273 254
Accrued Vacation 831 659
Accrued Compensation 103 690
Accrued Legal and Audit 143 196
Royalties 116 496
Accrued Marketing 34 246
Leases -- 225
Other 941 916
Taxes 2,908 1,035
-------------------
TOTAL $6,852 $5,550
===================
- --------------------------------------------------------------------------------
D. INCOME TAXES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES WAS TAXED
UNDER THE FOLLOWING JURISDICTIONS:
Domestic $ 768 $(1,174) $ 915
Foreign subsidiaries 1,118 541 857
----------------------------------
TOTAL $1,886 $ (633) $1,772
==================================
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
THE COMPONENTS OF THE INCOME TAX PROVISION ARE AS FOLLOWS:
Current
Federal and state $235 $(738) $2,304
Foreign 423 186 231
-------------------------------
658 (552) 2,535
Deferred
Federal and state 33 496 1,853
Foreign 8 (173) 20
-------------------------------
41 323 1,873
-------------------------------
TOTAL $699 $(229) $4,408
===============================
</TABLE>
- --------------------------------------------------------------------------------
C-9
<PAGE> 36
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Based on the Company's projection of future earnings, management believes that
sufficient income will be generated in the future to realize the deferred tax
asset. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward periods are reduced.
Net income before tax and merger related changes is not significant for
the year ended December 31, 1996.
The approximate tax effect of each type of temporary difference and
carryforward is as follows:
- --------------------------------------------------------------------------------
AS OF DECEMBER 31, (IN THOUSANDS) 1998 1997
Net operating loss carryforwards $ 616 $ 278
Deferred revenue 714 831
Accounts receivable 143 177
Accrued expenses 140 138
Vacation and benefits 448 508
Software/fixed assets 310 411
Tax credit carryforwards 224 280
-------------------
NET DEFERRED TAX ASSET $2,595 $2,623
===================
- --------------------------------------------------------------------------------
The following schedule reconciles the difference between the federal income tax
rate and the effective income tax rate:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
U.S. federal statutory rate $641 $(215) $ 603
In-process research and development -- -- 3,426
State and foreign tax provision, net 38 300 497
Research and experimentation tax credit -- (449) (178)
Other 20 135 60
-------------------------------
TAX PROVISION $699 $(229) $ 4,408
===============================
</TABLE>
- --------------------------------------------------------------------------------
E. COMMITMENTS AND CONTINGENCIES The following is a schedule of future minimum
lease payments:
- --------------------------------------------------------------------------------
AS OF DECEMBER 31,1998, (IN THOUSANDS) OPERATING LEASES
LEASE COMMITMENTS
1999 $1,949
2000 1,664
2001 1,294
2002 375
2003 and thereafter 298
------
TOTAL MINIMUM LEASE PAYMENTS $5,580
======
- --------------------------------------------------------------------------------
Total rent expense for all operating leases was $2,345,118, $2,283,660, and
$1,644,680 for the years ended December 31, 1998, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C-10
<PAGE> 37
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
F. STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,1998, (IN THOUSANDS)
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
RECONCILIATION OF BASIC AND DILUTED EARNINGS
PER SHARE CALCULATION
BASIC EPS
Income available to common stockholders $1,187,000 10,191,000 $0.12
EFFECT OF DILUTIVE SECURITIES
Common stock options -- 508,000 0.01
---------------------------------------
DILUTED EPS
income available to common stockholders $1,187,000 10,699,000 $0.11
=======================================
</TABLE>
- --------------------------------------------------------------------------------
For the years ended December 31, 1997 and 1996, the basic and diluted
earnings per share calculation is the same due to a net loss for those years.
STOCK OPTION PLANS
The 1994 Equity Incentive Plan of the Company (the "Equity Plan") was adopted by
the Company's Board of Directors on April 11, 1994 and approved by its
stockholders on May 20, 1994 and amendments to the Equity Plan, increasing the
total number of shares authorized for issuance thereunder, were adopted by the
Board on March 13, 1997 and January 23, 1998, and approved by the stockholders
on May 8, 1997 and May 8, 1998, respectively. The Equity Plan enables the
Company to make awards of restricted Common Stock and to grant options to
purchase Common Stock to employees, officers or directors of and consultants to
the Company. Restricted stock awards entitle the recipient to purchase Common
Stock from the Company under terms which provide for vesting over a period of
time. The Company has the right to repurchase the unvested portion of the Common
Stock subject to the award upon the termination of the recipient's employment or
other relationship with the Company. Stock options entitle the optionee to
purchase Common Stock from the Company, for a specified exercise price, during a
period specified in the applicable option agreement. The Equity Plan is
administered by the Compensation Committee of the Board of Directors, which
selects the persons to whom restricted stock awards and stock options are
granted and determines the number of shares of Common Stock covered by the award
or option, its purchase price or exercise price, its vesting schedule and (in
the case of stock options) its expiration date. Under the Equity Plan, the
incentive stock options must be granted with an exercise price of no less than
fair market value of the stock on the grant date as determined by the Board of
Directors. As of December 31, 1998, a total of 173,724 shares had been issued
upon exercise of stock options; an additional 2,051,711 shares were issuable
pursuant to stock options outstanding; and 264,722 shares were reserved for
future issuance under the Equity Plan. At December 31, 1998, options for 496,556
shares were exercisable. To date, no restricted stock awards have been granted
under the Equity Plan. As of January 1, 1999, an additional 500,000 shares
reserved for issuance pursuant to stock options became available for grants to
employees.
The Company also had a 1984 Stock Option Plan (the "Option Plan") for
certain employees, directors, and consultants, under which both incentive stock
options and nonqualified options could have been issued. Under the Option Plan,
the incentive stock options must have been granted with an exercise price of no
less than the fair market of the stock on the date of grant, as determined by
the Board of Directors. The price of the stock options and the terms of exercise
for all options granted were determined by the Board of Directors. Generally,
stock options granted under the Option Plan vest over a five-year period. The
options expire on the date determined by the Board of Directors, not to exceed
10 years following the date of grant in the case of incentive stock options. As
of December 31, 1998, a total of 844,562 shares had been issued upon exercise of
stock options granted under the Option Plan and an additional 230,702 shares
were issuable pursuant to outstanding stock options. At December 31, 1998,
options for 217,927 shares were exercisable. No further options may be granted
under the Option Plan.
On March 19, 1996, the Board of Directors adopted, and on May 10, 1996
the stockholders approved, the 1996 Director Stock Option Plan (the "Director
Plan"). The Director Plan provides for the grant of nonstatutory options not
intended to meet the requirements of the Section 422 of the Internal Revenue
Code of 1986, as amended. Only directors of the Company who are not full-time
employees of the Company or any subsidiary of the Company are eligible to be
granted options under the Plan. A total of 50,000 shares of the Company's Common
Stock were initially reserved for issuance pursuant to the Director Plan. Shares
issued under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares. The Director Plan is administered by the Board of
Directors of the Company. The directors are elected by the stockholders of the
Company in accordance with the provisions of the Restated Articles of
Organization, as amended, and the
- --------------------------------------------------------------------------------
C-11
<PAGE> 38
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
By-Laws of the Company. Under the Director Plan, the stock options must have
been granted with an exercise price of no less than the fair market value of the
stock on the date of grant, as determined by the Board of Directors. Each option
granted pursuant to the Director Plan becomes exercisable in full on the first
anniversary of the date of grant, provided the optionee is serving as a director
of the Company on such date. As of December 31, 1998, there were 22,500 shares
issuable pursuant to outstanding stock options, 27,500 shares reserved for
future issuance, no shares issued upon exercise of stock options and options for
15,000 shares of Common Stock were exercisable under the Director Plan.
The Board of Directors also adopted, on October 17, 1996, the 1996 Sinper
Stock Option Plan (the "Sinper Plan"). The purpose of this plan is to secure for
the Company and its stockholders the benefits arising from capital stock
ownership by employees of Sinper Corporation (Sinper), which became a
wholly-owned subsidiary of the Company pursuant to terms of the Agreement and
Plan of Merger among the Company, Applix Acquisition Corporation and Sinper,
dated October 17, 1996. Options were granted to persons who were, at the time of
grant, employees of Sinper. A total of 88,500 shares of the Company's Common
Stock were reserved for issuance pursuant to the Sinper Plan. The Sinper Plan is
administered by the Board of Directors of the Company. Under the Sinper Plan,
the stock options must have been granted with an exercise price of no less than
the fair market value of the stock on the date of grant, as determined by the
Board of Directors. As of December 31, 1998, there were 5,960 shares issued upon
exercise of stock options; 37,760 shares were issuable pursuant to stock options
outstanding under the Sinper Plan. At December 31, 1998, 12,980 options
outstanding under the Sinper Plan were exercisable. No additional options may be
granted under the Sinper Plan and 28,160 stock options expired in 1998.
The Company applies Accounting Principles Board Option No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for its plans. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
decreased by $1,676,000 (net of tax) or $0.16 per share in 1998, net loss and
loss per share would have been decreased by $199,000 (net of tax) or $0.02 per
share, and net loss and loss per share would have been increased by $1,567,000
(net of tax), or $0.16 per share in 1996. The Company would have recognized
$1,077,000 (net of tax) in expense during 1997, but due to a change in
forfeiture rates from prior years the Company recognized a credit of $1,276,000
(net of tax) resulting in income of $199,000 (net of tax) in 1997. The average
fair value of the options granted is estimated as $3.58 during 1998 on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0.0%, volatility 90.7%, weighted average risk-free
interest 5.48%, assumed forfeiture rate of 15.23% and an expected life of 5
years. The average fair value of the options granted is estimated as $6.13
during 1997 on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: dividend yield 0.0%, volatility of 90.2%,
risk-free interest rate of 6.63%, assumed forfeiture rate of 27.7% and an
expected life of 5 years. The average fair value of the options granted is
estimated as $18.65 during 1996 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield 0.0%,
volatility of 73.8%, risk-free interest rate of 6.6%, assumed forfeiture rate of
10.6% and an expected life of 5 years.
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
C-12
<PAGE> 39
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK OPTION ACTIVITY FOR ALL PLANS IS AS FOLLOWS:
OPTIONS OUTSTANDING
OPTIONS OPTIONS WEIGHTED AVERAGE
AVAILABLE FOR GRANT OUTSTANDING OPTION PRICE PER SHARE
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 (264,719) 1,961,816 $ 7.18
Options authorized, 1994 Plan 466,552 -- --
Options authorized/granted, 1996 Director Plan 50,000 7,500 $34.75
Options authorized/granted, 1996 Sinper Plan 88,500 88,500 $22.63
Expiration of 1984 Plan (14,240) -- --
Options granted, 1994 Plan (358,800) 262,800 $24.37
Options exercised -- (385,799) $ 3.04
Options cancelled 85,906 (85,906) $14.33
--------------------------------------------
BALANCE AT DECEMBER 31, 1996 53,199 1,848,911 $13.76
Options authorized, 1994 Plan 495,214 -- --
Expiration of 1984 Plan (20,428) -- --
Options granted, 1994 Plan (829,200) 829,200 $ 8.36
Options granted, 1996 Director Plan (7,500) 7,500 $12.88
Options exercise -- (72,322) $ 2.51
Options cancelled 543,823 (543,823) $11.00
Options cancelled for repricing, 1994 Plan 1,433,699 (1,433,699) $16.21
Options granted for repricing, 1994 Plan (1,433,699) 1,433,699 $ 3.25
--------------------------------------------
BALANCE AT DECEMBER 31, 1997 235,108 2,069,466 $ 3.76
Options authorized, 1994 Plan 450,000 -- --
Expiration of 1984 Plan (6,466) -- $ 1.59
Expiration of Sinper Plan (28,160) -- $ 3.25
Options granted, 1994 Plan (774,600) 774,600 $ 4.60
Options granted, 1996 Director Plan (10,000) 10,000 $ 6.06
Options exercised -- (68,433) $ 2.90
Options cancelled 442,960 (442,960) $ 4.06
--------------------------------------------
BALANCE AT DECEMBER 31, 1998 308,842 2,342,673 $ 3.90
============================================
</TABLE>
- --------------------------------------------------------------------------------
The following table summarizes information concerning currently outstanding and
exercisable options:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
<S> <C> <C> <C> <C> <C>
$ 0.15 770 2.37 $ 0.15 770 $ 0.15
$ 0.37 5,136 3.09 $ 0.37 5,136 $ 0.37
$ 1.12 -- $ 1.65 140,568 4.05 $ 1.31 140,400 $ 1.31
$ 1.87 -- $ 2.81 194,446 5.91 $ 2.34 75,941 $ 2.02
$ 3.00 -- $ 4.50 1,315,313 5.47 $ 3.40 368,536 $ 3.32
$ 5.13 -- $ 9.69 667,660 5.49 $ 5.81 134,500 $ 6.39
$12.88 -- $13.12 11,100 4.59 $12.95 9,500 $12.93
$ 22.63 180 4.75 $22.63 180 $22.63
$ 34.75 7,500 4.35 $34.75 7,500 $34.75
- --------------------------------------------------------------------------------------------------
2,342,673 742,463
========= =======
</TABLE>
- --------------------------------------------------------------------------------
C-13
<PAGE> 40
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STOCK PURCHASE PLAN
The Company established an Employee Stock Purchase Plan during 1995, allowing
employees to purchase Common Stock, in a series of offerings, through payroll
deductions of up to 10% of their total compensation. The purchase price in each
offering is 85% of the fair market value of the stock on (i) the offering
commencement date or (ii) the offering termination date (six months after
commencement date), whichever is lower. The plan allows for the purchase of up
to 100,000 shares of Common Stock per plan period and 400,000 shares of Common
Stock in the aggregate. As of December 31, 1998, 271,385 shares of Common Stock
had been issued under the plan.
- --------------------------------------------------------------------------------
G. SUMMARY OF CONTRIBUTION PLAN
- --------------------------------------------------------------------------------
Applix has a defined contribution plan (401(k)) in which all full time
employees are eligible to participate once they have reached the age of 21.
Employee and employer contributions vest immediately.
The Company may make discretionary contributions to the plan as
determined by the Board of Directors. Prior to May 15, 1996 the Company did not
make any discretionary contributions to the Plan.
Beginning May 15, 1996, the Company has matched one third of the
employee's contribution, up to 6% of the employee's earnings. The Company's
matching contribution to the plan was $215,021, $237,936, and $136,700 for the
years ended December 31, 1998, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
H. MAJOR CUSTOMER AND GEOGRAPHIC DATA
- --------------------------------------------------------------------------------
In 1998, the Company adopted the Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
131 specifies new guidelines for determining a company's operating segments and
related requirements for disclosure. The Company adopted the new standard for
the year ended December 31, 1998. Prior years' information has been restated to
conform to the presentation for 1998.
The Company operates in two business segments which offer different
products and services.
The Company's three largest customers (including resellers) comprised 12%
of total license revenue during 1998 and 16% of total license revenue in 1997,
although one of the largest customers was different in these two years.
License revenue (direct or indirect) from branches of the U.S.
Government amounted to 8%, 21% and 20% of total license revenue for the years
ended December 31, 1998, 1997, 1996, respectively. A summary of the Company's
operations by business segment for the years ended December 31, 1998, 1997 and
1996 is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998, (IN THOUSANDS)
FRONT OFFICE
APPLIXWARE BUSINESS APPLICATIONS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenue $21,118 $ 29,062 $ -- $50,180
Depreciation/amortization expense $ 824 $ 2,158 $ -- $ 2,982
Operating income (loss) $10,942 $(10,069) $ -- $ 873
Identifiable assets $36,732 $ 15,927 $(7,046) $45,613
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997, {IN THOUSANDS)
FRONT OFFICE
APPLIXWARE BUSINESS APPLICATIONS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenue $26,462 $ 22,036 $ -- $ 48,498
Depreciation/amortization expense $ 2,092 $ 1,014 $ -- $ 3,106
Operating income (loss) $ 4,993 $ (6,599) $ -- $ (1,606)
Identifiable assets $37,825 $ 11,285 $(4,745) $ 44,365
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996, (IN THOUSANDS)
FRONT OFFICE
APPLIXWARE BUSINESS APPLICATIONS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenue $42,154 $ 9,083 $ -- $51,237
Depreciation/amortization expense $ 1,487 $ 511 $ -- $ 1,998
Operating income (loss) $ 8,877 $(8,370) $ -- $ 507
Identifiable assets $41,962 $ 8,113 $(5,561) $44,514
</TABLE>
- --------------------------------------------------------------------------------
C-14
<PAGE> 41
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
A summary of the Company's operations by geographic locations for the years
ended December 31, 1998, 1997 and 1996 is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998, (IN THOUSANDS) UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenue:
Customers $25,657 $24,523 $ -- $50,180
Intercompany 7,658 -- (7,658) --
---------------------------------------------------
Total revenue $33,315 $24,523 $(7,658) $50,180
---------------------------------------------------
Operating income (loss) $ 8,195 $(7,322) $ -- $ 873
Identifiable assets $35,892 $16,767 $(7,046) $45,613
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997, (IN THOUSANDS) UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenue:
Customers $30,336 $18,162 $ -- $48,498
Intercompany 3,255 -- (3,255) --
---------------------------------------------------
Total revenue $33,591 $18,162 $(3,255) $48,498
---------------------------------------------------
Operating income (loss) $ 4,802 $(6,408) $ -- $(1,606)
Identifiable assets $39,474 $ 9,635 $(4,744) $44,365
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996, (IN THOUSANDS) UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Revenue:
Customers $34,108 $17,129 $ -- $51,237
Intercompany 4,166 -- (4,166) --
---------------------------------------------------
Total revenue $38,274 $17,129 $(4,166) $51,237
---------------------------------------------------
Operating income (loss) $ 3,910 $(3,403) -- $ 507
Identifiable assets $41,066 $ 9,009 $(5,561) $44,514
</TABLE>
- --------------------------------------------------------------------------------
Operating income (loss) reflects revenue less related costs of revenue, direct
selling expenses and allocated operating expenses incurred in the United States,
which include general, administrative, research, development and marketing
expenses. These expenses are allocated in proportion to the geographical segment
sales. Total allocated expenses for the years ended December 31, 1998, 1997 and
1996 were $17,043,000, $18,556,000 and $12,360,000, respectively, of which
$8,399,000 $6,949,000 and $4,260,000, respectively, were allocated to Europe.
- --------------------------------------------------------------------------------
Export sales included in U.S. operations were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1998 1997 1996
<S> <C> <C> <C>
REGION:
Europe $ 84 $3,470 $2,058
Asia 2,048 982 1,806
Australia 698 325 239
Canada 1,221 1,436 1,580
Other 89 504 455
--------------------------------
TOTAL $4,140 $6,717 $6,138
================================
</TABLE>
- --------------------------------------------------------------------------------
The Company's operations are structured to achieve consolidated objectives. As a
result, significant interdependencies and overlaps exist among the Company's
operating entities. Accordingly, the revenue, operating income (loss) and
identifiable assets shown for each geographic area may not be indicative of the
amounts which would have been reported if the operating entities were
independent of one another.
- --------------------------------------------------------------------------------
C-15
<PAGE> 42
- --------------------------------------------------------------------------------
APPLIX, INC. NOTES TO CONSOLIDATED-FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
I. ACQUISITIONS
- --------------------------------------------------------------------------------
On October 31, 1996, the Company acquired Sinper Corporation (Sinper) for an
aggregate cost of $11,500,000 consisting of cash of $5,000,000, Common Stock
valued at $5,000,000 and the estimated acquisition costs of approximately
$1,500,000. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the balance sheet accounts of Sinper and the results of
its operations have been included in the consolidated financial statements of
the Company since the date of acquisition.
During 1996, the Company expensed in-process research and development
that did not qualify for capitalization under SFAS No. 86 totalling $10,821,000.
The Company expended significant research and development efforts to integrate
the technology with the Applixware product line, improved the scalability of the
Sinper technology, and fully converted the technology to multiprocessor/
multitasking 32 bit platforms. The Company considered the acquired technology
to be in-process research and development because of the substantial amount of
design and programming work to be completed in achieving the integration,
scalability, and platform conversion process. At the time of the acquisition,
there was not a fully detailed design specification for the product and
technology that needed to be developed. Of the remaining purchase price,
$489,000 was allocated to completed technology, and $190,000 was allocated to
net assets acquired. Completed technology will be amortized over a period of
seven years from the acquisition date.
- --------------------------------------------------------------------------------
C-16
<PAGE> 43
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*3.1 -- Restated Articles of Organization.
*3.2 -- By-laws.
*+10.1 -- 1994 Equity Incentive Plan.
*+10.2 -- 1984 Stock Option Plan.
**10.3 -- Commercial Lease between the Registrant and Westboro II-III,
Inc. dated January 5, 1996.
**10.4 -- Commercial Lease between the Registrant and Westboro I Real
Estate Corp. dated January 15, 1996.
10.5 -- 1996 Director Stock Option Plan, as amended.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP
27.1 -- Financial Data Schedule.
- ----------------------
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (File no. 33-85688).
** Incorporated by reference to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995, as filed with the Commission on
April 1, 1996.
+ Management contract or compensatory plan.
<PAGE> 1
EXHIBIT 10.5
APPLIX, INC.
1996 DIRECTOR STOCK OPTION PLAN
(As amended through December 18, 1998)
1. PURPOSE.
The purpose of this 1996 Director Stock Option Plan (the "Plan") of Applix,
Inc. (the "Company") is to encourage stock ownership in the Company by outside
directors of the Company whose continued services are considered essential to
the Company's future success and to provide them with a further incentive to
remain as directors of the Company.
2. ADMINISTRATION.
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the options to be
granted shall be automatic in accordance with Section 5. However, all questions
concerning interpretation of the Plan or any options granted under it shall be
resolved by the Board of Directors and such resolution shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN.
Directors of the Company who are not full-time employees of the Company or
any subsidiary of the Company ("Outside Directors") shall be eligible to receive
options under the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) The maximum number of shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), which may be issued under the Plan shall be
50,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
-1-
<PAGE> 2
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. TERMS, CONDITIONS AND FORM OF OPTIONS.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Senior Vice President, Finance and Administration
shall from time to time approve, which agreements shall comply with and be
subject to the following terms and conditions:
(a) OPTION GRANT DATES AND SHARES SUBJECT TO OPTION. Options will be
granted under the Plan as follows:
(i) INITIAL GRANTS TO CURRENT OUTSIDE DIRECTORS. An option to purchase
2,500 shares of Common Stock shall be granted automatically on the date of
the approval of the Plan by the stockholders of the Company to each person
then serving as an Outside Director at the close of business on such date.
(ii) INITIAL GRANTS TO FUTURE OUTSIDE DIRECTORS. An option to purchase
5,000 shares of Common Stock shall be granted automatically to each Outside
Director first elected to the Board of Directors after the date of the
approval of the Plan by the stockholders of the Company, upon the date of
his or her initial election to the Board of Directors.
(iii) ANNUAL GRANTS TO OUTSIDE DIRECTORS. An option to purchase 2,500
shares of Common Stock shall be granted automatically to each person
serving as an Outside Director on the close of business on January 1 of
each year.
(b) OPTION EXERCISE PRICE. The option exercise price per share for each
option granted under the Plan shall be equal to the fair market value per share
of Common Stock on the date of grant, which shall be determined as follows: (i)
if the Common Stock is listed on the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on which a
determination of fair market value is to be made, the fair market value per
share shall be deemed to be the last reported sale price per share of Common
Stock thereon on such date (or, if no such price is reported on such date, such
price on the nearest preceding date on which such a price is reported); and (ii)
if the Common Stock is not listed on the Nasdaq National Market or another
nationally recognized exchange or trading system as of the date on which a
determination of fair market value is to be made, the fair market value per
share shall be equal to the earnings per share of the Company in the most
recently completed fiscal year (as publicly reported by the Company) multiplied
by 15.
-2-
<PAGE> 3
(c) OPTIONS NON-TRANSFERABLE. Unless otherwise provided in the agreement
granting an option pursuant to this Plan, each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined in the Code), and shall be exercised during the
lifetime of the optionee only by the optionee or his or her legal
representative. No option or interest therein may be transferred, assigned,
pledged or hypothecated by the optionee during his or her lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(d) VESTING PERIOD.
(i) GENERAL. Each option granted under the Plan shall become
exercisable in full on the first anniversary of the date of grant, provided
the optionee is serving as a director of the Company on such date.
(ii) ACCELERATION UPON CHANGE IN CONTROL. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full in the event a Change in Control (as defined in
Section 8) of the Company occurs.
(e) TERMINATION. Each option shall terminate, and may no longer be
exercised, on the earlier of the (i) the date seven years after the date of
grant or (ii) the date 90 days after the optionee ceases to serve as a director
of the Company for any reason, whether by death, resignation, removal or
otherwise.
(f) EXERCISE PROCEDURE. Options may be exercised only by written notice to
the Company at its principal office accompanied by (i) payment in cash or by
certified or bank check of the full consideration for the shares as to which
they are exercised or (ii) an irrevocable undertaking, in form and substance
satisfactory to the Company, by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (iii) delivery of irrevocable
instructions, in form and substance satisfactory to the Company, to a broker to
deliver promptly to the Company cash or a check sufficient to pay the exercise
price.
(g) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. An optionee, by
written notice to the Company, may designate one or more persons (and from time
to time change such designation), including his or her legal representative,
who, by reason of the optionee's death, shall acquire the right to exercise all
or a portion of the option. If the person or persons so designated wish to
exercise any portion of the option, they must do so within the term of the
option as provided herein. Any exercise by a representative shall be subject to
the provisions of the Plan.
-3-
<PAGE> 4
6. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
optionee shall be entitled to continue as a director for any period of time.
(b) NO STOCKHOLDER RIGHTS FOR OPTIONS. An optionee shall have no rights as
a stockholder with respect to the shares covered by his or her option until the
date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued. Notwithstanding the foregoing, in the event the Company effects a split
of the Common Stock by means of a stock dividend, and the distribution date
(i.e., the date on which the closing market price of the Common Stock on a stock
exchange or trading system is adjusted to reflect the split) is subsequent to
the record date for such stock dividend, an optionee who exercises an option
between the close of business on such record date and the close of business on
such distribution date shall be entitled to receive the stock dividend with
respect to the shares of Common Stock acquired upon such option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on such record date.
(c) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition to, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors.
7. ADJUSTMENT PROVISIONS FOR MERGERS, RECAPITALIZATIONS AND RELATED
TRANSACTIONS.
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company or of another entity are distributed with respect to
such shares of Common Stock, the Board of Directors shall make an appropriate
and proportionate adjustment in (x) the maximum number and kind of shares
reserved for issuance under the Plan, (y) the
-4-
<PAGE> 5
number and kind of shares or other securities subject to then outstanding
options under the Plan, and/or (z) the price for each share subject to any then
outstanding options under the Plan (without changing the aggregate purchase
price for such options), to the end that each option shall be exercisable, for
the same aggregate exercise price, for such securities as such optionholder
would have held immediately following such event if he or she had exercised such
option immediately prior to such event. No fractional shares will be issued
under the Plan on account of any such adjustments.
8. CHANGE IN CONTROL.
For purposes of the Plan, a "Change in Control" shall be deemed to have
occurred only if any of the following events occurs: (i) any "person", as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities; (ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; (iii) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or (iv) individuals who, on the date on which the Plan was adopted by the Board
of Directors, constituted the Board of Directors of the Company, together with
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the directors then still in office who were directors on the date on
which the Plan was adopted by the Board of Directors or whose election or
nomination was previously so approved, cease for any reason to constitute at
least a majority of the Board of Directors.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
The Board of Directors shall have the power to modify or amend outstanding
options; provided, however, that no modification or amendment may (i) have the
effect of altering or impairing any rights or obligations of any option
previously
-5-
<PAGE> 6
granted without the consent of the optionee, or (ii) modify the number of shares
of Common Stock subject to the option (except as provided in Section 7).
10. TERMINATION AND AMENDMENT OF THE PLAN.
The Board of Directors may suspend, terminate or discontinue the Plan or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company, no amendment may increase the number of
shares subject to the Plan (except as provided in Section 7).
11. NOTICE.
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the Commonwealth of Massachusetts.
13. STOCKHOLDER APPROVAL.
The Plan is conditional upon stockholder approval of the Plan within one
year from its date of adoption by the Board of Directors, and no option may be
granted under the Plan until such stockholder approval is obtained.
As adopted by the Board of Directors
on March 19, 1996 and approved by the
shareholders on May 10, 1996, and as
amended by the Board of Directors on
October 21, 1996 and December 18, 1998.
-6-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF ENTITY: INCORPORATION:
- --------------- ---------------
<S> <C>
Applix B.V. The Netherlands
Applix Canada, Inc. Delaware
Applix Foreign Sales Corporation Barbados
Applix France France
Applix GmbH Germany
Applix Securities Corp. Massachusetts
Applix Singapore, Inc. Delaware
Applix (UK) Limited England
Sinper Corporation Florida
Target Corporation Massachusetts
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Applix, Inc. on Form S-8 (File Nos. 33-89382, 33-87882, 33-87776, 333-2340,
333-06303, 333-16963 and 333-20853) of our report dated January 30, 1999 on our
audits of the consolidated financial statements of Applix, Inc. as of December
31, 1998 and 1997, and for each of the three years in the period ended December
31, 1998, which report is included in the Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,404
<SECURITIES> 4,041
<RECEIVABLES> 14,598
<ALLOWANCES> (566)
<INVENTORY> 0
<CURRENT-ASSETS> 40,904
<PP&E> 12,931
<DEPRECIATION> (9,315)
<TOTAL-ASSETS> 45,613
<CURRENT-LIABILITIES> 16,038
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 29,575
<TOTAL-LIABILITY-AND-EQUITY> 45,613
<SALES> 50,180
<TOTAL-REVENUES> 50,180
<CGS> 11,202
<TOTAL-COSTS> 11,202
<OTHER-EXPENSES> 38,105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,886
<INCOME-TAX> 699
<INCOME-CONTINUING> 1,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,187
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
