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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 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
0-22601
(Commission File Number)
------------------------
AXIOM INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 51-0356153
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
351 NEW ALBANY ROAD, 08057-1177
MOORESTOWN, NJ (Zip Code)
(Address of principal executive
offices)
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(609) 866-1000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
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), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Paragraph 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of such stock as reported by the Nasdaq
Stock Market ("Nasdaq") as of December 26, 1997: $12,707,500. For purposes of
making this calculation only, registrant has defined affiliates as including all
directors, executive officers and beneficial owners of more than ten percent of
the common stock of the registrant.
The number of outstanding shares of the registrant's Common Stock, par value
$.01 per share, on December 29, 1997 was 6,466,900.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Notice and Proxy Statement for the 1998 Annual Meeting of
Shareholders (the "1998 Proxy Statement") to be filed within 120 days after the
end of the fiscal year covered by this annual report, incorporated by reference
in Part III hereof.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
7A. Quantitative and Qualitive Disclosures About Market Risk 17
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37
PART III
10. Directors and Executive Officers of the Registrant 38
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners and Management 39
13. Certain Relationships and Related Transactions 39
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
Signatures 42
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PART I
ITEM 1. BUSINESS
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish statements which 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 similar
matters. The Private Securities Litigation Reform Act of 1995 provides 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: (i) reliance on a limited number of significant
customers and dependence on Sterling Series products; (ii) difficulty in
predicting quarterly revenues because of long sales cycles and customer
budgetary constraints; (iii) competition in the market for billing data
collection and traffic management systems; (iv) rapid and unexpected changes in
the telecommunications markets and technologies; (v) the success of the
Company's sales and marketing strategies; (vi) the ability of the Company to
manage its growth; (vii) the ability of the Company to motivate, and retain the
services of, its key management and technical personnel and continue to hire
additional qualified personnel to meet the Company's evolving staffing needs;
and (viii) risks related to sales to international customers, including, but not
limited to, currency fluctuations, instability in financial markets and
unanticipated shifts in economic policies of foreign governments.
DEVELOPMENT OF THE BUSINESS
The Company is the successor to a corporation formed in 1967. The Company
was formed as a Delaware corporation in June 1994 in connection with the
acquisition of the wireline division of TeleSciences, Inc. (the "Predecessor
Business"). On May 22, 1997, the Company changed its name from Securicor
Communications Inc. to Axiom Inc. 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 completed an
initial public offering of its Common Stock on July 8, 1997 (the "Offering").
Prior to the completion of the Offering, the Company was a wholly-owned
subsidiary of Securicor Communications Limited ("Securicor Communications"), a
company based in the United Kingdom, and an indirect wholly-owned subsidiary of
Securicor plc, a multinational company based in the United Kingdom (collectively
with Securicor Communications and other wholly-owned subsidiaries, other than
the Company and its subsidiary, "Securicor").
PRODUCTS AND RELATED SERVICES
GENERAL
The Company's principal products are billing data collection systems and
traffic management systems utilized by operators of telecommunications networks.
Telecommunications networks consist primarily of lines (which connect a terminal
device, such as a telephone or modem, with a switch), trunks (which connect two
or more switches) and switches. A telecommunications switch is a computer-based
system that connects users of telecommunications networks. The switch provides a
dial tone to the calling party, routes the call based upon the telephone number
dialed by the calling party, connects the calling and called parties (or
provides a busy signal if the called number is busy), releases all equipment
upon the completion of the call and creates a call detail record ("CDR") of the
call. The Company's billing data collection systems collect, process and
transmit these CDRs from telecommunications switches to the customer's
information management network.
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The number of trunks required by any telecommunications network depends
primarily on the number, timing and duration of calls. If a network has too many
available trunks, costs to the operator and users are increased. If a network
has too few available trunks, users are unable to have their calls connected,
resulting in complaints from users and lost revenues to the operator. The
Company's traffic management systems capture information on trunk usage that is
transmitted to the customer's network planners who use the information to try to
plan their networks so that the optimal number of trunks are available at the
appropriate times and at the appropriate places in the network.
BILLING DATA COLLECTION PRODUCTS
The Company offers an integrated suite of billing data collection products
marketed under the "Sterling Series" name. The individual products that comprise
the Sterling Series are designed to work as a system; however, the Company sells
each component separately so that the system can be configured to meet the exact
needs of the customer. The Sterling Series was introduced by the Company at the
end of 1995 as the successor to its PDU-20 ("Pollable Data Unit") and SX5000
("Host Collector") billing data collection system that the Company introduced in
the 1980s as the "SEBX Series." Compared with the SEBX Series, the Sterling
Series provides substantially increased storage capacity and processing power,
enhanced interconnectivity with a wide range of data management systems and
increased speed of network data delivery.
The core components of the Sterling Series are the Sterling 500 data server
and the Sterling 5000 billing data collector, each of which can be configured
with a variety of specialized processing modules. The Sterling Series is
controlled through the Company's Sterling Manager software that runs on the
Sterling 5001 workstation. The Sterling Series also includes the Sterling 5410
data distribution platform. These components of the Sterling Series are
described in further detail below.
STERLING 500. The Sterling 500 is a data server that consists of a
processor unit equipped with a UNIX-based operating system. The Sterling 500
typically interfaces with between one and four switches to obtain all
transactional data generated by the switches. The Sterling 500 can be configured
on a fully redundant basis and shares many capabilities with the Sterling 5000
described below, such as the ability to support multiple switches and switch
interfaces, scaleability and compatibility with a wide range of local-and
wide-area-network environments.
STERLING 5000. The Sterling 5000 is a centralized billing data collector
that collects transactional data, primarily CDRs, from data servers, such as the
Sterling 500, or directly from up to 200 telecommunications switches or other
CDR generating sources. The Sterling 5000 consists of a multi-processor Hewlett-
Packard Co. ("Hewlett-Packard") computer equipped with specialized software. The
Sterling 5000 is equipped with specialized input interfaces which permit the
unit to collect data from a wide variety of switch and server types. After the
data is collected, the Sterling 5000's resident preprocessing software reformats
the CDRs into a normalized format which facilitates further processing, storage
or delivery to other data management systems.
The Sterling 5000 processes the normalized CDRs through a number of
applications, some of which are standard features of the Sterling 5000 and some
of which are provided by specialized processing modules that the Company sells
separately.
STERLING 5001; STERLING MANAGER. The Sterling 5001 is a workstation
equipped with graphical-user interface ("GUI")-based software that provides
communication, command and control capabilities for a network of one or more
Sterling 5000s and Sterling 500s. The Sterling 5001 is generally used in
combination with the Company's Sterling Manager software product, which can be
easily adapted to interface with additional Sterling and non-Sterling hardware
and software products. With easy-to-use "point and click operation," the
Sterling 5001 optimizes systems control and enables the customer's
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personnel to manage from remote locations data collecting, processing and
distributing functions performed by equipment installed at fully automated
facilities. By combining the ability to manage remote operations with the
advantages of a user-friendly interface, the Company's products help its
customers to control their personnel-related costs.
STERLING 5410. The Sterling 5410 is a UNIX-based data distribution platform
designed to receive CDR data from other Sterling Series products and perform
independent data processing. The Sterling 5410 offers end users full access to
that data while, at the same time, maintaining a security "firewall" between
these external users and the revenue-critical billing system directly supported
by other Sterling Series products. The platform has the further advantage of
being able to aggregate data from several Sterling 5000s and 500s by
communication through a provider's own network file servers. Currently, the
primary application of the Sterling 5410 permits local exchange companies
("LECs") to provide call detail data to their Centrex customers.
SPECIALIZED PROCESSING MODULES ("SPMS"). The Company offers purchasers of
the Sterling 500 and 5000 the power to build quickly and easily their own
applications by using Company-designed software modules called SPMs. SPMs are
user-defined transaction processing functions for exclusive use on the Sterling
Series billing data collection products that offer a rules-based approach to
building processing features. Each SPM performs a unique operation on the
transaction data, but SPMs can be implemented in groups with defined
interactions among the separate modules. Configurations of these groups of
modules can be designed, enabled and disabled by customer personnel using a
convenient graphical display, thereby reducing the need for costly and
time-consuming revisions to customers' application software systems.
TRAFFIC MANAGEMENT PRODUCTS
The Company provides a comprehensive traffic management system under the
name Manifest-TM- (formerly Autrax 5000). This product provides
telecommunications companies with real-time traffic data to detect and locate
quickly exchange and network problems, plan and route strategically traffic
through the network, improve the over-all quality of service and reduce
significantly customer complaints. The Manifest-TM- traffic management system
features a GUI-based system with cross-platform (Windows NT and UNIX)
capabilities, compliance with the Open Database Connectivity standard, a
function to permit its reports to be accessed by a web browser and an adaptive
normalizer which permits greater customer flexibility in report creation.
Many large telecommunications service providers in the United States, such
as the Regional Bell Operating Companies ("RBOCs"), developed their own traffic
management systems. These systems typically have not been significantly upgraded
or improved in nearly a decade. With demand for wireline telecommunications
services increasing rapidly, as evidenced by the increasing demand by businesses
and private households for Internet access through wirelines, LECs and other
owners of wireline systems increasingly will demand more sophisticated traffic
management tools. Also, increasing competition in each market segment creates
the need for products that can accurately measure and report inter-company
transactions and facilitate settlements between telecommunications service
providers. Similarly, privatization and other competitive factors have increased
the need of international telecommunications service providers for more
sophisticated traffic management systems.
The Company's traffic management system consists of a Hewlett-Packard-based
hardware platform loaded with Company-developed software. The system collects
and processes traffic information from a wide array of switch technologies,
including digital, analog and cellular switches and traffic management system
points in the service provider's signal control system, such as the RBOCs'
Signaling System 7. The system interfaces directly with the switches to collect
traffic data and generate maintenance reports in a standard database format. The
Manifest-TM- traffic management system centralizes the raw data into database
tables so that standard and customized reports can be generated. As with the
Sterling Series
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billing data collection products, the Manifest-TM- traffic management system is
fully scaleable, permitting easy upgrades to meet rising system demands.
NEW PRODUCTS AND SERVICES
In November 1997 the Company introduced two new products to its Sterling
Series of billing data collection and processing systems.
The Sterling 5005 is a flexible and secure platform for data access and
reporting, providing a basis for data applications. The Sterling 5005 is able to
gather application specific data from the Sterling Host Collector and provide
this valuable data to users in a separate environment, thereby continually
maintaining the integrity of the billing data stream. With the launch of
Sterling 5005, Axiom also introduced its first application for this new platform
which enables telecommunications carriers to provide call details to their
Centrex customers. This Station Message Detail Recording ("SMDR") application
centrally collects the call screening and message details recorded by one or
more Sterling Host Collectors. Together as part of the overall STERLING SERIES,
these products provide Axiom customers with access to near-real time data for
both internal and external end-users.
The Sterling 510 is a new, lower-priced entry level data server, expanding
the Company's current line of data server products. This system is designed
specifically to reach emerging and competitive markets, including Competitive
Local Exchange Companies ("CLECs") and international carriers, that generally
require a single-input, low volume, data collection and processing solution. The
Sterling 510 will also be applicable to larger carriers' low volume exchanges.
Like all Sterling Data Servers, the Sterling 510 is a duplex, fully redundant
system, and is designed to comply with industry standards for international and
US markets.
The Company recently commenced offering professional engineering services to
its customers to assist them to make better use of the Company's products. The
Company's engineers assist telecommunications services customers to develop
customized applications programs and introduce them to product feature
enhancements. Services include developing: user interfaces, system interfaces
and network and alarm system management interfaces; custom filters to screen
call data used in fraud management and other processing applications; and
software for custom data handling, reformatting and report generation. The
Company believes that its technology services are important in demonstrating the
Company's responsiveness to the needs of its customers.
The Company recently introduced its first software application for use
outside of, or together with, its billing data collections system: a fraud
management program. This product is designed to assist providers in detecting
and managing fraudulent use of telecommunications systems. The software for this
product has been obtained by the Company from an outside software development
firm pursuant to a license that grants the Company exclusive rights for the
software in the United States and Canada and non-exclusive rights elsewhere
worldwide through October 1999 and thereafter until terminated by either party
upon three months notice. The licensor's products are currently in commercial
use in the United Kingdom.
In the future, the Company will consider introducing new software
applications that are compatible with its other billing data collection and
traffic management products. The Company may also consider developing interfaces
that permit its systems to transmit data from sources other than
telecommunications networks, including possibly other utilities and cable
television systems. There is no assurance, however, that any of these products
will be successfully developed or marketed.
SUPPLY RELATIONSHIPS
The Company purchases and licenses products and technology from a variety of
providers. The Company purchases Hewlett-Packard hardware and software that is
used primarily for its Sterling 5000 and traffic management product through an
agreement with a major Hewlett-Packard distributor. The
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Company licenses the real-time operating system used in the Sterling Series from
Lynx Real-Tool Systems, Inc., software for its traffic management product from
Informix Software, Inc. and the software for its recently introduced fraud
detection and management product from a private United Kingdom company. The
Company also purchases processing boards for its Sterling 500s and other
products from Motorola, Inc. through a distributor. The Company believes its
relationships with its suppliers are good and there are no issues related to
obtaining product.
CUSTOMERS
The Company's customers include large telecommunications companies based in
a number of countries around the world.
The following table sets forth information with respect to sales to certain
major customers during the year ended September 30, 1997 ("fiscal 1997") and the
year ended September 30, 1996 ("fiscal 1996"):
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FISCAL 1997 FISCAL 1996
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PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
CUSTOMER REVENUES REVENUES REVENUES REVENUES
- -------------------------------------------------------- --------------- ------------- --------------- -------------
U S West, Inc........................................... $ 13.8 million 42% $ 10.2 million 30%
Southwestern Bell Telephone Company..................... $ 3.2 million 10% $ 6.3 million 19%
Ameritech Corporation................................... $ 2.9 million 9% $ 4.4 million 13%
Puerto Rico Telephone Co................................ $ 0.9 million 3% $ 3.2 million 9%
Telecom Argentina....................................... $ 2.0 million 6% $ 1.2 million 3%
PT. Telekomunikasi, Indonesia........................... $ 3.1 million 10% -- --
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BACKLOG
The Company's backlog (firm purchase orders for products and services that
have not yet been recognized as revenue) was approximately $7.5 million and $4.7
million at December 1, 1997 and December 1, 1996, respectively. The Company
normally has a relatively small amount of product and service backlog because
ongoing informal communication with its major customers generally enables the
Company to anticipate orders and ship products within a relatively short time
after the customer's order is received. The Company expects to be able to fill
substantially all backlog existing at December 1, 1997 prior to the end of
fiscal 1998.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are directed towards
developing new products and improving existing products by incorporating new
features and technologies. The Company believes that the timely development of
new products and enhancements is critical to its maintaining its leadership
position in its current marketplace and in gaining penetration in new markets.
During fiscal 1997, fiscal 1996 and fiscal 1995, development and engineering
expenses were $7.6 million, $7.0 million and $5.9 million, respectively. Product
research, development and engineering expenses are expected to increase in
fiscal 1998. None of the research, development and engineering expenses have
been capitalized.
COMPETITION
The market for billing data collection and traffic management services for
the telecommunications service industry is highly competitive and the Company
expects that further growth within the telecommunications service industry will
encourage the entry of new participants into U.S. and international markets
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in the future. Many of the Company's current and potential future competitors
have significantly greater financial, technical and marketing resources than the
Company.
The Company believes that the principal basis of competition in the sales of
its products is functionality, including such factors as the ability of products
to provide a high degree of integrity of transaction information while
efficiently performing all preprocessing and delivery functions; the ability to
increase capacity and add functionality cost-effectively; the ability to provide
critical data on a real-time basis; compatibility with telecommunications
switches sold by a number of manufacturers; and the ability to interface
effectively with a variety of billing and other applications. Other significant
bases of competition include price and service.
In the market for its billing data collection solutions, the Company's
competitors include (i) large telecommunications service providers that
internally develop full system products for their own use; (ii) companies, such
as ACE*COMM Corporation, CGI, Inc., Lucent and Northern Telecom, Inc., that can
supply billing data collection components and systems; and (iii) vendors that
supply product components or systems integration services, including Andersen
Consulting, Digital Equipment Corporation, Hewlett-Packard and International
Business Machines Corp.
In the market for its traffic management solutions, the Company's
competitors include (i) large telecommunications service providers that
internally develop full system products for their own use; (ii) companies such
as Hewlett-Packard and Objective Systems Integrators, Inc. that provide
integrated network management systems; and (iii) companies such as Applied
Digital Access that provide separate traffic management solutions.
There are a large number of companies that have developed or could develop a
product competitive with the Company's fraud detection and management product.
The Company believes that most large telecommunications companies are currently
utilizing internally developed fraud management systems.
EMPLOYEES
As of December 19, 1997, the Company had a total of 203 employees. At that
date, the Company also engaged nine individuals on a consulting basis. None of
the Company's employees is represented by a labor union. The Company believes
that its relations with its employees is good.
ITEM 2. PROPERTIES
The Company's headquarters is presently located in a 40,000 square foot
leased facility in Moorestown, New Jersey. This facility is fully utilized and
additional space is required.
The Company has signed a new lease agreement to relocate its headquarters to
Mount Laurel, New Jersey. This facility is a 62,000 square foot facility, which
the Company believes will be suitable and adequate for its present and
forseeable future needs. It is anticipated that the relocation will take place
in April 1998.
The Company's manufacturing group is located presently in an adjoining
34,000 square foot facility. This lease expires in August 1998, with the Company
having an option to renew for an additional five years. This facility is well
maintained, in good condition, and suitable and adequate for its present and
forseeable future needs. It is not anticipated that the Company will relocate
this facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.
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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) Market Information.
The Common Stock of the Company is traded in Nasdaq's National Market under
the symbol "AXIM". The following table sets forth, for the period indicated, the
high and low closing sales prices per share of Common Stock as reported by
Nasdaq. Regular-way trading in the Common Stock commenced on Nasdaq's National
Market on July 8, 1997.
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FISCAL 1997 HIGH LOW
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Fourth Quarter (from July 8, 1997).............................................................. $ 14.50 $ 9.00
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(b) Holders.
As of December 23, 1997 there were approximately nine record holders of the
Common Stock.
(c) Dividends.
The Company does not anticipate paying dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto, and the other financial
information included elsewhere in this Form 10-K, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
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The following table summarizes selected financial data of the Company and the
Predecessor Business:
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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AXIOM INC.
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PREDECESSOR BUSINESS
PERIOD FROM
JULY 1, 1994 (1)
TO YEAR ENDED JUNE 30,
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
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1997 1996 1995 1994 1994 1993
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STATEMENTS OF OPERATIONS DATA:
REVENUES:
Unrelated third parties:
Equipment......................................... $ 24,437 $ 23,358 $ 18,000 $ 4,242 $ 13,963 $ 14,799
Services.......................................... 8,570 7,739 5,766 1,364 6,266 6,899
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33,007 31,097 23,766 5,606 20,229 21,698
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Related parties................................... -- 2,867 1,802 -- -- --
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Total revenues.................................... 33,007 33,964 25,568 5,606 20,229 21,698
------------- ------------- ------------- ------------- --------- ---------
COST OF REVENUES:
Unrelated third parties:
Equipment......................................... 13,167 11,639 9,110 2,271 8,785 6,315
Services.......................................... 4,732 4,580 3,093 1,086 4,018 4,586
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17,899 16,219 12,203 3,357 12,803 10,901
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Related parties................................... -- 1,946 1,274 -- -- --
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Total cost of revenues............................ 17,899 18,165 13,477 3,357 12,803 10,901
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Gross profit...................................... 15,108 15,799 12,091 2,249 7,426 10,797
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OPERATING EXPENSES:
Research, development and engineering............. 7,580 7,003 5,948 1,348 5,450 4,913
Selling, general and administrative............... 8,731 6,308 5,206 1,072 4,985 4,986
Parent charges.................................... 295 403 386 -- -- --
Charge for purchased research and development
(2)............................................. -- -- -- 6,700 -- --
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Total operating expenses.......................... 16,606 13,714 11,540 9,120 10,435 9,899
------------- ------------- ------------- ------------- --------- ---------
Operating income (loss)........................... (1,498) 2,085 551 (6,871) $ (3,009) $ 898
------------- ------------- ------------- ------------- --------- ---------
--------- ---------
INTEREST EXPENSE, net (including related party
interest)....................................... 327 514 112 9
OTHER INCOME...................................... 1 430 148 66
EQUITY IN LOSS OF INVESTEE........................ -- 18 494 --
GAIN ON SALE OF INVESTMENT........................ -- 2,061 -- --
------------- ------------- ------------- -------------
Income (loss) before income taxes................. (1,824) 4,044 93 (6,814)
INCOME TAX (EXPENSE) BENEFIT...................... 645 (1,543) (35) 2,716
------------- ------------- ------------- -------------
NET INCOME (LOSS)................................. $ (1,179) $ 2,501 $ 58 $ (4,098)
------------- ------------- ------------- -------------
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NET INCOME (LOSS) PER COMMON SHARE................ $ (0.28) $ 0.72 $ 0.02 $ (1.18)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
COMMON SHARE.................................... 4,144 3,477 3,477 3,477
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<TABLE>
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PREDECESSOR BUSINESS
AXIOM INC. (1)
SEPTEMBER 30, JUNE 30,
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1997 1996 1995 1994 1994 1993
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BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 7,206 $ 3,326 $ 1,449 $ 225 $ -- $ 32
Total assets............................................ 37,023 30,336 21,849 15,302 9,027 13,435
Working capital (deficit), excluding obligations to
parent and affiliates (3)............................. 23,925 14,698 6,671 1,742 330 (1,389)
Obligations to parent and affiliates(3)................. 183 23,291 18,461 12,603 -- --
Long-term debt.......................................... -- 147 -- -- -- --
Stockholders' equity (deficit) (3)...................... 29,687 (1,539) (4,040) (4,098) 2,330 1,363
</TABLE>
- ------------------------
(1) The statement of operations and balance sheet data presented for the
Predecessor Business represent the information for the Wireline Division of
TeleSciences, Inc. The Predecessor Business data excludes any intercompany
information with its former owner.
(2) Represents a one-time charge for purchased research and development which
was incurred as a result of the acquisition of the Predecessor Business by
the Company on July 1, 1994. The acquisition was accounted for under the
purchase method of accounting.
(3) The Company's acquisition of the Predecessor Business and other financing
requirements have been primarily funded from borrowings from Securicor
rather than equity investment. These borrowings are classified as
obligations to parent and affiliates. Additionally, these borrowings were
substantially repaid with the proceeds from the Offering.
11
<PAGE>
ITEM 7. 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,
Asynchronous Transfer Mode ("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 have been, and are expected
to continue to be, derived from substantial orders placed by large
organizations, and in particular three RBOCs. Aggregate revenues from U S West,
Inc. ("U S West"), Southwestern Bell Telephone Company ("Southwestern Bell") and
Ameritech Corporation ("Ameritech") accounted for 60.2% 61.6% and 51.2% of the
Company's total revenues for the years ended September 30, 1997, 1996 and 1995,
respectively. During fiscal 1997, an additional 9.5% of the Company's revenues
was attributable to sales to PT Telekomunikasi, Indonesia ("PT Telekom,
Indonesia"). During fiscal 1996, 9.4% 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.
The Company generally recognizes revenues for products at the time of
shipment and for services when performed. Revenues from support and maintenance
contracts are recognized on a pro-rata basis over the term of the relevant
agreement.
Quarterly revenues are subject to substantial fluctuations due primarily to
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. Historically, product and
service backlog has been a relatively small amount and the majority is fulfilled
within three months. Because of its close links to, and ongoing communications
with, its customers, the Company generally is able to plan for product demand
and, when the order is received, ship its products within a relatively short
time period thereafter.
Cost of revenues includes the direct cost of hardware and software modules,
other manufacturing costs related to the assembly and testing of products,
customer service costs, agent commissions where applicable, and other variable
costs such as freight, scrap and installation materials. The Company has a
relatively high fixed cost base which is included in cost of revenues. As a
result, any significant decline in revenues would likely have a significant
adverse effect on margins.
12
<PAGE>
Research, development and engineering expenses consist of payroll and
related expenses and other costs associated with the design and development of
the Company's products. These costs are charged to expense as incurred.
Selling, general and administrative expenses consist of costs to support the
Company's sales, marketing and administrative functions. Included within these
costs are payroll and related expenses, supplies, travel, outside services, as
well as the cost of the Company's participation in trade shows, industry
conferences and related travel and promotional costs.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES
Revenues attributable to unrelated third parties ("Third-party Revenues")
increased by 6.1% from $31.1 million in fiscal 1996 to $33.0 million in fiscal
1997. Equipment revenues increased 4.6% from $23.4 million in fiscal 1996 to
$24.4 million in fiscal 1997. This increase resulted primarily from the addition
of several new customers in Asia and Europe. Services revenues increased 10.7%
from $7.7 million in fiscal 1996 to $8.6 million in fiscal 1997. This increase
is mainly due to increased system installation services during the year.
Additionally, the Company generated $1.2 million and $792,000 of Third-party
Revenues in fiscal 1997 and fiscal 1996, respectively, related to sales of an
affiliate's products which are not expected to recur in the future. See Note 5
of Notes to Consolidated Financial Statements. For fiscal 1996, the Company
recognized $2.3 million of one-time related-party revenues attributable to sales
to a Securicor affiliate. The remaining $544,000 of related-party revenues for
fiscal 1996 are from the sale of equipment to an entity in which the Company had
an equity investment from January 1995 to May 1996. See Note 5 of Notes to
Consolidated Financial Statements. Revenues from this entity for fiscal 1997 and
the period May 2, 1996 to September 30, 1996 were $1.1 million and $1.6 million,
respectively, and are included in Third-party Revenues, for these periods.
GROSS PROFIT
Gross profit was 45.8% of Third-party Revenues in fiscal 1997, reflecting a
decrease from 47.8% of such revenues in fiscal 1996. Gross profit related to
equipment revenues was 46.1% in fiscal 1997 and 50.2% in fiscal 1996. Gross
profit was 44.8% of services revenues in fiscal 1997 and 40.8% of such revenues
in fiscal 1996. The decrease in gross profit as a percentage of Third-party
revenues and of equipment revenues is primarily due to increases in fixed costs
incurred in order to support the Company's growing customer base. The Company
has a relatively high fixed cost base which is included in cost of revenues. As
a result, fluctuations in revenues have a significant effect on margins. The
increase in gross profit related to services revenues is attributable to the
benefit of spreading higher revenues over the Company's fixed cost base. Total
gross profit as a percentage of total revenues was 45.8% for fiscal 1997 and
46.5% in fiscal 1996.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses increased 8.2% from $7.0
million in fiscal 1996 to $7.6 million in fiscal 1997 and increased as a
percentage of Third-party Revenues from 22.5% in fiscal 1996 to 23.0% in fiscal
1997. The increase resulted primarily from the addition of engineering staff and
subcontractors to support the increasing development requirements and demanding
timetables of the Company's customers.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 38.4% from $6.3
million in fiscal 1996 to $8.7 million in fiscal 1997. As a percentage of
Third-party Revenues, selling, general and administrative expenses increased
from 20.3% in fiscal 1996 to 26.5% in fiscal 1997. The increase resulted
primarily from the addition of staff 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
After the acquisition of the Predecessor Business, Securicor began to charge
the Company an allocated portion of group and divisional overhead costs (the
"Parent Charges"). The Parent Charges in fiscal 1997 and fiscal 1996 were
$295,000 and $403,000, respectively. The Company did not incur any Parent
Charges after the 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 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 an annual
directors fee of $20,000, which the directors will remit to Securicor.
INTEREST EXPENSE
Interest expense in fiscal 1997 and fiscal 1996 was $327,000 and $514,000
respectively. This decrease resulted from the repayment of the Company's
outstanding borrowings from Securicor with the proceeds of the Offering.
OTHER INCOME
Other income decreased from $430,000 in fiscal 1996 to $1,000 in fiscal
1997. 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 in fiscal 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 and resulted in a gain on sale of
this investment of $2,061,000. See Note 5 of Notes to Consolidated Financial
Statements.
GAIN ON SALE OF INVESTMENT
In May 1996, the Company sold its interest in Metapath Corporation in which
it had made an initial investment of $512,000. A gain of $2,061,000 was reported
related to this sale. See Note 5 of Notes to Consolidated Financial Statements.
INCOME TAXES
The Company's effective tax rate was 35.4% for fiscal 1997 and was 38.2% for
fiscal 1996. An income tax benefit was recorded in fiscal 1997 due to the losses
incurred.
14
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
Third-party Revenues increased 30.8% from $23.8 million in fiscal 1995 to
$31.1 million in fiscal 1996, of which $15.4 million was recognized in the
fourth fiscal quarter. Equipment revenues increased 29.8% from $18.0 million in
fiscal 1995 to $23.4 million in fiscal 1996. Upon the acquisition of the
Predecessor Business on July 1, 1994, the Predecessor Business had three
principal customers: U S West, Ameritech and Telecom Argentina. Since the
acquisition, the Company has increased its customer base. The increase in
revenues in fiscal 1996 resulted, in large part, from increased revenues from U
S West and Southwestern Bell. Internationally, the Company generated revenues
from the Puerto Rico Telephone Co. which were offset by lower revenues from
long-term contracts with Telecom Argentina and two Brazilian telephone
operators, which contracts were substantially completed in early fiscal 1996.
Third-party Revenues from international customers were $8.8 million in fiscal
1995 and $7.2 million in fiscal 1996. The Company expects international revenues
to continue to be significant in future periods as a result of the Company's
planned expansion of its international marketing efforts. The Company introduced
a new product line, the Sterling Series, in late 1995. Revenues from new
products, principally the Sterling Series products, accounted for approximately
6.3% and 41.3% of Third-party Revenues in fiscal 1995 and fiscal 1996,
respectively. Services revenues increased 34.2% from $5.8 million in fiscal 1995
to $7.7 million in fiscal 1996. This is primarily due to an increase in
installations related to equipment sold and additional support contract revenue
from U S West. In fiscal 1995 and fiscal 1996, the Company also generated
related-party revenues from sales to an affiliate of Securicor of $1.4 million
and $2.3 million, respectively, which will not recur in the future. The
remaining related-party revenues of $381,000 and $544,000 for fiscal 1995 and
fiscal 1996, respectively, represent revenues from the sale of equipment to an
entity in which the Company had an equity investment from January 1995 to May
1996. See Note 5 of Notes to Consolidated Financial Statements. Revenues from
this entity from May 1996 to September 30, 1996 were $1.6 million and are
included in Third-party Revenues. In fiscal 1996, the Company also generated
$792,000 of Third-party Revenues related to sales of an affiliate's products
which are not expected to recur subsequent to May 1997. See Note 5 of Notes to
Consolidated Financial Statements.
GROSS PROFIT
The portion of gross profit attributable to Third-party Revenues was 48.7%
of such revenues in fiscal 1995 and 47.8% of such revenues in fiscal 1996. Gross
profit related to equipment revenues was 49.4% in fiscal 1995 and 50.2% in
fiscal 1996. Gross profit related to services revenues was 46.4% in fiscal 1995
and 40.8% in fiscal 1996. This decrease in margin as a percentage of revenues is
due to additional fixed costs incurred to support the increasing customer base.
The fiscal 1996 cost of revenues includes increased program management costs of
approximately $500,000 associated with supporting significant customer
contracts. Total gross profit as a percentage of total revenues remained
substantially constant in fiscal 1995 and fiscal 1996.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses increased 17.7% from $5.9
million in fiscal 1995 to $7.0 million in fiscal 1996. As a percentage of
Third-party Revenues, research, development and engineering expenses decreased
from 25.0% in fiscal 1995 to 22.5% in fiscal 1996. The absolute increase in such
expenses related primarily to the further development and enhancement of the
Company's Sterling Series billing data collection products. Included in
research, development and engineering expenses for fiscal 1995 and fiscal 1996
were $720,000 of amortization related to developed technology acquired with the
purchase of the Predecessor Business in July 1994. Research, development and
engineering expenses are expected to increase in fiscal 1997.
15
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 21.2% from $5.2
million in fiscal 1995 to $6.3 million in fiscal 1996. As a percentage of
Third-party Revenues, selling, general and administrative expenses decreased
from 21.9% in fiscal 1995 to 20.3% in fiscal 1996. The absolute increase
resulted primarily from higher selling expenses related to higher sales volumes
and increased marketing expenses incurred in connection with trade shows,
advertising and other marketing activities.
PARENT CHARGES
Parent Charges were $386,000 in fiscal 1995 and $403,000 in fiscal 1996.
INTEREST EXPENSE
Interest expense was $112,000 in fiscal 1995 and $514,000 in fiscal 1996.
The increase in fiscal 1996 resulted from higher outstanding borrowings from
Securicor incurred in order to meet working capital requirements.
OTHER INCOME
Other income increased from $148,000 in fiscal 1995 to $430,000 in fiscal
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 $494,000 loss in fiscal 1995 and a $18,000 loss in
fiscal 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
resulting in a gain on sale of this investment of $2,061,000. See Note 5 of
Notes to Consolidated Financial Statements.
GAIN ON SALE OF INVESTMENT
In May 1996, the Company sold its interest in Metapath Corporation in which
it had made an initial investment of $512,000. A gain of $2,061,000 was reported
related to this sale. See Note 5 of Notes to Consolidated Financial Statements.
INCOME TAXES
The Company's effective tax rate was 37.6% and 38.2% for fiscal 1995 and
fiscal 1996, respectively. The increase in such rate in fiscal 1996 resulted
from the higher utilization of research and development credits in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Offering, the Company financed its operations primarily with
cash generated from operations and borrowings from Securicor. In July 1997, the
Company realized net proceeds from the Offering of approximately $32.4 million
(after deducting underwriters' discounts and commissions and other offering
expenses). In August 1997, the Company repaid $28.5 million in Company
borrowings from Securicor. As of September 30, 1997, the Company had $7.2
million of cash, $14.2 million in net trade accounts receivable, and $23.7
million of working capital.
Net cash used in operating activities was $3.7 million, $4.1 million and
$1.9 in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, the net loss,
an increase in inventories of $4.2 million, a decrease in accrued tax payable of
$2.3 million and a decrease of $655,000 in other accrued expenses were only
partially offset by $1.5 million decrease in accounts receivable and a $764,000
increase in accounts payable.
16
<PAGE>
In fiscal 1996, increases in accounts receivable of $8.3 million were only
partially offset by the cash provided by the sum of net income, adjusted for
$158,000 in non-cash charges, and a $1.1 million increase in accrued tax
payable. In fiscal 1995, an increase in accounts receivable of $2.1 million, an
increase in inventories of $2.4 million and a decrease in other accrued expense
of $1.2 million were only partially offset by a $1.1 million increase in
accounts payable.
Net cash used in investing activities was $1.5 million in fiscal 1997 and
$2.7 million in fiscal 1995. Net cash provided by investing activities was $1.2
million in fiscal 1996. In fiscal 1997, fiscal 1996 and fiscal 1995, purchases
of property and equipment were $1.5 million, $818,000 and $877,000,
respectively. In fiscal 1996, the cash provided was the result of the Company
completing a sale of an investment. In fiscal 1995, the Company purchased
certain product development costs for $1.3 million. In addition, in fiscal 1995,
the Company acquired an interest in Metapath Corporation for $512,000.
Net cash provided by financing activities was $9.1 million, $4.7 million and
$5.9 million in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. In
fiscal 1997, the net cash provided by financing activities resulted primarily
from the proceeds of the Offering after repayment of outstanding borrowings from
Securicor. In fiscal 1996 and 1995, the net cash provided by financing
activities resulted primarily from funding which the Company received from
Securicor.
The Company has established a $2.5 million credit facility with a bank which
will be used to meet short-term borrowing requirements. As of December 29, 1997,
the Company had not yet made any borrowings under this facility. The Company
recently obtained a $1.5 million leasing facility to finance its purchases of
capital equipment. At December 29, 1997, approximately $1.4 million was
available under this facility.
The Company believes that its existing cash balances, cash generated from
operations, borrowings under the credit facility and the net proceeds from the
Offering will be sufficient to meet the Company's cash requirements during
fiscal 1998. 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, 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 U.S.
dollars.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AXIOM INC. AND SUBSIDIARIES:
Report of Independent Public Accountants................................................................... 19
Consolidated Balance Sheets................................................................................ 20
Consolidated Statements of Operations...................................................................... 21
Consolidated Statements of Stockholders' Equity (Deficit).................................................. 22
Consolidated Statements of Cash Flows...................................................................... 23
Notes to Consolidated Financial Statements................................................................. 24
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Axiom Inc.:
We have audited the accompanying consolidated balance sheets of Axiom Inc.
and subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended September 30, 1997. 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 Axiom Inc. and subsidiaries
as of September 30, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
November 19, 1997
19
<PAGE>
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................. $ 7,206 $ 3,326
Accounts receivable....................................................................... 14,241 15,740
Inventories............................................................................... 7,374 3,167
Deferred tax assets....................................................................... 630 458
Income tax receivable..................................................................... 968 --
Other..................................................................................... 473 354
--------- ---------
Total current assets.................................................................... 30,892 23,045
--------- ---------
PROPERTY AND EQUIPMENT:
Computer hardware and software............................................................ 3,229 2,417
Production and test equipment............................................................. 1,995 1,329
Furniture, fixtures and leasehold improvements............................................ 553 531
--------- ---------
5,777 4,277
Less-Accumulated depreciation and amortization............................................ (2,785) (1,541)
--------- ---------
Net property and equipment.............................................................. 2,992 2,736
DEFERRED TAX ASSETS......................................................................... 2,704 2,959
OTHER ASSETS................................................................................ 267 1,207
INTANGIBLE ASSETS, net...................................................................... 168 389
--------- ---------
$ 37,023 $ 30,336
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt......................................................... $ 147 $ 185
Obligations to parent and affiliates...................................................... 183 23,291
Accounts payable.......................................................................... 3,057 2,293
Accrued compensation and related benefits................................................. 1,066 1,206
Accrued agent commissions................................................................. 638 806
Other accrued expenses.................................................................... 613 1,268
Accrued tax payable....................................................................... -- 1,348
Deferred tax liabilities.................................................................. 33 9
Deferred revenues......................................................................... 1,413 1,232
--------- ---------
Total current liabilities............................................................... 7,150 31,638
--------- ---------
LONG-TERM LIABILITIES:
Deferred tax liabilities.................................................................... 186 90
Long-term debt.............................................................................. -- 147
--------- ---------
Total long-term liabilities................................................................. 186 237
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY (DEFICIT):
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 and 3,476,900 shares
issued and outstanding.................................................................... 65 --
Additional paid-in capital.................................................................. 32,340 --
Accumulated deficit......................................................................... (2,718) (1,539)
--------- ---------
Total stockholders' equity (deficit)........................................................ 29,687 (1,539)
--------- ---------
$ 37,023 $ 30,336
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ---------- ----------
REVENUES:
Unrelated third parties:
Equipment............................................................. $ 24,437 $ 23,358 $ 18,000
Services.............................................................. 8,570 7,739 5,766
------------- ---------- ----------
33,007 31,097 23,766
------------- ---------- ----------
Related parties......................................................... -- 2,867 1,802
------------- ---------- ----------
Total revenues........................................................ 33,007 33,964 25,568
------------- ---------- ----------
COST OF REVENUES:
Unrelated third parties:
Equipment............................................................. 13,167 11,639 9,110
Services.............................................................. 4,732 4,580 3,093
------------- ---------- ----------
17,899 16,219 12,203
------------- ---------- ----------
Related parties......................................................... -- 1,946 1,274
------------- ---------- ----------
Total cost of revenues................................................ 17,899 18,165 13,477
------------- ---------- ----------
Gross profit.......................................................... 15,108 15,799 12,091
------------- ---------- ----------
OPERATING EXPENSES:
Research, development and engineering................................... 7,580 7,003 5,948
Selling, general and administrative..................................... 8,731 6,308 5,206
Parent charges.......................................................... 295 403 386
------------- ---------- ----------
Total operating expenses.............................................. 16,606 13,714 11,540
------------- ---------- ----------
Operating income (loss)............................................... (1,498) 2,085 551
INTEREST EXPENSE, net (including related party interest).................. 327 514 112
OTHER INCOME.............................................................. 1 430 148
EQUITY IN LOSS OF INVESTEE................................................ -- 18 494
GAIN ON SALE OF INVESTMENT................................................ -- 2,061 --
------------- ---------- ----------
Income (loss) before income taxes....................................... (1,824) 4,044 93
INCOME TAX (EXPENSE) BENEFIT.............................................. 645 (1,543) (35)
------------- ---------- ----------
NET INCOME (LOSS)......................................................... $ (1,179) $ 2,501 $ 58
------------- ---------- ----------
------------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE........................................ $ (0.28) $ 0.72 $ 0.02
------------- ---------- ----------
------------- ---------- ----------
SHARES USED IN COMPUTING
NET INCOME (LOSS) PER COMMON SHARE........................................ 4,144 3,477 3,477
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994....................................... $ -- $ -- $ (4,098) $ (4,098)
Net income...................................................... -- -- 58 58
--- ----------- ------------ ---------
BALANCE, SEPTEMBER 30, 1995....................................... -- -- (4,040) (4,040)
Net income...................................................... -- -- 2,501 2,501
--- ----------- ------------ ---------
BALANCE, SEPTEMBER 30, 1996....................................... -- -- (1,539) (1,539)
Stock split and initial public offering, net of expenses........ 65 32,340 -- 32,405
Net loss........................................................ -- -- (1,179) (1,179)
--- ----------- ------------ ---------
BALANCE, SEPTEMBER 30, 1997....................................... $ 65 $ 32,340 (2,718) $ 29,687
--- ----------- ------------ ---------
--- ----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
AXIOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................. $ (1,179) $ 2,501 $ 58
Adjustments to reconcile net income (loss) to net cash used in operating
activities-
Depreciation and amortization...................................................... 1,465 1,885 1,318
Equity in loss of investee......................................................... -- 18 494
Gain on sale of investment......................................................... -- (2,061) --
Changes in assets and liabilities, net-
Decrease (increase) in-
Accounts receivable............................................................ 1,499 (8,346) (2,131)
Inventories.................................................................... (4,207) 1,077 (2,392)
Other current assets........................................................... (119) 162 419
Other assets................................................................... 940 (68) (3)
Deferred taxes................................................................. 203 (1) (259)
Increase (decrease) in-
Accounts payable............................................................... 764 (39) 1,102
Accrued compensation and related benefits...................................... (140) 27 498
Accrued agent commissions...................................................... (168) (310) 662
Other accrued expenses......................................................... (655) 402 (1,161)
Accrued tax payable............................................................ (2,316) 1,148 177
Deferred revenues.............................................................. 181 (452) (691)
---------- --------- ---------
Net cash used in operating activities.......................................... (3,732) (4,057) (1,909)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................................ (1,500) (818) (877)
Sale (purchase) of investment...................................................... -- 2,061 (512)
Purchase of product development cost............................................... -- -- (1,336)
---------- --------- ---------
Net cash provided by (used in) investing activites............................. (1,500) 1,243 (2,725)
---------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITES:
Proceeds from sale of common stock................................................. 32,405 -- --
Payments on long-term debt......................................................... (185) (139) --
Advances on obligations to parent and affiliates................................... 5,388 12,743 10,505
Repayment on obligations to parent and affiliates.................................. (28,496) (7,913) (4,647)
---------- --------- ---------
Net cash provided by financing activities...................................... 9,112 4,691 5,858
---------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 3,880 1,877 1,224
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................... 3,326 1,449 225
---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................. $ 7,206 $ 3,326 $ 1,449
---------- --------- ---------
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. SCL's capital contribution was $100. As the financial statements
are presented in "thousands," no amounts are presented in Common Stock and
additional paid-in capital at September 30, 1996. Prior to the completion of the
Company's initial public offering, Securicor provided the financing requirements
for the Company through advances (See Note 8).
STOCK SPLIT AND INITIAL PUBLIC OFFERING
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
and stock option data have been restated to reflect this stock split.
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 $28,053,000 from the public
offering. In addition, on August 6, 1997, the underwriters exercised their over-
allotment option of 390,000 shares of Common Stock at a price of $12.00 per
share. The Company received net cash proceeds of $4,352,400. Collectively, both
transactions are herein referred to as the "Offering".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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 September 30, 1997 and 1996, respectively.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first-in,
first-out method or market.
24
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Significant improvements are
capitalized and expenditures for maintenance and repairs are charged to expense
as incurred. Upon the sale or retirement of these assets, the applicable cost
and related accumulated depreciation are removed from the accounts and any gain
or loss is included in the statements of operations.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer hardware and software................................................. 3 years
4 to 5
Production and test equipment.................................................. years
Furniture, fixtures and leasehold improvements................................. 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of developed technology which was amortized over 2
1/2 years and goodwill which is being amortized over 7 years, on a straight-line
basis (see Note 6). The Company evaluates the realizability of intangible assets
based on estimates of undiscounted future cash flows over the remaining useful
life of the asset. If the amount of such estimated undiscounted future cash
flows is less than the net book value of the asset, the asset is written down to
its net realizable value. As of September 30, 1997, no such write-down was
required.
DEFERRED REVENUES
Deferred revenues represent amounts collected from the Company's customers
in excess of revenues recognized. This is primarily due to annual customer
support contracts. Such amounts are recognized as revenues over the contract
term.
PRODUCT WARRANTY
The Company provides for the estimated cost to repair or replace products
under warranty when the revenues from product sales are recorded.
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 (see Note 15). In addition, the Company has begun to sell its products
to system integrators and resellers.
25
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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, $1,570,000, and
$0 for the years ended September 30, 1997, 1996 and 1995, respectively. Accounts
receivable relating to "bill and hold" transactions were $0 and $1,570,000 at
September 30, 1997 and 1996, respectively. Revenues from installation and
engineering activities are recognized as services are provided.
Depending on contract terms and conditions, software license fees are
recognized upon delivery of the product if no significant vendor obligations
remain and collection of the resulting receivable is deemed probable. The
Company has only had nominal separate software license fee revenues for the year
ended September 30, 1997 and these amounts are included in equipment revenues.
If significant vendor obligations exist at delivery and/or the product is
subject to customer acceptance, revenue is deferred until no significant
obligations remain and/or acceptance has occurred. If the payment of the license
fee is coincident to services which are deemed to be essential to the
transaction, the license fee is deferred and recognized using contract
accounting over the period during which the services are performed. The
Company's software licensing agreements provide for customer support (typically
90 days). The portion of the license fee associated with customer support is
unbundled from the license fee and is recognized ratably over the warranty
period as services revenue. The Company offers support agreements to its
customers. The support agreements generally call for the Company to provide
technical support and certain software updates to customers. Revenues on
technical support and software update rights are recognized ratably over the
term of the support agreement and is included in services revenue in the
accompanying statements of operations.
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
Prior to the Offering, parent charges were allocated to the Company from
Securicor and consisted 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 believed the method of allocation was
reasonable.
The Company will not incur any parent charges subsequent to the Offering.
The Company and Securicor have entered into an agreement for international
marketing services (See Note 13).
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
26
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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
year are determined using the enacted tax rates.
NET INCOME (LOSS) PER COMMON SHARE
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 year.
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 years ended 1997, 1996 and 1995, the basic
and diluted net income (loss) per common share measured under SFAS No. 128 is
not materially different from net income (loss) per common share.
FOREIGN CURRENCY
The Company's sales arrangements with international customers are fixed in
the amount of U.S. dollars to be received. Relative to the activity with
obligations to parent and affiliates, the Company charges the related foreign
exchange gains and losses to the statements of operations.
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.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the years ended September 30, 1997, 1996 and 1995, the Company paid
interest of $686,000, $459,000 and $120,000, respectively. For the years ended
September 30, 1997, 1996 and 1995, the Company paid income taxes of $2,066,000,
$495,000, and $21,000, respectively.
27
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Billed............................................................................. $ 12,265,000 $ 13,223,000
Unbilled........................................................................... 2,076,000 2,617,000
------------- -------------
14,341,000 15,840,000
Less-allowance for doubtful accounts............................................... (100,000) (100,000)
------------- -------------
$ 14,241,000 $ 15,740,000
------------- -------------
------------- -------------
</TABLE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Raw materials......................................................................... $ 4,718,000 $ 2,779,000
Work-in-process....................................................................... 538,000 199,000
Finished goods........................................................................ 2,118,000 189,000
------------ ------------
$ 7,374,000 $ 3,167,000
------------ ------------
------------ ------------
</TABLE>
5. OTHER ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1996
---------- ------------
<S> <C> <C>
Acquired product development costs, net................................................. $ -- $ 1,086,000
Other................................................................................... 267,000 121,000
---------- ------------
$ 267,000 $ 1,207,000
---------- ------------
---------- ------------
</TABLE>
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.
Therefore, as of September 30, 1995, the Company did not have any amortization
expense related to these costs. 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 $250,000 for the years ended September 30, 1997 and 1996, respectively. The
Company's business activities related to the ISDN product were performed through
its wholly-owned subsidiary, Securicor 3Net, Inc. During the years ended
September 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 year ended September 30, 1997, the Company
recognized revenues of $1,167,000 and cost of revenues of
28
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER ASSETS: (CONTINUED)
$794,000 relating to such activities. For the year ended September 30, 1996, the
Company recognized revenues of $792,000 and cost of revenues of $714,000
relating to such activities. These amounts are included in unrelated third party
revenues and cost of revenues. As of September 30, 1997 and 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 September 30, 1997 and 1996, the
Company had billed accounts receivable of $0 and $610,000, respectively, 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, $18,000 and
$494,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
The Company had related party sales to Metapath for the time periods during
which the investment was held of $381,000 for the period from January 20, 1995
to September 30, 1995 and $544,000 for the period from October 1, 1995 to May 2,
1996.
6. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Developed technology.................................................................. $ 1,800,000 $ 1,800,000
Goodwill.............................................................................. 308,000 308,000
------------ ------------
2,108,000 2,108,000
Less-Accumulated amortization......................................................... (1,940,000) (1,719,000)
------------ ------------
$ 168,000 $ 389,000
------------ ------------
------------ ------------
</TABLE>
29
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT:
LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Term note payable, payable in annual installments of $98,000 plus interest at 5.3%
through 1998.......................................................................... $ 98,000 $ 196,000
Capitalized lease obligations, payable in monthly installments of $8,500 including
interest at 15% through 1998.......................................................... 49,000 136,000
----------- -----------
147,000 332,000
Less Current portion.................................................................... (147,000) (185,000)
----------- -----------
$ -- $ 147,000
----------- -----------
----------- -----------
</TABLE>
In March 1996, the Company entered into a $294,000 term note payable with an
equipment vendor for the purchase of computer hardware and software and the
related maintenance agreements. Included in this amount is $249,000 of computer
hardware and software which has been recorded in property and equipment and the
related $45,000 maintenance contract prepayment which has been recorded in other
current assets. This term note payable is payable in three equal annual
installments of $98,000. The interest rate charged on this term note payable is
5.3%. Interest expense for the years ended September 30, 1997 and 1996 was
$7,000 and $6,000, respectively.
In April 1996, the Company entered into a $177,000 lease obligation that
qualified as a capital lease for the purchase of computer hardware and software
and the related maintenance agreements. Included in this amount is $148,000 of
computer hardware and software which has been recorded in property and equipment
and the related $29,000 maintenance contract prepayment which has been recorded
in other current assets. This lease is payable in 24 equal monthly installments
of $8,500. The implicit interest rate charged on this obligation is 15%.
Interest expense for the years ended September 30, 1997 and 1996 was $15,000 and
$10,000, respectively. Assets acquired under capital leases at a cost of
$148,000 and $148,000 less accumulated amortization of $74,000 and $24,000 are
included in property and equipment at September 30, 1997 and 1996, respectively.
LINE OF CREDIT
The Company has a $2,500,000 million line of credit with a local bank with
interest at the bank's prime rate. As of September 30, 1997, no funds have been
advanced against this line of credit. Borrowings under the agreement are secured
by an interest on substantially all of the Company's assets and require the
Company to maintain certain financial and nonfinancial covenants, as defined. As
of September 30, 1997, the Company was not in compliance with certain of its
financial covenants. The Company received a waiver from the bank relating to
such noncompliance.
30
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. OBLIGATIONS TO PARENT AND AFFILIATES:
Information relative to the Company's obligations to parent and affiliates
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
----------- -------------
<S> <C> <C>
Obligations to parent:
Interest free......................................................................... $ -- $ 12,326,000
Interest bearing...................................................................... -- 10,512,000
Other................................................................................. 289,000 190,000
----------- -------------
Total obligations to parent........................................................... 289,000 23,028,000
----------- -------------
Obligation to affiliates:
Receivables from affiliates........................................................... (119,000) (33,000)
Payables to affiliates................................................................ 13,000 296,000
----------- -------------
Total obligations to affiliates, net.................................................. (106,000) 263,000
----------- -------------
Total obligations to parent and affiliates............................................ $ 183,000 $ 23,291,000
----------- -------------
----------- -------------
</TABLE>
Prior to the completion of the Offering, the Company was funded through
advances from its parent (Securicor). Certain advances were interest bearing and
were loaned to the Company at a base rate plus 1%. For the years ended September
30, 1997, 1996 and 1995, the interest rate charged on these obligations ranged
from 6.75% to 7.50%, 6.75% to 7.75% and 6.75% to 7.75%, respectively. Interest
expense for the years ended September 30, 1997, 1996 and 1995 was $552,000,
$578,000 and $141,000, respectively. As these obligations to parent and
affiliates are due on demand, this net amount is included in current
liabilities. In connection with the Offering, a significant portion of the total
obligations to parent and affiliates was repaid.
9. INTEREST EXPENSE, NET:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Interest expense on obligations to parent................................... $ 552,000 $ 578,000 $ 141,000
Interest expense............................................................ 22,000 16,000 --
Interest income............................................................. (247,000) (80,000) (29,000)
----------- ---------- ----------
$ 327,000 $ 514,000 $ 112,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
10. OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Litigation settlement gain.................................................. $ -- $ 350,000 $ --
Miscellaneous............................................................... 1,000 80,000 148,000
----------- ---------- ----------
$ 1,000 $ 430,000 $ 148,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
31
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OTHER INCOME: (CONTINUED)
On December 6, 1995, the Company entered into a litigation settlement
agreement whereby the Company was awarded $350,000. This settlement is to be
paid over three years. The Company received $164,000 in 1996 and $118,000 in
1997. The remaining balance of $68,000 is included in other current assets.
11. STOCKHOLDERS' EQUITY (DEFICIT):
1997 STOCK INCENTIVE PLAN
In May 1997, the Company established the 1997 Stock Incentive Plan (the
"1997 Plan") which authorized 450,000 shares of Common Stock to be issued. Under
the 1997 Plan, a variety of awards, including stock options, stock appreciation
rights and restricted and unrestricted stock grants may be made to the Company's
employees, officers, consultants and advisors. Common stock options may be
granted either in the form of incentive stock options or non-statutory stock
options. The option exercise price of incentive stock options may not be less
than the fair market value of the Common Stock on the date of the grant. In May
1997, options to purchase 321,366 shares of Common Stock were granted under the
1997 Plan to the employees, officers and directors of the Company at an exercise
price equal to $12.00 per share. One third of these options vested in October
1997 and the remaining two-thirds vest on the first and second anniversaries of
the date of grant, respectively. No additional options to purchase Common Stock
have been granted to date.
In October 1995, the Financial Accounting Standards Board adopted SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Effective
October 1, 1996, the Company has elected to adopt the disclosure requirement of
this pronouncement. Had compensation cost for the Company's stock option plan
been determined based upon the fair value at the grant date for awards under
SFAS No. 123, the Company's net loss and net loss per common share for the year
ended September 30, 1997 would have been $2,419,000 and $0.58, respectively. The
weighted average fair value at the date of grant for options granted during 1997
is estimated at $7.96 per share, using the Black-Scholes option-pricing model.
The assumptions used in the Black-Scholes model are as follows: dividend yield
of 0%, expected volatility of 75%, risk-free interest rate of 6.73% and an
expected option life of 5 years.
Information with respect to the stock options granted under the Plan is
summarized as follows:
<TABLE>
<CAPTION>
1997
------------------------
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- -------------
<S> <C> <C>
Balance as of October 1, 1996........................................................... -- $ --
Granted................................................................................. 321,366 12.00
--------- ------
Balance as of September 30, 1997........................................................ 321,366 $ 12.00
--------- ------
--------- ------
Exercisable as of September 30, 1997.................................................... -- $ --
--------- ------
--------- ------
</TABLE>
32
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
The following table summarize information about options outstanding at
September 30, 1997.
<TABLE>
<CAPTION>
WEIGHTED. WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ----------------------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 12.00 321,366 9.7 $ 12.00 -- --
-- -- --
-- -- --
------ ----------- -----------
------ ----------- -----------
</TABLE>
As of September 30, 1997, 128,634 options were available for future grant
under the Plan.
12. EMPLOYEE BENEFIT PLAN:
Prior to July 1994, the Predecessor Business had a profit-sharing retirement
plan and a thrift plan which covered substantially all employees. In connection
with the acquisition on July 1, 1994, all balances in the profit-sharing
retirement plan were transferred into the thrift plan. The thrift plan's name is
now Axiom Inc. Thrift/401(k) Plan (the "Plan"). Upon this transfer, all balances
were 100% vested. With respect to the Plan, eligible employees must have one
year of service with the Company and be 18 years of age. An employee may
contribute both pre- and post-tax dollars to the Plan, subject to certain
limitations, as defined by the Plan. The employer contributions to the Plan are
equal to 75% of the employee's basic pre-tax contribution up to certain limits,
as defined. The Company's contribution to the Plan for the years ended September
30, 1997, 1996 and 1995 was $264,000, $277,000 and $245,000, respectively.
13. 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 years ended September 30, 1997,
1996 and 1995 of $0, $2,323,000 and $1,421,000, respectively. The Company
recognized cost of revenues related to these revenues for the years ended
September 30, 1997, 1996 and 1995 of $0, $1,732,000 and $1,112,000,
respectively. As of September 30, 1997 and 1996, related to these agreements,
the Company had receivables of $0 and $31,000, respectively, which are included
in obligations to parent and affiliates.
During the year ended September 30, 1996, certain key executive officers
were granted options to purchase the common stock of Securicor. The aggregate
number of options granted to these executive officers was 104,050. The exercise
price of these options was at L2.45 per share, which was the fair market value
of Securicor common stock on the date of grant. These options vest on the third
anniversary of the date of grant. These options expire in June 2006 which is ten
years from the date of grant.
In July 1997, the Company made a loan to an officer of the Company in the
amount of $20,000 which is repayable in January 1998 and accrues interest at a
rate of 7%. Also, in July 1997, the Company advanced $20,400 to a member of the
Company's Board of Directors which is repayable in monthly principal
installments of $1,666. At September 30, 1997, $15,401 remains outstanding on
this loan. Both of these receivables are included in other current assets at
September 30, 1997.
33
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY TRANSACTIONS: (CONTINUED)
In May 1997, the Company and Securicor entered into an agreement pursuant to
which Securicor will provide international sales and marketing services to the
Company. For the year ended September 30, 1997, total charges from Securicor for
these services were $149,000. In addition, the Company pays each of its
directors an annual directors fee of $20,000 each. For the year ended September
30, 1997, the Company paid $5,000 related to such fees. The directors fees paid
to employees of Securicor are remitted to Securicor.
The Company obtains its Directors and Officers insurance through Securicor.
Total Director and Officer insurance expense for the year ended September 30,
1997 was $46,000.
From time to time, the Company and Securicor process miscellaneous
transactions on behalf of each other which are payable the month following the
month incurred. These transactions have been immaterial to date.
14. INCOME TAXES:
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1997 1996 1995
----------- ------------ ----------
<S> <C> <C> <C>
Current:
Federal.................................................................. $ (605,000) $ 1,170,000 $ 220,000
State.................................................................... (114,000) 374,000 74,000
----------- ------------ ----------
(719,000) 1,544,000 294,000
----------- ------------ ----------
Deferred:
Federal.................................................................. 62,000 (1,000) (219,000)
State.................................................................... 12,000 -- (40,000)
----------- ------------ ----------
74,000 (1,000) (259,000)
----------- ------------ ----------
$ (645,000) $ 1,543,000 $ 35,000
----------- ------------ ----------
----------- ------------ ----------
</TABLE>
Income tax expense differs from the amount currently payable because certain
expenses, primarily depreciation and accruals, are reported in different periods
for financial reporting and income tax purposes.
The federal statutory income tax is reconciled to the effective income tax
rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate................................................................. (34.0)% 34.0% 34.0%
State income taxes, net of federal benefit............................................. (5.9) 5.9 5.9
Other.................................................................................. 4.5 (1.7) (2.3)
--------- --- ---
(35.4)% 38.2% 37.6%
--------- --- ---
--------- --- ---
</TABLE>
34
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES: (CONTINUED)
The components of the net current and long-term deferred tax assets and
liabilities, measured under SFAS No. 109, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets
Charge for purchased research and development......................................... $ 2,704,000 $ 2,910,000
Accruals.............................................................................. 375,000 408,000
Other................................................................................. 255,000 99,000
------------ ------------
3,334,000 3,417,000
Deferred tax liabilities
Depreciation.......................................................................... 186,000 90,000
Other................................................................................. 33,000 9,000
------------ ------------
219,000 99,000
------------ ------------
Net deferred tax assets............................................................... $ 3,115,000 $ 3,318,000
------------ ------------
------------ ------------
</TABLE>
Management believes a valuation allowance was not required for the net
deferred tax assets due to the Company's earnings history taking into
consideration the nonrecurring charge for purchased research and development.
This charge represents the significant portion of the net deferred tax assets.
These factors cause management to believe it is more likely than not that the
net deferred tax assets will be realized.
15. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment. The
Company's revenues originated from the following geographic destinations:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Asia................................................................ $ 3,741,000 $ -- $ --
Europe.............................................................. 1,136,000 -- --
North America....................................................... 25,889,000 28,282,000 $ 15,541,000
South America....................................................... 2,241,000 2,471,000 7,604,000
United Kingdom (related party)...................................... -- 2,323,000 1,421,000
Other............................................................... -- 888,000 1,002,000
------------- ------------- -------------
$ 33,007,000 $ 33,964,000 $ 25,568,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
35
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. CUSTOMER AND GEOGRAPHIC INFORMATION: (CONTINUED)
The following table summarizes significant customers with revenues which are
at least 10% of the Company's revenues in any given period presented:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
CUSTOMER 1997 1996 1995
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Ameritech Corporation................................................... $ 2,881,000 $ 4,431,000 $ 4,277,000
PT Telekomunikasi, Indonesia............................................ 3,128,000 -- --
Puerto Rico Telephone Co................................................ 937,000 3,199,000 101,000
Southwestern Bell Telephone Company..................................... 3,169,000 6,289,000 1,478,000
Telecom Argentina....................................................... 2,018,000 1,170,000 4,353,000
U S West, Inc........................................................... 13,812,000 10,219,000 7,349,000
</TABLE>
The failure of any of the Company's significant customers to continue to
purchase products and services from the Company, or any significant delay in
orders from such customers, could have a material adverse effect on the
Company's results of operations and financial condition.
16. COMMITMENTS AND CONTINGENCIES:
The Company has entered into noncancelable operating leases for its office
and manufacturing facilities, production and test equipment and fixtures. The
total rental for production and test equipment and fixtures for the years ended
September 30, 1997, 1996 and 1995 was $153,000, $266,000 and $267,000,
respectively. These lease agreements provide that the Company will pay all
insurance, maintenance and repairs.
In addition, the Company leases its office and manufacturing facilities
under long-term operating leases. The rental on the office and manufacturing
facilities for the years ended September 30, 1997, 1996 and 1995 was $342,000,
$322,000 and $334,000, respectively. The amounts payable under these leases are
subject to renegotiation at various intervals specified in the leases.
In August 1997, the Company entered into a lease agreement for new office
space for an initial period of ten years commencing on the Acceptance Date. The
Acceptance Date is anticipated to occur in late April 1998.
Future minimum rental payments as of September 30, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ---------------------------------------------------------------------------------------------------
<S> <C>
1998............................................................................................... $ 799,000
1999............................................................................................... 1,077,000
2000............................................................................................... 1,089,000
2001............................................................................................... 1,113,000
2002............................................................................................... 1,138,000
Thereafter......................................................................................... 6,728,000
-------------
$ 11,944,000
-------------
-------------
</TABLE>
As of December 29, 1997, the Company had obtained a $1,500,000 leasing
facility to finance its purchases of capital equipment. As of December 29, 1997,
approximately $1,400,000 was available under this facility.
36
<PAGE>
AXIOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company is obligated to make certain payments, as defined, to certain
key Company employees if these employees are terminated. In addition, certain
key employees have performance incentives in the form of cash and equity (in the
parent or an affiliate) related compensation. The Company does not expect to
make these payments other than in the normal course of business.
The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.
The Company has 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 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
Certain information called for in this item is hereby incorporated by
reference from the Company's 1998 Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after September 30, 1997
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Andrew P. Maunder.................................... 41 Chairman of the Board, Chief Executive Officer,
President and Treasurer
Donald Hoffman....................................... 62 Senior Vice President, Strategic Customer Development
William J. Rahe, Jr.................................. 51 Vice President, Engineering
Mark J. Kadish....................................... 43 Chief Financial Officer and Secretary
Michael S. Farina.................................... 45 Vice President, Marketing and Sales
Joseph F. Gorecki.................................... 57 Vice President, Customer Service
Greg R. Fegley....................................... 42 Vice President, Operations Support
</TABLE>
ANDREW P. MAUNDER has served as Chairman of the Company's Board of Directors
since August 1997, as the Company's President and Chief Executive Officer since
October 1994 and as the Company's Treasurer since March 1995. Mr. Maunder has
been a director of the Company since October 1996. From March 1994 until he
joined the Company, Mr. Maunder served as Chief Financial Officer of Oxford
Molecular Group plc, a biotechnology company based in the United Kingdom. From
April 1987 until February 1994, Mr. Maunder was Finance and Operations Director
of Securicor 3Net, Ltd., ("3Net"), a communications company based in the United
Kingdom that has been affiliated with Securicor since August 1993. From October
1996 to May 1997, Mr. Maunder also served as a director of Securicor 3Net, Inc.
("3Net Delaware"), a wholly-owned indirect subsidiary of Securicor.
DONALD HOFFMAN has served as the Company's Senior Vice President, Strategic
Customer Development since February 1997. From July 1996 to February 1997, Mr.
Hoffman served the Company as Senior Vice President. From July 1994 until June
1996, Mr. Hoffman served as Vice President, Sales of the Company and from the
time he joined the Predecessor Business in 1989 until its acquisition by the
Company in July 1994, he served as its Vice President of Marketing and Sales.
Prior to joining the Predecessor Business, Mr. Hoffman was Vice President and
General Manager of the Business System Sales Division of NEC America, Inc., a
leading electronics company.
WILLIAM J. RAHE, JR. has been the Company's Vice President, Engineering
since joining the Company in April 1995. From August 1994 until April 1995, Mr.
Rahe served as Director, Business Development of Cable & Wireless, Inc., a
telecommunications services company. From June 1991 until August 1994, Mr. Rahe
had served as Director, Product Development at Cable & Wireless, Inc. Prior to
joining Cable & Wireless, Inc., Mr. Rahe was Vice President of Engineering of
Lightnet, a partnership between CSX Corporation and Southern New England
Telephone Co.
MARK J. KADISH has been with the Company and the Predecessor Business since
September 1987 and has been the Company's Chief Financial Officer since February
1997 and its Secretary since March 1995. From July 1994 to February 1997, Mr.
Kadish served as the Company's Financial Controller. From September 1987 until
June 1994, Mr. Kadish served as the Controller of the Predecessor Business.
Prior to joining the Predecessor Business, Mr. Kadish was Chief Financial
Officer and Treasurer of Transducer Systems, Inc., a publicly-traded
manufacturer of computer systems components.
38
<PAGE>
MICHAEL S. FARINA has served as the Company's Vice President of Marketing
and Sales since February 1997. From January 1995 until February 1997, Mr. Farina
was the general manager of the New Media business unit established by CSC
Communications Industry Services, a division of Computer Sciences Corporation
that is a supplier of information technology to the telephone industry. From
1988 to December 1994, Mr. Farina held several positions, most recently as
Director of International Marketing and Strategic Alliances, with GTE
Corporation ("GTE"), a diversified telecommunications company.
JOSEPH F. GORECKI has served as the Company's Vice President, Program
Management and Customer Service since April 1995. From February 1992 until April
1995, Mr. Gorecki served at GTE as a Senior Program Manager in GTE's Spacenet
satellite communications group. Prior to joining GTE, Mr. Gorecki served as
Director, Program Operations for BBN Communications Corporation, a
publicly-traded provider of networking solutions.
GREG R. FEGLEY has been with the Company and the Predecessor Business since
January 1988 and was appointed Vice President, Operations Support in October
1997. From January 1988 to September 1997, he held several positions, most
recently Director, Operations. From January 1986 to December 1987, Mr. Fegley
served as Marketing Manager for Northern Telecom's Spectron Division.
ITEM 11. EXECUTIVE COMPENSATION
The information requested by this item is incorporated herein by reference
to the information set forth in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested by this item is incorporated herein by reference
to the information set forth in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested by this item is incorporated herein by reference
to the information set forth in the 1998 Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following is a list of the Consolidated
Financial Statements of the Company and its subsidiaries and supplementary data
filed as part of Item 8 hereof:
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations for the years ended September 30,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) No schedules are required to be included in this report.
39
<PAGE>
(3) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and plan of Merger between STI and the Company, dated May 23, 1997 (incorporated by reference
to Exhibit 2 to the Company's Registration Statement on form S-1, File No. 333-25439).
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on form S-1, File No. 333-25439).
3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on form S-1, File No. 333-25439).
10.1 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on form S-1, File No. 333-25439).
10.2 Employment Agreement between STI and Andrew Maunder, dated July 1, 1994 (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.3 Employment Agreement between STI and Donald Hoffman, dated July 1l, 1994 (incorporated by reference to
Exhibit 10.3 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.4 Employment Agreement between STI and William J. Rahe, Jr., dated February 15, 1995 (incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.5 Employment Agreement between STI and Joseph F. Gorecki, dated March 10, 1995 (incorporated by reference
to Exhibit 10.5 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.6 Employment Agreement between STI and Michael S. Farina, dated January 31, 1997 (incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.7 Agreement between Ameritech Services, Inc. and STI, dated October 11, 1989, as amended (incorporated by
reference to Exhibit 10.7 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.8 General Procurement Agreement between U S West Communications, Inc. and the Company dated May 1, 1991,
as amended (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on form
S-1, File No. 333-25439).
10.9 General Procurement Contract for Computer Equipment Software and Services between Southwestern Bell
Telephone Company and STI, dated June 1, 1995 (incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on form S-1, File No. 333-25439).
10.10 Lease Agreement between STI and Line Lexington Management Corp. dated June 13, 1988, as amended
effective September 1, 1993 (incorporated by reference to Exhibit 10.10 to the Company's Registration
Statement on form S-1, File No. 333-25439).
10.11 Form of International Marketing Services Agreement between the Company and Securicor, including Schedule
A thereto (incorporated by reference to Exhibit 10.11 to the Company's
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ----------- --------------------------------------------------------------------------------------------------------
Registration Statement on form S-1, File No. 333-25439).
<S> <C>
10.12 Revised Form of Services Agreement between the Company and 3net Delaware (incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.13 Form of Registration Rights Agreement by and between the Company and Securicor (incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on form S-1, File No. 333-25439).
10.14 Stock Purchase Agreement between the Company and Securicor 3net Limited dated May 22, 1997 (incorporated
by reference to Exhibit 10.14 to the Company's Registration Statement on form S-1, File No. 333-25439).
11 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
- ------------------------
(b) Reports on Form 8-K. The Company filed a Form 8-K on September 11, 1997
announcing the resignation of Dr. Edmund A. Hough as Chairman of the Board and
the election of Mr. Andrew P. Maunder, the Company's Chief Executive Officer,
President and Treasurer and a Director to serve as Chairman of the Board of
Directors.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
AXIOM INC.
Date: January 2, 1998 By: /s/ ANDREW P. MAUNDER
-----------------------------------------
Andrew P. Maunder
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, and on the date set forth above.
Date: January 2, 1998 By: /s/ ANDREW P. MAUNDER
-----------------------------------------
Andrew P. Maunder
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Date: January 2, 1998 By: /s/ MARK J. KADISH
-----------------------------------------
Mark J. Kadish
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Date: January 2, 1998 By: /s/ ROBERT J. KELLY
-----------------------------------------
Robert J. Kelly
DIRECTOR
Date: January 2, 1998 By: /s/ SAMMY W. PEARSON
-----------------------------------------
Sammy W. Pearson
DIRECTOR
Date: January 2, 1998 By: /s/ TREVOR SOKELL
-----------------------------------------
Trevor Sokell
DIRECTOR
Date: January 2, 1998 By: /s/ MICHAEL J. WILKINSON
-----------------------------------------
Michael J. Wilkinson
DIRECTOR
42
<PAGE>
EXHIBIT 11
AXIOM INC.
NET INCOME (LOSS) PER COMMON SHARE CALCULATION
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) per common share:
Net income (loss)...................................................... $ (1,179,000) $ 2,501,000 $ 58,000
------------- ------------ ------------
------------- ------------ ------------
Weighted average number of shares issued and outstanding............... 4,144,352 3,476,900 3,476,900
------------- ------------ ------------
------------- ------------ ------------
Net income (loss) per common share..................................... $ (0.28) $ 0.72 $ 0.02
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Axiom FSC Inc., a Barbados Corporation
Axiom Finance Inc., a Delaware Corporation
<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 Amendment No. 1 to Form 10-K into Axiom Inc.'s
previously filed Registration Statement File No. 333-32919.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
January 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 7,208
<SECURITIES> 0
<RECEIVABLES> 14,241
<ALLOWANCES> 100
<INVENTORY> 7,374
<CURRENT-ASSETS> 30,892
<PP&E> 6,777
<DEPRECIATION> 2,785
<TOTAL-ASSETS> 37,023
<CURRENT-LIABILITIES> 7,150
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 29,622
<TOTAL-LIABILITY-AND-EQUITY> 37,023
<SALES> 33,007
<TOTAL-REVENUES> 33,007
<CGS> 17,899
<TOTAL-COSTS> 17,899
<OTHER-EXPENSES> 18,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> (1,824)
<INCOME-TAX> 845
<INCOME-CONTINUING> (1,179)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,179)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
