<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-25040
APPLIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2781676
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
112 TURNPIKE ROAD, WESTBORO, MASSACHUSETTS 01581
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(508)870-0300
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
REGISTRANT HAD 11,396,438 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT AUGUST 9, 2000.
<PAGE> 2
APPLIX, INC.
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 (unaudited) 3
Unaudited Condensed Consolidated Statements of Operations
For the three months ended June 30, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Operations
For the six months ended June 30, 2000 and 1999 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,035 $ 10,321
Short-term investments 14,630 15,155
Accounts receivable, less allowance
for doubtful accounts of $716 and
$598, respectively 11,119 13,971
Other current assets 3,362 3,895
Deferred tax asset 4,919 3,001
-------- --------
Total current assets 42,065 46,343
Property and equipment, at cost 16,346 14,640
Less accumulated amortization and
depreciation (11,866) (10,948)
-------- --------
Net property and equipment 4,480 3,692
Capitalized software costs, net of
accumulated amortization of $795
and $2,956, respectively (see note G) 639 457
Other assets 3,834 4,189
-------- --------
Total assets $ 51,018 $ 54,681
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable to
related party $ 360 $ 360
Accounts payable 3,908 2,227
Accrued liabilities 6,135 7,405
Deferred revenue 7,220 7,896
-------- --------
Total current liabilities $ 17,623 $ 17,888
Notes payable to related party 900 1,080
Stockholders' equity:
Common stock, $.0025 par value; 30,000,000
shares Authorized; 11,273,233 and
10,815,670 shares issued,
respectively 29 29
Capital in excess of par value 47,826 47,113
Accumulated deficit (12,421) (8,356)
Accumulated other comprehensive loss (602) (556)
Unearned compensation (1,260) (1,440)
Treasury stock, 306,198 shares, at cost (1,077) (1,077)
-------- --------
Total stockholders' equity 32,495 35,713
-------- --------
Total liabilities and stockholders' equity $ 51,018 $ 54,681
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
License revenue $ 6,101 $ 8,545
Service revenue 5,545 5,607
-------- --------
Total revenue 11,646 14,152
Cost of license revenue 807 677
Cost of service revenue 3,759 3,106
-------- --------
Gross margin 7,080 10,369
Operating expenses:
Selling and marketing 8,572 6,001
Research and development 2,886 2,404
General and administrative 1,107 1,190
-------- --------
Total operating expenses 12,565 9,595
-------- --------
Operating income (loss) (5,485) 774
Interest income, net 299 265
-------- --------
Net income (loss) before income taxes (5,186) 1,039
Provision (benefit) for income taxes (1,918) 384
-------- --------
Net income (loss) (3,268) 655
======== ========
Basic earnings (loss) per share
(see Note C) $ (0.29) $ 0.06
======== ========
Diluted earnings (loss) per share
(see Note C) $ (0.29) $ 0.06
======== ========
Weighted average common and common
equivalent shares outstanding:
Basic 11,245 10,502
======== ========
Diluted 11,245 11,290
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
License revenue $ 12,523 $ 16,028
Service revenue 11,544 11,070
-------- --------
Total revenue 24,067 27,098
Cost of license revenue 1,419 1,348
Cost of service revenue 7,660 6,217
-------- --------
Gross margin 14,988 19,533
Operating expenses:
Selling and marketing 14,435 11,509
Research and development 5,620 4,717
General and administrative 2,053 2,133
-------- --------
Total operating expenses 22,108 18,359
-------- --------
Operating income (loss) (7,120) 1,174
Interest income, net 668 491
-------- --------
Net income (loss) before income taxes (6,452) 1,665
Provision (benefit) for income taxes (2,387) 615
-------- --------
Net income (loss) $ (4,065) $ 1,050
======== ========
Basic earnings (loss) per share (see Note C) $ (0.36) $ 0.10
======== ========
Diluted earnings (loss) per share (see Note C) $ (0.36) $ 0.09
======== ========
Weighted average common and common equivalent
shares outstanding:
Basic 11,217 10,471
======== ========
Diluted 11,217 11,197
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
2000 1999
-------- --------
Operating activities:
Net income (loss) $ (4,065) $ 1,050
Adjustments to reconcile net income (loss)
to net cash
Provided by (used for) operating activities:
Depreciation and amortization 1,560 1,225
Amortization of deferred compensation 360 --
Changes in operating assets and liabilities:
Accounts receivable 2,853 555
Other current assets 533 454
Accounts payable 1,681 (515)
Accrued liabilities (3,188) (405)
Deferred revenue (676) 1,067
-------- --------
Cash provided by (used for)
operating activities (942) 3,431
Investing activities:
Purchase of property and equipment (1,706) (467)
Capitalized software costs (650) (383)
Purchase of short-term investments (17,176) (25,844)
Maturities of short-term investments 17,701 13,448
-------- --------
(1,831) (13,246)
Cash used in investing activities
Financing activities:
Proceeds from exercise of incentive
stock options and employee stock
purchase plans 713 714
Payment of long term debt (180) --
Purchase of treasury stock -- (144)
Principal payments under capital
lease obligations -- (57)
-------- --------
Cash provided by financing activities 533 513
Effect of exchange rate changes on cash (46) (20)
-------- --------
Net decrease in cash and cash equivalents (2,286) (9,322)
Cash and cash equivalents at beginning of period 10,321 17,404
-------- --------
Cash and cash equivalents at end of period $ 8,035 $ 8,082
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes $ -- $ 70
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. NATURE OF BUSINESS
Applix, Inc. ("Applix" or the "Company") develops, markets and supports a
suite of Internet-based software applications. Applix operates two dedicated
business units. The eBusiness Division focuses on enabling customers to automate
their front office business operations including customer relationship
management and business analytics. The VistaSource Division is a provider of
Internet accessible, Linux and Unix based office productivity applications and
technologies, and is a provider of open source auction services and
collaborative open source software content.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted accounting
principles for interim financial information. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. Certain prior period amounts have been
reclassified to conform to current period presentation. These financial
statements do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. The December
31, 1999 condensed consolidated balance sheet data was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principals. For further information, refer to the
consolidated financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 filed with the
Securities and Exchange Commission ("SEC") on March 30, 2000. The results of the
three-and six-month periods ended June 30, 2000 are not necessarily indicative
of the results to be expected for the full fiscal year.
C. COMPUTATION OF NET EARNINGS 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 potential common shares which
consists of stock options and unvested shares of restricted stock.
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<PAGE> 8
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
The following table sets forth the computations of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(in thousands, except per share data) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC:
Net income (loss) $ (3,268) $ 655 $ (4,065) $ 1,050
Weighted average shares outstanding 11,245 10,502 11,217 10,471
Net income (loss) per common share $ (0.29) $ 0.06 $ (0.36) $ 0.10
ASSUMING DILUTION:
Net income (loss) $ (3,268) $ 655 $ (4,065) $ 1,050
Weighted average shares outstanding 11,245 10,502 11,217 10,471
Net effect of dilutive stock options -- 788 -- 726
-------- ------- -------- --------
Total 11,245 11,290 11,217 11,197
Net income (loss) per common share $ (0.29) $ 0.06 $ (0.36) $ 0.09
</TABLE>
Potential common shares were excluded from the calculation of net loss per
share for the periods ended June 30, 2000 since their inclusion would be
antidilutive. As a result, potential common shares excluded from the calculation
of diluted loss per share were 915,265 and 1,324,293 for the three and
six months ended June 30, 2000.
D. 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.
E. COMPREHENSIVE INCOME OR LOSS
Other comprehensive income or loss includes foreign currency translation
adjustments.
<TABLE>
<CAPTION>
(in thousands) Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2000 1999 2000 1999
----- ------ ------ -------
<S> <C> <C> <C> <C>
Net income (loss) $(3,268) $655 $(4,064) $1,050
Other comprehensive
loss (24) (5) (46) (20)
------- ---- ------- ------
Total comprehensive income (loss) $(3,292) $650 $(4,110) $1,030
======= ==== ======= ======
</TABLE>
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<PAGE> 9
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
F. EFFECT OF RECENT ACCOUNTING PRONOUNCMENTS
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, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company does not expect SFAS No. 133 to
have a material effect on its financial position or result of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101.
"Revenue Recognition in Financial Statements," which is effective no later than
the quarter ending December 31, 2000. SAB 101 clarifies the SEC's views related
to revenue recognition and disclosure. The Company does not believe that the
adoption of SAB 101 will have a material effect on the Company's financial
position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 became
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
G. ADJUSTMENT OF FULLY AMORTIZED CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In the quarter ended March 31, 2000, the Company wrote off $2,629,000 of
fully amortized capitalized software development costs. As of December 31, 1999,
the Company had $457,000 in capitalized software costs consisting of $3,413,000
cost, net of accumulated amortization of $2,956,000. As of June 30, 2000,
subsequent to the write-off of the fully amortized portion, the Company had
$639,000 in capitalized software costs consisting of $1,434,000 cost, net of
accumulated amortization of $795,000.
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<PAGE> 10
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
H. REPORTABLE SEGMENTS
The Company operates in two business segments which offer different
products and services. A summary of the Company's operations by business segment
for the three and six months ended June 30, 2000 and June 30, 1999 is as
follows:
(in thousands) VistaSource eBusiness Consolidated
----------- --------- ------------
THREE MONTHS ENDED JUNE 30, 2000
Revenue $ 2,708 $ 8,938 $ 11,646
Operating loss (940) (4,545) (5,485)
SIX MONTHS ENDED JUNE 30, 2000
Revenue $ 5,852 $18,215 $ 24,067
Operating loss (208) (6,912) (7,120)
VistaSource eBusiness Consolidated
----------- --------- ------------
THREE MONTHS ENDED JUNE 30, 1999
Revenue $ 6,189 $ 7,963 $ 14,152
Operating income (loss) 3,543 (2,769) 774
SIX MONTHS ENDED JUNE 30, 1999
Revenue $10,886 $16,212 $ 27,098
Operating income (loss) 5,910 (4,736) 1,174
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<PAGE> 11
APPLIX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
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
developed and marketed customer interaction software. In October 1996, the
Company acquired Sinper Corporation, doing business under the name TM1, which
developed and marketed software used for on-line analytical processing (OLAP).
These two acquisitions enabled Applix to expand its product offerings to include
front office business applications. The eBusiness Division focuses on front
office business applications which include Applix iEnterprise, the Company's
offering in the customer relationship management (CRM) market, and Applix iTM1,
the Company's real time multi-dimensional analysis software for business
intelligence applications.
In 1996 the Company introduced its 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 iTM1 and Applix iEnterprise to "thin-client"
computing environments (i.e. systems running a Java-enabled browser such as
Netscape Navigator or Microsoft Explorer).
The Company acquired Cosource.com in December 1999 to expand its
VistaSource Division into Internet accessibility and in a collaborative open
source software web environment, in a transaction accounted for under the
purchase method of accounting. Beginning December 11, 1999, the Company's
operating results have included the operating results of Cosource.com.
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in this
Quarterly Report and with the Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in the
Company's 1999 Annual Report on Form 10-K filed with the SEC on March 30, 2000.
Any statements in this report expressing the beliefs and expectations of
management regarding the Company's future results and performance are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
current expectations that involve a number of risks and uncertainties. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
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<PAGE> 12
Such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Such risks and
uncertainties are described in the Company's 1999 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 30, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Total revenue decreased 18% to $11,646,000 for the quarter ended June 30,
2000 from $14,152,000 for the quarter ended June 30, 1999.
License revenue decreased 29% to $6,101,000 for the quarter ended June 30,
2000 from $8,545,000 for the quarter ended June 30, 1999. This decline was
primarily due to a $2,847,000 decrease in the Company's Unix based Applixware
products versus the same quarter in the prior year. The decrease was partially
offset by a 9% or $403,000 increase in the Company's eBusiness product offerings
versus the same quarter last year. The Company expects Applixware for Unix
license revenue to continue to decline throughout the remainder of 2000. As a
result, the Company's future license revenue growth will be particularly
dependent on the continued acceptance of the eBusiness division's iEnterprise
and iTM1 product offerings on a global basis.
Service revenue in the quarter of $5,545,000 was slightly below service
revenue of $5,607,000 in the same quarter last year. Service revenues from the
Company's eBusiness division increased $574,000 versus the same quarter last
year but were offset by a decrease in service revenues of $635,000 in the
VistaSource division versus the the same period in prior year. The decrease in
VistaSource service revenues was primarily a result of a declining maintenance
base for the Company's Unix based Applixware products. The Company expects
Applixware for Unix revenues to continue to decline throughout the remainder of
2000.
Domestic license revenue decreased 17% to $2,519,000 for the quarter ended
June 30, 2000 from $3,053,000 for the same period in 1999 primarily due to a
decrease in the Company's Unix based Applixware products versus the same quarter
in the prior year. Domestic service revenue decreased 11% to $2,367,000 from
$2,690,000 in the same quarter last year as a result of a declining maintenance
base for the Company's Unix based Applixware products.
International license revenue decreased 35% to $3,582,000 for the quarter
ended June 30, 2000 from $5,492,000 for the same period in 1999 primarily due to
a decrease in the Company's Unix based Applixware products versus the same
quarter in the prior year. International service revenues increased by 9% to
$3,178,000 from $2,916,000 in the same quarter last year as a result of an
increase in the Company's eBusiness maintenance base which was partially offset
by a decline in the maintenance base for the Company's Unix based Applixware
products.
Gross margin decreased to 61% for the three months ended June 30, 2000 from
73% for the same period in 1999. License revenue gross margins decreased to 87%
for the quarter ended June 30, 2000 from 92% for the quarter ended June 30,
1999. The license margin percentage decrease was primarily related to an
increase in royalty costs associated with the establishment of the retail
channel in the VistaSource division. Service gross margins decreased to 32% for
the second quarter of 2000 from
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<PAGE> 13
45% in the same period last year. The service margin percentage decrease
was a result of an increase in support and consulting personnel related costs
versus the same period last year.
Selling and marketing expenses, which include domestic sales and marketing
expenses and the cost of the Company's international operations, increased 43%
to $8,572,000 for the quarter ended June 30, 2000 from $6,001,000 for the
quarter ended June 30, 1999. Selling and marketing expenses increased as a
percentage of total revenue to 74% for the quarter ended June 30, 2000 from 42%
for the quarter ended June 30, 1999. The increase was primarily due to increased
staffing levels associated with hiring additional sales representatives in the
eBusiness division and additional spending for marketing programs in both the
eBusiness and VistaSource divisions.
Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 20% to $2,886,000 for the
quarter ended June 30, 2000 from $2,404,000 for the quarter ended June 30, 1999
and were 25% of total revenue for the quarter ended June 30, 2000 versus 17% of
total revenue for the quarter ended June 30, 1999. The increase in total
spending is attributable to increased staffing and the cost of outside
consultants in both the VistaSource and eBusiness divisions as well as increased
investment in the VistaSource division product development and eBusiness
Internet initiatives. Total research and development expenses, including
capitalized software costs, increased to $3,137,000, including $251,000 in
capitalized software development costs, or 27% of total revenues for the quarter
ended June 30, 2000 from $2,600,000, including $196,000 in capitalized software
development costs, or 18% of total revenue for the quarter ended June 30, 1999.
General and administrative expenses, which include the costs of the
finance, human resources and administrative functions, decreased 17% to
$1,107,000 for the quarter ended June 30, 2000 from $1,190,000 for the same
period in 1999. General and administrative expenses were 10% of total revenue
for June 30, 2000 and 8% of total revenue for the same period in 1999.
Interest income increased to $299,000 from $265,000 due to higher interest
rate yields during the three months ended June 30, 2000 versus the same period
last year.
The Company recorded a benefit from income taxes for the quarter ended June
30, 2000 of $1,918,000 based on the Company's estimated annual effective tax
rate of 37%, compared to an income tax provision of $384,000 at the same
effective rate for the same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Total revenue decreased 11% to $24,067,000 for the six months ended June
30, 2000 from $27,098,000 for the six months ended June 30, 1999. This decline
was primarily due to a $5,131,000 decrease in the Company's Unix based
Applixware products and services versus the same period in the prior year
partially offset by a 12% increase of $2,005,000 in the eBusiness division.
License revenue decreased 22% to $12,523,000 for the six months ended June
30, 2000 from $16,028,000 for the six months ended June 30, 1999. This decline
was primarily due to a $4,127,000 decrease in the Company's Unix based
Applixware products versus the same period in the prior year and was partially
offset by an increase of 6% or $585,000 in the Company's eBusiness product
offerings. The Company expects Applixware for Unix revenues to continue to
decline throughout the remainder of 2000. As a result, the Company's future
license revenue growth will be particularly dependent on the continued
acceptance of the eBusiness division's iEnterprise and iTM1 product offerings on
a global basis.
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<PAGE> 14
Service revenue in the first half of 2000 totaling $11,544,000 was 4% above
revenues of $11,070,000 in the same period last year. Service revenues from the
Company's eBusiness division increased $1,420,000 or 21% versus the same period
last year but were offset by a decrease in service revenues of $1,004,000 or 23%
in the VistaSource division versus the the same period in prior year. The
decrease in VistaSource service revenues was primarily a result of a declining
maintenance base for the Company's Unix based Applixware products. The Company
expects Applixware for Unix revenues to continue to decline throughout the
remainder of 2000.
Gross margin decreased to 62% for the six months ended June 30, 2000 from
72% for the six months ended June 30, 1999. License revenue gross margins
decreased to 89% for the six months ended June 30, 2000 from 92% for the six
months ended June 30, 1999. The margin percentage decrease was primarily related
to an increase in royalty costs associated with the establishment of the retail
channel in the VistaSource division. Service gross margins decreased to 34% for
the first half of 2000 from 44% in the same period last year. The service margin
percentage decrease was a result of an increase in support and consulting
personnel related costs versus the same period last year.
Selling and marketing expenses increased 25% to $14,435,000 for the six
months ended June 30, 2000 from $11,509,000 for the six months ended June 30,
1999. Selling and marketing expenses increased as a percentage of total revenue
to 60% for the six months ended June 30, 2000 from 42% in the same period in
1999. The increase was primarily due to increased staffing levels associated
with hiring additional sales representatives in the eBusiness Division and
additional spending for marketing programs in both the eBusiness and VistaSource
Divisions.
Research and development expenses increased 19% to $5,620,000 for the six
months ended June 30, 2000 from $4,717,000 for the six months ended June 30,
1999 and increased as a percentage of total revenue to 23% for the six months
ended June 30, 2000 from 17% for the six months ended June 30, 1999. Total
research and development expenses, including capitalized software development
costs, were $6,096,000, including $476,000 in capitalized software costs, or 25%
of total revenue for the six months ended June 30, 2000 and $5,100,000,
including $383,000 in capitalized software development costs, or 19% to total
revenue for the six months ended June 30, 1999.
General and administrative expenses decreased 4% to $2,053,000 for the six
months ended June 30, 2000 from $2,133,000 for the same period in 1999, and were
9% and 8% of total revenue for the six months ended June 30, 2000 and 1999,
respectively.
Interest income increased to $668,000 from $491,000 due to higner interest
rates earned during the six months ended June 30, 2000 versus the same period
last year.
The Company recorded a benefit from income tax for the six months ended
June 30, 2000 of $2,387,000 based on the Company's estimated annual effective
tax rate of 37%, compared to a tax provision of $615,000 at the same effective
rate for the same period in 1999.
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash, cash equivalents, and short term
investments of $22,665,000 as compared to a balance of $25,476,000 as of
December 31, 1999. Working capital decreased to $24,442,000 at June 30, 2000
from $28,455,000 at December 31, 1999.
Cash used in the Company's operations amounted to $942,000 for the six
months ended June 30, 2000. The net loss of $4,065,000 was partially offset by
depreciation and amortization of $1,920,000 and $1,203,000 of cash provided by
changes in working capital. Cash used in investing activities totaled $1,831,000
for the six months ended June 30, 2000 resulting from capital expenditures of
$1,706,000 and capitalized software development costs of $650,000 which were
partially offset by net redemptions of short term investments of $525,000.
Cash provided from finance activities totaled $533,000 for the six months
ended June 30, 2000. Proceeds received from the exercise of incentive stock
options and the Company's employee stock purchase plan provided $713,000 which
was partially offset by a note payment of $180,000.
The Company believes that the funds currently available will be sufficient
to fund the Company's operations at least through the next twelve months. The
Company has no commitments or specific plans for any significant capital
expenditures in 2000. To date, inflation has not had a material adverse effect
on the Company's operating results.
ITEM 3. 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 intercompany balances for the
purpose of mitigating the effect of foreign currency fluctuations.
At June 30, 2000 the Company held $17,531,000 in cash equivalents and marketable
securities consisting of taxable and tax exempt municipal securities. Cash
equivalents are classified as available for sale and valued at amortized cost,
which approximates fair market value. A hypothetical 10 percent increase in
interest rates would not have a material impact on the fair market value of
these instruments due to their short maturity and the Company's intention that
all the securities will be sold within one year.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 5, 2000, the
following proposals were adopted by the vote specified below:
For Against Abstain
1) Election of Directors
David Mahoney 9,604,328 N.A. N.A.
Peter Gyenes 9,604,328 N.A. N.A.
2) Amendment to Company's 1994 Equity
Incentive Plan 3,540,596 789,270 624,616
3) Approve the Company's 2000 Director
Stock Option Plan 3,929,514 402,607 622,361
4) Ratification of PricewaterhouseCoopers
LLP as independent auditors 9,986,286 39,472 5,806
N.A. - Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT 27.1: Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company has not filed any reports on Form 8-K during the quarter ended June
30, 2000.
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SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIX, INC.
By: /s/ Edward Terino
------------------------------
Edward Terino
Chief Financial Officer
(duly authorized officer and
principal financial officer)
Date: August 10, 2000
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