- - --------------------------------------------------------------------------------
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 March 31, 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______ No___X___
As of April 30, 1996, there were 9,963,414 shares outstanding of the
Registrant's Common Stock, par value $.02 per share.
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<PAGE>
AXENT TECHNOLOGIES, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets as of 4
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 5
for the three months ended March 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the 6
three months ended March 31, 1996 and 1995
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 4. Submission of Matters to a Vote of Security-Holders 15
Item 6. Exhibits 15
SIGNATURES 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
The financial statements set forth below for the three month periods ended March
31, 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)
March 31,
1996 December 31,
(unaudited) 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 6,572 $ 6,083
Accounts receivable, net ......................................... 4,826 5,071
Notes receivable ................................................. 223 --
Prepaid expenses and other current assets ........................ 630 338
-------- --------
Total current assets .......................................... 12,251 11,492
-------- --------
Property and equipment, net ......................................... 1,227 1,097
Other assets ........................................................ 43 57
-------- --------
Total assets .................................................. $ 13,521 $ 12,646
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ......................... $ 3,819 $ 5,035
Note payable ..................................................... 800 900
Deferred revenue ................................................. 2,336 2,290
Net identifiable (assets) liabilities from discontinued operations 2,408 1,319
-------- --------
Total current liabilities ..................................... 9,363 9,544
-------- --------
Long-term deferred revenue, net of current portion ............... 103 126
-------- --------
Total liabilities ............................................. 9,466 9,670
-------- --------
Stockholders' equity:
Common stock ..................................................... 159 159
Additional paid-in capital ....................................... 22,141 22,133
Accumulated deficit .............................................. (18,167) (19,277)
Cumulative currency translation adjustments ...................... (78) (39)
-------- --------
Total stockholders' equity .................................... 4,055 2,976
-------- --------
Total liabilities and stockholders' equity .................... $ 13,521 $ 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)
For the Three Months Ended
March 31,
-------------------------------
<S> <C> <C>
1996 1995
------- -------
Net Revenues:
Product licenses ........................................... $ 2,674 $ 1,680
Services ................................................... 1,408 1,059
------- -------
Total net revenues ....................................... 4,082 2,739
------- -------
Cost of net revenues:
Product licenses ........................................... 111 247
Services ................................................... 271 188
------- -------
Total cost of net revenues .............................. 382 435
------- -------
Gross profit .................................................. 3,700 2,304
Operating expenses:
Sales and marketing ........................................ 2,813 2,918
Research and development ................................... 1,084 981
General and administrative ................................. 557 533
------- -------
Total operating expenses ............................. 4,454 4,432
------- -------
Loss from continuing operations before royalties, interest,
and taxes ................................................. (754) (2,128)
------- -------
Royalty income ............................................. 800 --
Interest income (expense) .................................. 72 (34)
Income tax benefit (provision) ............................. (35) 958
------- -------
Income (loss) from continuing operations ..................... 83 (1,204)
Income from discontinued operations ........................... 1,027 1,238
------- -------
Net income .................................................... $ 1,110 $ 34
======= =======
Net income (loss) per common share:
Continuing operations ...................................... $ 0.01 $ (0.13)
Discontinued operations .................................... $ 0.11 $ 0.13
------- -------
Net income per common share ................................... $ 0.12 $ 0.00
======= =======
Weighted average number of common shares used in computing net
income per common share in (000's) ........................ 9,101 9,147
</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)
For the Three Months
Ended March 31,
--------------------------
<S> <C> <C>
1996 1995
------- -------
CASH INFLOWS (OUTFLOWS)
Operating activities:
Net income (loss) from continuing operations ...................................................... $ 83 $(1,204)
Non-cash items:
Depreciation and amortization ................................................................... 143 62
Change in assets and liabilities ................................................................ (1,708) (672)
------- -------
Net cash used in continuing operations .............................................................. (1,482) (1,814)
Net cash provided by discontinued operations ........................................................ 2,036 3,460
------- -------
Net cash provided by operating activities ........................................................... 554 1,646
------- -------
Investing activities:
Capital expenditures .............................................................................. (259) (277)
Payments for corporate acquisition ................................................................ (100) (672)
Advances on line of credit to Raxco Software, Inc. ................................................ (73) --
Proceeds from sale of Helpdesk business ........................................................... 150 --
------- -------
Net cash used in continuing operations .............................................................. (282) (949)
Net cash provided by discontinued operations ........................................................ 248 853
------- -------
Net cash used in investing activities ............................................................... (34) (96)
------- -------
Financing activities:
Proceeds from issuance of capital stock ............................................................ 8 --
------- -------
Net cash provided by continuing operations financing activities ...................................... 8 --
------- -------
Effect of exchange rate changes on cash .............................................................. (39) (235)
------- -------
Net increase in cash and cash equivalents ............................................................ 489 1,315
Cash and cash equivalents, beginning of period ....................................................... 6,083 6,612
======= =======
Cash and cash equivalents, end of period ............................................................. $ 6,572 $ 7,927
======= =======
</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 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 period ended March 31, 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.
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, which
are not reflected in the condensed consolidated financial statements for the
period ended March 31, 1996. 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").
<PAGE>
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.
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 quarter of
1996, the Company recorded a tax provision on the income from continuing and
discontinued operations. The effective tax rate for the first quarter 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 March 31, 1996, the Company had federal net operating loss carryforwards of
approximately $750,000 for regular tax purposes, which may be utilized to reduce
future taxable income through the year 2007. The Company also has general
business credits of $409,000 expiring between 1997 and 2006.
Note Payable
The Company acquired Datamedia Corporation in 1994 for $5.0 million in cash and
notes. As of March 31, 1996, the amount payable to former Datamedia stockholders
included accrued interest of $78,000 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.
<PAGE>
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).
Results of Operations
The following table sets forth, for the periods indicated, the percentage which
selected items in the Condensed Consolidated Statements of Operations bear to
total net revenues:
<TABLE>
<CAPTION>
Percentage of Total Net Revenues
--------------------------------
Three Months Ended
March 31,
<S> <C> <C>
1996 1995
------ ------
Net revenues:
Product licenses ...................................... 65.6 61.3
Services .............................................. 34.4 38.7
------ ------
Total net revenues .................................. 100.0 100.0
------ ------
Cost of net revenues:
Product licenses ....................................... 2.7 9.0
Services ............................................... 6.6 6.9
------ ------
Total cost of net revenues ........................... 9.3 15.9
------ ------
Gross profit .............................................. 90.7 84.1
Operating expenses:
Sales and marketing .................................... 69.0 106.5
Research and development ............................... 26.6 35.8
General and administrative ............................. 13.7 19.5
------ ------
Total operating expenses ............................ 109.3 161.8
Loss from continuing operations before royalties, interest,
and taxes .............................................. (18.6) (77.7)
Royalty income ......................................... 19.6 --
Interest income (expense) .............................. 1.8 (1.3)
Income tax (provision) benefit ......................... (0.9) 34.9
------ ------
Income (loss) from continuing operations .................. 1.9 (44.1)
Income from discontinued operations ....................... 25.2 45.2
------ ------
Net income ................................................ 27.1 1.1
====== ======
</TABLE>
<PAGE>
Three Months Ended March 31, 1996 Compared to
Three Months Ended March 31, 1995
Net Revenues
The Company's net revenues from product licenses increased approximately 59%, or
$990,000, from $1.68 million for the three months ended March 31, 1995 to $2.67
million for the three months ended March 31, 1996. For those periods in 1995 and
1996, net revenues from product licenses represented 61.3% and 65.6% 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 and general release 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.
The Company's net revenues from services increased approximately 33%, or
$350,000, from $1.06 million for the three months ended March 31, 1995 to $1.41
million for the three months ended March 31, 1996. The increase in service
revenues is primarily attributable to an increase in product maintenance and
related consulting services associated with increased licenses of the Company's
products. For those periods in 1995 and 1996, net revenues from services
represented 38.7% and 34.4% 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 related services are not
necessarily meaningful as an indication of future performance.
Revenues from North American and International operations were 78% and 22%,
respectively, for the three months ended March 31, 1996 as compared to 84% and
16%, respectively for the same period last year.
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 decreased approximately 55%, or $136,000, from $247,000
for the three months ended March 31, 1995 to $111,000 for the three months ended
March 31, 1996. For those periods in 1995 and 1996, cost of net revenues for
product licenses represented 14.7% and 4.2% of net revenues from product
licenses, respectively. The decrease in the cost of net revenues for product
licenses is primarily attributable to the final royalty payment on one of the
Company's products in 1995, increased production efficiency and a change in
product media to CD-ROM resulting in decreased product production and shipping
expenses. 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 training, technical support and consulting services
to the Company's customers. Cost of net revenues from services increased 44%, or
$83,000 from $188,000 for the three months ended March 31, 1995 to $271,000 for
the three months ended March 31, 1996. For those periods in 1995 and 1996, cost
of net revenues from services represented 17.8% and 19.2% of net revenues for
services, respectively. The increase in cost of net revenues from services 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 installed customer base and the additional
products offered by the Company.
<PAGE>
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 4%, or $110,000, from $2.92 million for the three months
ended March 31, 1995 to $2.81 million for the three months ended March 31, 1996.
For those periods in 1995 and 1996, sales and marketing expenses represented
106.5% and 69.0% of total net revenues, respectively. The decrease in dollar
amount was due to the closing of the Company's German and Swiss direct offices
during 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. The
decrease in sales and marketing expenses as a percentage of total net revenues
was due primarily to the increase in total net revenues.
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 increased 12%, or
$119,000, from $981,000 for the three months ended March 31, 1995 to $1.1
million for the three months ended March 31, 1996. For those periods in 1995 and
1996 research and development expenses represented 35.8% and 26.6% 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, related costs for management, finance
and accounting, legal and other professional services. General and
administrative expenses increased 5%, or $24,000 from $533,000 for the three
months ended March 31, 1995 to $557,000 for the three months ended March 31,
1996. For those periods in 1995 and 1996 general and administrative expenses
represented 19.5% and 13.7% 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.
Royalty Income
The Company recorded royalty income of $800,000 pursuant to the Exclusive
Distributor License Agreement with Raxco that 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 March 31, 1996, Raxco reported to the
Company, gross revenues of $3.0 million which included approximately $2.7
million of OpenVMS utility revenues. As of March 31, 1996, Raxco has fully paid
the royalty income then due to the Company. As of March 31, 1996, the Company
advanced $73,000 to Raxco under the Line of Credit Loan Agreement. Raxco
reported to the Company, a net loss of $384,000 for the three month period ended
March 31, 1996.
<PAGE>
Interest Income (Expense)
Interest income increased 312%, or $106,000, from an expense of $34,000 for the
three month period ended March 31, 1995 to income of $72,000 for the three month
period ended March 31, 1996. The increase is attributable primarily to a
decrease in the amortization of discount on a note payable and to increased
interest income relating to short-term repurchase agreements having original
maturity dates of three months or less.
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 value of its
net operating loss carryforwards. 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 asset. Under the Tax Reform Act of 1986, the amounts 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 March 31,
1995 related to a loss from continuing operations. The Company also recorded a
provision for the three month period ended March 31, 1996 related to the income
from continuing operations.
Income (Loss) from Continuing Operations
As a result of the above, the Company recorded income from continuing operations
of $83,000, an increase of $1.28 million or 107%, from the loss of $1.2 million
for the three months ended March 31, 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 No. 30 and classified as
discontinued operations. The Company's income from discontinued operations
decreased 17% , or $210,000, from $1.24 million for the three month period ended
March 31, 1995 to $1.03 million for the three months ended March 31, 1996. For
those periods in 1995 and 1996 income from discontinued operations represented
45.2% and 25.2% of total net revenues, respectively. The Company anticipates a
continued decline in income from discontinued operations over the next several
quarters.
Financial Condition- Liquidity and Capital Resources
The Company's overall cash and cash equivalents were $6.6 million at March 31,
1996, which is an increase of approximately $500,000 from $6.1 million at the
beginning of the year. During the three month periods ended March 31, 1995 and
1996, the Company financed its operations primarily through cash flows generated
from discontinued operations and available working capital as well as cash flows
from continuing operations. The Company's continuing operating activities used
cash of $1.8 million for the three month period ended March 31, 1995 and $1.5
million for the three month period ended March 31, 1996. During the three months
ended March 31, 1996, the Company's use of cash from continuing operating
activities was primarily a result of the payment of accrued bonuses, value-added
tax (VAT), commissions and other accrued expenses associated with the Company's
performance in the previous calendar quarter. Total cash provided by
discontinued operations operating activities was $3.5 million and $2.0 million
for the three months ended March 31, 1995 and 1996, respectively.
The Company made capital expenditures of approximately $277,000 and $259,000 for
the three month periods ended March 31, 1995 and 1996, respectively. These
purchases have generally consisted of
<PAGE>
computer workstations, networking equipment, office furniture and equipment. The
Company had no firm commitments for capital expenditures as of March 31, 1996.
During the three month period ended March 31, 1996, the Company's cash position
was also affected by the following: 1) the Company provided Raxco net advances
of $73,000 pursuant to the Line of Credit Loan Agreement; 2) the Company
received $150,000 as a result of the disposal of the Helpdesk products in
February 1996; 3) the Company paid $100,000 to former Datamedia stockholders as
part of the December 1994 Datamedia acquisition; 4) the Company received a
payment of $248,000 on the note receivable related to the sale of the Company's
storage management products in 1994.
The Company has a revolving credit facility commitment with the Bank for up to
$2.5 million. As of March 31, 1996 there were no amounts outstanding under this
revolving credit facility commitment.
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 product,
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.
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 developing countries,
cannot be predicted.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
In lieu of a special meeting of stockholders, an amendment and restatement of
the Certificate of Incorporation of AXENT Technologies, Inc. adopted by the
Company's Board of Directors on January 30, 1996 was submitted for action by
written consent. Stockholders holding 5,089,670 shares of the Company's common
stock, which constituted more than a majority of shares then outstanding,
executed and submitted consents approving the amended and restated Certificate
of Incorporation between January 30 and February 13, 1996.
In lieu of a special meeting of stockholders, the Company's Amended and Restated
1991 Stock Option Plan, 1996 Stock Option Plan and 1996 Directors' Stock Option
Plan adopted by the Company's Board of Directors were submitted for action by
written consent. Stockholders holding 7,032,628 shares of the Company's common
stock, which constituted more than a majority of shares then outstanding,
executed and submitted consents approving the Company's Amended and Restated
1991 Stock Option Plan, 1996 Stock Option Plan and 1996 Directors' Stock Option
Plan between February 27 and April 19, 1996.
<TABLE>
<CAPTION>
Item 6. Exhibits
Exhibit Number Exhibit Description
<S> <C>
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.
10.4* Warrant to Purchase Shares of Common Stock of
the Company dated as of May 15, 1990.
10.5* Warrant to Purchase Shares of Common Stock of
the Company dated as of October 24, 1989.
10.6* Warrant to Purchase Shares of Common Stock of
the Company dated as of October 24, 1989.
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.
<PAGE>
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.
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.
10.26* Letter Agreement dated January 29, 1996, between the Company
and the party named therein.
10.27* Warrant to Purchase Shares of Common Stock of the Company
dated as of September 28, 1989.
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 three months
ended March 31, 1996 and 1995.
<PAGE>
27** Financial Data Schedule
</TABLE>
- - -------------------------------------------------------------------------------
* 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: June 4, 1996 By: /s/ John C.Becker
------------------
John C. Becker
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 11.1
<TABLE>
<CAPTION>
AXENT TECHNOLOGIES, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Period Ended March 31,
----------------------------------
<S> <C> <C>
1996 1995
----------- ----------
Income (loss) from continuing operations ............. $ 83,000 $(1,204,000)
Income from discontinued operations .................. $1,027,000 $ 1,238,000
----------- ----------
Net income ........................................... $1, 110,000 $34,0000
=========== ========
Weighted average common shares outstanding ........... 8,982,599 9,028,774
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 . 9,100,632 9,146,807
Netincome (loss) per common share and
common share and common share equivalents:
Continuing operations ......................... $ 0.01 $ (0.13)
Discontinued operations ....................... $ 0.11 $ 0.13
----------- ----------
$ 0.12 $ 0.00
=========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 March 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 6,572,000
<SECURITIES> 0
<RECEIVABLES> 5,247,000
<ALLOWANCES> (421,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,251,000
<PP&E> 3,990,000
<DEPRECIATION> (2,763,000)
<TOTAL-ASSETS> 13,521,000
<CURRENT-LIABILITIES> 9,363,000
<BONDS> 0
0
0
<COMMON> 159,000
<OTHER-SE> 3,896,000
<TOTAL-LIABILITY-AND-EQUITY> 13,521,000
<SALES> 0
<TOTAL-REVENUES> 4,082,000
<CGS> 0
<TOTAL-COSTS> 382,000
<OTHER-EXPENSES> 4,454,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (754,000)
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 83,000
<DISCONTINUED> 1,027,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,110,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
