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 July 31, 1997 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)	(I.R.S. Employer Identification 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 July 31, 1997. Common Stock, no par value: 4,865,559 shares. PART I. FINANCIAL INFORMATION ACCESS CORPORATION BALANCE SHEETS ASSETS July 31, April 30, 1997 1997 CURRENT ASSETS: Cash $ 1,240,778 $1,404,708 Accounts Receivable, Less Allowances 2,567,389 2,151,829 for Doubtful Accounts of $15,000 in July 1997 and $12,000 in April 1997 Inventories Raw Materials and Purchase Parts 82,597 96,673 Work - in - Process 49,866 56,401 Finished Goods 12,987 13,551 --------------------------- 145,450 166,625 Prepaid Expenses 107,921 135,362 Deferred Income Tax Benefit 73,800 112,000 --------------------------- TOTAL CURRENT ASSETS 4,135,338 3,970,524 EQUIPMENT AND LEASEHOLD IMPROVEMENTS Computer Hardware & Software 1,544,785 1,533,592 Machinery and Equipment 503,337 503,337 Office and Service Equipment 382,755 380,248 Leasehold Improvements 14,130 13,405 Tools, Dies and Fixtures 97,832 97,832 --------------------------- 2,542,839 2,528,414 Less Accumulated Depreciation (2,318,352) (2,289,920) --------------------------- 224,487 238,494 GOODWILL 259,691 259,691 DEFERRED INCOME TAX BENEFIT 548,882 548,882 TOTAL ASSETS $ 5,168,398 $5,017,591 ACCESS CORPORATION BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY July 31, April 30, CURRENT LIABILITIES 1997 1997 Accounts Payable $ 425,132 $ 291,339 Accrued Salaries, Wages and Commissions 64,262 216,232 Accrued Taxes 9,305 4,198 Accrued Warranty Expense 11,018 11,018 Other Accrued Liabilities 49,691 69,206 Accrued Royalty 667,177 519,916 Advances from Customers 286,525 195,145 ----------------------------------- TOTAL CURRENT LIABILITIES 1,513,110 1,307,054 PREPAID MAINTENANCE CONTRACT REVENUE 552,241 675,245 MANDATORILY REDEEMABLE PREFERRED STOCK 1,500,000 1,500,000 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 (9,527,405) (9,595,160) 16,270 Common Stock Shares In (15,383) (15,383) Treasury, at Cost ----------------------------------- TOTAL STOCKHOLDERS' EQUITY 1,603,047 1,535,292 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,168,398 $5,017,591 SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION STATEMENT OF EARNINGS Three Months Ended July 31, 1997 1996 ---------------------------- REVENUE System Sales $1,333,744 $ 593,969 Service 1,379,006 1,081,382 --------------------------------- 2,712,750 1,675,351 COST OF REVENUE System Sales 776,319 323,411 Service 1,194,494 670,838 --------------------------------- 1,970,813 994,249 GROSS PROFIT BEFORE AMORTIZATION 741,937 681,102 AMORTIZATION OF COMPUTER SOFTWARE COST 168,426 GROSS PROFIT 741,937 512,676 Sales and Administrative 647,864 612,725 Engineering, Research and Development 60,315 -------------------------------- Total Costs and Expenses 647,864 673,040 EARNINGS FROM OPERATIONS 94,073 (160,364) OTHER INCOME (EXPENSE) Interest Income 14,525 21,835 Other Income - (31) Interest Expense (318) (1,032) Other (2,324) (65) NET EARNINGS BEFORE INCOME TAXES 105,956 (139,657) INCOME TAXES 38,200 - NET EARNINGS 67,756 (139,657) PREFERRED DIVIDEND - - INCOME APPLICABLE TO COMMON SHARES $ 67,756 $ (139,657) =========== =========== PER COMMON SHARE AND COMMON SHARE EQUIVALENTS Net earnings $ 0.01 $ (0.03) ========== =========== SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION STATEMENTS OF CASH FLOW Three Months Ended July 31, 1997 1996 __________________________ CASH FLOW FROM: OPERATING ACTIVITIES Net Earnings (Loss) $ 67,756 $ (139,657) Adjustments to Reconcile Net Earnings To Net Cash Used in Operations: Depreciation 28,432 31,742 Amortization - 168,426 Deferred Income Tax 38,200 - (Gain) Loss on Sale of Fixed Asset - - Changes in Assets and Liabilities Accounts Receivable (415,562) (56,880) Inventories 21,175 18,205 Prepaid Expenses 27,442 (27,457) Accounts Payable 133,793 (72,194) Accrued Liabilities (166,377) (173,977) Accrued Royalties 147,261 97,528 Advances From Customers 91,380 (108,060) Prepaid Maintenance Contract Revenue (123,004) 5,169 ----------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (149,504) (257,155) INVESTING ACTIVITIES: Capital Additions (14,426) (33,203) ------------------------------------ NET CASH (USED IN) INVESTING ACTIVITIES (14,426) (33,203) FINANCING ACTIVITIES Payments on Capital Leases (7,699) --------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES - (7,699) NET CHANGE IN CASH (163,930) (298,057) CASH, Beginning of the Year 1,404,708 2,071,772 ---------------------------------- CASH, July 31, 1997 and 1996 $1,240,778 $ 1,773,715 =================================== SEE NOTES TO CONDENSED FINANCIAL STATEMENTS ACCESS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS JULY 31, 1997 NOTE A - Condensed Financial Statements - ---------------------------------------- The condensed balance sheet as of July 31, 1997, the condensed statement of earnings for the three month periods ended July 31, 1997 and 1996, and the condensed statements of cash flows for the three month periods ended July 31, 1997 and 1996, 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 July 31, 1997 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, 1997. The results of operations for the period, ended July 31, 1997 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, Service and Electronic Document Management Systems. Originally, the company's service activities were limited to the support of its proprietary products. The Company is currently building and growing its business of maintaining equipment manufactured and sold by third parties. The Company is working with manufacturers and distributors of high value equipment to develop its service business. 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, Incorporated (GST), 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. Fiscal year 1998 first quarter revenue of $2.7 million was up $1,037,300 (62%) compared with the first quarter of fiscal 1997 Service revenue of $1.4 million increased $297,600 (28%) compared with the first quarter of fiscal 1997. The increase in revenue for service was attributable to the new prepress service business the Company acquired from GST in April 1997. The majority of the 125% increase in EDMS revenue resulted from sales to one customer which represented $990,500 in software revenue in the month of July 1997. The prepress revenue was $342,700 for the quarter ended July 31, 1997. The Company's current backlog of orders is $2.02 million compared to $2.05 million at the end of the three months ended July 31, 1996. Current EDMS backlog of $99,400 is 80% lower than that at the same date last year. This decrease in EDMS backlog is the result of the Company delivering the remaining portion of a large 24 month software license in the second quarter of fiscal 1997. Current Service backlog of $1,374,800 is 12% lower than that at the same date last year. This decrease in service backlog is the result of delays in and some contract non-renewals for Cimage Software service and a reduction in the use of the Access proprietary software requiring service. Gross Margin for the quarter ended July 31, 1997 of 27% was 4% lower than the 31% reported in the comparable period in fiscal 1997. Service gross margin for the first quarter of fiscal 1997 was 13% compared to 38% in the comparable period in fiscal 1997. With the Company's entry into servicing the prepress market, it doubled its number of field service representatives. The addition of these trained personnel greatly expands the capability of the Company to deliver service on a nationwide basis. In the first quarter of fiscal 1998, the additional capacity was not utilized, thus reducing the Company's gross margin for that period. The Company is forecasting substantial growth in its service business, increased utilization of this additional personnel and improved service gross margins. EDMS gross margin before amortization for the first quarter of fiscal 1998 was 42%, which was an decrease from the first quarter of fiscal 1997 level of 46%. For the quarter ended July 31, 1997, the Company did not incur amortization expense for EDMS Capitalized Software because the remaining EDMS computer software development costs were written off in fiscal 1997. For the first quarter ended July 31, 1996, EDMS had amortization expense of $168,400 which decreased the gross margin for the EDMS business unit to 18%. In the first quarter of fiscal 1998 the Company provided EDMS professional services at a discounted rate to two large customers which resulted in a lower gross margin for professional services. Selling and administrative expenses of $647,900 for the first quarter of fiscal 1998 were $35,100, 6% higher than the first quarter of fiscal 1997. Selling expenses increased due to the additional sales personnel for the prepress and third party sales activities. Engineering, research and development expenses were incurred for maintaining, upgrading current products and developing new products in the first quarter of fiscal 1997. Cimage Enterprise Systems Limited performs all the engineering, research and development for the Cimage software; therefore, the Company will no longer have a development expense. Interest income for the first quarter ended July 31, 1997 was $14,525 compared with $21,835 for the first quarter ended July 31, 1996. 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 three months of fiscal 1998, the Company decreased its cash balance by $163,930 giving the Company an ending cash balance of $1,240,778 in cash. The Company generated a net income of $67,800 plus cash flow from non-cash charges for depreciation and deferred income taxes of $28,400 and $38,200, respectively. This resulted in an increase in cash of $134,400. Cash was also provided by increases in Accounts Payable, Advances From Customers and Accrued Royalties of $133,800, $91,400 and $174,300, respectively. This was offset by a use of funds for increasing Accounts Receivable, decreasing Accrued Liabilities and decreasing Prepaid Maintenance Contracts of $415,600, $166,400 and $128,800, respectively. The Company invested $14,400 for capital equipment. Working capital on July 31, 1997 was approximately $2,622,200, which is $41,200 lower than the April 30, 1997 level. This primarily resulted from increases in accounts receivable and reductions in accrued liabilities and prepaid maintenance contracts. 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. The Company is still pursuing the venture to join Avcom in a Cincinnati-based venture that intends to acquire and operate companies in the design automation, document management and technical services field throughout the United States. The Avcom venture is contingent upon successful due diligence of 11 companies, each of the 11 companies, including Access, reaching a binding definitive agreement and the successful completion of an initial public offering by Avcom. 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: August 22, 1997 /s/ Newton D. Baker ----------------- -------------------------- Newton D. Baker Executive Vice President Date: August 22, 1997 /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: August 22, 1996 NEWTON D. BAKER ------------------- ---------------------------- 					Newton D. Baker 					Executive Vice President Date: August 22, 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 July 31, 1997 and 1996 is attached as Exhibit 11(a).