<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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26772
VISIO CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1448389
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Pike Street, Suite 1800, Seattle, Washington 98101-4001
(Address of principal executive offices) (Zip code)
(206) 521-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares outstanding as of April 30, 1996
--------------------------------- -----------------------------------------
Common Stock ($.01 par value) 13,412,541
===============================================================================
<PAGE> 2
VISIO CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1996 and September 30, 1995 . . . . . . . . . . . . . . . . . . 2
Statements of Income for the three and six months ended March 31, 1996 and 1995 . . . . . . . 3
Statements of Cash Flows for the six months ended March 31, 1996 and 1995 . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
VISIO CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
---------------- -----------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 51,067 $ 7,063
Trade accounts receivable, net 3,680 4,462
Inventories 998 1,431
Prepaid expenses 1,483 1,662
Deferred income taxes 1,736 2,136
------------ -----------
Total current assets 58,964 16,754
Equipment and leasehold improvements, net 2,594 2,308
Other assets 6 185
------------ -----------
Total assets $ 61,564 $ 19,247
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,002 $ 4,176
Accrued compensation and benefits 1,629 1,025
Other accrued liabilities 7,522 5,041
Income taxes payable 1,790 2,653
Current portion of long-term obligations 380 394
------------ -----------
Total current liabilities 15,323 13,289
Long-term obligations 299 453
Convertible and redeemable preferred stock -- 6,545
Shareholders' equity (deficit):
Common stock 133 56
Additional paid-in capital 42,993 487
Translation adjustments (75) (74)
Retained earnings (accumulated deficit) 2,891 (1,509)
------------ -----------
Total shareholders' equity (deficit) 45,942 (1,040)
------------ -----------
Total liabilities and shareholders' equity (deficit) $ 61,564 $ 19,247
============ ===========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements
2
<PAGE> 4
VISIO CORPORATION
STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- ---------------------------------
1996 1995 1996 1995
-------------- --------------- -------------- -----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 14,527 $ 7,653 $ 27,944 $ 15,880
Cost of revenues 2,384 1,373 4,729 2,715
--------- --------- --------- ---------
Gross margin 12,143 6,280 23,215 13,165
Operating expenses:
Research and development 2,720 1,151 4,384 2,267
Sales and marketing 5,231 4,097 10,778 8,892
General and administrative 1,080 602 2,119 1,145
--------- --------- --------- ---------
Total operating expenses 9,031 5,850 17,281 12,304
--------- --------- --------- ---------
Income from operations 3,112 430 5,934 861
Other income, net 352 168 633 220
--------- --------- --------- ---------
Income before income taxes 3,464 598 6,567 1,081
Provision for income taxes 1,143 210 2,167 379
--------- --------- --------- ---------
Net income $ 2,321 $ 388 $ 4,400 $ 702
========= ========= ========= =========
Net income per share $ 0.16 $ 0.03 $ 0.31 $ 0.06
========= ========= ========= =========
Shares used in computing net income per
share 14,849 11,738 14,198 11,544
========= ========= ========= =========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements
3
<PAGE> 5
VISIO CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------------------
1996 1995
--------------- ---------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,400 $ 702
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 541 421
Deferred income taxes 400 --
Changes in:
Trade accounts receivable, net 772 (246)
Inventories 428 (89)
Prepaid expenses 182 16
Other assets 179 14
Accounts payable (162) (89)
Accrued compensation & benefits 605 166
Other accrued expenses 2,492 (529)
Income taxes payable (863) (40)
---------- ----------
Net cash provided by operating activities 8,974 326
INVESTING ACTIVITY - Purchases of equipment and leasehold
improvements (832) (368)
FINANCING ACTIVITIES
Proceeds from initial public offering 35,680 --
Issuance of common stock 358 70
Payments on long-term obligations (168) (152)
--------- ---------
Net cash provided by (used in) financing activities 35,870 (82)
--------- ---------
Net increase in cash and cash equivalents 44,012 (124)
Effect of exchange rate changes on cash (8) (39)
Cash and cash equivalents, beginning of period 7,063 3,669
--------- ---------
Cash and cash equivalents, end of period $ 51,067 $ 3,506
========= =========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these financial statements
4
<PAGE> 6
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
(unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Visio Corporation ("Visio" or
the "Company") at March 31, 1996 and for the three-and six-month periods ended
March 31, 1996 and 1995 are unaudited and reflect all adjustments, consisting
of only normal recurring items which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations for the interim periods. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the fiscal year ended September 30, 1995 included in Visio's
Registration Statement on Form S-1, Registration No. 33-96986, as amended. The
results of operations for the three and six months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full fiscal year.
Visio's fiscal year is a 52/53-week period. Accordingly, all
references as of and for the periods ended March 31, 1996, September 30, 1995
and March 31, 1995 reflect amounts as of and for the periods ended March 29,
1996, September 29, 1995 and March 31, 1995, respectively.
Inventories
Inventories are stated at the lower of cost or market and consist of
the following:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------- ------------------
(in thousands)
<S> <C> <C>
Raw Materials $ 319 $ 356
Finished Goods 679 1,075
------- -------
$ 998 $ 1,431
======= =======
</TABLE>
Initial Public Offering
On November 15, 1995, the Company completed it's initial public
offering of 2,840,500 shares of common stock, par value $.01 per share (the
"Common Stock") at $16 per share. Of these shares, 370,000 were sold by selling
shareholders. Proceeds to the Company were $35,679,879 net of $1,081,161 of
related expenses. The Company's 5,205,089 shares of convertible redeemable
preferred stock were automatically converted into 5,205,089 shares of Common
Stock on the closing date of the offering.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Visio Corporation, which commenced operations in September 1990,
develops drawing and diagramming software for the general business personal
computer user. All of the Company's products have been developed for the
Microsoft Windows 3.1, Windows 95 and Windows NT operating systems and are
marketed under the Visio brand. The Company's primary products are Visio and
Visio Technical. Beginning with the initial shipment of Visio in November
1992, the Company has focused on creating a new market for business drawing and
diagramming software. The Company shipped upgraded versions of Visio in October
1993, August 1994 and August 1995. The Company first shipped its second
significant product line, Visio Technical, for the technical drawing market in
December 1994, and shipped an upgraded version of Visio Technical in September
1995. The Company does not plan to upgrade its core products annually in the
future.
Visio currently classifies its revenues in four categories:
"Distribution," "Volume Licensing," "OEM" and "Direct." Distribution revenues
represent sales of packaged products through national distributors and
corporate, retail and mail order resellers. Volume Licensing revenues are
derived from volume licenses, which are generally administered through
corporate resellers after the Company's sales staff has negotiated the sale.
The typical sales cycle for a volume license is six to eighteen months. Volume
Licensing revenues usually do not include any significant amount of packaged
goods, but do include maintenance and support revenues, which are priced
separately and recognized over the lives of the contracts. Volume Licensing
revenues are characterized by higher gross margin as a percentage of revenues,
but lower operating margin as a percentage of revenues, due to costs of
supporting the related sales staff. OEM revenues include licenses of Visio
products to hardware and software manufacturers for bundling arrangements. OEM
revenues include packaged product sales, as well as royalty payments with no
associated product costs. Direct revenues represent sales of packaged products
directly by the Company, including upgrades, generally to end users responding
to advertising or other marketing promotions.
The distribution channel commonly stocks and displays packaged
products to achieve in-store visibility and timely delivery to customers, and
fluctuations in distributor inventory levels can affect the Company's revenues.
Distributor inventory levels may fluctuate for a variety of reasons, including
the inability of distributors to sell a product at the levels purchased, as
well as the phenomenon called "channel fill." Channel fill occurs following
the introduction of a new product or new version of a product, in anticipation
of price increases, in response to planned end-user promotions and in
connection with purchases of additional display space. The Company defers the
recognition of revenues from distributor inventory that it estimates to be in
excess of levels appropriate for the channel. Nonetheless, the effects of
channel fill could add substantial volatility to the Company's revenues.
The Company has invested heavily in the development of its core
graphics technology, new product introductions, Visio brand awareness and
domestic and international infrastructure. These investments are part of the
Company's strategy for growth and are consistent with its mission to become the
single standard for creating, storing and exchanging drawings and diagrams in
business. Although the Company believes that these investments have established
a foundation for the worldwide expansion of its business, they have also
significantly affected the Company's historical profitability. There can be no
assurance that the Company's revenue growth will be sufficient in future
periods to maintain its recent profitability as the Company continues to make
such investments.
6
<PAGE> 8
When used in this discussion, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Factors which could
affect the company's financial results and cause such results to differ
materially from quarter to quarter include but are not limited to fluctuations
in quarterly performance, dependence on other products including Microsoft
Windows, competition in the business drawing and diagramming software market,
timing and customer acceptance of new products, and changes in general economic
conditions. Additional information concerning these and other risks is
described in the "Risk Factors" section of the Company's Prospectus dated
November 9, 1995, and, from time to time, in the Company's Securities and
Exchange Commission reports, which include the Report on Form 10-Q for the
quarter ended December 31, 1995. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
7
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth statement of income data as a
percentage of revenues for the fiscal periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ --------------------------------
1996 1995 1996 1995
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of revenues . . . . . . . 16.4 17.9 16.9 17.1
------ ------ ------ ------
Gross margin . . . . . . . . . 83.6 82.1 83.1 82.9
Operating expenses:
Research and development . . 18.7 15.1 15.7 14.3
Sales and marketing . . . . 36.0 53.5 38.6 56.0
General and administrative . 7.5 7.9 7.6 7.2
------ ------ ------ ------
Total operating expenses . . . 62.2 76.5 61.9 77.5
------ ------ ------ ------
Income from operations . . . . 21.4 5.6 21.2 5.4
Other income, net . . . . . . . 2.4 2.2 2.3 1.4
------ ------ ------ ------
Income before income taxes . . 23.8 7.8 23.5 6.8
Provision for income taxes . . 7.8 2.7 7.7 2.4
------ ------ ----- ------
Net income . . . . . . . . . . 16.0% 5.1% 15.8% 4.4%
====== ====== ===== ======
</TABLE>
REVENUES
The following tables set forth revenues by product group with the
corresponding percentage of total revenues and the year-to-year percentage
change for the fiscal periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------
1996 1995 Change
---------------------- ---------------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Business drawing and diagramming . . . . $10,892 75.0% $6,483 84.7% 68.0 %
Technical drawing . . . . . . . . . . . 3,463 23.8 937 12.2 269.6 %
Other . . . . . . . . . . . . . . . . . 172 1.2 233 3.1 (26.2)%
---------- ------ ------ -----
Total revenues . . . . . . . . . . $14,527 100.0% $7,653 100.0% 89.8 %
========== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------------------------------------
1996 1995 Change
---------------------- ---------------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Business drawing and diagramming . . . . $20,661 73.9% $14,031 88.4% 47.2 %
Technical drawing . . . . . . . . . . . 6,756 24.2 1,300 8.2 419.7 %
Other . . . . . . . . . . . . . . . . . 527 1.9 549 3.4 (4.0)%
---------- ----- ------- ------
Total revenues . . . . . . . . . . $27,944 100.0% $15,880 100.0% 76.0 %
========== ===== ======= =====
</TABLE>
8
<PAGE> 10
Revenues include sales of software products, maintenance and support
contracts and licenses, net of reserves for estimated future returns and
allowances. Revenues from the sale of maintenance and support contracts have
not been material to date. License revenues are derived from volume licenses,
international royalties and certain OEM arrangements.
Revenues for the second quarter of fiscal 1996 increased 90% over the
same quarter in the prior year. Revenues for the six months ended March 31,
1996 increased 76% over the comparable prior year period. The increase in
revenues for both the three-and six-month periods was due primarily to sales
volume growth across product groups, distribution channels and geographic
regions and secondarily to price increases.
Percentage growth within the product groups was most significant for
the technical drawing product group, which grew 270% and 420% for the three-and
six-month periods ended March 31, 1996 over the comparable periods in fiscal
1995, respectively. The growth in the business drawing and diagramming product
group was also strong growing 68% and 47% for the three-and six-month periods
ending March 31, 1996, over the comparable periods in fiscal 1995,
respectively. Both the technical drawing and business drawing and diagramming
product groups were favorably impacted by an upgrade in August 1995 to Visio
Technical 4.0 and Visio 4.0, respectively. Other revenues consisted primarily
of sales of Visio Home and related Visio Shapes products, which represented a
decreasing percentage of total revenues due to the Company's focus on business
personal computer users.
In the channels, the mix of Distribution, Direct, Volume Licensing and
OEM revenues for the quarter ended March 31, 1996 was 77%, 12%, 8% and 3%,
respectively, compared to 76%, 12%, 5% and 7%, respectively, for the same
quarter in the prior year. On a year-to-date basis, the mix of Distribution,
Direct, Volume Licensing and OEM revenues was 75%, 14%, 8% and 3%,
respectively, for the six months ended March 31, 1996 compared to 74%, 15%, 5%
and 6%, respectively, for the same period in the prior year. Percentage growth
was most significant for the Volume Licensing channel, which grew 241% and 207%
for the three-and six-month periods ended March 31, 1996, over the comparable
periods in fiscal 1995, respectively. This growth represents continued
investment in the volume licensing program.
Revenues in the U.S. and Canada increased 73% to $9.1 million in the
second quarter of fiscal 1996 from $5.3 million in the prior year period.
Revenues for the six months ended March 31, 1996 increased 60% to $18.1 million
from $11.3 million in the fiscal 1995 comparable period. The increase in
revenues for both the three-and six-month periods reflect the release of
upgrade versions of Visio and Visio Technical. International revenues
increased 128% to $5.4 million in the second quarter of fiscal 1996 from $2.4
million in the prior year period, which was favorably impacted by the new
Japanese version of Visio 4.0, within the current quarter. Revenues for the six
months ended March 31, 1996 increased 115% to $9.9 million from $4.6 million in
the comparable period in the prior year. The increase in revenues for both the
three-and six-month periods reflect the release of upgrade localized versions
of Visio 4.0 in Europe. For the three-and six-month periods, international
revenues represented 37% and 35%, respectively, of total revenues, an increase
from 31% and 29%, respectively, for the comparable periods in the prior year.
At the end of the March 31, 1996 quarter, the Company introduced an
International English version of Visio Technical 4.1 which did not have a
significant impact on revenues for the quarter. This release was the first
international release of Visio Technical. The Company intends to introduce
additional language versions of Visio 4.0 and Visio Technical 4.1 during fiscal
1996, and, as a result, expects its international revenues to increase as a
percentage of total revenues. There can be no assurance, however, that this
growth will occur or that any growth will be sufficient to offset the Company's
continuing investment in international markets.
The Company believes that revenues in its third fiscal quarter ending
June 30, 1996, may be negatively impacted by the decrease in upgrade revenues
from Visio 4.0 and Visio Technical 4.0, and, to a lesser extent, seasonal
factors. Moreover, delays in the introduction of new language versions of
products scheduled to be released during fiscal 1996 or failure to achieve
significant customer acceptance for these new products may have an adverse
effect on the Company's revenues and results of operations in future periods.
9
<PAGE> 11
COST OF REVENUES
The following table sets forth cost of revenues with the corresponding
percentage of revenues and year-to-year percentage change for the fiscal
periods indicated.
<TABLE>
<CAPTION>
March 31,
------------------------------------------------------------------
1996 1995 Change
------------------------ ---------------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Three months ended $2,384 16.4% $1,373 17.9% 73.6%
Six months ended $4,729 16.9% $2,715 17.1% 74.2%
</TABLE>
Cost of revenues varies with the mix of Distribution, Direct, Volume
Licensing and OEM revenues, due to relative variations in the standard costs
associated with each revenue category, and with fluctuations in period costs.
Standard costs consist primarily of documentation, packaging, media
duplication, assembly and material management costs. Period costs consist
primarily of technical support, production management, freight and fulfillment,
certain royalties, standard material variances and inventory valuation
adjustments.
Standard costs associated with each revenue category are primarily
determined by the amount of packaged product delivered in that revenue
category. Accordingly, most of the Company's standard costs are associated with
Distribution and Direct revenues, all of which are derived from sales of
packaged products. Volume Licensing revenues have the lowest standard cost
because they generally do not include any significant amount of packaged goods.
The increase in cost of revenues in absolute terms during the first
and second quarters of fiscal 1996 resulted from increased standard costs
primarily due to higher Distribution revenues and, to a lesser extent, Direct
revenues and due to increased period costs resulting from increased volume. The
decrease in cost of revenues as a percentage of revenues for the three-and
six-month periods of fiscal 1996 over the comparable periods of fiscal 1995
resulted from increased Volume Licensing revenues which have little or no
standard costs and from lower period costs due to reduced technical support and
shipping costs. For the six-month period ended March 31, 1996, this benefit was
partially offset by an inventory write-off of approximately $288,000 related to
the Company's "5 for 95" promotion in the quarter ended December 31, 1995.
10
<PAGE> 12
RESEARCH AND DEVELOPMENT
The following table sets forth research and development expenses with
the corresponding percentage of revenues and year-to-year percentage change for
the fiscal periods indicated.
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------------------------
1996 1995 Change
------------------------- ----------------------- ---------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Three months ended $2,720 18.7% $1,151 15.0% 136.3%
Six months ended $4,384 15.7% $2,267 14.3% 93.4%
</TABLE>
Research and development expenses consist primarily of personnel,
contract services, occupancy and equipment costs required to conduct the
Company's product development efforts. Product development includes product
engineering, documentation development, localization, usability testing,
quality assurance and advanced research and development costs. Contract
localization costs and lump sum payments for technology such as file converters
are capitalized and amortized to development over the lesser of the useful life
or 12 months. Research and development expenses are charged to operations as
incurred. Generally accepted accounting principles requiring capitalization of
certain software development costs subsequent to the establishment of
technological feasibility are not applicable because these costs have been
immaterial.
Increases in research and development expenses for the quarter ended
March 31, 1996 over the corresponding period of fiscal 1995, both in absolute
terms and as a percentage of revenue, resulted primarily from the acquisition
of source code and other intellectual property from Arcland, Inc. and planned
additions to the Company's development organization. The Arcland, Inc.
acquisition was accounted for as a purchase and charged to in-process research
and development. The increases in research and development expenses for the six
months ended March 31, 1996 over the corresponding period of fiscal 1995
resulted primarily from the planned additions to the Company's development
organization and acquisition of source code and other intellectual property
from Arcland, Inc. The increase in research and development as a percentage of
revenues for the six-month period ended March 31, 1996 over the corresponding
period of fiscal 1995 was less significant because the comparable period of
fiscal 1995 included expenses associated with the development of Visio
Technical, which was first shipped in December 1994.
SALES AND MARKETING
The following table sets forth sales and marketing expenses with the
corresponding percentage of revenues and year-to-year percentage change for the
fiscal periods indicated.
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------------------------
1996 1995 Change
-------------------------- ----------------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Three months ended $ 5,231 36.0% $4,097 53.5% 27.7%
Six months ended $10,778 38.6% $8,892 56.0% 21.2%
</TABLE>
Sales and marketing expenses, which include customer service expenses,
have increased in absolute terms as the Company continues building its
worldwide sales, marketing and customer service infrastructure. The increase in
sales and marketing expenses was due primarily to the continued development of
the domestic and international sales infrastructure and the initiation of an
internal consulting group to support customers and developers. As a percentage
of revenues, sales and marketing expenses decreased in both the three-and
six-month periods ending March 31, 1996 compared to the prior year's periods,
primarily due to increased revenues in fiscal 1996 as well as the investment
in sales and marketing in the comparable fiscal 1995 periods. This investment
consisted primarily of brand awareness activities including an advertising
campaign aimed at developing the Visio brand and accelerating
11
<PAGE> 13
awareness levels. Secondarily, the decreased spending as a percentage of
revenues in the quarter ended March 31, 1996 was caused by reduced spending in
variable marketing while the Company's new marketing campaign of Visio as a
solutions strategy and graphics platform was being developed. This new
marketing campaign will commence in the June 30, 1996 quarter and as a result,
the company expects sales and marketing expenses in the quarter ended June 30,
1996 to increase as a percentage of revenues over the quarter ended March 31,
1996.
The Company believes substantial spending on marketing awareness and
Volume Licensing sales staffing is essential to achieve revenue growth and to
maintain and enhance the Company's competitive position. Accordingly, Visio
expects sales and marketing expenses to increase in absolute terms over time.
Historically, quarterly revenue growth has not been consistently sufficient to
maintain the percentage of revenues represented by sales and marketing
expenditures, and there can be no assurance that it will be sufficient in
future quarters. In addition, competitive pressures faced by the Company may
have an adverse effect on its business, financial condition and results of
operations.
GENERAL AND ADMINISTRATIVE
The following table sets forth general and administrative expenses
with the corresponding percentage of revenues and year-to-year percentage
change for the fiscal periods indicated.
<TABLE>
<CAPTION>
March 31,
------------------------------------------------------------------
1996 1995 Change
------------------------ ----------------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Three months ended $1,080 7.4% $ 602 7.9% 79.4%
Six months ended $2,119 7.6% $1,145 7.2% 85.1%
</TABLE>
General and administrative expenses increased in absolute terms in
both the second quarter and first six months of fiscal 1996 primarily due to
the cost of developing the infrastructure and personnel associated with
becoming a public company, the cost of support in Dublin and an excise tax
expense related to international operations. The Company expects to show
increased general and administrative expenses in absolute terms in future
periods for infrastructure to support revenue growth.
OTHER INCOME, NET
Other income for the second quarter of fiscal 1996 of $352,000
increased 110% over the second quarter of fiscal 1995. Other income for the six
months ended March 31, 1996 of $633,000 increased 188% over the comparable
period of fiscal 1995. The increase for both the three-and six-month periods
was primarily due to interest earned on investment of proceeds from the
Company's initial public offering completed in November 1995, and was partially
offset by other non-operating expenses. Other income includes interest income,
foreign currency transaction gains and losses and grant income from the
Industrial Development Agency of Ireland tied to employment levels in the
Company's Dublin operation. Visio does not currently engage in hedging
activities.
INCOME TAXES
The Company's effective income tax rate was 33% and 35% for the first
half of fiscal 1996 and 1995, respectively. The lower effective tax rate for
fiscal 1996 was primarily attributable to the benefit of the utilization of
foreign net operating loss carry forwards. The Company is currently undergoing
an audit by the Internal Revenue Service of its federal income tax returns for
fiscal 1993 and 1994, but does not anticipate that the audit will result in
adjustments that would materially adversely affect its results of operations.
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents totaling
$51.1 million, an increase of $44.0 million from September 30, 1995. The
increase in cash and cash equivalents was due primarily to net proceeds of
$35.7 million from the sale of Common Stock in the company's initial public
offering completed in November 1995. The remainder of the increase was due to
cash generated from operations. Since its inception, the Company has financed
its operations primarily through cash generated by its operations, as well as
through sales of its Common Stock and Preferred Stock and bank financing. At
January 26, 1996, the Company's $1.0 million bank line of credit expired. On
April 3, 1996, a new $1.0 million unsecured line of credit, which matures on
February 28, 1997, was established.
At March 31, 1996, the Company's principal commitments consisted
primarily of leases on its headquarters facilities. The Company's capital
expenditures totaled $832,000 in the first six months of fiscal 1996. At March
31, 1996, the Company had no material commitments for capital expenditures. The
Company believes that its current cash balances, funds available under its line
of credit and cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.
From time to time, the Company evaluates potential acquisitions of
businesses, products or technologies that complement the Company's business.
The Company currently has no agreements or commitments with respect to any such
transaction.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
10.15(a) Agreement for the Amendment of Distribution
Agreement dated January 15, 1996, between
Visio and ASCII Corporation.
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and
Exchange Commission for information only
and not filed.
(b) Reports on Form 8-K:
None.
14
<PAGE> 16
SIGNATURES
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, thereunto duly authorized.
Date: May 10, 1996 VISIO CORPORATION
By: /s/ MARTY CHILBERG
------------------------------------
Marty Chilberg
Vice President, Finance and Operations;
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- - ----------- ----------- ----
<S> <C> <C>
10.15(a) Agreement for the Amendment of Distribution
Agreement dated January 15, 1996, between
Visio Corporation and ASCII Corporation.
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
</TABLE>
16
<PAGE> 1
Exhibit 10.15(a)
Dated the 15th day of January, 1996
VISIO CORPORATION AND VISIO INTERNATIONAL LIMITED
FIRST PART
ASCII CORPORATION
SECOND PART
AGREEMENT FOR THE AMENDMENT OF
DISTRIBUTION AGREEMENT
[*] Confidential Treatment Requested
<PAGE> 2
THIS AGREEMENT is made as of the 15th day of January 1996 between:
1. VISIO CORPORATION, having its principal place of business at 520 Pike
Street, Suite 1800, Seattle, Washington 98101-4001, U.S.A., and its
affiliates, including but not limited to VISIO INTERNATIONAL LIMITED
(collectively referred to as "Visio"), and
2. ASCII CORPORATION, a Corporation organised under the laws of Japan,
having its principal place of business at 4-33-10 Yoyogi, Shibuya,
151-24 Tokyo, Japan and its affiliates ("Distributor").
RECITALS:
A. Visio and Distributor have entered into a Distribution Agreement as of
1st January, 1995 ("the Distribution Agreement").
B. Visio and Distributor have agreed to amend the Distribution Agreement
pursuant to section 21(g) thereof in accordance with the provisions of
this Agreement.
IT IS HEREBY AGREED as follows:-
CLAUSE 1 - PRELIMINARY
1.1 DEFINITIONS:
Words and expressions used in this Agreement, save where the context
otherwise requires, bear the same meanings as in the Distribution
Agreement.
CLAUSE 2 - AMENDMENTS TO THE DISTRIBUTION AGREEMENT
2.1 The Distribution Agreement is hereby amended as follows:-
2.1.1 All references in the Distribution Agreement to
"Shapeware" shall be amended to "Visio".
2.1.2 All references in the Distribution Agreement to
"F.O.B." shall be amended to "C.I.F. port of
destination Narito Airport".
2.1.3 Section 1 of the Distribution Agreement is hereby
amended to add the following:
(l) "Promo Campaign Product" shall mean the full
retail unit of Visio 4.0 (J) which Distributor
shall purchase from Visio for [*]."
(n) "Sell-Through" shall mean the number of Units
of the Product sold by the Distributor to end
[*] Confidential Treatment Requested 1
<PAGE> 3
users of the Product and sold by
sub-distributors of the Product to resellers or
end users of the Product, net of all returns of
the Product."
2.1.4 The sentence:-
"Pursuant to Section 5(a) of this Agreement, Shapeware
grants Distributor the right to manufacture the first
version of the initial Product."
shall be deleted from Section 2(a) of the Distribution
Agreement.
2.1.5 Section 5(a) of the Distribution Agreement is replaced
in its entirety with the following:-
"(a) Visio and Distributor agree that all versions
of any Product will be manufactured in Ireland by Visio
with Distributor's co-operation to ensure that Products
meet Distributor's quality requirements and delivery
schedules. Visio shall invoice Distributor in US
Dollars each time Products are shipped. Prices shall
be as set out in the Price Schedule Distributor agrees
to pay Visio on a Net 30 days basis from the date of
invoice.
2.1.6 Section 5(b) of the Distribution Agreement is replaced
in its entirety with the following:
Prices shall be in accordance with Visio's Product
prices as determined solely by Visio, less compensation
allowances ("Allowances") all as set forth in the Price
Schedule. Allowances are deductions from Visio's
Product prices, which Visio offers to Distributor for
Distributor's performance of the Valued Added
Functions."
2.1.7 Section 5(c) of the Distribution Agreement is replaced
in its entirety with the following:
"(c) The US$ prices in the Price Schedule are based
on Yen to the $ rate of 102 Yen to $ and only in
the event that such rate deviates more than plus or
minus (5%) will Visio change the $ price in the Price
Schedule. All prices are C.I.F. port of destination
Narita Airport which, for the avoidance of doubt, means
that Visio will cover freight costs to Narita Airport.
All prices are exclusive of applicable sales, use or
value added taxes or other taxes, import or export
fees, duties including
[*] Confidential Treatment Requested 2
<PAGE> 4
import clearance charges or tariffs, and any other
taxes, duties or fees of any kind which may be levied
in connection with the transactions covered hereby.
Such charges shall be paid by Distributor. Visio,
however, shall be responsible for all taxes based upon
its net income."
2.1.8 Sections 5(f) and 5(g) are hereby added to the
Distribution Agreement as follows:
(f) Visio and Distributor shall mutually agree upon
a promotional campaign for sales related to
Visio 4.0 (J). Distributor agrees to purchase
the Promo Campaign Product during a period of
time, not to exceed ninety (90) days, as
mutually agreed upon by Visio and Distributor
("Promotional Period"). Distributor agrees
that Distributor may not return to Visio any of
the Promo Campaign Product.
(g) Distributor will receive a credit of [*] per
unit of a Product sold as a performance
incentive in the event that either or both of
the following events occur:
(i) Sell-Through of [*] units of the
shrink-wrap Visio 4.0(J) Product for
each calendar quarter in which such
Sell-Through occurs;
(ii) Sell-Through of [*] units of the
shrink-wrap Promo Campaign Product
during the Promotional Period.
Distributor shall receive the credit as set
forth in this Section 5(g) within thirty (30)
days of the end of the calendar quarter for
credits received pursuant to Section 5(g)(i)
and within thirty (30) days of the end of the
Promotional Campaign Period for credits
received pursuant to Section 5(g)(ii)."
2.1.9 Section 6(b) of the Distribution Agreement is replaced
in its entirety with the following:-
"(b) achieve the key performance measures set forth
in paragraph 13 of the Business Plan and in the Sales
forecast set forth in the Price Schedule;".
2.1.10 Sections 6(k), (l), (m) and (n) shall be inserted into
the Distribution Agreement as follows:-
[*] Confidential Treatment Requested 3
<PAGE> 5
(k) work towards maintaining a minimum of four (4)
weeks inventory with Distributor and its
sub-distributors in Japan, based on average
weekly Sell-Through for the previous five
weeks;
(l) submit to Visio a monthly 90 day rolling
forecast of stock keeping units ("SKUs") of
products which Visio will ship to Distributor
on a monthly basis, based on a firm monthly
purchase order;
(m) provide Visio within two (2) business day from
the end of each week with weekly report, in the
form requested by Visio, including but not
limited to the following:
(i) inventory held by Distributor and
sub-distributors of the Product;
(ii) inventory held by major retailers
(such as [ * ] and [ * ]), in the
instance where this information is
unavailable from major retailers,
Distributor will provide best
estimates;
(iii) Sell-Through;
(iv) purchases of the Product by
Distributor;
(v) purchases of the Product by
sub-distributors from Distributor; and
(vi) purchases of the Product by resellers
from sub-distributors."
(n) provide Visio with monthly reports, in the form
requested by Visio, to be delivered within five
(5) business days from the end of each month as
to royalties, customer service and technical
support calls, marketing activities (such as
advertising, channel marketing, product and
price promotions), corporate account licensing
activities and customer registrations,
Distributor will provide best estimates of
corporate account licensing activities where
this information is unavailable from major
retailers."
2.1.11 Section 7(j) is hereby added to the Distribution
Agreement as follows:
(j) provide Japanese Visio 4.0 (J) to end users of
the Product who have purchased Japanese Visio
[*] Confidential Treatment Requested 4
<PAGE> 6
3.0(J) between November 8, 1995 and January 31,
1996 at a cost to Distributor of fifteen US
Dollars ($15) per unit subject to a maximum
quantity of five thousand (5,000) units, this
Section 7(j) reflects Visio's sole
responsibility regarding Japanese Visio 3.0(J)"
2.1.12 The expression "ten (10)" in Section 8 of the
Distribution Agreement shall be replaced by the
expression "seven (7)", and the sentence:-
"All claims for goods damaged during shipment shall be
made directly to Distributor's carrier."
shall be deleted in that Section, except for internal
freight in Japan.
2.1.13 The last sentence of Section 9 shall be replaced by the
following:
"Distributor shall place one main monthly order for all
Products in line with the forecast as per the Business
Plan and to support Sell-Through. Distributor shall
also be entitled to make one further order in any given
calender month. Visio may at its sole discretion
accept further orders from Distributor in the same
calender month.
2.1.14 Section 10 of the Distribution Agreement is replaced in
its entirety with the following:
"(a) For Products manufactured pursuant to this
Agreement, the parties will use best efforts to
establish a mutually agreed upon verification and
credit process for return of Products.
(b) Subject to Section 10(c) herein, Distributor may
only return Products to Visio as follows:-
(i) if the Product has not been accepted
pursuant to Section 8;
(ii) if the Product is being returned
pursuant to any end-user warranty
claim pursuant to Section 11; or
(iii) Products as listed in Exhibit C, for
which Product updates have been issued
("Obsolete Product") may be exchanged
but only if: Distributor returns the
Obsolete Products to Visio within
forty five (45) days after
notification from Visio of the
discontinuance of a Product or the
release of a Product update and such
[*] Confidential Treatment Requested 5
<PAGE> 7
Obsolete Product is exchanged for new
products on an equivalent value basis.
In returning Obsolete Product,
Distributor shall return Product disks
to Visio and destroy all Product
documentation. However, if Visio
authorises Distributor not to return
the Obsolete Product, Distributor must
destroy all copies of the Obsolete
Product disks and all Obsolete Product
documentation. Visio shall provide
notice in writing of each Product
update to Distributor at least 90 days
prior to the shipping date of that
Product update.
(c) Distributor shall pay all expenses, including
without limitation, freight, duties and
insurance for returned Products.
2.1.15 Exhibit A of the Distribution Agreement is replaced in
its entirety with the Business Plan contained in the
First Schedule hereto.
2.1.16 Exhibit B of the Distribution Agreement is replaced in
its entirety with the following:
EXHIBIT B - PRICE SCHEDULE
As compensation for these services performed by
Distributor for Visio, Visio provides Distributor with
allowances as mutually agreed upon by both parties
("Allowances"), deducted from Visio's Product Prices as
determined solely by Visio. Visio's Product Prices and
the Allowances shall be in US Dollars. The [*] listed
in the Schedule below are Visio's present Product
Prices from which Allowances have been deducted.
<TABLE>
<CAPTION>
PRODUCT [*] [*] [*] [*]
<S> <C> <C> <C> <C>
Visio 4.0 [*] [*] [*] Units [*] per unit
Japanese
Visio 4.0 Promo [*] [*] [*] Units [*] per unit
Product (J)
Visio 4.0 Upgrade [*] [*] [*] Units [*] per unit
(J)
Visio 4.0 Licence
Packs
</TABLE>
[*] Confidential Treatment Requested 6
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C>
1 User Licence [*] [*] [*] per licence
Pack Licences
10 User Licence [*] [*] per licence
Pack
50 User Licence [*] [*] [*] per licence
Pack Licences
100 User Licence [*] [*] [*] per licence
Pack Licences
Visio 4.0 Licence
Pack Upgrade
1 User Licence [*] [*] per licence
Pack
10 User Licence [*] [*] per licence
Pack
50 User Licence [*] [*] per licence
Pack
100 User Licence [*] [*] per licence
Pack
Ascii Visio 4.0 [*] [*] [*] Units [*] per unit
(J) End User
Visio 4.0 [*] [*] [*] Units [*] per unit
N.F.R.'s
(Free Up to a Max
of 500 Units)
</TABLE>
2.1.17 The Product "Japanese Visio 4.0(J)" is added to Exhibit
C of the Distribution Agreement.
2.2 All other provisions of the Distribution Agreement shall remain
unchanged.
IN WITNESS WHEREOF the parties hereto have on this 15th day of January
1996 entered into this Agreement which the parties agree shall be effective
as of the day and year first above written.
[*] Confidential Treatment Requested 7
<PAGE> 9
VISIO CORPORATION
by /s/ Marty Chilberg
---------------------
Name Marty Chilberg
-------------------
(print)
Title Vice President
------------------
Date March 8, 1996
-------------------
VISIO INTERNATIONAL LIMITED
by /s/ Marty Chilberg
---------------------
Name Marty Chilberg
-------------------
(print)
Title Director
------------------
Date March 8, 1996
-------------------
ASCII CORPORATION
by /s/ Kazuhiko Nishi
---------------------
Name Kazuhiko Nishi
-------------------
(print)
Title CEO & President
------------------
Date January 15, 1996
-------------------
[*] Confidential Treatment Requested 8
<PAGE> 10
FIRST SCHEDULE
[*] Confidential Treatment Requested 9
<PAGE> 11
VISIO/ASCII CORPORATION
1996 BUSINESS PLAN
1. GOALS AND OBJECTIVES
General
- To position Japanese Visio 4.0 (J) as the #1 drawing and
diagramming software in Japan.
- To strengthen the Visio brand in the channels of distribution
and in the end user market.
- To establish Visio as the standard drawing and diagramming
software in large enterprises.
- To leverage [*] to help develop the [*].
- To [*] [*] with Microsoft that would bundle Japanese Visio
Express 4.0 (J) with Microsoft Office.
- To partner with [*] and [*] events, seminars and road shows.
- To establish a market for the [*] (see paragraph 6 below).
- To extend the market for Japanese Visio 4.0 (J) by developing
and marketing Visio Add-ons for target market segments.
- To develop a market for Third Party Japanese Visio 4.0 (J)
Add-on SmartShapes.
Sales
- To achieve the 1996 calendar year retail unit forecast of [*]
units and a license unit forecast of [*] LICENSES. Unit sales
are divided into the following categories:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION 1996 UNITS
------------------------------- ----------
<S> <C>
Full Retail Product [*] [*]
Promotional Product [*] [*]
Full Retail Upgrade Product [*] [*]
ASCII User Campaign Product [*] [*]
License Pack [*] licenses [*]
License Pack [*] licenses [*]
License Pack [*] licenses [*]
</TABLE>
[*] Confidential Treatment Requested 1
<PAGE> 12
2. MARKETING
2.1 GENERAL POSITIONING
Visio's strategy is to establish Japanese Visio 4.0 (J) in the
category that we describe as "Business Drawing and
Diagramming". The objective is to differentiate Japanese
Visio from other "non-intelligent" drawing programs. Japanese
Visio is a "drag and drop" drawing tool for the non-graphics
specialist. The goal is to position Japanese Visio as a
component of every Windows desktop and office suite.
Additionally, the key differentiating factors of Japanese
Visio 4.0 (J) are:
Visio is leading-edge technology that has pioneered the
category of "business drawing and diagramming"
Visio Shapes are not clipart but intelligent shapes.
Visio is extensible technology that allows the user to create
their own "Smart Shapes"
Visio is leading-edge Windows technology with the best
implementation of OLE 2.0 technology in the market. The key
marketing message is, "When you buy Visio, you buying into
leading edge technology, a technology that will become more
and more useful as you add more and more "Smart Shapes".
In the early stages of introducing Visio to Japan, Visio
expects the product "positioning" and messaging to stay
focused on the business market. In the longer term, we would
expect ASCII to "expand" the market for Visio by launching the
technical version of the product. In the early stage, it is
important not to confuse the market by indicating that Visio
is for anything but the business user.
2.2 PUBLIC RELATIONS AND PRODUCT REVIEW
Visio has the view that customers make the primary purchase
decisions based on what the "independent" press recommend,
rather than on what the manufacturer claims through
advertising. Because Japanese Visio 4.0 (J) is new technology
it can capture a significant amount of press coverage.
Historically, the press has been intrigued by the concept of
an "intelligent drawing tool" with SmartShapes. So, you have
a chance to get a significant amount of press time. On the
other hand, the press can and will "position" the product
inappropriately if they are not properly managed. The concern
is that the press will include Japanese Visio 4.0 (J) with
other traditional drawing products like Corel Draw or Just
System's Hanako. In the early stages of the product
introduction - from January through May - Visio expects ASCII
to focus the majority of its time and resources on working
with the press on an individual basis.
2.2.1 POSITION JAPANESE VISIO AS THE "ESSENTIAL DRAWING AND
DIAGRAMMING SOFTWARE FOR WINDOWS, WINDOWS 95 AND WINDOWS NT."
[*] Confidential Treatment Requested 2
<PAGE> 13
Distance Japanese Visio 4.0 (J) from "traditional
drawing tools". Focus on the unique SmartShape
technology and tight OLE 2.0 integration.
Spotlight the following capabilities:
SmartShape technology
OLE 2.0 and Windows 95 integration (drag and drop,
scrap feature, mail-enabled, viewer, etc.)
New Wizard Technology
[*] SmartShapes [*]
[*] with [*] and [*] (e.g. [*] Binder)
2.2.2 ACTIVITIES
We will need to schedule a program of on-going press
interviews and product reviews. This should include
interesting story ideas on the Visio technology and
end user solutions.
Focus on [*]
Strategy is to focus critical sales and marketing
time working with the press during the critical
launch phase. To ensure that the product is
positioned correctly, it is ESSENTIAL that the ASCII
carefully and closely manage the introduction of
Japanese Visio 4.0 (J) to the local press - with one
on one meetings, carefully scripted demos and
carefully worded press kits. (Visio must review the
materials in the early stages in order to assist
ASCII so that it can maintain a consistent brand
identity worldwide. Visio will have approval
authorization on all materials).
2.3 CHANNEL MARKETING
We need to establish an effective channel marketing plan which
concentrates in the following areas:
2.3.1 CHANNEL COMMUNICATION AND EDUCATION
We will need to define a program of on-going channel
communication (marketing collateral, advertising,
etc.) to ensure Visio's awareness with distributors
and dealers. Also, we need to be certain that
dealers are educated about Visio and have the
necessary tools (e.g. video, demo files, NFRs, etc.)
to demonstrate the product.
2.3.2 PROMOTIONS
ASCII and Visio will define 2-3 product promotions
in 1996. For example, we will [*] of [*] (e.g. [*]
etc.) to "upgrade" to Visio. Also, we will focus on
[*] users via a promotional campaign. Promotions
will employ special pricing.
2.3.3 MERCHANDISING
[*] Confidential Treatment Requested 3
<PAGE> 14
We need to capitalize on an array of programs that
are possible in the retail channel. For example in
[*] [*], we must develop POP displays (e.g. end-caps
with product, signage, collateral, demos, etc.). We
should also develop [*]where we assist [*], product
[*] and special [*].
2.4 EVENTS [*]
2.4.1 EVENTS
We need to identify all significant events and trade
shows where we can showcase Visio.
2.4.2 [*]
We need to create a [*] in order to educate and
build interest in the large enterprise segment of
the market. This [*] would emphasize "business
solutions" using Visio [*], etc. Ideally, we could
receive [*] and [*] directly from [*]
This [*] will the forerunner to [*] that will focus
on [*]. This will be very important [*] Visio into
[*] for [*] sales.
2.5 ADVERTISING
2.5.1 STAGE 1 - BRAND BUILDING
The initial advertising will target building of the
Visio brand. The style of the initial advertising
will be "Eye catching" in design. This stage will
begin in approximately February of 1996 and [*].
2.5.2 STAGE 2 - EDUCATIONAL - "HOW TO USE"
The second stage of advertising will focus on "How
to Use" Japanese Visio 4.0 (J). The type and use of
specific SmartShapes to solve users problems will be
the focus. Japanese Visio will be positioned as an
alternative to traditional drawing applications.
The message will position Japanese Visio as a part
of "every office suite". This stage will begin in
[*] and [*].
2.5.3 STAGE 3 - TARGET MARKETS -"SOLUTIONS"
The third stage of the advertising will focus on how
Japanese Visio can address specific problems that
users have. The type of applications will be the
main focus of the advertising. This stage will [*]
and continue [*].
2.6 DIRECT MARKETING
2.6.1 [*] AND DIRECT SALES
The creations of significant marketing program to
[*] during January, February and March [*] sales.
[*] [*], etc. have to be defined in order to be
successful in this area. A direct sales and
marketing effort targeted at the existing customer
base will also be important to the overall business.
[*] Confidential Treatment Requested 4
<PAGE> 15
2.7 [*]
Visio's strategy is to [*] in the market. The first stage of
Visio's strategy is to bundle Visio Express 4.0 (J) with
Microsoft Office Professional. This would preferably be
accomplished through a direct [*]. Ideally, Visio Express 4.0
(J) would be bundled inside the actual Microsoft Office box.
Other possibilities include [*] at the distributor or dealer
level or [*] at the channel or using a coupon that would
entitle the customer to [*] after the purchase of [*].
The strategy to [*] is based both on Visio technology and [*]
for drawing applications. Visio is one of the best
implementations of OLE 2.0 for Windows available. [*] can use
Visio as a technology [*] for [*]. The strategy is to
get [*] Japanese Visio 4.0 (J) OLE 2.0 capabilities [*]. This
will allow Japanese Visio to gain credibility (by being
included as a part of [*]) as the high quality, leading
technology drawing and diagramming solution. Secondly, Visio
intends to [*] on the fact that [*] does [*] as part of [*].
With its "drag and drop" capability, Japanese Visio 4.0 (J) is
uniquely suited to be sold to the average business user.
Visio will communicate all relevant information regarding [*]
to ASCII,
2.7.1 [*]
The second stage of the strategy is to [*] the [*]
user to the full retail version of [*] would be used
to [*] and/or to purchase [*] packages of [*].
3. SALES
3.1 DISTRIBUTION AND PRICING
ASCII will continue to sell Visio through the major channels
of distribution in Japan. It is anticipated that the majority
of the revenue will be derived from the following channels:
<TABLE>
<S> <C> <C>
# [*] [*]
# [*] [*]
# [*] [*]
# [*] [*]
</TABLE>
Note: The [*] is anticipated to be [*].
The [*] is to offer a [*] to the [*]. The SRP (suggested
retail price) for the [*] [*] of Japanese Visio 4.0(J) will be
[*]. The [*] from ASCII for this [*] will be [*] of the
SRP. It is [*] that the [*] for this [*] will be [*] to [*].
ASCII [*] [*] for Japanese Visio 4.0 (J). The SRP for this
[*] will be [*]. The [*] from ASCII for this [*] will be
[*] of the SRP. It is [*] that the [*] for this [*] will
be [*].
ASCII will conduct [*] in 1996 including a [*] and [*] for [*]
users.
[*] Confidential Treatment Requested 5
<PAGE> 16
<TABLE>
<CAPTION>
VISIO PRODUCTS RETAIL PRICE [*] [*]
<S> <C> <C> <C>
[*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*]
[*] [*] (per license) [*] [*]
[*] [*] (per license) [*] [*]
[*] (per license) [*] [*]
[*] [*] (per license) [*] [*]
[*] [*] (per license) [*] [*]
[*] [*] (per license) [*] [*]
[*] [*] [*]
</TABLE>
3.2 [*]
Because Visio has a [*], Visio will initiate the [*] Japan.
ASCII will be asked to participate in the final negotiations
for this agreement and to manage the on-going [*].
The strategy is to twofold. First of all, Visio intends to
seed the market through [*] and then actively promote the
upgrade to the full retail version of Japanese Visio 4.0 (J).
Secondly, Visio intends to [*] marketing capability by [*] to
[*] Japanese Visio's OLE 2.0 features [*] applications. The
goal is to make Japanese Visio 4.0 (J) the [*] for [*]
capabilities [*].
3.3 OTHER [*]
The strategy is to initially [*] on the [*]. Visio does [*]
to [*] any other [*] until the local [*] have been made. This
will allow the greatest [*] to participate [*]. ASCII will be
responsible for developing other [*] in the future.
4. KEY EVENTS FOR 1996
The following are the key events for the 1996 calendar year.
<TABLE>
<CAPTION>
<S> <C> <C>
4.1 PRODUCT LAUNCH JANUARY
4.2 PROMOTION #1 PLANNING JANUARY (TO BEGIN IN [*])
4.3 MARKETING PLAN FOR 1ST HALF OF YEAR JANUARY
4.4 PROMOTION #2 PLANNING FEBRUARY TO BEGIN [*])
4.5 PROMOTION #3 PLANNING [*] (TO BEGIN IN [*])
</TABLE>
5. ROLES AND RESPONSIBILITIES
5. The following section outlines the roles and responsibilities
for ASCII and Visio.
5.1 ASCII TEAM
The following list describes the functional areas for which
ASCII shall be responsible. After each area the responsible
individual (if designated) is mentioned.
[*] Confidential Treatment Requested 6
<PAGE> 17
5.1.1 GENERAL MANAGEMENT - MR. HIRANO
Mr. Hirano will be directly responsible for managing the Visio
business in Japan. He will oversee the ASCII team and act as
a management level liaison to Visio in the US. He will be
directly responsible for the performance of the Japanese Visio
products. Mr. Hirano will also be responsible for creation of
the biannual business and marketing plan.
5.1.2 OEM SALES - MR. HIRANO
Mr. Hirano will be responsible for the negotiation of all OEM
agreements involving Visio products in Japan except any [*]
and except any [*] originated in the [*] which shall be [*].
Mr. Hirano will wait until he receives the written approval of
Visio before starting any OEM negotiations. Also, ASCII
agrees to obtain Visio's written approval before entering into
an OEM arrangement in which an OEM projects a purchase of [*]
of the Japanese Visio products. All pricing, terms and
conditions, etc. are subject to Visio's written approval.
5.1.3 SALES AND MARKETING - MR. KITAMURA
Mr. Kitamura will develop [*] plan that will conform to a
mutually agreed upon [*] with Mr. Brown. Mr. Kitamura will
discuss [*] with Visio management before implementing [*].
Mr. Kitamura will be responsible for the creation and
placement of Visio's [*] Japan. Mr. Kitamura must receive
Visio's written approval on creative design of [*] before
placing them in publications [*]. He will also be responsible
for providing Visio with [*]. The [*] month [*] to be
delivered to Visio [*].
5.1.4 LOCALIZATION - MR. HAYASHI
Mr. Hayashi will oversee all development activities for
Japanese Visio 4.0 (J). This will include management of the
localization of the [*]. All localization work for hire will
comply to specifications provided by Visio.
5.1.5 ENGINEERING [*] - MR. NISHIMOTO/MR. SAKAMOTO
Mr. Nishimoto/Mr. Sakamoto will be responsible for the
development of [*] that [*] to the [*]. He will be
responsible for creation of the product specification for each
[*]. The specifications must be approved in writing by Visio
management before final product content is determined.
5.1.6 QUALITY ASSURANCE - MR. NAKAMURA
Mr. Nakamura will be responsible for running all quality
assurance tests on the [*]. He will be responsible for
interfacing with Visio Quality Assurance staff in Seattle to
address any testing methodology issues. Mr. Nakamura will
work with the Visio automated testing tools as well as
creating Japanese specific tools.
[*] Confidential Treatment Requested 7
<PAGE> 18
5.1.7 PROJECT MANAGEMENT - MR. SATO
Mr. Sato will be responsible for project tracking and
reporting. He will be responsible for the overall management
of the development of the product. This includes [*]
development [*] and day-to-day management of the schedule.
5.1.8 TRANSLATION - MR. YANAGIDA
Mr. Yanagida will be responsible for the translation of the
manual, Japanese Visio [*] Japanese Visio program resources,
and [*]. He will be the liaison between ASCII translators and
Visio staff.
5.1.9 KEY CONTACT WITH VISIO - MR. YANAGIDA
Mr Yanagida will be the primary contact for day to day to
communications with Visio for issues regarding the development
of the Japanese versions of the product. He will be
responsible for managing day to day communications between
ASCII and Visio.
5.1.10 OPERATIONS - MR. KITAMURA
Mr. Kitamura will be responsible for placing all orders for
Japanese Visio products to Visio.
5.1.11 CUSTOMER SUPPORT - MR. NAGATOMO
Mr. Nagatomo, will be responsible for managing the technical
support of Japanese Visio 4.0 (J). He will be responsible for
the development of the technical support team for Japanese
Visio and interfacing with the technical support team at
Visio. Mr. Nagatomo will be [*] technicians and will receive
additional [*]
5.2 VISIO TEAM
The following list describes the functional areas for which
Visio shall be responsible. After each area the responsible
individual (if designated) is mentioned.
5.2.1 BUSINESS MANAGEMENT AND SALES AND MARKETING MANAGEMENT - KEVIN
BROWN
Mr. Brown will manage the business relationship and the sales
and marketing relationship between ASCII and Visio. He will
be the primary contact at Visio for ASCII and he will be
responsible for all business planning and required approvals.
He is to receive and review the monthly sell-in, sell-through
reports and monthly forecast reports from ASCII. He will also
will be responsible for working with ASCII staff to create all
sales and marketing plans for Japanese Visio 4.0 (J). He will
ensure that the Visio executive staff is involved during the
planning process and approve all plans. Mr. Brown will also
assist in the negotiation of OEM agreements, approve special
pricing requests, and provide ongoing sales and marketing
support.
5.2.2 ENGINEERING TRAINING - STEVE FUJIKI AND MATT TOWERS
[*] Confidential Treatment Requested 8
<PAGE> 19
Mr. Fujiki and Mr. Towers will be responsible for organizing
the training of the [*] developers in Seattle. This training
program will also involve question and answer support from the
applications engineers as the [*] are developed by Mr.
Nishimoto.
5.2.3 PRODUCT MANAGEMENT - STEVE FUJIKI
Mr. Fujiki will manage the creation of a detailed product plan
for Japanese Visio 4.0 (J) pursuant to the Product Schedule
(Exhibit B) and Specifications (Exhibit C) of the Visio
Corporation Localization Agreement between Visio and ASCII
("Localization Agreement"). He will determine the exact
product content with input from ASCII staff. Mr. Fujiki will
also develop a process for creation of these documents.
5.2.4 JAPANESE VISIO EXE/DOUBLE BYTE ENABLING - MITCH BOSS/TERRY RUSSELL
Mr. Boss and Mr. Russell will be responsible for the design
and implementation of the engineering necessary to create the
Japanese version of Visio. All modifications to the Visio
source code to create the Japanese Visio 4.0 (J) will be
handled by Mr. Boss and Mr. Russell.
5.2.5 QUALITY ASSURANCE - JASPER CHIN
Mr. Chin will be responsible for providing all the [*] tools
and procedures to the ASCII Quality Assurance lead. He will
provide basic training on the tools as well as answering
questions from ASCII staff. Mr. Chin will also be responsible
for the final QA and verification of the gold diskettes.
5.2.6 PRODUCT ACCEPTANCE - STEVE FUJIKI/ JASPER CHIN
Mr. Fujiki and Mr. Chin will be responsible for providing
ASCII with key criteria for acceptance of the final product.
They will be responsible for performing the final acceptance
testing and creating the gold master diskettes for
duplication.
5.2.7 PRODUCT SUPPORT - ANNE MARIANI
Ms. Mariani will provide "secondary" technical support to
ASCII. She will assign a contact person for Mr. Nishimoto.
The Japanese Visio 4.0 (J) products support liaison will be
responsible for providing [*] [*] and delivering [*] to the
ASCII contact. The Product Support liaison will also be
responsible for collecting and managing the technical support
statistics gathered by ASCII.
5.2.8 OPERATIONS - MARY COFFEY
Ms. Coffey will be responsible for the management of the
manufacturing and product delivery for the Japanese market.
She will work with ASCII to create detailed specifications for
manufacturing quality as well as shipping parameters.
5.2.9 ADDITIONAL MARKETING SUPPORT - TBD
[*] Confidential Treatment Requested 9
<PAGE> 20
TBD will be responsible for reviewing and approving all ASCII
advertising and marketing materials in order to ensure
consistent world-wide branding for Visio products. TBD will
also provide marketing support to ASCII.
6. KEY DECISIONS REQUIRING WRITTEN APPROVAL FROM VISIO
6.1 PLANNING DOCUMENTS
The annual business plan and contract amendment will be
submitted to Mr. Jeremy Jaech of Visio. If there is any
deviation from these plans or contract terms, written approval
will be required from Visio.
6.2 SALES AND PRICING
If any of the following Sales and Marketing related situations
occur, ASCII must receive prior written authorization from
Visio.
# OEM agreements involving volumes greater than [*]
units.
# OEM agreements for any other Visio product other than
Japanese Visio Express.
# [*] the [*] of any Visio product [*] than [*] the
existing [*].
6.3 PRODUCT
If any of the following modifications are to be made to any
Visio product ASCII must receive prior written authorization
from Visio.
# [*] Any changes from the [*] ([*] and [*] - the [*]
of the [*])
# [*] Any [*] to the product (This includes
[*] of [*] or modification to the [*] in the [*]
document.)
6.4 MARKETING
The following items will require Visio's prior written
approval before they are implemented.
# All [*] - e.g. [*] and [*]
# Product [*] - (e.g. [*], the [*] on a [*] emphasizing
a [*] of [*])
The following will require Visio's prior written approval
before changes are made.
# [*] If the frequency or [*] is modified from the [*]
section 6.3 of this business plan.
6.5 DISCLOSURE TO ASCII
ASCII would like to be notified of any new products, pricing
policies or strategic plans by Visio that will involve ASCII
in Japan.
7. LOCALIZATION
[*] Confidential Treatment Requested 10
<PAGE> 21
Goal is to ship full retail version of Japanese Visio 4.0 (J) by
JANUARY 31, 1996. The Localization Agreement sets forth in detail the
localization process.
7.1 PACKAGING
The packaging will be modified to better adhere to the
Japanese market requirements. The [*] and [*] will be
retained as much as possible to maintain [*] identity.
7.2 MANUALS
The manuals will be maintain the basic "look and feel" of the
US manuals. Modifications in design will be made if necessary
to adapt to the Japanese market.
7.3 [*]
The [*] [*] will be outlined in detail in the product
specifications. The [*] content will be determined by Visio
and ASCII to meet the needs of the Japanese customers.
7.4 [*]
The [*] will be maintained as a [*] to help [*] become [*].
The product will be [*] and will [*].
8. LEGAL
8.1 LICENSE AGREEMENTS
All end user license agreements will be provided by Visio.
The licenses will be developed by Visio attorneys and reviewed
by ASCII and Japanese counsel.
8.2 COPYRIGHTS AND TRADEMARKS
All copyright and trademarks will be registered by Visio in
Japan.
9. [*]
9.1 [*] PROGRAM
[*] some [*] to get started. Evaluate the possibility of [*]
to include in Japanese Visio 4.0 (J), and offer to [*] with
coupon in the box.
9.2 MARKETING
Promote with Japanese Visio 4.0 (J) - [*] during Public
Relations campaign, etc.
10. CUSTOMER SUPPORT
10.1 USER REGISTRATION - DIRECT SALES
The plan is to have [*] of the total number of Japanese Visio
4.0 (J) units registered by the end of 1996. Registration is
considered the receipt of a customers name address and other
information. The long [*] will be to [*] to the registered
users of Japanese Visio 4.0 (J) and Express products.
[*] Confidential Treatment Requested 11
<PAGE> 22
10.2 CUSTOMER SERVICE
The plan is to have customer service handle the following
types of service requests:
# Replacement product diskettes
# Product literature
# Dealer location information
# Fulfillment of special offers and promotions
# Tracking customer information requests.
10.3 TECHNICAL SUPPORT
ASCII will provide Japanese Visio 4.0 (J) customers with high
quality customer support via phone, fax and BBS to the
registered user base.
The Visio Dublin Support Group or the USA Technical Support
Group will expect the following:
# [*]
# [*]
# [*]
# [*]
11. OPERATIONS
11.1 MANUFACTURING
12. SCHEDULES AND CHECKPOINTS
12.1 PRODUCT DEVELOPMENT
See Exhibit B of the Localization Agreement for a detailed
project schedule.
12.2 ADVERTISING
See Appendix A for a detailed advertising insertion schedule.
13. KEY PERFORMANCE MEASURES
This section outlines the key performance measures to be performed by
ASCII.
# Sell-through unit sales shall be at least [*] units ([*]
of the estimated sales of [*] units for 1996 mentioned in
paragraph 1 of this business plan.)
# Distribution market share (units) shall not fall below [*]
of the [*] software category. The [*] in the [*] category
includes [*] and Visio.
# User registration of the Japanese Visio 4.0 (J) product
shall not fall below [*] of shipments of the full retail
version of Visio 4.0 (J)for Business.
# The Japanese Visio 4.0 (J) product shall meet the
specifications as outlined in Exhibit C of the
Localization Agreement.
[*] Confidential Treatment Requested 12
<PAGE> 23
# The Japanese Visio 4.0 (J) product shall not deviate from
the Product Schedule (Exhibit B) of the Localization
Agreement by more than 60 days.
# Distributor will not compete with Visio pursuant to the
terms in Section 6 of the Visio Corporation Distribution
Agreement between Visio and ASCII ("Distribution
Agreement").
# Distributor is obligated to make payments to Visio
pursuant to Section 5 of the Distribution Agreement.
14. [*] - 1996 TARGETS
14.1 [*]
14.1.1 [*]
# To achieve the 1996 calendar year [*] units and a [*] of
[*]. Unit sales are divided into the following categories:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION 1996 [*]
<S> <C> <C>
[*] [*]
[*] [*]
[*] [*]
[*] [*]
TOTAL [*]
[*] [*]
[*] [*]
[*] [*]
TOTAL [*]
</TABLE>
15. CONTROLLING LANGUAGE
Terms used in this Business Plan shall have the same meaning as such
terms in the Localization Agreement and the Distribution Agreement.
In the event of any discrepancy in usage of the terms or obligations
by the parties among the Business Plan, Localization Agreement, and
Distribution Agreement, the usage of such terms and the obligations by
the parties in the Localization Agreement and the Distribution
Agreement shall control.
[*] Confidential Treatment Requested 13
<PAGE> 24
APPENDIX A - ADVERTISING MAGAZINE PAGE PLACEMENT
1996 Magazine Page Placement [*]
<TABLE>
<CAPTION>
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
</TABLE>
All bold magazines are [*].
[*] Confidential Treatment Requested 14
<PAGE> 25
APPENDIX B - DEALER DEVELOPMENT PLAN
TO BE DEVELOPED JOINTLY
[*] Confidential Treatment Requested 15
<PAGE> 26
APPENDIX C - REVENUE FORECASTS
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION 1996 [*] [*] [*]
<S> <C> <C> <C> <C>
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
TOTAL [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
[*] [*] [*] [*]
TOTAL [*] [*]
GRAND TOTAL [*]
</TABLE>
[*]
[*] Confidential Treatment Requested 16
<PAGE> 1
EXHIBIT 11.1
VISIO CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -------------------------
1996 1995 1996 1995
---------- ----------- ---------- -------------
(IN THOUSANDS EXCEPT NET INCOME PER SHARE)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 13,249 5,317 11,322 5,217
Net effect of dilutive stock options calculated using
the treasury stock method and the average stock price 1,416 775 1,401 575
Net effect of dilutive stock warrants calculated using
the treasury stock method and the average stock price 184 0 174 0
Weighted average common shares giving effect to the pro
forma conversion of convertible and redeemable n/a 4,980 1,301 4,980
preferred stock into common stock
Net effect of preferred stock issued, stock options
exercised and stock options granted during the 12
months prior to the Company's filing of it's initial
public offering, calculated using the treasury stock
method at the offering price of $16.00 per share.
Preferred stock issued n/a 131 n/a 131
Stock options exercised n/a 78 n/a 163
Stock options granted n/a 457 n/a 478
-------- ------- -------- --------
Total 14,849 11,738 14,198 11,544
======== ======= ======== ========
Net income $ 2,321 $ 388 $ 4,400 $ 702
======== ======= ======== ========
Net income per share $ 0.16 $ 0.03 $ 0.31 $ 0.06
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 51,067
<SECURITIES> 0
<RECEIVABLES> 4,168
<ALLOWANCES> 488
<INVENTORY> 998
<CURRENT-ASSETS> 58,964
<PP&E> 4,751
<DEPRECIATION> 2,157
<TOTAL-ASSETS> 61,564
<CURRENT-LIABILITIES> 15,323
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 45,809
<TOTAL-LIABILITY-AND-EQUITY> 61,564
<SALES> 27,944
<TOTAL-REVENUES> 27,944
<CGS> 4,729
<TOTAL-COSTS> 4,729
<OTHER-EXPENSES> 17,281
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 6,567
<INCOME-TAX> 2,167
<INCOME-CONTINUING> 4,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,400
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
