<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JULY 28, 1999
AXCESS INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-11933 85-0294536
(State or other jurisdiction of (Commission File Number) (I.R.S. employer identification no.)
incorporation or organization)
3208 COMMANDER DRIVE, DALLAS, TEXAS 75006
(Address of principal executive offices) (Zip Code)
</TABLE>
(972) 407-6080
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
On August 12, 1999, AXCESS Inc., filed its initial report on Form 8-K
reporting its acquisition of substantially all of the assets of Prism Video,
Inc. This Amendment No. 1 to the Form 8-K includes the financial statements of
Prism Video, Inc. and the pro forma financial information required by Item 7 of
Form 8-K.
ITEM 5. ACQUISITION OR DISPOSITION OF ASSETS.
On July 28, 1999, the company completed its acquisition of
substantially all of the assets of Prism Video, Inc. The assets acquired
included all patents, trade secret rights, software, hardware, product designs
and all other technical information necessary to design, manufacture and market
security video and CCTV products using digital video compression technology and
remote telephone line video technology (collectively, the "Video Technology").
The company also acquired Prism's inventory of video storage products
and all equipment used in connection with producing the security video and CCTV
products. The company accomplished the acquisition pursuant to an Asset
Purchase Agreement dated July 15, 1999, by and between the company and Prism,
Video, Inc. After an arm's length negotiation, the company and Prism agreed to
the following consideration for the assets acquired:
o the company issued a note payable to Prism in the amount of
$4,000,000 (the "Purchase Note");
o the company issued 125 shares of a new series of 8%
convertible preferred stock (the "Preferred Stock"); and
o the company issued a warrant to acquire 500,000 shares of the
company's common stock exercisable on or before the
expiration of five years (the "Warrant").
The company will satisfy its obligations under the Purchase Note through an
assignment to Prism of the principal payments due the company under its
$3,900,000 note receivable from Amphion Ventures L.P., which was issued to the
Company as partial consideration for the sale of its Lasertechnics Marking
Corporation subsidiary and certain unrelated technology assets. The Preferred
Stock has a stated value of $10,000 per share and is convertible into 500,000
shares of common stock at a conversion price of $2.50 per share. The exercise
price of the Warrant is $2.50.
Under the terms of the agreement, the common stock to be acquired by
Prism upon conversion of the Preferred Stock or exercise of the Warrant is
subject to a three-year lockup from the date of closing, which may be reduced
to two years upon the occurrence of certain events. Further, Prism has agreed
not to convert the Preferred Stock or exercise the Warrant until the company
obtains stockholder approval to issue the common stock issuable upon either the
conversion or exercise thereof, as the case may be. The company intends to
submit this proposal at its 2000 annual meeting of stockholders.
A portion of the assets acquired constitute equipment and other
physical property used in connection with manufacturing security video and CCTV
products utilizing the Video Technology. These assets will continue to be
utilized by the company for such purposes.
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<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The Independent Auditor's Report and the audited balance sheets of
Prism Video, Inc., as of June 30, 1999, and 1998, related statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
ended June 30, 1999 and 1998, and the notes thereto, are set forth on pages
4-14 of this current Report on Form 8-K.
-3-
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Prism Video, Inc.:
We have audited the accompanying balance sheets of Prism Video, Inc. as of June
30, 1999 and 1998, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prism Video, Inc. as of June
30, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Dallas, Texas
August 27, 1999
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<PAGE> 5
PRISM VIDEO, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 42,116 $ 102,271
Accounts receivable - trade (net of allowance for
doubtful accounts of $40,600 in 1999 and
$36,576 in 1998) ................................................ 164,581 218,928
Inventory ....................................................... 452,979 904,631
Prepaid expenses and other ...................................... 138 2,730
------------ ------------
Total current assets ....................................... 659,814 1,228,560
Furniture and equipment, net ......................................... 71,943 104,842
Intangible asset, net ................................................ 4,849,999 5,360,525
Other assets ......................................................... 11,968 10,775
------------ ------------
Total assets ............................................... $ 5,593,724 $ 6,704,702
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to stockholder .......................................... $ 7,000,000 $ 4,600,000
Accounts payable ................................................ 227,005 215,798
Other accrued liabilities ....................................... 80,740 60,224
------------ ------------
Total current liabilities ................................. 7,307,745 4,876,022
Stockholders' equity (deficit):
Convertible preferred stock, Series A, $0.01 par value, 100,000 shares
authorized; 100,000 shares issued
and outstanding in 1999 and 1998 ............................ 1,000 1,000
Convertible preferred stock, Series B, $0.01 par value; 620,000 shares
authorized; 560,000 shares issued and
outstanding in 1999 and 1998 .............................. 5,600 5,600
Common stock, $0.01 par value, 797,333 shares authorized; 110,730
shares issued and outstanding in 1999 and 1998 ............. 1,107 1,107
Paid-in capital ...................................................... 13,603,366 13,603,366
Accumulated deficit .................................................. (15,325,094) (11,782,393)
------------ ------------
Total stockholders' equity (deficit) ............ (1,714,021) 1,828,680
------------ ------------
Total liabilities and stockholders' equity ...... $ 5,593,724 $ 6,704,702
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
PRISM VIDEO, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Sales ............................. $ 1,153,263 $ 1,078,802
Cost of sales ..................... 1,591,806 1,093,514
----------- -----------
Gross profit (loss) ............ (438,543) (14,712)
Expenses:
Selling and marketing .......... 1,147,911 1,007,829
Research and development ....... 918,941 872,184
General and administrative ..... 486,040 572,826
Depreciation and amortization... 550,543 548,034
----------- -----------
Total operating expenses .... 3,103,435 3,000,873
----------- -----------
Loss from operations ........ (3,541,978) (3,015,585)
----------- -----------
Other income (expense), net ....... (723) 57
----------- -----------
Net loss ....................... $(3,542,701) $(3,015,528)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 7
PRISM VIDEO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock
------------------------ ------------------------
Shares Amount Shares Amount
------- ------ ------- ------
<S> <C> <C> <C> <C>
Balance at June 30, 1997 100,000 $1,000 560,000 $5,600
Issuance of common stock -- -- -- --
Net loss -- -- -- --
------- ------ ------- ------
Balance at June 30, 1998 100,000 $1,000 560,000 $5,600
Net loss -- -- -- --
------- ------ ------- ------
Balance at June 30, 1999 100,000 $1,000 560,000 $5,600
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Common Stock
------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 107,370 $1,074 $13,603,063 $ (8,766,865) $ 4,843,872
Issuance of common stock 3,360 33 303 -- 336
Net loss -- -- -- (3,015,528) (3,015,528)
------- ------ ----------- ------------ -----------
Balance at June 30, 1998 110,730 1,107 13,603,366 (11,782,393) 1,828,680
Net loss -- -- -- (3,592,701) (3,592,701)
------- ------ ----------- ------------ -----------
Balance at June 30, 1999 110,730 $1,107 $13,603,366 $(15,325,094) $(1,714,021)
======= ====== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 8
PRISM VIDEO, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations ......................................... $(3,542,701) $(3,015,528)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization .............................. 550,543 548,034
Loss on sale of assets ..................................... -- (57)
Inventory write-downs to net realizable value .............. 646,660 255,842
Provision for losses on accounts receivable ................ 34,800 95,403
Changes in operating assets and liabilities:
Accounts receivable ..................................... 19,547 (34,833)
Inventory ............................................... (195,008) (44,274)
Prepaid expenses and other .............................. 1,399 10,270
Accounts payable ........................................ 11,207 150,753
Other assets ............................................ 20,516 (3,917)
----------- -----------
Net cash used by operating activities ............... (2,453,037) (2,038,307)
Cash flows from investing activities:
Capital expenditures ....................................... (7,118) (12,239)
Proceeds from sale of furniture and fixtures ............... -- 325
----------- -----------
Net cash used by investing activities ................ (7,118) (11,914)
Cash flows from financing activities:
Advances from stockholder .................................. 2,400,000 2,000,000
Issuance of common stock ................................... -- 336
----------- -----------
Net cash provided (used) by financing
activities ........................... 2,400,000 2,000,336
Net decrease in cash and cash equivalents .................. (60,155) (49,885)
Cash and cash equivalents, beginning of period ....................... 102,271 152,156
----------- -----------
Cash and cash equivalents, end of period ............................. $ 42,116 $ 102,271
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 9
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Company Organization and Basis of Presentation
Prism Video, Inc. ("Prism" or the "company") is a
privately-held company engaged in the design, manufacture and
marketing of video security technology and video storage
products. The core compression technology utilized in Prism's
products was acquired in 1993 from Prism's predecessor
company, Universal Video Communications Corporation ("UVCC"),
which declared Chapter 7 bankruptcy in 1993. Brierley
Investments Limited ("BIL"), which had an investment in UVCC
prior to 1993, has provided the ongoing financing to allow
Prism to conduct operations. Upon the company's initial
capitalization in August 1994, BIL contributed the core
compression technology and related patents in exchange for
Series A and Series B preferred stock. BIL's beneficial
ownership interest in Prism, through its preferred stock
holdings, is approximately 83%.
(b) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
(c) Inventory
Inventory is stated at the lower of cost or market using the
first-in, first-out method. Inventory was comprised of the
following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30,
--------
1999 1998
-------- --------
<S> <C> <C>
Raw materials $377,894 $834,413
Work-in-process 57,122 10,184
Finished goods 17,963 60,034
-------- --------
$452,979 $904,631
======== ========
</TABLE>
Raw materials inventory at June 30, 1999 and 1998 consists
primarily of UVC 7710 integrated circuits which are embedded
in several of the company's products and which contain the
company's patented algorithms.
During the year ended June 30, 1999, the Company introduced
several new products and substantially changed its basic
product design, which significantly reduced the utility of
the UVC 7710 integrated circuits. Accordingly, the company
recorded a write-off of $558,000, which is included in cost
of sales in the accompanying statement of operations, to
reduce UVC inventory to estimated net realizable value. The
company also recorded write-downs of approximately $89,000 to
reduce certain inventory used in the former product line to
estimated net realizable value.
-9-
<PAGE> 10
(d) Depreciation
Depreciation on furniture and equipment is calculated using
the straight-line method over the estimated useful lives of
the respective assets.
(e) Fair Value of Financial Instruments
The carrying amounts of accounts receivable, accounts
payable, accrued liabilities and payable to BIL (See Note 4
to Notes to Financial Statements) approximate fair value
because of the short-term maturity of these instruments.
(f) Income Taxes
The company accounts for income taxes under the asset and
liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount more likely than not to be realized. Income tax
expense is the total of tax payable for the period and the
change during the period in deferred tax assets and
liabilities.
(g) Revenue Recognition
The company recognizes revenue on sales of its products
either when the products are shipped from the company or
received by the customer, depending on the shipping terms.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of
Long-lived assets and certain identifiable intangibles are
reviewed by the company for impairment whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the
fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell.
(i) Research and Development Costs
The company capitalizes certain software development costs
once technological feasibility has been established and
evaluates the recoverability of any capitalized costs based
on amount expected to be realized from sales of the related
products. No such costs have been capitalized to date, as
costs incurred subsequent to the establishment of
technological feasibility are immaterial. Research and
development costs incurred prior to the establishment of
technological feasibility are expensed as incurred.
-10-
<PAGE> 11
(j) 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. SFAS 133, as amended by SFAS No.
137, is 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.
2. FURNITURE AND EQUIPMENT
Furniture and equipment is comprised of the following:
<TABLE>
<CAPTION>
June 30,
1999 1998
--------- ---------
<S> <C> <C>
Furniture $ 32,645 $ 32,645
Equipment 183,332 176,214
--------- ---------
215,977 208,859
Accumulated depreciation (144,033) (104,017)
--------- ---------
Furniture and equipment, net $ 71,943 $ 104,842
========= =========
</TABLE>
3. INTANGIBLE ASSET
Intangible asset consists of the net unamortized balance of the
company's patent rights covering algorithms which perform compression
and decompression of digital video data. Amortization is computed on a
straight-line basis over 19 years, the average term of the underlying
patents. Amortization expense was $510,526 during the years ended June
30, 1999 and 1998.
4. RELATED PARTY TRANSACTIONS
The company's assets were contributed from Brierley Investments
Limited in August 1994 in exchange for preferred stock. During the
period April 1, 1996 through June 30, 1999, BIL advanced the company a
total of $7,000,000, none of which had been repaid as of June 30,
1999. Such advances do not bear interest, are not for a specific term,
and are repayable on demand by BIL. As of June 30, 1999 and 1998,
respectively, the amounts payable to BIL under this arrangement were
$7,000,000 and $4,600,000.
On July 14, 1999, in connection with the issuance of Series B
Preferred Stock (see note 5), BIL agreed to forgive the $7 million
payable in exchange for 700,000 shares of Series B Preferred Stock.
-11-
<PAGE> 12
5. PREFERRED STOCK
Through June 30, 1999, the company had authorized 100,000 shares of
Series A Preferred Stock, par value $.01 per share, and 620,000 shares
of Series B Preferred Stock, par value $.01 per share. As of June 30,
1999 and 1998, the company had issued 100,000 shares of Series A
Preferred Stock and 560,000 shares of Series B Preferred Stock. Total
proceeds from issuance of the preferred stock equaled $13,600,000.
On July 14, 1999, Prism amended the company's certificate of
incorporation to: 1) increase the number of preferred shares
designated as Series B to 2,060,000; 2) delete the Series A Preferred
Stock liquidation preference; and 3) provide that each share of Series
A Preferred Stock, previously not convertible, is convertible at the
option of the holder into eight shares of Series B Preferred Stock of
the company. Additionally, BIL agreed to: 1) purchase 700,000
additional shares of Series B Preferred Stock for an aggregate
purchase price of $7 million; 2) convert 100,000 shares of Series A
Preferred Stock into 800,000 shares of Series B Preferred Stock; and
3) convert the 2,060,000 shares of Series B Preferred Stock then held
into 2,060,000 shares of common stock. The holders of the preferred
stock are entitled to certain rights as described below.
Dividend Preference - The holders of record of Series A Preferred
Stock are not entitled to any dividend preference. The holders of
record of Series B Preferred Stock are entitled to receive cash
dividends when and if declared by the Board of Directors out of funds
legally available before any dividend is declared or paid on the
company's common stock. The right to such dividends on the Series B
Preferred Stock is not cumulative, and no rights accrue to holders of
the Series B Preferred Stock by reason of the fact that dividends on
said stock are not declared in any year.
Liquidation Preference - Upon any voluntary or involuntary
liquidation, dissolution or other termination of the company, the
preferred stockholders are entitled to a liquidation preference of
$10.00 per share for Series B Preferred Stock, plus all declared and
unpaid dividends. After setting apart or paying in full the
preferential amounts due the preferred stockholders, the remaining
assets of the company available for distribution to stockholders, if
any, shall be distributed ratably to the holders of all of the shares
of the common stock.
Conversion Rights - The Series A Preferred Stock is convertible at the
option of the holder into eight shares of Series B Preferred Stock of
the company. Each share of Series B Preferred Stock is convertible
into the number of fully paid and nonassessable shares of common stock
as is determined by dividing $10.00 by the Series B Conversion Price
in effect at the time of conversion, which shall be subject to
adjustment. As discussed previously, BIL, as holder of all of the
Series B Preferred Stock outstanding, agreed to convert such stock
into common stock on a share-for-share basis.
Voting Rights - Holders of the Series A Preferred Stock have no voting
rights. The Series B Preferred Stock conveys voting rights and powers
equal to the voting rights and powers associated with the company's
common stock.
6. INCOME TAXES
Due to the company's losses, no income tax expense was recorded for
the years ended June 30, 1999 and 1998.
-12-
<PAGE> 13
At June 30, 1999, the company had net operating loss carryforwards for
U. S. federal income tax purposes of approximately $12,700,000, which
are available to offset future taxable income through 2008. The tax
benefit (approximately $4,300,000) of the net operating loss
carryforward has been fully offset by a valuation allowance, since the
company cannot currently conclude that it is more likely than not that
the benefit will be realized.
7. RETIREMENT PLANS
The company has a 401(k) Retirement Savings Plan (the "Plan"). The
Plan is a defined contribution plan covering all full-time employees
of the company who have at least three months of service. Participants
may contribute up to 15% of their base pay in pretax dollars. The
company made no matching contributions for the years ended June 30,
1999 and 1998.
8. LEASE OBLIGATIONS
The company leases its offices and manufacturing facilities under
operating leases which expire through September 30, 2000. The rental
expense recorded for operating leases was $147,409 and $120,792 during
the years ended June 30, 1999 and 1998. Future minimum annual
noncancellable rent payments for its facilities are as follows:
<TABLE>
<CAPTION>
Future Minimum
Years Ended Annual Lease Payments
------------- ---------------------
<S> <C>
June 30, 2000 $142,263
June 30, 2001 30,487
</TABLE>
9. STOCK OPTIONS
In 1994, the company established the Prism Video, Inc. Stock Option
Plan (the "Stock Plan") which provides for the issuance of stock
options to employees of the company. The Stock Plan makes available
for issuance 41,333 shares of common stock. Options issued under the
Stock Plan, unless otherwise determined by the company's board of
directors, have a vesting period of five years and an expiration date
of ten years subsequent to issuance. Options issued are required to
have an exercise price of not less than fair market value of the
company's common stock on the date of grant.
The company has also granted options to purchase 29,334 shares of
common stock to an officer of the company. These ten-year options,
issued in 1994, vested immediately and have an exercise price of $.10.
The company applies APB Opinion No. 25 in accounting for options
issued and, accordingly, no compensation cost has been recognized for
its stock options in the accompanying financial statements. Had the
Company determined compensation costs based on the fair value at the
grant date for its stock options under SFAS No. 123, the company's net
loss would not have been materially different for those periods
presented in the accompanying statements of operations.
-13-
<PAGE> 14
Following is a summary of activity in the Stock Plan discussed above
for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Average Weighted Average
Exercise Exercise
Shares Price Shares Price
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 65,410 $ 0.10 58,128 $ 0.10
Granted --
Exercised -- (3,360)
Canceled (750) 0.10 (6,208) 0.10
------- ---------- ------- ----------
Options outstanding at end of year 64,660 $ 0.10 65,410 $ 0.10
======= ========== ======= ==========
Options exercisable at year end 48,320 $ 0.10 41,348 $ 0.10
======= ========== ======= ==========
</TABLE>
On July 14, 1999, the board of directors authorized the increase in
shares available under the Stock Plan to accommodate a grant of
options to purchase an additional 90,427 shares of common stock with
an exercise price of $0.10 per share. These options vest immediately.
Further, the options previously outstanding at July 14, 1999 became
fully vested. Additionally, the board of directors granted options to
an officer of the company to purchase 200,919 shares of common stock,
which immediately vested, at an exercise price of $.10 per share.
10. SUBSEQUENT EVENT
On July 28, 1999, substantially all of the company's assets, including
its network video technology, were acquired by AXCESS Inc. for
approximately $5.6 million. The purchase price is comprised of a note
payable of $3.1 million, preferred stock and warrants of $2.3 million,
and the assumption of certain liabilities.
The assets acquired by AXCESS 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. AXCESS did not assume the payable to Brierley
Investments Limited ("BIL"), as such payable was forgiven by BIL in
exchange for preferred stock prior to the acquisition by AXCESS (see
note 4). The note payable is secured by AXCESS' $4 million note
receivable from one of its stockholders, Amphion Ventures, L.P. In
addition, the shares of AXCESS 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.
The company has agreed not to convert the preferred stock or exercise
the warrant until AXCESS obtains stockholder approval to issue the
common stock. AXCESS has advised the company that such stockholder
approval will be sought at its annual meeting of stockholders in 2000.
-14-
<PAGE> 15
ITEM 7. CONTINUED.
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed combined financial
statements have been derived from the historical financial statements of AXCESS
Inc. and Prism Video, Inc. The unaudited pro forma condensed combined balance
sheet as of June 30, 1999 has been presented as if the acquisition of Prism had
been consummated as of that date. The unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1998, and for the six
months ended June 30, 1999, have been presented as if the acquisition had been
consummated as of January 1, 1998. AXCESS acquired Prism on July 28, 1999.
The unaudited pro forma condensed combined financial statements give
effect to the acquisition of Prism in accordance with the purchase method of
accounting for business combinations and are based upon the assumptions and
adjustments described in the accompanying notes. The purchase accounting
adjustments reflect the final fair values of the net assets acquired and
liabilities assumed.
The pro forma adjustments do not reflect any operating efficiencies
and cost savings that AXCESS may achieve with respect to the combined
companies. The pro forma adjustments also do not include any adjustments to
historical revenues for any new products which may be developed and marketed in
the future nor for any future price changes for existing products. The pro
forma adjustments do not include any adjustments to historical amounts for cost
of sales, research and development, sales and marketing, or general and
administrative expenses for any future operating changes.
The unaudited pro forma condensed combined financial results are not
necessarily indicative of the financial position or operating results that
would have occurred had the acquisition been consummated at that date, or at
the beginning of the period for which such transactions have been given effect,
nor of the combined results of future operations.
-15-
<PAGE> 16
AXCESS INC.
BALANCE SHEET
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
AXCESS
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------------------------- FOR AND AS
ASSETS AXCESS(1) PRISM(1) ACQUISITION ADJUSTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents .......... $ 70,664 $ 42,116 $ $ 112,780
Accounts receivable - trade ........ 109,580 164,581 -- 274,161
Inventory .......................... 605,682 452,979 -- 1,058,661
Prepaid expenses and other ......... 186,338 138 -- 186,476
------------ ------------ ------------ ------------
Total current assets ............. 972,264 659,814 -- 1,632,078
Property, plant and equipment, net .... 527,635 71,943 -- 599,578
Note receivable from stockholder --
long-term ............................. 3,902,375 -- -- 3,902,375
Intangible asset ...................... 1,541,929 4,849,999 19,006(2) 6,410,934
Other assets .......................... 287,443 11,968 -- 299,411
------------ ------------ ------------ ------------
Total assets ..................... $ 7,231,646 $ 5,593,724 $ 19,006 $ 12,844,376
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Convertible notes payable to
stockholders ....................... 1,153,650 -- $ -- $ 1,153,650
Payable to stockholder ............. -- 7,000,000 (7,000,000)(2) --
Notes payable ...................... 58,160 -- -- 58,160
Accounts payable ................... 770,581 227,005 -- 997,586
Accrued liabilities ................ 2,001,022 80,740 (80,740)(3) 2,001,022
------------ ------------ ------------ ------------
Total current liabilities ........ 3,983,413 7,307,745 (7,080,740) 4,210,418
Notes payable, long term .............. 1,115,205 -- 3,100,725(2) 4,215,930
------------ ------------ ------------ ------------
Total liabilities ................ 5,098,618 7,307,745 (3,980,015) 8,426,348
Stockholders' equity:
Convertible preferred stock ........... 27,689,880 6,600 1,250,000(2) 28,939,880
(6,600)(3)
Common stock .......................... 31,794 1,107 (1,107)(3) 31,794
Non-voting convertible common
stock ................................. 1,125 -- -- 1,125
Paid-in capital ....................... 58,887,848 13,603,366 1,035,000(2) 59,922,848
(13,603,366)(3)
Accumulated deficit ................... (84,477,619) (15,325,094) 15,325,094(3) (84,477,619)
------------ ------------ ------------ ------------
Total stockholders' equity ......... 2,133,028 (1,714,021) 3,999,021 4,418,028
------------ ------------ ------------ ------------
Total liabilities and stockholders
equity ............................. $ 7,231,646 $ 5,593,724 $ 19,006 $ 12,844,376
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed combined balance sheet.
-16-
<PAGE> 17
AXCESS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
(1). Represents historical amounts for AXCESS and Prism as of June 30, 1999.
(2). Represents the adjustments to give effect to AXCESS' acquisition of
Prism using purchase accounting as if the acquisition had occurred on June 30,
1999. A summary of the adjustments is as follows:
Purchase price, including liabilities assumed:
<TABLE>
<S> <C>
Note payable: non-interest bearing, due December 31, 2002
(Face amount of $4 million; recorded at present value) $3,100,725
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 1,250,000
Warrant to purchase 500,000 shares of common stock at $2.50 per
share 1,035,000
Assumption of specific liabilities 227,005
----------
$5,612,730
==========
Allocation of purchase price based on fair values of assets acquired:
Current assets, including cash, accounts receivable and inventory $ 659,814
Furniture and equipment and other assets 83,911
Intangible asset (patents and other intellectual property) 4,869,005
----------
Fair market value of assets acquired $5,612,730
==========
</TABLE>
(3). The elimination of Prism's equity accounts and liabilities which were
not assumed by AXCESS.
-17-
<PAGE> 18
AXCESS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
AXCESS
PRO FORMA PRO
ADJUSTMENTS FORMA
FOR AND AS
AXCESS(2) PRISM(2) ACQUISITION ADJUSTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ................................... $ 43,146 $ 1,134,346 $ -- $ 1,177,492
Cost of sales ........................... 4,298 1,769,678 -- 1,773,976
------------ ------------ ------------ ------------
Gross profit (loss) .................. 38,848 (635,332) -- (596,484)
Expenses:
Research and development ............. 2,870,246 966,347 -- 3,836,593
Selling and marketing ................ 564,417 1,053,945 -- 1,618,362
General and administrative ........... 4,522,234 560,516 -- 5,082,750
Depreciation and amortization ........ 781,243 549,614 463,275(3) 1,794,132
------------ ------------ ------------ ------------
Total operating expenses ........... 8,738,140 (3,130,422) 463,275(3) 12,331,837
------------ ------------ ------------ ------------
Loss from operations ............... (8,699,292) (3,765,754) (463,275) (12,928,321)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense ..................... (532,797) -- (324,686)(3) (857,483)
Other .............................. 21,861 (341) -- 21,520
------------ ------------ ------------ ------------
Other expense, net ................. (510,936) (341) (324,686) (835,963)
------------ ------------ ------------ ------------
Loss from continuing
operations ......................... (9,210,228) (3,766,095) (787,961) (13,764,284)
Preferred stock dividend
requirements ......................... (1,500,422) -- (100,000)(3) (1,600,422)
------------ ------------ ------------ ------------
Loss from continuing operations
applicable to common stock ........... $(10,710,650) $ (3,766,095) $ (887,961) $(15,364,706)
============ ============ ============ ============
Basic and diluted net loss per share:
Continuing operations ................ $ (3.99) $ (5.73)
============ ============
Weighted average shares of
common stock outstanding-basic
and diluted ...................... 2,681,456 2,681,456
============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of operations.
-18-
<PAGE> 19
AXCESS INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
AXCESS
PRO FORMA PRO
ADJUSTMENTS FORMA
FOR AND AS
AXCESS(1) PRISM(1) ACQUISITION ADJUSTED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ................................... $ 123,204 $ 546,467 $ -- $ 669,671
Cost of sales ........................... 65,750 557,012 -- 622,762
----------- ----------- ----------- -----------
Gross profit (loss) .................. 57,454 (10,545) -- 46,909
Expenses:
Research and development ............. 640,593 434,148 -- 1,074,741
Selling and marketing ................ 1,213,155 559,863 -- 1,773,018
General and administrative ........... 1,426,147 254,061 -- 1,680,208
Depreciation and amortization ........ 270,187 232,859 231,637(2) 734,683
----------- ----------- ----------- -----------
Total operating expenses ........... 3,550,082 1,480,931 231,637 5,262,650
----------- ----------- ----------- -----------
Loss from operations ............... (3,492,628) (1,491,476) (231,637) $(5,215,741)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ...................... 67,950 -- -- 67,950
Interest expense ..................... (159,361) -- (174,879)(1) (334,240)
Other .............................. 2,040,855 (381) -- 2,040,474
----------- ----------- ----------- -----------
Other expense, net ................. 1,949,444 (381) (174,879) 1,774,184
----------- ----------- ----------- -----------
Loss from continuing
operations ......................... (1,543,184) (1,491,857) (406,516) (3,441,557)
Preferred stock dividend
requirements ......................... (1,140,494) -- (50,000)(3) (1,190,494)
----------- ----------- ----------- -----------
Net loss from continuing operations
applicable to common stock............ $(2,683,678) $(1,491,857) $ (456,516) $(4,632,051)
=========== =========== =========== ===========
Basic and diluted net loss per share:
Continuing operations ................ $ (0.84) $ (1.45)
=========== ===========
Weighted average shares of
common stock outstanding-basic
and diluted ...................... 3,195,727 3,195,727
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of operations.
-19-
<PAGE> 20
AXCESS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(1). For the six months ended June 30, 1999. Represents the unaudited
historical results of operations for AXCESS and Prism. Prism's results of
operations for this period were calculated by subtracting its unaudited
historical results for the six months ended December 31, 1998, from its audited
results for the twelve months ended June 30, 1999.
(2). For the year ended December 31, 1998. Represents the audited historical
results of operations for AXCESS and the unaudited historical results of
operations for Prism. Prism's results of operations for this period were
calculated by (a) adding the unaudited historical results of operations for the
six months ended December 31, 1998 to the audited historical amounts for the
twelve months ended June 30, 1998 and (b) subtracting the unaudited historical
results of operations for the six months ended December 31, 1997, from the
audited historical results for the twelve months ended June 30, 1998.
(3). Represents the adjustments to give effect to the acquisition of Prism
as if it occurred on January 1, 1998:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
---------------- -----------------
<S> <C> <C>
Imputed interest expense on the $4.0 million face
amount ($3,100,725 present value), non-interest
bearing note payable issued to fund the acquisition
of Prism, with interest calculated at 10% $174,879 $324,686
Increased amortization expense on the estimated fair
value of the intangible asset acquired ($4.9
million) based on an estimated useful life of five
years and Prism's historical amortization expense
of $255,263 and $510,526 for the six months ended
June 30, 1999 and the year ended December 31, 1998,
respectively $231,637 $463,275
Dividend requirement on 125 shares of the new series of
preferred stock issued to fund the acquisition of
Prism $ 50,000 $100,000
</TABLE>
-20-
<PAGE> 21
Listed below are the exhibits filed as a part of this report.
2.1 -- Asset Purchase Agreement by and between AXCESS Inc. and
Prism Video, Inc. dated July 15, 1999. Incorporated herein by
reference to Exhibit 2.1 to the company's Report on Form 8-K
dated August 12, 1999.
99.1 -- Press release dated July 16, 1999. Incorporated herein by
reference to Exhibit 99.1 to the company's Report on Form 8-K
dated August 12, 1999.
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
AXCESS Inc. has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 8, 1999 AXCESS INC.
By: /s/ James R. Craig
---------------------------------------
James R. Craig, Chief Financial Officer
-22-
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ -------
<S> <C>
2.1 Asset Purchase Agreement by and between AXCESS Inc.
and Prism Video, Inc. dated July 15, 1999.
Incorporated herein by reference to Exhibit 2.1 to
the company's Report on Form 8-K dated August 12,
1999.
99.1 Press release dated July 16, 1999. Incorporated
herein by reference to Exhibit 99.1 to the company's
Report on Form 8-K dated August 12, 1999.
</TABLE>
