<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________
TO ________________.
Commission File Number: 0-11933
AXCESS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 85-0294536
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3208 COMMANDER DRIVE, CARROLLTON, TEXAS 75006
- - --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(972) 407-6080
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Shares of common stock outstanding on November 1, 1998: 2,879,233. Shares of
non-voting common stock outstanding on November 1, 1998: 112,492.
Transitional Small Business Disclosure Format (Check One); Yes No X
----- -----
<PAGE> 2
AXCESS INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 1998 (Unaudited)
And December 31, 1997..........................................................................1
Condensed Consolidated Statements of Operations (Unaudited) for the Three
And Nine months ended September 30, 1998 and 1997..............................................3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months ended September 30, 1998 and 1997.......................................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)...............................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................15
Item 2. Changes in Securities.........................................................................15
Item 4. Submission of Matters to a Vote of Security Holders...........................................16
Item 6. Exhibits and Reports on Form 8-K..............................................................17
SIGNATURES......................................................................................................22
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXCESS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 107,777 $ 1,687,178
Note receivable from stockholder............................ 2,526,225 1,158,684
Accounts receivable - trade, less allowance for doubtful
accounts of $100,903 in 1998 and $175,826 in 1997...... 291,302 750,693
Inventory................................................... 2,175,875 2,372,851
Prepaid expenses and other.................................. 212,465 180,218
------------ ------------
Total current assets............................. 5,313,644 6,149,624
------------ ------------
Net assets of discontinued operation........................ 2,848,425 4,024,340
Property, plant & equipment, net............................ 2,484,896 2,609,725
RFID technology............................................. 1,714,449 0
Deferred license fee, net................................... 666,101 1,400,000
Other assets................................................ 134,472 176,221
------------ ------------
Total assets........................................ $ 13,161,987 $ 14,359,910
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholders............................... $ 2,998,133 $ 2,931,821
Notes payable............................................... 1,336,968 3,942,495
Dividends payable........................................... 1,098,189 60,916
Accounts payable............................................ 563,910 1,789,321
Capital lease obligations, current.......................... 209,355 807,935
Other accrued liabilities................................... 2,099,064 1,703,375
------------ ------------
Total current liabilities.......................... 8,305,619 11,235,863
Capital lease obligations, noncurrent......................... 561,106 114,845
Note payable - long term and other liabilities................ 2,005,205 539,899
------------ ------------
Total liabilities................................... $ 10,871,930 $ 11,890,607
------------ ------------
</TABLE>
(Continued)
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
AXCESS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Stockholders' equity:
Convertible preferred stock:
7,000,000 shares authorized in 1998 and 1997
Series A: $26.00 stated value; 57,692
shares outstanding in 1998 and 1997 ........................................ $ 1,500,000 $ 1,500,000
Series B: $28.40 stated value; 52,817
shares outstanding in 1998 and 1997 ........................................ 1,500,000 1,500,000
Series C: $30.20 stated value; 35,427
shares outstanding in 1998 and 1997 ........................................ 1,069,880 1,069,880
Series G: $10,000.00 stated value; 995
shares outstanding in 1998 and 789.735 in 1997 ............................. 9,950,000 7,897,353
Series H: $10,000.00 stated value; 792
shares outstanding in 1998 and none in 1997 ................................ 7,920,000 --
Common stock, $.01 par value, 6,250,000 shares authorized in 1998 and
2,837,500 in 1997; 2,879,368 shares issued
and outstanding in 1998 and 2,331,748 in 1997 .............................. 28,794 23,318
Non-voting convertible common stock, $.01 par value, 112,500 shares authorized
in 1998 and 1997; 112,492 shares issued and outstanding in 1998 and
1997. Convertible into common stock on a one share for one
share basis ................................................................ 1,125 1,125
Additional paid-in capital .......................................................... 58,520,107 57,168,716
Accumulated deficit ................................................................. (78,199,849) (66,691,089)
------------ ------------
Total stockholders' equity .................................... 2,290,057 2,469,303
------------ ------------
Total liabilities and stockholders' equity .................... $ 13,161,987 $ 14,359,910
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
AXCESS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ............................................ $ 620,062 $ 1,525,387 $ 4,410,529 $ 5,227,648
Cost of sales .................................... 717,445 1,024,676 3,125,969 3,135,789
------------ ------------ ------------ ------------
Gross profit ................................ (97,383) 500,711 1,284,560 2,091,859
------------ ------------ ------------ ------------
Expenses:
Research and development .................... 784,304 222,595 2,983,852 747,377
General and administrative .................. 1,438,416 1,497,263 4,153,084 3,912,620
Selling and marketing ....................... 257,058 268,872 823,163 967,552
------------ ------------ ------------ ------------
Total operating expenses ................. 2,479,778 1,988,730 7,960,099 5,627,549
------------ ------------ ------------ ------------
Loss from operations ..................... (2,577,161) (1,488,019) (6,675,539) (3,535,690)
------------ ------------ ------------ ------------
Other income (expense):
Interest income ............................. 32,350 1,982 88,244 16,300
Interest expense ............................ (180,819) (409,085) (642,466) (1,299,061)
Other ....................................... 3,564 26,274 34,787 31,196
------------ ------------ ------------ ------------
Other expense, net ............... (144,905) (380,829) (519,435) (1,251,565)
------------ ------------ ------------ ------------
Loss from continuing operations .................. (2,722,066) (1,868,848) (7,194,974) (4,787,255)
Discontinued operation:
Loss from operations, net of income
taxes of $0 ..................................... (993,644) (2,437,414) (2,526,513) (3,889,644)
Loss on disposal of discontinued
operation ....................................... (750,000) - (750,000) -
------------ ------------ ------------ ------------
Loss from discontinued operation ................. (1,743,644) (2,437,414) (3,276,513) (3,889,644)
Net loss ............................. (4,465,710) (4,306,262) (10,471,487) (8,676,899)
Preferred stock dividend requirement ............. 413,715 153,485 1,037,273 507,607
------------ ------------ ------------ ------------
Net loss attributable to
common stock ................... $ (4,879,425) $ (4,459,747) $(11,508,760) $ (9,184,506)
============ ============ ============ ============
Basic and diluted net loss per share
Continuing operations ........... $ (1.03) $ (0.83) $ (2.79) $ (2.18)
Discontinued operation .......... $ (0.66) $ (1.08) $ (1.27) $ (1.78)
Net loss ........................ $ (1.85) $ (1.98) $ (4.47) $ (4.19)
Weighted average shares of common stock
outstanding ..................................... 2,642,067 2,250,532 2,576,850 2,191,240
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
AXCESS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations.... .............................. $ (7,194,974) $ (4,787,255)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization .............................. 1,146,064 322,300
Provision for losses on accounts receivable ................ (74,923) 455,467
Provision for product warranty reserve ..................... 50,709 255,660
Amortization of financing discount and issuance costs....... 100,073 514,033
Accrued interest on convertible debentures ................. -- 118,890
Non-cash compensation ...................................... 50,000 40,000
(Increase) decrease in:
Accounts receivable..................................... 534,314 197,202
Inventory .............................................. 196,976 254,257
Prepaid expenses ....................................... (34,034) 551,082
Other current assets.................................... 1,787 (44,435)
Other assets ........................................... (19,778) 77,157
Increase (decrease) in:
Accounts payable ....................................... (1,225,411) 1,494,731
Other liabilities ...................................... 340,286 (1,242,961)
-------------- --------------
Net cash used in operating activities .............. (6,128,911) (1,793,872)
Cash flows from investing activities:
RFID technology purchase ......................................... (1,089,249) --
Capital expenditures ............................................. (226,109) (44,264)
-------------- --------------
Net cash used in investing activities .............. (1,315,358) (44,264)
Cash flows from financing activities:
Borrowings under financing agreements ............................ 1,470,000 4,363,477
Principal payments on financing agreements ....................... (2,605,527) 150,966
Proceeds from issuance of convertible debentures ................. 0 500,000
Redemption of convertible debentures ............................. 0 (600,000)
Redemption of convertible preferred .............................. 0 (880,000)
Principal payments on capital lease obligations .................. (152,319) (179,405)
Net proceeds from issuance of preferred and common stock ......... 9,253,012 951,206
-------------- --------------
Net cash provided by financing activities ...... 7,965,166 4,306,244
Net cash used by discontinued operation......... (2,100,298) (3,426,745)
Net decrease in cash and cash equivalents ...... (1,579,401) (958,637)
Cash and cash equivalents, beginning of period ....................... 1,687,178 1,598,744
-------------- --------------
Cash and cash equivalents, end of period ............................. $ 107,777 $ 640,107
============== ==============
</TABLE>
(Continued)
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE> 7
AXCESS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Supplemental information:
Cash paid during the period for interest ...................................... $119,309 146,838
======== =========
Conversions to stock:
Debentures, net of unamortized discount and expenses........................ $ -- 486,866
Accrued interest............................................................ $ -- 163,685
======== =========
Convertible preferred stock accretion.......................................... $ -- 198,974
======== =========
Restricted common stock issued in connection with
Xerox settlement............................................................ $562,500 --
======== =========
Restricted common stock issued in connection with ASGI asset purchase.......... $625,200 --
======== =========
Detachable warrants and restricted common stock issued in connection
with notes payable to stockholders.......................................... $100,074 1,074,400
======== =========
Conversion feature of debentures issued........................................ $ -- 150,000
======== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 8
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These unaudited condensed consolidated financial statements of AXCESS
Inc. ("AXCESS") (formerly Lasertechnics, Inc.) and its majority and
wholly-owned subsidiaries, Sandia Imaging Systems Corporation
("Sandia"), Sandia Imaging Systems Europe SA ("Sandia Europe") and
Lasertechnics Marking Corporation ("LMC") (unless otherwise indicated,
"AXCESS", "Sandia", "Sandia Europe" and "LMC" are hereinafter
collectively referred to as the "Company"), for the quarter ended
September 30, 1998, have been prepared in accordance with generally
accepted accounting principles for interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's Form 10-KSB, as amended, for the year ended December 31,
1997. All significant intercompany balances and transactions have been
eliminated in consolidation. The consolidated financial statements
presented herein reflect the imaging business, operated by Sandia, as a
discontinued operation, see Note 2 below. Certain reclassifications
have been made to the prior period financial statements, including
classification of the imaging business as a discontinued operation, in
order to present the consolidated financial position and results of
operations on a consistent basis. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, necessary
to present fairly the financial position at September 30, 1998, results
of operations for the three and nine month periods ended September 30,
1998 and 1997, and changes in cash flows for the nine months ended
September 30, 1998 and 1997 have been made. The results of operations
for any given three month period are not necessarily indicative of the
results for an entire year.
The Company has restated its condensed consolidated financial
statements for the three months ended September 30, 1997, to conform
its accounting for beneficial conversion features related to the
issuance of convertible debentures in October 1995 and March 1996, and
convertible preferred stock issued in July 1996 to the Financial
Accounting Standard Board's Emerging Issues Task Force Topic No. D-60
issued in March 1997 ("Topic No. D-60"). Topic No. D-60 requires that
the intrinsic value of beneficial conversion features of convertible
debt securities should be recognized as interest expense over the
period from issuance to the first date that conversions can occur.
Previously, the Company was amortizing the estimated fair value of the
beneficial conversion feature to interest expense over the life of the
convertible debentures. Topic No. D-60 further states that the
intrinsic value of beneficial conversion features of convertible
preferred stock should be treated as a return to the preferred
stockholder over the period from issuance to the first date that
conversion can occur. The Company had not previously assigned a value
to the beneficial conversion feature of its Series D Convertible
Preferred Stock. As a result of this restatement, interest expense for
the nine months ended September 30, 1997, was increased by
approximately $250,000.
(2) DISCONTINUED OPERATION
On October 21, 1998, the Company's Board of Directors approved a plan
to exit the imaging business. On November 16, 1998, the Company
announced that it had discontinued operations of the imaging business
and had entered into discussions with a prospective buyer to sell the
imaging business.
For the nine month periods ended September 30, 1998 and 1997, the
Company recorded losses of $3,276,513 and $3,889,644, respectively, in
connection with the discontinuance and disposition of the imaging
business. The components of the losses are shown below. (There is no
related income tax benefit or expense.)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Loss from operation of imaging business $2,526,513 $3,889,644
Loss on disposal of imaging business 750,000 --
---------- ----------
Loss from discontinued operation $3,276,513 $3,889,644
========== ==========
Loss per basic and fully diluted share $ 1.27 $ 1.78
</TABLE>
6
<PAGE> 9
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The loss from operation of the imaging business for the nine months
ended September 30, 1998 and 1997, includes the periods from January 1
through October 21, 1998 (the measurement date) and January 1 through
September 30, 1997. As of September 30, 1998 and December 31, 1997, net
assets of $2,848,425 and $4,024,340, respectively, including inventory,
accounts receivable and equipment, net of product warranty liability,
were reported as net assets of discontinued operations on the balance
sheet.
RFID TECHNOLOGY
(3) On September 9, 1998, AXCESS Inc. (the "Company") consummated
the acquisition of the RF-ID based (Radio Frequency Identification)
intellectual property assets of ASGI, Inc. and Nauta, Inc.
(collectively, the "Sellers"). The intellectual property assets
included a patent, trade secret rights, software, hardware, product
designs and all other technical information necessary for the Company
to manufacture and market radio frequency identification products in
the areas of access control and asset management. The Company
accomplished the asset acquisition pursuant to an Asset Purchase
Agreement dated September 9, 1998, by and among the Company and the
Sellers. The aggregate purchase price for this acquisition of up to
$7,100,000 was determined as a result of arm's length negotiations
between the Company and the Sellers. At closing, the Company made a
cash payment of $415,000, signed a promissory note for $685,000 and
delivered 400,000 shares of its common stock. Up to an aggregate of
$6,000,000 is payable by the Company to Sellers only if certain net
operating profit targets are realized during each of the next 5 years.
The Company restructured its obligations to XL Vision, Inc. under the
terms of an Amended and Restated Intellectual Property Transfer
Agreement to finance this acquisition of technology assets from the
Sellers. When the promissory notes and contingent payments become due,
the Company anticipates making payments from its existing cash reserves
derived from the manufacture and sale of access control products.
A small portion of the assets acquired constitute equipment and other
physical property used in the production of access control products.
These assets will be further developed and enhanced by the Company in
connection with its efforts to develop and market access control
products which utilize the RF-ID based intellectual property assets.
(4) EARNINGS PER SHARE
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), Earnings Per Share, in the fourth
quarter of 1997, which requires companies to present basic earnings per
share and diluted earnings per share. Basic earnings per share is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company restated its
September 30, 1997, per share calculations for the respective periods
to reflect the retroactive adoption of SFAS 128.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130
("SFAS 130"), Reporting Comprehensive Income, was issued. SFAS 130
establishes standards for reporting and displaying comprehensive income
and its components in an annual financial statement that is displayed
with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods is
required if provided for comparative purposes. The statement also
requires the accumulated balance of other comprehensive income to be
displayed separately from retained earnings and additional
paid-in-capital in the equity section of the statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after
December 31, 1997. The adoption of this statement has no effect on the
Company for the quarters ended September 30, 1998 and 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 is effective for annual reporting
for fiscal years beginning after December 15, 1997. The initial
application of SFAS 131 for interim financial statements is required
for fiscal year 1999. This statement establishes standards for the way
that public companies report information about segments in annual and
interim financial statements. The effective adoption of SFAS 131 is not
expected to have a material impact on the Company's financial
statements and related disclosures.
(6) ISSUANCE OF COMMON STOCK
During the quarter ended September 30, 1998, a total of 400,000 shares
of AXCESS common stock were issued in connection with the acquisition
of the RFID technology assets from ASGI, Inc.
(7) ISSUANCE OF PREFERRED STOCK AND FINANCING COMMITMENT
During the quarter ended September 30, 1998, Amphion Ventures L.P.
purchased 396 shares of the Company's Series H Convertible Preferred
Stock at its stated value of $10,000 per share for a total aggregate
purchase price of $3,960,000. The purchase price was payable primarily
by the delivery of unconditional promissory notes payable to the
Company by Amphion Ventures L.P., the balance of which was $2,505,000
as of September 30, 1998.
(8) CONTINGENCIES
On February 28, 1996, an investor group filed suit against the Company
in the United States District Court for the Southern District of New
York. This lawsuit arises out of the Company's refusal to recognize the
investor group's attempt to exercise an option to purchase 70,000
shares of the Company's common stock at a price of $9.90 per share. The
option had been granted to the Company's former President and CEO who
attempted to transfer his option to the investor group on the last day
of the option term in September of 1995. On that same day, the investor
group attempted to exercise the option. The Company refused to
recognize the attempted transfer of the option to the investor group on
the primary grounds that the option was granted personally to the
Company's former President and CEO and was not transferable to
third-parties. The lawsuit seeks issuance and registration of the
70,000 shares upon payment of the exercise price, or in the
alternative, monetary damages, which the investor group alleges to be
not less than $2,800,000. On December 31, 1997, Plaintiffs moved for
partial summary judgment on the question of liability, as to whether or
not the option was assignable. The Company filed papers opposing this
motion on or about January 26, 1998. On September 30, 1998, the court
granted Plaintiffs' partial summary judgment after determining that the
option was assignable. The Company intends to vigorously oppose the
amount of damages claimed by the Plaintiffs. However, there can be no
assurances that the Company will prevail in the pending litigation, and
an adverse outcome could have a material adverse effect upon the
financial position and liquidity of the Company.
The Company is involved in other various claims and legal actions
arising in the ordinary course of business. Estimated legal and
litigation costs are reflected in the accompanying financial
statements. In the opinion of management of the Company, the ultimate
disposition of these matters will not have a material effect on the
accompanying condensed consolidated financial statements.
7
<PAGE> 10
<PAGE> 11
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(9) SUBSEQUENT EVENT
In November 1998, the Company executed a sale-leaseback transaction for
LMC's headquarters building in Albuquerque, New Mexico, which generated
cash proceeds of $730,000. As part of the transaction, the Company's
obligation to the City of Albuquerque under related industrial revenue
bonds has been terminated.
8
<PAGE> 12
AXCESS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On October 21, 1998, the Company's Board of Directors approved a plan to exit
the imaging business. On November 16, 1998, the Company announced that it had
discontinued operations of the imaging business and had entered into discussions
with a prospective buyer to sell the imaging business. Accordingly, the imaging
business has been accounted for as a discontinued operation for all periods
presented. The discontinuance and sale of the imaging business advances the
Company's plan to redeploy and refocus its resources on its core RFID (Radio
Frequency Identification) and biometric-based access control and asset
management solutions business. In September, the Company acquired the
intellectual property assets of ASGI, Inc. to market and manufacture RFID-based
access control and asset management solutions. The Company is developing new,
unique product lines which incorporate the RFID technology with the Company's
existing biometric technology. As these new product lines had no sales or
operations other than research and development activities during the nine months
ended September 30, 1998, the Company's only operating segment at September 30,
1998 was the marking business (Lasertechnics Marking Corporation, or "LMC", of
Albuquerque, New Mexico).
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Marking Consolidated Marking Consolidated
(LMC) (AXCESS) (LMC) (AXCESS)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ............................................ $ 620,062 $ 620,062 $ 1,525,387 $ 1,525,387
Cost of sales .................................... 717,445 717,445 1,024,676 1,024,676
------------ ------------ ------------ ------------
Gross profit ................................ $ (97,383) $ (97,383) 500,711 500,711
------------ ------------ ------------ ------------
Expenses:
Research and development .................... 234,304 784,304 222,595 222,595
General and administrative .................. 278,645 1,438,416 569,909 1,497,263
Selling and marketing ....................... 257,058 257,058 268,872 268,872
------------ ------------ ------------ ------------
Total operating expenses .................. 770,007 $ 2,479,778 $ 1,061,376 1,988,730
------------ ------------ ------------ ------------
Loss from operations ...................... (867,390) (2,577,161) (560,665) (1,488,019)
------------ ------------ ------------ ------------
Other expense, net ........................ $ (26,629) $ (144,905) $ (119,326) $ (380,829)
------------ ------------ ------------ ------------
Loss from continuing operations ........... (894,019) (2,722,066) (679,991) (1,868,848)
Discontinued operation:
Loss from operations, net of income
taxes ..................................... - (993,644) - (2,437,414)
------------ ------------ ------------ ------------
Loss on disposal of discontinued
operation, net of income taxes ........ - (750,000) - -
------------ ------------ ------------ ------------
Loss from discontinued operation ........ - (1,743,644) - (2,437,414)
------------ ------------ ------------ ------------
Net loss before preferred dividends ....... $ (894,019) $ (4,465,710) $ (679,991) $ (4,306,252)
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
9
<PAGE> 13
AXCESS INC. AND SUBSIDIARIES
Consolidated sales for the three months ended September 30, 1998, were $620,062,
representing a decrease of $905,325 or 59.4% from the three months ended
September 30, 1997. All sales were generated from the operation of the Company's
laser marking business through its LMC subsidiary. Approximately 21% of the
decrease in sales was attributable to a decline in foreign sales. The balance of
the decrease was caused by the decrease in demand for LMC's existing line of
laser marking products. LMC has formed a strategic partnership with Rofin-Sinar
UK to develop new laser marking technology. Because the marketplace is aware of
this alliance and, accordingly, anticipates the release of a new laser marking
product line which incorporates the new technology, sales of existing product
lines have been adversely affected. The Company's ability to improve sales in
the marking business and to generate sales in its new RFID-based access control
and asset management business, may be adversely affected by the volatility of
market demand, competition and technological innovations.
Consolidated cost of sales, all of which was attributable to the laser marking
business was $717,445 for the three months ended September 30, 1998,
representing a decrease of $307,231 or 30% from the three months ended September
30, 1997. The decrease was a direct result of the decrease in sales. Gross
margin as a percentage of sales decreased in the third quarter of 1998 to
(15.7%) from 32.8% for the same period in 1997. The decrease in gross margin for
the three months ended September 30, 1998, was due to a $350,000 increase in the
cost of sales for the three months ended September 30, 1998, from an inventory
write-down of existing laser marking inventory that does not incorporate the new
technology described above.
Consolidated research and development expense were $784,304 for the three months
ended September 30, 1998, representing an increase of $561,709 or a 252.3%
increase over the three months ended September 30, 1998. Substantially all of
the increase was due to the expenditures for new product development costs
associated with the Technology Development Agreement with XL Vision, Inc., a
Safeguard Scientific partnership company.
Consolidated general and administrative expenses for the three months ended
September 30, 1998, were $1,438,416, representing a decrease of $58,847 or 3.9%
from the three months ended September 30, 1997.
Consolidated selling and marketing expenses for the three months ended September
30, 1998, were $257,058, representing a decrease of $11,814 or 4.4% from the
three months ended September 30, 1997. This decrease was the result of lower
sales during the current period.
Other expense, net, decreased 62% from $380,829 for the three months ended
September 30, 1997 to $144,905 for the three months ended September 30, 1998
primarily as a result of lower interest expense, as the beneficial conversion
features of the Company's convertible notes payable was fully accreted to
interest expense during 1997.
The consolidated loss from continuing operations for the three months ended
September 30, 1998, was $2,722,066, compared to the $1,868,848 loss incurred in
the same period of 1997 for an increase of $853,218 or 45.7%. The key components
of the increased loss are the $598,094 decline in gross profit of the laser
marking business and increased research and development expenses of $561,709,
offset by interest expense which decreased by $409,085.
The loss from discontinued operations was $1,743,644 for the three months ended
September 30, 1998, a decrease of $693,770 from the same period in 1997. The
loss from operation of the discontinued imaging business improved by $1,443,770
from $2,437,414 for the three months ended September 30, 1997 to $993,644 for
the comparable period in 1998, primarily due to a reduction in selling and
marketing expenses. The loss on disposal of $750,000 was recorded during the
three months ended September 30, 1998.
Net loss before preferred dividends was $4,465,710 for the three months ended
September 30, 1998, compared to $4,306,262 for the three months ended September
30, 1997, an increase of $159,448 or 3.7%. The $693,770 lower loss from
discontinued operation offset part of the $853,218 increased loss from
continuing operations.
10
<PAGE> 14
AXCESS INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Marking Consolidated Marking Consolidated
(LMC) (AXCESS) (LMC) (AXCESS)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ............................................ $ 4,410,529 $ 4,410,529 $ 5,227,648 $ 5,227,648
Cost of sales .................................... 3,125,969 3,125,969 3,135,789 3,135,789
------------ ------------ ------------ ------------
Gross profit .................................. $ 1,284,560 $ 1,284,560 2,091,859 2,091,859
------------
Gross margin % 29% 29% 40% 40%
Expenses:
Research and development .................... 733,852 2,983,852 747,377 747,377
General and administrative .................. 995,877 4,153,084 1,372,282 3,912,620
Selling and marketing ....................... 823,163 823,163 967,552 967,552
------------ ------------ ------------ ------------
Total operating expenses ................. 2,552,892 $ 7,960,099 $ 3,087,211 5,627,549
------------ ------------ ------------ ------------
Loss from operations ..................... (1,268,332) (6,675,539) (995,352) (3,535,690)
------------ ------------ ------------ ------------
Other expense, net ............................... $ (86,675) $ (519,435) $ (224,333) $ (1,251,585)
------------ ------------ ------------ ------------
Loss from continuing operations .................. (1,355,007) (7,194,974) (1,219,685) (4,787,255)
Discontinued operation:
Loss from operations, net of income
taxes ........................................ - (2,526,513) - (3,889,644)
------------ ------------ ------------
Loss on disposal of discontinued
operation, net of income taxes ................ - (750,000) - -
------------ ------------
Loss from discontinued operation ............ - (3,276,513) - (3,889,644)
------------ ------------ ------------ ------------
Net loss before preferred dividends ......... $ (1,355,007) $(10,471,487) $ (1,219,685) $ (8,676,899)
============ ============ ============ ============
</TABLE>
Consolidated sales, wholly attributable to the laser marking business, were
$4,410,529 for the nine months ended September 30, 1998, representing a decrease
of $817,118 or a 15.6% decrease from the nine months ended September 30, 1997.
Approximately $1,272,000 is due to a decrease in system sales, which was caused
by a overall slow down in sales in Southeast Asia during the third quarter of
1998. This decrease was partially offset by $454,610 from after-market sales.
The Company's ability to improve future sales in the marking business, and to
generate sales in its new RFID-based access control and asset management
solutions business, may be adversely affected by the volatility of market
demand, competition and technological innovations.
Consolidated cost of sales for the nine months ended September 30, 1998, was
$3,125,969, representing a decrease of $9,820 or a 0.3% decrease from the first
nine months of 1997. This decrease was attributable to the decrease in sales
from the laser marking business. Gross margin as a percentage of sales decreased
in the third quarter of 1998 to 29% from 40% for the same period in 1997. The
decrease in gross margin for the nine months ended September 30, 1998, was due
to a $350,000 increase in the cost of sales for the three months
11
<PAGE> 15
AXCESS INC. AND SUBSIDIARIES
ended September 30, 1998, from an inventory write-down of existing laser marking
inventory that does not incorporate the new technology described in the three
month comparison above.
Consolidated research and development expenses were $2,983,852 for the nine
months ended September 30, 1998, representing an increase of $2,236,475 or 299%
over the first nine months of 1997. Substantially all of the increase was due to
the expenditures for new product development costs associated with the
Technology Development Agreement with XL Vision, Inc., a Safeguard Scientific
partnership company.
Consolidated general and administrative expenses for the nine months ended
September 30, 1998 totaled $4,153,084, an increase of $240,464, or 5.8%, from
the same period a year earlier, primarily as a result of legal expenses and
litigation-related provisions.
Selling and marketing expenses, wholly attributable to the marking business,
decreased by $144,389, or 14.9%, from $967,552 for the nine months ended
September 30, 1997 to $823,163 for the same period in 1998. The reduction is
consistent with the 15.6% decline in sales during the same time period.
Other expense, net, was $519,435 for the nine months ended September 30, 1998,
compared to $1,251,565 during the same period in 1997. The decrease of $732,130
included $656,595 in reduced interest expense, as the beneficial conversion
features of the Company's convertible notes payable was fully accreted to
interest expense during 1997.
The loss from continuing operations for the nine months ended September 30, 1998
was $7,194,974, an increase of $2,407,719 compared to the nine months ended
September 30, 1997. The primary elements of the increased loss are the
additional $2,236,745 of research and development costs associated with the XL
Vision, Inc.
technology development and sales decline in the marking business.
Loss from discontinued operation decreased $613,131 to $3,276,513 for the nine
months ended September 30, 1998 from $3,889,644 for nine months ended September
30, 1997. The loss from operation of the discontinued imaging business decreased
$1,363,131, primarily due to reduced selling and marketing expenses. The loss on
disposal of $750,000 was recorded in the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has utilized the proceeds from a number of
public and private sales of its equity and debt securities and the exercise of
options and warrants to meet its working capital requirements.
Cash and cash equivalents decreased $1,579,401 at September 30, 1998 compared
to December 31, 1997. Financing activities generated net cash of $7,965,166
principally from the sale of preferred stock. Operating activities used net
cash principally to support the loss from continuing operations before
preferred dividends, the loss from discontinued operation, the acquisition of
the RFID technology, plus decreases in accounts payable and accrued
liabilities. Capital expenditures amounted to $226,109 compared to $44,264 for
the same period in 1997.
The Company's future working capital requirements will depend upon many factors,
including the extent and timing of the Company's existing product sales, its
ability to grow the RFID business, the Company's operating results and the
status of competitive products. In addition, if the Company elects to continue
to acquire the document reader, digital camera and dithering technology that it
has a right to acquire from XL Vision, Inc. ("XLV") under the terms of the
Intellectual Property Transfer Agreement by and between the Company and XLV, the
Company will be obligated to pay XLV an additional $550,000. Although the
Company's actual working capital needs depend upon numerous factors, including
actual expenditures and revenues generated from its operations as compared to
its business plan, the Company does not anticipate that its existing working
capital resources and revenues from operations will be adequate to satisfy its
working capital requirements for the remainder of the year. The Company received
more than $11 million of new financing, in the form of convertible preferred
stock purchases, from an existing institutional investor (See Note 6 to Notes to
Unaudited
12
<PAGE> 16
AXCESS INC. AND SUBSIDIARIES
Condensed Consolidated Financial Statements included herein) during the first
nine months of 1998. This same institutional investor has continued to provide
funding sufficient to meet the Company's needs through the date of this filing
and has committed to provide the balance of the Company's 1998 funding needs. In
addition, the Company closed on the sale-leaseback of LMC's headquarters
facility in Albuquerque, New Mexico in November, which generated cash of
$730,000 and released the Company from its obligations under the City of
Albuquerque's industrial revenue bonds. In 1999 the Company's primary liquidity
need will either be for working capital to support revenue growth or to fund
operating losses until there is sufficient revenue growth. The Company is
pursuing lending sources to obtain a working capital facility to support
expected revenue growth and believes the existing institutional investor will
continue to provide capital until the Company actually obtains such working
capital facility. There can be no assurance however, that the Company will be
successful in obtaining such lending facilities or capital.
YEAR 2000 COMPLIANCE
The Company's management recognizes the need to ensure that its
operations and relationships with vendors, customers and other third parties
will not be adversely impacted by the Year 2000 issue. The Year 2000 problem is
a result of computer programs being written using two digits rather than four to
define the applicable year. Based on its assessment, the Company determined a
portion of its software and certain hardware will require modification or
replacement so that those systems will properly utilize dates beyond December
31, 1999. The Company's assessment indicated that its significant information
technology systems would not be affected.
The Company has also established a program to review its product line
and identify date-sensitive inventory and the level of Year 2000 compliance that
the part supports. This program is to ensure that customers receive products
that are Year 2000 compliant, or at a minimum, are made aware of products that
are not compliant. The Company also depends on the systems of its suppliers and
customers. Consequently, the Company is in the process of receiving adequate
assurances from its suppliers and customers that those systems on which the
Company relies are or will be Year 2000 compliant before the end of 1999.
To the extent possible, the Company will develop and implement
contingency plans designed to allow continued operations in the event of failure
of the Company's or third party systems to be Year 2000 compliant. These
contingency plans have not yet been developed, but are expected to be developed
and implemented by the end of 1999.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. Further,
the failure of the Company or third parties upon which the Company relies, to
identify Year 2000 issues and successfully and timely resolve them could have a
material adverse impact on the operations of the Company.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The Company occasionally makes forward-looking statements concerning its plans,
goals, product and service offerings, and anticipated financial performance.
These forward-looking statements may generally be identified by introductions
such as "outlook" for an upcoming period of time, or words and phrases such as
"should", "expect", "hope", "plans", "projected", "believes", "forward-looking"
(or variants of those words and phrases) or similar language indicating the
expression of an opinion or view concerning the future.
These forward-looking statements are subject to risks and uncertainties based on
a number of factors and actual results or events may differ materially from
those anticipated by such forward-looking statements. These factors include, but
are not limited to: the ability to raise capital; the growth rate of the
Company's revenue and market share; the consummation of new, and the
non-termination of, existing relationships with customers and suppliers; the
Company's ability to effectively manage its business functions while growing the
Company's business in a rapidly changing environment; the ability of the Company
to adapt and expand its services in such an environment; the effective and
efficient development of new products; and the quality of the Company's plans
and strategies, and the ability of the Company to execute such plans and
strategies.
13
<PAGE> 17
AXCESS INC. AND SUBSIDIARIES
In addition, forward-looking statements concerning the Company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the Company has no control. The Company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward-looking statements should not be
considered to be "fresh" simply because the Company has not made additional
comments on those forward-looking statements. See "Cautionary Statements" in the
Company's Form 10-KSB for the period ended December 31, 1997.
SHARES ELIGIBLE FOR FUTURE SALE; CONVERTIBLE SECURITIES AND WARRANTS
Future sales of common stock in the public market by existing stockholders,
warrant holders and holders of convertible securities subsequent to the date
hereof could adversely affect the market price of AXCESS' common stock. At
September 30, 1998, an aggregate of approximately 1,706,855 shares of Common
Stock were freely tradable without restriction under the Securities Act of 1933
(the "Securities Act"). In addition, up to 772,573 shares were eligible for
resale in accordance with the manner of sale and volume limitations of Rule 144
promulgated under the Securities Act.
As of September 30, 1998, there were 57,692, 52,817 and 35,427 shares of Series
A, B and C convertible preferred stock outstanding, respectively. Each share of
Series A, B and C convertible preferred stock is convertible at any time, at the
option of the holder, into one share of common stock. As of September 30, 1998,
there were 995 and 792 shares of Series G and Series H convertible preferred
stock outstanding, respectively. Each share of Series G and H convertible
preferred stock has a stated value of $10,000 per share. Shares of the Series G
convertible preferred stock are convertible at any time, at the option of the
holder, into common stock based upon a conversion price of $4.00 per share.
Shares of the Series H convertible preferred stock are convertible at any time,
at the option of the holder, into non-voting common stock based on a conversion
price of $4.00 per share.
A note payable, in the principal amount of $535,205 with final maturity of
January 15, 2000, will become convertible anytime after January 15, 1999 at a
conversion price of $5.00 per share.
There are currently 355,004 warrants outstanding to acquire the same number of
shares of common stock. AXCESS has reserved approximately 500,000 shares of
Common Stock for issuance upon the exercise of outstanding convertible
securities and warrants. AXCESS has also reserved approximately 1,050,000 shares
of Common Stock for issuance to key employees, officers, directors and
consultants pursuant to the Company's benefit plans.
14
<PAGE> 18
AXCESS INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Company's report on Form 10-QSB for the period
ended March 31, 1998, on February 28, 1996, an investor group filed suit against
the Company in the United States District Court for the Southern District of New
York. This lawsuit arises out of the Company's refusal to recognize the investor
group's attempt to exercise an option to purchase 70,000 shares of the Company's
common stock at a price of $9.90 per share. The option had been granted to the
Company's former President and CEO who attempted to transfer his option to the
investor group on the last day of the option term in September of 1995. On that
same day, the investor group attempted to exercise the option. The Company
refused to recognize the attempted transfer of the option to the investor group
on the primary grounds that the option was granted personally to the Company's
former President and CEO and was not transferable to third-parties. The lawsuit
seeks issuance and registration of the 70,000 shares upon payment of the
exercise price, or in the alternative, monetary damages, which the investor
group alleges to be not less than $2,800,000. On May 1, 1996 the Company moved
to dismiss the complaint on the grounds that the court in New York lacked
personal jurisdiction over the Company. The court denied the motion to dismiss
by order dated June 10, 1997. Subsequently, the Company filed an answer, denying
the material allegations of the complaint and asserting various defenses. On
December 31, 1997, Plaintiffs moved for partial summary judgment on the question
of liability, as to whether or not the option was assignable. The Company filed
papers opposing this motion on or about January 26, 1998. On September 30, 1998,
the court granted Plaintiffs' partial summary judgment after determining that
the option was assignable. The Company intends to vigorously oppose the amount
of damages claimed by the Plaintiffs. However, there can be no assurances that
the Company will prevail in the pending litigation, and an adverse outcome could
have a material adverse effect upon the financial position and liquidity of the
Company.
On September 17, 1998, the Plaintiffs filed a separate suit against
Amphion Ventures L.P., Antiope Partners L.L.C., J.P. Morgan Investment
Corporation and two of the Company's directors, Richard C.E. Morgan and Seth
Cunningham, which asserts claims for tortious interference by these Defendants
in connection with the investor group's attempt to exercise the option described
above. The Defendants believe these claims are without merit and intend to
vigorously defend these claims.
ITEM 2. CHANGES IN SECURITIES.
During the third quarter of 1998, the Company issued unregistered securities in
connection with each of the transactions described below.
The issuance of preferred stock and common stock were exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) thereof as a transaction not involving a public offering and an
appropriate restrictive legend was affixed to the certificates and warrants.
Amphion Ventures L.P. purchased 396 shares of Series H Convertible Preferred
Stock (the "Series H Preferred Stock") during the three month period ended
September 30, 1998, for an aggregate purchase price of $3,960,000. The
purchase price was payable primarily by the delivery of unconditional promissory
notes payable to the Company by Amphion Ventures L.P., the balance of which was
$2,505,000 as of September 30, 1998.
Each share of Series H Preferred Stock is convertible in whole or in part at any
time at the option of the holder into shares of non-voting common stock of the
Company equal to the quotient of (i) the aggregate original Series H Preferred
Stock issue price of the shares ($10,000/share) being divided by (ii) the
15
<PAGE> 19
AXCESS INC. AND SUBSIDIARIES
conversion price, which is currently $4.00 and is subject to adjustment from
time to time. Although the Company's non-voting common stock may be converted to
common stock at any time by a holder thereof, Amphion Ventures L.P. has agreed
not to convert any shares of non-voting common stock to common stock until the
Company has issued 500,000 shares of common stock to XL Vision, Inc. under the
terms of the Technology Development Agreement by and between the Company and XL
Vision, Inc. unless Amphion Ventures L.P. receives the prior written consent of
the Company.
The Company issued 400,000 shares of restricted common stock to ASGI,
Inc. and Nauta, Inc., in connection with the acquisition by the Company of
certain intellectual property assets from those companies.
See Exhibits and Reports on Form 8-K below.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As contemplated in the Company's Proxy Statement which was mailed to
stockholders beginning June 23, 1998, the Company's stockholders elected Richard
C.E. Morgan, Harry S. Budow, Jean-Pierre Arnaudo, Eugene A. Bourque, Richard M.
Clarke, Paul J. Coleman, Jr., C. Seth Cunningham and Gregory W. Haskell as
directors of the Company to serve until the next annual meeting of stockholders.
The Company's stockholders also considered the following proposals:
1. To ratify the selection of KPMG Peat Marwick LLP as the independent
auditor of the Company for the year ending December 31, 1998;
2. To consider and vote on the Director Compensation Plan;
3. To amend the Stock Option Plan to increase the number of authorized
shares thereunder from 50,000 to 900,000;
4. To issue up to 1,000,000 shares of the Company's common stock to XL
Vision, Inc., in connection with the terms of the Intellectual Property
Transfer Agreement dated as of January 7, 1998, by and between the
Company and XLV; and
5. To issue more than twenty percent of the Company's common stock at a
per share price potentially less than the per share market price on the
date of issuance to holders of the Company's Series G Preferred Stock
upon conversion of such preferred stock by the holders thereof.
Each of the foregoing proposals, including the election of directors,
were approved at the Company's annual meeting of stockholders on July 21, 1998.
Each board nominee received the number of votes indicated below.
<TABLE>
Number of Votes Cast Number of Votes Cast
Nominee for Election Against or Withheld
------- ------------ -------------------
<S> <C> <C>
Richard C.E. Morgan 3,071,659 319,222
Harry S. Budow 3,071,641 319,222
Jean-Pierre Arnaudo 3,071,591 319,272
Eugene A. Bourque 3,071,591 319,272
Richard M. Clarke 3,071,581 319,282
Paul J. Coleman, Jr. 3,071,591 319,272
</TABLE>
16
<PAGE> 20
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Number of Votes Cast Number of Votes Cast
Nominee for Election Against or Withheld
------- ------------ -------------------
<S> <C> <C>
C. Seth Cunningham 3,071,641 319,222
Gregory W. Haskell 3,071,641 319,222
</TABLE>
With respect to the approval of Proposal 1 described above, the votes
cast and against, as well as the number of abstentions were as follows:
<TABLE>
<CAPTION>
<S> <C>
For 3,363,580
Against 35,282
Abstentions 53,172
</TABLE>
With respect to the approval of Proposal 2 described above, the votes
cast for and against, as well as the number of abstentions were as follows:
<TABLE>
<CAPTION>
<S> <C>
For 2,024,967
Against 100,373
Abstentions 298,697
</TABLE>
With respect to the approval of Proposal 3 described above, the votes
cast for and against, as well as the number of abstentions were as follows:
<TABLE>
<CAPTION>
<S> <C>
For 2,145,801
Against 102,876
Abstentions 144,089
</TABLE>
With respect to the approval of Proposal 4 described above, the votes
cast for and against, as well as the number of abstentions were as follows:
<TABLE>
<CAPTION>
<S> <C>
For 2,306,521
Against 64,870
Abstentions 18,742
</TABLE>
With respect to the approval of Proposal 5 described above, the votes
cast for and against, as well as the number of abstentions were as follows:
<TABLE>
<CAPTION>
<S> <C>
For 2,261,080
Against 106,804
Abstentions 25,304
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
3.1 --Certificate of Incorporation of the Company.
Incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 2-80946).
</TABLE>
17
<PAGE> 21
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
3.2 --By-laws of AXCESS. Incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (Registration No. 2-80946).
3.3 --First Amendment to Certificate of Incorporation of
AXCESS dated June 6, 1986. Incorporated herein by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-QSB for the year ended December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of
AXCESS, dated May 27, 1987. Incorporated herein by
reference to Exhibit 3.4 to the Company's Annual Report on
Form 10-QSB for the year ended December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of
AXCESS, dated November 11, 1994. Incorporated herein by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of
AXCESS, dated July 28, 1995. Incorporated herein by
reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of
AXCESS, dated June 17, 1996. Incorporated herein by
reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.8 --Sixth Amendment to Certificate of Incorporation of
AXCESS dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.1 to the Company's Report on Form
8-K dated April 13, 1998.
3.9 --Seventh Amendment to Certificate of Incorporation of
AXCESS dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.2 to the Company's Report on Form
8-K dated April 13, 1998.
3.10 --Eighth Amendment to Certificate of Incorporation of
AXCESS dated April 9, 1998. Incorporated herein by
reference to Exhibit 99.3 to the Company's Report on Form
8-K dated April 13, 1998.
4.1 --Certificate of Designation of the Company's Series A, B
and C Preferred Stock, dated December 27, 1995.
Incorporated herein by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-3 (Registration
No. 333-10665).
4.2 --Certificate of Designation of the Company's Series G
Preferred Stock. Incorporated herein by reference to
Exhibit 4.5 to the Company's Annual Report on Form 10-QSB
for the year ended December 31, 1997.
4.3 --Certificate of Designation of the Company's Series H
Preferred Stock. Incorporated herein by reference to
Exhibit 4.3 to the Company's Quarterly Report on Form
10-QSB for the three month period ended March 31, 1998.
10.1 --License agreement, dated June 30, 1988, between the
Company and Poodles Corporation. Incorporated herein by
reference to Exhibit 10.17 to the Company's Annual Report
on Form 10-QSB for the year ended December 31, 1988.
</TABLE>
18
<PAGE> 22
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
10.2 --1991 Incentive Stock Option Plan, dated August 14, 1991.
Incorporated herein by reference to Exhibit 10.10 to Laser
technics' Annual Report on Form 10-QSB for the year ended
December 31, 1991.
10.3 --Purchase Agreement between Sandia Europe and Jean-Luc
Poutchnine, Alain Quilleau and Philippe Bonnevie, dated
March 4, 1994. Incorporated herein by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-QSB for
the year ended December 31, 1994.
10.4 --Letter confirming sale of shares of AXCESS Common Stock
to Singapore Precision Industries PTE LTD, dated May 12,
1994. Incorporated herein by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-QSB for the year
ended December 31, 1994.
10.5 --Advisory and investment banking services agreement
between AXCESS and Wolfensohn International, Inc., dated
May 19, 1993. Incorporated herein by reference to Exhibit
10.18 to the Company's Annual Report on Form 10-QSB for
the year ended December 31, 1994.
10.6 --Purchase of Common Stock and Convertible Note Agreement
between the Company and J.P. Morgan Investment
Corporation, dated July 8, 1994. Incorporated herein by
reference to Exhibit 10.19 to the Company's Annual Report
on Form 10-QSB for the year ended December 31, 1994.
10.7 --OEM License Agreement between Sandia and Xerox
Corporation, dated January 6, 1995. Incorporated herein by
reference to Exhibit 10.20 to the Company's Annual Report
on Form 10-QSB for the year ended December 31, 1994.
10.8 --Demand Promissory Note issued to J.P. Morgan Investment
Corporation, dated December 19, 1994. Incorporated herein
by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-QSB for the year ended December 31,
1994.
10.9 --Demand Promissory Note issued to J.P. Morgan Investment
Corporation, dated December 31, 1994. Incorporated herein
by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-QSB for the year ended December 31,
1994.
10.10 --Amendment to the OEM License Agreement between Sandia
and Xerox Corporation, dated December 27, 1996.
Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-QSB for the year ended
December 31, 1996.
10.11 --Demand Promissory Note issued to Wolfensohn Associates
L.P., dated March 27, 1997. Incorporated by reference to
Exhibit 10.13 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.12 --Warrant to purchase shares of the Company's Common Stock
issued to Wolfensohn Associates L.P., dated March 27,
1997. Incorporated by reference to Exhibit 10.14 to the
Company's Quarterly Report on Form 10-QSB for the period
ended September 30, 1997.
</TABLE>
19
<PAGE> 23
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
10.13 --Note Purchase Agreement dated June 25, 1997, by and
among AXCESS, J.P. Morgan Investment Corporation and
Wolfensohn Associates L.P. Incorporated by reference to
Exhibit 10.15 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.14 --Intellectual Property Transfer Agreement dated January
8, 1998, by and between XL Vision, Inc. and Sandia Imaging
Systems Corporation. Incorporated herein by reference to
Exhibit 10.15 to the Company's Annual Report on Form
10-QSB for the year ended December 31, 1997.
10.15 --Amendment to Notes and Note Purchase Agreement dated
December 31, 1997, by and among the Company, Antiope
Partners L.L.C. and J.P. Morgan Investment Corporation.
Incorporated herein by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-QSB, as amended, for
the year ended December 31, 1997.
10.16 --Series G Preferred stock Purchase Agreement dated
December 29, 1997, by and between the Company and Amphion
Ventures L.P. Incorporated herein by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-QSB, as
amended, for the year ended December 31, 1997.
10.17 --Pledge Agreement dated August 18, 1997, by and among the
Company, Antiope Partners L.L.C. and J.P. Morgan
Investment Corporation. Incorporated herein by reference
to Exhibit 10.18 to the Company's Annual Report on Form
10-QSB, as amended, in the year ended December 31, 1997.
10.18 --Preferred Stock Exchange Agreement dated January 8,
1998, by and among the Company, Antiope Partners L.L.C.
and H.T. Ardinger. Incorporated herein by reference to
Exhibit 10.19 to the Company's Annual Report on Form
10-QSB, as amended, in the year ended December 31, 1997.
10.19 --Form of Warrant to purchase shares of the Company's
Common Stock issued to Antiope Partners L.L.C. and Amphion
Ventures L.P. Incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-QSB, as
amended, in the year ended December 31, 1997.
10.20 --Settlement Agreement dated as of April 21, 1998, by and
between the Company and Xerox Corporation. Incorporated
herein by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-QSB, as amended, in the year
ended December 31, 1997.
10.21 --Series H Preferred stock Purchase Agreement dated March
27, 1998, by and between the Company and Amphion Ventures
L.P. Incorporated herein by reference to Exhibit 10.21 to
the Company's Quarterly Report on Form 10-QSB for the
three month period ended March 31, 1998.
10.22 --Form of Promissory Note executed by Amphion Ventures
L.P. payable to the Company. Incorporated herein by
reference to Exhibit 10.22 to the Company's Quarterly
Report on Form 10-QSB for the three month period ended
March 31, 1998.
</TABLE>
20
<PAGE> 24
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
10.23 --Promissory Note executed by the Company payable to
Amphion Ventures L.P. Incorporated herein by reference to
Exhibit 10.23 to the Company's Quarterly Report on Form
10-QSB for the three month period ended March 31, 1998.
27 --Financial Data Schedule.*
</TABLE>
----------------
*Filed herewith.
B. REPORTS ON FORM 8-K
A report on Form 8-K was filed by the Company on September 23, 1998,
reporting that during September, 1998, the Company acquired certain RF-ID
(Radio-Frequency Identification) technology assets from ASGI, Inc. and Nauta,
Inc. The intellectual property assets included a patent, trade secret rights,
software, hardware, product designs and all other technical information
necessary for the Company to manufacture and market radio frequency
identification products in the areas of access control and asset management.
21
<PAGE> 25
AXCESS INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AXCESS, INC.
Date: November 16, 1998 By: /s/ Danny G. Hair
-----------------------------------------------
Danny G. Hair, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
22
<PAGE> 26
AXCESS INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------ -----------
<S> <C>
3.1 --Certificate of Incorporation of the Company. Incorporated herein
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (Registration No. 2-80946).
3.2 --By-laws of AXCESS. Incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1
(Registration No. 2-80946).
3.3 --First Amendment to Certificate of Incorporation of AXCESS dated
June 6, 1986. Incorporated herein by reference to Exhibit 3.3 to
the Company's Annual Report on Form 10-QSB for the year ended
December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of AXCESS,
dated May 27, 1987. Incorporated herein by reference to Exhibit
3.4 to the Company's Annual Report on Form 10-QSB for the year
ended December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of AXCESS, dated
November 11, 1994. Incorporated herein by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-3 (Registration
No. 333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of AXCESS,
dated July 28, 1995. Incorporated herein by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-3
(Registration No. 333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of AXCESS, dated
June 17, 1996. Incorporated herein by reference to Exhibit 4.6 to
the Company's Registration Statement on Form S-3 (Registration No.
333-10665).
3.8 --Sixth Amendment to Certificate of Incorporation of AXCESS dated
March 31, 1998. Incorporated herein by reference to Exhibit 99.1
to the Company's Report on Form 8-K dated April 13, 1998.
3.9 --Seventh Amendment to Certificate of Incorporation of AXCESS
dated March 31, 1998. Incorporated herein by reference to Exhibit
99.2 to the Company's Report on Form 8-K dated April 13, 1998.
3.10 --Eighth Amendment to Certificate of Incorporation of AXCESS dated
April 9, 1998. Incorporated herein by reference to Exhibit 99.3 to
the Company's Report on Form 8-K dated April 13, 1998.
4.1 --Certificate of Designation of the Company's Series A, B and C
Preferred Stock, dated December 27, 1995. Incorporated herein by
reference to Exhibit 4.7 to the Company's Registration Statement
on Form S-3 (Registration No. 333-10665).
</TABLE>
<PAGE> 27
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
4.2 --Certificate of Designation of AXCESS Series G Preferred Stock.
Incorporated herein by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-QSB for the year ended December 31, 1997.
4.3 --Certificate of Designation of the Company's Series H Preferred
Stock. Incorporated herein by reference to Exhibit 4.3 to the
Company's Quarterly Report on Form 10-QSB for the three month
period ended March 31, 1998.
10.1 --License Agreement, dated June 30, 1988, between the Company and
Poodles Corporation. Incorporated herein by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-QSB for the year
ended December 31, 1988.
10.2 --1991 Incentive Stock Option Plan, dated August 14, 1991.
Incorporated herein by reference to Exhibit 10.10 to Laser
technics' Annual Report on Form 10-QSB for the year ended December
31, 1991.
10.3 --Purchase Agreement between Sandia Europe and Jean-Luc
Poutchnine, Alain Quilleau and Philippe Bonnevie, dated March 4,
1994. Incorporated herein by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-QSB for the year ended December
31, 1994.
10.4 --Letter confirming sale of shares of AXCESS Common Stock to
Singapore Precision Industries PTE LTD, dated May 12, 1994.
Incorporated herein by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-QSB for the year ended December 31, 1994.
10.5 --Advisory and investment banking services agreement between
AXCESS and Wolfensohn International, Inc., dated May 19, 1993.
Incorporated herein by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-QSB for the year ended December 31, 1994.
10.6 --Purchase of Common Stock and Convertible Note Agreement between
the Company and J.P. Morgan Investment Corporation, dated July 8,
1994. Incorporated herein by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-QSB for the year ended December
31, 1994.
10.7 --OEM License Agreement between Sandia and Xerox Corporation,
dated January 6, 1995. Incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-QSB for the year
ended December 31, 1994.
10.8 --Demand Promissory Note issued to J.P. Morgan Investment
Corporation, dated December 19, 1994. Incorporated herein by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-QSB for the year ended December 31, 1994.
10.9 --Demand Promissory Note issued to J.P. Morgan Investment
Corporation, dated December 31, 1994. Incorporated herein by
reference to Exhibit 10.22 to the Company's Annual Report on Form
10-QSB for the year ended December 31, 1994.
</TABLE>
<PAGE> 28
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
10.10 --Amendment to the OEM License Agreement between Sandia and Xerox
Corporation, dated December 27, 1996. Incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-QSB for
the year ended December 31, 1996.
10.11 --Demand Promissory Note issued to Wolfensohn Associates L.P.,
dated March 27, 1997. Incorporated by reference to Exhibit 10.13
to the Company's Quarterly Report on Form 10-QSB for the period
ended September 30, 1997.
10.12 --Warrant to purchase shares of the Company's Common Stock issued
to Wolfensohn Associates L.P., dated March 27, 1997. Incorporated
by reference to Exhibit 10.14 to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1997.
10.13 --Note Purchase Agreement dated June 25, 1997, by and among
AXCESS, J.P. Morgan Investment Corporation and Wolfensohn
Associates L.P. Incorporated by reference to Exhibit 10.15 to the
Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1997.
10.14 --Intellectual Property Transfer Agreement dated January 8, 1998,
by and between XL Vision, Inc. and Sandia Imaging Systems
Corporation. Incorporated herein by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-QSB for the year ended
December 31, 1997.
10.15 --Amendment to Notes and Note Purchase Agreement dated December
31, 1997, by and among the Company, Antiope Partners L.L.C. and
J.P. Morgan Investment Corporation. Incorporated herein by
reference to Exhibit 10.16 to the Company's Annual Report on Form
10-QSB, as amended, for the year ended December 31, 1997.
10.16 --Series G Preferred Stock Purchase Agreement dated December 29,
1997, by and between the Company and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-QSB, as amended, for the year ended
December 31, 1997.
10.17 --Pledge Agreement dated August 18, 1997, by and among the
Company, Antiope Partners L.L.C. and J.P. Morgan Investment
Corporation. Incorporated herein by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-QSB, as amended, in the
year ended December 31, 1997.
10.18 --Preferred Stock Exchange Agreement dated January 8, 1998, by and
among the Company, Antiope Partners L.L.C. and H.T. Ardinger.
Incorporated herein by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-QSB, as amended, in the year ended
December 31, 1997.
10.19 --Form of Warrant to purchase shares of the Company's Common Stock
issued to Antiope Partners L.L.C. and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-QSB, as amended, in the year ended
December 31, 1997.
</TABLE>
<PAGE> 29
AXCESS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
10.20 --Settlement Agreement dated as of April 21, 1998, by and between
the Company and Xerox Corporation. Incorporated herein by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-QSB, as amended, in the year ended December 31, 1997.
10.21 --Series H Preferred stock Purchase Agreement dated March 27,
1998, by and between the Company and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.21 to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
March 31, 1998.
10.22 --Form of Promissory Note executed by Amphion Ventures L.P.
payable to the Company. Incorporated herein by reference to
Exhibit 10.22 to the Company's Quarterly Report on Form 10-QSB for
the three month period ended March 31, 1998.
10.23 --Promissory Note executed by the Company payable to Amphion
Ventures L.P. Incorporated herein by reference to Exhibit 10.23 to
the Company's Quarterly Report on Form 10-QSB for the three month
period ended March 31, 1998.
27 --Financial Data Schedule.*
</TABLE>
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1998 (Unaudited) and
the Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1998 (Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 108
<SECURITIES> 0
<RECEIVABLES> 2,918<F1>
<ALLOWANCES> (101)
<INVENTORY> 2,176
<CURRENT-ASSETS> 5,314
<PP&E> 5,361
<DEPRECIATION> (2,876)
<TOTAL-ASSETS> 13,162
<CURRENT-LIABILITIES> 8,306
<BONDS> 0
0
21,840
<COMMON> 30
<OTHER-SE> (19,680)
<TOTAL-LIABILITY-AND-EQUITY> 13,162
<SALES> 4,411
<TOTAL-REVENUES> 4,411
<CGS> 3,126
<TOTAL-COSTS> 11,086
<OTHER-EXPENSES> 519
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 642
<INCOME-PRETAX> (7,195)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,195)
<DISCONTINUED> (3,277)
<EXTRAORDINARY> 0
<CHANGES> 0<F2>
<NET-INCOME> (10,471)
<EPS-PRIMARY> (4.47)
<EPS-DILUTED> (4.47)
<FN>
<F1> PROVISION FOR DOUBTFUL ACCOUNTS AND INVENTORY PROVISION INCLUDED IN TOTAL
COSTS.
<F2> NET LOSS APPLICABLE TO COMMON STOCK.
</FN>
</TABLE>
