United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period ended December 31, 2000
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 September 30, 2000 was 3,963,940.
1
Access Solutions International, Inc.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed balance sheets--December 31, 2000 (unaudited)
and June 30, 2000 3
Condensed (unaudited) statements of operations --Three
months and six months ended December 31, 2000 and 1999 5
Condensed (unaudited) statements of cash flows -- Six
months ended December 31, 2000 and 1999 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 15
Signatures 16
2
Access Solutions International, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Access Solutions International, Inc.
Condensed Balance Sheets
December 31, June 30,
2000 2000
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 57,889 $ 58,042
Trade accounts receivable, net of allowance for
doubtful accounts of $0 and $13,167 282,525 259,308
Inventories 25,312 25,407
Prepaid expenses and other current assets 38,508 39,129
----------- -----------
Total current assets 404,234 381,886
Notes receivable - PaperClip 331,279 2,220,722
Allowance for doubtful accounts - Notes Receivable (331,279) (2,220,722)
----------- -----------
Net Notes receivable - PaperClip -- --
Fixed assets, net 11,109 62,626
Other assets:
Deposits and other assets -- 5,121
----------- -----------
Total assets $ 415,343 $ 449,633
=========== ===========
See notes to unaudited condensed financial statements.
3
Access Solutions International, Inc.
Condensed Balance Sheets
December 31, June 30,
2000 2000
------------ ------------
(Unaudited)
Liabilities and stockholders' deficit Current liabilities:
Accounts payable $ 607,178 $ 611,789
Accrued salaries and wages 60,065 84,891
Accrued expenses 80,483 88,516
Deferred revenue-prepaid service contracts 445,064 485,661
------------ ------------
Total current liabilities 1,192,790 1,270,857
Notes payable 1,515,651 1,287,549
Total liabilities 2,708,441 2,558,406
------------ ------------
Stockholders' deficit:
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 (19,952,388) (19,768,063)
------------ ------------
(2,275,042) (2,090,717)
Treasury stock, at cost (1,259 shares) (18,056) (18,056)
------------ ------------
Total stockholders' deficit (2,293,098) (2,108,773)
------------ ------------
Total liabilities and stockholders' deficit $ 415,343 $ 449,633
============ ============
Note: The balance sheet at June 30, 2000 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.
4
Access Solutions International, Inc.
Condensed Statements of Operations (Unaudited)
For the Three Months For the Six Months
Ended December 31, Ended December 31,
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales:
Products $ 9,000 $ 65,303 $ 18,533 $ 87,344
Services 207,497 188,177 414,592 392,097
--------- --------- --------- ---------
Total net sales 216,497 253,480 433,125 479,441
--------- --------- --------- ---------
Cost of sales:
Products -- 5,321 245 11,054
Services 49,505 47,013 102,962 104,441
--------- --------- --------- ---------
Total cost of sales 49,505 52,334 103,207 115,495
--------- --------- --------- ---------
Gross profit 166,992 201,146 329,918 363,946
--------- --------- --------- ---------
Operating expenses:
Selling expense 33,557 38,457 66,089 76,774
General and administrative expense 64,901 116,439 213,153 204,511
Research and development expense 10,942 28,906 29,148 50,245
--------- --------- --------- ---------
Total operating expenses 109,400 183,802 308,390 331,530
--------- --------- --------- ---------
Profit from operations 57,592 17,344 21,528 32,416
--------- --------- --------- ---------
Other interest (income)/expense:
Interest income (4,402) (15) (4,482) (59)
Interest expense 145,597 31,561 177,158 63,122
Other income (7,873) -- (7,873) --
Other expense 41,263 1,282 41,050 1,418
--------- --------- --------- ---------
Total interest (income)/expense 174,585 32,828 205,853 64,481
--------- --------- --------- ---------
Net loss ($116,993) ($ 15,484) ($184,325) ($ 32,065)
========= ========= ========= =========
Net Loss per common share (0.03) (0.00) (0.05) (0.01)
Weighted average number of
common shares 3,963,940 3,963,940
See notes to unaudited condensed financial statements.
5
Access Solutions International, Inc.
Condensed Statements of Cash Flows
For the Six Months Ended December 31,
(Unaudited)
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($184,325) ($ 32,065)
--------- ---------
Adjustments to reconcile net loss to net cash used by
operating activities:
Loss on disposition of fixed assets 40,755 --
Depreciation and amortization 15,883 38,345
Decrease in provision for doubtful accounts - Trade receivables (13,167) (8,400)
Decrease in provision for PaperClip Allowance (7,873) --
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (10,050) (176,873)
Inventories 94 (196)
Prepaid expenses and other current assets 621 (12,040)
Increase (decrease) in:
Accounts payable (4,611) 26,371
Accrued expenses (32,857) (306,763)
Deferred revenue - prepaid service contracts (40,597) 46,373
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES (236,127) (425,248)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Paydown of Notes Receivable - PaperClip 7,873 --
Purchases of fixed assets -- (435)
--------- ---------
NET CASH PROVIDED BY / (USED BY) INVESTING ACTIVITIES 7,873 (435)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Notes Payable for Litigation Advances 228,101 411,834
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 228,101 411,834
--------- ---------
NET DECREASE IN CASH (153) (13,849)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 58,042 83,402
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 57,889 $ 69,553
========= =========
See notes to unaudited condensed financial statements.
6
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 six months ended
December 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended June 30, 2001. For further information, refer to the
financial statements and footnotes thereto included in the Access Solutions
International, Inc. Form 10-KSB for the period ended June 30, 2000.
2. Legal Proceedings and Subsequent Events
On August 29, 1997, ASI filed a complaint against Data/Ware Development, Inc.,
("Data/Ware"), (Anacomp's predecessor) and Eastman Kodak Company ("Kodak")
alleging infringement of ASI's patents 4,775,969 and 5,034,914. The defendants
had counter-claimed and counter-sued ASI. The claim stated that Data/Ware and
Kodak collectively manufactured, used and/or sold equipment for recording data
on optical media and alleged that the manufacture and sale of such equipment,
and use by purchasers thereof, infringes one or more of the Company's patents.
The claim called for an order enjoining the defendants from further infringement
of its patents, damages and interest for infringement and reasonable attorney's
fees and such other relief that the court deemed proper.
On April 23, 2001, ASI announced that it had received a monetary settlement
pursuant to a signed settlement agreement with Anacomp, Inc. ("Anacomp") and
Kodak resolving its patent infringement lawsuit against defendants Anacomp and
Kodak in the United States District Court for the District of Rhode Island.
After the payment of legal fees and the share of the settlement allocable to the
co-owner of the patent, ASI will receive net proceeds of approximately
$4,000,000, of which approximately $2,200,000 will be used to retire outstanding
debt and payables. Included in the debt is an issue of approximately $1,600,000
that is convertible into common stock of the Company, which the holder has
stated he will not convert.
3. PaperClip Financial Transactions
On January 29, 1997, in connection with a proposed merger between ASI and
PaperClip ("PaperClip"), ASI provided a $300,000 loan to PaperClip for use as
operating capital in exchange for a convertible promissory note together with a
security agreement granting ASI a security interest in all of PaperClip's
assets. The note bore interest at a rate of 12% per annum (payable quarterly)
and could be prepaid upon 30 days written notice to ASI. The note and
accumulated interest could be converted to PaperClip common stock at a rate of
$.25 per share and granted ASI unlimited registration rights in the event that
the note was converted into shares of PaperClip stock. No payments were ever
made by PaperClip against the note.
On April 15, 1997, ASI and 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
7
Access Solutions International, Inc.
Notes to Unaudited Condensed Financial Statements
(Continued)
"Amended Agreement") to change the acquisition to a merger. As a result of this
amendment, a newly formed subsidiary of ASI would merge into PaperClip with
PaperClip surviving as a subsidiary of ASI (the "Merger"). Consummation of this
transaction was subject to various conditions, including approval by the
PaperClip stockholders. Under the terms of the Amended Agreement, the PaperClip
stockholders would have been 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 would have entitled 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 would 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 would 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 would have the right to redeem
the Preferred Stock for cash or ASI Common Stock and Class B Warrants.
On April 15, 1997, ASI and PaperClip also entered into a Management Agreement
(the "Management Agreement") pursuant to which ASI would manage the day-to-day
operations of PaperClip for a fee of $50,000 per month up to a maximum of
$300,000 and advance funds to 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 acted as a distributor for PaperClip's
products in the United States to dealers and resellers.
On April 14, 1998, ASI and PaperClip agreed to extend the date for the
consummation of PaperClip's previously announced merger with and into a newly
formed wholly-owned subsidiary of Access Solutions. Pursuant to the terms of the
merger agreement, completion of the merger transaction was subject to certain
conditions, including a financing contingency. The merger transaction was not
consummated by this date because the financing contingency could not be
satisfied, and the merger agreement was extended to August 24, 1998 to allow
more time for the financing condition to be satisfied.
On August 24, 1998, the merger agreement was terminated. In connection with the
termination of the merger agreement, the Company wrote off all merger costs
incurred through June 1998. Costs relating to the discontinued acquisition
incurred after June 30, 1998 were expensed in the quarter ended September 30,
1998.
On November 2, 2000, ASI and PaperClip entered into an agreement whereby the
January 29, 1997, $300,000 convertible promissory note and accumulated interest
was exchanged for a new promissory note in the amount of $405,530 that is also
secured by the assets of PaperClip. The new promissory note requires 35 payments
of $11,265 and a final payment in the amount of $11,265. The note can be
accelerated upon the occurrence of certain events, including failure to meet any
payment obligation contained in the Note within five (5) days of when due,
discontinuation of business, insolvency or bankruptcy or transfer of PaperClip
or substantially all of its assets to any entity except ASI. If the indebtedness
is not paid when due (including as a result of the acceleration of the repayment
of the indebtedness), the indebtedness outstanding then would bear interest from
the date such payment was due at 15% percent per annum. In November 2000, the
note was recorded at the present value of its discounted payments at a 12% rate
in the amount of $339,153. Due to PaperClip's financial condition and payment
history, an allowance was established for the full amount of the note. In
December 2000, the first payment was received and the principal and the
allowance were reduced by the payment amount less the imputed interest.
On November 2, 2000, ASI and PaperClip also entered into an agreement whereby
the additional indebtedness of PaperClip arising from Management Agreement
advances totaling $2,305,507, including accrued interest through December 31,
1999, was converted to 3,649,543 shares of PaperClip's Series A Preferred Stock,
8
Access Solutions International, Inc.
Notes to Unaudited Condensed Financial Statements
(Continued)
$.01 par value per share (the "Series A Preferred Stock"). Each share of Series
A Preferred Stock is convertible into one share of Common Stock subject to an
adjustment in the conversion rate in the event that Paperclip issues shares of
Common stock or securities pursuant to which Common Stock is issuable at a per
share price of less than the price paid by the Company for the preferred shares.
PaperClip may in its sole discretion, require the conversion of all, but not
less than all, of the then outstanding Series A Preferred Stock if PaperClip's
common stock has traded for not less than sixty (60) consecutive days at a
closing price of not less than 150% of the implied conversion price of the
Series A Preferred Stock. PaperClip's common stock is publicly traded on the OTC
Bulletin Board. No value has been recorded on the Company's financial statements
for this investment due to PaperClip's recent deteriorating stock value and its
poor financial condition.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Factors That May Affect Future Performance
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.
While no assurance can be given that such steps will be sufficient to limit
future losses, ASI believes the financial management improvements it has
incorporated through overhead and personnel cost reductions, stringent
management of third party cost of sales and or interest income arising from
ASI's settlement of its litigation against Dataware and Kodak have and will
continue to yield improvements in ASI's operating results. Analysis of ASI's
results for the years ended June 30, 1999, June 30, 2000 and YTD December 31,
2000 shows the achievement of positive direct operating income when legal
expenses totaling $140,813 for the year ended June 30, 1999, $60,211 for the
year ended June 30, 2000 and $58,121 for the unaudited first two quarters of
Fiscal 2001 are excluded. Direct operating income is defined as income from
operations, net of expenses not related to the day to day operations of the
business but inclusive of non-cash items such as depreciation and amortization.
Direct operating (loss) income for the annual periods ended June 30, 1999, June
30, 2000 and July 1, 2000 through December 31, 2000 were ($378,071), $93,866 and
$79,650. ASI has not yet realized a net income in any of these periods and
cannot predict whether or not it will achieve positive net income in the future.
Although ASI has shown a trend towards improved operating results in the last 2
1/2 years, in order to do so, it has had to reduce its labor force to the
minimum amount necessary in order to service existing contracts. ASI has not
been engaged in any marketing or sales efforts to generate new contracts and
does not expect any significant increase in future revenue as a result,
exclusive of interest income. Sales of upgrades and media on occasion to
existing customers has increased earnings to a limited extent but there are no
assurances that future sales of this type will continue or that existing
customers will continue to renew their service contracts as their present
archiving equipment becomes older or more obsolete. The Company's primary
current and expected near term operating results are dependent on the sale of
annual service contracts to existing customers. If sufficient customers do not
renew their contracts, it could result in significant adverse operating results
for ASI. The company has sufficient operating revenue and capital at present to
maintain operations, however; ASI cautions that a number of important factors,
including those mentioned above could cause ASI to fall short of the required
minimum cash requirements to maintain operations or may cause actual results for
Fiscal 2001 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
uncertainty of additional funding, should it become necessary, future capital
needs, variable operating results, lengthy sales cycles, dependence on ASI's
COLD system product, rapid technological change and new product development,
reliance on single or limited sources of supply, intense competition, turnover
9
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.
Recent Developments
-------------------
Settlement Agreement with Anacomp, Inc. and Eastman Kodak Company
On April 23, 2001, ASI announced that it had received a monetary settlement
pursuant to a signed settlement agreement with Anacomp, Inc. ("Anacomp") and
Eastman Kodak Company ("Kodak"), resolving its patent infringement lawsuit
against defendants Anacomp and Kodak in the United States District Court for the
District of Rhode Island.
After the payment of legal fees and the share of the settlement allocable to the
co-owner of the patent, ASI will receive net proceeds of approximately
$4,000,000, of which approximately $2,200,000 will be used to retire outstanding
debt and payables. Included in the debt is an issue of approximately $1,600,000
that is convertible into common stock of the Company, which the holder has
stated he will not convert.
This settlement represents a significant milestone and critical junction in the
long-term future of the Company. The management of ASI will be assessing various
strategic alternatives, which will best benefit its shareholders, customers and
employees.
System Sale
On May 11, 2001, ASI received a purchase order to sell a small Optical Archiving
System to an optical storage solutions provider in Kansas City, MO valued at
approximately $120,000. The purchase order includes future maintenance services
for one year on a warranty basis. The system shipped on May 14, 2001. There can
be no assurance that this sale will result in additional system sales or
additional maintenance revenues after the warranty period has expired.
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.
Access Solutions International, Inc. designs, develops, manufactures and markets
information storage and retrieval systems, including both software and hardware.
ASI is the developer of GIGAPAGE, an MVS/CICS COLD application providing storage
and access to terabytes of corporate data for business analysis, customer
service, regulatory and research applications. The Company's sales consist of
sales of products and services. Products sold by the Company consist of COLD
systems, software and hardware 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
10
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 December 31, 2000, the Company had deferred
revenue in the amount of $445,064, which it will recognize through December 31,
2001.
Three Months and Six Months ended December 31, 2000 compared to Three Months and
Six Months ended December 31, 1999
Net Sales
The Company's sales consist of sales of products and services. Products sold by
the Company consist of COLD systems, software and hardware 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. Not all one-year contracts
are based on the calendar year. The unearned portion of the service revenue is
reflected as deferred revenue. As of December 31, 2000, the Company had deferred
revenue in the amount of $445,063, which it will recognize through December 31,
2001.
Net sales for the three months ended December 31, 2000 were $216,497 compared
with $253,480 for the three months ended December 31, 1999, a decrease of
$36,983 or 15%, and $433,125 for the six months ended December 31, 2000,
compared with $479,441 for the six months ended December 31, 1999, a decrease of
$46,317 or 10%. Product sales were $9,000 for the second quarter of Fiscal 2001
compared with $65,303 for the second quarter of Fiscal 2000, a decrease of
$56,303 or 86%, and $18,533 for the six months ended December 31, 2000 compared
with $87,344 for the six months ended December 31, 1999, a decrease of $68,811
or 79%. Product sales decreased because an upgrade sale to an existing customer
was made in the second quarter of Fiscal 2000 that was not similarly recognized
in the second quarter or first half of Fiscal 2001. Service revenues were
$207,497 for the second quarter of Fiscal 2001, compared with $188,177 for the
second quarter of Fiscal 2000, an increase of $19,320 or 10%, and $414,592 for
the six months ended December 31, 2000 compared with $392,097 for the six months
ended December 31, 1999, an increase of $22,495 or 6%.
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 5% to
$49,505 for the three months ended December 31, 2000 from $52,334 for the three
months ended December 31, 1999 and decreased 11% to $103,207 for the six months
ended December 31, 2000 from $115,495 for the six months ended December 31,
1999, in each case as a result of more effective maintenance contract and
services coordination. Costs of sales for services increased 5% to $49,505 for
the three months ended December 31, 2000 from $47,013 for the three months ended
December 31, 1999 and decreased 1% to $102,962 for the six months ended December
31, 2000 from $104,441 for the six months ended December 31, 1999.
The Company's operating expenses include selling expenses, general and
administrative expenses. General and administrative expenses consist primarily
of employee compensation and overhead. Selling expenses consist primarily of
customer service and customer assistance services to existing customers.
11
Selling Expenses
Selling expenses decreased by $4,900 or 13% to $33,557 for the three months
ended December 31, 2000 from $38,457 for the three months ended December 31,
1999 and decreased by $10,685 or 14% to $66,089 for the six months ended
December 31, 2000 from $76,774` for the six months ended December 31, 1999.
General and Administrative Expenses
General and administrative expenses consist of employee compensation,
administrative expenses and customer support expenses. General and
administrative expenses decreased 44% or $51,538 to $64,901 for the three months
ended December 31, 2000 from $116,439 for the three months ended December 31,
1999 and increased 4% or $8,641 to $213,153 for the six months ended December
31, 2000 from $204,512 for the six months ended December 31, 1999. This increase
was due to higher legal fees as a result of increased litigation activity in
regards to ASI's lawsuit against Dataware and Kodak and ASI's establishment of
new agreements with PaperClip. The lower general and administrative expense for
the three months ended December 31, 2000 was due to an over accrual of legal
expenses in the first quarter of FY 2001.
Research and Development Expenses
ASI's total expenditures for research and development for Fiscal 2000 and Fiscal
1999 were $90,343 and $119,243, respectively. Fiscal 2001 research and
development expenses are substantially reduced from these levels as evidenced
from ASI's unaudited statements of operations (presented on page 5 and below)
and consist of one employee's part time payroll, depreciation on associated
equipment and various sundry items. Research and development expenses decreased
by 62% or $17,964 to $10,942 for the three months ended December 31, 2000 from
$28,906 for the three months ended December 31, 1999 and decreased by 42% or
$21,097 to $29,148 for the six months ended December 31, 2000 from $50,245 for
the six months ended December 31, 1999. The decrease in research and development
was primarily due to reduced personnel costs and decreased Research and
Development activities.
Other Income and Expenses
Other income and expenses consisted of interest expense which increased $114,036
to $145,597 for the three months ended December 31, 2000 from $31,561 for the
three months ended December 31, 2000 and the same amount to $177,158 for the six
months ended December 31, 2000 from $63,122 for the six months ended December
31, 1999. The increased interest expense is a result of accrued interest on
higher advanced amounts to fund the litigation against Kodak and Dataware and to
offset under-accruals in prior periods. ASI borrowed funds at an annual interest
rate of 19% from a former stockholder, director and part owner of ASI's patent
to fund its patent infringement litigation against Dataware and Kodak. Interest
income increased by $4,387 to $4,402 for the three months ended December 31,
2000 from $15 for the three months ended December 31, 1999 and increased by
$4,423 to $4,482 for the six months ended December 31, 2000 as compared to $59
for the six months ended December 31, 1999. Interest income increased due to
higher operating balances generated by increased operating income. Other
expenses decreased by $39,981 due to the loss on disposition of fixed asset. No
similar expenses were incurred in the second quarter of Fiscal 2000.
12
Net Loss
As a result of the foregoing, the Company's net loss increased 656% to $116,993
($.03 per share on 3,963,940 weighted average shares outstanding) for the three
months ended December 31, 2000 from $15,484 ($.004 per share on 3,963,940
weighted average shares outstanding) during the three months ended December 31,
1999 and increased 475% to a loss of $184,325 (.05 per share on 3,963,940
weighted average shares outstanding) for the six months ended December 31, 2000
from 32,065 ($.01 per share on 3,963,940 weighted average shares outstanding)
for the six months ended December 31, 1999. The increased net loss was primarily
attributable to increased patent litigation legal expenses and the associated
loan expenses.
Liquidity and Capital Resources
The Company had a working capital deficit of $788,556 at December 31, 2000 as
compared to a working capital deficit of $888,971 at June 30, 2000.
Total cash used by operating activities during the six-month periods ended
December 31, 2000 and 1999 was $236,127 and $425,248 respectively. The Company's
net losses for these periods were $184,325 and $32,065, respectively. In
addition to funding the Company's net loss, the major uses of capital for
operating activities during the six-month period ended December 31, 2000
included a reduction in deferred revenue on prepaid service contract of $40,597,
an accrued expense balance reduction of $32,857 and a decrease in the provision
for doubtful accounts in the amount of $13,167.
Total cash provided by investing activities was $7,873, representing the
principal portion of a payment received against a Note Receivable from
PaperClip.
Cash provided by financing activities was $228,101 for the six-month period
ended December 31, 2000 and $411,834 for the six-month period ended December 31,
1999. This represented additional advances to fund legal expenses in connection
with the lawsuit against Dataware and Kodak. These advances are recorded as
legal expenses of ASI, and as such are included in General and Administrative
expenses on the unaudited Statements of Operations.
ASI has suffered recurring losses and negative cash flows from FY 1992 - 1999
and has had positive cash flows from operating activities only since July 1,
1999. 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 December 12, 2000 on
the audited financial statements for the year ended June 30, 2000, 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 assets and
classifications of liabilities or any other adjustments that might be necessary
should ASI be unable to continue as a going concern.
As of December 31, 2000, ASI had long term debt totaling $1,075,548 with accrued
interest of $440,103. The former amount includes gross proceeds in the amount of
$650,000 from a loan to ASI in conjunction with the sale of a 30% interest in
the Company's patents for $100,000 and advances of $425,548. The loan principal
bears interest at a rate of 19% and converts to a demand note at the lesser of
three years or the completion of the Company's patent litigation.
ASI believes that funds generated from operations and interest income will be
sufficient to meet ASI's working capital requirements through December 2003.
13
In November 2000, advances receivable from PaperClip, already fully allowed for
were exchanged for 3,649,543 shares of Series A Convertible Preferred PaperClip
Stock, $.01 par value per share (the "Series A Preferred Stock"). The exchange
represented payment in full for advances and accrued interest receivable from
PaperClip pursuant to the Management Agreement. The shares of Series A Preferred
Stock were issued at the equivalent price of $0.71 per share (see notes to
unaudited financial statements, page 7 and Recent Developments). No value has
been recorded on the Company's financial statements for this investment due to
PaperClip's recent deteriorating stock value and its poor financial condition.
In addition, the January 29, 1997, $300,000 convertible promissory note and
accumulated interest was exchanged for a new non-interest bearing promissory
note in the amount of $405,530 that is also secured by the assets of PaperClip.
The new promissory note requires 35 payments of $11,265 and a final payment in
the amount of $11,255. The note was recorded in the amount of its discounted
present value at 12% for $339,153 prior to applying $7,874 against the principal
from the first payment on the note.
While the Company believes that the current corporate infrastructure could
support significant increases in sales without a proportionate increases in
overhead costs, it also believes that an additional Research and Development
investment would be required to calibrate present software and hardware products
to existing optical storage technology and enterprise expectations. 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 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 2001 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.
14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
none
27 Financial Data Schedule
(b) Reports on Form 8-K
none
15
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 15, 2001 By: /s/ Robert H. Stone
------------------------
Robert H. Stone,
President and CEO
Date: May 15, 2001 By: /s/ Denis L. Marchand
--------------------------
Denis L. Marchand,
Vice President of Finance and
Administration and
Chief Accounting Officer
(Principal Accounting Officer)
16