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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-25040
APPLIX, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2781676
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 Turnpike Road, Westboro, Massachusetts 01581-2831
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(Address of principal executive offices) (Zip Code)
(508) 870-0300
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0025 par value per share
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S- K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
On March 10, 1997, the aggregate market value of Common Stock held by
non-affiliates of the registrant was $73,115,582 based on the closing price of
the Common Stock on the Nasdaq National Market on March 10, 1996.
The number of shares of Common Stock outstanding as of March 19, 1997
was 9,948,538.
Documents Incorporated By Reference
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Document Part Form 10-K
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Definitive Proxy Statement with respect to Part III
the Annual Meeting of Stockholders to be held on
May 8, 1997 to be filed with the Securities and
Exchange Commission
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PART I
General
Item 1. Business
Applix develops, markets and supports software applications and tools
for improving real time decision making and improving corporate productivity.
Real time decision making involves rapid collection of data, instant analysis of
options, swift response and immediate communication of decisions. Applix's
product line consists of a family of real time Decision Support Software
products and a suite of Customer Interaction Software products aimed at enabling
and improving the management of internal and external customer interactions and
issues.
Both the Decision Support Software products and the Customer Interaction
Software products are available on a wide variety of UNIX, Windows/NT and
Windows 95 platforms.
The Company has traditionally focused its marketing and sales efforts on
four industry sectors: financial services, manufacturing/engineering,
telecommunications and the federal government. These sectors are characterized
by prevalent use of 32 bit client/server computing environments and a dependence
on information analysis and dissemination, characteristics for which the
Company's products are ideally suited. The Company has devoted substantial sales
and marketing efforts to the financial services sector, specifically the
securities trading industry, where it believes the need to analyze real time
data is particularly acute. The Company's direct sales efforts in this market
are complemented by strategic marketing relationships with vendors of live data
feeds. The Company derived 41% of its total license revenue in 1996 from the
financial services sector, the substantial majority of which was from the
securities trading industry. As the demand for real time decision support
systems develops in other market sectors, the Company expects to pursue the
development and marketing of such systems for these market sectors. In addition,
the Company will continue to market its products to customers who require
decision support and integrated office automation applications that do not
depend on the monitoring and analysis of real time data.
The Company was incorporated in Massachusetts in 1983. The Company's
principal executive offices are located at 112 Turnpike Road, Westboro, MA
01581-2831 and its telephone number is (508) 870-0300. As used in this report,
the "Company" and "Applix" refer to Applix, Inc. and its wholly-owned
subsidiaries.
Products
The Company's product line consists of a family of real time Decision
Support Software (DSS) products and a suite of Customer Interaction Software
(CIS) products. The DSS family consists of Applixware and Applix TM1. The
Company's CIS products are marketed under the name of Applix Enterprise. In
addition, the Company's DSS and CIS products running on a Java-enabled browser
are marketed under the names Applix Anyware and Enterprise Anyware.
Decision Support Software
Applixware
Applixware is an integrated yet modular family of products that allows
customers to access,
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analyze, present and publish information from various data sources. Such sources
may include providers of real time information, such as financial data from
Reuters, TIBCO (formerly Teknekron), Bloomberg and Dow Jones Telerate, or
industrial controller data from Allen-Bradley or Johnson Yokogawa. Other data
sources include major relational databases, legacy databases as well as newer,
multidimensional databases. Information from the various data sources can be
dynamically integrated and presented or published using Applixware product
applications or other vendors' applications.
Applixware includes a graphical object-oriented development tool which
enables organizations to customize the integration of information (real time and
historical) with productivity applications to create complete decision support
solutions.
Applixware is marketed on most of the industry standard UNIX platforms
as well as Microsoft's Windows/NT and Windows 95 platforms. Applixware is
shipped as an integrated suite but customers can license its various modules
separately. License fees are generally based on the number of licensed
concurrent users. Applixware is available in English, German, French and
Japanese.
Applixware includes the following modules:
Applix Real Time is an application that integrates "live" data feeds to
Applix Spreadsheets and other Applixware products.
Applix Data integrates data from one or more databases, such as Oracle,
Sybase or Informix, into other Applixware products.
Applix Builder is an object-oriented development tool used to build real
time decision support solutions.
Applix Real Time Developer's Toolkit is a tool that allows Applix
customers to create gateways to proprietary real time data sources, thus
creating custom versions of Applix Real Time.
Applix Spreadsheets is a customizable, graphical spreadsheet that is
capable of integrating and presenting large amounts of dynamic numerical data
and that supports "live-links" to other Applixware modules.
Applix Words is a customizable, graphical word processor that serves as
the underlying framework for compound documents. Applix Words includes Applix
Graphics, a full-feature drawing, charting and graphics editing package.
Applix Mail and Applix OpenMail provide user and developer interfaces
and management functions for use with UNIX SendMail and HP OpenMail.
Applix Filter Packs, which are available in three sets, extend the
interoperability of Applix Words and Applix Graphics. The Words Pack supports
several popular word processor file formats; the Publishers Pack supports
popular desktop publishing packages; and the Graphics Pack enables
interoperability with leading third-party graphic packages.
Applix HTML Author provides easy-to-use development of World-Wide Web
documents, including the creation of Web documents and the conversion of
documents to and from HTML (HyperText Markup Language).
Applix Presents is a full-feature, cross-platform presentation tool for
creating and viewing
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full-color presentations.
The suggested list prices of licenses for Applixware modules include
$2,495 per concurrent user for Applix Builder, $1,995 for Applix Real Time, $995
for Applix Data and $695 for Applix Spreadsheets. Other module licenses are
priced from $195 to $695 per concurrent user. The Real Time Developer's Toolkit
is priced at $10,000.
Applix also offers Applixware for Linux, a "shrink-wrap" version of
Applixware for the Linux platform, a platform designed for academic and home
users. Applixware for Linux licenses have suggested retail prices of $199 to
$495 per concurrent user.
Applix TM1
Applix TM1, a component of Applix's Decision Support Software family,
consists of a number of modules that provide real time analytical processing.
The Applix TM1 product line is based on a multidimensional database engine that
is capable of calculating and storing large amounts of rapidly changing data in
multi dimensional cubes, and allows end users to perform in-depth analysis of
rapidly changing information, thereby enabling faster decision making.
The Applix TM1 product line consists of the following modules:
TM1 Server 6.0 is a scaleable, high performance, multi-user OLAP
database server. TM1 Server's dynamic, on-demand calculations deliver
exceptional performance and up-to-the-minute results.
TM1 Perspectives 2.5 is a high performance, single user OLAP database
server coupled with the TM1 Client interface to provide a portable,
self-contained OLAP environment.
TM1 Client 2.5 is a spreadsheet based interface that allows users to
"slice, dice, and rotate" data and drill-down to supporting detail data. It
provides intuitive ad hoc access to shared TM1 server data using either
Microsoft Excel or Lotus 1-2-3.
TM1 ShowBusiness is an object oriented front-end development tool that
provides cost effective distribution of TM1 data. ShowBusiness combines the
functionality of Executive Information Systems (EIS), presentation graphics,
hypertext authoring, and reporting tools.
The suggested list price for Applix TM1 products are as follows: TM1
Perspectives 2.5 is $795 per concurrent user, TM1 Server 6.0 (3 user system) is
$5,980, TM1 Client 2.5 (bundle of 5 concurrent users) is $1,975, Show Business
is $345 per concurrent user and TM1 ShowBusiness Builder is $1,595 per
concurrent user.
Applix Anyware
The Applix Anyware product family is a suite of application solutions
that utilize Java technology to build and deploy interactive business
applications to networked desktops. Applix Anyware enables users to connect,
from any location worldwide, to server-based applications and information
resources, via Java-enabled Web browsers. Applix Anyware can deliver interactive
content, in context, to any desktop, at any location.
Anyware Office is a complete suite of office applications and tools,
including Applix Word, Applix Spreadsheet and Applix Mail, for Java-based
Webtops including network computers.
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Anyware Innovators Workbench is a development platform for building and
deploying Internet/intranet custom solutions. Components include Applix Builder,
Applix Graphics, Applix Filter Packs and Applix Data.
Anyware Server is the base deployment platform for all Anyware
Internet/intranet applications.
Anyware WebData Gateway provides access to Anyware-supported SQL
relational databases.
Anyware WebRealTime Gateway provides access to real time data sources.
The suggested list prices of licenses for Anyware modules are $995 per
concurrent user for Anyware Innovators Workbench, $295 for Anyware Office, $195
for Anyware WebData Gateway and $995 for Anyware WebRealTime Gateway. Anyware
Server licenses sell for $4,995.
Customer Interaction Software
Applix Enterprise
The Company's CIS family, Applix Enterprise, consists of a suite of
integrated applications that provide for bi-directional exchange and management
of information with internal and external customers. The functions provided by
these applications include data capture, incident tracking, incident management
(including escalation), incident diagnosis and resolution, reporting and trend
analysis. Applix Enterprise applications are available on a wide variety of
UNIX, Windows/NT and Windows 95 platforms. License fees are based on the number
of licensed concurrent users.
The Applix Enterprise product family consists of the following modules:
Applix HelpDesk is a graphical call tracking and inquiry management
application, designed for internal customer support, that offers complete
customization without the need for programming.
Applix Service is a graphical problem-management application designed
for external customer support, that enables users to track multiple contacts per
customer, service level agreements and return material authorizations.
The Applix Enterprise applications listed above are typically sold
bundled with the following third-party applications:
Knowledge-Paks (licensed from ServiceWare, Inc.) are pre-packaged
solutions to commonly asked questions/problems encountered by end users of many
of the applications used in today's business environment.
Crystal Reports (licensed from Seagate Software Company) is an
application which gives help desk or customer service managers the ability to
report on information within their support database.
Reach Out (licensed from Stac Electronics) is an application which
allows remote access to a personal computer and enables support personnel to
view the caller's desktop applications and data from the support center.
WinBEEP (licensed from Integra Technology International, Inc.) is a
wireless messaging product which sends alphanumeric messages from a PC to either
alphanumeric pagers or mobile PCs
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with pager cards.
The suggested U.S. list price of licenses for each of Applix HelpDesk
and Applix Service is $1,795 per concurrent user. The products are also
available in packaged versions (including some training and consulting) ranging
in prices from $27,995 for a five user system to $157,495 for a 100 user system.
The suggested list price of licenses for the third-party applications listed
above range from $100 per concurrent user to $415 per concurrent user.
Enterprise Anyware
Enterprise Anyware is a Java-enabled customer help desk and service
software solution. Enterprise Anyware is the thin-client version of the
Company's Applix Enterprise product line.
The suggested list price of licenses for the Enterprise Anyware Server
is $9,995 and for Enterprise Anyware Client is $1,795.
Markets and Customers
The Company has traditionally marketed its products to four industry
sectors - financial services, engineering/manufacturing, telecommunications and
federal governments - due to the prevalent use by companies in these sectors of
32 bit client/server computing environments (such as UNIX and NT workstations
and servers) and their dependence on information analysis and dissemination,
characteristics for which the Company's products are ideally suited. The Company
has historically devoted substantial sales and marketing efforts to the
financial services sector, specifically the securities trading industry, where
it believes the need to analyze real time data is particularly acute. As the
demand for real time decision support systems develops in other market sectors,
the Company expects to pursue the development and marketing of such systems for
these market sectors. In addition, the Company will continue to market its
products to customers who require decision support and integrated office
automation applications that do not depend on the monitoring and analysis of
real time data.
During 1996, the Company significantly expanded its product lines and
customers. The Company introduced Applix Anyware, the thin-client versions of
its Decision Support Software and Customer Interaction Software products, which
significantly increases the number of potential end users of its products. As
the markets for Intranet applications and thin-client computing evolve, the
Company plans to aggressively develop and market its products to additional
industry sectors. In addition, the new Applix TM1 product line allows the
Company to market to customers that have a need for in-depth analysis of dynamic
data for better real time decision making.
Marketing and Sales
The Company markets its products in North America primarily through a
direct sales force operating out of its Westboro, MA headquarters and sales
offices in Dallas, TX; San Jose, CA; New York, NY; Vienna, VA; Warren, NJ; and
Toronto. Where appropriate, the Company's sales force works in conjunction with
the Company's strategic marketing partners and resellers. The Company addresses
the federal government market primarily through resellers and systems
integrators. Revenue from the federal government market typically comes from
orders under subcontracts between the Company and the reseller or system
integrator acting as the prime contractor with the government agency.
The Company serves international customers through a network of
wholly-owned subsidiaries in France, Germany, the Netherlands, the United
Kingdom and Singapore, and through resellers based
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in Belgium, Sweden, Switzerland, South Africa, Japan, Korea, Hong Kong and
Australia. Resellers of Applixware include affiliates of Hyundai, Reuters,
TIBCO, Ashisuto KK, Micrognosis, Market Vision and Australian Information
Processing Centre Pty Ltd. In 1994, 1995 and 1996, sales outside North America
accounted for approximately 52%, 43%, and 42% respectively, of the Company's
total revenue. The Company believes that international sales will continue to
comprise a significant portion of its revenue in the future.
The Company's marketing programs consist of advertising campaigns in
national trade periodicals, direct mail and seminars. These efforts are
supplemented by listings in relevant trade directories, exhibitions at trade
shows and conference appearances. Sales representatives work closely with
technical sales personnel in each of the Company's sales offices throughout the
sales process.
Delivery lead times for the Company's products are short, and,
consequently, the majority of the Company's product revenue in each quarter
results from orders received in that quarter. Accordingly, the Company believes
that its order backlog at any given point in time is neither a reliable
indicator of future sales and earnings nor material to an understanding of the
Company's business. The absence of significant backlog may contribute to
unpredictability of the Company's results of operations.
Strategic Marketing Relationships
An important part of the Company's marketing and sales strategy is to
continue to establish strategic marketing relationships with leading vendors and
systems integrators within targeted industry sectors who can assist the Company
in penetrating both new accounts within its existing markets and new market
segments. The Company currently has strategic marketing or reseller
relationships with companies such as Reuters, TIBCO, Dow Jones Telerate, Market
Vision, Bridge Data and Bloomberg in the financial market segment. Applixware
for Linux is distributed by Red Hat Software. The Company markets and sells
Applix TM1 through a variety of channels that include OEMs such as Comshare,
Hyperion Software and IQ Software, through a value added reseller channel in
most major markets and through the Company's direct sales force. In the federal
government market, the Company partners with many systems integrators such as
Loral Federal Systems Co., Computer Sciences Corp. and BTG Technology Systems.
In the manufacturing sector, the Company partners with Allen-Bradley, Johnson
Yokogawa and Westinghouse. The Company believes that these relationship have
enhanced its credibility and visibility among customers in the various markets.
The Company and its partners engage in cooperative marketing and sales
efforts and provide mutual referrals and sales support. The Company has also
appointed some vendors as resellers of Applix Real Time and Applix Spreadsheets.
Although the Company sells its products primarily through direct sales efforts,
the Company expects that indirect sales of Applix Real Time and Applix
Spreadsheets through these strategic vendors will increase in the future.
Customer Training, Support and Consulting Services
The Company believes that superior customer service and support is
critical to customer satisfaction. Many of the Company's customers use the
Company's products to develop and support "mission critical" applications, and
the Company recognizes that quality training, support and consulting services
are important to its customers.
The Company offers several training programs, which are available at the
Company's headquarters in Westboro, MA, and in the Vienna, VA area office and at
certain of its foreign subsidiaries, either directly or via resellers. On-site
customer training is also offered.
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The Company provides product support from its Westboro, MA headquarters
and its wholly-owned subsidiaries. Certain of the Company's resellers provide
various levels of customer support, depending upon the terms of their agreements
with the Company. Customers may choose from a variety of maintenance plans for a
fixed annual fee that is generally 15% to 18% of the license fee for covered
products. Included in all maintenance plans are free product upgrades and
interim fixes to reported problems. Maintenance currently accounts for
approximately 63% of the Company's service revenue.
To help customers take full advantage of the capabilities of its
products, the Company also offers consulting services. The Company's consulting
services are particularly important in situations in which the customer needs a
complex, integrated, enterprise-wide solution involving Applix Enterprise. The
Company uses consulting services not only as a source of revenue, but also as a
marketing tool to demonstrate the capabilities of its tools and applications as
an enterprise-wide DSS solution or CIS solution.
Research and Development
The Company believes that its future success will depend upon its
ability to continue to enhance and broaden its DSS product lines.
With the advent of Intranet and thin-client computing, the Company's
strategy is to take advantage of this emerging market. The Company believes the
architecture of its Applix Anyware product family will facilitate the
development of a series of decision support and customer interaction
applications for the emerging thin-client computing environment.
The Company's total product development expenses (including capitalized
software development costs) in 1994, 1995 and 1996 were $3,100,000, $4,700,000
and $7,600,000, respectively. Capitalized software development costs are
amortized over the estimated life of the product (generally one and one half to
three years) and amounts amortized are included in the cost of license revenue.
Competition
The market for information processing software tools and applications is
highly competitive. In the DSS market, the Company faces competition principally
from Lotus, Microsoft, Oracle and Arbor Software. In some cases, potential
customers may undertake an in-house system integration effort with point
products from Microsoft rather than purchasing a solution such as Applixware.
In the CIS market, the Company's products compete principally with
offerings from Clarify, Magic Solutions, Scopus, Remedy, and Vantive.
The Company believes that it competes principally on the basis of
product features and functionality (including cross-platform availability,
interoperability, integration and extensibility), product price, reliability,
ease of use and supportability. Most of the Company's competitors have
significantly greater financial, technological and marketing resources than the
Company. The Company is encountering more competition with the increased
availability of its product on Windows/NT and Windows 95 platforms and in the
thin-client computing environment. No assurance can be given that the Company
will be able to compete successfully against current and future competition or
that the competitive pressures faced by the Company will not adversely affect
its financial performance.
Proprietary Rights
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The Company relies primarily on a combination of copyright law and trade
secret law to protect its proprietary technology. The Company has internal
policies and systems to ensure limited access to and the confidential treatment
of its trade secrets. The Company generally distributes its products under
"shrink-wrap" software license agreements, which contain various provisions to
protect the Company's ownership of and the confidentiality of the underlying
technology. The Company also requires its employees and other parties with
access to its confidential information to execute agreements prohibiting the
unauthorized use or disclosure of the Company's technology. Despite these
precautions, it may be possible for a third party to misappropriate the
Company's technology or to independently develop similar technology. In
addition, effective copyright and trade secret protection may not be available
in every foreign country in which the Company's products are distributed, and
"shrink-wrap" licenses, which are not signed by the customer, may be
unenforceable in certain jurisdictions.
Certain technologies used in the Company's products are licensed from
third parties. The Company generally pays royalties on such technologies on a
percentage of revenue basis (the amount of which is not material to the
Company). The Company believes that if the license for any such third-party
technology were terminated, it would be able to develop such technology
internally or license equivalent technology from another vendor without
significant expense. In addition, the Company distributes, in conjunction with
its Applix Enterprise products, a number of applications licensed from third
parties. If the Company's rights to distribute such third-party applications
were terminated, sales of the Applix Enterprise products could be adversely
affected.
The Company believes that, due to the rapid pace of technological
innovation for software applications, the Company's ability to establish and
maintain a position of technology leadership in the industry is dependent more
upon the skills of its development personnel than upon the legal protections
afforded its existing technology.
The Company is not engaged in any material disputes with other parties
with respect to the ownership or use of the Company's proprietary technology.
However, there can be no assurance that other parties will not assert technology
infringement claims against the Company in the future. The litigation of such a
claim may involve significant expense and management time. In addition, if any
such claim were successful, the Company could be required to pay monetary
damages and may also be required to either refrain from distributing the
infringing product or obtain a license from the party asserting the claim (which
license may not be available on commercially reasonable terms).
Employees
As of December 31, 1996, the Company had 363 employees, including 83 in
sales and marketing, 47 in customer services/support, 100 in product
development, 33 in finance, administration and facilities, and 100 in the
Company's international subsidiaries. None of the Company's employees is
represented by a labor union, and the Company believes that its employee
relations are good.
Properties
The Company's headquarters are located in Westboro, MA with 54,600
square feet leased under lease agreements which expire on December 31, 2001. The
Company also leases smaller facilities in five metropolitan areas within the
United States (New York City, Vienna, VA, Warren, NJ, Dallas, TX and San Jose,
CA) and in the United Kingdom, France, Germany, Canada, Singapore and The
Netherlands. The Company believes its existing facilities are adequate for its
current needs and that suitable additional or substitute space will be available
as needed.
Item 2. Legal Proceedings
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The Company is not engaged in any material legal proceedings.
Item 3. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The following table sets forth the names, ages and positions of all
executive officers of the Company.
Name Age Position
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Jitendra S. Saxena 51 President, Chief Executive Officer and Director
Patrick J. Scannell, Jr. 43 Executive Vice President, Finance & Administration,
Chief Financial Officer and Treasurer
Craig Cervo 50 Vice President, Product Development
James J. Waldron 39 Executive Vice President, Product and Market
Development
Barry M. Zane 41 Vice President, Technology
Mr. Saxena, a founder of the Company, has been President, Chief
Executive Officer and a director of the Company since its inception in 1983. Mr.
Saxena also served as Treasurer of the Company from April 1991 to April 1993.
Mr. Scannell joined the Company in September 1992 as Vice President,
Finance & Administration and was elected Executive Vice President, Finance &
Administration in January 1997. He was elected Chief Financial Officer and
Treasurer in April 1993. Prior to joining the Company, Mr. Scannell served in a
number of executive positions with Alliant Computer Systems Corporation
("Alliant"), a manufacturer of mini-supercomputers, from March 1987 to August
1992, including General Manager of the Company's Japanese subsidiary and most
recently as Vice President, Finance & Administration.
Mr. Cervo joined the Company in October 1992 as Vice President, Research
& Development and was elected Vice President, Product Development in October
1994. Prior to joining the Company, Mr. Cervo was employed for four years by
XYQUEST, Inc., a developer of word processing software, as Vice President of
Engineering.
Mr. Waldron joined the Company in 1995 as Vice President of
International Sales and was elected Executive Vice President, Product and Market
Development in January 1997. Prior to joining the Company, Mr. Waldron served as
Vice President of New Business Development at MicroTouch Systems, Inc. from 1993
to 1995. From 1986 to 1993, Mr. Waldron worked for Visage, Inc., first as Vice
President of Engineering and later as President and Chief Executive Officer.
Mr. Zane has been with the Company in a number of product development
capacities since 1983. Mr. Zane was elected Vice President, Technology in
April 1991.
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There are no family relationships among any of the executive officers.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Price and Dividends
The Common Stock is quoted on the Nasdaq National Market under the
symbol "APLX."
The following table sets forth, for the periods indicated, the high and
low prices per share of the Common Stock as reported on the Nasdaq National
Market between January 1, 1995 and December 31, 1996 (adjusted to reflect the
two-for-one stock split effected on December 26, 1995).
Quarter Ended High Low
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March 31, 1995.................................................. 12 1/16 6 3/16
June 30, 1995.................................................... 15 3/8 10 1/4
September 30, 1995............................................... 16 1/2 10 1/2
December 31, 1995................................................ 28 3/4 8 1/4
March 31, 1996................................................... 41 3/4 21
June 30, 1996.................................................... 42 1/2 25 1/8
September 30, 1996............................................... 36 1/8 20 1/4
December 31, 1996................................................ 40 18 1/8
The number of holders of record of the Common Stock on March 1, 1997 was
172.
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings for future growth and therefore
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future.
Recent Sales of Unregistered Securities
On October 31, 1996, the Company issued to the stockholders of Sinper
Corporation, a Florida corporation ("Sinper"), an aggregate of 152,439 shares
(the "Acquisition Shares") of the Registrant's Common Stock in partial
consideration of the Company's acquisition of all of the issued capital stock of
Sinper, by means of a merger of Sinper with and into a wholly-owned subsidiary
of the Company. The Acquisition Shares were issued in reliance upon the
exemption from registration set forth in Rule 506 under the Securities Act of
1933, as amended.
Item 6. Selected Financial Data
Incorporated by reference from Exhibit A attached hereto.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference from Exhibit B attached hereto.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference from Exhibit C attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The response to this item is contained in part under the caption
"Executive Officers of the Company" in Part I of this Annual Report on Form
10-K, and in part in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 8, 1997 (the "1997 Proxy Statement") in the
sections entitled "Election of Directors" and "Other Matters -- Section 16(a)
Beneficial Ownership Reporting Compliance," which sections are incorporated
herein by reference.
Item 11. Executive Compensation
The response to this item is contained in the 1997 Proxy Statement in
the sections entitled "Election of Directors - Compensation of Directors" and "-
Executive Compensation," which sections are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The response to this item is contained in the 1997 Proxy Statement in
the section entitled "Beneficial Ownership of Voting Stock," which section is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Index to Consolidated Financial Statements.
1. The following documents are filed as Exhibit C hereto and
are included as part of this Annual Report on Form 10-K.
Report of Independent Accountants.
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Consolidated Balance Sheets as of December 31, 1995 and
1996.
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1994 and 1995 and 1996.
Notes to Consolidated Financial Statements.
2. The following documents are filed as part of this Annual
Report on Form 10-K.
Financial Statement Schedules:
All schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission (the "SEC") are not required under the
related instructions or are inapplicable and therefore
have been omitted.
3. The Exhibits filed as a part of this Annual Report on
Form 10-K are the following:
*3.1 -- Restated Articles of Organization.
*3.2 -- By-laws.
*+10.1 -- 1994 Equity Incentive Plan.
*+10.2 -- 1984 Stock Option Plan.
**10.3 -- Commercial Lease between the Registrant and Westboro II-III,
Inc. dated January 5, 1996.
**10.4 -- Commercial Lease between the Registrant and Westboro I Real
Estate Corp. dated January 15, 1996.
* 10.5 -- Standard form of Applixware Software License Agreement.
** 10.6 -- 1996 Director Stock Option Plan.
11.1 -- Statement regarding computation of earnings per share.
* 21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
- ----------
-14-
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (File no. 33-85688).
** Incorporated by referenced to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995, as filed with the Commission on April 1,
1996.
+ Management contract or compensatory plan.
(b) Reports on Form 8-K.
The following Report on Form 8-K was filed during the fiscal quarter
ended December 31, 1996:
A Report on Form 8-K dated October 31, 1996 was filed with the SEC on
November 15, 1996, reporting the acquisition by the Company of Sinper
Corporation. Financial statements were not included on such Report on Form 8-K
and were included on a Form 8-K/A filed with the SEC on January 14, 1997.
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLIX, INC.,
By: /s/ Patrick J. Scannell, Jr.
--------------------------------
Patrick J. Scannell, Jr.
Executive Vice President, Finance &
Administration, Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Jitendra S. Saxena
- ----------------------- President and Chief Executive Officer and
Jitendra S. Saxena Director (Principal executive officer) March 27, 1997
Executive Vice President, Finance and
/s/ Patrick J. Scannell, Jr. Administration, Chief Financial Officer and
- ----------------------- Treasurer (Principal financing and accounting
Patrick J. Scannell, Jr. officer) March 27, 1997
/s/ Richard J. Davis
- -----------------------
Richard J. Davis Director March 24, 1997
/s/ Paul J. Ferri
- -----------------------
Paul J. Ferri Director March 27, 1997
/s/ Alain J. Hanover
- -----------------------
Alain J. Hanover Director March 27, 1997
/s/ David C. Mahoney
- -----------------------
David C. Mahoney Director March 27, 1997
-16-
EXHIBIT A
A-1
Applix, Inc.
Five Year Summary of Selected Financial Data
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) For The Year Ended December 31,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Total revenue $51,237 $32,343 $18,495 $12,171 $11,751
Operating income (loss) 507 (662) 1,310 (369) 779
Net income (loss) (2,636) 664 1,409 (400) 781
Per Share Data
Net income (loss) per share $ (0.27) $ 0.07 $ 0.20 $ (0.34) $ 0.12
Weighted average number of shares
outstanding 9,611 10,184 7,131 1,185 6,486
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands) As of December 31,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Cash and cash equivalents $19,882 $25,380 $20,092 $ 3,625 $ 2,249
Working capital 21,124 18,242 15,780 2,648 3,797
Total assets 44,514 39,498 26,228 8,651 7,510
Capital lease obligations - - 3 133 217
Total stockholders' equity $27,400 $21,351 $18,250 $ 4,707 $ 5,069
A-2
EXHIBIT B
B-1
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company was incorporated in 1983 to develop and market software applications
for the UNIX market. In 1986, the Company introduced Alis, its first office
automation product, which accounted for substantially all of the Company's
revenue through 1990. Alis was replaced in 1991 by the Aster*x product family,
which represented the next generation of UNIX applications and tools. In
September, 1993, the Company introduced its Applixware real time Decision
Support Software product family, to replace the Company's Aster*x product
family, on which it was based.
In October, 1995, the Company acquired Target Systems Corporation, a
developer and marketer of Customer Interaction Software, in a transaction
accounted for under the purchase method of accounting. Beginning November 1,
1995, the Company's operating results have included the operating results of
Target Systems.
In October, 1996, the Company acquired Sinper Corporation, doing business
under the name TM1, a developer and marketer of software used for on-line
analytical processing (OLAP), in a transaction accounted for under the purchase
method of accounting. Beginning November 1, 1996, the Company's operating
results have included the operating results of Sinper Corporation.
The two acquisitions enabled Applix to expand its family of product
offerings into the Customer Interaction Software market through the Target
Systems acquisition, and further in the Decision Support market with the OLAP
functionality acquired in the Sinper Corporation acquisition, which enables
existing spreadsheet customers to perform more complex, multi-dimensional
analysis.
The other addition to the Applix product family in 1996 was the
introduction of the Applix Anyware product line, which provides Applixware
capabilities in a thin-client form across the Internet or an Intranet. It allows
users to access any of the Applix product capabilities via browser based
clients, regardless of platform or location.
Approximately 82% of 1996 revenues were from the Applixware/Anyware
product line, 17% were from the Applix Enterprise product line, and 1% were from
the Applix TM1 product line. Although currently selling the existing TM1
products, Applix ultimately expects the TM1 product line to become a fully
integrated part of the Applixware/Anyware product line.
All of Applix's applications and tools are based on the concept of real
time decision support. This concept focuses on putting information into the
hands of people who need the ability to more effectively interact with customers
and to make more timely business decisions.
Results of Operations
The following table sets forth, for the periods indicated, certain financial
data of the Company as a percentage of total revenue.
- ------------------------------------------------------------------
For The Years Ended December 31,
1996 1995 1994
- ------------------------------------------------------------------
License revenue 72.4% 73.2% 81.2%
Service revenue 27.6 26.8 18.8
- ------------------------------------------------------------------
Total revenue 100.0 100.0 100.0
Cost of license revenue 4.4 7.6 11.5
Cost of service revenue 10.3 10.4 9.5
- ------------------------------------------------------------------
Gross margin 85.3 82.0 79.0
Operating expenses:
Selling and marketing 43.6 44.3 49.1
Research and development 13.1 12.9 14.1
General and administrative 6.5 7.7 8.7
In-process research and development 21.1 19.1 --
- ------------------------------------------------------------------
Total operating expenses 84.3 84.0 71.9
- ------------------------------------------------------------------
Operating income (loss) 1.0 (2.0) 7.1
Interest income 2.5 4.1 .8
Interest expense -- -- .1
Income taxes 8.6 -- .2
- ------------------------------------------------------------------
Net (loss) income (5.1%) 2.1% 7.6%
- ------------------------------------------------------------------
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
License revenue increased 57% to $37,094,000 in 1996 from $23,682,000 in 1995.
Domestic license revenue increased 61% to $20,960,000 in 1996 from $13,015,000
in 1995. International license revenue increased 51% to $16,134,000 in 1996 from
$10,667,000 in 1995 due to continued demand for the Company's products in the
international marketplace and to an expanded international presence. Sales of
Applix Real Time comprised 14% of
B-2
Applix, Inc.
license revenue during 1996 compared to 23% of license revenue during 1995, with
substantially all of these sales being generated from the financial services
sector. License revenue to the financial services sector increased 56% to
$15,644,000 in 1996 from $10,028,000 in 1995. Applix Enterprise sales comprised
15% of license revenue during 1996, the first full year of sales for the product
line, compared to 0.1% of license revenue in 1995. License revenue from the
government sector increased 29% to $8,625,000 in 1996 from $6,661,000 in 1995.
Revenue from the government sector has fluctuated significantly in the past, and
the Company expects fluctuations to continue. The Company's three largest
customers (including resellers) comprised 19% of total license revenue during
1996 and 25% of total license revenue in 1995, although two of the largest
customers were different in these two years.
Service revenue increased 63% to $14,143,000 (or 28% of total revenue) in
1996 from $8,661,000 (or 27% of total revenue) in 1995. This increase was due to
increased maintenance revenue from the Company's growing customer base, the new
maintenance revenue attributable to the Applix Enterprise products, and a
continued emphasis by the Company on selling training and consulting services.
The Company expects service revenue to continue to grow slightly as a proportion
of total revenue.
Gross margin increased to 85% in 1996 from 82% in 1995. License revenue
gross margin increased to 94% in 1996 from 90% in 1995 due to the reduction of
capitalized software amortization partially offset by an increase in royalty
costs. Service revenue gross margin increased to 63% in 1996 from 61% in 1995,
due to the relative fixed costs of operating the service organization combined
with the significant increase in service revenue. The gross margin increase was
limited somewhat by an increase in the proportion of total revenue represented
by service revenue, which has a significantly lower gross margin than license
revenue and therefore has the effect of reducing overall gross margin.
Selling and marketing expenses, which include domestic sales and marketing
expenses and the Company's international operations, increased 56% to
$22,318,000 in 1996 from $14,316,000 in 1995. The expense increase was due
primarily to increased staffing in both domestic sales and international sales
to support the Company's growth. These expenses remained consistent as a
percentage of total revenue between these two periods at 44%.
Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 61% to $6,731,000 in 1996
from $4,179,000 in 1995, but remained constant as a percentage of total revenue
at 13%. The increase in these expenses was primarily due to the hiring of
additional personnel to support the Company's growth. Total research and
development expenditures were $7,551,000, including $820,000 in capitalized
software development costs, or 15% of total revenue, in 1996 and $4,714,000,
including $534,000 in capitalized software development costs, or 15% of total
revenue, in 1995. The Company intends to continue its commitment to increasing
its research and development expense in the future as revenue increases in order
to support the technological needs of the Company's markets.
General and administrative expenses, which include the costs of the
Company's finance, human resources and administrative functions, increased 35%
to $3,347,000 in 1996 from $2,481,000 in 1995, but decreased as a percentage of
total revenue between these years to 7% from 8%. The increase in expenses was
primarily due to the hiring of additional personnel to support the Company's
growth.
On October 31, 1996, the Company acquired Sinper Corporation for an
aggregate purchase price of $11,500,000 consisting of cash of $5,000,000, Common
Stock valued at $5,000,000 and the estimated acquisition costs of approximately
$1,500,000. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the balance sheet accounts of Sinper and the results of
its operations have been included in the consolidated financial statements of
the Company since the date of acquisition. These results have not had a
significant impact to date on the consolidated financial statements of the
Company.
In the fourth quarter the Company took a charge of $10,821,000 for
in-process research and development acquired as part of the Sinper Corporation
acquisition. The Company intends to expend significant research and development
efforts to integrate the technology with the Applixware product line, improve
the scalability of the Sinper technology, and ultimately fully convert the
technology to multiprocesssor/multitasking 32 bit platforms. The Company
considers the acquired technology to be in-process research and development
because of the substantial amount of design and programming work to be completed
in achieving the integration, scalability, and platform conversion process. At
the time of the acquisition, there was not a fully detailed design specification
for the product and improvements that are to be developed. Of the remaining
purchase price, $489,000 was allocated to completed technology, and $190,000 was
allocated to net assets acquired. Completed technology will be amortized over a
period of seven years.
On October 31, 1995, the Company acquired Target Systems Corporation
(Target) for an aggregate purchase price of $6,400,000. This purchase price was
made up of the purchase of
B-3
Management's Discussion and Analysis of Financial Condition and Results of
Operations (cont'd)
stock valued at $4,900,000 for cash and acquisition costs of approximately
$1,500,000. Accordingly, the balance sheet accounts of Target and the result of
its operations have been included in the consolidated financial statements of
the Company since the date of acquisition.
In the fourth quarter of 1995 the Company took a charge of $6,200,000 for
in-process research and development from Target, acquired in October 1995. The
Company intends to expend significant research and development efforts to create
a new product that is run on a 32 bit UNIX platform based on the acquired
technology. The Company considered this UNIX based technology to be in-process
research and development for the following reasons: 1) the acquired product was
not what Applix expected to ultimately market; 2) the product must be rewritten
to run on the new UNIX platform; and 3) there was not a detailed design for the
product to be developed. The remaining purchase price of $200,000 is comprised
of completed technology, goodwill and liabilities assumed. Goodwill and
completed technology will be amortized over a period of seven years.
Interest income decreased to $1,265,000 in 1996 from $1,326,000 in 1995
due to lower cash balances available for investments as a result of the
acquisition of Sinper. Interest expense decreased between the periods as a
result of substantially lower capitalized lease obligations. The Company
provided for income taxes at a rate of 35% for 1996 before the charge for
incomplete technology of $10,821,000 which is not deductible for income tax
purposes.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
License revenue increased 58% to $23,682,000 in 1995 from $15,012,000 in 1994.
Domestic license revenue increased to $13,015,000 from $7,118,000 in 1994.
Applix Real Time sales comprised 23% of license revenue during 1995 compared to
24% of license revenue during 1994, with substantially all of these sales being
generated from the financial services sector. International license revenue
increased to $10,667,000 from $7,894,000 in 1994 due to continued demand for the
Company's product in the international marketplace. Total revenue to the
financial services sector increased 37% to $12,987,000 from $9,505,000 in 1994.
The Company's three largest customers (including resellers) comprised 25% of
total license revenue during 1995 and 22% of total license revenue in 1994,
although two of the largest customers were different in these two years.
Service revenue increased 149% to $8,661,000 (or 27% of total revenue) in
1995 from $3,483,000 (or 19% of total revenue) in 1994. This increase was due to
increased maintenance revenue from the Company's growing customer base, as well
as an increased emphasis by the Company on selling training and consulting
services.
Gross margin increased to 82% in 1995 from 79% in 1994. License revenue
gross margin increased to 90% in 1995 from 86% in 1994 due to a reduction in
documentation and royalty costs. Service revenue gross margin increased to 61%
from 50% in 1994, due to the relative fixed costs of operating the service
organization combined with the significant increase in service revenue. The
gross margin increase was partially offset by an increase in the proportion of
total revenue represented by service revenue, which has a significantly lower
gross margin than license revenue and therefore has the effect of reducing
overall gross margin.
Selling and marketing expenses increased 57% to $14,316,000 in 1995 from
$9,098,000 in 1994. The expense increase was due primarily to increased staffing
in both domestic sales and international sales to support the Company's growth.
These expenses decreased as a percentage of total revenue between these two
periods to 44% from 49%.
Research and development expenses increased 60% to $4,179,000 in 1995 from
$2,606,000 in 1994, but remained relatively constant as a percentage of total
revenue at 13% in 1995 and 14% in 1994. The increase in these expenses was
primarily due to the hiring of additional personnel to support the Company's
growth. Total research and development expenditures were $4,714,000, including
$534,000 in capitalized software development costs, or 15% of total revenue, in
1995 and $3,104,000, including $498,000 in capitalized software development
costs, or 17% of total revenue, in 1994.
General and administrative expenses increased 54% to $2,481,000 in 1995
from $1,612,000 in 1994, but decreased as a percentage of total revenue between
these years to 8% from 9%. The increase in expenses was primarily due to the
hiring of additional personnel to support the Company's growth.
Interest income increased to $1,326,000 in 1995 from $136,000 in 1994 due
to higher cash balances available for investments as a result of generating
funds from operations and proceeds from the Company's initial public offering
for the entire year. Interest expense decreased between the periods as a result
of substantially lower capitalized lease obligations. The Company's income tax
provision in 1995 was completely offset as a result of the elimination
B-4
Applix, Inc.
of the valuation allowance for the net operating loss carryforwards, which
provided a deferred tax benefit. There was no provision in 1994 due to the
utilization of operating loss carryforwards that offset taxable income.
Liquidity and Capital Resources
The Company has generated cash from operations in each of the last three years.
In 1996, the Company generated $3,872,000 from operating activities. This was
more than offset by investing activities which included the purchase of Sinper
Corporation (which used $6,270,000 in cash) and purchases of property and
equipment for $3,439,000. Proceeds from the exercise of incentive stock options
and employee stock purchase plan options totalled $1,707,000. In 1995, the
Company generated $13,696,000 from operating activities, which was offset by
investing activities which included the purchase of Target Systems, purchases of
property and equipment and capitalized software costs totalling $8,664,000, and
increased by the proceeds from the exercise of incentive stock options of
$463,000.
As of December 31, 1996, the Company had cash and cash equivalents of
$19,882,000 and working capital of $21,124,000.
The Company has no commitments or specific plans for any significant
capital expenditures during 1997.
The Company believes that the funds currently available and funds expected
to be generated from operations, will be sufficient to fund the Company's
operations at least through 1997.
Effect of Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), which
is effective for fiscal years ending after December 15, 1997, including interim
periods. Earlier application is not permitted. The Statement requires
restatement of all prior-period earnings per share presented after the effective
date. SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company will adopt SFAS 128 in 1997 and
has not yet determined the impact.
Risk Factors
During the past several years, the Company has derived the substantial majority
of its revenue from its Applixware product family. The Company has recently
expanded its product offerings with the introduction of Applix Enterprise, based
on technology acquired in its acquisition of Target Systems Corporation in late
1995, and Applix TM1, acquired through its acquisition of Sinper Corporation in
late 1996. In addition, and most significantly, the Company has recently
developed and introduced the Applix Anyware product line, which delivers the
functionality of Applixware, Applix TM1 and Applix Enterprise to "thin-client"
computing environments (i.e., systems running a Java-enabled browser such as
Netscape Navigator or Microsoft Explorer). The future success of the Company is
substantially dependent upon its recently introduced product lines, particularly
Applix Anyware. The Company believes that the market acceptance of Applix
Anyware will be especially dependent upon the proliferation of network computers
and other "thin-client" computing environments and the Company's ability to
compete effectively against the large number of established companies offering
solutions for this market. There can be no assurance that Applix Anyware or its
other new product lines will achieve the sales levels anticipated by the
Company. In addition, the short-term financial performance of the Company will
be largely contingent on its ability to continue to generate substantial
revenues from its Applixware product line until Applix Anyware achieves greater
market acceptance, and there can be no assurance that the Company will be able
to do so. Moreover, the existence of a number of different product lines
presents management, sales and marketing, and product development challenges
that the Company has not had to address in the past, and there can be no
assurance that the Company will be successful in addressing these challenges.
The Company's Applixware product family, and Applix Real Time in
particular, are marketed as real time decision support solutions. Accordingly,
the Company's future success is substantially dependent upon the growth of the
demand for real time decision support solutions in a number of industry sectors
and the Company's ability to identify this demand, develop solutions for the
industry-specific needs and successfully market its products to customers
requiring such solutions. In addition, the Company's success within any
particular market for real time decision support applications is dependent in
large part upon its ability to establish strategic marketing relationships with
leading vendors within that market.
The Company is currently dependent to a significant degree on revenue from
domestic and international customers in the securities trading industry, which
has been the first industry to embrace real time decision support solutions.
During 1996 and 1995, license revenue from the financial services sector
comprised 41% and 42%, respectively, of the Company's total license revenue, and
the Company believes that the substantial majority of its financial
B-5
Management's Discussion and Analysis of Financial Condition and Results of
Operations (cont'd)
services sector revenue was derived from companies engaged in the trading of
securities. The financial performance of the securities trading industry is
volatile as a result of its dependence upon unpredictable factors such as
economic conditions and securities market conditions. The Company's financial
performance will be subject to, and may be adversely affected by, factors
affecting the economic performance and capital expenditure levels of the
securities trading industry.
Substantially all of the Applixware licenses sold by the Company are for
use on UNIX operating systems. As a result, the Company's financial performance
is significantly dependent upon the continued market acceptance of this
operating system and continued sales of UNIX-based workstations, particularly by
Sun Microsystems. With newer operating systems that permit 32 bit processing on
the desktop, such as Microsoft Windows/NT and Windows 95, the Company is now
competing directly with vendors of PC software applications such as Microsoft,
Lotus and Novell. This represents a more competitive environment than the
Company has faced in its UNIX market and will likely result in lower prices and
lower gross margins for the Company's products.
The Company's quarterly operating results have varied and may continue to
vary significantly depending on factors such as the timing of significant
orders, the timing of new product introductions and upgrades by the Company and
its competitors, and the mix of distribution channels through which the products
are sold. Revenues are particularly difficult to predict because of the sales
cycle of the Company's products, which varies substantially from customer to
customer and industry to industry. A majority of the Company's license revenue
in a quarter is derived from orders received in that quarter. Accordingly,
delays in orders are likely to result in the associated revenue not being
realized by the Company in that period. Moreover, the Company's expense levels
are based in part on expectations of future revenue levels, and a shortfall in
the expected revenue could therefore result in a disproportionate decrease in
the Company's net income.
Most of the Company's international sales through subsidiaries are
denominated in foreign currencies. Accordingly, a decrease in the value of
foreign currencies relative to the U.S. dollar could result in a significant
decrease in U.S. dollar revenue received by the Company for its international
sales. Due to the number of currencies involved in the Company's international
sales and the volatility of foreign currency exchange rates, the Company cannot
predict the effect of exchange rate fluctuations on future operating results. To
date, foreign currency fluctuations have not had a material effect on the
Company's operating results. The Company has engaged in hedging transactions to
cover its currency translation exposure on intercompany balances for the purpose
of mitigating the effect of foreign currency fluctuations. The international
portion of the Company's business is also subject to a number of inherent risks,
including difficulties in building and managing foreign operations and foreign
reseller networks, difficulties or delays in translating products into foreign
languages, import/export duties and quotas, and unexpected regulatory, economic
or political changes in foreign markets.
License revenue from sales (directly or indirectly) to branches or
agencies of the U.S. Government represented approximately 20%, 28% and 14% of
total license revenue during 1996, 1995 and 1994, respectively. The Company
typically derives its government contract revenue from a relatively small number
of subcontract awards which tend to be significant in amount for a company of
Applix's size. Consequently, any failure to obtain a particular subcontract
award, or any delay on the part of the government agency in making the award or
ordering products under an awarded contract, could have a material adverse
effect on the financial performance of the Company within a given period, and
the Company's government contract revenue is therefore likely to continue to
fluctuate significantly from period to period.
The Company has experienced significant growth in recent years, with total
revenue increasing 52% between 1993 and 1994; 75% between 1994 and 1995; and 58%
between 1995 and 1996. In addition, the Company made business acquisitions in
the fourth quarter of both 1995 and 1996 and may make additional acquisitions in
the future. This growth has resulted in additional personnel needs and an
increased level of responsibility for management personnel. To manage its growth
effectively, the Company will be required to continue to expand and improve its
operating and financial systems and to expand and manage its employee base.
Inflation
To date, inflation has not had a material adverse effect on the Company's
operating results.
B-6
EXHIBIT C
C-1
Applix, Inc.
Report of Independent Accountants
To the Board of Directors and Stockholders of Applix, Inc.
We have audited the accompanying consolidated balance sheets of Applix,
Inc. as of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Applix, Inc. as
of December 31, 1996 and 1995 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 24, 1997
C-2
Applix, Inc.
Consolidated Balance Sheets (in thousands, except share data)
- --------------------------------------------------------------------------------------------------------------------------------
Assets December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $19,882 $25,380
Accounts receivable, less allowance for doubtful accounts of $518 and $484 at
December 31, 1996 and 1995, respectively 12,704 6,007
Other current assets 2,706 834
Deferred tax asset 2,946 4,168
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 38,238 36,389
Property and equipment, at cost:
Computer equipment 6,132 5,354
Office furniture, equipment and leasehold improvements 3,925 1,097
- --------------------------------------------------------------------------------------------------------------------------------
10,057 6,451
Less accumulated amortization and depreciation (5,401) (4,082)
- --------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 4,656 2,369
Capitalized software costs, net of accumulated amortization of $549 and
$10 at December 31, 1996 and 1995, respectively 482 201
Other assets 1,138 539
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $44,514 $39,498
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 3,012 $ 1,862
Accrued liabilities 6,098 7,490
Deferred revenue 8,004 8,795
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,114 18,147
Commitments (Note E)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized
Common stock, $.0025 par value; 30,000,000 shares authorized; 10,182,562 and 9,609,728
shares issued at December 31, 1996 and 1995, respectively 25 24
Capital in excess of par value 40,053 31,273
Accumulated deficit (11,519) (8,883)
Foreign currency translation adjustment (226) (130)
- --------------------------------------------------------------------------------------------------------------------------------
28,333 22,284
Less 278,698 shares of treasury stock, at cost (933) (933)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 27,400 21,351
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $44,514 $39,498
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
C-3
Applix, Inc.
Consolidated Statements of Operations (in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------------------
For The Year Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
License revenue $37,094 $23,682 $15,012
Service revenue 14,143 8,661 3,483
- --------------------------------------------------------------------------------------------------------------------------------
Total revenue 51,237 32,343 18,495
Cost of license revenue 2,238 2,447 2,119
Cost of service revenue 5,275 3,382 1,750
- --------------------------------------------------------------------------------------------------------------------------------
Gross margin 43,724 26,514 14,626
Operating expenses:
Selling and marketing 22,318 14,316 9,098
Research and development 6,731 4,179 2,606
General and administrative 3,347 2,481 1,612
In-process research and development 10,821 6,200 -
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 43,217 27,176 13,316
- --------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 507 (662) 1,310
Interest income, net 1,265 1,326 136
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,772 664 1,446
Income taxes 4,408 -- 37
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,636) $ 664 $ 1,409
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common and common equivalent share $ (0.27) $ 0.07 $ 0.20
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common equivalent shares outstanding 9,611 10,184 7,131
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
C-4
Applix, Inc.
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible Common Capital Accumulated Foreign Treasury Total
Preferred Stock In Excess Of Deficit Currency Stock
Stock Par Value Translation
- ------------------------------------------------------------------------------------------------------------------------------------
Series A $ 589
Series B 1,657
Series C 1,765
Series D 1,297
- ------------------------------------------------------------------------------------------------------------------------------------
January 1, 1994 5,308 $ 3 $10,339 $(10,956) $ 19 $ (5) $ 4,708
Conversion of preferred to common stock (5,308) 12 5,296 -
Stock options exercised (28,000 shares) 21 21
Public stock offering (3,000,000 shares) 8 13,119 13,127
Net income 1,409 1,409
Foreign exchange translation adjustment (86) (86)
Purchase of treasury shares (928) (928)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 - 23 28,775 (9,547) (67) (933) 18,251
Stock issued under stock option and purchase
plans (459,890 shares) 1 462 463
Stock option income tax benefits 2,036 2,036
Net income 664 664
Foreign exchange translation adjustment (63) (63)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 - 24 31,273 (8,883) (130) (933) 21,351
Stock issued under stock option and purchase
plans (420,395 shares) 1 1,706 1,707
Stock issued for purchase of Sinper Corp.
(152,439 shares) 5,000 5,000
Stock option income tax benefits 2,074 2,074
Net loss (2,636) (2,636)
Foreign exchange translation adjustment (96) (96)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 $ - $25 $40,053 $(11,519) $(226) $(933) $27,400
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
C-5
Applix, Inc.
Consolidated Statements of Cash Flows (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For The Years Ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income (loss) $ (2,636) $ 664 $ 1,409
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 1,231 1,274 567
Amortization of capitalized software costs 539 1,261 710
Amortization of goodwill and intangible assets 228 - -
Provision for doubtful accounts (5) 19 (51)
Charge for acquired in-process research and development 10,821 6,200 -
Deferred tax 2,056 (4,168) -
Changes in operating assets and liabilities net of effects of
acquisitions:
Accounts receivable (6,467) (1,971) (877)
Other assets (1,396) (623) 88
Accounts payable 1,013 724 201
Accrued liabilities (721) 7,146 1,146
Deferred revenue (791) 3,170 3,704
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 3,872 13,696 6,897
Investing activities:
Purchase of property and equipment (3,439) (2,008) (1,049)
Purchase of Target Systems, net of cash acquired - (6,122) -
Purchase of foreign subsidiary (389) - -
Purchase of Sinper Corp., net of cash acquired (6,270) - -
Capitalized software costs (820) (534) (498)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (10,918) (8,664) (1,547)
Financing activities:
Proceeds from issuance of common stock - - 13,127
Principal payments under capital lease obligations (63) (144) (267)
Repayments on revolving credit agreement - - (750)
Proceeds from exercise of incentive stock options
and employee stock purchase plan 1,707 463 21
Purchase of treasury stock - - (928)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,644 319 11,203
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (96) (63) (86)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,498) 5,288 16,467
Cash and cash equivalents at beginning of period 25,380 20,092 3,625
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 19,882 $25,380 $20,092
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9 $ 2 $ 17
Taxes 1,886 414 -
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
C-6
Applix, Inc.
Notes to Consolidated Financial Statements
A. Nature of Business
Applix develops, markets and supports Applixware, Applix TM1, Applix Anyware and
Applix Enterprise. Applixware is an integrated family of software applications
and tools for the real time enterprise, which provides the ability to access,
analyze and communicate dynamically changing (real time) information such as
stock market data or information from databases. Applix TM1 software is
multi-dimensional on-line analytical processing software for real time on-demand
calculations and analysis. Applix Anyware is a family of software products for
Internet and Intranet applications which provide users the ability to connect to
server-based information resources via Java-enabled Web browsers such as
Netscape Navigator. Applix Enterprise is a family of software products that
offers customers the ability to research, track and escalate activities for
customer interaction applications, including help desk and customer service.
B. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Applix, Inc. and
its wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated.
Revenue Recognition
Revenue is recognized from the license ofsoftware upon shipment when collection
of the resulting receivables is deemed probable. At the time the Company
recognizes revenue from the sale of software products, no significant vendor and
post contract support obligations remain, and the estimated costs of
insignificant support obligations are accrued. Service revenue includes revenue
from training, consulting and maintenance. Maintenance revenue is recognized
ratably over the contract term, typically one year. Revenue from training and
consulting is recognized as the services are performed. Payments received in
advance for support contracts are initially recorded as deferred revenue and are
recognized ratably over the term of the contract. Allowance for estimated future
product returns and costs of warranties is provided in the same period as the
related revenue.
Capitalized Software Costs
Costs related to research, design and development of computer software are
charged to research and development expense as incurred. The Company capitalizes
eligible software costs incurred between the time that the product's
technological feasibility is established and the general release of the product
to customers. Such capitalized costs are then amortized on a product-by-product
basis over the economic life of the product, generally one and one half years to
three years. The method of amortization generally results in approximately the
same amount of expense as that calculated using the ratio that current period
license revenue bears to the total of current and anticipated future license
revenue.
Amortization expense totaled $538,780, $1,261,437, and $709,955 for the
years ended December 31, 1996, 1995 and 1994, respectively, and is included in
the cost of license revenue.
Cash Equivalents
The Company considers all short-term investments with original maturities of
less than 90 days to be cash equivalents. The Company's investment portfolio is
diversified and consists of cash equivalents and investments placed with high
credit qualified institutions. At December 31, 1996 and 1995, the Company did
not hold any securities with original maturities greater than 90 days or any
marketable equity securities.
Property and Equipment
Property and equipment are stated at cost and are depreciated by use of the
straight-line and double declining balance methods over the estimated useful
lives of the related assets (2-6 years.) Assets recorded under capital leases
are amortized by the straight-line method over their respective useful lives or
the lease term, whichever is shorter. The Company retires fully depreciated
assets, no longer in service, which amounted to $246,429 in 1996 and $1,465,397
in 1995. Upon sale or retirement, the asset cost and related accumulated
depreciation are removed from the respective accounts, and any related gain or
loss is reflected in operations. Repair and maintenance costs are expensed as
incurred.
C-7
Applix, Inc.
Translation of Foreign Currencies
The functional currency for all of the Company's foreign operations is the
applicable local currency.
Assets and liabilities of all foreign subsidiaries are translated at
period-end rates of exchange. The resulting translation adjustments are excluded
from net earnings and accumulated as a separate component of stockholders'
equity. Translation gains and losses that arise from exchange rate changes
included in income are immaterial for all periods presented.
Beginning in 1996, the Company has used foreign currency forward contracts
to offset the effects of exchange rate changes on the intercompany balances. The
foreign currency exposures are denominated in European currencies. The Company
normally hedges intercompany balances for a 90 day period. Realized and
unrealized gains and losses on contracts are marked to market and recognized in
the statement of operations. The net contract hedges were $1.4 million in
British pounds, $1.0 million in French francs, $1.4 million in German marks and
$1.0 million in Dutch guilders. The forward currency contracts outstanding at
December 31, 1996 approximately equalled the intercompany balances due from the
subsidiaries. As substantially all of these contracts were entered into shortly
before year end, the fair value of outstanding contracts as of December 31, 1996
approximates the contract value of the forward contracts.
Long-Lived Assets
The Company evaluates the net realizable value of capitalized software, goodwill
and other intangibles on an ongoing basis, relying on a number of factors
including operating results, business plans, budgets and economic projections.
In addition, the Company's evaluation considers nonfinancial data such as market
trends, product development cycles, and changes in management's market emphasis.
The Company measures the potential impairment of such long-lived assets by
the present value of expected future operating cash flows in relation to its
carrying value. If the carrying value is greater than the undiscounted cash
flows, then the carrying value is reduced to the net present value of the future
cash flows.
Computation of Net Income (Loss) Per Common Share
Net income (loss) per common share, adjusted for the stock split described in
Note F, is computed based upon the weighted average number of common and common
equivalent shares outstanding. Common equivalent shares are included in the per
share calculations where the effect of their inclusion would be dilutive. Common
equivalent shares result from the assumed conversion of Convertible Preferred
Stock and the assumed exercise of outstanding options to purchase Common Stock
using the treasury stock method. Fully diluted net income (loss) per common
share is substantially the same as primary earnings per share.
Effect of Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earning Per Share" (SFAS 128), which is
effective for fiscal years ending after December 15, 1997, including interim
periods. Earlier application is not permitted. However, an entity is permitted
to disclose pro forma earnings per share amounts computed using SFAS 128 in the
notes to financial statements in periods prior to adoption. The Statement
requires restatement of all prior-year earnings per share data presented after
the effective date. SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share and is substantially similar to
the standard recently issued by the International Accounting Standards Committee
entitled International Accounting Standards, Earnings Per Share (IAS 33). The
Company plans to adopt SFAS 128 in 1997 and has not yet determined the impact.
Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement basis and the tax basis of assets and
liabilities using tax rates in effect for the year in which the differences are
expected to reverse.
Risks and Uncertainties
During the years ended December 31, 1996 and 1995, license revenue from the
financial services sector comprised 41% and 42%, respectively, of the Company's
total license revenue, and the substantial majority of the financial services
sector revenue was derived from companies engaged in the trading of securities.
At December 31, 1996 and 1995 approximately 78% and 87%, respectively, of the
Company's cash and cash equivalents was invested through one high credit quality
financial institution.
C-8
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
and assumptions in these financial statements relate to, among other items,
valuation of deferred tax assets and long-lived assets, the allowance for
doubtful accounts and accrued liabilities.
C. Accrued Liabilities
Accrued liabilities consist of:
- --------------------------------------------------------------
December 31,
(in thousands) 1996 1995
- --------------------------------------------------------------
Commissions $ 771 $ 503
Employee stock purchase plan 332 130
Accrued vacation 734 505
Accrued compensation 420 854
Accrued medical insurance 200 --
Royalties 730 662
Other 799 1,457
Acquisition costs 1,025 1,141
Taxes 1,087 2,238
- --------------------------------------------------------------
Total $6,098 $7,490
- --------------------------------------------------------------
D. Income Taxes
The components of the income tax provision are as follows:
- --------------------------------------------------------------
For the Years Ended December 31,
(in thousands) 1996 1995
- --------------------------------------------------------------
Current:
Federal and state $2,304 $3,467
Foreign 231 701
- --------------------------------------------------------------
2,535 4,168
Deferred
Federal and state 1,853 (3,898)
Foreign 20 (270)
- --------------------------------------------------------------
1,873 (4,168)
- --------------------------------------------------------------
Total $4,408 $ -
- --------------------------------------------------------------
Based on the Company's projection of future earnings, management believes
that sufficient income will be generated in the future to realize the deferred
tax asset. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward periods are reduced.
Net income (loss) before the in-process research and development write off
and taxes of foreign subsidiaries was not significant for the years ended
December 31, 1996, 1995, and 1994.
The approximate tax effect of each type of temporary difference and
carryforward is as follows:
- --------------------------------------------------------------
December 31,
(in thousands) 1996 1995
- --------------------------------------------------------------
Net operating loss carryforwards $ 49 $ 69
Deferred tax related to acquisition 651 -
Deferred revenue 1,319 1,740
Accounts receivable 173 172
Accrued expenses 468 913
Vacation and benefits 182 142
Software/fixed assets 78 (49)
Tax credit carryforwards - 1,155
Minimum lease payments 26 26
- --------------------------------------------------------------
Net deferred tax asset $2,946 $4,168
- --------------------------------------------------------------
C-9
Applix, Inc.
The following schedule reconciles the difference between the federal
income tax rate and the effective income tax rate:
- --------------------------------------------------------------
December 31,
(in thousands) 1996 1995
- --------------------------------------------------------------
U.S. federal statutory rate $ 603 $ 232
In-process research and development 3,426 1,779
Previously unbenefitted NOL - (4,044)
State and foreign tax provision, net 497 2,058
Research and experimentation tax credit (178) -
Other 60 (25)
- --------------------------------------------------------------
Tax Provision $4,408 $ -
- --------------------------------------------------------------
There was no provision in 1994 due to the utilization of operating loss
carryforwards that offset taxable income.
E. Commitments
Lease Commitments
The following is a schedule of future minimum lease payments as of December 31,
1996:
- --------------------------------------------------------------
Operating
(in thousands) Leases
- --------------------------------------------------------------
1997 $1,567
1998 1,292
1999 1,073
2000 975
2001 and thereafter 845
- --------------------------------------------------------------
Total minimum lease payments $5,752
- --------------------------------------------------------------
Total rent expense for all operating leases was $1,644,680, $937,510, and
$646,510 for the years ended December 31, 1996, 1995, and 1994, respectively.
F. Stockholders' Equity
Public Offering and Changes in Equity
On October 20, 1994, the Board of Directors authorized an amendment to the
Company's Articles of Organization effecting a 1 for 3 reverse stock split of
the outstanding Common Stock. All share and per share data except Common Stock
par value have been retroactively adjusted to reflect this change. This
amendment to the Company's Articles of Organization also authorized 1,000,000
shares of preferred stock, $.01 par value per share.
In October 1994, the Board of Directors authorized the management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its Common Stock in an
initial public offering. The 5,308,520 outstanding shares of Series A, Series B,
Series C, and Series D Convertible Preferred Stock (collectively "Convertible
Preferred Stock") converted into 5,001,036 shares of Common Stock upon the
closing of the initial public offering. On December 7, 1994, the Company offered
for sale 3,700,000 shares of Common Stock of which 3,000,000 shares were sold by
Applix, and 700,000 shares were sold by certain selling stockholders. The
Company received net proceeds from the offering of approximately $13,127,000.
The selling stockholders granted an additional 555,000 shares to the
underwriters. The Company did not receive any of the proceeds from the sale of
shares by the selling stockholders.
On December 11, 1995, the Board of Directors declared a 2 for 1 stock
split effected in the form of a stock dividend distributed on December 26, 1995
to shareholders of record at the close of business on December 11, 1995. In this
report, all per share amounts and numbers of shares have been restated to
reflect the 1995 stock split except where noted. In addition, an amount equal to
the $.0025 par value of the additional shares arising from the split, $12,022,
has been transferred from capital in excess of par value to Common Stock.
On May 10, 1996, the stockholders approved an amendment to the Company's
Articles of Organization increasing from 15,000,000 to 30,000,000 the number of
authorized shares of Common Stock.
Stock Option Plans
The 1994 Equity Incentive Plan of the Company (the "Equity Plan"), which was
adopted by the Company's Board of Directors on April 11, 1994 and approved by
its stockholders on May 20, 1994, enables the Company to make awards of
restricted Common Stock and to grant options to purchase Common Stock to
employees of and consultants to the Company. Restricted stock awards entitle the
recipient to purchase Common Stock from the Company under terms which provide
C-10
for vesting over a period of time. The Company has the right to repurchase the
unvested portion of the Common Stock subject to the award upon termination of
recipient's employment or other relationship with the Company. Stock options
entitle the optionee to purchase Common Stock from the Company, for a specified
exercise price, during a period specified in the applicable option agreement.
The Equity Plan is administered by the Compensation Committee of the Board of
Directors, which selects the persons to whom restricted stock awards and stock
options are granted and determines the number of shares of Common Stock covered
by the award or option, its purchase price or exercise price, its vesting
schedule and (in the case of stock options) its expiration date. Under the
Equity Plan, the incentive stock options must be granted with an exercise price
of no less than fair market value of the stock on the grant date as determined
by the Board of Directors. As of January 1, 1997, a total of 105,959 shares had
been issued upon exercise of stock options; an additional 1,428,285 shares were
issuable pursuant to stock options outstanding; and 505,913 shares were reserved
for future issuance under the Equity Plan. At December 31, 1996, options for
181,667 shares were exercisable. To date, no restricted stock awards have been
granted under the Equity Plan.
On March 13, 1997, the Board of Directors approved an amendment to the
Equity Plan, increasing by 450,000 the number of shares authorized for issuance
under the Equity Plan, subject to stockholder approval.
The Company also has a 1984 Stock Option Plan (the "Option Plan") for
certain employees, directors, and consultants, under which both incentive stock
options and nonqualified options could have been issued. Under the Option Plan,
the incentive stock options must have been granted with an exercise price of no
less than the fair market of the stock on the date of grant, as determined by
the Board of Directors. The price of the stock options and the terms of exercise
for all options granted was determined by the Board of Directors. Generally,
stock options vest over a five-year period. The options expire on the date
determined by the Board of Directors, not to exceed 10 years following the date
of grant in the case of incentive stock options. As of December 31, 1996, a
total of 295,028 shares had been issued upon exercise of stock options granted
under the Option Plan and an additional 324,626 shares were issuable pursuant to
outstanding stock options. At December 31, 1996, options for 119,340 shares were
exercisable. No further options may be granted under the Option Plan.
On March 19, 1996, the Board of Directors adopted, and on May 10, 1996 the
stockholders approved, the 1996 Director Stock Option Plan (the "Director
Plan"). The Director Plan provides for the grant of nonstatutory options not
intended to meet the requirements of the Section 422 of the Internal Revenue
Code of 1986, as amended. Only directors of the Company who are not full-time
employees of the Company or any subsidiary of the Company are eligible to be
granted options under the Plan. A total of 50,000 shares of the Company's Common
Stock are reserved for issuance pursuant to the Director Plan. Shares issued
under the Plan may consist in whole or in part of authorized but unissued shares
or treasury shares. The Director Plan is administered by the Board of Directors
of the Company, the directors are elected by the stockholders of the Company in
accordance with the provisions of the Restated Articles of Organization, as
amended, and the By-Laws of the Company. Under the Director Plan, the stock
options must have been granted with an exercise price of no less than the fair
market value of the stock on the date of grant, as determined by the Board of
Directors. Each option granted pursuant to the Director Plan shall become
exercisable in full on the first anniversary of the date of grant, provided the
optionee is serving as a director of the Company on such date. As of December
31, 1996, there were no shares issued upon exercise of stock options; and 7,500
shares of Common Stock were issuable pursuant to stock options outstanding under
the Director Plan. At December 31, 1996, no options outstanding under the
Director Plan were exercisable.
The Board of Directors also adopted, on October 17, 1996, the 1996 Sinper
Stock Option Plan (the "Sinper Plan"). The purpose of this plan is to secure for
the Company and its stockholders the benefits arising from capital stock
ownership by employees of Sinper Corporation (Sinper), which became a
wholly-owned subsidiary of the Company pursuant to terms of the Agreement and
Plan of Merger among the Company, Applix Acquisition Corporation and Sinper,
dated October 17, 1996. Options were granted to persons who were, at the time of
grant, employees of Sinper. A total of 88,500 shares of the Company's Common
Stock were reserved for issuance pursuant to the Sinper Plan. The Sinper Plan is
administered by the Board of Directors of the Company.
C-11
Applix, Inc.
Under the Sinper Plan, the stock options must have been granted with an
exercise price of no less than the fair market value of the stock on the date of
grant, as determined by the Board of Directors. As of December 31, 1996, there
were no shares issued upon exercise of stock options; 88,500 shares were
issuable pursuant to stock options outstanding under the Sinper Plan. At
December 31, 1996, no options outstanding under the Sinper Plan were
exercisable. No additional options may be granted under the Sinper Plan.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations in
accounting for its plans. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss and loss per share would have been
increased by approximately $1,567,000 (net of tax) or $0.16 per share in 1996
and net income and earnings per share would have been decreased by $322,000 (net
of tax), or $0.03 per share in 1995. The average fair value of the options
granted is estimated as $18.65 during 1996 and $7.30 during 1995 on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0.0%, volatility of 73.8%, risk-free interest rate
of 6.6%, assumed forfeiture rate of 10.6%, and an expected life of 5 years.
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of the effects on reported net income for future
years. SFAS 123 does not apply to awards prior to 1995 and additional awards in
future years are anticipated.
Stock option activity for all plans is as follows:
- --------------------------------------------------------------------------------
Options Outstanding
- --------------------------------------------------------------------------------
Weighted Average
Option Price
Available Outstanding Per Share
- --------------------------------------------------------------------------------
Balance at January 1, 1993 43,424 852,164 $ .74
Options authorized 533,332
Options granted (311,366) 311,366 $ 1.48
Options exercised - (21,794) $ .38
Options cancelled 149,904 (149,904) $ .63
- --------------------------------------------------------------------------------
Balance at December 31, 1993 415,294 991,832 $ .95
Options authorized, 1994 Plan 634,834
Expiration of 1984 Plan (264,494)
Options granted (257,264) 257,264 $ 2.26
Options exercised - (28,000) $ .95
Options cancelled 54,868 (54,868) $ 1.15
- --------------------------------------------------------------------------------
Balance at December 31, 1994 583,238 1,166,228 $ 1.19
Options authorized, 1994 Plan 443,557
Expiration of 1984 Plan (44,804)
Options granted (1,350,000) 1,350,000 $13.87
Options exercised - (451,122) $ .98
Options cancelled 103,290 (103,290) $ 5.16
- --------------------------------------------------------------------------------
Balance at December 31, 1995 (264,719) 1,961,816 $ 7.18
Options authorized, 1994 Plan 466,552
Options authorized/granted,
1996 Director Plan 50,000 7500 $34.75
Options authorized/granted,
1996 Sinper Plan 88,500 88,500 $22.63
Expiration of 1984 Plan (14,240)
Options granted, 1994 Plan (358,800) 262,800 $24.37
Options exercised - (385,799) $ 3.04
Options cancelled 85,906 (85,906) $14.33
- --------------------------------------------------------------------------------
Balance at December 31, 1996 53,199 1,848,911 $13.76
- --------------------------------------------------------------------------------
C-12
The following table summarizes information concerning currently
outstanding and exercisable options:
- --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------
$0.15 2,660 4.38 $0.15 2,256 $0.15
$0.37 8,480 5.12 $0.37 5,234 $0.37
$1.12-$1.65 200,498 5.98 $1.32 77,616 $1.29
$1.87-$2.25 126,888 6.87 $2.04 37,306 $2.02
$4.05 21,770 5.17 $4.05 2,414 $4.05
$7.00-$9.06 252,670 5.01 $7.06 38,470 $7.12
$11.00-$15.25 615,645 5.59 $12.97 99,541 $12.97
$18.56-$27.63 546,600 6.27 $23.07 33,050 $22.96
$28.31-$39.25 73,700 6.32 $33.26 5,120 $34.02
- --------------------------------------------------------------------------------
1,848,911 301,007
- --------------------------------------------------------------------------------
Stock Purchase Plan
The Company established an Employee Stock Purchase Plan during 1995, allowing
employees to purchase Common Stock, in a series of offerings, through payroll
deductions of up to 10% of their total compensation. The purchase price in each
offering is 85% of the fair market value of the stock on the offering
commencement date or the offering termination date (six months after
commencement date), whichever is lower. The plan allows for the purchase of up
to 100,000 shares of Common Stock per plan period and 400,000 shares of Common
Stock in the aggregate. As of December 31, 1996, 43,364 shares of Common Stock
had been issued under the plan.
G. Summary of Contribution Plan
Applix has a defined contribution plan (401 (k)) in which all full time
employees are eligible to participate once they have reached the age of 21.
Employee and employer contributions vest immediately.
The Company may make discretionary contributions to the plan as determined
by the Board of Directors. Prior to May 15, 1996 the Company did not make any
discretionary contributions to the plan.
Beginning May 15, 1996, the Company has matched one third of the
employee's contribution, up to 6% of the employee's earnings. The Company's
matching contribution to the plan for 1996 was $136,700.
H. Major Customer and Geographic Data
The Company operates in one business segment.
The Company's three largest customers (including resellers) comprised 19%,
25% and 22% of total license revenue during 1996, 1995 and 1994, respectively,
although two of the customers were different during each of the three years.
License revenue (direct or indirect) from branches of the U.S. Government
amounted to 20%, 28% and 14% of total license revenue for the years ended
December 31, 1996, 1995, and 1994, respectively. A summary of the Company's
operations by geographic locations for the years ended December 31, 1996,1995
and 1994 was as follows:
- ----------------------------------------------------------------------------------
Year Ended December 31, 1996
(in thousands) United States Europe Eliminations Consolidated
- ----------------------------------------------------------------------------------
Revenue:
Customers $34,108 $17,129 $ -- $51,237
Intercompany 4,166 -- (4,166) --
- ----------------------------------------------------------------------------------
Total revenue $38,274 $17,129 $ (4,166) $51,237
- ----------------------------------------------------------------------------------
Operating income (loss) $ 3,910 $(3,403) $ -- $ 507
- ----------------------------------------------------------------------------------
Identifiable assets $41,066 $ 9,009 $ (5,561) $44,514
- ----------------------------------------------------------------------------------
Year Ended December 31, 1995
(in thousands) United States Europe Eliminations Consolidated
- ----------------------------------------------------------------------------------
Revenue:
Customers $21,741 $10,602 $ -- $32,343
Intercompany 4,043 -- (4,043) --
- ----------------------------------------------------------------------------------
Total revenue $25,784 $10,602 $ (4,043) $32,343
- ----------------------------------------------------------------------------------
Operating income (loss) $ 2,326 $(2,988) $ -- $ (662)
- ----------------------------------------------------------------------------------
Identifiable assets $39,086 $ 4,972 $ (4,560) $39,498
- ----------------------------------------------------------------------------------
Year Ended December 31, 1994
(in thousands) United States Europe Eliminations Consolidated
- ----------------------------------------------------------------------------------
Revenue:
Customers $12,006 $ 6,489 $ -- $18,495
Intercompany 3,233 -- (3,233) --
- ----------------------------------------------------------------------------------
Total revenue $15,239 $ 6,489 $ (3,233) $18,495
- ----------------------------------------------------------------------------------
Operating income (loss) $ 3,596 $(2,286) $ -- $ 1,310
- ----------------------------------------------------------------------------------
Identifiable assets $23,154 $ 3,074 $ -- $26,228
- ----------------------------------------------------------------------------------
C-13
Applix, Inc.
Operating income (loss) reflects revenue less related costs of revenue,
direct selling expenses and allocated operating expenses incurred in the United
States, which include general, administrative, research, development and
marketing expenses. These expenses are allocated in proportion to the segment
sales. Total allocated expenses for the years ended December 31, 1996, 1995 and
1994 were $12,360,000, $8,150,000 and $5,571,000, respectively, of which
$4,260,000, $2,673,000 and $1,955,000, respectively, were allocated to Europe.
Export sales included in U.S. operations were as follows:
- -------------------------------------------------------------------------
Year Ended December 31,
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------
Region
Europe $2,058 $1,261 $ 716
Asia 1,806 1,184 398
Australia 239 836 846
Canada 1,580 401 -
Other 455 185 130
- -------------------------------------------------------------------------
$6,138 $3,867 $2,090
- -------------------------------------------------------------------------
The Company's operations are structured to achieve consolidated
objectives. As a result, significant interdependencies and overlaps exist among
the Company's operating entities. Accordingly, the revenue, operating income
(loss) and identifiable assets shown for each geographic area may not be
indicative of the amounts which would have been reported if the operating
entities were independent of one another.
I. Acquisitions
On October 31, 1996, the Company acquired Sinper Corporation (TM1) for an
aggregate purchase price of $11,500,000 consisting of cash of $5,000,000, Common
Stock valued at $5,000,000 and the estimated acquisition costs of approximately
$1,500,000. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the balance sheet accounts of Sinper and the results of
its operations have been included in the consolidated financial statements of
the Company since the date of acquisition.
During 1996, the Company expensed in-process research and development that
did not qualify for capitalization under SFAS No. 86 totalling $10,821,000. The
Company intends to expend significant research and development efforts to
integrate the technology with the Applixware product line, improve the
scalability of the Sinper technology, and ultimately fully convert the
technology to multiprocessor/multitasking 32 bit platforms. The Company
considers the acquired technology to be in-process research and development
because of the substantial amount of design and programming work to be completed
in achieving the integration, scalability, and platform conversion process. At
the time of the acquisition, there was not a fully detailed design specification
for the product and improvements that are to be developed. Of the remaining
purchase price, $489,000 was allocated to completed technology, and $190,000 was
allocated to net assets. Purchased technology will be amortized over a period of
seven years.
The pro forma unaudited consolidated results of operations of the Company,
giving effect to the Sinper acquisition as if it occurred at January 1, 1995
excluding the writeoff of in-process research and development of $10,821,000 are
as follows:
- --------------------------------------------------------------
Year Ended December 31,
(in thousands, except per share data) 1996 1995
- --------------------------------------------------------------
Revenue $53,492 $34,562
Net income 7,289 1,310
Net income per share $ 0.76 $ 0.13
- --------------------------------------------------------------
This pro forma information is presented for informational purposes only
and includes certain adjustments such as additional amortization expense as a
result of purchased technology. It does not purport to be indicative of the
results of operations as they would have been if the Company and Sinper had been
a single entity during 1996 and 1995, nor is it indicative of results of
operations which may occur in the future.
On October 31, 1995, the Company acquired Target Systems Corporation
(Target) for an aggregate purchase price of $6,400,000. This purchase price was
made up of the purchase of stock valued at $4,900,000 for cash and acquisition
costs of approximately $1,500,000. Accordingly, the balance sheet accounts of
Target and the result of its operations have been included in the consolidated
financial statements of the Company since the date of acquisition.
In the fourth quarter of 1995 the Company took a charge of $6,200,000 for
in-process research and development from Target. The remaining purchase price of
$200,000 is comprised of completed technology, goodwill and liabilities assumed.
Goodwill and completed technology will be amortized over a period of seven
years. During 1996, the Company acquired a distributor in the Netherlands. The
acquisition is not material to operations in 1996.
C-14
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
* 3.1 -- Restated Articles of Organization.
* 3.2 -- By-laws.
*+10.1 -- 1994 Equity Incentive Plan.
*+10.2 -- 1984 Stock Option Plan.
**10.3 -- Commercial Lease between the Registrant and Westboro II-III Inc. dated
January 5, 1996.
**10.4 -- Commercial Lease between the Registrant and Westboro I Real Estate Corp.
dated January 15, 1996.
* 10.5 -- Standard form of Applixware Software License Agreement.
**10.6 -- 1996 Director Stock Option Plan.
11.1 -- Statement regarding computation of earnings per share.
*21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Coopers & Lybrand L.L.P.
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File no. 33-85688).
**Incorporated by referenced to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995, as filed with the Commission on April 1,
1996.
+ Management contract or compensatory plan.
C-15