UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
_X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 1996
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
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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 July 31, 1996, there were 9,997,564 shares outstanding of the Registrant's
Common Stock, par value $.02 per share.
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<PAGE>
<TABLE>
<CAPTION>
AXENT TECHNOLOGIES, INC.
INDEX
<S> <C> <C>
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of 4
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits 19
SIGNATURES 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The financial statements set forth below for the three month and six month
periods ended June 30, 1996 and 1995 are unaudited, and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
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, 1995, which are included in the Company's Amendment No. 3 to
its registration statement on Form S-1 filed on April 22, 1996, File No.
333-01368.
<PAGE>
<TABLE>
<CAPTION>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<S> <C> <C> <C>
June 30,
1996 December 31,
(unaudited) 1995
--------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 28,942 $ 6,083
Short-term investments 5,864 ---
Accounts receivable, net 3,447 5,071
Prepaid expenses and other current assets 426 338
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Total current assets 38,679 11,492
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Property and equipment, net 1,224 1,097
Other assets 29 57
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Total assets $ 39,932 $ 12,646
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 4,148 $ 5,035
Note payable 814 900
Deferred revenue 2,799 2,290
Net identifiable liabilities from discontinued operations 1,070 1,319
--------------- ------------------
Total current liabilities 8,831 9,544
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Long-term deferred revenue, net of current portion 86 126
--------------- ------------------
Total liabilities 8,917 9,670
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Stockholders' equity:
Common stock, par value $ 0.02: 9,996,814 and 7,953,464 shares
issued, respectively 200 159
Additional paid-in capital 47,367 22,133
Accumulated deficit (16,497) (19,277)
Cumulative currency translation adjustments (55) (39)
--------------- ------------------
Total stockholders' equity 31,015 2,976
--------------- ------------------
Total liabilities and stockholders' equity $ 39,932 $ 12,646
=============== ==================
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share data)
(unaudited)
<S> <C> <C> <C> <C>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -----------------
1996 1995 1996 1995
-------- ------ ------- ---------
Net revenues:
Product licenses $ 3,929 $2,558 $ 6,603 $ 4,238
Maintenance and support services 856 733 1,816 1,545
Consulting services 540 213 988 460
------- ------ ------- --------
Total net revenues 5,325 3,504 9,407 6,243
-------- ------ ------- -------
Cost of net revenues 481 442 863 877
-------- ------ ------- -------
Gross profit 4,844 3,062 8,544 5,366
Operating expenses:
Sales and marketing 2,968 2,884 5,781 5,802
Research and development 1,173 996 2,257 1,977
General and administrative 595 577 1,152 1,110
------- ------- ------- -------
Total operating expenses 4,736 4,457 9,190 8,889
-------- ------ ------- -------
Income (loss) from continuing
operations before royalties, interest
and taxes 108 (1,395) (646) (3,523)
-------- ------ ------- -------
Royalty income 804 -- 1,604 --
Interest income (expense) 257 (35) 329 (69)
Income tax (provision) benefit (25) 634 (60) 1,592
-------- ------ ------- -------
Income (loss) from continuing
operations 1,144 (796) 1,227 (2,000)
Income from discontinued operations 526 1,394 1,553 2,632
-------- ------ ------- -------
Net income $ 1,670 $ 598 $ 2,780 $ 632
======== ====== ======= =======
Net income (loss) per common share:
Continuing operations $ 0.11 $(0.09) $ 0.12 $ (0.22)
Discontinued operations 0.05 0.16 0.16 0.29
------- ------- ------- -------
Net income per common share $ 0.16 $ 0.07 $ 0.28 $ 0.07
======== ====== ======= =======
Weighted average number of
common shares 10,652 9,139 9,894 9,139
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AXENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<S> <C> <C>
For the Six Months Ended
June 30,
----------------------------
1996 1995
------------ ------------
CASH INFLOWS (OUTFLOWS)
Operating activities:
Net income (loss) from continuing operations $ 1,227 $ (2,000)
Depreciation and amortization 303 133
Change in assets and liabilities 664 (3,082)
------------ ------------
Net cash provided by (used in) continuing operations 2,194 (4,949)
Net cash provided by discontinued operations 1,009 5,290
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Net cash provided by operating activities 3,203 341
------------ ------------
Investing activities:
Capital expenditures (402) (512)
Payments for Datamedia Corporation acquisition (100) (672)
Purchases of short-term investments (5,864) ---
Proceeds from sale of Helpdesk business 300 ---
------------ ------------
Net cash used in continuing operations (6,066) (1,184)
Net cash provided by discontinued operations 463 996
------------ ------------
Net cash used in investing activities (5,603) (188)
------------ ------------
Financing activities:
Proceeds from initial public offering of common stock (net of costs
of $838,000) 25,202 ---
Proceeds from issuance of common stock 73 ---
------------ ------------
Net cash provided by financing activities 25,275 ---
------------ ------------
Effect of exchange rate changes on cash (16) (214)
------------ ------------
Net increase in cash and cash equivalents 22,859 (61)
Cash and cash equivalents, beginning of period $ 6,083 $ 6,612
============ ============
Cash and cash equivalents, end of period $ 28,942 $ 6,551
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
AXENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Basis of Presentation
The Company develops, markets, licenses and supports enterprise-wide information
security solutions for client/server computing environments and provides related
services.
The accompanying condensed consolidated financial statements include the
accounts of AXENT Technologies, Inc. and its wholly owned subsidiaries
(collectively, the "Company" or "AXENT").
The accompanying unaudited condensed consolidated financial statements reflect
all the adjustments, consisting of normal recurring 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 six month
periods ended June 30, 1996 may not necessarily be indicative of the results for
the entire year. The December 31, 1995 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, 1995, which
are included in Amendment No. 3 to the Company's registration statement on Form
S-1 that was filed with the Securities and Exchange Commission on April 22,
1996.
Short-Term Investments
At June 30, 1996, short-term investments which mature within one year and
consist primarily of certificates of deposit and government securities have been
categorized as available-for-sale and are recorded at fair value. Fair values
for available-for-sale securities are based on quoted market prices. The
estimated fair value of each investment approximates cost, and therefore there
are no unrealized gains or losses as of June 30, 1996.
Short-term investments as of June 30, 1996 consisted of the following:
Certificates of deposit $ 1,029
Government securities 4,835
===========
$ 5,864
===========
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 $25.2 million, net
of approximately $3.39 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.
<PAGE>
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").
Prior to the divestment of those businesses, the Company utilized centralized
systems for cash management, payroll, purchasing, distribution, employee benefit
plans, insurance and administrative services. As a result, substantially all of
the cash receipts of the Company and the discontinued operations were
commingled. Similarly, operating expenses, capital expenditures and other cash
outlays were centrally disbursed and charged directly or allocated to the
discontinued operations. In the opinion of management, the Company's methods for
allocating costs among the continued and discontinued operations are reasonable.
However, the historical results are not necessarily indicative of the costs that
would have been incurred by the Company had the divestments occurred prior to
the beginning of those periods.
In February 1996, the Company disposed of its Helpdesk operations for
approximately $2.0 million, consisting of an initial cash payment of $150,000, a
non-interest bearing note of $150,000, assumption of approximately $400,000 in
obligations and liabilities, and the payment of a royalty up to a maximum of
$1.3 million on future gross revenues from all Helpdesk product license and
maintenance fees. The Company transferred to the buyer the Helpdesk products and
the related fixed assets and customer base. The buyer assumed all of the
Company's obligations related to the Helpdesk products including obligations
related to sales, marketing, support and development employees, telephone
support obligations for the existing customers and the facility lease
obligations. The Company did not recognize a material gain associated with the
transaction. In June 1996, the Company received $150,000 in full payment of the
non-interest bearing note associated with the sale of the Helpdesk operations.
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.
The Company recorded a tax benefit on the loss from continuing operations which
was substantially offset by a tax provision on the income from discontinued
operations at December 31, 1995. The Company also recorded a valuation allowance
against its deferred tax asset at December 31, 1995. For the first six months of
1996, the Company recorded a tax provision on the income from continuing and
discontinued operations. The effective tax rate for the first six months of 1996
differs from the federal statutory tax rate due to the carryforward benefit of
net operating losses and the change in the reserve for deferred tax assets. As
of June 30, 1996, the Company has general business credits of $390,000 expiring
between 1997 and 2006. The Company also has alternative minimum tax credits of
approximately $300,000, which do not expire.
<PAGE>
Note Payable
The Company acquired Datamedia Corporation in 1994 for $5.0 million in cash and
notes. As of June 30, 1996, the remaining note payable to former Datamedia
stockholders included accrued interest of $91,000 and is due December 9, 1996.
Common Stock
In February 1996, the Company's Certificate of Incorporation was amended and
restated, which resulted in (among other things) an increase in the authorized
capitalization of the Company from 10,000,000 shares of common stock to
50,000,000 shares of common stock and 5,000,000 shares of preferred stock.
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. Of the 1,000,000 shares provided in the 1996 Stock
Option Plan, options covering an aggregate of 274,500 shares were issued in
March 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). SFAS 123 allows companies which grant stock options a choice to either
continue the current accounting treatment under Accounting Principles Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), or adopt
a new set of fair value accounting rules for recognizing compensation expense
related to stock awards. Companies continuing under APB 25 must measure option
values and disclose the pro forma effects that the new fair value accounting
would have on earnings, if recorded. The Company has determined that it will
continue the current accounting treatment under APB 25 and will provide pro
forma disclosures as of December 31, 1996 for the effect the new fair value
accounting rule would have on earnings, if adopted.
<PAGE>
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 discussed in the "Risk
Factors" set forth in the Company's Registration Statement on Form S-1 (File No.
333-01368).
Three Months Ended June 30, 1995 Compared to
Three Months Ended June 30, 1996
Net Revenues
The Company's net revenues from product licenses increased approximately 54%, or
$1.37 million, from $2.56 million for the three months ended June 30, 1995 to
$3.93 million for the three months ended June 30, 1996. For those periods in
1995 and 1996, net revenues from product licenses represented 73% and 74% of
total net revenues, respectively. The increase in product license revenue is
primarily attributable to the expansion of the Company's product offerings, with
the introduction, general release and increased market acceptance of additional
products comprising the OmniGuard(TM) family of software products throughout
1995, offset in part by a decrease in license revenues derived from the
Company's other (solely OpenVMS) computer security software products.
OmniGuard/Intruder Alert(R), OmniGuard/Enterprise Access Control(R) for UNIX and
OmniGuard/Enterprise Access Control(R) for PCs were released commercially during
the second quarter of 1995.
The Company's net revenues from maintenance and support services increased
approximately 17%, or $123,000, from $733,000 for the three months ended June
30, 1995 to $856,000 for the three months ended June 30, 1996. The increase in
net revenues from maintenance and support services is attributable to a larger
base of customers on maintenance agreements resulting from the increased
licensing of the Company's OmniGuard products. For those periods in 1995 and
1996, net revenues from maintenance and support services represented 21% and 16%
of total net revenues, respectively.
The Company's net revenues from consulting services increased approximately
153%, or $327,000, from $213,000 for the three months ended June 30, 1995 to
$540,000 for the three months ended June 30, 1996. The increase in consulting
service revenues is attributable to an increase in the size and number of
engagements associated with licensing of the Company's OmniGuard products. For
those periods in 1995 and 1996, net revenues from consulting services
represented 6% and 10% of total net revenues, respectively.
The Company currently believes that period-to-period comparisons of net revenues
from the licensing of different software products and the provision of related
services are not necessarily meaningful as an indication of future performance.
Revenues derived from North American and from international operations as a
percent of total net revenues were 67% and 33%, respectively, for the three
months ended June 30, 1996 as compared to 75% and 25%, respectively, for the
same period of 1995.
<PAGE>
Cost of Net Revenues
The Company's cost of net revenues includes cost of media, product packaging,
documentation and other production costs, amortization of purchased software
costs, product royalties, and direct and indirect costs of providing training,
technical support and consulting services to the Company's customers. Cost of
net revenues increased approximately 9%, or $39,000 from $442,000 for the three
months ended June 30, 1995 to $481,000 for the three months ended June 30, 1996.
For those periods in 1995 and 1996, cost of net revenues represented 13% and 9%
of net revenues, respectively. The increase in cost of net revenues is directly
related to the increased number of consulting services engagements and an
increase in staff of the Company's customer support and services operations
necessary to support a larger customer base and the additional products offered
by the Company. The increase in the cost of net revenues is offset in part by
the following: 1) an increase in production efficiency; 2) a change in product
media to CD-ROM resulting in a decrease in production and shipping expenses; and
3) an increase in the average size of the transactions recorded in the quarter.
Cost of net revenues as a percentage of net revenues 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.
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 3%, or $90,000, from $2.88 million for the three months ended
June 30, 1995 to $2.97 million for the three months ended June 30, 1996. For
those periods in 1995 and 1996, sales and marketing expenses represented 82% and
56% of total net revenues, respectively. The increase in dollar amount was due
to additional investments in the Company's US and UK operations, increased
commissions associated with the additional revenues and increased investment in
indirect distribution in Germany and Switzerland, offset in part by the closing
of the Company's German and Swiss direct offices during the fourth quarter of
1995. The decrease in sales and marketing expense as a percent of total net
revenue is attributable to the increase in revenue for the quarter ended June
30, 1996.
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 generally are expensed as incurred. Research and development
expenses increased 17%, or $174,000, from $996,000 for the three months ended
June 30, 1995 to $1.17 million for the three months ended June 30, 1996. For
those periods in 1995 and 1996 research and development expenses represented 28%
and 22% of total net revenues, respectively. The increase in dollar amount
resulted from the addition of developers needed to develop, maintain and enhance
the OmniGuard family of software products, including the Company's
OmniGuard/Enterprise SignOn(R) product currently under development. 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 research and development expenses may increase in absolute
dollars as the Company continues to commit substantial resources to research and
development in future periods.
<PAGE>
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 3%, or $18,000 from $577,000 for the three
months ended June 30, 1995 to $595,000 for the three months ended June 30, 1996.
For those periods in 1995 and 1996 general and administrative expenses
represented 17% and 11% of total net revenues, respectively. The decrease in
general and administrative expenses as a percentage of total net revenues was
due primarily to the increase in total net revenues.
In 1996, general and administrative expenses are offset in part by an
Administrative Services Agreement between the Company and Raxco. That agreement
provides for Raxco to pay the Company the greater of $750,000 or the actual cost
of providing certain operational and system support services including
bookkeeping, personnel processing, administrative support, facilities management
and product packaging and mailing. For the three month period ended June 30,
1996, the Company received $188,000 from Raxco under the Administrative Services
Agreement.
Royalty Income
For the three month period ended June 30, 1996, the Company recorded royalty
income of $804,000 pursuant to the Exclusive Distributor License Agreement with
Raxco. That agreement provides for payment by Raxco to the Company 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) $2.0
million for 1996, $1.5 million for 1997 and $1.0 million for 1998, and a 30%
royalty thereafter for two additional years.
During the three month period ended June 30, 1996, Raxco reported to the Company
gross revenues of approximately $3.0 million, which included approximately $2.68
million of revenues from licensing of the Company's OpenVMS utility products. As
of June 30, 1996, Raxco has fully paid the royalty income due to the Company.
Raxco reported to the Company a net loss of $211,000 for the three month period
ended June 30, 1996.
Interest Income (Expense)
Interest income increased 834%, or $292,000, from an expense of $35,000 for the
three month period ended June 30, 1995 to income of $257,000 for the three month
period ended June 30, 1996. The increase is primarily attributable to interest
on the proceeds from the Company's initial public offering, as well as a
decrease in the amortization of discount on the note payable.
Income Taxes
The Company accounts for income taxes under Statements of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
the Company to record an asset with respect to the expected future temporary
differences. The Company's history of net operating losses makes the realization
of its net operating loss carryforwards uncertain. Accordingly, the Company has
placed a valuation allowance against its deferred tax assets. Under the Tax
Reform Act of 1986, the amount of and benefit from net operating losses that can
be carried forward may be impaired or limited in certain circumstances.
The Company recorded a tax benefit for the three month period ended June 30,
1995 related to a loss from continuing operations. The Company recorded a
provision for the three month period ended June 30, 1996 related to the income
from continuing operations. The effective rate for the three months ended June
30, 1996 differs from the federal statutory rate due to the carryforward benefit
of net operating losses and the change in the reserve for deferred tax assets.
Income (Loss) from Continuing Operations
As a result of the above, the Company recorded income from continuing operations
of $1.14 million for the three months ended June 30, 1996, an increase of $1.94
million, from the loss of $796,000 for the three months ended June 30, 1995.
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 30 and classified as
discontinued operations. The Company's income from discontinued operations
decreased 62% , or $864,000, from $1.39 million for the three month period ended
June 30, 1995 to $526,000 for the three months ended June 30, 1996. For those
periods in 1995 and 1996 income from discontinued operations represented 40% and
10% of total net revenues, respectively. The Company anticipates a continued
decline in income from discontinued operations over the next several quarters.
Six Months Ended June 30, 1995 Compared to
Six Months Ended June 30, 1996
Net Revenues
The Company's net revenues from product licenses increased approximately 56%, or
$2.36 million, from $4.24 million for the six months ended June 30, 1995 to
$6.60 million for the six months ended June 30, 1996. For those periods in 1995
and 1996, net revenues from product licenses represented 68% and 70% of total
net revenues, respectively. The increase in product license revenue is primarily
attributable to the expansion of the Company's product offerings, with the
introduction, general release and increased market acceptance of additional
products comprising the OmniGuard family of software products throughout 1995,
offset in part by a decrease in license revenues derived from the Company's
other (solely OpenVMS) computer security software products. Only one OmniGuard
product, Enterprise Security Manager, was commercially available for licensing
during the first quarter of 1995. OmniGuard/Intruder Alert and
OmniGuard/Enterprise Access Control for both UNIX and PCs were released
commercially during the second quarter of 1995.
The Company's net revenues from maintenance and support services increased
approximately 17%, or $270,000, from $1.55 million for the six months ended June
30, 1995 to $1.82 million for the six months ended June 30, 1996. The increase
in net revenues from maintenance and support services is attributable to a
larger base of customers on maintenance agreements resulting from the increased
licensing of the Company's OmniGuard products. For those periods in 1995 and
1996, net revenues from maintenance fees and other services represented 25% and
19% of total net revenues, respectively. The decrease of net revenues from
maintenance and support services as a percentage of total net revenues is
attributable to the increase in total revenues, particularly net revenues from
product licenses.
The Company's net revenues from consulting services increased approximately
115%, or $528,000, from $460,000 for the six months ended June 30, 1995 to
$988,000 for the six months ended June 30, 1996. The increase in consulting
services revenues is attributable to an increase in the size and number of
engagements associated with licensing of the Company's OmniGuard products. For
those periods in 1995 and 1996, net revenues from consulting services
represented 7% and 11% of total net revenues, respectively.
The Company currently believes that period-to-period comparisons of net revenues
from the licensing of different software products and the provision of related
services are not necessarily meaningful as an indication of future performance.
Revenues derived from North American and from international operations as a
percent of total net revenues were 72% and 28%, respectively, for the six months
ended June 30, 1996 as compared to 79% and 21%, respectively, for the same
period of 1995.
Cost of Net Revenues
The Company's cost of net revenues includes cost of media, product packaging,
documentation and other production costs, amortization of purchased software
costs, product royalties, and direct and indirect costs of providing training,
technical support and consulting services to the Company's customers. Cost of
net revenues decreased approximately 2%, or $14,000 from $877,000 for the six
months ended June 30, 1995 to $863,000 for the six months ended June 30, 1996.
For those periods in 1995 and 1996, cost of net revenues represented 14% and 9%
of net revenues, respectively. The decrease in the cost of net revenues is
primarily attributable to the following: 1) a final royalty payment on one of
the Company's products in 1995; 2) an increase in production efficiency; 3) a
change in product media to CD-ROM resulting in a decrease in production and
shipping expense; and 4) an increase in the average size of the transactions
recorded in the six month period. The above factors were offset in part by an
increased number of consulting services engagements and an increase in staff of
the Company's customer support and services
<PAGE>
operations necessary to support a larger customer base and the additional
products offered by the Company. Cost of net revenues as a percentage of net
revenues 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.
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 decreased less than 1%, or $20,000, from $5.80 million for the six
months ended June 30, 1995 to $5.78 million for the six months ended June 30,
1996. The decrease in dollar amount was due to the closing of the Company's
German and Swiss direct offices during the fourth quarter of 1995, offset in
part by additional investment in the Company's US and UK operations, increased
commissions associated with the additional revenues and increased investment in
indirect distribution in Germany and Switzerland. For those periods in 1995 and
1996, sales and marketing expenses represented 93% and 61% of total net
revenues, respectively. The decrease in sales and marketing expenses as a
percent of total net revenue is attributable to the increase in revenue for the
six months ended June 30, 1996.
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 generally are expensed as incurred. Research and development
expenses increased 14%, or $280,000, from $1.98 million for the six months ended
June 30, 1995 to $2.26 million for the six months ended June 30, 1996. For those
periods in 1995 and 1996 research and development expenses represented 32% and
24% of total net revenues, respectively. The increase in dollar amount resulted
from the addition of developers needed to develop, maintain and enhance the
OmniGuard family of software products including the Company's Enterprise SignOn
product currently under development. 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 research and
development expenses may increase in absolute dollars 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 4%, or $40,000 from $1.11 million for the six
months ended June 30, 1995 to $1.15 million for the six months ended June 30,
1996. For those periods in 1995 and 1996, general and administrative expenses
represented 18% and 12% of total net revenues, respectively. The decrease in
general and administrative expenses as a percentage of total net revenues was
due primarily to the increase in total net revenues.
In 1996, general and administrative expenses are offset in part by an
Administrative Services Agreement between the Company and Raxco. That agreement
provides for Raxco to pay the Company the greater of $750,000 or the actual cost
of providing certain operational and system support services including
bookkeeping, personnel processing, administrative support, facilities management
and product packaging and mailing. For the six months ended June 30, 1996, the
Company received $375,000 from Raxco under the Administrative Services
Agreement.
<PAGE>
Royalty Income
For the six months ended June 30, 1996, the Company recorded royalty income of
$1.60 million pursuant to the Exclusive Distributor License Agreement with
Raxco. The Agreement provides for payment by Raxco to the Company 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) $2.0
million for 1996, $1.5 million for 1997 and $1.0 million for 1998, and a 30%
royalty thereafter for two additional years.
During the six month period ended June 30, 1996, Raxco reported to the Company,
gross revenues of approximately $6.0 million, which included approximately $5.35
million of revenues from licensing of the Company's OpenVMS utility products. As
of June 30, 1996, Raxco has fully paid the royalty income due to the Company.
Raxco reported to the Company, a net loss of $595,000 for the six month period
ended June 30, 1996.
Interest Income (Expense)
Interest income increased 577%, or $398,000, from an expense of $69,000 for the
six month period ended June 30, 1995 to income of $329,000 for the six month
period ended June 30, 1996. The increase is primarily attributable to interest
on the proceeds from the Company's initial public offering, as well as a
decrease in the amortization of discount on the note payable.
Income Taxes
The Company accounts for income taxes under SFAS 109 which requires the Company
to record an asset with respect to the expected future temporary differences.
The Company's history of net operating losses makes the realization of its net
operating loss carryforwards uncertain. Accordingly, the Company has placed a
valuation allowance against its deferred tax assets. Under the Tax Reform Act of
1986, the amount of and benefit from net operating losses that can be carried
forward may be impaired or limited in certain circumstances.
The Company recorded a tax benefit for the six month period ended June 30, 1995
related to a loss from continuing operations. The Company recorded a provision
for the six month period ended June 30, 1996 related to the income from
continuing operations. The effective rate for the six months ended June 30, 1996
differs from the federal statutory rate due to the carryforward benefit of net
operating losses and the change in the reserve for deferred tax assets.
Income (Loss) from Continuing Operations
As a result of the above, the Company recorded income from continuing operations
of $1.23 million for the six months ended June 30, 1996, an increase of $3.23
million, from the loss of $2.0 million for the six months ended June 30, 1995.
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 30 and classified as
discontinued operations. The Company's income from discontinued operations
decreased 41% , or $1.08 million, from $2.63 million for the six month period
ended June 30, 1995 to $1.55 million for the six months ended June 30, 1996. For
those periods in 1995 and 1996 income from discontinued operations represented
42% and 17% of total net revenues, respectively. The Company anticipates a
continued decline in income from discontinued operations over the next several
quarters.
<PAGE>
Financial Condition- Liquidity and Capital Resources
The Company's overall cash and cash equivalents were $28.94 million at June 30,
1996, which is an increase of approximately $22.86 million from $6.08 million at
the beginning of the year. During the six month period ended June 30, 1995, the
Company financed its operations primarily through cash flows generated from
discontinued operations and available working capital. The Company's continuing
operations operating activities used cash of $4.95 million for the six month
period ended June 30, 1995 and provided $2.19 million for the six month period
ended June 30, 1996. During the six months ended June 30, 1996, the Company
provided cash from continuing operations as a result of the following: 1) a
decrease in accounts receivable attributable to a large sale recognized and paid
at the end of the period ended June 30, 1996; 2) an increase in deferred revenue
attributable to increased maintenance and support services and consulting
services in the six month period; and 3) an increase in net income from
continuing operations resulting from increased licensing of the Company's
OmniGuard products in the first half of 1996. Total cash provided by operating
activities of the Company's discontinued operations was $5.29 million and $1.01
million for the six months ended June 30, 1995 and 1996, respectively.
The Company made capital expenditures of approximately $512,000 and $402,000 for
the six month periods ended June 30, 1995 and 1996, 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 June 30, 1996.
During the six month period ended June 30, 1996, the Company's cash position was
also affected by the following: 1) the Company received proceeds from its
initial public offering of approximately $25.20 million, net of approximately
$3.39 million in underwriting fees and offering expenses; 2) the Company
invested approximately $5.86 million in certificates of deposit and government
securities; 3) the Company received $300,000 as a result of the disposal of the
Helpdesk products in February 1996; 4) the Company paid $100,000 to former
Datamedia stockholders as part of the December 1994 Datamedia acquisition; and
5) the Company received $248,000 as payment on the note receivable related to
the sale of the Company's storage management products in 1994.
The Company had a revolving credit facility commitment with a bank for up to
$2.50 million which expired in May 1996. The were no amounts outstanding under
this revolving credit facility commitment at the time of expiration.
As of June 30, 1996, Raxco fully paid all amounts due to the Company under the
Exclusive Distributor License Agreement, the Administrative Services Agreement
and the Line of Credit Loan Agreement.
The Company believes that the net proceeds from the initial public offering,
cash generated from operations, cash generated under the Administrative Services
Agreement and the Exclusive Distributor License Agreement with Raxco, 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 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 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.
<PAGE>
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
materially adversely affect 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, 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 countries, cannot be
predicted.
The foregoing 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 in the "Risk
Factors" set forth in the Company's Registration Statement on Form S-1 (File No.
333-01368).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits
Exhibit Number Exhibit Description
1.1* Form of Purchase Agreement.
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 Stock Option Plan.
10.3* The Company's 1996 Directors' Stock Option Plan.
10.7* Registration Rights Agreement dated as of December 10, 1992,
by and among the Company and the parties thereto.
10.8* 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* Severance Arrangement for Richard A. Lefebvre, dated October
16, 1992.
<PAGE>
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.
10.23* Line of Credit Loan 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.
10.28* Purchase Agreement, date as of February 29, 1996, by and
between the Company and Silvon Software, Inc.
11.1** Computation of Net Income Per Share for the six months ended
June 30, 1996 and 1995.
27** Financial Data Schedule
There were no reports on Form 8-K filed by the Company during the three month
period ended June 30, 1996.
- --------------------------------------------------------------------------------
* Previously filed as an exhibit to the Company's Registration
Statement Number 333-01368 on Form S-1 and incorporated herein
by reference.
** Filed herewith.
<PAGE>
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: August 14, 1996 By: /s/ John C. Becker
-------------------------
John C. Becker
Executive Vice President,
Chief Financial Officer and Director
(Principal Financial and
Accounting Officer)
EXHIBIT 11.1
<TABLE>
<CAPTION>
AXENT TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<S> <C> <C> <C> <C>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------- -------------------------------
1996 1995 1996 1995
-------------- -------------- --------------- ---------------
Income (loss) from continuing operations $ 1,144,000 $ (796,000) $ 1,227,000 $ (2,000,000)
Income from discontinued operations 526,000 1,394,000 1,553,000 2,632,000
-------------- -------------- --------------- ---------------
Net income $ 1,670,000 $ 598,000 $ 2,780,000 $ 632,000
============== ============== =============== ===============
Weighted average common shares outstanding 10,652,018 9,021,198 9,894,629 9,021,198
Common shares issued within one year of initial filing --- 9,075 --- 9,075
Stock options issued within one year of initial filing
(using
the treasury stock method and public offering price
of $14.00 per share) --- 108,958 --- 108,958
-------------- -------------- --------------- ---------------
Weighted average number of common shares outstanding 10,652,018 9,139,231 9,894,629 9,139,231
Net income (loss) per common share and common share equivalents:
Continuing operations $ 0.11 $ (0.09) $ 0.12 $ (0.22)
Discontinued operations 0.05 0.16 0.16 0.29
============== ============== =============== ==============
$ 0.16 $ 0.07 $ 0.28 $ 0.07
============== ============== =============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
AXENT TECHNOLOGIES, INC.
FINANCIAL DATA SCHEDULE
This 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 six months ended June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001007997
<NAME> Axent Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 28942000
<SECURITIES> 5864000
<RECEIVABLES> 3997000
<ALLOWANCES> (550000)
<INVENTORY> 0
<CURRENT-ASSETS> 38679000
<PP&E> 4133000
<DEPRECIATION> (2909000)
<TOTAL-ASSETS> 39932000
<CURRENT-LIABILITIES> 8831000
<BONDS> 0
0
0
<COMMON> 200000
<OTHER-SE> 30815000
<TOTAL-LIABILITY-AND-EQUITY> 39932000
<SALES> 0
<TOTAL-REVENUES> 9407000
<CGS> 0
<TOTAL-COSTS> 863000
<OTHER-EXPENSES> 9190000
<LOSS-PROVISION> 28000
<INTEREST-EXPENSE> 26000
<INCOME-PRETAX> (646000)
<INCOME-TAX> 60000
<INCOME-CONTINUING> 1227000
<DISCONTINUED> 1553000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2780000
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
