<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 JUNE 30, 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)
<TABLE>
<CAPTION>
DELAWARE 85-0294536
-------- ----------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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 August 1, 1999: 3,179,368. Shares of
non-voting common stock outstanding on August 1, 1999: 112,492.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE> 2
AXCESS INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Condensed Balance Sheets at June 30, 1999 (Unaudited)
and December 31, 1998.................................................................. 1
Condensed Statements of Operations (Unaudited) for the Three
and Six months ended June 30, 1999 and 1998............................................ 3
Condensed Statements of Cash Flows (Unaudited) for the Six
Months ended June 30, 1999 and 1998.................................................... 4
Notes to Condensed Financial Statements (Unaudited).................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 17
Item 2. Changes in Securities................................................................. 17
Item 4. Submission of Matters to Vote of Security Holders..................................... 18
Item 6. Exhibits and Reports on Form 8-K...................................................... 20
SIGNATURES .............................................................................................. 23
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXCESS INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 70,664 $1,575,429
Note receivable from stockholder............................. -- 1,030,624
Accounts receivable - trade.................................. 109,580 30,987
Inventory ................................................... 605,682 256,216
Prepaid expenses and other .................................. 186,338 160,087
---------- ----------
Total current assets ................................... 972,264 3,053,343
Net assets of discontinued operations............................. 264,143 3,186,253
Property, plant & equipment, net.................................. 527,635 574,499
Long term note receivable - stockholder........................... 3,902,375 --
RFID technology................................................... 1,541,929 1,714,449
Deferred license fee.............................................. -- 532,881
Other assets...................................................... 23,300 9,923
---------- ----------
Total assets............................................ $7,231,646 $9,071,348
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable to stockholders ................... $1,153,650 $1,966,900
Notes payable................................................ 58,160 90,882
Accounts payable............................................. 638,748 466,940
Dividends payable............................................ 131,833 481,339
Other accrued liabilities.................................... 2,001,022 1,985,002
---------- ----------
Total current liabilities.............................. 3,983,413 4,991,063
Notes payable - long term......................................... 535,205 535,205
Notes payable to stockholder...................................... 580,000 1,470,000
---------- ----------
Total liabilities....................................... $5,098,618 $6,996,268
---------- ----------
</TABLE>
(Continued)
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 4
AXCESS INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Stockholders' equity:
Convertible preferred stock, $0.01 par value,
7,000,000 shares authorized in 1999 and 1998
Series A: $26.00 stated value; 57,692
shares outstanding in 1999 and 1998 ............................... $ 1,500,000 $ 1,500,000
Series B: $28.40 stated value; 52,817
shares outstanding in 1999 and 1998 ............................... 1,500,000 1,500,000
Series C: $30.20 stated value; 35,427
shares outstanding in 1999 and 1998 ............................... 1,069,880 1,069,880
Series I: $10,000.00 stated value; 635
shares outstanding in 1999 and 623 in 1998 ........................ 6,350,000 6,230,000
Series J: $10,000.00 stated value; 1,727
shares outstanding in 1999 and 1,688 in 1998 ...................... 17,270,000 16,880,000
Common stock, $0.01 par value, 12,000,000 shares authorized in 1999 and
6,250,000 in 1998; 3,179,368 shares issued
and outstanding in 1999 and 2,479,368 in 1998 ....................... 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 one share for one
share basis ......................................................... 1,125 1,125
Paid-in capital ............................................................... 58,887,848 58,515,848
Accumulated deficit ........................................................... (84,477,619) (83,650,567)
------------ ------------
Total stockholders' equity ............................... 2,133,028 2,075,080
------------ ------------
Total liabilities and stockholders' equity ............... $ 7,231,646 $ 9,071,348
============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 5
AXCESS INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ----- ----
<S> <C> <C> <C> <C>
Sales ............................................ $ 82,681 $ -- $ 123,204 $ --
Cost of sales .................................... 49,167 -- 65,750 --
----------- ----------- ----------- -----------
Gross profit ................................... 33,514 -- 57,454 --
Expenses:
Research and development ....................... 308,378 700,000 673,148 1,700,000
Selling and marketing .......................... 547,553 -- 1,245,710 --
General and administrative ..................... 923,986 1,013,330 1,631,224 1,997,436
----------- ----------- ----------- -----------
Total operating expenses ...................... 1,779,917 1,713,330 3,550,082 3,697,436
----------- ----------- ----------- -----------
Loss from operations .......................... (1,746,403) (1,713,330) (3,492,628) (3,697,436)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ................................ 55,882 17,816 67,950 48,839
Interest expense ............................... (64,410) (130,849) (159,361) (380,770)
Gain on sale of assets and other ............... 2,042,909 (34,322) 2,040,855 17,447
----------- ----------- ----------- -----------
Other income (expense), net .................. 2,034,381 (147,355) 1,949,444 (314,484)
----------- ----------- ----------- -----------
Income (loss) from continuing
operations ................................... 287,978 (1,860,685) (1,543,184) (4,011,920)
Discontinued operations:
Income (loss) from operations .................. -- (822,784) -- (1,993,857)
Gain (loss) on disposal of
discontinued operations ........................ 1,856,625 -- 1,856,625 --
----------- ----------- ----------- -----------
Gain (loss) from discontinued
operations ................................... 1,856,625 (822,784) 1,856,625 (1,993,857)
----------- ----------- ----------- -----------
Net profit (loss) ........................... 2,144,603 (2,683,469) 313,441 (6,005,777)
Preferred stock dividend requirements ............ (576,548) (342,031) (1,140,494) (623,558)
----------- ----------- ----------- -----------
Net profit (loss) applicable to
common stock ................................. $ 1,568,055 $(3,025,500) $ (827,053) $(6,629,335)
=========== =========== =========== ===========
Basic and diluted net income (loss) per share:
Continuing operations .......................... $ (0.09) $ (0.85) $ (0.84) $ (1.84)
Discontinued operations ........................ $ 0.57 $ (0.32) $ 0.58 $ (0.79)
Net income (loss) ............................. $ 0.48 $ (1.17) $ (0.26) $ (2.63)
Weighted average shares of common
stock outstanding ............................ 3,291,860 2,591,725 3,195,727 2,518,391
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 6
AXCESS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations ............................... $(1,543,184) $(4,011,920)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization................................ 270,187 766,938
Gain on sale of assets....................................... (2,033,024) --
Amortization of financing discount, issuance costs
and other non-cash interest................................ -- 100,074
Non-cash compensation........................................ -- 50,000
(Increase) decrease in:
Accounts receivable....................................... (78,593) --
Inventory................................................. (349,466) --
Prepaid expenses and other................................ (26,251) 56,718
Other assets.............................................. (13,377) 52,282
Increase (decrease) in:
Accounts payable.......................................... 171,808 (691,676)
Accrued liabilities....................................... 16,020 (83,602)
Other..................................................... 34,581 --
------------ ------------
Net cash used by operating activities................. (3,551,299) (3,761,186)
Cash flows from investing activities:
Capital expenditures......................................... (93,743) (86,409)
Proceeds from sale of assets................................. 391,301 --
------------ ------------
Net cash provided (used) by investing activities...... 297,558 (86,409)
Cash flows from financing activities:
Borrowings under financing agreements........................ 468,000 1,470,000
Principal payments on financing agreements................... (203,972) (3,299,797)
Principal payments on notes receivable....................... 623,249 --
Net proceeds from issuance of preferred and common stock -- 6,512,436
------------ ------------
Net cash provided by financing activities 887,277 4,682,639
Net cash provided (used) by discontinued
operations............................................ 861,699 (1,835,729)
------------ ------------
Net decrease in cash and cash equivalents.................... (1,504,765) (1,000,685)
Cash and cash equivalents, beginning of period......................... 1,575,429 1,102,341
------------ ------------
Cash and cash equivalents, end of period............................... $ 70,664 $ 101,656
============ ============
</TABLE>
(Continued)
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 7
AXCESS INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Supplemental information:
Cash paid during the period for interest .......................... $ 33,405 $ 24,360
========== =============
Restricted common stock issued in connection with
Xerox settlement................................................ $ -- $ 526,500
========== =============
Conversion feature, detachable warrants and restricted common
stock issued in connection with notes payable
to stockholders................................................. $ -- $ 100,074
========== =============
Conversion of accrued interest and dividends in
satisfaction of note receivable from stockholder................ $2,080,000 $ --
========== =============
Common stock issued to acquire XLV technology rights............... $ 375,000 $ --
========== =============
Notes receivable from stockholder in connection
with sale of assets............................................. $5,000,000 $ --
========== =============
Cancellation of short-term notes payable to stockholders........... $1,110,000 $ --
========== =============
Cancellation of long-term notes payable to stockholders............ $ 890,000 $ --
========== =============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
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<PAGE> 8
AXCESS INC.
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 June
30, 1999, results of operations for the three and six month periods
ended June 30, 1999 and 1998, and cash flows for the six months ended
June 30, 1999 have been made. The results of operations for any given
interim period are not necessarily indicative of the results for the
entire year.
The company has restated its June 30, 1998, condensed financial
statements to classify the imaging business and Lasertechnics Marking
Corporation ("LMC") as discontinued operations (See Note 2 below).
2. 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 assets 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 $264,143 of net assets of the
discontinued imaging business consist primarily of receivables, which
are valued at net realizable value as of June 30, 1999. For the six
months ended June 30, 1999 and 1998, the company recorded the following
operating results of the imaging business. (There is no related income
tax benefit or expense):
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1999 June 30,1998
-------------- -------------
<S> <C> <C>
Sales $ -- $ 1,911,018
Costs and expenses -- 3,443,887
-------------- -------------
Loss from discontinued operation $ -- $ (1,532,869)
============== =============
Loss per fully diluted share $ -- $ (0.61)
</TABLE>
On April 30, 1999, the company completed the sale of 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
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<PAGE> 9
AXCESS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 these businesses and assets with an exercise price of $2.50 per
share, representing approximately 8% of that enterprise. If LMC is subsequently
sold prior to April 2001 by the Amphion-controlled enterprise, the company has
the option to exchange its warrant for twenty percent of the excess profits (as
defined in the acquisition agreements) from any such sale. The company realized
a gain of $3,900,734 from the disposition of LMC and the technology assets and
recorded that gain in the quarter ended June 30, 1999. Of the total $3.9 million
gain, $1,856,625 resulted from the sale of LMC and was, therefore, reported as a
gain from discontinued operations. The remainder of the total gain, $2,044,109,
was attributable to the sale of the technology assets and was included in the
results of continuing operations. At June 30, 1999, there is no balance
remaining in net assets of discontinued operations pertaining to LMC.
For the six months ended June 30, 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>
Six Months Six Months
Ended Ended
June 30, 1999 June 30,1998
<S> <C> <C>
Sales ..................................... $ -- $3,790,467
Costs and expenses ......................... -- 4,251,455
----------- -----------
Gain (loss) from operations ................ -- (460,988)
Gain (loss) on disposal .................... 1,856,625 --
----------- ----------
Gain (loss) from discontinued operation .... $ 1,856,625 $ (460,988)
=========== ==========
Gain (loss) per fully diluted share $ 0.57 $ (0.18)
</TABLE>
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<PAGE> 10
AXCESS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
3. SUBSEQUENT EVENT
On July 28, 1999, the company acquired substantially all of the assets,
including the network video technology, of Prism Video, Inc. ("Prism"),
a privately-held corporation unaffiliated with the company. Prism is
engaged in the design, manufacture and marketing of video security
technology and video storage products. For the twelve months ended June
30, 1999, Prism reported revenues of approximately $1.2 million
(unaudited) from sales of its video technology products. The
approximately $5.3 million of assets acquired by the company include
Prism's proprietary digital video compression technology used in
security video and CCTV products, its remote telephone line video
technology and its inventory of video storage products.
The purchase price, which is subject to adjustment in accordance with
the terms of the purchase agreement, consists of:
<TABLE>
<S> <C>
Note payable: non-interest bearing, due December 31, 2002
(Face amount of $4 million; present value of $3.1 million) $3.10 million
Preferred stock: 125 shares of new series of preferred stock,
$10,000 per share stated value, convertible into 500,000
shares of common stock at a conversion price of $2.50 per
share 1.25 million
Warrant to purchase 500,000 shares of common stock at $2.50
per share .60 million
Assumption of specific liabilities .35 million
-------------
$5.30 million
</TABLE>
The note payable is secured by the company's $4 million note receivable
from Amphion Ventures, L.P. In addition, the shares of common stock
which Prism may acquire by conversion of preferred stock or by exercise
of the warrant are subject to a three-year lockup from the date of the
closing, which may be reduced to two years upon the occurrence of
certain events. The warrant is exercisable on or before July 28, 2004.
Prism has agreed not to convert the preferred stock or exercise the
warrant until the company obtains stockholder approval to issue the
common stock. The company intends to submit this proposal at its 2000
annual meeting of stockholders.
4. NOTE PAYABLE
In September 1998, the company acquired the RFID based intellectual
property assets of ASGI, Inc. and Nauta, Inc. In connection with this
transaction, the company executed a one-year promissory note in the
amount of $685,000 which bears interest at the prime rate. As of June
30, 1999, the company was past due on its payment obligations under the
note, which constitutes a default under
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<PAGE> 11
the terms of the note. The balance of the note payable was $290,000 as
of June 30, 1999. The noteholders have the right to accelerate payments
on the note, but have neither done so nor indicated any intent to do
so. However, there can be no assurance that the noteholders will not
assert their rights under the note agreement. The company is making
payments and the note will be paid in full by October 31, 1999.
5. 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 intended use of the derivative and
its resulting classification as one of three designated types of hedges
or as a non-hedging instrument. In July 1999, the Financial Accounting
Standards Board issued SFAS 137 which delayed the effective date of
SFAS 133. SFAS 133 is now effective for all fiscal quarters of fiscal
years beginning after June 30, 2000. The adoption of this statement is
not expected to have a material impact on the company's financial
statements and related disclosures.
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. Earlier this
month, the plaintiffs, the company and the other named defendants in
the second lawsuit signed a stipulation of settlement. See "Legal
Proceedings" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources."
The company has fully accrued the settlement costs as of June 30, 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.
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<PAGE> 12
AXCESS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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 formerly operated by its Sandia subsidiary as part
of the company's 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 June 30, 1999, the remaining $264,143 of net assets of the
discontinued imaging business consisted primarily of receivables, which are
valued at net realizable value.
In March 1999, the company entered into a definitive agreement to sell
its Lasertechnics Marking Corporation ("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. On April 30, 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
transferred these businesses and assets with an exercise price of $2.50 per
share, representing approximately 8% of that enterprise. If LMC is sold by the
Amphion-controlled enterprise prior to April 2001, the company has the option to
exchange its warrant for twenty percent of the excess profits (as defined in the
acquisition agreement) from any such sale. The gain from the disposition of LMC
and the technology assets totaled approximately $3.9 million and was recorded in
the quarter ended June 30, 1999.
The company's June 30, 1998 financial statements have been restated to
account for the imaging business and LMC as discontinued operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Sales and Gross Profit. Sales applicable to the company's discontinued
operations are not included in the company's sales for any period presented in
the company's results of operations.
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. Orders accepted during the period will be realized as
sales when the systems have been manufactured and shipped to the customer.
Consequently, the company reported no sales or gross profit in the
three months ended June 30, 1998. Sales for the three months ended June 30, 1999
were $82,681, on which a gross profit of $33,514 was realized.
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<PAGE> 13
AXCESS INC.
Operating Expenses. Operating expenses were $1,779,917 for the three
months ended June 30, 1999 and $1,713,330 for the three months ended June 30,
1998.
Corporate general and administrative expenses were $923,986 for the
three months ended June 30, 1999 and $1,013,330 for the three months ended June
30, 1998. With the disposition of the company's imaging and marking businesses,
the general and administrative costs necessary to manage a single business with
only domestic locations has been reduced.
Research and development expenses for the three months ended June 30,
1999 of $308,378 were incurred in connection with the development of RFID
products. For the three months ended June 30, 1998, research and development
expenses were $700,000 and were incurred in connection with new product
development costs associated with the Technology Development Agreement with XL
Vision, Inc.
Selling and marketing expenses for the three months ended June 30,
1999, were $547,553. No selling and marketing expenses were incurred during the
three months ended June 30, 1998, because the company's continuing operations
were not initiated until September 1998.
Other income (expense), net was $2,034,381 for the three months ended
June 30, 1999, compared to $(147,355) for the three months ended June 30, 1998.
The gain of $2,044,109 on the sale of the company's rights and interests in
DataGlyph(TM) and the technology under development with XL Vision, Inc. was
recorded during the quarter ended June 30, 1999. Interest income was $38,066
higher during the three months ended June 30, 1999 compared to the three months
ended June 30, 1998, as a result of the increased balance in notes receivable
from a stockholder of the company. Interest expense was $66,439 lower in the
three months ended June 30, 1999 compared to the three months ended June 30,
1998, reflecting the reduction in the outstanding balance of notes payable in
1999. The increase in notes receivable from stockholder and reduction in notes
payable during 1999 occurred as a result of the April 30, 1999, sale of the
company's LMC subsidiary and the technology assets under development.
Income (Loss) from Continuing Operations was $287,978 for the three
months ended June 30, 1999, compared to a loss of $(1,860,685) for the same
period in 1998. The $2,044,109 gain from the sale of the technology assets was
the primary reason for the income reported for the three months ended June 30,
1999, compared to the loss reported for the three months ended June 30, 1998.
Gain (Loss) from Discontinued Operations was $1,856,625 for the three
months ended June 30, 1999, and $(822,784) for the three months ended June 30,
1998. The gain in 1999 reflects the disposal of LMC, while the loss in 1998
consists of the loss from the operations of LMC and the imaging business. See
Note 2 to Notes to Condensed Financial Statements.
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<PAGE> 14
AXCESS INC.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 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.
Although the RFID technology acquired in September 1998 was under
development and use for some time, significant modifications and enhancements
were and are necessary for its successful commercialization, manufacture and
distribution in volume. Orders accepted during the period will be realized as
sales when the systems have been manufactured and shipped to the customer.
Consequently, the company reported no sales or gross profit during the
six months ended June 30, 1998. Sales for the six months ended June 30, 1999
were $123,204, on which a gross profit of $57,454 was realized.
Operating Expenses. Operating expenses were $3,550,082 for the six
months ended June 30, 1999, and $3,697,436 for the six months ended June 30,
1998.
Corporate general and administrative expenses were $1,631,224 for the
six months ended June 30, 1999, and $1,997,436 for the six months ended June 30,
1998. With the disposition of the company's imaging and marking businesses, the
general and administrative costs necessary to manage a single business with only
domestic locations has been reduced. In addition, the prior year amount includes
legal, printing and accounting cost associated with the special shareholder
meeting held in March 1998.
Research and development expenses for the six months ended June 30,
1999, of $673,148 were incurred in connection of the development of RFID
products. For the six months ended June 30, 1998, research and development
expenses were $1,700,000 and were incurred in connection with new product
development costs associated with the Technology Development Agreement with XL
Vision, Inc.
Selling and marketing expenses for the six months ended June 30, 1999,
were $1,245,710. No selling and marketing expenses were incurred during the six
months ended June 30, 1998, because the company's continuing operations were not
initiated until September 1998.
Other income (expense), net was $1,949,444 and $(314,484) for the six
months ended June 30, 1999 and 1998. The gain of $2,044,109 on the sale of the
company's rights and interests in DataGlyph(TM) and the technology under
development with XL Vision, Inc. was recorded during the six months ended June
30, 1999. Interest income was $19,111 higher during the six months ended June
30, 1999 compared to the six months ended June 30, 1998, as a result of the
increased balance in notes receivable from a stockholder of the company.
Interest expense was $221,409 lower in the six months ended June 30, 1999
compared to the six months ended June 30, 1998, reflecting the reduction in the
outstanding balance of notes payable in 1999. The increase in notes receivable
from stockholder and reduction in notes payable during 1999 occurred as a result
of the April 30, 1999 sale of the company's LMC subsidiary and the technology
assets under development.
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<PAGE> 15
AXCESS INC.
Loss from Continuing Operations was $(1,543,184) for the six months
ended June 30, 1999, compared to a loss of $(4,011,920) for the same period in
1998. The $2,044,109 gain from the sale of the technology assets, as well as the
reduced operating expenses were the primary reasons for the reduced loss
reported for the six months ended June 30, 1999, compared to the loss reported
for the six months ended June 30, 1998.
Gain (Loss) from Discontinued Operations was $1,856,625 for the six
months ended June 30, 1999, and $(1,993,857) for the six months ended June 30,
1998. The gain in 1999 reflects the disposal of LMC, while the loss in 1998
consists of the loss from the operations of LMC and the imaging business. See
Note 2 to Notes to Condensed Financial Statements.
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 business continues to generate operating losses
in 1999, as the company is 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:
o The ability of the company to efficiently and effectively integrate the
video technology acquired from Prism with the company's existing RFID
technology to create and market new products;
o The extent and timing of the company's existing RFID product sales;
o The company's operating results; and
o The status of competitive products.
The company anticipates that its existing working capital resources,
together with those acquired from Prism, will be inadequate 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 existing RFID
systems and the ability of the company to utilize the technology acquired from
Prism to successfully enhance and extend its product line, 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, or that the company will be able
to successfully capitalize on the video technology acquired from Prism. 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
that are unfavorable to the company or
-13-
<PAGE> 16
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.
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.
Prism has represented to the company that it has taken all reasonable
action necessary to assure that there will be no material adverse effect to its
video technology software, hardware and equipment containing embedded microchips
by reason of the advent of the year 2000.
-14-
<PAGE> 17
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 June 30, 1999, an aggregate of approximately 1,700,000 shares
of common stock were outstanding and freely tradable without restriction under
the Securities Act of 1933, as amended. 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 June 30, 1999, there were 57,692, 52,817, 35,427, 635 and 1,727 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 June 30, 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.
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.
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<PAGE> 18
AXCESS INC.
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.
-16-
<PAGE> 19
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, and updated in the company's report on Form 10-KSB
for the period ended December 31, 1998, an investor group filed suit against the
company on February 28, 1996, in the United States District Court for the
Southern District of New York. 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 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 asked for the issuance and registration of the 70,000
shares upon payment of the exercise price, or in the alternative, monetary
damages, which the investor group alleged to be not less than $2,800,000, not
including pre-judgment interest, fees and expenses. 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.
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 filed their answer denying all allegations along with a
motion to dismiss the lawsuit.
In March 1999, the plaintiffs, the company and the 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.
Earlier this month, the plaintiffs, the company and the other named defendants
in the second lawsuit signed a stipulation of settlement. The company has fully
accrued the settlement costs as of June 30, 1999. The company will fund the
settlement from proceeds received from the sale of additional shares of
preferred stock to Amphion Ventures L.P. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Liquidity and Capital
Resources."
ITEM 2. CHANGES IN SECURITIES.
During the second quarter of 1999, the company issued unregistered
securities in connection with the transaction described below. The issuances of
the preferred stock were exempt from the registration
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<PAGE> 20
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.
The holders of the company's Series I Preferred Stock and Series J
Preferred Stock are entitled to receive dividends on each such share held by the
annual rate of 8% of the original issue price of each such share ($10,000)
payable in arrears, when, as and if declared by the company's board of
directors, in cash or additional shares of preferred stock. On June 30, 1999,
the company issued (a) 12 shares of Series I Preferred Stock to the holders
thereof as payment in full for the $120,000 of accrued, but unpaid dividends on
the Series I Preferred Stock as of such date and (b) 39 shares of Series J
Preferred Stock to the holders thereof for the $390,000 of accrued, but unpaid
dividends on the Series J Preferred Stock as of such date.
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 May 7, 1999, the company's stockholders elected Richard
C.E. Morgan, Harry S. Budow, 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 LLP as the independent auditor
of the company for the year ending December 31, 1999;
2. To consider and vote on a proposal to amend the Company's
Certificate of Incorporation to: (a) increase the number of
authorized shares of the company's voting common stock from
6,250,000 to 12,000,000; and (b) eliminate a potential
ambiguity in the Certificate of Incorporation which suggested
that the directors of the company were not authorized to issue
any new class of stock, including preferred stock, as
authorized in the company's Certificate of Incorporation; and
3. To issue more than twenty percent of the company's common
stock at a per share price potentially less than the per share
book or market value on the date of issuance to holders of:
(a) Series I Preferred Stock upon conversion of such preferred
stock by the holders thereof and (b) Series J Preferred Stock
upon the conversion of the non-voting common stock.
Each of the foregoing proposals, including the election of directors,
were approved at the company's annual meeting of stockholders on June 9, 1999.
Each board nominee received the number of votes indicated below.
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<PAGE> 21
AXCESS INC.
<TABLE>
<CAPTION>
Number of Votes Cast Number of Votes Cast
Nominee for Election Against or Withheld
------- -------------------- ---------------------
<S> <C> <C>
Richard C.E. Morgan 4,317,178 21,606
Harry S. Budow 4,317,153 21,631
Richard M. Clarke 4,317,178 21,606
Paul J. Coleman, Jr. 4,317,178 21,606
C. Seth Cunningham 4,317,178 21,606
Gregory W. Haskell 4,317,178 21,606
</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:
For 4,317,013
Against 11,930
Abstentions 9,841
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>
Class Class
--------------- ------------
Voting
Voting Common Stock
Common Stock and
and Non-Voting
Preferred Stock Common Stock
--------------- ------------
<S> <C> <C>
For 3,309,135 1,925,234
Against 80,053 106,179
Abstentions 14,238 23,465
</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:
For 3,960,799
Against 86,846
Abstentions 291,139
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<PAGE> 22
AXCESS INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
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 the company. 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, 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 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.
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<PAGE> 23
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 H 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.
4.4 --Certificate of Designation of the company's Series
1999 Preferred Stock dated July 28, 1999.*
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 eference 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 the company's Annual Report on Form
10-KSB, as amended, for the year ended
December 31, 1998.
10.5 --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.
10.6 --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-KSB for
the year ended December 31, 1998.
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<PAGE> 24
10.7 --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.
10.8 --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.
10.9 --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.
10.10 --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.
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<PAGE> 25
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: August 13, 1999 By: /s/ Danny G. Hair
-------------------------------------------
Danny G. Hair, Executive Vice President,
Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
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<PAGE> 26
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 the company. 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).
3.5 --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, 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 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> 27
<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.
4.4 --Certificate of Designation of the company's Series 1999
Preferred Stock dated July 28, 1999.*
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 the company's Annual Report on Form
10-KSB, as amended, for the year ended December 31, 1998.
10.5 --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.
10.6 --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-KSB for the year ended December 31, 1998.
10.7 --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.
10.8 --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.
10.9 --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.
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
10.10 --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.
<PAGE> 1
EXHIBIT 4.4
CERTIFICATES OF DESIGNATIONS,
PREFERENCES, POWERS AND RIGHTS
OF
SERIES 1999 PREFERRED STOCK
OF
AXCESS INC.
Pursuant to Section 151 of the
General Corporation Law
of the State of Delaware
AXCESS INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company"), hereby certifies that,
pursuant to the authority contained in Article Fourth of its Certificate of
Incorporation, as amended, and in accordance with the provisions of Sections 103
and 151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution providing for the issuance of the
Series 1999 Preferred Stock:
RESOLVED, that a series of the class of authorized preferred stock of
the Company is hereby created and the Board of Directors hereby fixes the
designation and amount thereof, and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereon as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall have
a par value of $0.01 per share and shall be designated as Series 1999 Preferred
stock (the "Series 1999 Preferred Stock") and the number of shares constituting
the Series 1999 Preferred Stock shall be TWO THOUSAND FIVE HUNDRED (2,500). The
Series 1999 Preferred stock shall have a stated value of Ten Thousand Dollars
($10,000) per share (the "Original Series 1999 Issue Price").
SECTION 2. RANK. The Series 1999 Preferred stock shall rank: (i) junior
to any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series 1999 Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock and Non-Voting Common Stock, each $0.01 par value per share (the
"Common Stock"); (iii) prior to any class or series of capital stock of the
Company hereafter created not specifically ranking by its terms senior to or on
parity with the Series 1999 Preferred Stock (collectively, with the Common
Stock, the "Junior Securities"); and (iv) on parity with the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series I Preferred
Stock, Series J Preferred Stock of the Company, and any class or series of
capital stock of the Company hereafter created specifically ranking by its terms
on parity with the series 1999 Preferred stock (the "Parity Securities") in each
case as to distributions of assets upon liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary (all such distributions being
referred to collectively as "Distributions").
-1-
<PAGE> 2
SECTION 3. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to Section 3(d), the holders of record of shares
of Series 1999 Preferred stock (the "Holders"), in preference to the holders of
shares of capital stock ranking junior to the Series 1999 Preferred Stock as to
dividends, shall be entitled to receive dividends on each share of Series 1999
Preferred Stock held of record at the annual rate of 8% of the Original Series
1999 Issue Price, payable semi-annually, to the extent of funds legally
available therefor. Such dividends shall be cumulative, shall accrue on each
share on a daily basis (calculated on the basis of a 360-day year, whether or
not earned or declared, from the date of original issue of such shares) and
shall be payable in arrears, when, as and if declared by the Board of Directors,
on the last day of June and December in each year (each such date, a "Dividend
Payment Date"). Each such dividend will be paid to the Holders as they appear on
the stock register of the Company on the record date therefor as shall be fixed
by the Board of Directors, which record date shall not be more than 25 days or
less than 10 days preceding the payment date thereof.
(b) The Company may, at its option, make any dividend payment
to Holders of Series 1999 Preferred Stock in cash or in additional shares
(including fractional shares) of Series 1999 Preferred Stock or in any
combination of cash and such shares. Each such dividend payment (or portion
thereof) to be paid in shares of Series 1999 Preferred Stock shall be paid by
the issuance and delivery to such Holders of that number of additional shares
(including any fractional shares, if applicable) of Series 1999 Preferred Stock
as shall be equal to the quotient obtained by dividing the aggregate dollar
amount of such dividend payment (or portion thereof) by the Original Series 1999
Issue Price per share. Dividends to be paid in additional shares of Series 1999
Preferred Stock shall be deemed to have been made when certificates representing
such additional shares of Series 1999 Preferred Stock have been delivered to the
record holders of the Series 1999 Preferred stock entitled to receive the same,
in accordance with the instructions of such holders designated in writing to the
Company at least two business days prior to any Dividend Payment Date. All
shares of Series 1999 Preferred Stock paid as such dividends (the "Dividend
Shares") shall be validly issued, fully paid and non-assessable, shall be free
and clear of preemptive rights and liens, claims and encumbrances of any kind.
Subject to the other provisions of this Certificate of Designation, holders of
shares of Series 1999 Preferred stock shall not be entitled to any dividend,
whether payable in cash, additional shares of Series 1999 Preferred Stock, or
other property, in excess of full cumulative dividends as herein provided. No
interest, or sum of money in lieu of interest, shall be payable under this
Certificate of Designation in respect of any dividend payment or payments on the
Series 1999 Preferred Stock which may be in arrears.
(c) So long as any Series 1999 Preferred Stock remains
outstanding, the Company will not redeem, purchase or otherwise acquire any
Junior Securities; nor will the Company declare or pay any dividend or make any
distribution (in each case, whether in cash or securities or assets in kind)
upon any Junior Securities (other than stock dividends on Junior Securities,
payable in shares of, options, warrants or similar rights to acquire shares of,
the same class (and series, if applicable) of Junior Securities), or make any
sinking fund or other payment in respect of any of the foregoing if the Company
shall not have paid in full all accrued dividends on the Series 1999 Preferred
Stock in accordance with Section 3(a) hereof.
(d) Anything contained herein to the contrary notwithstanding,
if at any time that any shares of Series 1999 Preferred Stock are outstanding,
the closing bid price per share of the Common Stock on the Nasdaq Stock Market
(or, if the Common Stock is not then included in Nasdaq, but is listed on any
national securities exchange, on the principal national securities exchange on
which the Common Stock is then listed) remains above $20.00 per share (as
adjusted for any stock splits, reverse stock splits, stock dividends or similar
events after the date of this Certificate of Designation) for twenty (20)
consecutive trading days, then, commencing on such 20th trading day, the
cumulative dividend will not be payable; provided, however, that if the closing
bid price per share of the Common Stock remains below $20.00 for twenty (20)
consecutive trading days (as so adjusted), then the dividend will resume as of
such 20th day.
-2-
<PAGE> 3
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of the Company (each a "Liquidation Event"), either voluntary or involuntary,
the Holders of shares of Series 1999 Preferred Stock shall be entitled to
receive, immediately after any distributions to Senior Securities required by
the Company's Certificate of Incorporation or any certificate of designation,
and prior in preference to any distribution to Junior Securities, and in parity
with any distribution to Parity Securities, an amount for each share of Series
1999 Preferred Stock then outstanding equal to the Original Series 1999 Issue
Price, plus any and all accrued unpaid dividends. If upon the occurrence of such
event, and after payment in full of the preferential amounts with respect to the
Senior Securities, the assets and funds available to be distributed among the
Holders of the Series 1999 Preferred stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series 1999 Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series 1999 Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate(s) of designation
relating thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in the Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which any
person or entity acquires more than fifty percent (50%) of the voting power of
the Company (a "Change of Control") shall be deemed to be a Liquidation Event as
defined in section 4(a); provided further that (i) a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
publicly traded company or companies shall not be treated as a Liquidation Event
as defined in Section 4(a), but instead shall be treated pursuant to Section
5(d)(ii) hereof, (ii) the acquisition by Amphion Ventures L.P., by itself or
along with one or more of its affiliates, of more than fifty percent (50%) of
the voting power of the Company shall not be deemed to be a Change of Control
and, accordingly, will not be treated as a Liquidation Event as defined in
section 4(a) and (iii) a consolidation, merger, acquisition, or other business
combination of the Company with or into any other non-publicly traded company or
companies shall be treated as a Liquidation Event as defined in section 4(a).
The Company shall not effect any transaction described in subsection 4(c)(ii)
unless it first gives thirty (30) business days prior notice of such transaction
(during which time the Holder shall be entitled to convert its shares of Series
1999 Preferred Stock into Common Stock). For purposes of this section 4(c), the
public offering, sale or distribution of shares of stock (or assets) of the
Company's Sandia Imaging Systems Corporation subsidiary shall be deemed to be a
Liquidation Event.
(d) In the event that, immediately prior to the closing of a
transaction described in section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) have not been made, the
Company shall either: (i) cause such closing to be postponed until such cash
distributions have been made, or (ii) cancel such transaction, in which event
the rights of the Holders of Series 1999 Preferred stock shall be the same as
existing immediately prior to such proposed transaction.
SECTION 5. CONVERSION. The record Holders of this
Series 1999 Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. On the terms and subject to the
conditions set forth in this Certificate of Designation, each record Holder of
Series 1999 Preferred Stock shall be entitled to convert the shares of Series
1999 Preferred Stock held by such Holder, in whole at any time and in part from
time to time, into a number of fully-paid and non-assessable shares of voting
Common Stock of the Company equal to the quotient of (i) the aggregate Original
Series 1999 Issue Price of the shares of Series 1999 Preferred Stock being
converted divided by (ii) the Conversion Price as determined pursuant to this
Section 5 (the
-3-
<PAGE> 4
"Conversion Price"). The Conversion Price shall initially be TWO
DOLLARS FIFTY CENTS ($2.50) per share of Series 1999 Preferred Stock. The
Conversion Price shall be subject to adjustment from time to time as provided in
Section 5(d). Notwithstanding the foregoing or any other term or provision of
this Certificate of Designation, the Holder shall not be permitted, without the
prior written consent of the Company, to convert any shares of Series 1999
Preferred Stock to shares of voting Common Stock until such time as the Company
shall have received the authorization of its stockholders to issue shares of the
Company's Common Stock to the Holder upon the conversion by the Holder of any
share of Series 1999 Preferred Stock. The Company hereby agrees to submit such a
proposal to its stockholders for approval at the Company's 2000 annual meeting
of stockholders and to use its best efforts to obtain such approval.
(b) Mechanics of Conversion. Subject to the terms of Section
(a) above, the conversion of shares of Series 1999 Preferred Stock may be
effected by written notice to the Company, and shall be effective upon receipt
of such notice by the Company, or as otherwise provided in such notice, and
delivery to the Company of (i) one or more certificates representing the shares
of Series 1999 Preferred Stock being converted, (ii) a certificate of guaranteed
delivery of such certificates reasonably satisfactory to the Company, or (iii)
evidence of the loss, theft or destruction of such certificates pursuant to
Section 11 of this Certificate of Designation, together with any indemnity or
security reasonably requested by the Company pursuant to such Section 11. Upon
any conversion of shares of Series 1999 Preferred Stock pursuant to this Section
5, the Holder shall be deemed to be the record holder of the shares of Common
Stock into which shares of Series 1999 Preferred Stock have been converted and
shall be entitled to receive duly executed certificates, in proper form,
representing such shares of voting Common Stock as soon as practicable
thereafter. Anything contained herein to the contrary notwithstanding, if any
conversion of shares of Series 1999 Preferred Stock would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon such conversion, in the aggregate, shall be rounded to the
nearest whole number of shares (with one-half of a share rounded up).
(c) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series 1999 Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all then
outstanding Series 1999 Preferred Stock. If at any time the number of authorized
but unissued shares of Common Stock (excluding for this purpose any authorized
but unissued shares of Common Stock that are properly reserved for some other
purpose) shall be insufficient to cause the conversion into Common Stock of all
shares of Series 1999 Preferred Stock then outstanding, the Company will take
such corporate action as may be reasonably necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(d) Adjustment to Conversion Price.
(i) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, at any time that any shares of Series 1999
Preferred Stock remain outstanding, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased.
(ii) Adjustment Due to Merger, Consolidation,
Etc. If, at any time that any shares of Series 1999 Preferred Stock remain
outstanding, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Company shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Company or another entity, or there is a sale of all or
substantially all
-4-
<PAGE> 5
the Company's assets or there is a Change of Control not
deemed to be a Liquidation Event pursuant to section 4(c), then the Holders
shall thereafter have the right to receive upon conversion of shares of Series
1999 Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities and/or other assets which the
Holder would have been entitled to receive in such transaction had such shares
of Series 1999 Preferred Stock been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series 1999 Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the number of
shares issuable upon conversion of the Series 1999 Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The Company shall
not effect any transaction described in this subsection 5(d)(ii) unless (A) it
first gives thirty (30) business days prior notice to Holders of such merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event (during which time the Holders shall be entitled to convert their
shares of Series 1999 Preferred Stock into Common Stock) and (B) the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligations of the Company under this Certificate of Designation including
this subsection 5(d)(ii).
SECTION 6. VOTING. The Holders shall be entitled to vote, together with
the holders of the Company's voting Common Stock, as a single class, on all
matters submitted to a vote of the stockholders of the Company, or as to which
the holders of the voting Common Stock shall otherwise be entitled to vote. In
all such matters, the Holders shall be entitled to cast, for each share of
Series 1999 Preferred Stock held of record, a number of votes equal to the
product of (i) the number of votes that one share of voting Common Stock shall
be entitled to cast on such matter times (ii) the number of shares of voting
Common Stock into which one share of Series 1999 Preferred Stock is convertible
on the record date for such vote. As used in this Section 6, all references to
votes and voting shall refer as well to action and actions by written consent.
SECTION 7. OPTIONAL REDEMPTION BY COMPANY. The Series 1999 Preferred
Stock shall be subject to the optional redemption by the Company, in whole at
any time or in part from time to time, at a redemption price per share equal to
the Original Series 1999 Issue Price, plus any and all accrued unpaid dividends
thereon. The Company shall give at least ten (10) days' prior written notice of
any redemption pursuant to this Section 7 to each Holder of shares of Series
1999 Preferred Stock to be redeemed. The Company's optional right of redemption
is subject to each Holder's right to convert all or any part of the shares to be
redeemed into Common Stock pursuant to Section 5, provided that the Holder gives
written notice of such conversion to the Company in accordance with Section 5
within ten (10) business days after the Company's notice of redemption. The
Holders of Series 1999 Preferred Stock shall not be entitled to any mandatory
redemption of their Series 1999 Preferred Stock without the consent of the
Company.
SECTION 8. LOCKUP PERIOD. In the event any shares of Series 1999
Preferred Stock shall be converted pursuant to Section 5 hereof, the Holder
hereby agrees that it shall hold the shares of Common Stock issued to it upon
conversion until July 15, 2002 (the "Lockup Period"); provided, however, the
Lockup Period shall expire on July 27, 2001 if at any time prior to July 27,
2001, (a) the closing bid price per share of the Common Stock on the Nasdaq
SmallCap Market (or, if the Common Stock is not then included in Nasdaq, but is
listed on any national securities exchange, on the principal national securities
exchange on which the Common Stock is then listed) remains above $7.50 per share
for a period of twenty (20) consecutive trading days and (b) the average trading
volume of the Common Stock on Nasdaq is at least 50,000 shares per day as
measured by Nasdaq during the same twenty (20) consecutive trading days.
SECTION 9. MANDATORY CONVERSION BY COMPANY. Each share of Series 1999
Preferred Stock shall automatically convert into that number of fully-paid and
non-assessable shares of voting Common Stock of the Company equal to the
Original Series 1999 Issue Price plus all accrued, but unpaid dividends thereon,
divided by the Conversion Price (subject to adjustment from time to time as
provided in Section 5(d)), upon (a) the closing bid price per share of the
Common Stock on the Nasdaq SmallCap Market (or, if the Common
-5-
<PAGE> 6
Stock is not then included in Nasdaq, but is listed on any national securities
exchange, on the principal national securities exchange on which the Common
Stock is then listed) having reached and remained above $7.50 per share for a
period of twenty (20) consecutive trading days and (b) the average trading
volume of the Common Stock on Nasdaq remaining at least 50,000 shares per day as
measured by Nasdaq during the same twenty (20) consecutive trading days. If,
however, the Series 1999 Preferred Stock is converted by the Company pursuant to
this Section 9, the Lockup Period shall expire as of the date of any such
conversion by the Company pursuant to this Section 9.
SECTION 10. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series 1999 Preferred Stock shall be converted pursuant to either
Section 5 or 9 hereof or redeemed pursuant to Section 7 hereof, the shares so
converted or redeemed shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated series, and shall not
thereafter be issuable by the Company as Series 1999 Preferred Stock.
SECTION 11. OTHER PREFERRED STOCK. Nothing contained herein shall be
construed to prevent the Board of Directors from authorizing the creation of, or
to prevent the Company from issuing shares of, one or more series of Preferred
Stock senior to, junior to or on parity with the Series 1999 Preferred Stock as
to dividend, liquidation rights or otherwise.
SECTION 12. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series 1999 Preferred Stock, and (in the case of loss,
theft or destruction) of indemnity or security reasonably satisfactory to the
Company, and upon surrender and cancellation of the certificate(s), if
mutilated, the Company shall execute and deliver to the record Holder thereof
new certificate(s) of like tenor and date. However, the Company shall not be
obligated to re-issue such lost or stolen certificates if the Holder
contemporaneously requests the Company to convert such shares of Series 1999
Preferred Stock into shares of Common Stock.
SECTION 13. FRACTIONAL SHARES. In the event a Holder of Series 1999
Preferred Stock shall be entitled to receive a fractional interest in a share of
Series 1999 Preferred Stock of less than one one-hundredth of one share, except
as otherwise provided herein, the Company shall either, in the sole discretion
of the Board of Directors, (a) round such fractional interest up to the next
one-hundredth of one whole share of Series 1999 Preferred Stock or (b) deliver
cash in the amount of the fair market value (as determined by the Board of
Directors or in any manner prescribed by the Board of Directors) of such
fractional interest.
SECTION 14. PREEMPTIVE RIGHTS. The Holders of Series 1999 Preferred
Stock are not entitled to any preemptive or subscription rights in respect of
any securities of the Company.
SECTION 15. COUNTERPARTS. This Certificate of Designation may be
executed on separate counterparts and shall be effective as of the date signed.
-6-
<PAGE> 7
IN WITNESS WHEREOF, AXCESS Inc. has caused this certificate to be signed by
its Chairman of the Board and attested by its Secretary, as of the 28th day of
July, 1999.
/s/ Danny G. Hair
--------------------------------------------
Danny G. Hair, Chief Financial Officer
Attest:
/s/ MICHAEL R. DOREY
- --------------------------------------
Michael R. Dorey, Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AT JUNE 30, 1999 (UNAUDITED) AND THE CONDENSED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 70,664
<SECURITIES> 0
<RECEIVABLES> 117,708
<ALLOWANCES> 0
<INVENTORY> 605,682
<CURRENT-ASSETS> 972,264
<PP&E> 1,189,289
<DEPRECIATION> 661,654
<TOTAL-ASSETS> 7,231,646
<CURRENT-LIABILITIES> 3,983,413
<BONDS> 0
0
27,689,880
<COMMON> 32,919
<OTHER-SE> (25,589,771)
<TOTAL-LIABILITY-AND-EQUITY> 7,231,646
<SALES> 123,204
<TOTAL-REVENUES> 123,204
<CGS> 65,750
<TOTAL-COSTS> 3,492,628
<OTHER-EXPENSES> (1,949,444)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,361
<INCOME-PRETAX> 313,441
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,543,184)
<DISCONTINUED> 1,856,625
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313,441
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AT JUNE 30, 1998 (UNAUDITED) AND THE CONDENSED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 101,656
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,352,133
<PP&E> 1,724,194
<DEPRECIATION> 1,069,414
<TOTAL-ASSETS> 10,373,137
<CURRENT-LIABILITIES> 5,823,213
<BONDS> 0
0
17,979,880
<COMMON> 25,919
<OTHER-SE> (15,503,322)
<TOTAL-LIABILITY-AND-EQUITY> 10,373,137
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,697,436
<OTHER-EXPENSES> 314,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 380,770
<INCOME-PRETAX> (6,055,777)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,011,920)
<DISCONTINUED> (1,993,857)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,005,777)
<EPS-BASIC> (2.63)
<EPS-DILUTED> (2.63)
</TABLE>
