<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 SEPTEMBER 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 11,678,274 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT NOVEMBER 2, 2000.
<PAGE> 2
APPLIX, INC.
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations
For the three months ended September 30, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Operations
For the nine months ended September 30, 2000 and 1999 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2000 and 1999 6
Notes to Unaudited Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15-16
Signature 16
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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 AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,257 $ 10,321
Short-term investments -- 15,155
Accounts receivable, less allowance for
doubtful accounts of $1,479 and $598,
respectively 12,717 13,971
Other current assets 3,091 3,895
Deferred tax asset 3,001 3,001
Total current assets 34,066 46,343
Property and equipment, at cost 16,868 14,640
Less accumulated amortization and depreciation (12,338) (10,948)
Net property and equipment 4,530 3,692
Capitalized software costs, net of accumulated
amortization of $1,027 and $2,956, respectively 1,267 457
Other assets 3,658 4,189
-------- --------
Total assets $ 43,521 $ 54,681
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable to related party $ 360 $ 360
Accounts payable 3,004 2,227
Accrued liabilities 2,636 7,405
Deferred revenue 5,948 7,896
-------- --------
Total current liabilities
11,948 17,888
Notes payable to related party 810 1,080
Commitments
Stockholders' equity:
Common stock, $.0025 par value; 30,000,000 shares
authorized; 11,654,060 and 11,449,300 shares issued,
respectively 29 29
Capital in excess of par value 49,380 47,113
Accumulated deficit (14,646) (8,356)
Accumulated other comprehensive loss (633) (556)
Unearned compensation (1,170) (1,440)
Notes receivable from stockholders (1,120) --
Treasury stock, 306,198 shares, at cost (1,077) (1,077)
-------- --------
Total stockholders' equity 30,763 35,713
-------- --------
Total liabilities and stockholders' equity $ 43,521 $ 54,681
======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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<PAGE> 4
APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999
---- ----
License revenue $ 7,419 $ 8,359
Service revenue 5,447 6,207
------- -------
Total revenue 12,866 14,566
Cost of license revenue 738 573
Cost of service revenue 3,736 3,441
------- -------
Gross margin 8,392 10,552
Operating expenses:
Selling and marketing 8,017 5,906
Research and development 2,827 2,516
General and administrative 1,140 1,089
------- -------
Total operating expenses 11,984 9,511
------- -------
Operating income (loss) (3,592) 1,041
Interest income, net 288 304
------- -------
Net income (loss) before income taxes (3,304) 1,345
Provision (benefit) for income taxes (1,079) 498
------- -------
Net income (loss) (2,225) 847
------- -------
Basic earnings (loss) per share $ (0.20) $ 0.08
======= =======
Diluted earnings (loss) per share $ (0.20) $ 0.07
======= =======
Weighted average common and common equivalent shares
outstanding:
Basic 11,352 10,660
======= =======
Diluted 11,352 12,288
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
License revenue $ 19,942 $24,387
Service revenue 16,991 17,276
-------- -------
Total revenue 36,933 41,663
Cost of license revenue 2,158 1,623
Cost of service revenue 11,395 9,658
-------- -------
Gross margin 23,380 30,382
Operating expenses:
Selling and marketing 22,453 17,415
Research and development 8,446 7,233
General and administrative 3,193 3,519
-------- -------
Total operating expenses 34,092 28,167
-------- -------
Operating income (loss) (10,712) 2,215
Interest income, net 956 795
-------- -------
Net income (loss) before income taxes (9,756) 3,010
Provision (benefit) for income taxes (3,466) 1,113
-------- -------
Net income (loss) (6,290) $ 1,897
======== =======
Basic earnings (loss) per share $ (0.56) $ 0.18
======== =======
Diluted earnings (loss) per share $ (0.56) $ 0.16
======== =======
Weighted average common and common equivalent shares
outstanding:
Basic 11,261 10,535
======== =======
Diluted 11,261 11,707
======== =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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<PAGE> 6
APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
Operating activities:
Net income (loss) $ (6,290) $ 1,897
Adjustments to reconcile net income (loss) to
net cash Provided by (used for) operating
activities:
Depreciation and amortization 2,351 1,934
Amortization of deferred compensation 540 --
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,254 1,616
(Increase) decrease in other current assets 804 (354)
Increase in accounts payable 777 161
Increase (decrease) accrued liabilities (4,769) 138
Increase (decrease) deferred revenue (1,948) 793
------- --------
Cash provided by (used for) operating activities (7,281) 6,185
Investing activities:
Purchase of property and equipment (2,228) (864)
Capitalized software costs (1,510) (585)
Purchase of short-term investments (21,922) (33,979)
Maturities of short-term investments 37,077 21,443
------- --------
11,417 (13,985)
Cash provided by (used for) investing activities
Financing activities:
Proceeds from exercise of incentive stock options
and employee stock purchase plans 1,147 1,893
Payment of long term debt (270) --
Purchase of treasury stock -- (145)
Principal payments under capital lease obligations -- (88)
------- --------
Cash provided by financing activities 877 1,660
Effect of exchange rate changes on cash (77) 25
------- --------
Net increase (decrease) in cash and cash
equivalents 4,936 (6,115)
Cash and cash equivalents at beginning of period 10,321 17,404
------- --------
Cash and cash equivalents at end of period $15,257 $11,289
======= =======
NONCASH FINANCING ACTIVITIES:
Sale of common stock in exchange for a note
receivable to stockholders. (Note F) $ 1,120 $ --
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for taxes $ 110 $ 88
======= =======
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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<PAGE> 7
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 CRM/Analytics division focuses on enabling customers to
automate their front office business operations including customer relationship
management and business planning. The VistaSource division is a provider of
Internet accessible, Linux and Unix based applications and technologies, and is
a provider of open source software development 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 principles. 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 nine-month periods ended September 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.
-7-
<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>
(in thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
Net income (loss) $ (2,225) $ 847 $ (6,290) $ 1,897
Weighted average shares outstanding 11,352 10,660 11,261 10,535
Net income (loss) per common share $ (0.20) $ 0.08 $ (0.56) $ 0.18
ASSUMING DILUTION:
Net income (loss) $ (2,225) $ 847 $ (6,290) $ 1,897
Weighted average shares outstanding 11,352 10,660 10,535
11,261
Net effect of dilutive stock options -- 1,628 -- 1,172
-------- -------- -------- --------
Total 11,352 12,288 11,261 11,707
Net income (loss) per common share $ (0.20) $ 0.07 $ (0.56) $ 0.16
</TABLE>
Potential common shares were excluded from the calculation of net loss per
share for the periods ended September 30, 2000 since their inclusion would be
antidilutive. Potential common shares excluded from the calculation of diluted
loss per share were 391,404 and 1,179,736 for the three and nine months ended
September 30, 2000.
D. COMPREHENSIVE INCOME OR LOSS
Other comprehensive income or loss includes foreign currency translation
adjustments.
<TABLE>
<CAPTION>
(in thousands) THREE MONTHS ENDED
----------------------- NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(2,225) $ 847 $(6,290) $ 1,897
Other comprehensive loss (31) 45 (77)
25
------- ------- ------- -------
Total comprehensive income (loss) $(2,256) $ 892 $(6,367) $ 1,922
======= ======= ======= =======
</TABLE>
-8-
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APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
E. EFFECT OF RECENT ACCOUNTING PRONOUNCMENTS
In June 1998, the Financial Accounting Standards Board (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.
F. SIGNIFICANT NONCASH TRANSACTIONS
In September 2000, the Company issued 256,002 shares of common stock to
certain stockholders in exchange for secured promissory notes due and payable on
July 31, 2005. The aggregate amount of the notes totaled $1,120,000. The shares
were sold at the fair market value on the grant date.
G. 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 nine months ended September 30, 2000 and September 30, 1999 is
as follows:
(in thousands) VISTASOURCE CRM/ANALYTICS CONSOLIDATED
----------- ------------- ------------
THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenue $ 1,899 $10,967 $ 12,866
Operating loss (1,425) (2,167) (3,592)
NINE MONTHS ENDED SEPTEMBER 30, 2000
Revenue $ 7,749 $29,184 $ 36,933
Operating loss (1,633) (9,079) (10,712)
(in thousands) VISTASOURCE CRM/ANALYTICS CONSOLIDATED
----------- ------------- ------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
Revenue $ 3,866 $ 10,700 $ 14,566
Operating income (loss) 1,542 (501) 1,041
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenue $14,751 $ 26,912 $ 41,663
Operating income (loss) 7,452 (5,237) 2,215
-9-
<PAGE> 10
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 CRM/Analytics 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 into 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.
-10-
<PAGE> 11
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 SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Total revenue decreased 12% to $12,866,000 for the quarter ended September
30, 2000 from $14,566,000 for the quarter ended September 30, 1999.
License revenue decreased 11% to $7,419,000 for the quarter ended September
30, 2000 from $8,359,000 for the quarter ended September 30, 1999. This decline
was primarily due to a $1,349,000 or 77% decrease in license revenue generated
from the Company's Unix based Applixware products versus that in the same
quarter in the prior year. The decrease was partially offset by a 6% or $409,000
increase in the Company's CRM/Analytics 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 CRM/Analytics division's iEnterprise and iTM1 product
offerings on a global basis.
Service revenue in the quarter of $5,447,000 was below service revenue of
$6,207,000 in the same quarter last year. Service revenues from the Company's
CRM/Analytics division decreased $88,000 versus the same quarter last year and
service revenues from the Company's VistaSource division decreased $672,000
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 service revenues to continue to decline throughout the remainder of 2000.
Domestic license revenue increased 6% to $3,377,000 for the quarter ended
September 30, 2000 from $3,184,000 for the same period in the prior year.
Domestic license revenue for CRM/Analytics increased 40% for the quarter ended
September 30, 2000 from the same period last year. This was offset by an 81%
decrease in domestic revenues for the Applixware products for the quarter ended
September 30, 2000 from the same period last year. Domestic service revenue
decreased 20% to $2,202,000 from $2,754,000 in the same quarter last year as a
result of a declining maintenance base for the Company's Unix based Applixware
products offset by increased service revenue from the Company's CRM/Analytics
business.
International license revenue decreased 22% to $4,042,000 for the quarter
ended September 30, 2000 from $5,175,000 for the same period in 1999 primarily
due to a decrease in international sales of the Company's Unix based Applixware
products versus the same quarter in the prior year. CRM/Analytics international
license revenues increased by 6%. International service revenues decreased by 6%
to $3,245,000 from $3,453,000 in the same quarter last year as a result of a
decline in the maintenance base for the Company's Unix based Applixware
products.
-11-
<PAGE> 12
Gross margin decreased to 65% for the three months ended September 30, 2000
from 72% for the same period in 1999. License revenue gross margins decreased to
90% for the quarter ended September 30, 2000 from 93% for the quarter ended
September 30, 1999. The license margin percentage decrease was primarily related
to an increase in cost of sales associated with the establishment of the retail
channel in the VistaSource division. Service gross margins decreased to 31% for
the third quarter of 2000 from 45% in the same period last year. The service
margin percentage decrease is attributable to both the lower utilization of the
Company's professional services organization in Europe as well as the decline in
the VistaSource legacy Applixware maintenance revenue.
Selling and marketing expenses, which include domestic sales and marketing
expenses and the cost of the Company's international operations, increased 36%
to $8,017,000 for the quarter ended September 30, 2000 from $5,906,000 for the
quarter ended September 30, 1999. Selling and marketing expenses increased as a
percentage of total revenue to 62% for the quarter ended September 30, 2000 from
41% for the quarter ended September 30, 1999. The increase was primarily due to
increased staffing levels associated with hiring additional sales
representatives in the CRM/Analytics division and additional spending for
marketing programs in both the CRM/Analytics and VistaSource divisions. We
expect selling and marketing expenses to continue to increase in absolute
dollars but not as a percentage of sales.
Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 12% to $2,827,000 for the
quarter ended September 30, 2000 from $2,516,000 for the quarter ended September
30, 1999 and were 22% of total revenue for the quarter ended September 30, 2000
versus 17% of total revenue for the quarter ended September 30, 1999. The
increase in total spending is attributable to increased staffing and the cost of
outside consultants in both the VistaSource and CRM/Analytics divisions as well
as increased investment in the VistaSource division product development and
CRM/Analytics Internet initiatives. Total research and development expenses,
including capitalized software costs, increased to $3,045,000 due to foreign
translations of our CRM/Analytics product, including $218,000 in capitalized
software development costs, or 24% of total revenues for the quarter ended
September 30, 2000 from $2,718,000, including $202,000 in capitalized software
development costs, or 19% of total revenue for the quarter ended September 30,
1999. We expect research and development expenses to continue to increase in
absolute dollars but not as a percentage of sales.
General and administrative expenses, which include the costs of the
finance, human resources and administrative functions, increased 5% to
$1,140,000 for the quarter ended September 30, 2000 from $1,089,000 for the same
period in 1999. General and administrative expenses were 9% of total revenue for
September 30, 2000 and 7% of total revenue for the same period in 1999 due to
lower revenues. We expect general and administrative expenses to continue to
increase in absolute dollars but not as a percentage of sales.
Interest income decreased to $288,000 from $304,000 due to fewer funds
invested partially offset by higher interest rate yields during the three months
ended September 30, 2000 versus the same period last year.
The Company recorded a benefit from income taxes for the quarter ended
September 30, 2000 of $1,079,000 based on the Company's estimated annual
effective tax rate of 35.5%, compared to an income tax provision of $498,000 at
an effective rate of 37% for the same period in 1999.
-12-
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Total revenue decreased 11% to $36,933,000 for the nine months ended
September 30, 2000 from $41,663,000 for the nine months ended September 30,
1999. This decline was primarily due to a $7,002,000 decrease in sales of the
Company's Unix based Applixware products and services versus the same period in
the prior year, partially offset by a 9% increase of $2,272,000 in the
CRM/Analytics division.
License revenue decreased 18% to $19,942,000 for the nine months ended
September 30, 2000 from $24,387,000 for the nine months ended September 30,
1999. This decline was primarily due to a $5,440,000 decrease in license revenue
generated from 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
$995,000 in license revenue generated from the Company's CRM/Analytics 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 CRM/Analytics division's iEnterprise and iTM1 product
offerings on a global basis.
Service revenue in the nine months ending September 2000 of $16,991,000
decreased 2% from revenues of $17,276,000 in the same period last year. Service
revenues in the VistaSource division decreased $1,617,000 or 25% but were
partially offset by an increase of $1,332,000 or 12% in the CRM/Analytics
division versus the same period last 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 63% for the nine months ended September 30, 2000
from 73% for the nine months ended September 30, 1999. License revenue gross
margins decreased to 89% for the nine months ended September 30, 2000 from 93%
for the nine months ended September 30, 1999. The margin percentage decrease was
primarily related to an increase in cost of sales associated with the
establishment of the retail channel in the VistaSource division. Service gross
margins decreased to 33% for the nine months ended September 30, 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 29% to $22,453,000 for the nine
months ended September 30, 2000 from $17,415,000 for the nine months ended
September 30, 1999. Selling and marketing expenses increased as a percentage of
total revenue to 61% for the nine months ended September 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
CRM/Analytics division and additional spending for marketing programs in both
the CRM/Analytics and VistaSource divisions.
Research and development expenses increased 17% to $8,446,000 for the nine
months ended September 30, 2000 from $7,233,000 for the nine months ended
September 30, 1999 and increased as a percentage of total revenue to 23% for the
nine months ended September 30, 2000 from 17% for the nine months ended
September 30, 1999 primarily due to increased staffing within VistaSource. Total
research and development expenses, including capitalized software development
costs, were $9,141,000,
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including $695,000 in capitalized software costs, or 25% of total revenue for
the nine months ended September 30, 2000 and $7,818,000, including $585,000 in
capitalized software development costs, or 19% to total revenue for the nine
months ended September 30, 1999.
General and administrative expenses decreased 9% to $3,193,000 for the nine
months ended September 30, 2000 from $3,519,000 for the same period in 1999, and
were 9% and 8% of total revenue for the nine months ended September 30, 2000 and
1999, respectively.
Interest income increased to $956,000 from $795,000 due to higher interest
rates earned during the nine months ended September 30, 2000 versus the same
period last year.
The Company recorded a benefit from income taxes for the nine months ended
September 30, 2000 of $3,466,000 based on the Company's estimated annual
effective tax rate of 35.5% as compared to a tax provision of $1,113,000 at an
effective rate of 37% for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash, cash equivalents, and short
term investments of $15,257,000 as compared to a balance of $25,476,000 as of
December 31, 1999. Working capital decreased to $22,118,000 at September 30,
2000 from $28,455,000 at December 31, 1999.
Cash used in the Company's operations amounted to $7,281,000 for the nine
months ended September 30, 2000. The net loss of $6,290,000 and the decrease in
working capital of $3,882,000 was partially offset by depreciation and
amortization of $2,351,000. Cash provided from investing activities totaled
$11,417,000 for the nine months ended September 30, 2000 resulting from capital
expenditures of $2,228,000 and capitalized software development costs of
$1,510,000, which were offset by net sales and maturities of short term
investments of $15,155,000. Much of the cash outlay during the year has been
attributed to one time and incremental investments associated with the
repositioning of the CRM/Analytics business and the anticipated spin off of
VistaSource.
Cash provided from finance activities totaled $877,000 for the nine months
ended September 30, 2000. Proceeds received from the exercise of incentive stock
options and the Company's employee stock purchase plan provided $1,147,000,
which was partially offset by a note payment of $270,000.
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 the next twelve months. 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 September 30, 2000, the Company held $5,187,000 in cash equivalents
consisting of commercial paper and money market funds. 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
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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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1* Restated Articles of Incorporation
3.2 Certificate of Vote of Directors Establishing a Class or Series of Stock
3.3* Bylaws
4.1** Form of Rights Agreement, dated as of September 18, 2000,
between the Company and American Stock Transfer & Trust
Company, which includes as Exhibit A the terms of the
Series A Junior Participating Preferred Stock, as Exhibit
B the Form of Rights Certificate, and as Exhibit C the
Summary of Rights to Purchase Preferred Stock.
10.1 Secured Promissory Note and Pledge Agreement entered into
on July 31, 2000 between the Company and Alan Goldsworthy
10.2 Secured Promissory Note and Pledge Agreement entered into
on July 31, 2000 between the Company and Ed Terino
27.1: Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File no. 33-85688)
** Incorporated by reference to the Company's Registration Statement on Form
8-A dated September 20, 2000
(B) REPORTS ON FORM 8-K
On September 20, 2000, the Company filed a current report on Form 8-K dated
September 15, 2000 to report under Item 5 (Other Events) the declaration by the
company of a dividend of a Right for each outstanding share of the Company's
Common Stock to stockholders of record on October 5, 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: November 13, 2000
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