-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5sLqCbz4+HS+nIp4VSqNePY2otLq2DlnZgCOtSUsTxvMf6TGQCx9hTBNi/hO30E SGFnkZl/h7ZjhwaYXngyvQ== 0001006196-97-000087.txt : 19971113 0001006196-97-000087.hdr.sgml : 19971113 ACCESSION NUMBER: 0001006196-97-000087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXENT TECHNOLOGIES INC CENTRAL INDEX KEY: 0001007997 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 870393420 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28100 FILM NUMBER: 97716827 BUSINESS ADDRESS: STREET 1: 2400 RESEARCH BLVD STREET 2: STE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3012585043 MAIL ADDRESS: STREET 1: 2400 RESEARCH BLVD STREET 2: SUITE 200 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDING 09/30/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q --------------- (Mark One) _X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ______ to ______. Commission File Number: 0-28100 ------------- AXENT TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 87-0393420 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2400 Research Boulevard Suite 200 Rockville, Maryland 20850 (Address of principal executive offices) (301) 258-5043 (Registrant's telephone number including area code) ---------------- Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes___X___ No______ As of October 31, 1997, there were 12,265,339 shares outstanding of the Registrant's Common Stock, par value $.02 per share. 1 AXENT TECHNOLOGIES, INC. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 4 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 1997 and 1996 5 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 6. Exhibits 18 SIGNATURES 20 2 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The financial statements set forth below at September 30, 1997 and for the three month and nine month periods ended September 30, 1997 and 1996 are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. These financial statements should be read in conjunction with the latest audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 1996, which are included in the Company's Annual Report on Form 10-K as filed with the SEC on March 28, 1997. 3
AXENT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands) September 30, December 31, 1997 1996 (unaudited) ---------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 14,702 $ 17,261 Short-term investments 18,181 18,629 Accounts receivable, net 8,536 4,826 Prepaid expenses and other current assets 2,142 568 ---------------- ----------------- Total current assets 43,561 41,284 ---------------- ----------------- Property and equipment, net 2,078 1,417 Other assets 1,861 1,300 ---------------- ----------------- Total assets $ 47,500 $ 44,001 ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 7,781 $ 6,361 Deferred revenue 4,015 3,029 Net identifiable (assets) liabilities from discontinued operations 194 163 ---------------- ----------------- Total liabilities 11,990 9,553 ---------------- ----------------- Stockholders' equity: Common stock, par value $0.02: 12,175,139 and 10,130,064 shares issued and outstanding, respectively 244 203 Additional paid-in capital 72,763 47,909 Accumulated deficit (37,357) (13,597) Cumulative currency translation adjustments (140) (67) ---------------- ----------------- Total stockholders' equity 35,510 34,448 ---------------- ----------------- Total liabilities and stockholders' equity $ 47,500 $ 44,001 ================ =================
The accompanying notes are an integral part of these condensed consolidated financial statements. 4
AXENT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) (unaudited) For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------------------------- ---------------------------------- 1997 1996 1997 1996 ------------- -------------- --------------- -------------- Net revenues: Product licenses $ 7,314 $ 3,124 $ 21,150 $ 9,727 Services 2,425 1,828 7,005 4,632 ------------- -------------- --------------- -------------- Total net revenues 9,739 4,982 27,155 14,359 Cost of net revenues: Product licenses 567 116 1,573 346 Services 446 340 1,360 973 ------------- -------------- --------------- -------------- Total cost of net revenues 1,013 456 2,933 1,319 ------------- -------------- --------------- -------------- Gross profit 8,726 4,496 24,222 13,040 Operating expenses: Sales and marketing 8,672 4,515 2,891 13,245 Research and development 2,003 1,253 5,881 3,510 General and administrative 793 620 2,430 1,772 Write-off of purchased in-process research and development costs --- --- 27,632 --- ------------- -------------- --------------- -------------- Total operating expenses 7,311 4,764 49,188 13,954 ------------- -------------- --------------- -------------- Income (loss) from continuing operations before royalties, interest and taxes 1,415 (268) (24,966) (914) Royalty income 741 794 2,267 2,398 Interest income 457 339 1,266 668 Income tax provision (1,045) (365) (2,478) (425) ------------- -------------- --------------- -------------- Income (loss) from continuing operations 1,568 500 (23,911) 1,727 Income from discontinued operations --- 591 255 2,144 ------------- -------------- --------------- -------------- Net income (loss) $ 1,568 $ 1,091 $ (23,656) $ 3,871 ============= ============== =============== ============== Net income (loss) per common share: Continuing operations $ 0.12 $ 0.05 $ (2.02) $ 0.17 Discontinued operations --- $ 0.05 $ 0.02 $ 0.21 ------------- -------------- --------------- -------------- Net income (loss) per common share $ 0.12 $ 0.10 $ (2.00) $ 0.38 ============= ============== =============== ============== Weighted average number of common shares 13,366 10,886 11,810 10,302
The accompanying notes are an integral part of these condensed consolidated financial statements. 5
AXENT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) (unaudited) For the Nine Months Ended September 30, ------------------------------------ 1997 1996 ---------------- --------------- CASH INFLOWS (OUTFLOWS) Operating activities: Net income (loss) from continuing operations $ (23,911) $ 1,727 Non-cash items: Depreciation and amortization 1,123 443 Write-off of purchased in-process research and development 27,632 --- Change in assets and liabilities (5,887) (1,371) ---------------- --------------- Net cash provided/(used) by continuing operations (1,043) 799 Net cash provided/(used) by discontinued operations (614) 750 ---------------- --------------- Net cash provided/(used) by operating activities (1,657) 1,549 ---------------- --------------- Investing activities: Capital expenditures (668) (733) Payments for corporate acquisition (2,270) (100) Purchases of short-term investments --- (17,316) Proceeds from sale of Helpdesk business --- 300 Maturity of short-term investments 448 --- ---------------- --------------- Net cash used by continuing operations (2,490) (17,849) Net cash provided by discontinued operations 645 701 ---------------- --------------- Net cash used by investing activities (1,845) (17,148) ---------------- --------------- Financing activities: Proceeds from initial public offering of common stock (net of costs of $838,000) --- 25,132 Proceeds from issuance of common stock 1,818 100 Proceeds from line of credit draws 490 --- Principal payments on line of credit (1,225) --- ---------------- --------------- Net cash provided by continuing operations from financing activities 1,083 25,232 ---------------- --------------- Effect of exchange rate changes on cash (140) (56) ---------------- --------------- Net increase (decrease) in cash and cash equivalents (2,559) 9,577 Cash and cash equivalents, beginning of period 17,261 6,083 ---------------- --------------- Cash and cash equivalents, end of period $ 14,702 $ 15,660 ================ ===============
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 AXENT TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of AXENT Technologies, Inc. and its wholly owned subsidiaries (collectively, the "Company" or "AXENT"). The Company's condensed consolidated financial statements reflect the operations of AssureNet Pathways, Inc. ("AssureNet") since January 7, 1997 and include a write-off of purchased in-process research and development (see "Business Combinations"). The Company develops, markets, licenses and supports enterprise-wide information security solutions for client/server computing environments and provides related services. The accompanying unaudited condensed consolidated financial statements reflect all the adjustments that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results for the three month and nine month periods ended September 30, 1997 may not necessarily be indicative of the results for the entire year. The December 31, 1996 condensed consolidated balance sheet was derived from audited financial statements as of the same date but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's annual audited financial statements for the year ended December 31, 1996, which are included in the Company's Form 10-K filed with the SEC on March 28, 1997. Business Combinations On March 25, 1997, AXENT completed the acquisition of AssureNet. In connection with the acquisition, AXENT agreed to issue 1,550,000 shares of common stock in exchange for all of the outstanding shares of AssureNet preferred and common stock and certain outstanding AssureNet stock options and warrants, when exercised. In addition, AXENT assumed all other AssureNet stock options and warrants outstanding at the time of the merger. The acquisition was accounted for using the purchase method of accounting. Accordingly, a portion of the total purchase price, which was approximately $32 million, was allocated to the net assets acquired, based on their estimated fair market value. The fair market value of the tangible assets acquired was approximately $2.9 million. The Company also acquired approximately $1.5 million in purchased software which is being amortized over three years on a straight-line basis. In addition, approximately $27.6 million of the purchase price was allocated to in-process research and development based on the determination of the products' net present value using a discounted cash flow model. These products had not reached technological feasibility and had no probable future uses, and therefore were expensed at the date of the acquisition. As a result of the signing of a definitive agreement between AXENT and AssureNet, the transfer of control of AssureNet's operations to AXENT and the quantification of consideration, AssureNet's operations have been included in the Company's condensed consolidated financial statements since January 7, 1997. Before the acquisition, AssureNet developed and marketed certain hardware and software remote access authentication products (Defender(TM) products) and had certain other software products under development. AXENT intends to integrate the existing Defender software technology with the Omniguard(R) family of products where appropriate. With the exception of hardware tokens, AXENT intends to cease actively marketing the majority of AssureNet hardware products and focus its efforts on marketing the Defender software products. The acquisition is also expected to permit AXENT to expand its indirect distribution capabilities by adding AssureNet's distributors. 7 Purchased Software In 1996, the Company entered into an agreement with an unrelated third party to pay up to $1,500,000 for a nonexclusive license to the source code of certain security technology. Pursuant to this agreement, the Company paid the third party $900,000, of which $500,000 was an acquisition fee upon acceptance of the source code and $400,000 was a non-refundable royalty pre-payment against future royalties. The Company may be required to pay up to an additional $600,000 in royalties based on a percentage of the net revenues derived from the source code license over a three year period. The acquisition fee is included in purchased software. Initial Public Offering In February 1996, the Company filed a registration statement with the Securities and Exchange Commission permitting the Company to sell 2,000,000 shares of its common stock to the public. The registration statement also permitted certain non-officer stockholders of the Company to sell up to 990,000 shares to the public, including up to 390,000 shares to cover over-allotments. The registration statement became effective on April 23, 1996. The initial public offering resulted in proceeds to the Company of approximately $25.3 million, net of approximately $2.7 million in underwriting fees and offering expenses. The Company received no proceeds from the sale of shares by selling stockholders in the initial public offering. Discontinued Operations In mid-1994 the Company made a strategic decision to focus its business on the information security market and to divest itself of products and services unrelated to such business. The following businesses have been divested by the Company: (i) the storage management products business, which was sold in 1994 for cash, notes and the assumption of certain liabilities, (ii) the OpenVMS utility software distribution business, which was conveyed to Raxco Software, Inc. ("Raxco") in a spin-off effective December 31, 1995 and (iii) the Helpdesk products business, which was sold in February 1996, for cash, a note, royalties and the assumption of certain liabilities. The results of operations for these divested businesses have been accounted for as discontinued operations in accordance with Accounting Principles Bulletin No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30"). Income Tax The Company files a consolidated federal income tax return in the U.S. with its U.S. subsidiaries. Deferred income taxes have been established by each entity based upon its temporary differences, the reversal of which will result in taxable or deductible amounts in future years when the related asset or liability is recovered or settled. For the three months ended September 30, 1997, the Company recorded a tax provision on the income from continuing and discontinued operations. The effective tax rate for the three months ended September 30, 1997 approximates the statutory tax rate. As of September 30, 1997, the Company has general business credits of approximately $95,000, expiring in 2009. The Company also has alternative minimum tax credits of approximately $199,000, which do not expire. In addition, the Company's newly acquired subsidiary, AssureNet, has net operating losses and credits that expire at various dates through 2011. As of September 30, 1997, those net operating losses were approximately $7.1 million and general business credit carryforwards were approximately $369,000. Due to the greater than 50% change in AssureNet's ownership, the annual utilization of the AssureNet net operating loss carryforwards and credits is limited to the lesser of the future taxable income of AssureNet or approximately $1,375,000. 8 Stock Option Plan In January 1996, the Company adopted the 1996 Stock Option Plan and the 1996 Directors' Stock Option Plan, providing for the issuance of up to 1,000,000 and 200,000 shares, respectively. At the Company's Annual Meeting of Stockholders on May 21, 1997, stockholders approved to increase the number of shares of common stock reserved for issuance under the 1996 Stock Option Plan to 1,975,000. In addition, the plan was amended to limit the total number of options that may be granted during any fiscal year of the Company, to any one individual, to 500,000. Of the 1,975,000 shares provided in the amended 1996 Stock Option Plan, options covering an aggregate of 461,500 and 1,497,842 shares were issued during 1996 and the first nine months of 1997, respectively. Of the options granted during 1997, 264,000 were repriced from grants originally made in October 1996 and January 1997. Of the 200,000 shares provided in the 1996 Directors' Stock Option Plan, options covering 29,000 shares were issued during the first nine months of 1997. Recent Accounting Pronouncements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted for financial statements issued after December 15, 1997. SFAS 128 specifies revised guidelines for computation, presentation and disclosure requirements for an entity's Earnings per Share. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is effective for the fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general-purpose financial statements. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segment of an Enterprise and Related Information" ("SFAS 131), which is effective for the fiscal years beginning after December 15, 1997. SFAS 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. The Company does not expect the adoption of these standards to have a material impact on the Company's financial position or results of operations. Subsequent Event As part of the consideration for the sale of its storage management products effective as of December 31, 1994, the Company received a warrant to purchase 250,000 shares of common stock of MTI Technology Corporation ("MTI"). On October 15, 1997, the Company effected a cashless exercise of that warrant and received 161,830 shares of MTI common stock. These shares are considered to be available for sale as of the exercise of the warrant. Based upon the closing price of $11.375 for MTI common stock on November 10, 1997, the market value of these MTI shares was approximately $1.8 million. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risk and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those identified in "Certain Factors Affecting Future Performance" (see below) and those discussed in the "Risk Factors" set forth in Amendment No. 2 to the Company's Registration Statement on Form S-4 (File No. 333-20207), as filed with the SEC on March 6, 1997. Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996 Net Revenues The Company's net revenues from product licenses increased approximately 134.2%, or $4.19 million, from $3.12 million for the three months ended September 30, 1996 to $7.31 million for the three months ended September 30, 1997. For those periods in 1996 and 1997, net revenues from product licenses represented 63.1% and 75.1% of total net revenues, respectively. The increase in product license revenue is primarily attributable to the continued broader acceptance of the Company's products, the introduction and general release of new products and the expansion of available products running on new or additional platforms. The Company has also benefited since January 7, 1997 from the licensing of the Defender products acquired through the AssureNet transaction. The Company's net revenues from services increased approximately 32.7%, or $597,000, from $1.83 million for the three months ended September 30, 1996 to $2.43 million for the three months ended September 30, 1997. The increase in services revenues is primarily attributable to growth in the customer base purchasing maintenance, as well as the addition of the Defender customers on maintenance acquired through the AssureNet transaction. For those periods in 1996 and 1997, net revenues from services represented 36.9% and 24.9% of total net revenues, respectively. Revenues from North American and International operations were 83% and 17% of total revenues, respectively, for the three months ended September 30, 1997 as compared to 78% and 22%, respectively, for the same period in 1996. Cost of Net Revenues The Company's cost of net revenues for product licenses includes cost of media, product packaging, documentation and other production costs, amortization of purchased software costs, and product royalties. Cost of net revenues associated with product licenses increased approximately 388.8%, or $451,000, from $116,000 for the three months ended September 30, 1996 to $567,000 for the three months ended September 30, 1997. For those periods in 1996 and 1997, cost of net revenues for product licenses represented 3.7% and 7.8% of net revenues from product licenses, respectively. The increase in the cost of net revenues for product licenses is primarily attributable to the commencement of amortization on the purchased software acquired through the AssureNet transaction, plus the increased cost of producing the hardware products associated with the Defender product line. Cost of net revenues for product licenses, as a percentage of revenues from product licenses, may fluctuate from period to period due to a change in product mix, a change in the number or size of transactions recorded in a quarter, or an increase or decrease in licenses of royalty-bearing products. The Company's cost of net revenues from services includes the direct and indirect costs of providing technical support, training and consulting services to the Company's customers. Cost of net revenues from services increased 31.2%, or $106,000 from $340,000 for the three months ended September 30, 1996 to $446,000 for the three months ended September 30, 1997. For those periods in 1996 and 1997, cost of net revenues from services represented 18.6% and 18.4% of net revenues from services, respectively. The dollar increase in cost of net revenues from services is directly related to the increase in staff of the Company's customer support operations necessary to support a larger installed customer base as well as additional products offered by the Company, including the Defender product line acquired from AssureNet. 10 Sales and Marketing Sales and marketing expenses consist primarily of personnel costs, including commissions, salaries, benefits and bonuses, travel, telephone, costs of advertising, public relations seminars and trade shows. Sales and marketing expenses increased 56.1%, or $1.62 million, from $2.89 million for the three months ended September 30, 1996 to $4.52 million for the three months ended September 30, 1997. For those periods in 1996 and 1997, sales and marketing expenses represented 58.4% and 46.4% of total net revenues, respectively. The increase in dollar amount was due to the additional investment in staff to support the company's growth associated with the Defender product line, acquired from AssureNet. The decrease in sales and marketing expenses as a percentage of total net revenues was due primarily to the greater increase in total net revenues. The Company currently anticipates that the dollar amount of sales and marketing expenses will increase as the Company continues to hire additional staff to support the Company's growth in future periods. Research and Development Research and development expenses consist primarily of personnel costs, including salaries, benefits and bonuses, travel and other personnel-related expenses of the employees engaged in ongoing research and development projects and third-party development contracts. Costs related to research and development of products are expensed as incurred. Research and development expenses increased 59.9%, or $750,000, from $1.25 million for the three months ended September 30, 1996 to $2.00 million for the three months ended September 30, 1997. For those periods in 1996 and 1997, research and development expenses represented 25.3% and 20.6% of total net revenues, respectively. The increase in dollar amount resulted from the addition of staff needed to develop, maintain and enhance the OmniGuard family of software products including OmniGuard/Enterprise Resource Manager and the Defender product line acquired from AssureNet. The decrease in research and development expenses as a percentage of total net revenues was due primarily to the increase in total net revenues. The Company currently anticipates that the dollar amount of research and development expenses will increase as the Company continues to commit substantial resources to research and development in future periods. General and Administrative General and administrative expenses consist primarily of personnel costs, including salaries, benefits and bonuses and related costs for management, finance and accounting, legal and other professional services. General and administrative expenses increased 27.9%, or $173,000, from $620,000 for the three months ended September 30, 1996 to $793,000 for the three months ended September 30, 1997. For those periods in 1996 and 1997, general and administrative expenses represented 12.5% and 8.1% of total net revenues, respectively. The increase in dollar amount is primarily a result of increased staffing to support organizational growth and the integration of AssureNet. The decrease in general and administrative expenses as a percentage of total net revenues was due primarily to the greater increase in total net revenues. The Company currently anticipates that the dollar amount of general and administrative expenses will increase as the Company continues to hire additional staff to support the Company's growth in future periods. Income from Continuing Operations before Royalties, Interest and Taxes Income from continuing operations before royalties, interest and taxes increased $1.68 million from a loss of $268,000 to income of $1.42 million, for the three months ended September 30, 1996 and 1997, respectively. The increase is primarily attributable to the overall increase in world-wide revenues offset in part by the investments required to generate such revenues. 11 Royalty Income The Company recorded royalty income of $741,000 for the three months ended September 30, 1997, a decrease of $53,000 or 6.7%, from $794,000 for the same three month period during 1996. This royalty is pursuant to the Exclusive Distributor License Agreement with Raxco that provides for payment by Raxco to the Company of the greater of (i) a 30% royalty on license and services fees related to the OpenVMS utility software products owned by the Company and marketed by Raxco or (ii) $1.5 million for 1997 and $1.0 million for 1998. For the three month period ended September 30, 1997, Raxco reported to the Company gross revenues of $3.0 million, which included approximately $2.5 million of OpenVMS utility revenues. Interest Income Interest income increased 34.8%, or $118,000, from $339,000 for the three month period ended September 30, 1996 to $457,000 for the three month period ended September 30, 1997. The increase is attributable primarily to having the proceeds from the Company's initial public offering fully invested over the course of the quarter and a general increase in interest rates. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. The Company's history of net operating losses has made the realization of its tax credit carryforwards uncertain. Accordingly, the Company placed a partial valuation allowance against its deferred tax assets. The Company recorded a tax provision related to its income from continuing and discontinued operations for the three months ended September 30, 1996 and September 30, 1997. Income from Continuing Operations As a result of the above the Company recorded income from continuing operations of $1.57 million for the three months ended September 30, 1997, an increase of 213.6% or $1.07 million, from $500,000 for the three months ended September 30, 1996. Income from Discontinued Operations Income from discontinued operations consists of the net results of operations from the divested businesses of the Company, which for financial statement purposes have been accounted for in accordance with APB No. 30 and classified as discontinued operations. The Company's income from discontinued operations decreased from $591,000 for the three month period ended September 30, 1996 to $0 for the three month period ended September 30, 1997. The Company currently anticipates no further income from discontinued operations. 12 Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Net Revenues The Company's net revenues from product licenses increased approximately 107.2%, or $10.42 million, from $9.73 million for the nine months ended September 30, 1996 to $20.15 million for the nine months ended September 30, 1997. For those periods in 1996 and 1997, net revenues from product licenses represented 67.8% and 74.2% of total net revenues, respectively. The increase in product license revenue is primarily attributable to broader acceptance of the Company's products, the introduction and general release of new products and the expansion of available products running on new or additional platforms. The Company has also benefited since January 7, 1997 from the licensing of the Defender products acquired through the AssureNet transaction. The Company's net revenues from services increased approximately 51.2%, or $2.37 million, from $4.63 million for the nine months ended September 30, 1996 to $7.00 million for the nine months ended September 30, 1997. The increase in services revenues is primarily attributable to growth in the customer base purchasing maintenance, as well as the addition of the Defender customers on maintenance acquired through the AssureNet transaction. For those periods in 1996 and 1997, net revenues from services represented 32.3% and 25.8% of total net revenues, respectively. Revenues from North American and International operations were 80% and 20% of total revenues, respectively, for the nine months ended September 30, 1997 as compared to 74% and 26%, respectively for the same period in 1996. Cost of Net Revenues The Company's cost of net revenues for product licenses increased approximately 354.6%, or $1.23 million, from $346,000 for the nine months ended September 30, 1996 to $1.57 million for the nine months ended September 30, 1997. For those periods in 1996 and 1997, cost of net revenues for product licenses represented 3.6% and 7.8% of net revenues from product licenses, respectively. The increase in the cost of net revenues for product licenses is primarily attributable to the commencement of amortization on the purchased software acquired through the AssureNet transaction, plus the increased cost of producing the hardware products associated with the Defender product line. Cost of net revenues for product licenses, as a percentage of revenues from product licenses, may fluctuate from period to period due to a change in product mix, a change in the number or size of transactions recorded in a quarter, or an increase or decrease in licenses of royalty bearing products. The Company's cost of net revenues from services increased 39.8%, or $387,000 from $973,000 for the nine months ended September 30, 1996 to $1.36 million for the nine months ended September 30, 1997. For those periods in 1996 and 1997, cost of net revenues from services represented 21.0% and 19.4% of net revenues from services, respectively. The dollar increase in cost of net revenues from services is directly related to the increase in staff of the Company's customer support operations necessary to support a larger installed customer base as well as additional products offered by the Company, including the Defender product line acquired from AssureNet. Sales and Marketing Sales and marketing expenses increased 52.7%, or $4.57 million, from $8.67 million for the nine months ended September 30, 1996 to $13.25 million for the nine months ended September 30, 1997. For those periods in 1996 and 1997, sales and marketing expenses represented 60.4% and 48.8% of total net revenues, respectively. The increase in dollar amount was due to the additional investment in staff to support the company's growth as well as the addition of costs associated with the Defender product line. The decrease in sales and marketing expenses as a percentage of total net revenues was due primarily to the greater increase in total net revenues. The Company currently anticipates that the dollar amount of sales and marketing expenses will increase as the Company continues to hire additional staff to support the Company's growth in future periods. 13 Research and Development Research and development expenses increased 67.6%, or $2.37 million, from $3.51 million for the nine months ended September 30, 1996 to $5.88 million for the nine months ended September 30, 1997. For those periods in 1996 and 1997, research and development expenses represented 24.5% and 21.7% of total net revenues, respectively. The increase in dollar amount resulted from the addition of staff needed to develop, maintain and enhance the OmniGuard family of software products including OmniGuard/Enterprise Resource Manager, in addition to the costs associated with the Defender product line acquired from AssureNet. The decrease in research and development expenses as a percentage of total net revenues was due primarily to the greater increase in total net revenues. The Company currently anticipates that the dollar amount of research and development expenses will increase as the Company continues to commit substantial resources to research and development in future periods. General and Administrative General and administrative expenses increased 37.1%, or $658,000, from $1.77 million for the nine months ended September 30, 1996 to $2.43 million for the nine months ended September 30, 1997. For those periods in 1996 and 1997 general and administrative expenses represented 12.3% and 9.0% of total net revenues, respectively. The increase in dollar amount is primarily a result of increased staffing to support organizational growth and the integration of AssureNet. The decrease in general and administrative expenses as a percentage of total net revenues was due primarily to the greater increase in total net revenues. The Company currently anticipates that the dollar amount of general and administrative expenses will increase as the Company continues to hire additional staff to support the Company's growth in future periods. Write-off of purchased in-process research and development The Company incurred a one-time charge associated with the acquisition of AssureNet of approximately $27.63 million for the write-off of purchased in-process research and development that had not reached technological feasibility and had no probable future use. Income from Continuing Operations before Royalties, Interest and Taxes As a result of the approximately $27.63 million write-off of purchased in-process research and development, the Company recorded a loss from continuing operations before royalties, interest and taxes of $24.97 million for the nine months ended September 30, 1997 compared to a loss of $914,000 for the nine months ended September 30, 1996. Excluding the one-time charge, income from continuing operations before royalties, interest and taxes increased $3.58 million, or 391.7%, from a loss of $914,000 to income of $2.67 million, for the nine months ended September 30,1996 and 1997, respectively. The increase is primarily attributable to the overall increase in world-wide revenues offset in part by the investments required to generate such revenues. Royalty Income The Company recorded royalty income of $2.27 million for the nine months ended September 30, 1997, a decline of $131,000 or 5.5%, from $2.40 million for the same period during 1996. This royalty is pursuant to the Exclusive Distributor License Agreement with Raxco. For the nine month period ended September 30, 1997, Raxco reported to the Company gross revenues of $8.50 million, which included approximately $7.55 million of OpenVMS utility revenues. 14 Interest Income Interest income increased 89.5%, or $598,000, from $668,000 for the nine month period ended September 30, 1996 to $1.27 million for the nine month period ended September 30, 1997. The increase is attributable primarily to having the proceeds from the Company's initial public offering fully invested over the course of the nine month period and a general increase in interest rates. Income Taxes The Company accounts for income taxes under SFAS 109. The Company's history of net operating losses has made the realization of its tax credit carryforwards uncertain. Accordingly, the Company placed a partial valuation allowance against its deferred tax assets. The Company recorded a tax provision related to its income from continuing and discontinued operations for the nine months ended September 30, 1996 and September 30, 1997. Income (Loss) from Continuing Operations As a result of the approximately $27.63 million write-off of purchased in-process research and development, the Company recorded a loss from continuing operations of $23.91 million for the nine months ended September 30, 1997 compared to income of $1.73 million for the nine months ended September 30, 1996. Excluding the write-off, income from continuing operations increased $1.99 million, or 115.5%, from $1.73 million to $3.72 million, for the nine months ended September 30, 1996 and 1997, respectively. Income from Discontinued Operations Income from discontinued operations consists of the net results of operations from the divested businesses of the Company, which for financial statement purposes have been accounted for in accordance with APB No. 30 and classified as discontinued operations. The Company's income from discontinued operations decreased 88.1% , or $1.89 million, from $2.14 million for the nine month period ended September 30, 1996 to $255,000 for the nine month period ended September 30, 1997. For those periods in 1996 and 1997, income from discontinued operations represented 14.9% and .9% of total net revenues, respectively. The Company currently anticipates no further income from discontinued operations. Financial Condition- Liquidity and Capital Resources The Company's overall cash and cash equivalents were $14.70 million at September 30, 1997, a decrease of approximately $2.56 million from $17.26 million at December 31, 1996. During the nine month period ended September 30, 1997, the Company financed its operations primarily through cash reserves and available working capital. For the nine month period ended September 30, 1996, the Company financed its operations primarily through cash flows generated from discontinued operations and available working capital. The Company's continuing operating activities generated cash of $800,000 and used $1.04 million for the nine month periods ended September 30, 1996 and 1997, respectively. During the nine months ended September 30, 1997, the Company's use of cash from continuing operating activities was primarily a result of the payment of transaction costs related to the acquisition of AssureNet, the payment of severance and accrued expenses assumed through the AssureNet acquisition and the payment of accrued bonuses, value-added tax (VAT), commissions and other accrued expenses associated with the Company's performance in the previous calendar quarters. The Company made capital expenditures of approximately $733,000 and $668,000 for the nine month periods ended September 30, 1996 and 1997, respectively. These purchases have generally consisted of computer workstations, networking equipment, office furniture and equipment. The Company had no firm commitments for capital expenditures as of September 30, 1997. 15 During the nine month period ended September 30, 1997, the Company's cash position was also affected by the following: 1) the Company had cash outlays of approximately $2.27 million for transaction costs associated with the acquisition of AssureNet; 2) the Company made payments totaling $2.79 million in severance and assumed liabilities from the AssureNet acquisition; 3) the Company paid-off the $1.23 million balance for the line of credit carried by AssureNet, which included draws of $490,000; 4) the Company received proceeds of $1.82 million from the issuance of common stock; 5) the Company received payments totaling $645,000 on the note receivable related to the sale of the Company's storage management products in 1994; 6) the Company received $47,000 in proceeds from the sale of leasehold improvements; and 7) the Company received $448,000 from the maturity of short-term investments. The Company believes that the net proceeds from the initial public offering, cash generated from operations, together with existing sources of liquidity, will be sufficient to meet its capital expenditures, working capital and other cash requirements both for the next twelve months and for the foreseeable future. Certain Factors Affecting Future Performance Although the Company has experienced significant growth in revenues from the OmniGuard family of software products, the Company does not believe prior growth rates are necessarily indicative of future operating results. In addition, the Company expects increased competition and intends to invest significantly in its product development. As a result, there can be no assurance that the Company will remain profitable on a quarterly or annual basis. Due to the Company's limited operating history with respect to the OmniGuard family of software products, predictions as to future operating results are difficult. Future operating results may fluctuate due to factors such as: demand for the Company's products; the size and timing of customer orders; the integration of AssureNet operations and products into the Company's operations and product offerings; the introduction of new products and product enhancements by the Company or its competitors; the budgeting cycle of customers; changes in the proportion of revenues attributable to license fees and consulting services; changes in the level of operating expenses; and competitive conditions in the industry. The market for the Company's software products is highly competitive, and the Company expects that it will face increasing price pressures from its current competitors and new market entrants. Any material reduction in the price of the Company's software products would negatively affect gross margins and could have a material adverse effect on the Company's financial condition and results of operations. The sales of the Company's security products generally involve significant testing by, and education of, prospective customers as well as a commitment of resources by both parties. For these and other reasons, the sales cycle associated with the sales of the Company's security products is typically long and subject to a number of significant risks over which the Company has little or no control and, as a result, the Company may expend significant resources pursuing potential sales that will not be consummated. The Company anticipates that international sales will continue to represent a significant percentage of revenue in the foreseeable future. International sales are subject to a number of risks, including unexpected changes in regulatory requirements, tariffs and other trade barriers, political and economic instability in foreign markets, restrictions on exporting or importing certain technologies, difficulty in the staffing, management and integration of foreign operations, longer payment cycles, greater difficulty in accounts receivable collection, currency fluctuations and potentially adverse tax consequences. The uncertainty of the monetary exchange values has caused, and may in the future, contribute to fluctuations in the Company's financial condition and results of operations. Although the Company's results of operations have not been materially adversely affected to date as a result of currency fluctuations, the long-term impact of currency fluctuations, including any possible effect on the business outlook in other developing countries, cannot be predicted. 16 The foregoing Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risk and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed above and in the "Risk Factors" set forth in Amendment No. 2 to the Company's Registration Statement on Form S-4 (File No. 333-20207), as filed with the SEC on March 6, 1997. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings. In August 1997, all claims against the Company and Raxco contained in a lawsuit filed by Advanced Systems Concepts Inc. ("ASCI") in the U.S. District Court for the District of New Jersey in November 1995 were dismissed with prejudice pursuant to a settlement agreement among the Company, Raxco and ASCI. The settlement of claims against Raxco and the Company did not affect ASCI's claims in the lawsuit against the other parties defendant. The settlement had no financial effect on the Company.
Item 6. Exhibits and Reports on Form 8-K. Exhibit Number Exhibit Description 3.1* Amended and Restated Certificate of Incorporation of the Company. 3.2+ Amended and Restated Bylaws of the Company. 4.1* Specimen stock certificate for shares of Common Stock of the Company. 10.1* The Company's 1991 Amended and Restated Stock Option Plan. 10.2*** The Company's 1996 Amended and Restated Stock Option Plan. 10.3** The Company's 1996 Amended and Restated Directors' Stock Option Plan. 10.7* Registration Rights Agreement dated as of December 10, 1992, by and among the Company and the parties thereto. 10.7.1** Amendment No. 1 to Registration Rights Agreement dated as of February 26, 1997, by and among the Company and the parties thereto. 10.8* Settlement Agreement effective as of September 13, 1991, by and among the Company and the parties thereto. 10.9* Form of Indemnification Agreement between the Company and its directors and executive officers. 10.10* Agreement of Merger dated as of November 17, 1994, among the Company, Datamedia Corporation and Raxco Acquisition Corporation. 10.11* Lease Agreement dated as of September 6, 1995, by and between Research Grove Associates and the Company. 10.12* Lease of Real Property dated as of March 7, 1995, by and between TNK Associates and the Company. 10.13* Deed of Lease dated as of March 14, 1995 by and between Bill Harris Music, Inc. and the Company. 10.14* Agreement dated as of December 30, 1987, by and between the Company and William R. Davy. 10.15* Agreement dated as of September 20, 1990, by and between the Company and William R. Davy. 10.16* Agreement dated as of November 7, 1991, by and between the Company and William R. Davy. 10.17++ Memorandum of Understanding regarding certain compensation and severance matters relating to Richard A. Lefebvre, dated July 22, 1997. 10.18* Severance Arrangement for John C. Becker, dated October 16, 1992. 10.19* Severance Arrangement for Brett Jackson, dated October 16, 1992. 10.20* The Company's Officer/Vice President Severance Policy. 10.21* Exclusive Distributor License Agreement, effective as of December 31, 1995, between the Company and Raxco Software, Inc. 10.22* Administrative Services Agreement, effective as of December 31, 1995, between the Company and Raxco Software, Inc. 10.24* Agreement and Plan of Separation, effective as of December 31, 1995, between the Company and Raxco Software, Inc. 18 10.29** Amended Agreement and Plan of Merger among the Company, Axquisition, Inc., and AssureNet Pathways, Inc., dated as of January 6, 1997 and amended February 26, 1997. 11.1 Computation of Net Income Per Share for the nine months ended September 30, 1996 and 1997. 21.1* Subsidiaries of the Registrant. 27 Financial Data Schedule There were no reports on Form 8-K filed by the Company during the three month period ended September 30, 1997. - -------------------------------------------------------------------------------------------- * Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 333-01368) and incorporated herein by reference. ** Previously filed as an exhibit to the Company's Registration Statement on Form S-4 (File No. 333-20207) and incorporated herein by reference. *** Previously filed as an exhibit to the Company's proxy statement dated April 25, 1997 regarding the Company's 1997 Annual Meeting of Stockholders. + Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. ++ Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
19 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. AXENT TECHNOLOGIES, INC. Date: November 11, 1997 By: /s/ Robert B. Edwards, Jr. -------------------------- Robert B. Edwards, Jr. Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 20 EX-11 2 COMPUTATION OF EARNINGS EXHIBIT 11.1
AXENT TECHNOLOGIES, INC. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE For the Three Months For the Nine months Ended September 30, Ended September 30, --------------------------------- ----------------------------------- 1997 1996 1997 1996 -------------- --------------- ---------------- -------------- Income (loss) from continuing operations $ 1,568,000 $ 500,000 $ (23,911,000) $ 1,727,000 Income from discontinued operations --- $ 591,000 $ 255,000 $ 2,144,000 -------------- --------------- ---------------- -------------- Net income $ 1,568,000 $ 1,091,000 $ (23,656,000) $ 3,871,000 ============== =============== ================ ============== Weighted average common shares outstanding 13,365,785 10,886,465 11,809,955 10,301,807 Net income (loss) per common share and common share equivalents: Continuing operations $ 0.12 $ 0.05 $ (2.02) $ 0.17 Discontinued operations --- $ 0.05 $ 0.02 $ 0.21 -------------- ---------------- ----------------- ------------- $ 0.12 $ 0.10 $ (2.00) $ 0.38 ============== ================ ================= ==============
EX-27 3 FDS --
5 Exhibit 27 AXENT TECHNOLOGIES, INC. FINANCIAL DATA SCHEDULE The schedule contains summary financial information extracted from the condensed consolidated balance sheet and statement of operations of AXENT Technologies, Inc. as of and for the three months ended September 30, 1997 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1997 SEP-30-1997 14,702,000 18,181,000 9,237,000 701,000 0 43,561,000 5,302,000 3,224,000 47,500,000 11,990,000 0 0 0 244,000 35,266,000 47,500,000 0 9,730,000 0 1,013,000 7,311,000 30,000 0 1,415,000 1,045,000 1,568,000 0 0 0 1,568,000 .12 .12
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