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, 1998
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 April 15, 1998 was 3,963,940.
<PAGE>
Access Solutions International, Inc.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed balance sheets--March 31, 1998
(unaudited) and June 30, 1997 3
Condensed (unaudited) statements of operations --Three
months and nine months ended March 31, 1998 and 1997 5
Condensed (unaudited) statements of cash flows -- Nine
months ended March 31, 1998 and 1997 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
</TABLE>
<PAGE>
Access Solutions International, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Access Solutions International, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $35,304 $1,889,446
Trade accounts receivable, net allowance for
doubtful accounts of $44,389 and $53,199 210,557 238,914
Inventories 446,076 461,812
Prepaid expenses and other current assets 176,549 183,159
------------- ------------
Total current assets 868,486 2,773,331
Fixed assets, net 351,836 328,309
Other assets:
Advances - PaperClip 1,451,655 529,052
Notes receivable - PaperClip 300,000 300,000
Deposits and other assets 48,823 49,527
Deferred acquisition costs 302,121 -
------------ ------------
Total other assets 2,102,599 878,579
------------ ------------
Total assets $3,322,921 $3,980,219
========== ==========
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE>
Access Solutions International, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
<S> <C> <C>
Notes payable to shareholder $58,822 $ -
Accounts payable 801,001 227,490
Current installments of capital lease obligations 13,268 25,257
Accrued expenses 229,740 143,227
Accrued salaries and wages 139,701 204,604
Deferred revenue-prepaid service contracts 512,592 329,841
------- -------
Total current liabilities 1,755,124 930,419
Capital lease obligations, excluding current installments - 6,716
---------- ---------
Total liabilities 1,755,124 937,135
Stockholders' equity:
Common stock, $.01 par value, 13,000,000
shares authorized, 3,965,199 39,652 39,652
shares issued.
Additional paid-in capital 17,637,694 17,637,694
Accumulated deficit (16,091,493) (14,616,206)
------------ ------------
1,585,853 3,061,140
Treasury stock, at cost (1,259 shares) (18,056) (18,056)
-------- --------
Total stockholders' equity 1,567,797 3,043,084
---------- ---------
Total liabilities and stockholders' equity $3,322,921 $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>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
1998 1997 1998 1997
Net sales:
<S> <C> <C> <C> <C>
Products $14,880 $83,318 $539,771 $365,306
Services 279,373 137,128 629,214 439,626
------- ------- ------- -------
Total net sales 294,253 220,446 1,168,985 804,932
------- ------- --------- -------
Cost of sales:
Products 7,458 54,866 220,395 109,118
Services 119,324 60,537 274,189 175,802
------- ------ ------- -------
Total cost of sales 126,782 115,403 494,584 284,920
------- ------- ------- -------
Gross profit 167,471 105,043 674,401 520,012
------- ------- ------- -------
Operating expenses:
General and administrative expense 346,492 377,676 909,636 1,031,483
Research and development expense 198,204 320,886 842,571 1,264,414
Selling expense 105,647 207,763 481,393 706,388
------- ------- ------- -------
Total operating expenses 650,343 906,325 2,233,600 3,002,285
------- ------- --------- ---------
Loss from operations (482,872) (801,282) (1,559,199) (2,482,273)
--------- --------- ----------- -----------
Other income and expenses:
Interest and other income 9,465 47,159 98,259 93,546
Interest expense (10,501) (1,129) (14,346) (101,149)
------- ------ -------- --------
Total other income/(expenses) (1,036) 46,030 83,913 (7,603)
------ ------ ------ -------
Net loss (483,908) (755,252) (1,475,286) (2,489,876)
Net loss per common share (0.12) (0.19) (0.37) (0.84)
Weighted average number of
common shares 3,963,940 3,963,940 3,963,940 2,953,033
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE>
Access Solutions International, Inc.
Condensed Statements of Cash Flows
For the Nine Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss ($1,475,287) ($2,489,876)
------------ ------------
Adjustments to reconcile net loss to net
cash used by operating activities:
Write-off of capital lease - 197,371
Depreciation and amortization 116,697 97,167
Provision for doubtful accounts (8,810) (11,692)
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 37,167 315,927
Inventories 42,145 20,771
Deposits (40) 78,336
Prepaid expenses and other current assets 6,610 (192,534)
Increase (decrease) in:
Accounts payable 573,511 (511,362)
Accrued expenses 21,610 (317,832)
Deferred revenue - Prepaid service contracts 182,751 (81,726)
--------- ---------
Total adjustments 971,641 (405,574)
--------- ---------
Cash used by operating activities (503,646) (2,895,450)
--------- ---------
Cash flows from investing activities:
Additions to fixed assets (136,334) (44,756)
Additions to other assets ( 29,555) -
Loans and advances to PaperClip (922,603) (300,000)
Deferred acquisition costs (302,121) -
--------- ---------
Cash provided/(used) for investing activities (1,390,613) (344,756)
--------- ---------
Cash flows from financing activities:
Proceeds from initial public offering - 9,200,013
Costs relating to initial public offering - (2,039,780)
Proceeds from related party loans 58,822 -
Proceeds from bridge loans - 37,694
Repayments of bridge loans - (1,500,000)
Repayments on capital lease obligations (18,705) (66,630)
Net (payments) borrowings under note payable-bank - (290,000)
Deferred financing costs - 581,065
--------- ---------
Cash provided by financing activities 40,117 5,922,362
--------- ---------
Net increase/(decrease) in cash (1,854,142) 2,682,156
Cash equivalents, beginning of period 1,889,446 537,831
--------- ---------
Cash and cash equivalents, end of period $ 35,304 $3,219,987
========= =========
</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 and nine months ended
March 31, 1998 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" or the "Company") Form 10-KSB for the period 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 provides for 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.
Pursuant to the terms of the merger agreement, completion of the merger
transaction is subject to certain conditions, including a financing contingency,
and was to have been consummated on or before February 21, 1998. Because the
financing contingency has not been satisfied, the merger transaction has not
been consummated, and the merger agreement has been amended to allow more time
for the financing condition to be satisfied and for the parties to negotiate
alternatives.
On April 22, 1998, Malcolm Chace III loaned ASI $100,000 at a rate of 19% per
annum. The loan is unsecured.
<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, 1998, the
Company had deferred revenue in the amount of $512,592, which it will recognize
through March 31, 1999.
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 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'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 in the third
quarter of Fiscal 1998, it is anticipated that development costs for Fiscal 1998
will be substantially reduced from prior levels.
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 1998
intended to limit the incurrence of future net losses. Such steps include: (i)
the October, l997 reduction in the Company's workforce; (ii) other reductions in
overhead costs and expenses; and (iii) entering into the merger agreement with
PaperClip Software, Inc. The immediate effect realized by the implementation of
these measures was to reduce average monthly operating expenses during the
period from November through December 1997 to approximately $230,000. Average
operating expenses for the three months ended September 30, 1997 were
approximately $280,000 per month. During the first nine months of Fiscal 1998,
average operating expenses approximated $245,000 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 9 employees terminated in October, 1997, one was a
salesperson, one was field support, five were product development personnel and
two were administrative staff. The terminated product development personnel were
working on customer product enhancements which were completed. As a result of
the foregoing, the reduction in workforce has not materially adversely affected
the Company's operations. As of April 13, 1998, the Company had 8 employees.
ASI has entered into a Merger Agreement with PaperClip pursuant to which a
newly-formed subsidiary of ASI will merge with and 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 agreed-upon 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. As of March 31,
1998, the total amount of advances to PaperClip totaled $1,543,077 excluding the
above note and management fees totaled approximately $360,000. The management
fees have not been recognized by ASI as revenue because of the pending merger
between the two parties. Effective June 1, 1997, ASI entered into a one year
distribution agreement with PaperClip.
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, 1998 COMPARED TO THREE MONTHS AND
NINE MONTHS ENDED MARCH 31, 1997
Net Sales
Net sales for the three months ended March 31, 1998 were $294,253 compared with
$220,446 for the three months ended March 31, 1997, an increase of $73,807 or
33%, and $1,168,985 for the nine months ended March 31, 1998, compared with
$804,932 for the nine months ended March 31, 1997, an increase of $364,053 or
45%. Product sales were $14,880 for the third quarter of Fiscal 1998 compared
with $83,318 for the third quarter of Fiscal 1997, a decrease of $68,438 or 82%,
and $539,771 for the nine months ended March 31, 1998 compared with $365,306 for
the nine months ended March 31, 1997, an increase of $174,465 or 48%. Product
sales decreased for the third quarter of Fiscal 98 because shipment of the
second phase of a customer's optical archiving system was delayed. Service
revenues were $279,373 for the third quarter of Fiscal 1998, compared with
$137,128 for the third quarter of Fiscal 1997, an increase of $142,245 or 104%,
and $629,214 for the nine months ended March 31, 1998 compared with $439,626 for
the nine months ended March 31, 1997, an increase of $189,588 or 43%. The
increase in service revenues was attributable to renewal of the Company's
service contracts at higher rates, some of which included retroactive prior
period revenue.
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 10% to
$126,782 for the three months ended March 31, 1998 from $115,403 for the three
months ended March 31, 1997 and increased 35% to $494,584 for the nine months
ended March 31, 1998 from $284,920 for the nine months ended March 31, 1997, in
each case as a result of higher sales. In addition, the gross margin percentage
increased to 57% for the three months ended March 31, 1998 from 48% for the
three months ended March 31, 1997 and decreased to 58% for the nine months ended
March 31, 1998 from 65% for the nine months ended March 31, 1997. The increased
gross margin for the third quarter and decrease for year to date gross margin
was the result of retroactive contract maintenance revenue recognition in the
third quarter of Fiscal 98. The costs relating to this revenue were recognized,
as incurred, in prior periods which therefore impacted the current quarter more
favorably that the three quarters combined.
The gross margin for product sales increased to 50% for the three months ended
March 31, 1998 from 34% for the three months ended March 31, 1997 and increased
to 57% for the nine months ended March 31, 1998 from 56% for the nine months
ended March 31, 1998. The gross margin percentage on product sales increased for
the three months ended March 31, 1998 because this period included the sale of
obsolete equipment which had been written off in a prior period.
General and Administrative Expenses
General and administrative expenses consist of administrative expenses and
customer support expenses. General and administrative expenses decreased 8% or
$31,184 to $346,492 for the three months ended March 31, 1998 from $377,676 for
the three months ended March 31, 1997 and decreased 12% or $121,847 to $909,636
for the nine months ended March 31, 1998 from $1,031,483 for the nine months
ended March 31, 1997. The decreases were primarily due to reductions in legal
expenses, consultants and travel expenses. Legal expenses incurred in the second
half of Fiscal 1997 relating to the formerly planned PaperClip asset purchase
were expensed at year end while legal expenses incurred relating to the
PaperClip merger in Fiscal 1998 have been capitalized.
Research and Development Expenses
Research and development expenses decreased by 38% or $122,682 to $198,204 for
the three months ended March 31, 1998 from $320,886 for the three months ended
March 31, 1997 and decreased by 33% or $421,843 to $842,571 for the nine months
ended March 31, 1998 from $1,264,414 for the nine months ended March 31, 1997.
The decrease in research and development expenses was primarily due to reduced
depreciation expense from the conversion of the Company's capital mainframe
lease to an operating lease and to payroll reductions of development personnel
during the second quarter of Fiscal 1998.
Selling Expenses
Selling expenses decreased by $102,116 or 49% to $105,647 for the three months
ended March 31, 1998 from $207,763 for the three months ended March 31, 1997 and
decreased by $224,995 or 32% to $481,393 for the nine months ended March 31,
1998 from $706,388 for the nine months ended March 31, 1997. The decreases were
primarily the result of lower payroll expenses and travel expenses which were
partially offset by increased commissions expense and investor relations costs
which were not incurred in the first half of Fiscal 1997.
Other Income and Expenses
Other income and expenses consisted of interest expense which decreased 80% or
$37,694 to $9,465 for the three months ended March 31, 1998 from $47,159 for the
three months ended March 31, 1998 and increased 5% or $4,713 to $98,259 for the
nine months ended March 31, 1998 from $93,546 for the nine months ended March
31, 1997. Included in the above amount for the nine months ending March 31, 1998
was miscellaneous income of approximately $43,000 from the proceeds of an
insurance reimbursement related to a damaged shipment.
Net Loss
As a result of the foregoing, the Company's net loss decreased 36% to $483,908
($.12 per share on 3,963,940 weighted average shares outstanding) for the three
months ended March 31, 1998 from $755,252 ($.19 per share on 3,963,940 weighted
average shares outstanding) during the three months ended March 31, 1997 and
decreased 41% to a loss of $1,475,286 ($.37 per share on 3,963,940 weighted
average shares outstanding) for the nine months ended March 31, 1998 from
$2,489,876 ($.84 per share on 2,953,033 weighted average shares outstanding) for
the nine months ended March 31, 1997.
Liquidity and Capital Resources
The Company had a working capital deficit of $856,638 at March 31, 1998 compared
to a working capital surplus of $1,842,912 at June 30, 1997.
Total cash used by operating activities during the nine month periods ended
March 31, 1998 and 1997 was $503,646 and $2,895,450, respectively. The Company's
net losses for these periods were $1,475,287 and $2,489,876, respectively. The
Company's net loss was the major use of cash from operating activities. The
major sources of capital for operating activities during the nine month period
ended March 31, 1998 included increases in accounts payable and deferred revenue
of $573,511 and $182,751, respectively.
Cash used by investing activities for the nine month periods ended March 31,
1998 and 1997 was $1,390,613 and $344,756, respectively. The major use of cash
for investing activities in Fiscal 1998 was loans and advances to PaperClip
totaling $922,603 and deferred acquisition costs of $302,121 for legal and
accounting fees related to the merger.
Cash provided by financing activities was $40,117 for the nine month period
ended March 31, 1998 and $5,922,362 for the nine month period ended March 31,
1997. The major source of cash for financing activities during the nine month
period ended March 31, 1998 consisted of loans by a director of the Company
secured by certain accounts receivable of the Company. Cash provided by
financing activities for the nine month period ended March 31, 1997 was obtained
from the Company's $9,200,000 initial public offering in October, 1996, which
was partially offset by IPO related expenses, and repayment of an outstanding
bridge loan and an outstanding bank loan.
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 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 the Company's ability to
continue as a going concern. On April 22, 1998, Malcolm Chace III, a stockholder
and former director of the Company, loaned ASI $100,000 at a rate of 19% per
annum. The loan is unsecured. On April 30, the Company announced that it has
entered into an agreement with Mr. Chace for interim financing totaling
$750,000. The interim financing agreement calls for the purchase of a minority
interest in several of the company's patents by Mr. Chace, for $100,000. These
patents are the subject of a lawsuit pending in the United States District Court
for the District of Rhode Island. In addition, Mr. Chace also agreed to lend the
Company $650,000 plus an amount equal to outstanding and future legal fees and
costs incurred in connection with the lawsuit. The loan will be secured by a
first priority interest in these patents and will bear interest at the rate of
19%. The loan has a term of the lesser of three years or completion of the
company's patent litigation and converts to demand note at the end of its term.
The loan will also be convertible into equity under certain circumstances. Mr.
Chace resigned from the Company's board of directors to avoid any conflict of
interest created by this loan transaction. The Company expects to complete the
transaction with Mr. Chace in the fourth quarter of Fiscal 1998.
As of March 31, 1998, the Company had no significant long-term debt. ASI
believes that the Company's cash balances, together with the funds generated
from operations and the above interim financing, will be sufficient to meet
ASI's working capital requirements only through August, 1998. On April 30, 1998,
the Company also announced that it terminated its previously announced effort to
raise $2 million in a private placement offering. The Company is presently
talking with underwriters and others regarding establishment of a financing or
strategic relationship and has been in talks with additional parties regarding a
future financing of between $2 million and $4 million to meet the obligations of
the Merger Agreement and to address the Company's cash flow requirements. The
Company's current plan is to close on at least $2 million of such financing in
the first quarter of Fiscal 1999. Mr. Chace has agreed to convert his $650,000
loan into equity in the event he is satisfied with the terms of such financing
and upon the satisfaction of certain other conditions.
There can be no assurance that the interim financing will be successfully
completed or that 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, and the proposed merger may not be completed.
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. In addition, when used herein,
words such as "believes", "anticipates", "expects", and similar expressions are
intended to identify forward looking statements. The Company 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 the Company. Such statements contain a number
of risks and uncertainties, including, but not limited to, 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 merger with 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 merger 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 Financing Term Sheet dated April 14, 1998 between Malcolm G. Chace and
ASI
10.2 Demand Note dated April 22, 1998 by ASI for the benefit of Malcolm G.
Chace
(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: May 20, 1998, Robert H. Stone
-------------------------------
President and CEO
Date: May 20, 1998 Denis L. Marchand
-------------------------------
Vice President of Finance and
Administration and Chief Accounting
Officer (Principal Accounting Officer)
Exhibit 10.1
TO: ACCESS SOLUTIONS INTERNATIONAL, INC.
FROM: MALCOLM G. CHACE Dated: April 14, 1998
TERM SHEET
This Term Sheet sets forth the basic terms on which Malcolm G. Chace (the
"Investor") is prepared to loan funds to Access Solutions International, Inc., a
Delaware corporation (the "Company") and to purchase an interest in a certain
patent owned by the Company.
Investor: Malcolm G. Chace of Providence, Rhode Island.
Company: Access Solutions International, Inc., a Delaware
corporation.
Loan Amount: $650,000 plus amount equal to outstanding and future
legal fees and costs incurred in connection with the Lawsuit
(defined below) excluding any contingent fees owing to
Company's litigation counsel.
Interest Rate: 19% per annum.
Maturity: On the first to occur of (i) the 3rd anniversary of the
date of closing of the Loan and (ii) settlement or a final
judgment in the Lawsuit defined below, and thereafter on
written demand.
Security: First priority security interest in the accounts, contract
rights and proceeds, claims and choses in action of the
Company in, arising out of, or in connection with that
certain lawsuit now pending in the United States District
Court for the District of Rhode Island captioned "Action
Solutions International, Inc. v. Data/Ware Development, Inc.
and Eastman Kodak Company, C.A.", No. 97-0501-L (the
"Lawsuit").
Legal Fees Investor's legal fees and costs incurred in connection with
the above-referenced loan and and Costs: the
below-referenced purchase of an interest in the patent will
be payable at Maturity of the above-referenced loan as will
all interest accrued thereon.
Purchase of
Interest in
Patent: Investor will concurrently purchase from the Company a 30%
interest in any patents which are the subject of the
Lawsuit. The Company will not be required to pay any license
fees to the Investor on account of the Company's use of the
patented technology unless the Company receives license fees
or royalties from a third party, in which case, such
receipts shall be shared by the Company and the Investor in
accordance with their patent ownership interests.
Purchase Price: $100,000.
Covenant: Any settlement, disposition or decisions on material actions
in the Lawsuit must be approved unanimously by the Company
and the Investor.
Conditions
Precedent: Company's board of directors' approval and
authorization of the transactions.
Company's major creditors must agree to extend payment terms
and forbear from exercise of remedies against the Company,
all to the Investor's satisfaction.
Investor must receive satisfactory evidence that the
Company's merger with PaperClip will be consummated in a
reasonably expeditious manner and that PaperClip's
management has agreed that it will not request terms any
less favorable to the Company than those in the existing
Merger Agreement; provided that Investor's above $100,000
purchase of an interest in the patents will be treated as
part of the required equity raised by or for the Company and
if the Investor converts the principal amount of his loan to
equity, such principal amount will be treated as part of
such equity raise. If the terms of the equity are reasonably
satisfactory to the Investor, he will convert such principal
amount to equity in the Company concurrently with (i) the
Company's receipt of an additional $1,250,000 of equity,
(ii) the Investor's receipt of all accrued interest on said
principal amount and (iii) consummation of the merger with
PaperClip.
Documentation: All documents entered into in connection with the foregoing
transactions must be in form and substance satisfactory to
the Investor and his counsel.
Indemnification: The Company will indemnify the Investor against any loss,
cost or liability relating to or arising out of the Lawsuit
and/or the patent(s) referred to above except as expressly
provided above with regard to legal fees and costs.
/s/Robert H. Stone
-----------------------------
Robert H. Stone
President & CEO
Access Solutions International, Inc.
Exhibit 10.2
North Kingstown, RI
April 22, 1998
$100,000.00
DEMAND NOTE
ON DEMAND the undersigned for value received, promises to pay to the order
of MALCOLM G. CHACE, ONE HUNDRED THOUSAND AND 00/100 DOLLARS with interest at
19% per annum.
Payable at 731 Hospital Trust Building, Providence, Rhode Island 02903.
If this note is not paid in full when due, or upon the occurrence as to any
maker, endorser, or guarantor of any of the following events: dissolution,
insolvency, assignment for the benefit of creditors, petition or adjudication in
bankruptcy, appointment of a receiver or attachment against any credits or
property of any of them; - this note shall, at the election of the holder
hereof, become due and payable immediately without notice and the payment and
acceptance of any sum on account of this note shall not be considered a waiver
of such right of election.
In the event this note is not paid in full at maturity, interest shall
accrue thereafter until payment in full at the annual rate of interest in effect
prior to maturity.
If this note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection through legal proceedings or
otherwise, the undersigned will pay a reasonable attorney's fee to the holder
hereof together with the costs and reasonable expenses of collection. Interest
payable hereunder shall be computed on the basis of the actual number of days
elapsed using a 360 day year.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/ Robert H. Stone
----------------------------------
Name: Robert H. Stone
Office: President and CEO
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