<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-25832
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MAXIS, INC.
(Exact name of registrant as specified in its charter)
------------------------------
Delaware 94-3128369
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2121 North California Blvd., Suite 600
Walnut Creek, CA 94596-3572
(Address of principal executive offices)
Registrant's Telephone Number: (510) 933-5630
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Comon Stock, $.0001 par value
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. _______
The aggregate market value of the registrant's Common Stock, $.0001 par value,
held by non-affiliates of the registrant, based upon the closing sale price of
the Common Stock on May 31, 1996 as reported on the Nasdaq National Market, was
$102,674,344.
As of May 31, 1996 there were 11,069,322 10,849,698 shares of the registrant's
Common Stock, $.0001 par value, outstanding.
Documents Incorporated by Reference
- -----------------------------------
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
March 31, 1996 are incorporated by reference in Parts II and IV hereof.
Portions of registrant's definitive proxy statement (the "Proxy Statement") for
its 1996 Annual Meeting of Stockholders to be held August 21, 1996 are
incorporated by reference into Part III hereof.
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MAXIS, INC.
FORM 10-K
Table of Contents
Page
----
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 13
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 13
Item 8. Financial Statements and Supplementary Data................. 13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 14
Item 11. Executive Compensation...................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 14
Item 13. Certain Relationships and Related Transactions.............. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................... 14
Signatures.................................................. 17
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PART I
Item 1. BUSINESS
Maxis is a leading provider of entertainment and learning software products for
personal computers. The Company seeks to develop innovative products that are
engaging and entertaining while encouraging exploration, learning and
creativity. Maxis is widely recognized for its successful Sim family of
entertainment products, which have sold over seven million copies on all
platforms since the introduction of SimCity in 1989. Titles in the Sim
franchise include, among others, SimCity, SimCity 2000, SimEarth, SimTower,
SimAnt and SimIsle.
The Company believes that its products have been successful in large part due to
the use of innovative product concepts and advanced technologies to create
simulated environments. For example, Maxis' Sim titles allow users to create
and explore their own simulated environments, such as cities, farms, ant
colonies and buildings. The Company's products are available for multiple
personal computer ("PC") platforms including Windows 95, Windows, DOS and
Macintosh. The Company currently sells its software products, including
affiliate partner products, in North America through software distributors,
major computer and software retailing organizations, consumer electronics
stores, discount warehouse stores and mail order companies. Internationally, the
Company sells its products through a combination of distribution, direct retail
and licensing arrangements.
Industry Background
Sales of PCs to home users have increased dramatically in recent years as a
result of declining prices, enhanced functionality and broader software
availability. According to Odyssey Homefront, January 1996, approximately 35% of
United States households have at least one PC. Today's PCs are increasingly
sophisticated, incorporating high-speed 486, Pentium and PowerPC processors,
high-capacity hard disks, high-resolution monitors, sound boards, graphics
boards and CD-ROM drives, which together provide significantly enhanced
processing, storage, sound and graphics capabilities. The continued increase in
penetration of PCs into the home creates a large and growing mass market for
consumer software and provides an expanded opportunity for developers and
publishers of sophisticated software to offer a richer, more exciting user
experience.
A large market has also developed for entertainment products on game consoles.
The new generation of 32/64-bit game consoles has advanced technical
capabilities that were previously available only on PCs. Representative game
consoles include the Sony Playstation, Sega Saturn and, planned for fall 1996,
the Nintendo 64.
Distribution channels for consumer software products are increasingly
competitive. During the 1980s, consumer software was typically sold through
specialty software stores. Today, these products are sold through additional
distribution channels such as consumer electronics stores and mass merchants.
Although the number of distribution channels has increased, competition for
shelf space has intensified because these channels, especially mass merchants,
generally carry only those relatively few products that are expected to sell in
high volumes. In addition, the abundance of new software titles forces
retailers to be highly selective when allocating shelf space.
The proliferation of powerful PCs and game consoles, increased interest in
consumer software and broader, more competitive distribution channels has
changed the environment in which consumer software companies compete. To
succeed in today's market, consumer software companies must offer innovative
products with broad consumer appeal, keep pace with advancements in computing
technologies, market their products effectively through traditional and new
distribution channels, and achieve brand name recognition.
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Strategy
Maxis' mission is to be a leading provider of innovative, high quality consumer
software that appeals to a broad range of consumers. The Company promotes
software products that are engaging and entertaining primarily because they
encourage exploration, learning and creativity. One of the Company's objectives
is to expand and redefine the use of simulation software in the entertainment
and learning software marketplace. The Company believes that high quality
simulation is an increasingly important element of many genres of entertainment
software, as well as an important learning tool. The Company is a leading
provider of simulation software products for the consumer marketplace and seeks
to maintain and expand its position in this important market. Key elements of
the Company's strategy are:
Provide Innovative, High Quality Products. The Company utilizes advanced
technologies to provide innovative products to its customers. Maxis' products
have won numerous industry awards, including the "Best Simulation" award from
the Software Publishers Association ("SPA") for six consecutive years. The
Company emphasizes the creation of intellectually stimulating products that
allow users to create and explore their own simulated environments, such as
cities, farms or planets. The Company publishes internally developed products
and products licensed from third-parties. The Company also distributes
affiliate-developed products that meet Maxis' high quality standards and that
complement its product line.
Maintain and Leverage Product Franchise. The Company seeks to develop products
that achieve broad consumer appeal, customer loyalty and long life cycles,
resulting in brand name recognition. Maxis is widely recognized for its
successful Sim family of products. Maxis and its licensees have sold over seven
million copies of these products worldwide since the introduction of SimCity in
1989. Based on customer surveys, the Company believes that over 60% of its
registered users own two or more Maxis products. The Company's strategy is to
maintain its Sim franchise while leveraging into new areas and to create new
franchises in other product categories. Maxis believes that its established
brand image and the quality of its products will facilitate its expansion into
new markets.
Exploit Advanced Technologies. The Company's products incorporate sophisticated
technologies, including complex algorithms and mathematical matrices to create
realistic environments. The Company's approach when developing new products is
to combine an exciting concept with the best available technologies to create an
engaging product. Unlike software developers that depend upon a reusable
development engine, the Company's products are principally developed from
original code using proprietary simulation and display/animation tools to take
advantage of the most recent advances in hardware and software technologies --
making each product distinctive.
Leverage and Expand Distribution. Maxis currently sells its software products,
including affiliate partner products, through software distributors, major
computer and software retailing organizations, consumer electronics stores,
discount warehouse stores and mail order companies. Maxis is also seeking to
expand its sales through mass merchants, toy retail chains, book resellers,
educational dealers and directly to end users. Based on the strength of its
distribution capabilities, Maxis has attracted other developers to join its
affiliate partner program. Maxis plans to expand its marketing and distribution
organization in the coming fiscal year to support further extension of its
product lines. In addition, the Company intends to continue to pursue
international opportunities in Europe, Asia and other selected foreign markets.
Employ Focused Marketing Techniques. The Company believes that marketing to
both its distribution channels and its end users is critical to its success.
The Company employs focused consumer marketing techniques, including in-store
promotions, direct mailings to consumers, on-line marketing, extensive market
research and high impact, consistent packaging. The Company monitors and
measures the effectiveness of its marketing strategies using focus groups and
market research throughout the product life cycle. To capitalize on the
innovative nature of its products, Maxis has developed a broad public relations
program that has resulted in coverage in trade journals as well as mainstream
publications such as The New York Times, The Wall Street Journal and Newsweek.
Also, in December 1995, the Company launched its own site on the World Wide Web.
This user-friendly site allows viewers to download videos and demos, enter
contests and pick up hints about their favorite games.
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Products
Maxis promotes products that encourage exploration and creativity, providing a
challenging and enriching experience that appeals to a broad range of customers.
Maxis' products offer open-ended experiences outside a traditional "win or lose"
game format. The Company's products have won numerous awards, including the
"Best Simulation" award from the SPA for six consecutive years. In addition to
products published by Maxis, the Company distributes carefully selected products
under its affiliate partner program to complement and diversify its product
line.
Maxis' products are available for multiple PC platforms, including Windows 95,
Windows, DOS and Macintosh, as well as 32-bit game consoles. Maxis has
historically delivered its products on floppy disks and began a transition to
CD-ROM based distribution in October 1993. All newly released products and
product versions are available on CD-ROM.
Entertainment Products. Maxis' most successful entertainment products to date
have been the Sim family products, which take advantage of the simulation
technologies that the Company has developed. The Company's new entertainment
product releases typically sell at street prices ranging from $39 to $59. Maxis
offers "add-on" products such as SimCity 2000 Urban Renewal Kit to enhance
related products. Maxis has also created a Classic line for some of its earlier
releases, such as SimCity, SimEarth, SimAnt and SimLife, that are sold at
street prices ranging from $15 to $19. During fiscal 1996 and 1995,
approximately 52% and 59% respectively, of the Company's net revenues were
derived from shipments of SimCity/SimCity 2000 and related add-on products.
During fiscal 1996 and 1995, the Company's entertainment products accounted for
approximately 81% and 77% of net revenues, respectively.
SimCity 2000, SimEarth and SimTower are representative of Maxis' entertainment
products. In SimCity 2000, the player acts as the mayor of an evolving city.
The player's challenge is to manage the creation of neighborhoods, choose zoning
laws and build infrastructure while confronting disasters, traffic gridlock and
urban decay. The player can design a new city, choose from pre-designed cities
or choose a specific disaster scenario based in various cities. In SimEarth,
the player manages a planet from its birth until its death ten billion years
later and guides the development of life forms from inception as single-celled
microbes to their evolution into a complex civilization. In SimTower, the
player acts as owner and manager of a skyscraper under development. The
player's objective is to construct a balanced and profitable commercial property
by leasing space for many uses, including apartments, offices, restaurants,
shops and theaters.
Learning Products. Maxis desires to leverage its product franchise, product
development and marketing capabilities to offer innovative, open-ended learning
products. Maxis' first two published products in this category are SimTown and
Widget Workshop, both introduced near the end of calendar year 1994. To
complement and broaden its learning product line, Maxis currently distributes
several titles in this category under its affiliate partner program. Maxis'
learning products generally sell at street prices from $29 to $49. During fiscal
1996 and 1995, the Company's learning products accounted for approximately 18%
and 11% of net revenues, respectively.
SimTown enables children to design, build and manage their own neighborhood,
complete with individual houses, streets, parks, stores, public buildings, pizza
parlors and video arcades. Players can click on buildings and see surprise
animations or use the "cut away" feature to see what is happening inside.
Widget Workshop allows children to construct inventions on the computer screen
with hundreds of fun, animated objects that can be connected together.
Platforms. Maxis is committed to offering products for the most popular PC
hardware platforms. The Company was one of the first software developers to
introduce entertainment products for Windows 95, Windows and PowerPC-based
computers and believes this strategy was important in establishing Maxis as one
of the leading publishers of entertainment software for these platforms. Maxis
is currently focusing its product development efforts on CD-ROM products for
Windows 95 and Windows. Maxis has also introduced titles for both the Sega and
Sony 32-bit game consoles.
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The following table sets forth the percentage of the Company's net revenues by
platform and media:
<TABLE>
<CAPTION>
Platform Fiscal 1996 Fiscal 1995 Fiscal 1994
- -------- ----------- ----------- -----------
<S> <C> <C> <C>
Windows & Windows 95 55% 44% 16%
DOS 18 33 55
Macintosh 13 22 24
Hybrid 11 -- --
Other 3 1 5
</TABLE>
<TABLE>
<CAPTION>
Media Fiscal 1996 Fiscal 1995 Fiscal 1994
- ----- ----------- ----------- -----------
<S> <C> <C> <C>
CD-ROM 75% 30% 2%
Floppy Disk 22 69 93
Other 3 1 5
</TABLE>
Distribution
Maxis believes its distribution capability is a key competitive factor. Maxis
currently sells its software products, including affiliate partner products,
through software distributors, major computer and software retailing
organizations, consumer electronics stores, discount warehouse stores, office
supply stores and mail order companies. In addition, Maxis is seeking to
expand its sales through mass merchants, toy retail chains, book resellers and
educational dealers and directly to end users. The Company maintains
relationships with distributors such as Ingram Micro, TechData and Merisel.
Maxis also maintains direct relationships with major retailers, including Best
Buy, Egghead, NeoStar and Electronics Boutique. For fiscal 1996 distributors
and retailers represented approximately 53% and 35% of the Company's net
revenues, respectively. In the same period, Ingram Micro, Best Buy and Tech
Data accounted for approximately 12%, 11% and 10% of net revenues, respectively.
For fiscal 1995 distributors and retailers represented approximately 49% and 31%
of the Company's net revenues, respectively. In the same period, Ingram Micro
accounted for approximately 19% of the Company's net revenues.
The strength of Maxis' current distribution has attracted other developers to
join its affiliate partner program. Affiliate partner products are generally
distributed by Maxis under the name of the affiliate partner who is responsible
for the manufacturing, marketing and customer support of its products. Sales of
affiliate partner products during fiscal 1996 and 1995 accounted for
approximately 10% and 11% of the Company's net revenues, respectively. The
affiliate partner program allows affiliate partners to benefit from the
Company's distribution arrangements, increases the Company's distribution power
and adds a new source of revenue without utilizing internal product development
resources. The Company's agreements with its affiliate partners give the
Company distribution rights in either designated areas, usually on a geographic
basis by country, or worldwide. Maxis is not typically required to make full
payment to the affiliate partner for products until the products are sold.
Affiliate partner agreements are generally terminable by either party upon six
months' notice after the first six months that the agreement has been in place.
Because affiliate partner agreements may be terminated by the affiliate partner,
there can be no assurance that the Company will retain any rights to publish or
distribute any particular affiliate partner product.
International sales represented approximately 20%, 15% and 10% of the Company's
net revenues during fiscal 1996, 1995 and 1994, respectively. See Note 12 of
the Notes to Consolidated Financial Statements contained in the Company's Annual
Report to Stockholders, filed with the Securitites and Exchange Commission as
Exhibit 13.1 hereto. Maxis sells its products internationally through a
combination of distribution and licensing arrangements. Maxis' London, England
office supports distributors in the United Kingdom, Germany, France and certain
other European countries and has recently begun direct sales to selected
retailers in the United Kingdom. Maxis licenses its products through foreign
distributors in other European countries and Asia. Generally, the licensee is
responsible for product localization and provides all sales, marketing and
customer support. Maxis receives a royalty on its licensed sales. The major
localized versions of the Company's products include German, Japanese, French,
Spanish, Chinese, Korean and Italian.
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Retailers of the Company's products typically have a limited amount of shelf
space and promotional resources, and there is intense competition among consumer
software producers for high quality and adequate levels of shelf space and
promotional support from retailers. To the extent that the number of consumer
software products and computer platforms increases, this competition for shelf
space may intensify. The Company's products constitute a relatively small
percentage of a retailer's sales volume, and there can be no assurance that
retailers will continue to purchase the Company's products or provide the
Company's products with adequate levels of shelf space and promotional support
to allow the Company to meet its revenue target.
Marketing and Sales
As of March 31, 1996, the Company's marketing and sales staff included 74 full-
time employees in ten offices located in California, Colorado, Texas,
Massachusetts, New Hampshire, North Carolina, Illinois, Maryland, London,
England and Tokyo, Japan. The Company expects to increase its marketing and
sales staff in fiscal 1997 to provide greater penetration into the retail market
and increased marketing support for its products. The Company uses independent
sales representative organizations to assist in the sales of software products
for game consoles, as well as the sale of software products to emerging
distribution channels.
The Company believes that marketing to both its distribution channels and to the
end user is critically important to the success of its products and franchise as
a whole. The Company employs a wide range of sophisticated consumer marketing
techniques including in-store promotions, direct mailings of catalogs and
brochures, advertising in computer and general consumer publications, mailing of
newsletters to target audiences and on-line marketing to promote sales of its
products. The Company has also utilized high impact and consistent packaging
across its Sim and other product lines in order to facilitate consumer
recognition and build a brand name. Maxis also maintains a 750,000-name
database for use in communicating product information and promoting product
sales. The Company monitors and measures the effectiveness of its marketing
strategies throughout the product lifecycle. A major focus for Maxis in fiscal
1997 will be to expand its existing on-line marketing efforts to provide
additional customer support for its products and to promote its product line to
new users.
Product Development and Technology
As of March 31, 1996, the Company's research and development staff consisted of
95 full-time employees in California, Utah and Texas. The Company believes
that the extensive experience of its product development team has been an
important competitive factor. Maxis intends to maintain and enhance its
technological capabilities in order to continue to develop innovative products
and to exercise substantial control over its product offerings. To date, the
majority of Maxis' revenues have come from internally developed products. Maxis
has established a library of internally developed proprietary techniques and
continually investigates leading edge technologies from academia and private
industry to create innovative and distinctive products that are difficult for
competitors to imitate.
The Company's library of proprietary tools and techniques falls into two major
categories, simulation and display/animation. The Company's simulation tools
model realistic environments by combining complex mathematical calculations with
large behavioral databases in a real-time fashion. These techniques include
databases that are manipulated by complex matrix math techniques, such as
cellular automata and artificial life/genetic algorithms. The Company's display
and animation tools present simulated environments in a simple and intuitive
manner. The Company is currently developing products that are expected to
utilize new 3-D polygon manipulation and texture mapping algorithms to achieve a
first person "3-D Point of View" environment.
Maxis is also developing techniques that will expand the user's ability to
interact with the Company's products. These technologies will allow users to
further explore the environments they create, link environments from different
Maxis products and enable its products to be used by one or more players on
local and wide area networks.
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Maxis believes that its development efforts for the 32-bit PC environment will
facilitate the development of products for the 32/64-bit game console market.
These consoles are being developed by leading hardware companies such as Sony,
Sega and Nintendo. Maxis believes that the operation of its sophisticated and
complex software on game consoles will be enhanced by the significant
improvements over the previous 16-bit game consoles in CPU speeds, hardware-
specific graphic accelerators and sound and memory capabilities.
The Company uses a combination of in-house and third-party designers, artists
and programmers to develop its products. Maxis' strategy is to develop its core
products internally and to utilize third-party developers to create conversions
of these products for other platforms. However, in certain cases, Maxis also
uses third-party developers to expand its ability to introduce creative and
innovative products. When working with third-parties, Maxis seeks to obtain
full ownership of marketing and product development rights to all of the
materials produced. All products must undergo extensive editing, testing and,
if necessary, further development prior to release in order to reduce the
likelihood of product defects.
Entertainment products generally experience declining sales after market
introduction. The Company's continued success depends on the timely
introduction of successful new products to replace declining revenues from older
products. The process of developing software products such as those offered by
the Company is extremely complex and is expected to become more complex and
expensive in the future as new platforms and technologies are addressed. In the
past, the Company has experienced significant delays in the introduction of
certain new products and the Company anticipates that there will be similar
delays in developing and introducing new products in the future.
The Company must continually anticipate the emergence of, and adapt its products
to, popular platforms for consumer software. When the Company chooses a
platform for its products, it must make a substantial development investment one
to two years in advance of shipments of products on that platform. If the
Company invests in a platform that does not achieve significant market
penetration, the Company's planned revenues from those products will be
adversely affected and Maxis may not recover its development and marketing
investment. If the Company does not choose to develop for a platform that
achieves significant market success, the Company's revenue growth may also be
adversely affected. For example, there are multiple, competing and incompatible
formats being introduced in the market for 32/64-bit game consoles, including
the 3DO Multiplayer, Atari Jaguar, Sega Saturn, Sony Playstation and Nintendo
64. The Company has developed game console products only for the Sega Saturn
and Sony Playstation. There can be no assurance that the Company has chosen, or
in the future will choose, to support the platforms that will ultimately be
successful.
In fiscal 1996, 1995 and 1994, the Company's research and development expenses
were approximately $8.4 million, $6.0 million and $3.3 million, or 15.2%, 15.7%
and 14.1% of net revenues, respectively (excluding a one-time charge related to
the Cinematronics acquisition in fiscal 1996). The Company is continuing to
devote a majority of its research and development resources to the entertainment
category. The Company believes that research and development expenses will
increase in absolute dollars and could increase as a percentage of net revenues
in fiscal 1997.
Competition
The market for the Company's consumer software products is intensely and
increasingly competitive. Maxis believes that the principal competitive factors
in the consumer software industry include quality and originality of products,
price, brand name recognition, marketing capabilities, access to distribution
channels, ease of use and quality of support services. The Company believes
that it competes favorably with respect to each of these factors.
The Company competes primarily against other companies offering consumer
software in the entertainment and learning categories. Existing consumer
software companies may broaden their product lines or increase their focus to
compete more directly with the Company's products, and potential new
competitors, including computer hardware or software manufacturers, diversified
media companies and book publishing companies, may enter the consumer software
market. The competition for retail shelf space is also likely to increase due
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to the proliferation of consumer software products. Many of the Company's
competitors have greater financial, technical, marketing, sales and customer
support resources, as well as greater name recognition and better access to
consumers, than the Company. There can be no assurance that the Company will
respond effectively to market or technological changes or compete successfully
in the future. In addition, increasing competition in the consumer software
market may cause prices to fall, which may adversely affect the Company's
business, operating results and financial condition.
Intellectual Property and Other Proprietary Rights
The Company holds copyrights on many of its products, manuals, advertising and
other materials and maintains trademark rights in the Company name, the Maxis
and Sim logos, and the names of products published by Maxis. The Company does
not hold any patents currently, but has three patent applications pending.
Maxis has licensed products to other entities for certain geographic areas or
particular computer platforms and receives royalties on such licenses. The
Company also pays royalties on certain licensed products which it publishes but
which were created by third-parties.
The Company regards its software as proprietary and relies primarily on a
combination of trademark, copyright and trade secret laws, employee and third-
party nondisclosure agreements and other methods to protect its proprietary
rights. The Sim prefix featured in the Company's principal product franchise is
not a registered trademark although the Company intends to protect its goodwill
in the name vigorously. The Company does not include in its products any
mechanism to prevent or inhibit unauthorized copying. Unauthorized copying is
common within the software industry, and if a significant amount of unauthorized
copying of the Company's products were to occur, the Company's business,
operating results and financial condition could be adversely affected. Also, as
the number of software products in the industry increases and the functionality
of these products further overlaps, software developers and publishers may
increasingly become subject to infringement claims. There can be no assurance
that third-parties will not assert infringement claims against the Company in
the future with respect to current or future products. As is common in the
industry, from time to time the Company receives notices from third-parties
claiming infringement of intellectual property rights of such parties. The
Company investigates these claims and responds as it deems appropriate.
Although the Company is not currently the subject of any intellectual property
litigation, there has been substantial litigation regarding copyright, patent,
trademark and other intellectual property rights involving computer software
companies and the Company has in the past made payments to settle litigation.
Policing unauthorized use of the Company's products is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
selling its products, the Company relies primarily on "shrink wrap" licenses
that are not signed by licensees and, therefore, may be unenforceable under the
laws of certain jurisdictions. Further, the Company enters into transactions in
countries where intellectual property laws are not well developed or are poorly
enforced. Legal protections of the Company's rights may be ineffective in such
countries, and software developed in such countries may not be protectable in
jurisdictions where protection is ordinarily available. Any claims or
litigation, with or without merit, could be costly and could result in a
diversion of management's attention, which could have a material adverse effect
on the Company's business, operating results and financial condition. Adverse
determinations in such claims or litigation could also have a material adverse
effect on the Company's business, operating results and financial condition.
Production
For each published product, the Company prepares master software disks, camera-
ready and electronic user manuals and collateral materials. The Company's disk
duplication, packaging, printing of manuals, manufacture of related materials,
warehousing, assembly and shipping are performed by outside vendors. In
addition, Maxis offers certain of these services to its affiliate partners.
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Employees
As of March 31, 1996, the Company employed 210 people on a full-time basis,
including 95 in research and development, 74 in sales and marketing, 11 in
manufacturing and shipping and 30 in finance and administration. Competition
for highly skilled employees with technical, management, marketing, sales,
product development and other specialized training is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel. The employees and the Company are not parties to any collective
bargaining agreements, and the Company believes that its relations with
employees are good.
Risk factors affecting future earnings and stock price
Sections of this Report, particularly the third and fifth paragraphs on page 4,
the seventh paragraph on page 5, the first paragraph on page 6, the second,
third, fourth, fifth and sixth paragraphs on page 7, the fifth paragraph on page
8 and the third and fifth paragraphs on this page, contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below and elsewhere in this Report.
The Company has experienced, and expects to continue to experience, significant
fluctuations in operating results due to a variety of factors, including the
size and rate of growth of the consumer software market, market acceptance of
the Company's products and those of its competitors, development and promotional
expenses relating to the introduction of new products or new versions of
existing products, projected and actual changes in computing platforms, the
timing and success of product introductions, product returns, changes in pricing
policies by the Company and its competitors, the accuracy of retailers'
forecasts of consumer demand, the timing of orders from major customers and
order cancellations.
The Company's operating results may also fluctuate significantly due to changes
in product plans or delays in shipment. For example, in April 1996, the Company
decided to reevaluate The Mindwarp, an action game it had planned to ship during
fiscal 1997. The Company is assessing the product's design and game play.
There can be no assurance that The Mindwarp will be released during fiscal 1997
or that the product will ever be commercially released. Furthermore, even if
The Mindwarp is released, there can be no assurance that it will contribute
revenues to the Company sufficient to recoup the development and marketing costs
incurred. Such risks apply to all of the Company's products under development.
The consumer software business is highly seasonal. Net revenues are typically
significantly higher during the third fiscal quarter, due primarily to the
increased demand for consumer software during the calendar year-end holiday
buying season. Net revenues in other quarters are generally lower and vary
significantly as a result of new product introductions and other factors. The
Company expects its net revenues and operating results to continue to reflect
significant seasonality and further expects the first quarter, and possibly the
second quarter, of fiscal 1997 to result in losses due to the delay or possible
cancellation of The Mindwarp, seasonality and increased operating expenses.
There can be no assurance that the Company will achieve consistent profitability
on a quarterly or annual basis.
In response to competitive pressures, the Company may take certain pricing or
marketing actions that could materially adversely affect the Company's business,
operating results and financial condition. The Company may be required to pay
fees in advance or to guarantee royalties, which may be substantial, to obtain
licenses to intellectual properties from third parties before products
incorporating such properties have been introduced or achieved market
acceptance.
Products are generally shipped as orders are received, and accordingly the
Company operates with little backlog. The Company's expense levels are based,
in part, on its expectations regarding future sales and, as a result, operating
results would be disproportionately adversely affected by a decrease in sales or
a failure to meet the Company's sales expectations. Defective products may
result in higher customer support costs and product returns.
Page 10
<PAGE>
The Company's gross profit is affected by the mix of sales among products that
are developed or licensed by Maxis and affiliate partner products that are
developed by third parties and distributed by the Company. Gross profit and
operating expenses are significantly lower on affiliate partner products because
the Company's services are generally limited to sales, distribution and related
functions. Effective April 1, 1996, the Company changed the offered terms of
its affiliate partner program granting, among other things, a greater share of
receipts on affiliate sales to affiliate partners. There can be no assurance
that the Company's current share of receipts on affiliate sales for distribution
services or the current mix of affiliate partner sales will be sustained.
The market price of the Company's common stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors, such as announcements of new products by the Company or its competitors
and changes in financial estimates by securities analysts or other events. The
Company's common stock, the stock market as a whole and many technology
companies have recently been trading at or near historic highs and reflect
price/earning ratios above historic norms. Moreover, the stock market has
experienced extreme volatility that has particularly affected the market prices
of equity securities of many high technology companies and that has often been
unrelated or disproportionate to the operating performance of such companies.
Broad market fluctuations, as well as economic conditions generally and in the
software industry specifically, may adversely affect the market price of the
Company's common stock. There can be no assurance that the Company's stock
price will remain at or near its current level.
Item 2. PROPERTIES
The Company's principal office is located in approximately 38,500 square feet of
space in Walnut Creek, California. This facility is leased through November
2002. The Company also has small development facilities in Salt Lake City,
Utah, San Mateo, California and Austin, Texas and marketing and sales offices in
London, England and Tokyo, Japan. The Company believes that suitable additional
or alternative space will be available in the future on commercially reasonable
terms as needed.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or to which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
ended March 31, 1996.
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jeffrey B. Braun 40 Chief Executive Officer and Chairman of
the Board of Directors
Samuel L. Poole 48 President and Director
Robert R. Derber 39 Vice President and General Counsel
Valentine Garcia 50 Vice President, Operations
Fred M. Gerson 45 Vice President and Chief Financial Officer
Deborah L. Gross 44 Vice President, Human Resources
Robin D. Harper 44 Vice President, Marketing
Douglas B. Litke 46 Vice President, Business Development
Joseph M. Scirica 50 Vice President, Product Development
M. Ileana Seander 39 Vice President, Sales
</TABLE>
Page 11
<PAGE>
There are no family relationships among the directors or executive officers of
the Company.
Jeffrey B. Braun, a co-founder of the Company, has served as Chief Executive
Officer since November 1993. From 1987 to November 1993, Mr. Braun served as
President of Maxis and, from September 1990 to the present, as Chairman of the
Board. Mr. Braun has over 13 years of experience in the software industry.
Samuel L. Poole has served as President of the Company since November 1993 and
as a Director since April 1994. Mr. Poole joined the Company in August 1992 as
Vice President, Sales. From January 1991 to August 1992, he was employed by
Disney Software, Inc. as Director of Sales. From January 1989 to January 1991,
Mr. Poole was employed at Cinemaware Corporation, a software publisher, as Vice
President of Marketing and Sales. From 1984 to 1989, he served as President of
IntelliCreations, Inc., a software publisher. Mr. Poole holds an M.B.A. degree
from Kent State University and a B.A. degree from Thiel College.
Robert R. Derber joined the Company as Vice President and General Counsel on a
full-time basis in April 1992. From 1987 to April 1992, Mr. Derber maintained a
private law practice and served as the Company's outside general counsel. Mr.
Derber holds a B.A. degree from the University of California at Santa Cruz, J.D.
and M.B.A. degrees from Santa Clara University and an L.L.M. in Taxation from
Golden Gate University. Mr. Derber is also a Certified Public Accountant.
Valentine Garcia joined the Company in August 1992 as Manager of Manufacturing
and was promoted to Director of Operations in October 1995. From November 1990
to August 1992, Mr. Garcia was Manager of Engineering and Quality for Mindscape,
a software company, (formerly The Software Toolworks) and has managed
procurement, contracts and operations for several other organizations, including
Unisys Corporation, a computer company, and Xerox Magnetics, a computer
peripheral company. Mr. Garcia received his B.S. in Engineering from the
University of Santa Clara.
Fred M. Gerson joined the Company as Vice President and Chief Financial Officer
in November 1994. Mr. Gerson served as Vice President and Chief Financial
Officer at Farallon Computing, Inc., a networking company, from November 1992 to
November 1994, and at TCSI Corporation, a software company, from February 1992
to November 1992. He also served as Vice President and Chief Financial Officer
at Structural Research and Analysis Corporation, a design automation software
company, from April 1991 to February 1992 and at Peter Norton Computing, Inc., a
software utilities company (now part of Symantec Corporation), from June 1989 to
April 1991. Mr. Gerson is a Certified Public Accountant and holds an M.B.A.
degree from New York University and a B.A. degree from Brooklyn College.
Deborah L. Gross has served as Vice President, Human Resources of the Company
since December 1993 and from June 1990 until December 1993 she served as
Director, Human Resources. Ms. Gross joined the Company in January 1990 as
Accounting Manager. From 1980 to 1990, Ms. Gross held various positions at The
Western Union Telegraph Company and Atlantis, a freight brokerage company. Ms.
Gross holds a B.A. degree from St. Mary's College.
Robin D. Harper joined the Company as Vice President, Marketing in March 1991.
From 1979 to February 1991, she was employed by Foote, Cone and Belding
Communications, an advertising agency, most recently as Vice President,
Management Supervisor. She holds an M.B.A. degree from the University of
Chicago and a B.A. degree from Lawrence University.
Douglas B. Litke joined the Company as Vice President, Business Development in
March 1994. From 1989 to February 1994, he was employed by MicroProse Software,
Inc., a software publisher, most recently as Vice President of Sales. From 1984
to 1989, Mr. Litke held various positions at IntelliCreations, Inc. and Firebird
Licensees, Inc., both software publishers. He holds a B.A. degree from the
University of California at Berkeley.
Page 12
<PAGE>
Joseph M. Scirica joined the Company as Vice President, Product Development in
August 1990. From 1985 to July 1990, he held various positions at DEST
Corporation, an optical character reader company, Sphere, Inc., a consumer
software publisher, Semiconductor Test Solutions, a semiconductor test equipment
manufacturer, and Sentry Schlumberger, a semiconductor test equipment
manufacturer. He holds a B.S. degree from California State University,
Fullerton.
M. Ileana Seander has served as Vice President, Sales of the Company since June
1994. From December 1992 until June 1994, she held various sales positions at
the Company, most recently as National Sales Director. From October 1991 to
December 1992, Ms. Seander was the Eastern Regional Manager for Disney Software,
Inc. From October 1990 to October 1991, Ms. Seander was employed by Computers
etc. Superstore as General Manager. From 1986 to 1990, she held various
positions at IntelliCreations, Inc. and Broderbund Software, Inc. Ms. Seander
holds a B.S. degree from Salve Regina College.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the inside
back cover of the Company's 1996 Annual Report to Stockholders.
Item 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to page 14 of
the Company's 1996 Annual Report to Stockholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference to pages 15
through 18 of the Company's 1996 Annual Report to Stockholders.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to pages 19
through 28 of the Company's 1996 Annual Report to Stockholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
Page 13
<PAGE>
PART III
Certain information required by Part III is omitted from this Report in
accordance with the instructions to Form 10-K. The registrant will file with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this Report, the Proxy Statement pursuant to
Regulation 14A with respect to the 1996 Annual Meeting of Stockholders.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Certain information with respect to persons who are executive officers of the
Company is set forth under the caption "Executive Officers" in Part I of this
Report. The section entitled "Election of Directors" appearing in the Company's
Proxy Statement, sets forth certain information with respect to the directors of
the Company and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" appearing in the Company's Proxy
Statement, sets forth certain information with respect to the compensation of
management of the Company and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Record Date and Principal Share Ownership" appearing in
the Company's Proxy Statement, sets forth certain information with respect to
the ownership of the Company's Common Stock and is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions" appearing
in the Company's Proxy Statement, sets forth certain information with respect to
certain business relationships and transactions between the Company and its
directors and officers and is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial Statements
--------------------
of Maxis, Inc. and Report of Independent Auditors are incorporated by
reference to pages 19 through 28 of the registrant's 1996 Annual Report
to Stockholders:
Consolidated Balance Sheets - March 31, 1996 and 1995
Consolidated Statements of Income - Years Ended March 31, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Equity (Deficit) - Years
Ended March 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended March 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
Page 14
<PAGE>
2. Financial Statement Schedules. The following financial statement
-----------------------------
schedule of Maxis, Inc. for the fiscal years ended March 31, 1996, 1995
and 1994 is filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Maxis, Inc.
included in the registrant's 1996 Annual Report to Stockholders.
Schedules Page
--------- ----
II Valuation and Qualifying Accounts........ 18
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
--------
Number Description of Document
-------- -----------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Bylaws of the Company. (1)
4.1 Form of the Company's Common Stock Certificate. (1)
4.2 Shareholders' Rights Agreement dated June 2, 1992 among the Company,
the investors and the founders named therein. (1)
4.3 Amendment dated March 31, 1995 to the Shareholders' Rights
Agreement. (1)
10.1 Form of Indemnification Agreement entered into by the Company with
each of its directors and executive officers. (1)
10.2 1993 Stock Option Plan and related agreements. (1)
10.3 1995 Stock Plan and related agreements. (1)
10.4 1995 Employee Stock Purchase Plan and related agreements. (1)
10.5 Form of Common Stock Purchase Agreement dated May 1992 between the
Company and certain executive officers. (1)
10.6 Form of Promissory Note executed by certain directors and executive
officers. (1)
10.7 Software Development License Agreement dated November 25, 1991 between
the Company and William R. Wright relating to the development of
SimCity for the Macintosh. (1)
10.8 Software Development License Agreement dated November 25, 1991 between
the Company and William R. Wright relating to the development of
SimEarth for the Macintosh. (1)
10.9 Software Development License Agreement dated November 25, 1991 between
the Company and William R. Wright relating to the development of
SimAnt for the Macintosh. (1)
10.10 Employment Agreement dated June 1, 1992 as amended July 26, 1994,
between the Company and Jeffrey B. Braun. (1)
10.11 Employment Agreement dated June 1, 1992 as amended July 26, 1994,
between the Company and William R. Wright. (1)
10.12 Lease dated June 2, 1995 by and between C-C California Plaza
Partnership, a California General Partnership (Lessor), and Company
(Lessee), regarding office space located at 2121 North California
Boulevard, Walnut Creek, California. (2)
10.13 Loan Agreement dated September 1, 1995, between Maxis, Inc.
(Borrower) and Union Bank (Lender). (3)
10.14 Form of Option Acceleration Agreement signed by certain optionees. (4)
11.1 Statement of Computation of Earnings per Share.
13.1 Annual Report to Stockholders for the year ended March 31, 1996. Such
Annual Report, except for those portions that are expressly
incorporated herein by reference, is furnished for the information of
the Securities and Exchange Commission and is not deemed as filed as a
part of the Form 10-K.
21.1 Subsidiaries of the Company.
</TABLE>
Page 15
<PAGE>
<TABLE>
<CAPTION>
Exhibit
--------
Number Description of Document
-------- ---------------------------
<S> <C>
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
---------------------------
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-89210), as amended, declared effective on May
24, 1995.
(2) Incorporated by reference to the Company's Reports on Form 10-Q for
the quarter ended June 30, 1995.
(3) Incorporated by reference to the Company's Report on Form 10-Q for the
fiscal quarter ended September 30, 1995.
(4) Incorporated by reference to the Company's Report on Form 10-Q for the
fiscal quarter ended December 31, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
(c) Exhibits
See item 14 (a) 3 above.
(d) Financial Statement Schedules
See item 14 (a) 2 above
Page 16
<PAGE>
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 by the undersigned, thereunto duly authorized, the City of Walnut Creek,
State of California, on this 20th day of June, 1996.
MAXIS, INC.
By: /s/ Jeffrey B. Braun
----------------------------------
Jeffrey B. Braun, Chief Executive
Officer and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Samuel L. Poole and Fred M. Gerson and
each of them acting individually, as such person's true and lawful attorneys-in-
fact and agents, each with full power of substitution, for such person, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this report on Form 10-K, and to file with same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirement of the Securities and Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <S>
/s/ Jeffrey B. Braun Chief Executive Officer (Principal June 20, 1996
- --------------------------- Executive Officer) and Chairman
Jeffrey B. Braun of the Board of Directors
/s/ Samuel L. Poole President and Director June 20, 1996
- ---------------------------
Samuel L. Poole
/s/ Fred M. Gerson Vice President and Chief Financial June 20, 1996
- --------------------------- Officer (Principal Financial and
Fred M. Gerson Accounting Officer)
/s/ Eric Dunn Director June 20, 1996
- ---------------------------
Eric Dunn
/s/ Charles H. Gaylord Director June 20, 1996
- ---------------------------
Charles H. Gaylord
/s/ William H. Janeway Director June 20, 1996
- ---------------------------
William H. Janeway
/s/ Dr. Henry Kressel Director June 20, 1996
- ---------------------------
Dr. Henry Kressel
/s/ Avram Miller Director June 20, 1996
- ---------------------------
Avram Miller
/s/ William R. Wright Director June 20, 1996
- ---------------------------
William R. Wright
</TABLE>
Page 17
<PAGE>
Schedule II
MAXIS, INC.
VALUATION OF QUALIFYING ACCOUNTS
Description
Allowance for product returns:
<TABLE>
<CAPTION>
Additions-
Beginning provision for Deductions- Ending
Year Ended Balance returns returns Balance
---------- --------- ------------- ----------- -------
<S> <C> <C> <C> <C>
March 31, 1994 $ 720,000 $3,080,000 $(2,082,000) $1,718,000
March 31, 1995 1,718,000 6,047,000 (5,293,000) 2,472,000
March 31, 1996 2,472,000 7,615,000 (5,044,000) 5,043,000
</TABLE>
Allowance for doubtful accounts:
<TABLE>
<CAPTION>
Additions- Deductions-
Beginning provision for returns Ending
Year Ended Balance returns written off Balance
---------- --------- ------------- ----------- -------
<S> <C> <C> <C> <C>
March 31, 1994 $ 19,000 $265,000 $ -- $284,000
March 31, 1995 284,000 295,000 (140,000) 439,000
March 31, 1996 439,000 379,000 (254,000) 564,000
</TABLE>
Page 18
<PAGE>
Exhibit 11.1
MAXIS, INC.
Statement of Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended March 31
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Income $ 6,188 $3,606 $1,751
Computations of weighted average common and common
equivalent shares outstanding:
Weighted average common shares outstanding 8,390 5,804 5,558
Common equivalent shares from stock options issued
during the twelve-month period prior to the
Company's initial public offering -- 993 993
Common equivalent shares attributable to:
Redeemable preferred stock (if-converted method) 2,094 2,109 2,070
Stock options (treasury stock method) 567 9 --
------- ------ ------
Shares used in computing net income per share 11,051 8,915 8,621
======= ====== ======
Net income per share $0.56 $0.40 $ 0.20
======= ====== ======
</TABLE>
<PAGE>
EXHIBIT 13.1
1996 Financials
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Fiscal Years Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues $55,412 $38,147 $23,332 $13,864 $10,582
Cost of revenues 17,897 14,186 8,367 5,323 4,338
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 37,515 23,961 14,965 8,541 6,244
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 8,416 6,008 3,299 2,440 1,991
Acquisition-related charge 2,232 -- -- -- --
Sales and marketing 12,843 8,813 5,407 2,591 1,395
General and administrative 5,504 4,184 3,225 2,669 2,088
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 28,995 19,005 11,931 7,700 5,474
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 8,520 4,956 3,034 841 770
Interest income 1,493 226 114 197 66
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 10,013 5,182 3,148 1,038 836
Provision for income taxes 3,825 1,879 1,021 368 89
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 6,188 3,303 2,127 670 747
- ------------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from discontinued operations
(net of income tax benefit of $251 in
fiscal 1994 and $203 in fiscal 1993) -- -- (376) (600) --
Gain on disposal of discontinued operations
(net of income tax expense of
$173 in fiscal 1995) -- 303 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,188 $ 3,606 $ 1,751 $ 70 $ 747
- ------------------------------------------------------------------------------------------------------------------------------------
Per share amounts:
Income from continuing operations $ .56 $ .37 $ .25 $ .08 $ .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per share $ .56 $ .40 $ .20 $ .01 $ .12
- ------------------------------------------------------------------------------------------------------------------------------------
Shares used in per share calculations 11,051 8,915 8,621 8,061 6,171
- -----------------------------------------------------------------------------------------------------------------------------------
March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Cash, cash equivalents and short-term
marketable securities $ 42,890 $ 8,655 $ 4,932 $ 6,932 $ 1,538
Working capital 45,265 11,457 8,208 6,913 200
Total assets 67,300 19,142 14,427 10,168 3,718
Redeemable preferred stock -- 11,363 10,849 10,335 --
Stockholders' equity (deficit) 57,234 2,388 (1,239) (2,480) 1,019
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Net revenues (in thousands)
- --------------------------------------------------------------------------------
1996 Increase 1995 Increase 1994
<C> <C> <C> <C> <C>
$55,412 45.3% $38,147 63.5% $23,332
</TABLE>
Net revenues include revenues from sales of software products less
allowances for returns and promotional discounts, licensing revenues and,
provided the Company has completed all significant performance obligations under
the terms of the license agreement and any amounts paid are nonrefundable,
royalty advances. Licensing revenues are derived from international licensing
arrangements, OEM arrangements and licenses to third parties to develop the
Company's products for use on particular hardware platforms.
The increase in net revenues from fiscal 1995 to fiscal 1996 was due
primarily to continued demand for the Company's products, especially the Sim
family of products. Maxis' top three selling products for fiscal 1996 were
SimCity 2000, SimTower and SimIsle. SimCity 2000, initially released in October
1993, continued to be the Company's best-selling product. SimCity, SimCity 2000
and related add-on products accounted for 52% of fiscal 1996 net revenues.
During fiscal 1995, the same family of products accounted for 59% of net
revenues. SimTown was the Company's best-selling product in its learning line, a
segment that grew to 18% of net revenues in fiscal 1996 from 11% in fiscal 1995.
During fiscal 1996, the Company's product releases included SimCity 2000
Special Edition, SimIsle, SimTower for Windows, SimTown for Windows and Full
Tilt! Pinball, as well as several affiliate partner products. The Company also
introduced its first products for 32-bit game consoles: A-Train for the Sony
PlayStation and SimCity 2000 for the Sega Saturn.
International expansion also contributed to overall revenue growth with
international sales, including foreign licensing, increasing from 15% of net
revenues in fiscal 1995 to 20% of net revenues in fiscal 1996. Major territories
contributing to the Company's international growth were Japan and Europe.
International revenues increased from 10% in fiscal 1994 to 15% in fiscal 1995
due primarily to a change from a licensing to a distribution arrangement in the
Company's principal European markets. A portion of the Company's international
sales are denominated in foreign currencies and, accordingly, the Company is
subject to foreign currency exchange risk. During fiscal 1997, the Company
expects that international sales will increase in absolute dollars and could
increase as a percentage of net revenues.
The increase in net revenues from fiscal 1994 to fiscal 1995 was primarily
due to a number of new product introductions. Major product introductions during
fiscal 1995 included SimCity 2000 for Windows, Widget Workshop, SimTower,
SimTown for Macintosh and Klik & Play for Windows. The Company also continued to
benefit from strong sales of products released during the latter half of fiscal
1994. Sales of SimCity 2000 for Macintosh and DOS, released in October 1993 and
December 1993, respectively, and Print Artist (a product the Company no longer
distributes) for DOS and Windows, released in March 1994, contributed
significantly to the Company's fiscal 1995 revenues.
Affiliate partner sales were 10%, 11% and 5% of net revenues in fiscal
1996, 1995 and 1994, respectively. The Company's top-selling affiliate partner
products for fiscal 1996 were RedShift 2 by Maris Multimedia Ltd., GeoSafari
Multimedia by Educational Insights Interactive and A Passion For Art by Corbis
Publishing.
Sales of products on CD-ROM represented 75% of net revenues compared to
30% in fiscal 1995 and 2% in fiscal 1994. The Company plans to offer all new
products on CD-ROM while also continuing to offer some of its products on floppy
disk.
<TABLE>
<CAPTION>
Cost of revenues (in thousands)
- --------------------------------------------------------------------------------
1996 Increase 1995 Increase 1994
<S> <C> <C> <C> <C> <C>
Cost of revenues $17,897 26.2% $14,186 69.5% $8,367
Gross profit 67.7% 62.8% 64.1%
</TABLE>
The Company's cost of revenues includes all costs of media, manuals,
duplication, packaging materials, assembly and freight. In addition, royalties
are included in cost of revenues. The Company's gross profit is affected by the
mix of sales among products that are developed or licensed by Maxis and
affiliate partner products that are developed by third parties and distributed
by the Company. Gross profit and operating expenses are significantly lower for
affiliate partner products because the Company's services are generally limited
to sales, distribution and related functions.
The increase in gross profit percentage from fiscal 1995 to
fiscal 1996 was primarily due to a greater mix of products with lower royalty
rates. The decrease in gross profit percentage for fiscal 1995 as compared to
fiscal 1994 was primarily due to a higher level of affiliate partner product
sales, on which the Company receives a significantly lower gross profit.
Affiliate partner products represented 11% of net revenues in fiscal 1995 as
compared to 5% in fiscal 1994.
The Company's gross profit percentage has fluctuated significantly on a
quarterly basis. During fiscal 1996, the gross profit percentage ranged from
64.2% in the third fiscal quarter to 72.5% in the second fiscal quarter.
Quarterly gross profit is affected by the mix of sales among products that are
developed or licensed by Maxis and affiliate partner products that are developed
by third parties and distributed by the Company. During fiscal 1997 the Company
expects gross profit to continue to fluctuate on a quarterly basis and further
expects significantly lower gross profit in the first and second fiscal quarters
relative to the third and fourth fiscal quarters due primarily to the expected
timing of certain Maxis-published product releases.
<PAGE>
<TABLE>
<CAPTION>
Operating expenses (in thousands)
- ---------------------------------------------------------------------------------------
1996 Increase 1995 Increase 1994
<S> <C> <C> <C> <C> <C>
Research and
development $ 8,416 40.1% $6,008 82.1% $3,299
Percentage of
net revenues 15.2% 15.7% 14.1%
Acquisition-
related charge $ 2,232 100% -- 0% --
Percentage of
net revenues 4.0% -- --
Sales and marketing $12,843 45.7% $8,813 63.0% $5,407
Percentage of
net revenues 23.2% 23.1% 23.2%
General and
administrative $ 5,504 31.5% $4,184 29.7% $3,225
Percentage of
net revenues 9.9% 11.0% 13.8%
</TABLE>
Research and development
Research and development expenses consist primarily of personnel and
equipment costs required to conduct the Company's development efforts and to
fund third-party software development costs. Third-party software development
costs may include advance product development payments, which are expensed as
paid. The Company believes that significant investments in research and
development are required to remain competitive and has therefore greatly
increased the absolute amount of spending for research and development. These
expenses as a percentage of net revenues for fiscal 1996 as compared to fiscal
1995 remained relatively unchanged. The increase in research and development
expenses in fiscal 1995 over fiscal 1994 was primarily due to expenses incurred
for the development of new products and additional personnel and related costs.
During fiscal 1997, the Company intends to continue its investment in research
and development and therefore expects these expenses to increase in absolute
dollars and could increase as a percentage of net revenues.
Research and development expenditures are charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant.
Acquisition of Cinematronics LLC
In March 1996 the Company acquired for cash Cinematronics LLC, an
independent developer of entertainment software based in Austin, Texas. The
business combination was recorded as a purchase for accounting purposes. In
connection therewith, the Company recorded a nonrecurring acquisition-related
charge of approximately $2.2 million for acquired in-process technology. The
acquisition of Cinematronics represents an element of the Company's strategy to
further expand into the action category of the entertainment market. Over the
next 24 months, the Company expects the delivery of new products from this group
and has provided financial incentives to encourage the timely delivery of the
specified products.
Sales and marketing
Sales and marketing expenses, which include customer support services, have
increased significantly primarily due to the growth of the Company's sales and
marketing organizations in connection with the expansion of the Company's
product lines, diversification of the Company's distribution channels and
introduction of new merchandising and promotional programs. Additionally, in
October 1993, the Company opened an office in the United Kingdom to provide
marketing and sales support for the Company's European operations. On a
year-to-year basis, sales and marketing expenses as a percentage of revenues
remained relatively unchanged. The Company intends to continue to increase its
investment in sales and marketing and expects these expenses to increase in
absolute dollars and as a percentage of net revenues in fiscal 1997.
General and administrative
General and administrative expenses have increased in absolute dollars each
year primarily due to increased staffing and related costs necessary to support
the Company's growth. General and administrative expenses as a percentage of net
revenues have declined over these same periods primarily due to the Company's
revenue growth. The Company expects the level of general and administrative
expenses to increase in absolute dollars in fiscal 1997.
<TABLE>
<CAPTION>
Interest income (in thousands)
- ---------------------------------------------------------------------------------------
1996 Increase 1995 Increase 1994
<S> <C> <C> <C> <C> <C>
Interest income $1,493 560.6% $226 98.2% $114
Percentage of
net revenues 2.7% 0.6% 0.5%
</TABLE>
Interest income increased in absolute dollars and as a percentage of net
revenues due to higher average invested cash balances. The significant increase
in interest income from fiscal 1995 to fiscal 1996 was due to cash received in
the Company's May 1995 initial public offering.
<TABLE>
<CAPTION>
Provision for income taxes (in thousands)
- ---------------------------------------------------------------------------------------
1996 Increase 1995 Increase 1994
<S> <C> <C> <C> <C> <C>
Provision for
income taxes $3,825 103.6% $1,879 84.0% $1,021
Effective income
tax rate 38% 36% 31%
</TABLE>
<PAGE>
The year-to-year increases in the provision for income taxes and the
effective income tax rate reflect the Company's income growth and adjustments to
the valuation allowance for deferred tax assets. The effective annual income tax
rate is primarily a function of the level of pretax income in relation to
tax-exempt interest income. See Note 6 to Consolidated Financial Statements.
Discontinued operations
During fiscal 1994, the Company discontinued certain unprofitable
operations related to the development of software for commercial purposes that
had been initiated in fiscal 1993. In connection with the discontinuance of
these activities, the Company incurred net losses of $600,000 and $376,000 for
fiscal 1993 and fiscal 1994, respectively, and a net gain on disposal of the
related assets of $303,000 in fiscal 1995. See Note 10 to Consolidated Financial
Statements.
Recently issued accounting standard
In October 1995 the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which is
effective for years beginning after December 15, 1995. SFAS No. 123 permits a
company to choose either a new fair value-based method or the current Accounting
Principles Board Opinion No. 25 intrinsic value-based method of accounting for
its stock-based compensation arrangements. The Company has elected to continue
to follow current practice, but SFAS No. 123 requires pro forma disclosures of
net income and earnings per share computed as if the fair value-based method had
been applied.
Liquidity and capital resources
On June 1, 1995, the Company consummated an initial public offering of
3,450,000 shares of common stock, of which 2,450,000 were sold by the Company.
The Company raised approximately $35,500,000 net of expenses. As of March 31,
1996, the Company's principal sources of liquidity included cash and short-term
investments of $42.9 million and an available unsecured bank line of credit in
the amount of $1.0 million, which the Company has not used to date. The line of
credit expires on August 30, 1996. The Company also has longer-term investments
totaling approximately $6.1 million. The Company's cash, short-term investments
and unused bank line of credit are available to meet seasonal working capital
requirements. Seasonally higher revenues during the year-end holiday buying
season generally result in increased accounts receivable and working capital
during the fourth calendar quarter.
The Company uses its working capital to finance ongoing operations, fund
the development and introduction of new products and acquire capital equipment.
The Company's operating activities provided cash of $8.1 million and $5.2
million in fiscal 1996 and 1995, respectively, and used cash of $1.6 million in
fiscal 1994.
In June 1995, the Company entered into a seven-year lease, commencing in
September 1995, for new office space to house its corporate headquarters. The
lease agreement provides for monthly payments beginning at $75,000 and
escalating to $86,600 during the term of the lease. The Company may shorten the
term of the lease to five years and six months in exchange for a one-time
payment equal to three months' rent. During fiscal 1997, the Company expects to
incur approximately $2.6 million in capital expenditures.
From time to time, the Company evaluates acquisitions of businesses,
products or technologies that complement the business of Maxis, such as the
acquisition of Cinematronics LLC. The Company has no present understandings,
commitments or agreements with respect to any material acquisitions of other
businesses, products or technologies. Any such transactions, if consummated, may
use a portion of the Company's working capital or require the issuance of
equity.
The Company believes that existing working capital and cash from operations
will satisfy its liquidity and capital requirements for at least the next year.
Risk factors affecting future earnings and stock price
Preceding sections of this Report, particularly statements regarding the
Company's potential for future success, the potential of the Company's World
Wide Web site or World Wide Web-oriented products, the revenue potential of new
markets and distribution channels, changes in international distribution
operations, revenues from international operations, offering products on new
media, such as CD-ROMs, seasonal trends and profitability on a quarterly basis,
research and development expenses, the Company's potential expansion of its
action category of products, sales and marketing expenses, general and
administrative expenses and the Company's ability to satisfy its liquidity and
capital requirements for the next year, contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this report.
The Company has experienced, and expects to continue to experience,
significant fluctuations in operating results due to a variety of factors,
including the size and rate of growth of the consumer software market, market
acceptance of the Company's products and those of its competitors, development
and promotional expenses relating to the introduction of new products or new
versions of existing products, projected and actual changes in computing
platforms, the timing and success of product introductions, product returns,
changes in pricing policies by the Company and its competitors, the accuracy of
retailers' forecasts of consumer demand, the timing of orders from major
customers and order cancellations.
<PAGE>
The Company's operating results may also fluctuate significantly due to
changes in product plans or delays in shipment. For example, in April 1996, the
Company decided to reevaluate The Mindwarp, an action game it had planned to
ship during fiscal 1997. The Company is assessing the product's design and game
play. There can be no assurance that The Mindwarp will be released during fiscal
1997 or that the product will ever be commercially released. Furthermore, even
if The Mindwarp is released, there can be no assurance that it will contribute
revenues to the Company sufficient to recoup the development and marketing costs
incurred. Such risks apply to all of the Company's products under development.
The consumer software business is highly seasonal. Net revenues are
typically significantly higher during the third fiscal quarter, due primarily to
the increased demand for consumer software during the calendar year-end holiday
buying season. Net revenues in other quarters are generally lower and vary
significantly as a result of new product introductions and other factors. The
Company expects its net revenues and operating results to continue to reflect
significant seasonality and further expects the first quarter, and possibly the
second quarter, of fiscal 1997 to result in losses due to the delay or possible
cancellation of The Mindwarp, seasonality and increased operating expenses.
There can be no assurance that the Company will achieve consistent profitability
on a quarterly or annual basis.
In response to competitive pressures, the Company may take certain pricing
or marketing actions that could materially adversely affect the Company's
business, operating results and financial condition. The Company may be required
to pay fees in advance or to guarantee royalties, which may be substantial, to
obtain licenses to intellectual properties from third parties before products
incorporating such properties have been introduced or achieved market
acceptance.
Products are generally shipped as orders are received, and accordingly the
Company operates with little backlog. The Company's expense levels are based, in
part, on its expectations regarding future sales and, as a result, operating
results would be disproportionately adversely affected by a decrease in sales or
a failure to meet the Company's sales expectations. Defective products may
result in higher customer support costs and product returns.
The Company's gross profit is affected by the mix of sales among products
that are developed or licensed by Maxis and affiliate partner products that are
developed by third parties and distributed by the Company. Gross profit and
operating expenses are significantly lower on affiliate partner products because
the Company's services are generally limited to sales, distribution and related
functions. Effective April 1, 1996, the Company changed the offered terms of its
affiliate partner program granting, among other things, a greater share of
receipts on affiliate sales to affiliate partners. There can be no assurance
that the Company's current share of receipts on affiliate sales for distribution
services or the current mix of affiliate partner sales will be sustained.
The market price of the Company's common stock could be subject to
significant fluctuations in response to variations in quarterly operating
results and other factors, such as announcements of new products by the Company
or its competitors and changes in financial estimates by securities analysts or
other events. The stock market and many technology companies have recently been
trading at or near historic highs and reflect price/earning ratios above
historic norms. Moreover, the stock market has experienced extreme volatility
that has particularly affected the market prices of equity securities of many
high technology companies and that has often been disproportionate to the
operating performance of such companies. Broad market fluctuations, as well as
economic conditions generally and in the software industry specifically, may
adversely affect the market price of the Company's common stock. There can be no
assurance that the Company's stock price will remain at or near its current
level.
<PAGE>
Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31,
- --------------------------------------------------------------------------------------------------
Assets 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $20,102 $ 2,610
Marketable securities 22,788 6,045
Accounts receivable, less allowances for
returns and doubtful accounts of $5,607
in 1996 and $2,911 in 1995 6,991 3,773
Inventories 1,543 1,691
Income taxes refundable 227 --
Deferred income taxes 2,808 2,366
Other current assets 872 363
- ---------------------------------------------------------------------------------------------------
Total current assets 55,331 16,848
- ---------------------------------------------------------------------------------------------------
Furniture and equipment, net 3,243 1,771
Deferred income taxes 2,023 515
Long-term marketable securities 6,119 --
Other assets 584 8
- ---------------------------------------------------------------------------------------------------
Total assets $67,300 $19,142
- ---------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
- ---------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,607 $ 1,418
Payable to affiliate partners 631 186
Royalties payable 1,373 1,211
Accrued compensation 1,685 1,171
Accrued advertising 1,538 699
Income taxes payable -- 127
Other accrued liabilities 2,585 579
Accrued rent 647 --
- ---------------------------------------------------------------------------------------------------
Total current liabilities 10,066 5,391
- ---------------------------------------------------------------------------------------------------
Commitments
Redeemable preferred stock, $.0001 par value;
authorized shares, 5,000,000;
issued and outstanding shares,
none in 1996 and
2,000,000 in 1995 -- 11,363
Stockholders' equity:
Common stock, $.0001 par value;
authorized shares, 40,000,000; issued
and outstanding, 10,989,906 in 1996
and 6,309,651 in 1995 50,514 2,266
Notes receivable from stockholders (269) (415)
Retained earnings 7,128 1,027
Deferred compensation (139) (490)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 57,234 2,388
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $67,300 $19,142
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 55,412 $ 38,147 $ 23,332
Cost of revenues 17,897 14,186 8,367
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 37,515 23,961 14,965
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 8,416 6,008 3,299
Acquisition-related charge 2,232 -- --
Sales and marketing 12,843 8,813 5,407
General and administrative 5,504 4,184 3,225
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 28,995 19,005 11,931
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 8,520 4,956 3,034
Interest income 1,493 226 114
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 10,013 5,182 3,148
Provision for income taxes 3,825 1,879 1,021
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 6,188 3,303 2,127
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of
$251 in fiscal 1994) -- -- (376)
Gain on disposal of discontinued operations (net of income tax
expense of $173 in fiscal 1995) -- 303 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,188 $ 3,606 $ 1,751
- ------------------------------------------------------------------------------------------------------------------------------------
Per share amounts:
Income from continuing operations $ .56 $ .37 $ .25
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per share $ .56 $ .40 $ .20
- ------------------------------------------------------------------------------------------------------------------------------------
Shares used in per share calculations 11,051 8,915 8,621
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal Years Ended March 31, 1994, 1995 and 1996 (in thousands)
<TABLE>
<CAPTION>
Notes Total
receivable Retained stockholders'
Common stock from earnings Deferred equity
Shares Amount stockholders (deficit) compensation (deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1993 5,400 $ 822 $ -- $ (3,302) $ -- $ (2,480)
Common stock options exercised 14 4 -- -- -- 4
Issuance of common stock for
notes receivable 392 118 (118) -- -- --
Net income -- -- -- 1,751 -- 1,751
Accretion of preferred stock -- -- -- (514) -- (514)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1994 5,806 944 (118) (2,065) -- (1,239)
Common stock options exercised 115 89 -- -- -- 89
Issuance of common stock for
notes receivable 410 303 (303) -- -- --
Repurchase of common stock (21) (10) 6 -- -- (4)
Deferred compensation resulting from
grant of options -- 940 -- -- (940) --
Amortization of deferred compensation -- -- -- -- 450 450
Net income -- -- -- 3,606 -- 3,606
Accretion of preferred stock -- -- -- (514) -- (514)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1995 6,310 2,266 (415) 1,027 (490) 2,388
Accretion of preferred stock -- -- -- (87) -- (87)
Conversion of preferred stock into
common stock 2,094 11,449 -- -- -- 11,449
Issuance of common stock in initial
public offering, net of issuance costs 2,450 35,508 -- -- -- 35,508
Common stock issued under stock option
and stock purchase plans 153 406 -- -- -- 406
Tax benefits resulting from employee
stock transactions -- 897 -- -- -- 897
Repurchases of common stock (17) (12) -- -- -- (12)
Repayment of notes receivable -- -- 146 -- 146
Net income -- -- -- 6,188 -- 6,188
Amortization of deferred compensation -- -- -- -- 351 351
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1996 10,990 $ 50,514 $ (269) $ 7,128 $ (139) $ 57,234
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 6,188 $ 3,606 $ 1,751
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for returns and doubtful accounts 2,696 930 1,263
Depreciation 991 572 388
Acquisition-related charge 2,232 -- --
Deferred income taxes (1,950) (1,765) (1,116)
Gain on disposal of discontinued operations -- (303) --
Amortization of deferred compensation 351 450 --
Changes in operating assets and liabilities:
Accounts receivable (5,914) 1,558 (6,103)
Inventories 148 (582) (460)
Income taxes refundable/payable (354) (908) 1,224
Other current assets (509) (275) 138
Other assets (576) 244 1
Accounts payable 189 905 (215)
Payable to affiliate partners 445 (311) 497
Royalties payable 162 92 387
Accrued compensation 514 551 287
Accrued advertising 839 327 261
Other accrued liabilities 2,653 107 63
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 8,105 5,198 (1,634)
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Purchases of held-to-maturity securities (24,989) (7,280) (10,976)
Maturities of held-to-maturity securities 5,183 7,162 12,377
Purchases of available-for-sale securities (9,000) (3,424) --
Maturities of available-for-sale securities 5,944 1,481 --
Additions to fixed assets, net (2,354) (1,560) (370)
Net cash paid for acquisition (2,342) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (27,558) (3,621) 1,031
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities
Repayment of notes receivable to shareholders 146 -- --
Proceeds from issuance of common stock 35,508 -- --
Proceeds from issuance of ESPP stock 302 -- --
Repurchase of common stock (12) (4) --
Proceeds from exercise of options 104 89 4
Tax benefit from exercise of stock options 897 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 36,945 85 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 17,492 1,662 (599)
Cash and cash equivalents at beginning of year 2,610 948 1,547
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 20,102 $ 2,610 $ 948
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash financing activities:
Accretion of preferred stock $ 87 $ 514 $ 514
Conversion of preferred stock to common stock $ 11,449 $ -- $ --
Issuance of common stock for notes receivable $ -- $ 303 $ 118
Repurchase of common stock in exchange for reduction
of notes receivable $ -- $ (6) $ --
Supplemental disclosure of cash flow information:
Income tax payments $ 5,232 $ 4,809 $ 575
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
Notes to Consolidated Financial Statements
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company
Maxis, Inc. ("Maxis" or the "Company"), a Delaware corporation, develops,
publishes and markets entertainment and learning software for personal computers
and 32-bit game consoles. The Company currently sells its software products,
including affiliate partner products, in North America through software
distributors, major computer and software retailing organizations, consumer
electronics stores, discount warehouse stores and mail order companies.
Internationally, the Company sells its products through a combination of
distribution, direct retail and licensing arrangements.
Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Revenue recognition
Product sales
Revenue from product sales is recognized upon shipment of product to the
customer, net of appropriate allowances for returns, provided that no
significant vendor obligations remain and collection is deemed probable. Costs
associated with certain post-sales customer obligations are accrued. The
Company's revenue recognition policy is in accordance with the provisions of the
American Institute of Certified Public Accountants' Statement of Position 91-1,
"Software Revenue Recognition."
Software licenses
Software license revenue and royalty advances are recognized as revenue at
the time the Company has completed all significant performance obligations under
the terms of the license agreement and any amounts paid are nonrefundable.
Amounts received prior to revenue recognition are recorded as deferred revenue.
Continuing royalties received under the terms of licensing agreements are
recognized as revenue when the amount of royalties is determinable. Revenue from
software license agreements totaled $5,479,000, $2,643,000 and $1,148,000 for
the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
Major customers
Net revenues from sales to three major customers accounted for 12%, 11% and
10% of net revenues for the fiscal year ended March 31, 1996. Net revenues from
sales to one customer accounted for 19% of net revenues for the fiscal year
ended March 31, 1995 (no customer represented 10% or more of net revenues for
the fiscal year ended March 31, 1994).
Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid short-term cash
investments with original maturities of three months or less.
Marketable securities
Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of its debt and equity securities at the time of
purchase and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity. Debt securities
classified as held-to-maturity are carried at amortized cost, which is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Debt securities not classified as
held-to-maturity are classified as available-for-sale and are carried at amounts
which approximate fair value. Realized gains and losses during fiscal 1996 on
available-for-sale securities were not material.
Accounts receivable
The Company's accounts receivable are principally from distributors and
retailers of the Company's products. Accounts receivable are recorded net of
allowances for potential credit losses ($564,000 and $439,000 at March 31, 1996
and 1995, respectively), and sales returns ($5,043,000 and $2,472,000 at March
31, 1996 and 1995, respectively). The Company performs periodic credit
evaluations of its customers and generally does not require collateral. Actual
losses may differ from the Company's estimates, which could have a material
impact on the Company's future results of operations.
Inventories
Inventories are valued at the lower of standard cost, which approximates
cost, determined using the first-in, first-out method, or market. The Company
evaluates the quantities on hand relative to current selling prices and
historical and forecasted sales volume. Based on these evaluations, provisions
are made to write inventories down to net realizable value.
<PAGE>
1. THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES continued
Furniture and equipment
Furniture and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets
which range from three to seven years.
Capitalized software costs
Financial accounting standards provide for the capitalization of certain
software development costs after technological feasibility of the software is
established. No such costs have been capitalized because the impact on the
financial statements would be immaterial.
Royalties expense
Royalties are recognized as cost of revenues based on actual net product
sales or software license revenue. Royalty costs, which are included in cost of
revenues, were $3,291,000, $2,304,000 and $1,939,000 in fiscal 1996, 1995 and
1994, respectively. Royalties paid to a director and stockholder of the Company
who is the developer of some of the Company's software product, totaled
$243,000, $323,000 and $364,000 in fiscal 1996, 1995 and 1994, respectively.
Income taxes
The Company accounts for income taxes using the liability method required
by statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Per share data
Per share data is based on the weighted average number of common shares and
dilutive common stock equivalents outstanding for the period. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83,
options to purchase common stock (using the treasury stock method) granted by
the Company during the 12 months immediately preceding the initial public
offering date have been included in the calculation of weighted average number
of common shares outstanding as if the underlying shares were outstanding for
the years ended March 31, 1995 and 1994.
Recently issued accounting standard
In October 1995 the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which is
effective for years beginning after December 15, 1995. SFAS No. 123 permits a
company to choose either a new fair value-based method or the current Accounting
Principles Board Opinion No. 25 intrinsic value-based method of accounting for
its stock-based compensation arrangements. The Company has elected to continue
to follow current practice, but SFAS No. 123 requires pro forma disclosures of
net income and earnings per share computed as if the fair value-based method had
been applied.
2. MARKETABLE SECURITIES
At March 31, 1996, the Company's held-to-maturity and available-for-sale
debt securities consist of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
unrealized unrealized fair
Cost gains losses value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal bonds $20,906 $ 278 -- $21,184
Municipal notes 3,001 48 -- 3,049
- --------------------------------------------------------------------------------
Total
held-to-maturity securities $23,907 $ 326 -- $24,233
- --------------------------------------------------------------------------------
Market auction preferreds $22,475 $ 17 -- $22,492
Money market funds 258 -- -- 258
- --------------------------------------------------------------------------------
Total
available-for-sale securities 22,733 17 -- 22,750
- --------------------------------------------------------------------------------
Total marketable securities $46,640 $ 343 -- $46,983
- --------------------------------------------------------------------------------
</TABLE>
Such debt securities have been recorded as cash and cash equivalents
($17,733,000), short-term marketable securities ($22,788,000) and long-term
marketable securities ($6,119,000). The contractual maturities of
held-to-maturity and available-for-sale debt securities at March 31, 1996, are
all two years or less. For all periods presented, realized gains and losses on
available-for-sale securities were not material.
3. INVENTORIES
Inventories consist primarily of software media, manuals and related
packaging materials as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and work in process $ 356 $ 630
Finished goods 1,187 1,061
- --------------------------------------------------------------------------------
$ 1,543 $ 1,691
- --------------------------------------------------------------------------------
</TABLE>
4. FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
Furniture and equipment consists of the following (in thousands):
March 31,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Computer equipment and software $ 3,099 $ 1,911
Furniture 955 393
Office equipment 892 684
Leasehold improvements 581 16
- --------------------------------------------------------------------------------
5,527 3,004
Less accumulated depreciation 2,284 1,233
- --------------------------------------------------------------------------------
$ 3,243 $ 1,771
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
5. BANK LINE OF CREDIT
The Company has an unsecured revolving line of credit for borrowing up to
$1.0 million, which expires on August 30, 1996. Borrowings under the line of
credit bear interest, payable monthly, at a reference rate determined by the
bank (8.25% at March 31, 1996). The agreement also requires the Company to
maintain a minimum quick ratio and minimum net worth. There were no outstanding
borrowings under the line of credit at March 31, 1996.
6. INCOME TAXES
Significant components of the provision for income taxes, including the
tax effect of the losses from discontinued operations, are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 4,006 $ 2,753 $ 1,444
State 1,347 876 379
Foreign 422 188 63
- -----------------------------------------------------------------------------
Total current 5,775 3,817 1,886
- -----------------------------------------------------------------------------
Deferred:
Federal (1,540) (964) (639)
State (410) (296) (117)
Effect of valuation
allowance adjustment -- (505) (360)
- -----------------------------------------------------------------------------
Total deferred (1,950) (1,765) (1,116)
- -----------------------------------------------------------------------------
Total current and
deferred provision $ 3,825 $ 2,052 $ 770
- -----------------------------------------------------------------------------
</TABLE>
The reconciliation of income taxes attributable to income from continuing
operations and the loss from discontinued operations computed at the U.S.
federal statutory tax rates to the effective tax rate of the provision for
income taxes is:
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates 35% 34% 34%
State income taxes 6 7 7
Tax exempt interest (4) -- --
Other 1 4 4
Effect of valuation allowance adjustment -- (9) (14)
- -----------------------------------------------------------------------------
38% 36% 31%
- -----------------------------------------------------------------------------
</TABLE>
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
March 31,
- -----------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserve for allowances for returns
and doubtful accounts $ 2,214 $ 1,260
Expenses not currently deductible for
income tax purposes 2,189 1,406
Other 428 215
- -----------------------------------------------------------------------------
Total deferred tax assets $ 4,831 $ 2,881
- -----------------------------------------------------------------------------
</TABLE>
7. STOCKHOLDERS' EQUITY (Deficit)
Common stock
In April 1995, the Company was reincorporated in the State of Delaware. As
part of this reincorporation, each outstanding share of the former California
corporation no par common stock was converted to one share of Delaware
corporation $.0001 par value common stock and each share of the former
California corporation no par preferred stock was converted to two shares of the
Delaware corporation $.0001 par value preferred stock. All preferred shares and
per share information has been restated to reflect the effect of the conversion.
On June 1, 1995, the Company consummated an initial public offering of
3,450,000 shares of common stock that raised approximately $35.5 million net of
expenses. Of the 3,450,000 shares of common stock, 2,450,000 shares were sold by
the Company and 1,000,000 shares were sold by selling stockholders.
1993 Stock Option Plan
In June 1993, the Company established a stock option plan ("1993 Plan")
under which incentive and nonqualified stock options may be granted to
employees, directors and consultants of the Company to purchase up to 1,854,000
shares of common stock. The options may be granted at an exercise price not less
than 85% of the fair market value of the common stock at the date of grant. The
fair market value of the common stock was determined by the Board of Directors.
All options currently outstanding are immediately exercisable upon grant and
generally vest over various periods as determined by the Board of Directors at
the time of grant. The Company retains the right to repurchase (at the original
purchase price) nonvested shares held at the time of termination of employment.
At March 31, 1996, 311,000 shares were subject to the Company's right of
repurchase. In June 1995, the 1993 Plan was superseded by the 1995 stock option
plan. At that time, the remaining 354,000 options available for grant under the
1993 Plan were cancelled.
1995 Stock Option Plan
In May 1995, the Company established a stock option plan ("1995 Plan") that
provides for grants of options to employees and consultants of the Company and
its subsidiaries to purchase up to 575,000 shares of common stock. With respect
to incentive stock options granted under the 1995 Plan, the exercise price must
be at least equal to the fair market value per share of common stock at the
grant date. Options under the 1995 Plan generally vest and become exercisable at
a rate of 25% of the shares subject to option on the first anniversary of the
commencement of vesting and 25% of the shares each year thereafter. As of March
31, 1996, no outstanding options were exercisable.
<PAGE>
7. STOCKHOLDERS' EQUITY (Deficit) continued
Changes in options outstanding from inception of the 1993 Stock Option
Plan to March 31, 1996, are as follows:
<TABLE>
<CAPTION>
Number Price
of shares per share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at March 31, 1993 -- --
Options granted 500,000 $ 0.30 - $ 0.33
Options exercised (406,000) 0.30
Options canceled (82,000) 0.30
- --------------------------------------------------------------------------------
Outstanding at March 31, 1994 12,000 $ 0.30 - $ 0.33
Options granted 1,072,000 0.73 - 9.00
Options exercised (525,000) 0.30 - 0.80
Options canceled (11,000) 0.30 - 0.80
- --------------------------------------------------------------------------------
Outstanding at March 31, 1995 548,000 $ 0.30 - $ 9.00
Options granted 272,000 11.00 - 48.00
Options exercised (131,000) 0.73 - 0.80
Options canceled (26,000) 0.73 - 39.75
- --------------------------------------------------------------------------------
Outstanding at March 31, 1996 663,000 $ 0.33 - $ 48.00
- --------------------------------------------------------------------------------
Options vested at March 31, 1996 176,000
- --------------------------------------------------------------------------------
Options available for grant at
March 31, 1996 350,000
- --------------------------------------------------------------------------------
</TABLE>
During fiscal 1994, included in options granted and exercised are options
granted to the Company's senior management team to purchase 392,000 shares of
common stock at $0.30 per share. These options were exercised and common stock
was issued in exchange for notes receivable. The notes receivable are for terms
of either three or nine years, bear interest at rates ranging from 3.69% to
5.97% with interest payable semiannually and principal due at maturity. The
notes are secured by the common stock purchased and are reflected as a reduction
of stockholders' equity.
During fiscal 1995, included in options granted and exercised are options
granted to the Company's senior management team to purchase 410,000 shares of
common stock at prices from $0.73 to $0.80 per share. These options were
exercised and common stock was issued in exchange for notes receivable. The
notes receivable are for terms from two to nine years, bear interest at rates
ranging from 6.24% to 8.01% with interest payable semiannually and principal due
at maturity.
During fiscal 1995, the Company issued options to purchase 1,072,000 shares
of common stock. The Company recorded deferred compensation of $940,000 for
financial reporting purposes with respect to such option grants to reflect the
difference between the exercise price and deemed fair value, for financial
statement presentation purposes, of the Company's common shares. Amortization of
deferred compensation for the fiscal years ended March 31, 1996 and 1995,
totaled $351,000 and $450,000, respectively.
Redeemable preferred stock
Prior to the Company's initial public offering, the Company's redeemable
preferred stock consisted of 5,000,000 authorized shares of no par redeemable
preferred stock of which 2,000,000 shares of redeemable preferred stock were
issued in June 1992 at $5.00 per share amounting to $10,000,000 less issuance
costs of approximately $92,000. The redeemable preferred stock was
noncumulative, fully participating and was entitled to a dividend rate of $0.25
per share. In connection with the Company's initial public offering all
outstanding shares of the Company's redeemable preferred stock were converted
into 2,094,000 shares of common stock.
8. 1995 EMPLOYEE STOCK PURCHASE PLAN
In May 1995 the Company established an employee stock purchase plan
("ESPP") and has reserved an aggregate of 100,000 shares of common stock. The
ESPP is intended to qualify under Section 423 of the Code and permits eligible
employees of the Company to purchase common stock through payroll deductions of
up to 10% of their compensation provided that no employee may purchase more than
$25,000 worth of stock in any calendar year. The ESPP is implemented with
six-month purchase periods as components of 24-month offering periods. The first
such purchase period commenced upon the date of the offering and ended on the
last market trading day on December 29, 1995. The price of common stock
purchased under the ESPP is 85% of the lower of the fair market value of the
common stock on the first day of each offering period or last day of each
purchase period. The ESPP will expire in the year 2005. In fiscal 1996, a total
of 22,000 shares were issued under the plan at $13.60 per share. At March 31,
1996, a total of 78,000 shares were available for issuance under the plan.
9. EMPLOYEE RETIREMENT AND BENEFIT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees which operates under Section 401(k) of the Internal
Revenue Code. Eligible employees may contribute amounts to the plan subject to
certain limitations. The Company matches contributions by plan participants up
to 5% of the participant's pretax compensation. Retirement plan expense for
fiscal 1996, 1995 and 1994 was $321,000, $209,000 and $186,000, respectively.
10. DISCONTINUED OPERATIONS
In December 1993, the Company sold an unprofitable commercial software
division ("Division") to the Division's management. Although a legal transfer of
the assets of the Division occurred in December 1993, the sale could not be
recognized as a divestiture for accounting purposes at that time because there
was an absence of a significant financial investment in the business by
management of the Division.
In September 1994, the Company received full payment of the note receivable
from the management of the Division at which date the divestiture was accounted
for as discontinued operations.
<PAGE>
10. DISCONTINUED OPERATIONS continued
The results of the Division for the fiscal year ended March 31, 1995, were
accounted for as discontinued operations in the accompanying consolidated
statements of income. The sale resulted in a gain, net of applicable income
taxes, of $303,000. Revenues related to this Division were $361,000 in fiscal
year 1994. There were no revenues in subsequent periods.
11. COMMITMENTS
In June 1995 the Company entered into a seven-year lease for new office
space to house its principal corporate headquarters. The lease agreement
provides for monthly payments beginning at $75,000, escalating to $86,600 during
the term of the lease. The lease is noncancelable for the first five years and
six months with the option, at the Company's election, to shorten the term of
the lease for a one-time payment equal to three months' rent.
Future minimum lease payments under the Company's operating leases for the
periods ended March 31, pursuant to leases outstanding as of March 31, 1996, are
due as follows (in thousands):
<TABLE>
<C> <C>
1997 $1,014
1998 977
1999 901
2000 901
2001 624
- --------------------------------------------------------------------------------
$4,417
- --------------------------------------------------------------------------------
</TABLE>
Rent expense under all leases was $1,021,000, $486,000 and $324,000 for
fiscal 1996, 1995 and 1994, respectively.
12. INFORMATION BY GEOGRAPHIC AREA
Information regarding the Company's operations, including its foreign
subsidiary and export sales, by geographic area for fiscal 1996, 1995 and 1994
is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
- --------------------------------------------------------------------------------
1996 1995 1994
Net revenues:
<S> <C> <C> <C>
North America $43,564 $32,614 $21,152
Europe 7,197 4,135 1,478
Asia/Pacific and other 4,651 1,398 702
- --------------------------------------------------------------------------------
$55,412 $38,147 $23,332
- --------------------------------------------------------------------------------
</TABLE>
13. BUSINESS COMBINATION
In March 1996, the Company acquired for cash Cinematronics LLC, an
independent developer of entertainment software, with headquarters in Austin,
Texas. The acquisition was accounted for under the purchase method. This
purchase resulted in a non-recurring acquisition-related charge of $2,232,000
for acquired in-process technology. During fiscal 1996, the operations of
Cinematronics LLC were not material to the Company.
14. QUARTERLY FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
- -----------------------------------------------------------------------------------------
June September December March
30 30 31 31 Year
- -----------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Fiscal year 1996:
<S> <C> <C> <C> <C> <C>
Net revenues $11,332 $11,779 $20,111 $12,190 $55,412
Gross profit 7,742 8,536 12,912 8,325 37,515
- -----------------------------------------------------------------------------------------
Net income (loss) 1,132 1,722 3,541 (207) 6,188
- -----------------------------------------------------------------------------------------
Net income (loss)
per share 0.12 0.15 0.31 (0.02) 0.56
Fiscal year 1995:
Net revenues $ 6,977 $ 6,645 $15,526 $ 8,999 $38,147
Gross profit 4,417 3,928 9,399 6,217 23,961
Income from
continuing
operations 692 48 2,385 178 3,303
Gain on disposal
of discontinued
operations -- 303 -- -- 303
- -----------------------------------------------------------------------------------------
Net income 692 351 2,385 178 3,606
- -----------------------------------------------------------------------------------------
Income from
continuing
operations
per share 0.08 0.01 0.27 0.02 0.37
Net income
per share 0.08 0.04 0.27 0.02 0.40
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Maxis, Inc.
We have audited the accompanying consolidated balance sheets of Maxis, Inc.
as of March 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended March 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxis, Inc. at
March 31, 1996 and 1995, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended March 31, 1996, in
conformance with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Walnut Creek, California
April 23, 1996
<PAGE>
Board of Directors
Jeff Braun
Chairman and Chief Executive Officer
Maxis, Inc.
Will Wright
Co-Founder and Chief Technical Officer
Maxis, Inc.
Charles Gaylord
Consultant
Eric Dunn
Vice President and General Manager,
Personal Finance Group
Intuit, Inc.
William Janeway
Managing Director
E.M. Warburg, Pincus and Co., Inc.
Dr. Henry Kressel
Managing Director
E.M. Warburg, Pincus and Co., Inc.
Avram Miller
Vice President
Intel Corporation
Sam Poole
President
Maxis, Inc.
Management Team
Jeff Braun
Chairman and Chief Executive Officer
Sam Poole
President
Bob Derber
Vice President and General Counsel
Val Garcia
Vice President, Operations
Fred Gerson
Vice President and
Chief Financial Officer
Deborah Gross
Vice President, Human Resources
Robin Harper
Vice President, Marketing
Doug Litke
Vice President, Business Development
Joe Scirica
Vice President, Product Development
Ileana Seander
Vice President, Sales
Headquarters Address
Maxis, Inc.
2121 N. California Blvd.
Walnut Creek, CA 94596-3572
http://www.maxis.com
Transfer Agent
Harris Trust Company of California
601 South Figueroa, Suite 4900
Los Angeles, CA 90017
(213) 239-0671
Independent Auditors
Ernst & Young LLP
1331 N. California Blvd.
Walnut Creek, CA 94596
Legal Counsel
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Corporate Information
Copies of this Annual Report and Form 10-K are available
upon request by calling (510) 933-5630.
COMMON STOCK PROFILE
The Company's common stock is traded on the Nasdaq National Market under
the symbol MXIS. The following table sets forth, for the periods indicated, the
high and low closing prices for the Company's common stock as reported on
Nasdaq:
<TABLE>
<CAPTION>
Fiscal Year 1996 High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
First quarter (from May 25, 1995) $30 1/2 $19 1/2
Second quarter 49 1/2 23
Third quarter 44 1/2 29 1/4
Fourth quarter 37 1/2 20 1/4
</TABLE>
The Company has not paid cash dividends and has no current plan to do so.
There were 133 stockholders of record on March 31, 1996, excluding stockholders
whose stock is held in nominee or street name by brokers.
ANNUAL MEETING
Shareholders are invited to attend Maxis' Annual Meeting at 10 a.m. on
August 21, 1996, at The Dean Lesher Regional Center for the Arts, Dean Lesher
Theatre, 1601 Civic Drive, Walnut Creek, CA 94596.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
1. Maxis Limited
2. Maxis South LLC
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Maxis, Inc. of our report dated April 23, 1996 included in the 1996 Annual
Report to Stockholders of Maxis, Inc.
Our audits also included the financial statement schedule of Maxis, Inc. listed
in Item 14 (a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the consolidated financial statement schedule referred to above,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
We consent to the incorporation by reference in the Registration Statement (Form
S-8/S-3 No. 33-97764) pertaining to the 1995 Employee Stock Purchase Plan, 1993
Stock Option Plan and 1995 Stock Plan of our report dated April 23, 1996, with
respect to the consolidated financial statements and schedule of Maxis, Inc.
incorporated by reference in the Annual Report (Form 10-K) for the year ended
March 31, 1996.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Walnut Creek, California
June 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME, AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 20,102
<SECURITIES> 22,788
<RECEIVABLES> 12,598
<ALLOWANCES> 5,607
<INVENTORY> 1,543
<CURRENT-ASSETS> 55,331
<PP&E> 5,527
<DEPRECIATION> 2,284
<TOTAL-ASSETS> 67,300
<CURRENT-LIABILITIES> 10,066
<BONDS> 0
0
0
<COMMON> 50,514
<OTHER-SE> 6,720
<TOTAL-LIABILITY-AND-EQUITY> 67,300
<SALES> 49,933
<TOTAL-REVENUES> 55,412
<CGS> 14,606
<TOTAL-COSTS> 17,897
<OTHER-EXPENSES> 28,995
<LOSS-PROVISION> 7,994
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,013
<INCOME-TAX> 3,825
<INCOME-CONTINUING> 6,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,188
<EPS-PRIMARY> $0.56
<EPS-DILUTED> $0.56
</TABLE>
