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 March 31, 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) 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 April 12, 1997 was 3,963,940.
<PAGE>
Access Solutions International, Inc.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed balance sheets--March 31, 1997 (unaudited)
and June 30, 1996 3
Condensed (unaudited) statements of operations --Three 5
months and nine months ended March 31, 1997 and 1996
Condensed (unaudited) statements of cash flows -- Nine
months ended March 31, 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 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
Access Solutions International, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Access Solutions International, Inc.
Condensed Balance Sheets
March 31, June 30,
1997 1996
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash $3,219,987 $537,831
Trade accounts receivable, net allowance for
doubtful accounts of $38,612 and $50,304, 121,770 426,005
respectively
Notes receivable - PaperClip 300,000 -
Inventories 511,989 504,450
Prepaid expenses and other current assets 254,529 61,995
------- ------
Total current assets 4,408,275 1,530,281
Fixed assets, net 342,678 592,461
Other assets:
Deposits and other assets 12,604 90,940
Remote service inventory, net 51,240 79,549
Deferred financing costs - 581,065
------------ -------
Total other assets 63,844 751,554
------ -------
Total assets $4,814,797 $2,874,296
========== ==========
See notes to unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Access Solutions International, Inc.
Condensed Balance Sheets
<S> <C> <C>
March 31, June 30,
1997 1996
(Unaudited)
Liabilities and stockholders' equity/(deficit)
Current liabilities:
Note payable-bank $ - $290,000
Notes payable-bridge - 1,363,973
Accounts payable 183,979 695,341
Current installments of capital lease obligations 24,638 72,562
Accrued expenses 153,366 163,769
Accrued salaries and wages 159,805 467,234
Deferred revenue-prepaid service contracts 366,766 448,492
------- -------
Total current liabilities 888,554 3,501,371
Capital lease obligations, excluding current installments 13,268 31,974
------ ------
Total liabilities 901,822 3,533,345
-------- ---------
Stockholders' equity/(deficit):
Common Stock, $.01 par value, 13,000,000
shares authorized, 3,965,199 and 1,511,865 39,652 15,119
shares issued, respectively.
Additional paid-in capital 17,637,087 10,599,720
Accumulated deficit (13,745,708) (11,255,832)
------------ ------------
3,931,031 (640,993)
Treasury stock, at cost (1,259 shares) (18,056) (18,056)
-------- --------
Total stockholders' equity/(deficit) 3,912,975 ( 659,049)
---------- ----------
Total liabilities and stockholders'
equity/(deficit) $4,814,797 $2,874,296
========== ==========
Note: The balance sheet at June 30, 1996 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Access Solutions International, Inc.
Condensed Statements of Operations (Unaudited)
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Net Sales:
Products $83,318 $940,638 $365,306 $1,177,670
Services 137,128 146,451 439,626 440,257
------- ------- ------- -------
Total net sales 220,446 1,087,089 804,932 1,617,927
------- --------- ------- ---------
Cost of Sales:
Products 54,866 225,199 109,118 323,923
Services 60,537 67,958 175,802 190,872
------ ------ ------- -------
Total cost of sales 115,403 293,157 284,920 514,795
------- ------- ------- -------
Gross profit 105,043 793,932 520,012 1,103,132
------- ------- ------- ---------
Operating Expenses:
General and administrative expense 453,480 1,106,941 1,269,962 2,367,330
Research and development expense 320,886 351,236 1,264,414 1,377,461
Selling expense 126,208 221,931 463,690 717,557
------- ------- ------- -------
Total operating expenses 900,574 1,680,108 2,998,066 4,462,348
------- --------- --------- ---------
Loss from operations ( 795,531) (886,176) ( 2,478,054) (3,359,216)
---------- --------- ------------ -----------
Other income and expenses:
Interest income 40,959 2,441 87,346 7,056
Interest expense (679) (51,869) (99,168) (163,018)
-------- ------- ------- --------
Total other income/(expenses) 40,280 (49,428) (11,822) (155,962)
------ ------- ------- --------
Loss before extraordinary gain (755,251) (935,604) (2,489,876) (3,515,178)
Extraordinary gain on debt restructuring - 320,387 - 320,387
------------- ------- --------------- -------
Net loss ($755,251) ($615,217) ($2,489,876) ($3,194,791)
========== ========== ============ ============
Net loss applicable to common stock:
Net loss ($755,251) ($615,217) ($2,489,876) ($3,194,791)
Accrued dividends on preferred stock - (8,890) - (108,890)
------------- ------- ---------------- ---------
($755,251) ($624,107) ($2,489,876) ($3,303,681)
========== ========== ============ ============
Net loss per common share:
Loss before extraordinary item ($.19) ($.63) ($.84) ($2.43)
Extraordinary item - .21 - .21
--------- -------- -------- -------
($.19) ($.42) ($.84) ($2.22)
====== ======= ======= =======
Weighted average number of
common shares 3,963,940 1,501,152 2,953,033 1,501,152
See notes to unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Access Solutions International, Inc.
Condensed Statements of Cash Flows
For the Nine Months Ended March 31,
(Unaudited)
<S> <C> <C>
1997 1996
---- ----
Cash flows from operating activities:
Net loss ($2,489,876) ($3,194,791)
----------- -----------
Adjustments to reconcile net loss to net cash used by operating activities:
Write-off of capital lease 197,371 -
Depreciation and amortization 97,167 185,724
Provision for doubtful accounts (11,692) (22,858)
Stock compensation award - 424,830
Debt restructuring gain - (320,387)
Interest expense settled with issuance of common stock - 62,129
Other expenses settled with issuance of common stock - 36,930
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 315,927 417,880
Inventories 20,771 81,209
Deposits 78,336 3,603
Prepaid expenses and other current assets (192,534) 26,154
Increase (decrease) in:
Accounts payable (511,362) (130,506)
Accrued expenses (317,832) 330,127
Deferred revenue - Prepaid service contracts (81,726) (24,011)
-------- --------
Total adjustments (405,574) 1,070,824
--------- ---------
Cash used by operating activities (2,895,450) (2,123,967)
----------- -----------
Cash flows from investing activities:
Additions to fixed assets (44,756) (97,837)
Additions to other assets - (8,124)
Notes receivable - PaperClip (300,000) -
--------- -----------
Cash provided/(used) for investing activities (344,756) (105,961)
--------- ---------
Cash flows from financing activities:
Proceeds from related party loans - 2,383,415
Repayment of related party loans - (1,173,000)
Proceeds from Bridge Loans 37,694 1,300,000
Repayments of Bridge Loans (1,500,000) -
Proceeds from Initial Public Offering 9,200,013 -
Costs relating to Initial Public Offering (2,039,780) -
Repayments on capital lease obligations (66,630) (121,490)
Net (payments) borrowings under note payable-bank (290,000) (120,000)
Purchase of treasury stock (915)
Deferred financing cost 581,065 (46,275)
-------- ---------
Cash provided by financing activities 5,922,362 2,221,735
--------- ----------
Net increase/(decrease) in cash 2,682,156 (8,193)
Cash, beginning of period 537,831 148,842
------- -------
Cash, end of period $3,219,987 $ 140,649
========== =========
See notes to unaudited condensed financial statements.
</TABLE>
<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 and nine months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1997. For further information, refer to the
financial statements and footnotes thereto included in the Access Solutions
International, Inc. prospectus (Form SB-2) dated October 16, 1996.
2. Initial Public Offering
On October 21, 1996, Access Solutions International, Inc. consummated an initial
public offering of 1,066,667 Units. Each Unit consisted of two shares of Common
Stock, $.01 par value per share ("Common Stock") and one redeemable common stock
purchase warrant ("Redeemable 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 Redeemable Warrants comprising the Units are separately tradable
commencing upon issuance. An Over-Allotment Option to purchase an additional
160,000 Units upon the same terms and conditions set forth above was exercised
by the Underwriter on October 29, 1996. An aggregate of 2,453,334 shares of
Common Stock and 1,226,667 redeemable warrants were issued by the Company,
resulting in net proceeds of $7,949,048.
3. PaperClip Asset Purchase and Management Agreements
On April 15, 1997, the Company and PaperClip Software, Inc. ("PaperClip")
entered into a definitive agreement for the Company to acquire substantially all
the assets and liabilities of PaperClip. 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 an
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
convertible note from PaperClip.
On April 15, 1997, the Company and PaperClip also entered a management agreement
which allows 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 Manager
responsible for the management of the day-to-day operations of the Business,
subject at all times to the supervision and control of PaperClip and the terms
of the management agreement. Under the agreement, PaperClip is required to pay
the Company a management fee of $50,000 per month up to a maximum amount of
$300,000 and thereafter pay the amount of $1 per month.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's sales consist of sales of products and services. Products sold by
the Company consist of COLD systems, software and hardgoods including
replacement disk drives, subassemblies and miscellaneous peripherals. Services
rendered by the Company include post-installation maintenance and support. The
Company 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. The Company 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. The Company 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 March 31, 1997, the
Company had deferred revenue in the amount of $366,766.
The Company'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 the Company 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 the Company'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 the Company'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. The revenue from service contracts is recognized on a
straight line basis over the term of the contract.
The Company'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. The Company utilizes its own employees for research and development
functions except in certain circumstances involving product enhancements. In
those circumstances, the Company regularly retains independent experts to
consult and design new software modules which are subsequently evaluated and
tested by the Company's internal research and development staff. Upon successful
testing of such product enhancements, the Company's internal staff integrates
the new products with the Company's existing COLD systems and products.
The Company has historically incurred net losses and anticipates that further
net losses will be incurred prior to the time, if ever, that the Company
achieves profitability. However, the Company took certain steps in Fiscal 1996
intended to limit the incurrence of future net losses. Such steps include: (i)
the retention in January 1996 of Hector D. Wiltshire as interim President and
Chief Executive Officer and the subsequent hiring in August 1996 of Robert H.
Stone as President and Chief Executive Officer; (ii) the recapitalization of the
Company in January 1996, consisting of a one-to-74 reverse stock split and the
conversion of certain debt and warrants into common stock; (iii) the November
l995 reduction in the Company's workforce; (iv) other reductions in overhead
costs and expenses; and (v) the administration of tighter internal controls with
respect to preservation of the integrity of the Company's proprietary software
products. The immediate effect realized by the implementation of these measures
was to reduce average monthly operating expenses during the period from January
through June 1996 to approximately $317,000, exclusive of the cost associated
with shares granted to an officer in January 1996. Average operating expenses
for the nine months ended March 31, 1997 averaged approximately $330,000 per
month. During the first half of Fiscal 1996, average operating expenses
approximated $475,000 per month. The Company does not believe that these steps,
particularly the reduction in the workforce, have to date or will in the future
materially adversely impact the Company's revenues and earnings. Of the 24
employees terminated in November, 1995, five were salespersons, five were field
support personnel, nine were product development personnel and five were
administrative staff. Many of the sales and field support employees had been
hired early in 1995 in anticipation of increased sales which did not
materialize. The terminated product development personnel were working on new
products which the Company determined would not be completed. As a result of the
foregoing, the reduction in workforce has not materially adversely affected the
Company's operations. As of March 31, 1997, the Company had 26 employees.
Recent Development
On April 15, 1997, the Company and PaperClip Software, Inc. ("PaperClip")
entered into a definitive agreement for the Company to acquire substantially all
the assets and liabilities of PaperClip. 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 an
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
convertible note from PaperClip. After consummation of the acquisition, the
Company's and PaperClip's products and businesses will be strategically and
operationally combined under the name Access Solutions International, Inc. The
PaperClip product name will be retained. 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 a management
agreement which allows 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.
See Note 3 to the Unaudited Condensed Financial Statements.
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 and Nine Months Ended March 31, 1997 Compared to Three Months and
Nine Months Ended March 31, 1996
Net Sales
Net sales for the three months ended March 31, 1997 were $220,446 compared with
$1,087,089 for the three months ended March 31, 1996, a decrease of $866,643 or
80%, and $804,932 for the nine months ended March 31, 1997, compared with
$1,617,927 for the nine months ended March 31, 1996, a decrease of $812,995 or
50%. Product sales were $83,318 for the third quarter of Fiscal 1997 compared
with $940,638 for the third quarter of Fiscal 1996, a decrease of $857,320 or
91%, and $365,306 for the nine months ended March 31, 1997 compared with
$1,177,670 for the nine months ended March 31, 1996, a decrease of $812,364 or
69%. Product sales decreased because the Fiscal 1996 third quarter included a
major sale of a large optical archiving system and there were no such sales in
the Fiscal 1997 periods. Service revenues were $137,128 for the third quarter of
Fiscal 1997, compared with $146,451 for the third quarter of Fiscal 1996, a
decrease of $9,323 or 6%, and $439,626 for the nine months ended March 31, 1997
compared with $440,257 for the nine months ended March 31, 1996, a decrease of
$631. The decreases in service revenues were attributable to the sale of
consulting services for facility moves in Fiscal 1996 which did not reoccur in
Fiscal 1997.
Cost of Sales
Cost of sales includes component costs, firmware license costs, labor, travel
and certain overhead costs. Costs of sales in the aggregate decreased 61% to
$115,403 for the three months ended March 31, 1997 from $293,157 for the three
months ended March 31, 1996 and decreased 45% to $284,920 for the nine months
ended March 31, 1997 from $514,795 for the nine months ended March 31, 1996 in
each case as a result of lower sales. In addition, cost of sales as a percentage
of sales decreased to 52% for the three months ended March 31, 1997 from 27% for
the three months ended March 31, 1996 and decreased to 35% for the nine months
ended March 31, 1997 from 32% for the nine months ended March 31, 1996. Sales in
Fiscal 1996 consisted primarily of a large system sale which carried a higher
margin than service and product sales.
The cost of product sales decreased 76% to $54,866 for the three months ended
March 31, 1997 from $225,199 for the three months ended March 31, 1996 and
decreased 66% to $109,118 for the nine months ended March 31, 1997 from $323,923
for the nine months ended March 31, 1996, in each case due to lower sales. Cost
of product sales as a percentage of product revenues increased to 66% for the
three months ended March 31, 1997 from 24% for the three months ended March 31,
1996, and to 30% for the nine months ended March 31, 1997 from 28% for the nine
months ended March 31, 1996. The increases in costs of sales in both cases were
the result of lower margins. The cost of services decreased by 11% to $60,537
for the three months ended March 31, 1997 from $67,958 for the three months
ended March 31, 1996 and decreased by 8% to $175,802 for the nine months ended
March 31, 1997 from $190,872 for the nine months ended March 31, 1996. These
decreases reflect overhead reductions in Customer Service. As a result, cost of
services as a percentage of service revenues decreased to 44% for the three
months ended March 31, 1997 from 46% for the three months ended March 31, 1996,
and 40% for the nine months ended March 31, 1997 from 43% for the nine months
ended March 31, 1996.
General and Administrative Expenses
General and administrative expenses consist of administrative expenses and
customer support expenses. General and administrative expenses decreased 59% or
$653,461 to $453,480 for the three months ended March 31, 1997 from $1,106,941
for the three months ended March 31, 1996 and decreased 46% or $1,097,368 to
$1,269,962 for the nine months ended March 31, 1997 from $2,367,330 for the nine
months ended March 31, 1996. The decreases were primarily due to certain
nonrecurring expenses from the Company's reorganization in January 1996,
including accrued stock compensation expensed for Hector Wiltshire in the amount
of $744,000, repurchases of anti-dilution rights in the amount of $85,000. and
realized reductions in year-to-date payroll and accrued severance due to
personnel terminations in the second quarter of Fiscal 1997.
Research and Development Expenses
Research and development expenses decreased by 9% or $30,350 to $320,886 for the
three months ended March 31, 1997 from $351,236 for the three months ended March
31, 1996 and decreased by 8% or $113,047 to $1,264,414 for the nine months ended
March 31, 1997 from $1,377,461 for the nine months ended March 31, 1996. The
decrease in research and development was primarily due to payroll reductions
during the second quarter of Fiscal 97 which was partly offset by increased
expense relating to the renewal of the Company's mainframe capital lease to a
shorter term operating lease.
Selling Expenses
Selling expenses decreased by $95,723 or 43% to $126,208 for the three months
ended March 31, 1997 from $221,931 for the three months ended March 31, 1996 and
decreased by $253,867 or 35% to $463,690 for the nine months ended March 31,
1997 from $717,557 for the nine months ended March 31, 1996. The decreases were
primarily the result of reduced commission expense and lower trade show and
seminar expenses.
Other Income and Expenses
Other income and expenses consisted of interest expense which decreased 99% or
$51,190 to $679 for the three months ended March 31, 1997 from $51,689 for the
three months ended March 31, 1996 and 39% or $63,851 to $99,168 for the nine
months ended March 31, 1997 from $163,018 for the nine months ended March 31,
1996. These expense reductions were 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 the Company's
initial public offering. Interest income increased by $38,518 to $40,959 for the
three months ended March 31, 1997 from $2,441 for the three months ended March
31, 1996 and by $80,290 to $87,346 for the nine months ended March 31, 1997 from
$7,056 for the nine months ended March 31, 1996, in each case as a result of
investment earnings from the proceeds of the Company's initial public offering.
Net Loss
As a result of the foregoing, the Company's net loss increased to $755,251 ($.19
per share on 3,963,940 weighted average shares outstanding) for the three months
ended March 31, 1997 from $615,217 ($.42 per share on 1,501,152 weighted average
shares outstanding) during the three months ended March 31, 1996 and decreased
to a loss of $2,489,876 ($.84 per share on 2,953,033 weighted average shares
outstanding) for the nine months ended March 31, 1997 from $3,194,791 ($2.43 per
share on 1,501,152 weighted average shares outstanding) for the nine months
ended March 31, 1996.
Liquidity and Capital Resources
The Company had a working capital surplus of $3,519,721 at March 31, 1997 as
compared to a working capital deficit of $1,971,090 at June 30, 1996.
Total cash used by operating activities during the nine month periods ended
March 31, 1997 and 1996 was $2,895,450 and $2,123,967, respectively. The
Company's net losses for these periods were $2,489,876 and $3,194,791
respectively. In addition to funding the Company's net loss, the major uses of
capital for operating activities during the nine month period ended March 31,
1997 included reducing accounts payable by approximately $511,000 and accrued
expenses by approximately $318,000. The reduction in accounts receivable was the
Company's major source of cash from operating activities.
Cash used by investing activities for the nine month periods ended March 31,
1997 and 1996 was $344,756 and $105,961, respectively. The major use of cash for
investing activities in Fiscal 1997 was a $300,000 loan to PaperClip (see
"Recent Development" above).
Cash provided by financing activities was $5,922,362 for the nine month period
ended March 31, 1997 and $2,221,735 for the nine month period ended March 31,
1996. The major source of cash for financing activities during the nine month
period ended March 31, 1997 consisted of proceeds from the Company's $9,200,000
initial public offering ("IPO") (see below), which was partially offset by IPO
related expenses totaling approximately $2,000,000. In addition, approximately
$1,500,000 of the remaining proceeds was used to repay bridge loan principal and
accrued interest thereon and $220,000 was used to repay an outstanding bank loan
and accrued interest thereon. Installment payments on this loan totaling
approximately $70,000 were made in Fiscal 1997 prior to completion of the IPO.
During October 1996, the Company completed its initial public offering of
1,066,667 Units (the "Units"), each Unit consisting of two shares of Common
Stock and one redeemable common stock purchase warrant. An additional 160,000
Units were sold to cover over-allotments. The Company intends to utilize the
balance of the net proceeds for research and development, significantly
increased sales and marketing programs and for general corporate purposes. The
research and development expenditures primarily consist of product modifications
to support multiple platforms, provide device independence and increase
modularity to speed enhancement, and for external contracting of general and
vertical market-specific software and additional development of enhancements for
the expansion of the Company's products to address the client/server market.
The Company has suffered recurring losses from operations and has negative cash
flows from operating activities. As a result, the Company's independent
accountants in their report dated August 2, 1997 on the audited financial
statements for the year ended June 30, 1996 included an explanatory paragraph
that described factors raising substantial doubt about the Company's ability to
continue as a going concern.
The Company believes that the remaining net proceeds of the initial public
offering, together with funds generated from operations, will be sufficient to
meet the Company's working capital requirements for a period of at least nine
months. Thereafter, additional funds will be required. If the Company has
insufficient funds from operations, it will be required to seek additional debt
or equity financing. 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.
The Company 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.
As discussed under Recent Development, the Company entered into an agreement to
acquire substantially all the assets and liabilities of PaperClip. If completed,
the purchase price would be paid by the issuance of stock and warrants of the
Company and up to $129,000 in cash in the event that the Company elects under
the agreement to require PaperClip to prepay its outstanding convertible notes,
in which case the Company is required to pay PaperClip in cash any amounts
needed to meet the repayment obligations. In addition, on January 29, 1997, the
Company made a loan to PaperClip in the amount of $300,000. The loan is secured
by a first priority interest in all of PaperClip's assets and is evidenced by a
convertible promissory note due one year from the date of issuance and bears
interest at the rate of 12% per annum, payable quarterly, and permits conversion
of all or a part of the outstanding principal at any time at the Company's
option at a conversion price of $.25 per share of PaperClip's stock. While the
acquisition will not require a cash payment other than the repayment obligation
described above, it is anticipated that cash outlays in addition to the
aforementioned loan will be required to complete the acquisition as follows; (i)
satisfaction of PaperClip's liabilities of approximately $1,300,000; (ii)
payment of professional fees of approximately $400,000 for legal and accounting
work; and (iii) consulting fees of approximately $65,000 and travel expenses of
approximately $10,000.
Seasonality and Inflation
To date, seasonality and inflation have not had a material effect on the
Company'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. The Company cautions that a
number of important factors could cause actual results for Fiscal 1997 and
beyond to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company. Such statements contain a number
of risks and uncertainties, including, but not limited to, future capital needs,
uncertainty of additional funding, variable operating results, lengthy sales
cycles, dependence on the Company's COLD system product, rapid technological
change and product development, reliance on single or limited sources of supply,
intense competition, turnover in management, the Company's ability to manage
growth, dependence on significant customers, dependence on key personnel, and
the Company's ability to protect its intellectual property. See "Risk Factors"
in the Company's Prospectus dated October 16, 1997. The Company 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 the Company's securities. In addition, the
Company'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 the Company will complete its proposed acquisition or that, if completed,
it will be successfully integrated into the Company's operations or provide an
acceptable return on the Company's investment.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Asset Purchase Agreement dated April 15, 1997 between the
Company and PaperClip (Exhibit 2(a) of the Company's Form 8-K
dated April 15, 1997 is hereby incorporated by reference.)
10.2 Management Agreement dated April 15, 1997 between the Company
and PaperClip (Exhibit 2(b) of the Company's Form 8-K dated
April 15, 1997 is hereby incorporated by reference.)
10.3 $300,000 Convertible Promissory Note dated January 29, 1997
issued by PaperClip to the Company (Exhibit 10.4 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended
December 31, 1996 is hereby incorporated by reference.)
27. Financial Data Schedule
(b) Reports on Form 8-K
1. Report on Form 8-K, dated April 15, 1997, filed April 21, 1997
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ACCESS SOLUTIONS INTERNATIONAL, INC.
Date: May 14, 1997 /s/Robert H. Stone
------------------------------------
Robert H. Stone
President and CEO
Date: May 14, 1997 /s/Denis L. Marchand
------------------------------------
Denis L. Marchand
Corporate Controller and Chief
Accounting Officer (Principal
Accounting Officer)
<PAGE>
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