United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
Commission file number 0-28920
Access Solutions International, Inc.
(Exact 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)
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
The number of shares of the issuer's Common Stock, $.0l par value, outstanding
as of November 10, 1997 was 3,963,940.
<PAGE>
Access Solutions International, Inc.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed balance sheets--September 30, 1997 (unaudited)
and June 30, 1997 3
Condensed (unaudited) statements of operations -- Three
months ended September 30, 1997 and 1996 5
Condensed (unaudited) statements of cash flows -- Three
months ended September 30, 1997 and 1996 6
Notes to unaudited condensed financial
statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
<PAGE>
Access Solutions International, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Access Solutions International, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $598,332 $1,889,446
Trade accounts receivable, net of allowance for
doubtful accounts of $41,652 and $53,199 201,265 238,914
Inventories 485,972 461,812
Prepaid expenses and other current assets 181,995 183,159
----------- -----------
Total current assets 1,467,564 2,773,331
Fixed assets, net 323,595 328,309
Other assets:
Advances - PaperClip 1,181,690 529,052
Notes receivable - PaperClip 300,000 300,000
Deposits and other assets 59,649 49,527
----------- -----------
Total other assets 1,541,339 878,579
--------- -----------
Total assets $3,332,498 $3,980,219
========== ==========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE>
Access Solutions International, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
(Unaudited)
Liabilities and stockholders' deficit
Current liabilities:
<S> <C> <C>
Accounts payable $442,880 $227,490
Current installments of capital lease obligations 25,893 25,257
Accrued expenses 204,150 143,227
Accrued salaries and wages 82,467 204,604
Deferred revenue-prepaid service contracts 235,196 329,841
------- -------
Total current liabilities 990,586 930,419
Capital lease obligations, excluding current installments - 6,716
----------
Total liabilities 990,586 937,135
-------- --------
Stockholders' equity:
Common Stock, $.01 par value, 13,000,000
shares authorized, 3,965,199 shares issued 39,652 39,652
Additional paid-in capital 17,637,694 17,637,694
Accumulated deficit (15,317,378) (14,616,206)
------------ ------------
2,359,968 3,061,140
Treasury stock, at cost (1,259 shares) (18,056) (18,056)
------------ ------------
Total stockholders' equity 2,341,912 3,043,084
---------- ---------
Total liabilities and stockholders' equity $3,332,498 $3,980,219
=========== ==========
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to unaudited condensed financial statements.
<PAGE>
Access Solutions International, Inc.
Condensed Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ending
September 30,
1997 1996
Net sales:
<S> <C> <C>
Products $193,413 $162,797
Services 131,643 140,338
------- -------
Total net sales 325,056 303,135
------- -------
Cost of sales:
Products 138,449 20,312
Services 71,213 55,358
-------- ---------
Total cost of sales 209,662 75,670
------- ---------
Gross profit 115,394 227,465
------- -------
Operating expenses:
General and administrative expense 274,022 277,200
Research and development expense 376,231 420,175
Selling expense 191,361 215,310
------- -------
Total operating expenses 841,614 912,685
------- -------
Loss from operations (726,220) (685,220)
---------- ----------
Other revenue and expenses:
Interest income 25,795 3,243
Interest expense (747) (82,155)
----------- -----------
Total other expenses (25,048) (78,912)
----------- -----------
Net loss ($701,172) ($764,132)
=========== ==========
Primary net loss per common share ($.18) ($.51)
=========== ==========
Weighted average number of
common shares 3,963,940 1,511,865
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE>
Access Solutions International, Inc.
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
1997 1996
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net loss ($701,172) ($764,132)
----------- -----------
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 37,040 139,299
Provision for doubtful accounts (11,547) --
Changes in operating assets and liabilities:
Trade accounts receivable 49,197 333,110
Inventories (12,980) (15,988)
Prepaid expenses and other current assets 1,164 11,385
Accounts payable 215,390 271,340
Accrued expenses (61,213) 36,102
Deferred revenue - prepaid service contracts (94,645) (129,771)
----------- -----------
Total adjustments 122,406 645,477
----------- -----------
Cash used by operating activities (578,766) (118,655)
----------- -----------
Cash flows from investing activities:
Additions to fixed assets (31,980) (96,012)
Additions to other assets (979) --
Loans and advances to PaperClip (652,639) --
Deferred acquisition costs (20,670) --
----------- -----------
Cash used by investing activities (706,268) (96,012)
----------- -----------
Cash flows from financing activities:
Proceeds from bridge loans -- 37,694
Repayments of capital lease obligations (6,080) 40,690
Net payments under note payable-bank -- (50,000)
Deferred financing costs -- (229,551)
----------- -----------
Cash used by financing activities (6,080) (201,167)
----------- -----------
Net decrease in cash and cash equivalents (1,291,114) (415,834)
Cash, beginning of period 1,889,446 537,831
----------- -----------
Cash and cash equivalents, end of period $ 598,332 $ 121,997
=========== ===========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE>
Access Solutions International, Inc.
Notes to Unaudited Condensed Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10-01 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Access Solutions International, Inc.
("ASI") annual report on Form 10-KSB for the year ended June 30, 1997.
2. PaperClip Merger and Management Agreements
On April 15, 1997, 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 the surviving corporation or ASI to purchase such shares for
cash or ASI common stock and Class B Warrants. After 30 months, ASI will have
the right to redeem the Preferred Stock 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").
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.
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
ASI's sales consist of sales of products and services. Products sold by ASI
consist of COLD systems, software and hardgoods including replacement disk
drives, subassemblies and miscellaneous peripherals. ASI also sells document
management software in accordance with a distribution agreement with PaperClip
Software signed June 1, 1997 (see note 2 to the unaudited condensed financial
statements). 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 September 30, 1997, ASI
had deferred revenue in the amount of $235,196.
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 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 product 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. This volatility is counter balanced by the increase in sales
of annual service contracts which generally accompanies an increase in systems
sales.
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.
ASI's total expenditure 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.
ASI has historically incurred net losses and anticipates that further net losses
will be incurred prior to the time, if ever, that ASI achieves profitability.
However, ASI has recently taken certain steps intended to limit the incurrence
of future net losses. Such steps include: (i) the proposed Merger of PaperClip
Software which is anticipated to be completed in early January 1998 (see note
2); (ii) the October l997 reduction in ASI's workforce from 24 to 15 full-time
employees which is expected to reduce overhead by approximately $150,000 per
quarter; (iii) renegotiation of ASI's outstanding maintenance contracts to
improve their profitability; and (iv) tighter control and administration of
ASI's software engineers to increase revenues from their activities. While no
assurance can be given that such steps will be sufficient to limit losses which
may be incurred in the future, ASI believes that such steps, when fully
implemented, may enable ASI to realize improved operating results. Of the 9
employees terminated, one was field support, five were product development
personnel, two were administrative staff and one was sales. Many of the product
development personnel were employed in enhancing ASI's GIGAPAGE product which
has now been substantially completed. ASI does not believe that these steps,
particularly the reduction in the workforce, have to date or will in the future
materially adversely impact ASI's revenues and earnings.
Results of Operations
The following discussion should be read in conjunction with the unaudited
condensed financial statements and notes thereto of Access Solutions
International, Inc. contained elsewhere herein.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Net Sales
Net sales for the three months ended September 30, 1997 was $325,056 compared
with $303,135 for the three months ended September 30, 1996, an increase of
$21,921 or 7%. Product sales were $193,413 for the first quarter of Fiscal 1998
compared with $162,797 for the first quarter of Fiscal 1997, an increase of
$30,616 or 19%. ASI realized an increase in its product sales through its
distribution agreement with PaperClip Software (see note 2). Product sales
consisted of $157,050 for the sale of PaperClip software and the balance for
recurring media sales. There were no upgrade installations or software
enhancements sold in the first quarter of Fiscal 1998. Service revenues were
$131,643 for the first quarter of Fiscal 1998 compared with $140,338 for the
first quarter of Fiscal 1997, a decrease of $8,695 or 6%. Management anticipates
an increase in service revenues for subsequent quarters due to ongoing
negotiations with its customer base and commencement of a new service contract
with an existing customer (see Overview).
Cost of Sales
Cost of sales includes component costs, firmware license costs, labor, travel
and certain overhead costs. Costs of sales in the aggregate increased 177% to
$209,662 for the three months ended September 30, 1997 from $75,670 for the
three months ended September 30, 1996. Sales in Fiscal 1998 consisted primarily
of PaperClip Software which carried a higher product cost relative to ASI's
in-house product offerings.
The cost of product sales increased 582% to $138,449 for the three months ended
September 30, 1997 from $20,312 for the three months ended September 30, 1996.
The increase in product related cost of sales was a result of increased costs
related to PaperClip Software which is purchased at a distributors' discount and
to a lesser extent, higher sales volume. The cost of services increased by 29%
to $71,213 for the three months ended September 30, 1997 from $55,358 for the
three months ended September 30,1996. This increase was the result of converting
much of ASI's contracted maintenance to a more reliable, but more expensive,
contractor and also reflects maintenance coverage during this period for a
customer that was still under warranty for such services.
General and Administrative Expenses
General and administrative expenses consist of administrative expenses and
technical support. General and administrative expenses decreased 1% or $3,178 to
$274,022 for the three months ended September 30, 1997 from $277,200 for the
three months ended September 30,1996. This decrease was due to lower personnel
costs and reduced professional fees but was offset by higher insurance expense.
ASI's directors and officers insurance increased significantly as a result of
its initial public offering. This insurance has since been renewed resulting in
decreased rates of up to 28%.
Research and Development Expenses
Research and development expenses decreased by 10% or $43,944 to $376,231 for
the three months ended September 30, 1997 from $420,175 for the three months
ended September 30, 1996. The decrease in research and development was primarily
due to reduced depreciation for ASI's mainframe which became fully depreciated
during the first quarter of Fiscal 1997 and from payroll reductions during the
first quarter of Fiscal 1997. The reduced depreciation was offset by increased
consultant costs.
Selling Expenses
Selling expenses decreased by $23,949 or 11% to $191,361 for the three months
ended September 30, 1997 from $215,310 for the three months ended September 30,
1996. The decreases were primarily the result of reduced payroll resulting from
the termination of the Vice President of Sales in the second quarter of Fiscal
1997.
Other Income and Expenses
Other income and expenses consisted of interest expense which decreased 99% or
$81,408 to $747 for the three months ended September 30, 1997 from $82,155 for
the three months ended September 30, 1996. This decrease was the result of
reduced loans outstanding. A bank loan of approximately $220,000 and a bridge
loan of approximately $1,500,000 were repaid in October 1996 from the proceeds
of ASI's initial public offering. Interest income increased by $22,552 to
$25,795 for the three months ended September 30, 1997 from $3,243 for the three
months ended September 30, 1996, as a result of investment earnings from the
proceeds of ASI's initial public offering.
Net Loss
As a result of the foregoing, ASI's net loss decreased to $701,172 ($.18 per
share on 3,963,940 weighted average shares outstanding) for the three months
ended September 30, 1997 from a net loss of $764,132 ($.51 per share on
1,511,865 weighted average shares outstanding) during the three months ended
September 30, 1996.
Liquidity and Capital Resources
ASI had a working capital surplus of $476,977 as of September 30, 1997 compared
to a working capital deficit of $2,916,791 at September 30, 1996. The increase
in working capital was primarily attributable to cash proceeds for ASI's initial
public offering which was completed in October 1996.
Total cash used by operating activities during the three month period ended
September 30, 1997 and 1996 was $578,766 and $118,665, respectively. ASI's net
losses for these periods were $701,172 and $764,132, respectively. The major
uses of capital for operating activities during the three month period ended
September 30, 1997 included funding such net losses, reductions in deferred
revenue and accrued expenses. The major source of capital from operating
activities was an increase in accounts payable in the amount of $215,390.
Cash used by investing activities for the three month period ended September 30,
1997 and 1996 was $706,268 and $96,012, respectively. The cash used by investing
activities in Fiscal 1998 was incurred primarily pursuant to the agreements with
PaperClip Software.
Cash used by financing activities was $6,080 for the three month period ended
September 30, 1997 and $201,167 for the three month period ended September 30,
1996. The use of cash for financing activities during the three month period
ended September 30, 1997 was for repayment of ASI's capital lease obligations.
ASI has suffered recurring losses from operations and has negative cash flows
from operating activities. 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 accountants in their report
dated August 8, 1997 on the audited financial statements for the year ended June
30, 1997 included an explanatory paragraph that described 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 asset and classifications of liabilities or any other
adjustments that might be necessary should ASI be unable to continue as a going
concern.
As of September 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 only
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 ASI
will complete the merger or that if completed, it will be successfully
integrated with ASI's operations or provide an acceptable return on ASI's
investment. 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.
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.
Seasonality and Inflation
To date, seasonality and inflation have not had a material effect on ASI's
operations.
Forward Looking Statements
Statements contained in this Form 10-QSB 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 before
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, recent 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. 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, the proposed merger with PaperClip involves numerous
risks and uncertainties including the potential inability to integrate
successfully the operation and services of the merger and the diversion of
management's attention from other business concerns. There can be no assurances
that ASI will complete the merger or that if completed, it will be successfully
integrated with ASI's operations or provide an acceptable return on ASI's
investments.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
issuer caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Access Solutions International, Inc.
Date: November 14, 1997 /s/Robert H. Stone
------------------------------------
President and CEO
Date: November 14, 1997 /s/Denis L. Marchand
------------------------------------
Corporate Controller and Chief Accounting
Officer (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000875385
<NAME> Access Solutions International, Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 598,332
<SECURITIES> 0
<RECEIVABLES> 201,265
<ALLOWANCES> 41,652
<INVENTORY> 485,972
<CURRENT-ASSETS> 1,467,564
<PP&E> 1,230,797
<DEPRECIATION> 907,202
<TOTAL-ASSETS> 3,332,498
<CURRENT-LIABILITIES> 990,586
<BONDS> 0
0
0
<COMMON> 39,652
<OTHER-SE> 17,637,694
<TOTAL-LIABILITY-AND-EQUITY> 3,332,498
<SALES> 325,056
<TOTAL-REVENUES> 325,056
<CGS> 209,662
<TOTAL-COSTS> 841,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 747
<INCOME-PRETAX> (701,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (701,172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (701,172)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
