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Visio Corp – ‘10-Q’ for 6/30/98

As of:  Monday, 8/17/98   ·   For:  6/30/98   ·   Accession #:  1032210-98-950   ·   File #:  0-26772

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/17/98  Visio Corp                        10-Q        6/30/98    2:60K                                    Donnelley R R & S… Co/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Form 10-Q for Quarter Ending 06/30/1998               23    110K 
 2: EX-27.1     Financial Data Schedule                                2      6K

10-Q   —   Form 10-Q for Quarter Ending 06/30/1998
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
95. Subsequent Events
11Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
12Revenues
15Cost of revenues
16Research and development
17Sales and marketing
"General and administrative
18Acquired technology
19Interest and other income, net
21Item 5. Other Information
"Item 6. Exhibits and Reports on Form 8-K
22Signatures 
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=============================================================================== 

SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C.  20549 
____________________  

FORM 10-Q 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 1998  

OR  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  
SECURITIES EXCHANGE ACT OF 1934 
COMMISSION FILE NUMBER 0-26772  

VISIO CORPORATION 
(Exact name of registrant as specified in its charter)  

WASHINGTON                                 91-1448389       
(State or other jurisdiction of      (I.R.S. Employer Identification No.)   
incorporation or organization)                                              

520 PIKE STREET, SUITE 1800, SEATTLE, WASHINGTON 98101-4001 
    (Address of principal executive offices)    (Zip code)

(206) 521-4500  
(Registrant's telephone number, including area code)  

Indicate by check mark whether the registrant: (1) has filed all reports        
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of   
1934 during the preceding 12 months (or for such shorter period that the        
registrant was required to file such reports) and (2) has been subject to such  
filing requirements for the past 90 days.                                       

Yes  X          No      
  ---            ---

Indicate the number of shares outstanding of each of the issuer's classes of    
common stock, as of the latest practicable date:                                

      Class                     Shares outstanding as of July 31, 1998
--------------------------------  --------------------------------------------- 
Common Stock ($.01 par value)                         29,916,896                

=============================================================================== 


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VISIO CORPORATION 

FORM 10-Q 

FOR THE QUARTER ENDED JUNE 30, 1998 

TABLE OF CONTENTS 

PART I.  FINANCIAL INFORMATION  

                                                        [Enlarge/Download Table]

                                                                                            PAGE
                                                                                            ----
                                                                                                
ITEM 1.  FINANCIAL STATEMENTS                                                                   

         Balance Sheets as of June 30, 1998 and September 30, 1997.........................    2

         Statements of Income for the three and nine months ended June 30, 1998 and 1997...    3

         Statements of Cash Flows for the nine months ended June 30, 1998 and 1997.........    4

         Notes to Financial Statements.....................................................    5

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                                      
         CONDITION AND RESULTS OF OPERATIONS...............................................   10

                          PART II.  OTHER INFORMATION                                           

ITEM 5.  OTHER INFORMATION.................................................................   20

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K..................................................   20

SIGNATURES.................................................................................   21


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PART I.  FINANCIAL INFORMATION                                                  

ITEM 1.  FINANCIAL STATEMENTS                                                   

VISIO CORPORATION 
BALANCE SHEETS
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                         JUNE 30,   SEPTEMBER 30,
                                                                           1998         1997     
                                                                       -----------  -------------
                                                                       (UNAUDITED)               
                                                                                                 
Assets                                                                                           
Current assets:                                                                                  
 Cash and short-term investments......................................   $105,930      $ 79,594  
 Accounts receivable..................................................     12,970         6,360  
 Inventories..........................................................      1,085         1,079  
 Prepaid expenses.....................................................      6,683         3,991  
 Deferred income taxes................................................      8,295         7,291  
                                                                         --------      --------  
  Total current assets................................................    134,963        98,315  
Equipment and leasehold improvements..................................      9,501         8,039  
Capitalized technology................................................      4,976         2,861  
                                                                         --------      --------  
    Total assets......................................................   $149,440      $109,215  
                                                                         ========      ========  
LIABILITIES AND SHAREHOLDERS' EQUITY                                                             
Current liabilities:                                                                             
 Accounts payable.....................................................   $  5,938      $  5,954  
 Accrued compensation and benefits....................................      5,278         2,706  
 Other accrued liabilities............................................     14,694        10,717  
 Deferred revenue.....................................................      7,487         8,998  
 Income taxes payable.................................................      2,777         2,988  
 Current portion of notes payable.....................................        763         1,024  
                                                                         --------      --------  
  Total current liabilities...........................................     36,937        32,387  
                                                                         --------      --------  
Shareholders' equity:                                                                            
 Common stock.........................................................     67,816        52,258  
 Retained earnings....................................................     44,687        24,570  
                                                                         --------      --------  
  Total shareholders' equity..........................................    112,503        76,828  
                                                                         --------      --------  
    Total liabilities and shareholders' equity........................   $149,440      $109,215  
                                                                         ========      ========  

See accompanying notes.                                                         

2 


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VISIO CORPORATION 
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA) 
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                        THREE MONTHS ENDED  NINE MONTHS ENDED 
                                                             JUNE 30,           JUNE 30,      
                                                        -----------------   ----------------- 
                                                          1998      1997     1998       1997  
                                                        --------  --------  --------  --------
                                                                                              
Revenues...............................................  $43,748   $25,805  $120,442   $68,351
Cost of revenues.......................................    4,080     2,731    11,037     7,099
                                                         -------   -------  --------   -------
Gross profit...........................................   39,668    23,074   109,405    61,252
                                                         -------   -------  --------   -------
Operating expenses:                                                                           
 Research and development..............................    6,708     4,175    19,050    10,339
 Sales and marketing...................................   18,072     9,988    49,616    26,791
 General and administrative............................    2,999     1,899     8,601     5,081
 Acquired technology...................................      976     3,558     8,066    10,255
                                                         -------   -------  --------   -------
   Total operating expenses............................   28,755    19,620    85,333    52,466
                                                         -------   -------  --------   -------
Operating income.......................................   10,913     3,454    24,072     8,786
Interest and other income, net.........................    1,235       987     3,739     2,229
                                                         -------   -------  --------   -------
Income before income taxes.............................   12,148     4,441    27,811    11,015
Provision for income taxes.............................    3,158     1,155     7,232     2,864
                                                         -------   -------  --------   -------
Net income.............................................  $ 8,990   $ 3,286  $ 20,579   $ 8,151
                                                         =======   =======  ========   =======
Basic earnings per share...............................    $0.31     $0.12     $0.72     $0.30
                                                         =======   =======  ========   =======
Shares used in computation of basic earnings per share.   29,318    27,719    28,780    27,374
                                                         =======   =======  ========   =======
Diluted earnings per share.............................    $0.28     $0.11     $0.66     $0.27
                                                         =======   =======  ========   =======
Shares used in computation of diluted earnings per                                            
 share.................................................   31,552    30,540    31,222    30,267
                                                         =======   =======  ========   =======

See accompanying notes.                                                         

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VISIO CORPORATION 
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                                     NINE MONTHS ENDED      
                                                                          JUNE 30,          
                                                                    ----------------------- 
                                                                       1998           1997  
                                                                    ---------      ---------
CASH FLOWS FROM OPERATIONS:                                                                 
                                                                                            
  Net income....................................................... $ 20,579       $  8,151 
  Adjustments to reconcile net income to net cash from operations:                          
   Depreciation and amortization...................................    3,697          1,727 
   Deferred income taxes...........................................      (11)        (3,556)
   Issuance of common stock for acquired technology................    6,964              - 
   Changes:                                                                                 
     Accounts receivable...........................................   (6,632)        (3,050)
     Inventories...................................................      (14)           156 
     Prepaid expenses..............................................   (3,022)        (2,611)
     Accounts payable..............................................       29            404 
     Accrued compensation and benefits.............................    2,552          1,114 
     Deferred revenue..............................................   (1,495)         2,087 
     Other accrued liabilities.....................................    4,273          3,576 
     Income taxes payable..........................................    2,443            661 
                                                                    --------       -------- 
  Net cash from operations.........................................   29,363          8,659 
                                                                    --------       -------- 
CASH FLOWS USED FOR INVESTMENTS:                                                            
  Purchases of short-term investments..............................  (34,502)       (21,012)
  Proceeds from maturities of short-term investments...............   25,500         10,815 
  Purchases of equipment and leasehold improvements................   (5,311)        (3,795)
  Capitalized technology...........................................   (2,532)        (2,135)
                                                                    --------       -------- 
  Net cash used for investments....................................  (16,845)       (16,127)
                                                                    --------       -------- 
CASH FLOWS FROM FINANCING:                                                                  
  Issuance of common stock.........................................    4,893          4,245 
  Payments on long-term obligations................................     (300)          (465)
                                                                    --------       -------- 
  Net cash from financing..........................................    4,593          3,780 
                                                                    --------       -------- 

Net increase (decrease) in cash and cash equivalents...............   17,111         (3,688)
Effect of exchange rate changes on cash............................     (463)          (310)
Cash and cash equivalents, beginning...............................   58,222         42,506 
                                                                    --------       -------- 
Cash and cash equivalents, ending..................................   74,870         38,508 
Short-term investments.............................................   31,060         28,861 
                                                                    --------       -------- 
Cash and short-term investments.................................... $105,930       $ 67,369 
                                                                    ========       ======== 

See accompanying notes.                                                         

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VISIO CORPORATION 
NOTES TO FINANCIAL STATEMENTS 
(UNAUDITED) 

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

Basis of Presentation                                                 

     The financial statements of Visio Corporation ("Visio" or the "Company") at
June 30, 1998 and for the three and nine month periods ended June 30, 1998 and  
1997 are unaudited and reflect all adjustments, consisting of only normal       
recurring items which are, in the opinion of management, necessary for a fair   
presentation of the financial position and results of operations for the interim
periods. The financial statements should be read in conjunction with the        
financial statements and notes thereto for the fiscal year ended September 30,  
1997 included in Visio's Annual Report on Form 10-K. The results of operations  
for the three and nine months ended June 30, 1998 are not necessarily indicative
of the results to be expected for the full fiscal year. Certain                 
reclassifications were made to prior interim periods to conform to current      
period presentation.                                                            

     Visio's fiscal year is a 52/53-week period.  Accordingly, all references as
of and for the periods ended June 30, 1998, September 30, 1997 and June 30, 1997
reflect amounts as of and for the periods ended July 3, 1998, October 3, 1997   
and June 27, 1997, respectively.                                                

2.   EARNINGS PER SHARE                                                         

    In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No.128, Earnings Per Share, which the company has adopted effective   
for periods ending on or after December 31, 1997. Pursuant to the requirements  
of Statement No. 128, the Company has changed the method previously used to     
compute earnings per share and has restated all prior periods whereby the       
calculation of primary and fully diluted earnings per share have been replaced  
by basic and diluted earnings per share. Under the new requirements for         
calculating basic earnings per share, the dilutive effect of stock options and  
stock warrants are excluded.                                                    

                                                        [Enlarge/Download Table]

                                                                       THREE MONTHS ENDED JUNE 30,            
                                                             ------------------------------------------------ 
                                                                    BASIC                       DILUTED       
                                                             -------------------           ------------------ 
                                                             1998           1997           1998          1997 
                                                             ----           ----           ----          ---- 
                                                                 (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)    
                                                                                                              

Weighted average common shares outstanding................  29,342         27,966         29,342        27,966
Restricted stock subject to repurchase....................     (24)          (247)           n/a           n/a
Net effect of dilutive stock options and warrants                                                             
 calculated using the treasury stock method and the                                                           
 average stock price......................................     n/a            n/a          2,210         2,574
                                                           -------        -------        -------       -------

Total.....................................................  29,318         27,719         31,552        30,540
                                                           =======        =======        =======       =======
Net income................................................ $ 8,990        $ 3,286        $ 8,990       $ 3,286
                                                           =======        =======        =======       =======
Earnings per share........................................ $  0.31        $  0.12        $  0.28       $  0.11
                                                           =======        =======        =======       =======

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                                                        [Enlarge/Download Table]

                                                                       NINE MONTHS ENDED JUNE 30,             
                                                            ------------------------------------------------- 
                                                                   BASIC                       DILUTED        
                                                            -------------------           ------------------- 
                                                            1998           1997           1998          1997  
                                                            ----           ----           ----          ----  
                                                                (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)     
                                                                                                              

Weighted average common shares outstanding................  28,829         27,718         28,829        27,718
Restricted stock subject to repurchase....................     (49)          (344)           n/a           n/a
Net effect of dilutive stock options and warrants                                                             
 calculated using the treasury stock method and the                                                           
 average stock price......................................     n/a            n/a          2,393         2,549
                                                            ------         ------         ------        ------

Total.....................................................  28,780         27,374         31,222        30,267
                                                           =======        =======        =======       =======
Net income................................................ $20,579        $ 8,151        $20,579       $ 8,151
                                                           =======        =======        =======       =======
Earnings per share........................................ $  0.72        $  0.30        $  0.66       $  0.27
                                                           =======        =======        =======       =======

3.   INVENTORIES                                                                

  Inventories are stated at the lower of cost or market and consist of the
following:                                                            

                                     JUNE 30,        SEPTEMBER 30,
                                  1998              1997
                                    -------         ------------
                                  (IN THOUSANDS)
Raw Materials...............        $  503             $  299   
Finished Goods..............           582                780   
                                 ------             ------
                                 $1,085             $1,079
                                 ======             ======

4.   ACQUISITIONS                                                               

  For all acquisitions accounted for under the purchase method, assets are
recorded at fair market value plus a pro rata portion of related acquisition    
costs.  The allocation of the purchase price to Acquired Technology or          
Capitalized Technology is based on known valuation techniques in the software   
industry.  For some transactions, the Company obtains an independent appraisal  
of the technology.  Amounts allocated to Acquired Technology relate to in-      
process research and development that were immediately expensed in the period of
acquisition because technological feasibility was not established and no        
alternative commercial use was identified.  Amounts allocated to Capitalized    
Technology relate to technology that had achieved technological feasibility at  
the time of acquisition.  Capitalized Technology is amortized on a straight-line
basis over the estimated useful life of the technology.                         

On January 22, 1998, the Company acquired MarComp Inc. ("MarComp"), a 
privately held provider of programming toolkits for access to Autodesk's AutoCAD
.dwg and .dxf file formats, located in Parkton, Maryland. Under the terms of the
merger agreement, Visio exchanged 50,014 shares of its unregistered common stock
for all of the outstanding shares of MarComp. The transaction was accounted for 
as a pooling of interests and due to the immateriality of the amounts involved, 
prior period financial statements have not been restated. The transaction       
resulted in an increase in equity of $100,000 primarily due to the acquisition  
of cash and accounts receivable from MarComp and resulted in approximately      
$100,000 in acquisition related costs in the quarter ended March 31, 1998.      

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     On February 10, 1998, the Company acquired certain technology and assets of
InfoModelers, Inc. ("InfoModelers"), a privately held, leading supplier of      
database and data warehouse visual design, access and query tools, located in   
Bellevue, Washington. Under the terms of the agreement, Visio issued 200,000    
shares of its unregistered common stock for accounts receivable, fixed assets,  
tax assets and certain technology assets. The transaction was accounted for     
using the purchase method and was valued at approximately $7.8 million for      
InfoModeler shareholders. This transaction resulted in a total charge to        
Acquired Technology of $7.0 million that included $6.8 million for in-process   
research and development and $236,000 of acquisition related costs in the       
quarter ended March 31, 1998. In addition, the Company recorded approximately   
$1.0 million in other balance sheet assets.                                     

 On May 5, 1998, the Company acquired certain technology and assets from
Decision Graphics UK Ltd. ("Decision Graphics"), a privately held provider of   
computer-aided facilities management (CAFM) software, located in the U.K., for  
$688,000. The transaction was accounted for using the purchase method and       
resulted in a total charge to Acquired Technology of $729,000 that included     
$688,000 for in-process research and development and $41,000 of acquisition     
related costs in the quarter ended June 30, 1998.                               

On June 2, 1998, the Company acquired certain CAD technology, software
products and other assets from Ketiv Technologies Inc. ("Ketiv"), a privately   
held provider of architecture, engineering and construction (AEC) software      
located in Portland, Oregon, for approximately $2.6 million. The transaction was
accounted for using the purchase method and resulted in Capitalized Technology  
of $2.5 million including acquisition related costs and a total charge to       
Acquired Technology of $247,000 that included $235,000 for in-process research  
and development and $12,000 of acquisition related costs. The Capitalized       
Technology is being amortized on a straight-line basis over five years.         

     On February 21, 1997, the Company acquired certain technology and assets of
Boomerang Technology Inc. ("Boomerang"), a privately held developer of Autodesk 
AutoCAD-compatible software, located in San Diego, California, for $6.7 million.
This transaction resulted in a charge to Acquired Technology of $6.7 million for
in-process research and development.                                            

  On May 1, 1997, the Company acquired certain assets of Freedom Solutions
Group, Inc. d.b.a. SysDraw Software Company ("SysDraw Software Company"), a     
privately held network design and documentation solutions provider, located in  
Lombard, Illinois. Under the terms of the agreement, the acquisition price      
included $5.5 million in cash plus the issuance of a $1.0 million note payable  
due August 1998. Visio is required to pay up to $1.5 million of additional      
consideration if revenues of the acquired products meet certain performance     
goals within three years of the acquisition. The transaction was accounted for  
using the purchase method and resulted in Capitalized Technology of $3.1        
million, other balance sheet assets of $100,000 and a charge to Acquired        
Technology of $3.6 million that included $3.3 million for in-process research   
and development and $300,000 of acquisition related costs. The Capitalized      
Technology is being amortized on a straight-line basis over five years.         

    The technologies acquired in the MarComp, Boomerang, Decision Graphics and
Ketiv transactions are intended for use in the Company's products in the        
Technical Drawing product group. The technologies acquired in the Sysdraw and   
InfoModelers transactions are intended for use in the Company's IT Design and   
Documentation product group.                                                    

The operating results of MarComp, Boomerang, SysDraw, InfoModelers,   
Decision Graphics, and Ketiv were not considered material to the consolidated   
financial statements of Visio, and accordingly, pro forma financial information 
has not been presented for these acquisitions.                                  

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5.   SUBSEQUENT EVENTS                                                          

  On July 10, 1998, the Company acquired Kaspia Systems Inc. ("Kaspia"), a
privately held developer of fully automated enterprise-network audit            
functionality, including discovery, monitoring and reporting software, located  
in Beaverton, Oregon. Under the terms of the merger agreement, Visio acquired   
all of Kaspia's outstanding stock for 482,994 shares of Visio common stock,     
valued at approximately $23.3 million for Kaspia shareholders. This transaction 
will be accounted for as a pooling of interests. Accordingly, the consolidated  
financial statements will include the combined results of operations beginning  
in the quarter ended September 30, 1998 and all prior financial statements will 
be restated. The transaction resulted in approximately $1.2 million in          
acquisition related costs in the quarter ended September 30, 1998.              

The following tables reflect restated summarized unaudited financial data of    
Visio including the historical results of Kaspia:                               

SELECTED UNAUDITED INCOME STATEMENT DATA:                                       

                                                        [Enlarge/Download Table]

FISCAL YEAR 1998                                                                  NINE MONTHS
                                                   THREE MONTHS ENDED                ENDED   
                                       ----------------------------------------   -----------
                                        DECEMBER 31,     MARCH 31,      JUNE 30,     JUNE 30,
(in thousands, except per share data)       1997           1998          1998          1998  
                                       ------------     ---------      --------   -----------
                                                                                             
Revenues.............................     $37,497        $40,089        $44,186     $121,772 
Net income...........................     $ 7,378        $ 3,326        $ 8,449     $ 19,153 
Diluted earnings per share...........     $  0.24        $  0.11        $  0.26     $   0.60 
Shares used in computation of                                                                
 diluted earnings per share..........      31,395         31,659         32,018       31,691 
                                                        [Enlarge/Download Table]

FISCAL YEAR 1997                                                                                      
                                                                                          FISCAL YEAR 
                                                        THREE MONTHS ENDED                   ENDED    
                                       ------------------------------------------------  -------------
(in thousands, except per share data)  DECEMBER 31,  MARCH 31,  JUNE 30,  SEPTEMBER 30,  SEPTEMBER 30,
                                          1996         1997       1997        1997           1997     
                                       ------------  ---------  --------  -------------  -------------
                                                                                                      
Revenues.............................     $19,207     $23,812    $26,367     $31,389       $100,775   
Net income...........................     $ 4,157     $   216    $ 2,942     $ 6,385       $ 13,700   
Diluted earnings per share...........     $  0.14     $  0.01    $  0.10     $  0.20       $   0.44   
Shares used in computation of                                                                         
 diluted earnings per share..........      30,405      30,518     30,943      31,300         30,792   

SELECTED UNAUDITED BALANCE SHEET DATA:                                          

(in thousands)                         SEPTEMBER 30,  JUNE 30,                  
                       1997         1998
                     -------------  --------
Cash and short-term investments......     $ 81,212    $106,107                  
Current assets.......................      101,586     138,251                  
Total assets.........................      112,701     153,048                  
Current liabilities..................       33,544      39,269                  
Shareholders' equity.................       78,767     113,063                  
Total liabilities and                                                           
shareholders' equity................      112,701     153,048                 

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6.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS                                  

The Accounting Standards Executive Committee has issued Statement of  
Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), which supersedes SOP
91-1, the former literature on software revenue recognition. This Statement will
be effective beginning in fiscal year 1999. The Company believes it is          
substantially in compliance with the provisions of SOP 97-2, and its adoption is
not expected to have a material impact on the financial position or results of  
operations of the Company.                                                      

   In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes standards for reporting and displaying   
comprehensive income and its components in the financial statements which       
requires the Company to display an amount representing total comprehensive      
income for the period in its financial statements. The Company will be required 
to implement Statement No. 130 for its fiscal year 1999.                        

In June 1997, the FASB issued Statement No. 131, "Disclosures about   
Segments of an Enterprise and Related Information." Statement No. 131           
establishes standards for the manner in which public companies report           
information about operating segments in annual and interim financial statements.
The Company will be required to implement Statement No. 131 for its fiscal year 
1999.                                                                           

     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted in years    
beginning after June 15, 1999. Statement No. 133 provides a comprehensive and   
consistent standard for the recognition and measurement of derivatives and      
hedging activities. The Company currentely hedges foreign exchange transaction  
exposures. Management has not yet determined what the effect of Statement No.   
133 will be on the earnings and financial position of the Company.              

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                                                 

OVERVIEW                                                                        

  Visio(R), which commenced operations in September 1990, develops drawing
and diagramming software for the general business personal computer user. All of
the Company's products have been developed for the Microsoft Windows 3.1,       
Windows 95, Windows 98 and Windows NT operating systems and are marketed under  
the Visio brand. The Company's primary products are Visio Standard, Visio       
Technical, Visio Professional and IntelliCAD(R) 98. The Company's first product,
Visio Standard, which shipped in November 1992, began creating a new market for 
business diagramming. The Company shipped its second major product, Visio       
Technical, for technical drawing, in November 1994. The Company introduced its  
third significant product in January 1997, Visio Professional, for information  
systems and network design and documentation. The company introduced its most   
recent product in March 1998, IntelliCAD 98, for the computer aided drafting    
market.                                                                         

When used in this discussion, the words "expects," "believes,"        
"anticipates" and similar expressions are intended to identify forward-looking  
statements. Such statements are subject to certain risks and uncertainties that 
could cause actual results to differ materially from those projected. Factors   
which could affect the Company's financial results and cause such results to    
differ materially from quarter to quarter include but are not limited to        
fluctuations in quarterly performance, dependence on other products, including  
Microsoft Windows, competition in the business drawing and diagramming software 
market, timing and customer acceptance of new products, the Company's ability to
manage growth and integrate acquired technology, potential changes in licensing 
and marketing methods and changes in general economic conditions. Additional    
information concerning these and other risks is described in the "Certain Risk  
Factors that may Impact Future Results of Operations" section of the Company's  
Form 10-K for the fiscal year ended September 30, 1997, and, from time to time, 
in other reports filed by the Company with the Securities and Exchange          
Commission. Readers are cautioned not to place undue reliance on these forward- 
looking statements, which speak only as of the date hereof. The Company         
undertakes no obligation to publicly release the result of any revisions to     
these forward-looking statements that may be made to reflect events or          
circumstances after the date hereof or to reflect the occurrence of             
unanticipated events.                                                           

------------------                                                              
VISIO and IntelliCAD are registered trademarks of Visio Corporation.            

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RESULTS OF OPERATIONS                                                           

    The following table sets forth statement of income data as a percentage of
revenues for the fiscal periods indicated.                                      

                                                        [Enlarge/Download Table]

                                                     THREE MONTHS ENDED          NINE MONTHS ENDED       
                                                          JUNE 30,                    JUNE 30,           
                                                   ------------------------    ------------------------  
                                                   1998                1997    1998                1997  
                                                   ----------    ----------    ----------    ----------  
                                                                                                         
Revenues.......................................... 100.0%              100.0%  100.0%              100.0%
Cost of revenues..................................   9.3                10.6     9.2                10.4 
                                                   -----               -----   -----               ----- 
Gross profit......................................  90.7                89.4    90.8                89.6 
                                                   -----               -----   -----               ----- 
Operating expenses:                                                                                      
 Research and development.........................  15.3                16.2    15.8                15.1 
 Sales and marketing..............................  41.3                38.7    41.2                39.2 
 General and administrative.......................   6.9                 7.3     7.1                 7.4 
 Acquired technology..............................   2.2                13.8     6.7                15.0 
                                                   -----               -----   -----               ----- 
Total operating expenses..........................  65.7                76.0    70.8                76.7 
                                                   -----               -----   -----               ----- 
Operating income..................................  25.0                13.4    20.0                12.9 
Interest and other income, net....................   2.8                 3.8     3.1                 3.2 
                                                   -----               -----   -----               ----- 
Income before income taxes........................  27.8                17.2    23.1                16.1 
Provision for income taxes........................   7.2                 4.5     6.0                 4.2 
                                                   -----               -----   -----               ----- 
Net income........................................  20.6%               12.7%   17.1%               11.9%
                                                   =====               =====   =====               ===== 

REVENUES                                                                        

    Revenues include the license of software products, maintenance and support
contracts, net of reserves for estimated future returns and allowances.  License
revenues are derived from packaged software products, volume licenses,          
international royalties and certain OEM arrangements.  The Company periodically 
upgrades its products.  Revenues from upgrades are cyclical and are typically   
highest in the periods of and immediately following an upgrade.  The last       
significant upgrade occurred in August 1997 where the Company's three primary   
products Visio Standard, Visio Technical and Visio Professional were upgraded to
version 5.0.                                                                    

   Revenues for the third quarter of fiscal 1998 increased 70% over the same
quarter in the prior year. Revenues for the nine months ended June 30, 1998     
increased 76% over the comparable prior year period.  The increase in revenues  
was due primarily to sales volume growth across product groups, distribution    
channels and geographic regions.                                                

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PRODUCT GROUPS:                                                       

The following table sets forth revenues by product group with the     
corresponding percentage of total revenues and the year-to-year percentage      
change for the fiscal periods indicated.  Prior year's figures have been        
restated for comparability.                                                     

                                                        [Enlarge/Download Table]

                                                              THREE MONTHS ENDED JUNE 30,        
                                                       ----------------------------------------- 
                                                            1998              1997       CHANGE  
                                                       --------------   --------------  -------- 
                                                                                                 
                                                                (DOLLARS IN THOUSANDS)           
Revenues:                                                                                        
 Business Diagramming................................. $11,561   26.4%   $11,042   42.8%     4.7%
 Technical Drawing....................................  10,753   24.6      7,309   28.3     47.1%
 IT Design and Documentation..........................  21,434   49.0      7,454   28.9    187.6%
                                                       -------  -----    -------  -----    ----- 
     Total revenues................................... $43,748  100.0%   $25,805  100.0%    69.5%
                                                       =======  =====    =======  =====    ===== 

                                                        [Enlarge/Download Table]

                                                              NINE MONTHS ENDED JUNE 30,         
                                                       ----------------------------------------- 
                                                            1998              1997       CHANGE  
                                                       --------------   --------------  -------- 
                                                                                                 
                                                                (DOLLARS IN THOUSANDS)           
Revenues:                                                                                        
 Business Diagramming................................. $ 35,220   29.2%  $33,648   49.2%     4.7%
 Technical Drawing....................................   28,483   23.7    21,836   32.0     30.4%
 IT Design and Documentation..........................   56,739   47.1    12,867   18.8    341.0%
                                                       --------  -----   -------  -----    ----- 
     Total revenues................................... $120,442  100.0%  $68,351  100.0%    76.2%
                                                       ========  =====   =======  =====    ===== 

     The Company classifies its products in the following product groups:  Visio
Standard and Visio Maps in the Business Diagramming product group, Visio        
Technical and IntelliCAD 98 in the Technical Drawing product group, and Visio   
Professional, Visio Business Modeler and Visio Network Equipment in the IT      
Design and Documentation product group.                                         

     The Company believes that the percentage growth in the Business Diagramming
product group has been impacted by cannibalization from Visio Professional.  The
Company believes that customers who may otherwise have purchased Visio Standard 
are choosing Visio Professional for its added features and content.  Many Visio 
Standard customers in the past were information technology professionals who can
now choose Visio Professional that provides them with more of the functionality 
they need.                                                                      

The growth in the Technical Drawing product group was primarily due to
IntelliCAD 98 that was introduced in March 1998.  Revenues from IntelliCAD 98   
were approximately $3.0 million or 28% of Technical Drawing revenues in the     
quarter ended June 30, 1998.  The Company believes that the percentage growth in
the Technical Drawing product group has also been impacted by cannibalization   
from Visio Professional.  Prior to the release of Visio Professional, Visio     
Technical had been marketed to the IT professional as the solution for network  
diagramming.                                                                    

Visio Professional, the Company's first significant product in the IT 
Design and Documentation product group, significantly impacted the revenue mix  
within the product groups for the quarter and nine months ended June 30, 1998.  
Since being introduced in the second quarter of fiscal 1997, Visio Professional 
has experienced significant growth as the product has been accepted as a viable 
solution for IT professionals in the design and documentation of their networks,
databases, software applications and web sites. Also contributing to the growth 
of Visio Professional is the growth of the IT design and documentation market as
a whole.                                                                        

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SALES CHANNELS:                                                       

The following table sets forth revenues by sales channel with the     
corresponding percentage of total revenues and the year-to-year percentage      
change for the fiscal periods indicated.                                        

                                                        [Enlarge/Download Table]

                                                    THREE MONTHS ENDED JUNE 30,        
                                            -----------------------------------------  
                                                  1998              1997       CHANGE  
                                            --------------    --------------   ------  
                                                     (DOLLARS IN THOUSANDS)            
                                                                                       
Revenues:                                                                              
 Distribution.............................. $29,901   68.3%   $19,264   74.7%    55.2% 
 Direct....................................   2,614    6.0      1,424    5.5     83.6% 
 Volume Licensing..........................  11,218   25.6      4,775   18.5    134.9% 
 OEM.......................................      15    0.1        342    1.3    (95.6)%
                                            -------  -----    -------  -----    -----  
     Total revenues........................ $43,748  100.0%   $25,805  100.0%    69.5% 
                                            =======  =====    =======  =====    =====  

                                                        [Enlarge/Download Table]

                                                    NINE MONTHS ENDED JUNE 30,         
                                            -----------------------------------------  
                                                  1998              1997       CHANGE  
                                            --------------    --------------   ------  
                                                     (DOLLARS IN THOUSANDS)            
                                                                                       
Revenues:                                                                              
 Distribution.............................. $ 84,179   69.9%   $50,798   74.3%   65.7% 
 Direct....................................    9,259    7.7      4,558    6.7   103.1% 
 Volume Licensing..........................   26,892   22.3     12,167   17.8   121.0% 
 OEM.......................................      112    0.1        828    1.2   (86.5)%
                                            --------  -----    -------  -----   -----  
     Total revenues........................ $120,442  100.0%   $68,351  100.0%   76.2% 
                                            ========  =====    =======  =====   =====  

Visio classifies its revenues in four sales channels: "Distribution," 
"Direct," "Volume Licensing," and "OEM."  Distribution revenues represent sales 
of packaged products through national distributors and corporate, retail and    
mail order resellers.  Direct revenues represent sales of packaged products     
directly by the Company, including upgrades, generally to end users responding  
to advertising or marketing promotions.  Volume Licensing revenues are derived  
from volume licenses, which are generally administered through corporate        
resellers after the Company's sales staff has negotiated the sale.  The sales   
cycle for a volume license can extend up to eighteen months on significant      
volume licenses as organizations can require extensive time to evaluate and     
consider a large-scale implementation.  Volume Licensing revenues usually do not
include any significant amount of packaged goods, but do include maintenance and
support revenues, which are priced separately and recognized over the lives of  
the contracts.  OEM revenues include licenses of Visio products to hardware and 
software manufacturers for bundling arrangements.  OEM revenues include packaged
product sales, as well as royalty payments with no associated product costs.    

  Growth in absolute terms in both the Distribution and Direct channel was
primarily driven by the strength of the IT Design and Documentation product     
group as well as revenue from the version 5.0 upgrade.  Volume Licensing channel
revenues grew 135% for the three month period ended June 30, 1998, over the     
comparable period in fiscal 1997.  This strong growth reflects continued        
investment in the corporate sales force and the Volume Licensing programs.  The 
company has increased its staff in the corporate sales department from 31 at    
June 30, 1997 to 62 at June 30, 1998.                                           

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GEOGRAPHY:                                                            

     The following table sets forth revenues by geography with the corresponding
percentage of total revenues and the year-to-year percentage change for the     
fiscal periods indicated.                                                       

                               THREE MONTHS ENDED JUNE 30,
                             -----------------------------------------
                                   1998              1997       CHANGE
                             --------------    --------------   ------
                            (DOLLARS IN THOUSANDS)
Revenues:                                                                       
North America..................  $27,047   61.8%   $17,039   66.0%    58.7%   

Europe.........................   10,355   23.7      5,533   21.5     87.1%   
Rest of World..................    6,346   14.5      3,233   12.5     96.3%   
                             -------  -----    -------  -----     ----
   Total international......   16,701   38.2      8,766   34.0     90.5%
                             -------  -----    -------  -----     ----
 Total revenues.............  $43,748  100.0%   $25,805  100.0%    69.5%
                             =======  =====    =======  =====     ====

                              NINE MONTHS ENDED JUNE 30,
                             -----------------------------------------
                                   1998              1997       CHANGE
                             --------------    --------------   ------
                            (DOLLARS IN THOUSANDS)
Revenues:                                                                       
North America..................  $ 70,396   58.4%   $42,841   62.7%    64.3%  

Europe.........................    30,600   25.4     15,756   23.0     94.2%  
Rest of World..................    19,446   16.2      9,754   14.3     99.4%  
                              --------  -----    -------  -----     ----
    Total international......    50,046   41.6     25,510   37.3     96.2%
                              --------  -----    -------  -----     ----
  Total revenues.............  $120,442  100.0%   $68,351  100.0%    76.2%
                              ========  =====    =======  =====     ====

Revenues in the U.S. and Canada for the quarter ended June 30, 1998   
increased in absolute terms over the comparable period of fiscal 1997 primarily 
due to the growth of the IT Design and Documentation product group, the upgrade 
to version 5.0 and the increase in Volume Licensing.  International revenues for
the quarter ended June 30, 1998, increased in absolute terms and as a percentage
of total revenues over the comparable period of fiscal 1997, primarily due to   
the growth of the IT Design and Documentation product group, the upgrade to     
version 5.0, an increase in Volume Licensing and continued investment in        
international markets.  For the quarter and nine months ended June 30, 1998, the
growth in Rest of World was partially offset by general weakened economic       
conditions and foreign currency fluctuations in Japan and Southeast Asia.  These
economic and currency conditions may continue to negatively impact revenue and  
operating results in the Rest of World region in upcoming periods.              

COST OF REVENUES                                                                

The following table sets forth cost of revenues with the corresponding
percentage of revenues and year-to-year percentage change for the fiscal periods
indicated.                                                                      

                        JUNE 30,
                           -------------------------------------------------
                                1998                 1997             CHANGE
                           --------------      -----------------      ------
                      (DOLLARS IN THOUSANDS)
Three months ended.........  $ 4,080    9.3%     $2,731       10.6%      49.4%  
Nine months ended..........  $11,037    9.2%     $7,099       10.4%      55.5%  

Cost of revenues varies with the mix of Distribution, Direct, Volume  
Licensing and OEM revenues, due to relative variations in the standard product  
costs associated with each revenue category, and with fluctuations in           

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period costs. Standard product costs consist primarily of documentation,        
packaging, media duplication, assembly and material management costs. Period    
costs consist primarily of certain royalties, technical support, production     
management, freight and fulfillment, amortization of capitalized technology,    
standard material variances and inventory valuation adjustments.                

Standard costs associated with each revenue category are primarily    
determined by the amount of packaged product delivered in that revenue category.
Accordingly, most of the Company's standard costs are associated with           
Distribution and Direct revenues, the majority of which are derived from sales  
of packaged products.  Volume Licensing revenues have the lowest standard cost  
because they generally do not include any substantive amount of packaged goods. 

    The decrease in cost of revenues as a percentage of revenues for the three
and nine month periods of fiscal 1998 over the comparable periods of fiscal 1997
resulted from the increased use of lower cost CD-ROM media and other raw        
material cost reductions, an increase in the percentage of revenue from Visio   
Professional, Visio Technical, and IntelliCAD 98 which have lower standard      
product costs as a percentage of revenues than Visio Standard and increased     
Volume Licensing revenues which have little or no standard product costs. These 
decreases were partially offset by increased royalty costs for licensed         
technology including Visual Basic for Applications (VBA) from Microsoft         
Corporation and increased amortization costs of capitalized technology.  The    
Company expects its cost of revenues as a percentage of revenues to increase due
to expected increases in technical support costs associated with the Company's  
new computer-aided drafting product, IntelliCAD 98 as well as support for other 
future products of more complexity, and increased amortization of Capitalized   
Technology from recent acquisitions.                                            

RESEARCH AND DEVELOPMENT                                                        

   The following table sets forth research and development expenses with the
corresponding percentage of revenues and year-to-year percentage change for the 
fiscal periods indicated.                                                       

                                                                [Download Table]

                                                JUNE 30,                      
                             -------------------------------------------------
                                  1998                 1997             CHANGE
                             --------------      -----------------      ------
                                        (DOLLARS IN THOUSANDS)                
                                                                              
Three months ended.........  $ 6,708   15.3%     $ 4,175      16.2%      60.7%
Nine months ended..........  $19,050   15.8%     $10,339      15.1%      84.3%

    Research and development expenses consist primarily of personnel, contract
services, occupancy and equipment costs required to conduct the Company's       
product development efforts. Product development includes product engineering,  
documentation development, localization, usability testing, quality assurance   
and advanced research and development costs. Product localization costs and lump
sum payments for technology such as file converters are capitalized and         
amortized to development over the lesser of the useful life or 18 months.       
Research and development expenses are charged to operations as incurred. The    
Company has not capitalized certain software development costs subsequent to the
establishment of technological feasibility, as these costs have been immaterial.

  Increases in research and development expenses in absolute terms for the
three and nine month periods ended June 30, 1998 over the corresponding periods 
of fiscal 1997 resulted primarily from planned additions to the Company's       
development organization and the addition of engineering personnel that joined  
the Company as part of the acquisitions completed during these time periods.    
The Company believes it will be necessary to continue to increase research and  
development spending on an absolute basis in order to continue to maintain a    
competitive technological position as well as continue to expand its product    
line and the number of localized language versions.                             

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SALES AND MARKETING                                                             

The following table sets forth sales and marketing expenses with the  
corresponding percentage of revenues and year-to-year percentage change for the 
fiscal periods indicated.                                                       

                                                        [Enlarge/Download Table]

                                                            JUNE 30,                                 
                            -------------------------------------------------------------------------
                                     1998                            1997                     CHANGE 
                            ------------------------       --------------------------        --------
                                                     (DOLLARS IN THOUSANDS)                          
                                                                                                     
Three months ended......... $18,072            41.3%         $ 9,988           38.7%           80.9% 
Nine months ended.......... $49,616            41.2%         $26,791           39.2%           85.2% 

Sales and marketing expenses have increased in absolute terms as the  
Company continues building its worldwide sales, marketing and customer service  
infrastructure.  The increase in sales and marketing expenses in absolute terms 
and as a percentage of revenue for the three and nine month periods ended June  
30, 1998 over the comparable periods in fiscal 1997 was primarily due to        
expansion in international markets, increased product marketing costs to support
new products and upgrades to existing products and investment in the corporate  
sales force and the Volume Licensing programs.                                  

The Company believes substantial spending on marketing awareness and  
corporate sales staffing is essential to achieve revenue growth and to maintain 
and enhance the Company's competitive position. Accordingly, Visio expects sales
and marketing expenses will continue to increase in absolute terms over time.   

GENERAL AND ADMINISTRATIVE                                                      

     The following table sets forth general and administrative expenses with the
corresponding percentage of revenues and year-to-year percentage change for the 
fiscal periods indicated.                                                       

                                                        [Enlarge/Download Table]

                                                            JUNE 30,                                
                            ------------------------------------------------------------------------
                                      1998                             1997                   CHANGE
                            ------------------------       --------------------------         ------
                                                     (DOLLARS IN THOUSANDS)                         
                                                                                                    
Three months ended.........  $2,999             6.9%          $1,899            7.3%           57.9%
Nine months ended..........  $8,601             7.1%          $5,081            7.4%           69.3%

     General and administrative expenses increased in absolute terms in both the
third quarter and nine months of fiscal 1998 over the corresponding periods of  
fiscal 1997 primarily due to increased staffing to support the Company's growth 
as well as growth in Visio's operational headquarters in the Asia Pacific       
region. The Company expects to show increased general and administrative        
expenses in absolute terms in future periods for infrastructure to support the  
Company's revenue growth.                                                       

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ACQUIRED TECHNOLOGY                                                             

The following table sets forth acquired technology expenses related to
recent acquisitions with the corresponding percentage of revenues and year-to-  
year percentage change for the fiscal periods indicated.                        

                                                        [Enlarge/Download Table]

                                                            JUNE 30,                                  
                            ------------------------------------------------------------------------- 
                                      1998                           1997                      CHANGE 
                            ------------------------       --------------------------          ------ 
                                                                                                      
                                                     (DOLLARS IN THOUSANDS)                           
Three months ended.........  $  976             2.2%         $ 3,558           13.8%           (72.6)%
Nine months ended..........  $8,066             6.7%         $10,255           15.0%           (21.3)%

On January 22, 1998, the Company acquired MarComp Inc. ("MarComp"), a 
privately held provider of programming toolkits for access to Autodesk's AutoCAD
.dwg and .dxf file formats, located in Parkton, Maryland. Under the terms of the
merger agreement, Visio exchanged 50,014 shares of its unregistered common stock
for all of the outstanding shares of MarComp. The transaction was accounted for 
as a pooling of interests and due to the immateriality of the amounts involved, 
prior period financial statements have not been restated. The transaction       
resulted in an increase in equity of $100,000 primarily due to the acquisition  
of cash and accounts receivable from MarComp and resulted in approximately      
$100,000 in acquisition related costs in the quarter ended March 31, 1998.      

     On February 10, 1998, the Company acquired certain technology and assets of
InfoModelers, Inc. ("InfoModelers"), a privately held, leading supplier of      
database and data warehouse visual design, access and query tools, located in   
Bellevue, Washington. Under the terms of the agreement, Visio issued 200,000    
shares of its unregistered common stock for accounts receivable, fixed assets,  
tax assets and certain technology assets. The transaction was accounted for     
using the purchase method and was valued at approximately $7.8 million for      
InfoModeler shareholders. This transaction resulted in a total charge to        
Acquired Technology of $7.0 million that included $6.8 million for in-process   
research and development and $236,000 of acquisition related costs in the       
quarter ended March 31, 1998. In addition, the Company recorded approximately   
$1.0 million in other balance sheet assets.                                     

 On May 5, 1998, the Company acquired certain technology and assets from
Decision Graphics UK Ltd. ("Decision Graphics"), a privately held provider of   
computer-aided facilities management (CAFM) software, located in the U.K., for  
$688,000. The transaction was accounted for using the purchase method and       
resulted in a total charge to Acquired Technology of $729,000 that included     
$688,000 for in-process research and development and $41,000 of acquisition     
related costs in the quarter ended June 30, 1998.                               

On June 2, 1998, the Company acquired certain CAD technology, software
products and other assets from Ketiv Technologies Inc. ("Ketiv"), a privately   
held provider of architecture, engineering and construction (AEC) software      
located in Portland, Oregon, for approximately $2.6 million. The transaction was
accounted for using the purchase method and resulted in Capitalized Technology  
of $2.5 million including acquisition related costs and a total charge to       
Acquired Technology of $247,000 that included $235,000 for in-process research  
and development and $12,000 of acquisition related costs. The Capitalized       
Technology is being amortized on a straight-line basis over five years.         

     On February 21, 1997, the Company acquired certain technology and assets of
Boomerang Technology Inc. ("Boomerang"), a privately held developer of Autodesk 
AutoCAD-compatible software, located in San Diego, California, for $6.7 million.
This transaction resulted in a charge to Acquired Technology of $6.7 million for
in-process research and development.                                            

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  On May 1, 1997, the Company acquired certain assets of Freedom Solutions
Group, Inc. d.b.a. SysDraw Software Company ("SysDraw Software Company"), a     
privately held network design and documentation solutions provider, located in  
Lombard, Illinois. Under the terms of the agreement, the acquisition price      
included $5.5 million in cash plus the issuance of a $1.0 million note payable  
due August 1998. Visio is required to pay up to $1.5 million of additional      
consideration if revenues of the acquired products meet certain performance     
goals within three years of the acquisition. The transaction was accounted for  
using the purchase method and resulted in Capitalized Technology of $3.1        
million, other balance sheet assets of $100,000 and a charge to Acquired        
Technology of $3.6 million that included $3.3 million for in-process research   
and development and $300,000 of acquisition related costs. The Capitalized      
Technology is being amortized on a straight-line basis over five years.         

INTEREST AND OTHER INCOME, NET                                                  

Interest income for the third quarter of fiscal 1998 of $1.2 million  
increased 25% over the third quarter of fiscal 1997. Interest income for the    
nine months ended June 30, 1998 of $3.7 million increased 68% over the          
comparable period of fiscal 1997. The increase in fiscal 1998 was primarily due 
to a larger cash and short-term investment balance. Other income includes grant 
income from the Industrial Development Agency of Ireland and foreign currency   
transaction gains and losses. Visio currently hedges certain foreign exchange   
transaction exposures. To the extent the Company has assets and liabilities     
denominated in foreign currencies that are not hedged, the Company is subject to
foreign currency gains and losses.                                              

INCOME TAXES                                                                    

  The Company's effective income tax rate was 26% for both the fiscal 1998
and fiscal 1997 periods.                                                        

LIQUIDITY AND CAPITAL RESOURCES                                                 

    At June 30, 1998, the Company had cash and short-term investments totaling
$105.9 million, an increase of $26.3 million from September 30, 1997. The       
increase in cash and short-term investments was due primarily to cash generated 
from operations and cash proceeds from the issuance of shares through the       
employee stock option program.                                                  

   At June 30, 1998, the Company's principal commitments consisted primarily
of leases on its facilities. The Company's capital expenditures totaled $5.3    
million in the first nine months of fiscal 1998. At June 30,1998, the Company   
had commitments for approximately $8.0 million to be paid over the next nine    
months related to tenant improvements associated with the Company's new         
headquarters building. The Company believes that its current cash balances and  
cash flows from operations will be sufficient to meet its working capital and   
capital expenditure requirements for at least the next 12 months.               

From time to time, the Company evaluates potential acquisitions of    
businesses, products or technologies that complement the Company's business. At 
June 30, 1998, except for the acquisition of Kaspia Systems, Inc. ("Kaspia")    
described in "Subsequest Events", the Company had no material agreements or     
commitments with respect to any such transactions.                              

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SUBSEQUENT EVENTS                                                               

   On July 10, 1998, the Company acquired Kaspia, a privately held developer
of fully automated enterprise-network audit functionality, including discovery, 
monitoring and reporting software, located in Beaverton, Oregon. Under the terms
of the merger agreement, Visio acquired all of Kaspia's outstanding stock for   
482,994 shares of Visio common stock, valued at approximately $23.3 million for 
Kaspia shareholders. This transaction will be accounted for as a pooling of     
interests. The transaction resulted in acquisition related charges of           
approximately $1.2 million that will be expensed in the quarter ended September 
30, 1998. See "Notes to Financial Statements -- 5. Subsequent Events."          

RECENTLY ISSUED ACCOUNTING STANDARDS                                            

The Accounting Standards Executive Committee has issued Statement of  
Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), which supersedes SOP
91-1, the former literature on software revenue recognition. This Statement will
be effective beginning in fiscal year 1999. The Company believes it is          
substantially in compliance with the provisions of SOP 97-2, and its adoption is
not expected to have a material impact on the financial position or results of  
operations of the Company.                                                      

   In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 establishes standards for reporting and displaying   
comprehensive income and its components in the financial statements which       
requires the Company to display an amount representing total comprehensive      
income for the period in its financial statements. The Company will be required 
to implement Statement No. 130 for its fiscal year 1999.                        

In June 1997, the FASB issued Statement No. 131, "Disclosures About   
Segments of an Enterprise and Related Information." Statement No. 131           
establishes standards for the manner in which public companies report           
information about operating segments in annual and interim financial statements.
The Company will be required to implement Statement No. 131 for its fiscal year 
1999.                                                                           

     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted in years    
beginning after June 15, 1999. Statement No. 133 provides a comprehensive and   
consistent standard for the recognition and measurement of derivatives and      
hedging activities. The Company currently hedges certain foreign exchange       
transaction exposures. Management has not yet determined what the effect of     
Statement No. 133 will be on the earnings and financial position of the Company.

19  


10-Q21st Page of 23TOC1stPreviousNext↓BottomJust 21st

PART II.  OTHER INFORMATION                                                     

ITEM 5.   OTHER INFORMATION                                                     

In accordance with the Company's Bylaws, a shareholder proposing to   
transact business at the Company's 1999 annual meeting must provide written     
notice of such proposal, in the manner provided by the Company's Bylaws, not    
fewer than 60 or more than 90 days prior to the date of such annual meeting (or,
if the Company provides less than 60 days notice of such meeting, no later than 
10 days after the date of the Company's notice). In addition, if the Company    
receives notice of a shareholder proposal after November 25, 1998 the persons   
named as proxies in such proxy statement and proxy will have discretionary      
authority to vote on such shareholder proposal.                                 

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                      

(a)  Exhibits required by Item 601 of Regulation S-K:       

   2.1   Agreement and Plan of Merger by and among Visio
                Corporation, Kaspia Systems, Inc., VMS-1, Inc. and the
                   stockholders of Kaspia named therein, dated July 10, 1998
                     (filed as Exhibit 2.1 to the registrant's Current Report on
                 Form 8-K dated July 10, 1998 and incorporated herein by
reference).                           

               4.2   Investor Rights Agreement between Visio Corporation and the
                investors named therein, dated July 10, 1998 (filed as
                    Exhibit 4.1 to the registrant's Current Report on Form 8-K
                    dated July 10, 1998 and incorporated herein by reference).

            27.1   Financial Data Schedule which is submitted electronically
                   to the Securities and Exchange Commission for information
purposes only and not filed.          

(b)  Reports on Form 8-K:                                   

            The Company filed Form 8-K dated July 10, 1988, disclosing the
          Agreement and Plan of Merger by and among Visio Corporation,
       Kaspia Systems, Inc., VMS-1, Inc. and the stockholders of
Kaspia, dated July 10, 1998.                      

ITEMS 1, 2, 3, AND 4 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.                  

20


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SIGNATURES  

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the        
undersigned, thereunto duly authorized.                                         

Date:  August 17, 1998    VISIO CORPORATION                                     

By:  /s/ STEVE M. GORDON    
                           -------------------------------------------------
Steve M. Gordon             
                      Senior Vice President, Finance and Administration;
Chief Financial Officer     

                        (Principal Financial and Accounting Officer and Duly
Authorized Officer)         

21


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INDEX TO EXHIBITS 

EXHIBIT NO.                     DESCRIPTION                                 PAGE
-----------                     -----------                                 ----
2.1       Agreement and Plan of Merger by and among Visio                   
Corporation, Kaspia Systems, Inc., VMS-1, Inc. and      
the stockholders of Kaspia named therein, dated July 10,
1998 (filed as Exhibit 2.1 to the registrant's Current  
Report on Form 8-K dated July 10, 1998 and incorporated 
            herein by reference).                                            N/A

4.2       Investor Rights Agreement between Visio Corporation and           
the investors named therein, dated July 10, 1998        
(filed as Exhibit 4.1 to the registrant's Current Report
on Form 8-K dated July 10, 1998 and incorporated herein 
            by reference).                                                   N/A

27.1       Financial Data Schedule which is submitted                         
electronically to the Securities and Exchange Commission
            for information purposes only and not filed.                     N/A

22

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
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6/15/991020
11/25/9821
9/30/9892010-K
Filed on:8/17/9822
7/31/981
7/10/989238-K
7/3/986
For Period End:6/30/98119
6/2/98818
5/5/98818
3/31/9871810-Q
2/10/98818
1/22/98718
12/31/97610-Q
10/3/976
9/30/9721910-K405
6/30/9721410-Q
6/27/976
5/1/97819
2/21/97818
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