CONTENTS
Letter to Shareholders 1
Selected Financial Data 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Independent Auditors' Report 11
Statements of Operations 12
Statements of Capital Stock and Other Stockholder's Equity 13
Balance Sheets 14
Statements of Cash Flows 15
Notes to Financial Statements 16
Corporate Profile 23
ACCESS Directors, Officers and Shareholder Information 25
ACCESS CORPORATION
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED April 30, 1997 April 30, 1996 April 30 1995 April 30 1994 April 30 1993
Summary of Earnings (Loss) from Operations
Net Sales $ 6,929,353 $ 8,704,452 $ 6,041,782 $ 6,896,352 $ 7,020,074
Gross Profit 1,496,282 3,310,058 2,352,750 2,573,260 2,871,200
Gross Profit as percentage
of net sales 22% 38% 39% 37% 41%
Interest Expense 4,925 9,378 31,911 26,450 53,246
Net Earnings (Loss) from
Continuing Operations (1,050,732) 205,021 129,370 (551,376) (23,947)
Net Earnings (Loss) before
cumulative effect of
accounting change (1,050,732) 205,021 129,370 (615,239) (182,731)
Cumulative effect of
accounting change 730,000
Net Earnings (Loss) (1,050,732) 205,021 129,370 (615,239) 547,269
Preferred Dividend - 102,510 64,685 - -
Income(loss) applicable to
common shares $ (1,050,732) $ 102,511 $ 64,685 $ (615,239) $ 547,269
Average common and common
share equivalents
outstanding 4,865,559 4,865,559 4,865,559 4,865,559 4,865,559
Per Common Share Statistics
Net Earnings (Loss) from
Continuing Operations $ (0.22) $ 0.02 $ 0.01 $ (0.11) $ (0.00)
Net Earnings (Loss) before
cumulative effect of
accounting change (0.22) 0.02 0.01 (0.13) (0.04)
Cumulative effect of
accounting change 0.15
Net Earnings (Loss) $ (0.22) $ 0.02 $ 0.01 $ (0.13) $ 0.11
Balance Sheet Data
Working Capital $ 2,663,470 $ 2,925,217 $ 1,734,779 $ 695,922 $ 342,444
Working Capital Ratio 3.0:1 3.0:1 3.3:1 1.7:1 1.1:1
Total Assets 5,017,591 6,241,633 5,129,248 5,132,511 7,242,855
Mandatorily redeemable
preferred stock 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Capital Stock and Other
Stockholders' equity $1,535,292 $ 2,586,024 $ 2,483,512 $ 2,418,826 $ 3,035,419
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
NET REVENUES
(In thousands)
1997 Change 1996 Change 1995
Net Revenues $6,929 20% $8,704 44% $6,042
ACCESS Corporation has two primary lines of business. Originally, the
Company's service activities were limited to the support of its proprietary
products in mission critical environments. Through this support, it developed
an effective service organization that maintained electromechanical equipment
operating as part of a networked computer system. The Company is currently
building and growing this service maintenance by providing service for
equipment manufactured and sold by third parties. The Company is working
with manufacturers and distributors of high value equipment to provide
service both through these manufacturers and distributors and direct to
their customers. The Company services, on a nationwide basis, end users on
both maintenance contracts and a time and material basis. In April 1997,
through the acquisition of the assets of Graphic Systems Technology, Inc., a
company doing third party maintenance in the prepress industry, Access has
expanded into this market. The Company is also a leader in the Electronic
Document Management Systems (EDMS) software business. In this line of
business, the Company is the exclusive North American reseller of the Cimage
software which provides software solutions for its customers' technical
processes.
The fluctuations in the Company's revenues overall are primarily a
result of the changes in its EDMS operations. System sales from these
operations were $2,894,600, $3,800,800, and $1,275,000 in fiscal years 1997,
1996 and 1995, respectively. These sales represented 42%, 44% and 21% of
total revenues, respectively. The decrease between 1997 and 1996 sales was
the result in fiscal 1996 of a major customer ordering a very large non
cancelable software license which expires in fiscal 1998. The Company did
not have a similar major order in fiscal 1997.
The Company continues to have a stable base of revenue and gross
profits from its service operations. On April 11, 1997, the Company
acquired the assets of Graphic Systems Technology, Inc. At that time,
Access began to supply service to the prepress industry, which generated
$72,200 in revenue for the month of April 1997. Overall, service sales are
comprised of hardware and software support to the Company's installed base
of customers, the new prepress customers and third-party maintenance
contracts. Service sales were $4,034,800, $4,768,800 and $4,538,900 in
fiscal years 1997, 1996 and 1995, respectively. These sales made up 58%,
55% and 75% of total revenues in these fiscal years, respectively. The
increase in the percentage of total sales in fiscal 1997 reflects the
decrease in sales in the EDMS line of business. The Company is experiencing
a decrease in micrographic hardware service. These systems are slowly being
replaced with equipment using more current technology. The Company
expects this trend to continue. The Company has been substantially
replacing the decreased micrographic revenue with third party contracts for
maintenance of scanners, plotters, jukeboxes and similar high volume mission
critical equipment. It expects substantial growth in it's service business
as a result of entering the prepress market.
In fiscal year 1997 sales to the U.S. commercial market continued
to exceed those to the federal government and international markets. Sales
to the U.S. commercial market represented 90% of the total revenue in fiscal
1997, compared with 88% in fiscal 1996 and 78% in fiscal 1995. The federal
government accounted for 6% of total revenue in fiscal 1997, compared with
11% in 1996 and 18% in 1995. This reflects the Company's emphasis on
marketing to the commercial market. Sales to international markets
accounted for 1% of fiscal 1997 revenues, compared with 1% in 1996 and 4%
in 1995.
Gross Profits
(In Thousands) 1997 Change 1996 Change 1995
Gross Profits $1,496 55% $3,310 41% $2,353
Percentage of net revenues 22% 38% 39%
The above Gross Profits for 1997, 1996 and 1995 were net of
$1,068,900, $673,700 and $673,700 of amortization of computer software
costs, respectively. EDMS gross margins before amortization in fiscal 1997
were 44%, which was a decrease from fiscal 1996 level of 46% and an increase
from the fiscal 1995 level of 43%. EDMS gross margins after amortization in
fiscal 1997 were 7%, which was a decrease from the fiscal 1996 level of 28%
and an increase from fiscal 1995 level of (10%),respectively. While the
Company continues to maintain and support its AS/400 EDMS software product,
it does not believe that future revenues of this product reduced by the
estimated future costs, including maintenance and support, are sufficient to
absorb the amortization of the software costs previously capitalized.
Therefore, the Company accelerated the amortization of the remaining
unamortized cost of $732,000 in the third quarter of fiscal 1997. Service
gross margins of 32% decreased from fiscal 1996 and 1995 levels of 46% and
55%, respectively. This decrease in gross margin in fiscal 1997 is the
result of the reduction of the high gross margin micrographic hardware
service being replaced with low gross margin third party service.
Selling, general and administrative expenses were $2,368,800,
$2,433,400 and $1,528,500 for fiscal 1997, fiscal 1996 and fiscal 1995,
respectively. The primary contributor to the increase in expenses in fiscal
1996 was in personnel and related expenses. CimSoft Incorporated had a
sales office and personnel in Irvine, California, which the Company assumed
at the time of the acquisition of Cimsoft in fiscal 1996.
Engineering, Research and Development (R&D) expenditures were
incurred for maintaining and upgrading existing products. Engineering and
research and development expenses decreased from $611,300 in fiscal 1996 to
$265,100 in fiscal 1997. Fiscal 1997 operating expenses for R&D were 57%
lower than fiscal 1996 and 55% lower than fiscal 1995. In fiscal 1997
Cimage software development was provided by Cimage Enterprise Systems, Ltd.;
as a result the Company was not required to provide development.
The Net Loss Before Income Tax in fiscal 1997 of $1,050,700 compared
to a Net Profit Before Income Tax of $310,600 decreased $1,361,400 from that
of fiscal 1996. When excluding amortization for capitalized software, a
non-cash charge, in fiscal 1997, the Company generated $18,000 Net Profit
Before Income Tax compared to $984,300 in fiscal 1996. In fiscal 1996 the
Company received a major customer order for a very large noncancelable
software license which expires in fiscal 1998. The Company did not have a
similar major order in fiscal 1997. The company's gross margin decreased 16%
in fiscal 1997. The Company decreased operating expenses by $410,700 in
fiscal 1997 due to decreased selling expenses of $468,300 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $1,404,700 and no bank borrowing
at April 30, 1997. There was a decrease of approximately $109,700 of cash
from operating activities in fiscal 1997. The Company did not utilize the
bank line of credit in either year.
Accounts receivable, excluding the Graphic Systems Technology Inc.'s
accounts receivable, decreased approximately $120,700 during fiscal 1997.
This decrease is the result of lower sales in the fourth quarter of fiscal
1997 compared to fiscal 1996.
Prepaid maintenance contracts at April 30, 1997 increased
approximately $66,200 from April 30, 1996. This increase reflected the
increase in annual prepaid maintenance for third party hardware service
customers.
The Company receives progress payments on some of its large EDMS
System orders based on predetermined events. Reported as current
liabilities, these progress payments totaled approximately $195,100 at
April 30, 1997, which represents a decrease of approximately $213,300 from
April 30, 1996.
Accrued royalties at April 30, 1997 increased approximately $228,700
from April 30, 1996. The increase in accrued royalties are basically a
royalty due Cimage Enterprise Systems Limited for $268,000 for a delivery in
April 1997.
Working capital on April 30, 1997 was $2,663,500, compared with
$2,925,200 on April 30, 1996. The Company has a loan agreement which
provides for a line of credit through April 7, 1998 (See Note 2 of the Notes
to the Financial Statements). The bank line of credit permits borrowing of
up to $400,000 at April 30, 1997, of which none was outstanding.
Revenues from maintenance services for products manufactured and
sold by its hardware service partners, as well as from the Company's
recurring service business, are expected to provide the cash flow required
to operate the Company.
The Company believes it is well positioned for the future. The
Company is a relatively small participant in the technically dynamic market
which is populated by large players like Microsoft and IBM, as well as many
middle and small size firms. In this fragmented market, a great many
companies are competing for each new customer order. The Company faces a
future filled with opportunities but also filled with a great many risks,
many of which are beyond its control.
Independent Auditors' Report
Stockholders and Board of Directors:
We have audited the accompanying balance sheets of ACCESS Corporation
as of April 30, 1997 and 1996, and the related statements of operations, of
capital stock and other stockholders' equity and of cash flows for each of
the three years in the period ended April 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
Corporation as of April 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended
April 30, 1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Cincinnati, Ohio
May 29, 1997
ACCESS CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
1997 1996 1995
REVENUE:
System Sales $ 2,894,566 $ 3,800,795 $ 1,274,996
Service 4,034,787 4,903,657 4,766,786
----------- ------------ ------------
Total 6,929,353 8,704,452 6,041,782
COST:
System sales, exclusive of
amoritization shown
separately below 1,633,974 2,052,266 729,965
Service 2,730,175 2,668,424 2,285,363
----------- ------------ ------------
Total 4,364,149 4,720,690 3,015,328
GROSS PROFIT BEFORE
AMORTIZATION 2,565,204 3,983,762 3,026,454
AMORTIZATION OF COMPUTER
SOFTWARE COST (Note 1) 1,068,922 673,704 673,704
GROSS PROFIT 1,496,282 3,310,058 2,352,750
OPERATING EXPENSES:
Selling, general and
administrative 2,368,804 2,433,376 1,528,460
Engineering, research and
development 265,129 611,295 592,504
----------- ----------- ------------
OPERATING INCOME (LOSS) (1,137,651) 265,387 231,786
OTHER INCOME(EXPENSE) 91,844 54,612 (3,805)
INTEREST EXPENSE (4,925) (9,378) (31,911)
---------- ----------- ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (1,050,732) 310,621 196,070
INCOME TAXES (Note 6) - 105,600 66,700
---------- ------------ -----------
NET EARNINGS (LOSS) (1,050,732) 205,021 129,370
PREFERRED DIVIDEND - 102,510 64,685
------------ ------------ -----------
INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ (1,050,732) $ 102,511 $ 64,685
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,865,559 4,865,559 4,865,559
PER COMMON SHARE AND COMMON
SHARE EQUIVALENT (Note 4):
Net earnings (loss) $ (0.22) $ 0.02 $ 0.01
See notes to financial statements.
ACCESS CORPORATION
STATEMENTS OF CAPITAL STOCK AND OTHER STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
- -----------------------------------------------------------
Additional Retained
Treasury Common Class A Common Paid-in Earnings
Shares Amount Shares Amount Shares Amount Capital (Deficit)
BALANCE, April 30, 1994 16,270 $(15,383) 3,453,257 $ 345,326 1,428,572 $ 142,857 $ 10,824,847 $ (8,878,819)
Class One Preferred Stock
dividends (64,685)
Net earnings 129,370
------ --------- ---------- -------- --------- --------- ----------- -----------
BALANCE, April 30, 1995 16,270 (15,383) 3,453,257 345,326 1,428,572 142,857 10,760,162 (8,749,449)
Class One Preferred Stock
dividends (102,510)
Conversion of Class A Common
Stock to Common Stock 1,428,572 142,857 (1,428,572) (142,857)
Net earnings 205,021
------ --------- ---------- -------- --------- --------- ----------- -----------
BALANCE, April 30, 1996 16,270 (15,383) 4,881,829 488,183 - - 10,657,652 (8,544,428)
Net loss (1,050,732)
------ --------- ---------- -------- --------- --------- ----------- -----------
BALANCE, April 30, 1997 16,270 $(15,383) 4,881,829 $488,183 - $ - $ 10,657,652 $ (9,595,160)
<FN>
See notes to financial statements.
ACCESS CORPORATION
BALANCE SHEETS
APRIL 30, 1997 AND 1996
- ------------------------------
LIABILITIES AND CAPITAL STOCK AND
ASSETS 1997 1996 OTHER STOCKHOLDERS' EQUITY 1997 1996
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 1,404,708 $ 2,071,772 Accounts payable $291,339 $ 285,703
Accounts receivable, less Accrued salaries, wages and commissions 216,232 367,282
allowance for doubtful Accrued royalty 519,916 291,192
accounts of $12,000
in 1997 and $189,685 in
1996 (Note 2): 2,151,829 1,890,673 Accrued taxes 4,198 22,400
Inventories (Note 2): Accrued warranty expense 11,018 -
Raw materials and purchased
parts 96,673 64,553 Other accrued liabilities 69,206 49,385
Work-in-process 56,401 102,900 Advances from customers 195,145 408,460
Finished goods 13,551 21,057 Capital leases - 19,599
---------- --------- ---------- ----------
Total inventories 166,625 188,510 Total current liabilities 1,307,054 1,444,021
Prepaid expenses 135,362 106,283
Deferred income tax, net of PREPAID MAINTENANCE CONTRACTS 675,245 609,078
valuation allowance of
$300,000 (Note 6) 112,000 112,000
--------- ---------
TOTAL CURRENT ASSETS 3,970,524 4,369,238 MANDATORILY REDEEMABLE CLASS ONE
PREFERRED STOCK (Note 3) 1,500,000 1,500,000
EQUIPMENT AND LEASEHOLD Preferred Dividends - Accrued - 102,510
IMPROVEMENTS (Note 2):
Computer hardware
and software 1,533,592 1,449,310 CAPITAL STOCK AND OTHER
Machinery and equipment 503,337 503,337 STOCKHOLDERS' EQUITY (Notes 2,4):
Office and service equip 380,248 364,492 Capital Stock:
Leasehold improvements 13,405 13,405 Common Stock, no par value, authorized,
Tools, dies and fixtures 97,832 115,013 8,000,000 shares; issued and outstanding
--------- ---------- 4,881,829 in 1997 and 1996 488,183 488,183
Total 2,528,414 2,445,557
Less accumulated
depreciation 2,289,920 2,187,785 Additional paid-in capital 10,657,652 10,657,652
---------- ----------
Net 238,494 257,772 Deficit from April 1, 1985 (9,595,160) (8,544,428)
16,270 Common Stock shares in treasury,
COMPUTER SOFTWARE COSTS, net of at cost (15,383) (15,383)
accumulated amortization of
$3,368,518 in 1997 and Total capital stock and other
$2,299,595 in 1996 - 1.068,923 stockholders' equity 1,535,292 2,586,024
------------ ------------
GOODWILL (Note 10) 259,691 TOTAL $ 5,017,591 $6,241,633
DEFERRED INCOME TAX BENEFIT,
net of valuation allowance of
$2,649,018 in 1997 and
$2,134,000 in 1996 (Note 6) 548,882 545,700
---------- ----------
TOTAL $ 5,017,591 $ 6,241,633
<FN>
See notes to financial statements.
ACCESS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
- -------------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(1,050,732) $205,021 $129,370
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Amortization 1,068,922 673,704 673,704
Depreciation 131,755 143,027 139,819
Deferred income taxes (3,182) 105,600 66,700
Loss (gain) on disposal of fixed assets (1,357) 1,111 7,028
Prepaid maintenance contracts 66,167 294,324 100,606
Change in assets and liabilities:
Accounts receivable (120,675) 162,968 (124,211)
Inventories 74,548 224,355 103,163
Prepaid expenses (16,520) (37,293) 37,672
Accounts payable 5,656 86,215 (62,481)
Accrued liabilities (279,702) 244,716 (54,023)
Accrued royalties 228,724 (33,299) -
Advances from customers (213,314) (448,994) 30,151
-------------------------------
Net cash provided by (used in) operating
activities (109,710) 1,621,455 1,047,498
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash received (324,128) (148,629)
Capital additions (124,515) (166,010) (22,779)
Proceeds from disposal of fixed assets 13,397 6,267 2,156
-------------------------------
Net cash used in investing activities (435,246) (308,372) (20,623)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on bank line of credit (71,807)
Dividends on Class One Preferred Stock (102,510) (64,685)
Payments on capital leases (19,599) (60,112) (75,081)
-------------------------------
Net cash used in financing activities (122,109) (124,797) (146,888)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (667,065) 1,188,286 879,987
CASH AND CASH EQUIVALENTS, Beginning of year 2,071,773 883,487 3,500
-------------------------------
CASH AND CASH EQUIVALENTS, End of year $1,404,708 $2,071,773 $883,487
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 3,400 $ 9,400 $ 31,900
Dividends declared but unpaid on Class One Preferred Stock totaled
$102,510 (1996) and $64,685 (1995)
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS ACCESS Corporation
For the years ended April 30, 1997, 1996 and 1995
NOTE 1: A Summary of Significant Accounting Policies
Nature of Business
The Company services hardware and software for its installed base of
customers and third parties. It also markets software for the electronic
storage, control and processing of technical documentation.
Revenue Recognition
Revenues from the sale of new systems are recognized upon shipment. If
there are services performed, revenue is recognized at the time of
customer acceptance.
Revenue from prepaid maintenance agreements is recognized ratably over
the life of the maintenance contracts.
Inventories
Inventories comprised of material, labor, and related overhead expenses
are stated at the lower of cost (first-in, first-out method) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost and
depreciated over their estimated useful lives using the straight-line
method. Computer software purchased for internal use is depreciated over
two years or its useful life, whichever is less.
Computer Software Development Costs
Computer software development costs are recorded in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Costs incurred up to the point of establishing technological feasibility
are expensed currently. Costs incurred after establishment of
technological feasibility were capitalized. Amortization of these
capitalized costs began in March 1993 when the products were released to
customers and were amortized over a period not to exceed five years.
Amortization expense was $673,704 and $673,704 for fiscal years 1996 and
1995, respectively.
While the Company continues to maintain and support its AS/400 EDMS
software product, it does not believe that future revenues of this
product reduced by the estimated future costs, including maintenance and
support, are sufficient to absorb the amortization of the software costs
previously capitalized. Therefore, the Company accelerated the
amortization of the remaining unamortized cost. In fiscal year 1997
the Company wrote off $1,068,923, which was the total that remained
unamortized.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the 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 reporting period. Actual amounts could differ from
those estimates.
Statement of Cash Flows
Cash and cash equivalents consist of cash on hand, cash on deposit, and
short-term investments with original maturities less than ninety days.
Product Warranties
Under its product warranty policy, the Company has agreed to replace
certain parts or provide remedial service during the designated warranty
period. Costs associated with these programs are determined on the basis
of estimated net future costs.
Stock-Based Compensation
The FASB issued Statement of Financial Accounting Standards No. 123-
Accounting for Stock-Based Compensation in October 1995. The standard
defines a fair-value based method of accounting for stock-based
compensation but permits compensation expense to continue to be measured
using the intrinsic value-based method previously used. The Company
intends to continue measuring compensation expense using the intrinsic
value-based method and under the provisions of the standard, which was
adopted in 1997.
Goodwill
In April 1997, the Company established Goodwill with the purchase of the
assets of Graphic Systems Technology, Inc. The Company will amortize this
cost over a ten year period.
Note 2: Bank Line of Credit
The Company's current line of credit agreement ($400,000 as of
April 30, 1997) extends through April 7, 1998. Borrowings under the
agreement bear interest at one percent over the prime rate, 8 1/2% at
April 30, 1997. Maximum availability is based upon the levels (as set
forth in the loan agreement) of eligible accounts receivable. To secure
any borrowing, the Company has pledged accounts receivable, inventories,
fixed assets, and general intangibles. The agreement contains
restrictive and other covenants which require the Company to maintain
certain levels of indebtedness to net worth, current ratio and cash flow
from operations. It also restricts new borrowings, capital expenditures,
and dividends on its capital stock.
1997 1996 1995
Maximum borrowings
during the year $ -0- $ -0- $ 127,354
Average outstanding balance
during the year $ -0- $ -0- $ 27,956
Weighted average
interest rate 9.1%
(determined on a monthly basis)
Note 3: Mandatorily Redeemable Preferred Stock and Notes Payable
On October 28, 1991, the Company entered into a Note Purchase Agreement
with Oce N.V. ("Oce"), which provided for borrowing by the Company of up
to $1.5 million to fund a major software development project. On
August 26, 1992, $1,000,000 of then outstanding notes were redeemed in
exchange for 10,000 shares of mandatorily redeemable Class One Preferred
Stock. In April 1993, the Company issued to Oce an additional 5,000
shares of mandatorily redeemable Class One Preferred Stock for $500,000.
The Class One Preferred Stock is divided into three series: 10,000
shares of 7% Class One Preferred Stock ($1,000,000); 2,500 shares of 9%
Class One Preferred Stock ($250,000), and 2,500 shares of variable rate
Class One Preferred Stock ($250,000). The variable rate Class One
Preferred Stock was issued at the rate of 9%. Dividends on the Class One
Preferred Stock for any fiscal year are cumulative only to the extent of
50% of the Company's net after-tax earnings, as defined, for such year.
Annually, beginning in 1995, the Company is required to redeem the
Class One Preferred Stock at $100 per share plus accumulated dividends in
an amount equal to a specified portion of after-tax earnings, as
defined. Unless dividends on the Class One Preferred Stock are current,
the Company may not declare a dividend on its common shares or redeem or
purchase any of its common shares. Under the Note Purchase Agreement,
Oce agreed to limitations on the voting and transfer of the Company's
stock (including the transfer of such stock to a voting trust, the
trustees of which are four of the Company's directors) and Oce was
released from its obligation under certain circumstances to make a tender
offer for the Company's common stock. As of April 30, 1997, the Company
had authorized and issued a total of 15,000 shares of Class One Preferred
Stock. The Company was not required to and has not redeemed any Class
One Preferred Stock in fiscal year 1997 or previously.
Note 4: Capital Stock
In 1992 the Company entered into a Voting Trust Agreement with Oce. The
Voting Trust Agreement required Oce to place the certificates for
1,904,763 of the Company's Common Stock, less 100 shares, into a voting
trust. The trustees of the trust are four directors of the Company.
Pursuant to the Voting Trust Agreement, the shares will be voted for
matters related to the election of directors in the discretion of the
voting trustees (except that such shares will be voted for up to two
director nominees designated by Oce) and on all other matters by Oce
pursuant to a proxy to be granted to it by the voting trustees.
The Voting Trust Agreement is irrevocable for a period of ten years and
may be renewed, at the option of Oce, for additional periods of not more
than ten years each. The Voting Trust Agreement will automatically
terminate:
* with respect to any such shares sold to a party unrelated to Oce
* upon the closing of any underwritten public offering of Common Stock
which results in not less than $10,000,000 in aggregate sales
price of Common Stock having been sold.
* upon the acquisition by any person of beneficial ownership of as
many or more shares of Common Stock as are owned by Oce.
Further, the Voting Trust Agreement may be terminated by notice by Oce
to the voting trustees at anytime after October 3, 1995.
If the Voting Trust Agreement is terminated by notice or is not renewed
on its tenth anniversary, Oce is required to make a tender offer for any
and all of the shares of Common Stock at a price per share not less than
that defined in the Note Purchase Agreement (Note 3) and calculated using
the Company's audited financial statements. If the calculated price per
share is less than zero, Oce is not required to make a tender offer.
If the Voting Trust Agreement is terminated by notice to the voting
trustees, the tender offer is required not later than six months after
the end of the fiscal year in which the first anniversary of the notice
affected the termination. If the agreement is not renewed, the tender
offer is required not later than six months after the end of that fiscal
year end.
Common Shares
Holders of Common Stock ,including the voting trustees, have one vote
per share. Actions by a majority of voting trustees constitute the act
of the voting trust. In fiscal year 1996, the Company's Class A Common
Stock was converted to Common Stock.
Earnings Per Share
The earnings (loss) per share computations are based on the weighted
average number of common shares outstanding during the year adjusted for
the effect of common share equivalents where dilutive. Fully diluted
earnings (loss) per share are not presented as the effect of the dilution
is less than 3% or is anti-dilutive for the years 1995 - 1997. The
Company is required to implement SFAS 128 Earnings Per Share, which was
issued February 1997, effective the third quarter of fiscal 1998. The
effect of implementing SFAS 128 is not expected to be material.
Stock Option Plans
During the year ended April 30, 1994, the Company adopted the 1993
incentive stock option plan covering 500,000 shares of its Common
Stock. The Company also amended the 1983, 1985 and 1991 plans to add
provisions providing that all outstanding stock options will become
exercisable upon the occurrence of a change of control or similar event.
Options may be granted under the 1991 and 1993 plans to officers and
key employees of the Company. Additionally, directors of the Company and
other persons in business relationships with the Company, such as
independent contractors and consultants, may be granted non-qualified
options under the 1991 plan. No further options may be granted under the
1983 and 1985 plans. Incentive stock options may be granted only to
Company employees.
The option price under the plans may not be less than the fair market
value of the Common Stock at the date of grant, as determined by the
Board of Directors, which administers the plans. All options granted
under the 1985 plan and any incentive stock options granted under the
1983, 1991 and 1993 plans may not be exercised prior to one year from
date of grant and expire ten years from the date of grant.
Changes in stock options were as follows:
Weighted
Number of Shares Average
Reserved Granted Exercise
Price
Balance, April 30, 1995 785,300 362,400 $ .72
Issued 350,000 .15
Canceled ( 2,400) ( 2,400) ( 5.25)
------- ---------- ------
Balance,April 30,1996 & 1997 779,900 710,000 $ .42
- -----------------------------------------------------------------------------
Options Outstanding and Exercisable at April 30, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number Average
Range of Options Contractual Exercise of Options Exercise
Exercise Price Outstanding Life (Months) Price Exercisable Price
$.15 - $.50 575,000 70 $ .28 341,666 $ .38
$.51 - $1.00 135,000 36 $1.00 135,000 $1. 00
-------- --------
710,000 476,666
Had compensation cost for the Company's stock options been determined based
on the fair value at the grant dates for awards under the plan consistent
with the method of SFAS 123, the Company's net income (loss) and earnings
per share for 1997 and 1996 would have been the pro forma amounts indicated
below.
Pro Forma Net Income and Net Income Per Share
1997 1996
Net income (loss)
As reported ($1,050,732) $ 102,511
Pro forma ($1,050,732) $ 87,491
Net income (loss) per share
As reported ($.22) $.02
Pro forma ($.22) $.02
The fair value of the options was calculated utilizing the Black-Scholes
option-pricing model and the following key assumptions:
ASSUMPTIONS:
1997 1996
Risk -free interest rate 6.4% 6.4%
Dividend growth 0% 0%
Volatility 0% 0%
Expected Life (months) 70 70
Note 5: Engineering, Research and Development
Engineering, research and development costs for the years ended
April 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995
Charged to specific customer orders $312,068 $380,741 $ 495,887
Charged directly to engineering,
research and development 265,129 611,295 592,504
--------------------------------------
Total cost of engineering, research and
development efforts $577,197 $922,036 $1,088,391
=====================================
Note 6: Income Taxes
The provision for income taxes (benefit) includes the following:
1997 1996 1995
Federal:
Deferred $(415,682) $105,600 $66,700
Currently payable (Refundable) 3,182 164,000 66,700
Tax benefit of net operating loss
carryforward (164,000) (66,700)
Valuation Allowance 412,500
----------------------------------------
Total $ 0 $105,600 $66,700
=======================================
Deferred income taxes reflect the net income tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) net operating loss carryforwards. The
income tax effects of significant items comprising the Company's net
deferred income tax asset as of April 30, 1997 and 1996 are as follows:
1997 1996
Net operating loss carryforwards
Federal $3,173,700 $2,826,600
State 217,400 75,800
Temporary differences:
Customer Deposits -0- 67,500
Inventory capitalization 96,400 96,400
Other 122,400 131,100
----------- ----------
Total $3,609,900 $3,197,400
Less Valuation Allowance (2,949,000) (2,539,700)
----------- ----------
Net deferred income tax asset $ 660,900 $ 657,700
======== ========
The amounts and expiration dates for the Company's net operating loss
carryforwards for income tax return purposes are summarized as follows:
Year Ending April 30 Federal
2002 $1,301,400
2004 2,762,000
2005 3,027,000
2008 459,000
2009 803,000
2012 982,000
-------------
Total $9,334,400
========
Note 7: Revenues to Major Customers
On a continuing basis, no single customer accounts for a significant
percentage of the Company's net sales. However, net revenues to
customers in selected industries as a percent of total revenues are as
follows:
1997 1996 1995
Federal Government 5.7% 10.9% 18.4%
Aerospace 22.0% 14.9% 18.8%
Petroleum 9.3% 4.5% 4.9%
Computer 10.9% 10.5% 10.5%
Medical 2.9% 8.6% 7.2%
Manufacturing 17.4% 1.5% 12.4%
Utilities 12.4% 33.4% 4.6%
Accounts receivable from these customers at April 30, 1997 and
April 30, 1996 were $1,689,800 and $1,100,800, respectively.
Note 8: Lease Commitments
The Company leases office facilities and equipment under operating
leases. Rent expense was $351,259 (1997), $244,718 (1996), and $223,977
(1995) of which $111,485 (1997), $64,313 (1996) and $60,281 (1995), were
under short-term cancelable leases.
As of April 30, 1997, minimum annual payments under all non-cancelable
long-term operating lease agreements are: $211,740 (1998), $178,440
(1999), and $170,950 (2000).
Note 9: CimSoft Acquisition
On July 31, 1995, the Company acquired CimSoft Incorporated, which
started business in June 1995, for $257,500 in a business combination
which was accounted for using the purchase method. The results of
operations of the company include CimSoft from the date of acquisition.
Pro forma results of operations of CimSoft are not material. CimSoft was
a distributor of Cimage software and a Cimage service provider in North
America.
Note 10: Graphic Systems Technology Asset Purchase
On April 11, 1997, the Company purchased certain assets of Graphic
Systems Technology, Inc. from Star Bank for $463,000. The Company
simultaneously sold the assets related to the Chameleon product line to
Fong Brothers Printing for $138,900, resulting in a cash purchase price of
$324,100. The Company also incurred liabilities of approximately $130,000.
The purchase price was assigned to the assets purchased and liabilities
incurred based on an estimated fair value, which included goodwill of
approximately $259,691, which was recorded as part of the transaction.
The fair value of assets purchased is based on information currently
available and is subject to adjustment as additional information,
principally accounts receivable, is finalized. Pro forma results of
operations of Graphic Systems Technology, Inc. are not meaningful.
Graphic Systems Technology, Inc. was a third party service provider in the
prepress industry.
Note 11: Subsequent Event
On May 9, 1997 the Company executed a letter of intent to join Vision 21
in a Cincinnati-based venture that intends to acquire and operate
companies in the design automation, document management and technical
services fields throughout the United States. The Vision 21 venture is
contingent upon successful due diligence of 12 companies, each of the 12
companies, including Access, reaching binding definitive agreements and
the successful completion of an initial public offering by Vision 21.
CORPORATE PROFILE
Access, a Cincinnati based company, has two business units: Hardware
Service, which maintains and installs components and systems, and
Electronic Document Management Systems (EDMS).
Founded over thirty years ago, Access has designed systems for use by
organizations throughout the world. Some have been in continuous use for
as long as twenty years.
The Hardware Service business unit provides hardware service for
components and systems. The Company is currently striving to grow its
third-party and prepress equipment maintenance business. The Company is
working with manufacturers and distributors of high-value, integrated
equipment to provide maintenance services for equipment manufactured or
sold by them.
Access' EDMS business unit provides software and professional services
to assist its customers in the design, configuration, installation and
maintenance of electronic document systems.
Hardware Service
Access' Hardware Service business unit provides quality hardware
service on a nationwide basis to the prepress industry, owners of
equipment manufactured and sold by third parties, and the company's
installed base of EDMS customers. The Hardware Service revenue from
services for equipment manufactured and sold by third parties grew by 12%
in fiscal 1997 over fiscal 1996.
In April 1997 Access acquired the assets of a company which provided
hardware services for the prepress industry with the United States. At
this time Access is formalizing relationships with two major manufacturers
of prepress equipment to provide service for equipment manufactured by
them.
Third-party maintenance includes the support of non-Access electronic
and electro-mechanical equipment such as card embossers, microfiche
duplicators, microfilm scanners, large drawing format scanners, large
format plotters, highly sophisticated 5-1/4" and 12" laser drives,
optical jukebox systems and imagesetters. Access has a number of Support
Partners that recommend Access as their nationwide service provider.
Growth in maintenance of third party manufactured equipment is an
Access strategic objective. Access continues to pursue additional
third-party service opportunities with manufacturers and distributors of
other electronic and electromechanical products. Access' key to success
in third-party maintenance is the ability to provide their Support
Partners with the benefits of having their own national service company
without having to build and support the infrastructure of a nationwide
service organization. Access offers a 24 hour a day, toll free dispatch
center; rapid on-site service response; quality repairs and preventive
maintenance for their customers.
Access is qualified to meet the demands of today's electronic prepress
multi-vendor environment. Access engineers are trained and cross-trained
on a wide range of imagesetters, scanners, networks/servers, and software
applications ensuring the resolution of a service problem.
Access EDMS Business Unit
Access Corporation is dedicated to enhancing the quality of its
customers' products by providing world class software and professional
services for their document based processes. Access' early success in
automating the handling of document based information positioned the
Company to take a leadership role in the evolution of computer technology
in the specialized area of imaging, document and workflow management.
Access provides document and workflow management in three distinct
markets: Discrete Manufacturing, Oil & Gas, and Utilities. Access
provides both software and professional services to configure, install
and maintain electronic document management solutions. Access' extensive
history in sales and service of document based retrieval technology has
allowed the company to build an expertise in applying current state of
the art technologies to customers' document management products.
The EDMS Business Unit experienced significant growth in fiscal 1996,
in terms of both revenues and staffing. In the first quarter of fiscal
1996, Access acquired CimSoft Inc., a systems integrator servicing a wide
base of EDMS customers within the United States. At the same time,
Access also formalized a partnership with Cimage Enterprise Systems Ltd.,
making Access the exclusive distribution and support provider for Cimage
products within North America. These two business ventures well
positioned Access for rapid growth through three changes: an increased
customer base, an additional leading edge software offering, and
additional personnel skilled in the sale and support of EDMS
applications. In addition to this new role as a software reseller,
Access continues to maintain Document Management Software and still
provides the industry's only large format EDMS available on the IBM
AS/400 computer.
Access' EDMS software offerings fall into two product areas: EDICS
(Engineering Document Image Control System) and the Cimage Document
Manager System. EDICS is primarily focused at providing Document Life
Cycle Management on the IBM AS/400 platform, while the Cimage Document
Management is focused on Document Distribution applications using UNIX
and Microsoft Windows NT servers.
Both products utilize a powerful database application for managing
documents and related information, including paper based documents, A
through J size drawings, Computer Aided Design (CAD) data, company
procedures and office correspondence. These documents both come from
multiple sources, and are in multiple formats. The EDMS applications
integrate all of these into a single system which fully automates the
revision process, the distribution process, and also provides flexible
tools for viewing, editing, and printing.
Access also delivers high-quality, high-value Professional Services to
its customers. Access' industry specialization allows it to apply its
document system expertise to its customers' business problems in
Document Management Applications. While the various software modules
are the same at each customer, each implementation is unique through
the "tailoring" of the document organizational structure,
document-to-document relationships, and user interface presentation.
Through Access' understanding of Document Management requirements,
customers have been able to achieve industry compliance with regulatory
agencies, become ISO 9000 certified, and achieve system implementations
in extremely short time periods.
Sales
EDMS systems have been installed in 48 states, Japan, Europe,
Australia, Canada, Mexico, Jamaica, Puerto Rico, the Middle East,
China, and the former Soviet Union. Sales in and outside the United
States are handled predominantly on a direct basis. There is no
recurring geographic market concentration with respect to the sales of
Access systems in the United States.
Access' primary marketing focus is the sale of its EDMS products to
discrete manufacturers, oil and gas, and utility providers. The market
segment which accounted for the highest percentage of the Company's
revenue was aerospace, at 22% of total company revenues.
Common Stock
Currently there is no established market for the Company's Common
Stock and the Company is not aware of any reported bid quotations.
The Company has not paid, and has no plans to pay, dividends on its
Common Stock. The number of holders of record of Access Corporation's
Common Stock as of April 30, 1997, was 381.
Form 10-K Available
An Annual Report of Form 10-K will be filed with the Securities and
Exchange Commission for the fiscal year ending April 30, 1997. A
shareholder may obtain a copy of this report at no charge by writing to
Access Corporation, 4350 Glendale-Milford Road, Suite 250, Cincinnati,
Ohio, 45242, Attention: Treasurer.
ACCESS Directors, Officers and Shareholder Information
Board of Directors
Kent P. Friel
Chairman of the Board
President, Schonberg
Associates, Inc.
Cincinnati, Ohio
Scott D. Watkins
President and Chief
Executive Officer
Newton D. Baker
Executive Vice President
and Treasurer
James M. Anderson
President and Chief Executive Officer,
Childrens Hospital Medical Center
Cincinnati, Ohio
James H. Hardie
Partner in law firm
of Reed Smith Shaw
& McClay
Pittsburgh, Pennsylvania
Robert J. Kalthoff
Chairman of the Kalthoff
Group, Inc.
Cincinnati, Ohio
Dennis J. Sullivan, Jr.
Executive Counselor
Dan Pinger Relations, Inc.
Cincinnati, Ohio
John W. Weil
President
Weil Associates, Inc.
Bloomfield Hills, Michigan
Officers
Scott D. Watkins
President and Chief
Executive Officer
Newton D. Baker
Executive Vice President
and Treasurer
Kim Bollinger
Vice President,
Customer Services
Marc Baines
Vice President,
Sales and Marketing
Joseph Schneider
Vice President,
Service
Joseph Musgrave
Senior Vice President,
Prepress Sales
Shareholder Information
Transfer Agent/Registrar
Fifth Third Bank
Fifth Third Center
Corporate Trust
Cincinnati, OH 45263
Independent Auditors
Deloitte & Touche LLP
250 East Fifth Street
Cincinnati, Ohio
45201-5340
General Counsel
Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
Patent Counsel
Wood, Herron & Evans
2700 Carew Tower
Cincinnati, Ohio 45202