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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER: 1-13591
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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)
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock $.01 par value American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
COMPUTRON SOFTWARE, INC.
(Former name, if changed since last report)
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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 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 upon the closing sale price of Common Stock on March 15, 2001
as reported on the American Stock Exchange, was approximately $9.1 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 15, 2001, Registrant had outstanding 24,784,742 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
ITEMS 10, 11, 12 AND 13 OF PART III ARE INCORPORATED BY REFERENCE FROM A
PORTION OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FURNISHED TO
STOCKHOLDERS IN CONNECTION WITH THE 2001 ANNUAL MEETING OF STOCKHOLDERS.
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ITEM 1. BUSINESS
This Report contains statements of a forward-looking nature within the
meaning of the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, relating to future events or future financial results 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 events or results to differ materially from
those indicated by such forward-looking statements, including the matters set
forth in "Business--Risk Factors" below.
GENERAL
AXS-One Inc. ("AXS-One" or the "Company") (which, until October 31, 2000,
was known as Computron Software, Inc.) is a provider of robust, secure business
solutions which allow a company to achieve efficiency in its business processes
and extend those efficiencies to its customers, suppliers, and business
partners. AXS-One has over 20 years of experience in designing and building
process-centric business solutions for global organizations. AXS-One has a
proven track record in developing flexible, high-volume, scalable, secure and
effective business solutions for global 2000 organizations. AXS-One's ability to
quickly identify emerging market opportunities and build high-quality innovative
solutions has won many awards over the years, including Imaging Magazine's
"Product of the Year" award for AXS-One Workflow and a "Best of AIIM" award for
the first Internet/Java COLD product.
AXS-One believes that the ultimate success of 21st century organizations
will be determined by how seamlessly they conduct business internally and with
their partners, customers and suppliers. The Company's objective is to deliver
business solutions which, through enablement via the Internet, allow
organizations to establish transparent and seamless processes throughout their
value-network.
In 1999 and 2000, AXS-One invested significantly in the development of
e-commerce technology, and will continue to invest throughout 2001. In order to
better focus on emerging e-commerce opportunities, effective January 1, 2000,
AXS-One reorganized around three product families that represent separate lines
of business ("LOB") within AXS-One:
AXS-ONE-TM- ENTERPRISE-- a suite of solutions that address mission critical
business processes that directly affect the overall
performance of an enterprise.
AXSPOINT-TM--- a solution for sharing knowledge internally and between
business partners.
TIVITY-TM--- a complete e-commerce solution for the professional services
industry.
Each of these families of solutions has been enhanced using AXS-One's
e-Cellerator-TM- products. e-Cellerator products utilize a next generation,
messaging, transaction and process-centric architecture that AXS-One developed
to support the design and development of large-scale, Internet-based commerce
solutions. It is an "n-tier" (desktop browser, web servers, application servers
and database server), component-based, Internet-deployable, scalable
architecture. At the core of the architecture is an advanced workflow engine
that handles large volumes of complex business process logic. The user interface
is very intuitive and is accessible over the Internet.
e-Cellerator products run on Windows NT, Sun Unix, HP UNIX, Tru64 UNIX and
IBM RS/6000 Unix. Linux is available, but not deployed. The e-Cellerator
products support the following database engines: Oracle, MS SQLServer, Informix
and Sybase. The component-based architecture enables rapid integration and
deployment of advanced technologies. Solutions using e-Cellerator products can
be hosted in-house or remotely by third-party application service providers
(ASP).
AXS-One's foundation products, which are client/server based, continue to be
maintained, enhanced and upgraded. These products are the back-office system of
choice for large information-
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centric, global organizations such as AIG, Pfizer, AOL, Deutsche Bank, Emery,
TNT, Toys "R" Us, Ricoh and United Airlines. AXS-One's client/server products
have been particularly well received in those organizations that have adopted an
internal "shared services" approach to back-office administration functions.
AXS-One Financials have extensive functionality and are able to handle large
volumes of complicated business transactions. They are designed to manage
end-to-end business processes. AXS-One Financials are integrated with a robust
workflow engine that allows organizations to manage and track a wide range of
business-process metrics. The Process Design Workbench is a critical component
of the solution. It enables organizations to quickly tailor standard business
process templates to meet their own unique needs. The underlying "n-tier"
architecture is highly scalable and able to meet the transaction volume needs of
Fortune 100 organizations. AXS-One Workflow, enhanced using e-Cellerator
products, can now be used to automate business processes both within and across
organizations, thus extending the reach of end-to-end process control outside of
the walls of traditional bricks and mortar organizations.
In this emerging Net economy, with the virtual office becoming more
prevalent, AXS-One is well positioned to meet the business needs of
e-organizations. AXS-One's e-Cellerator products provide the ability to leverage
technology and to disseminate business knowledge electronically throughout the
enterprise or across enterprises.
ORGANIZATION AND PRODUCTS
Effective January 1, 2000, AXS-One Software reorganized itself into three
LOBs: AXS-One Enterprise Solutions, AXSPoint Solutions and Tivity Solutions.
Each of these LOBs is responsible for its own global business strategy and its
operations in North America. AXS-One's international subsidiaries and
distributors are responsible for selling and marketing the products of these
three LOBs into their respective local markets. In addition, the Company
continues to provide support for its Yorvik-Registered Trademark- work
management software.
Further information specific to these three operating segments is presented
in Note 11 to the Consolidated Financial Statements.
AXS-ONE ENTERPRISE SOLUTIONS. Is a suite of solutions that addresses
mission critical business processes that directly affect the overall performance
of an enterprise. The degree of success or failure of these processes is
measured in terms of speed, accuracy, control and accountability. AXS-One
Enterprise manages the revenue process, including relationships with customers,
with Revenue Manager (scheduled to be available in the summer of 2001); the
expense process, including relationships with vendors, with Expense Manager; the
procurement process, including relationships with employees and vendors, with
Procurement Manager; and the business planning, budgeting, analysis and
reporting process with Business Manager. Collectively, AXS-One Enterprise
enables enterprises to effectively manage entire process lifecycles with proven
transactional applications, templated and automated process workflow, and by
maximizing the efficiencies of the Internet.
The AXS-One Enterprise Solutions LOB is also responsible for maintaining,
supporting and enhancing AXS-One's foundation suite of world-class back-office
financial products, and existing AXS-One North American customers, including
Pfizer, AIG, Toys "R' Us, Ricoh, United Airlines and Emery.
The AXS-One Enterprise Solutions LOB currently markets its products and
services primarily through a direct sales force in the United States and
directly and indirectly in other parts of the world. The AXS-One Enterprise
Solutions LOB conducts comprehensive marketing programs in the United States,
which include telemarketing, public relations, direct mail, advertising,
seminars, trade shows and ongoing customer communications programs.
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The AXS-One Enterprise Solutions LOB's sales efforts in the United States
are conducted by a direct sales force, which is located at the Company's
headquarters in Rutherford, New Jersey, and in the Chicago and Atlanta areas.
Outside of the United States, the AXS-One Enterprise Solutions LOB utilizes
the Company's sales and support offices in Australia, Poland, Bulgaria,
Singapore, South Africa and the United Kingdom. In the past the Company has
established distribution arrangements with third parties around the world and
continually evaluates future third party arrangements. Currently, the AXS-One
Enterprise Solutions LOB does not generate significant revenues from its
distributors.
This family of solutions leverages and shares the core functional components
of AXS-One foundation products, such as AXS-One Financials, and the benefits of
e-Cellerator products. The ability to utilize existing foundation components
enables AXS-One Enterprise Solutions to support a powerful set of core business
functionality, such as multi-language and multi-currency, and the ability to
handle complex, process-centric business and accounting requirements such as
different forms of payment. As a result, AXS-One Enterprise Solutions have all
the features of a powerful e-commerce solution, backed by the solid
functionality of a world-class, global back-office suite of business products.
AXS-One Enterprise Solutions and foundation products are described below.
AXS-ONE ENTERPRISE REVENUE MANAGER manages the entire billing, collection and
cash application process. Revenue Manager begins with the invoice to the
customer that goes against a managed inventory of open items. Once payment is
received, Revenue Manager handles the entire cash application process by using
either the customer's instructions or system-constructed algorithms to apply the
payment. Revenue Manager automates the monitoring of the receivable asset.
Customers falling behind in payments are notified by system generated dunning
letters and/or by collectors who are alerted to call the account. Revenue
Manager extends its value by providing customers with a web based self-service
portal that allows for bill presentation, account reconciliation, request for
change of credit limit and/or address and e-mail correspondence with the
Accounts Receivable personnel assigned to the account. Revenue Manager is
scheduled to be available by the summer of 2001.
AXS-ONE ENTERPRISE EXPENSE MANAGER supervises the expense management process.
From invoice entry through Purchase Order matching and supervisor approval,
Expense Manager allows for simplified data-entry with automated routing of
invoices for payment approval(s). Once paid, a robust reconciliation process
matches payments to statement detail supplied by the bank. Like Revenue Manager,
Expense Manager extends its value by providing vendors with a web based
self-service secure portal that allows them a real-time view of their invoice
and payment data, thereby reducing the need for direct contact with the Accounts
Payable department. Expense Manager streamlines the internal payment process and
strengthens the customer/supplier relationship.
AXS-ONE ENTERPRISE PROCUREMENT MANAGER supervises the entire procurement
lifecycle process. From supply need to payment for received goods
(requisition-to-payment), Procurement Manager allows employees to securely buy
supplies via an Intranet web site in a controlled environment. Procurement
Manager manages the internal catalogs and/or links to external supplier catalogs
via eXtensible Markup Language (XML), manages budgetary controls, controls the
approval process and creates the final purchase order. Once an ordered supply
has been received, Procurement Manager is notified by receipt verification from
the receiver. Once an invoice is received from the supplier, Procurement Manager
conducts a three-way match between the original purchase order, the invoice and
the receipt verification for accuracy. If everything matches then Procurement
Manager triggers a scheduled payment. If a match is not found, Procurement
Manager begins exception processing. Procurement Manager streamlines and
automates the entire procurement process including budgetary controls, catalog
maintenance, inventory and approval management.
AXS-ONE ENTERPRISE BUSINESS MANAGER encompasses the entire business planning,
forecasting and reporting process. This process starts with the business plan,
which then goes through the budget
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process, and continues through monthly reporting. Business Manager then conducts
periodic variance analysis and generates applicable reports that may be
available over the web, which may then be compared to the original business plan
and revisions made as necessary. Business Manager also handles and controls
corporate budgeting (including the Encumbrance Accounting Module), the treasury
function and total assets in a dynamic workflow and Internet based environment
for maximum efficiency.
AXS-ONE FINANCIALS:
This is AXS-One's foundation suite of products. It is a world-class suite of
back-office administrative systems being used by some of the largest
organizations in the world. It is built on a highly scalable, component-based,
robust, n-tiered architecture.
MODULE FEATURES
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GENERAL LEDGER.......... The General Ledger (GL) module provides comprehensive
financial accounting and management information across
multiple companies, currencies, and reporting calendars. It
stores and maintains financial, statistical, and budgetary
information for summary, comparison, calculation, inquiry,
and reporting. AXS-One believes that the product fulfills
statutory, consolidation, and management requirements while
offering benefits such as complete user control of all
functions and the ledger structure,
POWER INTERACTIVE....... Power Interactive is a set of components used to define GL
financial reports. Created in Visual Basic, Power
Interactive provides a traditional Windows look and feel
with standard icons, while allowing users report access and
drill down capability to virtually any data available in the
GL. Its components include the Power Interactive Definer and
Power Interactive Viewer. The Power Interactive Definer
allows the specification of a report using a graphical user
interface, without having to consider the details of the
actual report layout. Its Power Interactive Viewer component
is a user-friendly tool that facilitates end-user financial
report modifications and customizations. With Power
Interactive, users can define financial report data lines
and columns using the Definer, and use the Viewer to define
and/or view the layout. For performance and scalability, all
data is gathered on the server.
BUDGET CYCLE
MANAGEMENT............ The Budget Cycle Management (BCM) module is workflow-based
and is designed to allow organizations to automate the ways
in which budget information is downloaded/uploaded,
disseminated and collected throughout the enterprise. It
provides the ability to track the status of each form,
reducing the frequent manual intervention involved in the
budget cycle process. With BCM, organizations in virtually
any industry can improve the overall quality and control of
the budgeting process, decrease wait time by speeding the
manual process, and reduce manual effort.
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MODULE FEATURES
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ACCOUNTS RECEIVABLE..... The Accounts Receivable module provides efficient and
comprehensive debtor management facilities, offering
complete financial accounting and management information, in
multiple currencies, to fulfill statutory and management
requirements and is suitable for Internet Service Providers
(ISPs), because of its ability to consolidate invoice line
details. It is parameter-driven for precise matching to user
requirements and offers users control of many functions
including the ledger structure. Users can create Call Back
Queue records based on data from the customer master,
customer statistics, and open item files using the Credit
Manager's workbench function. Additionally, AXS-One Accounts
Receivable has an optional Direct Invoicing module that
handles pick list generation, invoice generation, deal
pricing, and pricing and discount tables for goods and
services. It also provides comprehensive financial
accounting and management reporting and inquiry (statistical
and financial), in multiple currencies. It supports the EDI
820 and 823 requirements. Through the use of various
standard AXS-One utilities, data can be uploaded to and/or
downloaded from external sources.
EXPENSE CYCLE........... Management Expense Cycle Management (ECM) is a complete
application that integrates portions of AXS-One's financial
modules with workflow technology and is delivered with a
graphical process design wizard called the Process Design
Workbench. It comes with all of the workflow tasks necessary
for re-engineering the payment cycle, such as several
scanning, faxing and invoice capture tasks, tasks for
indexing documents, voucher approval routing options, EFT
payments, exception handling, and full online inquiry to the
workflow and financial data.
PROCUREMENT CYCLE
MANAGEMENT............ Procurement Cycle Management (PCM) is a complete application
that integrates portions of AXS-One's financial modules with
workflow technology, including the Process Design Workbench.
It allows individual organizations to define the procurement
cycle process and provides a view of the current processes,
identifying areas that can be improved. By coupling the
value of workflow with AXS-One's standard functional
richness, PCM helps organizations decrease wait time, reduce
manual effort, and improve the control of the procurement
process. PCM can electronically create both requisitions and
purchase orders, and upon completion of an online
requisition, perform custom business rules, or automatically
route the requisition to a supervisor for approval and
release.
INVENTORY CONTROL....... The Inventory Control module is a highly flexible inventory
system with full integration to both AXS-One
Financials/Purchase Order and AXS-One Financials/General
Ledger. This system features extensive inventory transaction
capabilities and detailed reporting functionality. Notable
features include Item Master File maintenance and inquiry
capability, Bill of Materials, full integration to AXS-One
Financials/Purchase Order through Requisition and Receiving,
Pick List processing, a full range of inventory transactions
including warehouse moves, transfers, issues, and returns,
inventory count capabilities and inventory reporting, and
costing methods. Through the use of various standard AXS-One
utilities, data can also be uploaded and/or downloaded from
external sources.
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MODULE FEATURES
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FIXED ASSETS............ The Fixed Assets (FA) module tracks fixed assets, maintains
related financial and accounting records and provides for
flexible, unlimited depreciation calendars, user-defined
asset identification and make, model and number
descriptions. It can generate fixed asset information
directly for the AXS-One Financials/General Ledger. This
will produce the data required to update asset accounts,
accumulated depreciation accounts, depreciation expense
accounts, and disposition gain or loss accounts, and relieve
the appropriate FA clearing accounts. This update can then
be posted directly to the AXS-One Financials/ General Ledger
and with the integrated reconciliation of GL and FA, can be
easily monitored. Through the use of various standard
AXS-One utilities, data can also be uploaded and/or
downloaded from external sources.
ENCUMBRANCE
ACCOUNTING............ The Encumbrance Accounting module enables public sector and
not-for-profit organizations to avoid exceeding budgeted
amounts by enforcing strict controls over disbursements and
purchasing.
AXSPOINT SOLUTIONS: Is responsible for the development and marketing of
core technology for solutions that enable organizations to electronically and
securely share knowledge both within the enterprise, and with its customers and
other business partners. The AXSPoint LOB enables its customers to gain and
maintain competitive advantage by providing the technology that captures and
delivers content and information across the enterprise and throughout the
value-network. AXSPoint, through its professional services offerings, also
provides customers with resources who have technology and industry expertise.
AXSPoint solutions have been deployed as self-service information systems,
Internet report publishing and distribution systems, Internet-enabled
information reconciliation systems, and transaction confirmation solutions.
These solutions are typically implemented in weeks, thus providing a rapid
time-to-value. AXSPoint's technology captures Metacode, Text, and APA document
data and places this information in a repository that provides easy access to
this data for re-tasking. By combining this data with other data sources and
supplying easy access via a robust user interface, AXSPoint facilitates a
shorter time-to-market for custom web applications. This rapid time-to-market is
a critical selling point that differentiates this LOB's product lines from
competitive offerings. AXSPoint Solutions scale easily from small companies to
large multinational enterprises.
The AXSPoint Solutions LOB has 75 North American customers, and over 125
clients globally, including First Union, Deutsche Bank, Chicago Mercantile
Exchange, and Chase Manhattan. Most of these organizations use client/server
versions of AXS-One COOL-TM- software, but during 2001 the Company hopes to
upgrade many of these customers to the e-Cellerator products-based AXSPoint
family of solutions.
The AXSPoint Solutions LOB's marketing efforts in the United States are
conducted by a direct sales force that is located at the Company's headquarters
in Rutherford, New Jersey, and in Atlanta. In addition, the Company plans to
establish strategic alliances with hardware, database and software vendors to
enhance its marketing efforts. The AXSPoint Solutions LOB is able to offer its
customers highly flexible licensing methods that match the methods by which
customers measure their return on investment.
Comprehensive marketing programs are conducted in the United States, and
include telemarketing, public relations, direct mail, advertising, seminars,
trade shows and ongoing customer communications programs. To maintain a high
level of customer satisfaction, the LOB has launched a Client Care Program with
the primary goal of increasing client awareness around the flexibility that has
been added to the AXSPoint products.
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Outside of the United States, the AXSPoint Solutions LOB utilizes the
Company's sales and support offices in Australia, Poland, Singapore, South
Africa, Canada, and the United Kingdom. In the past the Company has established
distribution arrangements with third parties around the world and continually
evaluates future third party arrangements. Currently, the AXSPoint Solutions LOB
does not generate significant revenues from its distributors; however, it
recognizes that active involvement with potential channel partners is a key to
maintaining its worldwide presence.
AXSPOINT SOLUTIONS:
MODULE FEATURES
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COOL-TM-................ COOL is a client/server product that allows clients to store
reports in an electronic format. It includes a suite of
tools that allow business process owners to view portions of
a report or multiple reports, such as purchase orders,
checks and financial reports, on-line thus eliminating the
need to distribute a paper report. The product includes
report mining as a standard feature and facilitates report
distribution by allowing access to the information via user
login to the core system or via e-mail.
This product's value lies in its ability to provide large
enterprises with the ability to view, archive and
disseminate massive amounts of information rapidly and with
great flexibility. This speed and flexibility reduces the
costs associated with printing reports and resource time
required to search, view, and analyze data appearing in
multiple reports.
AXSPOINT CENTRAL........ Consists of a central repository for storing business
information, together with tools that allow information to
be published from the repository. The base system comes with
the ability to extract information from external report
formats such as ASCI, PDF, PCL and XML. These report files
may be either internal reports or report files received from
third-party organizations such as vendors, customers or
business partners. Once information is stored in the
repository, users can gain access to this information via a
standard browser. The system will also allow users to
subscribe to information and receive notifications or
reports via email. The repository stores historical views of
the same information and allows users to analyze data from
historical reports. This product was designed for clients
presently using the COOL product who need the ability to
access information using a Web browser, but do not need the
extensive capabilities of the Exchange product.
AXSPOINT EXCHANGE....... The AXSPoint Exchange solution allows rapid development of
web based Electronic Self Service and dynamic content
creation systems. AXSPoint Exchange solutions are designed
to meet specific business needs, such as Electronic Bill
Presentment and Payment, Vendor Self-Service, Customer Self-
Service, Billing Consolidation, and Report Consolidation and
Analysis. Access to the software is via a standard
web-browser and is authenticated for data-level secured
access to AXSPoint Central reports. Users can search, view,
or download reports as MS Excel spreadsheets or XML-tagged
files for further analysis. These solutions are designed
using e-Cellerator products and can be combined with the
AXS-One Workflow module. AXSPoint Exchange's enhanced rapid
development environment makes it one of the easiest products
to use when building and supporting web-based information
management applications.
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MODULE FEATURES
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The value of this product lies in its ability to provide
enterprise wide access to mission critical data on a secured
platform with rapid time-to-value. Recent advances in the
design of this product have reduced the skill level needed
to produce such applications, thus reducing the overall cost
of implementation.
AXSPOINT PROCESS
MANAGER............... Will significantly extend the capabilities of AXSPoint. As a
multi-platform product, AXSPoint Process Manager will allow
a global enterprise, as well as its trading partners, to
view and exchange information on a highly controlled and
secured platform. An enhanced repository will allow data to
be drawn from any AXS-One supported data source and stored
in the Process Manager repository. Alternately, the data may
remain in its original database and be used on a real time
basis. A state of the art information process manager will
manage access, analysis, and routing of this data. The
information process manager will allow the enterprise to
manage how information is shared based on process ownership,
trading partner status, and data values, to mention a few
criteria.
Process Manager's value to the enterprise lies in its
ability to rapidly deploy and economically maintain
large-scale Business Process Management (BPM) solutions for
AXSPoint's customers. This product is scheduled for release
late in 2001.
In 2000, the AXSPoint Central and AXSPoint Exchange products were enhanced
to leverage the power of eXtensible Markup Language (XML). By placing
information in an XML format, AXSPoint provides an extremely powerful platform
that can communicate to virtually any other package or system that uses XML.
In 2001, AXSPoint's product strategy will address specific BPM solutions
that will enable the enterprise, its customers, vendors and business partners to
easily access critical information. AXSPoint Exchange will be enhanced with
Workflow and will be used as the infrastructure for Electronic Self Service
(ESS) and Electronic Bill Presentment and Payment (EBPP) solutions. This
specific strategy has resulted in the alpha release of AXSPoint Travel, a
solution designed to assist tour operators and agents in the tedious effort of
statement reconciliation. This solution was designed using a combination of
AXSPoint Exchange and Workflow.
The AXSPoint Professional Services Group provides strategic services to
corporate executives who develop enterprise plans for the dissemination and
analysis of mission critical information. In conjunction with the development of
seminars directed specifically to executives, this group will be tasked with
establishing AXSPoint as "the provider of choice" for acquisition of Information
Management knowledge and services. These services will be delivered directly by
AXSPoint subject matter experts and alliance partners.
AXSPoint's market approach will focus on the development of alternate
channels of distribution that leverage new incremental sources of revenue.
Partnerships with systems integrators specialized in EBPP and ESS will be
pursued and supported to establish AXSPoint products as core products used to
deliver services to their clients. Software vendors that lack the ability to
extend the functionality of their product will be supplied with the ability to
present their information on an enterprise basis by leveraging AXSPoint
presentation and analysis functions. Lastly, AXSPoint will pursue opportunities
with web-based companies that require AXSPoint features and functionality as a
complement to their business.
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TIVITY SOLUTIONS. By leveraging the Company's proven experience in building
easy-to-customize, workflow-enabled systems to automate business processes,
Tivity provides solutions to Professional Services Organizations (PSOs) that
decrease the time to bill and the effort involved in the billing and revenue
recognition processes. This family of solutions allows PSOs to operate virtually
and globally across the enterprise. PSOs are among the first of the virtual
workforces requiring the ability to connect a complex network of clients,
employees, contractors and partners in a truly global environment. Tivity is
able to provide that connectivity across all trading partners of a PSO.
Tivity has adopted a business partner strategy to provide a full-suite
solution whereby PSOs can benefit from the years of experience of its employees
in this industry and the breadth of all components of its solution. Tivity's
core solutions allow PSOs to effectively and efficiently manage their revenue
and gross margins from anywhere in the world.
Tivity has formed a strategic partnership with PlanView Inc. who designs and
markets a world-class suite of resource and project management/scheduling tools.
The ability to integrate third party tools and products with Tivity's family of
solutions is a key component of being able to offer an integrated full suite
solution to PSOs. Tivity is also actively seeking other partnerships during
2001.
Tivity's business partners also include the other AXS-One LOBs. By using
AXS-One's e-Cellerator products, Tivity is able to provide PSOs with world-class
Internet transaction processing (ITP) and Internet knowledge processing (IKP)
systems tailored to the specific requirements of PSOs.
Tivity has 15 global customers, including Mercer Management Consulting, Cap
Gemini America, William M. Mercer and America Online. These organizations use
client/server versions of AXS-One's TEAM (Time & Expense Accounting Management)
software, but during 2001 the Company hopes to migrate many of these customers
to e-Cellerator products based on Tivity's family of solutions.
Tivity currently markets its products and services primarily through a
direct sales force dispersed throughout the United States and directly and
indirectly in other parts of the world. Tivity conducts comprehensive marketing
programs in the United States, which include telemarketing, public relations,
direct mail, advertising, seminars, trade shows and ongoing customer
communications programs.
Outside of the United States, Tivity utilizes the Company's sales and
support offices in Australia, Poland, Singapore, South Africa and the United
Kingdom. In the past the Company has established distribution arrangements with
third parties around the world and continually evaluates future third party
arrangements. Currently, Tivity does not generate significant revenues from its
distributors.
During 2001, Tivity will look to establish agreements with major ASP
providers in the United States and the United Kingdom. Under these agreements,
Tivity's solutions will be hosted and "rented" to end-user organizations. Tivity
expects to take a share in this revenue stream; however, Tivity does not expect
this to be a significant contribution to revenue during 2001. This distribution
model will allow Tivity's solutions to be used by a much wider audience of
organizations. Traditionally, Tivity has focused on PSOs with in excess of 500
billable consultants, but an ASP model will allow any sized organization to
access the functionality of Tivity's solutions.
9
TIVITY SOLUTIONS:
MODULE FEATURES
- ------ --------
TEAM
(TIME & EXPENSE
ACCOUNTING
MANAGEMENT)........... The Time and Expense module gives business and practice
managers complete control over the process of recording and
billing time and expenses at every level (client,
engagement, project, office, responsible employee, etc.), as
well as multiple options for cost and billing rates,
contract billing and revenue recognition. Time and expense
information, editing, and billing facilities can all be
accessed from an industry standard browser permitting
up-to-the-minute accuracy and prompt invoicing of time and
expenses incurred on multiple levels of clients and/or
projects. This powerful management tool can be utilized to
increase the productivity and profitability of all
chargeable time and services, while providing flexibility in
defining the billing rules for each client project. Along
with missing time alerts and remote time and expense
logging, Tivity's Time & Expense solution delivers accurate
and timely management of employees and billing tasks, which
is particularly suitable for PSOs. Through the use of
various standard AXS-One utilities, such as Genex
(Generalized External Interface) and XML documents,
information can also be uploaded and/or extracted from
external sources.
SWIFT-AXS............... This module allows employees and contractors of PSOs to
remotely enter their timesheets and expense reports via the
Internet or off-line on a personal computer. The off-line
option of this module is currently available; the online
version is planned for the second quarter of 2001.
TIME & EXPENSE CYCLE
MANAGEMENT............ This module will be a process-centric, user definable
timesheet and expense report approval module that allows
PSOs to review and approve the timesheets and expense
reports of its employees prior to generating revenue for the
reported work. This module is planned for the second quarter
of 2001.
REVENUE CYCLE MANAGEMENT
(RCM)................. This module is a process-centric revenue management module
that allows PSOs to manage changes to their revenue stream
more effectively. Phase I of RCM, currently available,
automates the pre-billing approval process, which enables
organizations to manage their billing process more
efficiently. Phase II of RCM, scheduled for release in
fourth quarter of 2001, will manage the ways in which
changes to already recorded revenue are controlled and
approved throughout the enterprise.
With RCM, organizations will be able to improve the quality
and control of revenue. RCM will enhance the practice
manager function by allowing fast and accurate access to
pertinent information for clear and quick decision-making.
10
MODULE FEATURES
- ------ --------
PROJECT & RESOURCE
MANAGEMENT............ This solution (available directly from Tivity's business
partner, PlanView Inc.) allows project managers to plan,
staff and manage the projects under their responsibility. It
also allows resource managers to forecast resource
requirements and to manage and schedule resources.
Individual employees may update their skills inventory and
preferences for future assignments.
PSO PROCUREMENT......... This module is AXS-One Enterprise's Procurement Manager
solution tailored to meet the needs of PSOs. The PSO
Procurement solution allows employees of PSO's to securely
purchase products and services from vendors over the
Internet.
PSO ANALYSIS............ Built upon the capabilities of AXSPoint solutions, this is a
central repository for storing business performance
information. It includes the ability to design and produce
views of business performance metrics, such as project
profitability, project backlog and employee utilization. It
also has the ability to publish these reports across the
Internet or through e-mail. The distribution of reports will
have the ability to be optionally tracked from a process
viewpoint and to require feedback and updates from
subscribers.
PSO CUSTOMER............ This will be AXS-One Enterprise's Revenue Manager solution
tailored to meet the unique needs of PSOs. This module will
manage the incoming cash flow of a PSO. It will allow a
customer of a PSO to get status information on existing
projects, update contact and billing information, etc.--all
of which will provide an electronic means of communicating
with their PSO. This product is planned for the fourth
quarter of 2001.
PSO VENDORS............. This is AXS-One Enterprise's Expense Manager solution
tailored for PSOs. This module monitors the outgoing cash
flow processes. It allows third-party contractors to
electronically manage their profile and business
information.
ARCHITECTURE
At the heart of the AXS-One's new e-commerce solutions are e-Cellerator
products, which utilize an open, Internet-ready, n-tier modular architecture
designed to adapt to new technological innovation, such as XML, and enable
organizations to capitalize on these innovations quickly and cost-effectively.
The architecture was created to simplify continuous process re-engineering (CPR)
and allow companies to achieve their goals of increased competitiveness and
reduced costs. e-Cellerator products allow AXS-One's business solutions to
either be installed on in-house computing resources or to be remotely hosted by
third-party application service providers (ASPs). This in turn leads to rapid
implementation times and reduced project risks.
The e-Cellerator products are process-centric, highly scalable and robust,
able to handle the very high levels of transaction volumes and availability
demanded by e-commerce solutions. These next generation products embrace the use
of many third-party e-commerce tools. e-Cellerator products have been designed
by AXS-One to enable the design and creation of e-commerce solutions that
seamlessly glue together disparate business processes and legacy systems across
the Internet. These products can access information through a variety of
approaches and extract information contained in multiple data sources.
Information can be extracted from computer reports, relational databases, HTML
Internet pages, XML documents, etc. e-Cellerator products can interface to
legacy systems through API calls and multiple messaging protocols, including
XML, and can publish information via e-mails, reports, direct updates, messages,
HTML pages or XML documents.
11
The AXS Desk interface is a technology that sits on a Web server and allows
a user to access certain functionality and information through an intuitive, no
training, HTML interface (e.g. a standard Web browser). The AXS Desk Designer
module will allow customers to construct and change AXS-One's Java-based applets
using an industry standard form design environment. AXS-One's traditional
client/server solutions, which utilize an ultra thin Microsoft VB forms-based
client is also available. Any mix of these interfaces may be used in a single
implementation.
AXS-One's e-Cellerator products support relational database management
systems (RDBMS) from vendors such as Microsoft Corporation (Microsoft SQL),
Oracle Corporation (Oracle), Sybase, Inc. (Sybase), and Informix Corporation
(Informix). AXS-One's solutions run on a variety of UNIX-based platforms--Sun
Microsystems, Inc. (Sun), Hewlett-Packard Corporation (HP), Compaq Tru64 UNIX
and International Business Machines Corporation (IBM), as well as Intel-based
servers running Windows NT. During the latter half of 2001, AXS-One intends to
deploy certain of its products which will support the Linux operating system.
AXS-One's solutions are designed to take advantage of diverse configurations
and processing capabilities at the customer or ASP site. For example, an AXS-One
installation can be configured to execute discrete application functions
(components) on multiple application servers. Additional application servers can
be applied as users are added.
EXTENSIVE USE OF OBJECT-ORIENTED DESIGN TECHNIQUES
Since 1990, AXS-One has relied heavily on object-oriented design techniques.
The results can be seen throughout the architecture. For example, user interface
controls and display components are treated as objects that can be individually
manipulated, customized, and extended by user organizations.
AXS-One uses the Java programming language as one of the tools to build its
e-Cellerator products. However, e-Cellerator products go beyond the traditional,
more technical view of object-oriented design techniques. e-Cellerator
products-based solutions are built on an inventory of "business components", or
logical decompositions of discrete business processes. These business components
are combined with the AXS-One Workflow product to build robust, adaptable
business processes.
The Company believes that the benefits of business component orientation are
becoming increasingly apparent. Component-oriented applications tend to be more
modular than those developed with traditional methods, have cleaner interfaces,
more shared code, and fewer entry points. Developers work in a simpler
development environment that is less prone to error, and they produce
applications that are easy to maintain, enhance, and distribute across the
network. As a result, end-users get applications that are reliable, manageable,
and easy to adapt to changing business requirements.
N-TIERED ARCHITECTURE
First-generation client/server systems utilized a two-tier architecture in
which presentation and application logic were combined on client workstations,
and data was stored on one or more servers.
Though the classic two-tier client/server architecture is surprisingly still
at the heart of many enterprise solutions, its limitations have been widely
acknowledged. For example, the two-tier model requires application logic to be
executed on individual client workstations, reducing performance dramatically.
When using the two-tier model, increasing network traffic limits the
Information Technology ("IT") organization's ability to eliminate bottlenecks by
increasing server resources, and increases the complexity of applications,
thereby reducing their reliability, and more importantly, their availability.
12
In contrast, AXS-One's architecture has, for many years, separated
application functions into multiple logical groupings or tiers. At the heart of
AXS-One's architecture are four tiers: PRESENTATION, PROCESS LOGIC, APPLICATION
LOGIC and INFORMATION ACCESS tiers.
AXS-One's traditional four tiers may themselves be partitioned into multiple
physical tiers. For example, it will be possible to deploy presentation services
across the Internet or private intranets and extranets, using either the AXS
Desk/C module (presentation services on the client only) or the AXS Desk module
(presentation services on the client and the web server). Therefore, it is more
appropriate to define the AXS-One architecture as N-TIER.
During 2000, AXS-One has been enhancing its foundation products by use of
its e-Cellerator technology. The revised architecture differs from AXS-One's
traditional client/server architecture in that it adds a "templates and
components" infrastructure deployed in an Internet Server tier. This provides
for a rich, intuitive end user experience, and reduces the need to upgrade and
support client software, since use is made of industry standard browsers. In
addition, AXS-One has made significant changes in the application and database
tiers to better support high volume Internet transaction traffic.
Many first-generation client/server and Internet products rely on the
database vendor's remote Structured Query Language (SQL) network software to
communicate with the server. In contrast, AXS-One believes that for a
multi-tiered product to perform efficiently in diverse network and system
environments, it is critical that communication among the tiers be efficient and
flexible. AXS-One believes that the communication service is a crucial piece of
the architecture because of its performance impact and because it defines the
extent to which application components can be distributed across different nodes
in the network. The remote SQL APIs provided by most relational database vendors
are useful for retrieving data from a remote database server, but they do not
support a generalized interface for interprogram communication.
In its data access tier, AXS-One is free to exploit the database access
mechanism that is most appropriate for that database, and not use a "least
common denominator" solution across RDBMS's. AXS-One's RDBMS interfaces are
custom coded, and are focused on high function, high reliability, high security,
high performance information access issues.
CUSTOMIZATION AND EXTENSIBILITY
With many e-commerce solutions, customers often require extensive
modifications to obtain the capabilities they desire. Some architectures provide
this capability by requiring the customer to modify the product source code.
These modifications add complexity and potential instability; there is no
guarantee that customized source code versions of the product will translate to
newer versions. Customers may later find themselves unable to utilize new
features or technologies that could provide a competitive advantage.
AXS-One's e-Cellerator products are designed to avoid this problem by using
components that can be customized and extended without modifying the source
code, including:
- Presentation/user interface
- Process logic
- Application logic
- Inquiry reporting
- Drill-down modules
- The relational information model
- Validation and rules
13
- Business components for integration with other systems
- Business process rules
PROCESS DRIVEN
End-to-end process management is increasingly recognized as a critical
element in successful e-commerce solutions. For years, AXS-One has included with
its financial applications, a world-class product, AXS-One Workflow, as an
integral part of its business solutions. AXS-One's e-commerce solutions are not
merely integrated with workflow; they have been designed and built with a
workflow engine.
The AXS-One Workflow module enables AXS-One e-commerce solutions to bridge
and automate the process void that exists between organizations. Business
solutions constructed with e-Cellerator products are rules based, allow user
defined decision processing, manage business processes and documents, and are
able to operate across the Internet.
The AXS-One Workflow module is used to build total business solutions. Since
a powerful rules engine is integrated directly into the AXS-One Workflow
runtime, organizations are able to extend the reach of AXS-One applications to
drive all facets of their business. AXS-One will enable companies to build
high-performance production oriented end-to-end process systems that directly
access line-of-business and horizontal application data sources in batch mode
and in real time without compromising information.
AXS-One believes that the AXS-One Workflow module is capable of being
partitioned to a fine level of granularity, helping organizations increase
performance at low cost. It is capable of being implemented in global
environments characterized by high volumes, large user bases, complex
conditional routing and extensive exception handling and it is part of the core
of our new self-service solution.
MAINTAINING SECURITY
AXS-One's e-Cellerator products provide multiple levels of security,
including ways to define update versus read-only access within specific
transactions. An organization's security hierarchy exists both across systems
and within individual applications.
For information level security, AXS-One's applications support NO ACCESS,
READ-ONLY ACCESS and READ-WRITE ACCESS for business documents. This is defined
in a security maintenance function, and uses application based security schemes.
AXS-One's security extends the native security mechanisms built into UNIX or
Windows NT, as well as native RDBMS security on a PER USER, USER GROUP or
SYSTEM-WIDE basis.
AXS-One offers an additional security authorization server, targeted toward
self-service and self-deployable applications. Further, since AXS-One leverages
standard web server technologies, standard Internet security schemes, such as
SSL and RSA can be used to provide additional transactional security.
LOWERING TOTAL COST OF OWNERSHIP
AXS-One believes that there are many ways in which its products and
architecture lower the total cost of ownership for an organization. For example:
- AXS-One provides Implementation Certainty, a proven methodology for
assuring a smooth transition to, and rapid implementation of, its
software.
14
- AXS-One's architecture allows organizations to leverage existing
development environments and partition applications for maximum
performance.
- By customizing the software outside of the source code, it is easier to
upgrade from one version of the software to another--a feature that lowers
internal support costs.
- New client forms, menus, and messages can be uploaded; reducing the
maintenance required for new release implementations.
- AXS-One supports multiple languages, including double-byte enablement
using the same code. Therefore, the same product can be implemented across
the enterprise.
PROFESSIONAL SERVICES
The Company considers its Professional Services to be a major asset and key
differentiator from other vendors. With its twenty-four hours a day, seven days
a week client support, Implementation Certainty methodology, standard and
customized training, product certification, and its level of dedicated support,
AXS-One has created a professional services program to handle the needs of its
customers.
As of December 31, 2000, the Company had 159 employees worldwide providing
customer support, consulting and training services. To maintain a high standard
of service, the Company requests customer evaluations of service personnel on a
quarterly basis. Bonus compensation for these personnel is based, in part, on
the results of these reviews. The Company's services are described below.
CLIENT SUPPORT
Support for domestic U.S. clients is based out of the Company's corporate
headquarters in Rutherford, New Jersey. Client support centers are also based in
Toronto (for the Yorvik software), Johannesburg, London, Melbourne, Singapore,
Bulgaria, Sydney and Warsaw. Annual maintenance contracts are generally required
for the first year of a customer's use of the Company's products, and are
renewable on an annual basis. The maintenance contract entitles the customer to
any upgrades to licensed products released during the term of the contract.
Maintenance fees vary depending on the hours of hot-line support requested by
the customer, and typically range between 18% and 25% of the license fees.
The Company also provides management overview and product information
bulletins on an ongoing basis and periodic informational updates about installed
products. These bulletins generally answer commonly asked questions and provide
information about new product features. The Company also provides services for
the development of customized documentation about the customer's system to
reflect, among other things, user-defined modifications and specific business
logic and processes.
TECHNICAL SERVICES
The Company offers assistance in developing interfaces with third party
software or legacy systems. These services are designed to enable the
development of additional client-specific functionality, and to integrate with
other mission critical systems. The Company also provides network
troubleshooting and assists its customers in deploying Internet systems, RDBMS
software and operating systems.
CONSULTING SERVICES
The Company's consulting services organization provides project assurance,
business systems review, technical design, functional design, business modeling,
system tailoring, system certification, change management and ongoing project
support in connection with customer implementation of the Company's products.
Similar services are also provided for upgrades to later versions of the
software
15
and migrations to different operating platforms. The Company frequently works
with third-party consultants and system integrators to provide customers with a
full range of installation, customization and project management services.
EDUCATION SERVICES
The Company provides education services in North America through its
Instructional Services group. This group is responsible for the development and
delivery of training courses designed to familiarize users with the Company's
products. A standard schedule of courses is delivered at the Company's
facilities. A course catalog and schedule are provided to the Company's
customers. In addition to regularly scheduled classroom training, the Company
works with its customers to develop tailored training courses for delivery at
their site. The group also provides standard courses at the customer's location.
Training courses vary in length from one to five days. Education services are
also provided at the Company's international facilities including Australia,
Poland, Singapore, South Africa and the United Kingdom.
STRATEGIC ALLIANCES
The Company has established strategic alliances and relationships with a
number of organizations that it believes are important to the development,
sales, marketing, integration, and support of its products. The Company's
relationships with software and hardware vendors, systems integrators and
consulting firms provide marketing and sales leads to the Company's direct sales
force and expand the distribution of its products. The Company's strategic
alliances and relationships also assist the Company in keeping pace with the
technological developments of major software and hardware vendors. The Company
intends to continue to develop its strategic alliances with leading hardware and
software vendors, consulting firms, systems integrators and distributors in the
future. The Company provides education services for its strategic business
partners.
PRODUCT DEVELOPMENT
The Company has a dedicated product development and engineering organization
and periodically releases new products and enhancements to existing products.
Product development efforts are directed at increasing product functionality,
improving product performance, providing support to existing products, expanding
the capabilities of the products to inter-operate with third-party software and
hardware, developing new products and integrating new technologies. In
particular, the Company has from time to time devoted substantial resources to
develop additional modules for its products and the capability to support
additional platforms, databases, GUIs, toolsets and emerging technologies. While
the Company anticipates that certain new products and enhancements will be
developed internally, the Company has in the past and may continue to acquire or
license technology or software from third parties when appropriate.
There can be no assurance that the Company will be successful in developing
and marketing product enhancements or new products that respond to technological
change, changes in customer requirements, or emerging industry standards, that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such products and
enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company, for technological
or other reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business--Risk Factors."
As of December 31, 2000, the Company had 73 employees engaged in product
development and engineering.
16
COMPETITION
The e-commerce software market is intensely competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. The Company believes its ability
to compete depends upon many factors within and outside its control, including
the timing and market acceptance of new products and enhancements developed by
the Company and its competitors, product functionality, performance, price,
reliability, customer service and support, sales and marketing efforts and
product distribution. The Company's AXS-One Enterprise Solutions are positioned
in a new, highly dynamic market, with competition from traditional ERP vendors
such as Ariba, and many other smaller companies. In addition, many of the
traditional ERP software providers have entered the e-commerce marketplace. In
the Web-based procurement market, products from Harbinger, Intellisys and Ariba
are in competition with the Procurement Manager Solution. The Company also
expects new start-ups to enter this very large untapped market. The traditional
competitors for the Company's client/server version of the AXSPoint Central
product are Anacomp, IBM, MicroBank, and FileNet Corporation. The principal
AXSPoint Solutions' competitors in the area of statement presentment include
Mobius, Bluegill, and Alysis. The principal competition to Tivity are of two
types: existing vendors retooling their offerings for the newly defined PSA
market and new companies attempting to enter this new market. The first group
includes Peoplesoft, Lawson, Changepoint, Great Plains and others. The second
group includes companies such as Niku and Evolve. The primary competition for
AXS-One Enterprise Solutions are the financial applications software offered by
SAP, Oracle Corporation, PeopleSoft, Inc. and others. See "Business--Risk
Factors."
INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary technologies
as well as products from third parties, software vendors, hardware vendors, etc.
The Company regards its software as proprietary, and relies primarily on a
combination of contractual provisions and trade secrets, copyright and trademark
law to protect its proprietary rights. The Company has no patents or patent
applications pending, and existing trade secrets and copyright laws afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. The Company makes source code available to certain of its customers
which may increase the likelihood of misappropriation or other misuse of the
Company's software. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the steps taken by the Company
to protect its proprietary rights will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technologies.
The Company does not believe that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. In addition, the
e-commerce field has recently seen an increase in the number of "business
method" patents issued, and infringement claims asserted based on such patents.
Any such claims, with or without merit, can be time consuming and expensive to
defend, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty and license agreements, if
required, may not be available on terms acceptable to the Company, or at all,
17
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company also licenses software from third parties which is incorporated
into its products. These licenses expire from time to time. In addition, the
Company generally does not have access to source code for the software supplied
by these third parties. Certain of these third parties are small companies that
do not have extensive financial and technical resources. If any of these
relationships were to be terminated or if any of these third parties were to
cease doing business, the Company may be forced to expend significant time and
development resources to replace the licensed software. Such an event would have
a material adverse effect upon the Company's business, results of operations and
financial condition.
The Company has obtained Federal registrations for its trademarks
"Computron-Registered Trademark-" and "Yorvik-Registered Trademark-," and its
applications for Federal registrations for its trademarks "AXS-One-TM-," "Access
Tomorrow Today-TM-," "TransAXS-TM-," "AXSPoint-TM-" and "Powering the Virtual
Economy-TM-" are pending in the United States. In addition, the Company has
certain U.S. common law rights, and rights under foreign laws in relation to its
trademarks, service marks and product names. Although the Company believes that
the trademarks and service marks it uses are distinct, there can be no assurance
that the Company will be able to register or protect such trademarks and service
marks. See "Business--Risk Factors."
EMPLOYEES
As of December 31, 2000, the Company had 338 full-time employees, 220 within
the United States and 118 outside the United States, including 73 in product
development and engineering, 159 in customer service and support, 54 in sales
and marketing, and 52 in finance, administration and executive management. The
Company's employees are not covered by any collective bargaining agreements. The
Company believes that its relations with its employees are good.
RISK FACTORS
WE HAVE A HISTORY OF NET LOSSES.
AXS-One may never generate sufficient revenues or reduce costs to be
profitable. Even if we do become profitable, we may not sustain or increase
profitability on a quarterly or annual basis in the future. AXS-One has incurred
net losses of $9.0 million for 1998, $3.7 million for 1999 and $0.3 million
during our fiscal year that ended December 31, 2000. As of December 31, 2000, we
had an accumulated deficit of $76.0 million.
AXS-One's quarterly operating results may fluctuate as a result of various
factors inherent in our business that may cause the market price of our common
stock to fall. Additionally, our business has and will continue to experience
significant seasonality.
AXS-One's revenue and operating results have fluctuated and may continue to
fluctuate significantly from quarter to quarter in the future, causing our
common stock price to be quite volatile. A variety of factors, many of which are
not in our control, cause these fluctuations and include, among others,
- the proportion of revenues we attribute to license fees versus fees for
the services we provide,
- the number of third parties we use to perform services,
- the amount of revenues we generate from our sale of third party software,
- changes in our product mix,
- demand for our products,
18
- the size and timing of individual license transactions,
- the products and enhancements that we, or our competitors, introduce,
- changes in our customers' budgets,
- potential customers unwillingness to undertake major expenditures with us
due to our past operating results
- competitive conditions in the industry and general economic conditions.
Additionally, clients' licensing of our products is often delayed because
- our clients must commit a significant amount of capital, and
- frequently, a license must be authorized through the appropriate channels
within a client's organization.
Because of these reasons, as well as others, our products' sales cycles are
typically lengthy and subject to a number of significant risks over which we
often have little or no control that include a customer's budgetary constraints
and internal authorization reviews.
Historically, AXS-One has operated with little backlog, since products are
generally shipped as we receive orders. Because our license fees in any quarter
substantially depend on orders booked and shipped in the last month, and often
during the last week, of a given quarter, we typically recognize a substantial
portion of our revenues in the last month of a quarter, frequently concentrated
in the last week of the quarter.
Delays in the timing of when we recognize specific revenues may adversely
and disproportionately affect our operating results because
- a high percentage of our operating expenses are relatively fixed,
- planned expenditures are based primarily on sales forecasts, and
- only a small percentage of our operating expenses vary with our revenues.
Because of these factors, we believe that period to period comparisons of
our operating results are not necessarily meaningful and no one should rely on
quarter-to-quarter comparisons of our operating results to indicate our future
performance.
Additionally, our business has experienced, and we expect it to continue to
experience, significant seasonality, due, in part, to our customers' buying
patterns, caused primarily by:
- our customers' budgeting and purchase patterns, and
- our sales commission policies. Generally, we compensate our sales
personnel based on quarterly and annual performance quotas.
We expect that these patterns will likely continue in the future.
Because of all of these factors, in future quarters, our operating results
may be significantly lower than the estimates of public market analysts and
investors. Any discrepancy could cause the price of our common stock to be quite
volatile and to decline significantly. We cannot assure anyone that we will be
profitable in any future quarter.
THE ELECTRONIC COMMERCE SOFTWARE MARKET IS INTENSELY COMPETITIVE.
AXS-One cannot assure anyone that it will be able to compete successfully
against current or future competitors or that competitive pressures will not
have a material adverse effect on its business, operating results and financial
condition. The electronic commerce software market is intensely
19
competitive and is changing rapidly. A number of companies offer products
similar to ours and target the same customers. We believe that our ability to
compete depends upon many factors, many of which are not in our control,
including, among others,
- timing and market acceptance of new products and enhancements developed by
us, as well as by our competitors,
- whether our products are reliable, how they function, perform, and are
priced,
- our customer service and support,
- our sales and marketing efforts,
- our product distribution.
Our AXS-One Enterprise Solutions are positioned in a new, highly dynamic
market with competition from traditional ERP vendors such as Ariba, and many
other smaller companies. Additionally, many traditional enterprise resource
planning software providers have entered into the e-commerce marketplace.
Most of our competitors are substantially larger than us, and have
significantly greater financial, technical and marketing resources, and
extensive direct and indirect distributing channels. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to
developing, promoting and selling their products than we can. Our products also
compete with those offered by other vendors, and with proprietary software
developed by third-party professional service organizations, as well as by
potential customers' management information systems departments.
We expect established and emerging companies to compete with us, as the
electronic commerce software market continues to develop and expand, due to the
relatively low barriers necessary to enter the software market. We also expect
that competition will also increase as the software industry consolidates.
Furthermore, we cannot assure anyone that any of the companies with whom we
currently have relationships, many of which may have significantly greater
financial and marketing resources than we do, will not, in the future, develop
or market software products that compete with our products, or discontinue their
relationship or support of us.
Additionally, our current and potential competitors have established, or may
establish in the future, cooperative relationships among themselves or with
third parties to increase their products' ability to address the needs of our
prospective customers. Therefore, new competitors or alliance among competitors
could emerge and rapidly acquire a significant market share. Increased
competition is likely to result in
- reducing the price of our products,
- reducing our gross margins, and
- losing market share.
Any of these factors would adversely affect our business, our operating
results and financial condition.
AXS-ONE DEPENDS ON ITS PRINCIPAL PRODUCTS FOR ITS REVENUES.
Substantially all of our revenues are derived from licensing and fees from
related services of
- AXS-One Enterprise Solutions,
- AXS Point Solutions, and
- Tivity Solutions.
20
We expect that these products and services will continue to account for
substantially all of our revenues during 2001. Accordingly, our future operating
results will depend, in part, on
- achieving broader market acceptance of our products and services,
- maintaining our customer base, as well as,
- enhancing these products and services to meet our customers' evolving
needs.
Additionally, during 2001, our AXS-One Enterprise Solutions, AXSPoint
Solutions and Tivity Solutions each need to gain market acceptance. If
- demand in the market for electronic commerce software is reduced,
- competition increases, or
- sales of such products or services decline,
any of these factors could adversely our business, operating results and
financial conditions in a material way.
AXS-ONE'S MARKET IS CHARACTERIZED BY NEW PRODUCTS FREQUENTLY BEING INTRODUCED,
RAPID TECHNOLOGY CHANGES, PRODUCT DEFECT RISKS, AND DEVELOPMENT DELAYS.
If AXS-One is unable, for technological, financial or other reasons, whether
or not within its control, to timely develop and introduce new products or
enhancements to respond to changing customer requirements, technological change
or emerging industry standards, our business, operating results and financial
condition could suffer.
The electronic commerce software market is characterized by
- rapid technological change,
- changes in customer requirements,
- frequent new product introductions and enhancements, and
- emerging industry standards.
Our software performance, customization, reporting capabilities, or other
business objectives may or may not be affected by these changes and may or may
not render us incapable of meeting future customer software demands. Introducing
products embodying new technologies and emerging new industry standards can
render existing products obsolete and unmarketable. Accordingly, it is difficult
to estimate our products' life cycles. Our future success will depend in part on
our ability to maintain our client/server products and to develop and introduce
new electronic commerce products that respond to evolving customer requirements
and keep pace with technological development and emerging industry standards,
such as new
- operating systems,
- hardware platforms,
- interfaces, and
- third party application software.
We cannot assure anyone that
- we will be successful in developing and marketing product enhancements or
new products that respond to
- technological change,
21
- changes in customer requirements, or
- emerging industry standards.
- we will not experience difficulties that could delay or prevent our
successfully developing, introducing and marketing new products and
enhancements, or
- any new products or enhancements that we may introduce will be accepted by
our targeted market.
Software products as complex as those we offer often encounter development
delays and, when introduced or when new versions are released, may contain
undetected errors or may simply fail. These delays, errors or failures create a
risk that the software will not operate correctly and could cause our future
operating results to fall short of expectations published by certain public
market financial analysts. From time to time, we develop products that are
intended to be compatible with various new computer operating systems, although
we make no assurances that we will successfully develop software products that
will be compatible with additional operating systems or that will perform as we
intend. Additionally, our products, technologies and our business in general
rely upon third-party products from various sources including, among others,
- hardware and software vendors,
- relational database management systems vendors, or
- reporting software vendors.
In the future, it is unclear whether our dependence upon these third-party
products will affect our ability to support or make our products readily
available. In the past, we have experienced delays by third parties who develop
software that our products depend upon. These holdups have resulted in delays in
developing and shipping our products. Despite testing by our current and
potential customers, as well as by us, errors may be found in new products or
enhancements after we ship them which can delay or adversely affect market
acceptance. We cannot assure anyone that any of these problems would not
adversely affect our business, operating results and financial condition.
WE RISK BEING DE-LISTED FROM THE AMERICAN STOCK EXCHANGE WHICH COULD REDUCE OUR
ABILITY TO RAISE FUNDS
AXS-One has a negative stockholders' equity and our common stock has
recently been selling on the American Stock Exchange for less than $1.00 per
share. If these, or other, conditions persist, then, under its published
guidelines, the American Stock Exchange might de-list our common stock from
trading on that exchange. If its common stock were to be de-listed by the
American Stock Exchange, AXS-One might be unable to list its common stock with
another stock exchange. In that event, trading of our common stock might be
limited to the OTC Bulletin Board or similar quotation system.
Inclusion of our common stock on the OTC Bulletin Board or similar quotation
system could adversely affect the liquidity and price of our common stock and
make it more difficult for AXS-One to raise additional capital on favorable
terms, if at all. In addition, de-listing by the American Stock Exchange might
negatively impact AXS-One's reputation and, as a consequence, its business.
AXS-ONE DEPENDS UPON ITS PROPRIETARY TECHNOLOGY AND IF WE ARE UNABLE TO PROTECT
OUR TECHNOLOGY, OUR COMPETITIVE POSITION WOULD BE ADVERSELY AFFECTED.
We believe that our success greatly depends on our proprietary technology
and software. We rely primarily on a combination of trademark and copyright law,
trade secret protection and contractual agreements with our employees,
customers, partners and others to protect our proprietary rights. Despite our
efforts to protect our proprietary rights, unauthorized third parties may
attempt to copy all or part of our products or reverse engineer or obtain and
use information that we regard as
22
proprietary. Additionally, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States. We
cannot assure anyone that the steps we take to protect our proprietary rights
will be adequate or that our competitors will not independently develop
technologies that are substantially equivalent or superior to ours.
OUR PRODUCTS MAY BECOME SUBJECT TO INFRINGEMENT CLAIMS.
We believe that none of our products, trademarks, or service marks,
technologies or other proprietary rights infringe upon the proprietary rights of
any third parties. However, as the number of software products in our industry
increases and the functionality of these products further overlap, we believe
that software developers like us may become increasingly subject to infringement
claims. Additionally, the e-commerce field has recently seen an increase in the
number of "business method" patents issued, and infringement claims asserted,
based on these newly issued patents. Any claims asserted, regardless of their
merit, can be time consuming and expensive to defend, could cause delays in
shipping our products or require us to enter into royalty or licensing
agreements that may not be available on terms acceptable to us. Any of these
factors would significantly impact our operating results and financial
conditions or materially disrupt the conduct of our business. We cannot assure
anyone that third parties will not assert infringement claims against us in the
future with respect to our current or future products or services.
A SECURITY BREACH COULD HARM OUR BUSINESS.
Our products provide security features designed to protect its users' data
from being retrieved or modified without being authorized. While AXS-One
continues to review and enhance the security features in its products, we can
make no assurances concerning the successful implementation of security features
and their effectiveness within a customer's operating environment. If an actual
security breach were to occur, our business, operating results and financial
condition could suffer.
A VARIETY OF RISKS ASSOCIATED WITH AXS-ONE'S INTERNATIONAL OPERATIONS COULD
ADVERSELY AFFECT ITS BUSINESS.
We believe that our continued growth and profitability will require AXS-One
to expand its sales in international markets, which require significant
management attention and financial resources. We cannot assure anyone, however,
that we will be able to maintain or increase international market demand for our
products and services.
The information below shows the effects of the sale of the Company's French
and German subsidiaries during 1999 upon revenues from our foreign customers. In
1998, 1999 and 2000 the Company's total revenues from customers outside the
United States were as follows:
CUSTOMERS OUTSIDE THE CUSTOMERS OUTSIDE THE
UNITED STATES UNITED STATES
(INCLUDING FRANCE AND (EXCLUDING FRANCE AND
GERMANY) GERMANY)
-------------------------- --------------------------
YEAR $ AMOUNT PERCENTAGE $ AMOUNT PERCENTAGE
- ---- ------------- ---------- ------------- ----------
1998......................... $29.9 million 47.1% $18.0 million 34.9%
1999......................... $21.9 million 37.9% $16.5 million 31.4%
2000......................... $17.4 million 35.8% $17.4 million 35.7%
AXS-One is subject to additional risks related to operating in foreign
countries. These risks generally include:
- unexpected changes in tariffs, trade barriers and regulatory requirements,
- costs of localizing products for foreign countries,
- lack of acceptance of localized products in foreign markets,
23
- longer accounts receivable payment cycles,
- difficulties managing international operations,
- potentially adverse tax consequences,
- restrictions on repatriation of earnings,
- reduced legal protection of our intellectual property, and
- the burden of complying with a wide variety of foreign laws
Any of these factors, or others, could adversely affect our future international
revenues and consequently, our business, operating results and financial
conditions.
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY DEVALUATION AND CURRENCY
RISKS.
Most of our international license fees and service revenues are denominated
in foreign currencies. Decreases in foreign currency values relative to the U.S.
dollar could result in losses to us from foreign currency translations.
Currently, we do not hedge against foreign currency exchange risks but in the
future we may commence hedging against specific foreign currency transaction
risks. We may be unable to hedge all our exchange rate exposure economically,
and exchange rate fluctuations may have a negative effect on our ability to meet
our obligations. For those international sales that are U.S. dollar-
denominated, any decreases in the value of foreign currencies relative to the
U.S. dollar could make our products less price competitive.
WE RELY ON CERTAIN THIRD-PARTY RELATIONSHIPS.
Our business, product development, operating results and financial condition
could be adversely impacted if we fail to maintain our existing relationships or
establish new relationships, in the future, with third parties because of
diverging interests, one or more of these third parties is acquired, or for any
other reason, whether or not within our control. We rely on third-party
relationships with a number of consultants, systems integrators and software and
hardware vendors to
- enhance our product development and marketing and sales efforts,
- implement our software products, and
- support our customers.
These relationships assist our product development process, and assist us in
marketing, servicing and implementing our products. A number of these
relationships are not memorialized in formal written agreements.
Our products also incorporate software that we license from third parties.
These licenses expire from time to time and generally, we do not have access to
the source code for the software that a third party will license to us. Certain
of these third parties are small companies without extensive financial
resources. If any of these companies terminate relationships with us, cease
doing business, or stop supporting their products, we may be forced to expend a
significant amount of time and development resources to try to replace the
licensed software. If that were to occur, our business, operating results and
financial condition could be adversely impacted.
AXS-ONE'S EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES OWN A CONTROLLING AMOUNT
OF ITS COMMON STOCK.
This control may prevent or discourage tender offers for our common stock
unless these controlling stockholders approve the terms of any such offers. As
of March 15, 2001, AXS-One's executive officers, directors and affiliates
together beneficially own approximately 39.6% of its
24
outstanding common stock. As a result, these stockholders are able to exercise
control over matters requiring stockholder approval including:
- electing directors, and
- mergers, consolidations, and sale of all or substantially all of our
assets.
AXS-ONE RELIES ON ITS KEY PERSONNEL AND MAY HAVE DIFFICULTY ATTRACTING AND
RETAINING THE SKILLED EMPLOYEES IT NEEDS TO OPERATE SUCCESSFULLY.
AXS-One's future success will depend, in large part, on the continued
service of its key executives, and if we fail to attract and maintain those
executives, the quality of our products, our business, financial condition and
operating results could suffer. AXS-One has experienced turn-over of its key
executives in the past. In 2000, Michael Jorgensen assumed responsibility for
North American Sales in the AXS-One Enterprise Division. Mr. Jorgensen was
confirmed as head of North American Operations, and William Levering was named
to replace Mr. Jorgensen as CFO, in March 2001. In January 2001, Dennis
Piccininni joined the Company as President of the Tivity Division, and Nat Bosco
joined the Company as Vice President and General Manager of AXS-Point Solutions.
We can not assure anyone that turn-over of our key executives will not continue,
and that such turn-over would not adversely affect our business, operating
results and financial condition.
We also believe that our future success will depend, in large part, on our
ability to attract, retain and motivate highly skilled employees, and,
particularly, technical, management, sales and marketing personnel. Competition
for qualified employees in our industry is intense. AXS-One has from time to
time in the past experienced, and expects to continue experiencing in the
future, difficulty in hiring and retaining employees with appropriate
qualifications. We cannot assure anyone that we will be able to retain our
employees or attract or retain highly qualified employees to develop, market,
service and support our products and conduct our operations.
AXS-ONE'S COMMON STOCK'S TRADING PRICE MAY BE VOLATILE FOR REASONS OVER WHICH IT
MAY HAVE LITTLE CONTROL.
AXS-One's common stock's trading price has, from time to time, experienced,
and is likely to continue to experience, significant price and volume
fluctuations, often responding to, among other factors,
- quarterly variations in our operating results,
- the gain or loss of significant contracts,
- changes in earning estimates by securities analysts,
- announcements of technological innovations by us or our competitors,
- announcements of new products or services by us or our competitors,
- general conditions in the software and computer industries, and
- general economic and market conditions.
Additionally, the stock market in general, frequently experiences extreme
price and volume fluctuations. In particular, the market prices of the
securities of companies such as ours have been especially volatile recently, and
often these fluctuations have been unrelated or disproportionate to the
operating performance of the affected companies. The market price of our common
stock may be adversely affected by these market fluctuations. Also, the low
market price of our common stock may make it prohibitive to obtain additional
equity funding.
25
AXS-ONE HAS NEVER PAID OR DECLARED DIVIDENDS AND DOES NOT EXPECT TO IN THE
FORESEEABLE FUTURE.
AXS-One has never paid or declared any cash dividends and it does expect to
pay any cash dividends in the foreseeable future. We currently intend that
future earnings, if any, will be retained for business use.
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES
The current directors, executive officers and key management employees of
the Company as of March 9, 2001, are as follows:
NAME AGE POSITION
- ---- -------- ---------------------------------------------------
John A. Rade........................ 66 President, Chief Executive Officer, and Director
Michael R. Jorgensen................ 48 Executive Vice President, North America
Elias Typaldos...................... 50 Senior Vice President, Research and Development and
Chairman of the Board
Gennaro Vendome..................... 54 Vice President and Director
Paul Abel........................... 47 Vice President, Secretary and General Counsel
William G. Levering III............. 40 Vice President, Chief Financial Officer and
Treasurer
Nat Bosco........................... 45 Vice President and General Manager, AXSPoint
Solutions
Dennis Piccininni................... 53 President, Tivity
Daniel H. Burch(1).................. 49 Director
Robert Migliorino(2)................ 51 Director
William E. Vogel(1)................. 63 Director
Edwin T. Brondo(2).................. 53 Director
Allan Weingarten(1)................. 53 Director
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
JOHN A. RADE joined the Company as a Director, President and Chief Executive
Officer in February 1997. Prior to joining the Company, Mr. Rade, was from
April, 1995, a Vice President of American Management Systems, Inc. and was also
still active at S-Cubed International (now named Mergence Technology
Corporation), a company in the client server system development and consulting
market, which he founded in February 1990.
MICHAEL R. JORGENSEN joined the Company as Executive Vice President and
Chief Financial Officer, Treasurer and Secretary in February 1997. Effective
March 2, 2001, Mr. Jorgensen became Executive Vice President, North America.
Prior to joining the Company, from June 1993 to December 1996, Mr. Jorgensen was
Senior Vice President and Chief Financial Officer of Ground Round
Restaurants, Inc., a publicly-held chain of family restaurants. Prior to that,
from March 1992, to April 1993, he was Vice President/Finance-Middle East of
Alghanim Industries. Mr. Jorgensen was Chief Financial Officer of International
Proteins Corporation from May 1988 to September 1991. Prior to 1991,
Mr. Jorgensen served in a senior financial role with several multinational
companies in the finance manufacturing and information technology/software
industry.
26
ELIAS TYPALDOS, a founder of the Company, has been Senior Vice President,
Research and Development and a director since the Company's formation in 1978,
and Chairman of the Board since March 1997.
GENNARO VENDOME, a founder of the Company, has been a Vice President and
director since the Company's formation in 1978. Mr. Vendome was Treasurer of the
Company from 1981 until 1991 and Secretary of the Company from 1982 until 1991.
PAUL ABEL joined the Company in April 1997 as Secretary and Corporate
Counsel and was promoted to Vice President, Secretary and General Counsel in
June 1998. From October 1996 to March 1997, Mr. Abel served as Project Manager
for Charles River Computers, an IT systems integrator. From 1983 to
September 1996, Mr. Abel was an attorney with Matsushita Electric Corporation of
America, an electronic products manufacturer/distributor.
WILLIAM G. LEVERING III joined the Company as Revenue Controller in
June 1996, was promoted to Corporate Controller in February 1997, Vice
President, Corporate Controller in July 1998, and became Vice President, Chief
Financial Officer and Treasurer on March 2, 2001. Prior to joining the Company,
Mr. Levering was a Senior Manager with the international accounting firm of KPMG
LLP. Mr. Levering was employed by KPMG LLP from August 1982 to June 1996 and is
a Certified Public Accountant.
DENNIS W. PICCININNI joined the Company in January 2001. Mr. Piccininni is
President of the Tivity LOB. Prior to joining the Company he was the President
and CEO of Systemcorp from December 1998 to July of 2000. From 1990 to 1998
Mr. Piccininni was Vice President and General Manager, Americas for ABT
Corporation.
NAT BOSCO joined the Company in January 2001 as Vice President and General
Manager of the AXSPoint LOB.. From May 2000 to January 2001 Mr. Bosco was a
Director at EE21, a recent Internet venture. From April 1998 to April 2000,
Mr. Bosco held the position of President at Legacy Consulting, a privately held
company. Coopers & Lybrand employed Mr. Bosco from 1992 through 1998, as a
managing associate.
DANIEL H. BURCH has been a director since October 1999. Mr. Burch is the
President and founder of MacKenzie Partners, Inc., a proxy solicitation and
mergers and acquisitions firm. From January 1990 to the founding of MacKenzie
Partners in February 1992, Mr. Burch was Executive Vice President at Dewe
Rogerson & Company, an investor and public relations firm.
ROBERT MIGLIORINO has been a director since 1991. Mr. Migliorino is a
founding partner of the venture capital partnership Canaan Partners, which
through its affiliates was until early 2000 a principal stockholder of the
Company. Prior to establishing Canaan Partners in 1987, he spent 15 years with
General Electric Co. in their Drive Systems, Industrial Control, Power Delivery,
Information Services and Venture Capital businesses.
WILLIAM E. VOGEL has been a director since August 1996. Since 1971,
Mr. Vogel has been Chief Executive Officer of Centennial Financial Group, Inc.,
which is in the health insurance business. He has also been the Chief Executive
Officer of W.S. Vogel Agency, Inc., a life insurance brokerage general agency,
since 1961. In November 2000, Mr. Vogel became an employee and Executive Sales
Manager for Benefitmall.com.
EDWIN T. BRONDO has been a director since May 1997. Mr. Brondo is currently
retired. From August 1998 to August 2000 he was Executive Vice President and
Chief Financial Officer of e-Vantage Solutions, Inc (formerly called Elligent
Consulting Group, Inc.), a technology consulting company. e-Vantage Solutions
may be deemed to be an affiliate of the Company by virtue of the relationship of
e-Vantage Solutions with a major stockholder of the Company. Mr. Brondo was
Chief Administrative Officer and Senior Vice President of First Albany
Companies, Inc., an investment banking firm, from June 1993 until
December 1997.
27
ALLAN WEINGARTEN has been a director since October 2000. Mr. Weingarten is
currently a Private Investor, and has been since January 2000 a Business
Consultant for Carl Marks Consulting Group LLC. From June 1997 to December 1999
he was Executive Vice President and Chief Financial Officer of VoCall
Communications Corporation. From October 1995 to June 1997, he was an
independent business consultant.
Each of the Directors shall be subject to re-election at the 2001 Annual
Stockholders meeting.
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate headquarters are located in Rutherford, New Jersey
in leased facilities consisting of 48,800 square feet of office space occupied
under a lease expiring in December 2002 with an option to renew the lease for
one additional three-year period. The Company leases additional facilities and
offices, including facilities located in the Atlanta, Chicago, and Philadelphia
metropolitan areas, and Mississauga, Canada. The Company also leases sales and
support offices outside of North America in Australia, Bulgaria, Poland,
Singapore, South Africa and the United Kingdom. While the Company believes that
its facilities are adequate for its present needs, the Company periodically
reviews its needs. The Company believes that additional space, if needed, would
be available on commercially reasonable terms.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock currently trades on the American Stock Exchange
under the symbol "AXO."
The following table lists the high and low sales prices for the periods set
forth below:
PERIOD HIGH LOW
- ------ ----------- -----------
1999
First quarter............................................... 1 7/16 1 5/16
Second quarter.............................................. 1 7/16 7/8
Third quarter............................................... 1 1/2
Fourth quarter.............................................. 4 3/8
2000
First quarter............................................... 11 7/8 1 3/4
Second quarter.............................................. 9 1 11/16
Third quarter............................................... 2 3/4 1 1/4
Fourth quarter.............................................. 2 3/16 7/16
As of March 15, 2001 the approximate number of record holders of the
Company's Common Stock was 648.
28
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the years ended
December 31, 1996, 1997, 1998, 1999 and 2000 have been derived from the audited
consolidated financial statements of the Company. The consolidated statement of
operations data for the years ended December 31, 1998, 1999 and 2000, and the
consolidated balance sheet data as of December 31, 1999 and 2000 are derived
from, and are qualified by reference to, the audited consolidated financial
statements and the related notes thereto included elsewhere in this report. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and related notes thereto included elsewhere in this report.
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS DATA:(1)
Revenues:
License fees................................ $ 17,625 $ 20,372 $15,273 $11,468 $ 8,765
Services.................................... 36,770 47,219 48,248 46,400 40,011
-------- -------- ------- ------- -------
Total revenues............................ 54,395 67,591 63,521 57,868 48,776
Operating expenses:
Cost of license fees........................ 2,634 2,004 3,824 1,955 1,245
Cost of services............................ 28,255 28,440 28,389 24,647 21,005
Sales and marketing......................... 24,181 16,654 14,970 12,064 10,546
Research and development.................... 11,872 10,996 10,568 7,600 6,926
General and administrative.................. 20,014 14,280 13,586 12,213 9,242
Goodwill impairment......................... -- -- -- 573 --
Restructuring costs......................... -- -- 1,025 -- --
-------- -------- ------- ------- -------
Total operating expenses.................. 86,956 72,374 72,362 59,052 48,964
-------- -------- ------- ------- -------
Operating loss................................ (32,561) (4,783) (8,841) (1,184) (188)
Other income (expense):
Costs related to settlement of class action
litigation................................ (758) (9,591) (74) -- --
Loss on sales of subsidiaries............... -- -- -- (2,242) --
Other....................................... 1,572 745 (116) (580) (415)
-------- -------- ------- ------- -------
Total other income (expense).................. 814 (8,846) (190) (2,822) (415)
-------- -------- ------- ------- -------
Loss before income tax (provision) benefit and
extraordinary item.......................... (31,747) (13,629) (9,031) (4,006) (603)
Income tax (provision) benefit................ (100) (16) (12) 508 304
-------- -------- ------- ------- -------
Loss before extraordinary item................ (31,847) (13,645) (9,043) (3,498) (299)
Extraordinary loss on modification of debt.... -- -- -- (182) --
-------- -------- ------- ------- -------
Net loss...................................... $(31,847) $(13,645) $(9,043) $(3,680) $ (299)
======== ======== ======= ======= =======
Basic and diluted net loss per common share... $ (1.53) $ (0.65) $ (0.38) $ (0.15) $ (0.01)
======== ======== ======= ======= =======
Weighted average basic and diluted common
shares outstanding.......................... 20,787 20,834 23,963 23,914 24,624
======== ======== ======= ======= =======
29
AS OF DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:(1)
Cash and cash equivalents, short-term
investments and restricted cash.............. $23,884 $12,597 $ 8,865 $ 1,455 $ 2,257
Working capital (deficiency)................... 4,358 2,767 (6,317) (6,862) (6,990)
Total assets................................... 56,693 35,598 28,517 17,501 15,184
Deferred revenue............................... 18,551 9,078 9,558 8,534 7,496
Total long term debt and capital lease
obligations.................................. 97 23 2,229 2,425 1,222
Common stock subject to repurchase............. -- 5,000 -- -- --
Total stockholders' equity (deficit)........... 14,742 6,095 (2,375) (5,348) (3,808)
- ------------------------
(1) For the periods 1996 through 1999, the data above included subsidiaries in
France and Germany which were sold during 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
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 27A of the Securities Act of
1933, as amended, and 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."
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
Financials and Workflow, the client/server versions of its financial and
workflow products. COOL was introduced in the latter half of 1993. Since 1994,
the Company has released versions of its products able to interoperate with
popular RDBMS 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,
30
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, AXS-One Enterprise solutions and AXSPoint solutions.
AXS-One Enterprise 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 AXS-One Enterprise solutions and AXSPoint solutions modules were made
available throughout 2000 and will continue to be made available in 2001 and
beyond. See "Item 1. Business."
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. In multiple element arrangements, the Company defers
the vendor-specific objective evidence of fair value ("VSOE") related to the
undelivered elements and recognizes revenue on the delivered elements using the
residual method. The most commonly deferred element is initial post contract
support (maintenance), which is recognized on a straight-line basis over the
initial maintenance term. Maintenance fees in subsequent years 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 generally do not
provide a right of return. Historically, the Company's backlog has not been
substantial, since products are generally shipped and consulting services are
generally rendered as orders are received.
The Company has experienced, and may in the future experience, significant
fluctuations in its quarterly and annual revenues, results of operations and
cash flows. The Company believes that domestic and international operating
results and cash flows 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 "Business--Risk Factors."
The Company incurred net losses of $9.0 million, $3.7 million and
$0.3 million in 1998, 1999 and 2000, respectively and operating losses of
$8.9 million, $1.2 million and $0.2 million in 1998, 1999 and 2000,
respectively. Operating losses incurred by the Company's French and German
subsidiaries, which were sold in 1999, totaled $3.7 million and $2.4 million for
1998 and 1999, respectively. The 1999 net loss includes a $2.2 million loss on
sales of subsidiaries.
RECENTLY ISSUED 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, the adoption of SFAS No. 133 on January 1,
2001 did not have a material impact on the consolidated financial position or
results of operations.
31
EURO CURRENCY
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% and
35.8% for 1999 and 2000, respectively of its total revenues outside the United
States, a significant portion of which is in Europe. Excluding the Company's
French and German subsidiaries, which were sold in 1999 (see Note 2 to the
Consolidated Financial Statements), the Company derived 34.9%, 31.5% and 35.8%
of its revenue from outside the United States in 1998, 1999 and 2000,
respectively. The Company believes the euro conversion will not have a material
effect on the Company's consolidated financial position or results of
operations.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain operating
data, and data as a percentage of total revenues both including and excluding
the French and German subsidiaries sold during 1999.
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------
EXCLUDING DATA AS A
AS FRANCE & FRANCE PERCENT OF
REPORTED GERMANY & GERMANY REVENUE
(IN MILLIONS) -------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
Revenues:
License fees...................................... $15.3 $ 2.9 $12.4 24.0 %
Services.......................................... 48.2 9.0 39.2 76.0
----- ----- ----- ------
Total revenues.................................. 63.5 11.9 51.6 100.0
----- ----- ----- ------
Operating expenses:
Cost of license fees.............................. 3.8 1.2 2.6 5.0
Cost of services.................................. 28.4 6.1 22.3 43.2
Sales and marketing............................... 15.0 1.8 13.2 25.6
Research and development.......................... 10.6 1.4 9.2 17.8
General and administrative........................ 13.6 4.4 9.2 17.8
Restructuring costs............................... 1.0 0.7 0.3 0.6
----- ----- ----- ------
Total operating expenses........................ 72.4 15.6 56.8 110.1
----- ----- ----- ------
Operating loss...................................... (8.9) (3.7) (5.2) (10.1)
----- ----- ----- ------
Other income (expense):
Other income (expense), net....................... (0.1) -- (0.1) (0.2)
----- ----- ----- ------
Other expense, net.............................. (0.1) -- (0.1) (0.2)
----- ----- ----- ------
Net loss............................................ $(9.0) $(3.7) $(5.3) (10.3)%
===== ===== ===== ======
32
YEAR ENDED
YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 2000
------------------------------------------------- ---------------------
EXCLUDING DATA AS A DATA AS A
AS FRANCE & FRANCE PERCENT OF AS PERCENT OF
REPORTED GERMANY & GERMANY REVENUE REPORTED REVENUE
-------- ----------- ----------- ---------- -------- ----------
(UNAUDITED) (UNAUDITED)
Revenues:
License fees............................. $11.5 $ 0.5 $11.0 21.0% $ 8.8 18.0%
Services................................. 46.4 4.9 41.5 79.0 40.0 82.0
----- ----- ----- ----- ----- -----
Total revenues......................... 57.9 5.4 52.5 100.0 48.8 100.0
----- ----- ----- ----- ----- -----
Operating expenses:
Cost of license fees..................... 2.0 0.2 1.8 3.4 1.2 2.6
Cost of services......................... 24.6 3.4 21.2 40.4 21.0 43.1
Sales and marketing...................... 12.1 0.9 11.2 21.3 10.6 21.6
Research and development................. 7.6 0.4 7.2 13.7 6.9 14.2
General and administrative............... 12.2 2.3 9.9 18.9 9.3 18.9
Goodwill impairment...................... 0.6 0.6 -- -- -- --
----- ----- ----- ----- ----- -----
Total operating expenses............... 59.1 7.8 51.3 97.7 49.0 100.4
----- ----- ----- ----- ----- -----
Operating income (loss).................... (1.2) (2.4) 1.2 2.3 (0.2) (0.4)
----- ----- ----- ----- ----- -----
Other income (expense):
Loss on sales of subsidiaries............ (2.2) (2.2) -- -- -- --
Other income (expense), net.............. (0.6) -- (0.6) (1.1) (0.4) (0.8)
----- ----- ----- ----- ----- -----
Other expense, net..................... (2.8) (2.2) (0.6) (1.1) (0.4) (0.8)
----- ----- ----- ----- ----- -----
Income (loss) before income tax benefit and
extraordinary item....................... (4.0) (4.6) 0.6 1.1 (0.6) (1.2)
Income tax benefit......................... 0.5 -- 0.5 1.0 0.3 0.6
----- ----- ----- ----- ----- -----
Income (loss) before extraordinary item.... (3.5) (4.6) 1.1 2.1 (0.3) (0.6)
Extraordinary loss on modification of
debt..................................... (0.2) -- (0.2) (0.3) -- --
----- ----- ----- ----- ----- -----
Net income (loss).......................... $(3.7) $(4.6) $ 0.9 1.8% $(0.3) (0.6)%
===== ===== ===== ===== ===== =====
SALES OF SUBSIDIARIES
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 internally developed
proprietary software products and services in their respective countries. In May
and December, 1999, respectively, the operations in Germany and France were
sold.
Revenues for these subsidiaries were $11.9 million and $5.4 million for the
years ended December 31, 1998 and 1999, respectively, or 18.7% and 9.3% of total
revenues. Revenues for 1999 include revenues through May 31 and November 30 for
Germany and France, respectively ("reporting periods"). The decrease in revenues
from 1998 to 1999 was primarily the result of a reduction in license sales in
Germany and France and declines in product service revenues in the France
operation.
While operating expenses in these subsidiaries decreased from $15.6 million
in 1998 to $7.8 million for the reporting periods in 1999, expenses as a
percentage of total revenues increased from 131.1% in 1998 to 144.4% in 1999.
This is primarily the result of the decline in revenues without a proportional
related reduction in costs.
As a consequence of the above, the Company's operations in France and
Germany incurred operating losses totaling $3.7 million and $2.4 million in 1998
and 1999, respectively.
On June 1, 1999 and December 23, 1999, the Company sold its wholly-owned
subsidiaries located in Germany and France, respectively. The Company recorded a
loss of $2.2 million or $0.09 per share in connection with the sales (see
Note 2 to the Consolidated Financial Statements).
33
Subsequent to the sale of the Germany and France operations, the remaining
operations are solely involved in the sales of internally developed products
("core products").
RESULTS OF OPERATIONS
The following discussions relate to changes in the results of operations,
excluding France and Germany, for the three years presented in the results of
operations table.
TOTAL REVENUES
The Company's revenues are derived from license fees and services. Total
revenues increased from $51.6 million in 1998 to $52.5 million in 1999 and
decreased to $48.8 million in 2000. This represents an increase of 1.7% from
1998 to 1999 and a decrease of 7.0% from 1999 to 2000. Total revenues in 1999
increased slightly resulting from an increase in service revenues offset by a
decrease in license revenue. The decrease in 2000 resulted from a decrease in
both license revenue and service revenues.
The Company derived approximately $18.0 million, $16.5 million and
$17.4 million or 34.9%, 31.4% and 35.7% of its total revenues, from customers
outside of the United States in 1998, 1999 and 2000, respectively. 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
U.S. dollar denominated, decreases in the value of foreign currencies relative
to the U.S. dollar could make the Company's products less price competitive.
LICENSE FEES
License fees include revenues from software license agreements 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.
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. In multiple element arrangements,
the Company defers the VSOE related to the undelivered elements and recognizes
revenue on the delivered elements using the residual method. License fees
decreased 11.3% from 1998 to 1999 and 20.3% from 1999 to 2000. During 1998, no
customer accounted for greater than 10% of total license revenues. License
revenues in 1999 included license revenue of $2.2 million from one customer or
20.0% of total license revenues for the year. License revenues in 2000 included
license revenue of $2.5 million from two customers or 28.3% of total license
revenues for the year. The decrease in license revenue in 2000 was attributable
to product transitioning and general market conditions offset slightly by the
sale of our newly developed Internet-enabled products.
SERVICE REVENUES
Service revenues include fees from software maintenance agreements,
training, installation and consulting services. Maintenance fees, including
first year maintenance which is allocated from the total license arrangement
based on VSOE, are recognized ratably over the period of the maintenance
agreement. Training, installation and consulting services revenue are recognized
as the services are performed. Service revenues increased 5.9% from 1998 to 1999
and decreased 3.6% from 1999 to 2000. The increase in 1999 was attributed
primarily to a higher demand for upgrades and implementation services for the
Company's core products in the U.S. as companies prepared themselves for Y2K.
The majority of the decrease in 2000 relates to lower service revenues in the
U.S. operations, due to lower license sales and fewer demand for upgrades in the
installed base.
34
COST OF LICENSE FEES
Cost of license fees consists primarily of amortization of capitalized
software development cost, 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 decreased from $2.6 million in 1998 to $1.8 million in
1999, to $1.2 million in 2000. These costs represented 21.0%, 16.4%, and 13.6%
of license fees in 1998, 1999 and 2000, respectively. The decrease in 1999 and
2000 was the result of decreased documentation costs. Cost of license fees
decreased in 2000 due to the cancellation in the U.S. of a third party licensing
agreement.
COST OF SERVICES
Cost of services consists primarily of personnel and third party costs for
product quality assurance, training, installation, consulting and customer
support. Total service costs decreased from $22.3 million in 1998 to
$21.2 million in 1999 to $21.0 million in 2000 which represented 56.9%, 51.1%
and 52.5% of service revenues in 1998, 1999 and 2000, respectively. The decrease
during 1999 resulted from higher utilization rates throughout the world, and a
reduction in non-billable travel related expenses. Cost of services decreased
slightly in 2000 mainly due to a decrease in the cost of third party services in
the U.S. related to the decrease in services revenue.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses related to sales and marketing personnel as well as travel and
promotional expenses. Sales and marketing expenses decreased from $13.2 million
in 1998, to $11.2 million in 1999 and $10.6 million in 2000, which represented
106.5%, 101.8% and 120.5% of total license fee revenues, respectively. Sales and
marketing expenses decreased substantially during 1999 due primarily to a
decrease in personnel and advertising programs, partially offset by an increase
in commission expense. The decrease in 2000 is attributable to a decrease in
salaries from lower headcount during the year and lower commission from
decreased license revenue, partially offset by increased marketing costs from
the rebranding of the Company name. The Company continues to place significant
emphasis, both domestically and internationally, on client sales through its own
sales force.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of personnel costs,
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 on a
straight-line basis over periods not exceeding three years.
Research and development expenses (net of capitalized software development
costs) decreased from $9.2 million in 1998 to $7.2 million in 1999 to
$6.9 million in 2000, which represented 17.8%, 13.7% and 14.1% of total
revenues, respectively. The Company capitalized software development costs of
$0.3 million, $1.5 million and $1.8 million in 1998, 1999 and 2000,
respectively. The decrease in research and development costs in 1999 and 2000
was primarily the result of an increase in capitalized software development
costs, a continued decrease in costs for the Yorvik product, and a decrease in
use of temps and non-employee consultants. The rate of capitalization of
software development costs may fluctuate depending on the mix and stage of
development of the Company's research and development projects.
35
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries of
administrative, executive and financial personnel and outside professional fees.
General and administrative expenses increased from $9.2 million in 1998 to
$9.9 million in 1999 and decreased to $9.3 million in 2000. The increase in 1999
primarily represented an increase in rent, bonuses and recruitment costs
partially offset by a decrease in professional fees and depreciation and
amortization. General and administrative expenses decreased in 2000 primarily
due to decreases in employee recruitment costs and bonuses in the U.S. operation
and decreased personnel costs in the Canada and Singapore operations partially
offset by increased professional fees.
RESTRUCTURING COSTS
During its fiscal second quarter of 1998, the Company committed itself to a
plan whereby it eliminated 32 positions in the United States, which were
rendered redundant through a reengineering process, and eliminated 16 positions
outside the United States, which were servicing legacy products. Of the 48
positions eliminated, all were terminated prior to December 31, 1998 except as
follows: six people resigned prior to being terminated and one position was
terminated subsequent to December 31, 1998. Accordingly, the Company recorded a
net charge to operations in 1998 totaling approximately $1.0 million, (includes
restructuring amounts for France and Germany), ($1.3 million in the second
quarter of 1998, reduced in the third quarter of 1998 by $0.3 million for
anticipated savings attributable to resignations) reflecting the termination
costs of those personnel. The Company incurred cash outlays of $0.8 million and
$0.2 million for the years ended December 31, 1998 and 1999, respectively.
OPERATING INCOME (LOSS)
As a consequence of the above, the Company incurred an operating loss of
$5.2 million for 1998, operating income of $1.2 million for 1999 and an
operating loss of $0.2 million for 2000.
OTHER INCOME (EXPENSE), NET
Other income (expense), net increased from $(0.1) million in 1998 to $(0.6)
million in 1999 mainly as a result of a decrease in interest income from lower
cash balances and higher interest expense related to the revolving line of
credit. Other income (expense), net decreased from $(0.6) million in 1999 to
$(0.4) million in 2000 as a result of a decrease in loan costs related to debt
which was fully amortized as of December 31, 1999 (see note 3 to the
Consolidated Financial Statements).
INCOME TAX (PROVISION) BENEFIT
The Company's income tax provision was immaterial in 1998.
The Company recorded an income tax benefit of $0.5 million and $0.3 million
in 1999 and 2000, respectively, from the sales to third parties of certain
expiring New Jersey State Tax net operating loss carry-forwards.
EXTRAORDINARY LOSS ON MODIFICATION OF DEBT
In connection with the 1999 sale of its subsidiary in France, the Company
modified the outstanding term loan (see Note 2 to the Consolidated Financial
Statements) resulting in an extraordinary loss in 1999, net of taxes, in the
amount of $0.2 million for the write-off of deferred debt acquisition costs.
RESULTS OF OPERATIONS
As a consequence of the above, the Company incurred a net loss of
$5.3 million in 1998, net income of $0.9 million in 1999, and a net loss of
$0.3 million in 2000.
36
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had cash and cash equivalents of
$2.2 million and restricted cash of $0.1 million and a working capital deficit
of $7.0 million. Included in the deficit is $7.5 million of deferred revenue. On
March 31, 1998, the Company entered into a three-year Loan and Security
Agreement ("Agreement") which provides maximum borrowings of up to $10 million.
The Agreement contains a revolving line of credit and a term loan (the "Initial
Term Loan"). The Initial Term Loan provided for $5 million available in one
drawdown which the Company borrowed on the closing date. The Initial Term Loan
was repayable in 36 monthly installments beginning May 1, 1998. 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 December 31, 2000 is approximately
$2.1 million, of which no amounts were outstanding.
Effective March 8, 1999, the Company amended the Agreement in order to
increase amounts available under the term loan portion of the Agreement 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 restrictive financial
covenants for 1999 (see Note 3 to the Consolidated Financial Statements). No
amounts were drawn down in connection with the amendment.
Effective December 22, 1999, 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, a third term loan (the
"B Term Loan") in the original principal amount of $750,000, to extend the
termination date of the credit facility to March 31, 2003 and to establish
restrictive financial 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 and the B Term Loan, under Amendment No. 7, shall be made at
the Company's request at any time (i) in the case of an A Term Loan, on or after
December 22, 1999 but before September 30, 2002 and (ii) in the case of the B
Term Loan, on or after December 22, 1999 but before December 31, 2000. The
Second Term Loan provided for a one-time borrowing which the Company executed on
the closing date. The A Term Loan bears interest at the rate of prime as defined
(9.50% at December 31, 2000) plus 1.5% and is payable in monthly installments of
$100,000. The B Term Loan provides for not more than three borrowings of
increments of at least $250,000 through December 31, 2000. The Company borrowed
$500,000 against the B Term Loan on November 3, 2000 and requested the remaining
$250,000 on December 31, 2000 which was subsequently remitted and recorded on
the Company's books on January 2, 2001. The B Term Loan bears interest at the
rate of 12% per annum and is payable in monthly installments of $62,500 through
December 31, 2001.
Effective March 16, 2001, the Company further amended the Agreement
(Amendment No. 9) in order to make available an additional term loan (the
"Additional B Term Loan") in the original principal amount of up to $2,000,000,
to extend the termination date of the credit facility to March 31, 2004 and to
establish restrictive financial covenants for 2001.
The Additional B Term Loan provides for not more than three borrowings. Each
request for a borrowing under the Additional B Term Loan must specify the amount
of the requested Term Loan, which can not exceed (A) $750,000 if such request is
made on or after March 16, 2001 but before December 31, 2001, plus (B) an
additional $500,000 if such request is made on or after April 30, 2001 but
before December 31, 2001, plus (C) an additional $750,000 if such request is
made on or before July 31, 2001 but before December 31, 2001, and which must be
in a minimum amount of $500,000. The availability of the Additional B Term Loan
is subject to the Company's compliance with the 2001 financial covenants. The
aggregate outstanding principal amount of the Term Loans shall be repaid in
monthly installments of $150,000 beginning April 1, 2001 over the remaining term
of the Loan and Security Agreement.
37
Amendment No. 9 provides a limitation that if the total outstanding balance
of term loans exceeds the lesser of (i) 45% of eligible maintenance revenues
through December 31, 2001, 40% of eligible maintenance revenues from January 1,
2002 through December 31, 2002, 25% of eligible maintenance revenues from
January 1, 2003 through March 31, 2004 and (ii) $4.5 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 December 31, 2000, eligible maintenance
revenues totaled approximately $10,717.
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 used cash of $4.5 million in 1998 and
provided cash of $0.6 million and $3.1 million in 1999 and 2000, respectively.
Net cash used in operating activities in 1998 was primarily the result of the
net loss partially offset by non-cash depreciation and amortization charges. Net
cash provided by operating activities in 1999 was primarily the result of the
net loss offset by non-cash depreciation and amortization charges and the loss
on sale of subsidiaries (see Note 2 to the Consolidated Financial Statements).
Net cash provided by operating activities in 2000 was primarily the result of
non-cash depreciation and amortization charges and a decrease in accounts
receivable, partially offset by a decrease in accounts payable, accrued
expenses, and deferred revenue.
The Company's investing activities used cash of $1.2 million in 1998,
$2.2 million in 1999 and $3.2 million in 2000. Investing activities were
principally for purchases of equipment totaling $1.7 million in 1998,
$0.7 million in 1999 and $0.9 million in 2000 and capitalized software costs
totaling $1.5 million in 1999 and $1.8 million in 2000.
Cash provided by financing activities was $3.6 million in 1998 and
$1.3 million in 2000. Cash used in financing activities was $0.4 million in
1999. During 1998, cash provided by financing activities resulted from
$5.0 million in term loan proceeds offset by $1.2 million in repayments. During
1999, cash used in financing activities included repayments of the term portion
of the loan agreement totaling approximately $1.7 million partially offset by
proceeds of $1.3 million from modification of the loan agreement. Cash provided
by financing activities in 2000 was primarily the result of proceeds from the
exercise of stock options and warrants partially offset by repayments of the
term portion of the loan.
The Company has no significant capital commitments. Planned capital
expenditures for 2001 total approximately $1.2 million, exclusive of any
software development costs that may qualify for capitalization under Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Sofware to be Sold, Leased or Otherwise Marketed." The Company's aggregate
minimum operating lease payments for 2001 will be approximately $2.0 million.
The Company has experienced recurring net losses of $9.0 million,
$3.7 million and $0.3 million during the years ended December 31, 1998, 1999 and
2000, respectively. Additionally, as a result of intense competition and rapid
technological change, the Company has also experienced declining license and
service revenues. In response to these conditions, management of the Company is
pursuing several initiatives intended to improve operating results and liquidity
and better position the Company to compete under current market conditions. The
Company expects that its operating cash flow and available financial resources
will be sufficient to fund the Company's working capital requirements through
2001. However, the Company's ability to achieve the anticipated results 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 or future
accommodations from its existing lender. No assurance can be given that
management's initiatives will be successful or that any such additional sources
of financing or lender accommodations will be available.
38
ITEM 7A. 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 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 December 31, 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
December 31, 2000. Changes in the prime interest rate during fiscal 2001 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 $29,000, based on the debt outstanding
as of December 31, 2000. Further information specific to the Company's debt is
presented in Note 3 to the Consolidated Financial Statements.
YEAR OF MATURITY
ESTIMATED VARIABLE CARRYING -------------------
DESCRIPTION FAIR VALUE INTEREST RATE AMOUNT 2001 2002
- ----------- ---------- ------------- -------- -------- --------
(IN THOUSANDS)
A Term loan................... $2,422 11.0% $2,422 $1,200 $1,222
B Term loan................... $ 500 12.0% $ 500 $ 500 --
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference herein
from Part IV Item 14(a) (1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates herein by reference the information concerning
directors and executive officers in its Notice of Annual Stockholders' Meeting
and Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year (the "2001 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information concerning
executive compensation contained in the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
2001 Proxy Statement.
39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates herein by reference the information concerning
certain relationships and related transactions contained in the 2001 Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
(A)(1) CONSOLIDATED FINANCIAL STATEMENTS:
PAGE NO.
--------
Report of Independent Auditors.............................. 40
Consolidated Balance Sheets at December 31, 1999 and 2000... 41
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000.......................... 42
Consolidated Statements of Comprehensive Loss for the years
ended
December 31, 1998, 1999 and 2000.......................... 43
Consolidated Statements of Stockholders' Deficit for the
years ended
December 31, 1998, 1999 and 2000.......................... 44
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000.......................... 45
Notes to Consolidated Financial Statements.................. 46
(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Report of Independent Auditors On Schedule.................. 60
Schedule II--Valuation and Qualifying Accounts:
Years Ended December 31, 1998, 1999 and 2000................ 61
(A)(3) EXHIBITS.
3.1* Fourth Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen Common Stock Certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the Certificate
of Incorporation and Bylaws of the Company defining rights
of holders of Common Stock of the Company.
4.3# Form of Warrant (1997)
4.4+++ Form of Warrant (2001)
10.3* Employment Agreement between the Company and Elias Typaldos,
as amended.
10.4* Employment Agreement between the Company and Gennaro
Vendome, as amended.
10.6* 1995 Stock Option Plan.
10.7* Lease Agreement between the Company and Enterprise
Development Corporation.
10.9* License Agreement between the Company and Pfizer, Inc., as
amended.
10.12* Contract between the Company and Polish State Railways
Central Office of Purchasing and Sales Ferpol, a division of
Polish State Railways.
10.13* Program License Contract between the Company and Deutsche
Bank AG.
40
10.16** Employment Agreement between the Company and Michael
Jorgensen.
10.19**** 1995 Stock Option Plan, as amended.
10.20# Securities Purchase Agreement.
10.21**** Employment Agreement between the Company and John Rade.
10.24**** Amendment to Securities Purchase Agreement
10.25**** Amendment to Lease Agreement between the Company and
Enterprise Development Corporation.
10.26***** Loan and Security Agreement with Foothill Capital
Corporation dated March 31, 1998
10.27***** 1998 Stock Option Plan
10.28****** Amendment No. 1 to the Loan and Security Agreement.
10.29******* Amendment No. 2 to the Loan and Security Agreement.
10.30******** Amendment No. 3 to the Loan and Security Agreement.
10.31******** Amendment No. 4 to the Loan and Security Agreement.
10.32******** Amendment to the Employment Agreement between the Company
and John Rade.
10.33******** Employment Agreement between the Company and Rick Hartung.
10.34******** Employment Agreement between the Company and Gregory Groom.
10.35******** Software Assignment Agreement between the Company and
S-Cubed International Corporation.
10.36******** OEM License Agreement between the Company and S-Cubed
International Corporation.
10.37******** Consulting Services Agreement between the Company and
S-Cubed International Corporation.
10.38******** Value added Reseller Agreement between the Company and
S-Cubed International Corporation.
10.39******** Amendment No. 5 to the Loan and Security Agreement
10.40+ Amendment No. 6 to the Loan and Security Agreement
10.41+ Amendment No. 7 to the Loan and Security Agreement
10.42+ Amendment No. 8 to the Loan and Security Agreement
10.43++ Share Purchase Agreement, dated December 23, 1999, between
the Company and ADONIX relating to the sale of all of the
shares of AXS-One Software, S.A. (English translation)
10.44+++ Amendment No. 9 to the Loan and Security Agreement
10.45+++ Employment Agreement between the Company and Dennis
Piccininni
10.46+++ Employment Agreement between the Company and Nat Bosco
10.47+++ Investment Banking Services Agreement between the Company
and Stonegate Securities, Inc. dated November 2, 2000, and
Amendment dated January 24, 2001.
10.48+++ Employment Agreement between the Company and William
Levering
21.1 List of Subsidiaries.
41
23.1 Consent of KPMG LLP
- ------------------------
# Incorporated by reference to the Exhibits filed with the
Company's Form 8-K filed on January 8, 1998.
* Incorporated by reference to the Exhibits filed with the
Company's Registration Statement on Form S-l, File
No. 33-93990.
** Incorporated by reference to the Exhibits filed with the
Company's March 31, 1997 Form 10-Q.
**** Incorporated by reference to the Exhibits filed with the
Company's 1997 Form 10-K
***** Incorporated by reference to the Exhibits filed with the
Company's March 31, 1998 Form 10-Q
****** Incorporated by reference to the Exhibits filed with the
Company's June 30, 1998 Form 10-Q
******* Incorporated by reference to the Exhibits filed with the
Company's September 30, 1998 Form 10-Q
******** Incorporated by reference to the Exhibits filed with the
Company's 1998 Form 10-K
+ Incorporated by reference to the Exhibits filed with the
Company's 1999 Form 10-K
++ Incorporated by reference to the Exhibits filed with the
Company's Form 8-K filed on December 23, 1999
+++ Filed herewith
(B) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 2000:
On November 2, 2000, the Company filed a Report on Form 8-K relating to the
name change from Computron Software Inc. to AXS-One Inc.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Rutherford, State of New Jersey, on this 28th day of March 2001.
AXS-ONE INC.
By: /s/ JOHN A. RADE
-----------------------------------------
JOHN A. RADE
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities indicated on March 28, 2001.
SIGNATURE TITLE(S)
--------- --------
/s/ JOHN A. RADE Chief Executive Officer, President and
- -------------------------------------------- Director (Principal Executive Officer)
(John A. Rade)
/s/ WILLIAM G. LEVERING III Vice President, Chief Financial Officer and
- -------------------------------------------- Treasurer (Principal Financial and Accounting
(William G. Levering III) Officer)
/s/ ELIAS TYPALDOS Senior Vice President Research and
- -------------------------------------------- Development and Chairman of the Board
(Elias Typaldos)
/s/ GENNARO VENDOME Vice President, and Director
- --------------------------------------------
(Gennaro Vendome)
/s/ DANIEL H. BURCH Director
- --------------------------------------------
(Daniel H. Burch)
/s/ ROBERT MIGLIORINO Director
- --------------------------------------------
(Robert Migliorino)
/s/ WILLIAM E. VOGEL Director
- --------------------------------------------
(William E. Vogel)
/s/ EDWIN T. BRONDO Director
- --------------------------------------------
(Edwin T. Brondo)
/s/ ALLAN WEINGARTEN Director
- --------------------------------------------
(Allan Weingarten)
43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AXS-One Inc.:
We have audited the accompanying consolidated balance sheets of
AXS-One Inc. and subsidiaries as of December 31, 1999 and 2000, and the related
consolidated statements of operations, comprehensive loss, stockholders'
deficit, and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
AXS-One Inc. and subsidiaries as of December 31, 1999 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Short Hills, New Jersey
January 29, 2001, except
as to note 3, which is as
of March 16, 2001
44
AXS-ONE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
-------------------
1999 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,154 $ 2,207
Restricted cash........................................... 301 50
Accounts receivable, net of allowance for doubtful
accounts of $1,315 and $1,060 at December 31, 1999 and
2000, respectively...................................... 11,153 7,832
Prepaid expenses and other current assets................. 954 691
-------- --------
Total current assets.................................. 13,562 10,780
-------- --------
Equipment and leasehold improvements, at cost:
Computer and office equipment............................. 11,605 12,045
Furniture and fixtures.................................... 1,204 1,198
Leasehold improvements.................................... 1,087 1,084
-------- --------
13,896 14,327
Less--accumulated depreciation and amortization........... 12,052 13,057
-------- --------
1,844 1,270
-------- --------
Capitalized software development costs, net of accumulated
amortization of
$4,998 and $5,743 at December 31, 1999 and 2000,
respectively.............................................. 2,002 3,030
Other assets................................................ 93 104
-------- --------
$ 17,501 $ 15,184
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease
obligations............................................. $ 1,105 $ 1,700
Accounts payable.......................................... 3,083 3,107
Accrued expenses.......................................... 7,202 5,467
Other current liabilities................................. 500 --
Deferred revenue.......................................... 8,534 7,496
-------- --------
Total current liabilities............................. 20,424 17,770
-------- --------
Long-term liabilities:
Long-term debt and capital lease obligations, net of
current portion......................................... 2,425 1,222
-------- --------
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 shares and 24,785 shares issued and outstanding
at December 31, 1999 and 2000, respectively............. 239 248
Additional paid-in capital................................ 70,141 72,032
Accumulated deficit....................................... (75,739) (76,038)
Accumulated other comprehensive income (loss)............. 11 (50)
-------- --------
Total stockholders' deficit........................... (5,348) (3,808)
-------- --------
$ 17,501 $ 15,184
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
45
AXS-ONE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Revenues:
License fees.............................................. $15,273 $11,468 $ 8,765
Services.................................................. 48,248 46,400 40,011
------- ------- -------
Total revenues.......................................... 63,521 57,868 48,776
------- ------- -------
Operating expenses:
Cost of license fees...................................... 3,824 1,955 1,245
Cost of services.......................................... 28,389 24,647 21,005
Sales and marketing....................................... 14,970 12,064 10,546
Research and development.................................. 10,568 7,600 6,926
General and administrative................................ 13,586 12,213 9,242
Goodwill impairment....................................... -- 573 --
Restructuring costs....................................... 1,025 -- --
------- ------- -------
Total operating expenses................................ 72,362 59,052 48,964
------- ------- -------
Operating income (loss)..................................... (8,841) (1,184) (188)
------- ------- -------
Other income (expense):
Costs related to settlement of class action litigation.... (74) -- --
Loss on sales of subsidiaries............................. -- (2,242) --
Interest income........................................... 453 89 71
Interest expense.......................................... (439) (450) (423)
Other expense............................................. (130) (219) (63)
------- ------- -------
Other expense, net...................................... (190) (2,822) (415)
------- ------- -------
Loss before income tax (provision) benefit and extraordinary
item...................................................... (9,031) (4,006) (603)
Income tax (provision) benefit.............................. (12) 508 304
------- ------- -------
Loss before extraordinary item.............................. (9,043) (3,498) (299)
Extraordinary loss on modification of debt.................. -- (182) --
------- ------- -------
Net loss.................................................... $(9,043) $(3,680) $ (299)
======= ======= =======
Basic and diluted net loss before extraordinary loss per
common share.............................................. $ (0.38) $ (0.14) $ (0.01)
Basic and diluted extraordinary loss per common share....... -- (0.01) --
------- ------- -------
Basic and diluted net loss per common share................. $ (0.38) $ (0.15) $ (0.01)
======= ======= =======
Weighted average basic and diluted common shares
outstanding............................................... 23,963 23,914 24,624
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
46
AXS-ONE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Net loss.................................................... $(9,043) $(3,680) $(299)
Translation adjustment...................................... (177) (307) (61)
------- ------- -----
Comprehensive loss........................................ $(9,220) $(3,987) $(360)
======= ======= =====
The accompanying notes are an integral part of these consolidated financial
statements.
47
AXS-ONE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER STOCKHOLDERS'
------------------- PAID-IN ACCUMULATED COMPREHENSIVE EQUITY
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) (DEFICIT)
-------- -------- ---------- ----------- ------------- -------------
BALANCE--DECEMBER 31, 1997......... 23,777 $238 $69,373 $(63,016) $(500) $ 6,095
Net loss............................. -- -- -- (9,043) -- (9,043)
Translation adjustment............... -- -- -- -- (177) (177)
Decrease in liability relating to
sale of common stock............... -- -- 131 -- -- 131
Issuance of common stock............. 119 1 595 -- -- 596
Exercise of stock options............ 17 -- 23 -- -- 23
------ ---- ------- -------- ----- -------
BALANCE--DECEMBER 31, 1998......... 23,913 239 70,122 (72,059) (677) (2,375)
Net loss............................. -- -- -- (3,680) -- (3,680)
Translation adjustment............... -- -- -- -- (307) (307)
Decrease in cumulative translation
adjustment due to sales of
subsidiaries....................... -- -- -- -- 995 995
Exercise of stock options............ 10 -- 19 -- -- 19
------ ---- ------- -------- ----- -------
BALANCE--DECEMBER 31, 1999......... 23,923 239 70,141 (75,739) 11 (5,348)
Net loss............................. -- -- -- (299) -- (299)
Translation adjustment............... -- -- -- -- (61) (61)
Exercise of stock options and
warrants........................... 862 9 1,891 -- -- 1,900
------ ---- ------- -------- ----- -------
BALANCE--DECEMBER 31, 2000......... 24,785 $248 $72,032 $(76,038) $ (50) $(3,808)
====== ==== ======= ======== ===== =======
The accompanying notes are an integral part of these consolidated financial
statements.
48
AXS-ONE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Cash flows from operating activities:
Net loss.................................................... $(9,043) $(3,680) $ (299)
Adjustments to reconcile net loss to net cash flows
provided by (used in) operating activities:
Depreciation and amortization........................... 3,733 2,624 2,107
Goodwill impairment..................................... -- 573 --
Provision for doubtful accounts......................... 114 263 219
Extraordinary loss on modification of debt.............. -- 182 --
Loss on sale of equipment and leasehold improvements.... 9 10 44
Loss on sales of subsidiaries........................... -- 2,242 --
Changes in current assets and liabilities, net of
divestitures:
Restricted cash......................................... 1,274 4,303 243
Accounts receivable..................................... 185 (1,241) 2,833
Prepaid expenses and other current assets............... 1,261 742 247
Accounts payable and accrued expenses................... (2,518) (120) (1,530)
Due to shareholders..................................... -- (4,404) --
Deferred revenue........................................ 510 (922) (730)
------- ------- -------
Net cash flows provided by (used in) operating activities... (4,475) 572 3,134
------- ------- -------
Cash flows from investing activities:
Decrease (increase) in other assets..................... 705 99 (13)
Net proceeds from sale of German subsidiary............. -- 1,191 --
Net payment made on sale of French subsidiary........... -- (1,253) (500)
Capitalized software development costs.................. (300) (1,537) (1,773)
Purchase of equipment and leasehold improvements........ (1,739) (696) (890)
Proceeds from sale of equipment and leasehold
improvements.......................................... 112 -- --
------- ------- -------
Net cash flows used in investing activities................. (1,222) (2,196) (3,176)
------- ------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants.... 23 19 1,900
Proceeds from issuance of long term debt................ 5,000 1,300 500
Payments of long-term debt and capital lease
obligations........................................... (1,177) (1,684) (1,105)
Decrease in liabilities related to sale of common
stock................................................. 131 -- --
Payment of deferred financing costs..................... (350) -- --
------- ------- -------
Net cash flows provided by (used in) financing activities... 3,627 (365) 1,295
------- ------- -------
Foreign currency exchange rate effects on cash and cash
equivalents............................................... (201) (866) (200)
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... (2,271) (2,855) 1,053
Cash and cash equivalents, beginning of year................ 6,280 4,009 1,154
------- ------- -------
Cash and cash equivalents, end of year...................... $ 4,009 $ 1,154 $ 2,207
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for--
Interest................................................ $ 373 $ 410 $ 402
Income taxes............................................ 12 48 33
The accompanying notes are an integral part of these consolidated financial
statements.
49
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) OPERATIONS, BUSINESS CONDITIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated under the laws of the State of Delaware in
September 1978. The name of the Company was changed from Computron
Software, Inc. to AXS-One Inc. in November 2000. 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. The Company also offers consulting, implementation, training and
maintenance services in support of its customers' use of its software products.
The Company has experienced recurring net losses of $9,043, $3,680 and $299
during the years ended December 31, 1998, 1999 and 2000, respectively.
Additionally, as a result of product transitioning and general market
conditions, the Company has also experienced declining license and service
revenues. In response to these conditions management of the Company is pursuing
several initiatives intended to improve operating results and liquidity and
better position the Company to compete under current market conditions. However,
the Company's ability to achieve the results anticipated is affected by the
extent of cash generated from operations and the pace at which the Company
utilizes its available resources. The Company may be required to seek additional
sources of financing or future accommodations from its existing lender. No
assurance can be made that management's initiatives will be successful or that
any additional sources of financing or lender accommodations will be available.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AXS-One Inc.;
its wholly owned subsidiaries located in Australia, Canada, France, Germany,
Poland, Singapore, South Africa and the United Kingdom (collectively, the
"COMPANY") (see Note 2 for discussion of the sales of two of these subsidiaries
in 1999). All significant intercompany transactions and balances have been
eliminated.
(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 impact 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. In multiple element arrangements, the Company defers
the vendor-specific objective evidence of fair value ("VSOE") related to the
undelivered elements and recognizes revenue on the delivered elements using the
residual method. The most commonly deferred element is initial post-contract
support (maintenance), which is recognized on a straight-line basis over the
initial maintenance term. Maintenance fees in subsequent years 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 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.
The adoption in 1998 of SOP 97-2, which was effective for transactions
entered into in fiscal years beginning after December 15, 1997, did not have a
material impact on the Company's revenue recognition policies.
50
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(C) USE OF MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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 consolidated financial statements and the
reported amounts of revenues and expenses during the periods presented. Actual
results could differ from those estimates. Significant assets, liabilities and
expenses with reported amounts based on estimates include accounts receivable,
capitalized software development costs, accrued expenses and pro forma
compensation expense.
(D) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents are stated at cost, which approximates market, and consist
of short-term, highly liquid investments with original maturities of less than
three months. Restricted cash represents the amount of certificates of deposit
used as collateral for outstanding letters of credit in the same amount.
(E) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets (two to five
years). Leasehold improvements are amortized using the straight-line method over
the lesser of the remaining term of the lease or their estimated useful lives.
(F) SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internally generated software development costs upon
the establishment of technological feasibility until the time when the product
is available for general release to customers. Research and development costs
are expensed as incurred.
During 1998, 1999 and 2000 capitalized software development costs amounted
to $300, $1,537 and $1,773, respectively. Annual amortization of software
development costs of $705, $559 and $738 for 1998, 1999 and 2000, respectively,
were calculated as the greater of the amount computed using (a) the ratio of
actual revenue from a product to the total of current and anticipated related
revenues from the product or (b) the economic life of the product, estimated to
be three years, on a straight-line basis.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company monitors events or changes in
circumstances that may indicate carrying amounts of its long-lived assets may
not be recoverable. When such events or changes in circumstances are present,
the Company assesses the recoverability of its assets by determining whether the
carrying amount of its assets will be recovered through undiscounted, expected
future cash flows. Should the Company determine that the carrying values of
specific long-lived assets are not recoverable, the Company would record a
charge to reduce the carrying value of such assets to their fair values. The
Company considers various valuation factors, principally discounted cash flows,
to assess the fair values of long-lived assets.
51
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(H) GOODWILL
Goodwill was the result of two acquisitions in 1996 and was being amortized
to operations on a straight-line basis over the periods to be benefited, which
was estimated at less than five years from the date of acquisitions. During
1999, these subsidiaries were sold and as such no goodwill remained in the
consolidated financial statements as of December 31, 1999.
Pursuant to SFAS No. 121, the Company evaluated the recoverability of
goodwill and in September 1999 determined that due to the decline in legacy
product services revenue in the France operations and the inability for those
operations to generate any license revenue from products developed in the U.S.,
the undiscounted expected future cash flows would be insufficient to recover the
carrying amount of goodwill. Accordingly, in the third quarter of 1999, the
Company recorded a charge of $573, or $0.02 per diluted common share, for the
impairment of goodwill related to the 1996 purchase of operations in France.
Yearly amortization of such goodwill was approximately $385. The France
operation was sold in December 1999 (see Note 2).
(I) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities, and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date.
(J) CONCENTRATION OF CREDIT RISK
SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk," requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of cash
balances with three financial institutions and its accounts receivable credit
risk is not concentrated within any geographic area. As of December 31, 2000, no
one customer represented more than 10% of gross accounts receivable. One
customer represented 16.7% of gross accounts receivable at December 31, 1999.
There was no single customer accounting for more than 10% of total revenues in
1998, 1999 or 2000. One customer accounted for 19.0% of license revenue in 1999,
and two customers accounted for 28.3% of license revenue in 2000. No one
customer accounted for 10% of license revenue in 1998.
(K) FOREIGN CURRENCY TRANSLATION
The functional currency for most foreign subsidiaries is the local currency.
The results of operations for these foreign subsidiaries are translated from
local currencies into U.S. dollars using the average exchange rates during each
period. Assets and liabilities are translated using exchange rates at the end of
the period with translation adjustments accumulated in stockholders' deficit.
52
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(L) ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and Financial Accounting Standards
Board Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation," in accounting for its stock-based compensation.
The Company follows the disclosure-only provisions of SFAS No. 123 which
requires disclosure of the pro forma effects on income (loss) and income (loss)
per common share as if the fair value method of accounting prescribed by SFAS
No. 123 had been adopted, as well as certain other information. Pro forma
compensation expense is recognized on a straight-line basis over the vesting
term.
(M) BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share is presented in accordance with
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). Basic net 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 since the effect of stock options and warrants
is anti-dilutive for all periods presented.
The following represents the calculations of the basic and diluted net loss
per common share for the years ended December 31, 1998, 1999 and 2000.
YEARS ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Net loss.................................................... $(9,043) $(3,680) $ (299)
======= ======= =======
Weighted average basic and diluted common shares outstanding
during the year........................................... 23,963 23,914 24,624
------- ------- -------
Basic and diluted net loss per common share................. $ (0.38) $ (0.15) $ (0.01)
======= ======= =======
(N) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, accrued expenses, other current liabilities and debt reported in the
consolidated balance sheets equal or approximate fair values.
(O) DEFERRED REVENUE
Deferred revenues primarily relate to customer support agreements that have
been paid for by customers prior to the performance of those services and, to a
lesser extent, prepaid consulting and deferred license fees.
(2) 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. Pursuant to the
terms of the sale agreement, the Company funded the working capital deficiency
for its French subsidiary, during December 1999 and October 2000, in the amounts
of $1,253 and $500, respectively. The Company recorded a combined loss of
$2,242, or $0.09 per share on these sales.
53
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth significant financial data for both
subsidiaries for comparison purposes. The 1999 amounts include results through
May 31, 1999 for the German subsidiary and November 30, 1999 for the French
subsidiary.
1998 1999
-------- --------
Revenues:
License fees............................................ $ 2,944 $ 527
Services................................................ 8,951 4,897
------- -------
11,895 5,424
------- -------
Total operating expenses.................................. 15,589 7,866
------- -------
Operating loss............................................ (3,694) (2,442)
Other expense, net........................................ (8) (3)
------- -------
Net loss.................................................. $(3,702) $(2,445)
======= =======
(3) LONG-TERM DEBT
The Company's long term debt consists of the following:
DECEMBER 31,
-------------------
1999 2000
-------- --------
Term loan................................................... $3,522 $2,922
Less: current portion....................................... 1,100 1,700
------ ------
Long-term debt, net of current portion...................... $2,422 $1,222
====== ======
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").
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 restrictive financial 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 December 31, 2000 is approximately
$2.1 million of which no amounts were outstanding. The Company was in compliance
with the covenants as of December 31, 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 (9.50% at December 31, 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
54
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
extend the termination date of the credit facility to March 31, 2002, and to
establish restrictive financial 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, and a
third term loan (the "B Term Loan") in the original principal amount of $750, of
which the Company borrowed $500 on November 3, 2000 and rquested the remaining
$250 on December 31, 2000 which was subsequently remitted and recorded on the
Company's books on January 2, 2001. Amendment No. 7 also extends the termination
date of the credit facility to March 31, 2003, and establishes restrictive
financial 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 (9.50% at December 31,
2000) plus 1.5% as defined, and is payable in monthly installments of $100
through December 31, 2002. The B Term Loan bears interest at the rate of 12.0%
and is payable in monthly installments of $62.5 through December 31, 2001.
Amendment No. 7 resulted in an extraordinary loss, net of taxes, in the
amount of $0.2 million for the write-off of deferred debt acquisition costs,
pursuant to the guidance in the Emerging Issues Task Force (EITF) Issue
No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt
Instruments."
Effective March 16, 2001, the Company further amended the Agreement
(Amendment No. 9) in order to make available an additional term loan (the
"Additional B Term Loan") in the original principal amount of up to
$2.0 million, to extend the termination date of the credit facility to
March 31, 2004 and to establish restrictive financial covenants for 2001.
The Additional B Term Loan provides for not more than three borrowings. Each
request for a borrowing under the Additional B Term Loan must specify the amount
of the requested Term Loan, which can not exceed (A) $750 if such request is
made on or after March 16, 2001 but before December 31, 2001, plus (B) an
additional $500 if such request is made on or after April 30, 2001 but before
December 31, 2001, plus (C) an additional $750 if such request is made on or
before July 31, 2001 but before December 31, 2001, and which must be in a
minimum amount of $500. The availability of the Additional B Term Loan is
subject to the Company's compliance with the 2001 financial covenants. The
aggregate outstanding principal amount of the Term Loans shall be repaid in
monthly installments of $150 beginning April 1, 2001 over the remaining term of
the Loan and Security Agreement.
Amendment No. 9 provides a limitation that if the total outstanding balance
of term loans exceeds the lessor of (i) 45% of eligible maintenance revenues
through December 31, 2001, 40% of eligible maintenance revenues from January 1,
2002 through December 31, 2002, 25% of eligible maintenance revenues from
January 1, 2003 through March 31, 2004 and (ii) $4.5 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 December 31, 2000, eligible maintenance
revenues totaled approximately $10,717.
55
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The amounts of debt outstanding at December 31, 2000 mature as follows:
2001................................................ $1,700
2002................................................ $1,222
(4) LEASE OBLIGATIONS
The Company leases office space and equipment under non-cancelable operating
leases. Rent expense charged to operations in the accompanying consolidated
statements of operations for office space, vehicles and equipment under
operating leases was $2,562, $2,370 and $2,044 for the years ended December 31,
1998, 1999 and 2000, respectively.
Scheduled future minimum payments required for all non-cancelable operating
leases are as follows:
YEARS ENDING DECEMBER 31
- ------------------------
2001........................................................ $1,953
2002........................................................ 1,554
2003........................................................ 263
2004........................................................ 78
------
Total future minimum lease payments......................... $3,848
======
(5) 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 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 directed the
trust to pay $4,404 in satisfaction of the timely claims made under the put, and
to return 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
56
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
not have a material adverse effect on the Company's business, consolidated
financial condition, results of operations or cash flows.
(6) RELATED PARTY TRANSACTIONS
The Company has certain business relationships with an entity that was
founded by the President and Chief Executive Officer. The President and Chief
Executive Officer owns a majority beneficial equity interest in such entity.
During the years ended December 31, 1998, 1999 and 2000 the Company recorded as
expense approximately $513, $387 and $422 respectively, related to work
performed by this entity on behalf of the Company.
The Company entered into a Consulting Agreement dated September 29, 1997
with the Company's former chairman and principal stockholder. The Consulting
Agreement provided for consulting services during the period of December 1, 1997
through November 30, 2000, in exchange for $300 for each of the first two years
and $250 for the third year. The agreement was not renewed.
(7) INCOME TAXES
The components of income (loss) before income tax (provision) benefit and
extraordinary item are as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Domestic........................................... $(4,896) $ 928 $ 340
Foreign............................................ (4,135) (4,934) (943)
------- ------- -----
Total........................................ $(9,031) $(4,006) $(603)
======= ======= =====
Income tax (provision) benefit is as follows:
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1999 2000
-------- -------- --------
State................................................ $ -- $508 $304
Foreign.............................................. (12) -- --
---- ---- ----
Total.......................................... $(12) $508 $304
==== ==== ====
57
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
A reconciliation of Federal income tax benefit at the statutory rate of 34%
to income tax (provision) benefit reflected in the accompanying consolidated
statements of operations is as follows:
YEARS ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Federal income tax benefit at 34%........................... $ 3,071 $ 1,362 $ 205
State income taxes, net of Federal tax benefit.............. 283 335 177
Change in valuation allowance, net of change in valuation
allowance related to stock options........................ (3,891) 3,220 172
Foreign tax rate differential............................... 569 (275) 131
Reduction of foreign net operating loss carry-forwards
(NOLs) due to sales of subsidiaries in France and
Germany................................................... -- (3,490) --
Reduction of state NOLs due to sale of New Jersey NOLs...... -- (628) (358)
Other, net.................................................. (44) (16) (23)
------- ------- -----
$ (12) $ 508 $ 304
======= ======= =====
58
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The principal components of the Company's deferred taxes are as follows:
DECEMBER 31,
-------------------
1999 2000
-------- --------
Deferred tax assets:
Non-deductible accruals and other......................... $ 888 $ 403
Depreciation.............................................. 20 --
Allowance for doubtful accounts........................... 365 233
Purchased research and development........................ 1,215 1,103
Research and development credit carry-forwards............ 2,895 2,895
Net operating loss carry-forwards......................... 21,755 23,919
------- -------
Deferred tax asset...................................... 27,138 28,553
Less valuation allowance.................................... 26,372 27,322
------- -------
Net deferred tax asset.................................. 766 1,231
Deferred tax liabilities:
Software development costs.............................. 766 1,191
Depreciation............................................ -- 40
------- -------
Net deferred taxes.......................................... $ -- $ --
======= =======
At December 31, 2000, the Company had United States net operating loss
carry-forwards of approximately $40,700 which are available to offset future
Federal taxable income, if any, and which begin to expire in 2007. In addition,
foreign net operating loss carry-forwards aggregated approximately $21,500 at
December 31, 2000.
The asset and liability method requires that deferred tax assets be reduced
by a valuation allowance if, based on the weight of available evidence, it is
more likely than not that some portion or all of such assets will not be
realized. The Company has recorded a valuation allowance for its net deferred
tax assets and will continue to monitor the realizability of such assets.
Approximately $1,122 of the Company's deferred tax asset pertaining to NOLs and
the corresponding valuation allowance at December 31, 2000 relates to tax
deductions arising from the exercise of stock options and/or subsequent sales of
the underlying stock. For book purposes, the tax benefits related to such stock
option transactions are recorded through equity when realized.
Foreign subsidiaries have paid, and are expected to continue to pay,
appropriate taxes to their respective taxing authorities. It is the intention of
the Company to reinvest the earnings of its non-U.S. subsidiaries in those
operations. Accordingly, no Federal taxes have been provided on undistributed
foreign earnings.
During 1999 and 2000 AXS-One was authorized by the New Jersey Economic
Development Authority ("NJEDA") in conjunction with the New Jersey Division of
Taxation to sell a portion of its New Jersey net operating losses for
consideration that is to be used to fund its research activities in the State of
New Jersey. For the State's fiscal year(s) 2000 and 2001 (July 1, 1999 to
June 30, 2001), AXS-One was authorized to sell $985 of its available tax benefit
of $1,505 (related to tax years through 1998). AXS-One sold the entire
authorized amount for consideration of $812 ($508 in 1999 and $304 in 2000). As
of December 31, 2000, the New Jersey remaining tax benefit in the amount of $520
is available to sell if the program is extended by the NJDEA or will be
available to offset New Jersey
59
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
future income taxes. In addition, the Company has available the 1999 and 2000
New Jersey net operating loss carry forwards of approximately $6,000 which will
begin to expire in 2006.
(8) STOCKHOLDERS' DEFICIT
(A) PRIVATE PLACEMENT
On December 31, 1997, the Company sold, through a private placement, 2,937
shares of Common Stock and warrants to purchase 734 shares of the Company's
Common Stock, raising net proceeds of $5,508. These shares were subsequently
registered with the Securities and Exchange Commission ("SEC"). The registration
was declared effective on May 7, 1998. The warrants are exercisable at $3.00 per
share, subject to adjustment, until December 31, 2002. In February and March of
2000, 358 warrants were exercised for total proceeds of approximately $1,072.
(B) SERVICES AGREEMENT
On November 2, 2000, the Company issued warrants to a Dallas corporation for
the purchase of 200 shares of Common Stock in exchange for services to be
rendered as the Company's non-exclusive financial advisor and for certain
investment-banking services. The warrants are exercisable at $1.875 per share,
subject to adjustment, until January 24, 2006 and vest in two separate tranches
of 100 each on February 28, 2001 and May 31, 2001. No warrants were exercised as
of December 31, 2000. The fair value of these warrants was determined in
accordance with EITF issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in Conjunction with Selling
Goods or Services," and is being recognized as expense over the vesting period
using variable accounting. Compensation costs will vary each accounting period
until the final measurement date. The expense related to 2000 was not material.
(C) STOCK OPTION PLAN
Pursuant to the 1995 Stock Option Plan, as amended (the 1995 Plan), the
Company may grant statutory and non-statutory options to purchase an aggregate
of up to 4,500 shares of Common Stock. The Company has specifically reserved
such shares. Options may be granted under the discretionary option program to
employees, consultants, independent advisors and non-employee directors. Options
are automatically granted to non-employee directors under the automatic option
grant programs. Options granted under the discretionary grant program have an
exercise price of not less than 85% of the fair market value of the Common Stock
on the grant date. Options granted under the automatic grant program have an
exercise price of 100% of the fair market value on the grant date.
In April 1998, the Company adopted the 1998 Stock Option Plan (the 1998
Plan). Pursuant to the 1998 Plan, the Company may grant stock options or stock
appreciation rights to purchase an aggregate of up to 1,500 shares of Common
Stock. Options may be granted under the discretionary option program to
employees and consultants of the Company not to exceed 200 shares per person
during any calendar year except that in the first year of employment, the
maximum grant will not exceed 400 shares per person. Non-employee directors
receive an automatic grant of stock options to purchase 20 shares of Common
Stock upon date of commencement of service as a non-employee director and
thereafter, 10 shares on the date of each annual meeting of stockholders,
provided that on, and as of, such date, such individual has been a non-employee
director for the previous 12-month period. No option may have an exercise price
less than the fair market value of the Common Stock at the time of grant.
60
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
All options granted under the Plans expire ten years from the date of grant
(or five years for statutory options granted to 10% stockholders), unless
terminated earlier. Options generally vest over a four-year period, however, as
of December 31, 2000, options to purchase approximately 475 shares of common
stock become immediately vested upon the occurrence of certain events.
A summary of stock option activity under the Plans is as follows:
NUMBER OF EXERCISE PRICE WEIGHTED AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- -------------- ----------------
BALANCE, DECEMBER 31, 1997........................... 3,833 $1.00 - 13.00 $1.84
Granted.............................................. 1,853 0.87 - 2.75 2.03
Exercised............................................ (17) 1.17 - 1.90 1.42
Canceled............................................. (1,485) 0.87 - 13.00 2.62
------ -------------- -----
BALANCE, DECEMBER 31, 1998........................... 4,184 0.87 - 13.00 1.75
Granted.............................................. 519 0.50 - 1.38 1.02
Exercised............................................ (10) 1.90 1.90
Canceled............................................. (819) 0.87 - 13.00 1.68
------ -------------- -----
BALANCE, DECEMBER 31, 1999........................... 3,874 0.50 - 13.00 1.53
Granted.............................................. 2,046 0.88 - 7.63 5.17
Exercised............................................ (504) 0.87 - 3.13 1.70
Canceled............................................. (947) 0.50 - 6.25 1.86
------ -------------- -----
BALANCE, DECEMBER 31, 2000........................... 4,469 $0.50 - $13.00 $2.33
====== ============== =====
EXERCISABLE, DECEMBER 31, 2000....................... 1,826 $0.50 - 13.00 $1.49
------ -------------- -----
A summary of stock options outstanding and exercisable as of December 31,
2000, follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------ ------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE(YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- --------------------- ---------------- ----------- ----------------
$0.50 - 3.44 3,558 7.11 $ 1.48 1,815 $ 1.44
$6.00 - 7.63 908 9.25 $ 6.08 8 $ 7.54
$13.00 3 4.58 $13.00 3 $13.00
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted in 1998, 1999 and 2000 using the
Black-Scholes option pricing model prescribed by SFAS No. 123.
61
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The assumptions used and the weighted average information for the years
ended December 31, 1998, 1999 and 2000 are as follows:
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1999 2000
---------- ---------- ----------
Risk-free interest rates................... 5.50% 6.50% 5.50%
Expected dividend yield.................... -- -- --
Expected lives............................. 7 years 7 years 7 years
Expected volatility........................ 105% 177% 184%
Weighted-average grant date fair value of
options granted during the period........ $1.50 $0.82 $4.24
Weighted-average remaining contractual life
of options outstanding................... 7.33 years 7.16 years 7.05 years
Weighted-average exercise price of
1,269, 1,723 and 1,826 options
exercisable at
December 31, 1998, 1999 and 2000,
respectively............................. $1.62 $1.61 $1.49
The effect of applying SFAS No. 123 would be as follows:
1998 1998 1999 1999 2000 2000
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net loss......................... $(9,043) $(9,972) $(3,680) $(4,709) $ (299) $(2,462)
Basic and diluted net loss per
common share................... $ (0.38) $ (0.42) $ (0.15) $ (0.20) $(0.01) $ (0.10)
(9) PROFIT SHARING PLAN
The Company's Profit Sharing Plan (the Plan) is a defined contribution plan.
All employees with three months of service and who are at least 21 years of age
are eligible to become participants in the Plan and to make voluntary
contributions based on a percentage of their compensation within certain Plan
limitations.
The Plan falls under the provisions of Section 401(k) of the Internal
Revenue Code. Employees may elect to contribute a percentage of their pretax
salary, subject to statutory limitations, as well as certain percentages of
their after-tax salary, to the Plan. The Company contributes 50% of the
employees' first 6% of pretax salary contribution. The Company's contributions
charged to operations in the accompanying consolidated statements of operations
were approximately $378, $241 and $337 for the years ended December 31, 1998,
1999 and 2000, respectively.
In addition, the Company may make additional contributions at the discretion
of the Board of Directors, which would be allocated among all participants in
proportion to each participant's compensation, as defined. During the years
ended December 31, 1998, 1999 and 2000, no additional contributions were made
under the Plan.
(10) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," establishes standards for the way public business enterprises
report information about operating segments in
62
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
annual financial statements and requires that those enterprises report selected
information about reporting segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
Revenues and long-lived assets for the Company's United States, United
Kingdom and other international operations are as follows:
UNITED UNITED
STATES KINGDOM OTHER CONSOLIDATED
-------- -------- -------- ------------
1998
Revenues(1)........................................... $34,958 $7,903 $20,660 $63,521
Long-lived assets..................................... 2,971 271 2,243 5,485
1999
Revenues(1)........................................... $36,854 $6,389 $14,625 $57,868
Long-lived assets..................................... 3,263 235 348 3,846
2000
Revenues(1)........................................... $32,578 $4,905 $11,293 $48,776
Long-lived assets..................................... 3,906 158 236 4,300
- ------------------------
(1) Revenues are attributed to locations based on location of sales office.
The Company does not believe there are any legal or other restrictions upon
the repatriation of international earnings to the parent company.
(11) 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 it offers to specific markets as part of its
strategy to focus on high-profile market opportunities. The three business
segments are as follows:
a) The AXS-One Enterprise Solutions segment is focused on marketing
Enterprise Solutions to emerging dot.com organizations or traditional
organizations making the transition to becoming dot.com businesses.
AXS-One Enterprise Solutions is also responsible for servicing and
managing the Company's extensive installed base of customers. Enterprise
Solutions enable organizations to achieve process transparency throughout
their value chain.
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 Tivity Solutions 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. The Company
evaluates the performance of its operating segments based on revenues and
operating income (loss). Inter-segment sales and transfers are not significant.
63
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
AXS-ONE
ENTERPRISE AXS POINT TIVITY
YEAR ENDED DECEMBER 31, 2000 SOLUTIONS SOLUTIONS SOLUTIONS TOTAL
- ---------------------------- ---------- --------- --------- --------
Revenues:
License fees........................................ $ 6,413 $2,010 $ 342 $ 8,765
Services............................................ 32,326 3,457 4,228 40,011
------- ------ ------ -------
Total revenues........................................ 38,739 5,467 4,570 48,776
Operating income...................................... 7,774 1,560 492 9,826
Total assets.......................................... 13,031 950 1,203 15,184
Capital expenditures.................................. 768 61 61 890
Depreciation and amortization......................... 1,888 98 121 2,107
Reconciliation of segment operating income to consolidated operating loss:
YEAR ENDED
DECEMBER 31, 2000
-----------------
Operating income from reportable segments................... $ 9,826
Unallocated general and administrative expenses............. (8,704)
Other corporate unallocated expenses........................ (1,310)
-------
Total consolidated operating loss........................... $ (188)
=======
64
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1999 and 2000 is as follows (in
thousands except per share data):
QUARTER
-----------------------------------------
1999(1) FIRST SECOND THIRD FOURTH
- ------- -------- -------- -------- --------
License fees............................................ $ 3,517 $ 2,332 $ 1,160 $ 4,459
Services................................................ 12,270 13,057 11,063 10,010
Total revenues.......................................... 15,787 15,389 12,223 14,469
Operating income (loss)................................. (461) (491) (1,555) 1,323
Net loss................................................ (544) (899) (1,722) (515)
Basic and diluted net loss per common share(2)(3)....... (0.02) (0.04) (0.07) (0.02)
QUARTER
-----------------------------------------
2000 FIRST SECOND THIRD FOURTH
- ---- -------- -------- -------- --------
License fees............................................ $ 2,044 $ 1,689 $ 3,393 $ 1,639
Services................................................ 9,864 10,588 9,921 9,638
Total revenues.......................................... 11,908 12,277 13,314 11,277
Operating income (loss)................................. 302 (191) 1,005 (1,304)
Net income (loss)....................................... 242 (265) 893 (1,169)
Basic net income (loss) per common share(3)............. 0.01 (0.01) 0.04 (0.05)
Diluted net income (loss) per common share(3)........... 0.01 (0.01) 0.03 (0.05)
- ------------------------
(1) Includes subsidiaries in Germany and France sold as of May and
December 1999, respectively (see Note 2). Results for these subsidiaries
were as follows:
QUARTER
-----------------------------------------
1999 FIRST SECOND THIRD FOURTH
- ---- -------- -------- -------- --------
License fees................................ $ 325 $ 159 $ 11 $ 32
Services.................................... 1,911 1,711 756 519
Total revenues.............................. 2,236 1,870 767 551
Operating loss.............................. (730) (532) (1,058) (122)
Net loss.................................... (746) (552) (1,093) (54)
(2) Diluted net loss per common share is the same as basic net loss per common
share since the effect of stock options and warrants is anti-dilutive.
(3) Basic and diluted net income (loss) per common share is computed
independently for each quarter. Therefore, the sum of the quarters will not
necessarily equal basic and diluted net income (loss) per common share for
the full year.
(13) RESTRUCTURING COSTS
During its fiscal second quarter of 1998, the Company committed itself to a
plan whereby it eliminated 32 positions in the United States, which were
rendered redundant through a reengineering process, and eliminated 16 positions
outside the United States, which were servicing legacy products. Of the 48
positions eliminated, all were terminated prior to December 31, 1998 except as
follows: six
65
AXS-ONE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
people resigned prior to being terminated and one position was terminated
subsequent to December 31, 1998. Accordingly, the Company recorded a net charge
to operations in 1998 totaling approximately $1.0 million ($1.3 million in the
second quarter of 1998, reduced in the third quarter of 1998 by $0.3 million for
anticipated savings attributable to resignations) reflecting the termination
costs of those personnel. As of December 31, 1998, the Company had incurred cash
outlays of $858. The remaining $167 included in accrued expenses as of
December 31, 1998 was satisfied through cash outlays during 1999.
66
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AXS-One Inc.:
Under date of January 29, 2001, except as to note 3, which is as of
March 16, 2001, we reported on the consolidated balance sheets of AXS-One Inc.
and subsidiaries as of December 31, 1999 and 2000, and the related consolidated
statements of operations, comprehensive loss, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 2000, as
contained in the 2000 annual report on Form 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule as listed in the accompanying
index. This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule for each of
the years in the three-year period ended December 31, 2000, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Short Hills, New Jersey
January 29, 2001
67
SCHEDULE II
AXS-ONE INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AMOUNTS AT END
ALLOWANCE FOR DOUBTFUL ACCOUNTS: OF YEAR EXPENSES WRITTEN OFF OF YEAR
- -------------------------------- ---------- ---------- ----------- --------
Year ended December 31, 1998......................... $3,056 $ 114 $ (978) $2,192
Year ended December 31, 1999......................... $2,192 $ 263 $(1,140) $1,315
Year ended December 31, 2000......................... $1,315 $ 219 $ (474) $1,060
RESTRUCTURING RESERVE:
- -----------------------------------------------------
Year ended December 31, 1998......................... $ -- $1,025 $ 858(a) $ 167
====== ====== ======= ======
Year ended December 31, 1999......................... $ 167 $ -- $ 167(a) $ --
====== ====== ======= ======
- ------------------------
(a) Cash payments to effect restructuring
68