<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 15, 1998
AXIOM INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
DELAWARE 0-22601 51-0356153
<S> <C> <C>
------------------------ ----------- ----------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
4000 MIDLANTIC DRIVE, 08054
MT. LAUREL, NJ ---------
(Zip Code)
------------------
(Address of Principal
Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (609) 866-1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Item 7 of the Current Report on Form 8-K dated May 27, 1998 of Axiom Inc. (the
"Company") is hereby amended and restated in its entirety to read as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBIT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
(a) Historical Financial Statements of Business Acquired--Innovative Data Technology
Report of Independent Public Accountants............................................................ 3
Balance Sheets...................................................................................... 4
Statements of Operations............................................................................ 5
Statements of Shareholders' Equity.................................................................. 6
Statements of Cash Flows............................................................................ 7
Notes to Financial Statements....................................................................... 9
(b) Pro Forma Financial Information
Basis of Presentation............................................................................... 19
Pro Forma Consolidated Balance Sheet -- March 31, 1998.............................................. 20
Pro Forma Consolidated Statement of Operations for the Year Ended
September 30, 1997................................................................................ 21
Pro Forma Consolidated Statement of Operations for the Six Months Ended
March 31, 1998.................................................................................... 22
Notes to Pro Forma Consolidated Financial Statements................................................ 23
(c) Exhibit
23.1 Consent of Independent Public Accountants..................................................... 26
</TABLE>
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
AXIOM INC.
By: /s/ ANDREW P. MAUNDER
-----------------------------------------
Andrew P. Maunder
CHIEF EXECUTIVE OFFICER
</TABLE>
Dated: July 29, 1998
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Innovative Data Technology:
We have audited the accompanying balance sheets of Innovative Data
Technology (a California corporation) as of December 31, 1997 and 1996, and the
related statements of operations, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Innovative Data Technology
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Diego, California
February 11, 1998
(Except with respect to the matter
discussed in Note 10 as to which
the date is May 15, 1998)
3
<PAGE>
INNOVATIVE DATA TECHNOLOGY
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 1,746,775 $ 3,318,249 $ 2,020,407
Short-term investments............................................. 250,000 -- --
Accounts receivable, net of allowance for doubtful accounts of
$39,000, $45,000 and $46,000, in 1996, 1997 and 1998,
respectively..................................................... 944,749 4,216,591 3,739,858
Inventories........................................................ 1,570,938 2,216,306 1,549,733
Income taxes receivable............................................ 147,358 -- --
Prepaid expenses................................................... 260,183 186,994 102,799
Deferred income taxes.............................................. 231,000 -- --
------------- ------------- ------------
Total current assets............................................. 5,151,003 9,938,140 7,412,797
------------- ------------- ------------
PROPERTY AND EQUIPMENT, net.......................................... 6,244,962 394,960 363,631
RESTRICTED CASH...................................................... 548,238 548,238 548,238
OTHER ASSETS......................................................... 435,401 211,418 60,881
------------- ------------- ------------
Total assets......................................................... $ 12,379,604 $ 11,092,756 $ 8,385,547
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 494,026 $ 836,054 $ 611,368
Accrued expenses................................................... 334,846 2,520,271 452,616
Customer deposits.................................................. 1,030,916 1,123,981 534,001
Income taxes payable............................................... -- 191,980 65,832
Current portion of note payable.................................... 57,792 -- --
Current portion of note payable to shareholder..................... -- 83,400 83,400
------------- ------------- ------------
Total current liabilities........................................ 1,917,580 4,755,686 1,747,217
------------- ------------- ------------
NOTE PAYABLE......................................................... 3,993,844 -- --
NOTE PAYABLE TO SHAREHOLDER.......................................... -- 1,161,358 1,138,616
SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,500,000 shares authorized, 7,900
shares issued, 3,309 shares outstanding in 1998 and 1997 and
7,900 shares outstanding in 1996................................. 2,373,043 2,368,942 2,368,942
Retained earnings.................................................. 4,095,137 2,806,770 3,130,772
------------- ------------- ------------
Total shareholders' equity....................................... 6,468,180 5,175,712 5,499,714
------------- ------------- ------------
Total liabilities and shareholders' equity....................... $ 12,379,604 $ 11,092,756 $ 8,385,547
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE>
INNOVATIVE DATA TECHNOLOGY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- --------------------------
1996 1997 1997 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
SALES................................................... $ 8,375,123 $ 12,150,178 $ 1,618,380 $ 3,138,932
COST OF SALES........................................... 5,193,891 6,845,871 1,209,751 1,598,763
------------ ------------- ------------ ------------
Gross margin.......................................... 3,181,232 5,304,307 408,629 1,540,169
------------ ------------- ------------ ------------
OPERATING EXPENSES:
General and administrative............................ 857,407 2,119,034 229,579 168,168
Sales and marketing................................... 1,626,761 3,255,069 382,222 657,579
Research and development.............................. 1,261,061 1,301,015 292,308 232,668
------------ ------------- ------------ ------------
3,745,229 6,675,118 904,109 1,058,415
------------ ------------- ------------ ------------
Income (loss) from operations....................... (563,997) (1,370,811) (495,480) 481,754
RENTAL INCOME, net...................................... 504,262 149,622 58,269 --
GAIN ON SALE OF PROPERTY AND EQUIPMENT.................. 297 3,554,871 -- 126
INTEREST INCOME......................................... 70,913 140,219 19,470 44,461
INTEREST EXPENSE........................................ (401,600) (469,760) (97,579) (21,651)
OTHER EXPENSE, net...................................... (132,034) (97,141) (7,941) (6,837)
------------ ------------- ------------ ------------
Income (loss) before income tax provision
(benefit)......................................... (522,159) 1,907,000 (523,261) 497,853
INCOME TAX PROVISION (BENEFIT).......................... (150,499) 715,429 985 173,851
------------ ------------- ------------ ------------
Net income (loss)................................... $ (371,660) $ 1,191,571 $ (524,246) $ 324,002
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
INNOVATIVE DATA TECHNOLOGY
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................................ 7,900 $ 2,373,043 $ 4,466,797 $ 6,839,840
Net loss................................................ -- -- (371,660) (371,660)
--------- ------------- ------------- -------------
BALANCE, December 31, 1996................................ 7,900 2,373,043 4,095,137 6,468,180
Stock repurchase........................................ (4,601) (4,601) (2,479,938) (2,484,539)
Stock options exercised................................. 10 500 -- 500
Net income.............................................. -- -- 1,191,571 1,191,571
--------- ------------- ------------- -------------
BALANCE, December 31, 1997................................ 3,309 2,368,942 2,806,770 5,175,712
Net income (unaudited).................................. -- -- 324,002 324,002
--------- ------------- ------------- -------------
BALANCE, March 31, 1998
(unaudited)............................................. 3,309 $ 2,368,942 $ 3,130,772 $ 5,499,714
--------- ------------- ------------- -------------
--------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
INNOVATIVE DATA TECHNOLOGY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ---------------------------
1996 1997 1997 1998
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (371,660) $ 1,191,571 $ (524,246) $ 324,002
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization....................... 571,910 431,649 146,047 58,805
Provision for doubtful accounts..................... 6,000 6,000 1,500 1,000
Deferred income taxes............................... -- 231,000 -- --
Gain on sale of property............................ -- (3,554,871) -- (126)
Changes in assets and liabilities:
Accounts receivable............................... (103,012) (3,277,842) (482,983) 475,733
Inventories....................................... 213,854 (645,368) 70,312 666,573
Income taxes receivable........................... 163,487 147,358 (26,936) --
Prepaid expenses.................................. (19,303) 73,189 (60,420) 84,195
Restricted cash................................... (548,238) -- -- --
Other assets...................................... (734) 69,483 (56,799) 16,038
Accounts payable.................................. (253,887) 342,028 348,771 (224,686)
Accrued expenses.................................. 294,291 2,185,425 25,796 (2,067,655)
Customer deposits................................. 20,092 93,065 (72,454) (589,980)
Income taxes payable.............................. -- 191,980 -- (126,148)
------------ ------------- ------------ -------------
Net cash used in operating activities........... (27,200) (2,515,333) (631,412) (1,382,249)
------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in short-term investments.................. (250,000) 250,000 -- --
Purchases of property and equipment................... (372,760) (126,430) (27,523) (26,200)
Proceeds from sales of property and equipment......... -- 9,119,654 5,977 1,349
Advances on notes receivable from officers............ (128,000) (53,372) -- --
Proceeds from notes receivable from officers.......... 19,500 187,872 4,500 132,000
------------ ------------- ------------ -------------
Net cash provided by (used in) investing
activities.................................... (731,260) 9,377,724 (17,046) 107,149
------------ ------------- ------------ -------------
</TABLE>
7
<PAGE>
INNOVATIVE DATA TECHNOLOGY
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ---------------------------
1996 1997 1997 1998
------------ ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable.............................. (50,833) (4,051,636) (15,107) --
Stock options exercised............................... -- 500 -- --
Common stock repurchase............................... -- (1,210,069) -- --
Payments on note payable to shareholder............... -- (29,712) -- (22,742)
------------ ------------- ------------ -------------
Net cash used in financing activities........... (50,833) (5,290,917) (15,107) (22,742)
------------ ------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents................................... (809,293) 1,571,474 (663,565) (1,297,842)
CASH AND CASH EQUIVALENTS, beginning of period.......... 2,556,068 1,746,775 1,746,775 3,318,249
------------ ------------- ------------ -------------
CASH AND CASH EQUIVALENTS, end of period................ $ 1,746,775 $ 3,318,249 $ 1,083,210 $ 2,020,407
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Approximate cash paid during the period for:
Interest............................................ $ 402,000 $ 470,000 $ 47,574 $ 22,000
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Income taxes........................................ $ -- $ 646,000 $ -- $ 145,000
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Note payable to shareholder issued in stock
repurchase.......................................... $ -- $ 1,274,470 $ -- $ --
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
1. DESCRIPTION OF THE COMPANY
GENERAL
Innovative Data Technology (the "Company"), a California corporation,
designs and manufactures data collection and mediation devices used in customer
care and billing applications by telephone operating companies, system
integrators, and switching system manufacturers worldwide.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of March 31, 1998 and the statements of
operations, shareholders' equity and cash flows for the three months ending
March 31, 1997 and 1998 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of results of the interim periods.
The data disclosed in these notes to financial statements at such dates and for
such periods are also unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
From time to time, the Company invests its excess cash and has established
guidelines relative to diversification and maturities in an effort to maintain
safety and liquidity. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates. The Company has not
experienced any significant losses on its cash and cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposit with original
maturities of one year or less.
INVENTORIES
Inventories include the cost of raw materials, labor and manufacturing
overhead and are valued at the lower of cost or market, using the first-in,
first-out (FIFO) method.
INTANGIBLE ASSETS
Intangible assets are included in other assets and are amortized using the
straight-line method over their estimated useful lives, ranging from 3 to 10
years.
PROPERTY AND EQUIPMENT
Property and equipment are stated at acquisition cost. The Company
depreciates its property and equipment on a straight-line basis over the
estimated useful lives of the related assets as follows: Buildings and
improvements 30 years, tooling and instruments 3 to 5 years, furniture and
fixtures 3 to 5 years, vehicles 3 to 5 years. Repair and maintenance costs are
charged to expense as incurred.
9
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRICTED CASH
Restricted cash consists of funds to support standby letters of credit
required under a contractual arrangement with one of the Company's major
customers.
CUSTOMER DEPOSITS
Customer deposits consist of advance payments against future scheduled
shipments of products.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income tax assets and liabilities are computed
based on the temporary differences between the financial statement and tax bases
of assets and liabilities using the enacted marginal tax rate in effect for the
year in which the differences are expected to reverse. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period. If it is more likely than not that some
portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized. The amount of the net deferred tax assets considered
realizable could be adjusted in the near term if estimates of taxable income in
the reversal periods are revised.
REVENUE RECOGNITION
Sales of the Company's product are generally recognized upon shipment.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs, other than software development costs, are
charged to operations as incurred. Financial Accounting Standards Board (FASB)
Statement No. 86 requires the capitalization of certain costs relating to the
development of software after technological feasibility is established. The
Company expenses all software development costs as incurred as technological
feasibility is not reached until product testing is complete, which generally
coincides with product release dates.
STOCK BASED COMPENSATION
The Company has elected to measure compensation expense for its stock-based
employee compensation using the intrinsic value method prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and has provided the required
pro forma disclosures using the fair value based method in accordance with SFAS
No. 123 "Accounting for Stock-Based Compensation."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities and revenues and expenses and disclosures of contingent
assets and liabilities. Actual results could differ from these estimates.
10
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued liabilities
approximate fair value due to their short term nature. Based on borrowing rates
currently available to the Company for credit arrangements with similar terms,
the carrying amount of the balance under note payable to shareholder
approximates fair value.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Company adopted SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption had
no material effect on the Company's financial statements.
In 1997, the Company adopted SFAS No. 129 "Disclosure of Information About
Capital Structure." The adoption of this standard pertained to disclosure only
and did not have an effect on the Company's financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting of comprehensive
income and its components in a full set of general purpose financial statements
and will be adopted in fiscal 1998. The adoption of this standard will not have
a material effect on the Company's financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
AICPA Statement of Position (SOP) 98-1, "Accounting for Costs for Computer
Software Developed or Obtained for Internal Use." This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics to be used in determining when
computer software is for internal use. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998, with earlier application permitted. The
Company anticipates that SOP 98-1 will not have a material impact on the
Company's financial position or results of operations.
In April 1998, the AcSEC issued AICPA SOP 98-5, "Reporting on the Costs of
Start-Up activities." This statement provides guidance on financial reporting of
start-up costs and organization costs and requires that such costs of start-up
activities be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, with earlier application permitted. The
Company has not yet determined what impact, if any, the adoption of SOP 98-5
will have on the Company's financial position or results of operations.
FOREIGN SALES AND SIGNIFICANT CUSTOMERS
Foreign sales accounted for approximately 94 and 98 percent of sales in 1996
and 1997, respectively. The Company's four largest customers each year accounted
for 78 and 74 percent of sales in 1996 and 1997, respectively.
11
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign sales by region as a percentage of total sales were as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Europe (Lithuania, Finland, Belgium)............................................ 52% 56%
Asia (Korea, Taiwan)............................................................ 9% 27%
South America (Colombia, Honduras, Venezuela)................................... 33% 15%
-- --
94% 98%
-- --
-- --
</TABLE>
As of December 31, 1996 and 1997, the Company had four customers each year
which represented 91 and 82 percent of accounts receivable, respectively.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. FINANCIAL STATEMENT CAPTIONS
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Raw materials....................................... $ 798,702 $ 721,783 $ 598,952
Work in process..................................... 338,727 1,166,515 442,530
Finished goods...................................... 433,509 328,008 508,251
------------ ------------ ------------
$ 1,570,938 $ 2,216,306 $ 1,549,733
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
12
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
3. FINANCIAL STATEMENT CAPTIONS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Land............................................. $ 1,550,000 $ -- $ --
Buildings and improvements....................... 4,638,465 -- --
Tooling and instruments.......................... 1,093,783 1,040,194 1,045,511
Furniture and fixtures........................... 994,236 1,173,257 1,192,789
Vehicles......................................... 223,329 148,526 148,526
------------- ------------- -------------
8,499,813 2,361,977 2,386,826
Less-accumulated depreciation and amortization... (2,254,851) (1,967,017) (2,023,195)
------------- ------------- -------------
$ 6,244,962 $ 394,960 $ 363,631
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Notes receivable from officers.......................... $ 266,500 $ 132,000 $ --
Cash surrender value of officers' life insurance........ 87,725 -- --
Intangibles, net........................................ 66,516 47,520 45,021
Deposits and other...................................... 14,660 31,898 15,860
---------- ---------- -----------
$ 435,401 $ 211,418 $ 60,881
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
As of December 31, 1997, notes receivable from officers consist of an
unsecured note bearing interest at 6%, due in $1,625 monthly principal
installments through 2005, or on demand.
Intangibles consist of technology rights and other intangibles. Intangible
assets are net of accumulated amortization of approximately $225,000 and
$245,000 as of December 31, 1996 and 1997, respectively.
13
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
3. FINANCIAL STATEMENT CAPTIONS (CONTINUED)
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------ MARCH 31,
1996 1997 1998
---------- ------------ -----------
<S> <C> <C> <C>
(UNAUDITED)
Incentive compensation................................. $ -- $ 2,000,000 $ --
Payroll and related.................................... 152,022 156,017 186,847
Warranty............................................... 140,000 322,819 208,026
Other.................................................. 42,824 41,435 57,743
---------- ------------ -----------
$ 334,846 $ 2,520,271 $ 452,616
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
4. NOTES PAYABLE
NOTE PAYABLE TO SHAREHOLDER
During 1997, the Company repurchased 4,601 shares of the Company's common
stock from its majority shareholder in exchange for a note payable totaling
$1,274,469 and $1,210,070 in cash. The note bears interest at 7% and is due in
monthly principal and interest payments of $14,798 through September 2007. A
sale of substantially all the Company's assets to an unrelated third party, a
merger with an unrelated third party, or a change in the majority ownership of
the Company's stock would cause the note to become immediately due and payable
(see Note 10).
Minimum principal payments on the note payable to shareholder are due as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 83,400
1999............................................................................ 100,150
2000............................................................................ 107,389
2001............................................................................ 115,153
2002............................................................................ 123,477
Thereafter...................................................................... 715,189
------------
$ 1,244,758
------------
------------
</TABLE>
NOTE PAYABLE
During 1994, the Company acquired land and buildings, a portion of which
were used as its primary administrative and manufacturing facility. The
acquisition was funded through a note payable to a bank. In August 1997, the
Company sold the land and buildings to an unrelated third party. In connection
therewith, the Company paid all the outstanding principal and interest amounts
as well as an early prepayment fee of $193,062 which is included in interest
expense in the accompanying financial statements.
14
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
5. INCOME TAXES
The Company's income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1997
----------- ----------
Current:
Federal............................................................ $ (147,358) $ 439,452
State.............................................................. 800 43,993
Deferred:
Federal............................................................ -- 183,333
State.............................................................. -- 47,667
Foreign.............................................................. (3,941) 984
----------- ----------
Income tax provision (benefit)....................................... $ (150,499) $ 715,429
----------- ----------
----------- ----------
</TABLE>
The income tax provision (benefit) reconciles to the expected provision
(benefit) using statutory rates as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1997
----------- -----------
Expected federal tax (benefit)...................................... $ (177,534) $ 648,380
State income taxes, net of federal income tax benefit............... 528 75,517
Increase in valuation reserve....................................... 42,700 290,100
Foreign tax......................................................... (3,941) 984
Tax benefit not previously recognized............................... -- (314,969)
Other............................................................... (12,252) 15,417
----------- -----------
Income tax provision (benefit)...................................... $ (150,499) $ 715,429
----------- -----------
----------- -----------
</TABLE>
The Company's net deferred tax asset results from the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
<S> <C> <C>
1996 1997
----------- ----------
Inventory valuation.................................................. $ 290,200 $ 213,200
Depreciation......................................................... (3,700) 46,800
Accrued expenses..................................................... -- 143,400
State net operating loss carryforwards............................... 74,200 --
Other................................................................ -- 16,400
----------- ----------
360,700 419,800
Valuation allowance................................................ (129,700) (419,800)
----------- ----------
Net deferred tax asset............................................... $ 231,000 $ --
----------- ----------
----------- ----------
</TABLE>
15
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
6. EMPLOYEE BENEFITS
The Company has a qualified 401(k) profit sharing plan ("the Plan") which
covers substantially all employees. Company contributions are discretionary and
are generally allocated to plan participants based on compensation levels.
Benefits vest 20 percent per year beginning with the employee's second year of
service, with 100 percent vesting immediately upon death or disability. Vested
benefits are paid in the form of a lump sum or annuity upon retirement, death,
disability, or termination. The Company contributed approximately $16,400 and
$21,000 to the Plan in 1996 and 1997, respectively.
The Company authorized bonuses to certain key members of management totaling
$2,000,000 which are included in accrued expenses in the accompanying balance
sheet as of December 31, 1997, and have been reflected in general and
administrative and sales and marketing expenses in the accompanying statement of
operations for the year ended December 31, 1997. Such bonuses were paid during
March 1998.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities and certain office equipment under
non-cancelable operating leases which expire at various dates through August
2000. A three year lease on the Company's corporate office and manufacturing
facility is cancelable by the Company or the lessor after two years during
February 1999. The total future minimum annual lease payments under operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 238,000
1999.............................................................................. 235,000
2000.............................................................................. 146,000
----------
$ 619,000
----------
----------
</TABLE>
Facility rent expense was approximately $58,000 in 1997.
LEGAL
The Company is periodically involved in legal matters incidental to its
business activities. Management believes that the outcome of such matters will
not have a material adverse impact on the Company's financial position or
results of operations.
8. COMMON STOCK AND COMMON STOCK OPTIONS
The Company's share capital consists entirely of one class of common stock.
Each share represents one voting share and participates equally in dividends
when and if declared by the Company's Board of Directors and would participate
equally in the event of liquidation.
From time to time, as authorized by the Company's Board of Directors,
options to purchase shares of common stock have been granted to certain key
members of management. The terms of each option grant are negotiated
individually. Options are generally granted at an exercise price per share equal
to the fair
16
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
8. COMMON STOCK AND COMMON STOCK OPTIONS (CONTINUED)
value of the Company's common stock on the date of grant, as determined by the
Company's Board of Directors.
Stock option activity consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
OPTIONS PER SHARE
----------- -------------------
<S> <C> <C>
Outstanding at December 31, 1995.................................. -- $ --
Granted........................................................... 5,000 $ 50
----- ---
Outstanding at December 31, 1996.................................. 5,000 $ 50
Granted........................................................... 500 $ 50
Exercised......................................................... (10) $ 50
----- ---
Outstanding at December 31, 1997 and March 31, 1998 (unaudited)... 5,490 $ 50
----- ---
----- ---
</TABLE>
All issued and outstanding options at December 31, 1997 are exercisable and
have actual exercise prices of $50 per share. All options outstanding as of
March 31, 1998 were exercised prior to the acquisition of the Company by Axiom
Inc. (see Note 10).
If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net income (loss)
would have been adjusted as follows:
<TABLE>
<CAPTION>
NET INCOME (LOSS)
-------------------------
<S> <C> <C>
1996 1997
----------- ------------
As reported........................................................ $ (371,660) $ 1,191,571
Pro forma.......................................................... $ (435,402) $ 1,159,745
</TABLE>
For the above disclosure, the fair value of each option grant is estimated
on the date of grant using an option pricing model with the following weighted
average assumptions in 1996 and 1997: risk-free interest rates of approximately
6.0% to 6.5%; expected life of five years; no expected dividend yield; no
expected volatility.
The option pricing model was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
9. RENTAL INCOME AND EXPENSE
During 1994, the Company acquired land and buildings and improvements to be
used as its primary corporate office and manufacturing facility. The Company
leased certain unused portions of these facilities to unrelated parties. The
related income and expense is reflected in the accompanying statements of
17
<PAGE>
INNOVATIVE DATA TECHNOLOGY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1998
ARE UNAUDITED)
9. RENTAL INCOME AND EXPENSE (CONTINUED)
operations as rental income, net. The leasing of such facilities was not a
primary business operation of the Company. In 1997, the Company sold such land
and buildings and improvements (see Note 4).
10. SUBSEQUENT EVENT
On May 15, 1998, the Company was acquired by Axiom Inc., a publicly traded
company, for cash, common stock and options to purchase common stock of Axiom
Inc. valued at approximately $7,500,000.
18
<PAGE>
AXIOM INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The accompanying pro forma consolidated balance sheet as of March 31, 1998
and the related pro forma consolidated statements of operations for the year
ended September 30, 1997 and the six months ended March 31, 1998 give effect to
the acquisition of Innovative Data Technology, as described in Note 2, as if
this transaction had occurred as of March 31, 1998, in the case of the pro forma
consolidated balance sheet and as of October 1, 1996, in the case of the pro
forma consolidated statements of operations.
It should be noted that the fiscal year-end of Axiom Inc. is September 30,
and the fiscal year end of Innovative Data Technology is December 31. However,
for purposes of the pro forma consolidated statements of operations, the
financial information of Innovative Data Technology was prepared as if it had a
fiscal year-end of September 30.
The pro forma consolidated financial statements have been prepared by
management of Axiom Inc. and subsidiaries (the "Company") and should be read in
conjunction with the historical consolidated financial statements of the
Company, which have been previously filed and are hereby incorporated by
reference, and the historical financial statements of Innovative Data
Technology, which are included elsewhere in this Form 8-K/A. The pro forma
consolidated financial statements are based on certain assumptions and
preliminary estimates which are subject to change. These statements do no
purport to be indicative of the financial position or results of operations of
the Company that might have occurred, nor are they indicative of future results.
19
<PAGE>
AXIOM INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET--MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITION OF
INNOVATIVE DATA TECHNOLOGY
--------------------------
AXIOM INC. PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
(NOTE 1) (NOTE 2) (NOTE 2) PRO FORMA
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,172 $ 2,020 $ (2,707)(A) $ 4,263
(1,222)(E)
Accounts receivable....................................... 10,643 3,740 -- 14,383
Inventories............................................... 6,234 1,550 -- 7,784
Deferred tax assets....................................... 841 -- -- 841
Income tax receivable..................................... 1,485 -- -- 1,485
Other..................................................... 744 103 -- 847
----------- ----------- ------------- -----------
Total current assets.................................... 26,119 7,413 (3,929) 29,603
----------- ----------- ------------- -----------
PROPERTY AND EQUIPMENT:
Computer hardware and software............................ 3,883 457 (357)(B) 3,983
Production and test equipment............................. 2,294 1,543 (1,358)(B) 2,479
Furniture, fixtures and leasehold improvements............ 600 387 (308)(B) 679
----------- ----------- ------------- -----------
6,777 2,387 (2,023) 7,141
Less--Accumulated depreciation and amortization........... (3,572) (2,023) 2,023(B) (3,572)
----------- ----------- ------------- -----------
Net property and equipment.............................. 3,205 364 -- 3,569
DEFERRED TAX ASSETS......................................... 3,968 -- -- 3,968
RESTRICTED CASH............................................. -- 548 -- 548
OTHER ASSETS................................................ 502 16 -- 518
INTANGIBLE ASSETS, net...................................... 282 45 963(C) 1,290
----------- ----------- ------------- -----------
$ 34,076 $ 8,386 $ (2,966) $ 39,496
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 160 $ 83 $ (83)(E) $ 160
Obligations to parent and affiliates...................... 25 -- -- 25
Accounts payable.......................................... 1,779 611 -- 2,390
Accrued compensation and related benefits................. 1,028 -- -- 1,028
Accrued agent commissions................................. 496 -- -- 496
Other accrued expenses.................................... 1,568 519 720(A) 2,807
Deferred tax liabilities.................................. 29 -- -- 29
Deferred revenues......................................... 2,818 534 -- 3,352
----------- ----------- ------------- -----------
Total current liabilities............................... 7,903 1,747 637 10,287
----------- ----------- ------------- -----------
LONG-TERM LIABILITIES:
Deferred tax liabilities.................................. 212 -- -- 212
Long-term debt............................................ 40 1,139 (1,139)(E) 40
----------- ----------- ------------- -----------
Total long-term liabilities............................. 252 1,139 (1,139) 252
----------- ----------- ------------- -----------
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, 6,466,900 shares (historical) and 7,756,900
shares (pro forma) issued and outstanding............... 65 2,369 (2,356)(D) 78
Additional paid-in capital................................ 32,340 -- 4,773(D) 37,113
(Accumulated deficit) Retained earnings................... (6,482) 3,131 (3,131)(D) (8,232)
(1,750)(C)
Cumulative translation adjustment......................... (2) -- -- (2)
----------- ----------- ------------- -----------
Total stockholders' equity.............................. 25,921 5,500 (2,464) 28,957
----------- ----------- ------------- -----------
$ 34,076 $ 8,386 $ (2,966) $ 39,496
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
AXIOM INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITION OF
INNOVATIVE DATA
TECHNOLOGY
------------------------
<S> <C> <C> <C> <C>
AXIOM INC. PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
(NOTE 1) (NOTE 2) (NOTE 2) PRO FORMA
----------- ----------- ----------- -----------
REVENUES:
Equipment................................................. $ 24,437 $ 11,479 $ -- $ 35,916
Services.................................................. 8,570 935 -- 9,505
----------- ----------- ----------- -----------
Total revenues.......................................... 33,007 12,414 -- 45,421
----------- ----------- ----------- -----------
COST OF REVENUES:
Equipment................................................. 13,167 7,201 -- 20,368
Services.................................................. 4,732 772 -- 5,504
----------- ----------- ----------- -----------
Total cost of revenues.................................. 17,899 7,973 -- 25,872
----------- ----------- ----------- -----------
Gross profit............................................ 15,108 4,441 -- 19,549
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research, development and engineering..................... 7,580 1,060 -- 8,640
Selling, general and administrative....................... 8,731 4,424 (2,179)(F) 11,088
112(G)
Charge for purchased research and development............. -- -- 1,750(G) 1,750
Parent charges............................................ 295 -- -- 295
----------- ----------- ----------- -----------
Total operating expenses................................ 16,606 5,484 (317) 21,773
----------- ----------- ----------- -----------
Operating loss.......................................... (1,498) (1,043) 317 (2,224)
INTEREST EXPENSE (INCOME), net (including related party
interest)................................................. 327 (86) 135(H) 369
(7)(J)
NON RECURRING GAIN ON SALE OF PROPERTY AND EQUIPMENT........ -- 3,555 -- 3,555
OTHER INCOME (EXPENSE), net................................. 1 (390) -- (389)
----------- ----------- ----------- -----------
Income (loss) before income taxes....................... (1,824) 2,208 189 573
INCOME TAX (EXPENSE) BENEFIT................................ 645 (828) (20)(I) (203)
----------- ----------- ----------- -----------
NET INCOME (LOSS)........................................... $ (1,179) $ 1,380 $ 169 $ 370
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE........ $ (0.28) $ 0.07
----------- -----------
----------- -----------
SHARES USED IN COMPUTING BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE.......................................... 4,144 5,434
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE>
AXIOM INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITION OF
INNOVATIVE DATA TECHNOLOGY
--------------------------
<S> <C> <C> <C> <C>
AXIOM INC. PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
(NOTE 1) (NOTE 2) (NOTE 2) PRO FORMA
----------- ----------- ------------- -----------
REVENUES:
Equipment................................................. $ 8,782 $ 5,933 $ -- $ 14,715
Services.................................................. 4,442 883 -- 5,325
----------- ----------- ----- -----------
Total revenues.......................................... 13,224 6,816 -- 20,040
----------- ----------- ----- -----------
COST OF REVENUES:
Equipment................................................. 4,810 2,889 -- 7,699
Services.................................................. 3,520 423 -- 3,943
----------- ----------- ----- -----------
Total cost of revenues.................................. 8,330 3,312 -- 11,642
----------- ----------- ----- -----------
Gross profit............................................ 4,894 3,504 -- 8,398
----------- ----------- ----- -----------
OPERATING EXPENSES:
Research, development and engineering..................... 3,872 596 -- 4,468
Selling, general and administrative....................... 6,934 2,156 (97)(F) 9,049
56(G)
----------- ----------- ----- -----------
Total operating expenses................................ 10,806 2,752 (41) 13,517
----------- ----------- ----- -----------
Operating income (loss)................................. (5,912) 752 41 (5,119)
INTEREST EXPENSE (INCOME), net (including related party (195) (60) 68(H) (231)
interest)................................................. (44)(J)
OTHER INCOME (EXPENSE)...................................... 14 (9) -- 5
----------- ----------- ----- -----------
Income (loss) before income taxes....................... (5,703) 803 17 (4,883)
INCOME TAX (EXPENSE) BENEFIT................................ 1,939 (281) 2(I) 1,660
----------- ----------- ----- -----------
NET INCOME (LOSS)........................................... $ (3,764) $ 522 $ 19 $ (3,223)
----------- ----------- ----- -----------
----------- ----------- ----- -----------
BASIC AND DILUTED NET LOSS PER COMMON SHARE................. $ (0.58) $ (0.42)
----------- -----------
----------- -----------
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER 6,467 7,757
COMMON SHARE..............................................
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. HISTORICAL:
The historical balances of Axiom Inc. and subsidiaries (the "Company")
represent the consolidated balance sheet as of March 31, 1998 and the
consolidated results of operations for the year ended September 30, 1997 and the
six months ended March 31, 1998, as reported in its consolidated financial
statements which have been previously filed and are hereby incorporated by
reference.
2. ACQUISITION OF INNOVATIVE DATA TECHNOLOGY:
On May 15, 1998, pursuant to an Agreement of Merger and Plan of
Reorganization (the "Agreement of Merger"), by and among the Company, AV
Technology, Inc., a Delaware corporation and a wholly owned subsidiary of the
Company ("AV"), Innovative Data Technology, a California corporation ("IDT") and
the Shareholders of IDT (the "Shareholders"), IDT was merged into AV. In
exchange for their shares of Common stock of IDT, which constituted all of the
issued and outstanding Common stock of IDT, the Company issued to the
Shareholders an aggregate of 1,290,000 shares of its Common stock ("Axiom Common
Stock") and cash in the aggregate amount of $2,207,000. The 1,290,000 shares of
Axiom Common Stock was valued at its closing price on May 15, 1998, which was
$3.4375 per share or $4,434,000 in the aggregate. Additionally, the Company paid
the Shareholders an aggregate of $500,000 as consideration for entering into
covenants not to compete pursuant to the Agreement of Merger. In connection with
certain employment agreements between the Company and the principals of IDT, the
Company issued options to purchase an aggregate of 132,000 shares of Axiom
Common Stock at an exercise price of $3.375 per share. This acquisition will be
accounted for as a purchase transaction.
The fiscal year-end of IDT is December 31. However, for purposes of the pro
forma consolidated statements of operations, this financial information has been
prepared as if it had a fiscal year-end of September 30 and have been derived
from the unaudited financial statements and information of IDT.
The following pro forma adjustments for the acquisition of IDT are reflected
in the pro forma consolidated balance sheet as of March 31, 1998 and pro forma
consolidated statements of operations for the year ended September 30, 1997 and
the six months ended March 31, 1998:
23
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ACQUISITION OF INNOVATIVE DATA TECHNOLOGY: (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--
(A) Cash paid at closing in connection with the acquisition was $2,707,000. In
addition to the cash paid at closing, transaction costs of $720,000 were
accrued. The aggregate net cash paid and costs accrued of $3,427,000 was
allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash............................................................ $2,020,000
Accounts receivable............................................. 3,740,000
Inventories..................................................... 1,550,000
Other current assets............................................ 103,000
Property and equipment.......................................... 364,000
Other assets.................................................... 609,000
Charge for purchased research
and development............................................... 1,750,000
Noncompete...................................................... 500,000
Acquired technology costs....................................... 432,000
Goodwill........................................................ 31,000
Accounts payable................................................ (611,000)
Accrued expenses................................................ (519,000)
Deferred revenues............................................... (534,000)
Debt............................................................ (1,222,000)
----------
Total purchase price........................................ 8,213,000
Less--Common stock and options issued......................... (4,786,000)
----------
$3,427,000
----------
----------
</TABLE>
(B) Elimination of accumulated depreciation and amortization against the gross
property and equipment accounts, which results in the recording of property
and equipment at its estimated fair market value.
(C) Charge for purchased incomplete research and development projects
($1,750,000); intangible assets of acquired technology costs ($432,000),
noncompete ($500,000) and goodwill ($31,000) resulting from the preliminary
allocation of the purchase price. These amounts are subject to adjustment
based on the final IDT closing balance sheet, as well as a final allocation
of the purchase price to the net assets acquired.
(D) Issuance of (i) 1,290,000 shares of Axiom Common Stock with a fair market
value of $3.4375 per share or $4,434,000, net of elimination of the
historical equity accounts of IDT and (ii) issuance of options to purchase
an aggregate of 132,000 shares of Axiom Common Stock at an exercise price of
$3.375 per share valued at $352,000 using the Black-Scholes option pricing
model.
(E) Repayment of IDT note payable to shareholder which became due and payable as
a result of the transaction and was paid prior to the consummation of the
transaction.
24
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ACQUISITION OF INNOVATIVE DATA TECHNOLOGY: (CONTINUED)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS-
(F) Reduction of $2,179,000 and $97,000 for the year ended September 30, 1997
and for the six months ended March 31, 1998, respectively, of principals'
compensation to the base compensation provided for in the employment
contracts entered into in connection with the purchase of IDT.
(G) Charge for purchased incomplete research and development projects of
$1,750,000. Intangible amortization of $112,000 and $56,000 recorded in
connection with the purchase of IDT for the year ended September 30, 1997
and the six months ended March 31, 1998, respectively, based on a four-year
amortization period for acquired technology costs and a seven-year
amortization period for goodwill. Amortization of the noncompete begins when
the employee is terminated and ends upon the completion of the time period
specified in each non-compete agreement.
(H) Reduction of the Company's interest income of $135,000 and $68,000 for the
year ended September 30, 1997 and for the six months ended March 31, 1998,
respectively, on $2,707,000 of aggregate net cash used to acquire IDT at a
rate of 5%.
(I) To adjust federal and state income taxes for the historical income of IDT
and the net pro forma adjustment of operating income using the effective tax
rate of Axiom Inc.
(J) Reduction of IDT's interest expense of $7,000 and $44,000 for the year ended
September 30, 1997 and for the six months ended March 31, 1998,
respectively, relating to the repayment of the IDT note payable to
shareholder.
3. PRO FORMA BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Pro forma basic and diluted earnings (loss) per share is computed by
dividing pro forma net income (loss) by Axiom Inc.'s historical weighted average
number of shares outstanding after giving effect to the 1,290,000 shares of
Axiom Common Stock that were issued in connection with the acquisition of IDT.
4. IDT NON RECURRING GAIN ON SALE OF PROPERTY AND EQUIPMENT:
In 1997, IDT sold its land and buildings, a portion of which were used as
its primary administrative and manufacturing facility to a unrelated third party
and recorded a non recurring gain of $3,555,000.
25
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K/A, into Axiom Inc.'s previously filed Form
S-8 Registration Statement File No. 333-32919.
/s/ ARTHUR ANDERSEN LLP
San Diego, California
July 29, 1998
