U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
TO
(MARK ONE)
[X] ANNUAL REPORT PUSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001
OR
[ ] TRANSITION REPORT PUSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ________________________
Commission File Number: 000-29217
ACCESSPOINT CORPORATION
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(Name of Small Business Issuer in its Charter)
Nevada 95-4721385
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification
or Organization) No.)
21031 Ventura Boulevard, Suite 200
Woodland Hills, California 91364
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(Address of Principle Executive Offices) (Zip Code)
(818) 737-3232
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(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $6,344,643.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on March 28, 2002, based upon the average bid and asked prices of such
stock on that date ($0.59) was $4,460,169. The number of issuer's shares of
Common Stock outstanding as of December 31, 2001 was 23,375,208.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
EXPLANATORY NOTE
This Annual Report on Form 10-KSB/A ("Form 10-KSB/A") is being filed as
Amendment No. 1 to the Registrant's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on April 16, 2002 ("Form 10-KSB") for the
purpose of amending Items 6 and 7 of Part II of Registrant's Form 10-KSB. We
have no further changes to the previously filed Form 10-KSB. All information in
this Form 10-KSB/A is as of December 31, 2001, and does not reflect, unless
otherwise noted, any subsequent information or events other than the changes
mentioned above.
Accesspoint Corporation
AMENDED Form 10-KSB ANNUAL Report
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Forward-Looking Statements
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations or Plan of Operation
Item 7. Financial Statements
Signatures
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains forward-looking statements about the business,
financial condition and prospects of our Company that reflect assumptions made
by management and management's beliefs based on information currently available
to it. We can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations should materialize, our Company's actual results may differ
materially from those indicated by the forward-looking statements.
The key factors that are not within our Company's control and that may have
a direct bearing on operating results include, but are not limited to, the
acceptance by customers of our Company's products and services, our Company's
ability to develop new products and services cost-effectively, the ability of
our Company to raise capital in the future, the development by competitors of
products or services using improved or alternative technology, the retention of
key employees and general economic conditions.
There may be other risks and circumstances that management is unable to
predict. When used in this Form 10-KSB, words such as, "believes," "expects,"
"intends," "plans," "anticipates" "estimates" and similar expressions are
intended to identify forward-looking statements, although there may be certain
forward-looking statements not accompanied by such expressions. All
forward-looking statements are intended to be covered by the safe harbor created
by Section 21E of the Securities Exchange Act of 1934.
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes contained elsewhere in this document.
The discussion contained herein relates to the financial statements, which have
been prepared in accordance with GAAP.
THE DISCUSSION IN THIS SECTION AND OTHER PARTS OF THIS REGISTRATION STATEMENT
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS SUCH AS STATEMENTS OF THE COMPANY'S
PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS INVOLVE RISKS
AND UNCERTAINTIES. THEY ARE MADE AS OF THE DATE OF THIS REGISTRATION STATEMENT,
AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THEM.
A. Summary of Financial Data
The following summary financial data should be read together with this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements included herein.
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STATEMENT OF OPERATIONS (1)
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YEARS ENDED DECEMBER 31,
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2001 2000
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Revenues............................................. $ 6,344,643 $ 2,261,752
Cost of sales and services........................... 4,045,880 324,744
Selling and marketing................................ 290,914 261,715
General and administrative........................... 5,079,324 5,848,805
Profit (loss) from operations ....................... (3,071,475) (4,173,512)
Other expense, net .................................. 832,587 1,045,336
Extraordinary expense................................ 0 0
Income taxes paid.................................... 2,400 2,400
-------------------------- ---------------------------
Net income (loss).................................... $ (3,906,462) $ (5,221,248)
========================== ===========================
Net loss per Common Share:
Basic:.......................................... $ (0.20) $ (0.33)
Diluted:........................................ $ (0.15) $ (0.33)
Weighted average number of Common Shares:
Basic:.......................................... 19,509,000 15,694,780
Diluted:........................................ 26,326,000 15,694,780
CONSOLIDATED BALANCE SHEET (2)
--------------------------
YEARS ENDED DECEMBER 31,
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2001 2000
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Cash................................................. $ 78,229 $ 31,954
Accounts receivable, net............................. 255,873 200,624
Other current assets................................. 20,173 45,022
Fixed assets, net 3.................................. 401,685 719,167
Other assets......................................... 6,581,025 413,796
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Total assets....................................... 7,336,985 1,410,563
========================== ==========================
Total current liabilities............................ 4,632,601 3,552,489
Long term liabilities................................ 0 283,990
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Total liabilities 4,632,601 3,836,479
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Common stock......................................... 23,375 16,558
Preferred stock...................................... 1,056 0
Additional paid in capital........................... 14,418,900 5,390,011
Retained earnings (deficit).......................... (11,738,947) (7,832,485)
-------------------------- --------------------------
Total shareholders' equity (deficit)............... 2,704,384 (2,425,916)
========================== ==========================
Total liabilities and stockholders' equity......... $ 7,336,985 $ 1,410,563
========================== ==========================
1 For the fiscal years ended 2001 and 2000, other than capital raised pursuant
to stock sales, we have had no operations and no revenue prior to the merger
with the our predecessor, Accesspoint Corporation. However, our predecessor,
Accesspoint Corporation has had prior revenue. The merger has been treated as
a pooling transaction for accounting purposes.
2 For the fiscal years ended 2001 and 2000, other than capital raised pursuant
to stock sales, the Company has had no operations and no revenue prior to the
merger with the Company's predecessor, Accesspoint Corporation.
3 Includes net accumulated depreciation of $936,497 and $631,646 in 2001 and
2000, respectively.
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B...OVERVIEW
Our primary software products consist of Merchant Manager Enterprise, a
complete and secure fully-hosted e-commerce solution for small to midsize
businesses, which provides an on-line store, catalog and credit card processing
abilities; Transaction Manager, an on-line credit card processing solution for
small to midsize businesses; and Merchant Manager, a hosted e-commerce solution
providing a simple-to-learn and simple-to-use set of tools derived from Merchant
Manager Enterprise. We provide hosting services in conjunction with our software
products.
We have incurred losses since the inception of our operations. At December
31, 2001, we had an accumulated deficit of $(11,738,947). In the past, we have
relied substantially on private placement offerings of debt and equity to offset
our losses and to fund our ongoing operations, research and development programs
and business activities. However, as of December 14, 2001, we have entered into
a series of agreements with Net Integrated Systems, Ltd. ("NIS"), in conjunction
with a Five Million Dollar ($5,000,000) Secured Revolving Line of Credit. In the
opinion of management, this Line of Credit should be sufficient to sustain
Accesspoint's operations and activities for the foreseeable future.
C. RESULTS OF OPERATIONS
Year Ended December 31, 2001 Compared With Year Ended December 31, 2000
Revenues for the year ended December 31, 2001 increased to $6,344,643 from
$2,261,752 for the year ended December 31, 2001. The increase of $4,082,891, or
180.52% is due primarily to our increased revenues associated with credit card
processing which resulted in an overall increase in sales.
Cost of sales for the year ended December 31, 2001 increased to $4,045,880
from $324,744 for the year ended December 31, 2000. The increase of $3,721,136
or 1145.87% resulted primarily from our increase in cost of sales associated
with credit card processing, which resulted in an overall increase in sales.
Selling and marketing expenses for the year ended December 31, 2001
increased to $290,914 from $261,715 for the year ended December 31, 2000. This
increase of $29,199, or 11.16% resulted primarily from increased sales efforts
for acquisition of credit card processing accounts. Moreover, we have focused on
reducing overhead costs, including the reduction in trade show expenses,
advertising consulting costs, and printing costs for brochure and promotional
materials during the development of our processing and underwriting platform.
General and administrative expenses for the year ended December 31, 2001
decreased to $5,079,324 from $5,848,805 for the year ended December 31, 2000.
The decrease of $769,481, or 13.16% resulted primarily from a decrease of
Salaries and Wages and related employee costs and a decrease in professional
costs and other efficiencies.
Interest expense, net, for the year ended December 31, 2001 was $145,059,
as compared to $144,619 for the year ended December 31, 2000. The increase of
$440, or 0.30% in interest expense resulted primarily from the Company's static
cost of debt.
Other (Income) Expense, net of Interest expense was $670,423 for the year
ended December 31, 2001 compared to $899,603, which represented a decrease of
$229,180 or 25.48%. This decrease includes primarily the reduction of bad debt
expense and penalties and includes an extraordinary expense for the year ended
December 31, 2001 of $99,500, as compared to $0 for the year ended December 31,
2000. This increase of $99,500 was a direct result of payment of a settlement
amount under a PSI lawsuit in 2001. PSI vigorously contested the action and
concluded that it was in the best interests of PSI to resolve the matter without
incurring further attorney's fees. The expense was a one-time charge.
Net losses for the years ended December 31, 2001 and December 31, 2000 were
$(3,906,462) and $(5,221,248), respectively. The decrease in loss of $1,314,786
or 25.18% was primarily related to increased revenues and a reduction of
development related activities.
-5-
D. Liquidity and Capital Resources
Cash and cash equivalents at December 31, 2001 were $78,229, compared to
$31,954 at December 31, 2000, an increase of $46,275, which represented a growth
of 144.82%.
Net Cash used in operations decreased from $3,405,357 for the year ended
December 31, 2000 to $2,110,447 for the year ended December 31, 2001, or a
resulted efficiency in cash of $1,294,910 or 38.03%. This efficiency was
primarily accomplished by increased effectiveness in operations.
Net Cash used in investing activities decreased from $218,325 as of
December 31, 2000 to $54,606 as of December. This decease of $163,719 or 74.99%
was primarily due to a reduction of purchases in furniture and equipment.
During the year ended December 31, 2001, the Company generated net cash of
$2,211,328 from financing activities as compared to $3,601,287 for the year
ended December 31, 2000. The decrease of $1,389,959 resulted from a decrease in
private placement fundraising activities.
As of December 31, 2001, we lease office space on a short-term twelve-month
sub-lease basis and could be required to move after the expiration of the
twelve-month period in June 2002. We may attempt to re-negotiate a longer term
lease at its present location. If the Company moves, the major capital
expenditures we could incur would be related to relocation of office computers,
local area network hardware, office telephony and office equipment an furniture.
We had, at December 31, 2001, negative working capital. We believe that
cash generated from operations will not be sufficient to fund our current and
anticipated cash requirements. However, management believes that our Five
Million Dollar ($5,000,000) Secured Revolving Line of Credit through Net
Integrated Systems should be sufficient to sustain Accesspoint's operations and
activities for the foreseeable future. As such, we do not believe that our
current operational plans for the next twelve months will be curtailed or
delayed because of the lack of sufficient financing. While there can be no
assurances that we will continue to have access to such additional financing, on
terms acceptable to us and at the times required, or at all, we believe that we
will have access to sufficient capital for the foreseeable future.
E. Net Operating Loss
For federal income tax purposes, we have net operating loss carryforwards
of approximately $10,760,000 as of December 31, 2001 and $7,010,000, as of
December 31, 2000. These carryforwards will expire at various dates through the
year 2015. The use of such net operating loss carryforwards to be offset against
future taxable income, if achieved, may be subject to specified annual
limitations (see "Risks of Our Business Limitations on Net Operating Loss Carry
Forward").
ITEM 7. FINANCIAL STATEMENTS
Our audited consolidated financial statements for the periods ended
December 31, 2001 and December 31, 2000 are filed herewith.
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ACCESSPOINT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
TABLE OF CONTENTS
Independent Auditors Report 2
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flow 5
Consolidated Statements of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
-7-
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Accesspoint Corporation
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Accesspoint
Corporation and its subsidiaries ("the Company") as of December 31, 2001 and
2000, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the years ended December 31, 2001 and 2000 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note T to the
consolidated financial statements, the Company has suffered recurring losses,
cash deficiencies, loan and capital lease defaults and current liabilities in
excess of current assets. These issues raise substantial doubt about its ability
to continue as a going concern. The consolidated financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
As discussed in Note S to the financial statements, the Company's 2001 deferred
financing costs should have been $6,326,381. This discovery was made subsequent
to the issuance of the financial statements. The financial statements have been
restated to reflect this correction.
April 4, 2002, except for Note S, as to which the date is July 10, 2002.
Los Angeles, California
-8-
ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
---------------------- ---------------------
Current Assets
Cash and cash equivalents $78,229 $31,954
Accounts receivable, net 255,873 200,624
Inventory 6,366 1,911
Other receivables 0 16,682
Prepaid expenses 13,807 26,429
---------------------- ---------------------
Total Current Assets 354,275 277,600
---------------------- ---------------------
Fixed Assets
Furniture and equipment (net) 401,685 719,167
---------------------- ---------------------
Total Fixed
Assets 401,685 719,167
---------------------- ---------------------
Other Assets
Deferred financing costs (net) 6,288,967 0
Deposits 292,058 413,796
---------------------- ---------------------
Total Other Assets 6,581,025 413,796
---------------------- ---------------------
Total Assets $7,336,985 $1,410,563
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
2001 2000
---------------------- ---------------------
Current Liabilities
Accounts payable and accrued expenses $1,467,688 $1,420,337
Accrued payroll taxes and penalties 1,091,080 704,971
Accrued loss contingencies 338,233 0
Deferred compensation 221,477 223,977
Customer deposits 99,465 0
Current portion, capitalized
leases 303,158 210,704
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Current portion, notes payable 1,111,500 992,500
---------------------- ---------------------
Total Current Liabilities 4,632,601 3,552,489
Capital Lease obligations, net of current portion 0 283,990
Notes payable, net of current portion 0 0
---------------------- ---------------------
Total Liabilities 4,632,601 3,836,479
---------------------- ---------------------
Stockholders' Equity
Common stock, $.001 par value, 25,000,000
shares authorized, 23,375,208 and 16,557,560
issued and outstanding, respectively 23,375 16,558
Preferred Stock, no par value, 5,000,000 shares
authorized, 1,055,600 and 0 issued
and outstanding, respectively 1,056 0
Additional paid in capital 14,418,900 5,390,011
Retained deficit (11,738,947) (7,832,485)
---------------------- ---------------------
Total Stockholders' Equity 2,704,384 (2,425,916)
---------------------- ---------------------
Total Liabilities and Stockholders' Equity $7,336,985 $1,410,563
====================== =====================
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ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
-------------------------- ----------------------------
Sales, net $6,344,643 $2,261,752
Cost of sales 4,045,880 324,744
-------------------------- ----------------------------
Gross profit 2,298,763 1,937,008
Selling expenses 290,914 261,715
General and administrative expenses 5,079,324 5,848,805
-------------------------- ----------------------------
Income (loss) from operations (3,071,475) (4,173,512)
-------------------------- ----------------------------
Other (Income) Expense
Interest income (17,105) (1,114)
Forgiveness of debt (44,006) 0
Other miscellaneous (3,165) 0
Penalties 90,137 360,694
Bad debt expense 291,846 540,023
Loss on disposal of assets 45,216 0
Loss contingencies and legal settlements 307,500 0
Interest expense 162,164 145,733
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Total Other (Income) Expense 832,587 1,045,336
-------------------------- ----------------------------
Income (loss) before income taxes (3,904,062) (5,218,848)
Provision for income taxes 2,400 2,400
-------------------------- ----------------------------
Net income (loss) ($3,906,462) ($5,221,248)
========================== ============================
Net loss per share (basic and diluted)
Basic ($0.20) ($0.33)
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Diluted ($0.15) ($0.24)
Weighted average number of shares
Basic 19,509,000 15,695,000
Diluted 26,326,000 21,709,000
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ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) ($3,906,462) ($5,221,248)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 37,414 299
Depreciation 326,872 287,317
Loss on disposal of assets 45,216 0
Common stock issued for services 426,518 24,000
Decrease (Increase) in receivables (55,249) 360,221
Decrease (Increase) in inventory (4,455) 12,096
Decrease (Increase) in other receivables 16,682 (15,951)
Decrease (Increase) in prepaid expenses 12,622 (7,850)
Decrease (Increase) in deposits 121,738 (383,940)
(Decrease) Increase in accounts payable
and accrued expenses 47,351 774,325
(Decrease) Increase in accrued payroll taxes 386,109 704,971
(Decrease) Increase in accrued loss contingencies 338,233
(Decrease) Increase in deferred compensation (2,500) 68,257
(Decrease) Increase in customer deposits 99,465 0
(Decrease) Increase in deferred revenue 0 (7,854)
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Total Adjustments 1,796,015 1,815,891
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Net cash used in operations (2,110,447) (3,405,357)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangibles 0 2,182
Purchase of furniture and equipment (54,606) (220,507)
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Net cash used in investing activities (54,606) (218,325)
------------------------------------------------------
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable 119,000 1,434,000
Payments on capital leases (191,536) (243,685)
Payments on notes payable 0 (641,500)
Sale of stock 2,283,864 3,052,472
------------------------------------------------------
Net cash provided by financing activities 2,211,328 3,601,287
------------------------------------------------------
Net change in cash and cash equivalents 46,275 (22,395)
------------------------------------------------------
Cash and cash equivalents at beginning of year 31,954 54,348
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Cash and cash equivalents at end of year $78,229 $31,953
======================================================
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ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL INFORMATION
YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
----------------------------- --------------------------
Supplemental cash flows disclosures:
Income tax payments $2,400 $1,600
----------------------------- --------------------------
Interest payments $100,338 $92,688
----------------------------- --------------------------
Non cash investing and financing
Addition of equipment on capital leases $0 $333,717
----------------------------- --------------------------
Common stock issued for services $426,518 $24,000
----------------------------- --------------------------
Common stock transfer (see note S) $6,326,381 $0
----------------------------- --------------------------
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ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---------------------------- ---------------------------
Retained (deficits)
Balance at beginning of year ($7,832,485) ($2,611,238)
Net income (loss) (3,906,462) (5,221,248)
---------------------------- ---------------------------
Balance at end of year (11,738,947) (7,832,485)
---------------------------- ---------------------------
Common stock, par value $.001 (thousands of shares)
Balance at beginning of year 16,558 14,832
Common stock issued 6,817 1,726
---------------------------- ---------------------------
Balance at end of year 23,375 16,558
---------------------------- ---------------------------
Preferred stock, no par value (thousands of shares)
Balance at beginning of year 0 0
Issuance of preferred stock 1,056 0
---------------------------- ---------------------------
Balance at end of year 1,056 0
---------------------------- ---------------------------
Additional paid in capital
Balance at beginning of year 5,390,011 2,315,265
Issuance of common stock 2,702,508 3,074,746
Transfer of common stock (see note S) 6,326,381 0
---------------------------- ---------------------------
Balance at end of year 14,418,900 5,390,011
---------------------------- ---------------------------
Total stockholders' equity at end of year ($2,704,384) ($2,425,916)
============================ ===========================
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A - NATURE OF OPERATIONS
Incorporated in the State of Nevada, Accesspoint Corporation ("the
Company") is a "C" Corporation as organized under the Internal Revenue
Code. As of December 31, 2001, the Company has combined its mature
Internet Application Services technology platform with its credit card
and check-processing platform to provide bundled payment acceptance,
processing and business management services. These programs provide
customers with multiple payment acceptance capabilities including
credit card and check transaction, a fully operational e-commerce and
business management Website, and a central Web based management system
for servicing both the brick-and-mortar and web based sides to each
business.
The Company focuses on specific markets that historically have been
under served by the transaction processing industry. The Company's
multi-application e-payment systems allow their growing national sales
channel to market a single source solution to merchants and businesses.
Clients enjoy the benefits of a versatile, multi-purpose system that
provides a broad level of payment acceptance options and value-added
business services without having to manage the multiple business
relationships normally required for these functions.
The Accesspoint advantage is full transaction processing, settlement
and software delivered as a bundled service for the cost of an industry
standard transaction fee. Furthermore, as a result of the Company's
systems, prospective clients can be approved in a short period, instead
of the several-day time frame typically implemented by the Company's
competition.
In November 2000, the Company launched its card processing division,
managed by its wholly owned subsidiary, Processing Source
International, Inc. and began earning card processing revenues in
addition to its check processing revenues through the underwriting and
processing of these electronic payment transactions in its growing
merchant base.
The Company has targeted the Independent Sales Organization (ISO) and
Independent Agent marketplace as a prime driver and sales channel for
its services. The Company's operating systems makes it simple for these
sale organizations to electronically submit a client's application,
track the progress of that application, monitor merchant service, and
even track commissions, all in real time via a private label portal
provided by the Company. This program, called ISO Advantage, aims to
establish a new standard for service and support in the merchant
services industry and appears to present distinct marketplace
advantages for those sales organizations who enter the program.
-17-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue from; settlement fees for electronic
payment processing, credit and debit card payment settlement, check
conversion and financial processing programs and transaction fees
related to the use of its software and credit card processing products,
licensure of its software products and providing Internet access and
hosting of Internet business services and web sites.
Revenue from software and hardware sales and services are recognized as
products are shipped, downloaded, or used.
The Company reports income and expenses on the accrual basis for both
financial and income tax reporting purposes.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of J.S.J.
Capital III, Inc., Accesspoint Corporation, and its wholly owned
subsidiaries Processing Source International, Inc. (PSI) and Black Sun
Graphics, Inc. (BSG), collectively referred to within as the Company.
All material intercompany accounts, transactions and profits have been
eliminated in consolidation.
RISKS AND UNCERTAINTIES
The Company is subject to substantial risks from, among other things,
intense competition from the providers of financial electronic payment
processing, settlement services, software development and e-commerce
service companies specifically and the technology industry in general,
other risks associated with the Internet services industry, financing,
liquidity requirements, rapidly changing customer requirements, limited
operating history, and the volatility of public markets.
CONTINGENCIES
Certain conditions may exist as of the date the financial statements
are issued, which may result in a loss to the Company but which will
only be resolved when one or more future events occur or fail to occur.
The Company's management and legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of
judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may
result in such proceedings, the Company's legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well
as the perceived merits of the amount of relief sought or expected to
be sought.
If the assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can be
estimated, then the estimated liability would be accrued in the
Company's financial statements. If the assessment indicates that a
potential material loss contingency is not probable but is reasonably
possible, or is probable but cannot be estimated, then the nature of
the contingent liability, together with an estimate of the range of
possible loss if determinable and material would be disclosed.
-18-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss contingencies considered to be remote by management are generally
not disclosed unless they involve guarantees, in which case the
guarantee would be disclosed.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates include
collectibility of accounts receivable, accounts payable, sales returns
and recoverability of long-term assets.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has made an allowance for doubtful accounts for trade
receivables.
FIXED ASSETS
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for major additions and improvements are
capitalized, and minor replacements, maintenance and repairs are
charged to expense as incurred. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, or
the remaining term of the lease, as follows:
Furniture and Fixtures 5 years
Equipment 5 years
Hardware and Software 3 years
LEASEHOLD IMPROVEMENTS
Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the remaining lease term or
the estimated useful lives of the improvements.
CAPITAL LEASES
Assets held under capital leases are recorded at the lower of the net
present value of the minimum lease payments or the fair value of the
leased asset at the inception of the lease. Depreciation is computed
using the straight-line method over the shorter of the estimated useful
lives of the assets or the period of the related lease.
INVENTORY
Inventory is valued at the lower of cost or market. Cost is determined
on the weighted average method. As of December 31, 2001 and 2000,
inventory consisted only of finished goods.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
initial maturities of three months or less to be cash equivalents.
-19-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments, which subject the Company to credit risk,
consist primarily of cash equivalents and trade accounts receivable.
Concentration of credit risk with respect to trade accounts receivable
is generally diversified to the large number of entities comprising the
Company's customer base and their geographic dispersion. The Company
actively evaluates the creditworthiness of the customers with which it
conducts business.
ADVERTISING
Advertising costs are expensed in the year incurred.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
of common stock and common stock equivalents outstanding during each
period. Earnings per share are computed using the treasury stock
method. The options to purchase common shares are considered to be
outstanding for all periods presented but are not calculated as part of
the earnings per share.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") 123, "Accounting for Stock-Based
Compensation." Under APB 25, compensation cost is recognized over the
vesting period based on the difference, if any, on the date of grant
between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying value of an
asset may not be recoverable. If the estimated future cash flows
(undiscounted and without interest charges) from the use of an asset
are less than the carrying value, a write-down would be recorded to
reduce the related asset to its estimated fair value. There have been
no such impairments to date.
NOTE C - BUSINESS COMBINATIONS
In May 2000, the Company completed the acquisition of Black Sun
Graphics, Inc. (a California Corporation), and accordingly, the
operating results of the acquired company have been included in the
accompanying condensed consolidated financial statements since the date
of acquisition. The aggregate purchase price of this acquisition was
approximately $350,000, comprised of 70,000 shares of restricted common
stock.
-20-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE C - BUSINESS COMBINATIONS (CONTINUED)
In April 2000 the Company completed the acquisition by JSJ Capital III,
Inc. ( a Nevada Corporation), with Accesspoint as the surviving
corporation. The separate existence of JSJ Capital III ceased as of the
date of completion of the acquisition. All issued and outstanding
shares of JSJ Capital III were converted into the right to receive
shares of Accesspoint upon completion of the acquisition. The
transaction has been accounted for as a reverse acquisition. The
transaction is a merger of a public non-reporting operating company
(old Accesspoint) into a non-operating reporting public shell
corporation with nominal assets. The owners of Accesspoint obtained
operating control of the combined company after the transaction. This
transaction has been recorded as a capital transaction, rather than a
business combination, equivalent to the issuance of stock by the public
non-reporting company for the net monetary assets of the shell
corporation, accompanied by a recapitalization. The accounting is
identical to that resulting from a reverse acquisition, except that no
goodwill or other intangible has been recorded.
The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements are as
follows:
2001 2000
---- ----
Sales
Accesspoint $ 1,172,963 $ 695,736
PSI 4,934,541 1,217,158
Black Sun Graphics 247,556 590,463
Eliminations (141,217) (241,605)
-------------- ------------
Combined $ 6,344,643 $ 2,261,752
-------------- ------------
Net Income (loss)
Accesspoint $ (2,747,971) $(4,029,561)
PSI (1,031,316) (1,350,608)
Black Sun Graphics (89,761) 158,921
-------------- ------------
Combined $ (3,869,048) $(5,221,248)
-------------- ------------
NOTE D - CASH
The Company maintains its cash balances at various banks in the United
States. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. As of December 31, 2001 and 2000, there
were no uninsured balances held at these banks.
-21-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE E - FIXED ASSETS
Fixed assets consist of the following:
2001 2000
---- ----
Furniture and fixtures $ 71,364 $ 71,364
Office equipment 244,623 243,634
Computer hardware and software 1,022,195 968,578
Leasehold improvements 0 67,236
----------- ------------
1,338,181 1,350,812
Accumulated depreciation (936,497) (631,645)
----------- ------------
Total $ 401,685 $ 719,167
At December 31, 2001 and 2000 included in fixed assets are costs of
$737,996 of assets recorded under capital leases.
For the years ended December 31, 2001 and 2000, included in accumulated
depreciation are $494,030 and $295,474, recorded on assets under
capital leases, respectively.
NOTE F- COMMITTMENTS
CAPITAL LEASES - The Company leases certain machinery and equipment
under agreements that are classified as capital leases. The cost of
equipment under capital leases is included in the Balance Sheets as
fixed assets, see Note E regarding related amounts. Future minimum
payments under capital leases as of December 31, 2001, are as follows:
2002 $ 217,773
2003 73,791
2004 11,594
------------
$ 303,158
------------
Total minimum lease payments $ 338,856
Less amount representing interest (35,698)
------------
Present value of minimum lease payments 303,158
Less current maturities of capital lease obligations (303,158)
------------
Long-term capital lease obligations $ 0
------------
See Litigation and Contingencies Note Q.
-22-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE F - COMMITMENTS (CONTINUED)
OPERATING LEASES - The Company leases its operating and office
facilities and some of its equipment under non-cancelable operating
leases. These leases expire at various dates through 2004 and may
contain renewal options. The leases provide for increases in future
minimum annual rental payments based on defined increases in the
Consumer Price Index. Also, the agreements generally require the
Company to pay executory costs (real estate taxes, insurance, repairs).
Future minimum rental payments under leases that have initial or
remaining non-cancelable lease terms in excess of one year are:
2002 $ 211,500
2003 56,800
2004 21,600
-------------
$ 289,900
-------------
Lease expense for the years ended December 31, 2001 and 2000 was
$526,580 and $404,612, respectively.
See Litigation and Contingencies Note Q.
EMPLOYMENT AGREEMENTS - The Company has entered into certain employment
agreements as follows for the retention of key employees:
On November 12, 2001, the Company entered into an employment agreement
for the services of Tom M. Djokovich as Chief Executive Officer at a
base salary of two hundred thousand dollars ($200,000) per annum,
increasing by at least ten percent per annum for the duration of the
agreement. The agreement also calls for the payment of cash bonuses
based on revenue and net income, and the granting of stock options to
purchase fifty thousand (50,000) shares of the Company stock per year
for the duration of the agreement at an exercise price of the current
closing price. The agreement terminates on November 13, 2003. See
Subsequent Events Note S.
Dated August 1, 2000 the Company entered into an employment agreement
for the services of Alfred Urcuyo as President of PSI at a base salary
of two hundred thousand dollars ($200,000) per annum. The agreement
calls for escalations of base salary on attainment of certain gross
revenue levels. The agreement also calls for stock incentive options,
based on revenue attainment levels, of up to $100,000 annually based on
the then current market value of the stock. The agreement extended
through July 31, 2006, but was terminated in January 2002. See
Subsequent Events Note S.
The Company has also entered into several employment contracts with
employees of PSI at varying salary levels for two-year periods. The
agreements call for cash and stock incentive bonuses based on levels of
gross revenue attainment. Subsequent to December 31, 2001 the employees
terminated all agreements. No payments were required under the
agreements.
-23-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE F - COMMITMENTS (CONTINUED)
CONSULTING AGREEMENTS - During the year 2000, the Company entered into
a consulting agreement with an individual in an advisory capacity.
Compensation for services is 100,000 shares of common stock issued
pro-rata over a twelve-month period and 20,000 options for the purchase
of common stock at an exercise price of $5.00 per share. The stock
options also vest pro-rata over twelve months. The terms of the
agreement also include the payment to the individual of a referral fee
for any funding or capital formation transactions from resources
referred to the Company by the individual. As of December 31, 2000 the
Company had issued 66,664 shares of stock with a value of $324,466 to
this individual. The Company issued no further shares or options to
this individual. Subsequent to December 31, 2001 the individual filed a
demand for the remaining shares and options. Please see Subsequent
Events Note S.
The Company entered into a consulting agreement with an individual in
an advisory capacity. Compensation for services is 6,000 shares of
common stock issued pro-rata over twelve months and 2,400 stock options
for the purchase of common stock at an exercise price of $3.37 per
share. The stock options also vest pro-rata over twelve months. As of
December 31, 2000 the Company has issued 1000 shares of stock with a
value of $3,700 to this individual. No further stock or options have
been issued to this individual and the consulting agreement was
terminated during 2001.
The Company has entered into a consulting agreement with another
company for their marketing services. The contract stipulates payment
of 3,125 shares of stock for each of eight agreed upon projects for a
total of 25,000 shares. Payment is to be made at the completion of each
project. As of December 31, 2001 3,125 shares have been issued under
this agreement with a value of $4,900. This contract was also
terminated in 2001 and no further stock issuance will be required under
the agreement.
The Company has entered into a consulting agreement with an individual
for services. The agreement stipulates payment of 15,000 shares for
services from November 2000 to February 2001. As of December 31, 2001
71,380 shares had been issued under this agreement with a value of
$131,300.
In January 2001, the Company entered into a consulting agreement with
another corporation for media relations. This agreement stipulated for
the payment of 20,000 shares of common stock per month for the first
three months and 16,666 shares of stock per month for an additional six
months for payment of services. The corporation was also granted 30,000
stock options for the purchase of common stock at $1.00 per share for a
period of twelve months. As of December 31, 2001, 170,000 shares have
been issued with a value of $261,200.
-24-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE G - STOCK AND STOCK WARRANTS
The Company has two classes of capital stock: Preferred Stock and
Common Stock. Holders of common stock are entitled to one vote for each
share held. Preferred stock holders are not entitled to voting
privileges and are convertible into Common Stock under certain
circumstances on a share-for-share basis.
At December 31, 2001, the Company has 25,000,000 Common Shares
authorized and 23,375,200 shares issued and outstanding. The Company
had 5,000,000 Preferred Shares authorized and 1,055,600 issued and
outstanding.
In addition, the Company had outstanding at December 31, 2001,
1,772,223 warrants convertible into common shares at various prices
ranging from $0.34 to $7.50, with expirations dates through November
2006.
Weighted Average Weighted Average
Exercise Price Range Amount Contractual Life Exercise Price
-------------------- ------ ---------------- --------------
$0.01 - $0.34 100,000 33 months $0.34
$0.71 - $0.81 312,223 58 months $0.78
$5.25 - $6.00 90,000 35 months $5.96
$7.00 - $7.50 1,270,000 9 months $7.50
Reconciliation of stock warrants from December 31, 2000 to December 31,
2001 is as follows:
Balance at December 31, 2000 1,735,000
Warrants exercised (275,000)
Warrants issued 312,223
----------
Balance at December 31, 2001 1,772,223
---------
At December 31, 2001, the Company does not have enough common stock
reserved for the possible exercise of options and warrants which could
total:
Exercise of common stock warrants 1,772,223
Exercise of employee stock options 3,486,000
---------
5,258,223
---------
The Company intends to increase the authorized number of shares by
proxy of its shareholders subsequent to December 31, 2001.
-25-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE H - EARNINGS PER SHARE
Basic net earnings per share is computed using the weighted average
number of common shares outstanding. The dilutive effect of potential
common shares outstanding is included in diluted net earnings per
share. The computations of basic net earnings per share and diluted net
earnings per share for 2001 and 2000 are as follows:
2001 2000
---- ----
Net earnings (loss) from operations $(3,869,048) $(5,221,248)
----------- -----------
Basic weighted average shares 19,509,000 15,695,000
Effect of dilutive securities:
Common stock options 3,629,000 3,842,000
Common stock warrants 1,772,000 1,735,000
Convertible debt 360,000 437,000
Convertible preferred stock 1,056,000 0
----------- -----------
Dilutive potential common shares 26,326,000 21,709,000
----------- ----------
Net earnings (loss) per share from continuing operations:
Basic ($0.20) ($0.33)
Diluted ($0.15) ($0.24)
NOTE I - EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS
In March 1999, the Company's stockholders approved the Accesspoint
Corporation 1999 Stock Incentive Plan ("the Plan"), which superseded
and incorporated, in all respects, the Accesspoint Corporation 1997
Stock Option Plan. Under the Plan, incentive or non-statutory stock
options may be granted to employees, directors, and consultants. The
options, option prices, vesting provisions, dates of grant and number
of shares granted under the plans are determined primarily by the Board
of Directors or the committee authorized by the Board of Directors to
administer such plans. The Plan also permits payment for options
exercised in shares of the Company's common stock and the granting of
incentive stock options. The maximum number of shares of the Company's
common stock available for issuance under the Plan is six million
(6,000,000) shares. Proceeds received by the Company from exercise of
stock options are credited to common stock and additional-paid-in
capital. Additional information with respect to the Plan's stock option
activity is as follows:
-26-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE I - EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS (CONTINUED)
Number of Weighted Average
Shares Exercise Price
------------ ------------------
Outstanding at December 31, 1999 5,608,000 $ 1.20
Granted 118,000 $ 3.16
Exercised (9,000) $ .43
Canceled (1,875,000) $ 3.00
---------- ------------
Outstanding December 31, 2000 3,842,000 $ .81
Granted 264,000 $ .72
Exercised (1,000) $ .43
Cancelled (476,000) $ 2.50
----------- ------------
Outstanding at December 31, 2001 3,629,000 $ .59
---------- ------------
Options exercisable at December 31, 2000 3,384,000 $ .47
----------- -------------
Options exercisable at December 31, 2001 3,486,000 $ .55
----------- -------------
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2001:
Weighted Average
Number Remaining Years Weighted
Range of Outstanding of Contractual Average
Exercise Prices (Thousands) Life Exercise Price
--------------- ----------- ------------ --------------
$0.32-0.37 3,056,000 2.2 years $ 0.35
$0.43-0.88 315,000 2.1 years $ 0.35
$1.050-2.50 91,000 3.8 years $ 1.48
$3.12-5.56 167,000 2.9 years $ 4.62
----------- --------- --------
3,629,000 2.3 years $ 0.57
---------- --------- --------
Stock Options Exercisable at December 31, 2001:
Range of Number of Weighted
Exercise Shares Average
Prices Exercisable Exercise Price
--------- ----------- --------------
$0.32-0.37 3,056,000 $ .35
$0.43-0.88 291,000 $ .35
$3.12-5.56 139,000 $ 4.20
---------- --------
3,486,000 $ .50
---------- --------
-27-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDALTED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE I - EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS (CONTINUED)
The Company has elected to follow APB Opinion No. 25 (Accounting for
Stock Issued to Employees) in accounting for its employee stock
options. Accordingly, no compensation expense is recognized in the
Company's financial statements because the exercise price of the
Company's employee stock options equals the market price of the
Company's common stock on the date of grant. If under Financial
Accounting Standards Board Statement No. 123 (accounting for Stock
Based Compensation) the Company determined compensation costs based on
the fair value at the grant date for its stock options, net earnings
and earnings per share would have been reduced to the following pro
forma amounts:
2001 2000
---- ----
Net earnings (loss):
As reported $(3,869,048) $(5,221,248)
Pro forma $(4,172,954) $(5,660,782)
Basic earnings (loss) per share:
As reported ($0.20) ($0.33)
Pro forma ($0.21) ($0.36)
Diluted earnings (loss) per share:
As reported ($0.15) ($0.26)
Pro forma ($0.16) ($0.26)
The weighted average estimated fair value of stock options granted
during 2001 and 2000 was $0.084 and $0.12 per share, respectively.
These amounts were determined using the Black-Scholes option-pricing
model, which values options based on the stock price at the grant date,
the expected life of the option, the estimated volatility of the stock,
the expected dividend payments, and the risk-free interest rate over
the expected life of the option. The assumptions used in the
Black-Scholes model were as follows for stock options granted in 2001
and 2000:
2001 2000
---- ----
Risk-free interest rate 5.50% 6.20%
Expected volatility of stock 350% 370%
Dividend yield 0.0% 0.0%
Expected life of options 36 months 31 months
The Black-Scholes option valuation model was developed for estimating
the fair value of traded options that have no vesting restrictions and
are fully transferable. Because option valuation models require the use
of subjective assumptions, changes in these assumptions can materially
affect the fair value of the options, and the Company's options do not
have the characteristics of traded options, the option valuation models
do not necessarily provide a reliable measure of the fair value of its
options.
-28-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE J - DEBT
At December 31, 2001 and 2000, the Company had notes payable
outstanding in the aggregate amount of $1,414,658 and $1,487,194,
respectively. Payable as follows:
2001 2000
----------- ---------
Note payable to a trust of a related party,
interest at 12% per annum, due on demand $ 100,000 $ 100,000
Notes payable to a partnership, 10% per annum,
due December 6, 2002, to a related party 160,000 160,000
Note payable to a corporation, interest at 5%
per annum, due on demand 167,500 167,500
Note payable to an individual, interest at
5% per annum, due on demand 115,000 115,000
Various notes payable to a related party,
interest rates from 8% to 10% per annum,
due in 2002 119,000 0
Note payable to a corporation, interest at 8% per annum,
due October 16, 2001, convertible at the option of the
holder into common stock equal to the face value of the
note, currently in default, secured by $250,000 deposit of
the Company's 450,000 450,000
Capitalized lease obligations, interest at
varying rates, payments through May 2004 303,158 494,694
--------- ----------
1,414,658 1,487,194
Current portion 1,414,658 1,203,204
--------- ---------
Long-term portion $ 0 $ 283,990
--------- ---------
-29-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE K - SECURITES AGREEMENT
On October 16, 2000, the Company, in conjunction with a $450,000
convertible note (see Note I), issued a Callable Common Stock Warrant
and a Common Stock Warrant to another corporation.
The Callable Common Stock Warrant's term is from October 16, 2000 to
October 16, 2002 for the purchase of up to 1,200,000 shares of common
stock at $7.50 per share. The Company may elect to call this warrant at
any time for $.0001 per warrant share, or $120 for the entire warrant.
The Agreement required the Company to register the Warrants.
The Common Stock Warrant's term is from October 16, 2000 to October 16,
2005. This warrant allows the holder to purchase up to 70,000 shares of
common stock for 110% of the volume weighted average price per share on
the day prior to exercise.
The Company is currently in default under this agreement for repayment
of the loan on October 16, 2001. The Company is currently in
negotiations with the lender regarding this matter.
NOTE L - COMPENSATED ABSENCES
Employees can earn annual vacation leave at the rate of five (5) days
per year for the first year. Upon completion of the first year of
employment, employees can earn annual vacation leave at the rate of ten
(10) days per year for years two through seven. Upon completion of the
eighth year of employment, employees can earn annual vacation leave at
the rate of fifteen (15) days per year. At termination, employees are
paid for any accumulated annual vacation leave. As of December 31, 2001
and 2000 the total vacation liability totaled $73,466 and $51,441,
respectively.
NOTE M - RELATED PARTY TRANSACTIONS
Throughout the history of the Company, certain members of the Board of
Directors, members of the immediate family of management, and general
management have made loans to the Company to cover operating expenses
or operating deficiencies.
-30-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE N - INCOME TAXES
Total Federal and State income tax expense for the years ended December
31, 2001 and 2000 amounted to $2,400 and $2,400, respectively. These
represent the minimum annual tax liability under California tax code.
No future benefit for the realization of an operating loss
carry-forward, in the form of an asset, has been recognized due to the
ongoing nature of the losses and the potential inability for the
Company to ever realize their benefit. For the years ended December 31,
2001 and 2000, there is no difference between the federal statutory tax
rate and the effective tax rate. At years ended December 31, 2001 and
2000 the Company had available net operating loss carry-forwards of
approximately $10,900,000 and $7,010,000 respectively, after adjusting
for limitation, to be offset against future taxable income. The
operating loss carry forwards will expire at various dates through the
year 2015.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
deposits and accounts payable approximate their fair value because of
the short maturity of those instruments.
The carrying amounts of the Company's long-term debt and capital lease
obligations approximate their fair value because of the short maturity
and/or interest rates which are comparable to those currently available
to the Company on obligations with similar terms.
NOTE P - NET INTEGRATED SYSTEMS LTD.
On December 20, 2001 the Company entered into several agreements with
Net Integrated Systems Ltd. (NIS) in conjunction with a Five Million
Dollar ($5,000,000) Secured Revolving Line of Credit.
STOCK TRANSFER AGREEMENT - As partial inducement for NIS to enter into
the agreement three shareholders agreed to transfer ownership of
4,486,795 shares of common stock collectively owned by them to NIS.
STOCK OPTION AGREEMENT - In addition to the above shares, the same
three shareholders granted an option to NIS to purchase an additional
7,131,418 shares of common stock collectively owned by them at $2 per
share until December 14, 2006.
IRREVOCABLE VOTING PROXY - An irrevocable voting proxy was given to NIS
from the three shareholders on the 7,131,418 shares collectively owned
by them. The shareholders retain the right to vote on certain matters
including, but not limited to, liquidation of the Company, bankruptcy,
merger, reorganizations and disposition of Company assets. The Proxy
extends until the end of all other agreements.
-31-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE P - NET INTEGRATED SYSTEMS LTD. (CONTINUED)
PLEDGE AGREEMENT - As further collateral for the Revolving Line of
Credit certain shareholders agreed to Pledge 7,131,418 shares,
collectively owned by them, for the Secured Loan Agreement.
REVOLVING LINE OF CREDIT AND SECURED LOAN AGREEMENT - The Company
entered into a Revolving Line of Credit and related Secured Loan
Agreement with NIS which calls for the lender to make credit extension
advances when requested by the Company and its Board of Directors.
The terms of the Agreement are for credit advances not to exceed the
cumulative total principal sum of Five Million Dollars ($5,000,000) at
an interest rate of six percent (6%) per annum on the unpaid balance.
The note requires minimum monthly payments of interest only and is due
on December 14, 2006. At December 31, 2001 no advances had been
requested under this Agreement.
All assets of the Company and 7,131,418 shares of common stock of the
Company pledged under the above Pledge Agreement secure the Revolving
Line of Credit.
MANAGEMENT AGREEMENT - In connection with the above agreements the
Company entered into a Management Agreement with NIS to assist in the
day-to-day operations of the business. This includes, but is not
limited to, hiring and terminating personnel, enter into, modify or
terminate agreements and contracts, manage Company finances, compromise
debts and obligations, acquire assets and make investments. However,
the Board of Directors retain all rights to approve, disapprove and
oversee the activities of the Manager.
The terms of the agreement are for a monthly fee of $10,000, which
accrues until paid from current operating profits. The period is for
five years, early termination by the manager with ten days written
notice for any reason. Termination by the Company for any reason other
then cause shall require all accrued and unpaid sums to become due and
payable as well as the sum of One Million Dollars ($1,000,000).
After the effect of the above transactions NIS beneficially owns
11,618,213 shares of common stock, or approximately fifty percent (50%)
of the outstanding shares at December 31, 2001.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE Q - LITIGATION AND CONTINGENCIES
The Company is subject to various claims and legal proceedings covering
a wide range of matters that arise in the ordinary course of its
business activities. Management believes that any liability that may
ultimately result from the resolution of these matters will not have a
material adverse effect on the financial condition or results of
operations of the Company. Listed below are only those matters
considered to be material to the Company by management and its counsel.
CITICORP - During 2001 the Company vacated office facilities it had
leased under an operating lease agreement in Chicago, Illinois. The
lessor subsequently filed suit against the Company for the remaining
amount of unpaid rent and other various expenses. A judgment was filed
against the Company in the amount of $95,000. As of December 31, 2001
the Company has accrued for the liability in full on its Balance Sheet.
No payments have been made.
IRVINE - In February 2002, the Company vacated office space it had
leased under an operating lease agreement in Irvine, California. The
lessor subsequently filed a formal demand of payment for the remaining
amount of unpaid rent. The Company entered into a settlement agreement
with the lessor subsequent to December 31, 2001 in the amount of
$75,000 less a security deposit being held by lessor. The Company has
not paid this amount according to the terms of the agreement and is
currently in default. As of December 31, 2001 the Company has recorded
the full amount of the remaining payments due, less the security
deposit, due to the default of the above agreement. This amount is
approximately $20,000.
RUTTENBERG - During 2001 a former employee of the Company filed a
formal demand for payment of remaining salary under an employment
agreement, unreimbursed expenses and legal costs. In November 2001 the
Company entered into a settlement agreement, which required a total sum
of $44,500, be paid in $5,000 monthly installments. The Company is
currently in default under this agreement and has appropriately
recorded all original amounts demanded under a Stipulation for the
Entry of Judgment of $92,000, less payments that were made, as a
liability on the Balance Sheet as of December 31, 2001.
CAPITAL LEASES - As of December 31, 2001, and subsequently, the Company
has stopped making payments on all of its capital leases. Thus, under
the lease agreements, the Company is in default. This default
accelerates all future payments due and gives the lessor the right to
obtain the property.
The Company is currently in negotiations with all lessors for revised
terms for the remaining life of the leases. As of this date no new
terms have been finalized. None of the lessors have filed formal suits
or complaints with the court. The Company has appropriately recorded
all amounts due for the remaining life of the leases as a current
liability on its Balance Sheet at December 31, 2001.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINTUED)
DECEMBER 31, 2001 AND 2000
NOTE Q - LITIGATION AND CONTINGENCIES (CONTINUED)
ROYCAP - As of December 31, 2001 the Company was in default on its loan
agreement with Roycap for repayment of a $450,000 loan, plus accrued
interest, which was due on October 16, 2001. The Company is currently
in negotiations with the lender on new loan terms. The Company has
shown the $450,000 loan in its liabilities as well as all accrued
interest. In addition, the Company has accrued registration rights fees
of $108,000 related to this matter.
ACCOUNTS PAYABLE - The Company is currently in arrears in payments to
its vendors in the normal course of business. Management is currently
working on negotiating compromised amounts with all vendors. The
Company has recorded as a liability on its Balance Sheet the full value
of amounts owed to the vendors. When and if amounts are compromised, a
gain on forgiveness of debt will be recognized accordingly.
NOTE R - PAYROLL TAXES
The Company is currently in negotiations with the United States
Department of the Treasury, Internal Revenue Service (IRS) in regards
to unpaid employment taxes. The IRS has made formal demand of amounts
due and unpaid, including interest and penalties, from the Company, and
has appropriately filed tax liens against all assets of the Company.
The Company entered into installment agreements with the IRS and made
payments as required. The Company has hired independent accountants to
assist them in this matter and have filed a request for an "Offer and
Compromise" of all amounts owed by the Company. The IRS has recorded
the request and halted all payment requirements under the installment
agreements and any other collection activity until it has had time to
review the matter. As of the date of this report the IRS has not
responded to the Company.
The Company has always recorded its liability in full to the IRS,
including penalties and interest, on its Balance Sheet. At December 31,
2001 the approximate amounts owed by each Company is as follows:
Accesspoint $ 328,000
PSI 674,000
BSG 38,000
------------
$ 1,040,000
------------
The Company also owes unpaid employment taxes to the California
Employment Development Department (EDD). The Company has entered into
installment agreements with the EDD and has been making all required
payments. The Company has always recorded in full, including penalties
and interest, its liability to the EDD as a liability on its Balance
Sheet. At December 31, 2001 the remaining amount owed to the EDD is
approximately $51,000.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE S - DEFERRED FINANCING COSTS
In accordance with APB 21 and SAB 79 the Company has recorded a
deferred financing cost asset of $6,326,381. This amount is based on
the number of shares that three shareholders directly transferred to
Net Integrated Systems Ltd. (NIS) as an inducement for NIS to enter
into the Revolving Line of Credit Agreement (see note P).
This amount is calculated by multiplying the 4,486,795 shares
transferred by $1.41 per share. The share price represents the closing
market value of the Company's stock on December 20, 2001 reduced by a
ten percent (10%) discount due to the Rule 144 stock restrictions on
these shares.
The entry to record this transaction is to debit the deferred financing
cost asset and to credit additional paid in capital. The Company will
amortize the deferred financing cost over the life of the line of
credit, which is five years. For the year ended December 31, 2001 the
Company recorded amortization expense of $37,414.
NOTE T - SUBSEQUENT EVENTS
BENTLEY - In March 2002, a shareholder, former Officer and former
Director of the Company filed a suit against the Company and other
various officers, directors and entities. The suit contains eleven (11)
Causes of Action including: Breach of Contract, Misappropriation,
Unfair Competition, Unfair Business Practices and the imposition of a
Constructive Trust.
The Plaintiff is seeking undetermined compensatory damages and special
and resulting damages all to be determined at trial. Plaintiff is also
seeking a temporary and permanent injunction on various matters.
An Ex Parte hearing was held on March 22, 2002 at which time the Judge
did not grant the temporary or permanent injunctions that were being
sought and did not put a receiver in place as the plaintiff requested.
The parties have a hearing date set for April 18, 2002.
At this time it is not possible to determine the outcome of the case or
to quantify possible damages. No amounts have been recorded in the
financial statements regarding this matter. The Company does not
believe the causes have merit and intends to vigorously defend itself.
DJOKOVICH - In February 2002, Tom Djokovich resigned as Chief Executive
Officer of the Company, effective immediately. Mr. Djokovich gave up
his employment contract (see Commitments Note F), signed a mutual
release and relieved the Company from a payment of $267,000 in deferred
compensation and a related Promissory Note and Security Agreement.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001 AND 2000
NOTE T - SUBSEQUENT EVENTS (CONTINUED)
URCUYO - In January 2002 Alfred Urcuyo resigned as President of PSI,
effective immediately. Mr. Urcuyo gave up his employment contract (see
Commitments Note F) and released the Company from paying any amounts
owed to him for unreimbursed expenses. Mr. Urcuyo signed a Mutual
Release.
MULDER - In 2002, a former employee of the Company filed a claim for
payment of credit card debt he incurred on behalf of the Company to pay
expenses and various loans he states were made to the Company. These
items amount to approximately $65,000. The Company is currently in
negotiations with Mr. Mulder but has accrued as a liability on its
Balance Sheet at December 31, 2001 the full amount of $65,000.
PARISH - In 2002 a former Consultant of the Company has filed a claim
stating that he is owed 33,336 shares of common stock and 20,000
options to purchase shares of common stock at $5 per share, for
services rendered under a contract (see Commitments Note F). The
Company does not believe that this claim is valid under the contract
terms and intends to defend itself in this matter. No amounts have been
accrued.
VERVE - In 2002, a shareholder of the Company submitted a letter of
demand to recover their original investment of $40,000. No amounts have
been accrued for this item, as the Company does not intend to return
the amount invested.
MERCHANTWAREHOUSE.COM - In 2002, the Company terminated a firm as one
of its agents. The firm subsequently filed a formal demand claiming
improper termination of agency agreement, but has not specified any
damage claim at this time. The Company has not had time to respond to
the demand, however, it does not believe that allegations have any
merit. It is not possible at this time to determine the outcome of the
case or the possible loss due to the unspecified demand. No amounts
have been accrued in this matter.
SALE OF FIXED ASSETS - In March 2002 the Company sold various furniture
and fixtures from its Irvine facility after closing the office. The
majority of Fixed Assets were transferred to other Company facilities,
however there were some remaining items that were sold for $3,000. The
loss on the sale is immaterial to the Company as most assets had been
depreciated in value.
NOTE U - GOING CONCERN
The Company has suffered recurring losses, cash deficiencies, loan and
capital lease defaults, and current liabilities far in excess of
current assets. These issues raise substantial concern about its
ability to continue as a going concern.
Management has prepared the following statement in order to address
these and other concerns:
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE U - GOING CONCERN (CONTINUED)
The Company has made substantial investments in the development of
infrastructure to support its transaction processing and business
automation services. These investments in both fixed assets and
strategic banking agreements have provided the Company with expanded
revenue generating capabilities.
The investment in these assets during the Company's transition from a
third party software and web services provider to a primary provider of
financial transaction underwriting, processing and business management
services have in large part contributed to the Company's losses and
cash deficiencies.
The purpose of these investments was to develop infrastructure
necessary to position and prepare the Company and its wholly owned
subsidiary, Processing Source International, Inc. (PSI), so that
revenues could be generated as a primary processor and underwriter of
electronic financial transactions. As a result of these investments,
PSI became a member processor, under the sponsorship of Chase Manhattan
Bank, within the Visa/MasterCard association for the processing of card
transactions and the Company received sponsorship through First
National Bank of Omaha for the processing of electronic checks and
check conversion within the National Automated Clearing House
Association (NACHA) network.
Prior to achieving this goal in November 2000, the Company typically
generated revenues through the licensing of its business management and
transaction processing software technologies and the monthly service
fees for hosting these business applications. As of December 31, 2001,
the Company generates revenues through the aforementioned services.
In December 2001, the Company entered into a Management Agreement and
related Revolving Line of Credit Agreement (See Note P) for up to
$5,000,000. Hence, subsequent to December 31, 2001, the Company has
significantly reduced its overhead by closing two office facilities and
consolidating administrative and sales efforts. In addition, the
Company is currently renegotiating its lease commitments, notes payable
and accounts payable to further reduce its current liabilities and
improve its cash flow.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Los Angeles, State
of California, on the 18th day of July, 2002.
Dated: July 18, 2002 ACCESSPOINT ORPORATION
By: /s/ Marcia Allen
----------------------------
Marcia Allen,
President and Director
By: /s/ Christine Crocker
----------------------------
Christine Crocker,
Secretary and Director
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons in the capacities and on the dates
indicated:
Signature Title Date
---------------------- ---------------------- -------------------
/s/ Marcia Allen President & Director July 18, 2002
----------------------
Marcia Allen
/s/ Christine Crocker Secretary & Director July 18, 2002
----------------------
Christine Crocker
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