<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to .
333-25439
------------------------------
(Commission file number)
AXIOM INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 51-0356153
-------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
351 New Albany Road, Moorestown, NJ 08057-1177
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(609) 866-1000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes X No __ and (2) has
been subject to such filing requirements for the past 90 days. Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 6,466,900
- -------------------------------------- ----------------------------------
Class Outstanding at August 21, 1997
<PAGE>
AXIOM INC. AND SUBSIDIARIES
---------------------------
INDEX
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PAGE
----
Part I - Financial Information:
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets -............................... 3
June 30, 1997 (unaudited) and September 30, 1996
Consolidated Statements of Operations -..................... 4
Three and Nine Months Ended June 30, 1997 and 1996
(unaudited)
Consolidated Statements of Cash Flows -..................... 5
Nine Months Ended June 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 13
Part II - Other Information:
Item 1. Legal Proceedings........................................... 19
Item 4. Submission of Matters to a Vote of Security Holders......... 19
Item 6. Exhibits and Reports on Form 8-K............................ 20
(a) Exhibits
11 Statement re: Computation of per share earnings
27 Financial Data Schedule
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
(NOTE 1) SEPTEMBER 30,
JUNE 30,1997 JUNE 30, 1997 1996
------------ ------------- --------------
<S> <C> <C> <C>
ASSETS (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 10,009 $ 851 $ 3,326
Accounts receivable................................................. 12,254 12,254 15,740
Inventories......................................................... 6,597 6,597 3,167
Deferred tax assets................................................. 495 495 458
Income tax receivable............................................... 2,734 2,734 --
Other............................................................... 367 783 354
------------ ------------- -------------
Total current assets............................................ 32,456 23,714 23,045
------------ ------------- -------------
PROPERTY AND EQUIPMENT:
Computer hardware and software...................................... 3,023 3,023 2,417
Production and test equipment....................................... 1,984 1,984 1,329
Furniture, fixtures and leasehold improvements...................... 428 428 531
------------ ------------- -------------
5,435 5,435 4,277
Less-Accumulated depreciation and amortization...................... (2,417) (2,417) (1,541)
------------ ------------- -------------
Net property and equipment........................................ 3,018 3,018 2,736
DEFERRED TAX ASSETS................................................... 2,879 2,879 2,959
OTHER ASSETS.......................................................... 85 85 1,207
INTANGIBLE ASSETS, net................................................ 177 177 389
------------ ------------- -------------
$ 38,615 $ 29,873 $ 30,336
------------ ------------- -------------
------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt................................... $ 162 $ 162 $ 185
Obligations to parent and affiliates................................ -- 23,285 23,291
Accounts payable.................................................... 3,964 4,380 2,293
Accrued compensation and related benefits........................... 1,141 1,141 1,206
Accrued agent commissions........................................... 471 471 806
Other accrued expenses.............................................. 504 504 1,268
Accrued tax payable................................................. 805 805 1,348
Deferred tax liabilities............................................ 54 54 9
Deferred revenues................................................... 2,188 2,188 1,232
------------ ------------- -------------
Total current liabilities....................................... 9,289 32,990 31,638
------------ ------------- -------------
LONG-TERM LIABILITIES:
Deferred tax liabilities............................................ 130 130 90
Long-term debt...................................................... -- -- 147
------------ ------------- -------------
Total long-term liabilities..................................... 130 130 237
------------ ------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding..................................... -- -- --
Common stock, $0.01 par value, 25,000,000 shares authorized,
3,476,900 shares issued and outstanding, actual; 6,466,900 shares
issued and outstanding, pro forma................................. 65 -- --
Additional paid-in capital.......................................... 32,378 -- --
Accumulated deficit................................................. (3,247) (3,247) (1,539)
------------ ------------- -------------
Total stockholders' equity (deficit)............................ 29,196 (3,247) (1,539)
------------ ------------- -------------
$ 38,615 $ 29,873 $ 30,336
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
REVENUES: 1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unrelated third parties:
Equipment........................................................... $ 7,892 $ 5,989 $ 16,739 $ 11,300
Services............................................................ 1,657 1,309 4,860 4,362
--------- --------- --------- ---------
9,549 7,298 21,599 15,662
--------- --------- --------- ---------
Related Parties....................................................... -- 168 -- 2,584
--------- --------- --------- ---------
Total revenues...................................................... 9,549 7,466 21,599 18,246
--------- --------- --------- ---------
COST OF REVENUES:
Unrelated third parties:
Equipment........................................................... 3,662 4,138 8,716 7,963
Services............................................................ 492 244 3,272 2,536
--------- --------- --------- ---------
4,154 4,382 11,988 10,499
--------- --------- --------- ---------
Related parties....................................................... -- 67 -- 1,702
--------- --------- --------- ---------
Total cost of revenues.............................................. 4,154 4,449 11,988 12,201
--------- --------- --------- ---------
Gross profit........................................................ 5,395 3,017 9,611 6,045
--------- --------- --------- ---------
OPERATING EXPENSES:
Research, development and engineering................................. 1,810 1,936 5,600 5,145
Selling, general and administrative................................... 2,017 1,559 6,247 4,529
Parent charges........................................................ 102 120 295 333
--------- --------- --------- ---------
Total operating expenses............................................ 3,929 3,615 12,142 10,007
--------- --------- --------- ---------
Operating income (loss)............................................. 1,466 (598) (2,531) (3,962)
INTEREST EXPENSE, net (including related party interest)................ 147 124 426 351
OTHER INCOME (EXPENSE).................................................. (55) 22 (1) 435
EQUITY IN LOSS OF INVESTEE.............................................. -- -- -- 18
GAIN ON SALE OF INVESTMENT.............................................. -- 2,061 -- 2,061
--------- --------- --------- ---------
Income (loss) before income taxes..................................... 1,264 1,361 (2,958) (1,835)
INCOME TAX (EXPENSE) BENEFIT............................................ (510) (520) 1,250 700
--------- --------- --------- ---------
NET INCOME (LOSS)....................................................... $ 754 $ 841 $ (1,708) $ (1,135)
--------- --------- --------- ---------
--------- --------- --------- ---------
HISTORICAL NET INCOME (LOSS) PER COMMON SHARE........................... $ 0.22 $ 0.24 $ (0.49) $ (0.33)
--------- --------- --------- ---------
--------- --------- --------- ---------
SHARES USED IN COMPUTING HISTORICAL NET INCOME (LOSS) PER COMMON
SHARE................................................................. 3,477 3,477 3,477 3,477
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER COMMON SHARE............... $ 0.16 $ 0.17 $ (0.26) $ (0.16)
--------- --------- --------- ---------
--------- --------- --------- ---------
SHARES USED IN COMPUTING SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER
COMMON SHARE.......................................................... 5,417 5,417 5,417 5,417
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JUNE 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................................... $ (1,708) $ (1,135)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization................................................................ 1,088 1,181
Equity in loss of investee................................................................... -- 18
Gain on sale of investment................................................................... -- (2,061)
Changes in assets and liabilites, net
Decrease (increase) in-
Accounts receivable...................................................................... 3,486 (2,432)
Inventories.............................................................................. (3,430) 605
Other current assets..................................................................... (429) 59
Other assets............................................................................. 1,122 (75)
Deferred taxes........................................................................... 128 --
Increase (decrease) in-
Accounts payable......................................................................... 2,087 (314)
Accrued compensation and related benefits................................................ (65) 293
Accrued agent commissions................................................................ (335) (383)
Accrued tax payable...................................................................... (3,277) (1,215)
Deferred revenues........................................................................ 956 670
Other accrued expenses................................................................... (764) (312)
--------- ---------
Net cash used in operating activities.................................................. (1,141) (5,101)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................................................... (1,158) (1,014)
Sale of investment........................................................................... -- 2,061
--------- ---------
Net cash provided by (used in) investing activites..................................... (1,158) 1,047
--------- ---------
CASH FLOW FROM FINANCING ACTIVITES:
Proceeds on long-term debt................................................................... -- 471
Payments on long-term debt................................................................... (170) (119)
Advances on obligations to parent and affiliates............................................. 5,112 10,121
Repayment on obligations to parent and affiliates............................................ (5,118) (7,355)
--------- ---------
Net cash provided by (used in) financing activities.................................... (176) 3,118
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................... (2,475) (936)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................... 3,326 1,449
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................... $ 851 $ 513
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BACKGROUND:
The Company
Axiom Inc. (the "Company"), a Delaware corporation, changed its name from
Securicor Communications Inc. in May 1997. Through May 23, 1997, the
Company's business was conducted through its wholly-owned subsidiary,
Securicor Telesciences Inc. ("STI"). On that date, STI merged into the
Company. The Company is a majority-owned subsidiary of Securicor
Communications Limited ("SCL"), an entity organized under the laws of the
United Kingdom and a wholly-owned subsidiary of Securicor plc ("Securicor"),
a company organized under the laws of the United Kingdom. As the merger
represented a transaction between entities under common control, the net
assets of STI were transferred at net book value. Until completion of the
Company's initial public offering of its common stock, Securicor has
provided the financing requirements for the Company through advances (see
Note 6).
Stock Split
On June 27, 1997, the Company amended its Certificate of Incorporation
to authorize 5,000,000 shares of Preferred Stock and 25,000,000 shares of
Common Stock. On July 2, 1997, the Company effected a 34,769-for-one stock
split of each outstanding share of Common Stock by means of a stock dividend.
All share data has been restated to reflect this stock split.
Pro Forma June 30, 1997 Balance Sheet
On July 8, 1997, the Company completed its initial public offering of
2,600,000 shares of Common Stock at a price of $12.00 per share. The Company
received net cash proceeds of approximately $28,091,000 from the public
offering. The pro forma June 30, 1997 consolidated balance sheet reflects
the application of net proceeds of the public offering as if it had occurred
as of June 30, 1997. In addition, the pro forma June 30, 1997 consolidated
balance sheet reflects (i) the application of the net proceeds of
approximately $4,352,000 from the underwriters' exercise of the
over-allotment option for 390,000 shares of Common Stock at a price of $12.00
per share which occurred on August 6, 1997 (ii) the payment of approximately
$23,285,000 due to Securicor and (iii) the payment of certain accounts
payable related to the initial public offering.
6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information and Summary Financial Information
The financial statements as of June 30, 1997 and for the three and nine
months ended June 30, 1997 and 1996 are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of results for these interim
periods. The results for the three and nine months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the entire year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these Consolidated Financial Statements
should be read in conjunction with the Consolidated Financial Statements and
the notes included in the Company's recently filed Form S-1.
Cash and Cash Equivalents
For the purposes of the Statements of Cash Flows, the Company considers
all highly liquid investment instruments purchased with an original maturity
of three months or less to be cash equivalents. Cash and cash equivalents are
comprised of investments in various money market funds. Included in cash and
cash equivalents on the accompanying consolidated balance sheets is $0 and
$271,000, of restricted cash as of June 30, 1997 and September 30, 1996,
respectively.
Inventories
Inventories are valued at the lower of cost, determined on the first-in,
first-out method or market.
Agent Commissions
In certain contracts, particularly large international contracts, the
Company may utilize an agent, who will work directly with the customer. The
Company is typically charged a commission based on the total revenues of the
contract. These charges are recorded when the revenues are recognized and
included in cost of revenues. Any earned but unpaid commissions are recorded
in accrued agent commissions.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk are accounts receivable. The Company's customer
base principally comprises the regional Bell operating companies, as well as
international telephone companies. The Company typically does not require
collateral from its customers.
7
<PAGE>
Revenue Recognition
Revenues are generally recognized upon shipment of the equipment. In
"bill and hold" transactions, the Company recognizes revenues when the
following conditions are met: the equipment is complete, ready for shipment
and segregated from other inventory; the Company has no further significant
performance obligations in connection with the completion of the transaction;
the commitment and delivery schedule is fixed; the customer requested the
transaction be completed on this basis; and the risks of ownership have
passed to the customer. Revenues recognized from "bill and hold" transactions
were $0 for the nine months ended June 30, 1997 and 1996. Accounts
receivable relating to "bill and hold" transactions were $0 and $1,570,000 at
June 30, 1997 and September 30, 1996, respectively. Revenues from
installation, customer support and engineering activities are recognized as
services are provided. Software license revenues are recognized upon
installation or shipment depending upon the terms of the agreement.
Research, Development and Engineering Expenses
Research, development and engineering expenses are charged to expense as
incurred. Engineering expenses consist of costs related to the development of
new products, enhancements to existing products and the integration of
existing products into application specific systems.
Parent Charges
Parent charges were allocated to the Company from Securicor and consist of
charges for certain support and services. These charges were based on
Securicor's estimate of its total relevant costs for the applicable fiscal
year, allocated pro rata based on estimated revenues of each applicable
business unit. Management believes the method of allocation is reasonable.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the enacted tax rates.
8
<PAGE>
Net Income (Loss) Per Common Share
Historical net income (loss) per common share was calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the respective period.
Supplemental pro forma net income (loss) per common share was calculated
by dividing net income (loss) by the weighted average number of common shares
outstanding for the respective period. Pursuant to the requirements of the
Securities and Exchange Commission, the calculation of supplemental pro forma
net income (loss) per common share includes the number of shares that would
be required to be sold in the initial public offering to fund the payment of
the $23,285,000 of obligations to parent and affiliates as if the initial
public offering occurred on June 30, 1997. In addition, the supplemental pro
forma net income (loss) per common share for the three months ended June 30,
1997 and 1996 and the nine months ended June 30, 1997 and 1996 excludes
interest expense on the obligations to parent and affiliates of $169,000,
$148,000, $491,000 and $409,000, respectively, net of income taxes. Stock
options granted prior to the initial public offering have been excluded from
the calculation since the option prices are equal to the initial public
offering price and are therefore not dilutive.
SFAS No. 128, "Earnings per Share," which supersedes Accounting
Principles Board Opinion No. 15 ("APB No. 15"), "Earnings per Share", was
issued in February 1997. SFAS No. 128 requires dual presentation of basic and
diluted net income (loss) per common share for complex capital structures on
the face of the statements of operations. According to SFAS No. 128, basic
net income (loss) per common share is calculated by dividing net income by
the weighted-average number of common shares outstanding for the period.
Diluted net income (loss) per common share reflects the potential dilution
from the exercise or conversion of securities into common stock, such as
stock options. SFAS No. 128, is required to be adopted in the Company's
quarter ending December 31, 1997; earlier application is not permitted. For
the three and nine months ended June 30, 1997 and 1996, the basic and diluted
net income (loss) per common share measured under SFAS No. 128 is not
materially different from historical net income (loss) per common share.
Supplemental Disclosures of Cash Flow Information
For the nine months ended June 30, 1997 and 1996, the Company paid
interest of $513,000 and $306,000, respectively. For the nine months ended
June 30, 1997 and 1996, the Company paid income taxes of $2,054,000 and
$521,000, respectively.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9
<PAGE>
3. ACCOUNTS RECEIVABLE:
June 30, 1997 September 30, 1996
------------- ------------------
Billed $ 11,183,000 $ 13,223,000
Unbilled 1,165,000 2,617,000
------------- -------------
12,348,000 15,840,000
Less-allowance for doubtful accounts (94,000) (100,000)
------------- -------------
$ 12,254,000 $ 15,740,000
------------- -------------
------------- -------------
Unbilled accounts receivable includes costs and estimated earnings on
contracts in progress which have been recognized as revenues but not yet
billed to customers under the provisions of specified contracts.
Substantially, all unbilled accounts receivables are expected to be billed
and collected within one year.
4. INVENTORIES:
June 30, 1997 September 30, 1996
------------- ------------------
Raw materials $ 5,320,000 $ 2,779,000
Work-in-process 1,277,000 199,000
Finished goods - 189,000
------------- -------------
$ 6,597,000 $ 3,167,000
------------- -------------
------------- -------------
5. OTHER ASSETS:
June 30, 1997 September 30, 1996
------------- ------------------
Acquired product development costs, net $ - $ 1,086,000
Other 85,000 121,000
------------- -------------
$ 85,000 $ 1,207,000
------------- -------------
------------- -------------
10
<PAGE>
The acquired product development costs relate to the development of an
Integrated Services Digital Network ("ISDN") product which is sold in the
United States. This asset was purchased from Securicor 3Net Ltd. ("3Net"), an
affiliate of Securicor. Completion of this ISDN product occurred in October
1995. Amortization was computed by multiplying the ratio of current revenues
for the product to total and anticipated future revenues for the product by
acquired costs. Amortization expense was $386,000 and $0 for the nine months
ended June 30, 1997 and 1996. The Company's business activities related to
the ISDN product were performed through its wholly-owned subsidiary,
Securicor 3Net, Inc. During the nine months ended June 30, 1997 and 1996, the
Company sold certain products related to this technology and recognized
certain costs and realized all of the revenues related to such activities.
For the nine months ended June 30, 1997, the Company recognized revenues of
$1,167,000 and cost of revenues of $794,000 relating to such activities. For
the nine months ended June 30, 1996, the Company recognized revenues of
$99,000 and cost of revenues of $34,000 relating to such activities. These
amounts are included in unrelated third party revenues and cost of revenues.
As of June 30, 1997 and September 30, 1996, related to these activities, the
Company had no receivables and $0 and $296,000, respectively, of payables, to
this entity which are included in obligations to parent and affiliates.
Additionally, as of June 30, 1997 and September 30, 1996, the Company had
billed accounts receivable of $0 and $610,000 from the one unrelated third
party who purchased this product. In May 1997, the Company transferred all of
its stock in Securicor 3Net, Inc. to an affiliate of Securicor at net book
value due to the related party nature of the transaction.
On January 20, 1995, the Company invested approximately $500,000 in
exchange for an initial 44.4% ownership interest in Metapath Corporation
("Metapath"). In a series of transactions which took place from January 20,
1995 through May 2, 1996, the Company's ownership interest was reduced, first
to 23.7%, then to 19.9%, and on May 2, 1996, its ownership interest was
purchased by Metapath for the original amount of approximately $500,000. In
addition, on May 2, 1996, Metapath acquired certain technology from the
Company for $1,500,000. This investment was accounted for using the equity
method of accounting. Accordingly, the Company reduced the carrying value of
its investment for its portion of the investee's loss. The Company's equity
in loss of Metapath was $0 and $18,000 for the nine months ended June 30,
1997 and 1996, respectively.
Metapath has continued to be a customer of the Company after May 2, 1996
and sales for the period from May 2, 1996 to June 30, 1996 and the nine
months ended June 30, 1997 were $661,000 and $1,505,000, respectively.
11
<PAGE>
6. OBLIGATIONS TO PARENT AND AFFILIATES:
Information relative to the Company's obligations to parent and affiliates is as
follows:
June 30, 1997 September 30, 1996
------------- ------------------
Obligations to parent:
Interest free...................... $ 12,237,000 $ 12,326,000
Interest bearing................... 10,723,000 10,512,000
Other.............................. 258,000 190,000
------------- -------------
Total obligations to parent...... 23,218,000 3,028,000
------------- -------------
Obligation to affiliates:
Receivable from affiliates......... (18,000) (33,000)
Payables to affiliates............. 85,000 296,000
------------- -------------
Total obligations to affiliates, net 67,000 263,000
------------- -------------
Total obligations to parent and affiliates $ 23,285,000 $ 23,291,000
------------- -------------
------------- -------------
Until completion of the Company's initial public offering of its common
stock, the Company was funded through advances from its parent (Securicor).
Certain advances are interest bearing and are loaned to the Company at a base
rate plus 1%. For the nine months ended June 30, 1997 and 1996, the interest
rate charged on these obligations ranged from 6.75% to 7.50%, and 6.75% to
7.75%, respectively. Interest expense for the nine months ended June 30,
1997, and 1996, was $491,000 and $409,000, respectively. As these obligations
to parent and affiliates are due on demand, this net amount is included in
current liabilities. In connection with the initial public offering, the
total obligations to parent and affiliates, as of June 30, 1997, were fully
repaid (see Note 1).
7. RELATED PARTY TRANSACTIONS:
The Company entered into two separate agreements with Securicor Radiocoms
Ltd., an affiliate of Securicor. The first agreement provided that the
Company construct product for Securicor Radiocoms Ltd. and bill for all costs
incurred in addition to a certain profit percentage, as defined. The second
agreement provided for the construction of additional product for Securicor
Radiocoms Ltd., which was billed at a fixed price per unit. The Company
recognized revenues from Securicor Radiocoms Ltd. for the nine months ended
June 30, 1997 and 1996 of $0 and $2,040,000, respectively. The Company
recognized cost of revenues related to these revenues for the nine months
ended June 30, 1997 and 1996 of $0 and $1,488,000, respectively. As of June
30, 1997 and September 30, 1996, related to these agreements, the Company had
no receivables.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company develops, markets and supports integrated hardware
and software systems that are able to collect and process an increasing
volume of transaction information from a wide variety of wireline switches
and transmit the information to the customer's information management
networks. The Company is developing systems that process transaction
information from wireless, ATM and other specialized telecommunications
switches. The Company's customers use this information to bill their
subscribers, to implement customized marketing programs and to perform other
data management functions. The Company also provides traffic management
solutions to telecommunications companies. The Company recently introduced
its first applications software product, a fraud detection and management
system. The Company provides installation, ongoing maintenance, support and
training, as well as customized engineering services, related to the
Company's systems.
A significant portion of the Company's revenues has been, and is expected
to continue to be, derived from substantial orders placed by large
organizations, and in particular three Regional Bell Operating Companies,
("RBOCs"). Aggregate revenues from U S West, Inc., Southwestern Bell
Telephone Company and Ameritech Corporation accounted for 67.5% and 61.3% of
the Company's total revenues for the nine months ended June 30, 1997 and
1996, respectively. During the nine months ended June 30, 1996, an
additional 12.6% of the Company's revenues was attributable to sales to
Puerto Rico Telephone Co.
Domestic revenues are typically generated under cancelable general
purchase agreements which provide for the continuing supply of products and
services over future years. Pricing is based upon the volume of products
ordered. Internationally, the Company typically enters into long-term
contracts for the delivery of turn-key systems which include products and
services. The Company's revenues are difficult to forecast because the
purchase of its systems generally involves a significant commitment of
capital and management time, which generally results in lengthy sales cycles.
Quarterly revenues are subject to substantial fluctuations primarily
resulting from the Company's concentration of customers and the timing of
orders received. The timing of orders is dependent, to a large extent, on
the timing of the Company's customers' annual budget process. Historically,
the Company's first and second fiscal quarters have generated a lower level
of revenues compared to the Company's third and fourth fiscal quarters, by
which time the Company's customers have typically approved their budgets.
The Company's operating results may fluctuate significantly from quarter to
quarter or on an annual basis in the future as a result of a number of
factors, including but not limited to the size and timing of customer orders;
the length of the Company's sales cycle; the timing of product announcements
and introductions by the Company and its competitors; the Company's ability
to develop, introduce and market new products and product enhancements;
market acceptance of the Company's products; deferrals of customer orders in
anticipation of new products or product enhancements; the Company's ability
to control costs; the availability of components; political instability in,
or trade embargoes with respect to, foreign markets; changes in the Company's
management team; and fluctuating economic conditions. The Company's future
operating results may fluctuate as a result of these and other factors, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
13
<PAGE>
Safe Harbor for Forward-Looking Statements
From time to time, the Company may publish statements that are not
historical facts but are forward-looking statements relating to such matters
as anticipated financial performance, business prospects, technological
developments, new products, research and development activities and other
matters. The Private Litigation Reform Act of 1993 provided a safe harbor
for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, but are not limited to the factors listed in the previous paragraph.
Results of Operations
Quarter ended June 30, 1997 Compared to Quarter ended June 30, 1996
Revenues
Revenues attributable to unrelated third parties ("Third-party Revenues")
increased 30.8% to $9.5 million for the quarter ended June 30, 1997, from
$7.3 million for the quarter ended June 30, 1996. Equipment revenues were
$7.9 million for the quarter ended June 30, 1997, an increase of 31.8% over
the $6.0 million for the quarter ended June 30, 1996. This increase resulted
primarily from larger shipments to existing RBOC customers and the addition
of several new customers. Services revenues increased 26.6% to $1.7 million
for the quarter ended June 30, 1997. This increase is mainly due to increased
system installation services during the quarter. For the quarters ended June
30, 1997 and 1996, the Company recognized $0 and $168,000, respectively, of
related-party revenues from the sale of equipment to an entity in which the
Company had an equity investment prior to May 1996. Revenues from this
entity for the quarter ended June 30, 1997 and the period from May 2, 1996 to
June 30, 1996 were $0 and $661,000, respectively, and are included in
Third-party Revenues.
Gross Profit
The portion of gross profit attributable to Third-party Revenues
increased to 56.5% of such revenues for the quarter ended June 30, 1997 from
40.0% of such revenues for the same period in 1996. Gross profit from
equipment revenues increased to 53.6% for the quarter ended June 30, 1997
from 30.9% for the same period in 1996. This increase resulted from the
increase in Third-party Revenues. Gross profit from services revenues
decreased to 70.3% for the quarter ended June 30, 1997 from 81.4% for the
same period in 1996. This decrease is primarily due to increases in fixed
costs incurred in order to support the Company's growing customer base. Total
gross profit as a percentage of total revenues increased to 56.5% for the
quarter ended June 30, 1997 from 40.4% for the same period in 1996. The
Company has a relatively high fixed cost base which is included in cost of
revenues. As a result, fluctuations in revenues may have a significant effect
on margins.
14
<PAGE>
Research, Development and Engineering
Research, development and engineering expenses were $1.8 million for the
quarter ended June 30, 1997, a decrease of 6.6%, compared to $1.9 million for
the quarter ended June 30, 1996. As a percentage of Third-party Revenues,
research, development and engineering expenses decreased during the quarter
ended June 30, 1997 to 19.0% from 26.5% for the same period in 1996 due to
increased Third-party Revenues. Research, development and engineering
expenditures has remained relatively consistent between periods as the
Company continues the development and enhancements of its products.
Selling, General and Administrative
Selling, general and administrative expenses were $2.0 million for the
quarter ended June 30, 1997, an increase of 29.4% compared to $1.6 million
for the same period in 1996. As a percentage of Third-party Revenues,
selling, general and administrative expenses remained relatively unchanged at
21.1% and 21.4% for the quarters ended June 30, 1997 and 1996, respectively.
The absolute increase resulted primarily from the addition of staff and
increased efforts in the marketing and sales departments of the Company. The
increase in marketing and sales staff was a result of the Company's increased
focus on developing new markets and expanding existing markets for the
Company's products.
Parent Charges
Prior to the initial public offering, Securicor charged the Company an
allocated portion of group and divisional overhead costs (the "Parent
Charges"). The Parent Charges for the quarter ended June 30, 1997 and 1996
were $102,000 and $120,000, respectively. The Company will not incur any
Parent Charges after the initial public offering and is not expected to incur
any significant expenses in lieu of these Parent Charges. The Company and
Securicor have entered into an agreement effective upon the completion of the
initial public offering pursuant to which Securicor will provide
international marketing services to the Company for an annual charge of
$160,000. In addition, the Company will pay each of its directors who are
employees of Securicor annual directors fees of $20,000, which the directors
will remit to Securicor.
Interest Expense
Interest expense was $147,000 and $124,000 for the quarters ended June
30, 1997 and 1996, respectively. This increase resulted from higher
borrowings from Securicor to meet working capital requirements. Upon the
completion of the initial public offering, the borrowings from Securicor
were fully repaid. As a result, the Company's interest expense is expected to
decrease.
Other Income(Expense)
Other expense was $55,000 for the quarter ended June 30, 1997 compared to
other income of $22,000 for the quarter ended June 30, 1996.
Income Taxes
The Company's effective tax rate was 40.3% and 38.2% for the quarters
ended June 30, 1997 and 1996, respectively. Income tax expense was recorded
based upon the expected annual effective income tax rate.
15
<PAGE>
Nine Months Ended June 30, 1997 compared to June 30, 1996
Revenues
Third-party Revenues increased 37.9% to $21.6 million for the nine months
ended June 30, 1997, from the $15.7 million for the nine months ended June
30, 1996. Equipment revenues were $16.7 million for the nine months ended
June 30, 1997, an increase of 48.1% over the $11.3 million for the nine
months ended June 30, 1996. This increase resulted primarily from larger
shipments to existing RBOC customers and the addition of several new
customers. Services revenues increased 11.4% to $4.9 million for the nine
months ended June 30, 1997. This increase is mainly due to increased system
installation services during the nine months ended June 30, 1997.
Additionally, the Company generated $1.7 million and $0 of Third-party
Revenues for the nine months ended June 30, 1997 and 1996, respectively,
related to sales of an affiliate's products which are not expected to recur
in the future. For the nine months ended June 30, 1997 and 1996, the Company
recognized $0 and $2.0 million, respectively, of one-time related-party
revenues. These revenues were attributable to sales to a Securicor affiliate.
The remaining $544,000 of related-party revenues for the nine months ended
June 30, 1996 represent revenues from the sale of equipment to an entity in
which the Company had an equity investment prior to May 2, 1996. Revenues
from this entity for the nine months ended June 30, 1997 and the period May
2, 1996 to June 30, 1996 were $1.5 million and $661,000, respectively, and
are included in Third-party Revenues.
Gross Profit
The portion of gross profit attributable to Third-party Revenues
increased to 44.5% of such revenues for the nine months ended June 30, 1997
from 33.0% of such revenues for the same period in 1996. Gross profit from
equipment revenues increased to 47.9% for the nine months ended June 30, 1997
from 29.5% for the same period in 1996. These increases resulted primarily
from the increase in Third-party Revenues. Gross profit from services
revenues decreased to 32.7% for the nine months ended June 30, 1997 from
41.9% for the same period in 1996. This decrease is primarily due to
increases in fixed costs incurred in order to support the Company's growing
customer base. Total gross profit as a percentage of total revenues increased
to 44.5% for the nine months ended June 30, 1997 from 33.1% for the same
period in 1996. The Company has a relatively high fixed cost base which is
included in cost of revenues. As a result, fluctuations in revenues may have
a significant effect on margins.
Research, Development and Engineering
Research, development and engineering expenses were $5.6 million for the
nine months ended June 30, 1997, an increase of 8.8% compared to $5.1 million
for the nine months ended June 30, 1996. As a percentage of Third-party
Revenues, research, development and engineering expenses decreased during the
nine months ended June 30, 1997 to 25.9% from 32.9% for the same period in
1996 due to increased Third-party revenue. The research, development and
engineering absolute expenditures have increased primarily from the addition
of engineering staff and subcontractors to support the increasing development
requirements and timetables of the Company's customers.
16
<PAGE>
Selling, General and Administrative
Selling, general and administrative expenses were $6.2 million for the
nine months ended June 30, 1997, an increase of 37.9% compared to $4.5
million for the same period in 1996. As a percentage of Third-party Revenues,
selling, general and administrative expenses remained unchanged at 28.9% for
the nine months ended June 30, 1997 and 1996. The absolute increase resulted
primarily from the addition of staff and increased efforts in the marketing
and sales departments of the Company. The increase in marketing and sales
staff was a result of the Company's increased focus on developing new markets
and expanding existing markets for the Company's products.
Parent Charges
Prior to the initial public offering, Securicor charged the Company
certain Parent Charges, which for the nine months ended June 30, 1997 and
1996 were $295,000 and $333,000, respectively. The Company will not incur any
Parent Charges after the initial public offering and is not expected to incur
any significant expenses in lieu of these Parent Charges. The Company and
Securicor have entered into an agreement effective upon the completion of the
initial public offering pursuant to which Securicor will provide
international marketing services to the Company for an annual charge of
$160,000. In addition, the Company will pay each of its directors who are
employees of Securicor annual directors fees of $20,000, which the directors
will remit to Securicor.
Interest Expense
Interest expense was $426,000 and $351,000 for the nine months ended June
30, 1997 and 1996, respectively. This increase resulted from higher
borrowings from Securicor to meet working capital requirements. Upon the
completion of the initial public offering, the borrowings from Securicor
were fully repaid. As a result, the Company's interest expense is expected to
decrease.
Other Income(Expense)
Other expense was $1,000 for the nine months ended June 30, 1997 compared
to other income of $435,000 for the nine months ended June 30, 1996. A
litigation settlement gain of $350,000 was recognized in the first quarter of
fiscal 1996.
Equity in Loss of Investee
The Company recorded a $18,000 loss for the nine months ended June 30,
1996 as a result of its investment in Metapath Corporation which was
accounted for under the equity method. This investment was sold in May 1996.
See Note 5 of Notes to Consolidated Financial Statements.
Income Taxes
The Company's effective tax rate was 42.2% and 38.2% for the nine months
ended June 30, 1997 and 1996, respectively. Income tax benefits were
recorded in both periods due to the losses incurred based upon the expected
annual effective income tax rate.
17
<PAGE>
Liquidity and Capital Resources
Prior to its initial public offering, the Company financed its operations
primarily with cash generated from operations and borrowings from Securicor.
As of June 30, 1997, the Company had $851,000 of cash, $12.3 million in net
trade accounts receivable, and $9.3 million of working capital deficit.
Net cash used in operating activities was $1.1 million and $5.1 million
for the nine months ended June 30, 1997 and 1996, respectively. In 1997, a
decrease in accounts receivable of $3.5 million, an increase in inventories
of $3.4 million and a decrease in accrued tax payable of $3.3 million were
only partially offset by a $2.1 million increase in accounts payable. In
1996, increases in accounts receivable of $2.4 million, a decrease in accrued
tax payable of $1.2 million and the net loss of $1.1 million which included a
$2.1 million gain of sale of investment, contributed to the use of cash.
Net cash used in investing activities was $1.2 million for the nine
months ended June 30, 1997. Net cash provided by investing activities was
$1.0 million for the nine months ended June 30, 1996. Net cash provided by
investing activities for the nine months ended June 30, 1996 was positively
affected by the sale of an investment for $2.1 million. Purchases of
property and equipment for the nine months ended June 30, 1997 and 1996 were
$1.2 million and $1.0 million, respectively.
Net cash used in financing activities was $176,000 for the nine months
ended June 30, 1997. Net cash provided by financing activities was $3.1
million for the nine months ended June 30, 1996. During the nine months
ended June 30, 1996, cash provided by financing activities resulted primarily
from $2.8 million of net advances that the Company received from Securicor.
To date, the Company's funding requirements outside of those generated
from operations have been satisfied from borrowings from Securicor. The
Company's obligation to Securicor was approximately $23.3 million at both
June 30, 1997 and September 30, 1996. In connection with the initial public
offering, the Company repaid all of its outstanding borrowings from
Securicor. The Company does not expect to borrow from Securicor in the future.
The Company is in the process of establishing commercial banking
relationships. The Company has received a commitment subject to certain
closing conditions for the establishment of a $2.5 million credit facility
from a bank which will be used to meet short-term borrowing requirements.
The Company believes that its existing cash balances, cash generated from
operations, borrowings under the credit facility and the net proceeds from
the initial public offering will be sufficient to meet the Company's cash
requirements during the next twelve months. However, depending upon its rate
of growth and profitability, the Company may require additional equity or
debt financing to meet its working capital requirements or capital
expenditure needs. There can be no assurance that additional financing, if
needed, will be available when required or, if available, will be on terms
satisfactory to the Company.
Inflation and Foreign Exchange
To date, inflation and foreign currency fluctuations have not had a
material impact on the Company's financial condition and results of
operations. All sales arrangements with third-party international customers
are denominated in US dollars.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in the Prospectus relating to the Company's initial public
offering, the Company received a letter dated June 19, 1997 from Acxiom
Corporation ("Acxiom") requesting that the Company cease using the name
"Axiom." Acxiom filed suit against the Company in the United States District
Court for the District of Delaware on August 1, 1997 alleging trademark
infringement and dilution under the Lanham Act, as well as related state law
causes of action. Acxiom seeks a judgment against the Company enjoining any
future use of the Axiom name and Axiom tradenames, future acts of unfair
competition in the United States, and destruction of all advertising and
promotional material, and awarding treble damages in an unspecified amount
because of the alleged willfulness of the Company's infringement. The
Company intends to vigorously defend against these claims and believes that
they are without merit because of the lack of correspondence between the
products, services and customers of the two companies. There is no
assurance, however, that these claims will be resolved on terms favorable to
the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1997, the Company's sole stockholder, SCL, by consent in
writing without a meeting, approved the change of the Company's name from
"Securicor Communications Inc." to "Axiom Inc."
On May 23, 1997, SCL, by consent in writing without a meeting, approved:
(i) the merger of the Company's wholly-owned subsidiary Securicor
Telesciences Inc. with and into the Company; and (ii) the sale of the stock
of Securicor 3Net, Inc. and Securicor Richmond Holdings Inc. at book value to
affiliates of Securicor.
On May 29, 1997, SCL, by consent in writing without a meeting, approved
the Amended and Restated Certificate of Incorporation and the Amended and
Restated By-laws of the Company and the 1997 Stock Incentive Plan.
On July 1, 1997, SCL, by consent in writing without a meeting, authorized
the Company's Board of Directors to approve an Employee Stock Purchase Plan
pursuant to which employees would have the opportunity to purchase up to
300,000 of the Company's Common Stock.
ITEM 5. OTHER INFORMATION
None
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re: computation of earnings per common share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
20
<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.
AXIOM INC.
----------
Dated: August 21 , 1997 By: /s/ Andrew P. Maunder
---------------- -------------------------
Andrew P. Maunder
President &
Chief Executive Officer
Dated: August 21 , 1997 By: /s/ Mark J. Kadish
---------------- -------------------------
Mark J. Kadish
Chief Financial Officer
21
<PAGE>
EXHIBIT 11
AXIOM INC. AND SUBSIDIARIES
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS)
PER COMMON SHARE CALCULATION (A)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------------
1997 1996 1997 1996
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Pro forma net income (loss)
per common share:
Net Income (loss) - adjusted (A)........ $ 855,000 $ 932,000 $ (1,424,000) $(882,000)
--------- --------- ------------ ---------
Weighted average number of shares
issued and outstanding............... 3,476,900 3,476,900 3,476,900 3,476,900
Number of shares that would be
required to be sold in the
initial public offering to fund
the payment of the obligations to
parent and affiliates................ 1,940,417 1,940,417 1,940,417 1,940,417
--------- --------- ------------ ----------
Adjusted weighted average number
of shares outstanding................ 5,417,317 5,417,317 5,417,317 5,417,317
--------- --------- ------------ ----------
--------- --------- ------------ ----------
Pro forma net income (loss) per
common share......................... $ 0.16 $ 0.17 $ (0.26) $ (0.16)
--------- --------- ------------ ----------
--------- --------- ------------ ----------
</TABLE>
(A) Supplemental Pro forma Net Income (Loss) Per Common Share
Supplemental Pro forma net income (loss) per common share was calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the respective period. Pursuant to the requirements of the
Securities and Exchange Commission, the calculation of supplemental pro forma
net income (loss) per common share includes the number of shares that would
be required to be sold in the initial public offering to fund the payment of
the $23,285,000 in obligations to parent and affiliates. In addition, the
supplemental pro forma net income (loss) per common share for the three
months and nine months ended June 30, 1997 and 1996 excludes interest expense
on the obligations to parent and affiliates of $169,000, $491,000, $148,000
and $409,000, respectively, net of income taxes. Stock options granted prior
to the initial public offering have been excluded from the calculation since
the option prices are equal to the initial public offering price and will
therefore not be dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 851
<SECURITIES> 0
<RECEIVABLES> 12,254
<ALLOWANCES> 0
<INVENTORY> 6,597
<CURRENT-ASSETS> 23,714
<PP&E> 5,435
<DEPRECIATION> 2,417
<TOTAL-ASSETS> 29,873
<CURRENT-LIABILITIES> 32,990
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,247)
<TOTAL-LIABILITY-AND-EQUITY> 29,873
<SALES> 16,739
<TOTAL-REVENUES> 21,599
<CGS> 8,716
<TOTAL-COSTS> 11,988
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 426
<INCOME-PRETAX> (2,958)
<INCOME-TAX> (1,250)
<INCOME-CONTINUING> (1,708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,708)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.26)
</TABLE>
