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, 2001
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: $945,978.
Aggregate market value of the voting and non-voting common equity held by
non-affiliates computed at $.19 per share, the closing price of the Common Stock
on June 30, 2001: $753,149.
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
as of June 30, 2001 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. ASI cautions that a number
of important factors could cause actual results for Fiscal 2002 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of ASI. Such statements contain a number of risks and
uncertainties, including, but not limited to the outcome of management's
assessment of ASI's long-term strategic alternatives, ongoing capital needs,
variable operating results, dependence on ASI's COLD system product, competing
with rapid technological change and new product development, reliance on single
or limited sources of supply, intense competition, turnover in management,
dependence on significant customers and dependence on key personnel. ASI cannot
assure that it will be able to anticipate or respond timely to changes that
could adversely affect its operating results in one or more fiscal quarters.
Results of operations in any past period should not be considered indicative of
results to be expected in future periods. Fluctuations in operating results may
result in fluctuations in the price of ASI's securities.
Recent Developments
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, 2000. Although payments are
current on the note, ASI has fully reserved for the value of the new promissory
note due to PaperClip's poor financial condition.
As a result of advances issued to PaperClip from November 12, 1997 through
August 24, 1998, PaperClip is indebted to ASI in the amount of $2,305,506
including interest. ASI will exchange the above indebtedness for shares of a new
class of PaperClip convertible preferred stock (the "Preferred Stock"). Each
share of Preferred Stock will be 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 at anytime at ASI's
option or at PaperClip's option, provided that immediately prior to conversion,
the 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 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 will have piggyback registration
rights on the Converted Shares underlying the Preferred Stock. Such piggy back
registration rights on the converted stock will 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 will not be 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.
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 (See Item 3. Legal Proceedings.) As a result of this settlement, ASI also
announced that management would be assessing strategic alternatives which will
best benefit its shareholders, customers and employees.
1
Financing
On May 27, 1998, 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 a lawsuit
pending in the United States District Court for the District of Rhode Island.
See item 3. 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 common stock under certain
circumstances. See Item 7 - financial statements, convertible notes payable
footnote. 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 from May 27, 2000 and increasing the amount that could
be borrowed under the loan to $1,500,000.
On May 1, 2001, this liability 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.
Business
ASI, a Delaware corporation formed in 1986, currently assembles and supports
mainframe information storage and retrieval systems, including both software and
hardware, for large companies. ASI believes that its proprietary computer output
to laser disk (COLD) and data storage systems provide a faster, more reliable
and more economical method of storing vast quantities of computer-generated data
than is generally available from other COLD systems. ASI's COLD and optical disk
storage systems, which are marketed under the brand names OAS and GIGAPAGE, and
GIGAPAGE DASDI, are presently sold principally to a limited number of large
organizations that have the need to store and retrieve large quantities of
computer-generated data.
Products. ASI's COLD systems are high density hardware and software data storage
systems that are designed to store, index and retrieve formatted computer
output. COLD systems consist of an OAS controller, a storage subsystem, and
GIGAPAGE application software.
Hardware Products. The hardware portion of ASI's solution, the OAS, is a high
capacity, mainframe channel-attached hybrid magnetic/optical disk storage
system, composed of the OAS controller and an optical disk "autochanger." The
OAS can control various types and models of robotic autochanger systems, which
are manufactured by a number of vendors, commanding such robots to mount and
dismount disks and tapes automatically as needed in response to requests from
the host software. These autochangers, which ASI purchases from independent
third-party suppliers, are installed by ASI as a part of the integrated system
at the customer site. Autochangers of varying capacities are available to meet
the needs of the marketplace, for storage requirements from 166 million pages to
multiple tens of billions of pages. A brief description of the hardware
components of the OAS follows.
Optical Disk Autochangers. The entry-level optical disk autochanger supplied by
ASI supports customers with relatively modest storage volumes. When used in
conjunction with ASI's data compression technology, the capacity of this
autochanger is significantly enlarged. With compression, this entry-level
autochanger normally has the capacity to store over 166 million typical report
pages.
2
Because the optical disk drives housed within ASI's most commonly installed
optical disk autochangers are American National Standards Institute
("ANSI")-standard 5-1/4 inch multifunction drives, the optical disk platters
used within the autochanger may be a mixture of rewritable and
write-once-read-many ("WORM") types. The rewritable disks are used to store
those reports that do not have to be retained for long time periods. The disks
are then re-used when the useful life of the reports has elapsed. WORM disks
preclude modification of data, as required for data such as securities industry
reports subject to the record retention rules of the Securities and Exchange
Commission.
Customer need for greater capacity is addressed by a field-upgradeable family of
optical disk autochangers. Middle range requirements are accommodated by a
system which can store from 590 million to over 1 billion report pages in a
compact (3 foot by 3 foot) floor area, while large capacity needs are served by
ASI's largest system, which stores from 860 million to more than 2.5 billion
pages. Multiple systems may be combined for even greater capacity. ASI also
provides 12 and 14 inch format WORM solutions.
The OAS Control Unit. The control unit of the OAS system is directly attached to
the mainframe via a conventional IBM-compatible interface to an input-output
("I/O") channel of the IBM-compatible mainframe. The control unit's dedicated
I/O hardware passes data back and forth over the channel between the mainframe
and the optical disk autochanger at up to 17 megabytes per second. The control
unit is an intelligent storage management subsystem, with self-contained
software to track and file associated media locations within the storage
subsystems and automate the movement of media into optical disk drives within
the robotic autochanger, when applicable.
The OAS Control Unit contains a cache buffer (a large bank of RAM used for
temporary storage when transferring data from one device to another) to permit
data to be exchanged rapidly between the mainframe and the optical disk drives.
In addition, the control unit performs data compression using a patented
hardware-based implementation of the Lempel-Ziv compression algorithm. When this
hardware-based compression is combined with GIGAPAGE's host-based software data
compression, compound compression ratios of 7.5:1 and higher are achieved.
Software Products. ASI has developed an application software product for IBM
mainframe systems, GIGAPAGE, which can be installed in conjunction with the OAS
and is an end-user application for report storage and retrieval. GIGAPAGE stores
and retrieves computer-generated reports (such as customer statements) on
various combinations of storage technologies. This enables organizations to
eliminate their existing computer output microfiche or microfilm (COM) systems
and reduce staff used for manual retrieval of microfilm, microfiche and paper
reports. GIGAPAGE also provides its users with the ability to access report data
efficiently, by displaying a retrieved document based upon criteria established
by the user. ASI believes that this creates competitive advantages for end users
that must quickly respond to customer inquiries. GIGAPAGE changes report access
from a slow, cumbersome, manually intensive process to a fast, near-line
computer-based process.
Customer Support and Service. ASI believes that its approach to customer service
and support has been and will continue to be a continuing source of revenue.
Because most of ASI's products are used in large-scale mainframe data centers,
the successful utilization of ASI's products depends on ASI providing a high
level of customer service and support. These resources include a 24-hour help
desk to field all customer support and service inquiries and third-party service
organizations with whom ASI contracts to provide on-site customer response for
hardware-related issues.
In each of the years ended June 30, 2001 and 2000, service revenue generated
from the post-sale maintenance of COLD systems accounted for approximately 85%,
of ASI's total revenues. All but one of ASI's customers have elected to extend
their service contracts.
3
As of June 30, 2001, the customer service and support group consisted of two
employees, one of whom is in-house and one in the field. These personnel provide
support for the engineers maintaining customer equipment in the field and
provide ASI with an opportunity to recommend future system sales to such
customers.
Marketing. The market for COLD systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. Within each market
segment, product offerings may be divided into two categories: (i) COLD software
packages and (ii) COLD turnkey systems. COLD turnkey systems are generally
comprised of COLD software bundled with a controller and an optical disk system.
Generally, the highest priced COLD systems are those that are mainframe or
client/server based. Additionally, the market for COLD systems includes a
revenue component derived from the service and support of COLD systems products.
Customers. One customer accounted for 21%, one customer accounted for 16%, and
two customers each accounted for 13% of ASI's total net sales in the year ended
June 30, 2001. One customer accounted for 32%, and three customers accounted for
a total of 42% of ASI's net sales in Fiscal 2000.
Competition. The computer data storage and retrieval industry is highly
competitive and ASI expects this level of competition to continue to intensify.
Most of ASI's competitors have substantially greater financial, marketing,
development, technological and production resources than ASI. ASI's primary
competitors are IBM Corporation, FileTek Corporation, Eastman Kodak Company,
Mobius Management Systems, Inc., FileNet Corporation and Digital Storage
Solutions, Inc. ASI believes that participants in the data storage and retrieval
market compete on the basis of a number of factors including vendor and product
reputation, system features, product quality, performance and price, and quality
of customer support services and training. ASI positions itself to compete
effectively with its competitors by offering what it believes is excellent
customer service and technical support in connection with its hardware and
software products.
Principal Suppliers. ASI's principal suppliers for the production and
maintenance of its COLD systems are Eastman Kodak, IBM Canada and Hewlett
Packard.
Intellectual Property. ASI holds three United States patents on its directory
structure and its implementation of hardware data compression. ASI relies
primarily on a combination of copyright, trademark, trade secret laws and
contractual provisions to establish and protect proprietary rights in its
products. ASI typically enters into confidentiality and/or license agreements
with its employees, strategic partners, customers and suppliers and limits
access to and distribution of its proprietary information. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of ASI's products, reverse engineer or otherwise obtain and use
information ASI regards as proprietary. In response to a perceived patent
infringement, ASI instituted a lawsuit against Data/Ware Development, Inc. and
Eastman Kodak Company, Inc., which was recently settled. (See "Item 3. Legal
Proceedings" below.)
ASI is subject to the risk of litigation alleging infringement of third-party
intellectual property rights. There can be no assurance that third parties will
not assert infringement claims against ASI in the future with respect to its
products. Any such assertion, if found to be true and legally enforceable, could
require ASI to pay damages and could require ASI to develop non-infringing
technology or acquire licenses of technology that is the subject of the asserted
infringement, resulting in product delays, increased costs, or both.
4
Assembly. Assembly of ASI's OAS is done at ASI's facility in North Kingstown,
Rhode Island. ASI assembles portions of its COLD systems, which are then
integrated at ASI's plant with optical disk autochanger systems manufactured by
a variety of third parties. Production of the OAS entails testing, assembling
and integrating standard and ASI-designed components and subassemblies built by
and purchased from independent suppliers. As of June 30, 2001, ASI had one
full-time manufacturing person. ASI configures and tests ASI-built and
third-party-supplied hardware and software in combinations to meet a wide
variety of customer requirements.
Although ASI generally uses standard parts and components for its products,
certain components, such as CPU boards, ESCON hardware and high-density
integrated circuits, are presently available only from single or limited
sources. ASI has no supply commitments with its vendors and generally purchases
components on a purchase order basis, as opposed to entering into long-term
procurement agreements with vendors. ASI has generally been able to obtain
adequate supplies of components in a timely manner from current vendors or, when
necessary to meet production needs, from alternate vendors. ASI believes that
alternative sources of supply would not be difficult to develop over a short
period of time but that an interruption in supply or a significant increase in
the price of these components could adversely affect ASI's operating results and
business.
Employees. As of June 30, 2001, ASI had 3 full time and 2 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 lease expiring in September 2001 which may be extended for three months.
The three month option has been exercised so that the Company can adequately
determine its future needs and requirements.
Item 3. Legal Proceedings
On August 29, 1997, ASI filed a complaint against Data/Ware Development, Inc.,
("Data/Ware"), (Anacomp's predecessor) and Eastman Kodak Company ("Kodak")
alleging infringement of ASI's patents 4,775,969 and 5,034,914. The defendants
had counter-claimed and counter-sued ASI. The claim stated that Data/Ware and
Kodak collectively manufactured, used and/or sold equipment for recording data
on optical media and alleged that the manufacture and sale of such equipment,
and use by purchasers thereof, 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 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 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 has been used to retire outstanding debt and payables.
Item 4. Submission of Matters to a Vote of Security Holders
None.
5
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 the 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). ASI's shares of common stock, units
and warrants currently trade on the Over the Counter Electronic Bulletin Board
Market "(OTC EBB)" under the symbols "ASIC," "ASICW" and "ASICU," respectively.
As of June 30, 2001, there were approximately 151 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
------------------ ------------------
Bid Low Asked High
------------------ ------------------
1999:
Third Quarter .01 .375
Fourth Quarter .125 .25
2000:
First Quarter .06 .15
Second Quarter .01 .15
Third Quarter .01 .25
Fourth Quarter .04 .16
2001:
First Quarter .04 .17
Second Quarter .12 .26
6
Redeemable Warrants
------------------ ------------------
Bid Low Asked High
------------------ ------------------
1999:
Third Quarter .02 .02
Fourth Quarter - -
2000:
First Quarter .01 .01
Second Quarter - -
Third Quarter - -
Fourth Quarter - -
2001:
First Quarter - -
Second Quarter - -
Units
------------------ ------------------
Bid Low Asked High
------------------ ------------------
1999:
Third Quarter .11 .25
Fourth Quarter .01 .15
2000:
First Quarter - -
Second Quarter - -
Third Quarter - -
Fourth Quarter - -
2001:
First Quarter - -
Second Quarter - -
ASI has not paid any cash dividends on the ASI Common Stock since its inception.
7
PAGE>
Item 6. Management's Discussion and Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
ASI's net sales consist of sales primarily of support and services. Products
sold by ASI consist of COLD systems, software and hardware including replacement
disk drives, subassemblies and miscellaneous peripherals. Support and services
rendered by ASI include post-installation maintenance and support. ASI
recognizes revenue from customers upon installation of COLD systems and, in the
case of COLD systems installed for evaluation, upon acceptance by such customers
of the products. ASI had no system sales in the current year. ASI sells extended
service contracts on the majority of the products it has sold. Such contracts
are one year in duration with payments received either annually in advance of
the commencement of the contract or quarterly in advance. ASI recognizes revenue
from service contracts on a straight-line basis over the term of the contract.
The unearned portion of the service revenue is reflected as deferred revenue. As
of June 30, 2001, ASI had deferred revenue in the amount of $367,951.
ASI's operating results have in the past and may in the future fluctuate
significantly depending upon the renewal of service contracts; the competitive
technological advancements made by the industry; and the control of general and
administrative expenses. The revenue from service contracts is recognized on a
straight-line basis over the term of the contract.
ASI's primary operating expenses include maintenance and general and
administrative expenses. General and administrative expenses consisted this
fiscal year primarily of legal fees, employee compensation, office rental and
normal contractual services.
In the past, ASI has expended substantial development resources to meet customer
commitments. The majority of these services were provided at no charge to honor
commitments made for added features when the systems were sold. These resource
expenditures have in the past placed a high overhead burden on the GIGAPAGE
product line offerings. After completion of GIGAPAGE 3.0, which occurred at the
end of the second quarter of Fiscal 1998, management concluded that all
significant product commitments had been met. In the future, development of any
new features will not be initiated unless customers make a financial commitment
to cover the minimum engineering costs.
8
Results of Operations
Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
The following table presents certain items from ASI's Statement of Operations,
and such amounts as percentages of net sale, for the periods indicated. Products
and service costs percentages are of product and support and services sales,
respectively.
Year Ended June 30, 2001 Year Ended June 30, 2000
-------------------------- --------------------------
Net sales
Products $ 146,162 15% $ 138,153 15%
Support and services 799,816 85 780,420 85
----------- ----------- ----------- -----------
Total net sales 945,978 100 918,573 100
Cost of Sales
Products 17,339 2 15,842 2
Support and services 237,060 25 206,016 22
----------- ----------- ----------- -----------
Total cost of sales 254,399 27 221,858 24
Gross profit 691,579 73 696,715 76
----------- ----------- ----------- -----------
Operating expenses:
Selling 118,429 13 145,621 16
429,801 45 427,097 46
Research and
development -- -- 90,343 10
----------- ----------- ----------- -----------
Total operating expenses 548,230 58 663,061 72
58
Interest and other expense,
net (213,272) (23) (124,318) (14)
----------- ----------- ----------- -----------
Profit (loss) before
litigation settlement (69,923) (8) (90,664) (10)
----------- ----------- ----------- -----------
Litigation settlement 4,175,583 441 -- --
----------- ----------- ----------- -----------
Net profit (loss) before
provision for income
taxes 4,105,660 433 (90,664) (10)
----------- ----------- ----------- -----------
Provision for income taxes 95,000 10 -- --
----------- ----------- ----------- -----------
Net Profit (Loss) $ 4,010,660 423% $ (90,664) (10%)
=========== =========== =========== ===========
Net sales. Net sales increased 3% to $945,978 for the year ended June 30, 2001
from $918,573. Product sales increased 6% to $146,162 for the year ended June
30, 2001 from $138,153 for the year ended June 30, 2000 due to the sale of an
optical storage system. Support and service revenues increased by 2% to $799,816
for the year ended June 30, 2001 from $780,420 for the year ended June 30, 2000.
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 increased 15% to $254,399 for the year ended June 30,
2001 from $221,858 for the year ended June 30, 2000, primarily due to increased
cost of service and support sales. Cost of sales for products increased by 9% to
$17,339 for the year ended June 30, 2001 from $15,842 for the year ended June
30, 2000. This increase in cost was attributable to an increase in product
sales. Cost of services increased by 15% to $237,060 for the year ended June 30,
2001 from $206,016 for the year ended June 30, 2000, due the addition of a
service technician that was previously included in research and development. The
research project was completed in the prior year and the individual now has
service responsibilities. The Company's Gross margin decreased to 73% from 76%
due to the above factors.
9
Sales and Support Service expenses. Selling expenses decreased by 19% or $27,192
to $118,429 for the year ended June 30, 2001 from $145,621 for the year ended
June 30, 2000. The decrease was primarily the result of reductions in payroll,
communication and depreciation expenses. Depreciation decreased in 2001 due to
the disposal of obsolete assets.
General and administrative expenses. General and administrative expenses consist
of administrative expenses and certain internal office and support expenses.
General and administrative expenses decreased $2,704 or 1% to $429,801 for the
year ended June 30, 2001 from $427,097 for the year ended June 30, 2000. This
decrease was primarily attributable to a decrease in insurance expense.
Research and development expenses. Research and development expenses decreased
100% to zero for the year ended June 30, 2001 from $90,343 for the year ended
June 30, 2000. This decrease reflects the completion of all research activity in
the prior fiscal year.
Net interest and other expense. Interest expense was $240,504 for the year ended
June 30, 2001 and $125,558 for the year ended June 30, 2000, an increase of 92%.
This increase was primarily due to recognition of interest expense that had
accrued on advances for legal fees and costs associated with the patent lawsuit.
Interest income increased to $22,462 for the year ended June 30, 2001 from
$1,240 for the year ended June 30, 2000. This increase was attributed to the
payment of interest on a note receivable from PaperClip Software, Inc.
Miscellaneous income of $47,239 at June 30, 2001 represents principal repayments
on the note receivable from PaperClip Software, Inc., which is fully reserved
for as of June 30, 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 increased to $4,105,660 for the year ended June 30,
2001 from a net loss of ($90,664) for the year ended June 30, 2000.
Provision for income taxes. The provision for income taxes is calculated after
considering book and tax timing differences. Note 8 to the financial statements
discusses the timing differences for the year ended June 30, 2001.
Liquidity and Capital Resources
ASI had a working capital surplus of $1,895,849 at June 30, 2001 as compared to
a working capital deficit of $888,971 at June 30, 2000. The increase in working
capital was principally attributable to the increase in cash and reductions in
accounts payable and accrued expenses.
Total cash provided by operating activities in fiscal year 2001 was $3,655,786.
The major use of cash was the reduction of accounts payable and deferred
revenue. 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 2001, cash used by financing activities totaled $1,287,549,
reflecting retirement of $650,000 note to a former director, plus $373,053 for
advances for litigation legal costs, and $264,496 in accrued interest.
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.
10
In previous years, ASI had suffered recurring losses from operations, had an
accumulated deficit and incurred negative cash flows from its operating
activities as it continued to develop its products and infrastructure. Without
the proceeds from the settlement, the recurring losses and negative cash flow
from operating activities would raise substantial doubt about the Company's
ability to continue as a going concern.
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.
At June 30, 2001, ASI had federal and state net operating loss carryforwards
available to reduce any future taxable income in the approximate amount of
$10,719,000. These net operating loss carryforwards will expire in various
amounts between the years 2002 and 2020, if not previously utilized. In the
event of a change in the ownership of ASI, as defined in Section 382 of the
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 $400,000 will be available
to offset taxable income that ASI may generate within the carryforward period
subject to a limitation of approximately $20,000 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.
Seasonality and Inflation
To date, seasonality and inflation have not had a material effect on ASI's
operations.
11
Item 7. Financial Statements
Access Solutions International, Inc.
Index to Financial Statements
PAGE
Report of Independent Auditors F-2
Financial Statements:
Balance Sheet - June 30, 2001 F-3
Statements of Operations -
Years Ended June 30, 2001 and 2000 F-5
Statements of Stockholders' Equity (Deficit) -
Years Ended June 30, 2001 and 2000 F-6
Statements of Cash Flows -
Years Ended June 30, 2001 and 2000 F-7
Notes to Financial Statements F-8
F-1
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, 2001, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended June 30, 2001. 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, 2001, and the results of its operations and its cash flows
for each of the two years in the period ended June 30, 2001, in conformity with
accounting principles generally accepted in the United States of America.
CARLIN, CHARRON & ROSEN LLP
July 31, 2001
F-2
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET
JUNE 30, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,426,279
Trade accounts receivable, net of allowance
for doubtful accounts of $4,344 191,145
Inventories 21,472
Prepaid expenses and other current assets 32,819
TOTAL CURRENT ASSETS 2,671,715
----------------
PROPERTY AND EQUIPMENT, NET 6,038
----------------
TOTAL ASSETS $ 2,677,753
================
Continued--
F-3
ACCESS SOLUTIONS INTERNATIONAL, INC.
BALANCE SHEET (CONTINUED)
JUNE 30, 2001
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 218,103
Accrued salaries and wages 29,341
Accrued expenses 65,471
Provision for income taxes 95,000
Deferred revenue 367,951
----------------
TOTAL CURRENT LIABILITIES 775,866
----------------
TOTAL LIABILITIES 775,866
----------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 7) -
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 (15,757,403)
----------------
TOTAL 1,919,943
Treasury stock, at cost (1,259 shares) (18,056)
----------------
TOTAL STOCKHOLDERS' EQUITY 1,901,887
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,677,753
================
See accompanying notes to the financial statements
and independent auditor's report.
F-4
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
YEAR ENDED JUNE 30,
2001 2000
----------- -----------
NET SALES
Products $ 146,162 $ 138,153
Support and services 799,816 780,420
----------- -----------
TOTAL NET SALES 945,978 918,573
----------- -----------
COST OF SALES
Products 17,339 15,842
Support and services 237,060 206,016
----------- -----------
TOTAL COST OF SALES 254,399 221,858
GROSS PROFIT 691,579 696,715
----------- -----------
OPERATING EXPENSES
Selling expenses 118,429 145,621
General and administrative expenses 429,801 427,097
Research and development expenses -- 90,343
----------- -----------
TOTAL OPERATING EXPENSES 548,230 663,061
----------- -----------
PROFIT FROM OPERATIONS 143,349 33,654
OTHER INCOME (EXPENSE)
Loss on disposal of fixed assets (42,469) --
Interest income 22,462 1,240
Interest expense (240,504) (125,558)
Litigation settlement 4,175,583 --
Miscellaneous income 47,239 --
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 3,962,311 (124,318)
----------- -----------
NET INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES $ 4,105,660 $ (90,664)
=========== ===========
PROVISION FOR INCOME TAXES 95,000 --
NET INCOME (LOSS) $ 4,010,660 $ (90,664)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ 1.01 $ (.02)
=========== ===========
Weighted average number of common shares outstanding 3,963,940 3,963,940
=========== ===========
Diluted earnings per share $ .92 n/a
=========== ===========
See accompanying notes to the financial statements
and independent auditor'sreport.
F-5
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
Stockholders' Equity (Deficit)
----------------------------------------------------------------------------------------
Common Stock Additional Accumulated Treasury Stock
Shares Amount Paid-In-Capital Deficit Shares Amount Total Equity
(Deficit)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 3,965,199 $ 39,652 $ 17,637,694 $(19,677,399) 1,259 $ (18,056) $ (2,018,109)
============ ============ ============ ============ ============ ============ ============
Net loss -- -- -- (90,664) -- -- (90,664)
Balance at June 30, 2000 3,965,199 $ 39,652 $ 17,637,694 $(19,768,063) 1,259 $ (18,056) $ (2,108,773)
============ ============ ============ ============ ============ ============ ============
Net income -- -- -- 4,010,660 -- -- 4,010,660
Balance at June 30, 2001 3,965,199 39,652 17,637,694 (15,757,403) 1,259 (18,056) 1,901,887
============ ============ ============ ============ ============ ============ ============
See accompanying notes to the financial statements
and independent auditor'sreport.
F-6
ACCESS SOLUTIONS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
YEAR ENDED JUNE 30,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,010,660 $ (90,664)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 19,240 72,459
Loss on disposal of fixed assets 42,469 --
Provision for doubtful accounts-trade receivables (8,823) (8,400)
Changes in operating assets and liabilities:
Decrease (Increase) in:
Trade accounts receivable 76,986 (108,978)
Inventories 3,935 (407)
Prepaid expenses and other current assets 6,310 32,405
Increase (decrease) in:
Accounts payable (393,686) (19,572)
Accrued expenses and salaries and wages (78,595) (381,997)
Provision for income taxes 95,000 --
Deferred revenue (117,710) (18,382)
----------- -----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 3,655,786 (523,536)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- (435)
----------- -----------
NET CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES -- (435)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Patent litigation loan addendum -- 498,611
Repayment of Note Payable (1,287,549) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,287,549) 498,611
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,368,237 (25,360)
CASH AND CASH EQUIVALENTS, BEGINNING 58,042 83,402
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 2,426,279 $ 58,042
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for interest $ 502,862 $ --
=========== ===========
See accompanying notes to the financial statements
and independent auditor's report
F-7
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
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.
In previous years, ASI has suffered recurring losses from operations, has
had an accumulated deficit, and has incurred negative cash flows from
operating activities. Without the proceeds from the settlement discussed
above, the recurring losses and negative cash flow from operating
activities would raise substantial doubt about the Company's ability to
continue as a going concern. However, the cash received from the settlement
has provided the Company the opportunity to reevaluate its market position
and opportunities and maintain a sufficient level of working capital to
continue as a going concern for at least the next twelve months.
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.
F-8
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories, Continued
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.
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.
F-9
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes, Continued
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, 2001, which is fully reserved, is net operating loss
carryforwards.
Earnings (Loss) Per Common Share
In 2001 and 2000, earnings (loss) 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 375,000 shares which
represent exercisable options at June 30, 2001.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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
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.
F-10
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
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 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 at 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 was 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 piggy back
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 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, 2001 consist of the following:
Production inventory $ 371,132
Less - inventory reserves (349,660)
----------
TOTAL INVENTORY AVAILABLE FOR SALE $ 21,472
==========
F-11
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2001 consists of the following:
Computers and office equipment $ 56,574
Furniture and fixtures 9,313
---------
TOTAL 65,887
Accumulated depreciation and amortization (59,849)
---------
NET PROPERTY AND EQUIPMENT $ 6,038
=========
6. CONVERTIBLE NOTES PAYABLE
On May 27, 1998, the Company completed a financing agreement for the sale
of a 30% interest in several of the Company's patents to a stockholder who
was also a former director, for $100,000. Subsequent to June 30, 1999, this
shareholder sold all of his Company common stock. These patents were the
subject of a lawsuit pending in the United States District Court for the
District of Rhode Island. In addition, the same shareholder also loaned the
Company $650,000 reflected as convertible notes payable in these financial
statements, and has agreed to make additional advances 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% per annum, which amounted to $238,952 in fiscal
year 2001. 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, the above convertible note payable was
amended to extend the date upon which the note becomes payable upon demand
to July 1, 2003. In addition, the maximum amount to be advanced under the
loan agreement was increased from $1,000,000 to $1,500,000.
The loan was also convertible at the option of the lender after August 24,
1998 (provided that and as long as the Company was not then a party to a
binding equity infusion as defined in the agreement) to convert the note
into that number of fully paid nonaccessible shares into the Company's
common stock as is obtained by dividing the outstanding principal and
interest balance of the note as of the date of conversion by the
hereinafter defined market price. Such optional conversion could be
exercised by the lender giving written notice of such election to convert,
surrender of the note to the Company, the Company's payment to the lender
of interest accrued on the note through the date of such conversion and the
issuance by the Company to the lender of that number of shares of the
Company's common stock as is obtained by the market price formula. The
market price formula is obtained by taking the average market price of the
daily market prices of the shares of the Company's common stock over a
period of 20 consecutive business days prior to the day as of which "market
price" is being determined.
F-12
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
6. CONVERTIBLE NOTES PAYABLE, CONTINUED
On April 23, 2001, ASI announced that it had received a monetary award
pursuant to a signed settlement agreement with Anacomp, Inc. and Kodak
resolving its patent infringement lawsuit against defendants Anacomp and
Kodak in the United States District Court for the District of Rhode Island
(Note 1).
On May 1, 2001, the aggregate value of the outstanding loans, including
interest, was $1,614,642. The option to convert was not exercised, and this
liability was retired in full on May 1, 2001.
7. 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. The new lease
may be terminated after twelve months, but such termination would
accelerate certain unamortized leasehold improvements. Total rent expense
for the years ended June 30, 2001 and 2000 amounted to $35,909 and $34,713,
respectively. The Company has extended the current lease for three months.
8. 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, 2001 are as follows:
JUNE 30, 2001 Deferred tax assets:
Net operating loss carryforwards $4,288,000
Research and development costs capitalized
for tax purposes 85,000
----------
4,373,000
Valuation allowance (4,373,000)
----------
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.
F-13
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
8. INCOME TAXES, CONTINUED
At June 30, 2001, the Company has total federal and state NOL
carryforwards, prior to any limitations, available to reduce future taxable
income of approximately $10,719,000, which expire in various amounts
between the fiscal years 2002 and 2020, 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, 2001 management estimates that
approximately $400,000 (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 $20,000 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, 2001:
Net income before provision for
income tax purposes $ 4,105,700
Legal fees 377,200
Interest expense 264,500
Paperclip write-off 2,584,100
Research and development 213,300
Net operating loss carryforwards 424,800
------------
Taxable net income $ 241,800
============
The Company has 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 has 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, the Company has a research and development tax deduction from
research and development expenses capitalized in prior periods for tax
reporting purposes, and a net operating loss carryforward deduction that
can be utilized for the year ending June 30, 2001.
The federal and state income tax provision is summarized as follows:
Federal $ 70,000
State 25,000
-----------
$ 95,000
===========
F-14
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
9. 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 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, 2001 and 2000, the following stock options were outstanding:
Exercise Number Outstanding
Price June 30, June 30,
Per Share 2001 2000
--------- --------- ----------
$ .08 375,000 375,000
3.75 45,393 45,393
74.00 0 0
222.00 1,014 1,014
351.50 0 0
399.60 9 9
---------- ----------
421,416 421,416
========== ==========
F-15
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
9. STOCK OPTIONS, CONTINUED
The following is a summary of stock option activity for the years ended June 30, 2001
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 - -
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 - -
Granted to former employees 45,393 $3.75 3.75 3.75 5 years
Cancelled (121,478) 3.75-$399.60 - - -
------- ------------- -------- ------ -------
Outstanding June 30, 1998 134,649 $3.75-$399.60 $ 8.67 - 5 years
------- ------------- -------- ------ -------
Granted to employees 375,000 $ .08 .08 .08 7 years
Cancelled (88,175) 3.75-$399.60 - - -
------- ------------- -------- ------ -------
Outstanding June 30, 1999 421,474 $ .08-$399.60 $ 1.04 - 7 years
------- ------------- -------- ------ -------
Cancelled (58) $74.00-$351.50 - - -
------- ------------- -------- ------ -------
Outstanding June 30, 2000 421,416 $ .08-$399.60 $ 1.02 - 6 years
------- ------------- -------- ------ -------
Cancelled - - - - -
------- ------------- -------- ------ -------
Outstanding June 30, 2001 421,416 $ .08-$399.60 $ 1.02 - 5 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:
2001 2000
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
Net income (loss) $ 4,105,660 $ 4,105,660 $ (90,664) $ (90,664)
=========== =========== ========= =========
Earnings (loss) per common share $1.04 $1.04 $(.02) $(.02)
===== ===== ===== =====
F-16
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
9. 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:
2001 2000
---- ----
Expected life 5 years 6 years
Risk-free yields 4.80% 5.44%
Expected volatility 50%* 4.30%*
*Since there were no employee grants in FY 2001, this assumption did not
influence the stock-based compensation expense calculation for FY 2001.
The Company recognizes forfeitures as they occur.
10. 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 $99,800 and $108,000 in the years ended June 30, 2001 and
2000, respectively. The Company's foreign sales represented approximately
11% and 12% of total revenues for the year ended June 30, 2001 and 2000,
respectively.
Amounts due from two customers represented approximately 100% of total
accounts receivable outstanding at June 30, 2001.
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.
11. RESEARCH AND DEVELOPMENT
Research and development expense in the prior year represents costs
associated with the Company's completion of GIGAPAGE 3.0, which also
represented completion of all significant product commitments.
F-17
Item 8. Disagreements with Accountants on Accounting and Financial Disclosure
None.
12
Part III
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, 51(1)..............President, Chief Executive Officer, Director
Thomas E. Gardner, 63 (1)(2)........Chief Financial Officer, Treasurer, Chairman
of the Board
Adrian Hancock, 54..................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. 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 and to Point
Gammon Corporation, whose principal owner, Mr. Malcolm G. Chace III, is a former
ASI stockholder and director.
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.
13
Item 9, Continued
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, 2001 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, 2001 to the chief
executive officer and the other executive officers of ASI whose compensation
exceeded $100,000 (the "Named Executive Officers").
Long-Term Compensation
Annual Awards
Compensation
Securities
Name and Fiscal Paid Underlying All Other
Principal Position Year Salary Bonus Options Compensation
------------------ ---- ------ ----- ------- ------------
Robert H. Stone, President and Chief
Executive Officer 2001 15,000 -- -- --
2000 39,546 -- -- --
1999 120,995 -- -- --
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to option grants during the fiscal year ended June 30,
2001 to the Named Executive Officers.
Number Percent of
Securities Total Options Exercise
Underlying Granted to or Base
Options Employees Price Expiration
Name Granted in Fiscal Year ($/sh) Date
---- ------- -------------- ------ ----
Robert H. Stone, President and Chief none
Executive Officer
14
Item 10. Executive Compensation, Continued
Year-end Option Table. During the fiscal period ended June 30, 2001, none of the
Named Executive Officers exercised any options issued by ASI. The following
table sets forth information regarding the stock options held as of July 1, 2001
by the Named Executive Officers.
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money-Options at Fiscal
Options at Fiscal Year-End Year End
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Robert H. Stone..................... 100,000 0 $0 $0
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.
On June 15, 1999 the Company granted non-qualified options 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.
15
Item 11. 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, 2001 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 Officers of ASI 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 113,891 *
Gammon Corporation (1)
One Providence Washington Plaza
4th Floor
Providence, RI 02903
Adrian Hancock (1) 100,000 --
c/o The Planning Technologies Group
92 Hayden Avenue
Lexington, MA 02173
David J. Capraro, Trustee of the David J. Capraro 390,000 9.84
Living Trust U/A/D 3/31/00
1682 Graefield
Birmingham, Michigan 48009
J. Michael Costello c/o Baldwin Brothers 757,212 19.10
One Providence Washington Plaza
Providence, RI
----------------------------------------
(1) Consists of 100,000 shares of ASI Common Stock issuable upon exercise
of stock options.
* Less than 1%
16
Item 12. Certain Relationships and Related Transactions
Certain Transactions between ASI and PaperClip
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 October, 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 hereby on December 1, 2003. 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 hereunder shall bear interest from
the date such payment was due at fifteen (15%) percent per annum. PaperClip may
prepay this Note at any time after having given at least thirty (30) days prior
written notice to Payee.
The repayment of the indebtedness evidenced by the note may be accelerated at
the election of the Payee, 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
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 Payee 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;
17
Item 12. Certain Relationships and Related Transactions, Continued
(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 provides 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. Although the
payments on the note are current, 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.
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 complete the following scope
of work or until the Board deems that the project has progressed to a point
where your (his) day to day consulting efforts are no longer required". The
project scope is described as follows: "To investigate the alternative
strategies open to the Board in realizing for the shareholders an appropriate
return on their investment in the company." The project scope continues that,
"the Board has no preconceived idea of the ideal outcome apart from the goal of
returning the best overall return (balancing risk with reward) to the
shareholders. The scope of the project includes supervisory and investigative
activities taken since our last Board meeting."
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.
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.
None.
(b) Reports on Forms 8-K
None.
18
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: October 15, 2001 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, 2001.
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
19