U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PUSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] For the QUARTERLY PERIOD ended MARCH 31, 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 Incorporation or (I.R.S. Employer
Organization) Identification No.)
21031 Ventura Boulevard, Suite 200
Woodland Hills, California 91364
________________________________________________________________________________
(Address of Principle Executive Offices) (Zip Code)
(818) 737-3232
_____________________________________________________________
(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 March 31,
2002 was 23,533,271.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
ACCESSPOINT CORPORATION
FORM 10-QSB QUARTERLY REPORT
AS OF AND FOR THE QUARTER ENDED MARCH 31, 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
-2-
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 March
31, 2002 and March 31, 2001 are filed herewith.
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ACCESSPOINT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
TABLE OF CONTENTS
Independent Accountant's Report 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flow 5
Consolidated Statements of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
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INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Accesspoint Corporation
Los Angeles, California
Members of the Board:
We have reviewed the accompanying consolidated balance sheet of Accesspoint
Corporation and its subsidiaries ("the Company") as of March 31, 2002 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the three month periods ended March 31, 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.
May 16, 2002
Los Angeles, California
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ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
March 31, December, 31
2002 2001
____________ ____________
Current Assets
Cash and cash equivalents $ 154,528 $ 78,229
Accounts receivable, net 293,673 255,873
Inventory 8,404 6,366
Other receivables 0 0
Prepaid expenses 13,034 13,807
____________ ____________
Total Current Assets 469,639 354,275
____________ ____________
Fixed Assets
Furniture and equipment (net) 332,994 401,685
____________ ____________
Total Fixed Assets 332,994 401,685
____________ ____________
Other Assets
Deposits 291,597 292,058
____________ ____________
Total Other Assets 291,597 292,058
____________ ____________
Total Assets $ 1,094,230 $1,048,018
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December, 31
2002 2001
____________ ____________
Current Liabilities
Accounts payable and accrued expenses $ 1,669,628 $ 1,467,688
Accrued payroll taxes and penalties 959,434 1,091,080
Accrued loss contingencies 373,233 338,233
Deferred compensation 0 221,477
Customer deposits 99,465 99,465
Line of credit 485,953 0
Current portion, capitalized leases 289,941 303,158
Current portion, notes payable 1,110,250 1,111,500
____________ ____________
Total Current Liabilities 4,987,904 4,632,601
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Capital Lease obligations, net of current portion 0 0
Notes payable, net of current portion 0 0
____________ ____________
Total Liabilities 4,987,904 4,632,601
____________ ____________
Stockholders' Equity
Common stock, $.001 par value, 25,000,000
shares authorized, 23,533,271 and 23,375,208
issued and outstanding, respectively 23,533 23,375
Preferred Stock, no par value, 5,000,000 shares
authorized, and 1,055,600 shares issued
and outstanding 1,056 1,056
Additional paid in capital 8,148,869 8,092,519
Retained deficit (12,067,132) (11,701,533)
____________ ____________
Total Stockholders' Equity (3,893,674) (3,584,583)
____________ ____________
Total Liabilities and Stockholders' Equity $ 1,094,230 $ 1,048,018
============ ============
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
March 31, March 31,
2002 2001
____________ ____________
Sales, net $ 2,981,487 $ 899,188
Cost of sales 2,325,210 253,169
____________ ____________
Gross profit 656,277 646,019
Selling expenses 0 50,150
General and administrative expenses 1,050,495 1,626,518
____________ ____________
Income (loss) from operations (394,218) (1,030,649)
____________ ____________
Other (Income) Expense
Interest income (3,964) (16)
Penalties 295 71,976
Bad debt expense 142,766 23,612
Interest expense 51,361 55,222
____________ ____________
Total Other (Income) Expense 190,458 150,794
____________ ____________
Income (loss) before income taxes
and extraordinary items (584,676) (1,181,443)
Extraordinary items
Gain on forgiveness of deferred compensation 221,477 0
____________ ____________
Total extraordinary income 221,477 0
____________ ____________
Income (loss) before income taxes (363,199) (1,181,443)
____________ ____________
Provision for income taxes 2,400 4,500
____________ ____________
Net income (loss) $ (365,599) $ (1,185,943)
============ ============
-8-
Net loss per share (basic and diluted)
Basic $ (0.02) $ (0.07)
Diluted $ (0.01) $ (0.06)
Weighted average number of shares
Basic 23,454,240 17,149,449
Diluted 30,271,240 20,778,449
The accompanying notes are an integral part of these consolidated financial statements
-9-
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31, March 31,
2002 2001
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (365,599) $ (1,185,943)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 83,785 80,981
Gain on forgiveness of deferred compensation (221,477) 0
Decrease (Increase) in receivables (37,800) (54,496)
Decrease (Increase) in inventory (2,038) 1,271
Decrease (Increase) in other receivables 0 2,196
Decrease (Increase) in prepaid expenses 773 (6,365)
Decrease (Increase) in deposits 461 47,121
(Decrease) Increase in accounts payable
and accrued expenses 201,940 91,520
(Decrease) Increase in accrued payroll taxes (131,646) 135,221
(Decrease) Increase in accrued loss contingencies 35,000 0
(Decrease) Increase in deferred compensation 0 (2,500)
____________ ____________
Total Adjustments (71,002) 294,949
____________ ____________
Net cash used in operations (436,601) (890,994)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (15,095) (35,392)
____________ ____________
Net cash used in investing activities (15,095) (35,392)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of notes payable 485,953 0
Payments on notes payable (1,250) 0
Payments on capital leases (13,217) (48,954)
Sale of stock 56,509 1,072,155
____________ ____________
Net cash provided by financing activities 527,995 1,023,201
____________ ____________
Net change in cash and cash equivalents 76,299 96,815
____________ ____________
-10-
Cash and cash equivalents at beginning of year 78,229 31,954
____________ ____________
Cash and cash equivalents at end of year $ 154,528 $ 128,769
============ ============
Supplemental cash flows disclosures:
Income tax payments $ 2,400 $ 0
____________ ____________
Interest payments $ 1,022 $ 28,661
____________ ____________
The accompanying notes are an integral part of these consolidated financial statements
-11-
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
March 31, December, 31
2002 2001
____________ ____________
Retained (deficits)
Balance at beginning of period ($11,701,533) ($7,832,485)
Net income (loss) (365,599) (3,869,048)
____________ ____________
Balance at end of period (12,067,132) (11,701,533)
____________ ____________
Common stock, par value $.001 (thousands of shares)
Balance at beginning of period 23,375 16,558
Common stock issued 158 6,817
____________ ____________
Balance at end of period 23,533 23,375
____________ ____________
Preferred stock, no par value (thousands of shares)
Balance at beginning of period 1,056 0
Preferred stock issued 0 1,056
____________ ____________
Balance at end of period 1,056 1,056
____________ ____________
Additional paid in capital
Balance at beginning of period 8,092,519 5,390,011
Sale of common stock 56,350 2,702,508
____________ ____________
Balance at end of period 8,148,869 8,092,519
____________ ____________
Total stockholders' equity at end of period ($3,893,674) ($3,584,583)
============ ============
The accompanying notes are an integral part of these consolidated financial statements
-12-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2002, 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 fees. 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
MSP (Merchant Service Provider) marketplaces 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 that enter the
program.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three months ended March 31, 2002 and 2001 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,
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.
-14-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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.
-15-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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.
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.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2002, the Company has 25,000,000 Common Shares authorized
and 23,533,300 shares issued and outstanding. The Company had 5,000,000
Preferred Shares authorized and 1,055,600 issued and outstanding.
At March 31, 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 1,772,223
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 March 31, 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 March 31, 2002 and 2001
are as follows:
March 31, March 31,
2002 2001
_________ _________
Net earnings (loss) from operations $( 365,599) $(1,185,943)
___________ ___________
Basic weighted average shares 23,454,240 17,149,449
Effect of dilutive securities:
Common stock options 3,629,000 3,629,000
Common stock warrants 1,772,000 0
Convertible debt 360,000 0
Convertible preferred stock 1,056,000 0
___________ ____________
Dilutive potential common shares 30,271,240 20,778,449
___________ ____________
Net earnings(loss) per share from
continuing operations:
Basic ($0.02) ($0.07)
Diluted ($0.01) ($0.06)
-17-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE E - LINE OF CREDIT
During the three months ended March 31, 2002 the Company borrowed
$485,953 against a $5,000,000 line-of-credit that was established in
December 2001 with Net Integrated Systems, Inc. The agreement calls for
minimum monthly payments of interest only at the rate of six percent
(6%) per annum.
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 March 31, 2002 the
Company has accrued for the liability in full on its Balance Sheet. No
payments have been made to date.
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 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 March 31,
2002 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 March 31, 2002.
-18-
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE F - LITIGATION AND CONTINGENCIES (CONTINUED)
CAPITAL LEASES - As of March 31, 2002, 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 certain lessors for
revised terms for the remaining life of the leases. As of this date no
new terms have been finalized. Only one lessor, GE Capital Leasing, has
filed formal suit against the Company. The Company has appropriately
recorded all amounts due for the remaining life of the leases as a
current liability on its Balance Sheet at March 31, 2002.
ROYCAP - As of March 31, 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 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 as of March 31, 2002.
BENTLEY - In March 2002, a shareholder, 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 sought,
but was refused, a preliminary 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.
In a subsequent hearing the Judge did not grant a restraining order
that was requested.
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, signed a mutual release and relieved the
Company from paying deferred compensation owed to him and a related
Promissory Note and Security Agreement.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE F - LITIGATION AND CONTINGENCIES (CONTINUED)
URCUYO - In January 2002 Alfred Urcuyo resigned as President of PSI,
effective immediately. 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 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 has engaged in
negotiations with Mr. Mulder, but has accrued as a liability on its
Balance Sheet at March 31, 2002 the full amount of $65,000.
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 amounts have been accrued.
VERVE - In 2002, a shareholder group 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.
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 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. The Company has requested that the IRS look at
Accesspoint Corporation and its Subsidiaries as one unit for terms of
the Offer and 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.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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.
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.
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 - SUBSEQUENT EVENTS
MERCHANTWAREHOUSE.COM - In April 2002 a former agent of the Company
filed suit against the Company. The firm is claiming improper
termination of agency agreement and has requested $1,000,000. The
Company has not yet responded to the demand, however, it does not
believe that the allegations have merit. The claim asks for mediation
and binding arbitration. It is not possible at this time to determine
the outcome of the case or the possible loss. No amounts have been
accrued in this matter.
NOTE J - 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:
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.
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ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE J - GOING CONCERN (CONTINUED)
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 March 31, 2002, 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 for up to $5,000,000. In the
first quarter of 2002 the Company has also 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.
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 Months Ended March 31, 2002 Compared With Three Months Ended March
31, 2001
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Revenues for the three months ended March 31, 2002 increased to $2,981,487
from $899,188 for the three months ended March 31, 2001. The increase of
$2,082,299, or 231.58%, 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 three months ended March 31, 2002 increased to
$2,325,210 from $253,169 for the three months ended March 31, 2001. The increase
of $2,072,041 or 818.44% 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 months ended March 31, 2002
decreased to $0 from $50,150 for the three months ended March 31, 2002. This
decrease of $50,150, or 100%, 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 months ended March 31,
2002 decreased to $1,050,495 from $1,626,518 for the three months ended March
31, 2001. The decrease of $576,023, or 35.41%, 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 months ended March 31, 2002 was
$51,361, as compared to $55,222 for the three months ended March 31, 2001. The
decrease of $3,861, or 6.99% in interest expense resulted primarily from the
Company's static cost of debt.
Other (Income) Expense, net of Interest expense was $139,097 for the three
months ended March 31, 2002, as compared to $95,572 for the three months ended
March 31, 2001. This increase of $43,525, or 45.54%, resulted primarily from the
increase of bad debt expense for the three months ended March 31, 2002 of
$142,766, as compared to $23,612 for the three months ended March 31, 2001.
Net losses for the three months ended March 31, 2002 and March 31, 2001
were $(365,599) and $(1,185,943), respectively. The decrease in loss of
$820,344, or 69.17%, was primarily related to increased revenues and a reduction
of development-related activities.
C. Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2002 were $154,528, compared to
$128,769 at March 31, 2001 an increase of $25,759 which represented a growth of
20.0%.
Net Cash used in operations decreased from $890,994 for the three months
ended March 31, 2001 to $436,601 for the three months ended March 31, 2002 or a
resulted efficiency in cash of $454,393 or 51.0%. This efficiency was primarily
accomplished by increased effectiveness in operations.
Net Cash used in investing activities decreased from $35,392 as of March
31, 2001 to $15,095 as of March 31, 2002. This decrease of $20,297, or 57.35%,
was primarily due to a reduction of purchases in furniture and equipment.
During the three months ended March 31, 2002, the Company generated net
cash of $527,995 from financing activities as compared to $1,023,201 for the
three months ended March 31, 2001. The decrease of $495,206, or 48.40%, resulted
from a decrease in private placement fundraising activities.
As of March 31, 2002, 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 and
furniture.
-23-
We had, at March 31, 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 March 31, 2002 and $7,010,000, as of March
31, 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.
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 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 March 31, 2002, 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 certain lessors for revised terms for the
remaining life of the leases. As of this date no new terms have been finalized.
Only one lessor, GE Capital Leasing, has filed formal suit against the Company.
The Company has appropriately recorded all amounts due for the remaining life of
the leases as a current liability on its Balance Sheet at March 31, 2002.
Bentley - In March 2002, a shareholder, 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 sought, but was
refused, a preliminary injunction on various matters. 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.
-24-
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
During the three months ended March 31, 2002, we sold a total of 158,063
shares of common voting stock to various individuals and/or entities. The shares
were sold at various prices representing a total purchase price and proceeds to
our Company of $56,509. We did not publicly offer any securities and no
underwriter was utilized. We paid no other finder's fees, discounts or
commissions in connection with the above offers and sales. The offers and sales
were exempt pursuant to Sections 4(2) and 5 of the Act, Regulations D and S,
respectively, promulgated thereunder, and pursuant to Section 25102(f) of the
California Corporations Code. The purchasers acquired the shares for their own
account with no then-present intention of dividing their interest with others or
of reselling or otherwise disposing of all or any portion of the shares. The
shares were offered and sold in private transactions which were not part of a
distribution of the shares, and, in the case of those shares sold pursuant to
Regulation S, the offers and sales were made in offshore transactions and there
were no directed selling efforts in the United States in connection therewith.
We, or our officers or directors or our or their affiliates or representatives,
had a pre-existing personal or business relationship with each of the
individuals and/or entities purchasing shares.
The proceeds from the above sales of unregistered securities were used
primarily to fund the day-to-day operations of the Company.
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 March 31, 2002.
ITEM 5. OTHER INFORMATION
In February 2002, Tom Djokovich was terminated as Chief Executive Officer
of the Company, effective immediately. Prior to the termination, Mr. Djokovich
rescinded 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. As a result of a miscommunication and/or
misunderstanding between the Company and Mr. Djokovich, we erroneously reported
on our Annual Report on Form 10-KSB, filed on April 16, 2002, that Mr. Djokovich
had resigned from the Company's Board of Directors. As of the date of this
filing, by mutual agreement of the parties, it is acknowledged that Mr.
Djokovich has been reinstated as a member of the Company's Board of Directors.
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
----------- -----------
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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
21.00 *List of Subsidiaries
* 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
B. REPORTS ON FORM 8-K
On January 14, 2002, we filed a Current Report on Form 8-K disclosing,
among other things, a change in control in the Company resulting from a series
of agreements between the Company and Net Integrated Systems, Ltd., in
conjunction with a Five Million Dollar ($5,000,000) Secured Revolving Line of
Credit. For a more detailed discussion of this transaction, please refer to the
documents filed with our Report on 8-K filed on January 14, 2002, and
incorporated hereby.
-26-
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 16th day of May, 2002.
Dated: May 16, 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 May 16, 2002
----------------------
Marcia Allen
/s/ CHRISTINE CROCKER Secretary & Director May 16, 2002
----------------------
Christine Crocker
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