Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-25832
--------------------------------------------
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)
TELEPHONE NUMBER (510) 933-5630
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
----- -----
As of January 31, 1997 there were 11,256,321 shares of the Registrant's
Common Stock, $.0001 par value, outstanding.
------------
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<PAGE>
<TABLE>
MAXIS, INC.
TABLE OF CONTENTS
<CAPTION>
PART I. Financial Information Page
<S> <C>
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
At December 31, 1996 and March 31, 1996 ............... 3
Condensed Consolidated Statements of Operations
Three and nine months ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1995 ......... 5
Notes to Condensed Consolidated Financial Statements ........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K ............................ 13
Signature ............................................................ 14
</TABLE>
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAXIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<CAPTION>
ASSETS December 31, 1996 March 31, 1996
- ------ ------------------ --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,241 $20,102
Marketable securities 19,427 22,788
Accounts receivable, less allowance for returns and doubtful
accounts of $7,852 and $5,607 14,958 6,991
Inventories 1,911 1,543
Income taxes refundable 749 227
Deferred income taxes 2,808 2,808
Other current assets 906 872
------- -------
Total current 51,000 55,331
Furniture and equipment, net 3,986 3,243
Deferred income taxes 2,023 2,023
Long-term marketable securities 10,532 6,119
Other assets 688 584
------- -------
$68,229 $67,300
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,555 $ 1,607
Payable to affiliate partners 887 631
Royalties payable 1,121 1,373
Accrued compensation 1,658 1,685
Accrued advertising 2,110 1,538
Other accrued liabilities 2,830 2,585
Accrued rent 547 647
------- -------
Total current liabilities 10,708 10,066
------- -------
Commitments
Stockholders' equity:
Common stock, $.0001 par value; authorized shares,
40,000,000; issued and outstanding, 11,231,686 and
10,989,906 52,486 50,514
Notes receivable from stockholders (161) (269)
Retained earnings 5,241 7,128
Deferred compensation (45) (139)
------- -------
Total stockholders' equity 57,521 57,234
------- -------
$68,229 $67,300
======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
<TABLE>
MAXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
December 31 December 31
------------------- -------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------- -------- -------- --------
Net revenues $ 19,768 $ 20,111 $ 35,880 $ 43,222
Cost of revenues 7,126 7,199 13,669 14,032
-------- -------- -------- --------
Gross profit 12,642 12,912 22,211 29,190
-------- -------- -------- --------
Operating expenses:
Research and development 3,284 2,188 9,160 6,144
Sales and marketing 5,070 3,879 12,277 9,649
General and administrative 1,430 1,500 5,087 4,108
-------- -------- -------- --------
Total operating expenses 9,784 7,567 26,524 19,901
-------- -------- -------- --------
Income (loss) from operations 2,858 5,345 (4,313) 9,289
Interest income 435 433 1,243 1,063
-------- -------- -------- --------
Income (loss) from operations before taxes 3,293 5,778 (3,070) 10,352
Provision (benefit) for income taxes 1,268 2,237 (1,183) 3,957
-------- -------- -------- --------
Net income (loss) $ 2,025 $ 3,541 $ (1,887) $ 6,395
======== ======== ======== ========
Net income (loss) per share $ .18 $ .31 $ (.17) $ .59
======== ======== ======== ========
Shares used in per share calculations 11,232 11,455 11,162 10,918
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
<TABLE>
MAXIS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine months ended
December 31
------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(1,887) $ 6,395
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for returns and doubtful accounts 2,245 3,333
Depreciation 1,107 670
Deferred income taxes -- (696)
Amortization of deferred compensation 94 295
Changes in operating assets and liabilities (10,598) (6,372)
-------- --------
Net cash (used in) provided by operating activities (9,039) 3,625
INVESTING ACTIVITIES
Purchases of held-to-maturity securities (18,521) (16,948)
Maturities of held-to-maturity securities 17,253 3,821
Sales of available-for-sale securities 1,943
Additions to fixed assets, (1,850) (1,944)
Other 216 100
-------- --------
Net cash used in investing activities (2.902) (13,028)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 204 64
Proceeds from issuance of ESPP stock 341 --
Net proceeds from issuance of common stock -- 35,493
Tax benefit from exercise of stock options 1,441 1,095
Repayment of notes receivable from stockholders 101 74
Repurchase of common stock (7) (7)
Other -- 14
-------- --------
Net cash provided by financing activities 2,080 36,733
-------- --------
Net (decrease) increase in cash and cash equivalents (9,861) 27,330
Cash and cash equivalents at beginning of period 20,102 2,610
-------- --------
Cash and cash equivalents at end of period $ 10,241 $ 29,940
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Accretion of preferred stock $ -- $ 87
======== ========
Conversion of preferred stock to common stock $ -- $ 11,450
======== ========
Forgiveness of note receivable from stockholder $ (8) $ --
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income tax payments $ 335 $ 2,251
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
MAXIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements for the three months and
nine months ended December 31, 1996 and 1995 are unaudited and reflect all
adjustments, consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair presentation of the results
for the interim periods. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes
thereto in Maxis' Annual Report on Form 10-K for the year ended March 31,
1996. The results of operations for the three- and nine-month periods ended
December 31, 1996 are not necessarily indicative of the results for the
entire year.
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. Common shares
outstanding includes weighted average common equivalent shares as if all
shares of preferred stock were converted into common stock on their
respective dates of issuance. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin 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 all periods
presented.
2. Issuance of Common Stock
On June 1, 1995, the Company consummated an initial public offering of
3,450,000 shares of common stock which 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. Immediately prior to the offering, all outstanding shares of
preferred stock were converted into 2,094,000 shares of common stock.
<TABLE>
3. Marketable Securities
At December 31, 1996, the Company's held-to-maturity and available-for-sale
debt securities consist of the following (in thousands):
<CAPTION>
Held-to-maturity securities
------------------------------------------
Gross Gross Estimated
unrealized unrealized fair
Cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Municipal bonds . . . . . . . . . . . . . . . . . . . $26,459 $ 112 $ -- $26,571
Municipal notes . . . . . . . . . . . . . . . . . . . 1,000 14 -- 1,014
----- ----- ----- -------
$27,459 $ 126 $ -- $27,585
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale securities
------------------------------------------
Gross Gross Estimated
unrealized unrealized fair
Cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. corporate securities . . . . . . . . . . . . . . $10,600 $ 36 $ -- $10,636
Money market funds . . . . . . . . . . . . . . . . . 746 -- -- 746
------- ----- ----- -------
$11,346 $ 36 $ -- $11,382
======= ===== ===== =======
Total . . . . . . . . . . . . . . . . . . . . . . .. $38,805 $ 162 $ -- $38,967
======= ===== ===== =======
</TABLE>
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<PAGE>
MAXIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
3. Marketable Securities - (continued)
Such debt and equity securities have been recorded as cash and cash
equivalents ($8,846,000), short-term marketable securities ($19,427,000),
and long-term marketable securities ($10,532,000). The contractual
maturities of held-to-maturity and available-for-sale debt securities at
December 31, 1996 are all two years or less. Realized gains and losses on
sales of available-for-sale securities have not been material.
4. Inventories
Inventories consist primarily of software media, manuals and related
packaging materials as follows (in thousands):
December 31 March 31
1996 1996
Raw materials and work in process $ 468 $ 356
Finished goods 1,443 1,187
------- -------
$ 1,911 $ 1,543
======= =======
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<PAGE>
MAXIS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and the notes thereto and in conjunction
with Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996. The operating results for any quarter are
not necessarily indicative of results for any future period.
Overview
Maxis was founded in 1987 to develop software for the consumer
entertainment market. In North America, 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.
Internationally, the Company sells its products through a combination of
distribution, direct retail and licensing arrangements. Maxis' products are
available for multiple platforms, including Windows, Windows 95, DOS and
Macintosh. Certain of the Company's products are also available for video
game consoles such as the Sega Saturn and the Sony PlayStation.
<TABLE>
The following table sets forth, as a percentage of net revenues,
consolidated statement of operations data for the periods indicated:
<CAPTION>
Three months ended Nine months ended
December 31 December 31
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 36.0 35.8 38.1 32.5
---- ---- ---- ----
Gross profit 64.0 64.2 61.9 67.5
---- ---- ---- ----
Operating expenses:
Research and development 16.6 10.9 25.5 14.2
Sales and marketing 25.6 19.3 34.2 22.3
General and administrative 7.2 7.5 14.2 9.5
---- ---- ---- ----
Total operating expenses 49.5 37.6 73.9 46.3
---- ---- ---- ----
Income (loss) from operations 14.5 26.6 (12.0) 21.5
Interest income 2.2 2.2 3.5 2.5
---- ---- ---- ----
Income (loss) from operations before taxes 16.7 28.7 (8.6) 24.0
Provision (benefit) for income taxes 6.4 11.1 (3.3) 9.2
---- ---- ---- ----
Income (loss) from continuing operations 10.2% 17.6% (5.3)% 14.8%
==== ==== ==== ====
</TABLE>
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<PAGE>
MAXIS, INC.
Net Revenues
The Company's net revenues decreased from $20,111,000 in the third quarter
of fiscal 1996 to $19,768,000 in the third quarter of fiscal 1997. Net
revenues also decreased from $43,222,000 in the first nine months of fiscal
1996 to $35,880,000 in the first nine months of fiscal 1997. Although
SimCity 2000 for personal computers remained the Company's best-selling
group of products, the Company experienced lower revenues from these
products during the three- and nine-month periods ended December 31, 1996
as compared to the same periods last year. The lower sales of SimCity 2000
for PCs were partially, but not completely, offset by higher sales of
SimCity 2000 for game consoles, specifically the Sony Playstation and the
Sega Saturn. SimCity 2000 was released initially for the DOS format in
October 1993. Also, the Company released SimTower for Windows in April 1995
and SimCity 2000 for Windows 95 in August 1995. Both of these products
contributed to higher net revenues during the first nine months of fiscal
1996 as compared to the first nine months of fiscal 1997.
During the third quarter of fiscal 1997, the Company released several new
products, including SimCopter, SimGolf, SimPark, SimTunes and Full Tilt II.
Although the Company released four new Sim-branded products during the
quarter, the two most significant releases, SimGolf and SimCopter were
shipped in mid-November - relatively late in the holiday buying season.
Additionally, SimCopter was released approximately one month later than
planned, resulting in a significant shortfall in anticipated revenue for
the quarter. During the same quarter in fiscal 1996, the Company also had
several new product releases, including Full Tilt and Marty and the Trouble
with Cheese. During the first nine months of fiscal 1997, the Company's
best-selling products included SimCity 2000 for PCs, SimCopter, SimGolf,
SimCity 2000 for the Sony Playstation and SimPark.
CD-ROM (vs. floppy disk and game console) products accounted for 79% of the
Company's net revenues in the third quarter of fiscal 1997 as compared to
78% in the same quarter in fiscal 1996. During the first nine months of
fiscal 1997, CD-ROM products accounted for 77% of net revenues as compared
to 75% of net revenues in the first nine months of fiscal 1996.
Cost of Revenues
Cost of revenues includes all costs of media, manuals, duplication,
packaging materials, assembly and freight. In addition, royalties are
included in cost of revenues. Gross profit as a percentage of net revenues
was 64.0% in the third quarter of fiscal 1997, essentially unchanged from
the third quarter of fiscal 1996. On a year-to-date basis, the gross profit
percentage decreased from 67.5% in the first nine months of fiscal 1996 to
61.9% in the first nine months of fiscal 1997. The decrease in gross profit
in fiscal 1997 was due to several factors. During the third quarter of
fiscal 1997, the Company commenced shipments in Germany under a new
distribution arrangement. The arrangement requires payment of fixed
selling/distribution fees and customer discounts, generally resulting in
lower gross margins. Also, the Company derived a higher percentage of net
revenues from game console products, due primarily to sales of SimCity 2000
for the Sony Playstation. During the first nine months of fiscal 1997 the
percentage of revenues from game consoles was 16% as compared to 4% in the
same period of fiscal 1996. Cost of goods sold generally is higher for game
console products than for PC-based Maxis products. In addition, the Company
experienced lower average selling prices because of an increase in the
percentage of revenues from sales of the Company's lower-priced Collector's
Series products and lower average selling prices for some of its older
products. Finally, the Company included sales premiums in its initial
shipments of the four Sim-branded titles released in the third quarter of
1997 (see "Net Revenues" above), thereby increasing the cost of goods sold
for these products. The Company expects that the gross profit percentage
will continue to fluctuate on a quarterly basis.
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<PAGE>
MAXIS, INC.
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 increased research and development
expenses from $2,188,000 in the third quarter of fiscal 1996 to $3,284,000
in the third quarter of fiscal 1997. As a percentage of net revenues,
research and development increased from 10.9% for the third quarter of
fiscal 1996 to 16.6% for the third quarter of fiscal 1997. Research and
development expenses for the first nine months of fiscal 1996 increased
from $6,144,000, representing 14.2% of net revenues to $9,160,000,
representing 25.5% of net revenues. The increase in research and
development expenses was due primarily to hiring additional employees and
the associated salaries, benefits and facilities costs. Also, operational
costs related to Cinematronics were included in the Company's results of
operations for the first nine months of fiscal 1997. There were no such
costs in the same period last year because the Company acquired
Cinematronics in March 1996. Furthermore, during the third quarter of
fiscal 1997, the Company made significant advance product development
payments that were expensed as paid. The Company believes that significant
investment in research and development is required to remain competitive,
and the Company intends to continue to increase its investment in this
area. Therefore, the Company expects research and development expenses to
increase in absolute dollars.
Sales and Marketing
The Company increased its sales and marketing expenses, which include
customer support services, from $3,879,000 in the third quarter of fiscal
1996 to $5,070,000 in the third quarter of fiscal 1997. As a percentage of
net revenues, sales and marketing expenses increased from 19.3% in the
third quarter of fiscal 1996 to 25.6% in the third quarter of fiscal 1997.
Sales and marketing expenses increased in the first nine months of fiscal
1996 from $9,649,000, representing 22.3% of net revenues to $12,277,000,
representing 34.2% of net revenues in the first nine months of fiscal 1997.
The increase in sales and marketing expenses was due primarily to expansion
of the Company's domestic and European sales and marketing organizations.
Also, during the first quarter of fiscal 1997, the Company opened a sales,
marketing and development office in Tokyo, Japan. There were no comparable
costs during the first nine months of fiscal 1996. In addition, the Company
increased expenditures for product advertising, trade shows and marketing
programs with customers.
Competition for retail shelf space is extremely competitive, as well as
increasingly costly. Therefore, in order to continue to distinguish the
Company and its products in the marketplace, the Company expects to
continue aggressive marketing and sales programs. Consequently, the Company
expects marketing and sales expenses to continue to increase in absolute
dollars.
General and Administrative
General and administrative expenses decreased from $1,500,000 in the third
quarter of fiscal 1996 to $1,430,000 in the third quarter of fiscal 1997.
The decrease was due primarily to lower accrued bonuses for senior
management of the Company, offset by higher insurance costs and a higher
allowance for doubtful accounts. On a year-to-date basis, general and
administrative expenses increased from $4,108,000 in the first nine months
of fiscal 1996 to $5,087,000 in the first nine months of fiscal 1997. The
year-to-date increase in general and administrative expenses was due
primarily to bad debt expenses related to the bankruptcies of two of the
Company's customers.
Interest income
Interest income increased slightly from $433,000 for the third quarter of
fiscal 1996 to $435,000 for the third quarter of fiscal 1997. Interest
income increased from $1,063,000 in the first nine months of fiscal
Page 10
<PAGE>
MAXIS, INC.
Interest income (Cont.)
1996 to $1,243,000 in the nine months of fiscal 1997 because the Company's
initial public offering proceeds were invested for a full nine-month period
in fiscal 1997, as opposed to only seven months in fiscal 1996.
Liquidity and Capital Resources
As of December 31, 1996, the Company's principal sources of liquidity
included cash and short-term investments of $29,668,000. The Company also
has longer-term investments totaling $10,532,000. The Company's cash and
investments are available to meet seasonal working capital requirements.
The Company uses its working capital to finance ongoing operations, to fund
the development and introduction of new products and to acquire capital
equipment. The Company's operating activities used cash of $9,039,000 in
the first nine months of fiscal 1997 and provided cash of $3,625,000 in the
first nine months of fiscal 1996. Seasonal revenue increases generated by
the holiday buying season usually result in higher accounts receivable and
allowances for returns and doubtful accounts at December 31.
From time to time, the Company evaluates acquisitions of businesses,
products or technologies that complement the business of Maxis. 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 the Company's liquidity and capital requirements for at least
the next year.
Risk Factors Affecting Future Earnings and Stock Price
Sections of this Report, particularly the last paragraph on page nine, the
first and third paragraphs on page ten and the statements under Liquidity
and Capital Resources 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 many
factors, including 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, seasonality, projected and
actual changes in computing platforms, the timing and success of product
introductions, product returns, changes in pricing policies by the Company
or 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 also may fluctuate significantly due to
changes in product plans or delays in completing and shipping products. For
example, in July 1996 the Company discontinued the development of the The
Mindwarp, an action game scheduled to ship during fiscal 1997. In
connection with this decision, the Company closed its Utah development
office. In mid-November 1996, the Company released SimCopter approximately
one month later than originally planned. Due to the importance of the
holiday buying season, the delay in shipping SimCopter resulted in a
significant shortfall in the Company's anticipated revenues for the
quarter. Such risks apply to all of the Company's products under
development.
Sales to a limited number of distributors and retailers have constituted
and are anticipated to continue to constitute a substantial majority of the
Company's net revenues. The loss of, or significant reduction in, sales
attributable to any of the Company's principal distributors or retailers
could materially adversely affect the Company's business, operating results
and financial condition. Distribution and retailing businesses in
Page 11
<PAGE>
MAXIS, INC.
Risk Factors Affecting Future Earnings and Stock Price (Cont.)
the computer industry from time to time have experienced significant
fluctuations in their businesses and there have been a number of business
failures among such entities. For example, NeoStar, a retailer with over
650 retail stores, filed for Chapter 11 bankruptcy in September 1996. In
connection with this event, the Company incurred an expense for bad debt
during the quarter ended September 30, 1996. Although the Company performs
periodic credit evaluations of its customers, the insolvency or business
failure of any significant distributor or retailer of the Company's
products could have a material adverse effect on the Company's business,
operating results and financial condition.
The consumer software business is highly seasonal. Net revenues typically
are 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 generally are 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. There can be no assurance that
the Company will achieve consistent profitability on a quarterly or annual
basis.
The Company's success depends on the timely introduction of successful new
products to replace declining revenues from older products. In response to
competitive pressures the Company may take certain pricing and/or marketing
actions. The Company has in the past, and will likely in the future, reduce
the price of older products and offer promotions to extend the life cycle
of its products. Such actions 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 have achieved market acceptance.
Products generally are 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 the Company and products that are
developed by third-party affiliate partners and distributed by the Company.
Gross profit and operating expenses are significantly lower on affiliate
partner products because the Company's services with respect to such
products generally are 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 affiliate sales receipts 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 as well as 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 recently have 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
often has been disproportionate to the operating performance of such
companies. Broad market fluctuations, as well as economic conditions in
general and in the software industry in particular, 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 12
<PAGE>
MAXIS, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Computation of Earnings per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
Page 13
<PAGE>
MAXIS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned.
MAXIS, INC.
(Registrant)
Date: February 12, 1997 By: /S/ Fred M. Gerson
------------------
Vice President,
Chief Financial Officer
Page 14
<PAGE>
<TABLE>
MAXIS, INC.
INDEX TO EXHIBITS
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF EXHIBIT NUMBERED PAGE
<S> <C> <C>
11.1 Statement of Computation of Earnings per Share 16
27.1 Financial Data Schedule 17
</TABLE>
Page 15
EXHIBIT 11.1
MAXIS, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- -----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income (loss) $ 2,025 $ 3,541 $ (1,887) $ 6,395
Computations of weighted average common and
common equivalent shares outstanding:
Weighted average common shares outstanding 11,232 10,373 11,162 7,785
Common equivalent shares from stock options issued
during the twelve-month period prior to the Com-
pany's initial public -- 993 -- 993
Common equivalent shares attributable to:
Redeemable preferred stock (if-converted method) -- -- -- 2,094
Stock options (treasury stock method) 1 -- 89 -- 46
-------- -------- -------- --------
Shares used in computing net income (loss) per share 11,232 11,455 11,162 10,918
======== ======== ======== ========
Net income (loss) per share $ .18 $ .31 $ (.17) $ .59
======== ======== ======== ========
<FN>
- --------
1 All stock options were antidilutive for the three and nine months ended
December 31, 1996 and therefore not included in the computation of
earnings per share.
</FN>
</TABLE>
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,241
<SECURITIES> 19,427
<RECEIVABLES> 22,810
<ALLOWANCES> 7,852
<INVENTORY> 1,911
<CURRENT-ASSETS> 51,000
<PP&E> 7,377
<DEPRECIATION> 3,391
<TOTAL-ASSETS> 68,229
<CURRENT-LIABILITIES> 10,708
<BONDS> 0
0
0
<COMMON> 52,486
<OTHER-SE> 5,035
<TOTAL-LIABILITY-AND-EQUITY> 68,229
<SALES> 18,811
<TOTAL-REVENUES> 19,768
<CGS> 6,408
<TOTAL-COSTS> 7,126
<OTHER-EXPENSES> 9,784
<LOSS-PROVISION> 4,569
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,293
<INCOME-TAX> 1,268
<INCOME-CONTINUING> 2,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,025
<EPS-PRIMARY> $0.18
<EPS-DILUTED> $0.18
</TABLE>
