UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly Period Ended October 31, 1996 OR [ ]	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From to ------------------------- ----------------------------------- Commission File Number 2-33108 ACCESS CORPORATION (Exact name of registrant as specified in its charter) 	 Ohio 31-0673364 - --------------------------------------- ---------------------------- (State or other jurisdiction of incorporation) (IRS Employer ID Number) 4350 Glendale-Milford Road, Suite 250, Cincinnati, Ohio 45242-3700 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (513)786-8350 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common shares, as of October 31, 1996. Common Stock, no par value: 4,865,559 shares. PART I. FINANCIAL INFORMATION ACCESS CORPORATION BALANCE SHEETS ASSETS October 31, April 30, 1996 1996 CURRENT ASSETS: Cash $ 1,673,614 $2,071,772 Accounts Receivable, Less Allowances 1,919,971 1,890,673 for Doubtful Accounts of $14,000 in October 1996 and $189,685 in April 1996 Inventories Raw Materials and Purchase Parts 49,279 64,553 Work - in - Process 7,773 102,900 Finished Goods 18,981 21,057 ------------------------- 76,033 188,510 Prepaid Expenses 134,063 106,283 Deferred Income Tax Benefit 112,000 112,000 -------------------------- TOTAL CURRENT ASSETS 3,915,681 4,369,238 EQUIPMENT AND LEASEHOLD IMPROVEMENTS Computer Hardware & Software 1,483,044 1,449,310 Machinery and Equipment 503,337 503,337 Office and Service Equipment 369,208 364,492 Leasehold Improvements 13,405 13,405 Tools, Dies and Fixtures 115,013 115,013 --------------------------- 2,484,007 2,445,557 Less Accumulated Depreciation (2,246,728) (2,187,785) --------------------------- 237,279 257,772 COMPUTER SOFTWARE COSTS 732,070 1,068,923 DEFERRED INCOME TAX BENEFIT 545,700 545,700 --------------------------- TOTAL ASSETS $ 5,430,730 $ 6,241,633 SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY October 31, April 30, CURRENT LIABILITIES 1996 1996 ------------------------------ Accounts Payable $ 94,229 $ 285,703 Accrued Salaries, Wages and Commissions 171,761 367,282 Accrued Taxes 10,753 22,400 Accrued Warranty Expense 16,950 - Capital Leases - Current 4,201 19,599 Other Accrued Liabilities 117,633 49,385 Accrued Royalty 496,849 291,192 Advances from Customers 232,846 408,460 ----------------------------- TOTAL CURRENT LIABILITIES 1,145,222 1,444,021 PREPAID MAINTENANCE CONTRACT REVENUE 475,964 609,078 MANDATORILY REDEEMABLE PREFERRED STOCK 1,500,000 1,500,000 Accrued Preferred Dividends - 102,510 STOCKHOLDERS' EQUITY Capital Stock Common Stock, No Par Value,Authorized 488,183 488,183 8,000,000 Shares, Issued and Outstanding 4,881,829 Shares Additional Paid-In Capital 10,657,652 10,657,652 Deficit from April 1, 1985 (8,820,908) (8,544,428) 16,270 Common Stock Shares In (15,383) (15,383) Treasury, at Cost ----------------------------- TOTAL STOCKHOLDERS' EQUITY 2,309,544 2,586,024 TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 5,430,730 $ 6,241,633 ============================= SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION STATEMENT OF OPERATIONS Three Months Ended October 31, 1996 1995 --------------------------- REVENUE System Sales,exclusive of amortization shown below $ 567,449 $ 944,345 Service 949,950 1,137,791 Manufacturing 10,209 20,880 ---------------------------- 1,527,608 2,103,016 COST OF REVENUE System Sales 325,015 520,633 Service 595,171 606,901 Manufacturing 27,069 50,441 ------------------------------ 947,255 1,177,975 GROSS PROFIT BEFORE AMORTIZATION 580,353 925,041 AMORTIZATION OF COMPUTER SOFTWARE COST 168,426 168,426 GROSS PROFIT 411,927 756,615 Sales and Administrative 617,046 578,056 Engineering, Research and Development 84,310 140,858 ------------------------------- Total Costs and Expenses 701,356 718,914 EARNINGS(LOSS) FROM OPERATIONS (289,429) 37,701 OTHER INCOME (EXPENSE) Interest Income 19,705 14,611 Other Income 131,926 10 Interest Expense (1,144) (4,515) Other 2,120 (33) NET EARNINGS(LOSS) BEFORE INCOME TAXES (136,822) 47,774 INCOME TAXES - 11,100 NET EARNINGS (136,822) 36,674 PREFERRED DIVIDEND - 10,802 INCOME(LOSS) APPLICABLE TO COMMON SHARES$(136,822) $ 25,872 =============================== PER COMMON SHARE AND COMMON SHARE EQUIVALENTS Net earnings(loss) $ (0.03) $ 0.01 =============================== SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION STATEMENT OF OPERATIONS Six Months Ended October 31, 1996 1995 ---------------------------- REVENUE System Sales $ 1,161,418 $ 1,160,406 Service 1,988,065 2,228,000 Manufacturing 53,476 71,881 ---------------------------- 3,202,959 3,460,287 COST OF REVENUE System Sales,exclusive of amortization shown below 648,426 672,231 Service 1,219,248 1,150,651 Manufacturing 73,831 114,543 ---------------------------- 1,941,505 1,937,425 GROSS PROFIT BEFORE AMORTIZATION 1,261,454 1,522,862 AMORTIZATION OF COMPUTER SOFTWARE COST 336,852 336,852 GROSS PROFIT 924,602 1,186,010 Sales and Administrative 1,229,771 915,814 Engineering, Research and Development 144,624 250,147 ---------------------------- Total Costs and Expenses 1,374,395 1,165,961 EARNINGS(LOSS) FROM OPERATIONS (449,793) 20,049 OTHER INCOME (EXPENSE) Interest Income 41,540 27,052 Other Income 131,895 Interest Expense (2,176) (6,652) Other 2,054 (7,746) EARNINGS(LOSS) FROM CONTINUING OPERATIONS (276,480) 32,703 BEFORE INCOME TAXES INCOME TAXES - 11,100 NET (LOSS) EARNINGS (276,480) 21,603 PREFERRED DIVIDENDS - 10,802 --------------------------- INCOME APPLICABLE TO COMMON SHARES $ (276,480) $ 10,801 ============================= PER COMMON SHARE AND COMMON SHARE EQUIVALENTS Net Earnings (Loss) $ (0.06) $ 0.00 SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION STATEMENTS OF CASH FLOW Six Months Ended October 31, 1996 1995 ------------------------------ CASH FLOW FROM: OPERATING ACTIVITIES Net Earnings (Loss) $ (276,480) $ 21,603 Adjustments to Reconcile Net Earnings (loss)To Net Cash Used in Operations: Depreciation 62,788 70,367 Amortization 336,852 336,852 Deferred Income Tax - 11,100 (Gain) Loss on Sale of Fixed Asset (2,355) 7,377 Changes in Assets and Liabilities Accounts Receivable (29,298) (313,960) Inventories 112,477 171,487 Prepaid Expenses (13,386) (105,259) Accounts Payable (191,474) 131,734 Accrued Liabilities (121,971) 98,316 Accrued Royalties 205,657 (38,177) Advances From Customers (175,614) (95,720) Prepaid Maintenance Contract Revenue(133,114) 17,486 ------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (225,918) 291,603 INVESTING ACTIVITIES: Capital Additions (54,333) (109,331) Investment in Subsidiary - (68,629) ------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (54,333) (177,960) FINANCING ACTIVITIES Preferred Dividends (102,509) (64,685) Payments on Capital Leases (15,398) (36,846) ------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (117,907) (101,531) NET CHANGE IN CASH (398,158) 33,715 CASH, Beginning of the Year 2,071,772 883,487 --------------------------------- CASH, October 31, 1996 and 1995 $1,673,614 $917,202 ================================ SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS OCTOBER 31, 1996 NOTE A - Condensed Financial Statements - ------------------------------------------ The condensed balance sheet as of October 31, 1996, the condensed statement of earnings for the six month and three month periods ended October 31, 1996 and 1995, and the condensed statements of cash flows for the six month periods ended October 31, 1996 and 1995, have been prepared by the Company without audit. These financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All adjustments made during the quarter ended October 31, 1996 are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended April 30, 1996. The results of operations for the period, ended October 31, 1996 are not necessarily indicative of the operating results for the full year. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------------ RESULTS OF OPERATIONS: The Company has two primary lines of business. Over the years the Company has built a substantial, continuing field maintenance service business. This business services, on a nationwide basis, hardware and, on a national and international basis, software for the Company's installed base of customers and third parties. The Company is also a leader in the sale of Electronic Document Management Systems (EDMS) software systems. In this line of business, the Company develops and markets software solutions for its customers' technical processes. EDMS has the potential for substantial growth in revenue and profits in that it serves a potentially large, worldwide market opportunity. Fiscal year 1997 second quarter revenue of $1.5 million was down $575,400 (27%) compared with the second quarter of fiscal 1996. Service revenue of $950,000 decreased $187,800 (17%) compared with the second quarter of fiscal 1996. This decrease in revenue occurred in Hardware Service as the result of the loss of micrographic equipment being replaced with new technology. EDMS revenue of $567,000 decreased $376,900 (40%) compared with the second quarter of fiscal 1996. The Company revenued two large orders for U.S. West and Allied Signal in the quarter ended October 31,1995 and did not have similar large system sales in the second quarter of fiscal 1997. Revenue for the first six months of fiscal 1997 of $3.2 million decreased 7% from the six months ended October 31, 1996. EDMS revenue of $1.2 million was essentially unchanged from the prior year. Service revenue of $2.0 million decreased 11% from the six months ended October 31,1996. This decrease in service revenue is due to the continuing decline of hardware service revenue from micrographic products. The Company continues to look for third party hardware to maintain which is expected to increase the service revenue. The Company's current backlog of orders is $2.20 million compared to $2.19 million at the end of the six months ended October 31, 1995. Current EDMS backlog of $570,000 is 8% lower than that at the same date last year. This decrease in backlog is the result of the Company delivering a majority of its UNIX orders over the past year. Service backlog of $1.6 million was 5% higher at October 31, 1996 compared with October 31, 1995. This increase in backlog was due to the increase in orders for Cimage software support, which the Company began selling with the acquisition of CimSoft Inc. on July 31, 1995. This Service backlog is expected to be delivered within the next twelve months. Gross Margins for the second quarter ended October 31, 1996 of 27% deceased 9% of that for the comparable period in fiscal 1996, which was 36% EDMS gross margin before amortization for the second quarter of fiscal 1997 was 43%, which was identical to the second quarter of fiscal 1996 level. EDMS gross margin after amortization was 13% , compared to 25% for the same period last year. The decrease in gross margin is a result of the lower revenue discussed above. Service gross margin of 35% for the quarter ended October 31, 1996 decreased from 43% for the period ended October 31, 1995. This decrease in gross margin is the result of decreased micrographic service revenue while related costs did not decease for the period. Selling and administrative expenses of $617,000 for the second quarter of fiscal 1997 were $39,000 (7%) higher than the second quarter of fiscal 1996. Selling expenses increased due to increased travel expenses. Administrative expenses of $286,900 have increased $13,900 due to the spending for acquisition development. This expense funds outside activity in the search for attractive acquisition candidates. This expense shall continue throughout fiscal 1997. Engineering, research and development expenses are incurred for maintaining, upgrading and developing new Access products. The research and development for the Cimage products are performed by Cimage Enterprise Systems in the U.K. The second quarter expense for engineering, research and development of $84,300 decreased $56,500 (40%) from the second quarter of last fiscal year. This decrease is primarily due to the fact that more time is being spent on inventory projects versus development projects, as well as decreases in expenses for depreciation and occupancy charges. In fiscal 1996, the Company reported the under absorption for Installations Management/ Professional Services as a cost to Research and Development.The expense of this department in fiscal 1997 is accounted for entirely in the cost of goods sold. Other income for the second quarter ended October 31, 1996 was $131,900. In September 1996, the Company collected a Cimage receivable acquired when the Company acquired CimSoft Inc.. The Company did not accrue this receivable because the Company felt it was uncollectable at the time of purchase. Interest income for the second quarter ended October 31, 1996 was $19,700 compared with $14,600 for the second quarter ended October 31, 1995. Interest income for fiscal 1997 and 1996 was primarily the interest received on cash being invested in short term investments. LIQUIDITY AND CAPITAL RESOURCES During the first six months of fiscal 1997, the Company decreased its cash balance by $398,200 leaving $1,673,600 in cash. The Company used $225,900 in cash from operations, invested $54,300 in fixed assets and spent $15,400 for payments on capital leases. Accrued Royalties increased $205,700 since April 30, 1996. The major contributor for this increase was the accrual of royalties to Cimage Enterprise Systems for software sold in Fiscal 1997. On large customer orders there are provisions for progress payments to be made by customers based on predetermined events. These advances decreased approximately $175,600 since April 30, 1996. Working capital on October 31, 1996 was approximately $2,770,500, which is $154,700 lower than the April 30, 1996 level. This primarily was the result of reduction in the cash balance. The Company's operations are structured so that revenues from its ongoing and new third party service business, in combination with the sale of new Cimage , AS/400 and UNIX products are expected to provide the cash flow required to operate the Company. SIGNATURES 	Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 					ACCESS CORPORATION Date: November 30, 1996		/s/Newton D. Baker ----------------------------- 					Newton D. Baker 					Executive Vice President Date: November 30, 1996 		/s/ Barbara A. Sommer ----------------------------- 					Barbara A. Sommer 					Assistant Treasurer & Chief Accounting Officer SIGNATURES --------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 					ACCESS CORPORATION Date: November 30, 1996 NEWTON D. BAKER _________________ ------------------------------ Newton D. Baker 					Executive Vice President Date: November 30, 1996 BARBARA A. SOMMER ----------------- ------------------------------ 					Barbara A. Sommer 					Assistant Treasurer & Chief Accounting Officer EXHIBIT INDEX ------------- (11)	Statement re-computation of per share earnings 		(a) The calculation of net earnings per common share and common share equivalent for three month periods ended October 31, 1996 and 1995 is attached as Exhibit 11(a). 		(b) The calculation of net earnings per common share and common share equivalent for six month periods ended October 31, 1996 and 1995 is attached as Exhibit 11(b).