United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Fiscal Year ended June 30, 2000
or
[ ] Transition Report Under to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______________ to ______________
Commission file number 0-28920
Access Solutions International, Inc.
------------------------------------
(Name of small business issuer as specified in its charter)
Delaware 05-0426298
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
650 Ten Rod Road
North Kingstown, RI 02852
(Address of principal executive offices)
(401) 295-2691
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units, each consisting of two shares of common stock, $.01 par value
("Common Stock") and one redeemable common stock purchase warrant
("Redeemable Warrant")
Common Stock
Redeemable Warrants
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes __ No X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $918,572
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed at $.12 per share, the closing price of the Common Stock
on November 15, 2000: $475,672.
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
as November 15, 2000 was 3,963,940.
Documents Incorporated by Reference:
None
Part I
Item 1. Description of Business
Statements
Statements contained in this Form 10-KSB that are not historical facts
are forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes"", "will", "should" "anticipates", "expects" and similar expressions
are intended to identify forward looking statements. ASI cautions that a number
of important factors could cause actual results for Fiscal 2001 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of ASI. Such statements contain a number of risks and
uncertainties, including, but not limited to the availability of necessary
financing after September 2000, future capital needs, uncertainty of additional
funding, variable operating results, lengthy sales cycles, dependence on ASI's
COLD system product, rapid technological change and new product development,
reliance on single or limited sources of supply, intense competition, turnover
in management, ASI's ability to manage growth, dependence on significant
customers, dependence on key personnel, and ASI's ability to protect its
intellectual property. ASI cannot assure that it will be able to anticipate or
respond timely to changes which could adversely affect its operating results in
one or more fiscal quarters. Results of operations in any past period should not
be considered indicative of results to be expected in future periods.
Fluctuations in operating results may result in fluctuations in the price of
ASI's securities.
Recent Developments
In November of 2000, PaperClip Software, Inc. and ASI entered into an
agreement whereby the indebtedness to ASI in the amount of $300,000, plus all
accrued interest through December 31, 1999 in the amount of $105,300, will be
paid for by the execution and delivery of a new promissory note from PaperClip
to ASI in the aggregate principal amount of $405,300. All amounts due under the
new Note will be paid for over a period of three (3) years in thirty-six (36)
equal installments of $11,265 beginning on January 1, 2000.
As a result of advances issued to PaperClip from November 12, 1997
through August 24, 1998, PaperClip is indebted to ASI in the amount of
$2,305,506 including interest. ASI will exchange the above indebtedness for
shares of a new class of PaperClip convertible preferred stock (the "Preferred
Stock"). Each share of Preferred Stock will be convertible into one share of
PaperClip's common stock ("common stock") subject to anti-dilution protection in
the event of a stock split, stock dividend, recapitalization or similar change
to the capital structure of PaperClip. The shares are convertible at anytime at
ASI's option or at PaperClip's option, provided that immediately prior to
conversion, the common stock has traded for not less than 60 consecutive days at
a closing price of 150% of the implied conversion price. The implied conversion
price is derived by dividing the amount of the additional indebtedness by the
number of shares of common stock issuable upon conversion by ASI of the
preferred stock. The "Converted Shares" would equal 27.5% of the then
outstanding Common Stock. The holders of the converted common stock will have
piggy back registration rights on the Converted Shares underlying the Preferred
Stock. Such piggy back registration rights on the converted stock will expire
with respect to the holder when such shares are eligible for sale pursuant to
Rule 144(k) promulgated and the rules and regulations of the Securities Act of
1933. The preferred stock will not be entitled to dividends and will have a
liquidation preference equal to $2,305,506.
1
Financing
On May 27, 1998, ASI completed a financing agreement that called for
the purchase of a 30% interest in several of the Company's patents by a
stockholder and former director, for $100,000. These patents are the subject of
a lawsuit pending in the United States District Court for the District of Rhode
Island. See item 3. In addition, this same stockholder also loaned the Company
$650,000, and has agreed to make additional advances up to $1,000,000 for
outstanding and future legal fees and costs incurred in connection with the
lawsuit.
The loan is secured by a first priority interest in these patents and
bears interest at the rate of 19% and is convertible into common stock under
certain circumstances. See Item 7 - financial statements, convertible notes
payable footnote. The loan has a term of the lesser of three years or completion
of the Company's patent litigation and converts to a demand note at the end of
its term.
On May 27, 2000, ASI obtained an amendment to the loan agreement
extending the due date to three years from May 27, 2000 and increasing the
amount that can be borrowed under the loan to $1,500,000. At June 30, 2000, the
aggregate value of the outstanding loans, including interest, is $1,287,549.
Business
ASI, a Delaware corporation formed in 1986, designs, develops,
assembles and markets mainframe information storage and retrieval systems,
including both software and hardware, for large companies. ASI believes that its
proprietary computer output to laser disk (COLD) and data storage systems
provide a faster, more reliable and more economical method of storing vast
quantities of computer-generated data than is generally available from other
COLD systems or from traditional data storage methods. ASI's COLD and optical
disk storage systems, which are marketed under the brand names OAS and GIGAPAGE,
and GIGAPAGE DASDI are presently sold principally to large organizations that
have the need to store and retrieve large quantities of computer-generated data.
Products. ASI's COLD systems are high density hardware and software
data storage systems that are designed to store, index and retrieve formatted
computer output. COLD systems consist of an OAS controller, a storage subsystem,
and GIGAPAGE application software.
Hardware Products. The hardware portion of ASI's solution, the OAS, is
a high capacity, mainframe channel-attached hybrid magnetic/optical disk storage
system, composed of the OAS controller and an optical disk "autochanger." The
OAS can control various types and models of robotic autochanger systems, which
are manufactured by a number of vendors, commanding such robots to mount and
dismount disks and tapes automatically as needed in response to requests from
the host software. These autochangers, which ASI purchases from independent
third-party suppliers, are installed by ASI as a part of the integrated system
at the customer site. Autochangers of varying capacities are available to meet
the needs of the marketplace, for storage requirements from 166 million pages to
multiple tens of billions of pages. A brief description of the hardware
components of the OAS follows.
2
Optical Disk Autochangers. The entry-level optical disk autochanger
supplied by ASI supports customers with relatively modest storage volumes. When
used in conjunction with ASI's data compression technology, the capacity of this
autochanger is significantly enlarged. With compression, this entry-level
autochanger normally has the capacity to store over 166 million typical report
pages.
Because the optical disk drives housed within ASI's most commonly
installed optical disk autochangers are American National Standards Institute
("ANSI")-standard 5-1/4 inch multifunction drives, the optical disk platters
used within the autochanger may be a mixture of rewritable and
write-once-read-many ("WORM") types. The rewritable disks are used to store
those reports that do not have to be retained for long time periods. The disks
are then re-used when the useful life of the reports has elapsed. WORM disks
preclude modification of data, as required for data such as securities industry
reports subject to the record retention rules of the Securities and Exchange
Commission.
Customer need for greater capacity is addressed by a field-upgradeable
family of optical disk autochangers. Middle range requirements are accommodated
by a system which can store from 590 million to over 1 billion report pages in a
compact (3 foot by 3 foot) floor area, while large capacity needs are served by
ASI's largest system, which stores from 860 million to more than 2.5 billion
pages. Multiple systems may be combined for even greater capacity. ASI also
provides 12 and 14 inch format WORM solutions.
The OAS Control Unit. The control unit of the OAS system is directly
attached to the mainframe via a conventional IBM-compatible interface to an
input-output ("I/O") channel of the IBM-compatible mainframe. The control unit's
dedicated I/O hardware passes data back and forth over the channel between the
mainframe and the optical disk autochanger at up to 17 megabytes per second. The
control unit is an intelligent storage management subsystem, with self-contained
software to track and file associated media locations within the storage
subsystems and automate the movement of media into optical disk drives within
the robotic autochanger, when applicable.
The OAS Control Unit contains a cache buffer (a large bank of RAM used
for temporary storage when transferring data from one device to another) to
permit data to be exchanged rapidly between the mainframe and the optical disk
drives. In addition, the control unit performs data compression using a patented
hardware-based implementation of the Lempel-Ziv compression algorithm. When this
hardware-based compression is combined with GIGAPAGE's host-based software data
compression, compound compression ratios of 7.5:1 and higher are achieved.
Software Products. ASI has developed an application software product
for IBM mainframe systems, GIGAPAGE, which can be installed in conjunction with
the OAS and is an end-user application for report storage and retrieval.
GIGAPAGE stores and retrieves computer-generated reports (such as customer
statements) on various combinations of storage technologies. This enables
organizations to eliminate their existing computer output microfiche or
microfilm (COM) systems and reduce staff used for manual retrieval of microfilm,
microfiche and paper reports. GIGAPAGE also provides its users with the ability
to access report data efficiently, by displaying a retrieved document based upon
criteria established by the user. ASI believes that this creates competitive
advantages for end users that must quickly respond to customer inquiries.
GIGAPAGE changes report access from a slow, cumbersome, manually intensive
process to a fast, near-line computer-based process.
New Product Developments. ASI has improved its current OAS product (see
"OAS Control Unit" above) so that the control unit will now allow transfers of
data at up to 3 to 4 times the rate of the old controller. There can be no
assurance that these new product enhancements will achieve market acceptance.
3
Customer Support and Service. In addition to being a source of revenue
generation, ASI believes that its approach to customer service and support has
been and will continue to be a significant factor in the market acceptance of
its products. Because most of ASI's products are used in complex, large-scale
mainframe data centers, the successful implementation and utilization of ASI's
products substantially depends on ASI providing a high level of customer
service, training and support. Consequently, ASI typically allocates substantial
resources to customer installations, particularly in the first few weeks before
and the first several weeks after a new installation. These resources include
field support personnel who assess the systems operating environment of the
customer prior to installation, install and test the hardware, support the
hardware and coordinate the efforts of third-party service providers that
service ASI's installed base of systems; systems engineering personnel who
install and configure the software components of ASI's systems, assist the
customer in assuring that the other elements of the customer's data center
properly interface with ASI's system, assist the customer in defining reports to
be stored on ASI's system and in supporting ASI's software; training personnel
who train the customer's data center managers and users on the operation and use
of ASI's system; a 24-hour help desk to field all customer support and service
inquiries; and third-party service organizations with whom ASI contracts to
provide on-site customer response for hardware-related issues.
In the years ended June 30, 2000 and 1999, service revenue generated
from the post-sale maintenance of COLD systems accounted for approximately 85%
and 91%, respectively, of ASI's total revenues. Substantially all of ASI's
customers have elected to extend their service contracts with ASI beyond the
one-year period that is customarily afforded to customers at the time of
installation of new products.
As of November 15, 2000, the customer service and support group
consisted of three employees, one of whom is in-house and the other two are in
the field. These personnel provide support for the engineers maintaining
customer equipment in the field and provide ASI with an opportunity to recommend
future system sales to such customers.
Marketing. The market for COLD systems is segmented into the mainframe,
PC (stand-alone or LAN-based), client/server and CD-ROM markets. Within each
market segment, product offerings may be divided into two categories: (i) COLD
software packages and (ii) COLD turnkey systems. COLD turnkey systems are
generally comprised of COLD software bundled with a controller and an optical
disk system. Generally, the highest priced COLD systems are those that are
mainframe or client/server based. Additionally, the market for COLD systems
includes a revenue component derived from the service and support of COLD
systems products.
ASI advertises and markets its products and Support and services
through direct mailings, participation and exhibition of products at industry
trade shows, personal solicitations at businesses which have been identified as
likely resellers of ASI's products and industry referrals.
Customers. One customer accounted for 32% and three customers accounted
for 19%, 12% and 11% of ASI's total net sales in the year ended June 30, 2000.
One customer accounted for 24%, and four customers accounted for 49% of ASI's
total net sales in Fiscal 1999.
4
Competition. The computer data storage and retrieval industry is highly
competitive and ASI expects this level of competition to intensify. There are
certain competitors of ASI that have substantially greater financial, marketing,
development, technological and production resources than ASI. ASI's primary
competitors are IBM Corporation, FileTek Corporation, Eastman Kodak Company,
Anacomp, Inc., Mobius Management Systems, Inc., Computer Associates
International, Inc., RSD America, Inc. and Network Imaging Systems Corp. ASI
believes that participants in the data storage and retrieval market compete on
the basis of a number of factors including vendor and product reputation, system
features, product quality, performance and price, and quality of customer
support services and training. ASI positions itself to compete effectively with
its competitors by offering what it believes is superior customer service and
technical support in connection with hardware and software products which
provide certain technological and user application advantages.
Principal Suppliers. ASI's principal suppliers for the production and
maintenance of its COLD systems are Bell & Howell, IBM Canada and Hewlett
Packard .
Research and Development. ASI's total expenditures for Research and
Development for Fiscal 2000 and Fiscal 1999 were $90,343 and $119,243,
respectively.
Intellectual Property. Although ASI believes that its continued success
will depend primarily on its continuing product innovation, sales, marketing and
technical expertise, product support and customer relations, ASI believes it
also needs to protect the proprietary technology contained in its products. ASI
holds three United States patents on its directory structure and its
implementation of hardware data compression. ASI relies primarily on a
combination of copyright, trademark, trade secret laws and contractual
provisions to establish and protect proprietary rights in its products. ASI
typically enters into confidentiality and/or license agreements with its
employees, strategic partners, customers and suppliers and limits access to and
distribution of its proprietary information. Despite these precautions, it may
be possible for unauthorized third parties to copy certain portions of ASI's
products, reverse engineer or otherwise obtain and use information ASI regards
as proprietary. ASI recently instituted a lawsuit against Data/Ware Development,
Inc. and Eastman Kodak Company, Inc. alleging infringement of one or more of
ASI's patents. See "Item 3. Legal Proceedings" below.
ASI is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. There can be no assurance that third
parties will not assert infringement claims against ASI in the future with
respect to current or future products. Any such assertion, if found to be true
and legally enforceable, could require ASI to pay damages and could require ASI
to develop non-infringing technology or acquire licenses of technology that is
the subject of the asserted infringement, resulting in product delays, increased
costs, or both.
Assembly. Assembly of ASI's OAS is done at ASI's facility in North
Kingstown, Rhode Island. ASI designs and assembles portions of its COLD systems,
which are then integrated at ASI's plant with optical disk autochanger systems
manufactured by a variety of third parties. Production of the OAS entails
testing, assembling and integrating standard and ASI-designed components and
subassemblies built by and purchased from independent suppliers. As of November
15, 2000, ASI had one full-time manufacturing person. ASI configures and tests
ASI-built and third-party-supplied hardware and software in combinations to meet
a wide variety of customer requirements.
5
Although ASI generally uses standard parts and components for its
products, certain components, such as CPU boards, ESCON hardware and
high-density integrated circuits, are presently available only from single or
limited sources. ASI has no supply commitments with its vendors and generally
purchases components on a purchase order basis, as opposed to entering into
long-term procurement agreements with vendors. ASI has generally been able to
obtain adequate supplies of components in a timely manner from current vendors
or, when necessary to meet production needs, from alternate vendors. ASI
believes that alternative sources of supply would not be difficult to develop
over a short period of time but that an interruption in supply or a significant
increase in the price of these components could adversely affect ASI's operating
results and business.
Employees. As of November 15, 2000, ASI had 7 employees.
Item 2. Description of Property
ASI's principal offices are located in North Kingstown, Rhode Island,
in a leased facility consisting of approximately 4,200 square feet of space
occupied under a lease expiring in September, 2001.
Item 3. Legal Proceedings
On August 29, 1997, ASI filed a complaint in the United States District
Court for the District of Rhode Island against Data/Ware Development, Inc.
("Data/Ware") and Eastman Kodak Company, Inc. ("Kodak") alleging infringement of
ASI's patents. The claim states that Data/Ware and Kodak collectively
manufacture, use and/or sell equipment for recording data on optical media and
alleges that the manufacture and sale of such equipment, and use by purchasers
thereof, infringes one or more of ASI's patents. The claim calls for an order
enjoining the defendants from further infringement of its patents, damages and
interest for infringement and reasonable attorney's fees and such other relief
that the court deems proper.
Item 4. Submission of Matters to a Vote of Security Holders
None.
6
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
ASI's initial public offering ("IPO") was completed on October 16,
1996. Prior to that date there was no market for the ASI Common Stock,
Redeemable Warrants or Units. The ASI Common Stock, Redeemable Warrants and
Units consisting of two shares of Common Stock and one Redeemable Warrant were
traded on the Nasdaq SmallCap Market under the symbols "ASIC," "ASICW" and
"ASICU," respectively until August 13, 1998. On that date, ASI's shares of
common stock, units and warrants were delisted from the Nasdaq SmallCap Market
because ASI failed to meet the net tangible assets, market capitalization, net
income, bid price and market value of public float requirements as stated in
Marketplace Rule(s) 4310(c)(02), 4310(c)(04), and 4310(c)(07). ASI's shares of
common stock, units and warrants currently trade on the Over the Counter
Electronic Bulletin Board Market "(OTC EBB)" under the symbols "ASIC," "ASICW"
and "ASICU," respectively. As of May 19, 2000 there were approximately 251
holders of record of ASI Common Stock.
The following table sets forth, for the periods indicated, low closing
bid and asked prices for the ASI Common Stock, Redeemable Warrants and Units, as
reported on the Nasdaq SmallCap Market. Since such prices represent quotations
between dealers, they do not include markups, markdowns or commissions and do
not necessarily represent actual transactions.
Common Stock
------------------ ------------------
Bid Low Asked High
------------------ ------------------
1996:
Fourth Quarter (commencing October 16, 1996) 3.500 6.50
1997:
First Quarter 3.500 5.25
Second Quarter 3.000 4.50
Third Quarter 2.500 4.00
Fourth Quarter .625 3.00
1998:
First Quarter 1.1875 .75
Second Quarter .25 .6875
Third Quarter .04 .375
Fourth Quarter .1875 .01
1999:
First Quarter .32 .01
Second Quarter .32 .01
Third Quarter .01 .375
Fourth Quarter .125 .25
2000:
First Quarter .06 .15
Second Quarter .01 .15
Third Quarter .01 .25
7
Redeemable Warrants
------------------ ------------------
Bid Low Asked High
------------------ ------------------
1996:
Fourth Quarter (commencing October 16, 1996) 1.00 3.25
1999:
First Quarter .9375 1.3125
Second Quarter .75 1.25
Third Quarter .75 1.0625
Fourth Quarter .25 .9375
1998:
First Quarter .0625 .5
Second Quarter .0625 .125
Third Quarter .0625 .1875
Fourth Quarter - -
1999:
First Quarter .01 .02
Second Quarter .02 .02
Third Quarter .02 .02
Fourth Quarter - -
2000:
First Quarter .01 .01
Second Quarter - -
Third Quarter - -
Units
------------------ ------------------
Bid Low Asked High
------------------ ------------------
1996:
Fourth Quarter (commencing October 16, 1996) 8.00 12.5
1997:
First Quarter 8.875 11.375
Second Quarter 7.00 10.25
Third Quarter 5.50 9.00
Fourth Quarter 1.375 6.5
1998:
First Quarter .625 3.1875
Second Quarter .4375 1.00
Third Quarter .0625 .500
Fourth Quarter .01 .125
1999:
First Quarter .01 1.00
Second Quarter .13 .375
Third Quarter .11 .25
Fourth Quarter .01 .15
2000:
First Quarter - -
Second Quarter - -
Third Quarter .01 .0625
ASI has not paid any cash dividends on the ASI Common Stock since its
inception and ASI does not anticipate paying cash dividends in the foreseeable
future.
8
Item 6. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
ASI's net sales consist of sales of products and Support and services.
Products sold by ASI consist of COLD systems, software and hardware including
replacement disk drives, subassemblies and miscellaneous peripherals. Support
and services rendered by ASI include post-installation maintenance and support.
ASI recognizes revenue from customers upon installation of COLD systems and, in
the case of COLD systems installed for evaluation, upon acceptance by such
customers of the products. ASI sells extended service contracts on the majority
of the products it sells. Such contracts are one year in duration with payments
received either annually in advance of the commencement of the contract or
quarterly in advance. ASI recognizes revenue from service contracts on a
straight line basis over the term of the contract. The unearned portion of the
service revenue is reflected as deferred revenue. As of June 30, 2000, ASI had
deferred revenue in the amount of $485,661.
ASI's operating results have in the past and may in the future
fluctuate significantly depending upon a variety of factors which vary
substantially over time, including industry conditions; the timing of orders
from customers; the timing of new product introductions by ASI and competitors;
customer acceleration, cancellation or delay of shipments; the length of sales
cycles; the level and timing of selling, general and administrative expenses and
research and development expenses; specific feature needs of customers; and
production delays. A substantial portion of ASI's quarterly revenues are derived
from the sale of a relatively small number of COLD systems which range in price
from approximately $150,000 to $900,000. As a result, the timing of recognition
of revenue from a single order has in the past and may in the future have a
significant impact on ASI's net sales and operating results for particular
financial periods. Counterbalancing this volatility is the fact that the
anticipated sales of annual service contracts increase as system sales increase.
The revenue from service contracts is recognized on a straight line basis over
the term of the contract.
ASI's primary operating expenses include selling expenses, general and
administrative expenses and research and development expenses. General and
administrative expenses consist primarily of employee compensation and certain
internal office and support expenses. Research and development expenses include
compensation paid to internal research and development staff members and
expenses incurred in connection with the retention of independent research and
development consultants. ASI utilizes its own employees for research and
development functions except in certain circumstances involving product
enhancements. In those circumstances, ASI retains independent experts to consult
and design new software modules which are subsequently evaluated and tested by
ASI's internal research and development staff. Upon successful testing of such
product enhancements, ASI's internal staff integrates the new products with
ASI's existing COLD systems and products.
In the past, ASI has expended substantial development resources to meet
customer commitments. The majority of these services were provided at no charge
to honor commitments made for added features when the systems were sold. These
resource expenditures have in the past placed a high overhead burden on the
GIGAPAGE product line offerings. After completion of GIGAPAGE 3.0, which
occurred at the end of the second quarter of Fiscal 1998, management believes
that all significant product commitments have been met. In the future,
development of new features will not be initiated unless customers make a
financial commitment to cover the minimum engineering costs. If excess
development resources are available and not committed to specific contracts, the
resources will be brokered to third parties due to the high market demand for
these resources. This is expected to result in either significantly reduced
research and development expenditures or increased offsetting revenues for the
GIGAPAGE product offerings.
9
Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
The following table presents certain items from ASI's Statement of Operations,
and such amounts as percentages of net sale, for the periods indicated. Products
and Service costs percentages are of Product and Support and services sales,
respectively.
Year Ended June 30, 2000 Year Ended June 30, 1999
------------------------ ------------------------
Net sales
Products $ 138,153 15% $ 88,239 9%
Support and services 780,420 85 847,597 91
---------- ---------- ---------- ----------
Total net sales 918,573 100 935,836 100
Cost of Sales
Products 15,842 2 119,553 13
Support and services 206,016 22 240,190 25
---------- ---------- ---------- ----------
Total cost of sales 221,858 24 359,743 38
Gross profit 696,715 76 576,093 62
---------- ---------- ---------- ----------
Operating expenses:
Selling 145,621 16 205,404 22
General and
administrative 427,097 46 770,330 82
Research and
development 90,343 10 119,243 13
---------- ---------- ---------- ----------
Total operating expenses 663,061 72 1,094,977 117
Interest (income) and
other expense, net (124,318) (14) (319,379) (34)
---------- ---------- ---------- ----------
Net loss $ (90,664) (10%) $ (838,263) (89%)
========== ========== ========== ==========
Net sales. Net sales decreased 2% to $918,573 for the year ended June
30, 2000 from $935,836. Product sales increased 57% to $138,153 for the year
ended June 30, 2000 from $88,239 for the year ended June 30, 1999 due to the
sale of a product upgrade and two other hardware product sales. Support and
service revenues decreased by 8% to $780,420 for the year ended June 30, 2000
from $847,597 for the year ended June 30, 1999.
Cost of sales. Cost of sales includes component costs, firmware,
license costs, third-party equipment maintenance contractors and certain
overhead costs. Cost of sales in the aggregate decreased 38% to $221,858 for the
year ended June 30, 2000 from $359,743 for the year ended June 30, 1999,
primarily due to reduced volume of service and support and slightly improved
margins on hardware product sales. Cost of sales for products decreased by 87%
to $15,842 for the year ended June 30, 2000 from $119,553 for the year ended
June 30, 1999. This decrease was attributable to the sale of existing inventory
that had been purchased in the past at significantly lower prices or had been
written down in connection with the Fiscal 1999 annual audit. Cost of services
decreased by 14% to $206,016 for the year ended June 30, 2000 from $240,190 for
the year ended June 30, 1999 due to better management of third party contract
maintenance costs and slightly reduced support and services volume. The
Company's Gross margin increased to 76% from 62% due to the above factors.
Selling expenses. Selling expenses decreased by 29% or $59,784 to
$145,620 for the year ended June 30, 2000 from $205,404 for the year ended June
30, 1999. The decrease was primarily the result of reductions in payroll, travel
and communication expenses.
10
General and administrative expenses. General and administrative
expenses consist of administrative expenses and certain internal office and
support expenses. General and administrative expenses decreased $343,233 or 45%
to $427,097 for the year ended June 30, 2000 from $770,330 for the year ended
June 30, 1999 . This decrease was primarily attributable to a reduction in
litigation expenses in regard to a complaint filed in the United States District
Court for the District of Rhode Island against Data/Ware Development, Inc.
("Data/Ware") and Eastman Kodak Company, Inc. ("Kodak") alleging infringement of
ASI's patents. Previously, during FY 1999, legal expenses incurred in connection
with the above lawsuit were paid fully by Access Solutions International, Inc.
In FY 2000, it was recognized and agreed that one third of the patent litigation
costs should be shared by the co-owner of the suit. Consequently, the total of
lawsuit expenses incurred year-to-date were re-billed to Malcolm Chace III, in
FY 2000. This re-billing resulted in a significant reduction in FY 2000 net
legal expenses. In addition to legal expenses, payroll expense and depreciation
expense represented the remaining primary reductions from FY 1999 to FY 2000.
Research and development expenses. Research and development expenses
decreased 24% to $90,343 for the year ended June 30, 2000 from $119,243 for the
year ended June 30, 1999. This reduction reflected reductions in depreciation
expense. Several assets became fully depreciated during FY 2000, significantly
reducing net depreciation expense.
Net interest and other expense. Interest expense was $125,558 for the
year ended June 30, 2000 and $125,327 for the year ended June 30, 1999. Other
expense in FY 1999 included a $140,813 charge due to residual expenses relating
to the termination of the Company's merger of PaperClip and a $55,621 loss
relating to the sale of fixed assets. No expenses of this type were reported in
FY 2000.
Net loss. As a result of the foregoing, ASI's net loss decreased 89% to
$90,664 for the year ended June 30, 2000 from $838,263 for the year ended June
30, 1999.
Liquidity and Capital Resources
ASI had a working capital deficit of $888,971 at June 30, 2000 as
compared to a working capital deficit of $1,369,375 at June 30, 1999. The
decrease in working capital deficit was principally attributable to reductions
in accrued expenses and accounts payable and an increase in accounts receivable.
Total cash used by operating activities in fiscal year 2000 was
$523,536. The major use of cash was the reduction of accrued expenses and the
net loss. These amounts represent adjustments to net cash used by operating
activities in the Company's Statement of Cash Flows. The reduction of accrued
expenses noted in working capital and cash used by operating activities was
primarily attributable to a reclassification of litigation expenses from accrued
expenses to Long Term Notes Payable - Malcolm Chace, III.
Cash provided by investing activities was $435 in Fiscal 2000. The
major use of cash in investing activities was for the purchase of additional
fixed assets.
During fiscal 2000, cash provided by financing activities totaled
$498,611. This amount was for the reclassification of litigation expenses from
accrued expenses and for litigation costs incurred during Fiscal 2000 which were
funded by the above long-term note.
11
ASI has suffered recurring losses from operations, has an accumulated
deficit and incurred negative cash flows from its operating activities as it
continued to develop its products and infrastructure. The recurring losses and
negative cash flows from operating activities raise substantial doubt about
ASI's ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability of assets and
classification of liabilities or any other adjustments that might be necessary
should ASI be unable to continue as a going concern. In response to these
factors, ASI's independent auditors in their report dated July 20, 1999 on the
Financial Statements have included an explanatory paragraph that describes
factors raising substantial doubt about ASI's ability to continue as a going
concern. ASI has introduced new products and has enhanced certain of its
existing products; and is pursuing collaborative relationships with vendors and
customers which are intended to create new opportunities to foster sales and
reduce overhead for its products and Support and services. ASI anticipates
improved financial performance based upon increased sales resulting from its
product introductions, product enhancements, overhead reduction and new
collaborative relationships.
As of June 30, 2000, ASI had no long-term debt, except for convertible
notes payable of approximately $1,287,549 including accrued interest. ASI
believes that funds generated from operations will be sufficient to meet ASI's
working capital requirements through July, 2001. If ASI has insufficient funds
from the above noted operations, further equity or debt financing will be
sought. There can be no assurance that such additional funds can be obtained on
acceptable terms, if at all. If additional financing is not available, ASI's
business will be materially adversely affected.
At June 30, 2000, ASI had federal and state net operating loss
carryforwards available to reduce any future taxable income in the approximate
amount of $12,360,000. These net operating loss carryforwards will expire in
various amounts between the years 2003 and 2018 if not previously utilized. In
the event of a change in the ownership of ASI, as defined in Section 382 of the
Internal Revenue Code, utilization of net operating loss carryforwards in
periods following such ownership changes can be significantly limited.
Management believes that ASI has incurred several changes of ownership under
these rules. As a result, utilization of the net operating loss carryforwards is
subject to various limitations, depending upon the year in which the net
operating loss originated. Management estimates that federal net operating loss
carryforwards in the approximate aggregate amount of $9,696,000 will be free
from Section 382 limitations and available to offset taxable income that ASI may
generate within the carryforward period. Of that amount, carryforwards in the
approximate amount of $4,696,000 are available for future utilization in any
year during the carryforward period without limitation. The other $5,000,000 is
subject to a limitation of approximately $330,000 per year. Because the
underlying calculations are complex and are subject to review by the Internal
Revenue Service, these limitation amounts could be adjusted at a later date.
ASI believes that its current corporate infrastructure can support
significant increases in sales without proportionate increases in costs.
However, there can be no assurances that sales will increase or that any cost
advantages will result.
Seasonality and Inflation
To date, seasonality and inflation have not had a material effect on ASI's
operations.
Item 7. Financial Statements
12
Access Solutions International, Inc.
Index to Financial Statements
PAGE
----
Report of Independent Auditors F-2
Financial Statements:
Balance Sheet - June 30, 2000 F-3
Statements of Operations -
Years Ended June 30, 2000 and 1999 F-5
Statements of Stockholders' Equity (Deficit) -
Years Ended June 30, 2000 and 1999 F-6
Statements of Cash Flows -
Years Ended June 30, 2000 and 1999 F-7
Notes to Financial Statements F-9
F-1
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors and Stockholders of
Access Solutions International, Inc.
We have audited the accompanying balance sheet of Access Solutions
International, Inc. as of June 30, 2000, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Access Solutions International,
Inc. as of June 30, 2000, and the results of its operations and its cash flows
for each of the two years in the period ended June 30, 2000, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
has an accumulated deficit, and has incurred negative cash flows from operating
activities which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ CARLIN, CHARRON & ROSEN LLP
-------------------------------
CARLIN, CHARRON & ROSEN LLP
December 12, 2000
F-2
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 58,042
Trade accounts receivable, net of
allowance for doubtful accounts of
$ 13,167 259,308
Inventories 25,407
Prepaid expenses and other current assets 39,129
--------
TOTAL CURRENT ASSETS 381,886
--------
PROPERTY AND EQUIPMENT, NET 62,626
--------
OTHER ASSETS
Patent, net of amortization 5,121
--------
TOTAL ASSETS $449,633
========
Continued --
F-3
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET (CONTINUED)
JUNE 30, 2000
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 611,789
Accrued salaries and wages 84,891
Accrued expenses 88,516
Deferred revenue 485,661
------------
TOTAL CURRENT LIABILITIES 1,270,857
------------
CONVERTIBLE NOTES PAYABLE 1,287,549
------------
TOTAL LIABILITIES 2,558,406
------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 8)
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value;
13,000,000 shares authorized,
3,965,199 shares issued, and
3,963,940 shares outstanding 39,652
Additional paid-in capital 17,637,694
Accumulated deficit (19,768,063)
------------
TOTAL (2,090,717)
Treasury stock, at cost (1,259 shares) (18,056)
------------
TOTAL STOCKHOLDERS' DEFICIT (2,108,773)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 449,633
============
See accompanying notes to the financial statements
and independent auditor's report
F-4
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
YEAR ENDED JUNE 30,
2000 1999
----------- -----------
NET SALES
Products $ 138,153 $ 88,239
Support and services 780,420 847,597
----------- -----------
TOTAL NET SALES 918,573 935,836
----------- -----------
COST OF SALES
Products 15,842 119,553
Support and services 206,016 240,190
----------- -----------
TOTAL COST OF SALES 221,858 359,743
GROSS PROFIT 696,715 576,093
----------- -----------
OPERATING EXPENSES
Selling expenses 145,620 205,404
General and administrative expenses 427,097 770,330
Research and development expenses 90,343 119,243
----------- -----------
TOTAL OPERATING EXPENSES 663,061 1,094,977
----------- -----------
LOSS FROM OPERATIONS (518,884)
OTHER INCOME (EXPENSE)
Gain on sale of patent -- --
Loss on sale of fixed assets (55,621)
Interest income 1,240 2,382
Interest expense (125,558) (125,327)
Loss on PaperClip acquisition termination -- (140,813)
Miscellaneous income -- --
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (124,318) (319,379)
----------- -----------
NET LOSS $ (90,664) $ (838,263)
=========== ===========
LOSS PER COMMON SHARE $ (.02) $ (.21)
=========== ===========
Weighted average number of common shares outstanding 3,963,940 3,963,940
=========== ===========
See accompanying notes to the financial statements
and independent auditor's report
F-5
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
Stockholders' Equity (Deficit)
-----------------------------------------------------------------------------------------------------
Common Stock
-------------------------- Additional Accumulated Treasury Stock Total Equity
Shares Amount Paid-In-Capital Deficit Shares Amount (Deficit)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 3,965,199 $ 39,652 $ 17,637,694 $(18,839,134) 1,259 $ (18,056) $ (1,179,844)
Net loss -- $ -- $ -- $ (838,263) -- $ -- $ (838,263)
----------- ----------- ------------ ------------ ----------- ------------ ------------
Balance at June 30, 1999 3,965,199 $ 39,652 $ 17,637,694 $(19,677,397) 1,259 $ (18,056) $ (2,018,107)
=========== =========== ============ ============ =========== ============ ============
Net loss -- $ -- $ -- $ (90,664) -- $ -- $ (90,664)
Balance at June 30, 2000 3,965,199 $ 39,652 $ 17,637,694 $(19,768,061) 1,259 $ (18,056) $ (2,108,773)
=========== =========== ============ ============ =========== ============ ============
See accompanying notes to the financial statements
and independent auditor's report
F-6
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
YEAR ENDED JUNE 30,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (90,664) $(838,263)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 72,459 116,936
Loss on sale of fixed assets 55,621
Provision for doubtful accounts (13,545) (18,087)
Provision for doubtful accounts (8,400) (13,545)
Changes in operating
assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (108,978) 213,541
Inventories 386,901 82,263
Inventories (407) 87,855
Prepaid expenses
and other current assets 32,405 32,187
Deposits and other assets (41,705) 74,363
Increase (decrease) in:
Accounts payable (19,572) (290,716)
Accrued expenses and
salaries and wages (381,997) 306,649
Deferred revenue (18,382) 27,889
--------- ---------
NET CASH USED FOR OPERATING ACTIVITIES (523,536) (301,846)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (435) --
Proceeds from sale of fixed assets -- 14,567
Loans and advances to PaperClip -- (140,813)
Advances and notes receivable
written off relating to
PaperClip merger termination -- 140,813
--------- ---------
NET CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES $ (435) 14,567
========= =========
Continued --
F-7
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
YEAR ENDED JUNE 30,
2000 1999
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party loans $ -- $ 138,938
Patent litigation loan addendum
(see General & Administrative Expenses) 498,611 --
Repayments on capital lease obligations -- (6,716)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 498,611 132,222
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (25,360) (155,057)
CASH AND CASH EQUIVALENTS, BEGINNING 83,402 238,459
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 58,042 $ 83,402
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for interest $ -- $ --
========= =========
See accompanying notes to the financial statements
and independent auditor's report
F-8
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. NATURE OF OPERATIONS
Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) (the "Company" or "ASI") develops, assembles, sells
and services optical data storage systems consisting of integrated computer
hardware and software for the archival storage and retrieval of
computer-generated information. The Company's optical data storage systems
are sold principally to large organizations that need to store and retrieve
large quantities of computer-generated data. To date, the Company's
customers primarily operate in the financial services and insurance
industries.
During 1996, the Company consummated an initial public offering (IPO) of
1,066,667 Units. Each Unit consisted of two shares of common stock and one
redeemable common stock purchase warrant. Each warrant entitles the holder
to purchase one share of common stock at an initial exercise price of $5.00
per share, subject to adjustments, through October 15, 2001. The shares of
common stock and warrants comprising the Units are separately tradable. An
over-allotment option to purchase an additional 160,000 Units upon the same
terms and conditions set forth above was exercised by the Company's
underwriter on October 29, 1996. An aggregate of 2,453,334 shares of common
stock and 1,226,667 warrants were issued by the Company, resulting in net
proceeds of $7,062,507.
ASI has suffered recurring losses from operations, has an accumulated
deficit, and has incurred negative cash flows from operating activities.
The Company has enhanced certain of its existing products and is working to
establish additional collaborative relationships with vendors and customers
which may create new opportunities. However, the recurring losses and
negative cash flow from operating activities raise substantial doubt about
the Company's ability to continue as a going concern. These financial
statements do not include any adjustments relating to the recoverability of
assets and classification of liabilities or any other adjustments that
might be necessary should the Company be unable to continue as a going
concern.
As of June 30, 2000, the Company believes that income generated from
operations, will be sufficient to meet the Company's working capital
requirements through September 2001. If the Company has insufficient funds
from the above noted operations, further equity or debt financing will be
sought. There can be no assurance that such additional funds can be
obtained on acceptable terms, if at all. If additional financing is not
available, the Company's ability to continue as a going concern will be
adversely affected.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily
of components used in production, finished goods held for sale and for
service needs, and optical disk storage libraries purchased from
third-party vendors for resale to the Company's customers as part of
integrated systems. Base stock service inventories are maintained at
customer locations as required under service contracts.
Continued --
F-9
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories (Continued)
The Company's products consist of integrated computer hardware and
software. Rapid technological change and frequent new product introductions
and enhancements could result in excess inventory quantities over current
requirements based on the projected level of sales. The amount of loss that
is reasonably possible should such technological developments be realized
is not estimable.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the
assets. Assets recorded under capital leases are amortized over the
estimated useful lives or lease terms, whichever is shorter.
Revenue Recognition
Product revenues include the sale of optical archiving systems, software
licenses, peripheral hardware, and consumable media.
Revenue from the sale of optical archiving systems and software licenses is
recognized when the system is installed and only insignificant
post-installation obligations remain. In the case of systems installed
subject to acceptance criteria, revenue is recognized upon acceptance of
the system by the customer. Revenue from hardware upgrades is recognized
upon shipment.
Service revenues include post installation software and hardware
maintenance and consulting services.
The Company provides the first year of software maintenance to customers as
part of the software license purchase price and recognizes the revenue upon
installation of the software. Costs associated with initial year
maintenance are not significant and enhancements provided during this
period are minimal and are expected to be minimal. All software maintenance
contracts after the first year are billed in advance of the service period
and revenues are deferred and recognized ratably over the contract term.
Hardware maintenance is billed for varying terms, and is deferred and
recognized ratably over the term of the agreement. Revenues from consulting
services are recognized upon customers' acceptances or during the period in
which services are provided if customer acceptance is not required and such
amounts are fixed and determinable.
Software Development Costs
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established and until the related product is
available for general release to customers, any additional material amounts
of development costs are capitalized and amortized to cost of sales over
the economic life of the related product. Costs eligible for capitalization
have not been significant to date.
Income Taxes
Income taxes are accounted using an asset and liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those differences are expected to
be recovered or settled. The primary component of the Company's deferred
tax asset as of June 30, 2000, which is fully reserved, is net operating
loss carryforwards.
Continued --
F-10
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss Per Common Share
In 2000 and 1999, loss per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted per share computations are not presented since the effect would be
antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period reported. Actual results could differ from those
estimates.
Reliance on Single or Limited Sources of Supply
The Company currently purchases all of its optical disk storage libraries,
CPU boards, fiber optic channel hardware and high-density integrated
circuits from single or limited sources. Although there are a limited
number of manufacturers of these components, management believes that other
suppliers could provide similar products on comparable terms. Total or
partial loss of any such source, however, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating
results adversely.
Stock Based Compensation
The Company measures compensation expense relative to employee stock-based
compensation plans using the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". However, the Company will disclose the pro
forma amounts of net income and earnings per share as though the fair
value-based method of accounting prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
had been applied. See the stock options note for these disclosures.
3. PAPERCLIP MERGER, MANAGEMENT AGREEMENTS AND SUBSEQUENT EVENTS
On April 15, 1997, the Company and PaperClip entered into an agreement for
the Company to acquire substantially all the assets and liabilities of
PaperClip, which was later amended to change the acquisition to a merger.
The Company and PaperClip also entered into a management agreement (the
"Management Agreement") which allowed the Company to manage the day-to-day
operations of PaperClip and to advance funds on behalf of PaperClip
pursuant to an operating budget, in each case until the closing of the
Merger or the termination of the Merger Agreement. On January 29, 1997, the
Company provided a $300,000 bridge loan to PaperClip for use as operating
capital in exchange for a 12% convertible note from PaperClip secured by
substantially all the assets of PaperClip. In addition, the Company had
made unsecured advances to PaperClip of $140,813, $1,252,689, and $529,052
during the years ended June 30, 1999, 1998 and 1997, respectively, for
funding of working capital requirements.
The Company and PaperClip also entered into a one-year distribution
agreement effective June 1, 1997 pursuant to which the Company acted as a
distributor for PaperClip's products in the United States to dealers and
resellers.
Ultimately, the merger agreement was terminated on August 24, 1998.
Accordingly, the Company wrote off approximately $2,443,000 effective June
30, 1998 and approximately $141,000 effective June 30, 1999 in connection
with the terminated merger.
Continued --
F-11
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
In November of 2000, PaperClip Software Inc. and ASI entered into an
agreement whereby the indebtedness to ASI in the amount of $300,000, plus
all accrued interest through December 31, 1999 in the amount of $105,300,
will be paid for by the execution and delivery of a new promissory note
from PaperClip to ASI in the aggregate principal amount of $405,300. All
amounts due under the new Note will be paid for over a period of three (3)
years in thirty-six (36) equal installments of $11,265 beginning on January
1, 2000.
As a result of advances issued to PaperClip from November 12, 1997 through
August 24, 1998, PaperClip is indebted to ASI in the amount of $2,305,506
including interest. ASI will exchange the above indebtedness for shares of
a new class of PaperClip convertible preferred stock (the "Preferred
Stock"). Each share of Preferred Stock will be convertible into one share
of PaperClip's common stock ("common stock") subject to anti-dilution
protection in the event of a stock split, stock dividend, recapitalization
or similar change to the capital structure of PaperClip. The shares are
convertible at anytime at ASI's option or at PaperClip's option, provided
that immediately prior to conversion, the common stock has traded for not
less than 60 consecutive days at a closing price of 150% of the implied
conversion price. The implied conversion price is derived by dividing the
amount of the additional indebtedness by the number of shares of common
stock issuable upon conversion by ASI of the preferred stock. The
"Converted Shares" would equal 27.5% of the then outstanding Common Stock.
The holders of the converted common stock will have piggy back registration
rights on the Converted Shares underlying the Preferred Stock. Such
piggy-back registration rights on the converted stock will expire with
respect to the holder when such shares are eligible for sale pursuant to
Rule 144(k) promulgated and the rules and regulations of the Securities Act
of 1933. The preferred stock will not be entitled to dividends and will
have a liquidation preference equal to $2,305,506.
Continued --
F-11
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
4. INVENTORIES
Inventories at June 30, 2000 consist of the following:
Production inventory $ 375,067
---------
Less - inventory reserves (349,660)
TOTAL INVENTORY AVAILABLE FOR SALE $ 25,407
=========
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 consists of the following:
Computers and office equipment $ 287,850
Furniture and fixtures 9,177
---------
TOTAL 297,027
---------
Accumulated depreciation and amortization (234,401)
---------
NET PROPERTY AND EQUIPMENT $ 62,626
=========
6. CONVERTIBLE NOTES PAYABLE
On May 27, 1998, the Company completed a financing agreement for the sale
of a 30% interest in several of the Company's patents to a stockholder who
was also a former director, for $100,000. Subsequent to June 30, 1999, this
shareholder sold all of his Company common stock. These patents are the
subject of a lawsuit pending in the United States District Court for the
District of Rhode Island. In addition, the same shareholder also loaned the
Company $650,000 reflected as convertible notes payable in these financial
statements, and has agreed to make additional advances for outstanding and
future legal fees and costs incurred in connection with the lawsuit. At
June 30, 2000, the aggregate value of the outstanding loans, including
interest is $1,287,549.
The loan is secured by a first priority interest in these patents and bears
interest at the rate of 19% per annum and amounted to $125,558 in fiscal
year 2000. The loan has a term of the lesser of three years or completion
of the company's patent litigation and converts to a demand note at the end
of its term. On May 27, 2000, the above convertible note payable was
amended to extend the date upon which the note becomes payable upon demand
to July 1, 2003. In addition, the maximum amount to be advanced under the
loan agreement has been increased from $1,000,000 to $1,500,000.
Continued --
F-12
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
6. CONVERTIBLE NOTES PAYABLE (CONTINUED)
The loan is also convertible at the option of the lender after August 24,
1998 (provided that and as long as the Company is not then a party to a
binding equity infusion as defined in the agreement) to convert the note
into that number of fully paid nonaccessible shares into the Company's
common stock as is obtained by dividing the outstanding principal and
interest balance of the note as of the date of conversion by the
hereinafter defined market price. Such optional conversion shall be
exercised by the lender giving written notice of such election to convert,
surrender of the note to the company, the company's payment to the lender
of interest accrued on the note through the date of such conversion and the
issuance by the Company to the lender of that number of shares of the
Company's common stock as is obtained by the market price formula. The
market price formula is obtained by taking the average market price of the
daily market prices of the shares of the company's common stock over a
period of 20 consecutive business days prior to the day as of which "market
price" is being determined.
7. COMMITMENTS
Operating Lease
The Company leases building space for office and plant facilities. In
October, 1998, the Company entered into a new lease for approximately 40%
of the previous space utilized, through September 30, 2001. The new lease
may be terminated after twelve months, but such termination would
accelerate certain unamortized leasehold improvements. Total rent expense
for the years ended June 30, 2000 and 1999 amounted to $34,713 and $43,117,
respectively.
Continued --
F-13
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
8. INCOME TAXES
The tax effects of net operating loss ("NOL") carryforwards and temporary
differences that give rise to deferred tax assets and liabilities at June
30, 2000 are as follows:
JUNE 30,
2000
Deferred tax assets:
Net operating loss carryforwards $ 5,515,000
Research and development costs capitalized
for tax purposes 787,000
Provision for doubtful accounts 5,000
Inventory reserves/263(A) 140,000
-----------
6,447,000
Deferred tax liabilities:
Valuation allowance (6,447,000)
-----------
Net Deferred Tax Asset $ --
===========
The Company records a valuation allowance for deferred tax assets, if based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The Company
has determined that a full valuation allowance is required given its
history of operating losses since its inception.
At June 30, 2000, the Company has total federal and state NOL
carryforwards, prior to any limitations, available to reduce future taxable
income of approximately $13,788,000, which expire in various amounts
between the fiscal years 2003 and 2019, if not previously utilized. In the
event of an ownership change, as defined under Section 382 of the Internal
Revenue Code, utilization of NOL carryforwards in the period following the
ownership change can be significantly limited. The Company has incurred
several changes of ownership under these rules. As a result, utilization of
the NOLs is subject to various limitations, depending upon the year in
which the NOL originated. As of June 30, 2000 management estimates that
approximately $11,124,000 of the Company's federal NOL carryforwards will
be available to offset taxable income that may be generated within the
carryforward period. Of this amount, approximately $6,124,000 is available
for future utilization without limitation. The other $5,000,000 is subject
to a limitation of approximately $330,000 of utilization per year. However,
because the limitation calculations are complex and subject to review by
the Internal Revenue Service, these limitations could be adjusted.
Continued --
F-14
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
9. STOCK OPTIONS
In August 1996, the Company adopted the 1996 Stock Option Plan pursuant to
which key employees of the Company, including directors who are employees,
are eligible to receive options to purchase common stock, at the discretion
of the Compensation Committee.
The Company has reserved 500,000 shares of common stock for issuance under
the 1996 Plan. Options granted under the 1996 Plan can be either incentive
stock options or non-qualified options, at the discretion of the
Compensation Committee.
On August 1, 1996 the Company granted options to purchase 263,351 shares of
Common Stock at an exercise price equal to $3.75 per share. The options
must be exercised within five years of the date of grant.
On June 15, 1999 the Company granted to employees non-qualified options
under the 1996 Plan to purchase 375,000 shares of Common Stock at an
exercise price equal to $.08 per share. The options vest immediately and
must be exercised July 31, 2006.
The Company has also granted options from time to time to consultants and
in connection with equity and debt offerings at exercise prices which were
not less than the fair market value of the common stock on the date the
option was granted.
As of June 30, 2000 and 1999, the following stock options were outstanding:
Exercise Number Outstanding
Price June 30, June 30,
Per Share 2000 1999
--------- ---- ----
$ .08 375,000 375,000
3.75 45,393 45,393
74.00 0 44
222.00 1,014 1,014
351.50 0 14
399.60 9 9
---------- ----------
421,416 421,474
========= =======
The following is a summary of stock option activity for the years ended
June 30, 2000
Weighted Average
-------------------------
Exercise
Price Fair Value
Number of Per Exercise At Remaining
Options Share Price Grant Life
------------- ----------- ------------- ----------- -----------
Outstanding July 1, 1996 10,256 $ 74-$399.60 $ 212.53
Granted to employees 263,351 $ 3.75 $ 3.75 $ 1.05 5 years
Cancelled (62,873) $ 74-$399.60
------------- ----------- ------------- ----------- -----------
Outstanding June 30, 1997 210,734 $3.75-$399.60 5.91
Granted to former employees 45,393 $ 3.75 3.75 3.75 5 years
Cancelled (121,478) 3.75-$399.60
------------- ----------- ------------- ----------- -----------
Outstanding June 30, 1998 134,649 $ 3.75-399.60 $ 8.67 5 years
------------- ----------- ------------- ----------- -----------
Granted to employees 375,000 $ .08 .08 .08 7 years
Cancelled (88,175) 3.75-$399.60
------------- ----------- ------------- ----------- -----------
Outstanding June 30, 1999 421,474 $ .08-399.60 $ 1.04 7 years
------------- ----------- ------------- ----------- -----------
Cancelled (58) 74.00-$351.50
------------- ----------- ------------- ----------- -----------
Outstanding June 30, 2000 421,416 $ .08-399.60 $ 1.02 6 years
------------- ----------- ------------- ----------- -----------
Continued --
F-15
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
9. STOCK OPTIONS (CONTINUED)
Stock-based compensation expense under the fair value-based method of
accounting would have resulted in pro forma net loss and loss per common
share approximating the following amounts:
2000 1999
As Reported Pro Forma As Reported Pro Forma
Net loss $ (90,664) $ (90,664) $(838,263) $(867,766)
========= ========= ========= =========
Loss per common share $ (.02) $(.02) $(.21) $(.21)
========= ========= ========= =========
The fair value for each option granted reflecting the basis for the above
from forma disclosures was determined on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used in
determining fair value through the model:
2000 1999
---- ----
Expected life 6 years 7 years
Risk-free yields 5.44% 6.90%
Expected volatility 4.30% 11.00%
*Since there were no employee grants in FY 2000, this assumption did not
influence the stock-based compensation expense calculation for FY 2000.
The Company recognizes forfeitures as they occur.
Because additional option grants are expected to be made each year, the
application of fair value-based accounting in arriving at the pro forma
disclosures above is not an indication of future income statement effects.
10. INTERNATIONAL SALES, MAJOR CUSTOMERS AND CONCENTRATION OF
CREDIT RISK
The Company sells optical archiving systems and related licenses for
software products to customers domestically and internationally.
International sales have all been denominated in U.S. dollars and were
approximately $108,000 and $79,000 in the years ended June 30, 2000 and
1999, respectively. The Company's foreign sales represented approximately
12% and 8% of total revenues for the year ended June 30, 2000 and 1999,
respectively.
Amounts due from one customer represented approximately 83% of total
accounts receivable outstanding at June 30, 2000.
The Company also has a concentration of credit represented by cash balances
in certain large commercial banks in amounts which occasionally exceed
current federal deposit insurance limits. The financial stability of these
institutions is continually reviewed by senior management.
11. RESEARCH AND DEVELOPMENT
Research and development expense in the current year represents costs
associated with the Company's completion of GIGAPAGE 3.0, which also
represented completion of all significant product commitments.
Continued --
F-16
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
12. OPEN LITIGATION
On August 29, 1997, the Company filed a complaint in the United States
District Court for the District of Rhode Island against Data/Ware
Development, Inc. ("Data/Ware") and Eastman Kodak Company, Inc. ("Kodak")
alleging infringement of the Company's patents. The claim states that
Data/Ware and Kodak collectively manufacture, use and/or sell equipment for
recording data on optical media and alleges that the manufacture and sale
of such equipment, and use by purchasers thereof, infringes one or more of
the Company's patents. The claim calls for an order enjoining the
defendants from further infringement of its patents, damages and interest
for infringement and reasonable attorney's fees and such other relief that
the court deems proper. No outcome of this claim can be determined at this
time.
Continued --
F-17
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
Item 8. Disagreements with Accountants on Accounting and Financial Disclosure
(a) (i) Carlin, Charron, & Rosen LLP's annual reports for the last two years did
not contain any adverse opinions, disclaimers of opinion, modifications or
qualifications as to uncertainty, audit scope or accounting principals, except
to include a modification with respect to the Registrant's ability to continue
as a going concern for the years ended June 30, 2000 and 1999.
(ii) In connection with the audit for the 2000 fiscal year, there were no
disagreements of the type described in Item 304 (a) (1) (iv) of Regulation S-K
with the Company's auditor on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
13
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act
Director and Executive Officers. The current ASI directors and
executive officers are as follows:
Name and Age Position
------------------------------------- --------------------------------------------
Robert H. Stone, (1) 50 President, Chief Executive Officer, Director
Thomas E. Gardner, 62 (1)(2) Chief Financial Officer, Treasurer, Director
Adrian Hancock, 53 Director
Denis L. Marchand, 47 Vice President - Finance & Administration
----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliations of the ASI directors and the executive officers is set forth
below.
Mr. Stone was elected President and Chief Executive Officer of ASI on
August 1, 1996. Prior to joining ector of Marketing of Standard Duplicating
Machines Corporation since June 1994 and prior to that President of Marketplex,
Inc., a marketing services company, since 1992. From June 1989 to February 1992,
Mr. Stone was Director of Product Marketing of Riso, Inc., a developer and
distributor of high speed printing systems.
Mr. Gardner has served as Chief Financial Officer of ASI since April
1996, Treasurer since May 1994 and has been a director since May 1994. Mr.
Gardner does not serve full time as ASI's Chief Financial Officer or Treasurer.
Mr. Gardner has also served as the President of LJT Associates (a planning and
financial consulting firm) since April 1992. From 1979 to October 1992, Mr.
Gardner was Senior Vice President at Rhode Island Hospital Trust National Bank.
Mr. Gardner has served on various Rhode Island and Providence commissions and
committees and currently serves as the Rhode Island Governor's appointee to the
Depositors' Economic Protection Corporation Performance Review Committee. Mr.
Gardner, through LJT Associates, is presently providing consulting services to
Point Gammon Corporation, whose principal owner, Mr. Malcolm G. Chace III, is an
ASI stockholder and former director.
Mr. Hancock has been a Director of ASI since May 1997. Currently Mr.
Hancock is Vice President, Marketing, of PictureTel Corporation's Enterprise
Services Division which he joined in 1998 from a previous position with The
Planning Technologies Group. Prior to that Mr. Hancock held a variety of
marketing, distribution and international roles at The Timberland Company, Riso
Inc. and Prime Computer as well as consulting positions with McKinsey and
Company.
Mr. Marchand served as Financial Controller from September 1994 to
December 1997, and has served as Vice President of Finance and Administration
since December 1997. From July 1993 to September 1994 he was a Firm
Administrator for Rubin, Hay & Gould, P.C., a law firm located in Framingham,
MA. From October 1990 through May 1993 he was the financial controller of the
U.S. subsidiary of EWAG Corporation, a high precision grinding machine
manufacturer. Mr. Marchand holds an M.B.A. degree from Bryant College, is a
certified internal auditor and has successfully passed the Uniform Certified
Public Accountant's examination.
14
Section 16(A) Beneficial Ownership Reporting Compliance. Section 16(a)
of the Securities Exchange Act of 1934 requires ASI's officers and directors,
and persons who own more than 10% of a registered class of ASI's equity
securities ("insiders"), to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "SEC"). Insiders are required
by SEC regulation to furnish ASI with copies of all Section 16(a) forms they
file. Based solely on review of the copies of such forms furnished to ASI, ASI
believes that during its fiscal year ended June 30, 2000 all Section 16(a)
filing requirements applicable to its insiders were complied with.
Item 10. Executive Compensation
Director Compensation. ASI's directors do not receive cash compensation
for service on the Board of Directors, although they are reimbursed for certain
out-of-pocket expenses in connection with attendance at Board and committee
meetings.
Executive Compensation. Summary Compensation Table. The following table
sets forth certain information with respect to the compensation paid by ASI for
services rendered during the fiscal year ended June 30, 2000 to the chief
executive officer and the other executive officers of ASI whose compensation
exceeded $100,000 (the "Named Executive Officers").
Annual Long-Term Compensation
Compensation Awards
Securities
Name and Fiscal Paid Underlying All Other
Principal Position Year Salary Bonus Options Compensation
------------------ ---- ------ ----- ------- ------------
Robert H. Stone, President and
Chief Executive Officer 2000 $ 39,546 -- -- --
-- -- --
1999 $ 120,995
----------
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to option grants during the fiscal year ended June 30,
2000 to the Named Executive Officers.
Number Percent of
Securities Total Options Exercise
Underlying Granted to or Base
Options Employees Price
Name Granted in Fiscal Year ($/sh) Expiration Date
---- ------- -------------- ------ ---------------
Robert H. Stone,
President and Chief none
Executive Officer
15
Year-end Option Table. During the fiscal period ended June 30, 2000,
none of the Named Executive Officers exercised any options issued by ASI. The
following table sets forth information regarding the stock options held as of
July 1, 2000 by the Named Executive Officers.
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money-Options at Fiscal
Options at Fiscal Year-End Year End
Name Exercisable Unexercisable Exercisable Unexercisable
Robert H. Stone..................... 100,000 0 $0 $0
Stock Option Plans. In August 1996, ASI terminated the 1994 Directors
Stock Option Plan (the "1994 Directors Plan"), which was a stock option plan for
non-employee directors. There are options outstanding to purchase 1,014 shares
pursuant to the 1994 Directors Plan at an exercise price of $222 per share.
Under the 1994 Directors Plan, upon a director's election to the Board, the
director was automatically awarded an option to purchase 338 shares of ASI
Common Stock, at an exercise price equal to 100% of the fair market value on the
date the option was granted. The option then vested 25% on each of the first
through fourth anniversaries of the date of the grant.
In August 1996, ASI terminated its Previous Stock Option and Purchase
Plans (the "Terminated Plans") and adopted the 1996 Plan pursuant to which key
employees of ASI, including directors who are employees, are eligible to receive
grants of options to purchase ASI Common Stock for issuance under the 1996 Plan.
Options granted under the 1996 Plan can be either incentive stock options or
non-qualified options, at the discretion of the Compensation Committee. On
August 1, 1996, ASI cancelled the 8,351 employee options outstanding under the
Terminated Plans (having exercise prices ranging from $74 to $240.50 per share)
and granted options to purchase 263,351 (of which 8,351 are immediately
exercisable) shares of ASI Common Stock at an exercise price equal to $3.75 per
share.
In July and September of 1997, ASI cancelled the employee stock option
plans of Messrs. Matthias Lukens for 24,311 shares and George Steele for 21,082
shares and granted them non-qualified options for the same amounts of shares at
the same exercise price of $3.75. Mr. Luken's options expire on July 14, 2007
and Mr. Steele's options expire on July 31, 2006.
Non-Plan Options. From time to time, ASI has issued options to purchase
shares of ASI Common Stock to certain consultants and in connection with certain
equity and debt financing arrangements provided to ASI. As of December 15, 2000
ASI had non-plan options to purchase 46,474 shares of ASI Common Stock
outstanding; of such amount, options to purchase 21,082 and 24,311 shares were
held by Mr. Steele and Mr. Matthius Lukens, respectively, former officers of
ASI. Additionally, 338 shares each were held by former directors of ASI, Mr.
Christopher Ingraham and Mr. Marvyn Carton. Also, the Chairman of Mossburg
Industries, Mr. Malcolm G. Chace III, held 338 shares. The non-plan options are
all 100% vested and the exercise price of the options range from $3.75 to
$399.60 per share. Mr. Ingraham received his options as compensation for
services rendered to ASI as a consultant, each of Messrs. Chace and Lukens
received his options as compensation for serving as a director, and Mossberg
received its options in connection with certain debt financing it provided to
ASI.
On June 15, 1999 the Company granted non-qualified options to purchase
375,000 shares of Common Stock at an exercise price equal to $.08 per share. The
options vest immediately and must be exercised by July 31, 2006.
16
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to ASI with
respect to beneficial ownership of the ASI Common Stock as of July 1, 2000 by
(i) each stockholder who is known by ASI to own beneficially more than 5% of the
outstanding ASI Common Stock, (ii) each of ASI's directors, (iii) the Named
Executive Officers of ASI as of the end of ASI's fiscal year, and (iv) all
directors and executive officers as a group. Unless otherwise indicated, each
has sole voting and investment power with respect to the shares beneficially
owned.
Name and Address of Shares of Common Stock Percentage of
Beneficial Owner Beneficially Owned Common Stock
---------------- ------------------ ------------
Robert H. Stone (1) 100,000 2.52
c/o Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Thomas E. Gardner c/o Point Gammon Corporation (2) 13,891 *
731 Hospital Trust Building
Providence, RI 02903
Adrian Hancock --- ---
c/o The Planning Technologies Group
92 Hayden Avenue
Lexington, MA 02173
Directors and Executive Officers as a Group 188,891 4.77
(5 persons) (3)
----------------------------------------
(1) Consists of 100,000 shares of ASI Common Stock issuable upon exercise
of stock options.
(2) Includes 67 shares of ASI Common Stock jointly held with Leslie A.
Gardner.
(3) Includes 75,000 shares of ASI Common Stock issuable upon exercise of
stock options.
* Less than 1%
17
Item 12. Certain Relationships and Related Transactions
Certain Transactions between ASI and PaperClip
On January 29, 1997, ASI provided a $300,000 loan to PaperClip for use
as operating capital in exchange for a convertible note of PaperClip (the
"PaperClip Note"). The PaperClip Note was due and payable on January 27, 1998,
bore interest at a rate of 12% per annum payable quarterly and is secured by a
first priority security interest in all of PaperClip's assets. At any time, all
or a portion of the outstanding principal amount of the PaperClip Note may be
converted into shares of PaperClip Common Stock at a conversion price of $.25
per share.
On April 15, 1997, the Company and PaperClip entered into an agreement
for the Company to acquire substantially all the assets and liabilities of
PaperClip, which was later amended to change the acquisition to a merger. The
Company and PaperClip also entered into a management agreement (the "Management
Agreement") which allowed the Company to manage the day-to-day operations of
PaperClip and to advance funds on behalf of PaperClip pursuant to an operating
budget, in each case until the closing of the Merger or the termination of the
Merger Agreement.
ASI and PaperClip entered into a one-year non-exclusive regional
distribution agreement commencing June 1, 1997. Under the terms of this
agreement, ASI acted as a distributor for PaperClip's products in the United
States to dealers and resellers. ASI's sole compensation under this agreement
was its gross profit on any products sold, which was equal to any excess of the
price at which ASI distributes the products to its customers over the price at
which PaperClip licenses the products to ASI. The agreement expired on May 31,
1998 and was not renewed.
In October, 2000, PaperClip entered into an agreement with ASI whereby
the Company's original secured advance to PaperClip in the amount of $300,000
and accrued interest of $105,530 was restructured to an interest free note with
the principal amount of Four Hundred Five Thousand Five Hundred Thirty
($405,530) Dollars with substantially the same security. Under the terms of the
note, PaperClip is to pay this note in thirty-five consecutive equal monthly
installments of Eleven Thousand Two Hundred Sixty-four and 72/100 ($11,264.72)
Dollars commencing on January 1, 2001 and continuing on the same day of each
successive month thereafter with a thirty sixth and final payment of all
indebtedness evidenced hereby on December 1, 2003. If the above described
payments are not paid as and when due (including without limitation payment
being due as a result of the acceleration of the repayment of the indebtedness
noted below), the indebtedness outstanding hereunder shall bear interest from
the date such payment was due at fifteen (15%) percent per annum. PaperClip may
prepay this Note at any time after having given at least thirty (30) days prior
written notice to Payee.
The repayment of the indebtedness evidenced by the note may be
accelerated at the election of the Payee, upon the happening of any of the
following events:
(a) PaperClip (i) discontinues its business (as evidenced by a
resolution of PaperClip's Board of Directors or stockholders), (ii) applies for
or consent to the appointment of a receiver, trustee, custodian or liquidator of
it or any of its property, (iii) admits in writing of its inability to pay its
debts as they mature, except for the obligations set forth on Schedule 2.10 of
the Disclosure Schedules of the Series A Preferred Stock Purchase Agreement
between PaperClip and Payee dated October, 2000, (iv) makes a general assignment
for the benefit of creditors, (v) becomes adjudicated a bankrupt or insolvent or
becomes the subject of an order for relief under Title 11 of the United States
Code or (vi) files a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization or an arrangement with creditors or takes
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or answers, admitting the material
allegations of a petition filed against it in any such proceeding under any such
law;
(b) An involuntary petition under any bankruptcy, reorganization or
insolvency law of any jurisdiction is filed against PaperClip, whether now or
hereafter in effect if, within one hundred and eighty days (180) following the
service on PaperClip of any such petition, is not discharged, released or
vacated; 18
18
(c) PaperClip sells or transfers substantially all of its assets or
business units to someone other than ASI;
(d) PaperClip fails to pay any payment obligation contained in the
restructured note within five (5) days of when due;
(e) PaperClip is in default of any other material obligation contained
in the restructured note or in the Security Agreement dated January 29, 1997, as
amended, and the default has not been cured within ten (10) days after notice
from ASI, or, if the default is not capable of being cured within ten days,
PaperClip has not begun efforts satisfactory to ASI to cure the default within
that ten-day period.
The agreement also provides for ASI and PaperClip to convert the
advanced amount, including interest, of $2,305,506.10 as a result of the party's
April 15, 1997 subsequently terminated merger activities into 3,649,543 shares
of PaperClip's Series A Preferred, $.01 par value Stock and to waive the
management fees of $300,000 earned by ASI under the April 15, 1997 agreement.
Certain Transactions between ASI and its Affiliates
Transactions with Mr. Lukens. Pursuant to an agreements dated as of
July 14, 1997, Matthias E. Lukens, Jr., a former President and Chief Executive
Officer and a former Vice President-Research and Development of ASI, resigned as
an officer and employee of ASI and ASI agreed to pay Mr. Lukens severance
benefits equal to six months salary or $57,200. ASI also agreed to exchange
incentive stock options to purchase 24,311 shares of ASI Common Stock at an
exercise price of $3.75 pursuant to the 1996 Plan for non-qualified stock
options to purchase 24,311 shares of ASI Common Stock at an exercise price of
$3.75 pursuant to the 1996 Plan.
Fairness of Certain Transactions. ASI believes that the terms of each
of the foregoing transactions are at least as favorable to ASI as could be
obtained from third parties in arms' length transactions. Article XI of the ASI
By-laws governs transactions between ASI and its directors. An affirmative vote
of a majority of disinterested directors is required to authorize a contract or
transaction entered into with a director of ASI; provided, however, that the
director's interest in the contract or transaction is disclosed or known to the
disinterested directors. Any future contract or transaction between ASI and its
directors will be transacted in accordance with the provisions of the By-laws.
Any future contract or transaction between ASI and its officers and affiliates
will be transacted in the same manner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Forms 8-K
19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ACCESS SOLUTIONS INTERNATIONAL, INC.
Dated: December 29, 2000 By: /s/ Robert H. Stone
----------------------
Robert H. Stone
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities indicated
on October 3, 1997.
Signature Title
/s/ Robert H. Stone President, Chief Executive Officer and Director
-------------------------------
Robert H. Stone
/s/ Denis L. Marchand Chief Accounting Officer
-------------------------------
Denis L. Marchand
/s/ Thomas E. Gardner Chief Financial Officer and Director
-------------------------------
Thomas E. Gardner
/s/ Adrian Hancock Director
-------------------------------
Adrian Hancock
20