To Our Shareholders:
Fiscal Year 1997 was a year of dramatic change and mixed financial
results, ending with a solid fourth quarter including our second
acquisition in as many years, which bodes well for FY 1998. Our
continued focus on increasing the quality and quantity of our
services paid off with growth in the strategically important
hardware service sector of our business. As I promised last year,
we combined internal growth with a strategy for obtaining
additional service revenue through acquisition. This culminated
in the April, 1997 acquisition of the assets of Graphic Systems
Technology, Inc., an independent provider of services for the
electronic pre-press industry.
Revenue increases in third party hardware maintenance and software
maintenance were offset by larger than expected revenue decreases
in Access proprietary hardware maintenance and Cimage software.
When excluding amortization for capitalized software, a non cash
charge in fiscal 1997, the Company generated $18,000 Net Profit
Before Income Taxes. This was the result of careful cost control
throughout the year. A $1,069,000 write-off of capitalized
software during this year caused a net loss after taxes of
$1,051,000. Our cash position is healthy, even after the
acquisition late in the year.
Access' business continues to change at a dramatic pace. Rapid
technological change coupled with our focus on new growth oriented
business opportunities has dramatically changed ACCESS Corporation
s' revenue mix. In FY 1997, 64% of our revenue came from
products or services that were not offered as recently as FY 1994.
Financial Results:
Although portions of our company did well in FY 1997, overall,
total company revenue for FY 1997 decreased by 20% to $6,929,000.
This was largely due to revenue reductions in two key areas:
Cimage EDMS software sales (down 30%) and Access System M, the
Company's proprietary storage and retrieval equipment which is no
longer being manufactured, hardware maintenance revenue (down
41%). However, after strong performances in FY 1996,
professional services and software maintenance continued to turn
in solid revenue results for FY 1997 with modest revenue changes
of +1.8% and +3.9%, respectively. Our third party hardware
maintenance business clearly stole the show with a 98% revenue
increase over FY 1996.
Despite the revenue decrease from FY 1996, we were able to end FY
1997 with a very modest operating profit of $18,000 excluding the
amortization of capitalized software. As the year began to
unfold, we managed our cost structure carefully, including a 13%
decrease in operating expense for the year. We showed a large
net loss after taxes of $1,051,000 for the year due to the
accelerated write-off of $1,069,000 of capitalized software
development costs for the year. This write-off represents the
remaining balance of the EDICS/400 software development costs
capitalized in FY 1993. We are committed to continued support for
our existing EDICS/400 customers and we are actively offering this
product for sale to new and existing customers. However, after
reviewing the sales prospects for this software product line, we
concluded that continuing this capitalization was inconsistent
with our future potential revenue.
Access finished the year with a very strong fourth quarter. At
$2,377,000 in revenue, and $207,000 in net income after tax, the
fourth quarter represented an upturn in every area of our
business.
Our cash position continues to remain strong. After investing
approximately $324,000 in net cash in the fourth quarter for the
acquisition of the assets of Graphic Systems Technology, Inc., a
provider of Pre-press field maintenance and related services, we
ended the year with over $1.4 million in cash, and (still) no bank
debt.
Hardware and Software Maintenance:
At $4,040,000, hardware and software maintenance revenue accounted
for 58% of total company revenue in FY 1997.
Since 1992 Access has been aggressively developing a very high
quality, flexible, quick response third party maintenance
operation. Our growth strategy for Third Party Maintenance (TPM)
has been and continues to be one of focusing on delivering
exceptionally high levels of customer satisfaction, servicing
mission critical hardware and software, and providing nationwide
service coverage for our Support Partners. This has delivered
five straight years of high double-digit revenue growth rates, for
an average annual growth rate for the last five years of 86% per
year. At $1,872,000, total hardware and software TPM revenue for
FY 1997 increased by 63% over the previous year, comprising 27% of
total company revenue. At $1,097,000 for FY 1997, Hardware TPM
increased by 98% over FY 1996, while software TPM increased by 31%
to $775,000.
Access Corporation
Third Party Maintenance Revenue
Hardware & Software
Last year I reported that we were supporting 600 customers
worldwide. At this time we are now providing maintenance support
to over 4,000 customers worldwide - more than a 600% increase- and
that number is growing daily. Our Support Partner Program offers
flexible, high quality maintenance services for vendors of
technical hardware and software. As of this writing, 14 companies
have become Access Support Partners, choosing Access to take care
of their customers.
Access Corporation
National Field Service Coverage
Our nationwide service coverage is delivered by over 80 well-
trained, highly qualified technicians. We currently are
supporting customers in 48 states, including Alaska and Hawaii,
and we can add any city in North America to our coverage within
five business days. Our support repertoire includes over 50
different software and 90 different hardware products.
Individually tailored support programs combined with available 24
hour, 7 day per week coverage gives our customers the flexibility
to tailor their support to their unique business needs.
Increasing by 3.8% over last fiscal year, software maintenance
continued its 4th year in a row of revenue growth. Buoyed by a
31% increase in Cimage related software maintenance, software
maintenance was 19% of total company revenue in FY 1997.
Consistent with our overall services strategy, we invested in
technical cross-training of our technical services personnel to
increase our productivity and our ability to provide customer
satisfaction.
Pre-Press Acquisition:
As I discussed last year, we began FY 1997 with a plan to look for
growth opportunities through acquisition. I outlined an
acquisition program designed to bring in additional on-going
service revenue, additional customers, and additional products or
services.
As a result of that program, on Friday April 11, 1996 we purchased
the assets of Graphic Systems Technology, Inc. (GST). GST was a
recognized independent service company for the electronic pre-
press industry. By the following Monday, we were supporting GST's
former customers. Within days, we had hired approximately 20 of
GST's former employees, effectively doubling the number of Access'
field hardware maintenance employees. GST's former Field Service
Representatives (FSR's) have proven to be highly qualified field
engineers with a customer-first culture similar to Access'. This
increased geographical coverage and growth of our field personnel
significantly increases Access' capacity to service additional
Service Partners.
EDMS Business Unit:
Focused EDMS marketing during FY 1997 resulted in a 112% increase
in the number of orders received over FY 1996, evidence of the
underlying strength of the EDMS business. As we began the year,
our primary objective for our EDMS Business unit was to replace in
FY 1997 the $2,148,000 in software revenue contributed by a single
customer in FY 1996. Although our efforts were successful in
producing a dramatic increase in the number of orders received,
total EDMS software revenue decreased from $2,850,000 to
$2,006,000.
Cimage Enterprise Systems (CES), our UK-based provider of the
Cimage software product, continues to invest in product quality
and is a market leader in EDMS functionality. CES also
demonstrated their commitment to the US market place by increasing
their US marketing investment during the year. Cimage related
Professional Services revenue also produced a very strong showing,
increasing by 100% to $574,000
Business Strategy for the Future:
FY 1998 will begin with solid increases in Third Party Maintenance
(TPM) revenue resulting from the aggressive marketing of our
unique capabilities this past year combined with the new Pre-Press
business. We will continue our strategy of delivering exceptional
levels of customer satisfaction to attract quality oriented
Service Partners. Strategic investments in technology to automate
and continuously improve our systems and processes will further
our ability to deliver a very high quality, flexible, quick
response third party maintenance with nationwide coverage. We
expect steady revenue growth from this business unit throughout
the year.
Growth through acquisition has been successful in each of the past
two years. This strategy will continue in FY 1998. The
investments in this area in FY 1997 not only resulted in the April
11 asset acquisition of GST's assets, but also identified a number
of possible acquisition targets which we will pursue in FY 1998.
Our EDMS business unit will continue to focus on the
manufacturing, petrochemical, and utilities market segments where
the Cimage product has proven to meet customer requirements
extremely well. Cimage has scheduled new software releases in the
coming year that promise to further enhance their leading role in
the EDMS market place. Our strategy for EDMS growth includes
combined Cimage and Access marketing directed at these segments
coupled with expanded distribution through reseller partners.
Fiscal Year 1997 saw the continued transformation of your company
to a nationwide service provider and software reseller. We
expect these strategies will continue to expand our coverage and
revenue growth in FY 1998.
Sincerely,
Scott D. Watkins
President & Chief Executive Officer
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