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AMERICAN ACCESS(TM) | File No. 333-63462 |
[ L O G O ] TECHNOLOGIES, INC. | Rule 424(e) |
------------------ | Public Offering |
Solutions To Open Office Architecture(SM) | Prospectus |
| October 10, 2001 |
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American Access Technologies, Inc.
common stock is traded on the
NASDAQ Small Cap Market under
the symbol AATK
1,660,860
Shares of Common Stock
The shares for this offering are being sold by the selling security holders
named under the Plan of Distribution - Selling Security Holders.
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| INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD |
| CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4. |
| |
| NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES |
| COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED |
| IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE |
| CONTRARY IS A CRIMINAL OFFENSE. |
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PROSPECTUS SUMMARY
The offering
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Common stock offered by selling security holders 1,660,860
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Shares of common stock to be outstanding assuming all
shares to which this prospectus relates are sold. 6,191,207
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Our company
American Access manufactures, develops and sells products that place
telecommunications equipment in office buildings, hospitals, convention centers,
schools, and any building in need of an efficient system to route information.
Our zone cabling termination cabinets are used to house and mount
telecommunications equipment in ceilings, floors and in modular office
furniture. Cables and wires that allow computers, telephones and fax machines to
work are also plugged into this cabinet, saving users over time up to 70% of the
cost to install, move, add and change the office layout. Our wholly-owned
subsidiary, Omega Metals, Inc. is a metal fabricating company with the
capabilities for fine finish work, such as powder coating.
Although on April 10, 2001 we signed an agreement to merge with
DataWorld Solutions, Inc., a New York company that manufactures and distributes
specialized electronic cable assemblies and other interconnection products, the
agreement was terminated due to material adverse changes in DataWorld's business
and other actions. We are seeking declaratory judgment that we were legally
permitted to terminate the agreement.
RISK FACTORS
Except for historical information, the information in this prospectus
and in our SEC reports contains forward-looking statements about our expected
future business and performance. Our actual operating results and financial
performance may prove to be very different from what we might have predicted as
of the date of this prospectus. The risks described below deserve your special
consideration.
We have had a history of operating losses and this may continue to be the case
We incurred net losses of approximately $2,034,000 in fiscal 2000 and
$1,678,000 in fiscal 1999, as well as a net loss for the three months ended June
30 , 2001 of $642,347 as compared to a net loss of $306,204 for the quarter
ended June 30,2000.Net loss for the six months ended June 30, 2001 was $883,231,
compared to a net loss of $600,930 for the six months ended June 30, 2000. Our
expenses are currently greater than our revenues. Our ability to operate
profitably depends on increasing our sales and achieving sufficient gross profit
margins. We cannot assure you that we will operate profitably.
2
We do not have financing commitments to meet our working capital needs,
and if we are not successful in raising additional capital, we will not be able
to maintain our business at current levels and expand our operations.
We will require substantial additional capital including working
capital to fund ongoing operating losses. We have no current commitment
available for additional financing. If we fail to raise sufficient capital, we
may be required to delay or abandon some of our planned future expansion or
expenditures, which could have a material adverse affect on our growth and our
ability to compete and generate profits for our stockholders, and could even
result in a curtailment of ongoing operations.
Exercise of outstanding stock options and warrants will result in dilution
We have a substantial number of stock warrants and options outstanding,
each of which is exercisable to purchase one share of common stock. If all of
the warrants and options are converted, the interest of holders of common stock
would be subject to substantial dilution. As of June 1, 2001, there are
outstanding options and warrants to purchase 5,176,230 shares of our common
stock.
USE OF PROCEEDS
No assurance can be given that any or all of the warrants being
registered in this filing will be exercised. Accordingly, as far as can be
determined as of the date of this prospectus, the proceeds received by American
Access upon any exercise of warrants will be used for general corporate purposes
and for working capital which may include payment of salaries, rent, research
and development, purchase of inventory and marketing expenses. Such proceeds
would aggregate $ 10,300,000 if all the warrants were exercised in full.
MARKET FOR SECURITIES
American Access' common stock is traded on the Nasdaq Stock Exchange,
under the symbol AATK. Prior to April 13, 1999, the company's common stock was
traded in the over-the-counter market included in the NASD Electronic Bulletin
Board under the symbol AATK.
The following is the range of high and low closing prices for the
company's common stock for the periods indicated:
High Low High Low High Low
Year Ending Year Ending Year Ending
December 31, 1999 December 31, 2000 December 31, 2001
1st Quarter $21.50 $17.25 $17.00 $5.75 $1.90 $0.813
2nd Quarter $22.75 $17.5625 $13.25 $3.375 $2.00 $0.770
3rd Quarter $18.875 $ 6.00 $ 9.50 $4.00
4th Quarter $8.25 $4.25 $ 5.00 $1.156
The above represents inter-dealer quotations which do not include
retail mark-ups, markdowns, or commissions, and do not necessarily represent
actual transactions. About 2,300 investors were record holders of American
Access common stock on June 1, 2001.
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DIVIDEND POLICY
American Access has not paid any dividends on its common stock, and it
is not anticipated that any dividends will be paid in the foreseeable future.
The Board of Directors intends to follow a policy of retaining earnings, if any,
to finance the growth of the company. The declaration and payment of dividends
in the future will be determined by the Board of Directors in light of
conditions then existing, including the company's earnings, financial condition,
capital requirements and other factors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Overview
American Access was formed in October 1996 to acquire the assets of Vic
Murray and Associates, Inc. American Assets purchased VMA to obtain the pending
patent for the Zone Cabling Termination Cabinet, which the company has since
developed and marketed.
Shortly after the acquisition of VMA, American Access decided to
discontinue the operations and business activities of VMA, which was a
manufacturer's representative of various products. Today, we develop, design,
and manufacture products for the telecommunications industry. Our cabling
cabinets store and efficiently distribute the wiring for computer, telephone,
and television systems installed in office buildings, hospitals, schools,
conventions centers, and any building that needs an efficient system to route
information.
In November 1998, American Access acquired Omega Metals, Inc., a
precision sheet metal fabrication operation, which has and will continue to
provide product prototyping, manufacturing, assembling and packaging operations
to the company. Omega operates as a wholly owned subsidiary. The 67,500 sq. ft.
plant is actually divided into two facilities, one that manufactures American
Access products and one that houses all other manufacturing jobs.
The company also acquired in August, 1999 the assets of Genco, Inc., a
manufacturer of generator covers. In June 2000 we decided to no longer pursue
Genco-related orders, earmarking the Genco manufacturing space for the
manufacture of our proprietary zone cabling cabinets. Accordingly, we wrote off
the remaining goodwill. A powder coating system was added at the expanded plant,
to facilitate custom coating jobs for both our zone cabling cabinets and other
metal fabricating projects.
The company also in January 2000 entered into a letter agreement with
Vulcan Microsystems, Inc. and Grovegate Capital LLC. for the creation of a joint
venture, AATK.com LLC., in which Vulcan would contribute its expertise in
building a state-of-the-art Business to Business e-commerce portal, which would
facilitate the distribution of zone cabling products and other manufacturers'
products used in telecommunications projects. Grovegate Capital was the
investment banking firm that introduced the parties. The relationship
deteriorated into litigation, and the company subsequently formed the subsidiary
Zonecabling.com, Inc., hiring in-house Information Technology personnel to build
the site, This subsidiary was incorporated May 4, 2000. We subsequently
determined that marketing our products in this manner competed with our
traditional marketing methods. Currently, this subsidiary is subject to a
Management with Option to Purchase Agreement with a former shareholder and
officer/director, signed March 27, 2001. Zonecabling.com's role is being
re-evaluated. If the option to purchase the subsidiary is exercised before the
expiration of the agreement on December 31, 2002, the Company would receive
$500,000 under the terms of sale.
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A new awareness of the benefits of zone cabling in the
telecommunications industry has prompted the company to negotiate private label
agreements with established solutions providers. We are beginning to generate
orders from the earlier agreements, and continue to seek new partners for
private labeling. We are also actively pursuing inclusion in federal government
projects through our distributors.
On April 10, 2001 the company signed an Agreement and Plan of Merger
with DataWorld Solutions, Inc., in Farmingdale, NY, subject to shareholder
approval and other customary conditions. DataWorld shareholders would have
received one share of American Access common stock for every four shares of
DataWorld held. Additionally, two classes of DataWorld Preferred Stock would
have been converted into American Access Preferred Stock, share for share, with
substantially identical terms and conditions. The merger agreement was
terminated in July 2001 because of substantial and material adverse changes to
DataWorld's business.
The following discussion and analysis should be read in conjunction
with a discussion about risk factors and the consolidated financial statements
of the company, included elsewhere in this report.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, , 2001 COMPARED WITH THE THREE AND SIX
MONTHS ENDED JUNE 30, 2000 And YEAR ENDED DECEMBER 31, 2000 COMPARED TO
DECEMBER 1999
Revenues
Revenues for the three months ended June 30, 2001 decreased by $361,123
or 26.0% to $1,025,885 as compared to $1,387,008 for the three months ended June
30, 2000. Revenues for the six months ended June 30, 2001 decreased by $723,300
or 24.9% to $2,174,124 as compared to $2,897,424 for the six months ended June
30, 2000. This decrease in revenues is the result of fewer new projects pursuant
to the economic downturn.
Revenues for the year ended December 31, 2000 increased by $23,770 to
$5,271,453 as compared to $5,247,683 for the year ended December 31, 1999. Sales
of zone cabling termination cabinets increased by $491,047 and sales of formed
metal decreased by $467,277 in 2000 compared to 1999. The decrease in formed
metal sales is attributed to cancellations and fewer new projects pursuant to
the slowdown of the economy
Costs and Expenses
Direct costs represent costs incurred by the Company to manufacture and
assemble its products. These costs represent 53.7 % of revenues for the three
months ended June 30, 2001 and 47.9 % of revenues for the three months ended
June 30, 2000. Direct costs represent 50.6% of revenues for the six months ended
June 30, 2001 and 49.0% of revenues for the six months ended June 30, 2000. The
increase in direct costs is primarily related to many smaller formed metal jobs
produced in the past quarter as compared to a year ago.
Direct costs for the year ended December 31, 2000 represented 48.7% of
revenues. For the year ended December 31, 1999 these costs represented 43.8% of
revenues. The increase is due mainly to the generator enclosures built in 2000
over 1999. The margin on this item is much smaller than on zone cabling
cabinets. With this business becoming less of a factor in our overall volume and
zone cabling cabinets increasing, this percentage should drop.
We issued 65,000 shares of common stock as stock-based compensation of
approximately $124,000 to our outside counsel for legal services provided in
conjunction with our Plan of Merger Agreement with DataWorld Solutions, Inc. The
merger agreement was terminated in July 2001.
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Compensation and related benefits expenses increased by $309,935 to
$1,444,437 for the year ended December 31, 2000. These costs totaled $1,134,502
for the year ended December 31, 1999. This increase is due primarily to the
additions of a sales and marketing staff and of a full time Controller.
Selling, General and Administrative expenses decreased by $ 344,026 to
$729,521 for the three months ended June 30, 2001 as compared to $1,073,547 for
the three months ended June 30, 2000. Selling, General and Administrative
expenses decreased by $403,683 to $1,539,171 for the six months ended June 30,
2001 as compared to $1,942,854 for the six months ended June 30, 2000. This
decrease was the result of continued cost-cutting strategies implemented by
management over the past six months.
Selling, general and administrative expenses for the year ended
December 31, 2000 amounted to $2,392,467. This was a decrease of $309,238 from
the December 31, 1999 amount of $2,701,705, which was the result of various
cost-cutting measures.
Income (Loss) from Operations
Loss from operations for the quarter ended June 30, 2001 was $429,159
as compared to a Loss of $351,207 for the quarter ended June 30,2000, an
increase of $77,952. Loss from operations for the six months ended June 30, 2001
was $675,315 as compared to a Loss of $466,252 for the six months ended June 30,
2000, an increase of $209,063. The increased Loss is the result of the reduction
in revenues partially offset by the cost saving in Selling, General and
Administrative expenses.
Loss from operations for the year ended December 31, 2000 decreased
$149,794 to $1,353,653 as compared to $1,503,447 for the year ended December 31,
1999.
Net Income (Loss)
Net loss for the quarter ended June 30, 2001 was $642,347, compared to
$306,204 for the quarter ended June 30, 2000. Net loss for the six months ended
June 30, 2001 was $883,231, compared to a net loss of $600,930 for the six
months ended June 30, 2000. A portion of the net loss, $221,278, can be
attributed to the allowance taken for a doubtful loan receivable - related
party.
Net loss for the year ended December 31, 2000 increased $356,210 to
$2,033,793 as compared to $1,677,583 for the year ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $164,622 during the
six months ended June 30, 2001 as compared to utilizing cash of $780,815 during
the six months ended June 30, 2000.
Net cash [used] by operating activities was [$1,195,401] and
[$1,201,041] for the years ended December 31, 2000 and 1999 respectively. Net
cash [used] by operating activities during the year ended December 31, 2000
primarily consisted of net losses, increases in accounts receivable, inventories
and decrease in accounts payable, offset by depreciation, amortization,
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provision for uncollectible notes, loss on impairment of assets and warrants
issued for services. Net cash [used] by operating activities during the year
ended December 31, 1999 primarily consisted of net losses, increase in accounts
receivable, inventories and prepaid expenses, offset by depreciation,
amortization, common stock and warrants issued for services, realized/unrealized
losses on investments and increase in accounts payable.
Net cash provided [used] by investing activities for the year ended
December 31, 2000 was [$6,417]. Funds received were from sale of investments and
payment of notes receivable offset by increase in notes receivable and property
and equipment acquisition. In the preceding year ended December 31, 1999, net
cash provided by investing activities was $408,407. Funds provided mainly
consisted of sales of investments of $1,791,871 less amounts used for the
acquisition of property and equipment totaling $1,354,610.
Net cash provided by financing activities was $887,657 for the year
ended December 31, 2000, and $868,967 for the year ended December 31, 1999. In
the year ended December 31, 2000, the company received proceeds of $1,573,885
from the sale of common stock and warrants. The company utilized $73,812 to
repay a line of credit and $612,416 to acquire treasury stock. For the year
ended December 31, 1999, the company received proceeds of $1,973,000 from the
sale of common stock. The company utilized $222,190 to reduce the line of credit
and $881,843 for the purchase of treasury stock.
Management's plans include the following:
The Company has reworked its marketing plan to become an industry
standard for zone cabling, not just an option to traditional cabling methods.
Our marketing plan envisions a distribution chain that includes forging
relationships with and ultimately selling our products to:
o Systems Providers (Original Equipment Manufacturers or OEMs) that buy
and sell product and specify telecommunications systems to end-users.
We have signed private label agreements with companies such as Tyco,
Flexspace and others. Marketing through systems providers is much like
selling tires to an automobile manufacturer, ensuring that the tire is
incorporated into the design of the auto at the beginning, rather than
setting up shop to sell tires to auto owners who are already driving
cars with tires. For us, being specified as part of a whole
telecommunications system at the pre-design phase is an important part
of our sales effort, so we focus on getting the word out to OEMs about
the benefits of zone cabling;
o Distributors that stock, sell and finance product and whole systems. We
work with Graybar, Anixter, and GE Supply, as well as other
distributors that employ a sales force to support and sell product
through contractors. Working closely with distributors ensures that
their sales efforts are successful because their sales personnel
understand why zone cabling products are important to a network;
o Contractors who install, test and guarantee the network systems they
build for end-users. Contractors also work closely with the architects
and Information Technology Systems Designers who need to know the
benefits of zone cabling so it can be specified from the beginning of a
project;
o End-users that can specify the most cost-efficient system available to
them will want to hear the American Access zone cabling story from
their architects, contractors, distributors or systems providers.
Forging all of these relationships gives us the edge in education. The
more you know about us, the more likely you are to buy the products we
manufacture.
As we build relationships on four levels, the products we manufacture
can be sold to systems providers and distributors, who in turn sell to
contractors or directly to the end-user. Because our products are an integral
part of a telecommunications network, we market them for inclusion in those
networks, not just as separate entities. Again, consider the tire manufacturer
that broadens its sales success by selling tires to the automobile manufacturer
for inclusion in the finished product. Our goal is to reach beyond the concept
that our product is an alternative to traditional home run cabling and to make
zone cabling the standard in the industry.
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Combined with growing orders by our established distributors, the
recent private label agreements and pending orders with divisions of Tyco and
others should increase our sales in the last two quarters of 2001.
o The Company believes that it can acquire working capital through sale
of additional securities, including exercise of outstanding warrants,
private placement, or borrowings, including bank borrowing and private
equity lines, in view of the nature of its customer base. Since our
67,500 sq. ft. plant is unencumbered, we also have the potential to
mortgage it to raise capital. On May 2, 2000, the Company entered into
a stock placement agreement through which it can acquire additional
working capital through November 2001. However, at the present time,
certain conditions of liquidity specified in that agreement are not met
and until they are, this avenue for capital is unavailable. The company
continues to be subject to a number of risk factors, including the
uncertainty of market acceptance for its product line, the need for
additional funds, competition, technological obsolescence and the
difficulties faced by young companies in general.
OUR BUSINESS
Our background
American Access founder, Victor E. Murray, began working in the
electrical, cable and industrial supply business in 1945, forming strong
relationships with electrical engineers, electrical contractors, municipalities,
power companies and distribution companies, eventually opening his own company
in 1977.
Murray seized an opportunity to evaluate industry needs after the
break-up of the AT&T monopoly, when thousands of technology, service and
equipment companies began to develop revolutionary telecommunications products
and services. Simultaneously, the computer industry rapidly evolved, creating
even more opportunities.
Murray decided to specialize in wire management for Voice, Data, Fiber
Optic, CCTV and CATV applications. With the birth of new and revolutionary high
speed telecommunications technology and equipment, wiring and wire management
would become a critical part of telecommunications. American Access is gaining a
reputation as an innovator in the field of wire management, having consulted on,
designed and supplied product for a wide range of building projects..
We acquired the assets of Omega Metals, Inc., in November 1998. Omega
is a wholly-owned subsidiary that manufactures our zone cabling cabinets along
with independent metal fabricating jobs.
In August, 1999, we purchased the assets of Genco, Inc., a generator
cover manufacturer. To make room for our growing zone cabling enclosure line, we
are no longer soliciting jobs for Genco, and the remaining good will has been
written off..
In July 2000, American Access expanded its traditional marketing focus
by establishing a Business to Business e-commerce site. We continue to focus our
marketing efforts on our successful channel distribution, and we continue to
discuss a concrete path for the future of the Internet site. On March 27, 2001
we entered into a Management Agreement with Option to Purchase Zonecabling.com
with Bobby Story, a former shareholder/officer/director. Mr. Story is employed
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to manage the Business to Business e-commerce site with an option to purchase
the subsidiary for $500,000. Mr. Story was issued 213,333 options to purchase
the common stock of American Access with an exercise price of $2.25, as payment
for managing the subsidiary, in addition to 25% of the net revenues, as defined,
for the duration of the agreement. Prior to signing this agreement, the Company
determined that marketing its products in this manner conflicted with its
traditional channel distribution. Prior to Mr. Story's involvement, operation of
the site was suspended pending re-evaluation of its potential. Mr. Story will
evaluate the future of Zonecabling.com as an e-commerce site and implement a
plan based on that evaluation.
Our powder coating system has been operational since March 2000, and is
expanding our customer base by allowing us to offer a state-of-the-art finish to
metal fabricating jobs. Additionally, we have added a Strippit Machine and
Vertical Milling Machine to assist in custom metal stamping.
Negotiations for private label agreements continue to be a marketing
niche that is growing in importance to us. We have partnered with industry
trailblazers to bring zone cabling to the workplace. We modify our cabinets to
our customers' specifications, and we label them and our standard cabinets for
our customers' use. We have recognized another avenue under private labeling,
and are negotiating with some large companies for Original Equipment
Manufacturer status, whereby we produce related telecommunications products
based on their designs and specifications.
American Access has been approved as a vendor for government service
contracts, through SmartNetworks. As an approved vendor, we will be assisting
the government in purchasing our products for its applications on a federal
level.
Industry leaders are now addressing the need for new and faster cabling
methods and equipment. These companies, industry associations and individual
experts have joined together to create revolutionary standards. Companies such
as Lucent Technologies, Sun Microsystems, Ortronics, AT&T, Krone, Belden,
Siecor, Hubbell, Leviton Telcom, and American Access Technologies, Inc., are
developing and introducing innovations in wire/cabling design and routing to
provide efficient transmission of telecommunication signals into the zone in
which it is needed. The method of zone cabling is called Open Office
Architecture.
Open Office Architecture is endorsed pursuant to Telecommunications
Systems Bulletin 75, by the American National Standards Institute, the Telephone
Industry Association and by the Electrical Industry Association. The purpose of
this design is to locate the bundled cables closer to the individual
workstations.
Termination of proposed merger with DataWorld Solutions, Inc
On July 19, 2001, American Access filed a complaint in the Florida
court's, 18th Judicial Circuit, against DataWorld Solutions, Inc., of
Farmingdale, New York, seeking a declaratory judgment that American Access was
permitted to terminate its Agreement and Plan of Merger with DataWorld, entered
into on April 10, 2001, and is not subject to a penalty for terminating said
agreement. The termination was predicated on substantial and adverse materal
changes to DataWorld's business and other actions taken by DataWorld.
Subsequently, DataWorld countersued for a break-up fee of $500,000. Litigation
is in progress.
Background of our product development
Until now, wire management systems have not evolved as rapidly as the
telecommunications industry. Industry leaders began to realize that with the
advent of technologically advanced equipment, systems, new methods of
conveyance, and the demand for connection to the Internet the established
methods of wiring and wire management were outdated.
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Telecommunication wiring originates outside the building and is routed
into the building through either an underground, direct buried or aerial
facility. The wiring is then distributed to each floor of a building through
areas known as telecommunications closets. From the closets, all wiring is
sorted and distributed as needed to all the workers' stations on that floor.
Every workstation, where phones, computers and fax machines are located, is
required to have two horizontal cables running from it to the telecommunications
closet. This traditional method of wiring is called star topology. It provides
very little flexibility when wires and cables need to be rerouted as additions
or changes are made at a workstation.
The telecommunications closet is located in a common area within each
floor. The cables distributed from it could be as far as 295 ft. (90 meters)
away from each workstation. For voice wiring, the maximum main cable length is
800 meters. This illustrates that a massive amount of wire is required for
telecommunications. It is not unusual for a 40-story building to have 200-300
miles of wiring. To meet the many industry standards and regulations, the old
method of cable distribution in an office environment requires very expensive
modular furniture to help route the miles of wires. In some applications, even
modular furniture may not meet industry guidelines. American Access products
meet industry standards and are specially designed solutions to cabling
problems.
Today, we all rely on staying in touch. People communicate more with
computers, phones and fax machines. To accommodate the growing
telecommunications industry, more cables and wires must be run to carry voice,
data, and video images faster, cheaper, cleaner, in longer runs, and using less
space. At the same time, future additions and changes to a system must be
considered. Old methods of wiring require that a new line of cable be run from
the user's desk, or workstation, back to the telecommunications closet for each
and every change. Our enclosure, the Zone Cabling Termination Cabinet,
eliminates the need for those new lines by placing the telecommunications
equipment close to the workstation and in an inconspicuous location.
Zone cabling is used in open office areas, hotels, convention centers,
entertainment and theme parks, hospitals, government buildings, schools,
industrial complexes, data centers, banks, and any other area where a flexible
cable layout is required to support a changing or growing network for
communicating information.
AMERICAN ACCESS PRODUCTS
The American Access product line capitalizes on the need for zone
cabling solutions. Our cabinets provide efficiency and flexibility, and are the
only fire-rated and Underwriter's Laboratories approved systems in the industry.
In 1996, we consulted with many of the leading telecommunications
specialists and engineers. All were in agreement. No one had developed a device
that met all of the industry standards and could effectively and efficiently be
used to house and route telecommunications cables and wires. However, some sort
of device was absolutely required to complete the Open Office Architecture
design. American Access researched and verified that no such enclosure existed.
In fact, our research revealed that no one was even developing such a device.
We designed an enclosure to house and distribute telecommunications
wiring and equipment in buildings. This enclosure is called a Zone Cabling
Termination Cabinet. We currently hold a patent pending for this cabinet that
may be installed in the ceiling, above the ceiling, on or in the wall or in the
floor structure. The ceiling unit fits into the suspended ceiling, providing
easy access to the wires and cables running to each workstation. Less cable is
used. Installation is easier and quicker, causing fewer disruptions and down
time for office workers. The floor and modular furniture units provide the same
solution as our ceiling unit installations. Our modular furniture unit is named
EthoCom.
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We believe that our products are among only a few manufactured that can
efficiently house telecommunications cables, distribute wiring to workstations,
and store unused cabling until it is needed, while complying with all industry
and government guidelines, standards and regulations. The cabinets can be used
for all low voltage wiring systems, including voice, data, video, building
controls, security, and fire/life/safety wiring systems. The cabinet was
designed to accommodate all manufacturers' equipment.
Product application
The zone cabling cabinet will reduce the amount of wire running from
the workstation to the telecommunications closet. The wiring will now run from
the workstation to our cabinet, which is readily accessible through the ceiling
grid system, the floor, or through the modular furniture. The cabinet is
designed to accommodate all of the newly developed Open Office Architecture
wiring equipment. This ceiling enclosure is mounted in a standard 2ft. x 4ft. or
2ft. x 2 ft. ceiling grid system, but is physically attached to the building
structure to support the weight of the equipment installed within the enclosure.
The equipment is reached through a door that opens from below the ceiling for
easy maintenance, installations and changes. The floor system is installed under
raised floors with easy access. Modular office furniture is our most recent
application, which we developed in conjunction with a special line of Herman
Miller furniture. Specially trained, highly-paid technicians will be required
for far fewer hours to make those changes when any of our systems grow or are
reconfigured. The new equipment just plugs in, creating less down time and less
loss of productivity. Cables are easily re-routed and reused. Less cable is
used, reducing the cost of materials and labor. Money is saved with the initial
installation and when systems are changed.
The cabinets make better use of telecommunications closets, reducing
the mass of cables to be run throughout the building. Building owners are then
provided more usable space that generates rent.
Product standards
The standards, regulations and various industry association guidelines
are very specific. They address the components of the product, the product
itself, the installation, and every aspect that may affect the safety of people
or property, including:
o wire and cable lengths and widths, the minimum and maximum allowed. For
example, to wire for a telephone system, the maximum main cable length
is 800 meters;
o ability of the product to withstand heat and fire damage;
o markings. Each enclosure must be marked with the manufacturer's name,
trademark, or other descriptive marking. An enclosure may also be
designated with environmental ratings, such as rainproof, watertight,
corrosion resistant and dust-tight;
o number of cables needed to run from the telecommunications closet to
the workstation;
o voltage and grounding concerns; and
o the ability of the product to function as advertised.
American Access believes its Zone Cabling Termination Cabinet is one of
a handful of products that meets the standards and requirements of the
telecommunications industry, including Building Industrial Consulting Services
International, National Electric Code regulations NEC 300-22 B & C, American
National Standards Institute/Telephone Industry Association/Electrical Industry
Association publication 568 A, as well as the zone cabling guidelines as
specified in the Telecommunications Systems Bulletin - TSB 75. This product was
the first to be tested by Underwriters Laboratories for this application.
Therefore, Underwriters Laboratories has assigned this product to a new category
listing. This listing is identified as UL 1863, telecommunications cabinets. In
conducting product tests, Underwriters Laboratories lists, classifies, or
recognizes products for their ability to perform as designed. A UL listing is
the highest category a product can achieve, implying that as tested, all
components of the product work as expected. Our products achieved this highest
level after testing.
11
MARKETING
Our efforts indicate that the telecommunications industry is beginning
to promote zone cabling as a means to distribute fiber and short runs of
enhanced copper, which are used as a conductor for telecommunications signals
from outside lines into buildings and to telephones, fax machines and computers.
This new cabling architecture provides broader band width, which means increased
Internet speeds, and reduces costs associated with moves, adds, and changes
(MACs) in an office setting.
Although our previous marketing strategy had focused on "channel
distribution" whereby distributors entered partnership programs to stock
products in regional warehouses and to promote that product through the
distribution channel, we have expanded this focus to include our own sales
professionals who target key accounts at the design phase and who are building
relationships with Original Equipment Manufacturers and Value Added Resellers
that can include our products in the early phases of network design and
implementation. . We have begun to participate as guest speakers in regional
sales meetings for telecommunications network installers and in national
conferences, such as the BICSI Winter Conference. By sharing our message with
decision-makers in the industry, we believe recognition and acceptance for zone
cabling will fuel our marketing efforts.
Concurrently, Omega Metals and our powder coating process utilize two
manufacturers' representatives, who are independent contractors, and who sell
our products in the Eastern United States. Omega's vice president of sales
coordinates the rep-driven system, and with our reps makes calls on the end
users of metal fabrication. Some accounts, which have been developed in house,
have been retained by Omega.
We use several brochures to assist in marketing. These pieces range
from one page to an eight page full color product and application brochure. We
also maintain a World Wide Web site for the casual visitor, telecommunications
expert, and the investor. All of these marketing/media materials provide company
information, product information, engineering specifications, drawings,
application for use, installation instruction, and features and benefits
tailored to each individual market need. Additionally the World Wide Web site
provides marketing support materials that can be downloaded and printed at
individual locations throughout the world. Questions and answers can be
transmitted via e-mail feedback capability, query analysis for tracking of
inquiries, lead generation for the distributors, distribution of marketing
materials to end-users not normally addressed by the individual distributors.
The company participates in three or four trade shows per year.
The end users of our products contract with specialized, Building
Industry Consulting Services International (BICSI) Certified Registered
Communications Distribution Designers (RCDD), qualified engineers and
contracting firms. These specialists design, specify, purchase and install
cabling of all types, switches and all other telecommunications equipment as
required by the end user. All product purchases are made through authorized
distributors with the exception of certain companies who can purchase extremely
large quantities as a private label type product.
We believe the market potential is enormous for new installation and
for refurbishing existing Zone Cabling Termination Cabinets and that the
partnering for private labeling and government sales will enhance our position
in the industry.
12
Distribution and Sales
American Access Technologies maintains authorized distributors that are
providers of integrated cabling and network solutions that support business
information and network infrastructure requirements. These distributors team
with customers to implement network solutions by combining a variety of
customized pre- and post-sale services and products from the world's leading
manufacturers. Our authorized distributors include: Accutech, , Anixter, Best
Communications, Branch Datacom, CED Electric, Coleman's, Communications Supply
Corp., Core Data Comm, Energy Electric, Englewood Electric, GE Supply, Graybar,
Hughes Supply, Kent Datacom, LiteComm Supply, Madison Electronics, Platt,
RESOURCElectronics, Rexel/CCW, State Electric, Southern Distribution and WESCO
Distribution.
Competition
The markets for our products are highly competitive and subject to
rapid change. These markets are sensitive to the introduction of new products
and the enhancement of existing ones. Industry participants also aggressively
market their products.
Competitors may be developing technologies or products that may be
similar or superior to ours. These competitors may have a better ability to
market their products.
In order to effectively compete, we need to make our business grow. By
generating greater revenues, we will have the resources to develop new products
in response to new technology. We will be able to meet customer demands, and to
sell products in a broad distribution channel. We cannot assure that we will be
able to grow sufficiently to compete effectively in this marketplace.
MANUFACTURING/OMEGA METALS, INC.
We have developed all of our products utilizing computer assisted
design drawings (CADD). Master copies of these drawings are safeguarded at the
home office and certain copies are available to outsource firms. On November 12,
1998, we acquired all the outstanding common stock of Omega Metals, Inc.(Omega),
in exchange for 226,470 shares of our common stock. Omega has been a contract
manufacturer of various products used in the telecommunications industry.
Omega is a precision sheet metal fabrication and assembly company
located in Northeast Florida midway between Jacksonville and Gainesville. The
company was established in 1981, serving a diverse client base of over 300,
including engineering, technology and electronic companies, mostly in the
Southeastern markets. Clients include CSX Railroad and the U.S. military.
We operate from a 67,500 sq. ft. manufacturing facility situated on 8
1/2 acres of land that we own. The manufacturing process is run by a
state-of-the-art computer control system. Manufacturing services include
precision stamping, bending, assembling, painting and silk screening. Quality
control at Omega Metals is based on the Department of Defense military standard
MIL-1-45208A. Inspection equipment is strictly maintained to assure consistent
quality.
In March, 2000, our new powder coating system began operations. The
powder coating system imparts the highest quality finish to fabricated metal.
Diversified facilities and equipment allow Omega Metals, Inc. to handle a broad
range of customer requirements. Strict attention to quality assures our
customers of consistent production and conformity to their specific
requirements.
13
The manufacturing capability is not limited to only precision metal
fabrication. On site state of the art high-tech surface coatings such as
iridizing, powder coating, silk screening and specialized production painting
are also available.
Omega will continue to operate as a wholly owned subsidiary with
sales and manufacturing intact. In 2000, a clean room powder-coating operation
and expanded office space had been completed. Omega markets its services through
two sales representatives who are independent contractors covering the Eastern
United States. Omega's vice president of sales works in the field, calling on
and developing accounts.
FUTURE PRODUCT DEVELOPMENT
As we identified the specific product needs of the telecommunications
industry, products were developed to meet these needs. The products assist
equipment manufacturers in marketing their own products. We continue to
customize our zone cabling termination cabinets to meet the needs of our
customers. We are developing new enclosures that further streamline the cable
path for fiber optic and copper wiring, including a space-saving 2' x 2' ceiling
tile unit. There can be no assurance that any new products will be successfully
developed or marketed.
INTELLECTUAL PROPERTY
On September 24, 1996, we filed with the United States Department of
Commerce, Patent and Trademark Office application for patent, pending No.
08785006, for Zone Cabling Termination Cabinet and Communications Cable
Interconnection Apparatus and Associated Method for an Open Office Architecture.
The utility patent application contained approximately 67 various claims
associated with zone cabling techniques. On April 26, 1998, the Patent and
Trademark Office approved the patent for the cabling termination cabinet. Patent
No. 5,911,661 was issued on June 15, 1999. On June 5, 1998 we were informed that
the patent was approved for a communication cable interconnection apparatus and
associated method for Open Office Architecture. Patent No. 5,842,313 was issued
on December 1, 1998. As a continuation of Patent No. 5,911,661, on September 5,
2000 Patent No. 6,112,483 was issued for Communications Cable Interconnection
Apparatus and Associated Method for an Open Office Architecture.
American Access has made a formal filing under the Patent Cooperation
Treaty, Paris, France. The National Phase Entry is completed. The company has
applied for and our Patent is pending for our Communications Cable
Interconnection Apparatus and Associated Method for an Open Office Architecture
in Australia, Canada, China, Europe, Mexico and Japan.
Competitors may copy our products
Although we have received patents in the United States on aspects of
our products, competitors may not be prevented from developing products
substantially equivalent to ours. Patent litigation entails high costs and can
take a long time. Therefore, our patent position may not prevent competition
GOVERNMENT REGULATION - INDUSTRY STANDARDS
Our products and those in the telecommunications industry must meet
governmental and industry standards. In the U.S., our products must comply with
various regulations established by the Federal Communications Commission and
Underwriters Laboratories, as well as standards established by Bell
14
Communications research and local building codes. Our cabinet has been approved
by Underwriters Laboratories for low voltage communications. It meets or exceeds
the national electrical code requirements. We belong to trade organizations such
as the Telecommunications Industry Association, International Association of
Electrical Inspectors and Building Industrial Consulting Services International.
EMPLOYEES
American Access is managed by working directors and key personnel at
both its corporate headquarters in Lake Mary, Florida and its manufacturing site
in Keystone Heights, Florida. Approximately 27 full-time employees staff
American Access in management, sales, administration and production.
Omega employs approximately 50 persons, including 5 in management, 2 in
marketing and sales, 3 in engineering and 40 in production and distribution.
LITIGATION
The federal litigation against the Company, precipitated by the fall of
the price of common stock in August, 1999, was dismissed on June 4, 2001, based
upon the Plaintiffs' failure to comply with the Court's prior Order to Show
Cause. Plaintiffs on July 3, 2001 filed a Motion to Reopen the case, and we
subsequently filed a Memorandum of Law in Opposition to Plaintiffs' Motion. On
August 2, 2001, the judge denied the Plaintiff's motion to reopen, ruling that
the case will remain closed. The suit was filed in United States District Court,
Eastern District of New York, originally on September 22, 1999, and amended in
February 2000. In March 2001, the judge ruled to move the case to federal
district court in Orlando, Florida. Plaintiffs Rachel Bass, Yuri Gurarity, Sol
Gingold, Don Nagy, Marilyn Lesser-Gale and John Guida alleged in the Amended
Complaint that the defendants, primarily Capital International Security Group
and its principals, Grovegate Capital Partners, LLC, and its principals, Bridge
Bank and its principals and American Access Technologies, Inc., and its
principals participated in a conspiracy to inflate the price of the Company's
common stock for the purpose of allowing "insiders" to enrich themselves by
selling personal holdings at the inflated price. Plaintiffs believed they were
injured in an amount in excess of $30 million and sought treble their general
damages and special compensatory damages with interest. The Company has
consistently denied not only any wrongdoing, but most of the material factual
allegations as well. The Company has paid for legal services as incurred, which
includes the advancing of any legal fees for indemnification of defendants who
are principals of the Company. Company defendants have signed Conflict Waivers
and Undertaking to Repay Expenses for Defense for indemnification under Florida
Statutes Section 607.0850(6).
American Access Technologies, Inc., on September 14, 2000 was served as
a defendant in a lawsuit filed by Vulcan Microsystems, Inc. in the Circuit Court
of the Eleventh Judicial Circuit for Miami-Dade County Florida. Vulcan alleges
that American Access breached the terms and committed other misdeeds in
connection with the companies' letter of intent to establish a joint venture to
engage in e-commerce. Vulcan is seeking in excess of $15,000 damages. American
Access intends to vigorously defend its position and has filed a counterclaim
against Vulcan to include damages in excess of $15,000. We allege that Vulcan
breached the terms of the letter agreement and committed other misdeeds in
connection with the joint venture.
American Access at March 15 has filed suit in Seminole County Circuit
Court, 18th Judicial Circuit, against McLean Ventures LLC, and personal
guarantor Manuel Iglesias, for default in payment of a promissory note of
$325,000, with accrued interest in excess of $36,000 at December 31, 2000. We
are seeking full repayment of the note. The original promissor, Universal
Beverages Holding Corp., Inc., assigned its obligations with written consent of
15
the Company, after the Company filed a lawsuit for default of the original note
of $500,000 plus accrued interest. Although McLean paid the accrued interest and
a portion of the principal at assignment, its obligations were in default at
October 31, 2000. This note is a reserved for the full amount owed. McLean
failed to answer our complaint, and we sought a default judgment against it,
which was granted May 22, 2001. We are pursuing legal remedies to aid in
collection of this judgment.
On July 19, 2001, American Access filed a complaint in the Florida
court's, 18th Judicial Circuit, against DataWorld Solutions, Inc., of
Farmingdale, New York, seeking a declaratory judgment that American Access was
permitted to terminate its Agreement and Plan of Merger with DataWorld, entered
into on April 10, 2001, and is not subject to a penalty for terminating said
agreement. The termination was predicated on substantial and adverse materal
changes to DataWorld's business and other actions taken by DataWorld.
Subsequently, DataWorld countersued for a break-up fee of $500,000. Litigation
is in progress.
The outcome of these lawsuits is uncertain at this time.
FACILITIES
The company maintains offices at 37 Skyline Drive, Suite 1101, Lake
Mary, FL 32746. The 10,472 square feet of office space is leased for 4 years,
expiring May 30, 2003, at a rent of $10,384.73 per month. Management believes
that the terms of its lease are at least as good as may be obtained from another
party.
Omega Metals operates from its 67,500 sq. ft. manufacturing facility
situated on 8 1/2 acres of land that it owns in Keystone Heights, midway between
Jacksonville and Gainesville.
MANAGEMENT
The directors and executive officers of the Company are as follows:
Name Age Position
John Presley 61 President, Director
Joe McGuire 43 Sec/Treasurer, Director
Steve Robinson 53 Director
Erik Wiisanen 55 Director, VP Marketing, Omega Metals, Inc.
William Hadaway 56 Director
William Boyd 43 Vice President
JOHN PRESLEY. Director of the company since November 1998, and
President since April 12, 1999, Presley is a graduate registered professional
Engineer. He graduated from the University of Florida in January of 1961 with a
BSME, and attended a number of colleges for graduate work. He worked in many
industries as an engineer and manager before founding Omega metals in 1981.
Omega became a wholly-owned subsidiary of American Access in November, 1998.
JOSEPH MCGUIRE was hired by the Company on June 4, 2000. The Board of
Directors appointed him Chief Financial Officer and Director on June 29, 2000.
He has 13 years CFO experience, holding not only his CPA, but various Series
licenses. He is a graduate of the University of Notre Dame. From 1998 until June
2000, he was Chief Financial Officer for Hirst Investment Management, Inc. From
1997 to 1998, CFO for MHR Fund Management; from 1995 to 1997, CFO for the Common
Fund; from 1994 to 1995, CFO for Link Strategic Investors; and from 1989 to
1995, CFO for John Henry & Co., Inc. Prior to 1989, he held management positions
with Dean Witter Reynolds, Paine Webber, Inc., and Price Waterhouse.
16
ERIK WIISANEN, Vice-President-Marketing of Omega., was elected a
director in December, 1999. He graduated from Cornell University in 1965. He
worked in Banking as a Vice President of Barnett Bank until 1970 and was a
representative for shipping interests until helping to found Omega Metals in
1981. He was co-founder and President of the Board of Directors for a private
kindergarten. He has been vice president in charge of sales for Omega since
1981.
STEVEN ROBINSON, director, is an original founder of American Access
Technologies, Inc. He was appointed to the Board again in January 2001. He has
an extensive background in sales, marketing and operations with several
well-known local corporations. Since February 2001, he has served as President
of IbidAmerica, Inc. He was instrumental in developing Network 2000 sales as a
long-distance independent marketing/sales company for US Sprint. He is retired
from the US Navy. While in the Navy, he specialized in logistics and supply
management including federal government purchasing within DFARS regulations,
contract management and inventory control. He is the founder and majority
shareholder and currently president and CEO of a chemical manufacturing and
marketing company. He also is the majority shareholder of a wireless digital
phone services and products distributor.
WILLIAM HADAWAY, director appointed in January 2001, is a 1965 graduate
of the University of Buffalo with a B.S. degree in Accounting. He earned his CPA
license from the University of the State of New York in 1967. In 1981 he was
granted a CPA license from the Florida Institute of Certified Public
Accountants. Hadaway has been a sole practitioner or partner in a public
accounting firm since 1971. He has lectured on budgeting, cash management and
taxes. Prior to establishing his own firm, Hadaway was employed by Lathan,
Lumsden & McCorminck, the largest non-national CPA firm in Buffalo, NY., and by
Fiddler & Co., CPA in western NY.
WILLIAM BOYD, Vice President, has more than 10 years of
telecommunications and cable distribution sales experience. He was Datacom
Manager for GE Supply, Jacksonville, FL before joining American Access
management in 2000. From September 1999 to December 1999 he was National Account
Manager for Tyco/ADT, promoted from Systems Sales Executive with Tyco, a
position he held since February 1996. Prior to jointing Amp, Boyd was Vice
President of National Sales and Marketing for Cable Distribution Systems, Inc.,
from February 1992, and Government Accounts Manager for Holscher-Wernig, Inc.
before its merger with Cable Distribution Systems.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to the
Company's chief executive officer for the last three completed fiscal years and
to any officer who earned $100,000 or more per year, (the "named executive
officers").
------------------------- --------------- ------------------ --------------------- ----------------
Name and Position Year Total Income Other Annual Bonus Other Annual
Compensation
------------------------- --------------- ------------------ --------------------- ----------------
Victor E. Murray, 1998 $60,000 $30,000 -0-
President
------------------------- --------------- ------------------ --------------------- ----------------
John E. Presley, 2000 $175,000 -0- -0-
President 1999 $175,000 -0- -0-
------------------------- --------------- ------------------ --------------------- ----------------
Erik Wiisanen 2000 $125,000 -0- -0-
Vice President 1999 $125,000 -0- -0-
Omega Metals
------------------------- --------------- ------------------ --------------------- ----------------
17
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
The following information sets forth the individual grants of stock
options and freestanding SARs to the Company's named executive officers in the
fiscal year ended December 31, 2000.
------------------- ---------------------------- ------------------------------------- --------------- ---------------
Name Number of Securities Percent of Total Options/SARs Exercise Price Expiration
Underlying Options/SARs Granted to Employees in Fiscal Year Date
Granted
------------------- ---------------------------- ------------------------------------- --------------- ---------------
John Presley, 150,000 43% $8.00 Jan. 10, 2005
President 160,000 20% $5.67 Jan. 10, 2005
332,000 20% $2.25 Dec. 05, 2005
------------------- ---------------------------- ------------------------------------- --------------- ---------------
Erik Wiisanen 155,000 19.4% $5.67 Jan. 10, 2005
Vice President 111,870 6.71% $2.25 Dec. 05, 2005
------------------- ---------------------------- ------------------------------------- --------------- ---------------
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR and FY-END OPTIONS/SAR
VALUES
The following table sets forth the number of stock options and
freestanding SARs exercised by the named executive officers in the above table
during the last completed fiscal year. No options were exercised in such year.
------------------------- ----------------- ----------- ----------------------------- --------------------------------
Name Shares Acquired Value Number of Unexercised Value of Unexercised
On Exercise Realized Securities Underlying In-The-Money Options/SARs At
Options/SARs at FY-End FY-End
------------------------- ----------------- ----------- ----------------------------- --------------------------------
John Presley, President --0-- --0-- 642,000 --0--
------------------------- ----------------- ----------- ----------------------------- --------------------------------
Erik Wiisanen --0-- --0-- 266,870 --0--
Vice President, Omega
Metals
------------------------- ----------------- ----------- ----------------------------- --------------------------------
On April 9, 2001, Mr. Presley and Mr. Wiisanen entered into one-year
employment agreements with the Company, whereby their salaries would remain at
the current level and each was issued an additional 332,685 stock options at the
exercise price of $2.25. Additionally, CFO Joseph McGuire entered into a
one-year employment agreement on April 9, 2001 that includes compensation at his
current salary and an additional 100,000 stock options.
DIRECTOR COMPENSATION
Directors are paid $500 for meetings attended at our corporate
headquarters and $250 for telephonic meetings. All travel and lodging expenses
associated with directors' meeting(s) are reimbursed by the company.
18
On January 10, 2000, the Board of Directors voted to implement a 2000
Directors Stock Option Plan as incentive for continued and future service. Each
director was awarded 50,000 options to purchase American Access stock at the
January 10 closing price, automatically renewable each year on the anniversary
date of the Board decision. Directors also are authorized to receive 10,000
options for serving as a Board committee chairman and 5,000 for serving as a
member of a board committee.The plan was approved by shareholders at the 2000
annual meeting. The Board allocated 300,000 shares to the plan.
INDEMNIFICATION
Florida Business Corporation Act
Subsection (1) of Section 607.0850 of the Florida Business Corporation
Act empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including an employee benefit plan), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Subsection (2) of Section 607.0850 of the BCA empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under similar standards, except that no indemnification may be made in respect
to any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought, or any other court of competent jurisdiction, shall determine
that despite the adjudication of liability, but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
BCA Section 607.0850 further provides that indemnification provided for
by Section 607.0850 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him and incurred by him
in the capacities set forth above, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liabilities under Section 607.0850.
Who we indemnify
Article 4 of American Access Articles of Incorporation provides that
the company shall indemnify those persons entitled to be indemnified, to the
fullest extent permitted by law.
19
Indemnification against public policy
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
company, the company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Erik Wiisanen, a director for American Access Technologies, Inc. and
vice president of sales for Omega Metals, Inc. is the brother-in-law of John
Presley, President and Director of American Access. Both men are founders of
Omega Metals, our wholly-owned subsidiary.
In May and June 2000, the Company authorized loans to three directors,
who also are officer-employees of American Access or its subsidiaries, and who
secured the loans with personal assets unrelated to these transactions. The
secured loans were to enable these directors to cover margin calls precipitated
by a drop in the price of the Company's common stock. On May 31,Director and
Company President John Presley and Director Erik Wiisanen each executed a
promissory note and security agreement for $75,000 and 60,000 respectively,
payable to the Company on or before December 31, 2000, with interest at the rate
of 10 percent paid in arrears. On June 8, 2000, Director and then-Chief
Financial Officer Bobby Story executed two promissory notes and a security
agreement for a total of $260,000, payable to the Company on or before December
31, 2000, with interest at the rate of 10 percent paid in arrears. Although the
Company agreed to loan $260,000, ultimately only $200,000 was borrowed. In
October 2000, Mr. Presley and Mr. Wiisanen executed additional promissory notes
with identical terms for $10,000 each, payable to the Company on or before April
30, 2001. All of these notes were extended to June 30, 2001 by a vote of
disinterested directors on January 14, 2001, in accordance with the Florida
Business Corporation Act. Subsequently, on August 9, 2001 the three notes were
extended to June 30, 2002. A reserve for collectibility in the amount of
$221,278, including interest of $21,278, was taken on Mr. Story's note in the
quarter ended June 30, 2001.
The Company on June 14, 2000 loaned 197,600 share of restricted
Treasury stock to then Officer and Director Bobby Story to cover a margin call.
This loan was also secured with personal assets. The shares were to be returned
to the company at the earlier of the date the common stock price reaches $15 or
June 14, 2001. The shares were returned to the Company on March 30, 2001. This
transaction was approved by disinterested directors in accordance with the
Florida Business Corporation Act
On March 27, 2001 the Company entered into a Management and Option to
Purchase Agreement pursuant to the operation of its subsidiary Zonecabling.com,
Inc. with Mr. Bobby Story, stockholder and former director/ officer. Mr. Story
is employed to manage the Business to Business e-commerce site with an option to
purchase the subsidiary for $500,000 until December 31, 2002. Mr. Story was
issued 213,333 options to purchase the common stock of American Access with an
exercise price of $2.25, for managing the subsidiary.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 1, 2001, the beneficial
ownership, direct or indirect, of American Access common stock, based upon
4,530,347 shares outstanding, with each beneficial owner's percentage calculated
separately as if fully diluted, by:
20
o the only persons who own of record or are known to own, beneficially,
more than 5% of the company's common stock;
o each director and executive officer of the company; and
o all directors and officers as a group.
----------------------------------- --------------------------------------------
COMMON STOCK
----------------------------------- --------------------------------------------
NAME AND ADDRESS Number of Shares PERCENT OF CLASS
----------------------------------- ----------------------- --------------------
John Presley 1,237,920(1) 21.89%
6689 Shands Road
Keystone Heights, FL 32656
----------------------------------- ----------------------- --------------------
Bobby E. Story 833,159(1) 15.53%
164 Golf Club Dr.
Longwood, FL 32779
----------------------------------- ----------------------- --------------------
Joseph McGuire 213,200(1) 4.51%
37 Skyline Drive
Lake Mary, Florida 32746
----------------------------------- ----------------------- --------------------
Erik Wiisanen 712,790(1) 13.89%
6689 Shands Road
Keystone Heights, FL 32656
----------------------------------- ----------------------- --------------------
Steve Robinson 58,000(1) 1.28%
1401 Horizon Court
Orlando, Florida 32809
----------------------------------- ----------------------- --------------------
William Hadaway 15,000(1) 0.33%
Altamonte Springs, Florida
----------------------------------- ----------------------- --------------------
Crescent International Ltd. 469,354(1)** 9.9%
84 Av. Louis Casai
Geneva Switzerland
----------------------------------- ----------------------- --------------------
William Boyd 95,000(1) 2.05%
Jacksonville, Florida
----------------------------------- ----------------------- --------------------
M.S. Farrell, Inc. 813,910(1) 15.23%
New York, New York
----------------------------------- ----------------------- --------------------
All directors and officers as a 2,331,910 35.44
group ( 6 persons) %
----------------------------------- ----------------------- --------------------
Based upon 4,530,347 shares issued at June 1, 2001
*less than 2%
** By the terms of its contractual agreement, Crescent International may not
exercise its Incentive Warrant for 128,000 shares such that the number of Shares
to be received pursuant to such exercise aggregated with the Common Shares owned
would exceed 9.9% ownership of outstanding American Access Common Stock. Based
on the shares outstanding, Crescent could exercise 115,000 warrants, the number
used in the above calculation.
(1) Includes options or warrants to purchase common stock as follows:
21
$2.25 warrants
NAME $7 warrants $8 warrants $22 warrants $5.67 options or options
---- ----------- ----------- ------------ ------------- ----------
Bobby E. Story * 100,000 100,000 160,000 473,159
John Presley * 150,000 150,000 160,000 664,685
Joseph McGuire * * * 50,000 150,000
Erik Wiisanen * * * 155,000 444,555
William Boyd * * * 20,000 75,000
William Hadaway * * * * 15,000
Steve Robinson * * * * 15,000
Crescent International 128,000 * * * *
Ltd.
-------------- ----------- ---------- ------------- -------------- ---------- ----------- ----------------
NAME $2.25 $4.75 $5.6119 $6.00 $10.00 $11 $25 warrants
warrants warrants warrants warrants warrants warrants
-------------- ----------- ---------- ------------- -------------- ---------- ----------- ----------------
M.S. Farrell 400,000 100,000 10,160 100,000 100,000 100,000 3750
-------------- ----------- ---------- ------------- -------------- ---------- ----------- ----------------
DESCRIPTION OF SECURITIES
Common stock
American Access is authorized to issue 30,000,000 shares of common
stock with $.001 par value. The holders of the common stock are entitled to one
vote per each share held and have the sole right and power to vote on all
matters on which a vote of stockholders is taken. Voting rights are
non-cumulative. The holders of shares of common stock are entitled to receive
dividends when, as and if declared by the Board of Directors, out of funds
legally available therefore and to share pro-rata in any distribution to
stockholders. The company anticipates that any earnings will be retained for use
in its business for the foreseeable future. Upon liquidation, dissolution, or
winding up of the company, the holders of the common stock are entitled to
receive the net assets held by the company after distributions to the creditors.
The holders of common stock do not have any preemptive right to subscribe for or
purchase any shares of any class of stock. The outstanding shares of common
stock and the shares offered hereby will not be subject to further call or
redemption and will be fully paid and non-assessable.
Preferred Stock
The Board of Directors has the authority to cause American Access to
issue without any further vote or action by the stockholders, up to 1,000,000
shares of preferred stock, in one or more series, and to designate the number of
shares constituting any series, and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, voting right, rights and
terms of redemption, redemption price or prices and liquidation preferences of
such series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the company without further
action by the stockholders. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock, including the loss of voting control. No shares of preferred stock are
currently outstanding.
22
SELLING SECURITY HOLDERS
In September 1999, we entered into a consulting agreement with M.S.
Farrell & Co., Inc., a duly licensed NASD broker/dealer, whereby its principals
Al Auer, Chris Bowman, Doug Gass, Leonard Neuhaus, and Pasquali Paolini would
provide investment banking services to the company, including the introduction
to the company of private investors, of other business ventures for the purpose
of a potential merger, and for general investment banking advice. The renewable
agreement includes payment for services in stock purchase warrants, in exercise
prices ranging from $2.25 to $25.00. The agreement was last renewed February 1,
2001. Pursuant to its terms, the company is required to register the resale of
all of the shares issuable upon exercise of the warrants.
Similarly, American Access entered into a written agreement with
GunnAllen Financial on November 15, 1999, in which GunnAllen would provide
consulting services in exchange for 100,000 stock purchase warrants with
exercise prices ranging from $6.375 to $11.25. The agreement was renewed in
January 2001 and 100,000 stock purchase warrants were issued with an exercise
price of $2.25. At August 1, 2001, the agreement was again renewed and GunnAllen
was paid 150,000 stock purchase warrants with an exercise price of $1.25.
American Access also on March 15, 2001 entered into a written agreement
with Kirlin Securities, Inc. for the provision of consulting services in
exchange for 200,000 stock purchase warrants at an exercise price of $1.65, and
15,000 shares of common stock, which we agreed to register in this filing. The
agreement with Kirlin is ongoing and includes payment of 5,000 shares of common
stock each month for a period of one year. By the terms of the agreement, Kirlin
is entitled to registration rights of the shares offered as payment to them for
services to include due diligence on prospective merger candidates, and the
introduction of potential investors including private placement candidates.
Scott Cohen and Robert McGregor, principals of Vertical Ventures, Inc.,
financial consultants, were issued 23,700 stock purchase warrants in conjunction
with their role in introducing the company to Crescent International, Inc., an
investor that completed a private placement in May 2000.
Investment banker Merrill Weber & Co. was placement agent for a Private
Placement of Series A Preferred Stock for the Company in 1998.
Talisman Capital Opportunity Fund LTD, Leonard Loventhal, TST 9/24/92,
Melvin Olshansky, GBar Ltd. Partnership, Orestes Lugo, Robert Weber IRA, Berkley
Corp., Cranshire Capital LP, Kopin Capital LLC, S. Robert Production LLC, Robert
Lehman, Scott J. Bakal, Howard Todd Horberg, Lionhart Aurora Fund Ltd., and
Kevin Shape, were investors in a Private Placement of Series A Preferred Stock
in 1998. They were issued stock purchase warrants in settlement of a controversy
arising out of an investment made by the company.
The Selling Security Holders and their officers and directors have not
held any positions or office or had any other material relationship with the
company or any of its affiliates within the past three years.
23
The following security holders may offer shares of common stock
issuable upon exercise of warrants and options.
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Name Number of Shares Number of Shares Number of Shares to be
including shares registered that owned after the
which may be may be sold under Offering, assuming all
acquired prior to this Prospectus shares registered have
offering been sold
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Al Auer 167,500 167,500 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Chris Bowman 167,500 167,500 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Doug Gass 60,000 60,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Gunn Allen Financial 350,000 350,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Scot Cohen & Robert 23,700 23,700 -0-
MacGregor
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Leonard Neuhaus 8,000 8,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
M.S. Farrell & Co. 400,160 400,160 -0-
Inc.
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Pasquale Paolini 5,000 5,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Merrill Weber & Co. 100,000 100,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
ICN Capital Ltd. 7,000 7,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
EP Opportunity 20,000 20,000 -0-
Fund, LLC
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Talisman Capital 20,000 20,000 -0-
Opportunity Fund LTD
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Leonard Loventhal, 1,000 1,000 -0-
TST 9/24/92
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Melvin Olshansky 2,000 2,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
GBar Ltd. 2,000 2,000 -0-
Partnership
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Orestes Lugo 500 500 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Robert Weber IRA 500 500 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Berkley Corp. 2,000 2,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Cranshire Capital LP 18,000 18,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Kopin Capital LLC 6,000 6,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
S. Robert 6,000 6,000 -0-
Production LLC
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Robert Lehman 1,000 1,000 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Scott J. Bakal 500 500 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Howard Todd Horberg 800 800 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Lionhart Aurora 16,000 16,000 -0-
Fund Ltd.
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Kevin Shape 700 700 -0-
------------------------------ ------------------------------ ---------------------------- ---------------------------------
Kirlin Securities, 275,000 275,000 -0-
Inc.
------------------------------ ------------------------------ ---------------------------- ---------------------------------
24
PLAN OF DISTRIBUTION
The shares offered hereby may be sold from time to time directly by the
selling security holders. Alternatively, these holders may from time to time
offer such securities through underwriters, dealers or agents. The distribution
of securities by the selling security holders may be effected n one or more
transactions that may take place on the Nasdaq Stock Market, including:
1. ordinary brokers' transactions,
2. privately-negotiate transactions or
3. through sales to one or more broker-dealers for resale, at
market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated
prices.
Customary or specifically negotiated brokerage fees or commissions may
be paid by the selling security holders in connection wit such sales of
securities. The securities offered by the selling security holders may be sold
by one or more of the following methods, without limitations:
1. a block trade in which a broker or dealer so engaged will
attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
2. purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus;
3. ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
4. face-to-face transactions between sellers and purchasers
without a broker-dealer.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate, The selling
security holders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
a selling security holder, to the extent required, a prospectus will be
distributed, which will set forth the number of securities being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for shares
purchased from the selling security holder and any discounts, commissions or
concessions allowed or re-allowed or paid to dealers and the proposed selling
price to the public.
25
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for
the company by Joel Bernstein, Esq. P.A., Miami, Florida.
EXPERTS
The financial statements appearing in this Prospectus and Registration
Statement have been audited by Rachlin Cohen & Holtz LLP, independent certified
public accountants, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Additional information
For further information with respect to American Access and the
securities hereby offered, reference is made to the exhibits filed as part of
this registration statement, which may be inspected and copied at the public
reference facilities of the commission in Washington D.C., and at the
Commission's regional offices at:
o 500 West Madison Street, Chicago, IL 60604;
o 7 World Trade Center, New York, NY 10048;
o and 5757 Wilshire Boulevard, Los Angeles, CA 90034;
o and copies of such material can be obtained from the Public Reference
Section of the Commission, 450 5th Street, N.W., Washington, D.C.
20549, at prescribed rates and
o are available on the World Wide Web at : http://www.sec.gov.
------------------
26
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
Consolidated Balance Sheets June 30, 2001 Unaudited F-2
Consolidated Statements of Operations June 30, 2001 (Unaudited) F-3
Consolidated Statements of Cash Flows June 30, 2001 (Unaudited) F-4
Notes to Financial Statements June 31, 2001 (Unaudited) F-5 - F-9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-10
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet DECEMBER 31, 2000 F-11
ConsolidatedS tatements of Operations DECEMBER 31, 2000 F-12
Consolidated Statements of Stockholders' Equity DECEMBER 31, 2000 F-13
Consolidated Statements of Cash Flows DECEMBER 31, 2000 F-14
Consolidated Notes to Financial Statements DECEMBER 31, 2000 F-15 - F-36
F-1
AMERICAN ACCESS TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
ASSETS
June 30, 2001 December 31, 2000
---------------------------------------
Current Assets:
Cash and cash equivalents $ 217,756 $ 399,948
Accounts receivable, net of allowance of $58,403 and $62,400, respectively 1,087,031 1,011,712
Notes receivable,directors and stockholders,including accrued interest 190,460 393,988
Inventories 673,431 781,718
Prepaid expenses and other current assets 10,910 41,271
------------ ------------
Total current assets 2,179,588 2,628,637
Property, Plant and Equipment 3,042,579 3,193,043
Patent Costs 72,198 73,992
Web Site Development Costs 12,300 24,615
Other Assets 13,075 13,075
------------ ------------
Total assets $ 5,319,740 $ 5,933,362
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 419,761 $ 325,632
Accrued expenses 62,346 86,696
Capital lease obligation-current portion 43,452 40,414
------------ ------------
Total current liabilities 525,559 452,742
------------ ------------
Long-Term Liabilities:
Capital lease obligation, net of current portion 181,451 203,965
------------ ------------
Commitments, Contingencies, Other Matters and Subsequent Events --
Stockholders' Equity:
Common stock, $.001 par value; authorized 30,000,000
shares; issued 4,530,347 and 4,740,947 shares, respectively 4,530 4,741
Additional paid-in capital 10,870,884 11,174,677
Deficit (6,262,414) (5,379,183)
------------ ------------
4,613,000 5,800,235
Treasury stock, 0 and 79,500 common shares at cost -- (288,660)
Stock subscription receivable, net of allowance of $2,712,000 (270) (270)
Treasury stock receivable -- (234,650)
------------ ------------
Total stockholders' equity 4,612,730 5,276,655
------------ ------------
Total liabilities and stockholders' equity $ 5,319,740 $ 5,933,362
============ ============
See notes to condensed consolidated financial statements
F-2
AMERICAN ACCESS TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
--------------------------------------------------------------------
Net Sales
Formed metal $ 1,447,045 $ 1,841,271 $ 700,688 $ 789,332
Zone cabling termination cabinet 727,079 1,056,153 325,197 597,676
----------- ----------- ----------- -----------
2,174,124 2,897,424 1,025,885 1,387,008
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 1,100,247 1,420,822 550,681 664,668
Selling, general and administrative 1,539,171 1,942,854 729,521 1,073,547
Stock-based compensation 210,021 -- 174,842 --
----------- ----------- ----------- -----------
2,849,439 3,363,676 1,455,044 1,738,215
...........
Loss Before Other Income (Expense) (675,315) (466,252) (429,159) (351,207)
----------- ----------- ----------- -----------
Other Income (Expense)
Interest income 19,727 27,810 8,886 7,842
Interest expense (17,233) (1,698) (8,440) (49)
Other income 10,868 39,210 7,644 37,210
Provision for doubtful loan receivable,
related party (221,278) -- (221,278) --
Abandoned joint venture -- (200,000) -- --
----------- ----------- ----------- -----------
(207,916) (134,678) (213,188) 45,003
----------- ----------- ----------- -----------
Net Loss $ (883,231) $ (600,930) $ (642,347) $ (306,204)
=========== =========== =========== ===========
Basic and Diluted Net Loss Per Common Share $ (0.19) $ (0.14) $ (0.14) $ (0.07)
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
F-3
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six Months Six Months
Ended Ended
June 30, 2001 June 30, 2000
----------------------------------
Cash Flows From Operating Activities:
Net Loss $ (883,231) $ (600,930)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 171,952 225,026
Warrants and common stock issued for services 210,021 --
Provision for doubtful loan receivable, related party 221,278 --
Decrease (Increase) in Operating Assets:
Accounts receivable (75,319) 74,654
Accrued interest receivable (17,750) --
Inventories 108,287 (169,353)
Prepaid expenses and other assets 30,361 2,335
Increase (Decrease) in Operating Liabilities:
Accounts payable and accrued expenses 69,779 (312,547)
----------- -----------
Net Cash Used in Operating Activities (164,622) (780,815)
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of investments -- 833,344
Acquisition of property and equipment (net of sales and retirement) (7,379) (329,498)
Decrease in note receivable -- 248,427
Loans to officers -- (340,000)
Purchase of domain name -- (10,000)
----------- -----------
Net Cash Provided by (Used in) Investing Activities (7,379) 402,273
----------- -----------
Cash Flows From Financing Activities:
Acquisition of treasury stock -- (531,395)
Proceeds from issuance of common stock 9,284 1,573,884
Payments on loans and capital lease obligations (19,475) (73,812)
----------- -----------
Net Cash Used in Financing Activities (10,191) 968,677
----------- -----------
Net Decrease in Cash and Cash Equivalents $ (182,192) $ 590,135
Cash and Cash Equivalents, Beginning $ 399,948 $ 714,109
----------- -----------
Cash and Cash Equivalents, Ending $ 217,756 $ 1,304,244
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 17,233 $ 1,698
=========== ===========
See notes to condensed consolidated financial statements.
F-4
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 Unaudited
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements at June
30, 2001 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of financial position as of June 30, 2001 and
results of operations for the six and three months respectively ended June 30,
2001 and 2000. All adjustments are of a normal recurring nature. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year. The statements should be read in conjunction with
the consolidated financial statements and footnotes thereto for the year ended
December 31, 2000 included in the company's Form 10-KSB.
2. Nature of Business and Summary of Significant Accounting Policies.
BUSINESS
American Access Technologies, Inc. manufactures patented zone cabling enclosures
for the telecommunications industry, enabling businesses and government to Move,
Add, and Change copper and fiber optic cabling to keep pace with changes in
high-speed communications networks. Our ceiling and raised floor cabinets, and
our systems furniture panels, can save up to 70% of the cost to reconfigure
office and school data centers and networks by eliminating excessive wiring and
rewiring in traditional home run arrangements.
Our wholly-owned subsidiary, Omega Metals, Inc., continues to manufacture zone
cabling cabinets along with other metal fabricating jobs, ensuring quality and
cost control. The ability to powder coat metals is available at our plant. We
also acquired two machines to aid in punching, stamping and fabricating metal,
representing a significant increase in the factory capacity.
We created two subsidiaries in 2000, registered with the Florida Secretary of
State. AATK.com, LLC was formed February 2, 2000 as a joint venture with Vulcan
Microsystems, Inc., and Grovegate Capital, LLC to create a Business-to-Business
e-commerce portal. We owned 76%, Vulcan owned 19% and Grovegate owned 5% of the
joint venture. The relationship with Vulcan ended in litigation. Because we
believed the concept was viable, we built our own web presence with an in-house
technology team, and Zonecabling.com, Inc. was incorporated as a subsidiary on
May 4, 2000. We subsequently determined that marketing our products in this
manner competed with our traditional marketing methods. Currently, this
subsidiary is subject to a Management with Option to Purchase Agreement with a
former shareholder and officer/director, signed March 27, 2001.
Zonecabling.com's role is being re-evaluated. If the option to purchase the
subsidiary is exercised before the expiration of the agreement on December 31,
2002, the Company would receive $500,000 under the terms of sale.
We have expanded our proprietary line of products, and have entered into private
labeling agreements with several manufacturers, for which we custom design
products to their specifications, serving as an Original Equipment Manufacturer,
or label our standard and modified products to suit these customers' needs.
American Access has been approved as a vendor for government services contracts.
As an approved vendor, we will be able to sell our products for network
applications at the federal level.
On April 10, 2001, American Access Technologies, Inc. entered into an Agreement
and Plan of Merger with DataWorld Solutions, Inc., of Farmingdale, New York, in
which our newly incorporated subsidiary, Dolphin Acquisition Corp., a
F-5
corporation registered in Delaware, was to have been merged into DataWorld, with
DataWorld the surviving subsidiary. Subsequent to signing the agreement,
DataWorld suffered material adverse effects to its business condition, which we
believe so prejudiced the terms of the merger against our shareholders that we
terminated the agreement on July 2, 2001. We filed for declaratory judgment in
Seminole County Circuit Court, 18th District, seeking a ruling that we were
privileged to terminate the agreement under its terms. We are awaiting that
ruling.
NET LOSS PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" which requires the presentation of both basic and diluted
earnings (loss) per share.
Basic net loss per common share has been computed based upon the weighted
average number of shares of common stock outstanding during the periods. Diluted
loss per share has not been presented, as it would be anti-dilutive. The
computation of earnings per share is reflected in the following schedule:
Computation of Net Six Months ended Six Months ended Three Months ended Three Months ended
Loss Per Common Share June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
Net Income (Loss) $ (883,231) $ (600,930) $ (642,347) $ (306,204)
Total Weighted Average
Number of Common Shares
and Equivalents 4,683,130 4,411,777 4,476,180 4,585,625
------------ ---------- ----------- -----------
Net Loss per Common Share $ (.19) $ (.14) $ (.14) $ (.07)
NOTES RECEIVABLE RELATED PARTY
In May and June 2000, the Company authorized loans to three directors, who also
are officer-employees of American Access or its subsidiaries, and who secured
the loans with personal assets unrelated to these transactions. The secured
loans were to enable these directors to cover margin calls precipitated by a
drop in the price of the Company's common stock. On May 31,Director and Company
President John Presley and Director Erik Wiisanen each executed a promissory
note and security agreement for $75,000 and $60,000 respectively, payable to the
Company on or before December 31, 2000, with interest at the rate of 10 percent
paid in arrears. On June 8, 2000, Director and Chief Financial Officer Bobby
Story executed two promissory notes and a security agreement for a total of
$260,000, payable to the Company on or before December 31, 2000, with interest
at the rate of 10 percent paid in arrears. Although the Company agreed to loan
$260,000, ultimately only $200,000 was borrowed. In October 2000, Mr. Presley
and Mr. Wiisanen executed additional promissory notes with identical terms for
$10,000 each, payable to the Company on or before April 30, 2001. All three
notes were extended to June 30, 2001 and subsequently to June 30, 2002. An
allowance for doubtful collectibility has been recorded on the full principal
and interest owed by Mr. Story ($221,278). These transactions were approved by
disinterested directors in accordance with the Florida Business Corporation Act.
F-6
STOCK SUBSCRIPTION RECEIVABLE
During June 1999, an individual affiliated with the private placement agent
exercised options to purchase 270,000 shares of Company common stock at $8.00
per share for a total of $2,160,000. The Company accepted as payment for these
shares three notes receivable totaling $2,160,000. The notes receivable, as
amended, are due on December 31, 2001, and bear interest at 10%. The Company can
require the notes to be paid in full sooner if the Company stock price equals or
exceeds $35.
The Company has recorded these notes receivable, net of an allowance, for
collectibility in stockholder notes receivable, a component of stockholders'
equity.
STOCK-BASED COMPENSATION
Merger Expense
In April 2001, the Company issued 65,000 shares of common stock to our outside
counsel for legal services rendered in connection with the agreement and plan of
merger with DataWorld Solutions, Inc. This charge was recorded in the second
quarter and approximated $124,000.
Options
On April 9, 2001, the Company issued 765,370 stock options to three
officers/directors in conjunction with employment agreements, to purchase common
stock with an exercise price of $2.25.
Warrants
The granting of warrants to consultants resulted in a charge to consulting fees
in the amount of approximately $51,000 in the second quarter 2001 representing
the fair value of the 400,000 warrants issued in 2000 that were and are being
amortized in 2000 and 2001 and 214,435 warrants issued in 2001.
Fair Value Disclosures
Had compensation cost for the 765,370 stock options issued to officers/directors
been determined based on the fair value at the grant date consistent with SFAS
No. 123, the Company's net loss and loss per share would have been as follows:
F-7
Three Months Ended June 30, 2001
--------------------------------
Net Loss:
As reported $(642,347)
========
Pro forma $(732,701)
=========
Loss Per Share:
Basic:
As reported $ (0.14)
========
Pro forma $ (0.16)
========
The Company used the Black-Scholes option pricing model to determine the fair
value of grants made in the three months ended June 30,2001. The following
assumptions were applied in determining the pro forma compensation cost:
Three Months Ended June 30, 2001
Risk Free Interest Rate 5.5%
Expected Dividend Yield --
Expected Option Life 2 1/2 years
Expected Stock Price Volatility 133%
3. Contingencies and Commitment
LEGAL PROCEEDINGS
The federal litigation against the Company, precipitated by the fall of the
price of common stock in August, 1999, was dismissed on June 4, 2001, based upon
the Plaintiffs' failure to comply with the Court's prior Order to Show Cause.
Plaintiffs on July 3, 2001 filed a Motion to Reopen the case, and we
subsequently filed a Memorandum of Law in Opposition to Plaintiffs' Motion. On
August 2, 2001, the judge denied the Plaintiff's motion to reopen, ruling that
the case will remain closed. The suit was filed in United States District Court,
Eastern District of New York, originally on September 22, 1999, and amended in
February 2000. In March 2001, the judge ruled to move the case to federal
district court in Orlando, Florida. Plaintiffs Rachel Bass, Yuri Gurarity, Sol
Gingold, Don Nagy, Marilyn Lesser-Gale and John Guida alleged in the Amended
Complaint that the defendants, primarily Capital International Security Group
and its principals, Grovegate Capital Partners, LLC, and its principals, Bridge
Bank and its principals and American Access Technologies, Inc., and its
principals participated in a conspiracy to inflate the price of the Company's
common stock for the purpose of allowing "insiders" to enrich themselves by
selling personal holdings at the inflated price. Plaintiffs believed they were
injured in an amount in excess of $30 million and sought treble their general
damages and special compensatory damages with interest. The Company has
consistently denied not only any wrongdoing, but most of the material factual
allegations as well. The Company has paid for legal services as incurred, which
includes the advancing of any legal fees for indemnification of defendants who
are principals of the Company. Company defendants have signed Conflict Waivers
and Undertaking to Repay Expenses for Defense for indemnification under Florida
Statutes Section 607.0850(6).
American Access Technologies, Inc. on September 14, 2000 was served as a
defendant in a lawsuit filed by Vulcan Microsystems, Inc., in the Circuit Court
of the Eleventh Judicial Circuit for Miami-Dade County Florida. Vulcan alleges
that American Access breached the terms and committed other misdeeds in
connection with the companies' letter of intent to establish a joint venture to
engage in e-commerce. Vulcan is seeking in excess of $15,000 damages. American
Access intends to vigorously defend its position and has filed a counterclaim
against Vulcan and its principals Eric Gray and Bill Wetmore to include damages
in excess of $15,000. We allege that Vulcan, Gray and Wetmore breached the terms
of the letter agreement and committed other misdeeds in connection with the
joint venture.
F-8
American Access at March 15 has filed suit in Seminole County Circuit Court,
18th Judicial Circuit, against McLean Ventures LLC, and personal guarantor
Manuel Iglesias, for default in payment of a promissory note of $325,000, with
accrued interest in excess of $36,000 at December 31, 2000. We are seeking full
repayment of the note. The original promissor, Universal Beverages Holding
Corp., Inc., assigned its obligations with written consent of the Company, after
the Company filed a lawsuit for default of the original note of $500,000 plus
accrued interest. Although McLean paid the accrued interest and a portion of the
principal at assignment, its obligations were in default at October 31, 2000.
This note is reserved for the full amount owed. We sought and received a default
judgment in the case, and are currently taking all legal avenues toward
perfecting that judgment
On April 10, 2001, American Access Technologies, Inc. entered into an Agreement
and Plan of Merger with DataWorld Solutions, Inc., of Farmingdale, New York, in
which our newly incorporated subsidiary, Dolphin Acquisition Corp., a
corporation registered in Delaware, was to have been merged into DataWorld, with
DataWorld the surviving subsidiary. Subsequent to signing the agreement,
DataWorld suffered material adverse effects to its business condition, which we
believe so prejudiced the terms of the merger against our shareholders that we
terminated the agreement on July 2, 2001. We filed for declaratory judgment in
Seminole County Circuit Court, 18th District, seeking a ruling that we were
privileged to terminate the agreement under its terms. We are awaiting that
ruling.
SUBSEQUENT EVENTS
On July 23, 2001, the Company issued 150,000 2-year warrants in connection with
investment banking services provided to the Company with an exercise price of
$1.25.
F-9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
American Access Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of American Access
Technologies, Inc. and Subsidiaries as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Access
Technologies, Inc. and Subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for each of the two years then ended, in
conformity with generally accepted accounting principles.
As more fully discussed in Note 2 to the consolidated financial statements,
the Company is subject to certain risks and other matters.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
March 2, 2001, Except for the
last sentence of the last paragraph
of Note 3, as to which the date is
March 30, 2001
F-10
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
ASSETS
Current Assets:
Cash and cash equivalents $ 399,948
Accounts receivable, net of allowance of $62,400 1,011,712
Notes receivable, directors and stockholders, including accrued interest 393,988
Note receivable, other, net of allowance of $361,562 --
Inventories 781,718
Prepaid expenses and other current assets 41,271
------------
Total current assets 2,628,637
Property, Plant and Equipment 3,193,043
Patent Costs 73,992
Web Site Development Costs 24,615
Other Assets 13,075
------------
Total assets $ 5,933,362
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 325,632
Accrued expenses 86,696
Capital lease obligation current portion 40,414
------------
Total current liabilities 452,742
------------
Long-Term Liabilities:
Capital lease obligation, net of current portion 203,965
------------
Commitments, Contingencies, Other Matters and Subsequent Events --
Stockholders' Equity:
Series A 10% Senior Convertible Preferred stock, $.001 par value; authorized
1,000,000 shares; issued and outstanding 0 shares --
Common stock, $.001 par value; authorized 30,000,000 shares;
issued 4,740,947 shares 4,741
Additional paid-in capital 11,174,677
Deficit (5,379,183)
------------
5,800,235
Treasury stock, 79,500 common shares at cost (288,660)
Stock subscription receivable, net of allowance of approximately $2,712,000 (270)
Treasury stock receivable (234,650)
------------
Total stockholders' equity 5,276,655
------------
Total liabilities and stockholders' equity $ 5,933,362
============
See notes to consolidated financial Statements.
F-11
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Net Sales
Formed metal $ 3,415,564 $ 3,882,841
Zone cabling termination cabinet 1,855,889 1,364,842
----------- -----------
5,271,453 5,247,683
----------- -----------
Costs and Expenses:
Cost of sales 2,566,837 2,298,923
Selling, general and administrative 2,392,467 2,701,705
Compensation and related benefits 1,444,437 1,134,502
Stock-based compensation 221,365 616,000
----------- -----------
6,625,106 6,751,130
----------- -----------
Loss Before Other Income (Expense) (1,353,653) (1,503,447)
----------- -----------
Other Income (Expense):
Interest income 72,945 250,822
Other income 34,915 77,794
Realized and unrealized gain (loss) on investments 13,064 (199,962)
Abandoned joint venture (182,736) --
Write-off of goodwill (254,803) --
Provision for doubtful note receivable (361,562) --
Abandoned project development costs -- (352,531)
Interest expense (1,963) (19,259)
----------- -----------
(680,140) (243,136)
----------- -----------
Loss before Income Taxes (2,033,793) (1,746,583)
Income Tax (Benefit) -- (69,000)
----------- -----------
Net Loss $(2,033,793) $(1,677,583)
=========== ===========
Basic Net Loss Per Common Share $ (.45) $ (.65)*
=========== ===========
Weighted Average Common Shares Outstanding 4,540,847 3,638,983
=========== ===========
*Restated
See notes to consolidated financial statements.
F-12
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
Balance, December 31, 1998 50,000 $ 5,000,000 3,256,470 $ 3,256 $ 1,512,634
Year Ended December 31, 1999:
Purchase of 136,100 shares of treasury stock -- -- -- -- --
Issuance of common stock for services -- -- 9,000 9 179,991
Conversion of preferred stock to common
stock, including dividends (39,400) (3,940,000) 289,981 290 4,131,146
Purchase of Genco assets -- -- 22,163 22 443,234
Warrants granted for services -- -- -- -- 436,000
Exercise of warrants:
Cash -- -- 246,625 247 1,972,753
Notes receivable, net of allowance -- -- 270,000 270 --
Dividend related to beneficial conversion
feature of preferred stock -- -- -- -- 468,750
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 10,600 1,060,000 4,094,239 4,094 9,144,508
Year Ended December 31, 2000:
Note receivable arising from loan of 197,600 -- -- -- -- --
shares treasury stock, at cost
Allowance for note receivable to reduce to -- -- -- -- (970,949)
estimated fair value of treasury stock loaned
Purchase of 141,000 shares of treasury stock -- -- -- -- --
Issuance of common stock for domain name -- -- 2,420 3 9,997
Conversion of preferred stock to common
stock, including dividends (10,600) (1,060,000) 215,533 216 1,196,299
Warrants granted for services -- -- -- -- 221,365
Exercise of warrants:
Cash -- -- 5,000 5 39,995
Cashless transaction -- -- 17,475 17 (17)
Sale of common stock in private placement, --
net of related costs -- -- 406,280 406 1,533,479
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 -- $ -- 4,740,947 $ 4,741 $ 11,174,677
============ ============ ============ ============ ============
[restubbed table]
Stock Treasury
Treasury Subscription Stock
Deficit Stock Receivable Receivable Total
Balance, December 31, 1998 $ (871,106) $ -- $ -- $ -- $ 5,644,784
Year Ended December 31, 1999:
Purchase of 136,100 shares of treasury stock -- (881,843) -- -- (881,843)
Issuance of common stock for services -- -- -- -- 180,000
Conversion of preferred stock to common
stock, including dividends (191,436) -- -- -- --
Purchase of Genco assets -- -- -- -- 443,256
Warrants granted for services -- -- -- -- 436,000
Exercise of warrants:
Cash -- -- -- -- 1,973,000
Notes receivable, net of allowance -- -- (270) -- --
Dividend related to beneficial conversion
feature of preferred stock (468,750) -- -- -- --
Net loss (1,677,583) -- -- -- (1,677,583)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 (3,208,875) (881,843) (270) -- 6,117,614
Year Ended December 31, 2000:
Note receivable arising from loan of 197,600 -- 1,205,599 -- (1,205,599) --
shares treasury stock, at cost
Allowance for note receivable to reduce to -- -- -- 970,949 --
estimated fair value of treasury stock loaned
Purchase of 141,000 shares of treasury stock -- (612,416) -- -- (612,416)
Issuance of common stock for domain name -- -- -- -- 10,000
Conversion of preferred stock to common
stock, including dividends (136,515) -- -- -- --
Warrants granted for services -- -- -- -- 221,365
Exercise of warrants:
Cash -- -- -- -- 40,000
Cashless transaction -- -- -- -- --
Sale of common stock in private placement,
net of related costs -- -- -- -- 1,533,885
Net loss (2,033,793) -- -- -- (2,033,793)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 $ (5,379,183) $ (288,660) $ (270) $ (234,650) $ 5,276,655
============ ============ ============ ============ ============
See notes to consolidated financial statements.
F-13
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
---- ----
Cash Flows from Operating Activities:
Net loss $(2,033,793) $(1,677,583)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 423,161 299,164
Warrants issued for services 221,365 616,000
Realized and unrealized (gains) losses on investments (13,064) 199,962
Provision for doubtful accounts 30,922 89,000
Deferred income taxes -- (69,000)
Provision for doubtful notes receivable 361,562 --
Write-off of goodwill 254,804 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (27,721) (403,697)
Inventories (211,124) (273,154)
Prepaid expenses and other assets (16,654) (87,456)
Increase (decrease) in accounts payable and accrued expenses (184,859) 105,723
----------- -----------
Net cash used in operating activities (1,195,401) (1,201,041)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of investments 846,408 1,791,871
Proceeds from payments on notes receivable 250,000 --
Increase in notes receivable and accrued interest (419,935) --
Acquisition of property and equipment (667,872) (1,354,610)
Patent costs (15,018) (28,854)
----------- -----------
Net cash provided by (used in) investing activities (6,417) 408,407
----------- -----------
Cash Flows from Financing Activities:
Proceeds from exercise of warrants 40,000 1,973,000
Proceeds from sale of common stock, net of related costs 1,533,885 --
Proceeds (repayments) from line of credit (73,812) (222,190)
Acquisition of treasury stock (612,416) (881,843)
----------- -----------
Net cash provided by financing activities 887,657 868,967
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (314,161) 76,333
Cash and Cash Equivalents, Beginning 714,109 637,776
----------- -----------
Cash and Cash Equivalents, Ending $ 399,948 $ 714,109
=========== ===========
See notes to consolidated financial statements.
F-14
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
American Access Technologies, Inc. ("Company") was incorporated on
October 21, 1996, under the laws of the State of Florida. The
Company's Articles of Incorporation, as amended on November 25,
1996, authorizes the Company to issue and have outstanding at any
one time 10,000,000 shares of common stock, par value $.001 per
share and 1,000,000 shares of preferred stock, par value $.001 per
share.
On October 2, 1998, the previously amended Articles of
Incorporation were further amended to provide for the issuance of
60,000 shares of Series A 10% Senior Convertible Preferred stock.
The amendment provided, among other things, that the holders of the
Series A Preferred stock shall be entitled to voting rights equal
to the votes that would be cast by the holders of the number of
shares of common stock into which the Series A Preferred stock
could be converted immediately prior to the taking of such votes,
including any shares which would be issuable in payment of accrued
and unpaid dividends.
During November, 1998, the Company completed a $5,000,000 private
placement of 50,000 shares of its Series A 10% Senior Convertible
Preferred Stock, par value of $.001 per share, at $100.00 per share
(See Note 12). During 1999, holders of the Series A Preferred stock
converted 39,400 of the Series A Preferred shares into 289,981
common shares. During January 2000, the remaining 10,600 shares of
Series A Preferred were converted into 215,534 shares of common
stock.
On February 14, 2001, the Articles of Incorporation were further
amended increasing the shares of common stock authorized from
10,000,000 to 30,000,000 shares. This amendment has been reflected
retroactively in these consolidated financial statements.
Business
The Company develops specialized products for the
telecommunications industry. The Company has introduced its first
proprietary product, a Zone Cabling Termination Cabinet ("Product")
which is manufactured and distributed to the telecommunications
industry. The Product is a device that is used in voice, computer
and data transmission systems throughout the world.
Omega Metals, Inc. ("Omega"), a wholly-owned subsidiary of the
Company, shears and molds metal and manufactures metal-formed
products for customers principally in Florida and Georgia.
Zonecabling.com, Inc., a wholly-owned subsidiary, incorporated
on May 4, 2000, is developing a Business-to-Business
e-commence portal.
F-15
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Business (Continued)
AATK.com, LLC was incorporated February 2, 2000 pursuant to a joint
venture agreement. The Company owns 76% of AATK.com which is
inactive inasmuch as the joint venture has been dissolved and is
the subject of pending litigation (see Note 15).
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Although these
estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ
from actual results. Those estimates subject to potential change in
the near term include allowances for doubtful accounts and notes
receivable.
Revenue Recognition
The Company recognizes revenue from product sales at the time the
product is shipped to the customer.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents, accounts receivable and notes receivable.
Cash and Cash Equivalents
The Company maintains deposit balances at financial institutions
that, from time to time, may exceed federally insured limits. At
December 31, 2000, the Company had deposits in excess of
federally insured limits of approximately $147,000. The Company
maintains its cash with high quality financial institutions,
which the Company believes limits these risks.
In addition, the Company maintains an investment account with a
financial institution which is not insured by the FDIC. These
funds, which were invested primarily in money market instruments
at December 31, 2000, may be subject to insurance by SPIC,
Securities Investor Protection Corporation, subject to various
limitations. At December 31, 2000, $1,108 was held in this
account.
F-16
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk (Continued)
Accounts Receivable
The Company does business and extends credit based on an
evaluation of the customers' financial condition generally
without requiring collateral. Exposure to losses on receivables
is expected to vary by customer due to the financial condition
of each customer. The Company monitors exposure to credit losses
and maintains allowances for anticipated losses considered
necessary under the circumstances.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined using an average cost method. Inventory costs for
finished goods and work-in-process include material, labor,
production overhead, and outside services.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated,
using the straight-line method, over the estimated useful lives of
the assets. Gain or loss on disposition of assets is recognized
currently. Repairs and maintenance are charged to expense as
incurred. Major replacements and betterments are capitalized and
depreciated over the remaining useful lives of the assets.
Patents
The Company has capitalized certain incremental costs incurred
related to acquiring three patents on the Company's products. In
each of the years 1998, 1999 and 2000, a patent was finalized and
issued by the United States Patent Department. The Company then
began amortizing the cost of each patent over the patent's life, 18
years. Another patent is still pending at December 31, 2000 and,
therefore, amortization of this patent has not commenced.
Product Development Costs
Costs in connection with the development of the Company's product
are comprised of design, production, consulting and other related
professional fees. These costs are charged to expense as incurred.
F-17
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
Advertising costs are charged to expense as incurred. Advertising
costs incurred for the year ended December 31, 2000 and 1999 were
approximately $33,000 and $43,000, respectively.
Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires the
recognition of deferred tax liabilities and assets for temporary
differences, operating loss carryforwards, and tax credit
carryforwards existing at the date of the financial statements. An
effective tax rate of 37% was used to calculate the deferred income
taxes.
A temporary difference is a difference between the tax basis of an
asset or liability and its reported amount in the financial
statements that will result in taxable or deductible amounts in
future years when the asset is recovered or the liability is
settled. Deferred taxes represent the future tax return
consequences of these differences.
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of
The Company accounts for long-lived assets in accordance with the
provision of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. This
statement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of the gain
or loss recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss
is recognized in income in the period of change. On June 30, 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133."
F-18
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In June, 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging
Activities." SFAS No. 133 as amended by SFAS No. 137 and 138
is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of this standard
on January 1, 2001 to affect its financial statements.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin, or SAB No. 101, "Revenue Recognition in
Financial Statements". SAB 101 provides guidance for revenue
recognition under certain circumstances. The Staff Accounting
Bulletin was effective during the fourth quarter of 2000, and did
not have an effect on the Company's consolidated results of
operations, financial position and cash flows.
Reclassifications
Certain amounts in prior year financial statements have been
reclassified for comparative purposes to conform with the
presentation in the current year financial statements.
NOTE 2. SUMMARY OF CERTAIN RISKS AND OTHER MATTERS
Profitability and Liquidity
As of December 31, 2000, the Company reflected stockholders' equity
of approximately $5,277,000. However, the Company has incurred net
losses of approximately $2,034,000 in 2000 and $1,678,000 in 1999,
and has an accumulated deficit balance of approximately $5,379,000
at December 31, 2000. The Company's ability to achieve sustained
profitable operations is dependent on continuing to achieve sales
growth through expansion of sales and marketing efforts. Management
believes that cash flows from operations and additional financing
available from other sources will be sufficient to fund operations.
There is no assurance that such events will occur.
Significant Related Party Transactions
In 1999, 2000 and continuing into 2001, the Company has entered
into several significant related party transactions with current
and former officers and directors. See Notes 3, 5 and 20 for
further information regarding these transactions.
Pending Litigation
The Company is involved in certain pending litigation concerning
which it can not predict the outcome with any certainty (see Note
15).
F-19
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE, DIRECTORS AND STOCKHOLDERS
Notes Receivable in Exchange for Cash
In May and June 2000, the Company authorized loans to three
directors, who also are officers of American Access or its
subsidiaries, and who collateralized the loans with personal assets
unrelated to these transactions. The collateralized loans were to
enable these directors to cover margin calls precipitated by a drop
in the price of the Company's common stock. On May 31, 2000, two
directors (one of whom is the Company's president) each executed a
promissory note and security agreement for $75,000 and $60,000
respectively, payable on or before December 31, 2000, with interest
at 10%. On June 8, 2000, a former Director and Chief Financial
Officer executed two promissory notes and a security agreement for
a total of $260,000, payable on or before December 31, 2000, with
interest at 10%. Although the Company agreed to loan $260,000,
ultimately only $200,000 was borrowed. In October 2000, the two
directors executed additional promissory notes with identical terms
for $10,000 each, payable on or before April 30, 2001. All of these
notes have been extended to June 30, 2001 by a vote of
disinterested directors on January 14, 2001, in accordance with the
Florida Business Corporation Act.
In addition, the Company loaned $20,000 to a stockholder pursuant
to a note receivable, interest at 10%, principal due December 31,
2001.
Accrued/
Principal Unpaid
Balance Interest Total
------- -------- -----
Officer/Directors/Stockholders $155,000 $ 7,710 $162,710
Former Officer/Director and
Other Stockholders 220,000 11,278 231,278
-------- ------- --------
$375,000 $18,988 $393,988
======== ======= ========
Notes Receivable in Exchange for Shares Held in Treasury
On June 14, 2000, the Company loaned 197,600 shares of treasury
stock to the former Director and Chief Financial Officer to cover
a margin call on the Company's common stock. This loan is secured
with personal assets. The shares are to be returned to the
Company at the earlier of the date the common stock price reaches
$15 or June 30, 2001. This transaction was approved by
disinterested directors in accordance with the Florida Business
Corporation Act. This note receivable is reflected as a separate
component of stockholders' equity, treasury stock receivable, and
has been reduced from the original cost of the treasury stock to
the estimated fair value of this stock at December 31, 2000
($1.1875 per share). On March 30, 2001, the shares were returned
to the Company.
F-20
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE, OTHER
The Company has instituted litigation against the debtor and personal
guarantor for default in payment of a promissory note of $325,000, with
accrued interest in excess of approximately $36,000 at December 31,
2000. The original promissor assigned its obligations with written
consent of the Company, after the Company filed a lawsuit for default
of the original note of $500,000 plus 15% interest, of which
approximately $63,000 was unpaid at December 31, 1999. Although the
debtor paid an initial cash payment of $250,000, its obligations of
$325,000 plus $36,562 in interest were in default at October 31, 2000.
The Company is attempting to negotiate a settlement agreement with the
debtor and the note's guarantor. An allowance for doubtful
collectibility of the total outstanding principal balance, as well as
all accrued interest, has been recorded as of December 31, 2000.
NOTE 5. STOCK SUBSCRIPTION RECEIVABLE
During June, 1999, an individual affiliated with the investment banking
firm involved in the Company's registration as a public company,
exercised options to purchase 270,000 shares of Company common stock at
$8.00 per share for a total of $2,160,000. The Company accepted as
payment for these shares three notes receivable totaling $2,160,000.
The notes receivable, as amended, are due on December 31, 2001, and
bear interest at 10%. The Company can require the notes be paid in full
sooner if the Company stock price equals or exceeds $35 (the market
price of the Company's common stock was $1.1875 at December 31, 2000).
The Company has recorded the exercise of these warrants, net of an
allowance, by increasing common stock outstanding and increasing stock
subscriptions receivable, a separate component of stockholders' equity.
The balance as of December 31, 2000 follows:
Notes receivable $2,160,000
Accrued interest receivable 551,978
----------
2,711,978
Less allowance 2,711,708
----------
$ 270
==========
The interest earned on the notes receivable has been recorded as an
increase in stockholders' equity rather than included in operations,
because the transaction giving rise to the notes was an equity
transaction.
F-21
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. ACQUISITION
In August 1999, the Company acquired selected property and
equipment, outstanding sales agreements, and goodwill from a
customer, Genco, Inc. for a total of $584,838. The purchase price
was allocated as follows:
Property and equipment $126,191
Goodwill 458,647
--------
$584,838
--------
The selected property and equipment is being depreciated over the
useful lives, 3 - 5 years. Goodwill is being amortized over three
years. Depreciation and amortization on these assets were $11,410
and $50,961, respectively, for the year ended December 31, 1999,
and $34,229 and $152,882 respectively, for the year ended December
31,2000.
In June 2000, the Company announced that it was no longer actively
marketing its Genco generator-cover product line due to the fact
that factory floor space was needed to produce its proprietary
products. At December 31, 2000, the Company expensed the remaining
unamortized goodwill of $254,803 which is included as a separately
stated item in the accompanying consolidated statements of
operations.
NOTE 7. INVENTORIES
Raw materials $182,955
Work-in-process 98,344
Finished goods 500,419
--------
$781,718
--------
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Estimated Useful
Lives (Years)
-------------
Land -- $ 103,860
Building and improvements 30 1,291,720
Machinery and equipment 5-7 3,622,484
Vehicles 3-5 40,303
Tools 3-5 28,064
Construction-in-progress -- 75,034
----------
5,161,465
Less accumulated depreciation 1,968,422
----------
$3,193,043
==========
Depreciation expense for the years ended December 31, 2000 and 1999 was
$264,608 and $246,948, respectively.
F-22
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. OBLIGATIONS UNDER CAPITAL LEASES
In October 2000, the Company entered into an obligation under a capital
lease for approximately $276,000 for the purchase of equipment, which
has a term extending through 2005, and which provided for an implicit
interest rate of approximately 11.5%.
The future minimum lease payments under this capital lease, including
interest payments as of December 31, 2000 are as follows:
Year ending December 31,
2001 $ 68,614
2002 68,614
2003 68,614
2004 68,614
2005 22,870
--------
Total minimum lease payments 297,326
Less amount representing interest 52,947
--------
244,379
Less current portion 40,414
--------
$203,965
========
NOTE 10. PROFIT SHARING PLAN
The Company has a 401(k) Profit Sharing Plan covering all non-leased
employees who meet minimum length of service and age requirements.
Employer contributions are made at the discretion of management, and
were $ 0 and $75,000, for 2000 and 1999, respectively. Employees are
vested for purposes of the contribution as follows:
Years of Service Percentage
---------------- ----------
Less than 1 0%
1-2 20
2-3 40
3-4 60
4-5 80
5 or more 100
NOTE 11. INCOME TAXES
The Company accounts for income taxes under the provision of Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. SFAS No. 109 is an asset and liability approach for computing
deferred income taxes.
The provision for income taxes is computed on a consolidated return
basis.
F-23
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. INCOME TAXES (Continued)
A reconciliation of income taxes computed at the statutory federal rate
to income tax expense (benefit) is as follows:
2000 1999
---- ----
Tax provision at the statutory rate of 34% $ (691,000) $(445,000)
State income taxes, net of federal income tax (62,000) (15,000)
Net operating loss carryforward adjustment (313,000) --
Provisions for uncollectible amounts 137,000 --
Exercise of stock options and warrants (61,000) --
Change in valuation allowance 908,000 325,000
Stock options not exercised 82,000 66,000
---------- ----------
$ -- $ (69,000)
========== ==========
As of December 31, 2000, the Company had consolidated net operating
loss carryforwards for federal income tax reporting purposes amounting
to approximately $4,414,000, which expire in varying amounts to the
year 2020.
The Company has not recognized any benefit of such net operating loss
carryforwards in the accompanying consolidated financial statements in
accordance with the provisions of SFAS No. 109 as the realization of
this deferred tax benefit is not considered more likely than not. A
100% valuation allowance has been recognized to offset the entire
effect of the Company's net deferred tax asset. The Company's net
deferred tax asset position is composed primarily of the Company's net
operating loss carryforwards.
The components of the deferred tax asset at December 31, 2000 were as
follows:
Net operating loss carryforward $ 1,633,000
Allowance for collectibility 157,000
Depreciation and amortization (165,000)
Less valuation allowance $(1,625,000)
-----------
Net deferred tax asset $ --
============
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a corporation within a three
year period will place an annual limitation on the corporation's
ability to utilize its existing tax benefit carryforwards. The
Company's utilization of its tax benefit carryforwards may be
restricted in the event of possible future changes in the ownership of
the Company from the exercise of warrants or other future issuances of
common stock.
The Company's federal and state income tax returns have not been
examined by responsible taxing authorities for the past several years.
The final determination of the amount and timing of currently payable
income taxes is therefore subject to possible examination of these
unexamined years by such responsible taxing authorities.
F-24
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. PREFERRED STOCK
During November, 1998, the Company completed a $5,000,000 private
placement of 50,000 shares of its Series A 10% Senior Convertible
Preferred Stock, par value of $.001 per share, at $100.00 per share.
The costs associated with the completion of the private placement,
$737,820, have been recorded as a reduction of additional paid-in
capital. Additionally, the placement agent received warrants to
purchase 100,000 shares of common stock at $25.00 per share, which
expire October 14, 2003. The Series A Preferred are valued at $100.00
per share ("liquidation value"), and, if converted, the Series A
Preferred could be converted into common shares (See Note 1) at the
price per share equal to the then applicable Conversion Price. This
conversion feature resulted in a discount between the market value of
the common shares that would be issued if the conversion option were
exercised, and the liquidation value of the preferred shares
surrendered upon that conversion. The resulting dividend has been
amortized over the period up to the date that exercise of the
conversion feature was first possible. As a result, $781,250 of the
total $1,250,000 dividend was recognized in 1998; the balance was
recognized in 1999.
During 1999, preferred stockholders owning 39,400 shares of preferred
stock elected to convert those shares, including cumulative dividends
of $191,436, into shares of Company common stock. The conversion price,
which varied based upon date of conversion, ranged from $5.10 to
$15.03. As a result of these conversions, the Company issued 289,981
shares of common stock.
The preferred stockholders representing the remaining 10,600 preferred
shares elected to convert those shares, including cumulative dividends
of $136,515, in 2000. The conversion price, which varied based upon
date of conversion, ranged from $5.47 to $5.49. These conversions
resulted in the issuance of 215,534 shares of common stock.
NOTE 13. COMMON STOCK
Equity Financing
On May 2, 2000, the Company entered into a Stock Purchase Agreement
(the "Agreement") with an investor to provide for the issuance of
up to $15,000,000 of Company common stock in exchange for cash
payments in monthly allotments of up to $1,150,000 with an initial
allotment of $2,250,000. The sales price will be the lowest three
day average bid price during the twenty-two days preceding the
sales, less a discount of 8%.
The Company will pay a 1% fee on the total at the initial purchase.
In addition, there will be a 1% fee on each sale. The Company will
pay all legal fees in excess of $10,000 and due diligence fees not
to exceed $15,000.
On May 2, 2000, the Company sold 406,280 shares of Company common
stock under the Agreement. The Company received gross proceeds of
$1,900,000 and paid $366,115 in fees for net proceeds totaling
$1,533,885. Also on May 2, 2000, pursuant to the Agreement, the
Company issued to the investor an incentive warrant to purchase up
to 128,000 shares of Company common stock at an exercise price of
$7.0149 which expires May 2, 2005.
F-25
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. COMMON STOCK (Continued)
Issuance of Common Stock for Services
In January, 1999, the Company issued 9,000 shares of common stock
to certain employees as an incentive for services rendered. This
resulted in a charge to compensation expense of approximately
$180,000 in 1999.
In July 2000, the Company entered into an agreement with an
unrelated individual for the purchase of a domain name. In July
2000, in accordance with the agreement, the Company issued 2,420
shares of Company common stock to this individual. In December
2000, the Company canceled the agreement in accordance with its
terms.
NOTE 14. STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation cost for stock
options and warrants, if any, is measured as the excess of the
estimated market price of the Company's common stock at the date of
grant, over the amount the recipient must pay to acquire the common
stock.
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair-value-based method of accounting
for stock-based employee compensation plans. The Company has elected to
retain its current method of accounting as described above, and has
adopted the disclosure requirements of SFAS No. 123.
Stock Option Plan
On January 10, 2000, the Board of Directors of the Company
("Board") authorized the 2000 Employee Stock Option Plan ("Stock
Option Plan") for those employees, consultants, and advisors (the
"Participants") of the Company who, in the judgment of the Company
are or will become responsible for the direction and financial
success of the Company. The adoption of the Stock Option Plan was
ratified by the stockholders on June 29, 2000. The purpose of the
Stock Option Plan is to provide the Participants with an increased
incentive to make significant contributions to the long-term
performance and growth of the Company. The Board authorized that
500,000 employee options and 300,000 board of director options be
subject to this plan.
On January 10, 2000, the Company granted 515,000 employee options
and 340,000 board of director options with an exercise price of
$5.67 (market price of underlying stock at time of grant) with a
life of five years. Subsequent to the grant, 10,000 options were
returned to the Company when the employee separated employment. In
2000, a former director exercised 60,000 options in a cashless
transaction for the difference in the exercise price of $5.67 and
the closing price of $8.00 on date of exercise, receiving 17,475
shares of common stock.
F-26
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 14. STOCK-BASED COMPENSATION (Continued)
Warrants
On January 1, 1999, the Company had outstanding 570,000 warrants to
purchase Company common stock at $8.00.
During 1999, the Company issued 750,000 warrants to employees and
officers/directors to purchase Company common stock for $22 per
share. Also during 1999, the Company issued 60,000 warrants to
outside directors to purchase Company common stock for $25 per
share, 115,000 warrants in connection with services provided to the
Company with exercise prices ranging from $6.375 to $28.875 and
329,000 warrants in connection with equity transactions with
exercise prices of $11.00 and $23.00.
During 1999, warrants to purchase a total of 516,625 shares of
Company common stock were exercised, 246,625 for a total of
$1,973,000 in cash and 270,000 in exchange for three notes
receivable (see Note 5).
As of December 31, 1999, the Company has remaining outstanding
1,307,375 warrants to purchase common stock at exercise prices
ranging from $6.375 to $28.875, 843,375 of which warrants are
outstanding to officer/directors.
The granting of the 1999 warrants to consultants resulted in a
charge to consulting fees in the amount of $436,000 representing
the fair value of the 115,000 warrants issued. The warrants issued
in connection with the conversion of preferred stock and the
negotiation of the sale of common stock (see Notes 12 and
13), which have a fair value of $3,269,000 represent an increase
and a decrease to additional paid-in capital and have been offset
in the accompanying consolidated financial statements.
During 2000, the Company issued 1,595,739 warrants to employees
and officers/directors to purchase common stock with exercise
prices ranging from $2.25 to $10.00. Also during 2000, the Company
issued 855,363 warrants in connection with services provided to
the Company with exercise prices ranging from $2.25 to $10 and
161,860 warrants in connection with equity transactions with
exercise prices of $5.61 and $7.01.
Also, during 2000, warrants to purchase a total of 5,000 shares of
common stock were exercised at $8.00 per share.
F-27
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 14. STOCK-BASED COMPENSATION (Continued)
Warrants (Continued)
The granting of the warrants in 2000 to consultants resulted in a
charge to consulting fees in the amount of approximately $221,000
representing the fair value of the 855,363 warrants issued. The
161,860 warrants issued in connection with the negotiation of the
sale of common stock, (see Note 13), which have a fair value of
$144,772, were recorded as an increase and a decrease to additional
paid-in capital and have been offset in the accompanying
consolidated financial statements.
Fair Value Disclosures
Had compensation cost for the 2,450,739 options and warrants
issued in 2000 to employees, officers and directors been
determined based on the fair value at the grant date consistent
with SFAS No. 123, the Company's net loss and loss per share would
have been as follows:
2000 1999
---- ----
Net Loss:
As reported $(2,033,793) $ (1,677,583)
=========== ============
Pro forma $(3,265,607) $(11,457,583)
=========== ============
Loss Per Share:
Basic:
As reported $ (.45) $ (.65)
============= =============
Pro forma $ (.72) $ (3.23)
============= =============
The Company used the Black-Scholes option pricing model to
determine the fair value of grants made in 2000 and 1999. The
following assumptions were applied in determining the pro forma
compensation cost:
2000 1999
---- ----
Risk Free Interest Rate 5.5% 6.0%
Expected Dividend Yield - -
Expected Option Life 1 1/2- 2 1/2years 5 years
Expected Stock Price Volatility 85% to 119% 85%
Changes in outstanding options and warrants for common stock are as follows:
2000 1999
---- ----
Range of Range of
2000 Exercise Price 1999 Exercise Price
---- -------------- ---- --------------
Outstanding at beginning of year 1,307,375 $7.20 to $25.00 $ 570,000 $8.00
Options and warrants granted 3,467,962 $2.25 to $10.00 1,254,000 $7.20 to $25.00
Options and warrants exercised (65,000) $5.67 to $8.00 (516,625) $8.00
Options and warrants expired (10,000) $5.67 -- $ --
Outstanding at end of year 4,700,337 $2.25 to $10.00 1,307,375 $7.20 to $25.00
Exercisable at end of year 4,700,337 1,307,375
F-28
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 14. STOCK-BASED COMPENSATION (Continued)
Warrants (Continued)
The following table summarizes information about outstanding
options at December 31, 2000
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------------------
Number Weighted Number Weighted
Outstanding Average Weighted Exercisable Average
Range of at Remaining Average at Remaining
Exercise December 31, Contractual Exercise December 31, Contractual
Prices 2000 Life Price 2000 Life
------ ----- ----- ----- ---- ----
$2.25 to $25.00 4,700,337 2.5 $2.25 to $25.00 4,700,337 2.5
NOTE 15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Pending Litigation
Class Action
The Company has been named as a defendant in litigation which
purports to be a class action filing. In this purported class
action, the Plaintiff alleges in the Amended Complaint that the
defendants participated in a conspiracy to inflate the price of the
Company's common stock through market manipulation, making material
misrepresentations and omissions, and other wrongful conduct for
the purpose of allowing "insiders" to enrich themselves by selling
their personal holdings at the inflated price. The Company denies
not only any wrongdoing, but most of the material factual
allegations as well and intends to vigorously defend this case. The
recently filed Amended Complaint and preliminary investigations of
facts appear to support the Company's position. However, no
discovery has yet occurred nor has there been any information as to
the position being taken by various co-defendants. The Company
believes the allegations are baseless, and that it has no material
exposure with respect to the matter, and intends to defend its
position vigorously.
Joint Venture
In a separate matter, on January 26, 2000, the Company entered
into a Joint Venture Agreement. The Joint Venture was organized
for the purpose of entering into the business of developing and
marketing an e-based value added distributor of communications
equipment.
F-29
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Pending Litigation (Continued)
Joint Venture (Continued)
Pursuant to the Joint Venture agreement, the Company was obligated
to provide the following in exchange for a 76% ownership interest
in the Joint Venture, AATK.com, LLC.
o Provide $395,000 of cash to fund operating costs
within the first sixty days.
o Issue 135,000 shares of Company common stock to
Vulcan Microsystems, Inc. ("Vulcan") upon successful
alpha testing.
o Guarantee any contracts or obligations for ongoing
commitments in connection with technology or
management, not to exceed $25,000 per month.
o Issue to Vulcan 1,000,000 three-year warrants to
purchase Company common stock at $25 per share upon
acceptance of the alpha site.
o Immediately following the Joint Venture agreement,
the Company entered into a twelve-month technology
consulting agreement with two principals of Vulcan,
whereby they received warrants to purchase 200,000
shares of Company common stock. These warrants are
exercisable for cash only, at an exercise price of
$10 per share for the first 180 days and an exercise
price of $15 for the remainder of the one-year life,
up to January 26, 2001.
Vulcan had the right to convert its 19% interest in the Joint
Venture into Company common stock at any time through January 2005.
Very soon after the joint venture agreement was reached, the
relationship with Vulcan deteriorated. As a result, the joint
venture was terminated and litigation resulted.
On August 6, 2000, Vulcan filed an action against the Company. The
allegations of the complaint concern alleged pre-contractual
negotiations and alleged misrepresentations made on behalf of the
Company. The complaint seeks damages for breach of contract, fraud,
negligent misrepresentations, conversion, breach of fiduciary duty
and unjust enrichment.
The Company filed a counterclaim against Vulcan and its principals
seeking damages for fraud, breach of fiduciary duty, conversion,
and an accounting. The Company believes that Vulcan and its
principals misappropriated a significant portion, if not the entire
amount of the initial $200,000 the Company funded into the joint
venture.
To date, discovery requests have been exchanged, but no depositions
have been taken and the case has not yet been scheduled for trial.
The Company intends to vigorously defend the action and to
prosecute the counterclaim. However, neither management, nor legal
counsel can predict, with any degree of certainty, the outcome of
the case.
F-30
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Pending Litigation (Continued)
Joint Venture (Continued)
In connection with this joint venture, the Company guaranteed
two equipment leases entered into by Vulcan. These leases, which
are for a term of thirty six months, require monthly payments
totaling approximately $8,500. The equipment, to the best of the
Company's knowledge, is in the possession of Vulcan, which has
been making the monthly lease payments.
Major Customers
The Company has two customers which purchased products that
represented approximately 29% of sales for the year ended December
31, 2000.
2000
----
Customer A $906,812
Customer B $601,330
For the year ended December 31, 1999 the Company had two customers
that represented 25% of sales.
Major Vendors
The Company purchases sheet metal and related products from a
vendor that represented approximately 43% and 53% of purchases for
2000 and 1999, respectively.
Employment Contracts
The Company had entered into employment agreements with two members
of management of Omega. These agreements were for a term of two
years commencing in November 1998. The agreements provided, among
other things, for total annual compensation of $250,000 plus profit
participation equal to 10% of the net profits of Omega, as defined,
in excess of $1,200,000 annually. Both contracts expired in
November 2000 and have not been renewed.
Former Consultant
On March 17, 1999, a formal settlement agreement was reached
relating to certain litigation with a former officer/stockholder of
the Company in connection with a modified consulting agreement with
the Company. Under this settlement, the consulting agreement dated
August 28, 1997 was amended to provide, among other things, that
the former officer/stockholder was not required to provide any
consulting services and the Company was not required to compensate
the former officer/stockholder. The consulting agreement, as
amended, provided for, among other things, a term of five years,
and additional compensation in the form of an option to purchase
40,000 shares of common stock on the last day of each year of the
consulting term, exercisable for three years from date of issue, at
an exercise price of 125% of the closing price of the common stock
on the date of issue. In addition, under the terms of the
settlement agreement, the former officer/stockholder was granted a
warrant to purchase 15,000 shares of common stock at an exercise
price of $28.875 per share, exercisable on or before March 11,
2004.
F-31
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Contracts With Distributors
During 1997, the Company entered into Distributor Agreements with
seven distributors. The agreements set forth terms whereby the
distributors may purchase products from the Company for resale to
their customers within the U.S. and Canada and Mexico when the
Company releases its products for sale in those countries. During
1999, the Company entered into additional Distributor Agreements
with five distributors. During 2000, an additional six Distributor
Agreements were added for a total of eighteen as of December 31,
2000. The prices for the products covered by the agreements are
based upon the intention of the distributors to purchase a minimum
number of units as specified in the agreements. Revenue is recorded
at such time as the units are shipped to the distributors. The
agreements are for a term of one year and are automatically renewed
each year thereafter unless terminated by either party, and
contain, among other things, a warranty effective for one year
after the date of sale.
Co-Marketing Alliance Agreement
On August 3, 1999, the Company entered into a Co-Marketing Alliance
Agreement with a leading manufacturer of modular office furniture
systems ("Manufacturer"). The companies jointly promote the use of
products in Herman Miller Ethospace products.
The agreement is for a term of two years, commencing June 1, 1999,
and is to be automatically renewed unless terminated by either
party. In conjunction with this agreement, the Company agreed to
pay the manufacturer an alliance fee equal to 5% of qualifying net
sales, as defined.
If, during the period of this agreement, the Company proposes to
enter into any agreement or transaction which will result in a
change in control of the Company, as defined, the Company shall
give the Manufacturer the right to enter into such transaction on
the same terms, but for a consideration equal to or higher than the
proposed transaction.
Lease Commitments
The Company subleases certain office/warehouse space in Lake Mary,
Florida. The lease provides for monthly rent of approximately
$10,200 and expires May 30, 2003.
F-32
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Lease Commitments (Continued)
Future minimum operating lease commitments are approximately
as follows:
Year ending December 31:
2001 $131,000
2002 137,000
2003 58,000
--------
$326,000
Rent charged to operations amounted to approximately $111,000
in 2000 and $121,000 in 1999.
Consulting Agreement
On May 26, 2000, the Company entered into a consulting agreement
which was amended on February 1, 2001. The agreement, as amended,
provides for the consultant to render investment banking advice to
the Company through February 1, 2002. The consultant is to receive
(i) $5,000 per month, (ii) 300,000 warrants to purchase Company
common stock at exercise prices as follows:
100,000 at $4.75 per share
100,000 at $6.00 per share
100,000 at $10.00 per share
and (iii) 400,000 warrants to purchase Company stock for $2.25 per
share.
NOTE 16. NET LOSS PER COMMON SHARE
The Company computes earnings (loss) per common share in accordance
with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share" which requires the presentation of
both basic and diluted earnings (loss) per share.
Basic net loss per common share has been computed based upon the
weighted average number of shares of common stock outstanding during
the periods. The number of shares used in the computation were
4,540,847 and 3,638,983 for the years ended December 31, 2000 and 1999,
respectively. The 1999 net loss per share has been restated to reflect
a correction of the preferred stock dividend. Diluted net loss per
common share, assuming exercising of the options and warrants granted
and convertible preferred stock, is not presented as the effect of
conversion is anti-dilutive.
F-33
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 16. NET LOSS PER COMMON SHARE (Continued)
2000 1999
---- ----
(Restated)
Net Loss $(2,033,793) $(1,677,583)
Cumulative Preferred Stock Dividend (14,631) (209,153)
Beneficial Conversion Preferred Stock Dividend -- (468,750)
----------- -----------
Net Loss Allocated to Common Stockholders $(2,048,424) $(2,355,486)
=========== ===========
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments include
cash and cash equivalents, accounts receivable, notes receivable, line
of credit and accounts payable. Fair values were assumed to approximate
carrying values for these financial instruments since they are
short-term in nature and their carrying amounts approximate fair values
or they are receivable or payable on demand.
NOTE 18. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 which changes the way the
Company reports information about its operating segments.
The Company has two reportable segments, zone cabling products and
formed metal products. As discussed in Note 1, the Company markets zone
cabling products which are manufactured by Omega, a wholly-owned
subsidiary. Omega manufactures formed metal products of varying designs
for customers, including the Company.
2000 1999
---------------------------------------- --------------------------------------
Zone Formed Zone Formed
Cabling Metal Cabling Metal
Products Products Total Products Products Total
-------- -------- ----- -------- -------- -----
Revenue from external customers $1,855,889 $3,415,564 $5,271,453 $1,364,842 $3,882,841 $5,247,683
Intersegment revenue 79,808 580,278 660,086 - 580,787 580,787
Investment revenue 72,945 - 72,945 250,822 - 250,822
Interest expense 1,963 - 1,963 18,594 - 18,594
Depreciation and amortization 259,196 163,965 423,161 95,324 203,840 299,164
Income tax expense (credit) - - - - - -
Segment profit (loss) (2,655,803) 622,010 (2,033,793) (2,304,854) 558,271 (1,746,583)
Segment assets $3,252,035 $2,681,327 $5,933,362 $4,148,925 $2,649,687 $6,798,612
F-34
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 19. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
2000 1999
---- ----
Cash paid during the year for:
Interest $ 1,963 $ 19,260
============== ==========
Non-Cash Investing and Financing Activities:
Equipment acquired through capital lease $ 244,379 $ --
============== ==========
Note receivable for loan of 197,600 shares
treasury stock, at cost $ 1,205,599 $ --
============== ==========
Purchase of Genco assets $ $ 443,256
============== ==========
----------
Conversion of 10,600 and 39,400 shares of preferred
stock to common (see Note 12) $ 1,060,000 $3,940,000
============== ==========
Exercise of 270,000 warrants in exchange for notes
receivable (see Note 5) $ -- $2,160,000
============== ==========
Cashless exercise of 60,000 warrants $ 17 $ --
============== ==========
Common stock in exchange for domain name $ 10,000 $ --
============== ==========
NOTE 20. SUBSEQUENT EVENTS
Management and Option to Purchase Agreement
On March 27, 2001, the Company entered into a Management and
Option to Purchase Agreement ("Agreement") relating to its
wholly-owned subsidiary Zonecabling.com, Inc. with a stockholder
and former director/officer of the Company ("Executive"), to
manage the Business-to-Business e-commerce site with an option to
purchase the subsidiary.
For services provided under the Agreement, the Executive shall
receive 213,333 options to purchase the common stock of the Company
at an exercise price of $2.25. These warrants, issued upon
execution of the Agreement, shall expire on December 31, 2002. In
addition, the Company agrees to pay to the Executive 25% of the net
profits of Zonecabling.com, Inc. for years 2000 and 2001, the term
of the Agreement, or until the Executive exercises his option to
purchase Zonecabling.com, Inc.
In accordance with the Agreement, at any time up to, including, or
before December 31, 2002, the Executive shall have the right to
purchase all the outstanding common stock of Zonecabling.com, Inc.
from the Company for the sum of $500,000, at which time all rights
and duties of the Corporation pursuant to Zonecabling.com shall be
assigned and delegated to the Executive as his own. In any event,
when the common stock price of the Company reaches $6.75 per share,
a mandatory conversion of the Executive's warrants into common
stock shall occur and he will be required to purchase
Zonecabling.com for $500,000 (see Note 3). If mandatory conversion
occurs prior to May 12, 2001, the $500,000 purchase price and
$200,000 owed the Company immediately will be placed in escrow with
a closing date to be set on or after May 12, 2001.
F-35
NOTE 20. SUBSEQUENT EVENTS (Continued)
Management and Option to Purchase Agreement (Continued)
The term of the Executive's employment shall continue through the
earlier of the Executive exercising his option to purchase
Zonecabling.com, Inc., or December 31, 2002. The employment of the
Executive may be terminated at any time by mutual agreement of both
parties with 30 days notice or by action of the Board of Directors
in the event of defaults, as defined.
Consulting Agreement
On March 15, 2001, the Company entered into an agreement to retain
the services of a consultant for a period of six months to provide
the Company with general investment banking advice. In exchange for
its services, the consultant received a fee of $10,000 and 200,000
warrants to purchase the common stock of the Company. The exercise
price of the warrants is at 20% above the average closing price of
the Company's common stock on the sixty trading days preceding the
execution of the agreement, as reported by the Nasdaq Stock
Exchange ($1.65 per share). The warrants, which shall be issued
within thirty days of the execution of the agreement, shall expire
five years after their date of issue.
NOTE 21. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
2000 1999
---- ----
Unadjusted net loss $1,154,152 $281,000
---------- -----------
Record stock-based compensation 221,365 616,000
Allowance for uncollectible promissory note 361,562 --
Write off goodwill 254,803 --
Other adjustments 41,911 141,000
Expense abandoned project development costs -- 352,000
Reclassify interest on stock subscription to equity -- 120,000
Deferred tax benefit -- (69,000)
Reverse demo units/samples included in sales -- 52,000
Allowance for bad debts -- 61,000
Amortization of goodwill -- 51,000
Correct cost of sales -- 73,000
---------- ----------
Total 4th quarter adjustments 879,641 1,397,000
---------- ----------
Adjusted net loss $2,033,793 $1,678,000
========== ==========
F-36
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No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company.
--------------------------------------------------------------------------------
This Prospectus does not constitute an offer of any securities other than those
to which it relates or an offer to sell or a solicitation of any offer to buy
any securities in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction. The delivery of this Prospectus at any time
does not imply that the information herein is correct as of any time subsequent
to its date. Notwithstanding the foregoing, the Company has undertaken to amend
this Prospectus in the event of any fundamental changes in the affairs of the
Company.
TABLE OF CONTENTS
Prospectus Summary ............................................................2
Risk Factors ..................................................................2
Use of Proceeds ...............................................................3
Market for Securities..........................................................3
Recent Financing...............................................................4
Dividend Policy................................................................6
Management's Discussion and
Analysis of Results of Operation
and Financial Condition........................................................4
Business ......................................................................8
Management ...................................................................16
Indemnification ..............................................................19
Certain Relationships and Related Transactions ...............................20
Security Ownership of Certain Beneficial
Owners and Management ........................................................20
Description of Securities ....................................................22
Selling Shareholders..........................................................23
Plan of Distribution/Selling Security Holders ................................25
Legal Matters ................................................................26
Experts ......................................................................26
Additional Information .......................................................26
Index to Financial Statements ...............................................F-1
UNTIL JANUARY 8, 2002 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION DESCRIBED HEREIN, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THE OFFERING HEREIN.
AMERICAN ACCESS
TECHNOLOGIES, INC.
PROSPECTUS