U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PUSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the QUARTERLY PERIOD ended SEPTEMBER 30, 2002
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
_____________________________________________
(Name of Small Business Issuer in its Charter)
Nevada 95-4721385
_______________________________ ___________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2533 N. Carson Street, Suite 5198
Carson City, Nevada 89706
________________________________________ __________
(Address of Principle Executive Offices) (Zip Code)
(310) 846-2500
________________________________________________
(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
The number of the Company's shares of Common Stock outstanding as of September
30, 2002 was 24,163,965.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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ACCESSPOINT CORPORATION
FORM 10-QSB QUARTERLY REPORT
AS OF AND FOR THE QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
Forward-Looking Statements
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB 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-QSB, 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 I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our reviewed consolidated financial statements for the periods ended
September 30, 2002 and September 30, 2001 are filed herewith.
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ACCESSPOINT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
TABLE OF CONTENTS
Independent Accountant's Report 5
Consolidated Balance Sheets 6
Consolidated Statements of Operations 7
Consolidated Statements of Cash Flow 8
Consolidated Statements of Changes in Stockholders' Equity 9
Notes to Consolidated Financial Statements 10
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INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
ACCESSPOINT CORPORATION
Los Angeles, California
We have reviewed the accompanying consolidated balance sheets of Accesspoint
Corporation and its subsidiaries ("the Company") as of September 30, 2002 and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the nine month periods ended September 30, 2002 and
2001. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of inquiries of persons responsible for
financial and accounting matters and analytical procedures applied to financial
data. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2001, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the year then ended (not presented
herein), and in our report dated April 4, 2002 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2001 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
As discussed in Note O, certain conditions indicate that the Company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the Company be unable to continue as a going concern.
November 4, 2002
Los Angeles, California
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ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30, December, 31
2002 2001
____________ ____________
Current Assets
Cash and cash equivalents $ 0 $ 78,229
Accounts receivable, net 444,383 255,873
Inventory 0 6,366
Other assets 359,578 0
Prepaid expenses 19,820 13,807
____________ ____________
Total Current Assets 823,781 354,275
____________ ____________
Fixed Assets
Furniture and equipment (net) 398,176 401,685
____________ ____________
Total Fixed Assets 398,176 401,685
____________ ____________
Other Assets
Deferred financing costs (net) 5,340,010 6,288,967
Intangible asset 154,667 0
Deposits 291,597 292,058
____________ ____________
Total Other Assets 5,786,274 6,581,025
____________ ____________
Total Assets $ 7,008,231 $ 7,336,985
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December, 31
2002 2001
____________ ____________
Current Liabilities
Accounts payable and accrued expenses $ 2,099,436 $ 1,467,688
Bank overdraft 140,237 0
Accrued payroll taxes and penalties 1,036,089 1,091,080
Accrued loss contingencies 158,033 338,233
Deferred compensation 0 221,477
Customer deposits 19,465 99,465
Line of credit 1,419,595 0
Current portion, capitalized leases 270,877 303,158
Current portion, notes payable 732,500 1,111,500
____________ ____________
Total Current Liabilities 5,876,232 4,632,601
Capital Lease obligations, net of current portion 0 0
Notes payable, net of current portion 0 0
____________ ____________
Total Liabilities 5,876,232 4,632,601
____________ ____________
Stockholders' Equity
Common stock, $.001 par value, 25,000,000
shares authorized, 24,163,965 and 23,375,208
issued and outstanding, respectively 24,164 23,375
Preferred Stock, $.001 par value, 5,000,000 shares
authorized, 1,055,600 shares issued
and outstanding, respectively 1,056 1,056
Additional paid in capital 14,977,251 14,418,900
Retained deficit (13,870,472) (11,738,947)
____________ ____________
Total Stockholders' Equity 1,131,999 2,704,384
____________ ____________
Total Liabilities and Stockholders' Equity $ 7,008,231 $ 7,336,985
============ ============
The accompanying notes are an integral part of these consolidated financial statements
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ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
_______________________________ ________________________________
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
_____________ _____________ _____________ _____________
Sales, net $ 4,025,465 $ 1,690,498 $10,436,498 $ 3,595,409
Cost of sales 3,377,684 950,185 8,431,244 1,716,086
___________ ___________ ___________ ___________
Gross profit 647,781 740,313 2,005,254 1,879,323
Selling expenses 14,563 85,573 9,518 303,785
General and administrative expenses 985,074 1,110,209 2,919,083 3,919,258
___________ ___________ ___________ ___________
Income (loss) from operations (351,856) (455,469) (923,347) (2,343,720)
___________ ___________ ___________ ___________
Other (Income) Expense
Interest income 0 (3,978) (13,254) (6,825)
Gain on sale of asset 0 0 (100,000) 0
Impairment loss 45,333 0 45,333 108,375
Bad debt expense 215,876 82,157 528,041 119,568
Miscellaneous (4,955) (9,216) (2,343) (9,325)
Litigation expenses (195,069) 0 (133,515) 0
Amortization of deferred financing costs 316,319 0 948,957 0
Debt forgiveness 0 (7,598) 0 (7,598)
Interest expense 43,579 22,523 154,036 132,411
___________ ___________ ___________ ___________
Total Other (Income) Expense 421,083 83,888 1,427,255 336,606
___________ ___________ ___________ ___________
Income (loss) before income taxes
and extraordinary items (772,939) (539,357) (2,350,602) (2,680,326)
Extraordinary items
Gain on forgiveness of deferred
compensation 0 0 (221,477) 0
___________ ___________ ___________ ___________
Income (loss) before income taxes (772,939) (539,357) (2,129,125) (2,680,326)
___________ ___________ ___________ ___________
Provision for income taxes 0 2,400 2,400 2,400
___________ ___________ ___________ ___________
Net income (loss) ($772,939) ($541,757) ($2,131,525) ($2,682,726)
=========== =========== =========== ===========
Net loss per share (basic and diluted)
Basic ($0.03) ($0.03) ($0.09) ($0.15)
Diluted ($0.03) ($0.02) ($0.07) ($0.11)
Weighted average number of shares
Basic 24,163,965 18,992,955 23,690,815 18,401,042
Diluted 30,747,706 26,377,178 30,274,556 25,516,100
The accompanying notes are an integral part of these consolidated financial statements
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ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
_______________________________
September 30, September 30,
2002 2001
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) ($2,131,525) ($2,682,726)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 948,957 0
Depreciation 169,675 247,211
Impairment loss 45,333 0
Services paid by stock issuance 0 393,703
Decrease (Increase) in receivables (188,510) (31,848)
Decrease (Increase) in inventory 6,366 (18,229)
Decrease (Increase) in other receivables (359,578) 10,185
Decrease (Increase) in prepaid expenses (6,013) 3,504
Decrease (Increase) in deposits 461 47,120
(Decrease) Increase in accounts payable
and accrued expenses 662,465 81,058
(Decrease) Increase in bank overdraft 140,237 0
(Decrease) Increase in accrued payroll taxes (54,991) 58,592
(Decrease) Increase in loss contingencies (180,200) 0
(Decrease) Increase in customer deposits (80,000) 113,428
(Decrease) Increase in deferred compensation (221,477) (2,500)
___________ ___________
Total Adjustments 882,725 902,224
___________ ___________
Net cash used in operations (1,248,800) (1,780,502)
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of portfolio (200,000) 0
Purchase of fixed assets (166,167) (56,653)
___________ ___________
Net cash used in investing activities (366,167) (56,653)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable 0 74,000
Payments on notes payable 0 0
Payments on capital leases (32,281) (140,976)
Line of credit 1,419,595 0
Sale of stock 149,424 1,954,547
___________ ___________
Net cash provided by financing activities 1,536,738 1,887,571
___________ ___________
Net change in cash and cash equivalents (78,229) 50,416
___________ ___________
Cash and cash equivalents at beginning of year 78,229 31,954
___________ ___________
Cash and cash equivalents at end of period $ 0 $ 82,370
=========== ===========
Supplemental cash flows disclosures:
Income tax payments $ 2,400 $ 2,400
___________ ___________
Interest payments $ 3,194 $ 73,806
___________ ___________
Non cash investing and financing activities:
Debt assumed by major shareholder $ 409,716 $ 0
Stock issued for services $ 0 $ 393,703
The accompanying notes are an integral part of these consolidated financial statements
-8-
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
September 30, December 31,
2002 2001
_____________ ____________
Retained (deficits)
Balance at beginning of period ($11,738,947) ($7,832,485)
Net income (loss) (2,131,525) (3,906,462)
___________ ___________
Balance at end of period (13,870,472) (11,738,947)
___________ ___________
Common stock, par value $.001 (thousands of shares)
Balance at beginning of period 23,375 16,558
Issuance of common stock 789 6,817
___________ ___________
Balance at end of period 24,164 23,375
___________ ___________
Preferred stock, $.001 par value (thousands of shares)
Balance at beginning of period 1,056 0
Issuance of preferred stock 0 1,056
___________ ___________
Balance at end of period 1,056 1,056
___________ ___________
Additional paid in capital
Balance at beginning of period 14,418,900 5,390,011
Issuance of common stock 148,635 2,702,508
Transfer of notes payable 409,716 0
Transfer of common stock 0 6,326,381
___________ ___________
Balance at end of period 14,977,251 14,418,900
___________ ___________
Total stockholders' equity at end of period $ 1,131,999 $ 2,704,384
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
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.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements have been prepared by Accesspoint
Corporation, ("Accesspoint" or the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") Form
10-QSB and Item 310 of regulation S-B, and generally accepted
accounting principles for interim financial reporting. These financial
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals)
necessary for a fair presentation of the balance sheets, operations
results, and cash flows for the periods presented. Operating results
for the nine months ended Se[timber 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2002, or any future period, due to seasonal and other
factors. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting policies have been omitted in accordance with the rules and
regulations of the SEC. These financial statements should be read in
conjunction with the audited consolidated financial statements and
accompanying notes, included in the Company's Annual Report for the
year ended December 31, 2001.
Revenues, expenses, assets and liabilities can vary during each quarter
of the year. Therefore, the results and trends in these interim
consolidated financial statements may not be the same as those for the
full year.
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,
licensing 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.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
INTANGIBLE ASSETS
The Company evaluates intangible assets for impairment on an annual
basis. If the estimated fair value based on generally accepted
valuation methods is less then the carrying value, an impairment loss
would be recorded to reduce the asset to its estimated fair value.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 September 30, 2002 and 2001,
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.
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.
-13-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE C - 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 September 30, 2002, the Company has 25,000,000 common shares
authorized and 24,163,965 shares issued and outstanding. The Company
had 5,000,000 preferred shares authorized and 1,055,600 shares issued
and outstanding.
At September 30, 2002, 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 1,752,223
Exercise of stock options 3,715,916
_________
5,468,139
The Company intends to increase the authorized number of shares by
proxy of its shareholders subsequent to September 30, 2002.
NOTE D - EARNINGS PER SHARE
Basic net earnings per share is computed using the weighted average
number of common shares outstanding during the year. 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 as of September 30, 2002 and
2001 are as follows:
September 30, September 30,
2002 2001
_____________ _____________
Net earnings (loss) from operations $(2,131,525) $(2,682,726)
___________ ___________
Basic weighted average shares 23,690,800 18,401,000
Effect of dilutive securities:
Common stock options 3,415,900 3,629,000
Common stock warrants 1,752,200 1,460,000
Convertible debt 360,000 360,000
Convertible preferred stock 1,055,600 1,666,100
Dilutive potential common shares 30,274,500 25,516,100
Net earnings(loss) per share from
continuing operations:
Basic ($0.09) ($0.15)
Diluted ($0.07) ($0.11)
-14-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE E - LINE OF CREDIT
As of September 30, 2002, the Company had net borrowings due of
$1,419,595 against a $5,000,000 line-of-credit that was established in
December 2001 with Net Integrated Systems Ltd. (NIS). The agreement
calls for minimum monthly payments of interest only at the rate of six
percent (6%) per annum. NIS is a related party, see Note N.
NOTE F - 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 September 30, 2002
the Company has accrued for the liability in full on its balance sheet.
No payments have been made to date.
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, to be paid in $5,000 monthly installments. The Company
defaulted on this agreement after making some payments leaving a
balance due of $37,500. The Company appropriately recorded all original
amounts demanded under a Stipulation for the Entry of Judgment of
$92,000, less payments that were made, due to the default.
In August 2002, the Company entered into a second settlement agreement
regarding the unpaid original balance from the first settlement
agreement. The terms stipulate that the unpaid balance is $37,500,
which is to be paid in monthly installments commencing in September
2002. The Company has adjusted its books to correctly reflect the
amount due under this agreement.
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. The Company renegotiated
and paid-off two capital leases in June 2002. The Company has
appropriately recorded all amounts due for the remaining capital leases
as a current liability on its balance sheet as of September 30, 2002.
ROYCAP - As of September 30, 2002, 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 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. In June 2002 Roycap filed formal
suit on its claim in Orange County Superior Court.
-15-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE F - LITIGATION AND CONTINGENCIES (CONTINUED)
BENTLEY, DJOKOVICH - In March 2002, a shareholder of the Company, James
M. Bentley 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.
On June 26, 2002, all parties entered into a settlement agreement. The
substantive part of the agreement changes the term for releasing shares
held by NIS pursuant to proxy rights (under a separate agreement
entered into in December 2001) which are owned by Bentley and
Djokovich, requires Djokovich to transfer to NIS 2,605,257 shares of
stock of the Company and options to purchase an additional 2,000,000
shares of stock of the Company, provides for NIS's assumption of
approximately $409,000 in short-term loans owed to James W. Bentley by
the Company and requires the Company to pay up to $60,000 of Bentley's
legal fees by March 31, 2003. Djokovich's shares are to be held in
escrow as collateral until the above short-term loans are repaid.
According to the above terms of the settlement agreement the Company
has removed the $409,000 liability from its books and, accordingly, has
recorded an increase in additional-paid-in-capital of $409,000. See
related party transactions Note M.
DJOKOVICH - In February 2002, Mr. Djokovich resigned as Chief Executive
Officer of the Company. Mr. Djokovich gave up his employment contract,
signed a mutual release and relieved the Company from paying deferred
compensation owed to him and a related Promissory Note and Security
Agreement. In June 2002, Mr. Djokovich resigned from the Board of
Directors as part of the above settlement agreement.
URCUYO - In January 2002, Alfred Urcuyo resigned as President of PSI.
Mr. Urcuyo gave up his employment contract 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 filed a claim with the Company for
payment of credit card debt he incurred on behalf of the Company and to
pay expenses and various loans he states were made to the Company.
These items amount to approximately $65,000 and are recorded in the
financial statements as a current liability.
In October 2002, Mr. Mulder filed a complaint in the Orange County
Superior Court alleging breach of written and oral contracts and
claiming damages of $430,250 plus attorney fees. Management intends to
vigorously defend itself against this claim and believes that the
$65,000 previously accrued is adequate. See subsequent events Note L.
PARISH - In 2002, a former Consultant of the Company 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 with the Company. The Company does
not believe that this claim is valid under the contract terms and
intends to defend itself in this matter. No action has been filed and
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. In July 2002
the Company settled with the shareholder and agreed to issue 40,000 new
shares of restricted stock and 60,000 warrants to purchase additional
stock at $1 per share, exercisable in three years, to settle their
demand. As of November 4, 2002 these shares and warrants have not been
issued by the Company.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE F - LITIGATION AND CONTINGENCIES (CONTINUED)
MERCHANTWAREHOUSE.COM - In April 2002, a former agent of the Company
initiated arbitration against the Company. The firm is claiming
improper termination of its agency agreement and has requested
$1,000,000. The Company intends to defend the claim vigorously. It is
not possible at this time to determine the outcome of the case or the
possible loss, but management does not believe that the outcome will
have a material adverse effect on the Company. No amounts have been
accrued in this matter.
BIGGOTT - On May 29, 2002, Mr. Biggott filed a lawsuit against various
entities including the Company, charging them with wrongfully
terminating his employment with an unrelated company, and with unfair
competition, negligence, intentional interference with prospective
economic advantage and unfair business practices in connection with the
use of a certain product. Mr. Biggott claims $400,000 in actual damages
plus interest and attorney fees. The action alleges that the Company is
the alter ego of the other entities named and is therefore liable for
their alleged wrongdoing. The Company denies the allegations and any
wrongdoing and intends to vigorously defend the action. No amounts have
been accrued in the financial statements.
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 G - 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 has filed a request for an "Offer in
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. The Company has requested that the IRS look at
Accesspoint Corporation and its Subsidiaries as one unit for terms of
the Offer in Compromise. As of the date of this report the IRS has
responded to the Company and is reviewing its offer and request to be
treated as one unit.
-17-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE G - PAYROLL TAXES (CONTINUED)
The Company has always recorded its liability in full to the IRS,
including penalties and interest, on its balance sheet. As of September
30, 2002, the Company has accrued liability of approximately $1,028,700
to the IRS.
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. As of September 30, 2002, the Company has accrued liability of
approximately $51,200 to the EDD.
NOTE H - EXTRAORDINARY INCOME
In February 2002, Tom Djokovich, former President of the Company,
signed a release as part of his termination of employment (see Note F),
relieving the Company from paying his deferred compensation. This
amount totaled $221,477. The Company reduced the liability recorded on
its books and recorded extraordinary income for the total amount.
NOTE I - PORTFOLIO PURCHASE
On February 25, 2002, the Company purchased a portfolio of residual
compensation identified as a merchant base held by Chase Merchant
Services from another corporation. The purchase price was $500,000,
payable in installments starting February 27, 2002 and ending November
25, 2002.
In July 2002, the terms of the purchase agreement were amended changing
the purchase price to $200,000 to more accurately reflect the residual
compensation revenue stream purchased. The Company has recorded the
purchase as an intangible asset on its books and in accordance with FAS
142 "Goodwill and Other Intangible Assets" has subsequently written
down the purchase price to its current estimated fair value of
$154,700.
NOTE J - PORTFOLIO SALE
On June 10, 2002, the Company sold to another corporation a residual
compensation stream, identified as a merchant base held with Chase
Merchant Services, for $101,250. The Company received $75,000 in June,
2002 and received the remaining $26,250 in August 2002.
NOTE K - COMMITMENTS
In August 2002, the Company entered into an operating lease agreement
for office facilities. The lease commences on October 1, 2002 and
terminates on March 30, 2011. The basic terms of the lease require
payments of $12,289 per month for the first year. Every year thereafter
the rent increases by approximately $550 per month. See Subsequent
Events Note L and Related Party Transactions Note N.
-18-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE L - SUBSEQUENT EVENTS
In October 2002, a former employee filed a claim in Orange County
Superior Court for alleged damages of $430,250. Please see Litigation
and Contingencies Note F.
In October 2002, the Company entered into a Support Services Agreement
with Merchants Billing Services, Inc. (MBS) (a related party). The
terms of the agreement contracts MBS as the exclusive provider of
underwriting, customer, technical and administrative support services.
MBS agrees to provide all above services at its cost and is granted the
right to use the Company's fixed assets, at no charge, as they are
needed. The term of the agreement is for five years, with annual
renewal clauses.
In November 2002, the Company assigned its rights under an operating
lease (See Commitments Note K) for office facilities to Merchant
Billing Services, Inc. See Related Party Transactions, Note N.
NOTE M - 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.
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 is
amortizing the deferred financing cost over the life of the line of
credit, which is five years. For the nine months ended September 30,
2002 the Company recorded amortization expense of $948,957.
NOTE N - RELATED PARTY TRANSACTIONS
As of September, 30, 2002, the following related party relationships
existed between the Company, its shareholders, officers and directors:
Ameropa Ltd. serves as the agent for payment of funds against the line
of credit which has been established with Net Integrated Systems Ltd.
(NIS). Additionally, Ameropa provides cash management, liquidity and a
source of financing for the Company. On a daily basis, all cash
balances in bank accounts held by the Company, and its subsidiaries,
are transferred to Ameropa. Ameropa transfers funds back to the
operating accounts of the Company as items are presented for payment
against its accounts. Due the inability of the Company to access or
establish credit with vendors, leasing organizations or potential
customers, Ameropa and its related entities, pay standard operating
expenses on behalf of the Company and then invoice the Company for the
goods or services paid on its behalf. There were a total of 166 cash
management and operating expense transactions between the two companies
for the nine months ended September 30, 2002. As of September 30, 2002,
Ameropa has provided a total of $1,419,595. The financing calls for
minimum monthly payments of interest only, at the rate of six percent
(6%) per annum. As of September 30, 2002, unpaid accrued interest
totaled $26,544. Ameropa Ltd. is a Bahamian registered foreign
corporation. Ameropa Ltd.'s majority owner is Mr. William Barber, a
major stockholder in Net Integrated Systems Ltd. and Merchants Billing
Services, Inc. (see below) and the current CEO of Accesspoint
Corporation.
-19-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
NOTE N - RELATED PARTY TRANSACTIONS (CONTINUED)
Merchants Billing Services, Inc. ("MBS"), a Nevada "C" corporation, has
provided the Company with a source of liquidity by paying operating
expenses on the Company's behalf. MBS is majority owned by Mr. William
Barber, a major stockholder of NIS and Ameropa Ltd. and the current CEO
of Accesspoint Corporation. As of September 30, 2002, approximately
$86,900 is owed to MBS for rent payments advanced on behalf of the
Company and a $73,375 standby letter of credit issued by MBS for the
benefit of the lessor on behalf of the Company.
On June 26, 2002, a Settlement Agreement and Mutual Release was reached
between Mr. Djokovich, former President and CEO of Accesspoint
Corporation, James M. Bentley, former member of the Board of Directors,
the Bentley Family Trusts et al and the Company, its officers and
employees. The substantive part of the agreement changes the term for
releasing shares held by NIS pursuant to proxy rights (under a separate
agreement entered into in December 2001) which are owned by Bentley et
al and Mr. Djokovich, requires Mr. Djokovich to transfer to NIS
2,605,257 shares of stock of the Company and options to purchase an
additional 2,000,000 shares of stock of the Company, provides for NIS's
assumption of approximately $409,000 in short-term loans owed to James
W. Bentley by the Company and requires the Company to pay up to $60,000
of Bentley's legal fees by March 31, 2003. Mr. Djokovich's shares are
to be held in escrow as collateral until the above short-term loans are
repaid.
NOTE O - GOING CONCERN
The Company has suffered recurring losses, cash deficiencies, loan and
capital lease defaults, and current liabilities far in excess of
current assets. Additionally, the Company has payroll tax liabilities
from prior years in excess of $1,000,000. 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:
The Company has made substantial investments and significant changes in
the development of the infrastructure which supports its transaction
processing software and business automation services. The Company has
restructured its risk management procedures, retained a Visa/MasterCard
consultancy group to ensure regulation compliance, streamlined its
merchant approval process to increase the success rate of boarding
approved merchants, reassessed merchant pricing and terms to increase
profitability and decrease risk, and sharpened its focus on merchant
customer service. These changes have stabilized the Company's monthly
recurring residual income stream by 48% and increased gross credit card
processing revenue by 50%.
In the first two quarters of 2002, the Company significantly reduced
its overhead by closing two office facilities and consolidating
administrative and sales efforts. In addition, the Company has
negotiated its lease commitments to reduce its monthly space rental by
$11,000. To address its ongoing tax issue, the Company has retained an
experienced and respected tax attorney to present an offer in
compromise with the IRS regarding its payroll tax liabilities. The
attorney has advised the Company that significant progress has been
achieved regarding the IRS debt.
As noted previously, in December 2001, the Company entered into a
Management Agreement and related Revolving Line of Credit Agreement for
up to $5,000,000. The Company has used approximately $1,500,000 of this
credit facility as of September 30, 2002.
-20-
ITEM 2. 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 REPORT, AND THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE THEM.
A. 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 and ACH 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.
B. RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2002 Compared With Three and Nine
Months Ended September 30, 2001
Revenues for the three and nine months ended September 30, 2002 increased
to $4,025,465 and $10,436,498 from $1,690,498 and $3,595,409 for the three and
nine months ended September 30, 2001. The increases of $2,334,967 and
$6,841,089, or 138% and 190%, respectively, are due primarily to our increased
revenues associated with credit card processing which resulted in an overall
increase in sales.
Cost of sales for the three and nine months ended September 30, 2002
increased to $3,377,684 and $8,431,244 from $950,185 and $1,716,086 for the
three and nine months ended September 30, 2001. The increases of $2,427,499 and
$6,715,158, or255% and 391%, respectively, 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 three and nine months ended
September 30, 2002 decreased to $14,563 and $9,518 from $85,573 and $303,785 for
the three and nine months ended September 30, 2001. These decreases of $71,010
and $294,267, or 83% and 96%, respectively, resulted primarily from the
reduction of 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 three and nine months ended
September 30, 2002 decreased to $985,074 and $2,919,083 from $1,110,209 and
$3,919,258 for the three and nine months ended September 30, 2001. The decrease
of $125,135 and $1,000,175 or 11% and 31% respectively, 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 three and nine months ended September 30,
2002 was $43,579 and $154,036, as compared to $22,523 and $132,411 for the three
and nine months ended September 30, 2001. The increases of $21,056 and $21,625,
or 93% and 16%, respectively, resulted primarily from the Company's static cost
of debt.
Other (Income) Expense, net of Interest expense was $377,504 and $1,273,219
for the three and nine months ended September 30, 2002, as compared to $61,365
and $234,195 for the three and nine months ended September 30, 2001. These
-21-
increases of $316,139 and $1,039,024, or 515% and 444%, respectively, resulted
primarily from the increases of amortization of deferred financing costs and bad
debt expense for the three and nine months ended September 30, 2002, as compared
to the three and nine months ended September 30, 2001.
Net losses for the three and nine months ended September 30, 2002 were
$(772,939) and $(2,131,525), as compared to $(541,757) and $(2,682,726) for the
three and nine months ended September 30, 2001. The difference in loss of
$231,182 and $(551,201), or 43% and (21%), respectively, were primarily related
to increased revenues and a reduction of development-related activities.
C. LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2002 were $(140,237), compared
to $78,229 at September 30, 2001, a decrease of $(218,466), which represented a
decline of 279%.
Net Cash used in operations decreased from $1,780,502 for the nine months
ended September 30, 2001 to $1,248,800 for the nine months ended September 30,
2002 or a resulted efficiency in cash of $531,702 or 43%. This efficiency was
primarily accomplished by increased effectiveness in operations.
Net Cash used in investing activities increased from $56,653 as of
September 30, 2001 to $366,167 as of September 30, 2002. This increase of
$309,514, or 546%, was primarily due to the purchase of a portfolio of residual
compensation, which purchase was subsequently rescinded (see Note I, Portfolio
Purchase, attached as a part of the financial statements prepared by our
auditors filed herewith and incorporated hereby).
During the nine months ended September 30, 2002, the Company generated net
cash of $1,536,738 from financing activities as compared to $1,887,571 for the
nine months ended September 30, 2001. The decrease of $350,833, or 19%, resulted
from a decrease in private placement fundraising activities.
We had, at September 30, 2002, 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.
D. NET OPERATING LOSS
For federal income tax purposes, we have net operating loss carryforwards
of approximately $10,760,000 as of September 30, 2002 and $7,010,000, as of
September 30, 2001. 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").
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
-22-
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 September 30, 2002, the Company has accrued for the liability in
full on its balance sheet. No payments have been made to date.
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, to be paid in $5,000 monthly
installments. The Company defaulted on this agreement after making some payments
leaving a balance due of $37,500. The Company appropriately recorded all
original amounts demanded under a Stipulation for the Entry of Judgment of
$92,000, less payments that were made, due to the default.
In August 2002, the Company entered into a second settlement agreement
regarding the unpaid original balance from the first settlement agreement. The
terms stipulate that the unpaid balance is $37,500, which is to be paid in
monthly installments commencing in September 2002. The Company has adjusted its
books to correctly reflect the amount due under this agreement.
ROYCAP - As of September 30, 2002, 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 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. In June
2002 Roycap filed formal suit on its claim in Orange County Superior Court.
BENTLEY, DJOKOVICH - In March 2002, a shareholder of the Company, James M.
Bentley 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.
On June 26, 2002, all parties entered into a settlement agreement. The
substantive part of the agreement changes the term for releasing shares held by
NIS pursuant to proxy rights (under a separate agreement entered into in
December 2001) which are owned by Bentley and Djokovich, requires Djokovich to
transfer to NIS 2,605,257 shares of stock of the Company and options to purchase
an additional 2,000,000 shares of stock of the Company, provides for NIS's
assumption of approximately $409,000 in short-term loans owed to James W.
Bentley by the Company and requires the Company to pay up to $60,000 of
Bentley's legal fees by March 31, 2003. Djokovich's shares are to be held in
escrow as collateral until the above short-term loans are repaid.
According to the above terms of the settlement agreement the Company has
removed the $409,000 liability from its books and, accordingly, has recorded an
increase in additional-paid-in-capital of $409,000. See related party
transactions Note M.
MULDER - In 2002, a former employee filed a claim with the Company for payment
of credit card debt he incurred on behalf of the Company and to pay expenses and
various loans he states were made to the Company. These items amount to
approximately $65,000 and are recorded in the financial statements as a current
liability.
In October 2002, Mr. Mulder filed a complaint in the Orange County Superior
Court alleging breach of written and oral contracts and claiming damages of
$430,250 plus attorney fees. Management intends to vigorously defend itself
against this claim and believes that the $65,000 previously accrued is adequate.
See subsequent events Note L.
PARISH - In 2002, a former Consultant of the Company 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 with the
Company. The Company does not believe that this claim is valid under the
contract terms and intends to defend itself in this matter. No action has been
filed and no amounts have been accrued.
-23-
VERVE - In 2002, a shareholder of the Company submitted a letter of demand to
recover their original investment of $40,000. In July 2002 the Company settled
with the shareholder and agreed to issue 40,000 new shares of restricted stock
and 60,000 warrants to purchase additional stock at $1 per share, exercisable in
three years, to settle their demand. As of November 4, 2002 these shares and
warrants have not been issued by the Company.
MERCHANTWAREHOUSE.COM - In April 2002, a former agent of the Company initiated
arbitration against the Company. The firm is claiming improper termination of
its agency agreement and has requested $1,000,000. The Company intends to defend
the claim vigorously. It is not possible at this time to determine the outcome
of the case or the possible loss, but management does not believe that the
outcome will have a material adverse effect on the Company. No amounts have been
accrued in this matter.
BIGGOTT - On May 29, 2002, Mr. Biggott filed a lawsuit against various entities
including the Company, charging them with wrongfully terminating his employment
with an unrelated company, and with unfair competition, negligence, intentional
interference with prospective economic advantage and unfair business practices
in connection with the use of a certain product. Mr. Biggott claims $400,000 in
actual damages plus interest and attorney fees. The action alleges that the
Company is the alter ego of the other entities named and is therefore liable for
their alleged wrongdoing. The Company denies the allegations and any wrongdoing
and intends to vigorously defend the action. No amounts have been accrued in the
financial statements.
For a more detailed discussion of Legal Proceedings, please refer to Note
F, Litigation and Contingencies, attached as a part of the financial statements
prepared by our auditors filed herewith and incorporated hereby.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
2002.
ITEM 5. OTHER INFORMATION
Mr. Eric J. Odegard was terminated as President of Processing Source
International, Inc. effective October 31, 2002 due to the elimination of his
position, and he has since been removed from the Accesspoint Corporation Board
of Directors. Mr. William R. Barber was elected Chief Executive Officer of
Accesspoint Corporation by unanimous decision of the Board of Directors on
November 4, 2002. In addition, Mr. Barber has been appointed to fill the vacancy
on the Board of Directors. Mr. Barber is the majority shareholder of Ameropa
Ltd. and Merchants Billing Services, Inc. and holds a major equity position in
Net Integrated Systems Ltd.
In October 2002, Processing Source International, Inc. entered into a
Support Services Agreement with Merchants Billing Services, Inc. whereby MBS was
contracted to be the exclusive provider of underwriting, customer, technical and
administrative support services for PSI. MBS has agreed to provide these
services at its cost and is granted the right to use the Company's fixed assets,
at no charge, as they are needed. The term of the agreement is for five years,
with annual renewal clauses.
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In November 2002, the Company assigned its rights under an operating lease
for office facilities in Los Angeles, California to Merchants Billing Services,
Inc. As of the date of this filing, Accesspoint has consolidated its corporate
and operational offices and moved them to Carson City, Nevada.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The following Exhibits are incorporated herein by reference or are filed
with this report as indicated below.
Exhibit No. Description
___________ ___________
9.0 **Form of Irrevocable Voting Proxy in favor of Net Integrated
Systems, Ltd.
10.37 **Form of Stock Transfer Letter between shareholder and Net
Integrated Systems, Ltd.
10.38 **Form of Stock Option Agreement between shareholder and Net
Integrated Systems, Ltd.
10.39 **Form of First Amendment to Stock Option Agreement between
shareholder and Net Integrated Systems, Ltd.
10.40 **Form of Stock Pledge Agreement between shareholder and Net
Integrated Systems, Ltd.
10.41 **Management Agreement between Accesspoint Corporation,
Processing Source International, Inc. and Net Integrated
Systems, Ltd.
10.42 **Revolving Line of Credit Agreement
10.43 **Secured Loan Agreement
10.44 *** Merchant Portfolio Purchase Agreement between Processing
Source International, Inc. and Northwest Systems, LLC
21.00 *List of Subsidiaries
99.1 Certification-CEO
99.2 Certification-CFO
* Incorporated by reference from the exhibit to the Annual Report on Form
10-KSB filed by us on April 16, 2001
** Incorporated by reference from the exhibit to the Current Report on
Form 8-K filed by us on January 14, 2002
*** Incorporated by reference from the exhibit to the Second Amended
Quarterly Report on Form 10-QSB filed by us on August 2, 2002
B. REPORTS ON FORM 8-K
None.
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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 November, 2002.
Dated: November 18, 2002 ACCESSPOINT CORPORATION
By: /s/ WILLIAM R. BARBER
__________________________
William R. Barber,
Chief Executive Officer and
Chief Financial Officer
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/ WILLIAM R. BARBER CEO, CFO & Director November 18, 2002
______________________
William R. Barber
/s/ CHRISTINE CROCKER Secretary November 18, 2002
______________________
Christine Crocker
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ACCESSPOINT CORPORATION
I, WILLIAM R. BARBER, certify that:
_________________
1. I have reviewed this quarterly report on Form 10-QSB of Accesspoint
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "EVALUATION DATE"); and
_______________
c.) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a.) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATED: NOVEMBER 18, 2002 ACCESSPOINT CORPORATION
_________________________ __________________________________________
(Registrant)
/s/ WILLIAM R. BARBER
__________________________________________
William R. Barber
Chief Executive Officer
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ACCESSPOINT CORPORATION
I, WILLIAM R. BARBER, certify that:
_________________
1. I have reviewed this quarterly report on Form 10-QSB of Accesspoint
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "EVALUATION DATE"); and
_______________
c.) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a.) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATED: NOVEMBER 18, 2002 ACCESSPOINT CORPORATION
_________________________ __________________________________________
(Registrant)
/s/ WILLIAM R. BARBER
__________________________________________
William R. Barber
Chief Financial Officer
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