United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Fiscal Year ended June 30, 2002
or
[ ] Transition Report Under to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______________ to ______________
Commission file number 0-28920
Access Solutions International, Inc.
-----------------------------------------------------------
(Name of small business issuer as specified in its charter)
Delaware 05-0426298
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
650 Ten Rod Road
North Kingstown, RI 02852
----------------------------------------
(Address of principal executive offices)
(401) 295-2691
---------------------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units, each consisting of two shares of common stock, $.01 par value
("Common Stock") and one redeemable common stock purchase warrant
("Redeemable Warrant")
Common Stock
Redeemable Warrants
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $707,007.
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed at $.15 per share, the closing price of the Common Stock
on June 30, 2002: $594,591.
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
as of June 30, 2002 was 3,963,940.
Documents Incorporated by Reference: None
Part I
Item 1. Description of Business
Statements
Statements contained in this Form 10-KSB that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes", "will", "should", "anticipates", "expects" and similar expressions
are intended to identify forward looking statements. These statements are based
on current information which we have assessed but which by its nature is dynamic
and subject to rapid and even abrupt changes. Such statements contain a number
of risks and uncertainties, including, but not limited to the announced sale of
the Company's remaining hardware and software maintenance contracts and the plan
of complete liquidation and dissolution of the Company, subject to stockholder
approval. ASI cautions that its actual results could differ materially from
those stated or implied by our forward-looking statements due to risks and
uncertainties associated with the wind down of our business. 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. See the "Risk Factors" section
under Item 2 of this Report.
Recent Developments
On September 18, 2002, the Company announced that it had sold its remaining
hardware and software maintenance contracts to Computer Upgrade Corporation
(CUC), a privately owned, full service integrator specializing in proven
turn-key cross platform storage solutions, for consideration of one-half of the
gross margin on the contracts from July 1, 2002 through July 1, 2004. In
consideration of this agreement, Access Solutions paid CUC $262,656 representing
one-half of the prepaid but unearned maintenance gross margin on the contracts
in force as of July 1, 2002.
Having maximized the value of its maintenance contracts, the Board of Directors
unanimously approved a plan of complete liquidation and dissolution of the
Company (the "Plan"), subject to stockholder approval. The Company plans to sell
its remaining assets, including inventory, property and equipment and
intellectual property, discharge its liabilities and distribute the net proceeds
to stockholders.
If stockholders approve the plan, the Company will file a Certificate of
Dissolution promptly after the stockholder vote, and stockholders will then be
eligible to share in the liquidation proceeds based on their proportionate
interest at the time. Holders of the Company's options will need to exercise
those options prior to the date the Certificate of Dissolution is filed in order
to share in the liquidation proceeds. Under Delaware law the Company will remain
in existence as a non-operating entity for three years from the date the Company
files a Certificate of Dissolution in Delaware, and will maintain a certain
level of reserves to cover any remaining liabilities and pay operating costs
during the dissolution period. During the dissolution period, the Company will
attempt to convert its remaining assets into cash and settle its liabilities as
expeditiously as possible.
Assuming stockholder approval of the Plan, the Board of Directors currently
anticipates that an initial distribution of liquidation proceeds will be made to
stockholders within 75 days after the stockholder's meeting. A portion of the
Company assets will be held in a contingency reserve, and the Board of Directors
anticipates that stockholders could periodically receive additional
distributions subsequent to the initial distribution.
2
Business Background
ASI, a Delaware corporation formed in 1986, assembled and supported mainframe
information storage and retrieval systems, including both software and hardware,
for large companies. ASI's COLD and optical disk storage systems, which were
marketed under the brand names OAS and GIGAPAGE, and GIGAPAGE DASDI, were sold
principally to a limited number of large organizations that had the need to
store and retrieve large quantities of computer-generated data.
PaperClip Investment: On April 15, 1997, the Company and PaperClip Software,
Inc. ("PaperClip") entered into an agreement for the Company to acquire
substantially all the assets and liabilities of PaperClip, which was later
amended to change the acquisition to a merger. The Company and PaperClip also
entered into a management agreement (the "Management Agreement") which allowed
the Company 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. On January
29, 1997, the Company provided a $300,000 bridge loan to PaperClip for use as
operating capital in exchange for a 12% convertible note from PaperClip secured
by substantially all the assets of PaperClip. In addition, the Company had made
unsecured advances to PaperClip for funding of working capital requirements.
Despite extensive discussions and adjustments in the terms of the original
agreement, PaperClip and ASI were unable to reach an acceptable agreement. At
the termination of talks, PaperClip owed ASI over $1,922,554 in advances plus
the $300,000 bridge loan and had no immediate ability to repay these advances.
In November of 2000, PaperClip and ASI entered into an agreement whereby the
indebtedness to ASI in the amount of $300,000, plus all accrued interest through
December 31, 1999 in the amount of $105,300, would be paid for by the execution
and delivery of a new promissory note from PaperClip to ASI in the aggregate
principal amount of $405,300. All amounts due under the new Note would be paid
for over a period of three (3) years in thirty-six (36) equal installments of
$11,265 beginning on January 1, 2001. Although payments are current on the note,
ASI has fully reserved for the value of the new promissory note (approximately
$200,000) due to PaperClip's poor financial condition.
As a result of the advances made by ASI from November 12, 1997 through August
24, 1998, PaperClip was indebted to ASI in the amount of $2,305,506 including
interest. In November 2000, ASI exchanged the above indebtedness for shares of a
new class of PaperClip convertible preferred stock (the "Preferred Stock"). Each
share of Preferred Stock is convertible into one share of PaperClip's Common
Stock ("PaperClip Common Stock") subject to anti-dilution protection in the
event of a stock split, stock dividend, recapitalization or similar change to
the capital structure of PaperClip. The shares are convertible anytime at ASI's
option or at PaperClip's option, provided that immediately prior to conversion,
the PaperClip Common Stock has traded for not less than 60 consecutive days at a
closing price of 150% of the implied conversion price. The implied conversion
price is derived by dividing the amount of the additional indebtedness by the
number of shares of PaperClip Common Stock issuable upon conversion by ASI of
the Preferred Stock. As of June 30, 2002, the "Converted Shares" would equal
27.5% of the outstanding PaperClip Common Stock. The holders of the PaperClip
converted common stock would have piggyback registration rights on the Converted
Shares underlying the Preferred Stock. Such piggy back registration rights on
the converted stock would expire with respect to the holder when such shares are
eligible for sale pursuant to Rule 144(k) promulgated and the rules and
regulations of the Securities Act of 1933. The Preferred Stock is not entitled
to dividends and will have a liquidation preference equal to $2,305,506. No
value has been recorded on the Company's financial statements for this
investment due to PaperClip's deteriorating stock value and its poor financial
condition.
Anacomp Settlement: On August 29, 1997, ASI filed a complaint against Data/Ware
Development, Inc., ("Data/Ware"), and Eastman Kodak Company ("Kodak") alleging
3
infringement of two of ASI's patents. The defendants 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, infringed 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 May 27, 1998, in order to continue funding the patent infringement lawsuit,
ASI completed a financing agreement that called for the purchase of a 30%
interest in several of the Company's patents by a stockholder and former
director, for $100,000. These patents were the subject of the pending
Data/Ware/Kodak lawsuit. In addition, this same stockholder also loaned the
Company $650,000 and agreed to make additional advances up to $1,000,000 for
outstanding and future legal fees and costs incurred in connection with the
lawsuit.
The loan was secured by a first priority interest in these patents and bore
interest at the rate of 19% and was convertible into ASI common stock under
certain circumstances. The loan had a term of the lesser of three years or
completion of the Company's patent litigation and converted to a demand note at
the end of its term. On May 27, 2000, ASI obtained an amendment to the loan
agreement extending the due date to three years to May 27, 2003 and increasing
the amount that could be borrowed under the loan to $1,500,000.
With its remaining resources, ASI completed and stabilized the latest
development stage of its product, completed other customer contractual efforts
and upgraded its customers as appropriate. The impact of the product patent
infringement by Kodak/Anacomp and the marketing power of both companies,
however, overpowered any ongoing marketing efforts by ASI. In addition,
technological advancements, the system's applicability to only the mainframe and
published and limited financial resources reduced sales opportunities and
customer acceptance of ASI products. Consequently, in the fall of 1998, ASI
retrenched both in personnel and technological development efforts.
On April 23, 2001, ASI announced that it had received a monetary settlement
pursuant to a signed settlement agreement with Anacomp, Inc. ("Anacomp"),
successor to Data/Ware, and Kodak resolving its patent infringement lawsuit.
After the payment of its proportionate share of the legal fees and related
expenses and the share of the settlement allocated to the co-owner of the
patent, on May 1, 2001, ASI received net proceeds of $4,175,583. Approximately
$2,000,000 was used to retire outstanding debt, including the liability to the
stockholder, and deferred payables.
On May 1, 2001, the liability to the stockholder was retired in full, for the
amount of $1,614,642, which represented the aggregate value of the outstanding
loans, including interest. The option to convert to common stock was not
exercised.
Review of Alternatives
The successful prosecution of the patent infringement case against Kodak/Anacomp
enabled ASI, after its legal fees and repayment to the stockholder who financed
the suit, to repay its long patient creditors and clean up other issues.
Unfortunately, the technology in the industry had changed and by-passed that of
ASI; the Company had only three full time employees, none of whom had any
development skills; and the cost to reenter the market and establish ASI as a
preferred provider was significantly greater than the Company's current
resources. Given its history and lack of management and systems development
depth, ASI was not a prime opportunity for outside investors.
Over the ensuing months in 2001 and 2002, the Company contacted several
investment firms and professionals with contacts and/or clients in the small to
mid-sized technology field. The Board determined that to market the Company
4
aggressively would be disproportionately expensive compared to the value of the
Company. In addition, the value of the Company was perceived as its free cash
flow, an amount considered small to most of the potentially eligible investors
or buyers. Four prospective opportunities did arise through an investment
banking firm and two other independent sources. In each case, the prospective
acquirer was in an early to later stage technology development phase with
limited sales, a negative cash flow and incurring losses. In each case the Board
determined that the technological and financial risk to the current stockholders
was unacceptable.
The Board also determined that continuation of the current business was also no
longer viable. Having reduced all costs to a minimum, the Company was operating
at approximately breakeven cash flow and had little to no opportunity to expand
its customer base. Although current customers had to continue to use the ASI
system to retrieve information, most had or were in the process of installing
new technology for the future. Thus, the maintenance contracts currently in
place had a finite life. The Board did believe, however, that the hardware and
software maintenance contracts currently in place had some present value to
others in the maintenance field with appropriate economies of scale and
accordingly decided to pursue this approach. Out of the various companies
contacted, five were identified, three expressed further interest, two returned
confidentiality agreements and both bid for the contracts.
As a result of this effort, on September 18, 2002, the Company announced that it
had sold its remaining hardware and software maintenance contracts to Computer
Upgrade Corporation (CUC), a privately owned, full service integrator
specializing in proven turn-key cross platform storage solutions, for
consideration of one-half of the gross margin on the contracts from July 1, 2002
through July 1, 2004. In consideration of this agreement, ASI paid CUC $262,656
representing one-half of the accrued but unearned maintenance gross margin on
the contracts in force as of July 1, 2002. If all of the current contracts
remain in force and are renewed on the same basis and price over the next two
years, Access Solutions would earn $103,205 in deferred revenue and $228,310 in
gross margin from CUC.
In summary, during this period, the Company worked to maximize business
efficiencies and eliminate as many operating expenses as was prudent to conserve
cash, service existing customers and examined all options. In the end, however,
no party was prepared to provide capital or acquire the Company on a basis
favorable to ASI stockholders. The Board of Directors also considered whether to
continue maintaining operations, but determined that the lack of sales, the lack
of technologically qualified personnel remaining at the Company, the lack of
demand for its product and the downturn in the Company's market, would only
cause an erosion of the Company's cash and asset value, thus reducing
stockholder value without any assurance of a future recovery. In addition, the
Company's stock was trading below the anticipated cash liquidation value of the
shares. In light of these factors, the Board of Directors determined that
liquidation and dissolution of the Company was the best way to maximize
stockholder value.
Consistent with these findings and conclusions, on September 17, 2002, the Board
of Directors unanimously approved, on September 17, 2002, the orderly wind down
of operations, including authorizing management to immediately commence efforts
to sell the majority of its assets, terminate commercial agreements and
relationships, exit its commercial obligations, and generally wind down the
business and operations. The Board determined that the immediate sale of such
assets was the best way to maximize stockholder value.
There can be no assurance that the liquidation value per share of Common Stock
in the hands of the stockholders will equal or exceed the price or prices at
which the Common Stock has recently traded or may trade at in the future, or
that the liquidation value will exceed zero. However, the Board of Directors
believes that it is in the best interests of the Company and its stockholders to
distribute to the stockholders the Company's net assets, if any, pursuant to the
Plan. If the Plan is not ratified and approved by the stockholders, the Board of
Directors will explore what, if any, alternatives are available for the future
of the Company, particularly in light of the fact that the Company has
5
consummated the sale of a substantial portion of its assets as of September 17,
2002. The Board of Directors does not believe, however, that there are viable
alternatives to the Plan, and even if there were, that any of its employees
would continue to be available to execute them.
Employees
As of June 30, 2002, ASI had 3 full time and 2 part-time employees. As of
September 18, 2002, ASI had 2 full time employee and 1 part-time employees.
Item 2. Description of Property
ASI's principal offices are located in North Kingstown, Rhode Island, in a
leased facility consisting of approximately 4,200 square feet of space occupied
under a month-to-month lease commitment. ASI has committed to vacate the space
by October 31, 2002, without penalty.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
ASI's initial public offering ("IPO") was completed on October 16, 1996. Prior
to that date there was no market for ASI Common Stock, Redeemable Warrants or
Units. The ASI Common Stock, Redeemable Warrants and Units consisting of two
shares of Common Stock and one Redeemable Warrant were traded on the Nasdaq
SmallCap Market under the symbols "ASIC," "ASICW" and "ASICU," respectively
until August 13, 1998. On that date, ASI's shares of common stock, units and
warrants were delisted from the Nasdaq SmallCap Market because ASI failed to
meet the net tangible assets, market capitalization, net income, bid price and
market value of public float requirements as stated in Marketplace Rule(s)
4310(c)(02), 4310(c)(04), and 4310(c)(07). The warrants and thus the units
expired on October 15, 2001 (the "Expiration Date"). ASI's shares of common
stock currently trade on the Over the Counter Electronic Bulletin Board Market
"(OTC EBB)" under the symbols "ASIC,". As of June 30, 2002 there were
approximately 102 holders of record of ASI Common Stock.
The following table sets forth, for the periods indicated, high and low closing
bid and asked prices for the ASI Common Stock, Redeemable Warrants and Units, as
reported on the Nasdaq SmallCap Market when available. Since such prices
represent quotations between dealers, they do not include markups, markdowns or
commissions and do not necessarily represent actual transactions.
Common Stock
6
--------- ------------
Bid Low Asked High
--------- ------------
2000:
Third Quarter .01 .25
Fourth Quarter .04 .16
2001:
First Quarter .04 .17
Second Quarter .12 .26
Third Quarter .14 .22
Fourth Quarter .12 .20
2002:
First Quarter .10 .19
Second Quarter .10 .22
Redeemable Warrants
--------- ------------
Bid Low Asked High
--------- ------------
2000:
Third Quarter - -
Fourth Quarter - -
2001:
First Quarter - -
Second Quarter - -
Third Quarter (Expired 10/15/01) - -
Units
--------- ------------
Bid Low Asked High
--------- ------------
2000:
Third Quarter -
Fourth Quarter -
2001:
First Quarter -
Second Quarter -
Third Quarter (Expired 10/15/01) -
ASI has not paid any cash dividends on the ASI Common Stock since its inception.
7
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
ASI assembled and supported mainframe information storage and retrieval systems,
including both software and hardware, for large companies. ASI's COLD and
optical disk storage systems, which were marketed under the brand names OAS and
GIGAPAGE, and GIGAPAGE DASDI, were sold principally to a limited number of large
organizations that had the need to store and retrieve large quantities of
computer-generated data. ASI had no system sales in the current fiscal year. ASI
also sold extended service contracts on the majority of the products it has
sold. Such contracts were generally one year in duration with payments received
in advance of the commencement of the contract. ASI recognizes revenue from
service contracts on a straight-line basis over the term of the contract. The
unearned portion of the service revenue is reflected as deferred revenue. As of
June 30, 2002, ASI had deferred revenue in the amount of $432,918.
ASI's primary operating expenses include maintenance and general and
administrative expenses. General and administrative expenses this fiscal year
consisted primarily of employee compensation, insurance premiums, office rental
and normal contractual services.
On September 18, 2002, the Company announced that it had sold all of its
remaining hardware and software maintenance contracts to Computer Upgrade
Corporation, a full service integrator specializing in proven turn-key cross
platform storage solutions for consideration of one-half of the gross margin on
the contracts from July 1, 2002 through July 1, 2004.
The Company also announced that its Board of Directors had unanimously approved
a plan of complete liquidation and dissolution of the Company, subject to
stockholder approval. The Company plans to sell its remaining assets including
inventory, property and equipment intellectual property, discharge its
liabilities and distribute the net proceeds to stockholders over a period of up
to three years.
If stockholders approve the plan, the Company will file a Certificate of
Dissolution promptly after the stockholder vote, and stockholders will then be
eligible to share in the liquidation proceeds based on their proportionate
interest at the time. Holders of the Company's options will need to exercise
those options prior to the date the Certificate of Dissolution is filed in order
to share in the liquidation proceeds. Under Delaware law the Company will remain
in existence as a non-operating entity for three years from the date the Company
files a Certificate of Dissolution in Delaware, and will maintain a certain
level of reserves to cover any remaining liabilities and pay operating costs
during the dissolution period. During the dissolution period, the Company will
attempt to convert its remaining assets into cash and settle its liabilities as
expeditiously as possible.
Assuming stockholder approval of the Plan, the Board of Directors currently
anticipates that an in initial distribution of liquidation proceeds will be made
to stockholders within 75 days after the stockholder's meeting. A portion of the
Company's assets will be held in a contingency reserve, and the Board of
Directors anticipates that stockholders could periodically receive additional
distributions subsequent to the initial distribution.
Results of Operations
Year Ended June 30, 2002 Compared to Year Ended June 30, 2001
The following table presents certain items from ASI's Statement of Operations,
and such amounts as percentages of net sales, for the periods indicated.
Products and service costs percentages are of net sales.
8
Year Ended June 30, 2002 Year Ended June 30, 2001
Net sales
Products $ 35,576 5% $ 146,162 15%
Support and services 671,431 95 799,816
----------- ----------- ----------- -----------
Total net sales 707,007 100 945,978 100
Cost of Sales
Products
Support and services 7,422 1 17,339 2
Total cost of sales 205,650 29 237,060 25
----------- ----------- ----------- -----------
213,072 30 254,399 27
Gross profit 493,935 70 691,579 73
----------- ----------- ----------- -----------
Operating expenses:
Selling 132,688 19 118,429 13
General and
administrative 389,401 55 429,801 45
----------- ----------- ----------- -----------
Total operating expenses 522,089 74 548,230 58
Other income
and (expense), net 137,819 19 (213,272) (23)
----------- ----------- ----------- -----------
Profit (loss) before
litigation
settlement 109,665 15 (69,923) (8)
----------- ----------- ----------- -----------
Litigation settlement -- -- 4,175,583 441
----------- ----------- ----------- -----------
Net profit before
provision for income
taxes 109,665 15 4,105,660 433
----------- ----------- ----------- -----------
Provision for income taxes 2,500 0 95,000 10
----------- ----------- ----------- -----------
Net Profit $ 107,165 15% $ 4,010,660 423
=========== =========== =========== ===========
Net sales. Net sales decreased 25% to $707,007 for the year ended June 30, 2002
from $945,978. Product sales decreased 76% to $35,576 for the year ended June
30, 2002 from $146,162 for the year ended June 30, 2001 when a sale of an
optical storage system was recorded. Support and service revenues decreased by
16% to $671,431 for the year ended June 30, 2002 from $799,816 for the year
ended June 30, 2001. This reduction was due to the consolidation of sites for
one customer and the decision by three customers to reduce maintenance coverage.
Cost of sales. Cost of sales includes component costs, firmware, license costs,
third-party equipment maintenance contractors and certain overhead costs. Cost
of sales in the aggregate decreased 16% to $213,072 for the year ended June 30,
2002 from $254,399 for the year ended June 30, 2001, primarily due to the
decrease in service and support sales. Cost of sales for products decreased by
57% to $7,422 for the year ended June 30, 2002 from $17,339 for the year ended
June 30, 2001. This decrease in cost was directly attributable to the decrease
in product sales. Cost of services decreased by 13% to $205,560 for the year
ended June 30, 2002 from $237,060 for the year ended June 30, 2001, primarily
due to decreased sales and favorable renegotiation of third-party service
contracts. The Company's gross margin decreased to 70% from 73% due to the above
factors.
Sales and Support Service expenses. Selling expenses increased by 12% or $14,259
to $132,688 for the year ended June 30, 2002 from $118,429 for the year ended
June 30, 2001. These expenses have remained fairly static.
9
General and administrative expenses. General and administrative expenses consist
of administrative expenses and certain internal office and support expenses.
General and administrative expenses decreased $40,400 or 9% to $389,401 for the
year ended June 30, 2002 from $429,801 for the year ended June 30, 2001. This
improvement was primarily due to the reduction of one employee, mitigated to
some extent by higher insurance premiums, an increase in franchise taxes and an
increase in fees for normal contractual services.
Other income and expense. The Company incurred no interest expense during the
year ended June 30, 2002 and $240,504 during the year ended June 30, 2001. The
elimination of interest expense was due to the retirement of all outstanding
debt as of May, 2001. Interest income increased 52% to $43,341 for the year
ended June 30, 2002 from $22,462 for the year ended June 30, 2001. This increase
was attributed to the receipt of twelve payments of interest on a note
receivable from PaperClip Software, Inc. during FY 2002, compared to six
payments during FY 2001, and from increased interest earned on cash investments.
Miscellaneous income of $94,478 at June 30, 2002 represents a full year of
principal repayments on the note receivable from PaperClip Software, Inc., which
is fully reserved for as of June 30, 2002. Only six months of principal payments
were received during fiscal 2001. The loss on disposal of fixed assets of
$42,469 for the year ended June 30, 2001 is due to the disposal of non-fully
depreciated fixed assets.
Litigation settlement. For the year ended June 30, 2001, pursuant to the
settlement resolving its patent infringement lawsuit against defendants Anacomp
and Kodak, ASI received a net monetary award of $4,175,583.
Net income (loss) before provision for income taxes. As a result of the
foregoing, ASI's net income decreased to $109,665 for the year ended June 30,
2002 from $4,105,660 for the year ended June 30, 2001.
Provision for income taxes. The provision for income taxes is calculated after
considering book and tax timing differences. Note 7 to the financial statements
discusses the timing differences for the years ended June 30, 2002 and 2001.
Liquidity and Capital Resources
ASI had a working capital surplus of $2,010,003 at June 30, 2002 as compared to
a working capital surplus of $1,895,849 at June 30, 2001. The increase in
working capital was principally attributable to the increase in accounts
receivable and a decrease in accounts payable .
Total cash used by operating activities in fiscal year 2002 was $74,678. The
major uses of cash were an increase in trade receivables, a reduction of
accounts payable and provision for income taxes. These amounts represent
adjustments to net cash used by operating activities in the Company's Statement
of Cash Flows. The reduction of accounts payable noted in working capital and
cash used by operating activities was primarily attributable to repayment of old
payables.
During Fiscal 2002, cash used by investing activities totaled $909, reflecting
the acquisition of new office machinery.
In Fiscal 2001, ASI received a net monetary award of $4,175,583 that was related
to the settlement of the DataWare/ Kodak patent infringement lawsuit. After the
payment of legal fees and the share of the settlement allocated to the co-owner
of the patent, on May 1, 2001, ASI received net proceeds of $4,175,586.
Approximately $2,000,000 has been used to retire outstanding debt and payables.
At June 30, 2002, ASI had federal and state net operating loss carryforwards
available to reduce any future taxable income in the approximate amount of
$10,707,000. These net operating loss carryforwards will expire in various
amounts between the years 2003 and 2022, if not previously utilized. In the
event of a change in the ownership of ASI, as defined in Section 382 of the
10
Internal Revenue Code, utilization of net operating loss carryforwards in
periods following such ownership changes can be significantly limited.
Management believes that ASI has incurred several changes of ownership under
these rules. As a result, utilization of the net operating loss carryforwards is
subject to various limitations, depending upon the year in which the net
operating loss originated. Management estimates that federal net operating loss
carryforwards in the approximate aggregate amount of $6,000,000 will be
available to offset taxable income that ASI may generate within the carryforward
period subject to a limitation of approximately $400,000 per year. Because the
underlying calculations are complex and are subject to review by the Internal
Revenue Service, these limitation amounts could be adjusted at a later date.
The PaperClip Note
On January 29, 1997, ASI provided a $300,000 loan to PaperClip for use as
operating capital in exchange for a convertible note of PaperClip (the
"PaperClip Note"). The PaperClip Note was due and payable on January 27, 1998,
bore interest at a rate of 12% per annum payable quarterly and was secured by a
first priority security interest in all of PaperClip's assets. At any time, all
or a portion of the outstanding principal amount of the PaperClip Note could be
converted into shares of PaperClip Common Stock at a conversion price of $.25
per share.
On April 15, 1997, the Company and PaperClip entered into an agreement for the
Company to acquire substantially all the assets and liabilities of PaperClip,
which was later amended to change the acquisition to a merger. The Company and
PaperClip also entered into a management agreement (the "Management Agreement")
which allowed the Company 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 entered into a one-year non-exclusive regional distribution
agreement commencing June 1, 1997. Under the terms of this agreement, ASI acted
as a distributor for PaperClip's products in the United States to dealers and
resellers. ASI's sole compensation under this agreement was its gross profit on
any products sold, which was equal to any excess of the price at which ASI
distributes the products to its customers over the price at which PaperClip
licenses the products to ASI. The agreement expired on May 31, 1998 and was not
renewed.
In November, 2000, PaperClip entered into an agreement with ASI whereby the
Company's original secured advance to PaperClip in the amount of $300,000 and
accrued interest of $105,530 was restructured to an interest free note with the
principal amount of Four Hundred Five Thousand Five Hundred Thirty ($405,530)
Dollars with substantially the same security. Under the terms of the note,
PaperClip is to pay this note in thirty-five consecutive equal monthly
installments of Eleven Thousand Two Hundred Sixty-four and 72/100 ($11,264.72)
Dollars commencing on January 1, 2001 and continuing on the same day of each
successive month thereafter with a thirty sixth and final payment of all
indebtedness evidenced thereby on December 1, 2003. Although payments are
current on the note, ASI has fully reserved for the value of the new promissory
note (approximately $200,000) due to PaperClip's poor financial condition.
If the above described payments are not paid as and when due (including without
limitation payment being due as a result of the acceleration of the repayment of
the indebtedness noted below), the indebtedness outstanding under the note will
bear interest from the date such payment was due at fifteen (15%) percent per
annum. PaperClip may prepay the restructured note at any time after having given
at least thirty (30) days prior written notice to the Company.
The repayment of the indebtedness evidenced by the note may be accelerated at
the election of the Company, upon the happening of any of the following events:
(a) PaperClip (i) discontinues its business (as evidenced by a resolution of
PaperClip's Board of Directors or stockholders), (ii) applies for or consent to
the appointment of a receiver, trustee, custodian or liquidator of it or any of
its property, (iii) admits in writing of its inability to pay its debts as they
11
mature, except for the obligations set forth on Schedule 2.10 of the Disclosure
Schedules of the Series A Preferred Stock Purchase Agreement between PaperClip
and the Company dated October, 2000, (iv) makes a general assignment for the
benefit of creditors, (v) becomes adjudicated a bankrupt or insolvent or becomes
the subject of an order for relief under Title 11 of the United States Code or
(vi) files a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization or an arrangement with creditors or takes advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or answers, admitting the material allegations of a
petition filed against it in any such proceeding under any such law;
(b) An involuntary petition under any bankruptcy, reorganization or insolvency
law of any jurisdiction is filed against PaperClip, whether now or hereafter in
effect if, within one hundred and eighty days (180) following the service on
PaperClip of any such petition, is not discharged, released or vacated;
(c) PaperClip sells or transfers substantially all of its assets or business
units to someone other than ASI;
(d) PaperClip fails to pay any payment obligation contained in the restructured
note within five (5) days of when due;
(e) PaperClip is in default of any other material obligation contained in the
restructured note or in the Security Agreement dated January 29, 1997, as
amended, and the default has not been cured within ten (10) days after notice
from ASI, or, if the default is not capable of being cured within ten days,
PaperClip has not begun efforts satisfactory to ASI to cure the default within
that ten-day period.
The agreement also provided for ASI and PaperClip to convert the advanced
amount, including interest, of $2,305,506.10 as a result of the party's April
15, 1997 subsequently terminated merger activities into 3,649,543 shares of
PaperClip's Series A Preferred, $.01 par value Stock and to waive the management
fees of $300,000 earned by ASI under the April 15, 1997 agreement. No value has
been recorded on the Company's financial statements for this investment due to
Paperclip's deteriorating stock value and poor financial condition.
Seasonality and Inflation
Seasonality and inflation have not had a material effect on ASI's operations.
12
Risk Factors
This Annual Report on Form 10-K contains certain forward looking statements,
including statements concerning the Company's future financial results from the
sale of assets and settlement of liabilities, dissolution proceedings, and
distribution of proceeds to stockholders. Some remaining assets of the Company
may be difficult for us to convert into cash, and we can make no assurance that
we will receive any material amounts in respect of such assets. No assurance can
be given that the amount to be received in liquidation will equal or exceed the
price or prices at which the Common Stock traded prior to our dissolution. In
addition, you should keep in mind that the risks described below are not the
only risks that we face. The risks described below are the risks that we
currently believe are material to the Company. However, additional risks not
presently known to us, or risks that we currently believe are immaterial, may
also impair our ability to distribute proceeds to our stockholders. You should
also refer to the other information set forth in this Annual Report on Form
10-K, including the discussions set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as our financial statements and the related notes.
Our business, financial condition or results could be adversely affected by any
of the following risks. If we are adversely affected by such risks, then the
proceeds we plan to distribute to our stockholders may be adversely affected.
Stockholders may be liable to creditors of the Company for up to amounts
received from the Company if the Company's reserves are inadequate.
--------------------------------------------------------------------------------
If the Plan is approved by the stockholders of the Company, a Certificate of
Dissolution will be filed with the State of Delaware and the Company will be
dissolved as of the date of that filing. Pursuant to the Delaware General
Corporation Law (the "DGCL"), the Company will continue to exist for three years
after the dissolution becomes effective or for such longer period as the
Delaware Court of Chancery shall direct, for the purpose of prosecuting and
defending suits against it and enabling the Company gradually to close its
business, to dispose of its property, to discharge its liabilities and to
distribute to its stockholders any remaining assets. Under the DGCL, in the
event the Company fails to create an adequate contingency reserve for payment of
its expenses and liabilities during this three-year period, each stockholder
could be held liable for payment to the Company's creditors for such
stockholder's pro rata share of amounts owed to creditors in excess of the
contingency reserve. The liability of any stockholder would be limited, however,
to the amounts previously received by such stockholder from the Company (and
from any liquidating trust or trusts). Accordingly, in such event a stockholder
could be required to return all distributions previously made to such
stockholder. In such event, a stockholder could receive nothing from the Company
under the Plan. Moreover, in the event a stockholder has paid taxes on amounts
previously received, a repayment of all or a portion of such amount could result
in a stockholder incurring a net tax cost if the stockholder's repayment of an
amount previously distributed does not cause a commensurate reduction in taxes
payable. There can be no assurance that the contingency reserve established by
the Company will be adequate to cover any expenses and liabilities.
Success of the plan depends on qualified personnel to execute it.
----------------------------------------------------------------
The success of the Plan depends in large part upon our ability to retain the
services of qualified personnel to handle the sale of our remaining assets and
settlement of remaining liabilities. Although we have retained the consulting
services of Thomas Gardner for this purpose, the retention of qualified
personnel is particularly difficult under the Company's current circumstances.
13
Our stock transfer books will be closed on the date we file our certificate of
dissolution with the Delaware Secretary of State. This date will also be our
final record date, after which any trades will not be recorded by the Company.
--------------------------------------------------------------------------------
If the Plan is approved by the stockholders of the Company, we will close our
stock transfer books and discontinue recording transfers of Common Stock at the
close of business on the date (the "Final Record Date") we file the Certificate
of Dissolution with the Delaware Secretary of State. Thereafter, certificates
representing the Common Stock will not be assignable or transferable on our
books except by will, in testate succession or operation of law. The
proportionate interests of all of our stockholders will be fixed on the basis of
their respective stock holdings at the close of business on the Final Record
Date, and, after the Final Record Date, any distributions made by the Company
will be made solely to the stockholders of record at the close of business on
the Final Record Date, except as may be necessary to reflect subsequent
transfers recorded on our books as a result of any assignments by will, in
testate succession or operation of law. For any other trades after the Final
Record Date, the seller and purchaser of the stock will need to negotiate and
rely on "due-bill" contractual obligations between themselves with respect to
the allocation of stockholder proceeds arising from ownership of the shares.
After the Company's wind-down, there may be no cash to distribute to our
stockholders and if there is cash to distribute, the timing of any such
distribution is uncertain.
--------------------------------------------------------------------------------
There is currently no firm timetable for the distribution of proceeds to our
stockholders, because of contingencies inherent in winding up the Company's
business. The liquidation is expected to be concluded prior to the third
anniversary of the filing of the Certificate of Dissolution in Delaware by a
final liquidating distribution either directly to the stockholders or to a
liquidating trust. The proportionate interests of all of our stockholders will
be fixed on the basis of their respective stock holdings at the close of
business on the Final Record Date, and after such date, any distributions made
by the Company will be made solely to stockholders of record on the close of
business on the Final Record Date, except to reflect permitted transfers. We
are, however, currently unable to predict the precise nature, amount or timing
of any distribution to stockholders. The actual nature, amount and timing of all
distributions will be determined by our Board of Directors, in its sole
discretion, and will depend in part upon our ability to convert our remaining
assets into cash.
Uncertainties as to the precise net value of our non-cash assets and the
ultimate amount of our liabilities make it impracticable to predict the
aggregate net value ultimately distributable to stockholders. Claims,
liabilities and expenses from operations (including costs associated with our
consultant's efforts to sell our remaining assets and settle our remaining
liabilities, taxes, legal and accounting fees and miscellaneous office expenses)
will continue to be incurred. These expenses will reduce the amount of cash
available for ultimate distribution to stockholders. However, no assurances can
be given that available cash and amounts received on the sale of assets will be
adequate to provide for our obligations, liabilities, expenses and claims and to
make cash distributions to stockholders. If such available cash and amounts
received from the sale of assets are not adequate to provide for our
obligations, liabilities, expenses and claims, we may not be able to distribute
meaningful cash, or any cash, to our stockholders.
Our inability to reach cash break-even and our resulting dissolution could give
rise to securities class action claims against us, which could deplete the
proceeds that are to be distributed to stockholders.
--------------------------------------------------------------------------------
Securities class action claims have been brought against companies in the past
where the market price of the Company's securities has fallen due to an
inability of the Company to achieve operational profitability. Any such
litigation could be very costly and divert our remaining resources from being
available for distribution to our stockholders. Any adverse determination in
this kind of litigation could also deplete our cash position, and reduce
proceeds that would otherwise be distributed to our stockholders.
14
The proceeds from the sale of our assets may be less than anticipated.
---------------------------------------------------------------------
Sales of our remaining assets will be made on such terms as are approved by the
Board of Directors and may be conducted by competitive bidding, public sales or
privately negotiated sales. The prices at which we will be able to sell these
assets will depend largely on factors beyond our control. Because some of our
remaining assets, particularly intellectual property assets, may decline in
value over time, we may not be able to consummate the sale of these assets in
time to generate meaningful value. In addition, we may not obtain as high a
price for a particular asset as we might secure if we were not in liquidation.
We may be unable to negotiate settlements with respect to our remaining
liabilities.
--------------------------------------------------------------------------------
We are currently in the process of negotiating settlements with respect to our
remaining obligations and liabilities which include without limitation building
and facilities leases, tax obligations, claims by licensees, contracts and trade
payables with third parties including. If we are unable to successfully
negotiate termination of these obligations, we will have fewer cash proceeds to
distribute to our stockholders.
We may continue to incur the expense of complying with public company reporting
requirements.
--------------------------------------------------------------------------------
We have an obligation to continue to comply with the applicable reporting
requirements of the Securities Exchange Act of 1934, as amended, even though
compliance with such reporting requirements is economically burdensome. In order
to curtail expenses, after filing our Certificate of Dissolution we will seek
relief from the Securities and Exchange Commission from the reporting
requirements under the Exchange Act, but there can be no assurance that such
relief will be granted. Until such relief is granted we will continue to make
obligatory Exchange Act filings. We anticipate that even if such relief is
granted in the future, we will continue to file current reports on Form 8-K to
disclose material events relating to our liquidation and dissolution along with
any other reports that the Securities and Exchange Commission may require.
15
Item 7. Financial Statements
Access Solutions International, Inc.
Index to Financial Statements
PAGE
Report of Independent Auditors 17
Financial Statements:
Balance Sheet - June 30, 2002 18
Statements of Operations -
Years Ended June 30, 2002 and 2001 19
Statements of Stockholders' Equity (Deficit) -
Years Ended June 30, 2002 and 2001 20
Statements of Cash Flows -
Years Ended June 30, 2002 and 2001 21
Notes to Financial Statements 22
16
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Access Solutions International, Inc.
We have audited the accompanying balance sheet of Access Solutions
International, Inc. as of June 30, 2002, and the related statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended June 30, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Access Solutions International,
Inc. as of June 30, 2002, and the results of its operations and its cash flows
for each of the two years in the period ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of America.
CARLIN, CHARRON & ROSEN LLP
August 8, 2002
17
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET
JUNE 30, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,350,692
Trade accounts receivable, net of allowance for doubtful accounts of
$17,375 290,668
Inventories 15,003
Prepaid expenses and other current assets 18,288
----------------
TOTAL CURRENT ASSETS 2,674,650
----------------
PROPERTY AND EQUIPMENT, NET 1,798
----------------
TOTAL ASSETS $ 2,676,448
================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 147,156
Accrued salaries and wages 22,069
Accrued expenses 65,004
Deferred revenue 432,918
----------------
TOTAL CURRENT LIABILITIES 667,147
----------------
TOTAL LIABILITIES 667,147
----------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 6 and 9) --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 13,000,000 shares authorized,
3,965,199 shares issued, and 3,963,940 shares outstanding 39,652
Additional paid-in capital 17,637,694
Accumulated deficit (15,649,989)
-----------------
TOTAL 2,027,357
Treasury stock, at cost (1,259 shares) (18,056)
-----------------
TOTAL STOCKHOLDERS' EQUITY 2,009,301
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,676,448
================
See accompanying notes to the financial statements
and independent auditors' report.
18
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
YEAR ENDED JUNE 30,
2002 2001
----------- -----------
NET SALES
Products $ 35,576 $ 146,162
Support and services 671,431 799,816
----------- -----------
TOTAL NET SALES 707,007 945,978
----------- -----------
COST OF SALES
Products 7,422 17,339
Support and services 205,650 237,060
----------- -----------
TOTAL COST OF SALES 213,072 254,399
GROSS PROFIT 493,935 691,579
----------- -----------
OPERATING EXPENSES
Selling expenses 132,688 118,429
General and administrative expenses 389,401 429,801
----------- -----------
TOTAL OPERATING EXPENSES 522,089 548,230
----------- -----------
PROFIT (LOSS) FROM OPERATIONS (28,154) 143,349
OTHER INCOME (EXPENSE)
Loss on disposal of fixed assets -- (42,469)
Interest income 43,341 22,462
Interest expense -- (240,504)
Litigation settlement -- 4,175,583
Miscellaneous income 94,478 47,239
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 137,819 3,962,311
----------- -----------
NET INCOME BEFORE PROVISION FOR
INCOME TAXES $ 109,665 $ 4,105,660
=========== ===========
PROVISION FOR INCOME TAXES 2,500 95,000
NET INCOME $ 107,165 $ 4,010,660
=========== ===========
NET INCOME PER COMMON SHARE $ .03 $ 1.01
=========== ===========
Weighted average number of common shares outstanding 3,963,940 3,963,940
=========== ===========
Diluted earnings per share $ .02 $ .88
=========== ===========
See accompanying notes to the financial statements
and independent auditors' report.
19
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
Stockholders' Equity (Deficit)
--------------------------------------------------------------------------------------------------
Common Stock Additional Treasury Stock
------------------------- Paid-In- Accumulated ------------------------- Total Equity
Shares Amount Capital Deficit Shares Amount (Deficit)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Balance at June 30, 2000 3,965,199 $ 39,652 $17,637,694 $(19,767,814) 1,259 $ (18,056) $(2,108,524)
=========== =========== =========== ============ =========== =========== ===========
Net income -- -- -- 4,010,660 -- -- 4,010,660
Balance at June 30, 2001 3,965,199 $ 39,652 $17,637,694 $(15,757,154) 1,259 $ (18,056) $ 1,902,136
=========== =========== =========== ============ =========== =========== ===========
Net income -- -- -- 107,165 -- -- 107,165
Balance at June 30, 2002 3,965,199 $ 39,652 $17,637,694 $(15,649,989) 1,259 $ (18,056) $ 2,009,301
=========== =========== =========== ============ =========== =========== ===========
See accompanying notes to the financial statements
and independent auditors' report.
20
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
YEAR ENDED JUNE 30,
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 107,165 $ 4,010,660
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 5,164 19,240
Loss on disposal of fixed assets -- 42,469
Provision for doubtful accounts-trade receivables 13,031 (8,823)
Changes in operating assets and liabilities:
Decrease (Increase) in:
Trade accounts receivable (112,554) 76,986
Inventories 6,469 3,935
Prepaid expenses and other current assets 14,766 6,310
Increase (decrease) in:
Accounts payable (70,947) (393,686)
Accrued expenses and salaries and wages (102,739) 16,405
Deferred revenue 64,967 (117,710)
----------- -----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (74,678) 3,655,786
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Fixed Assets (909) --
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (909) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Note Payable -- (1,287,549)
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES -- (1,287,549)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (75,587) 2,368,237
CASH AND CASH EQUIVALENTS, BEGINNING 2,426,279 58,042
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 2,350,692 $ 2,426,279
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for interest $ -- 502,862
=========== ===========
See accompanying notes to the financial statements
and independent auditors' report.
21
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
1. NATURE OF OPERATIONS
Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) (the "Company" or "ASI") assembles and services
optical data storage systems consisting of integrated computer hardware and
software for the archival storage and retrieval of computer-generated
information. The Company's optical data storage systems have been sold
principally to a limited number of large organizations that need to store
and retrieve large quantities of computer-generated data. To date, the
Company's customers primarily operate in the financial services and
insurance industries. No new systems were sold in this year.
During 1996, the Company consummated an initial public offering (IPO) of
1,066,667 Units. Each Unit consisted of two shares of common stock and one
redeemable common stock purchase warrant. Each warrant entitles the holder
to purchase one share of common stock at an initial exercise price of $5.00
per share, subject to adjustments, through October 15, 2001. The shares of
common stock and warrants comprising the Units are separately tradable. An
over-allotment option to purchase an additional 160,000 Units upon the same
terms and conditions set forth above was exercised by the Company's
underwriter on October 29, 1996. An aggregate of 2,453,334 shares of common
stock and 1,226,667 warrants were issued by the Company, resulting in net
proceeds of $7,062,507.
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 allocated to the co-owner of the patent, on May 1, 2001, ASI
received net proceeds of $4,175,586. Approximately $2,000,000 has been used
to retire outstanding debt and payables.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily
of components used in production, finished goods held for sale and for
service needs, and optical disk storage libraries purchased from
third-party vendors for resale to the Company's customers as part of
integrated systems. Base stock service inventories are maintained at
customer locations as required under service contracts.
The Company's products consist of integrated computer hardware and
software. Rapid technological change and frequent new product introductions
and enhancements could result in excess inventory quantities over current
requirements based on the projected level of sales. The amount of loss that
is reasonably possible should such technological developments be realized
is not estimable.
22
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the
assets. Assets recorded under capital leases are amortized over the
estimated useful lives or lease terms, whichever is shorter.
Revenue Recognition
Product revenues include the sale of optical archiving systems, software
licenses, peripheral hardware, and consumable media.
Revenue from the sale of optical archiving systems and software licenses is
recognized when the system is installed and only insignificant
post-installation obligations remain. In the case of systems installed
subject to acceptance criteria, revenue is recognized upon acceptance of
the system by the customer. Revenue from hardware upgrades is recognized
upon shipment.
Service revenues include post installation software and hardware
maintenance and consulting services.
The Company provides the first year of software maintenance to customers as
part of the software license purchase price and recognizes the revenue upon
installation of the software. Costs associated with initial year
maintenance are not significant and enhancements provided during this
period are minimal and are expected to be minimal. All software maintenance
contracts after the first year are billed in advance of the service period
and revenues are deferred and recognized ratably over the contract term.
Hardware maintenance is billed for varying terms, and is deferred and
recognized ratably over the term of the agreement. Revenues from consulting
services are recognized upon customers' acceptances or during the period in
which services are provided if customer acceptance is not required and such
amounts are fixed and determinable.
Software Development Costs
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established and until the related product is
available for general release to customers, any additional material amounts
of development costs are capitalized and amortized to cost of sales over
the economic life of the related product. Costs eligible for capitalization
have not been significant to date.
Income Taxes
Income taxes are accounted using an asset and liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those differences are expected to be recovered
or settled. The primary component of the Company's deferred tax asset as of
June 30, 2002, which is fully reserved, is net operating loss
carryforwards.
23
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Common Share
In 2002 and 2001, earnings per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
shares of common stock and an additional 575,000 shares which represent
exercisable options at June 30, 2002.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period reported. Actual results
could differ from those estimates.
Reliance on Single or Limited Sources of Supply
The Company currently purchases all of its optical disk storage libraries,
CPU boards, fiber optic channel hardware and high-density integrated
circuits from single or limited sources. Although there are a limited
number of manufacturers of these components, management believes that other
suppliers could provide similar products on comparable terms. Total or
partial loss of any such source, however, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating
results adversely.
Stock Based Compensation
The Company measures compensation expense relative to employee stock-based
compensation plans using the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". However, the Company will disclose the pro
forma amounts of net income and earnings per share as though the fair
value-based method of accounting prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
had been applied. See the stock options note for these disclosures.
3. PAPERCLIP MERGER, MANAGEMENT AGREEMENTS (CONTINUED)
On April 15, 1997, the Company and PaperClip entered into an agreement for
the Company to acquire substantially all the assets and liabilities of
PaperClip, which was later amended to change the acquisition to a merger.
The Company and PaperClip also entered into a management agreement (the
"Management Agreement") which allowed the Company 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. On January 29, 1997, the
Company provided a $300,000 bridge loan to PaperClip for use as operating
capital in exchange for a 12% convertible note from PaperClip secured by
substantially all the assets of PaperClip. In addition, the Company had
made unsecured advances to PaperClip of $140,813, $1,252,689, and $529,052
during the years ended June 30, 1999, 1998 and 1997, respectively, for
funding of working capital requirements.
24
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
3. PAPERCLIP MERGER, MANAGEMENT AGREEMENTS (CONTINUED)
The Company and PaperClip also entered into a one-year distribution
agreement effective June 1, 1997 pursuant to which the Company acted as a
distributor for PaperClip's products in the United States to dealers and
resellers.
Ultimately, the merger agreement was terminated on August 24, 1998.
Accordingly, the Company wrote off approximately $2,443,000 effective June
30, 1998 and approximately $141,000 effective June 30, 1999 in connection
with the terminated merger.
In November of 2000, PaperClip Software Inc. and ASI entered into an
agreement whereby the indebtedness to ASI in the amount of $300,000, plus
all accrued interest through December 31, 1999 in the amount of $105,300,
will be paid for by the execution and delivery of a new promissory note
from PaperClip to ASI in the aggregate principal amount of $405,300. All
amounts due under the new Note will be paid for over a period of three (3)
years in thirty-six (36) equal installments of $11,265 beginning on January
1, 2001. Although payments on the note are current, ASI has fully reserved
for the value of the new promissory note (approximately $200,000 at June
30, 2002) due to PaperClip's poor financial condition.
As a result of advances issued to PaperClip from November 12, 1997 through
August 24, 1998, PaperClip was indebted to ASI in the amount of $2,305,506
including accrued interest through December 31, 1999. In November 2000, ASI
exchanged the above indebtedness for 3,649,543 shares of PaperClip's Series
A Preferred Stock, $.01 par value per share (the "Series A Preferred
Stock"). Each share of Preferred Stock is convertible into one share of
PaperClip's common stock ("common stock") subject to anti-dilution
protection in the event of a stock split, stock dividend, recapitalization
or similar change to the capital structure of PaperClip. The shares are
convertible anytime at ASI's option or at PaperClip's option, provided that
immediately prior to conversion, the common stock had traded for not less
than 60 consecutive days at a closing price of 150% of the implied
conversion price. The implied conversion price is derived by dividing the
amount of the additional indebtedness by the number of shares of common
stock issuable upon conversion by ASI of the preferred stock. The
"Converted Shares" would equal 27.5% of the then outstanding Common Stock.
The holders of the converted common stock would have piggyback registration
rights on the Converted Shares underlying the Preferred Stock. Such
piggyback registration rights on the converted stock would expire with
respect to the holder when such shares were eligible for sale pursuant to
Rule 144(k) promulgated and the rules and regulations of the Securities Act
of 1933. The preferred stock is not entitled to dividends and will have a
liquidation preference equal to $2,305,506. No value has been recorded on
the Company's financial statements for this investment due to PaperClip's
deteriorating stock value and its poor financial condition.
4. INVENTORIES
Inventories at June 30, 2002 consist of the following:
Production inventory $ 371,596
Less - inventory reserves (356,593)
-----------
TOTAL INVENTORY AVAILABLE FOR SALE $ 15,003
===========
25
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2002 consists of the following:
Computers and office equipment $ 57,483
Furniture and fixtures 9,313
----------
TOTAL 66,796
Accumulated depreciation and amortization (64,998)
--------
NET PROPERTY AND EQUIPMENT $ 1,798
=========
6. COMMITMENTS
Operating Lease
The Company leases building space for office and plant facilities. In
October, 1998, the Company entered into a new lease for approximately 40%
of the previous space utilized, through September 30, 2001. In October,
2001, the Company negotiated a month-to-month lease commitment for the same
space that may be terminated by either party with three months notice. This
notice was given August 1, 2001. Total rent expense for the years ended
June 30, 2002 and 2001 amounted to $43,222 and $35,909, respectively.
7. INCOME TAXES
The tax effects of net operating loss ("NOL") carryforwards and temporary
differences that give rise to deferred tax assets and liabilities at June
30, 2002 are as follows:
JUNE 30, 2002
Deferred tax assets:
Net operating loss carryforwards $4,283,000
Research and development costs
capitalized for tax purposes 531,000
----------
4,814,000
Valuation allowance (4,814,000)
----------
Net Deferred Tax Asset $ --
==========
The Company records a valuation allowance for deferred tax assets, if based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The Company
has determined that a full valuation allowance is required given its
history of operating losses since its inception.
26
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
7. INCOME TAXES, CONTINUED
At June 30, 2002, the Company has total federal and state NOL
carryforwards, prior to any limitations, available to reduce future taxable
income of approximately $10,707,000, which expire in various amounts
between the fiscal years 2003 and 2022, if not previously utilized. In the
event of an ownership change, as defined under Section 382 of the Internal
Revenue Code, utilization of NOL carryforwards in the period following the
ownership change can be significantly limited. The Company has incurred
several changes of ownership under these rules. As a result, utilization of
the NOLs is subject to various limitations, depending upon the year in
which the NOL originated. As of June 30, 2002 management estimates that
approximately $6,000,000 (after limitations) of the Company's federal NOL
carryforwards will be available to offset taxable income that may be
generated within the carryforward period subject to a limitation of
approximately $400,000 of utilization per year. However, because the
limitation calculations are complex and subject to review by the Internal
Revenue Service, these limitations could be adjusted.
The following reconciles approximate net income before provision for income
tax purposes to approximate taxable net income at June 30, 2002 and 2001:
2002 2001
--------- ---------
Net income before provision for
income tax purposes $ 107,200 4,105,700
Legal fees -- 377,200
Interest expense -- 264,500
Paperclip write-off -- 2,584,100
Research and development 213,300 213,300
Net operating loss carryforwards -- 424,800
Section 1231 loss carryforwards 39,100 --
--------- ---------
Taxable net income $(145,200) 241,800
========= =========
The Company had timing differences relating to the capitalization of legal
fees and interest charges for income tax reporting in prior periods. Those
charges were deducted for June 30, 2001 tax reporting but had been expensed
as incurred in prior years for financial reporting.
The Company also had timing differences relating to expenses incurred
during a failed merger with Paperclip (Note 3). The Company had notes
receivable due from Paperclip that they expensed (set up allowances for)
for financial reporting purposes in prior years. However, the write-offs
were deducted for June 30, 2001 tax reporting when the Company determined
that the value of the notes could not be recovered.
Further, during the years ended June 30, 2002 and 2001, the Company had a
research and development tax deduction from research and development
expenses capitalized in prior periods for tax reporting purposes. The
Company also had a net operating loss carryforward deduction that was
utilized for the year ending June 30, 2001 and a section 1231 loss
carryforward deduction that was utilized for the year ending June 30, 2002.
27
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
7. INCOME TAXES, CONTINUED
The federal and state income tax provisions for the years ended June 30,
2002 and 2001 are summarized as follows:
2002 2001
------- -------
Federal $ -- 70,000
State 2,500 25,000
------- -------
$ 2,500 95,000
======= =======
8. STOCK OPTIONS
In August 1996, the Company adopted the 1996 Stock Option Plan pursuant to
which key employees of the Company, including directors who are employees,
are eligible to receive options to purchase common stock, at the discretion
of the Compensation Committee.
The Company has reserved 500,000 shares of common stock for issuance under
the 1996 Plan. Options granted under the 1996 Plan can be either incentive
stock options or non-qualified options, at the discretion of the
Compensation Committee.
On August 1, 1996 the Company granted options to purchase 263,351 shares of
Common Stock at an exercise price equal to $3.75 per share. The options
must be exercised within five years of the date of grant.
On June 15, 1999 the Company granted to employees non-qualified options
under the 1996 Plan to purchase 375,000 shares of Common Stock at an
exercise price equal to $.08 per share. The options vest immediately and
must be exercised by July 31, 2006.
On June 15, 1999 the Company also granted to non-employee directors
non-qualified options to purchase 200,000 shares of common stock at an
exercise price equal to $.08 per share. The options vest immediately and
must be exercised by July 31, 2006.
The Company has also granted options from time to time to consultants and
in connection with equity and debt offerings at exercise prices which were
not less than the fair market value of the common stock on the date the
option was granted.
As of June 30, 2002 and 2001, the following stock options were outstanding:
Exercise Number Outstanding
Price June 30, June 30,
Per Share 2002 2001
$ .08 575,000 575,000
3.75 45,393 45,393
222.00 1,014 1,014
399.60 9 9
------- --------
621,416 621,416
======= =======
28
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
8. STOCK OPTIONS, CONTINUED
The following is a summary of stock option activity for the years ended June 30, 2002
Exercise Weighted Average
Number of Price Exercise Fair Value Remaining
Options Per Share Price At Grant Life
Outstanding July 1, 1996 10,256 $74-$399.60 $212.53 -- 11 years
Granted to employees 263,351 $3.75 $3.75 $1.05 5 years
Cancelled (62,873) $74-$399.60 -- -- --
--------------- -------------------- ------------- -------------- ----------------
Outstanding June 30, 1997 210,734 $3.75-$399.60 $5.91 -- 5-10 years
Granted to former employees 45,393 $3.75 $3.75 $3.75 10 years
Cancelled (121,478) $3.75-$399.60 -- -- --
--------------- -------------------- ------------- -------------- ----------------
Outstanding June 30, 1998 134,649 $3.75-$399.60 $8.67 -- 4-10 years
Granted to employees and 575,000 $0.08 $0.08 $0.08 7 years
non-employee directors
--------------- -------------------- ------------- -------------- ----------------
Cancelled (88,175) $3.75-$399.60 -- -- --
--------------- -------------------- ------------- -------------- ----------------
Outstanding June 30, 1999 621,474 $0.08-$399.60 $1.04 -- 7-9 years
Cancelled (58) $74.00-351.50 -- -- --
--------------- -------------------- ------------- -------------- ----------------
Outstanding June 30, 2000 621,416 $0.08-$399.60 $1.02 -- 6-8 years
Cancelled -- -- -- -- --
--------------- -------------------- ------------- -------------- ----------------
Outstanding June 30, 2001 621,416 $0.08-$399.60 $1.02 -- 5-7 years
Cancelled -- -- -- -- --
--------------- -------------------- ------------- -------------- ----------------
Outstanding June 30, 2002 621,416 $0.08-$399.60 $1.02 -- 4-6 years
=============== ==================== ============= ============== ================
--------------------------------------------------------------------------------
Stock-based compensation expense under the fair value-based method of
accounting would have resulted in pro forma net loss and loss per common
share approximating the following amounts:
2002 2001
As Reported Pro Forma As Reported Pro Forma
Net income $ 109,665 $ 109,665 $ 4,105,660 $ 4,105,660
========= ========= =========== ===========
Earnings per common share $.03 $.03 $1.04 $1.04
==== ==== ===== =====
29
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
8. STOCK OPTIONS, CONTINUED
The fair value for each option granted reflecting the basis for the above
from pro forma disclosures was determined on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used in
determining fair value through the model:
2002 2001
-------- --------
Expected life 3 years 4 years
Risk-free yields 4.56% 4.80%
Expected volatility 50%* 50%*
*Since there were no employee grants in FY 2002, this assumption did not
influence the stock-based compensation expense calculation for FY 2002.
The Company recognizes forfeitures as they occur.
9. INTERNATIONAL SALES, MAJOR CUSTOMERS AND CONCENTRATION OF
CREDIT RISK
The Company sells optical archiving systems and related licenses for
software products to customers domestically and internationally.
International sales have all been denominated in U.S. dollars and were
approximately $101,232 and $99,800 in the years ended June 30, 2002 and
2001, respectively. The Company's foreign sales represented approximately
14% and 11% of total revenues for the year ended June 30, 2002 and 2001,
respectively.
Amounts due from four customers represented approximately 100% of total
accounts receivable outstanding at June 30, 2002.
The Company also has a concentration of credit represented by cash balances
in certain large commercial banks in amounts which occasionally exceed
current federal deposit insurance limits. The financial stability of these
institutions is continually reviewed by senior management.
30
Part III
Item 8. Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(A) of the Exchange Act
Director and Executive Officers. The current ASI directors and executive
officers are as follows:
Name and Age Position
------------ --------
Robert H. Stone, 52 (1).................... President, Chief Executive Officer, Director
Thomas E. Gardner, 64 (1)(2)............... Chief Financial Officer, Treasurer, Chairman of the Board
Adrian Hancock, 55......................... Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliations of the ASI directors and the executive officers is set forth
below.
Mr. Stone was elected President and Chief Executive Officer of ASI on August 1,
1996. Mr. Stone does not serve full time as ASI's President and Chief Executive
Officer. Prior to joining ASI, Mr. Stone was Director of Marketing of Standard
Duplicating Machines Corporation since June 1994 and prior to that President of
Marketplex, Inc., a marketing services company, since 1992. From June 1989 to
February 1992, Mr. Stone was Director of Product Marketing of Riso, Inc., a
developer and distributor of high speed printing systems.
Mr. Gardner has served as Chief Financial Officer of ASI since April 1996,
Treasurer since May 1994 and has been a director since May 1994. Mr. Gardner
does not serve full time as ASI's Chief Financial Officer or Treasurer. Mr.
Gardner is currently providing consulting services to ASI. Mr. Gardner has also
served as the President of LJT Associates (a planning and financial consulting
firm) since April 1992. From 1979 to October 1992, Mr. Gardner was Senior Vice
President at Rhode Island Hospital Trust National Bank. Mr. Gardner has served
on various Rhode Island and Providence commissions and committees and currently
serves as the Rhode Island Governor's appointee to the Depositors' Economic
Protection Corporation Performance Review Committee. Mr. Gardner, through LJT
Associates, is presently providing consulting services to ASI, Mossberg
Industries, Inc. and to Point Gammon Corporation
Mr. Hancock has been a Director of ASI since May 1997. Currently Mr. Hancock is
Vice President, Marketing, of PictureTel Corporation's Enterprise Services
Division which he joined in 1998 from a previous position with The Planning
Technologies Group. Prior to that Mr. Hancock held a variety of marketing,
distribution and international roles at The Timberland Company, Riso Inc. and
Prime Computer as well as consulting positions with McKinsey and Company.
31
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the
Securities Exchange Act of 1934 requires ASI's officers and directors, and
persons who own more than 10% of a registered class of ASI's equity securities
("insiders"), to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Insiders are required by SEC
regulation to furnish ASI with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to ASI, ASI
believes that during its fiscal year ended June 30, 2002 all Section 16(a)
filing requirements applicable to its insiders were complied with.
Item 10. Executive Compensation
Director Compensation. ASI's directors do not receive cash compensation for
service on the Board of Directors, although they are reimbursed for certain
out-of-pocket expenses in connection with attendance at Board and committee
meetings.
Executive Compensation.
Summary Compensation Table.
--------------------------
The following table sets forth certain information with respect to the
compensation paid by ASI for services rendered during the fiscal year ended June
30, 2002 to the chief executive officer (the "Named Executive Officer"). There
were no other executive officers of ASI whose compensation exceeded $100,000
during the fiscal year ended June 30, 2002.
Long-Term Compensation
Annual Awards
Compensation -------------------------------
Securities
Name and Fiscal Paid Underlying All Other
Principal Position Year Salary Bonus Options Compensation
------------------- ------ -------- ------- ---------- ------------
Robert H. Stone, President
and Chief Executive Officer 2002 -- -- -- --
2001 $15,000 -- -- --
2000 $39,546 -- -- --
Option Grants in Last Fiscal Year. ASI did not grant any options to the Named
Executive Officer during the fiscal year ended June 30, 2002.
32
Item 10. Executive Compensation, Continued
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table.
During the fiscal period ended June 30, 2002, the Named Executive Officer did
not exercise any options issued by ASI. The following table sets forth
information regarding the stock options held as of July 1, 2002 by the Named
Executive Officer.
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money-Options at Fiscal
Options at Fiscal Year-End Year End(1)
-------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Robert H. Stone..................... 100,000 0 $0 $0
----------------------
(1) The exercise price of these options exceeded the fair market value of the
underlying common stock at June 30, 2002.
Stock Option Plans. In August 1996, ASI terminated the 1994 Directors Stock
Option Plan (the "1994 Directors Plan"), which was a stock option plan for
non-employee directors. There are options outstanding to purchase 676 shares
pursuant to the 1994 Directors Plan at an exercise price of $222 per share.
Under the 1994 Directors Plan, upon a director's election to the Board, the
director was automatically awarded an option to purchase 338 shares of ASI
Common Stock, at an exercise price equal to 100% of the fair market value on the
date the option was granted. The option then vested 25% on each of the first
through fourth anniversaries of the date of the grant.
In August 1996, ASI terminated its Previous Stock Option and Purchase Plans (the
"Terminated Plans") and adopted the 1996 Plan pursuant to which key employees of
ASI, including directors who are employees, are eligible to receive grants of
options to purchase ASI Common Stock for issuance under the 1996 Plan. Options
granted under the 1996 Plan can be either incentive stock options or
non-qualified options, at the discretion of the Compensation Committee. On
August 1, 1996, ASI cancelled the 8,351 employee options outstanding under the
Terminated Plans (having exercise prices ranging from $74 to $240.50 per share)
and granted options to purchase 263,351 (of which 8,351 are immediately
exercisable) shares of ASI Common Stock at an exercise price equal to $3.75 per
share.
In July and September of 1997, ASI cancelled the employee stock option plans of
Messrs. Matthias Lukens for 24,311 shares and George Steele for 21,082 shares
and granted them non-qualified options for the same amounts of shares at the
same exercise price of $3.75. Mr. Luken's options expire on July 14, 2007 and
Mr. Steele's options expire on July 31, 2006.
Non-Plan Options. From time to time, ASI has issued options to purchase shares
of ASI Common Stock to certain consultants and in connection with certain equity
and debt financing arrangements provided to ASI. As of December 15, 2000 ASI had
non-plan options to purchase 46,474 shares of ASI Common Stock outstanding; of
such amount, options to purchase 21,082 and 24,311 shares were held by Mr.
Steele and Mr. Matthius Lukens, respectively, former officers of ASI.
Additionally, 338 shares each were held by former directors of ASI, Mr.
Christopher Ingraham and Mr. Marvyn Carton. Also, the Chairman of Mossburg
Industries, Mr. Malcolm G. Chace III, held 338 shares. The non-plan options are
all 100% vested and the exercise price of the options range from $3.75 to
$399.60 per share. Mr. Ingraham received his options as compensation for
services rendered to ASI as a consultant, each of Messrs. Chace and Lukens
received his options as compensation for serving as a director, and Mossberg
received its options in connection with certain debt financing it provided to
ASI.
33
Item 10. Executive Compensation, Continued
On June 15, 1999 the Company granted non-qualified options to purchase 575,000
shares of Common Stock at an exercise price equal to $.08 per share. The options
vested immediately and must be exercised by July 31, 2006.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management. The following
table sets forth certain information known to ASI with respect to beneficial
ownership of the ASI Common Stock as of July 1, 2002 by (i) each stockholder who
is known by ASI to own beneficially more than 5% of the outstanding ASI Common
Stock, (ii) each of ASI's directors, (iii) the Named Executive Officer as of the
end of ASI's fiscal year, and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each has sole voting and investment power
with respect to the shares beneficially owned.
Name and Address of Shares of Common Stock Percentage of
Beneficial Owner Beneficially Owned Common Stock
Robert H. Stone (1) 100,000 2.52
c/o Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Thomas E. Gardner and Leslie A. Gardner
c/o Point Gammon Corporation (1) 113,891 2.87
One Providence Washington Plaza
4th Floor
Providence, RI 02903
Adrian Hancock (1) 100,000 2.52
c/o The Planning Technologies Group
92 Hayden Avenue
Lexington, MA 02173
David J. Capraro, Trustee of the David J. Capraro 470,500 11.87
Living Trust U/A/D 3/31/00
1682 Graefield
Birmingham, Michigan 48009
J. Michael Costello 757,212 19.10
c/o Baldwin Brothers
One Providence Washington Plaza
Providence, RI
-----------------------
(1) Consists of or includes 100,000 shares of ASI Common Stock issuable upon
exercise of stock options.
34
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters, Continued
Equity Compensation Plan Information.
---------------------------- -------------------------- -------------------------- --------------------------
Plan category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans
---------------------------- -------------------------- -------------------------- --------------------------
Equity compensation plans
approved by security
holders 421,416 $1.02 78,584
---------------------------- -------------------------- -------------------------- --------------------------
Equity compensation plans
not approved by security
holders 200,000 $0.08 0
---------------------------- -------------------------- -------------------------- --------------------------
Total 621,416 $0.72 78,584
---------------------------- -------------------------- -------------------------- --------------------------
The non-employee stock option plan was adopted by the Board of Directors on
September 15, 1997 following discussions held by the Board concerning the
proposal on April 22, May 20 and June 26, 1997. Under the plan, 250,000 shares
of its authorized but unissued common stock, $.01 par value, were reserved for
issuance upon exercise of the stock options granted under the plan. On June
15,1999, the Board of Directors approved, upon recommendation of the President,
a grant of 100,000 shares each to the two non-employee Directors, Messrs.
Hancock and Gardner at a price of $.08 per share.
Item 12. Certain Relationships and Related Transactions
Certain Transactions between ASI and its Affiliates:
On May 17, 2001, ASI Directors engaged the Chairman, Thomas E. Gardner, as a
consultant to the Company on an as needed basis to investigate the alternative
strategies open to the Board in realizing for the shareholders an appropriate
return on their investment in the Company. ASI paid Mr. Gardner $21,000 during
the fiscal year ended June 30, 2002 under this consulting agreement.
Fairness of Certain Transactions. Article XI of the ASI By-laws governs
transactions between ASI and its directors. An affirmative vote of a majority of
disinterested directors is required to authorize a contract or transaction
entered into with a director of ASI; provided, however, that the director's
interest in the contract or transaction is disclosed or known to the
disinterested directors. Any future contract or transaction between ASI and its
directors will be transacted in accordance with the provisions of the By-laws.
Mr. Gardner's consulting agreement was approved under this provision. Any future
contract or transaction between ASI and its officers and affiliates will be
transacted in the same manner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits.
(b) Reports on Forms 8-K
None.
35
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCESS SOLUTIONS INTERNATIONAL, INC.
Dated: September 30, 2002 By: /s/ Robert H. Stone
-------------------------------------
Robert H. Stone
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities indicated on
September 1, 2002.
Signature Title
--------- -----
/s/ Robert H. Stone President, Chief Executive Officer
-------------------------------- and Director
Robert H. Stone
/s/ Thomas E. Gardner Chief Financial Officer, Treasurer
-------------------------------- and Chairman of the Board
Thomas E. Gardner
/s/ Adrian Hancock Director
--------------------------------
Adrian Hancock
36
CERTIFICATION
Each of the undersigned, being the Chief Executive Officer and the Chief
Financial Officer of Access Solutions, Inc., certify that:
1. I have reviewed this annual report on Form 10-KSB of Access Solutions,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
/s/ Robert H. Stone
------------------------------------------
Robert H. Stone
President and Chief Executive Officer
/s/ Thomas E. Gardner
------------------------------
Thomas E. Gardner
Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibit
Number Description
2.1 Purchase and Sale Agreement dated September 9, 2002 between ASI and
Computer Upgrade Corporation (incorporated by reference to Exhibit 2 of
ASI's Current Report on Form 8-K dated September 18, 2002).
3.1 Amended and Restated Articles of Incorporation of ASI (incorporated by
reference to Exhibit 3(a) of ASI's Registration Statement on Form SB-2,
File No. 333-5285).
3.2 By-laws of ASI (incorporated by reference to Exhibit 3(b) of ASI's
Registration Statement on Form SB-2, File No. 333-5285).
37
10.1 ASI's 1996 Stock Option Plan (incorporated by reference to Exhibit
10(d) of ASI's Registration Statement on Form SB-2, File No. 333-5285).
10.2 Consulting Agreement dated May 17, 2001 between ASI and Thomas Gardner.
10.3 Agreement dated November 2, 2000 between with PaperClip Software, Inc.
and ASI.
10.4 Promissory Note dated November 2, 2000 from PaperClip to ASI.
10.5 Series A Preferred Stock Purchase Agreement dated November 2, 2000
between PaperClip and ASI
10.6 Registration Rights Agreement dated November 2, 2000 between PaperClip
and ASI
38