United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year ended June 30, 1997
or
[ ] Transition Report Under to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______________ to ____________
Commission file number 0-28920
Access Solutions International, Inc.
(Name of small business issuer as specified in its charter)
Delaware 05-0426298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Ten Rod Road
North Kingstown, RI 02852
(Address of principal executive offices)
(401) 295-2691
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units, each consisting of two shares of common stock, $.01 par value
("Common Stock") and one redeemable common stock purchase
warrant ("Redeemable Warrant")
Common Stock
Redeemable Warrants
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. []
Issuer's revenues for its most recent fiscal year: $1,091,578.
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed at $3.125 per share, the closing price of the Common
Stock on September 1, 1997:
$9,976,031.
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
as of September 1, 1997 was 3,963,940.
Documents Incorporated by Reference:
None
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
RECENT DEVELOPMENTS
On April 15, 1997, Access Solutions International, Inc. ("ASI") and
PaperClip Software, Inc. ("PaperClip") entered into an Asset Purchase Agreement
for ASI to acquire substantially all the assets and liabilities of PaperClip
(the "Agreement"). On September 12, 1997, the agreement was amended (the
"Amended Agreement") to change the acquisition to a merger. As a result of this
amendment, a newly-formed subsidiary of ASI will merge into PaperClip with
PaperClip surviving as a subsidiary of ASI (the "Merger"). Consummation of this
transaction is subject to various conditions, including approval by the
PaperClip stockholders. Under the terms of the Amended Agreement, the PaperClip
stockholders will be entitled to receive an aggregate of approximately 1.5
million shares of ASI's Common Stock plus an equivalent number of ASI Class B
Warrants. Each Class B Warrant will entitle the holder to purchase one share of
ASI Common Stock at an exercise price of $6.00 per share. In connection with the
Merger, the holders of PaperClip's outstanding 12% Convertible Notes due
December 1999 will exchange such notes for an aggregate of approximately 400,000
shares of non-voting redeemable preferred stock of PaperClip. After 18 months,
the holders of the preferred stock will have the option to require ASI to
purchase such shares for cash or ASI common stock and Class B Warrants.
On January 29, 1997, ASI provided a $300,000 loan to PaperClip for use as
operating capital in exchange for a convertible note from PaperClip (the "Bridge
Loan"). See "Certain Transactions between ASI and PaperClip" in Item 12 hereof.
On April 15, 1997, ASI and PaperClip also entered into a management
agreement (the "Management Agreement") which allows ASI to manage the
day-to-day operations of PaperClip and to advance funds on behalf of PaperClip
pursuant to an operating budget, in each case until the closing of the Merger or
the termination of the Merger Agreement. See "Certain Transactions between ASI
and PaperClip" in Item 12 hereof.
ASI and PaperClip also entered into a one-year distribution agreement
effective June 1, 1997 pursuant to which ASI acts as a distributor for
PaperClip's products in the United States to dealers and resellers. See "Certain
Transactions between ASI and PaperClip" in Item 12 hereof.
BUSINESS
ASI, a Delaware corporation formed in 1986, designs, develops, assembles
and markets mainframe information storage and retrieval systems, including both
software and hardware, for large companies. ASI believes that its proprietary
computer output to laser disk (COLD) and data storage systems provide a faster,
more reliable and more economical method of storing vast quantities of
computer-generated data than is generally available from other COLD systems or
from traditional data storage methods. ASI's COLD and optical disk storage
systems, which are marketed under the brand names GIGAPAGE and OAS, are
presently sold principally to large organizations that have the need to store
and retrieve large quantities of computer-generated data.
PRODUCTS. ASI's COLD systems are high density hardware and software data
storage systems that are designed to store, index and retrieve formatted
computer output. COLD systems consist of an OAS controller, a storage subsystem,
and GIGAPAGE application software.
HARDWARE PRODUCTS. The hardware portion of ASI's solution, the OAS, is a
high capacity, mainframe channel-attached hybrid magnetic/optical disk storage
system, composed of the OAS controller and an optical disk "autochanger". The
OAS can control various types and models of robotic autochanger systems, which
are manufactured by a number of vendors, commanding such robots to mount and
dismount disks and tapes automatically as needed in response to requests from
the host software. These autochangers, which ASI purchases from independent
third party suppliers, are installed by ASI as a part of the integrated system
at the customer site. Autochangers of varying capacities are available to meet
the needs of the marketplace, for storage requirements from 166 million pages to
multiple tens of billions of pages. A brief description of the hardware
components of the OAS follows.
OPTICAL DISK AUTOCHANGERS. The entry-level optical disk autochanger
supplied by ASI supports customers with relatively modest storage volumes. When
used in conjunction with ASI's data compression technology, the capacity of this
autochanger is significantly enlarged. With compression, this entry-level
autochanger normally has the capacity to store over 166 million typical report
pages.
Because the optical disk drives housed within ASI's most commonly installed
optical disk autochangers are American National Standards Institute
("ANSI")-standard 5-1/4 inch multifunction drives, the optical disk platters
used within the autochanger may be a mixture of rewritable and
write-once-read-many ("WORM") types. The rewritable disks are used to store
those reports that do not have to be retained for long time periods. The disks
are then re-used when the useful life of the reports has elapsed. WORM disks
preclude modification of data, as required for data such as securities industry
reports subject to the record retention rules of the Securities and Exchange
Commission.
Customer need for greater capacity is addressed by a field-upgradeable
family of optical disk autochangers. Middle range requirements are accommodated
by a system which can store from 590 million to over 1 billion report pages in a
compact (3 foot by 3 foot) floor area, while large capacity needs are served by
ASI's largest system, which stores from 860 million to more than 2.5 billion
pages. Multiple systems may be combined for even greater capacity. ASI also
provides 12 and 14 inch format WORM solutions.
THE OAS CONTROL UNIT. The control unit of the OAS system is directly
attached to the mainframe via a conventional IBM-compatible interface to an
input-output ("I/O") channel of the IBM-compatible mainframe. The control unit's
dedicated I/O hardware passes data back and forth over the channel between the
mainframe and the optical disk autochanger at up to 17 megabytes per second. The
control unit is an intelligent storage management subsystem, with self-contained
software to track and file associated media locations within the storage
subsystems and automate the movement of media into optical disk drives within
the robotic autochanger, when applicable.
The OAS Control Unit contains a cache buffer (a large bank of RAM used for
temporary storage when transferring data from one device to another) to permit
data to be exchanged rapidly between the mainframe and the optical disk drives.
In addition, the control unit performs data compression using a patented
hardware-based implementation of the Lempel-Ziv compression algorithm. When this
hardware-based compression is combined with GIGAPAGE's host-based software data
compression, compound compression ratios of 7.5:1 and higher are achieved.
SOFTWARE PRODUCTS. ASI has developed an application software product for
IBM mainframe systems, GIGAPAGE, which can be installed in conjunction with the
OAS and is an end-user application for report storage and retrieval. GIGAPAGE
stores and retrieves computer-generated reports (such as customer statements) on
various combinations of storage technologies. This enables organizations to
eliminate their existing computer output microfiche or microfilm (COM) systems
and reduce staff used for manual retrieval of microfilm, microfiche and paper
reports. GIGAPAGE also provides its users with the ability to access report data
efficiently, by displaying a retrieved document based upon criteria established
by the user. ASI believes that this creates competitive advantages for end users
who must quickly respond to customer inquiries. GIGAPAGE changes report access
from a slow, cumbersome, manually-intensive process to a fast, near-line
computer-based process.
NEW PRODUCT DEVELOPMENTS. ASI has improved its current OAS product (see
"OAS Control Unit" above) so that the control unit will now allow the management
and storage of mainframe data on other storage devices, such as RAID arrays,
tape and CD-ROM autochangers, as well as ASI's current optical disk
autochangers. New developments in autochanger technology as well as speed
improvements in both CD-ROM and tape subsystems have made these systems
attractive storage mediums in today's market. RAID arrays provide high-speed,
fault-tolerant access to large amounts of data. ASI's use of RAID technology
combined with data compression and intelligent caching provides customers with
high throughput at attractive prices. New products based on these developments
are expected to be available for distribution and sale in the third quarter of
Fiscal 1998. There can be no assurance that these new products will achieve
market acceptance.
CUSTOMER SUPPORT AND SERVICE. In addition to being a source of revenue
generation, ASI believes that its approach to customer service and support has
been and will continue to be a significant factor in the market acceptance of
its products. Because most of ASI's products are used in complex, large-scale
mainframe data centers, the successful implementation and utilization of ASI's
products substantially depends on ASI providing a high level of customer
service, training and support. Consequently, ASI typically allocates substantial
resources to customer installations, particularly in the first few weeks before
and the first several weeks after a new installation. These resources include
field support personnel who assess the systems operating environment of the
customer prior to installation, install and test the hardware, support the
hardware and coordinate the efforts of third-party service providers that
service ASI's installed base of systems; systems engineering personnel who
install and configure the software components of ASI's systems, assist the
customer in assuring that the other elements of the customer's data center
properly interface with ASI's system, assist the customer in defining reports to
be stored on ASI's system and in supporting ASI's software; training personnel
who train the customer's data center managers and users on the operation and use
of ASI's system; a 24-hour help desk to field all customer support and service
inquiries; and third-party service organizations with whom ASI contracts to
provide on-site customer response for hardware-related issues.
In the years ended June 30, 1996 and 1997, service revenue generated from
the post-sale maintenance of COLD systems accounted for approximately 32% and
54%, respectively, of ASI's total revenues. Substantially all of ASI's customers
have elected to extend their service contracts with ASI beyond the one-year
period that is customarily afforded to customers at the time of installation of
new products.
As of September 1, 1997, the customer service and support group consisted
of four employees, one of whom is in-house and the remainder are in the field.
These personnel provide support for the engineers maintaining customer equipment
in the field and provide ASI with an opportunity to recommend future system
sales to such customers.
MARKETING. The market for COLD systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. Within each market
segment, product offerings may be divided into two categories: (i) COLD software
packages and (ii) COLD turnkey systems. COLD turnkey systems are generally
comprised of COLD software bundled with a controller and an optical disk system.
Generally, the highest priced COLD systems are those that are mainframe or
client/server based. Additionally, the market for COLD systems includes a
revenue component derived from the service and support of COLD systems products.
ASI advertises and markets its products and services through direct
mailings, participation and exhibition of products at industry trade shows,
personal solicitations at businesses which have been identified as likely
resellers of ASI's products and industry referrals. In September 1997, ASI
launched a direct marketing and advertising campaign into selected vertical
markets.
In June 1997, ASI began to pursue strategic marketing relationships with
other vendors of both mainframe and client/server software. This strategy shift
is designed to enable ASI to increase sales by leveraging the customer base of
other suppliers whose product offerings complement that of ASI. It is also
anticipated that the new strategy will enable ASI to increase sales through
marketing of products from these strategic partners to ASI's customers and
prospects.
CUSTOMERS. Prudential Securities, Inc. accounted for 10% of ASI's total net
sales in the year ended June 30, 1997. No other single customer accounted for
more than 10% of ASI's total net sales in Fiscal 1997.
COMPETITION. The computer data storage and retrieval industry is highly
competitive and ASI expects this level of competition to intensify. There are
certain competitors of ASI that have substantially greater financial, marketing,
development, technological and production resources than ASI. ASI's primary
competitors are IBM Corporation, FileTek Corporation, Eastman Kodak Company,
Data/Ware Corporation, Anacomp, Inc., Mobius Management Systems, Inc., Computer
Associates International, Inc., RSD America, Inc. and Network Imaging Systems
Corp. ASI believes that participants in the data storage and retrieval market
compete on the basis of a number of factors including vendor and product
reputation, system features, product quality, performance and price, and quality
of customer support services and training. ASI positions itself to compete
effectively with its competitors by offering what it believes is superior
customer service and technical support in connection with hardware and software
products which provide certain technological and user application advantages.
PRINCIPAL SUPPLIERS. ASI's principal suppliers for the production and
maintenance of its COLD systems are IBM Corporation, Hewlett Packard and DISC,
Incorporated.
RESEARCH AND DEVELOPMENT. ASI's total expenditures for Research and
Development for Fiscal 1997 and Fiscal 1996 were $1,651,322 and $1,713,094,
respectively. Due to the completion of all customer commitments to the GIGAPAGE
product by the end of the second quarter of Fiscal 1998, it is anticipated that
development costs for Fiscal 1998 will be substantially reduced from prior
levels.
INTELLECTUAL PROPERTY. Although ASI believes that its continued success
will depend primarily on its continuing product innovation, sales, marketing and
technical expertise, product support and customer relations, ASI believes it
also needs to protect the proprietary technology contained in its products. ASI
holds three United States patents on its directory structure and its
implementation of hardware data compression. ASI relies primarily on a
combination of copyright, trademark, trade secret laws and contractual
provisions to establish and protect proprietary rights in its products. ASI
typically enters into confidentiality and/or license agreements with its
employees, strategic partners, customers and suppliers and limits access to and
distribution of its proprietary information. Despite these precautions, it may
be possible for unauthorized third parties to copy certain portions of ASI's
products, reverse engineer or otherwise obtain and use information ASI regards
as proprietary. ASI recently instituted a lawsuit against Data/Ware Development,
Inc. and Eastman Kodak Company, Inc. alleging infringement of one or more of
ASI's patents. See "Item 3. Legal Proceedings" below.
ASI is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. There can be no assurance that third
parties will not assert infringement claims against ASI in the future with
respect to current or future products. Any such assertion, if found to be true
and legally enforceable, could require ASI to pay damages and could require ASI
to develop non-infringing technology or acquire licenses of technology that is
the subject of the asserted infringement, resulting in product delays, increased
costs, or both.
ASSEMBLY. Assembly of ASI's OAS is done at ASI's facility in North
Kingstown, Rhode Island. ASI designs and assembles portions of its COLD systems
which are then integrated at ASI's plant with optical disk autochanger systems
manufactured by a variety of third parties. Production of the OAS entails
testing, assembling and integrating standard and ASI-designed components and
subassemblies built by and purchased from independent suppliers. As of September
1, 1997, ASI had two full-time manufacturing personnel. ASI configures and tests
ASI-built and third-party-supplied hardware and software in combinations to meet
a wide variety of customer requirements.
Although ASI generally uses standard parts and components for its products,
certain components, such as CPU boards, ESCON hardware and high-density
integrated circuits, are presently available only from single or limited
sources. ASI has no supply commitments with its vendors and generally purchases
components on a purchase order basis, as opposed to entering into long-term
procurement agreements with vendors. ASI has generally been able to obtain
adequate supplies of components in a timely manner from current vendors or, when
necessary to meet production needs, from alternate vendors. ASI believes that
alternative sources of supply would not be difficult to develop over a short
period of time but that an interruption in supply or a significant increase in
the price of these components could adversely affect ASI's operating results and
business.
EMPLOYEES. As of September 1, 1997, ASI had 24 employees.
ITEM 2. DESCRIPTION OF PROPERTY
ASI's principal offices are located in North Kingstown, Rhode Island, in a
leased facility consisting of approximately 10,300 square feet of space occupied
under a lease expiring in December 1997.
ITEM 3. LEGAL PROCEEDINGS
On August 29, 1997, ASI filed a complaint in the United States District
Court for the District of Rhode Island against Data/Ware Development, Inc.
("Data/Ware") and Eastman Kodak Company, Inc. ("Kodak") alleging infringement of
ASI's patents. The claim states that Data/Ware and Kodak collectively
manufacture, use and/or sell equipment for recording data on optical media and
alleges that the manufacture and sale of such equipment, and use by purchasers
thereof, infringes one or more of ASI's patents. The claim calls for an order
enjoining the defendants from further infringement of its patents, damages and
interest for infringement and reasonable attorney's fees and such other relief
that the court deems proper.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The ASI Common Stock, Redeemable Warrants and Units consisting of two
shares of Common Stock and one Redeemable Warrant are currently traded on the
Nasdaq SmallCap Market under the symbols "ASIC," "ASICW" and "ASICU,"
respectively. ASI's initial public offering ("IPO") was completed on October 16,
1996. Prior to that date there was no market for the ASI Common Stock,
Redeemable Warrants or Units. There are approximately 124 holders of record of
ASI Common Stock and approximately 15 holders of record of ASI Redeemable
Warrants.
The following table sets forth, for the periods indicated, the high and low
closing bid and asked/sales prices for the ASI Common Stock, Redeemable Warrants
and Units, as reported on the Nasdaq SmallCap Market. Since such prices
represent quotations between dealers, they do not include markups, markdowns or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
Bid Asked
HIGH LOW HIGH LOW
1996:
<S> <C> <C> <C> <C>
Fourth Quarter (commencing October 16, 1996). 4-7/8 3-1/2 6-1/2 4
1997:
First Quarter................................ 5 3-1/2 5-1/4 4
Second Quarter............................... 4-3/8 3 4-1/2 3-1/4
Third Quarter (through September 1).......... 3-3/4 2-5/8 4 3
REDEEMABLE WARRANTS
Bid Asked
HIGH LOW HIGH LOW
1996:
Fourth Quarter (commencing October 16, 1996). 2-3/8 1 3-1/4 1-1/2
1997:
First Quarter................................. 1-3/8 15/16 1-1/2 1-1/8
Second Quarter................................ 1 3/4 1-1/4 13/16
Third Quarter (through September 1)........... 13/16 3/4 1-1/16 7/8
UNITS
Bid Asked
HIGH LOW HIGH LOW
1996:
Fourth Quarter (commencing October 16, 1996).. 11-1/2 8 12-1/2 9-3/4
1997:
First Quarter................................. 10-3/8 8 11-3/8 9-1/4
Second Quarter ............................... 9-3/8 7 10-1/2 7-1/8
Third Quarter (through September 1)........... 8-1/4 7 9 7-1/2
</TABLE>
ASI has not paid any cash dividends on the ASI Common Stock since its
inception and ASI does not anticipate paying cash dividends in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ASI's net sales consist of sales of products and services. Products sold by
ASI consist of COLD systems, software and hardware including replacement disk
drives, subassemblies and miscellaneous peripherals. Services rendered by ASI
include post-installation maintenance and support. ASI recognizes revenue from
customers upon installation of COLD systems and, in the case of COLD systems
installed for evaluation, upon acceptance by such customers of the products. ASI
sells extended service contracts on the majority of the products it sells. Such
contracts are one year in duration with payments received either annually in
advance of the commencement of the contract or quarterly in advance. ASI
recognizes revenue from service contracts on a straight line basis over the term
of the contract. The unearned portion of the service revenue is reflected as
deferred revenue. As of June 30, 1997, ASI had deferred revenue in the amount of
$329,841 which it will recognize through June 30, 1998.
ASI's operating results have in the past and may in the future fluctuate
significantly depending upon a variety of factors which vary substantially over
time, including industry conditions; the timing of orders from customers; the
timing of new product introductions by ASI and competitors; customer
acceleration, cancellation or delay of shipments; the length of sales cycles;
the level and timing of selling, general and administrative expenses and
research and development expenses; specific feature needs of customers; and
production delays. A substantial portion of ASI's quarterly revenues are derived
from the sale of a relatively small number of COLD systems which range in price
from approximately $150,000 to $900,000. As a result, the timing of recognition
of revenue from a single order has in the past and may in the future have a
significant impact on ASI's net sales and operating results for particular
financial periods. Counterbalancing this volatility is the fact that the
anticipated sales of annual service contracts increase as system sales increase.
The revenue from service contracts is recognized on a straight line basis over
the term of the contract.
ASI's primary operating expenses include selling expenses, general and
administrative expenses and research and development expenses. General and
administrative expenses consist primarily of employee compensation and customer
support expenses. Research and development expenses include compensation paid to
internal research and development staff members and expenses incurred in
connection with the retention of independent research and development
consultants. ASI utilizes its own employees for research and development
functions except in certain circumstances involving product enhancements. In
those circumstances, ASI regularly retains independent experts to consult and
design new software modules which are subsequently evaluated and tested by ASI's
internal research and development staff. Upon successful testing of such product
enhancements, ASI's internal staff integrates the new products with ASI's
existing COLD systems and products.
In the past, ASI has expended substantial development resources to meet
customer commitments. The majority of these services were provided at no charge
to honor commitments made for added features when the systems were sold. These
resource expenditures have in the past placed a high overhead burden on the
GIGAPAGE product line offerings. After completion of GIGAPAGE 3.0, which is
expected to occur by the end of the second quarter of Fiscal 1998, management
believes that all significant product commitments will have been met. In the
future, development of new features will not be initiated unless customers make
a financial commitment to cover the minimum engineering costs. If excess
development resources are available and not committed to specific contracts, the
resources will be brokered to third parties due to the high market demand for
these resources. This is expected to result in either significantly reduced
research and development expenditures or increased offsetting revenues for the
GIGAPAGE product offerings.
ASI has entered into an agreement with PaperClip pursuant to which a
newly-formed subsidiary of ASI will merge into PaperClip, with PaperClip
surviving as a subsidiary of ASI. Since April 15, 1997, ASI has been managing
the day-to-day operations of PaperClip and advancing funds pursuant to a
Management Agreement. In addition, in January 1997, ASI provided a $300,000
Bridge Loan to PaperClip for use as operating capital. Effective June 1, 1997,
ASI entered into a one year distribution agreement with PaperClip. For
additional information with respect to these agreements with PaperClip, see
"Item 1. Description of Business - - Recent Developments" and "Item 12. Certain
Relationships and Related Transactions."
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
The following table presents certain items from ASI's Statement of Operations,
and such amounts as percentages of net sale, for the periods indicated. Products
and Service costs percentages are of Product and Services sales, respectively.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997 YEAR ENDED JUNE 30, 1996
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net sales
Products........................... $ 500,682 46% $1,352,408 68%
Service............................ 590,896 54 634,500 32
---------- ----- ---------- --
Total net sales.................. 1,091,578 100 1,986,908 100
Cost of Sales
Products........................... 133,453 27 346,157 26
Service............................ 256,777 43 234,229 37
---------- ----- ---------- --
Total cost of sales 390,230 36 580,386 29
Gross profit......................... 701,348 64 1,406,522 71
---------- ----- ---------- --
Operating expenses:
Selling............................ 928,080 85 1,223,312 62
General and administrative ........ 1,494,792 137 2,422,005 122
Research and development........... 1,651,322 151 1,713,094 86
----------- ----- ---------- ---
Total operating expenses............. 4,074,194 373 5,358,411 270
Interest (income) expense, net....... (12,472) (1) 189,939 10
------------ ----- ---------- ----
Loss before extraordinary gain....... (3,360,374) (308%) (4,141,828) (208)
Extraordinary gain................... - - 320,387 16
----------- ----- ---------- -----
Net loss............................. $(3,360,374) (308%) $(3,821,441) (192%)
=========== ====== =========== ======
</TABLE>
NET SALES. Net sales decreased 45% to $1,091,578 for the year ended June
30, 1997 from $1,986,908 for the year ended June 30, 1996. Product sales
decreased 63% due to a reengineering of the GIGAPAGE product which was completed
with the release of GIGAPAGE 2.8.5 in late July of 1997. ASI has begun
installing upgrades at all its major customer sites and began offering the
enhanced product to new customers in the first quarter of Fiscal 1998 through
PaperClip's marketing and sales organization. Service revenues decreased by 7%
to $590,896 from $634,500 due to discontinuation of maintenance services for
obsolete equipment that is no longer supported.
COST OF SALES. Cost of sales includes component costs, firmware, license
costs, third party equipment maintenance contractors and certain overhead costs.
Cost of sales decreased 33% to $390,230 for the year ended June 30, 1997 from
$580,386 for the year ended June 30, 1996, primarily due to lower sales volume.
Cost of sales for products decreased by 61% to $133,453 for the year ended June
30, 1997 from $346,157 for the year ended June 30, 1996. This decrease in cost
of sales for products was offset by a 10% or $22,548 increase in cost of sales
for services which was primarily due to higher maintenance service costs due to
older customer equipment in the field. Gross margin decreased to 64% from 71%
due to the lower percentage of system sales in the product sales mix as compared
to sales of peripherals, media and services which were sold at lower margins.
SELLING EXPENSES. Selling expenses decreased by 24% or $295,232 to $928,080
for the year ended June 30, 1997 from $1,223,312 for the year ended June 30,
1996. The decrease was primarily the result of a reduction in sales personnel,
reduced commission expense and lower trade show and seminar expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of administrative expenses and certain support expenses. General and
administrative expenses decreased $927,213 or 38% to $1,494,792 for the year
ended June 30, 1997 from $2,422,005 for the year ended June 30, 1996. This
decrease was attributable to several expenses incurred in Fiscal 1996 that were
not repeated in Fiscal 1997, including non-cash stock compensation of $744,000
awarded to ASI's former president, Hector Wiltshire, in Fiscal 1996,
approximately $150,000 in salary and severance to a Vice President terminated in
January 1996, and approximately $80,000 paid to shareholders to repurchase
anti-dilution rights. The expense reductions in Fiscal 1997 were partially
offset by approximately $45,000 in increased Director and Officer's insurance
premiums as a result of ASI's IPO in October 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 4% to $1,651,322 for the year ended June 30, 1997 from $1,713,094 for
the year ended June 30, 1996. This reduction reflected ASI's greater utilization
of outside consultants. Although this strategy increased variable engineering
costs, total expenses were lower because of fewer full time engineering staff.
In the past, ASI has expended substantial development resources to meet customer
commitments. After completion of GIGAPAGE 3.0, which is expected to occur by the
end of the second quarter of Fiscal 1998, management believes that all
significant product commitments will have been met and expenditures incurred for
outside consultants will be significantly reduced with no corresponding increase
to ASI's Research and Development infrastructure. Future development resources
will either be sold at a cost plus basis to existing customers for development
of new features or brokered to third parties on the same basis due to the high
market demand for these resources. This is expected to result in either
significantly reduced research and development expenditures or increased
offsetting revenues for the GIGAPAGE product offerings in Fiscal 1998.
INTEREST EXPENSE, NET. Interest expense was approximately $100,000 for the
year ended June 30, 1997 and approximately $190,000 for the year ended June 30,
1996. Interest income was approximately $112,000 for the year ended June 30,
1997 with no significant interest income earned for the year ended June 30,
1996. This more favorable result was due to cash balance increases and loan
reductions as a result of ASI's IPO in October 1996.
NET LOSS. As a result of the foregoing, ASI's net loss decreased 12% to
$3,360,374 for the year ended June 30, 1997 from $3,821,441 for the year ended
June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
ASI had a working capital surplus of $1,842,912 at June 30, 1997 as
compared to a working capital deficit of $1,971,090 at June 30, 1996. The
increase in working capital was principally attributable to cash proceeds from
ASI's IPO which was completed in October 1996.
Total cash used by operating activities in Fiscal 1997 was $3,643.301. The
major use of cash was the net loss of $3,360,374. In addition, accounts payable
decreased by $467,851 and accrued expenses decreased by $283,172.
Cash used in investing activities was $922,120 in Fiscal 1997. The major
use of cash in investing activities was $829,052 in loans and advances to
PaperClip as part of the Management Agreement between ASI and PaperClip.
During Fiscal 1997, cash provided by financing activities included gross
proceeds in the amount of $9,200,013 from ASI's IPO. Cash used by financing
activities included the repayment of costs relating to the IPO totaling
$2,137,506, the repayment of all outstanding bridge loans totaling $1,363,973
and the repayment of an outstanding bank note totaling $290,000 .
ASI has suffered recurring losses from operations and incurred negative
cash flows from its operating activities as it continued to develop its products
and infrastructure. The recurring losses and negative cash flows from operating
activities raise substantial doubt about ASI's ability to continue as a going
concern. As a result, ASI's independent auditors in their report dated August 8,
1997 on the Financial Statements have included an explanatory paragraph that
describes factors raising substantial doubt about ASI's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability of assets and classification of liabilities or any other
adjustments that might be necessary should ASI be unable to continue as a going
concern. In response to these factors, ASI has introduced new products and has
enhanced certain of its existing products; and is pursuing collaborative
relationships with vendors and customers which are intended to create new
opportunities to foster sales and reduce overhead for its products and services.
ASI anticipates improved financial performance based upon increased sales
resulting from its product introductions, product enhancements and new
collaborative relationships.
As of June 30, 1997, ASI had no significant long term debt. ASI believes
that the remaining proceeds from the IPO, together with funds generated from
operations, will be sufficient to meet ASI's working capital requirements
through January 1998. ASI is currently seeking additional equity or debt
financing to fund its operations after January 1998 and until anticipated
additional funds provided by sales associated with the PaperClip acquisition and
the introduction of a new line of mainframe storage controllers scheduled to
begin selling in January 1998 are available. There can be no assurance that the
PaperClip acquisition will be consummated, PaperClip sales will be sufficient or
the new product lines will be successful. If ASI has insufficient funds from the
above noted operations, further equity or debt financing will be sought. There
can be no assurance that such additional funds can be obtained on acceptable
terms, if at all. If additional financing is not available, ASI's business will
be materially adversely affected.
At June 30, 1997, ASI had federal and state net operating loss
carryforwards available to reduce any future taxable income in the approximate
amount of $9,500,000. These net operating loss carryforwards will expire in
various amounts between the years 2002 and 2011 if not previously utilized. In
the event of a change in the ownership of ASI, as defined in Section 382 of the
Internal Revenue Code, utilization of net operating loss carryforwards in
periods following such ownership changes can be significantly limited.
Management believes that ASI has incurred several changes of ownership under
these rules. As a result, utilization of the net operating loss carryforwards is
subject to various limitations, depending upon the year in which the net
operating loss originated. Management estimates that Federal net operating loss
carryforwards in the approximate aggregate amount of $6,300,000 will be free
from Section 382 limitations and available to offset taxable income that ASI may
generate within the carryforward period. Of that amount, carryforwards in the
approximate amount of $1,300,000 are available for future utilization in any
year during the carryforward period without limitation. The other $5,000,000 is
subject to a limitation of approximately $330,000 per year, limiting total
utilization during the carryforward period to approximately $2,200,275. Because
the underlying calculations are complex and are subject to review by the
Internal Revenue Service, these limitation amounts could be adjusted at a later
date.
ASI believes that its current corporate infrastructure can support
significant increases in sales without proportionate increases in costs.
However, there can be no assurances that sales will increase or that any cost
advantage will result.
FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-KSB that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes", "anticipates, "expects" and similar expressions are intended to
identify forward looking statements. ASI cautions that a number of important
factors could cause actual results for Fiscal 1998 and beyond to differ
materially from those expressed in any forward-looking statements made by or on
behalf of ASI. Such statements contain a number of risks and uncertainties,
including, but not limited to, the availability of necessary financing after
January 1998, future capital needs, uncertainty of additional funding, variable
operating results, lengthy sales cycles, dependence on ASI's COLD system
product, rapid technological change and product development, reliance on single
or limited sources of supply, intense competition, turnover in management, ASI's
ability to manage growth, dependence on significant customers, dependence on key
personnel, and ASI's ability to protect its intellectual property. See "Risk
Factors" in ASI's Prospectus dated October 16, 1996. ASI cannot assure that it
will be able to anticipate or respond timely to changes which could adversely
affect its operating results in one or more fiscal quarters. Results of
operations in any past period should not be considered indicative of results to
be expected in future periods. Fluctuations in operating results may result in
fluctuations in the price of ASI's securities. In addition, ASI's proposed
acquisition of PaperClip involves numerous risks and uncertainties including the
potential inability to integrate successfully the operations and services of the
acquired businesses and the diversion of management's attention from other
business concerns. There can be no assurances that ASI will complete its
proposed acquisition or that, if completed, it will be successfully integrated
into ASI's operations or provide an acceptable return on ASI's investment.
SEASONALITY AND INFLATION
To date, seasonality and inflation have not had a material effect on ASI's
operations.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
ACCESS SOLUTIONS INTERNATIONAL, INC.:
Report of Independent Accountants
Balance Sheet, June 30, 1996 and 1997
Statement of Operations for the Years ended June 30, 1997 and 1996
Statement of Changes in Mandatorily Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the years ended June 30, 1997 and 1996
Statement of Cash Flows for the years ended June 30, 1997 and 1996
Notes to Financial Statements
PAPERCLIP SOFTWARE, INC.:
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996 and 1995
Statements of Stockholders Equity (Deficit) for the years ended December
31, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
Condensed Balance Sheets as of June 30, 1997 (unaudited) and December 31,
1996
Condensed Statements of Operations for the Three Months and Six Months
ended June 30, 1997 and 1996 (unaudited)
Condensed Statements of Cash Flows for the Six Months ended June 30, 1997
and 1996 (unaudited)
Notes to Condensed Financial Statements
PRO FORMA FINANCIAL STATEMENTS:
Pro Forma Condensed Combined Statement of Operations for the Twelve Months
ended June 30, 1997
Pro Forma Condensed Combined Balance Sheet, June 30, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Access Solutions International, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in mandatorily redeemable preferred stock and
stockholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Access Solutions International, Inc., at
June 30, 1997 and 1996, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has suffered recurring losses from operations and has incurred negative cash
flows from operating activities which raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Price Waterhouse LLP
Boston, Massachusetts
August 8, 1997, except as to Note 14
which is as of September 12, 1997
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
JUNE 30,
1996 1997
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 537,831 $1,889,446
Trade accounts receivable, net of allowance
for doubtful accounts of $50,304 and $53,199
in fiscal 1996 and 1997, respectively 426,005 238,914
Inventories 504,450 461,812
Prepaid expenses and other current assets 61,995 183,159
---------- ----------
Total current assets 1,530,281 2,773,331
---------- ----------
Fixed assets, net 592,461 328,309
---------- ----------
Other assets:
Advances - PaperClip - 529,052
Note receivable - PaperClip - 300,000
Deposits and other assets 90,940 9,603
Service contract inventory 79,549 39,924
Deferred financing costs 581,065 -
---------- ----------
Total other assets 751,554 878,579
---------- ----------
Total assets $2,874,296 $3,980,219
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET
- -------------------------------------------------------------------------------
JUNE 30,
1996 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
<S> <C> <C>
Note payable - bank $ 290,000 $ -
Bridge loan 1,363,973 -
Current portion of capital lease obligations 72,562 25,257
Accounts payable 695,341 227,490
Accrued expenses 163,769 143,227
Accrued salaries and wages 467,234 204,604
Deferred revenue - prepaid service contracts 448,492 329,841
------------ --------
Total current liabilities 3,501,371 930,419
Capital lease obligations, excluding current portion 31,974 6,716
------------ --------
Total liabilities 3,533,345 937,135
------------ --------
Commitments (Note 8)
Stockholders' equity (deficit):
Common stock, $.01 par value; 13,000,000 shares
authorized; 1,511,865 and 3,965,199 shares
issued in fiscal 1996 and 1997, respectively 15,119 39,652
Additional paid-in-capital 10,599,720 17,637,694
Accumulated deficit (11,255,832) (14,616,206)
------------- ------------
(640,993) 3,061,140
Treasury stock, at cost (1,259 shares) (18,056) (18,056)
------------- ------------
Total stockholders' equity (deficit) (659,049) 3,043,084
------------- ------------
Total liabilities and stockholders'
equity (deficit) $ 2,874,296 $ 3,980,219
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1996 AND 1997
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1996 1997
Net sales:
<S> <C> <C>
Products $ 1,352,408 $ 500,682
Services 634,500 590,896
--------------- ---------------
Total net sales 1,986,908 1,091,578
--------------- ---------------
Cost of sales:
Products 346,157 133,453
Services 234,229 256,777
--------------- ---------------
Total cost of sales 580,386 390,230
Gross profit 1,406,522 701,348
--------------- ---------------
General and administrative expense 1,678,005 1,494,792
Research and development expense 1,713,094 1,651,322
Selling expense 1,223,312 928,080
Stock related compensation 744,000 -
--------------- ------------------
Total operating expenses 5,358,411 4,074,194
--------------- ------------------
Loss from operations (3,951,889) (3,372,846)
Interest income 11,856 112,538
Interest expense - related party (88,181) -
Interest expense (113,614) (100,066)
--------------- ------------------
Loss before extraordinary item (4,141,828) (3,360,374)
Extraordinary gain on debt restructuring 320,387 -
---------------- -----------------
Net loss $ (3,821,441) $ (3,360,374)
================= ==================
Net loss applicable to common stock:
Net loss $ (3,821,441) $ (3,360,374)
Accrued dividends on preferred stock (108,890) -
------------------ ----------------
$ (3,930,331) $ (3,360,374)
================== ================
Primary net loss per common share:
Loss before extraordinary item $ (1.88) $ (1.05)
Extraordinary item .14 -
----------------- ---------------
$ (1.74) $ (1.05)
================= =================
Weighted average number of
common shares outstanding 2,256,150 3,204,122
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF CHANGES IN MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1996 AND 1997
- -----------------------------------------------------------------------------------------------------------------------------------
MANDATORILY REDEEMABLE STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK COMMON STOCK ACCUMULATED TREASURY STOCK
SHARES AMOUNT SHARES AMOUNT PAID-IN DEFICIT SHARES AMOUNT TOTAL EQUITY
CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1995 50,000 $ 2,088,462 34,140 $ 341 $ 5,428,229 $(7,325,501) 362 $(17,141) $(1,914,072)
Accrued dividends on preferred
stock - 108,890 - - - (108,890) - - (108,890)
Conversion of preferred stock (50,000) (2,197,352) 7,423 75 2,197,277 - - - 2,197,352
Conversion of debt, primarily
related party - - 1,053,802 10,538 2,403,549 - - - 2,414,087
Compensation related to stock
grant - - 416,500 4,165 420,665 - - - 424,830
Shares purchased for treasury - - - - - - 897 (915) (915)
Warrants issued with bridge
loan - - - - 150,000 - - - 150,000
Net loss - - - - - (3,821,441) - - 3,821,441)
------- ---------- ------- ------ ---------- ------------ ----- ------- -----------
BALANCES AT JUNE 30, 1996 - - 1,511,865 15,119 10,599,720 (11,255,832) 1,259 (18,056) (659,049)
Shares and warrants issued in
public offering, net of expenses 2,453,334 24,533 7,037,974 - - - 7,062,507
Net loss - - - - - (3,360,374) - - (3,360,374)
------- ---------- --------- ------- ----------- ----------- ----- ------- ----------
BALANCES AT JUNE 30, 1997 - - 3,965,199 $ 39,652 $17,637,694 $(14,616,206) 1,259 $(18,056) $3,043,084
======== ========== ========= ======== =========== ============= ===== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1997
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1996 1997
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (3,821,441) $(3,360,374)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 245,622 364,194
Stock compensation award 424,830 -
Debt restructuring gain (320,387) -
Interest expense settled with issuance
of common stock 62,129 -
Provision for doubtful accounts (9,696) 16,762
Other non-cash expenses 36,930 -
Changes in operating assets and liabilities:
Trade accounts receivable 399,300 170,329
Inventories 83,567 82,263
Deposits 3,673 74,363
Prepaid expenses and other current assets 13,393 (121,164)
Accounts payable 228,590 (467,851)
Accrued expenses 208,913 (283,172)
Deferred revenue 78,384 (118,651)
-------- ---------
Total adjustments 1,455,248 (282,927)
-------- ---------
Cash used by operating activities, net (2,366,193) (3,643,301)
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets (103,604) (93,068)
Additions to other assets (9,480) -
Loans and advances to PaperClip - (829,052)
-------- ----------
Cash used for investing activities, net (113,084) (922,120)
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1997
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1996 1997
Cash flows from financing activities:
<S> <C> <C>
Proceeds from public offering of common stock $ - $ 9,200,013
Costs relating to public offering of common stock - (2,137,506)
Proceeds from related party loans 2,468,415 -
(Repayments) of related party loans (1,258,000) -
Proceeds from (repayments of) bridge loans 2,413,971 (1,363,973)
Issuance of warrants 150,000 -
Repayments on capital lease obligations (174,140) (72,563)
Net payments under note payable - bank (150,000) (290,000)
Purchase of treasury stock (915) -
Deferred financing cost (581,065) 581,065
----------- -----------
Cash provided by financing activities, net 2,868,266 5,917,036
----------- -----------
Net increase in cash and cash equivalents 388,989 1,351,615
Cash and cash equivalents, beginning of period 148,842 537,831
----------- -----------
Cash and cash equivalents, end of period $ 537,831 $1,889,446
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS PURPOSE AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS PURPOSE
Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) (the "Company" or "ASI") develops, assembles, sells
and services optical data storage systems consisting of integrated
computer hardware and software for the archival storage and retrieval of
computer-generated information. The Company's optical data storage systems
are sold principally to large organizations that need to store and
retrieve large quantities of computer-generated data. To date, the
Company's customers primarily operate in the financial services and
insurance industries.
ASI has suffered recurring losses from operations and has incurred
negative cash flows from operating activities as it has continued to
develop its products and infrastructure. The Company has introduced new
products and has enhanced certain of its existing products. ASI is also
planning to establish additional collaborative relationships with vendors
and customers which will create new opportunities to foster sales of its
products and services. Management anticipates improved financial
performance based upon increased sales resulting from its product
introductions, product enhancements and new collaborative relationships.
The recurring losses and negative cash flow from operating activities
raise substantial doubt about the Company's ability to continue as a going
concern. These financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
or any other adjustments that might be necessary should the Company be
unable to continue as a going concern.
As of June 30, 1997, the Company believes that the remaining proceeds from
its initial public offering, together with funds generated from
operations, will be sufficient to meet the Company's working capital
requirements through January 1998. ASI is currently seeking additional
equity or debt financing to fund its operations after January, 1998 and
until anticipated additional funds provided by sales associated with the
PaperClip acquisition and the introduction of a new line of mainframe
storage controllers scheduled to begin selling in January 1998 are
available. However, there can be no assurance that the PaperClip
acquisition (see Note 3) will be consummated, that PaperClip sales will be
sufficient or that the new product lines will be successful. If the
Company has insufficient funds from the above noted operations, further
equity or debt financing will be sought. There can be no assurance that
such additional funds can be obtained on acceptable terms, if at all. If
additional funds are not available, the Company's business will be
materially adversely affected.
In January 1996, the Company completed a recapitalization (see Note 2)
which included a reverse stock split in which each share of issued common
stock was converted into 1/74th of a share of common stock. Accordingly,
all references in these financial statements to number of shares, per
share amounts (other than par value) and stock option data have been
retroactively restated to give effect to this reverse split.
On October 21, 1996, the Company consummated an initial public offering
(IPO) of 1,066,667 Units. Each Unit consisted of two shares of common
stock and one redeemable common stock purchase warrant. Each warrant
entitles the holder to purchase one share of common stock at an initial
exercise price of $5.00 per share, subject to adjustments, through October
15, 2001. The shares of common stock and warrants comprising the Units are
separately tradable. An over-allotment option to purchase an additional
160,000 Units upon the same terms and conditions set forth above was
exercised by the Company's underwriter on October 29, 1996. An aggregate
of 2,453,334 shares of common stock and 1,226,667 warrants were issued by
the Company, resulting in net proceeds of $7,062,507.
A summary of significant accounting policies used by the Company in the
preparation of these financial statements is as follows:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily
of components used in production, finished goods held for sale and for
service needs, and optical disk storage libraries purchased from third
party vendors for resale to the Company's customers as part of integrated
systems. Base stock service inventories are maintained at customer
locations as required under service contracts.
The Company's products consist of integrated computer hardware and
software. Rapid technological change and frequent new product
introductions and enhancements could result in excess inventory quantities
over current requirements based on the projected level of sales. The
amount of loss that is reasonably possible should such technological
developments be realized is not estimable.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of
the assets. The estimated useful life of all fixed assets is 5-7 years.
Assets recorded under capital leases are amortized over the estimated
useful lives or lease terms, whichever is shorter.
REVENUE RECOGNITION
Product revenues include the sale of optical archiving systems, software
licenses, peripheral hardware, and consumable media.
Revenue from the sale of optical archiving systems and software licenses
is recognized when the system is installed and only insignificant
post-installation obligations remain. In the case of systems installed
subject to acceptance criteria, revenue is recognized upon acceptance of
the system by the customer. Revenue from hardware upgrades is recognized
upon shipment.
Service revenues include post installation software and hardware
maintenance and consulting services.
The Company provides the first year of software maintenance to customers
as part of the software license purchase price and recognizes the revenue
upon installation of the software. Costs associated with initial year
maintenance are not significant and enhancements provided during this
period are minimal and are expected to be minimal. All software
maintenance contracts after the first year are billed in advance of the
service period and revenues are deferred and recognized ratably over the
contract term. Hardware maintenance is billed for varying terms, and is
deferred and recognized ratably over the term of the agreement. Revenues
from consulting services are recognized upon customers' acceptances or
during the period in which services are provided if customer acceptance is
not required and such amounts are fixed and determinable.
SOFTWARE DEVELOPMENT COSTS
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established and until the related product is
available for general release to customers, any additional material
amounts of development costs are capitalized and amortized to cost of
sales over the economic life of the related product. Costs eligible for
capitalization have not been significant to date.
INCOME TAXES
Income taxes are accounted using an asset and liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those differences are expected
to be recovered or settled.
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding. Common stock equivalents have not been
included in the computation because their effect would be antidilutive.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock or other potentially dilutive instruments issued at
prices below the estimated public offering price per share during the
twelve month period prior to the filing or subsequent to the balance sheet
date but before the effective date of the initial public offering have
been included in the calculation as if outstanding for all periods
presented.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, (FAS 128) "Earnings per Share," which is required to be
adopted for the quarter ended December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings
per share and to restate all prior periods. The impact is expected to
result in no change in the loss per share for the fiscal years presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates.
RELIANCE ON SINGLE OR LIMITED SOURCES OF SUPPLY
The Company currently purchases all of its optical disk storage libraries,
CPU boards, fiber optic channel hardware and high-density integrated
circuits from single or limited sources. Although there are a limited
number of manufacturers of these components, management believes that
other suppliers could provide similar products on comparable terms. Total
or partial loss of any such source, however, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating
results adversely.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. The Company provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards, "Accounting for Stock-Based Compensation." See Note
10.
RECLASSIFICATION
Certain items in previously issued financial statements have been
reclassified for comparative purposes.
2. RECAPITALIZATION (INCLUDING RELATED PARTY TRANSACTIONS)
In January 1996, the Company effected several changes to its debt and
equity capital. The changes included a reverse stock split in which each
share of issued common stock was converted into 1/74th of a share of
common stock.
In September 1995, the Company sold 26 units, each unit consisting of a
$50,000 promissory note and a warrant to purchase 265 shares of common
stock at a price per share of $220. The value of the warrants was
insignificant. The total proceeds from the private placement were
$1,300,000. In January 1996, the promissory notes and warrants plus unpaid
interest in the amount of $21,370 were converted into 614,733 shares of
common stock of the Company. A director of the Company was among the
private investors who received shares of the Company in the exchange.
Total interest expense on these promissory notes was $55,562, of which
$21,370 was satisfied through the issuance of shares. The Company
recognized an extraordinary gain relating to the portion of the debt
restructuring involving non-related parties. The extraordinary gain of
$320,387 was based on the difference between the fair value of the equity
interest granted, $289,476 and the carrying amount of the non-related
party debt, $609,863. The fair value of the equity interest granted was
determined by independent appraisal.
In January 1996, a director of the Company exchanged the balance due him
under a line of credit agreement totaling $1,335,415 plus unpaid interest
of $40,759 for 426,279 shares of common stock of the Company. Total
interest expense on this line of credit was $40,759, all of which was
satisfied through the issuance of shares.
The Company converted all of its outstanding Series A preferred stock into
7,423 shares of common stock as described in Note 12.
In conjunction with the recapitalization, the Company purchased 897 shares
of common stock from certain shareholders. The selling shareholders also
surrendered certain anti-dilution rights they had previously obtained in a
May 1993 private placement offering. The total amount paid by the Company
for the purchase of these shares and shareholder rights was $85,274 which
represents a return of proceeds previously invested by the shareholders.
Of this amount, $915, representing the fair value of the 897 shares
acquired, was charged to treasury stock and $84,359, representing the
excess of the amount paid over the estimated fair value of the shares, was
charged to general and administrative expenses. The fair value of shares
acquired was determined by independent appraisal.
3. PAPERCLIP ASSET PURCHASE AND MANAGEMENT AGREEMENTS
On April 15, 1997, the Company and PaperClip entered into a definitive
agreement for the Company to acquire substantially all the assets and
liabilities of PaperClip provided the transaction occurs by October 31,
1997. Consummation of this transaction is subject to various conditions
including approval by the PaperClip shareholders. Under the agreement, the
Company will acquire substantially all of the assets and assume
substantially all of the liabilities of PaperClip for a purchase price of
approximately 1,544,000 shares of the Company's common stock plus an
equivalent number of the Company's Class B Warrants. Each Class B Warrant
will entitle the holder to purchase one share of the Company's common
stock at the exercise price of $6.00 per share. On January 29, 1997, the
Company provided a $300,000 bridge loan to PaperClip for use as operating
capital in exchange for a 12% convertible note from PaperClip secured by
substantially all the assets of PaperClip. In accordance with an agreement
between the parties, the Company has made unsecured advances to PaperClip
of $529,052 for funding of working capital requirements. In addition,
PaperClip will have the right to designate one member to the Company's
board of directors.
On April 15, 1997, the Company and PaperClip also entered into a
management agreement which provides for the Company to manage the
day-to-day operations of PaperClip until the closing of the acquisition or
the termination of the asset purchase agreement. The management agreement
designates the Company as responsible for the management of the day-to-day
operations of the PaperClip business, subject at all times to the
supervision and control of PaperClip management. Under the agreement,
PaperClip is required to pay the Company $50,000 per month up to a maximum
amount of $300,000.
In the event the acquisition is not consummated by October 31, 1997,
PaperClip is required to repay to the Company all loans, advances and
receivables. Based on projected increases in PaperClip's revenues and cash
flows from operations, it is expected that PaperClip would be able to repay
these amounts in the event the acquisition is not consummated. However, it
is reasonably possible that in the event the acquisition is not consummated
and the projected increase in revenues and operating cash flows do not
occur, PaperClip would be unable to repay some or all of the amounts due to
the Company. See Note 14.
4. INVENTORIES
Inventories consist of the following:
JUNE 30,
1996 1997
Production inventory $ 470,715 $ 440,922
Service inventory 113,284 60,814
--------------- ---------------
583,999 501,736
Inventory for service contracts (79,549) (39,924)
--------------- ---------------
Inventory available for sale $ 504,450 $ 461,812
=============== ===============
Inventory required at customer sites under service contacts is excluded
from current assets as it is not expected to be consumed in the next year.
5. FIXED ASSETS
Fixed assets consist of the following:
JUNE 30,
1996 1997
Computers and office equipment $ 763,168 $ 785,510
Furniture and fixtures 38,261 38,993
Purchased computer software 195,773 258,792
Computer equipment held under
capital leases 561,249 115,523
--------------- ---------------
1,558,451 1,198,818
Accumulated depreciation and
amortization (965,990) (870,509)
----------------- ----------------
Net fixed assets $ 592,461 $ 328,309
================== =================
Depreciation and amortization expense related to fixed assets was $238,087
and $357,220 during fiscal 1996 and fiscal 1997, respectively.
6. NOTES PAYABLE - RELATED PARTIES
In May 1995, the Company entered into a line of credit with a corporation
pursuant to which the Company borrowed $200,000 secured by certain accounts
receivable of the Company. The interest rate on the outstanding balance of
the line of credit was the prime rate in effect on the date of each advance
plus 2% annum. The balance outstanding was $100,000 at June 30, 1995. The
line of credit was repaid and terminated in September 1995. A director of
the Company is the Chairman of that corporation.
In May 1995, the Company entered into a line of credit with a trust,
pursuant to which the Trustees loaned the Company $250,000 secured by
certain accounts receivable of the Company. The interest rate on the
outstanding balance of the line of credit was the prime rate in effect on
the date of each advance plus 2% per annum. The line of credit was
increased to $300,000 in June 1995 and the balance outstanding was $275,000
at June 30, 1995. The line of credit was repaid in July 1995. The Company
made several additional borrowings and repayments under this line of credit
throughout the first half of fiscal 1996. The final repayment was made in
December 1995 when the line of credit was terminated. A director of the
Corporation is the beneficiary of said trust.
In August 1995, the Company entered into a line of credit agreement with a
director pursuant to which the Company borrowed $1,335,415 at various
dates. This amount was partially secured by certain future accounts
receivable of the Company. Interest on the outstanding balance of the line
of credit was payable at the prime rate plus 2%. In connection with the
recapitalization described in Note 2, the director subsequently exchanged
all indebtedness due under the line of credit in the principal amount of
$1,335,415, plus $40,759 of unpaid interest, for 426,279 shares of common
stock.
In February 1996, the Company borrowed $250,000 from a director. Such
borrowings were evidenced by a demand promissory note which bore interest
at the rate of 10.25% per annum. The note, which was secured by certain
accounts receivables, was repaid in full in February 1996.
In March 1996, the Company borrowed $250,000 from a director. Such
borrowings were secured by certain accounts receivable and were evidenced
by a demand promissory note which bore interest at the rate of 10% per
annum. The note was converted to a bridge loan in May 1996 (see Note 7).
In April 1996, the Company borrowed $85,000 from a director for working
capital purposes. The borrowings were evidenced by a demand promissory note
which bore interest at the rate of 10% per annum. The note was repaid in
full in May 1996.
7. BRIDGE LOAN
On May 28, 1996 the Company consummated a bridge financing pursuant to
which it issued an aggregate of $1,500,000 principal amount of promissory
notes which bear interest at 10% per annum. The notes are due and payable
on the earlier of the closing of the sale of securities or other financing
of the Company from which the Company receives gross proceeds of at least
$2,500,000 or May 28, 1997. In conjunction with the bridge financing the
Company issued 750,000 warrants. Each warrant entitles the holder to
purchase one share of common stock for $1.50 during the three year period
commencing May 28, 1997. The Company estimated the value of the warrants to
be $150,000. This amount has been recorded as paid-in capital and was
accreted to interest expense over the term of the bridge financing. Upon
consummation of the public offering in October 1996, each warrant
automatically converted to a warrant with the same terms and conditions as
the warrants issued in conjunction with the public offering (Note 1).
8. COMMITMENTS
OPERATING LEASE
The Company leases building space for office and plant facilities. In
February 1996, the Company renegotiated the lease, extending it at
substantially the same rate through December 31, 1997. Under the revised
terms either party may terminate the lease with 60 days notice after
December 31, 1997. Total rent expense for the years ended June 30, 1996 and
1997 amounted to approximately $82,000 and $78,000, respectively.
The Company's remaining obligation under the building lease through the
lease extension is approximately $39,000.
CAPITAL LEASES
The Company leases certain computer equipment under capital lease
obligations totaling $34,142 at June 30, 1997. The related assets are
included in fixed assets. Depreciation expense related to leased assets was
approximately $241,850 and $112,000 during fiscal 1997 and 1996,
respectively . Accumulated depreciation related to leased assets was
$85,229 and $289,106 at June 30, 1997 and 1996, respectively.
Obligations under the capital leases are recorded at the present value of
future minimum lease payments using the interest rate implicit in the lease
agreements. At June 30, 1997, the future minimum annual lease payments,
together with the present value of the net minimum annual lease payments
under the capital leases, are as follows:
PERIOD ENDING JUNE 30,
June 30, 1998 $ 27,314
June 30, 1999 6,828
-------------
34,142
Less: amount representing interest 2,169
-------------
Present value of net minimum lease payments 31,973
Less: current portion 25,257
-------------
Long-term portion of obligation under capital leases $ 6,716
=============
PAPERCLIP COMMITMENT
In connection with the management agreement with PaperClip, the Company is
required to advance an additional $630,000 during the first half of the
Company's Fiscal 1998.
9. INCOME TAXES
The tax effects of net operating loss ("NOL") carryforwards and temporary
differences that give rise to the deferred tax assets and liabilities at
June 30, 1996 and 1997 are as follows:
JUNE 30,
1996 1997
Deferred tax assets:
Net operating loss carryforwards $3,240,000 $ 4,060,457
Research and development costs
capitalized for tax purposes 617,000 1,088,190
Compensation related reserves 24,000 20,963
Provision for doubtful accounts 20,100 16,013
Inventory 88,800 85,457
--------- -----------
3,989,900 5,271,080
Deferred tax liabilities:
Fixed assets (1,600) (1,415)
---------- ----------
Valuation allowance (3,988,300) (5,269,665)
---------- ---------
Net deferred tax asset $ - $ -
=========== =========
The Company records a valuation allowance for deferred tax assets, if based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The Company
has determined that a full valuation allowance is required in light of its
history of operating losses since its inception.
At June 30, 1997, the Company has total federal and state NOL
carryforwards, prior to any limitations, available to reduce future taxable
income of approximately $9,500,000, which expire in various amounts between
the years 2002 and 2011, if not previously utilized. In the event of an
ownership change, as defined under Section 382 of the Internal Revenue
Code, utilization of NOL carryforwards in the period following the
ownership change can be significantly limited. The Company has incurred
several changes of ownership under these rules. As a result, utilization of
the NOLs is subject to various limitations, depending upon the year in
which the NOL originated. As of June 30, 1997 management estimates that
approximately $6,300,000 of the Company's federal NOL carryforwards will be
available to offset taxable income that may be generated within the
carryforward period. Of this amount, approximately $1,300,000 is available
for future utilization without limitation. The other $5,000,000 is subject
to a limitation of approximately $330,000 of utilization per year limiting
total utilization during the carryforward period to approximately
$2,200,275. However, because the limitation calculations are complex and
subject to review by the Internal Revenue Service, these limitations could
be adjusted at a later date.
10. STOCK OPTIONS
In 1987 the Company adopted an employee and director stock option plan (the
"1987 Plan"), pursuant to which the Company made grants of options through
November 1994. As of June 30, 1996, there were options outstanding to
purchase 1,921 shares under the 1987 Plan. In November 1994 the Company
adopted a new employee stock option plan (the "1994 Employee Plan") and a
stock option plan for non-employee directors (the "1994 Directors Plan").
The Company has reserved a number of shares of common stock for the 1994
Employee Plan equal to the difference between 12,162 and the number of
shares issuable upon the exercise of options outstanding from time to time
under the 1987 Plan. As of June 30, 1996, there were options outstanding to
purchase 6,430 shares under the 1994 Employee Plan. As of June 30, 1996,
there were options outstanding to purchase 1,014 shares under the 1994
Directors Plan. The Company has also granted options from time to time to
consultants and in connection with equity and debt offerings. These options
were granted at exercise prices which were not less than the fair market
value of the common stock on the date the option was granted. As of June
30, 1996, there were non-plan options outstanding to purchase 891 shares.
Both the 1987 Plan and the 1994 Plan provided for the grant of incentive
stock options and non-qualified stock options. Incentive stock options
under both plans were granted at an exercise price not less than the fair
market value of the common stock on the date the option was granted.
Non-qualified stock options under the 1987 Plan were granted at exercise
prices not less than 50% of the fair market value of the common stock on
the date the option was granted, while non-qualified stock options under
the 1994 Plan were granted at exercise prices not less than the fair market
value of the common stock on the date the option was granted. Options were
to be exercised within ten (10) years from grant, except for incentive
stock options issued to 10% stockholders which were to be exercised within
five (5) years from grant. Options outstanding under the 1987 Plan and the
1994 Employee Plan vested at the rate of 20% on the first anniversary of
the date of grant and 5% at the end of each additional three-month period
of service. Options under the 1994 Directors Plan vested ratably over four
years. Non-plan options vested in accordance with the terms of the
particular option agreement. The range of vesting periods under non-plan
options is from zero to three years.
In August 1996, the Company terminated the 1994 Directors' Plan. In August
1996 the Company also terminated its 1987 Stock Option and Purchase Plan
and 1994 Stock Option Plans (the "Terminated Plans") and adopted the 1996
Plan pursuant to which key employees of the Company, including directors
who are employees, are eligible to receive grants of options to purchase
common stock, at the discretion of the Compensation Committee. The Company
has reserved 500,000 shares of common stock for issuance under the 1996
Plan. Options granted under the 1996 Plan can be either incentive stock
options or non-qualified options, at the discretion of the Compensation
Committee. On August 1, 1996 the Company cancelled the 8,351 options
outstanding under the Terminated Plans (having exercise prices ranging from
$74 to $240.50 per share) and granted options to purchase 263,351 (of the
263,351 options granted, 8,351 were immediately exercisable and the
remainder vested in equal installments on the first and second anniversary
of the grant) shares of Common Stock at an exercise price equal to $3.75
per share. On November 4, 1996, the Company granted options to purchase
15,000 shares of Common Stock at an exercise price of $4.13 per share.
These Options vest in equal installments on the first and second
anniversary of the grant. The options must be exercised within five years
of the date of grant.
As of June 30, 1996 and 1997, the following stock options were
outstanding:
EXERCISE PRICE NUMBER OUTSTANDING
PER SHARE JUNE 30, 1996 JUNE 30, 1997
$ 3.75 - 193,837
4.13 - 15,000
74.00 891 92
119.88 186 -
148.00 98 16
222.00 8,344 1,352
240.50 435 135
351.50 14 14
399.60 288 288
------- ----------
10,256 210,734
======= ==========
The following is a summary of stock option activity for the years ended
June 30, 1996 and 1997:
1996 1997
Outstanding, beginning of period 11,278 10,256
Granted during period 5,021 263,351
Cancelled during period (6,043) (63,873)
Exercised during period - -
-------- ----------
Outstanding, end of period 10,256 210,734
======== =========
The fair value of each option granted in Fiscal 1997 is estimated on the
date of grant using the Black-Sholes option-pricing model. The following
assumptions were used in the model:
Dividend yield 0.0%
Risk-free yields 6.16% - 6.31%
Expected volatility 0.0% - 4.2%
Option terms 5 years
Had compensation cost for option grants to employees pursuant to the
Company's stock option plans been determined based upon the fair value at
the grant date for awards under the plan consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and net
loss per share, for the year ended June 30, 1997 would have been increased
by approximately $118,000 or $.04 per share. Because additional option
grants are expected to be made each year, the proforma impact on the year
ended June 30, 1997 is not representative of the proforma effects on
reported net income in future years.
11. INTERNATIONAL SALES AND MAJOR CUSTOMERS
The Company sells optical archiving systems and related licenses for
software products to customers domestically and internationally.
International sales have all been denominated in U.S. dollars and were
$214,000 and $107,483 in the year ended June 30, 1996 and 1997,
respectively. The Company's sales to Canada represented 11% and 10% of
total revenues for the year ended June 30, 1996 and 1997, respectively.
Sales to three customers accounted for 35%, 22%, and 11% of revenues for
the year ended June 30, 1996. Sales to one customer accounted for 10% of
revenue for the year ended June 30, 1997.
12. MANDATORILY REDEEMABLE PREFERRED STOCK
In January 1995, the Company sold 50,000 shares of Series A preferred
stock, $.01 par value, in a private placement to a trust for the benefit of
one of the Company's directors. The selling price of $40 per share resulted
in gross proceeds of $2,000,000. The Series A preferred stock had certain
preferred liquidation, dividend and other rights, and was convertible into
common stock upon consummation of an initial public offering of at least
$4,000,000, at a rate of .135 shares of common stock for each share of
Series A preferred stock. Dividends on the Series A preferred stock were
cumulative at a rate of $4 per share annually. Accrued dividends were
charged to accumulated deficit in the statement of mandatorily redeemable
preferred stock and stockholders' equity (deficit).
During the year ended June 30, 1996, the Company converted all of these
shares and accumulated dividends on the preferred shares in the amount of
$197,352 into 7,423 shares of common stock.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest for the years ended June 30, 1996 and 1997 was
approximately $130,000 and $75,000, respectively.
During the year ended June 30, 1996 there were a number of transactions in
which the Company issued common stock without receiving any cash proceeds.
In conjunction with the recapitalization discussed in Note 2, the Company
issued 1,041,012 shares of common stock in forgiveness of debt totaling
$2,697,544. As discussed in Note 12 during the period the Company issued
7,423 shares of common stock in exchange for outstanding preferred stock
and accumulated unpaid dividends in the aggregate amount of $2,197,352. In
January 1996 the Company issued 416,500 shares of common stock to an
officer. Compensation expense in the aggregate amount of $744,000 was
recognized in conjunction with this transaction including a non-cash charge
of $424,830, representing the fair value of the common stock as determined
by independent appraisal. The Company also issued 12,790 shares of common
stock to various related parties (including 7,500 shares issued to a former
officer of the Company) in satisfaction of services rendered to the Company
totaling $36,930.
During the year ended June 30, 1996, the Company acquired approximately
$34,000 of computer equipment under a capital lease.
14. SUBSEQUENT EVENT
On September 12, 1997, the acquisition agreement between ASI and PaperClip
was amended (the "Amended Agreement") to change the acquisition to a
merger. As a result of this amendment, a newly-formed subsidiary of ASI
will merge into PaperClip with PaperClip surviving as a subsidiary of ASI
(the "Merger"). Consummation of this transaction is subject to various
conditions, including approval by the PaperClip stockholders. Under the
terms of the Amended Agreement, the PaperClip stockholders will be entitled
to receive an aggregate of approximately 1.5 million shares of ASI's Common
Stock plus an equivalent number of ASI Class B Warrants. Each Class B
Warrant will entitle the holder to purchase one share of ASI Common Stock
at an exercise price of $6.00 per share. In connection with the Merger, the
holders of PaperClip's outstanding 12% Convertible Notes due December 1999
will exchange such notes for an aggregate of approximately 400,000 shares
of non-voting redeemable preferred stock of PaperClip. After 18 months, the
holders of the preferred stock will have the option to require ASI to
purchase such shares for cash or ASI common stock and Class B Warrants.
After 30 months, ASI shall have the right to redeem the preferred stock for
cash or ASI Common Stock and Class B Warrants. The Company expects the
Amended Agreement to be put to a vote of PaperClip shareholders during the
second quarter of ASI's Fiscal 1998.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
PaperClip Software, Inc.:
We have audited the accompanying balance sheets of PaperClip Software, Inc.
(formerly PaperClip Imaging Software, Inc.) (a Delaware corporation) as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996. 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 PaperClip Software, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has negative cash flow from operations, has
incurred losses from inception and has negative working capital. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with respect to future operations are also described
in Note 1. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
/s/ Arthur Andersen LLP
-------------------------
Arthur Anderson LLP
Roseland, New Jersey
February 20, 1997
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS (Note 1) $ 220,573 $ 3,661,009
ACCOUNTS RECEIVABLE (net of allowance for doubtful accounts
of $30,000 and $40,000 in 1996 and 1995, respectively) 275,527 267,024
PREPAID EXPENSES AND OTHER CURRENT ASSETS 33,855 2,767
------------ ------------
Total current assets 529,955 3,930,800
------------ ------------
EQUIPMENT, FURNITURE AND FIXTURES (Note 2):
Computer and office equipment 669,889 549,569
Furniture and fixtures 204,858 201,474
------------ ------------
874,747 751,043
Less- Accumulated depreciation (451,902) (263,352)
------------ ------------
422,845 487,691
------------ ------------
OTHER ASSETS 53,282 48,466
------------ ------------
Total assets $ 1,006,082 $ 4,466,957
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Note 4) $ 1,125,306 $ 565,936
DEFERRED REVENUE (Note 2) 56,066 58,400
CURRENT PORTION OF CAPITALIZED LEASES (Note 4) 49,442 49,807
------------ ------------
Total current liabilities 1,230,814 674,143
------------ ------------
NOTES PAYABLE (Note 3) 129,691 0
------------ ------------
CAPITAL LEASE, net of current portion (Note 4) 3,966 49,442
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 5):
Common stock, authorized 30,000,000 shares;
$.01 par value; issued and outstanding
7,722,188 and 3,599,750 shares in
1996 and 1995, respectively 77,222 35,998
Additional paid-in capital 16,362,395 15,753,539
Accumulated deficit (16,798,006) (12,046,165)
------------ ------------
Total stockholders' equity (deficit) (358,389) 3,743,372
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,006,082 $ 4,466,957
============ ============
The accompanying notes to financial statements are an integral part of these
balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES (Notes 2 and 6) $ 1,968,750 $ 1,489,139 $ 1,059,924
-------------- -------------- --------------
OPERATING EXPENSES:
Salaries and related benefits 1,391,725 1,292,654 1,164,430
Research and development expenses
(Note 2) 3,066,395 1,621,849 1,166,769
Selling expenses 1,447,593 940,624 745,958
General and administrative expenses 905,137 846,817 864,863
-------------- -------------- --------------
Total operating expenses 6,810,850 4,701,944 3,942,020
-------------- -------------- --------------
Loss from operations (4,842,100) (3,212,805) (2,882,096)
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest income 95,820 49,635 3,974
Interest expense and financing costs (Note 3) (5,561) (1,073,800) (9,500)
-------------- -------------- --------------
90,259 (1,024,165) (5,526)
-------------- -------------- --------------
Net loss ($ 4,751,841) ($ 4,236,970) ($ 2,887,622)
============== ============== ==============
NET LOSS PER COMMON SHARE (Note 2) ($ .63) ($ .88) ($ .85)
============== ============== ==============
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING (Note 2) 7,576,260 4,792,932 3,392,434
============== ============== ==============
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK
---------------------- ADDITIONAL
NUMBER PAR PAID-IN SUBSCRIPTIONS ACCUMULATED
OF SHARES VALUE CAPITAL RECEIVABLE DEFICIT
----------- --------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,286,604 $12,866 $ 5,078,339 $ 0 ($ 4,921,573)
Issuance of stock for cash in
private placement 364,951 3,649 1,596,717 0 0
Issuance of stock in lieu of cash
compensation 17,526 175 90,825 0 0
Issuance of stock in payment
of loans 81,662 817 294,183 0 0
Issuance of stock for subscription
receivable, net 30,768 308 99,692 (100,000) 0
Conversion of note payable to
equity in January, 1995 0 0 60,000 0 0
Net loss for 1994 0 0 0 0 (2,887,622)
----------- --------- ------------- --------------- ----------------
BALANCE, December 31, 1994 1,781,511 17,815 7,219,756 (100,000) (7,809,195)
Issuance of stock for note converted
to equity in 1994 18,489 185 (185) 0 0
Payment of stock subscription
receivable 0 0 0 100,000 0
Issuance of stock and warrants
for cash in public offering 1,525,931 15,260 6,495,129 0 0
Issuance of stock and warrants
for Bridge Note conversion in
public offering 273,819 2,738 1,393,739 0 0
Issuance of Bridge Warrants 0 0 645,000 0 0
Sale of underwriter of purchase
options 0 0 100 0 0
Net loss for 1995 0 0 0 0 (4,236,970)
----------- --------- ------------- --------------- -------------------
BALANCE, December 31, 1995 3,599,750 35,998 15,753,539 0 (12,046,165)
Exercise of Bridge Warrants 247,090 2,471 553,566 0 0
2 for 1 stock split 3,846,840 38,468 (38,468) 0 0
Exercise of stock options 28,508 285 33,338 0 0
Net loss for 1996 0 0 0 0 (4,751,841)
Options granted at less than
fair value 0 0 60,420 0 0
----------- --------- ------------- --------------- -------------------
BALANCE, December 31, 1996 7,722,188 $77,222 $16,362,395 $ 0 ($ 16,798,006)
=========== ========= ============= =============== ===================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
---------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss ($ 4,751,841) ($ 4,236,970) ($ 2,887,622)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation and amortization 188,550 108,999 72,651
Expense recognized for options granted at less
than fair market value 60,420 0 0
Stock issued in lieu of cash compensation 0 0 91,000
Issuance of Bridge Warrants 0 645,000 0
(Increase) decrease in accounts receivable, net (8,503) (142,214) 28,345
(Increase) decrease in prepaid expenses and other
current assets (31,088) (2,767) 14,500
(Increase) decrease in other assets (4,816) (44,000) 15,074
Increase (decrease) in accounts payable and
accrued expenses 559,370 (474,056) 614,990
(Decrease) increase in deferred revenue (2,334) 58,400 0
-------------- ---------- --------------
Net cash used in operating activities (3,990,242) (4,087,608) (2,051,062)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES--
Purchases of equipment, furniture and fixtures (123,704) (203,849) (62,693)
-------------- -------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock and warrants for
cash in initial public offering, net of costs 0 6,510,389 0
Proceeds from issuance of bridge notes 2,365,000 0
Proceeds from sale of purchase warrants 0 100 0
Repayment of bridge financing 0 (968,523) 0
Proceeds from borrowings from stockholders 0 0 50,000
Proceeds from issuance of stock for cash 0 0 1,600,365
Proceeds from exercise of bridge warrants 556,037 0 0
Proceeds from exercise of stock options 33,623 0 0
Proceeds from notes payable 129,691 0 60,000
Proceeds from common stock subscriptions receivable 0 100,000 0
Payments on capitalized leases (45,841) (33,859) 0
Payments of notes payable to stockholder 0 (155,000) 0
-------------- -------------- --------------
Net cash provided by financing activities 673,510 7,818,107 2,110,365
-------------- -------------- --------------
Net (decrease) increase in cash (3,440,436) 3,526,650 (3,390)
CASH AND CASH EQUIVALENTS, beginning of year 3,661,009 134,359 137,749
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 220,573 $ 3,661,009 $ 134,359
============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $5,561 $ 123,350 $ 0
======== =========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Common stock (81,661 shares in 1994) issued
to satisfy loans payable to stockholders
and in conversion of notes payable $ 0 $ 0 $295,000
Assets acquired under capital lease
obligations 0 133,108 0
Issuance of stock in exchange of Bridge Notes 0 1,396,477 0
======== =========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION:
PaperClip Software, Inc. (formerly PaperClip Imaging Software, Inc.) (the
"Company"), a Delaware corporation, is engaged in the development and
distribution of off-the-shelf computer software for document management and
imaging systems. The Company's systems allow users of personal computer networks
to scan, file, retrieve, display, print and route documents and other software
objects (such as word processing files, spreadsheets and electronic mail), while
continuing to use their existing application software. The systems can be
integrated with many personal computer applications with little or no
programming and can file and retrieve documents without the time consuming step
of manually labeling or indexing each document.
During 1995, the Company completed an initial public offering (the IPO) of
1,799,750 shares of its common stock, and 1,799,750 redeemable Class A purchase
warrants. The common stock and Class A warrants were purchased in pairs at $5.10
per pair but were separately transferable immediately after completion of the
IPO.
The Company's financial statements have been presented on the basis that is
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company is subject to the risks and difficulties encountered by any new
business, including competition from existing companies offering the same or
similar services, lack of financial resources and minimal previous record of
operations, earnings or revenues. The Company has incurred losses from
inception, has negative cash flows from operating activities and has signed a
letter of intent for the potential sale of its assets (see Note 9). These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities or any other adjustments that
might result should the Company be unable to continue as a going concern.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of Financial Statements-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition-
The Company generates revenues from licensing the rights to use its
software products directly to distributors, resellers, original equipment
manufacturers (OEM's), and end users.
Revenues from licenses are recognized upon shipment of the software if
there are no significant post delivery obligations, if collection is probable
and if payment is due within one year. Under the license, the Company provides
telephone support at no additional charge for periods not exceeding one year.
The estimated cost of providing such support is not significant. Revenues from
consulting services are recognized as services are performed.
Commencing in 1995, the Company offered post contract services, which
included software version upgrades only, and consulting and training services
related to installation and implementation of the Company's product. Total
revenues from post contract services were not significant for 1996 and 1995.
Revenues paid by the customer prior to performance of post contract services are
deferred and recognized over the term of the post contract service agreement,
usually one year. Deferred revenue included in the balance sheet at December 31,
1996 and 1995 was $56,066 and $58,400, respectively.
Cash and Cash Equivalents-
Cash and cash equivalents consist primarily of cash at banks and
investments with maturities of three months or less.
Equipment, Furniture and Fixtures-
Equipment, furniture and fixtures are stated at cost, less accumulated
depreciation. Depreciation expense is computed using the straight-line method
over the estimated useful lives of the assets (five to seven years).
Software Development Costs-
Statement of Financial Accounting Standards No. 86 requires capitalization
of software development cost from the time of establishment of technological
feasibility for the computer software product until the time when the product is
available for general release to customers. Management of the Company has
determined that technological feasibility and availability for release are
virtually simultaneous and, therefore, no development costs have been
capitalized in the accompanying financial statements.
Long - Lived Assets-
During 1995, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long Lived
Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. As a result of its review, the Company does not
believe that any impairment currently exists related to its long-lived assets.
Accounting for Stock-Based Compensation-
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The adoption of this
pronouncement had no impact on the Company's financial condition or results of
operations, however, additional disclosures have been included in the financial
statements (see Note 7).
Federal Income Taxes-
The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes" (SFAS 109), which provides for the recognition of
deferred tax assets, net of an applicable valuation allowance, related to net
operating loss carryforwards and certain temporary differences.
At December 31, 1996, the Company had net Federal operating loss
carryforwards (NOL) of approximately $16,182,000 which expire at various dates
through 2011. Due to losses sustained by the Company, management was unable to
determine that realization of the deferred tax asset was more likely than not
and, thus, has provided a full valuation allowance. As a result of a change in
control resulting from the Company's IPO (see Note 5) or which may result upon
the sale of the Company, the Company's NOL that would be available to offset
future taxable income may be subject to annual limitations.
Net Loss Per Common Share-
Net loss per common share is computed based upon the weighted average
number of common shares and common share equivalents outstanding if dilutive
during each year. Shares issuable upon exercise of warrants related to the April
5, 1995 Bridge Financing have been included in the computation of net loss per
share for all periods prior to the IPO (see Note 3). All per share amounts have
been retroactively adjusted for the two-for-one common stock split on May 31,
1996. On June 12, 1996, there was a two-for-one split of the Company's warrants.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" which makes certain
changes to the manner in which earnings per share is reported. The Company is
required to adopt this standard for the year ended December 31, 1997. The
adoption of this standard will require restatement of prior years' earnings per
share if the impact is material.
(3) DEBT:
On April 5, 1995, the Company consummated a bridge financing in which the
Company issued notes (the Bridge Notes) in the aggregate principal amount of
$2,365,000 and 430,000 warrants (the Bridge Warrants) to acquire an aggregate of
430,000 shares of common stock at an exercise price equal to the IPO price for
the common stock less $2.75. The Bridge Warrants are exercisable for five years
from the date of issuance. In connection with the IPO, $1,396,477 of the Bridge
Notes were converted for 273,819 shares of common stock and related warrants
(see Note 5). The balance of the principal amount of the Bridge Notes and
related interest were repaid with proceeds from the IPO. During 1996, 247,090
Bridge Warrants were exercised. At December 31, 1996, 182,910 (365,820 post
split - see Note 2) Bridge Warrants were outstanding. The $645,000 difference
between the exercise price of the Bridge Warrants and the $3.75 estimated fair
value of the common stock at the date of the bridge financing has been charged
to interest expense and a credit to be paid in capital in 1995.
The Bridge Notes bore interest at the rate of 9% per annum, and additional
costs associated with their issuance of $307,450 are reflected in interest
expense and financing costs in the 1995 statement of operations.
During 1996, the Company issued $129,691 of Convertible Notes (the Notes)
to certain shareholders of the Company. The Notes bear interest at 12% per annum
and are convertible into common stock at a rate of $.30 per share. The Notes
mature in December, 1999. The Notes become due upon the occurrence of certain
events of default, as defined.
4) COMMITMENTS AND CONTINGENCIES:
William Weiss, Chief Executive Officer and Sol Rosenberg, President have
each entered into an employment agreement with the Company for a term ending
December 31, 1998. In accordance with their respective contracts, each of
Messrs. Weiss and Rosenberg is entitled to $120,000 per annum. Messrs. Weiss and
Rosenberg's annual compensation will be increased to $150,000 per annum after
the end of the first fiscal year in which the Company is profitable. In
addition, Mr. Rosenberg's contract provides for a severance payment not to
exceed $120,000 and requires the Company to purchase and maintain disability
insurance for his benefit.
The Company leases its office spaces under a noncancellable operating
lease. Future minimum rental payments required under this lease are $119,000,
$36,000 and $15,000 for 1997, 1998 and 1999, respectively. In addition, the
Company leases office furniture under a capital lease agreement requiring
principal payments of $49,000 and $4,000 in 1997 and 1998, respectively. Rent
expense was approximately $119,000, $120,000 and $122,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
In the last quarter of 1995, the Company purchased from Cheyenne, for
$100,000, the NOSS product line, which the Company had previously been licensing
from Cheyenne. Cheyenne also granted to the Company a nonexclusive, perpetual,
irrevocable, nontransferable, worldwide, royalty free license with respect to
certain other software the Company had previously been licensing from Cheyenne.
Prior to the purchase, the Company had paid Cheyenne in excess of $300,000 in
royalties. In January, 1996, the parties further agreed that Cheyenne will
forward to the Company all orders received by Cheyenne for the NOSS products and
will be paid a commission of 15% with respect to each such order.
(5) STOCKHOLDERS' EQUITY (DEFICIT):
On February 17, 1994, the Company issued 264,367 shares of common stock to
qualified investors at $5.19 per share. Net cash proceeds from the offering were
$1,178,640. As part of the offering, 32,934 shares were issued to existing
stockholders in repayment of loans of $80,000 and in lieu of cash compensation
of $91,000.
During 1994, the Company obtained an advance of $60,000 for working capital
purposes from First Albany Corporation. In January, 1995, the Company issued
18,489 shares to First Albany at $3.25 per share in settlement of the above
advance.
In addition, the Company issued 30,768 shares of common stock prior to
December 31, 1994, the payment of which was received in 1995.
On December 30, 1994, the Company issued 133,518 shares of common stock to
qualified investors at $3.25 per share. Net cash proceeds from the offering were
$421,725. As part of the offering, 66,254 shares at $3.25 per share were issued
to existing stockholders in repayment of loans of $215,000.
In September, 1995, the Company completed an initial public offering (the
IPO) of 1,799,750 shares of its common stock, and 1,799,750 redeemable Class A
purchase warrants (Class A warrants) including shares issued on conversion of
Bridge Warrants (see Note 3). The common stock and Class A warrants were
purchased in pairs at $5.10 per pair but were separately transferable
immediately after completion of the IPO. Cash proceeds from the IPO were
$6,510,389, net of expenses of $1,271,859.
The Company granted to the underwriter of the IPO a five year option to
purchase up to ten percent (10%) of: (i) the number of shares of common stock
sold in the IPO (the Stock Purchase Option), at a price of $6.75 per share; and
(ii) the number of Class A Warrants sold in the IPO (the Warrant Purchase
Option), at a price of $0.135 per Class A Warrant. The Stock Purchase Option and
the Warrant Purchase Option are collectively referred to as the "Purchase
Options." The Purchase Options may be separately and independently exercised.
(6) MAJOR CUSTOMERS:
The Company sells its products primarily through mass distributors and
approximately 200 independent Value Added Resellers ("VARS"). The VARS sell and
install these products at end user sites. Sales to one major customer for the
year ended December 31, 1996 was approximately 15%. Sales to four major
customers for the year ended December 1995 were approximately 10%, 11%, 15% and
20% . Sales to two major customers for the year ended December 31, 1994 were 25%
and 14%.
(7) STOCK OPTION PLAN:
1993 Stock Option Plan-
The Company adopted a stock option plan (the "1993 Stock Option Plan"),
effective March 8, 1993, covering 58,126 shares of the Company's common stock,
pursuant to which employees of the Company are eligible to receive incentive
stock options. The 1993 Stock Option Plan, which expires in 2003, is
administered by the Board of Directors. The selection of participants, allotment
of shares, determination of price and other conditions of purchase of options is
determined by the Board of Directors. Incentive stock options granted under the
Plan are exercisable for a period of up to ten years from the date of the grant.
The options vest as follows: 25% in year 1, 30% in year 2, and 45% in year 3.
Stock option transactions for the 1993 Stock Option Plan are summarized
as follows-
Year Ended December 31
------------------------------------------
Exercise Exercise
1996 Price 1995 Price
-------- -------- ------- ---------
Outstanding, beginning of year 58,126 $2.60 58,126 $2.60
Granted 0 0.00 0 0.00
Exercised 0 0.00 0 0.00
Canceled or expired (24,939) 2.60 0 0.00
-------- -------- ------- ---------
Outstanding, end of year 33,187 $2.60 58,126 $2.60
======== ======== ======= =========
As of December 31, 1996, all of the options outstanding under the 1993
Stock Option Plan were exercisable at $2.60 per share.
1995 Stock Option Plan-
In May, 1995 the Company adopted a stock option plan (the "1995 Stock
Option Plan") covering 1,000,000 shares of common stock, pursuant to which
officers, directors and employees of the Company and certain other persons
conferring benefit upon the Company will be eligible to receive stock options.
The 1995 Stock Option Plan, which expires on March 1, 2005, is administered by
the Board of Directors. The selection of participants, allotment of shares,
determination of price, vesting and other conditions of purchase of options is
determined by the Board of Directors. Stock options granted under the Plan are
exercisable for a period of up to 10 years from the date of grant.
Stock option transactions for the 1995 Stock Option Plan are summarized as
follows-
Year Ended December 31
------------------------------------------
Exercise Exercise
1996 Price 1995 Price
-------- -------- ------- ---------
Outstanding, beginning of year 140,200 $1.13-$2.50 0 $0
Granted 370,342 $.05-$2.50 140,200 $1.13-2.50
Exercised (28,508) $1.13-$2.55 0 $0
Canceled or expired (14,600) $1.13 0 $0
-------- -------- ------- ---------
Outstanding, end of year 467,434 $.05-$2.50 140,200 $1.13-$2.50
During 1996, 50,000 options were granted to three employees at less than
fair market value. The difference of $60,420 between the exercise price and the
fair market value of the Company's stock on the grant date has been charged to
operations with a corresponding credit to additional paid in capital. Certain of
the options vest as follows: 33% in 1995, 66% in 1996 and 100% in 1997. As of
December 31, 1996, 200,519 options were exercisable at prices ranging from $.05
to $2.50 per share.
Effective January 1, 1996, the Company adopted the provisions of SFAS 123,
"Accounting for Stock-Based Compensation." As permitted by the statement, the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method. Had the fair value method of accounting been applied to
the Company's stock option plans, which requires recognition of compensation
cost ratably over the vesting period of the underlying equity instruments, the
net loss would have been increased by approximately $88,000 with a $.01 per
share effect in 1996 and approximately $32,000 with $.01 per share effect in
1995. This pro forma impact only takes into account options granted since
January 1, 1995 and is likely to increase in future years as additional options
are granted and amortized ratably over the vesting period. The average fair
value of options granted during 1996 and 1995 was $1.33 and $1.13, respectively.
The fair value was estimated using the Black-Scholes option-pricing model
based on the weighted average market price at grant date of $1.89 in 1996 and
$1.87 in 1995 and the following weighted average assumptions; risk-free interest
rate of 7.5% in 1996 and 1995, volatility of 75% for 1996 and 1995, and dividend
yield of 0% for 1996 and 1995.
(8) EXPORT SALES:
Export sales were approximately 18.6%, 21.3% and 16.5% of the Company's net
sales for the years ended December 1996, 1995 and 1994, respectively.
(9) SUBSEQUENT EVENT:
On January 2, 1997, the Company signed a letter of intent with Access
Solutions International Inc. (Access) for the sale of the Company's assets and
assumption of certain liabilities by Access for approximately $5.8 million. The
purchase price would be paid by the issuance of approximately 1,544,000 shares
of Access' common stock plus an equivalent number of Access Class B Warrants.
Each warrant would entitle the holder to purchase one share of Access common
stock at an exercise price of $6.00 per share. The parties are currently
negotiating a definitive purchase agreement. In addition, on January 29, 1997,
Access advanced $300,000 to the Company and the Company signed a convertible
promissory note maturing on January 27, 1998. The promissory note bears interest
at 12% and is convertible into common stock of the Company at $.25 per share at
the option of Access.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
CONDENSED BALANCE SHEETS -- JUNE 30, 1997 (Unaudited) AND DECEMBER 31, 1996
June 30 Dec 31,
1997 1996
ASSETS
<S> <C> <C>
CASH and CASH EQUIVALENTS $181,728 $220,573
ACCOUNTS RECEIVABLE (net of
allowance for doubtful accounts
of $40,000 at June 30, 1997
and December 31, 1996 359,031 275,527
PREPAID EXPENSES AND OTHER CURRENT ASSETS 565 33,855
--- ------
Total current assets 541,324 529,955
------- -------
EQUIPMENT, FURNITURE AND FIXTURES
Computer and office equipment 386,597 669,889
Furniture and fixtures 204,858 204,858
------- -------
591,455 874,747
Less- Accumulated depreciation (276,609) (451,902)
--------- --------
314,846 422,845
------- -------
OTHER ASSETS 50,624 53,282
------ ------
Total assets $906,794 $1,006,082
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $1,275,982 $1,125,306
LOANS PAYABLE - ASI 1,037,433
DEFERRED REVENUE 19,045 56,066
CAPITALIZED LEASE 29,260 49,442
------ ------
Total current liabilities 2,361,720 1,230,814
NOTES PAYABLE 129,691 129,691
CAPITAL LEASE, NET OF CURRENT PORTION 3,966
STOCKHOLDERS' EQUITY (DEFICIT) Common stock, authorized 30,000,000 shares; $.01
par value; issued and outstanding 8,065,521 shares on June 30, 1997 and
7,722,188 shares
at December 31, 1996 80,655 77,222
Additional paid-in capital 16,412,045 16,362,395
Accumulated deficit (18,077,317) (16,798,006)
------------ -----------
Stockholders' equity (deficit) (1,584,617) (358,389)
----------- -----------
Total liabilities and
stockholders' equity (deficit) $906,794 $1,006,082
======== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
UNAUDITED
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $635,559 $495,545 $920,868 $983,575
-------- -------- -------- --------
OPERATING EXPENSES:
Salaries and related benefits 410,437 389,789 719,806 752,981
Research and development expenses 275,171 830,828 655,656 1,464,053
Selling expenses 119,158 402,771 326,378 596,590
General and administrative expenses 211,637 247,623 479,841 492,689
------- ------- ------- -------
Total operating expenses 1,016,403 1,871,011 2,181,681 3,306,313
--------- --------- --------- ---------
Loss from operations (380,844) (1,375,466) (1,260,813) (2,322,738)
--------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 687 41,658 3,137 67,983
Interest expense (14,254) (1,672) (21,637) (3,147)
-------- ------- -------- -------
(13,567) 39,986 (18,500) 64,836
-------- ------ -------- ------
Net loss ($394,411) ($1,335,480) ($1,279,313) ($2,257,902)
========== ============ ============ ============
LOSS PER COMMON SHARE ($0.05) ($0.18) ($0.16) ($0.30)
======= ======= ======= ===========
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING 8,065,521 7,620,692 7,951,893 7,435,815
========= ========= ========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
UNAUDITED
1997 1996
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($1,279,311) ($2,257,902)
Adjustments to reconcile net loss to
net cash used in operating activities-
Depreciation 107,999 75,852
(Increase) in accounts receivable (83,504) (107,026)
Decrease (Increase) in prepaid
expenses and other current assets 33,290 (21,683)
Decrease in other assets 2,658 366
Increase in accounts payable,
accrued expenses and deferred revenues 113,655 59,307
------- ------
Net cash used in operating activities (1,105,213) (2,251,086)
----------- -----------
INVESTING ACTIVITIES -- Purchases of
equipment, furniture and fixtures (107,587)
FINANCING ACTIVITIES:
Proceeds from issuance of stock in
exchange for Bridge Warrants and cash 616,456
Proceeds from issuance of stock in
exchange for Stock Options and cash 1,000 33,624
Issuance of stock for compensation 52,083
Proceeds from borrowings 1,037,433
Payments on capitalized leases (24,148) (22,520)
-------- --------
Net cash provided by financing activities 1,066,368 627,560
--------- -------
Net (decrease) increase in cash (38,845) (1,731,113)
CASH, beginning of period 220,573 3,661,009
------- ---------
CASH, end of period $181,728 $1,929,896
======== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Interest paid $1,700 $1,672
====== ======
</TABLE>
<PAGE>
PAPERCLIP SOFTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information, the instructions to Form 10-QSB and item 310 (b) of Regulation SB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included. For
further information, refer to the Financial Statements and footnotes thereto
included in the Company's Registration Statement and Prospectus and Form 10-KSB
(for the year ended December 31, 1996) as filed with the Securities and Exchange
Commission.
NOTE B -- LOSS PER SHARE
The loss per share amounts in the statement of operations have been computed in
accordance with a Staff Accounting Bulletin (SAB) of the Securities and Exchange
Commission. According to the SAB, common stock and common stock warrants issued
are to be treated as common stock equivalents outstanding for all periods
presented if such common stock was issued or such common stock warrants may be
exercised, at a price substantially below the public offering price. As a
consequence of the Company's offering of 1,799,750 shares of its common stock at
$5.00 per share in an initial public offering, its warrants issued to the Bridge
Note holders, entitling the holders thereof to acquire an aggregate of 430,000
shares of the Company's common stock at an exercise price of $2.25,would be
treated as common stock equivalents unless their inclusion be antidilutive. The
unexercised Bridge Warrants have not been treated as common stock equivalents at
June 30, 1996 or June 30, 1997 as their inclusion would be antidilutive. The
share data contained in this note does not take into account a 2 for 1 stock
split effected as of May 1996.
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined statement of operations of
Access Solutions International, Inc. ("Access") for the year ended June 30, 1997
presents the operating results for Access as if the proposed acquisition (the
"Acquisition") had occurred as of July 1, 1996. The accompanying unaudited pro
forma condensed combined balance sheet as of June 30, 1997 gives effect to this
transaction as if it had occurred on June 30, 1997.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the accompanying notes, the historical financial
statements and notes thereto of Access included herein and the historical
financial statements and notes thereto of PaperClip Software, Inc. ("PaperClip")
included herein.
The unaudited pro forma condensed combined financial statements are
provided for informational purposes only and are not necessarily indicative of
the results of operations or financial condition that would have been achieved
had the Acquisition actually occurred as of the dates indicated or of the future
results of operations or financial condition of Access. The pro forma
adjustments are based upon available information and certain assumptions that
Access currently believes are reasonable in the circumstances. If the
transaction is consummated, Access' financial statements will reflect its effect
only from the date such transaction occurs. The pro forma adjustments are
applied to the historical consolidated financial statements of Access and
PaperClip to account for the Acquisition using the purchase method of
accounting. Under purchase accounting, the total purchase cost of PaperClip will
be allocated to the assets and liabilities acquired based on their relative fair
values as of the date the transaction is closed, with any excess of the total
purchase price over the fair value of the tangible assets acquired less the fair
value of the liabilities assumed recorded as intangible assets. The cost
allocations will be based on appraisals and other studies, which are not yet
completed. Accordingly, the final allocations will be different from the amounts
reflected herein. Although the final allocations will differ, the pro forma
condensed combined financial information reflects Access management's best
estimate based on currently available information.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Twelve Months Ended June 30, 1997
(Unaudited)
Historical Pro-forma Pro-forma
Access PaperClip Adjustments Combined
Net sales:
<S> <C> <C> <C> <C>
Products $ 500,682 $ 1,906,043 $ - $ 2,406,725
Services 590,896 - - 590,896
---------------- --------------- -------------- -------------
Total net sales 1,091,578 1,906,043 - 2,997,621
---------------- --------------- -------------- -------------
Cost of sales:
Products 133,453 - 895,619 (1) 1,029,072
Services 256,777 - - 256,777
---------------- --------------- -------------- -------------
Total cost of sales 390,230 - 895,619 1,285,849
---------------- --------------- -------------- -------------
Gross profit 701,348 1,906,043 (895,619) 1,711,772
---------------- --------------- -------------- -------------
General and administrative expense 1,494,792 1,040,914 614,511 (2) 3,150,217
Research and development expense 1,651,322 2,750,337 - 4,401,659
Selling expense 928,080 1,894,967 - 2,823,047
---------------- --------------- -------------- -------------
Total expenses 4,074,194 5,686,218 614,511 10,374,923
---------------- --------------- -------------- -------------
Operating Loss (3,372,846) (3,780,175) (1,510,310) (8,663,151)
---------------- --------------- -------------- -------------
Interest income 112,538 30,974 143,512
Interest expense (100,066) (24,051) 18,710 (3) (105,407)
---------------- --------------- -------------- -------------
Net loss $ (3,360,374) $ (3,773,252) $(1,481,420) $ (8,625,046)
================ =============== ============== =============
Dividends on PaperClip preferred stock (15,563)(4) (15,563)
Net loss applicable to common stock (3,360,374) (3,773,252) (1,506,983) (8,640,609)
Net loss per common share (5) (1.05) (1.82)
Weighted average common shares outstanding (5) 3,205,381 4,749,819
See accompanying Notes to Pro Forma Condensed Combined Statement of Operations
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Statement of Operations
For the Twelve Months Ended June 30,1997
(1) For purposes of determining the pro forma amortization of intangible
assets, Access has estimated that the intangible assets of PaperClip
include existing software products of $2,686,858. The amortization period
for this asset is estimated to be three years. The final costs allocation
and amortization period for PaperClip will be based on appraisals and other
studies which have not yet been completed.
(2) For purposes of determining the pro forma amortization of intangible
assets, Access has estimated that the intangible assets of PaperClip
include goodwill of $3,697,554. The amortization period for this asset is
estimated to be five years. The final costs allocation and amortization
period for PaperClip will be based on appraisals and other studies which
have not yet been completed.
In addition, charges of $125,000 for management services from Access to
PaperClip have been eliminated.
(3) In connection with the Acquisition, the convertible promissory notes of
PaperClip will be converted into preferred shares of PaperClip. In
addition, PaperClip has recorded interest expense related to the bridge
loan. These adjustments reflect the elimination of interest expense
associated with these convertible promissory notes and the bridge loan.
(4) This adjustment reflects the 12% dividends on the PaperClip preferred
shares.
(5) Pro forma earnings per common share is computed by dividing pro forma net
loss by Access' historical weighted average number of common shares
outstanding after giving effect to the issuance of 1,544,438 shares in
connection with the Acquisition.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
Historical Pro-forma Pro-forma
Access PaperClip Adjustments Combined
Assets
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,889,446 $ 181,728 $ (176,752) (1) $ 1,894,422
Trade accounts receivable, net of allowance
for doubtful accounts 238,914 359,031 - 597,945
Inventories 461,812 - - 461,812
Prepaid expenses and other current assets 183,159 565 - 183,724
------------- ------------- -------------- --------------
Total current assets 2,773,331 541,324 (176,752) 3,137,903
Fixed assets, net 328,309 314,846 - 643,155
Other assets:
Notes and advances receivable 829,052 (829,052)(2) -
Deposits and other assets 9,603 50,624 - 60,227
Remote service inventory, net 39,924 - - 39,924
Purchased software products - - 2,686,858 (3) 2,686,858
Goodwill - - 3,697,554 (4) 3,697,554
============= ============= ============== ==============
Total assets $ 3,980,219 $ 906,794 $ 5,378,608 $ 10,265,621
============= ============= ============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 370,717 $ 1,275,982 $ 120,888 (5) $ 1,767,587
Loans payable - 1,037,433 (1,037,433) (6) -
Current installments of capital lease obligations 25,257 29,260 - 54,517
Accrued salaries and wages 204,604 - - 204,604
Deferred revenues - prepaid service contracts 329,841 19,045 - 348,886
------------- ------------- -------------- --------------
Total current liabilities 930,419 2,361,720 (916,545) 2,375,594
Notes payable - 129,691 (129,691)(7) -
Capital lease obligations, excluding current
installments 6,716 - - 6,716
------------- -------------- -------------- --------------
Total liabilities 937,135 2,491,411 (1,046,236) 2,382,310
------------- -------------- -------------- --------------
PaperClip preferred stock - - 129,691 (7) 129,691
Stockholders' equity:
Common stock 39,652 80,655 (65,211)(8) 55,096
Additional paid-in capital 17,637,694 16,412,045 (11,716,953)(9) 22,332,786
Accumulated deficit (14,616,206) (18,077,317) 18,077,317 (10) (14,616,206)
Treasury stock (18,056) - - (18,056)
------------- -------------- ------------- -------------
Total stockholders' equity and
PaperClip preferred 3,043,084 (1,584,617) 6,424,844 7,883,311
------------- -------------- ------------- -------------
Total liabilities and stockholders' equity $ 3,980,219 $ 906,794 $ 5,378,608 $ 10,265,621
============= ============== ============= =============
See accompanying Notes to Pro Forma Condensed Combined Balance Sheet
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Balance Sheet
June 30, 1997
(1) Reflects the payment of $176,752 of legal, accounting, due diligence and
other costs related to the Acquisition.
(2) Reflects the elimination of the $300,000 bridge loan and advances of
$529,052.
(3) Access has estimated that the intangible assets of PaperClip include
existing software products of $2,686,858. The final cost allocation for
PaperClip will be based on appraisals and other studies which have not yet
been completed.
(4) Access has estimated that the intangible assets of PaperClip include
goodwill of $3,697,554. The final cost allocation for PaperClip will be
based on appraisals and other studies which have not yet been completed.
(5) Reflects $120,888 of adjustments to PaperClip's historical accrued expenses
balance to reflect severance costs for certain PaperClip employees.
(6) Reflects the elimination of the $300,000 bridge loan and advances of
$737,433.
(7) In connection with the Acquisition, the convertible promissory notes of
PaperClip will be converted into preferred shares of PaperClip.
(8) Reflects the elimination of PaperClip's historical common stock balance and
the issuance of 1,544,438 shares of Access common stock.
(9) Reflects the elimination of PaperClip's additional paid-in capital balance
and the issuance of 1,544,438 shares of Access common stock and $6
warrants.
(10) Reflects the elimination of PaperClip's historical retained earnings
balance.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTOR AND EXECUTIVE OFFICERS. The current ASI directors and executive
officers are as follows:
NAME AND AGE POSITION
Malcolm G. Chace, 62 (1)(2)........Director
Robert H. Stone, 47 (1)............President, Chief Executive Officer, Director
Thomas E. Gardner, 59 (1)(2).......Chief Financial Officer, Treasurer, Director
Marvyn Carton, 79 (1)..............Director
Howard W. Yenke, 60 ...............Director, Chairman
Adrian Hancock, 50.................Director
George H. Steele, III, 52..........Vice President - Business Development
Denis L. Marchand, 44..............Financial Controller
- ----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliations of the ASI directors and the executive officers is set forth
below.
MR. CHACE was Chairman of the Board of ASI from December 1994 until June
26, 1997 and has been a director since October 1991. Mr. Chace has been a Vice
President and director of Point Gammon Corporation, a Chace family investment
company, since 1986. Mr. Chace is also Chairman of Mossberg Industries, Inc.
("Mossberg"), a manufacturer of plastic reels principally used by the wire
industry, Chairman of Bank Rhode Island, and a director of Berkshire Hathaway
Company. He previously served as a director of Rhode Island Hospital Trust
National Bank.
MR. STONE was elected President and Chief Executive Officer of ASI on
August 1, 1996. Prior to joining ASI, Mr. Stone was Director of Marketing of
Standard Duplicating Machines Corporation since June 1994 and prior to that
President of Marketplex, Inc., a marketing services company, since 1992. From
June 1989 to February 1992, Mr. Stone was Director of Product Marketing of Riso,
Inc., a developer and distributor of high speed printing systems.
MR. GARDNER has served as Chief Financial Officer of ASI since April 1996,
Treasurer since May 1994 and has been a director since May 1994. Mr. Gardner
does not serve full time as ASI's Chief Financial Officer or Treasurer. Mr.
Gardner has also served as the President of LJT Associates (a planning and
financial consulting firm) since April 1992. From 1979 to October 1992, Mr.
Gardner was Senior Vice President at Rhode Island Hospital Trust National Bank.
Mr. Gardner has served on various Rhode Island and Providence commissions and
committees and currently serves as the Rhode Island Governor's appointee to the
Depositors' Economic Protection Corporation Performance Review Committee. Mr.
Gardner, through LJT Associates, is presently providing consulting services to
Point Gammon Corporation.
MR. CARTON has been a director of ASI since 1994. Mr. Carton is a Director
Emeritus of Allen & Company, Incorporated, an investment banking and financial
services company. Mr. Carton began his employment at Allen & Company,
Incorporated in September 1948 and held various positions at Allen & Company,
Incorporated until his retirement in 1991 from the office of Executive Vice
President. Mr. Carton has been a Director of Acquisition Resources Ltd., an oil
and gas company, since 1993, the Chairman of Brown University Third Century Fund
from 1981 to 1987 and Co-Chairman since then. Mr. Carton has also served in the
past as a member of the boards of directors of Syntex Corporation (a
pharmaceuticals company), Frank B. Hall (an insurance and financial services
firm), and American Axle & Manufacturing Co., among others.
MR. YENKE has been a director of ASI since May 1997 and Chairman of the
Board since June 1997. Mr. Yenke also serves as a consultant to ASI. See
"Consulting Arrangement" below. Mr. Yenke has been President, Chief Executive
Officer and a director of LANart Corp., a producer of local area network
connectivity products, since June 1996. From November 1995 to May 1996, Mr.
Yenke was President of the Yenke Group, a consulting firm. He was President,
Chief Executive Officer and a director of Enterprise Development Cooperation,
Inc. and Technology Development Holdings Company, Inc., two affiliated venture
capital companies targeted to emerging growth technology, from November 1994 to
October 1995. From 1989 to 1994, he was President, Chief Executive Officer and a
director of Boca Research, Inc., a developer and producer of PC enhancement
products. He is also a director of Checkmate Electronics, Inc., a manufacturer
of point of sale products, Communications Systems International, a producer of
digital global positioning products for certain industries, and Rexall Sundown,
Inc., a producer of consumer health products.
MR. HANCOCK has been a director of ASI since May 1997. Mr. Hancock has
been a member of the Planning Technologies Group, a consulting firm, since 1995.
He was also Director of International Operations of the Timberland Company, a
footwear and apparel manufacturer, from 1993 to 1995. From 1992 to 1993 Mr.
Hancock was a management consultant.
MR. STEELE has served as Vice President - Business Development since April
1997. Mr. Steele, a founder of ASI, previously served as Vice
President-Marketing from June 1995 to March 1997 and as Director of Marketing
from April 1988 to June 1995. Mr. Steele is the architect of both OAS and
GIGAPAGE. Prior to joining ASI, he was program manager of new products and
development for Aquidneck Data Corporation, and President of New England Data
Research, an embedded computer systems development company.
MR. MARCHAND has served as Financial Controller since September 1994. From
July 1993 to September 1994 he was a Firm Administrator for Rubin, Hay & Gould,
P.C., a law firm located in Framingham, MA. From October 1990 through May 1993
he was the financial controller of the U.S. subsidiary of EWAG Corporation, a
high precision grinding machine manufacturer. Mr. Marchand holds an M.B.A.
degree from Bryant College, is a certified internal auditor and has successfully
passed the Uniform Certified Public Accountant's examination.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934 requires ASI's officers and directors, and
persons who own more than 10% of a registered class of ASI's equity securities
("insiders"), to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Insiders are required by SEC
regulation to furnish ASI with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to ASI, ASI
believes that during its fiscal year ended June 30, 1997 all Section 16(a)
filing requirements applicable to its insiders were complied with.
ITEM 10. Executive Compensation
DIRECTOR COMPENSATION. ASI's directors do not receive cash compensation
for service on the Board of Directors, although they are reimbursed for certain
out-of-pocket expenses in connection with attendance at Board and committee
meetings. The ASI Board is currently considering the adoption, subject to
stockholder approval, of a non-employee director stock option plan (the
"Directors Plan") pursuant to which each existing non-employee director would be
granted an option to purchase 25,000 shares of AST Common Stock on the effective
date of the Directors Plan and any non-employee directors elected in the future
would be granted an option to purchase 25,000 shares of ASI Common Stock on the
date of their election. In addition, each non-employee director will
automatically be granted an option to purchase 5,000 shares of ASI Common Stock
on the date of each annual meeting of stockholders. Each option would have an
exercise price equal to the fair market value of the ASI Common Stock on the
date of grant and would vest in five equal annual installments commencing on the
grant date.
EXECUTIVE COMPENSATION. SUMMARY COMPENSATION TABLE. The following table
sets forth certain information with respect to the compensation paid by ASI for
services rendered during the fiscal year ended June 30, 1997 to the chief
executive officer and the other executive officers of ASI whose compensation
exceeded $100,000 (the "Named Executive Officers").
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS
SECURITIES
NAME AND FISCAL PAID UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
Robert H. Stone, President 1997 125,241 -- 50,000 --
and Chief Executive Officer 1996 -- -- -- --
Hector Wiltshire, President 1997 -- -- -- --
and Chief Executive Officer (1) 1996 -- -- -- 744,000(2)
(1) Mr. Wiltshire was interim President and Chief Executive Officer from January
1996 to July 1996.
(2) Includes a non-cash charge of $424,830 representing the fair value of Common
Stock issued to Mr. Wiltshire in exchange for his service as President,
relinquishment of warrants from a prior bridge loan and consideration for a
$250,000 short term loan. See "Certain Transactions -Transactions with Mr.
Wiltshire." The shares would carry an aggregate value of $1,561,875 if priced at
the initial offering price of $3.75 per share (assuming no allocation of the
offering price to the Redeemable Warrants included in the Units).
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to option grants during the fiscal year ended June 30,
1997 to the Named Executive Officers.
NUMBER PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SH) DATE
Robert H. Stone.... 40,000 17% $3.75 8/01/01
10,000 (1) 4% $3.75 8/01/01
Hector Wiltshire... -- -- -- --
(1) These options expired June 30, 1997, see "Employment Agreement" below.
Year-End Option Table. During the fiscal period ended June 30, 1997, none
of the Named Executive Officers exercised any options issued by ASI. The
following table sets forth information regarding the stock options held as of
July 1, 1997 by the Named Executive Officers.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY-OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END YEAR END
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Robert H. Stone.. 20,000 20,000 $0 $0
Hector Wiltshire. -- -- $0 $0
STOCK OPTION PLANS. In August 1996, ASI terminated the 1994 Directors
Stock Option Plan (the "1994 Directors Plan"), which was a stock option plan for
non-employee directors. There are options outstanding to purchase 1,014 shares
pursuant to the 1994 Directors Plan at an exercise price of $222 per share.
Under the 1994 Directors Plan, upon a director's election to the Board, the
director was automatically awarded an option to purchase 338 shares of ASI
Common Stock, at an exercise price equal to 100% of the fair market value on the
date the option was granted. The option then vested 25% on each of the first
through fourth anniversaries of the date of the grant.
In August 1996, ASI terminated its 1987 Stock Option and Purchase Plan and
1994 Stock Option Plan (the "Terminated Plans") and adopted the 1996 Plan
pursuant to which key employees of ASI, including directors who are employees,
are eligible to receive grants of options to purchase ASI Common Stock for
issuance under the 1996 Plan. Options granted under the 1996 Plan can be either
incentive stock options or non-qualified options, at the discretion of the
Compensation Committee. On August 1, 1996, ASI canceled the 8,351 options
outstanding under the Terminated Plans (having exercise prices ranging from $74
to $240.50 per share) and granted options to purchase 248,351 (of which 8,351
are immediately exercisable) shares of ASI Common Stock at an exercise price
equal to $3.75 per share.
NON-PLAN OPTIONS. From time to time, ASI has issued options to purchase
shares of ASI Common Stock to certain consultants and in connection with certain
equity and debt financings provided to ASI. As of September 1, 1997, ASI had
non-plan options to purchase 891 shares of ASI Common Stock outstanding; of
such amount, options to purchase 236 shares, 52 shares, 18 shares and 203 shares
were held by Mr. Christopher Ingraham (a former director of ASI), Mr. Matthius
Lukens (a former officer of ASI), Mr. Chace and Mossberg, respectively. Mr.
Chace is the Chairman of Mossberg. The non-plan options are all 100% vested and
the exercise price of the options range from $74 to $399.60 per share. Mr.
Ingraham received his options as compensation for services rendered to ASI as a
consultant, each of Messrs. Chace and Lukens received his options as
compensation for serving as a director, and Mossberg received its options in
connection with certain debt financing it provided to ASI.
EMPLOYMENT AGREEMENT. ASI entered into a two-year employment agreement
with Mr. Stone pursuant to which he is employed full-time as President and Chief
Executive Officer effective August 5, 1996. Pursuant to the terms of the
employment agreement, Mr. Stone receives an annual base salary of $137,500, and
is entitled to bonus compensation (payable within 10 days following the receipt
of ASI's audited financial statements for the fiscal year ended June 30, 1997)
calculated as follows: (1) if ASI has a pre-tax profit for fiscal 1997 of
$500,000 or less, 5% of such pre-tax profit; and (ii) if ASI has a pre-tax
profit for fiscal 1997 or more than $500,000, 10% of such pre-tax profit. The
bonus was paid by the grant in August 1996 to Mr. Stone of an incentive stock
option to purchase 10,000 shares of ASI Common Stock at an exercise price of
$3.75 per share, vesting only if the pre-tax profits for fiscal 1997 exceed
$500,000 and the balance (calculated by subtracting from the total bonus the
amount determined by multiplying any difference between (i) the market price per
share of the ASI Common Stock on June 30, 1997 and (ii) $3.75, by 10,000) in
cash. The options expire immediately if the above conditions are not met. Since
there was no pre-tax profit in Fiscal 1997, no bonus was payable, so the options
do not vest and expired on June 30, 1997. Bonuses for any subsequent fiscal
years during which Mr. Stone is employed will be determined by the Board of
Directors. Mr. Stone also was granted 40,000 incentive stock options under the
1996 Plan, with an exercise price equal to $3.75, vesting 50% at July 31, 1997
and the remainder at July 31, 1998, so long as he continues to be employed by
ASI. Additionally, Mr. Stone is entitled to participate in any incentive
compensation, bonus and stock option plan established by ASI for the benefit of
executive level employees of ASI to the extent prescribed by the Board of
Directors. Pursuant to the terms of the employment agreement, if Mr. Stone's
employment is terminated by the Board of Directors other than for "cause," he is
entitled to receive severance payments equal to the greater of six months salary
or the balance of his then current salary through June 30, 1997 (or, if such
termination occurs after June 30, 1997, through the last day of ASI's fiscal
year in which such termination occurs). The employment agreement expires on July
31, 1998, subject to successive automatic one-year renewals unless terminated by
ASI at least 90 days prior to the expiration of the term. Mr. Stone is
restricted from competing with ASI and prohibited from disclosing any
confidential information regarding ASI during and following his period of
employment.
CONSULTING ARRANGEMENT. Mr. Yenke, Chairman of the Board, has served as a
consultant to ASI since June 26, 1997. For such services he receives $2,000 per
month.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to ASI with
respect to beneficial ownership of the ASI Common Stock as of July 1, 1997 by
(i) each stockholder who is known by ASI to own beneficially more than 5% of the
outstanding ASI Common Stock, (ii) each of ASI's directors, (iii) the Named
Executive Officers of ASI as of the end of ASI's fiscal year, and (iv) all
directors and executive officers as a group. Unless otherwise indicated, each
has sole voting and investment power with respect to the shares beneficially
owned.
Name and Address of Shares of Common Stock Percentage of
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
Malcolm G. Chace (1) 757,381 19.10%
c/o Point Gammon Corporation
731 Hospital Trust Building
Providence, RI 02903
Robert H. Stone (2) 20,000 *
c/o Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Marvyn Carton (3) 507 *
675 Sanctuary Drive
Boca Raton, FL 33431
Thomas E. Gardner (4) 13,891 *
c/o Point Gammon Corporation
731 Hospital Trust Building
Providence, RI 02903
Howard W. Yenke --- ---
c/o Lanart Corp.
145 Rosemary Street
Needham, MA 02194
Adrian Hancock --- ---
c/o The Planning Technologies Group
92 Hayden Avenue
Lexington, MA 02173
Directors and Executive Officers as a Group
(8 persons) (5) 811,435 20.27
- ----------------------------------------------------
(1) Includes 169 shares of ASI Common Stock issuable upon exercise of currently
exercisable stock options. Excludes 203 shares of ASI Common Stock owned of
record by Mossberg, of which Mr. Chace is the Chairman of the Board of
Directors. Mr. Chace disclaims beneficial ownership of the shares of ASI Common
Stock owned of record by Mossberg.
(2) Consists of 20,000 shares of ASI Common Stock issuable upon exercise of
stock options exercisable within 60 days of the date hereof.
(3) Includes 169 shares of ASI Common Stock issuable upon exercise of currently
exercisable stock options
(4) Includes 67 shares of ASI Common Stock jointly held with Leslie A. Gardner
(5) Includes 1,758 shares of ASI Common Stock issuable upon exercise of
currently exercisable options, and 37,500 shares of ASI Common Stock issuable
upon exercise of stock options exercisable within 60 days of the date hereof
* Less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS BETWEEN ASI AND PAPERCLIP
On January 29, 1997, ASI provided a $300,000 loan to PaperClip for use as
operating capital in exchange for a convertible note of PaperClip (the
"PaperClip Note"). The PaperClip Note is due and payable on January 27, 1998,
bears interest at a rate of 12% per annum payable quarterly and is secured by a
first priority security interest in all of PaperClip's assets. At any time all
or a portion of the outstanding principal amount of the PaperClip Note may be
converted into shares of PaperClip Common Stock at a conversion price of $.25
per share.
Since April 15, 1997, ASI has been responsible for (i) the management of
the day-to-day operations of PaperClip, subject to the oversight, review,
supervision and control of PaperClip's Board of Directors, and (ii) advancing,
on behalf of PaperClip, funds under an operating budget pursuant to the terms of
the Management Agreement.
ASI and PaperClip entered into a one-year non-exclusive regional
distribution agreement commencing June 1, 1997. Under the terms of this
agreement, ASI acts as a distributor for PaperClip's products in the United
States to dealers and resellers. ASI's sole compensation under this agreement is
its gross profit on any products sold, which is equal to any excess of the price
at which ASI distributes the products to its customers over the price at which
PaperClip licenses the products to ASI.
CERTAIN TRANSACTIONS BETWEEN ASI AND ITS AFFILIATES
TRANSACTIONS WITH MR. CHACE. In connection with the 1996 Bridge Financing,
Mr. Chace purchased from ASI five units, each consisting of a $50,000 promissory
note and a warrant to purchase 25,000 shares of ASI Common Stock. A portion of
the proceeds of the IPO were used to repay the indebtedness incurred in
connection with the 1996 Bridge Financing. Additionally, upon consummation of
the IPO, Mr. Chace received 125,000 New Warrants in exchange for the 1996 Bridge
Warrants he had acquired in connection with the 1996 Bridge Financing.
TRANSACTIONS WITH MR. WILTSHIRE. In January 1996, ASI issued 416,500
shares of ASI Common Stock to Hector D. Wiltshire in consideration for (i) Mr.
Wiltshire's agreement to serve as ASI's interim President and Chief Executive
Officer; (ii) his agreement to relinquish the warrants he had acquired in
connection with the $500,000 bridge financing he provided to ASI in September
1995; and (iii) his agreement to lend ASI $250,000 on a short-term basis. As a
result, ASI incurred a compensation expense in the amount of $744,000, including
a non-cash charge of $424,830 representing the fair value of the ASI Common
Stock as determined by independent appraisal. Mr. Wiltshire simultaneously
transferred 208,250 shares to each of his two adult children.
In January 1996, ASI borrowed $250,000 from Mr. Wiltshire. This loan,
secured by certain accounts receivable of ASI, bore interest at the rate of the
prime rate plus 2% per annum (10.25% on February 29, 1996) and was repaid in
full on February 29, 1996.
TRANSACTIONS WITH MR. LUKENS. Pursuant to an agreements dated as of July
14, 1997, Matthias E. Lukens, Jr., a former President and Chief Executive
Officer and a former Vice President-Research and Development of ASI, resigned as
an officer and employee of ASI and ASI agreed to pay Mr. Lukens severance
benefits equal to six months salary or $57,200. ASI also agreed to exchange
incentive stock options to purchase 24,311 shares of ASI Common Stock at an
exercise price of $3.75 pursuant to the 1996 Plan for non-qualified stock
options to purchase 24,311 shares of ASI Common Stock at an exercise price of
$3.75 pursuant to the 1996 Plan.
FAIRNESS OF CERTAIN TRANSACTIONS. ASI believes that the terms of each of
the foregoing transactions are at least as favorable to ASI as could be obtained
from third parties in arms' length transactions. Article XI of the ASI By-laws
governs transactions between ASI and its directors. An affirmative vote of a
majority of disinterested directors is required to authorize a contract or
transaction entered into with a director of ASI; provided, however, that the
director's interest in the contract or transaction is disclosed or known to the
disinterested directors. Any future contract or transaction between ASI and its
directors will be transacted in accordance with the provisions of the By-laws.
Any future contract or transaction between ASI and its officers and affiliates
will be transacted in the same manner.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
2.1 Asset Purchase Agreement dated as of April 15, 1997 between PaperClip
and ASI (incorporated by reference to Exhibit 2(a) of ASI's Current
Report on Form 8-K dated April 18, 1997)
2.2 Management Agreement dated as of April 15, 1997 between PaperClip and
ASI (incorporated by reference to Exhibit 2(b) of ASI's Current Report
on Form 8-K dated April 18, 1997)
2.3 Letter agreement to amend Asset Purchase Agreement with PaperClip dated
September 12, 1997.
3.1 Amended and Restated Articles of Incorporation of ASI (incorporated by
reference to Exhibit 3(a) of ASI's Registration Statement on Form SB-2,
File No. 333-5285)
3.2 By-laws of ASI (incorporated by reference to Exhibit 3(b) of ASI's
Registration Statement on Form SB-2, File No. 333-5285)
4.1 Redeemable Warrant Agreement dated October 16, 1996 (incorporated by
reference to Exhibit 3(c) of ASI's Registration Statement on Form SB-2,
File No. 333-5285)
10.1 Real Estate Lease dated 1993 by and between Bakeford Properties and ASI,
as amended by Agreement dated December 6, 1995, and as further amended
by Agreement dated February 8, 1996 (incorporated by reference to
Exhibit 10(a) of ASI's Registration Statement on Form SB-2, File No.
333-5285)
10.2 ASI's 1987 Stock Option Plan (incorporated by reference to Exhibit 10(b)
of ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.3 ASI's 1994 Stock Option Plan (incorporated by reference to Exhibit 10(c)
of ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.4 ASI's 1996 Stock Option Plan (incorporated by reference to Exhibit 10(d)
of ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.5 ASI's 1994 Non-Employee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10(e) of ASI's Registration Statement on Form SB-2,
File No. 333-5285)
10.6 Employment Agreement dated as of July 31, 1996 between ASI and Robert H.
Stone (incorporated by reference to Exhibit 10(aa) of ASI's Registration
Statement on Form SB-2, File No. 333-5285)
10.7 Distribution Agreement dated as of June 1, 1997 between ASI and
PaperClip
10.8 Secured Promissory Note issued by PaperClip (incorporated by reference
to Exhibit 10.4 of ASI's quarterly on form 10-QSB for the 10.8 quarter
ended December 31, 1996)
10.9 Registration Rights Agreement dated January 29, 1997 between ASI and
PaperClip (incorporated by reference to Exhibit 10.5 of ASI's Quarterly
Report on Form 10-QSB for the quarter ended December 1996)
23. Consent of Arthur Andersen LLP (to be filed by amendment)
27 Financial Data Schedule
(b) Forms 8-K.
Current Report on Form 8-K dated April 18, 1997 with respect to Asset
Purchase Agreement with PaperClip.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCESS SOLUTIONS INTERNATIONAL, INC.
Dated: October 3, 1997 By:/s/ Robert H. Stone
------------------------------------
Robert H. Stone
President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities indicated on
October 3, 1997.
SIGNATURE TITLE
/s/ Malcolm G. Chace Director
- ---------------------
Malcolm G. Chace
/s/ Robert H. Stone President, Chief Executive Officer and Director
- ---------------------
Robert H. Stone
/s/ Denis L. Marchand Chief Accounting Officer
- ---------------------
Denis L. Marchand
/s/ Thomas E. Gardner Chief Financial Officer and Director
- ---------------------
Thomas E. Gardner
/s/ Marvyn Carton Director
- ---------------------
Marvyn Carton
/s/ Howard W. Yenke Director and Chairman of the Board
- ---------------------
Howard W. Yenke
/s/ Adrian Hancock Director
- ---------------------
Adrian Hancock
PAPERCLIP SOFTWARE, INC.
3 UNIVERSITY PLAZA
HACKENSACK, NJ 07601
Robert H. Stone, President September 11, 1997
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, Rhode Island 02852
Dear Bob,
Thank you for the draft of a letter of agreement to amend the nature of
Access Solutions International, Inc.'s ("ASI") acquisition of PaperClip
Software, Inc. ("PaperClip") pursuant to the previously executed Asset Purchase
Agreement by and between ASI and PaperClip, dated as of April 15, 1997 (the
"Asset Purchase Agreement"). Over the last several weeks we have worked together
in order to create a transaction, acceptable to both of our companies, that
addresses the outstanding issues. We have been discussing a merger as a means to
meet the needs of both companies. Set forth below is a general outline of a
modified merger transaction that we believe adequately addresses the
requirements of both companies.
THE REVERSE SUBSIDIARY MERGER
1. In order to avoid the need for ASI to prepay the outstanding PaperClip
Convertible Notes at closing, the Convertible Note Holders have agreed to
exchange their Convertible Notes for newly issued preferred stock of PaperClip.
The Convertible Note (in the aggregate outstanding principal amount of
$129,690.74)(1) will be exchanged (at a rate of $0.30 per share) into an
aggregate of 432,303(1) shares of PaperClip preferred stock.(1) After 18 months,
the holders of the preferred stock will have the option to put the shares of the
preferred stock to ASI for cash or ASI common stock and Class B Warrants. After
30 months, ASI shall have the right to redeem the preferred stock for cash or
ASI common stock and Class B Warrants. The put price and the redemption price
shall be for the same number of shares of ASI common stock and Class B Warrants
as 1 share of PaperClip common stock would receive, or for cash equal to the
liquidation preference, plus, in each case, accrued but unpaid dividends on the
preferred stock. The dividend rate on the preferred stock will be 12% per annum.
The preferred stock will be non-voting and will have a liquidation preference in
an aggregate principal amount of $129,690.74.(1)
2. ASI sets up a merger subsidiary.
- --------------------------
1. Plus unpaid interest accrued on the Convertible Notes which shall be
exchanged for additional shares of preferred stock.
<PAGE>
3. The companies proceed with a reverse subsidiary merger whereby ASI's
subsidiary merges into PaperClip with PaperClip surviving as a subsidiary of
ASI. ASI will own all of the voting stock of this subsidiary, but initially will
not own the non-voting preferred stock described above. The consideration for
the merger would be 1,544,438 shares of ASI common stock plus an equivalent
number of ASI Class B Warrants. All shares will be freely tradeable, subject to
the lock-up in the same manner as contemplated by the Asset Purchase Agreement.
Each common stockholder of PaperClip will receive all shares of ASI common stock
and Class B Warrants that such stockholder is entitled to upon such
stockholder's execution of a lock-up agreement substantially in the form of the
lock-up agreement attached to the Asset Purchase Agreement as Exhibit A-1 or
A-2; otherwise, such stockholder's shares will be held in escrow.
4. 75,000 shares of ASI common stock plus an equivalent number of ASI Class
B Warrants shall be held in escrow for 2 years following the closing. In the
event ASI redeems for cash or shares any of PaperClip's warrants, a number of
escrow shares and an equivalent number of Class B Warrants determined by
dividing the costs of redemption by $4.75 will be returned to ASI; otherwise any
remaining shares and Class B Warrants shall be distributed to the PaperClip
shareholders at the expiration of the 2 year escrow period.
5. In reliance on PaperClip's representations that its outstanding
convertible securities are as set forth on Schedule 1 to this letter, and that
no events have occurred that would lower the exercise price or increase the
number of shares of PaperClip common stock into which any such securities can be
converted, ASI and PaperClip agree that at the closing each outstanding
convertible security of PaperClip shall be converted into the right to receive
for each share underlying such convertible security the same number of shares of
ASI common stock and Class B Warrants as a stockholder of 1 share of PaperClip
common stock would be entitled to receive at the closing.
6. ASI and PaperClip agree that each will use its best efforts, and will
use its best efforts to cause its attorneys, accountants and other advisors, to
prepare and file a Form S-4 reflecting the transaction as promptly as possible,
but in any event within thirty (30) days of the date hereof.
7. ASI agrees that it will cause its counsel to prepare, and ASI and
PaperClip agree that each will use its best efforts to negotiate in good faith
and execute, a definitive Merger Agreement as promptly as possible, but in any
event within thirty (30) days of the date hereof. Upon execution of such Merger
Agreement, the Asset Purchase Agreement shall be terminated and shall cease to
be of any force and effect. The Merger Agreement will contain representations,
warranties, covenants and conditions to closing identical to those contained in
the Asset Purchase Agreement except to the extent inconsistent with the terms
hereof, in which case they shall be modified to the limited extent necessary to
accommodate the new structure described herein.
8. As a condition to closing the merger transaction, PaperClip shall, (i)
terminate the consulting agreement with Stephen Kornfeld, without any additional
compensation to be due by ASI or PaperClip, (ii) terminate the employment
agreement with William Weiss, and (iii) terminate the underwriting agreement,
and the mergers and acquisitions agreement, each between PaperClip and AR Baron.
9. ASI agrees that for employees of PaperClip who continue to be employed
by the new subsidiary of ASI, it will provide the new ASI employees with options
for ASI common stock in an amount deemed appropriate by ASI's board for such
employee in lieu of such employee's PaperClip Options.
10. ASI agrees that it will refrain from exercising its right of conversion
contained in the $300,000 Convertible Promissory Note unless the Merger
Agreement terminates without consummation of the closing.
Please confirm your agreement with the terms set forth in this letter by
executing this letter where indicated below, whereupon it shall become a binding
agreement.
PAPERCLIP SOFTWARE, INC.
By:/s/William Weiss
----------------------------
William Weiss,
Chief Executive Officer
Agreed and accepted this 12th
day of September 1997.
ACCESS SOLUTIONS
INTERNATIONAL, INC.
By:/s/Robert H. Stone
-----------------------------
Robert H. Stone, President
<PAGE>
SCHEDULE 1
Class A Public Warrants ($3.125) 3,599,500
Baron Option ($3.375) 359,950
Baron Warrants Option ($4.219) 359,950
Bridge Warrants ($1.125) 365,746
Warrants in connection with
8% Secured Note ($1.625) 45,608
---------
4,730,754
DISTRIBUTION AGREEMENT
1.0 Agreement
1.1 This agreement is made as of June 1, 1997 between PaperClip Software,
Inc. ("Developer"), incorporated under the laws of the state of
Delaware and having its principal place of business at 3 University
Plaza, Hackensack, New Jersey 07601, and Access Solutions
International, Inc., 650 Ten Rod Road, N. Kingstown, RI 02852
("Distributor") under the laws of the state of Rhode Island.
2.0 Appointment and Authority of Distributor
2.1 APPOINTMENT. Developer hereby appoints the Distributor and the
Distributor hereby accepts to act for Developer as a non-exclusive
regional Distributor for solicitation of sales of Developer's products
("Products"), subject to terms, provisions and conditions hereof. This
Agreement shall become effective on the date it is accepted by
Developer and shall continue for one year on which date it shall
expire. This Agreement may be terminated by Developer or the
Distributor at anytime without cause upon 30 days' prior written
notice of termination to the other.
2.2 NO COMPENSATION. Distributor shall not be entitled to any compensation
from Developer. Its gross profit will be the excess (if any) of the
price at which it distributes the Products to its customers over the
price at which it licenses them from the Developer.
2.3 INDEPENDENT CONTRACTOR. The relationship of the Distributor to
Developer is that of an independent contractor and neither the
Distributor nor his agents, representatives, or employees shall be
considered employees of Developer. The Distributor shall pay all costs
and expenses of whatsoever nature incurred by him in connection with
his representation hereunder, including, but not limited to, any
commissions or other compensation paid to agents, representatives, or
employees engaged or employed by Distributor and expenses for travel,
entertainment, offices, or any other items.
2.4 INDEMNIFICATION. The Distributor agrees to indemnify Developer and
hold Developer harmless against any and all liability, damage or
expense, including costs and attorney's fees and expenses, arising out
of or relating to the acts or omissions of the Distributor or the
Distributor's employees, representatives, or agent in connection with
the services to be rendered by the Distributor under the Agreement,
including, without limitation, liability resulting from injury to
person or property. The provision of this paragraph shall survive the
termination of this Agreement.
2.5 SALES TO RESELLERS. During the term of this Agreement: Developer
grants the Distributor the non-exclusive right to market and sell the
Products provided by Distributor under this Agreement, in unaltered
form, to dealers and resellers located in the United States and
internationally. The Distributor may sell the Products only to dealers
and resellers. No right or license to use, copy, or alter the Products
is granted by this Agreement, except that Distributor may use a
reasonable number of copies of each Product purchased pursuant to this
Agreement for the purpose of demonstrating the Product to dealers and
resellers.
3.0 Purchase Orders and Delivery
3.1 ORDERS AND ACCEPTANCE. Distributor will initiate purchases under this
Agreement by telephone, facsimile or by written purchase order anytime
after the effective date of this Agreement to the following,
Paper Clip Software, Inc.
3 University Plaza
Suite 600
Hackensack, NJ 07601
Tel. No. (201) 487-3503
Fax No. (20l) 487-0613
All purchase orders shall be governed by the terms and conditions of
this Agreement, irrespective of the provisions of Distributors
invoice, purchase orders or other business forms. Purchase orders
initiated by phone or facsimile must be confirmed in writing to
Developer by means of a purchase order within seven (7) days and are
subject to approval by Developer. All purchase orders shall contain
the price, quantity, product description, requested delivery date and
shipping instructions. No purchase order is binding by Developer until
written acceptance by Developer retains the right to refuse any order
if the Distributor is outside his line of credit or is not within
current standings.
3.2 DELIVERY. Developer shall use reasonable efforts to ship Products
within three (3) working days of the date requested in the purchase
order provided Developer receives the written purchase order at least
fifteen (15) working days prior to the requested delivery date.
Developer will notify Distributor if for any reason Developer cannot
meet the scheduled delivery date.
4.0 Shipments, Title and Freight.
4.1 SHIPMENTS. All Products delivered under the terms of this Agreement
shall be suitably packed and marked with the Distributors address as
specified on the purchase order. The forwarding carrier will be chosen
by Developer except in the case of "freight collect" orders. Shipment
will be F.O.B. Developer's warehouse and upon pick-up by the carrier
at that point, all risk of loss passes to the Distributor, and all
insurance and any other shipping expenses will be the responsibility
of the Distributor.
4.2 SECURITY INTEREST. Until the purchase price and all related charges
payable to Developer hereunder have been received in full, Developer
retains and Distributor hereby grants to Developer a purchased money
security interest in the Products delivered to the Distributor and any
proceeds therefrom. Distributor agrees to perfect and protect all such
security interests.
4.3 CONTINENTAL US LOCATIONS FREIGHT. Products will be shipped freight
prepaid and freight charges will be billed to the Distributor by
Developer.
4.4 RETURN SHIPMENTS. Unless agreed to by Developer in writing prior to
shipment, Distributor shall assume freight responsibility for Products
reshipped by Distributor to Developer pursuant to Developer warranty
provisions.
4.5 PRODUCT ACCEPTANCE. Distributor has the option to inspect all units
received to determine conformance to Developer published
specifications. If no Notification of Rejection is received within
three (3) days after Distributors receipt of a unit, the unit shall be
deemed as accepted by Distributor.
5.0 Payment Terms
5.1 DEBIT MEMOS. Developer shall not accept any Debit Memos issued to
Developer by Distributor unless expressly authorized in writing by
Developer. Distributor shall not be entitled to any credit taken
pursuant to any unauthorized Debit Memo issued by Distributor.
6.0 Rescheduling and Cancellation
6.1 PURCHASE ORDERS. Distributor may reschedule delivery or cancel orders
for standard Products (as defined in Exhibit A herein) at no charge
provided written notice of such rescheduling or cancellation is
received by Developer at least thirty (30) days prior to the scheduled
shipment date of the affected Products. Standard Products scheduled
for delivery within thirty (30)days after receipt of Distributor's
notice may not be rescheduled or canceled unless otherwise agreed to
by Developer.
7.0 Pricing
7.1 Developer's price for the Products sold to Distributor pursuant to
this Agreement shall be 45% of PaperClip's list price and is subject
to terms and conditions contained in this Agreement.
7.2 Distributor shall not, in connection with the sale or service of any
Developer's Product, engage in any acts prohibited by State or Federal
statutory or common law, including but not limited to State or Federal
antitrust or unfair trade practices laws. Failure to comply with this
Section 7.2 shall give Developer the right to terminate this Agreement
immediately without prior notice. Nothing herein shall be considered
to limit Distributor's discretion to charge any lawful price for
Developer's products.
For the purpose of this Agreement, Product cost shall be defined
herein as the Distributor's cost for the Product, less credits.
7.3 Price Increase. Developer reserves the right to increase the prices
for its Products with thirty (30) days written notice to Distributor.
Such price increase will apply to all purchase orders received after
the effective date of the price increase, but shall not affect any
purchase orders accepted by Developer before the effective date of the
price increase.
Distributor may order any quantity of Product during the thirty (30)
day notification period for delivery within sixty (60) days of the
date of notification at the old price. Products scheduled for delivery
more than sixty (60) days from the date of such notification shall be
invoiced at the new price.
7.4 Price Decrease. In the event Developer decreases the price of a
Product, such decrease shall apply to all unshipped Products. As well
as all products in Distributors inventory. A credit for the difference
will be applied to the amount.
7.5 Stock Rotation. Distributor shall have the right to return Developer's
Products for stock rotation which have been shipped within the
previous ninety (90) day period. Products subject to stock rotation
must be unused, undamaged, sealed in their original packages, and free
of liens, and must be shipped transportation prepaid to Developer upon
receipt of written return authorization from Developer. The amount of
Products subject to any particular stock rotation shall not exceed 20%
of the total dollar value amount of products invoiced to Distributor
during the preceding three months, less debit amounts credited. Stock
rotation may occur only one time per calendar quarter.
7.6 Taxes and Other Exclusions. All prices described herein are exclusive
of federal, state and local excise, sales, use and similar taxes. The
prices for Products as set forth herein do not include fees for
forwarding agents. Distributor shall be liable for and shall pay all
applicable taxes invoiced by Developer, or shall provide Developer
with a properly executed tax exemption certificate prior to any
delivery.
7.7 Product Price. Schedule is included in attachment A herein.
8.0 Distributor's Monthly Sales Report
8.1 Distributor shall provide Developer with a monthly sales report, by
the fifteenth (15th) day of each month, which report shall include:
(A) the zip code and state of the customer, (B) price of the Products
purchased, (C) quantity of Products, purchased during the preceding
month and identified by model number and (D) the dates of shipment to
Distributor's customers. Upon giving Distributor reasonable notice,
Developer may appoint a representative to perform an audit on the
sales report.
9.0 Product Changes
9.1 Additional Products. Developer may, from time to time, and other
Products for sale to the Distributor to the Agreement on terms and
conditions announced by Developer. Sales of such Products; shall be
subject to pricing pursuant to Section 7.0 hereof.
9.2 Deletion of Products. Developer may delete any of its Products carried
by the Distributor effective thirty (30) days after written notice to
Distributor of such deletion.
10.0 Market Development Funds (MDF)
10.1 Distributor shall be eligible to participate in a MDF Program which
will entitle Distributor to reimbursement of certain marketing costs
provided Distributor agrees to abide by the provisions within
Developer's MDF Program.
11.0 Warranty
11.1 Express Warranties. Developer warrants that the Products purchased
hereunder by any end user will be free from defects in materials and
workmanship for 90 days from the date of purchase by such end user.
11.2 Exclusions. The express warranties set forth in Section 11.1 above
specifically exclude and do not apply to defects in a Product that are
(A) caused through no fault of Developer during shipment to or from
Distributor, (B) caused by the use or operation of Products in an
application or environment other than that intended or recommended by
Developer, (C) caused by modifications or alterations made to the
Products by Distributor or any third party, (D) caused by unauthorized
maintenance performed on the Products by Distributor or any third
party, (E) caused by failure of Distributor to comply with any of the
return procedures specified in this Agreement or (F) which are the
result of Products being subjected to unusual physical or electrical
stress.
11.3 DISCLAIMER, EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES OR
CONDITIONS, DEVELOPER MAKES AND DISTRIBUTOR RECEIVES NO WARRANTIES ON
THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION
OF THIS AGREEMENT OR COMMUNICATION WITH DISTRIBUTOR, AND DEVELOPER
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR CONDITION OF MERCHANT
ABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL
DEVELOPER BE LIABLE FOR ANY DAMAGES, INCLUDING LOST PROFITS, OR
INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING OUT OF THE USE, OR
INABILITY TO USE PRODUCTS. DEVELOPER'S SOLE RESPONSIBILITY SHALL BE TO
REPLACE ANY DEFECTIVE PRODUCT, OR, AT ITS OPTION TO REFUND THE
PURCHASE PRICE THEREFOR.
11.4 Warranty Procedures. Distributor shall send Products with defects
covered by the foregoing warranty to Developer repair center at the
following address.
Paper Clip Software, Inc.
3 University Plaza
Suite 600
Hackensack, New Jersey 0760l
Distributor shall request return authorization from Developer prior to
the return of each defective Product for repair or replacement by
Developer upon request. Developer will require detailed information as
to the customer and the nature of the return. Developer will provide
Distributor with a Return Authorization (RA) number to be prominently
displayed on the shipping container for any defective Product. Once
Developer authorizes the return of any defective Product, Distributor
shall ship such product to tile repair facility, freight prepaid. If
such defective Product is received by Developer during the applicable
warranty period, Developer shall, at its sole option and expense,
repair or replace such Product, employing at its option, new or used
parts or Products to make such repair or replacement, and shall ship
the repaired or replaced Product to Distributor, freight prepaid. The
foregoing states the sole liability and obligation of Developer
arising out this warranty.
All Products returned to Developer shall be packed in their original
shipping container, or in a container purchased from Developer. Unless
otherwise provided for in this Agreement, all Products must be shipped
by a carrier experienced in handling sensitive freight. All Product
returned for repair must include with them a report indicating the
type of failure. Developer will not be responsible for removing
adhesive tapes, labels, permanent markings or other residue applied to
the Product by Distributor or its customer.
11.5 Indemnification by Distributor. Distributor agrees to indemnify
Developer against any damages, costs (including attorney's fees and
costs) or other liability arising from claims by any other party
resulting from Distributor's representation of the products in a
manner inconsistent with Developer Product descriptions and
warranties.
12.0 Obligations of Distributor
12.1 Promotion Efforts. Distributor will make use of promotional material
supplied by Developer. Distributor is encouraged to actively promote
and market the Products including without limitation, advertising and
promotions of the Products in leading industry magazines and
publications and marketing the Products in Distributor's catalogs.
Developer shall provide the Distributor with demonstration units of
each Product at a price and in quantities as are determined reasonable
and necessary by Developer to support the sale of such Products. The
Distributor shall be fully responsible for any loss or damage to such
samples except for ordinary wear and tear. Product literature will
initially be provided with each product in reasonable quantities at no
cost. Additional quantities of literature will be made available at
reasonable cost.
12.2 Sales Personnel. Distributor will employ sufficient sales personnel
having the knowledge and training necessary to properly inform
customers concerning the Products.
12.3.Additional Covenants. Distributor will: (A) conduct business in a
manner that will enhance the image and reputation of Developer and the
Products; (B) comply with the applicable laws and regulations and
avoid deceptive, misleading, unethical or other illegal practices; and
(C) make no representations, warranties or guarantees to anyone with
respect to the Products that are inconsistent with those made by
Developer except as noted herein. The Distributor shall at no time
engage in any unfair trade practices and shall not make any false or
misleading statements or representations with respect to Developer's
or any of the Products covered by this Agreement or otherwise. The
Distributor shall make no warranties or representations with respect
to the Products covered by this Agreement, except as may be specified
on Product or as noted herein. Any breach of this Section 13.3 shall
be considered a material breach of this Agreement.
12.4 Monthly Inventory Reports. Distributor shall provide Developer with
VERBAL Inventory Reports as requested which shall include Products by
model number and quantities of such Product in Distributor's
inventory.
12.5 Trade Name. Distributor shall not use any of Developer's tradenames,
trademarks, service marks, logotypes or any other related
characteristics which closely resemble the same as part of the
Distributor's corporate or business name, or in any manner which may
be confusingly similar or misleading. Distributor may, however,
indicate on stationary, calling cards or other printed material that
it is an authorized distributor for Developer products, an may have
Developer's name listed in the classified section of telephone
directories on a cross-reference basis. Only authorized logos from
Developer should be used in any printed form.
13.0 Patent Indemnity
13.1 Developer agrees, at its expense to defend and indemnify Distributor
in any suit, claim or proceeding brought against Distributor alleging
that any Products sold pursuant to this Agreement under normal use
infringe a United States patent, United States copyright, United
States trademark or trade secret obligation of Developer provided that
Developer is promptly notified in writing of any such claim, given
reasonable assistance from Distributor and permitted the exclusive
control of the defense. Further, Developer agrees to pay any damage
and costs finally awarded against Distributor in any such suit by
reason of any such infringement, but Developer shall have no liability
for settlements or costs incurred without its consent. Should
Distributor's use of any such Products or any part thereof be
enjoined, or in the event that Developer desires to minimize its
liability hereunder, Developer will, at its option and expense, either
(a) substitute equivalent non infringing Products for the infringing
item (b) modify the infringing item so that it no longer infringes but
remains equivalent, or (c) obtain for Distributor the right to
continue using such item.
13.2 If none of the foregoing is feasible, Developer will accept a return
of the Products which are subject to the injunction and refund to
Distributor the purchase price, less reasonable depreciation, plus
shipping costs paid by Distributor. The foregoing indemnity shall not
apply if and to the extent that an alleged infringement arises from
the combination of any Product with Products or equipment not supplied
by Developer. Further, such indemnity shall not apply and Distributor
agrees to indemnify Developer against any damages and costs awarded
against or incurred by in any suit, claim or proceeding brought
against Developer in which and to the extent that an alleged
infringement arises from Developer manufacturer or assembly of any
item to the specification or design of Distributor.
THE FOREGOING STATES THE ENTIRE LIABILITY AND OBLIGATION OF DEVELOPER
WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY PATENT,
COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE
PRODUCTS OR ANY PART THEREOF.
14.0 Termination
14.1 Termination for Convenience. This Agreement may be terminated by
Developer for convenience by providing thirty (30) days prior written
notice to Distributor. Should Developer exercise this clause,
Distributor may return unopened, sealed, and undamaged product for
refund which had been purchased in the preceding 180 days.
14.2 Termination for Cause. Either party may without penalty, terminate
this Agreement or cancel any purchase order or portion thereof,
effective upon written notice to the other party in either on of the
following events:
(a) The other party materially breaches this Agreement and such
breach remains uncured for thirty (30) days following written
notice of breach by the non-breaching party;
(b) Any causes are set forth in Section 17.4 (Force Major) delays the
other party's performance for more than thirty (30) days; or
(c) A petition for relief under any bankruptcy legislation is filed
by or against the other party, or the other party makes an
assignment for the benefits of creditors, or a receiver is
appointed for all or a substantial part of the other party's
assets, and such petition, assignment or appointment is not
dismissed or vacated within thirty (30) days.
14.3 Effect of Termination or Expiration. In the event of a termination of
expiration of this Agreement, the provisions of this Agreement shall
continue to apply to all purchase orders accepted by Developer prior
to the effective date of such termination or expiration except for any
purchase order canceled. Termination or expiration of this agreement
shall not, however, relieve or release either party from making
payments which may be owing to the other party under the terms of this
Agreement.
14.4 Survival Provisions. The provisions Indemnification, Disclaimer,
Patent Indemnity, Effect of Termination of Expiration Proprietary
Rights, and Limitation of Liability shall survive the termination of
this Agreement for any reason.
15.0 Proprietary Rights
15.1 Notices. All proprietary notices incorporated in, marked on, or fixed
to the Products by Developer shall not be removed or obliterated by
Distributor.
15.2 Trademarks. Developer authorizes Distributor to use Developer's
current and future trademarks, service marks and trade names
("Trademarks") solely in connection with the marketing and
distribution of the Products pursuant to this Agreement. Distributor
shall not alter or remove any Trademark applied by or on behalf of
Developer prior to delivery.
15.3 Upon termination or expiration of this Agreement Distributor will
return all materials to Developer and will cease to use the
trademark's previously used by it pursuant to this Agreement.
15.4 This Agreement shall not be construed to grant to Distributor any
right, title, or interest in any intellectual property rights embodied
in or associated with the Products, or any right to copy, modify, loan
or lease the Products. Under no circumstances shall Distributor or its
dealers, agents or employees decompile the object code portion of the
Products to a source code version of reverse-engineer the Products to
discover their origin. Distributor shall be authorized only to market
and distribute the Products in their form and packaging as delivered
by Developer in accordance with the terms; of this Agreement. All use
of the Products by Distributor shall be subject to the terms and
conditions of the End-User License Agreement included with each
Product.
15.5 Distributor acknowledges that any breach of its obligations under this
Agreement with respect to proprietary rights or confidential
information of Developer will cause irreparable injury for which there
are inadequate remedies at law, and therefore Developer will be
entitled to equitable relief in addition to all other remedies
provided by this Agreement or available at law.
15.6 The provisions of this Section 15 shall survive termination of this
Agreement.
16.0 Limitation of Liability
16.1 Purchase Price. Distributor agrees that Developer's liability under
this Agreement, regardless of the form of action, shall in no event
exceed the price paid by Distributor for the Products.
16.2 Limitation. IN NO EVENT WILL DEVELOPER BE LIABLE FOR COSTS OF
PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES, LOST PROFITS, OR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL, DAMAGES ARISING IN ANY
WAY OUT OF THIS AGREEMENT.
17.0 General Provision
17.1 Notice. Unless otherwise specified in this Agreement, any notice which
may be or is required to be given under this Agreement shall be in
writing. All written notices shall be sent certified or registered
mail, postage prepaid, return receipt requested. All such notices
shall be deemed to have been given when received, addressed in the
manner indicated on the first page of this Agreement or at such
addresses as the parties may substitute by written notice to the
other.
17.2 Confidentiality. Developer's confidential or restricted documents such
as service manuals, pricing policies, procedures, and unannounced
public relations information shall be treated by Distributor and by
Developer as each treats its own confidential information, and no
press release shall be made without the other party's approval.
17.3 Amendment. This Agreement may be amended only by written amendment
duly signed by authorized representatives of both parties.
17.4 Force Major. neither party shall be liable to the other for its
failure to perform any of its obligations hereunder during any period
in which such performance is delayed by circumstances beyond its
reasonable control including, but not limited to fire, flood, way,
embargo, strike, riot, inability to secure materials and
transportation facilities, or the intervention of any governmental
authority. If such delaying cause shall continue for more than ninety
(90) days, the party injured by the inability of the other to perform
shall have the right upon written notice to either (a) terminate this
Agreement pursuant to Section 14.2 or, (b) treat this Agreement as
suspended during the delay and reduce any commitment in proportion of
the duration of the delay.
17.5 Entire Agreement. This Agreement constitutes the entire Agreement of
the parties and supersedes any and all prior and contemporaneous oral
or written understanding and agreements as to the subject matter
hereof but does not supercede the asset agreement between the parties,
each dated April 15, 1997. This Agreement, its interpretation and
enforcement shall be governed by New Jersey law (without regard to
conflict of laws rules).
17.6 Assignment. Neither this Agreement nor any of the rights of the
Distributor under this, Agreement may be assigned, transferred, or
conveyed by operation of law, or otherwise, without the prior written
consent of Developer, nor shall this Agreement or any rights of the
Distributor inure to the benefit of any trustee in bankruptcy,
receiver, creditor, trustee or successor of the Distributor's business
or its property, whether by operation of law or otherwise, or to a
purchaser or successor of the entire business or substantially all of
the assets of the Distributor, without the prior written consent of
Developer.
Access Solutions International, Inc. PaperClip Software, Inc.
Distributor Developer
By___________________________ By_______________________________
Signature Signature
- ----------------------------- ----------------------------------
Printed Name and Title Printed Name and Title
Date: Date:
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