<PAGE> 1
10QSB.WPD 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 MARCH 31, 1999.
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
3208 COMMANDER DRIVE, DALLAS, 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 May 1, 1999: 3,179,368. Shares of
non-voting common stock outstanding on May 1, 1999: 112,492.
Transitional Small Business Disclosure Format (Check One); Yes [ ] No [X]
<PAGE> 2
AXCESS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Condensed Balance Sheets (Unaudited) at March 31, 1999
And December 31, 1998 ............................................... 1
Condensed Statements of Operations (Unaudited) for the Three
Months Ended March 31, 1999 and 1998 ................................ 3
Condensed Statements of Cash Flows (Unaudited) for the Three
Months ended March 31, 1999 and 1998 ................................ 4
Notes to Condensed Financial Statements (Unaudited) ................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ............................................ 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities ............................................... 13
Item 6. Exhibits and Reports on Form 8-K .................................... 13
SIGNATURES ............................................................................ 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXCESS INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1999
Pro Forma December 31,
(Note 2) Actual 1998
---------- ---------- ----------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 230,927 $ 230,927 $1,575,429
Note receivable from stockholder ............... 525,624 624 1,030,624
Accounts receivable - trade .................... 51,838 51,838 30,987
Inventory ...................................... 540,376 540,376 256,216
Prepaid expenses and other ..................... 185,784 250,470 160,087
---------- ---------- ----------
Total current assets ................ 1,534,549 1,074,235 3,053,343
---------- ---------- ----------
Net assets of discontinued operation ........... 690,557 2,755,810 3,186,253
Property, plant & equipment, net ............... 563,925 601,858 574,499
Note receivable from stockholder, long-term .... 4,000,000 -- --
RFID technology ................................ 1,628,189 1,628,189 1,714,449
Deferred license fee ........................... -- 532,881 532,881
Other assets ................................... 7,631 382,631 9,923
---------- ---------- ----------
Total assets ........................ $8,424,851 $6,975,604 $9,071,348
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable to stockholders ...... $ 685,650 $1,795,650 $1,966,900
Notes payable .................................. 89,640 89,640 90,882
Accounts payable ............................... 778,703 755,190 466,940
Dividends payable .............................. 65,285 65,285 481,339
Other accrued liabilities ...................... 1,734,662 2,209,662 1,985,002
---------- ---------- ----------
Total current liabilities ............. 3,353,940 4,915,427 4,991,063
---------- ---------- ----------
Notes payable, long term ......................... 535,205 535,205 535,205
Notes payable to stockholder ..................... 580,000 1,470,000 1,470,000
---------- ---------- ----------
Total liabilities ...................... $4,469,145 $6,920,632 $6,996,268
---------- ---------- ----------
</TABLE>
(Continued)
See accompanying notes to unaudited condensed financial statements.
1
<PAGE> 4
AXCESS INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1999
Pro Forma December 31,
(Note 2) Actual 1998
------------ ------------ ------------
<S> <C> <C> <C>
Stockholders' equity:
Convertible preferred stock:
Series A: $26.00 stated value; 57,692 shares
issued and outstanding in 1999 and 1998 ...................................... $ 1,500,000 $ 1,500,000 $ 1,500,000
Series B: $28.40 stated value; 52,817 shares
issued and outstanding in 1999 and 1998 ...................................... 1,500,000 1,500,000 1,500,000
Series C: $30.20 stated value; 35,427 shares
issued and outstanding in 1999 and 1998 ...................................... 1,069,880 1,069,880 1,069,880
Series I: $10,000.00 stated value; 623 shares
issued and outstanding in 1999 and 1998 ...................................... 6,230,000 6,230,000 6,230,000
Series J: $10,000.00 stated value; 1,688
shares issued and outstanding in 1999 and 1998 ............................... 16,880,000 16,880,000 16,880,000
Common stock, $.01 par value, 6,250,000 shares authorized in 1999 and 2,837,500
in 1998; 3,179,368 and 2,879,368 shares issued and outstanding in 1999
and 1998 ..................................................................... 31,794 31,794 28,794
Non-voting convertible common stock, $.01 par value, 112,500 shares authorized
in 1999 and 1998; 112,492 shares issued and outstanding in 1999 and 1998;
convertible into common stock on a shares for
share basis .................................................................. 1,125 1,125 1,125
Paid-in capital ................................................................... 58,887,848 58,887,848 58,515,848
Accumulated deficit ............................................................... (82,144,941) (86,045,675) (83,650,567)
------------ ------------ ------------
Total stockholders' equity ...................................... 3,955,706 54,972 2,075,080
Total liabilities and stockholders' equity ...................... $ 8,424,851 $ 6,975,604 $ 9,071,348
============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
AXCESS INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Sales ................................................. $ 40,523 $ --
Cost of sales ......................................... 16,583 --
----------- -----------
Gross Profit ...................................... 23,940 --
Expenses:
Research and development .......................... 364,770 1,000,000
Sales and marketing ............................... 698,157 --
General & administrative .......................... 707,238 984,106
----------- -----------
Operating expenses ............................ 1,770,165 1,984,106
----------- -----------
Loss from operations .......................... (1,746,225) (1,984,106)
Other income (expense):
Interest income ................................... 12,068 31,023
Interest expense .................................. (94,951) (249,921)
Other & taxes ..................................... (2,054) 51,769
----------- -----------
Other income (expense), net ................... (84,937) (167,129)
----------- -----------
Loss from continuing operations ............... (1,831,162) (2,151,235)
Discontinued operations:
Loss from operations .............................. -- (1,171,073)
Gain on disposal of discontinued operations ....... -- --
----------- -----------
Loss from discontinued operations ............. -- (1,171,073)
----------- -----------
Net loss ...................................... (1,831,162) (3,322,308)
Preferred stock dividend requirements ................. (563,946) (281,527)
----------- -----------
Net loss applicable to common stock ................... $(2,395,108) $(3,603,835)
=========== ===========
Basic and diluted net loss per share:
Continuing operations ............................. $ (0.57) $ (0.88)
Discontinued operations ........................... $ -- $ (0.48)
Net loss .......................................... $ (0.75) $ (1.47)
Weighted average shares of common stock outstanding ... 3,188,529 2,445,727
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
3
<PAGE> 6
AXCESS INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations ......................................... $(1,831,162) $(2,151,235)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization ............................................... 137,012 489,774
Amortization of financing discount and issuance costs ................... -- 93,419
Loss on sale of assets .................................................. 11,085 --
Changes in operating assets and liabilities:
Accounts receivable .................................................. (20,851) --
Inventory ............................................................ (284,160) --
Prepaid expenses and other ........................................... (90,383) 21,284
Other assets ......................................................... 2,292 (46,991)
Accounts payable ..................................................... 288,250 (300,259)
Other liabilities .................................................... 274,660 (163,508)
----------- -----------
Net cash used by operating activities ............................ (1,513,257) (2,057,516)
Cash flow from investing activities:
Capital expenditures .................................................... (93,696) --
Proceeds from sale of assets ............................................ 4,500 --
----------- -----------
Net cash used by investing activities ................. (89,196) --
Cash flow from financing activities:
Principal payments on financing agreements .............................. (172,492) (924,826)
Net proceeds from issuance of common and preferred stock ................ -- 2,947,783
----------- -----------
Net cash provided (used) by financing activities ...... (172,492) 2,022,957
Net cash provided (used) by discontinued operations ... 430,443 (947,167)
----------- -----------
Net decrease in cash and cash equivalents ............. (1,344,502) (981,726)
Cash and cash equivalents, beginning of period .............................. 1,575,429 1,102,341
----------- -----------
Cash and cash equivalents, end of period .................................... $ 230,927 $ 120,615
=========== ===========
Supplemental information:
Cash paid during the year for interest ................................. $ 31,652 $ 20,375
Restricted common stock issued in connection with
Xerox settlement .................................................... $ -- $ 582,500
Conversion feature, detachable warrants and restricted common stock
issued in connection with notes payable to stockholders ............ $ -- $ 93,419
Conversion of accrued interest and current note payable to long-term
note payable and deferred license fee .............................. $ -- $ 1,694,958
Conversion of accrued interest and dividends in satisfaction of
note receivable form shareholder .................................... $ 1,030,000 $ --
Common stock issued to acquire XLV technology rights ................... $ 375,000 $ --
</TABLE>
See accompanying notes to unaudited condensed financial statements.
4
<PAGE> 7
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements 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 for the year
ended December 31, 1998. Certain reclassifications have been made to
the prior period amounts in order to present the financial position and
results of operations on a consistent basis. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position at
March 31, 1999, results of operations for the three month periods ended
March 31, 1999 and 1998, and cash flows for the three months ended
March 31, 1999 and 1998, have been made. The results of operations for
any given three month period are not necessarily indicative of the
results for the entire year.
The company has restated its condensed financial statements for the
three months ended March 31, 1998, to classify the imaging business and
Lasertechnics Marking Corporation ("LMC") as discontinued operations.
See Note 3 below.
(2) MARCH 31, 1999 PRO FORMA BALANCE SHEET
In April 1999, the company completed the sale of its LMC subsidiary and
certain technology assets under development. See Note 3 below. Although
the company entered into a definitive agreement to sell those assets in
March 1999, generally accepted accounting principles for interim
financial reporting prevent the company from reporting the aggregate
$3.9 million gain realized by the company from the sale of LMC and the
technology assets in its results of operations for quarter ended March
31, 1999. Accordingly, instead of reporting the gain in its results of
operations for the quarter during which the company entered into a
definitive agreement, the company must report the gain in its results
of operations for the quarter during which the company completed the
transaction. The aggregate $3.9 million gain, therefore, will be
included in the company's results of operations for the quarter ending
June 30, 1999. Stockholders' equity of the company was $3,508,966 as of
April 30, 1999, after giving effect to the transaction.
Because the company completed the sale of LMC and the technology
assets, as well as recognized the gain from that sale prior to filing
this report on Form 10-QSB for the quarter ended March 31, 1999, the
company has included a March 31, 1999, pro forma condensed balance
sheet to reflect the completion of the sale transaction as if it had
occurred during the period within which it entered into the definitive
agreement.
(3) DISCONTINUED OPERATIONS
On October 21, 1998, the company's Board of Directors approved a plan
to exit the imaging business as part of the strategy to redeploy and
refocus the company's resources on its core RFID asset, vehicle and
personnel tracking business. The sale of the imaging business was
completed on December 15, 1998. The company reported a sales price of
$500,000 and recorded a loss of $1,095,920 on the disposal in 1998. The
remaining $690,557 of net assets of the discontinued
5
<PAGE> 8
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
imaging business consist primarily of receivables, which are recorded
at net realizable value as of March 31, 1999. For the three months
ended March 31, 1999 and 1998, the company recorded the following
operating results. (There is no related income tax benefit or
expense):
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31,1998
-------------- -------------
<S> <C> <C>
Sales $ -- $ 732,415
Costs and expenses 1,571,050
------- -----------
Loss from discontinued operation $ -- $ (838,635)
======= ===========
Loss per fully diluted share $ -- $ (0.34)
======= ===========
</TABLE>
In March 1999, the company entered into a definitive agreement to sell
its LMC subsidiary to affiliates of Amphion Capital Management, a major
stockholder of the company. The company's rights and interests in
DataGlyph(TM) and the technology under development with XL Vision, Inc.
were also included in the sale. The company received $0.5 million in
cash, $2.0 million in debt cancellation, a $4.0 million note receivable
due March 2002 (or 2004 under certain conditions), a $0.5 million
demand note receivable and a warrant to purchase equity in the
Amphion-controlled enterprise to which Amphion transferred those
businesses and assets following the closing. The exercise price of the
warrant is $2.50 per share, representing approximately 8% of that
enterprise. If LMC is sold within two years of the closing, the company
has the option to exchange its warrant for twenty percent of the excess
profits (as defined in the definitive sale agreement) from any such
sale.
For the three months ended March 31, 1999 and 1998, the company
recorded the following results of LMC, which have been reclassified to
loss from discontinued operations for all periods presented. (There is
no related income tax benefit or expense.)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Sales $ -- $ 1,555,612
Costs and expenses 1,888,050
------- -----------
Loss from discontinued operations $ -- $ (332,438
======= ===========
Loss per fully diluted share $ -- $ (0.14)
======= ===========
</TABLE>
(4) RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, "Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") was issued. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
"derivatives") and for hedging activities. It requires that all
derivatives be recognized as either assets or liabilities at fair
value. The accounting for gains and losses from changes in the fair
value of a derivative depends on the
6
<PAGE> 9
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
intended use of the derivative and its resulting classification as one
of three designated types of hedges or as a non-hedging instrument.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The adoption of this statement is not expected to
have a material impact on the company's financial statements and
related disclosures.
(5) ISSUANCE OF COMMON STOCK
During the quarter ended March 31, 1999, a total of 300,000 shares of
AXCESS common stock with a market value of $375,000 were issued in
connection with the acquisition of the XLV technology rights, which
were transferred to the buyer in connection with the sale of LMC
described in Note 2.
(6) CONTINGENCIES
On February 28, 1996, an investor group filed suit against the company.
This lawsuit arose out of the company's refusal to recognize the
investor group's attempt to exercise an option to purchase 70,000
shares of common stock at $9.00 per share. The option had been granted
to the company's former President and CEO who attempted to transfer his
option to an investor group on the last day of the option term in
September 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 the company believed that it was not transferable
to third parties. The lawsuit sought monetary damages that the investor
group alleged to be not less than $2,800,000. In March 1999, the
plaintiffs, the company and other named defendants in the second
lawsuit described above agreed to the principal terms under which both
lawsuits would be settled and dismissed, with prejudice. Although the
company anticipates consummating a settlement sometime during the
second quarter of 1999, there can be no assurance, however, that the
company will consummate any such settlement. The company has fully
accrued the expected cost of the settlement as of March 31, 1999.
The company is also involved in various other claims and lawsuits which
are generally incidental to its business. The company is vigorously
contesting all such matters and believes that their ultimate resolution
will not have a material adverse effect on its financial position,
results of operations or cash flows.
7
<PAGE> 10
AXCESS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In September 1998, the company acquired its active Radio Frequency
Identification (RFID) technology. The company determined this technology to be
its primary and core strategic focus, based on market demand, market size,
product differentiation, competitive environment and other factors.
On October 21, 1998, the company's Board of Directors approved a plan to exit
the imaging business as part of the strategy to redeploy and refocus the
company's resources on its core RFID asset, vehicle and personnel tracking
business. The sale of the imaging business was completed on December 15, 1998.
The company reported a sales price of $500,000 and recorded a loss of $1,095,920
on the disposal in 1998. As of March 31, 1999, the remaining $690,557 of net
assets of the discontinued imaging business consist primarily of receivables,
which are recorded at net realizable value.
In March 1999, the company entered into a definitive agreement to sell its
Lasertechnics Marking Corporation subsidiary ("LMC") to affiliates of Amphion
Capital Management, a major stockholder of the company. The company's rights and
interests in DataGlyph(TM) and the technology under development with XL Vision,
Inc. were also included in the sale. In April 1999 the company completed the
sale and received $0.5 million in cash, $2.0 million in debt cancellation, a
$4.0 million note receivable due March 2002 (or 2004 under certain conditions),
a $0.5 million demand note receivable and a warrant to purchase equity in the
Amphion-controlled enterprise to which Amphion will transfer these businesses
and assets with an exercise price of $2.50 per share, representing approximately
8% of that enterprise. If LMC is sold within two years of its purchase, the
company has the option to exchange its warrant for twenty percent of the defined
excess profits from any such sale. The gain on disposition totaled approximately
$3.9 million.
Although the company entered into a definitive agreement to sell LMC and the
technology assets in March 1999, generally accepted accounting principles for
interim financial reporting prevent the company from reporting the aggregate
$3.9 million gain realized by the company from the sale of those assets in its
results of operations for the quarter ended March 31, 1999. Accordingly, instead
of reporting the gain in its results of operations for the quarter during which
the company entered into a definitive agreement, the company must report the
gain in its results of operations for the quarter during which the company
completed the transaction. The aggregate $3.9 million gain, therefore, will be
included in the company's results of operations for the quarter ending June 30,
1999. Stockholders' equity of the company was $3,508,966 as of April 30, 1999,
after giving effect to the transaction.
Because the company completed the sale of LMC and the technology assets, as well
as recognized the gain from that sale prior to filing this report on Form 10-QSB
for the quarter ended March 31, 1999, the company has included a March 31, 1999,
pro forma condensed balance sheet to reflect the completion of the sale
transaction as if it occurred during the period within which it entered into the
definitive agreement.
The company's March 31, 1998 financial statements have been restated to account
for the imaging business and LMC as discontinued operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Sales and Gross Profit. Sales applicable to the businesses of the company's
discontinued operations are not included in the company's sales for any period
presented in the company's results of operations.
8
<PAGE> 11
AXCESS INC. AND SUBSIDIARIES
Although the RFID technology acquired in September 1998 had been in development
and use for some time, significant modifications and enhancements were and are
necessary for its successful commercialization, manufacture and distribution in
volume. Sales and marketing efforts were launched in the fourth quarter of 1998.
Through March 31, 1999, the company had not yet shipped a significant volume of
RFID systems. Orders accepted during the period will be realized as sales when
the systems have been manufactured and shipped to the customer.
As a result, the company reported no sales or gross profit in the three months
ended March 31, 1998. Sales for the three months ended March 31, 1999 were
$40,523, on which the company realized a gross profit of $23,940.
Operating Expenses. Operating expenses were $1,770,165 and $1,984,106 for the
three months ended March 31, 1999 and 1998, respectively.
Corporate general and administrative expenses were $707,238 and $984,106 for the
three months ended March 31, 1999 and 1998, respectively. The higher expense in
the quarter ended March 31, 1998 is attributable primarily to legal, printing
and accounting costs associated with the special shareholder meeting held in
March 1998.
Research and development expenses for the three months ended March 31, 1999 of
$364,770 represents RFID product development cost. For the three months ended
March 31, 1998, research and development expenses of $1,000,000 consisted of new
product development costs associated with the Technology Development Agreement
with XL Vision, Inc.
Selling and marketing expenses were $698,157 in the quarter ended March 31,
1999. No selling and marketing expenses were incurred in the first quarter of
1998 because the company's continuing operations were not initiated until
September 1998.
Other income (expense), net was ($84,937) for the three months ended March 31,
1999 and 1998, respectively. Interest expense was $154,970 lower in the three
months ended March 31, 1999 compared to the three months ended March 31, 1998,
reflecting the lower amount of notes payable outstanding during 1999.
Loss from Continuing Operations was $1,831,162 for the three months ended March
31, 1999, compared to $2,151,235 for the same period in 1998, an improvement of
$320,073. The primary elements of this variance were declines in operating
expenses during 1999 of $213,941 and interest expense of $154,970.
Loss from Discontinued Operations was $0 and $1,171,073 for the three months
ended March 31, 1999 and 1998, respectively. The loss in 1998 consists of the
loss from the operations of both LMC and the imaging business. See Note 3 to
Notes to Condensed Financial Statements.
9
<PAGE> 12
AXCESS INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the company has utilized the proceeds from a number of public
and private sales of its equity securities, the exercise of options and warrants
and, more recently, convertible debt and short-term bridge loans from
stockholders to meet its working capital needs.
The company's ongoing businesses continued to generate operating losses in 1999,
as the company was continuing its development and enhancement activities related
to the RFID technology and had not yet shipped a significant volume of RFID
systems. The company's future working capital requirements will depend upon many
factors, including the extent and timing of the company's product sales, the
company's operating results and the status of competitive products. The company
anticipates that its existing working capital resources and revenues from
operations will not be adequate to satisfy its funding requirements in 1999. The
company is continuing discussions with a number of existing and potential
corporate, strategic and institutional investors. The company's actual funding
needs will depend on numerous factors, including actual expenditures and
revenues generated from its operations compared to its business plan. The
company's actual funding needs will also depend on the successful development
and commercialization of the RFID systems and other unanticipated expenditures,
none of which can be predicted with certainty. There can be no assurance that
the company will acquire the additional funding it needs to fully pursue its
business objectives. If the company's losses continue, the company may have to
obtain sufficient funds to meet its cash requirements through strategic or other
financial transactions with compatible entities having the resources to support
its programs, the sale of securities or other financing arrangements, or it will
be required to curtail its programs or seek a merger partner. Any additional
funding may be on terms which are unfavorable to the company or disadvantageous
to existing stockholders. In addition, no assurance may be given that the
company will be successful in raising additional funds or entering into business
alliances.
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 of RFID
systems and identify date-sensitive inventory and the level of Year 2000
compliance of its RFID systems. This program is to ensure that customers receive
systems that are Year 2000 compliant, or at a minimum, are made aware of systems
that are not compliant. The company also depends on the systems of its
suppliers, manufacturers and customers. Consequently, the company is in the
process of receiving adequate assurances from its suppliers, manufacturers and
customers that those systems and the components 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 by Year 2000 compliant. These contingency plans have
substantially been completed, and are expected to be completed and implemented
by the end of 1999.
10
<PAGE> 13
AXCESS INC. AND SUBSIDIARIES
Management of the company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. The company does not believe the
costs related to the Year 2000 program will be material to its financial
position or results of operation. Since the RFID based software and hardware
were recently developed and were developed with Year 2000 compliance awareness,
Year 2000 compliance is less significant to the company's business than is the
case for other businesses.
Management expects to complete its program without incurring any significant
incremental expenditures utilizing internal resources. However, 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 then
have a material adverse impact on the operations of the company.
SHARES ELIGIBLE FOR FUTURE SALE; CONVERTIBLE SECURITIES AND WARRANTS
Future sales of the company's 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 the common stock.
At March 31, 1999, an aggregate of approximately 1,700,000 shares of common
stock were outstanding and freely tradeable without restriction under the
Securities Act. In addition, up to 767,000 shares were eligible for resale in
accordance with the manner of sale and volume limitations of Rule 144
promulgated under the Securities Act.
Approximately 2,300,000 shares of common stock have been reserved for issuance
upon the exercise of outstanding convertible securities and warrants. As of
March 31, 1999, there were 57,692, 52,817, 35,427, 623 and 1,688 shares of
Series A, B, C, I and J 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. The
conversion price for the Series I and Series J shares is $4.00 per share. See
"Recent Sale of Unregistered Securities" in the company's Form 10-KSB for the
year ended December 31, 1998.
There are also currently 584,431 warrants outstanding to acquire the same number
of shares of common stock, as well as $535,000 of indebtedness, convertible into
common stock at $5.00 per share.
In addition, approximately 1,050,000 shares of common stock have been reserved
for issuance to key employees, officers, directors and consultants pursuant to
the company's benefit plans. As of March 31, 1999, there were 772,391 options
outstanding.
OTHER
Inflation. Inflation has not had and is not expected to have a material impact
on the operations and financial condition 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.
11
<PAGE> 14
AXCESS INC. AND SUBSIDIARIES
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; the quality of the company's plans and
strategies; and the ability of the company to execute such plans and strategies.
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 year ended December 31, 1998.
12
<PAGE> 15
AXCESS INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the first quarter of 1999, the company issued unregistered securities in
connection with the transaction described below.
The issuance of common stock was 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 certificate.
The company issued 300,000 shares of restricted common stock to XL Vision, Inc.
on February 1, 1999, in connection with the exercise of the company's assignment
right under the terms of an Intellectual Property Transfer Agreement by and
between the company and XL Vision, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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 the company
dated June 6, 1986. Incorporated herein by reference to Exhibit
3.3 to the company's Annual Report on Form 10-KSB for the year
ended December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of the
company dated May 27, 1987. Incorporated herein by reference to
Exhibit 3.4 to the company's Annual Report on Form 10-KSB for
the year ended December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of the company
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 the
company 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 the company
dated June 17, 1997. 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 the company
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.
13
<PAGE> 16
AXCESS INC. AND SUBSIDIARIES
3.9 --Seventh Amendment to Certificate of Incorporation of the
company 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 the
company 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 I Preferred
Stock. Incorporated herein by reference to Exhibit 4.2 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
4.3 --Certificate of Designation of the company's Series J Preferred
Stock. Incorporated herein by reference to Exhibit 4.3 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
10.1 --1991 Incentive Stock Option Plan, dated August 14, 1991.
Incorporated herein by reference to Exhibit 10.10 to
Lasertechnics' Annual Report on Form 10-KSB for the year ended
December 31, 1991.
10.2 --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-KSB for the year
ended December 31, 1994.
10.3 --Note Purchase Agreement dated June 25, 1998, by and among the
company, 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, 1998.
10.4 --Amendment to Notes and Note Purchase Agreement dated December
31, 1998, 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 Amendment No. 1 to the company's
Annual Report on Form 10-KSB for the year ended December 31,
1997.
10.5 --Series H Preferred Stock Purchase Agreement dated December 29,
1997, by and among the company and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.17 to Amendment
No. 1 to the company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
10.6 --Preferred Stock Purchase Agreement dated October 21, 1998 by
and between the company and Amphion Ventures L.P. Incorporated
herein by reference to Exhibit 10.8 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
14
<PAGE> 17
AXCESS INC. AND SUBSIDIARIES
10.7 --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
Amendment No. 1 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.8 --Note Payable Conversion Agreement dated December 31, 1998, by
and between the company and Amphion Ventures L.P. Incorporated
herein by reference to Exhibit 10.12 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
10.9 --Note Payable Conversion Agreement dated December 31, 1998, by
and between the company and Antiope Partners L.L.C. Incorporated
herein by reference to Exhibit 10.13 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
10.10 --Note Payable Conversion Agreement dated December 31, 1998, by
and between the company and J.P. Morgan Investment Corporation.
Incorporated herein by reference to Exhibit 10.14 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
10.11 --Stock and Asset Purchase Agreement dated March 30, 1999, by
and between the company and Amphion Ventures L.P. Incorporated
herein by reference to Exhibit 10.15 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
27.1 --Financial Data Schedule.*
27.2 --Restated Financial Data Schedule.*
----------------
*Filed herewith.
B. REPORTS ON FORM 8-K
None.
15
<PAGE> 18
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: May 14, 1999 By: /s/ Danny G. Hair
--------------------------------
Danny G. Hair, Executive Vice
President, Chief Financial
Officer and Secretary
(Principal Accounting and
Financial Officer)
16
<PAGE> 19
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 the company
dated June 6, 1986. Incorporated herein by reference to Exhibit
3.3 to the company's Annual Report on Form 10-KSB for the year
ended December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of the
company dated May 27, 1987. Incorporated herein by reference to
Exhibit 3.4 to the company's Annual Report on Form 10-KSB for
the year ended December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of the company
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 the
company 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 the company
dated June 17, 1997. 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 the company
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 the
company 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 the
company 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> 20
<TABLE>
<S> <C>
4.2 --Certificate of Designation of the company's Series I Preferred
Stock. Incorporated herein by reference to Exhibit 4.2 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
4.3 --Certificate of Designation of the company's Series J Preferred
Stock. Incorporated herein by reference to Exhibit 4.3 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
10.1 --1991 Incentive Stock Option Plan, dated August 14, 1991.
Incorporated herein by reference to Exhibit 10.10 to
Lasertechnics' Annual Report on Form 10-KSB for the year ended
December 31, 1991.
10.2 --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-KSB for the year
ended December 31, 1994.
10.3 --Note Purchase Agreement dated June 25, 1998, by and among the
company, 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, 1998.
10.4 --Amendment to Notes and Note Purchase Agreement dated December
31, 1998, 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 Amendment No. 1 to the company's
Annual Report on Form 10-KSB for the year ended December 31,
1997.
10.5 --Series H Preferred Stock Purchase Agreement dated December 29,
1997, by and among the company and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.17 to Amendment
No. 1 to the company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
10.6 --Preferred Stock Purchase Agreement dated October 21, 1998 by
and between the company and Amphion Ventures L.P. Incorporated
herein by reference to Exhibit 10.8 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
10.7 --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
Amendment No. 1 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.8 --Note Payable Conversion Agreement dated December 31, 1998, by
and between the company and Amphion Ventures L.P. Incorporated
herein by reference to Exhibit 10.12 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
10.9 --Note Payable Conversion Agreement dated December 31, 1998, by
and between the company and Antiope Partners L.L.C. Incorporated
herein by reference to Exhibit 10.13 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
10.10 --Note Payable Conversion Agreement dated December 31, 1998, by
and between the company and J.P. Morgan Investment Corporation.
Incorporated herein by reference to Exhibit 10.14 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
10.11 --Stock and Asset Purchase Agreement dated March 30, 1999, by
and between the company and Amphion Ventures L.P. Incorporated
herein by reference to Exhibit 10.15 to the company's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
27.1 --Financial Data Schedule.*
27.2 --Restated Financial Data Schedule.*
</TABLE>
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Balance Sheet at March 31, 1999 and the Condensed Statement of
Operations for the Three Months Ended March 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 230,927
<SECURITIES> 0
<RECEIVABLES> 51,838
<ALLOWANCES> 0
<INVENTORY> 540,376
<CURRENT-ASSETS> 1,074,235
<PP&E> 1,284,251
<DEPRECIATION> 682,393
<TOTAL-ASSETS> 6,975,604
<CURRENT-LIABILITIES> 4,915,427
<BONDS> 0
0
27,179,880
<COMMON> 32,919
<OTHER-SE> (27,157,827)
<TOTAL-LIABILITY-AND-EQUITY> 6,975,604
<SALES> 40,253
<TOTAL-REVENUES> 40,253
<CGS> 16,583
<TOTAL-COSTS> 1,770,165
<OTHER-EXPENSES> 84,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,951
<INCOME-PRETAX> (1,831,162)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,831,162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,831,162)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Balance Sheet at March 31, 1998 and the Condensed Statement of
Operations for the Three Months Ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 120,615
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,044,244
<PP&E> 1,697,973
<DEPRECIATION> 985,658
<TOTAL-ASSETS> 11,221,998
<CURRENT-LIABILITIES> 6,110,935
<BONDS> 0
0
15,619,880
<COMMON> 25,794
<OTHER-SE> (12,544,510)
<TOTAL-LIABILITY-AND-EQUITY> 11,221,998
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,984,106
<OTHER-EXPENSES> 167,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249,921
<INCOME-PRETAX> (2,151,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,151,235)
<DISCONTINUED> (1,173,073)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,322,308)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
