SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000 Commission File Number 1-13591
AXS-ONE INC.
------------
(Exact name of registrant as specified in its charter)
Delaware 13-2966911
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 Route 17 North
Rutherford, New Jersey 07070
(Address of principal executive offices) (Zip Code)
(201) 935-3400
(Registrant's telephone number, including area code)
Computron Software, Inc.
------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Number of shares outstanding of the issuer's common stock as of November 2, 2000
Class Number of Shares Outstanding
--------------------------------------- ----------------------------
Common Stock, par value $0.01 per share 24,784,742
<PAGE>
AXS-ONE INC.
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1999 and September 30, 2000 (unaudited).....................3
Consolidated Statements of Operations (unaudited)
Three and nine months ended September 30, 1999 and 2000..............4
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three and nine months ended September 30, 1999 and 2000..............5
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 1999 and 2000........................6
Notes to Consolidated Interim Financial Statements.......................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........18
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................20
Item 6. Exhibits and Reports on Form 8-K...................................20
SIGNATURES
Signatures .................................................................21
2
<PAGE>
AXS-ONE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................................... $ 1,154 $ 751
Restricted cash ................................................................ 301 299
Accounts receivable, net of allowance for doubtful accounts of $1,315
and $971 at December 31, 1999 and September 30, 2000, respectively ........... 11,153 10,391
Prepaid expenses and other current assets ...................................... 954 555
-------- --------
Total current assets ....................................................... 13,562 11,996
-------- --------
Equipment and leasehold improvements, at cost:
Computer and office equipment .................................................. 11,605 12,056
Furniture and fixtures ......................................................... 1,204 1,290
Leasehold improvements ......................................................... 1,087 1,079
-------- --------
13,896 14,425
Less--accumulated depreciation and amortization ................................ 12,052 12,910
-------- --------
1,844 1,515
-------- --------
Capitalized software development costs, net of accumulated amortization
of $4,998 and $5,509 at December 31, 1999 and September 30, 2000, respectively 2,002 2,864
Other assets ..................................................................... 93 91
-------- --------
$ 17,501 $ 16,466
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease obligations ................ $ 1,105 $ 1,200
Accounts payable ............................................................... 3,083 2,446
Accrued expenses ............................................................... 7,202 5,879
Other current liabilities ...................................................... 500 500
Deferred revenue ............................................................... 8,534 7,569
-------- --------
Total current liabilities .................................................. 20,424 17,594
-------- --------
Long-term liabilities:
Long-term debt and capital lease obligations, net of current portion ............. 2,425 1,525
-------- --------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 par value, authorized 5,000
shares, no shares issued and outstanding ................................... -- --
Common stock, $.01 par value, authorized 50,000 shares;
23,923 and 24,785 shares issued and outstanding at
December 31, 1999 and September 30, 2000, respectively ..................... 239 248
Additional paid-in capital ................................................... 70,141 72,032
Accumulated deficit .......................................................... (75,739) (74,869)
Accumulated other comprehensive income (loss) ................................ 11 (64)
-------- --------
Total stockholders' deficit ................................................ (5,348) (2,653)
-------- --------
$ 17,501 $ 16,466
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
AXS-ONE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees ............... $ 1,160 $ 3,393 $ 7,009 $ 7,126
Services ................... 11,063 9,921 36,390 30,374
-------- -------- -------- --------
Total revenues ........... 12,223 13,314 43,399 37,500
-------- -------- -------- --------
Operating expenses:
Cost of license fees ....... 310 324 1,526 1,021
Cost of services ........... 5,793 4,871 19,354 15,812
Sales and marketing ........ 2,547 3,106 8,920 7,595
Research and development ... 1,806 1,652 5,915 5,174
General and administrative . 2,749 2,356 9,618 6,782
Goodwill impairment ........ 573 -- 573 --
-------- -------- -------- --------
Total operating expenses . 13,778 12,309 45,906 36,384
-------- -------- -------- --------
Operating income (loss) ........ (1,555) 1,005 (2,507) 1,116
-------- -------- -------- --------
Other income (expense):
Loss on sale of subsidiary . -- -- (261) --
Interest income ............ 14 12 71 56
Interest expense ........... (110) (99) (326) (297)
Other expense .............. (71) (25) (142) (5)
-------- -------- -------- --------
Other expense, net ....... (167) (112) (658) (246)
-------- -------- -------- --------
Net income (loss) .............. $ (1,722) $ 893 $ (3,165) $ 870
======== ======== ======== ========
Basic net income (loss)
per common share ........... $ (0.07) $ 0.04 $ (0.13) $ 0.04
======== ======== ======== ========
Diluted net income (loss)
per common share ........... $ (0.07) $ 0.03 $ (0.13) $ 0.03
======== ======== ======== ========
Weighted average basic
common shares outstanding .. 23,914 24,785 23,914 24,570
======== ======== ======== ========
Weighted average diluted
common shares outstanding .. 23,914 25,603 23,914 25,995
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
AXS-ONE INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 2000 1999 2000
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) ..................... $(1,722) $ 893 $(3,165) $ 870
Foreign currency translation adjustment (110) (91) 44 (75)
------- ------- ------- -------
Comprehensive income (loss) ....... $(1,832) $ 802 $(3,121) $ 795
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
AXS-ONE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1999 2000
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $(3,165) $ 870
Adjustments to reconcile net income (loss) to net
cash flows provided by (used in) operating activities -
Depreciation and amortization ............................ 2,112 1,588
Goodwill impairment ...................................... 573 --
Provision for doubtful accounts .......................... 172 46
Loss on sale of subsidiary ............................... 261 --
Changes in current assets and liabilities, net of divestiture
Restricted cash .......................................... 4,307 (7)
Accounts receivable ...................................... (44) 330
Prepaid expenses and other current assets ................ 629 377
Accounts payable and accrued expenses .................... (845) (1,670)
Due to shareholders ...................................... (4,404) --
Deferred revenue ......................................... (1,115) (619)
------- -------
Net cash flows provided by (used in) operating activities ............. (1,519) 915
------- -------
Cash flows from investing activities:
Change in other assets ................................... 15 --
Net proceeds from sale of subsidiary ..................... 1,191 --
Capitalized software development costs ................... (1,050) (1,373)
Purchase of equipment and leasehold improvements ......... (634) (813)
------- -------
Net cash flows used in investing activities ........................... (478) (2,186)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants ..... -- 1,900
Net borrowings from revolving line of credit ............. 1,304 --
Payments of long term debt and capital lease obligations . (1,268) (804)
------- -------
Net cash flows provided by financing activities ....................... 36 1,096
------- -------
Foreign currency exchange rate effects ................................ (543) (228)
------- -------
Net decrease in cash and cash equivalents ............................. (2,504) (403)
Cash and cash equivalents, beginning of period ........................ 4,009 1,154
------- -------
Cash and cash equivalents, end of period .............................. $ 1,505 $ 751
======= =======
Supplemental disclosures of cash flow information and noncash financing
activities:
Cash paid during the period for -
Interest ...................................... $ 267 $ 300
======= =======
Income taxes .................................. $ 36 $ 15
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
AXS-ONE INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company designs, markets and supports n-tier, Internet-enabled,
client/server, e-commerce, financial, workflow, desktop data access and storage,
and maintenance and asset management software solutions. The Company also offers
consulting, education and support services in support of its customers' use of
its software products.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
AXS-One Inc. (formerly known as Computron Software, Inc.) and its wholly owned
subsidiaries located in Australia, Canada, Poland, Singapore, South Africa and
the United Kingdom (collectively, the "Company" and in 1999 also included
subsidiaries in France and Germany) (see Note 5 for discussion of the sales of
these subsidiaries in 1999). All significant intercompany transactions and
balances have been eliminated.
The unaudited consolidated financial statements have been prepared by the
Company in accordance with generally accepted accounting principles and in the
opinion of management, contain all adjustments, consisting only of those of a
normal recurring nature, necessary for a fair presentation of these consolidated
financial statements.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
1999 Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
The results of operations for the three and nine months ended September 30, 2000
are not necessarily indicative of results to be expected for any future periods.
(b) Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2") and Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." The adoption of SOP 98-9 on January 1, 1999 did not have a
material effect on the Company's consolidated financial statements. Revenue from
non-cancelable software licenses is recognized when the license agreement has
been signed, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. Post contract support (maintenance) fees are
typically billed separately and are recognized on a straight line basis over the
life of the applicable agreement. The Company recognizes service revenues from
consulting and implementation services, including training, provided by both its
own personnel and by third parties, upon performance of the services, pursuant
to a professional services agreement. When the Company enters into a license
agreement requiring development or significant customization of the software
products, the Company recognizes revenue relating to the agreement using
contract accounting. Anticipated losses, if any, are charged to operations in
the period such losses are determined.
(2) REVOLVING LINE OF CREDIT AND LONG-TERM DEBT
On March 31, 1998, the Company entered into a Loan and Security Agreement
("Agreement") which provides for maximum borrowings of up to $10 million. The
Agreement contained a revolving line of credit and a term loan (the "Initial
Term Loan").
7
<PAGE>
AXS-ONE INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
Borrowings under the revolving line of credit bear interest at prime rate plus
1.25%. The Agreement provides for yearly fees as follows: (i) $111 in year one,
$86 in years two and three and (ii) an unused revolving line of credit fee of
.375% per annum. The Agreement is secured by substantially all domestic assets
of the Company together with a pledge of 65% of the stock of its foreign
subsidiaries, and contains certain financial restrictive covenants. Under the
revolving line of credit the Company currently has available the lesser of $5
million or 85% of eligible receivables, as defined. The net available amount
under the revolving line of credit at September 30, 2000 is approximately $2.6
million of which no amounts were outstanding. The Company was in compliance with
the covenants as of September 30, 2000.
The Initial Term Loan provided for $5 million available in one drawdown which
the Company borrowed on the closing date. The Initial Term Loan bears interest
at the prime rate as defined (9.5% at September 30, 2000) plus 1.5%, and was
repayable in 36 monthly installments beginning May 1, 1998.
Effective March 8, 1999, the Company amended the Agreement ("Amended Agreement")
in order to increase amounts available under the term loan portion of the
facility by the lesser of $1 million or eligible maintenance revenue, as
defined, through September 2001 (the "Additional Term Loan"), to extend the
termination date of the credit facility to March 31, 2002, and to establish
financial restrictive covenants for 1999. The Company did not draw down on the
Additional Term Loan.
Effective December 22, 1999, in connection with the sale of its subsidiary in
France, the Company further amended the Agreement (Amendment No. 7) in order to
make available to the Company a second term loan (the "Second Term Loan" and
together with the Initial Term Loan, the "A Term Loan") in the original
principal amount of $1.3 million, which the Company borrowed on that date, a
third term loan (the "B Term Loan") in the original principal amount of $750,
which is still available to be borrowed, subject to certain limitations, to
extend the termination date of the credit facility to March 31, 2003, and to
establish financial restrictive covenants for 2000. The term loans under
amendment No. 7 replaced the Additional Term Loan under the March 8, 1999
amendment.
The A Term Loan bears interest at the rate of prime plus 1.5% and is payable in
monthly installments of $100 through December 31, 2002. The B Term Loan provides
for not more than three borrowings in increments of at least $250 and is
available through December 31, 2000.
Amendment No. 7 provides a limitation that if the total outstanding balance of
term loans exceeds the lesser of (i) 45% of eligible maintenance revenues
through March 31, 2001, 40% of eligible maintenance revenues from April 1, 2001
through March 31, 2002, 30% of eligible maintenance revenues from April 1, 2002
through March 31, 2003 and (ii) $4.0 million, then the Company is required to
prepay the principal amount in an amount sufficient to cause the aggregate
principal amount of the term loans to be less than or equal to the relevant
limits set forth above. As of September 30, 2000, eligible maintenance revenues
totaled approximately $10,319. Based on this limitation, the amount available at
September 30, 2000 under all of the term loans is $750.
(3) CONTINGENCIES
On March 6, 1998, the District Court issued a final order approving the
settlement of the class action securities litigation. The overall settlement
included consideration totaling $15 million for the benefit of class members,
including $6 million of consideration from the Company, and payments from
certain of its present and former officers
8
<PAGE>
AXS-ONE INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
and directors, its former auditors, and the insurance companies that provided
AXS-One with directors and officers liability insurance. In return for the
payments by the insurance companies, the settlement also resolved a separate
lawsuit brought by the Company against the insurance companies. As its share of
the settlement, the Company paid $1 million in cash, and issued one million
shares of Common Stock of the Company ("Settlement Stock"). The Company recorded
a charge to operations of $6 million during the quarter ended September 30,
1997, reflecting the Company's share of the settlement costs, excluding legal
fees.
The class members received a non-transferable right to resell the Settlement
Stock to a business trust formed by the Company at a price of $5.00 per share
during a period from December 1, 1998 to December 21, 1998 (the "Put Period").
The trust was capitalized by a contribution of $5 million in cash by the Company
in March 1998. During the Put Period, class members exercised the put with
respect to 881 shares of Settlement Stock. The right to put the remaining shares
of Settlement Stock automatically expired as of midnight on December 21, 1998.
Pursuant to the terms of the stipulation of settlement, the Company paid $4,404
during January 1999 in satisfaction of the timely claims made under the puts
and, returned to the Company the remaining balance of the trust. Shares of
Settlement Stock that were not timely put according to the terms of the
settlement remain freely transferable.
Historically, the Company has been involved in other disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
the Company's business, consolidated financial condition, results of operations
or cash flows.
(4) BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic and diluted net income (loss) per common share is presented in accordance
with SFAS No. 128, "Earnings per Share" ("SFAS No. 128").
Basic net income (loss) per common share is based on the weighted average number
of shares of common stock outstanding during the period. Diluted net loss per
common share is the same as basic net loss per common share for the three and
nine months ended September 30, 1999 since the effect of stock options and
warrants is anti-dilutive.
The following represents the calculations of the basic and diluted net income
(loss) per common share for the three and nine months ended September 30, 1999
and 2000.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ........................ $ (1,722) $ 893 $ (3,165) $ 870
======== ======== ======== ========
Weighted average basic common shares
outstanding during the periods ......... 23,914 24,785 23,914 24,570
Effect of dilutive securities:
Stock options and warrants ............. -- 818 -- 1,425
-------- -------- -------- --------
Weighted average diluted common shares
outstanding during the periods ......... 23,914 25,603 23,914 25,995
======== ======== ======== ========
</TABLE>
9
<PAGE>
AXS-ONE INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (continued)
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Basic net income (loss) per common share . $ (0.07) $ 0.04 $ (0.13) $ 0.04
======== ======== ======== ========
Diluted net income (loss) per common share $ (0.07) $ 0.03 $ (0.13) $ 0.03
======== ======== ======== ========
</TABLE>
(5) Divestitures
On June 1, 1999 and December 29, 1999, the Company sold its wholly-owned
subsidiaries located in Germany and France, respectively. The Company received
net proceeds of $1,191 on the sale of its German subsidiary. The Company funded
the working capital deficiency for its French subsidiary, during December 1999,
in the amount of $1,253. In addition, the Company is required to pay an
additional $500 to its former French subsidiary on or prior to October 31, 2000,
which is reflected as other current liabilities on the accompanying December 31,
1999 and September 30, 2000 consolidated balance sheets.
The following table sets forth significant financial data of the French and
German subsidiaries for the three and nine months ended September 30, 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
License fees ............................. $ 11 $ 496
Services ................................. 756 4,377
------- -------
767 4,873
------- -------
Total operating expenses ................... 1,825 7,193
------- -------
Operating loss ............................. (1,058) (2,320)
Other loss, net .......................... (35) (332)
------- -------
Net loss ................................... $(1,093) $(2,652)
======= =======
</TABLE>
(6) OPERATING SEGMENTS
As of December 31, 1999 the Company's operations were conducted in one business
segment which was the licensing of software and related services. Beginning on
January 1, 2000, the Company was reorganized into three separate business
segments based on products as part of its strategy to focus on high-profile
market opportunities. The three business segments are as follows:
a) The Business Process Solutions segment is focused on marketing TransAXS
Solutions to emerging dot.com organizations or traditional organizations making
the transition to becoming dot.com businesses. Business Process Solutions is
also responsible for servicing and managing the Company's extensive installed
base of high-profile customers. TransAXS Solutions enable organizations to
achieve process transparency throughout their value chain.
10
<PAGE>
b) The AXSPoint Solutions segment is focused on identifying markets that need to
rapidly leverage the Internet in communicating, exchanging or reconciling large
volumes of knowledge with their customers, suppliers and partners. The AXSPoint
Solutions segment targets large information-centric organizations that can
utilize self-service information systems to improve communications with their
customers and improve access to business intelligence.
c) The Professional Services Automation segment has been chartered with
delivering a full suite of business solutions and services to organizations that
primarily sell professionals' time.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements included in
the 1999 Annual Report on Form 10K. The Company evaluates the performance of its
operating segments based on revenues and operating income (loss). Intersegment
sales and transfers are not significant.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The Chief Executive Officer uses the information
below in this format while making decisions about allocating resources to each
segment and assessing its performance. Segment information for the 1999 periods
are not shown as it is not practical to do so.
<TABLE>
<CAPTION>
Business Professional
Process AXS Point Services
Solutions Solutions Automation Total
--------- --------- ---------- -----
<S> <C> <C> <C> <C>
Three Months Ended September 30, 2000
Revenues:
License fees ...................... $ 2,277 $ 928 $ 188 $ 3,393
Services .......................... 8,004 972 945 9,921
------- ------- ------- -------
Total revenues ......................... 10,281 1,900 1,133 13,314
Operating income ....................... 2,472 926 137 3,535
Total assets ........................... 13,075 1,506 1,885 16,466
Capital expenditures ................... 327 25 28 380
Depreciation and amortization .......... 465 22 37 524
Nine Months Ended September 30, 2000
Revenues:
License fees ...................... $ 5,150 $ 1,713 $ 263 $ 7,126
Services .......................... 24,723 2,564 3,087 30,374
------- ------- ------- -------
Total revenues ......................... 29,873 4,277 3,350 37,500
Operating income ....................... 6,580 1,392 476 8,448
Total assets ........................... 13,075 1,506 1,885 16,466
Capital expenditures ................... 701 56 56 813
Depreciation and amortization .......... 1,422 78 88 1,588
</TABLE>
Reconciliation of segment operating income to consolidated operating income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 2000
------------------ ------------------
<S> <C> <C>
Operating income from reportable segments .......... $ 3,535 $ 8,448
Unallocated general and administrative expense ..... (2,252) (6,400)
Other corporate unallocated expenses ............... (278) (932)
------- -------
Total consolidated operating income ................ $ 1,005 $ 1,116
======= =======
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
11
<PAGE>
The following discussion should be read in conjunction with the Consolidated
Interim Financial Statements and Notes thereto and is qualified in its entirety
by reference thereto.
This Report contains statements of a forward-looking nature within the meaning
of the safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended, relating to future events or the future financial performance
of the Company. Investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, investors should specifically consider the various
factors identified in this Report which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
the matters set forth in "Business--Risk Factors" in the Company's 1999 Annual
Report on Form 10K.
Overview
In November 2000, the Company changed its name to AXS-One Inc. from Computron
Software, Inc., in order to better reflect the direction of the Company to the
new family of products outlined below.
The Company was founded in 1978 as a developer of custom financial software for
mission-critical applications in large organizations, primarily financial
institutions. In the early 1980's, the Company developed financial software for
legacy platforms and introduced sophisticated enterprise-wide financial
software. Identifying the need for client/server financial software applications
in the late 1980's, the Company commenced the re-architecture of its financial
software and began the development and deployment of new products, specifically
a workflow and document management product. In 1993, the Company introduced
Computron Financials and Computron Workflow, the client/server versions of its
financial and workflow products. Computron COOL was introduced in the latter
half of 1993. Since 1994, the Company has released versions of its products with
the capability to interoperate with popular RDBMS software. During the fourth
quarter of 1995, the Company acquired the rights to its Yorvik software.
In April and June 1996, respectively, the Company acquired the Financial
Services Division of Generale de Service Informatique (GSI) based in Paris,
France, and a portion of the business and assets of AT&T Istel and Co., GMBH, in
Essen, Germany. These operations primarily provided software products and
services in their respective countries. Both of these entities were sold during
1999. See below for the impact of these divestitures.
In 1999 the Company started a major development effort to build a suite of
electronic commerce solutions based upon its next generation n-tier
Internet-architecture. This new family of products, e-Cellerator products, is
designed to meet the needs of organizations that wish to conduct business across
the Internet. E-Cellerator products are used to build two families of solutions,
TransAXS solutions and AXSPoint solutions. TransAXS solutions are designed to
enable businesses to conduct business transactions across the Internet. AXSPoint
solutions are designed to enable organizations to exchange information and
knowledge across the Internet. These two families of solutions were announced in
the fourth quarter of 1999, and TransAXS solutions and AXSPoint solutions
modules will become available throughout 2000 and beyond. See "Item 1. Business"
in the Company's 1999 Annual Report on Form 10K.
The Company's revenues are derived from license fees and services. Revenue from
non-cancelable software licenses is recognized when the license agreement has
been signed, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. Post contract support (maintenance) fees are
typically billed separately and are recognized on a straight line basis over the
life of the applicable agreement. Revenues for consulting, maintenance and
implementation services, including training, are recognized upon performance of
the services. When the Company enters into a license agreement requiring
development or significant customization of the software products, the Company
recognizes revenue relating to the agreement using contract accounting. The
Company's license agreements
12
<PAGE>
generally do not provide a right of return. Historically, the Company's backlog
has not been substantial, since products are generally shipped as orders are
received.
The Company has experienced, and may in the future experience, significant
fluctuations in its quarterly and annual revenues and results of operations. The
Company believes that domestic and international operating results will continue
to fluctuate significantly in the future as a result of a variety of factors,
including the timing of revenue recognition related to significant license
agreements, the lengthy sales cycle for the Company's products, the proportion
of revenues attributable to license fees versus services, the utilization of
third parties to perform services, the amount of revenue generated by resales of
third party software, changes in product mix, demand for the Company's products,
the size and timing of individual license transactions, the introduction of new
products and product enhancements by the Company or its competitors, changes in
customers' budgets, competitive conditions in the industry and general economic
conditions. For a description of certain factors which may affect the Company's
operating results, see "Potential for Significant Fluctuations in Operating
Results; Seasonality" in the Company's 1999 Annual Report on Form 10K.
The Company incurred net losses of $13.6 million, $9.0 million and $3.7 million
in 1997, 1998 and 1999, respectively and operating losses of $4.8 million, $8.9
million and $1.2 million in 1997, 1998 and 1999, respectively. Operating losses
incurred by the Company's French and German subsidiaries, which were sold in
1999, totaled $4.3 million, $3.7 million and $2.4 million for 1997, 1998 and
1999, respectively. The Company reported net income of $870 thousand for the
nine months ended September 30, 2000 and operating income of $1.1 million for
the same period.
New Accounting Standards
In the second quarter of 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." In June 1999, the FASB
issued SFAS No. 137 which defers the effective date of SFAS No. 133. SFAS No.
133 requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The Company currently does not use
derivative instruments and as such believes the adoption of SFAS No. 133,
beginning January 1, 2001, will have no effect on the consolidated financial
statements.
In December 1999, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The effective
date of this pronouncement is the fourth quarter of the fiscal year beginning
after December 15, 1999. The Company believes that adopting SAB 101 will not
have a material impact on its consolidated financial position and results of
operations.
In March 2000, the FASB issued FASB Interpretation No. 44, or FIN 44,
"Accounting for Certain Transactions involving Stock Compensation," an
interpretation of APB Opinion No. 25. FIN 44 clarifies the application of
Opinion 25 for (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence for various modifications
to the terms of a previously fixed stock option or award and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain provisions cover specific events that
occurred after either December 15, 1998 or January 12, 2000. The adoption of FIN
44 did not have a material effect on our consolidated financial statements.
Euro Currency
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<PAGE>
On January 1, 1999, certain countries of the European Union established fixed
conversion rates between their existing currencies and one common currency, the
euro. The euro then began to trade on currency exchanges and to be used in
business transactions. Beginning in January 2002, new euro-denominated
currencies will be issued and the existing local currencies will be withdrawn
from circulation by July 1, 2002. The Company derived approximately 37.9% of its
total revenues outside the United States for 1999, a significant portion of
which is in Europe. The Company derived approximately 37.4% of its total
revenues outside the United States for the nine months ended September 30, 2000.
The Company has not completed its assessment of the potential impact of the euro
conversion. However, at present, the Company believes the euro conversion will
not have a material effect on the Company's consolidated financial position or
results of operations.
14
<PAGE>
Results of Operations
The following tables set forth certain operating data (for the periods
indicated) including and excluding the French and German subsidiaries sold
during 1999. The operating data excluding French and German subsidiaries sold
during 1999 is also shown as a percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Ended
Three Months Ended September 30, 1999 September 30, 2000
---------------------------------------------- ------------------
Excluding Data as a Data as a
As France & France & percent of As percent of
(In thousands) Reported Germany Germany revenue Reported revenue
----------------------------------------------- ---------------------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees .............. $ 1,160 $ 11 $ 1,149 10.0% $ 3,393 25.5%
Services .................. 11,063 756 10,307 90.0 9,921 74.5
--------------------------------------------------------------------
Total revenues ......... 12,223 767 11,456 100.0 13,314 100.0
--------------------------------------------------------------------
Operating expenses:
Cost of license fees ...... 310 -- 310 2.7 324 2.4
Cost of services .......... 5,793 624 5,169 45.1 4,871 36.6
Sales and marketing ....... 2,547 238 2,309 20.1 3,106 23.4
Research and development .. 1,806 11 1,795 15.7 1,652 12.4
General and administrative 2,749 379 2,370 20.7 2,356 17.7
Goodwill impairment ....... 573 573 -- -- -- --
--------------------------------------------------------------------
Total operating expenses 13,778 1,825 11,953 104.3 12,309 92.5
--------------------------------------------------------------------
Operating income (loss) ......... (1,555) (1,058) (497) (4.3) 1,005 7.5
--------------------------------------------------------------------
Other income (expense):
Loss on sale of subsidiary -- -- -- -- -- --
Interest income ........... 14 -- 14 0.1 12 0.1
Interest expense .......... (110) (3) (107) (0.9) (99) (0.7)
Other expense ............. (71) (32) (39) (0.4) (25) (0.2)
--------------------------------------------------------------------
Other expense, net ..... (167) (35) (132) (1.2) (112) (0.8)
--------------------------------------------------------------------
Net income (loss) ............... $ (1,722) $ (1,093) $ (629) (5.5)% $ 893 6.7%
====================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Nine Months Ended September 30, 1999 September 30, 2000
------------------------------------------------ ---------------------
Excluding Data as a Data as a
As France & France & percent of As percent of
(In thousands) Reported Germany Germany revenue Reported revenue
------------------------------------------------ ----------------------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees .............. $ 7,009 $ 496 $ 6,513 16.9% $ 7,126 19.0%
Services .................. 36,390 4,377 32,013 83.1 30,374 81.0
---------------------------------------------- -------------------
Total revenues ......... 43,399 4,873 38,526 100.0 37,500 100.0
---------------------------------------------- -------------------
Operating expenses:
Cost of license fees ...... 1,526 191 1,335 3.5 1,021 2.7
Cost of services .......... 19,354 2,926 16,428 42.6 15,812 42.2
Sales and marketing ....... 8,920 895 8,025 20.8 7,595 20.2
Research and development .. 5,915 414 5,501 14.3 5,174 13.8
General and administrative 9,618 2,194 7,424 19.3 6,782 18.1
Goodwill impairment ....... 573 573 -- -- -- --
---------------------------------------------- -------------------
Total operating expenses 45,906 7,193 38,713 100.5 36,384 97.0
---------------------------------------------- -------------------
Operating income (loss) ......... (2,507) (2,320) (187) (0.5) 1,116 3.0
---------------------------------------------- -------------------
Other income (expense):
Loss on sale of subsidiary (261) (261) -- -- -- --
Interest income ........... 71 3 68 0.2 56 0.1
Interest expense .......... (326) (10) (316) (0.8) (297) (0.8)
Other expense ............. (142) (64) (78) (0.2) (5) --
---------------------------------------------- -------------------
Other expense, net ..... (658) (332) (326) (0.8) (246) (0.7)
---------------------------------------------- -------------------
Net income (loss) ............... $ (3,165) $(2,652) $ (513) (1.3)% $ 870 2.3%
=============================================== ===================
</TABLE>
Note: The following discussions relate to changes in the results of operations,
excluding France and Germany for the periods presented.
Total Revenues
Total revenues increased 16.2% for the three months ended September 30, 2000 and
decreased 2.7% for the nine months ended September 30, 2000, as compared to the
corresponding prior year periods. The increase for the three months ended
September 30, 2000 resulted from an almost 200% increase in license revenue due
to sales of its new e-Cellerator products. The decrease for the nine months
ended September 30, 2000 is mainly attributable to a decrease in service
revenues in the U.S. operations from the high service revenues in 1999 due to
customer preparation for the Year 2000.
The Company derived approximately $4.4 million and $14.0 million, or 32.7% and
37.4% of its total revenues, from customers outside of the United States for the
three and nine months ended September 30, 2000, respectively, compared to $3.6
million and $12.1 million, or 31.1% and 31.3%, respectively, for the
corresponding prior year periods. The Company expects that revenues from
customers outside the United States will continue to represent a significant
percentage of its total revenues in the future. Most of the Company's
international license fees and services revenue are denominated in foreign
currencies. With respect to the Company's international sales that are US
dollar-denominated, decreases in the value of foreign currencies relative to the
US dollar could make the Company's products less price competitive.
16
<PAGE>
License Fees
License fees include revenues from software license agreements and hardware
sales entered into between the Company and its customers with respect to both
the Company's products and, to a lesser degree, third party products resold by
the Company. License fees increased $2.2 million or 195% and $0.6 million or
9.4% for the three and nine months ended September 30, 2000, respectively, as
compared to the prior year periods. As the Company expected sales of back office
financial products to decline after entities upgraded to Year 2000 compliant
versions, the Company began developing and selling, in 2000, new
Internet-enabled products and solutions. The increase in license fees in 2000 is
mainly a result of the sale of these new product lines, including the sale of
$1.4 million to one customer and an additional sale of $0.5 million to another
customer during the third quarter of 2000. License fees for the nine months
ended September 30, 1999 included sales to a significant number of installed
base customers who upgraded to a Year 2000 certified version of the Company's
software.
Services Revenue
Services revenue includes fees from software maintenance agreements, training,
installation and consulting services. Maintenance fees are billed separately and
are recognized ratably over the period of the maintenance agreement. Training,
installation and consulting service revenues are recognized as the services are
performed. Services revenue decreased 3.8% and 5.1% for the three and nine
months ended September 30, 2000, respectively, as compared to the corresponding
prior year periods. The majority of the decrease for the period relates to lower
service revenues in the U.S. operations, due in part to lower license sales for
the first half of 2000 and a year 2000 lockdown earlier in the year.
Cost of License Fees
Cost of license fees consists primarily of amortization of capitalized software
development costs, amounts paid to third parties with respect to products resold
by the Company in conjunction with licensing of the Company's products and, to a
lesser extent, the costs of documentation. The elements can vary substantially
from period to period as a percentage of license fees.
Cost of license fees increased slightly for the three months ended September 30,
2000, and decreased $0.3 million for the nine month period ended September 30,
2000, as compared to the corresponding prior year period, due to a decrease in
documentation costs and license sales that include third party software.
Cost of Services
Cost of services consists primarily of personnel and third party costs for
product quality assurance, training, installation, consulting and customer
support.
Cost of services decreased 5.8% and 3.7% for the three and nine months ended
September 30, 2000, respectively as compared to the corresponding prior year
periods. The decrease is primarily due to a decrease in services revenue and a
related decrease in third party service costs.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commissions, bonuses
paid to sales and marketing personnel, as well as travel and promotional
expenses.
17
<PAGE>
Sales and marketing expenses increased 34.5% for the three months ended
September 30, 2000, and decreased 5.4% for the nine months ended September 30,
2000, as compared to the corresponding prior year periods. The increase for the
three month period is primarily due to increased commissions resulting from the
increased license revenue and an increase in marketing expense related to
changing of the company name.
Research and Development
Research and development expenses consist primarily of personnel costs, and
costs of equipment facilities and third party software development costs.
Research and development expenses are generally charged to operations as
incurred. However, certain software development costs are capitalized in
accordance with Statement of Financial Accounting Standards No. 86. Such
capitalized software development costs are generally amortized over periods not
exceeding three years.
Research and development expenses decreased to $1.7 million and $5.2 million,
for the three and nine months ended September 30, 2000, respectively, from $1.8
million and $5.5 million for the comparable prior year periods mainly due to a
decrease in research and development expenses for the Yorvik product, as well as
an increase in capitalized software development costs and a decrease in cost of
third party services. The Company capitalized $0.5 million and $1.4 million in
software development costs during the three and nine months ended September 30,
2000, respectively, as compared to $0.4 million and $1.1 million, respectively
for the corresponding prior year periods. The rate of capitalization of software
development costs may fluctuate depending on the mix and stage of development of
the Company's product development and engineering projects.
General and Administrative
General and administrative expenses consist primarily of salaries for
administrative, executive and financial personnel, and outside professional
fees. General and administrative expenses remained level for the three months
ended September 30, 2000 and decreased 8.7% for the nine months ended September
30, 2000, as compared to the prior year periods. The decrease for the nine month
period is mainly due to a reduction of headcount in the Canadian operations and
a reduction of a reserve for sales taxes resulting from conclusion of the
related tax audits, partially offset by an increase in legal fees in the U.S.
operations.
Other Income (Expense)
Other income (expense) net decreased to ($112) thousand and ($246) thousand for
the three and nine months ended September 30, 2000, respectively, from ($132)
thousand and ($326) thousand for the comparable prior year periods primarily due
to lower interest expense on the revolving line of credit and term loan (See
Note 2 to the Consolidated Interim Financial Statements), due to less borrowing.
Segment Information
Beginning on January 1, 2000, the Company was reorganized into three separate
business segments. (See Note 6 to the Consolidated Interim Financial
Statements). For the three and nine months ended September 30, 2000 the Business
Process Solutions segment had license fee revenues of $2.3 million and $5.2
million, respectively, services revenue of $8.0 million and $24.7 million,
respectively, and operating income of $2.5 million and $6.6 million,
respectively, relating mainly to license fees from sales of its TransAXS
products and service and maintenance revenues earned from the installed base.
The AXSPoint Solutions segment had license fee revenues of $0.9 million and $1.7
million, respectively, services revenue of $1.0 million and $2.6 million,
respectively, and operating income of $0.9 million and $1.4 million,
respectively, which represented new license fee revenue relating to sales of its
new AXSPoint Solutions products as well as maintenance revenue from its
installed base. The Professional Services
18
<PAGE>
Automation segment had services revenue of $0.9 million and $3.1 million,
respectively, for the three and nine months ended September 30, 2000 and
operating income of $0.1 million and $0.5 million, respectively, relating mainly
to maintenance revenue from its installed base as well as implementation fees to
install its products.
Liquidity and Capital Resources
The available amount under the revolving line of credit at September 30, 2000
was approximately $2.6 million. The available amount under all term loans at
September 30, 2000 was approximately $750 thousand. (See Note 2 to the
Consolidated Interim Financial Statements).
The Company is required to comply with quarterly and annual financial statement
reporting requirements, as well as certain restrictive financial covenants. The
ability to continue to borrow under the Agreement is dependent upon future
compliance with such covenants and available collateral. Management believes
that the Company's projected operating results over the next twelve months will
result in compliance under the Agreement, although there can be no assurances
that such operating results will be achieved.
The Company's operating activities provided (used) cash of ($1.5) million and
$0.9 million for the nine months ended September 30, 1999 and 2000,
respectively. Net cash provided by operations during the nine months ended
September 30, 2000 was comprised primarily of the net income and depreciation
and amortization expense, offset by a decrease in accounts payable and accrued
expenses. Net cash used by operations during the nine months ended September 30,
1999 was comprised primarily of the net loss and a decrease in deferred revenue
offset by depreciation and amortization expense and the goodwill impairment
write-off.
The Company's investing activities used cash of $0.5 million and $2.2 million
for the nine months ended September 30, 1999 and 2000, respectively. The
principal uses of cash during 2000 were for equipment purchases and leasehold
improvements, and for capitalized software development costs. Cash used for the
nine months ended September 30, 1999 was comprised of capitalized software
development costs and the purchase of equipment and leasehold improvements
offset by proceeds from the sale of the German subsidiary of $1.2 million.
Cash provided by financing activities was $36 thousand and $1.1 million during
the nine months ended September 30, 1999 and 2000, respectively and related
mainly to short term borrowings offset by repayments of debt in 1999, and
proceeds for the exercise of stock options and warrants in 2000 offset by
repayments of debt.
The Company has no significant capital commitments. Planned capital expenditures
for the remainder of 2000 total approximately $0.1 million. Included in
capitalized software development costs are several products that have not been
generally released as of September 30, 2000. The Company expects to spend
approximately $0.5 million to complete such products. These products are
expected to be completed prior to March 31, 2001. The Company's aggregate
minimum operating lease payments for 2000 will be approximately $2.0 million.
The Company expects that its operating cash flow and/or available borrowings
under the line of credit will be sufficient to fund the Company's working
capital requirements through 2000. However, the Company's ability to achieve
this result is affected by the extent of cash generated from operations and the
pace at which the Company utilizes its available resources. Accordingly, the
Company may in the future be required to seek additional sources of financing
including the issuance of debt and/or sale of equity securities. No assurance
can be given that any such additional sources of financing will be available on
acceptable terms or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company is exposed to fluctuations in
interest rates and equity market risks as the Company seeks debt and equity
capital to sustain its operations. The Company is also exposed to fluctuations
in
19
<PAGE>
foreign currency exchange rates as the financial results of its foreign
subsidiaries are translated into U.S. dollars in consolidation. The Company does
not use derivative instruments or hedging to manage its exposures and does not
currently hold any market risk sensitive instruments for trading purposes.
The information below summarizes the Company's market risk associated with its
debt obligation as of September 30, 2000. Fair value included herein has been
estimated taking into consideration the nature and term of the debt instrument
and the prevailing economic and market conditions at the balance sheet date. The
table below presents principal cash flows by year of maturity based on the terms
of the debt. The variable interest rate disclosed represents the rate at
September 30, 2000. Changes in the prime interest rate during fiscal 2000 will
have a positive or negative effect on the Company's interest expense. Each 1%
fluctuation in the prime interest rate will increase or decrease annual interest
expense for the Company by approximately $27 thousand, based on the debt
outstanding as of September 30, 2000. Further information specific to the
Company's debt is presented in Note 2 to the Consolidated Interim Financial
Statements.
(In thousands)
Year of Maturity
--------------------------
Variable
Interest Estimated Carrying
Description Rate Fair Value Amount 2000 2001 2002
--------------------------------------------------------------------------------
Term loan 11.00% $2,722 $2,722 $300 $1,200 $1,222
Certain Factors That May Affect Future Results and Financial Condition and the
Market Price of Securities
See the Company's 1999 Annual Report on Form 10K for a discussion of risk
factors.
20
<PAGE>
AXS-ONE INC.
Part II
Other Information
Item 1. Legal Proceedings
Historically, the Company has been involved in disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
the Company's business, financial condition and results of operations or cash
flows.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27 - Financial Data Schedule (Edgar filing only).
Reports on Form 8-K - No Reports on Form 8-K were filed by the Company during
the quarter ended September 30, 2000.
21
<PAGE>
AXS-ONE INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXS-ONE INC.
Date: November 14, 2000 By: /s/ Michael R. Jorgensen
------------------------------------
Michael R. Jorgensen
Executive Vice President,
Chief Financial Officer
and Treasurer
By: /s/ William G. Levering III
-------------------------------------
William G. Levering III
Vice President, Corporate Controller,
Chief Accounting Officer
22
