Form 10-QSB for AMERICAN ACCESS TECHNOLOGIES, INC.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[XX] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ________________
* * * * * * * * * * * * * * * * * * * * * *
Commission File No. 000-24575
AMERICAN ACCESS TECHNOLOGIES INC.
A Florida corporation
(Exact name of registrant as specified in charter, and state incorporated)
* * * * * * * * * * * * * * * * * * * * * *
Employer Identification No. 59-3410234
37 Skyline Drive, Suite 1101, Lake Mary, Florida 32746
(Address of principal executive offices of registrant)
(407) 333-1446
(Registrant's telephone number, including area code)
* * * * * * * * * * * * * * * * * * * * * *
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X]. NO [ ].
The number of shares of AMERICAN ACCESS TECHNOLOGIES INC. Common Stock (Par
Value $0.001) outstanding at April 30, 2002 was: 5,878,412.
AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2002 December 31, 2001
-------------- -----------------
Unaudited
ASSETS
------
Current Assets:
Cash and cash equivalents $ 163,619 $ 348,757
Investment securities 1,405,340 1,751,665
Accounts receivable, net of allowance of $75,000 1,426,797 1,084,012
Inventories 636,549 707,553
Prepaid expenses and other current assets 63,799 83,093
Notes receivable, directors and stockholders,
including accrued interest 182,086 178,211
Note receivable, other, net of allowance of $361,562 -- --
------------ ------------
Total current assets 3,878,190 4,153,291
Property, Plant and Equipment 2,957,184 2,883,368
Patent Costs 73,440 70,404
Intangible Assets 635,978 --
Other Assets 15,700 13,075
Deposit on Product Rights -- 129,780
------------ ------------
Total assets $ 7,560,492 $ 7,249,918
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 414,267 $ 370,373
Accrued expenses 54,452 89,169
------------ ------------
Total current liabilities 468,719 459,542
------------ ------------
Long-Term Liabilities:
Common stock payable 500,000 --
------------ ------------
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 5,846,870 shares 5,847 5,847
Additional paid-in capital 13,630,997 13,606,551
Deficit (7,021,089) (6,820,252)
------------ ------------
6,615,755 6,792,146
Treasury stock, 29,800 and 2,000 common shares at cost respectively (23,712) (1,500)
Stock subscription receivable, net of allowance of approximately $2,712,000 (270) (270)
------------ ------------
Total stockholders' equity 6,591,773 6,790,376
------------ ------------
Total liabilities and stockholders' equity $ 7,560,492 $ 7,249,918
============ ============
See notes to condensed consolidated financial statements.
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AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------ -----------------
Net Sales
Formed metal $ 837,164 $ 746,356
Zone cabling termination cabinet 510,351 401,883
----------- -----------
1,347,515 1,148,239
----------- -----------
Costs and Expenses:
Cost of sales 678,674 549,566
Selling, general and administrative 857,260 809,649
Stock-based compensation 39,446 35,179
----------- -----------
1,575,380 1,394,394
----------- -----------
Loss Before Other Income (Expense) (227,865) (246,155)
----------- -----------
Other Income (Expense):
Interest income 13,828 10,841
Interest expense -- (8,793)
Other income 13,199 3,223
----------- -----------
27,027 5,271
----------- -----------
Net Loss $ (200,838) $ (240,884)
=========== ===========
Basic Net Loss Per Common Share $ (.03) $ (.05)
=========== ===========
See notes to condensed consolidated financial statements.
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AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
--------- ---------
Cash Flows from Operating Activities:
Net loss $(200,838) $(240,884)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 145,494 85,984
Warrants and stock issued for services 39,446 35,179
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (346,444) (25,146)
Accrued interest receivable -- (8,875)
Inventories 71,004 47,241
Prepaid expenses and other assets 19,294 30,156
Increase (decrease) in accounts payable and accrued expenses (5,822) (65,073)
--------- ---------
Net cash used in operating activities (277,866) (141,418)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of investments 346,325 --
Increase in notes receivable and accrued interest (3,875) --
Acquisition of property and equipment (170,587) (11,009)
Acquisition of product line (50,000) --
Patent costs and other assets (6,923) --
--------- ---------
Net cash provided by (used in) investing activities 114,940 (11,009)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock, net of related costs -- 9,284
Payments on loans and capital lease obligations -- (9,562)
Acquisition of treasury stock (22,212) --
--------- ---------
Net cash (used in) financing activities (22,212) (278)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (185,138) (152,705)
Cash and Cash Equivalents, Beginning 348,757 399,948
--------- ---------
Cash and Cash Equivalents, Ending $ 163,619 $ 247,243
========= =========
Non-Cash Investing and Financing Activities:
Common stock obligation issued as partial consideration for product line acquisition $ 500,000 --
=========
Accounts receivable exchanged as partial consideration for product line acquisition $ 133,439 --
=========
See notes to condensed consolidated financial statements.
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AMERICAN ACCESS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 Unaudited
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements at March
31, 2002 have been prepared in accordance with accounting principles generally
accepted in the United States 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
March 31, 2002 and results of operations for three months ended March 31, 2002
and 2001. 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, 2001 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 advances in
high-speed communications networks. Our ceiling and raised floor cabinets, our
systems furniture panels, and our wireless solution 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 have the ability to punch and stamp metal.
We purchased the product rights to the Eclipse Air Cleansing System from Bill
Sherer Corporation and Bill Sherer in January 2002 in exchange for a one-time
cash payment of $50,000, accounts receivable due from the seller in the amount
of approximately $133,000 and restricted common stock valued at $500,000 at the
time of issuance over the next five years. No stock can be drawn down until one
year from the anniversary date of the purchase and at no time will the Seller
own more than 19.9 percent of the Company's stock. Mr. Sherer has been retained
as a marketing consultant under a separate agreement.
Our subsidiary AATK.com, LLC, on September 28, 2001 was administratively
dissolved by the Florida Department of State. The subsidiary was created on
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. The agreement ends December 31, 2002.
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. Our
wireless solution, added to our product line in 2001, has generated great
interest in the commercial marketplace, including as the subject of some of our
private label agreements.
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American Access is approved as a vendor for government services contracts. As an
approved vendor, we are able to sell our products for network applications at
the federal level. Through one of our private label partners, we sub-contracted
to manufacture a key component in a secured telecommunications unit ordered for
rush delivery by the Pentagon to be installed during renovations after the
September 11 tragedy. We also manufacture as sub-contractor the housing for a
chemical warfare detector used by the U.S. Army.
The Company is a member of the Telecommunications Industry Association, and we
have committed to working on its subcommittees that study zone cabling
solutions. The TIA sets telecommunications industry standards.
We have expanded our sales team with the addition of three independent
contractors who are marketing our zone cabling products and other metal
fabricating jobs when the opportunity arises. The three sales agents have
extensive backgrounds selling in the telecommunications industry.
Our Advisory Board formally met for the first time in January 2002, six Advisory
Board members are assisting us in evaluating joint ventures, pending and future
private label agreements, and possible future acquisitions and mergers. Members
may also review public relations and marketing materials, make presentations,
introduce the Company's zone cabling products to help establish a niche in the
marketplace, suggest improvements to business procedures, and advise the Company
on products, industry customs and trends.
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 net loss per share is reflected in the following schedule:
Computation of Net Loss Three Months ended Three Months ended
Per Common ------------------ ------------------
Share March 31, 2002 March 31, 2001
-------------- --------------
Net Income (Loss) $ (200,838) $ (240,884)
Total Weighted Average
Number of Common Shares
and Equivalents 5,846,870 4,742,322
----------- -----------
Net Loss per Common Share $ (0.03) $ (0.05)
----------- -----------
NOTES RECEIVABLE RELATED PARTY
In May and June 2000, the Company authorized loans to three directors, who also
were 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, 2000 Director and
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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 $200,000, payable to the Company on or before December 31, 2000, with
interest at the rate of 10 percent paid in arrears. 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, 2001and subsequently to June 30, 2002. An
allowance for doubtful collectibility was recorded on the full principal and
interest owed by Mr. Story ($221,278). However, on October 18, 2001, Mr. Story
repaid his note for $226,866, which includes $26,866 interest to date. The
reserve for collectibility was reversed in the third quarter of 2001. These
transactions were approved by disinterested directors in accordance with the
Florida Business Corporation Act.
STOCK-BASED COMPENSATION
Common Stock
On August 1, 2001 the Company entered into an agreement for investment banking
services with Kirlin Securities. We agreed to pay Kirlin $5,000 of common stock
a month, the amount of shares due to be recalculated quarterly, for one year,
payable at the beginning of each three-month period. The Company registered
60,000 shares of common stock on an SB-2 that became effective October 10, 2001,
in anticipation of payments to be made for the life of the contract. Kirlin was
issued 46,543 shares for the period beginning August 1, 2001 and ending April
30, 2002. The agreement with Kirlin was terminated in writing as of April 30,
2002, pursuant to agreed upon terms, with 30 days notice.
Warrants
On January 2, 2002, the Company issued 125,000 5-year warrants in connection
with services provided to the Company by five Advisory Board members. The
exercise price is $1.75. Additionally, the Company issued on April 1, 2002,
20,000 5-year warrants with an exercise price of $1.75 to a new Advisory Board
member.
The granting of stock or warrants to consultants resulted in a charge to stock
based compensation in the amount of approximately $39,000 in the first quarter
2002 representing the fair value of the 220,000 warrants issued in 2001, which
were and are being amortized in 2001 and 2002 and 125,000 warrants issued in the
first three months of 2002, which are being amortized in 2002.
Fair Value Disclosures
For the quarter ended March 31, 2002, had compensation cost for the 765,370
stock options issued to officers/directors in the second quarter 2001 and an
additional 213,333 warrants issued in the first quarter 2001, 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:
Three Months Ended March 31, 2002 Three Months Ended March 31, 2001
--------------------------------- ---------------------------------
Net Loss:
As reported $(200,838) $(240,884)
========== ========
Pro forma $(291,192) $(264,072)
========== =======
Loss Per Share:
Basic:
As reported (0.03) $ (0.05)
========= =========
Pro forma (0.05) $ (0.06)
========= =========
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The Company used the Black-Scholes option pricing model to determine the fair
value of grants made in the three months ended march 31, 2002 and 2001,
respectively. The following assumptions were applied in determining the pro
forma compensation cost:
Three Months Ended March 31, 2002 Three Months Ended March 31, 2001
----------------------------------- ---------------------------------
Risk Free Interest Rate 5.0% 5.5%
Expected Dividend Yield -- --
Expected Option Life 1.25 years 1.0 - 2.5 years
Expected Stock Price Volatility 140% 122% - 136%
3. Contingencies and Commitment
LEGAL PROCEEDINGS
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.
American Access at March 15, 2001 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 against McLean and the guarantor, 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. Subsequently, DataWorld
countersued for $500,000, the termination payment specified in the agreement,
payable under limited circumstances. We do not believe that DataWorld is
entitled to the termination payment. We amended our complaint, and we are
seeking general damages in excess of $15,000 from DataWorld for breach of
contract.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 2002
COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 2001
REVENUES
Revenues for the three months ended March 31, 2002 increased by $199,276 or
17.3% to $1,347,515 as compared to $1,148,239 for the three months ended March
31, 2001. Formed metal revenues were up $90,808 and zone cabling cabinets
revenues were up $108,468.
COSTS AND EXPENSES
Direct costs represent costs incurred by the Company to have its products
manufactured and assembled. These costs represent 50.3 % of revenues for the
three months ended March 31, 2002 and 47.9 % of revenues for the three months
ended March 31, 2001. The increase in direct costs is somewhat attributable to
smaller formed metal jobs.
Selling, General and Administrative expenses increased by $47,611 to $857,260
for the three months ended March 31, 2002 as compared to $809,649 for the three
months ended March 31, 2001. The amortization for the newly purchased products
rights to the Eclipse Air Cleansing system commenced in the first quarter 2002.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the quarter ended March 31, 2002 was $227,865 as
compared to a loss of $246,155 for the quarter ended March 31, 2001, a decrease
of $18,290.
NET INCOME (LOSS)
Net loss for the quarter ended March 31, 2002 was $200,838 compared to $240,884
for the quarter ended March 31, 2001.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities utilized cash of $277,866 during three months
ended March 31, 2002 as compared to utilizing cash of $141,418 during the three
months ended March 31, 2001. In the first quarter 2002, the Company bought back
27,800 shares of common stock.
Management's plans include the following:
The Company continues to move toward profitability by reducing costs and
increasing sales. Three outside sales agents were added to the team in the first
quarter 2002. In addition to introducing our products to potential customers,
these agents support our private label partners and distributors, as well as
maintain contact with project coordinators to facilitate the use of zone cabling
in new construction and in retrofit construction. A growing number of contracts
are being negotiated for our private label products.
We are also soliciting additional metal fabricating jobs to maintain a strong
foundation for our future growth in zone cabling products and in our ultraviolet
light home air cleansing systems. Our marketing plan focuses working toward
profitability in 2002. To accomplish profitability, we are intensifying our
sales efforts in these key areas:
o Sign Additional Zone Cabling Private Label Agreements with 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, Hitachi,
Flexspace and continue to negotiate others with leaders in the
telecommunications industry.
o Add Crossover Sales for Metal Fabricating: Our sales agents who
professionally place our zone cabling cabinets are also approaching
systems providers for other metal fabricating jobs they may require
and that our subsidiary, Omega Metals, can provide.
o Enlist Distributors for the Eclipse Ultraviolet Light Air Cleansing
System: We acquired the product rights to the Eclipse in January 2002,
and sales continue to grow for this line. We believe sales should be
driven through distributors that target HVAC contractors. We are
currently negotiating agreements with distributors in this field.
9
We are continuing our marketing efforts as they have been established, with
added intensity in the above areas. Between October 10 and 12, 2001 the Company
acquired substantial working capital through the exercise of outstanding
warrants by investment bankers, employees and consultants. Additionally, two
promissory notes totaling $200,000, plus interest of $26,866 have been paid back
to the Company on October 18, 2001. We believe that the capital generated by the
exercise of warrants and the repayment of the loan will be sufficient for us to
meet our needs through 2002. Any additional capital needs can be met through
private placement, or borrowings, including bank borrowing and private equity
lines, in view of the nature of our customer base. Since our 67,500 sq. ft.
plant is unencumbered, we also have the potential to mortgage it to raise
capital.
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. In addition, at February 14, 2002, the price of the
Company's common stock had closed below the Nasdaq minimum required $1.00 per
share for the past 30 consecutive days. Continued listing standards for Nasdaq
require that we must regain compliance and trade above $1.00 for ten (10)
consecutive days before August 13, 2002 or, when viewed with other requirements,
we risk being delisted from the Nasdaq Small Cap Market. If at August 13, 2002,
we have not regained compliance, but we meet the initial listing criteria for
the Nadaq SmallCap Market, we will be granted an additional 180 calendar days
grace period to demonstrate compliance.
ADJUSTED EBITDA*
The following schedule reconciles the generally accepted accounting principles
net loss to the adjusted EBITDA*
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------ ----------------
Net loss (per GAAP) $(200,838) $(240,884)
Interest expense -- 8,793
Depreciation and amortization 145,494 85,984
Warrants and stock compensation 39,446 35,179
--------- ---------
Adjusted EBITDA $ (15,898) $(110,928)
Improvement of 85.7% in Adjusted EBITDA 85.7%
over Q1 2001
*Adjusted EBITDA---earnings before interest, taxes, depreciation, amortization,
and warrants and stock compensation.
Adjusted first quarter earnings before interest, taxes, depreciation,
amortization, and warrant and stock compensation (adjusted EBITDA*) were
$(15,898). The adjusted EBITDA* improved 85.7% in the quarter ended March 31,
2002, compared to $(110,928) in the quarter ended March 31, 2001. In April 2002,
the Company has evaluated overhead reductions including personnel costs.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
--------------------
(b) EXHIBITS
The following exhibits are being filed as part of this report:
EXHIBIT NO. DESCRIPTION
----------- -----------
(c.) Form 8-K No Form 8-Ks were filed with the
Securities and Exchange Commission in
the quarter ended March 31, 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 30, 2002
AMERICAN ACCESS TECHNOLOGIES, INC.
(Registrant)
By: /s/ Joseph F. McGuire
----------------------------------------
Joseph F. McGuire
Treasurer
Chief Financial Officer
By: /s/ John E. Presley
----------------------------------------
John E. Presley
President
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