1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-25040
APPLIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2781676
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
112 TURNPIKE ROAD, WESTBORO, MASSACHUSETTS 01581
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(508) 870-0300
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
REGISTRANT HAD 12,002,155 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT AUGUST 9, 2001.
2
APPLIX, INC.
INDEX
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations
For the three months ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Operations
For the six months ended June 30, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
-2-
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS JUNE 30, 2001 DECEMBER 31, 2000
- ------ ------------- -----------------
Current assets:
Cash and cash equivalents $ 8,996 $ 12,546
Accounts receivable, less allowance for doubtful accounts
of $1,372 and $1,397, respectively 11,739 12,026
Other current assets 2,095 2,876
-------- --------
Total current assets 22,830 27,448
Property and equipment, at cost 15,460 15,475
Less accumulated amortization and depreciation (12,723) (12,379)
-------- --------
Net property and equipment 2,737 3,096
Capitalized software costs, net of accumulated
amortization of $1,283 and $886, respectively 967 910
Goodwill, net of accumulated amortization of
$1,028 and $915 respectively 2,165 370
Other assets 2,091 1,250
-------- --------
Total assets $ 30,790 $ 33,074
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,609 $ 2,406
Accrued liabilities 7,790 7,145
Deferred revenue 5,527 4,222
Net liabilities of discontinued operation 1,128 1,067
-------- --------
Total current liabilities 17,054 14,840
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized,
none issued and outstanding
Common stock, $.0025 par value; 30,000,000 shares
authorized; 12,156,339 and 11,893,893 shares issued,
respectively 30 30
Capital in excess of par value 49,022 48,249
Accumulated deficit (32,539) (27,268)
Accumulated other comprehensive loss (580) (580)
Notes receivable from stockholders (1,120) (1,120)
Treasury stock, 306,198 shares, at cost (1,077) (1,077)
-------- --------
Total stockholders' equity 13,736 18,234
-------- --------
Total liabilities and stockholders' equity $ 30,790 $ 33,074
======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-3-
4
APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
2001 2000
-------- --------
License revenue $ 4,537 $ 4,943
Service revenue 5,907 3,995
-------- --------
Total revenue 10,444 8,938
Cost of license revenue 553 514
Cost of service revenue 3,173 3,323
-------- --------
Gross margin 6,718 5,101
Operating expenses:
Selling and marketing 5,990 7,006
Research and development 1,707 1,939
General and administrative 1,237 1,107
Restructuring expense 512 --
-------- --------
Total operating expenses 9,446 10,052
-------- --------
Operating loss (2,728) (4,951)
Interest income, net 124 306
-------- --------
Net loss from continuing operations before
income taxes (2,604) (4,645)
Provision (benefit) for income taxes 75 (1,591)
-------- --------
Net loss from continuing operations ($ 2,679) ($ 3,054)
Loss from discontinued operation -- (214)
-------- --------
Net loss ($ 2,679) ($ 3,268)
======== ========
Basic and diluted loss per share:
Continuing operations ($ 0.23) ($ 0.27)
Discontinued operations -- ($ 0.02)
-------- --------
Total loss per share ($ 0.23) ($ 0.29)
======== ========
Weighted average number of basic and
diluted shares outstanding 11,740 11,245
</Table>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-4-
5
APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
2001 2000
-------- --------
License revenue $ 10,351 $ 10,038
Service revenue 11,420 8,177
-------- --------
Total revenue 21,771 18,215
Cost of license revenue 1,044 981
Cost of service revenue 7,141 6,853
-------- --------
Gross margin 13,586 10,381
Operating expenses:
Selling and marketing 13,005 12,189
Research and development 3,815 3,760
General and administrative 2,381 2,053
Restructuring expense 512 --
-------- --------
Total operating expenses 19,713 18,002
-------- --------
Operating loss (6,127) (7,621)
Interest income, net 257 661
-------- --------
Net loss from continuing operations before
income taxes (5,870) (6,960)
Provision (benefit) for income taxes 119 (2,362)
-------- --------
Net loss from continuing operations (5,989) (4,598)
Income from discontinued operation -- 533
Gain on disposal of discontinued operation 718 --
-------- --------
Net loss ($ 5,271) ($ 4,065)
======== ========
Basic and diluted income (loss) per share:
Continuing operations ($ 0.51) ($ 0.41)
Discontinued operations $ 0.06 $ 0.05
-------- --------
Total loss per share ($ 0.45) ($ 0.36)
======== ========
Weighted average number of basic and
diluted shares outstanding 11,714 11,217
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-5-
6
APPLIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
------------------------------
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
OPERATING ACTIVITIES:
Net loss $ (5,271) $ (4,065)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,014 1,560
Amortization of deferred compensation -- 360
Changes in operating assets and liabilities:
Decrease in accounts receivable 508 2,853
Decrease in other current assets 87 533
Decrease (increase) in accounts payable (68) 1,681
Decrease in accrued liabilities (2,174) (3,188)
Decrease (increase) in deferred revenue 1,205 (676)
-------- --------
Cash used for operating activities (4,699) (942)
INVESTING ACTIVITIES:
Purchase of property and equipment (131) (1,706)
Capitalized software costs (454) (650)
Cash received from the purchase of
Dynamic Decisions Pty 24 --
Proceeds from the sale of discontinued operation 1,300 --
Cash paid upon sale of subsidiary (100) --
Purchase of short-term investments -- (17,176)
Maturities of short-term investments -- 17,701
-------- --------
Cash provided by (used for) investing activities 639 (1,831)
FINANCING ACTIVITIES:
Proceeds from exercise of incentive stock options and
and employee stock purchase plans 546 713
Payment of long term debt -- (180)
-------- --------
Cash provided by financing activities 546 533
Effect of exchange rate changes on cash (36) (46)
-------- --------
Net decrease in cash and cash equivalents (3,550) (2,286)
Cash and cash equivalents at beginning of period 12,546 10,321
-------- --------
Cash and cash equivalents at end of period $ 8,996 $ 8,035
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Stock issued for acquisition of Dynamic Decisions Pty $ 227 $ --
Note payable issued for acquisition of Dynamic Decisions Pty $ 1,549 $ --
Cash paid for income taxes $ 15 $ --
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-6-
7
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. NATURE OF BUSINESS
Applix, Inc. ("Applix" or the "Company") develops, markets and supports a
suite of Internet-based software applications. The Company has one principal
business segment, its customer analytics and business planning software segment,
which is reported as continuing operations. The Company provides customer
relationship management and business planning software that enables customers to
automate their front office business operations, including customer relationship
management and business planning. On March 30, 2001, the Company sold its
VistaSource business unit, previously reported as the Linux Division. This unit
has been reported as a discontinued operation since December 31, 2000 (note F).
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior period amounts have been
reclassified to conform to the current presentation. Operating results for the
three and six month periods ended June 30, 2001 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
C. COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of potential common shares which consists
of stock options and unvested shares of restricted stock.
Potential common shares were excluded from the calculation of net loss per
share for the periods ended June 30, 2001 and June 30, 2000 since their
inclusion would be antidilutive. Potential common shares excluded from the
calculation of diluted loss per share were 3,317,647 and 2,998,146 for the six
months ended June 30, 2001 and 2000, respectively.
-7-
8
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
D. COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) includes foreign currency translation
adjustments.
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ---------------------------
(in thousands) 2001 2000 2001 2000
------------------------------ ---------------------------
Net loss ($2,679) ($3,268) ($5,271) ($4,065)
Other comprehensive income (loss) 63 (24) 0 (46)
------- ------- ------- -------
Total comprehensive loss ($2,616) ($3,292) ($5,271) ($4,111)
======= ======= ======= ========
E. EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The Company adopted SFAS No. 133 on January 1, 2001 without significant impact
to its results of operations or financial position.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001. SFAS
141 further clarifies the criteria to recognize intangible assets separately
from goodwill. The requirements of SFAS 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001. Under SFAS 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. The amortization provisions of SFAS 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, companies are required to
adopt SFAS 142 in their fiscal year beginning after December 15, 2001. Because
of the different transition dates for goodwill and intangible assets acquired on
or before June 30, 2001 and those acquired after that date, pre-existing
goodwill and intangibles will be amortized during this transition period until
adoption whereas new goodwill and indefinite lived intangible assets acquired
after June 30, 2001 will not. The Company is currently in the process of
evaluating the impact of SFAS 142 will have on its financial position and
results of operations.
-8-
9
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
F. DISCONTINUED OPERATION
In December 2000, the Board of Directors committed to a plan to dispose of
the operations of its VistaSource business. On March 30, 2001, the Company
completed the sale of the VistaSource business unit to Real Time International,
Inc. ("Real-Time"), a subsidiary of Parallax Capital Partners, LLC for $1.3
million and a 19% equity interest in Real-Time. The results of operations
including revenue, operating expenses, other income and expense, and income
taxes of the VistaSource business unit for 2001 and 2000 have been reclassified
in the accompanying statements of operations as a discontinued operation. The
Company's balance sheets at June 30, 2001 and December 31, 2000 reflect the net
liabilities of the VistaSource business as net liabilities of discontinued
operation within current liabilities.
At December 31, 2000, the estimated net losses associated with the
disposition of the VistaSource business were approximately $3.6 million for
2000. These losses included approximately $367,000 in losses from operations for
the period from January 1, 2000 through the measurement date of December 17,
2000, $2.2 million relating to the removal of the net assets of the VistaSource
business, $1.1 million in estimated losses from operations from the measurement
date through the estimated date of disposal and $1.3 million in provisions for
employee severance and benefits, transaction costs, bank fees and other
contractual commitments. These losses were partially offset by proceeds of $1.3
million received from the divestiture.
The VistaSource business generated a loss from its operations of $870,000 in
the first quarter of 2001 (through the date of disposal) compared to the
estimated $1.1 loss recognized at December 31, 2000. After adjustments for the
actual results of operations of the VistaSource business through the date of
disposal, changes in net assets delivered at closing and changes in estimates of
certain obligations, the net loss on the disposal was $2,877,000.
Summary operating results from the discontinued operation of the first six
months ended June 30, 2001 and 2000 are as follows:
SIX MONTHS ENDED SIX MONTHS ENDED
(in thousands) JUNE 30, 2001 JUNE 30, 2000
---------------- ----------------
Revenue $1,666 $5,853
Cost of Sales 249 1,246
------ ------
Gross Margin 1,417 4,607
Operating Expenses 2,287 4,106
------ ------
Operating Income ($ 870) $ 501
====== ======
On March 30, 2001 the Company closed the sale of the VistaSource business
and received the purchase price of $1,300,000. For the six months ended June 30,
2001, the Company has recognized a gain of $718,000 for discontinued operations
due to a favorable liquidation of the net assets and liabilities of the
VistaSource business. The reserve balance for the estimated costs associated
with the disposition as of June 30, 2001 was $ 1,128,000, consisting primarily
of estimated brokerage fees, legal and accounting fees, and severance costs.
-9-
10
APPLIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
G. ACQUISITIONS
On March 31, 2001, the Company acquired all of the outstanding capital
stock of Dynamic Decisions Pty Limited ("Dynamic Decisions") for total cost of
approximately $6 million consisting of $5.7 million in cash and 100,000 shares
of the Company's Common Stock. The acquisition was accounted for under the
purchase method of accounting and the excess of the purchase price over the fair
value of the assets acquired has been preliminarily allocated to goodwill
($1,943,000) which is being amortized on a straight line basis over six years. A
preliminary estimation of the value of the assets acquired in the transaction
was done on March 31, 2001. The Company is in the process of completing a
valuation of the intangible assets. The cash portion of the purchase price is
payable in installments over a maximum of 30 months beginning on July 1, 2001,
of which $4,065,000 is contingent upon the continued employment of two key
executives of Dynamic Decisions and accordingly, will be accounted for as
compensation expense. The results of operations of Dynamic Decisions are
included in the financial statements presented from the date of acquisition.
Unaudited pro forma revenue, net loss, and loss per share shown below for
the six months ended June 30, 2001 and 2000 assumes the acquisition of Dynamic
Decisions occurred on January 1 of each respective period.
SIX MONTHS ENDED
(in thousands, except for share amounts) JUNE 30 (UNAUDITED)
----------------------
2001 2000
------- ------
Revenue $22,329 $20,115
Net loss ($4,930) ($3,140)
Total basic and diluted loss per share ($0.42) ($0.28)
H. RESTRUCTURING EXPENSE
In the second quarter of 2001, the Company adopted a plan of restructuring
aimed at reducing current operating costs company-wide. In connection with this
plan, 28 non-management employees, primarily sales, marketing, and
administrative positions, and 2 executive level employees were terminated. The
Company's restructuring plan also included the closure of the Company's sales
office in France. As a result of the restructuring plan, the Company recorded a
restructuring charge of $512,000 for the three months ended June 30, 2001. The
restructuring charge consists of $449,000 for severance costs and $63,000 for
the loss on disposal of the Company's French subsidiary, which was sold on June
30, 2001. In connection with the sale, the Company paid $100,000 to the
purchaser, which is included in the restructuring charge. At June 30, 2001,
$449,000 of the restructuring charge remained as a liability on the balance
sheet.
-10-
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1983 to develop and market software
applications for the workstation market. In 1986, the Company introduced Alis,
its first office automation product, which accounted for substantially all of
the Company's revenue through 1990. Alis was replaced in 1991 by the Aster*x
product family, which represented the next generation of UNIX applications and
tools. In September 1993, the Company introduced its Applixware suite of desktop
and development tools for accessing, analyzing and communicating information in
real time, to replace the Company's Aster*x product family, on which it was
based.
In October 1995, the Company acquired Target Systems Corporation, which
developed and marketed customer interaction software. In October 1996, the
Company acquired Sinper Corporation, doing business under the name TM1, which
developed and marketed software used for on-line analytical processing (OLAP).
These two acquisitions enabled Applix to expand its product offerings to include
front office business applications. The Company focuses on front office business
applications which include Applix iEnterprise, the Company's offering in the
customer relationship management (CRM) market, and Applix iTM1, the Company's
real time multi-dimensional analysis software for business intelligence
applications.
In 1996, the Company introduced its Applix Anyware product line, an
application development and deployment solution that leverages Java to customize
and deploy Applixware's full suite of applications. Applix Anyware delivers the
functionality of Applixware, Applix iTM1 and Applix iEnterprise to "thin-client"
computing environments (i.e. systems running a Java-enabled browser such as
Netscape Navigator or Microsoft Explorer).
The Company acquired Cosource.com in December 1999 to expand its
VistaSource Division into Internet accessibility and into a collaborative open
source software web environment, in a transaction accounted for under the
purchase method of accounting. In December 2000, the board of directors decided
to dispose of VistaSource. As a result of this decision, VistaSource was
classified as a discontinued operation as of December 31, 2000 and the Company
recorded an estimated loss of $3.6 million. At March 30, 2001, the company sold
the VistaSource division for $1.3 million which included approximately $367,000
in losses from operations for the period from January 1, 2000 through the
measurement date of December 17, 2000, $2.2 million relating to the removal of
the net assets of the VistaSource business, $1.1 million in estimated losses
from operations from the measurement date through the estimated date of
disposal and $1.3 million in provisions for employee severance and benefits,
transaction costs, bank fees and other contractual commitments. These losses
were partially offset by proceeds of $1.3 million received from the divestiture.
On March 30, 2001, the company sold the VistaSource division for $1.3
million. For the three months ended March 31, 2001, and the six months ended
June 30, 2001, the Company has recognized a gain of $718,000 from discontinued
operations due to adjustments for the actual results of operations of the
VistaSource business through the date of disposal, changes in net assets
delivered at closing and changes in estimates of certain obligations, resulting
in a total net loss on the disposal of $2,877,000.
On March 31, 2001, the Company acquired Dynamic Decisions Pty Limited of
Australia in an effort to expand its customer analytics and business planning
software across the globe. Applix plans to build upon Dynamic Decisions' strong
customer base and to continue to offer the highest quality customer analytics
and business planning software and support services to all of the Company's
customers. The total cost of the acquisition was approximately $6 million
consisting of $5.7 million in cash and 100,000 shares of the Company's Common
Stock, of which $ 5.7 million is payable over the next twenty seven months. The
acquisition was accounted for under the purchase method of accounting and the
excess of the purchase price over the fair value of the assets acquired has been
preliminarily allocated to goodwill ($1,943,000) which is being amortized on a
straight line basis over six years.
-11-
12
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in this
Quarterly Report, with the Financial Statements, and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's 2000 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 2, 2001.
Any statements in this report expressing the beliefs and expectations of
management regarding the Company's future results and performance are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
current expectations that involve a number of risks and uncertainties. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which speak only as of the date made.
Such forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Such risks and
uncertainties are described in the Company's 2000 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on April 2, 2001.
RESULTS OF CONTINUING OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2000
Total revenue from continuing operations increased 17% to $10,444,000 for
the quarter ended June 30, 2001 from $8,938,000 for the quarter ended June 30,
2000.
License revenue from continuing operations decreased 8% to $4,537,000 for
the quarter ended June 30, 2001 from $4,943,000 for the quarter ended June 30,
2000. The decrease was primarily due to the decline in the global economy and
the continued slowdown in information technology spending. The Company expects
license revenue to increase as a percentage of total revenue in the future due
to expected increased license revenue from channel partners due to a
strengthening pipeline.
Service revenue from continuing operations increased in the quarter to
$5,907,000, or 57% of total revenue, compared to $3,995,000, or 45% of total
revenue in the same quarter last year. The increase was primarily due to
improved renewal rates for maintenance from existing customers. The Company
expects maintenance revenue to continue to increase due to continuing
improvement in maintenance renewals from existing customers and expects
consulting revenue to remain steady but decrease as a percentage of sales as the
Company expects total license revenue to increase.
Domestic license revenue from continuing operations decreased 34% to
$1,121,000 for the quarter ended June 30, 2001 from $1,689,000 for the same
period in the prior year. The decrease was primarily due to the decline in the
domestic economy and the continued slowdown in information technology spending.
Domestic service revenue from continuing operations increased 37% to $2,102,000
from $1,532,000 in the same quarter last year primarily due to improved renewal
rates for maintenance from existing domestic customers.
International license revenue from continuing operations increased 5% to
$3,416,000 for the quarter ended June 30, 2001 from $3,254,000 for the same
period in 2000. The increase was primarily due to the acquisition of Dynamic
Decisions offset by a slowing global economy and a continued decline in
information technology spending. International service revenues increased by 54%
to $3,805,000 in the
-12-
13
second quarter of 2001 from $2,463,000 in the same quarter last year primarily
due to improved renewal rates for maintenance from existing international
customers.
Gross margin from continuing operations increased to 64% for the three
months ended June 30, 2001 from 57% for the same period in 2000. License revenue
gross margins from continuing operations decreased to 88% for the quarter ended
June 30, 2001 from 90% for the quarter ended June 30, 2000. Service gross
margins from continuing operations improved to 46% for the first quarter of 2001
from 17% in the same period last year. The overall increase in margins reflects
improved utilization of the Company's professional services organization as well
as higher maintenance revenues as a percent of total revenues.
Selling and marketing expenses from continuing operations, which include
domestic sales and marketing expenses and the cost of the Company's
international operations, decreased 15% to $5,990,000 for the quarter ended June
30, 2001 from $7,006,000 for the quarter ended June 30, 2000. Selling and
marketing expenses decreased as a percentage of total revenue to 57% for the
quarter ended June 30, 2001 from 78% for the quarter ended June 30, 2000. The
decrease in total spending is attributable to efforts to cut costs company-wide
which included reduced spending on marketing programs in the second quarter of
2001 versus higher spending on marketing programs in the second quarter of 2000.
In addition, certain incentive related compensation costs were reduced as a
result of the lower sales in the current year.
Research and development expenses from continuing operations, which consist
primarily of employee salaries, benefits and related expenses, decreased 12% to
$1,707,000 for the quarter ended June 30, 2001 from $1,939,000 for the quarter
ended June 30, 2000 and were 16% of total revenue for the quarter ended June 30,
2001 versus 22% of total revenue for the quarter ended June 30, 2000. The
decrease in total spending is attributable to efforts to cut costs company-wide
which included significant reductions in the use of outside research and
development consultants. Total research and development expenses from continuing
operations, including capitalized software costs, decreased to $1,985,000,
including $278,000 in capitalized software development costs, or 19% of total
revenues for the quarter ended June 30, 2001 from $2,091,000, including $152,000
in capitalized software development costs, or 23% of total revenue for the
quarter ended June 30, 2000. The Company expects research and development
expenses to increase in absolute dollars but not as a percentage of sales due to
better cost containment and an expected increase in revenue.
General and administrative expenses from continuing operations, which
include the costs of the finance, human resources and administrative functions,
increased 12% to $1,237,000 for the quarter ended June 30, 2001 from $1,107,000
for the same period in 2000. This was primarily due to increased legal fees
incurred in the second quarter of 2001. General and administrative expenses
remained at 12% of total revenue for the quarter ended June 30, 2001 and June
30, 2000. The Company expects general and administrative expenses to decrease in
absolute dollars and as a percentage of sales.
In the second quarter of 2001, the Company adopted a plan of restructuring
aimed at reducing current operating costs company-wide. In connection with this
plan, 28 non-management employees, primarily sales, marketing, and
administrative positions, and 2 executive level employees were terminated. The
Company's restructuring plan also included the sale of the Company's sales
office in France. As a result of the restructuring plan, the Company recorded a
restructuring charge of $512,000 for the three months ended June 30, 2001. The
restructuring charge consists of $449,000 for severance costs and $63,000 for
the loss on disposal of the Company's French subsidiary, which was sold on June
30, 2001. In connection with the sale, the company paid $100,000 to the
purchaser, which is included in the restructuring charge. At June 30, 2001,
$449,000 of the restructuring charge remained as a liability on the balance
sheet.
-13-
14
Interest income in the second quarter of 2001 decreased to $124,000 from
$306,000 in the second quarter of 2000 which is directly attributable to fewer
funds invested during the three months ended June 30, 2001 versus the same
period last year.
The Company recorded a provision from income taxes for the quarter ended
June 30, 2001 of $75,000 based on the Company's foreign income tax obligations,
compared to a benefit of $1,591,000 for the quarter ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
Total revenue from continuing operations increased 20% to $21,771,000 for
the six months ended June 30, 2001 from $18,215,000 for the six months ended
June 30, 2000.
License revenue from continuing operations increased 3% to $10,351,000 for
the six months ended June 30, 2001 from $10,038,000 for the six months ended
June 30, 2000. The increase was primarily due to the acquisition of Dynamic
Decisions acquired in 2001, offset by the decline in the global economy and the
continued slowdown in information technology spending. The Company expects
license revenue to increase as a percentage of total revenue in the future due
to expected increased license revenue from channel partners due to a
strengthening pipeline.
Service revenue from continuing operations increased to $11,420,000, or 52%
of total revenue, compared to $8,177,000, or 45% of total revenue in the same
quarter last year representing a 7% increase. The Company expects maintenance
revenue to continue to increase due to continuing improvement in maintenance
renewals from existing customers and consulting revenue to remain steady but
decrease as a percentage of sales as compared to last year as the Company
expects total license revenue to increase.
Domestic license revenue from continuing operations increased 9% to
$3,425,000 for the six months ended June 30, 2001 from $3,126,000 for the same
period in the prior year. Domestic service revenue from continuing operations
increased 31% to $4,067,000 from $3,107,000 in the same period last year.
International license revenue from continuing operations was $6,926,000 for
the six months ended June 30, 2001 compared to $6,912,000 for the same period in
2000. International service revenues increased by 45% to $7,353,000 in the first
six months of 2001 from $5,070,000 in the period last year due to continuing
improvement in maintenance renewals from existing customers in the international
market space.
Gross margin from continuing operations increased to 62% for the six months
ended June 30, 2001 from 57% for the same period in 2000. License revenue gross
margins from continuing operations remained unchanged at 90% for the six months
ended June 30, 2001 and June 30, 2000. Service gross margins from continuing
operations improved to 37% for the six months of 2001 from 16% in the same
period last year due to lower third-party contractor cost and improved employee
utilization levels.
Selling and marketing expenses from continuing operations increased 7% to
$13,005,000 for the six months ended June 30, 2001 from $12,189,000 for the six
months ended June 30, 2000. The increase was primarily due to increased staffing
in the sales and marketing departments compared to the first six months of 2000.
Selling and marketing expenses decreased as a percentage of total revenue to 60%
for the six months ended June 30, 2001 from 67% for the six months ended June
30, 2000.
-14-
15
Research and development expenses from continuing operations increased 1%
to $3,815,000 for the six months ended June 30, 2001 from $3,760,000 for the six
months ended June 30, 2000 and were 18% of total revenue for the six months
ended June 30, 2001 versus 21% of total revenue for the six months ended June
30, 2000. Total research and development expenses from continuing operations,
including capitalized software costs, increased to $4,270,000 primarily due to
continuing work on foreign translations of our iCRM and iPlanning products,
including $454,000 in capitalized software development costs, or 20% of total
revenues for the six months ended June 30, 2001 from $4,055,000, including
$295,000 in capitalized software development costs, or 22% of total revenue for
the six months ended June 30, 2000. The Company expects research and development
expenses to increase in absolute dollars but not as a percentage of sales.
General and administrative expenses from continuing operations increased
16% to $2,381,000 for the six months ended June 30, 2001 from $2,053,000 for the
same period in 2000. This was primarily due to increased travel and legal fees
in the first six months of 2001 compared to the same period in 2000. General and
administrative expenses remained at 11% of total revenue for the six months
ended June 30, 2001 and June 30, 2000. The Company expects general and
administrative expenses to decline for the remainder of 2001.
In the second quarter of 2001, the Company adopted a plan of restructuring
aimed at reducing current operating costs company-wide and recorded a
restructuring charge of $512,000 for the six months ended June 30, 2001.
Interest income for the six months ended June 30, 2001 decreased to $257,000
from $661,000 for the same period in 2000 due to fewer funds invested during the
six months ended June 30, 2001 versus the same period last year.
The Company recorded a provision from income taxes for the six months ended
June 30, 2001 of $119,000 based on the Company's foreign income tax obligations
compared to a benefit of $2,362,000 for the six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, the Company had cash and cash equivalents of
$8,996,000 as compared to $12,546,000 as of December 31, 2000. Cash used in the
Company's operations was $4,699,000 and $942,000 for the six months ended June
30, 2001 and June 30, 2000 respectively. The net loss of $5,271,000 was
partially offset by the increase in operating assets and liabilities of $442,000
and by depreciation and amortization of $1,014,000 for the six months ended June
30, 2001.
Cash provided by investing activities totaled $639,000 for the six months
ended June 30, 2001 compared to total cash used of $1,831,000 for the six months
ended June 30, 2000. The increase in cash provided by investing activities
primarily resulted from the Company receiving proceeds of $1,300,000 from the
sale of VistaSource. This was partially offset by capital expenditures of
$131,000, capitalized software development costs of $454,000, and a payment of
$100,000 in connection with the sale of the Company's French subsidiary.
Cash provided from finance activities totaled $546,000 for the six months
ended June 30, 2001 which consisted of proceeds received from the exercise of
incentive stock options and the Company's employee stock purchase plan compared
to total cash provided of $533,000 for the same period in 2000.
In connection with the acquisition of Dynamic Decisions, the Company
expects to pay out $5.86 million over the next twenty seven months.
-15-
16
The Company believes that the funds currently available will be sufficient
to fund the Company's operations at least through the next twelve months. The
Company has no commitments or specific plans for any significant capital
expenditures in the next twelve months. To date, inflation has not had a
material adverse effect on the Company's operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company exports products to diverse geographic areas. Most of the
Company's international sales through subsidiaries are denominated in foreign
currencies. To date, foreign currency fluctuations have not had a material
effect on the Company's operating results. The Company has engaged in hedging
transactions to cover its currency exposure on intercompany balances for the
purpose of mitigating the effect of foreign currency fluctuations.
At June 30, 2001, the Company held $5,340,000 in cash equivalents
consisting of commercial paper and money market funds. Cash equivalents are
classified as available for sale and valued at amortized cost, which
approximates fair market value. A hypothetical 10 percent increase in interest
rates would not have a material impact on the fair market value of these
instruments due to their short maturity and the Company's intention that all the
securities will be sold within one year. There have been no significant changes
since December 31, 2000.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 4, 2001, the
following proposals were adopted by the vote specified below:
FOR AGAINST ABSTAIN
--- ------- -------
1) Election of Directors
Jitendra S. Saxena 10,122,941 N.A. 412,310
John D. Loewenberg 10,122,941 N.A. 412,310
2) Amendment to Company's 1994 Equity
Incentive Plan 2,130,412 750,705 54,119
3.) Approve the Company's 2001
Employee Stock Purchase Plan 2,580,330 309,287 45,619
N.A. - Not Applicable
-16-
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.11 Applix, Inc 2001 Employee Stock Purchase Plan
10.12+ Executive Stock Option Acceleration Agreement between the
Registrant and Craig Cervo, dated June 9, 2000
10.13+ Executive Change-in-Control Agreement between the Registrant and
Alan Goldsworthy Dated July 3, 2001
10.14+ Executive Change-in-Control Agreement between the Registrant and
Edward Terino Dated July 3, 2001
+ Management contract or compensatory plan
(B) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the quarter ended June 30,
2001,
-17-
18
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIX, INC.
By: /s/ Edward Terino
---------------------------------------
Edward Terino
Chief Financial Officer
(duly authorized officer and
principal financial officer)
Date: August 13, 2001
-18-