U.S. SECURITIES AND EXCHANGE COMMISSION W
ASHINGTON, 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, 2004
OR
[ ] TRANSITION REPORT PUSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ________________________
Commission File Number: 000-29217
ACCESSPOINT CORPORATION
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(Name of Small Business Issuer in its Charter)
Nevada 95-4721385
---------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3030 S. VALLEY BLVD. SUITE 190
LAS VEGAS, NEVADA, 89102 89102
---------------------------------------- ------------------------------------
(Address of Principle Executive Offices) (Zip Code)
702 809 0206
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(Issuer's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
None
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
The number of the Company's shares of Common Stock outstanding as of September
30, 2004 was 18,971,230.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
Accesspoint Corporation
Form 10-QSB QUARTERLY Report
FOR THE FIRST QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
Forward-Looking Statements
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
Item 3. Controls and Procedures
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 the 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, the Company's actual results may differ
materially from those indicated by the forward-looking statements.
The key factors that are not within the Company's control and that may have
a direct bearing on operating results include, but are not limited to, the
acceptance by customers of the Company's products and services, the Company's
ability to develop new products and services cost-effectively, the ability of
the 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
ACCESSPOINT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
TABLE OF CONTENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-10
3
ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2004 2003
------------- -------------
(unaudited)
ASSETS
------
Current Assets
Cash $ -- $ 28,393
Accounts receivable, net of allowance
for doubtful accounts $0 and $80,000 for
September 30, 2004 and December 31, 2003,
respectively 273,276 446,870
Prepaid expenses -- 39,235
------------- -------------
Total Current Assets 273,276 514,498
------------- -------------
Fixed Assets
Furniture and equipment (net) -- 91,099
------------- -------------
Total Fixed Assets -- 91,099
------------- -------------
Other Assets
Deferred financing costs (net) 367,455 752,873
Deposits 200,730 285,108
------------- -------------
Total Other Assets 568,185 1,037,981
------------- -------------
Total Assets $ 841,461 $ 1,643,578
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable $ 788,934 $ 939,851
Bank Overdraft 19,563 --
Accrued payroll taxes and penalties 17,371 1,328,138
Accrued liabilities 965,855 504,014
Merchant loss reserve 2,778 2,778
Lines of credit 1,372,876 1,373,049
Capitalized leases 524,824 577,638
Notes payable 165,000 415,000
Financing obligation 617,251 --
Related party payables 261,428 --
------------- -------------
Total Current Liabilities 4,735,880 5,140,468
------------- -------------
Total Liabilities 4,735,880 5,140,468
------------- -------------
Stockholders' Equity
Preferred Stock, $.001 par value,
5,000,000 shares authorized,
1,055,600 shares issued and
outstanding, respectively 1,056 1,056
Common stock, $.001 par value,
25,000,000 shares authorized,
18,971,230 issued and
outstanding, respectively 18,971 18,971
Additional paid in capital 14,619,197 15,119,197
Accumulated (deficit) (18,533,643) (18,636,114)
------------- -------------
Total Stockholders' (Deficit) (3,894,419) (3,496,890)
------------- -------------
Total liabilities and
Stockholders' Equity $ 841,461 $ 1,643,578
============= =============
Refer to notes to the financial statements
4
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the nine For the nine For the three For the three
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Sales, net $ 6,966,383 $ 9,987,193 $ 2,003,157 $ 3,207,014
Cost of sales 5,968,609 7,681,761 1,734,957 2,534,496
------------- ------------- ------------- -------------
Gross profit 997,774 2,305,432 268,200 672,518
Selling expenses 7,557 9,687 1,016 5,063
General and administrative expenses 1,244,428 2,109,788 362,571 600,583
------------- ------------- ------------- -------------
Income (loss) from operations (254,211) 185,957 (95,387) 66,872
Other (Income) Expense
Sale of book of business (87,708) -- (2,708) --
Forgiveness of debt (754,884) (63,157) -- (63,157)
Interest income (11,370) (7,189) -- (4,693)
Other (income) expense (1,007) (1,842) 11,176 (1,842)
Penalties 29,337 7,405 -- 2,095
Amortization of deferred financing
costs 385,418 385,418 128,473 128,472
Lawsuit settlement 5,000 -- 3,000 --
Interest expense 78,532 207,940 9,517 113,593
------------- ------------- ------------- -------------
Total Other (Income) Expense (356,682) 528,575 149,458 174,469
------------- ------------- ------------- -------------
Income (loss) before income taxes 102,471 (342,618) (244,845) (107,597)
Provision for income taxes -- -- -- --
------------- ------------- ------------- -------------
Net income (loss) $ 102,471 $ (342,618) $ (244,845) $ (107,597)
============= ============= ============= =============
Net income (loss) per share-
Basic $ 0.01 $ (0.01) $ (0.01) $ (0.00)
============= ============= ============= =============
Weighted average number of shares-
Basic 18,971,230 24,163,965 18,971,230 24,163,965
============= ============= ============= =============
Refer to notes to the financial statements
5
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK
-----------------------------
Additional Total
Number of Par value Paid-in Preferred Retained Stockholders'
Shares $0.001 Capital Stock (deficit) Equity
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2001 23,375,208 $ 23,375 $ 14,418,900 $ 1,056 $(11,738,947) $ 2,704,384
Stock issued various dates for cash
at $1.50 per share 788,757 789 148,604 -- -- 149,393
Conversion of notes payable -- -- 546,500 -- -- 546,500
Net loss -- -- -- -- (6,846,552) (6,846,552)
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2002 24,163,965 24,164 15,114,004 1,056 (18,585,499) (3,446,275)
Stock returned by shareholders
and cancelled (5,192,735) (5,193) 5,193
Net loss -- -- -- -- (50,615) (50,615)
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2003 18,971,230 18,971 15,119,197 1,056 (18,636,114) (3,496,890)
Notes payable converted in 2001
included in lawsuit settlement (500,000) (500,000)
Net income 102,471 102,471
------------- ------------- ------------- ------------- ------------- -------------
Balance at September 30, 2004 18,871,230 $ 18,971 $ 14,619,197 $ 1,056 $(18,533,643) $ (3,894,419)
============= ============= ============= ============= ============= =============
Refer to notes to the financial statements
6
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months Ended
-----------------
Sept. 30, Sept. 30,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 102,471 ($ 342,618)
Adjustments to reconcile net income (loss)
to net cash used or provided by
operating activities:
Amortization 385,418 385,418
Depreciation 50,844 159,685
Changes in current assets and
current liabilities:
(Increase) decrease in receivables 173,594 (141,018)
Decrease in other current assets -- 65,117
Increase in clearing account -- (109,744)
Decrease in prepaid expenses 39,235 (1,346)
Decrease in deposits 84,378 (5,000)
Decrease in accounts payable and
accrued expenses (189,077) (123,363)
Increase in bank overdraft 19,563 14,179
Decrease in accrued payroll taxes (1,310,767) (84,293)
Increase in merchants loss reserve -- --
Increase in accrued liabilities -- --
------------ ------------
Total adjustments (746,811) 159,635
------------ ------------
Net cash provided by (used) in
operations (644,340) (182,983)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Disposition of fixed assets 40,255 --
Reduction of portfolio 154,667
------------ ------------
Net cash provided by (used) in
investing 40,255 154,667
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from related parties 261,428 --
Proceeds from financing obligation 617,251 --
Payments on capital leases (52,814) (3,249)
Increase in (payments) on line of credit (173) (4,396)
Decrease in notes payable (250,000) --
------------ ------------
Net cash provided (used in)
financing activities 575,692 (7,645)
------------ ------------
Net change in cash (28,393) (35,961)
------------ ------------
Cash at beginning of period 28,393 35,961
------------ ------------
Cash at end of period $ -- $ --
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of paid-in capital to
notes payable $ 500,000 $ --
Refer to notes to the financial statements
7
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
NOTE A - NATURE OF OPERATIONS
--------------------
Accesspoint Corporation (subsequently referred to as "Accesspoint", the
"Company" or "We") was incorporated as Accesspoint Corporation in
Nevada in 1995 and is a provider of card- and web-based payment
processing services to small businesses throughout the United States.
The Company enables merchants to accept credit cards as payment for
their products and services by providing card authorization, data
capture, settlement, risk management, fraud detection and chargeback
services. Our services also include transaction organization and
retrieval, ongoing merchant assistance and support in connection with
disputes with cardholders. We market and sell our services primarily
through independent sales organizations ("ISOs") and registered sales
agents ("RSAs").
Our payment processing services enable merchants to process both
traditional swipe transactions, as well as card-not-present
transactions. A card-not-present transaction occurs whenever a customer
does not physically present a payment card at the point-of-sale and may
occur over the Internet or by mail, fax or telephone. Our processing
services include evaluation and acceptance of card numbers, detection
of fraudulent transactions, receipt and settlement of funds and service
and support. By outsourcing some of these services to third parties,
including the evaluation and acceptance of card numbers and receipt and
settlement of funds, we maintain an efficient operating structure,
which allows us to easily expand our operations without significantly
increasing our fixed costs. We believe our experience and knowledge in
providing payment processing services to merchants of all sizes gives
us the ability to effectively identify, evaluate and manage the payment
processing needs and risks that are unique to businesses of varying
levels.
We market and sell our services primarily through our relationships
with ISOs and RSAs. ISOs and RSAs act as a non-employee, external sales
force in communities throughout the United States. By providing the
same high level of service and support to our ISOs and RSAs as we do to
our merchants, we maintain our access to an experienced sales force
sales professionals who market our services, with minimal direct
investment in sales infrastructure and management. After an agent
refers a merchant to us and we execute a processing agreement with that
merchant, we pay the referring ISO or RSAs a percentage of the revenues
generated by that merchant. Although our relationships with agents are
mutually non-exclusive, we believe that our understanding of the unique
payment processing needs of merchants of all sizes enables us to
develop compelling incentives for agents to continue to refer newly
identified merchants to us.
8
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Unaudited Interim Financial Information
---------------------------------------
The accompanying financial statements have been prepared by Accesspoint
Corporation, ("Accesspoint", the "Company" or "We") 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 September 30, 2004 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2004, 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, 2003. Subsequent to September 30, 2004 the
Company had a wholly owned subsidiary Processing Source International,
Inc. (PSI). During the past quarter PSI has been absorbed into the
Company.
Revenues, expenses, assets and liabilities can vary during each quarter
of the year. Therefore, the results and trends in these interim
financial statements may not be the same as those for the full year.
NOTE C - 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. 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, 2004
the Company has accrued for the liability in full on its Balance Sheet.
No payments have been made.
BENTLEY PROMISSORY NOTES - Various family trusts related to James W.
Bentley, a former Director of the Company, have filed three related
actions seeking to collect in excess of $500,000 in promissory notes
allegedly due. These cases have been consolidated with the case of
Bentley v. Barber, et al (see below) and have been settled as of August
30, 2004.
9
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
NOTE C - LITIGATION AND CONTINGENCIES (CONTINUED)
----------------------------------------
MERCHANTSWAREHOUSE.COM - This is a claim against PSI for breach of an
independent sales agent agreement. The claim is disputed. The matter
was submitted to arbitration and was heard by the arbitrator. The
arbitrator made an interim award of $296,720 and denied the Company's
counterclaim. The Company is directed to pay the agent residuals
according to the terms of the Company's agreement with the agent. The
Company has made all payments to the agent since the date of the award.
On November 7, 2003, Merchantswarehouse.com obtained a judgment
consistent with the arbitrator's award. The Company is presently
assessing the advisability of an appeal. The amount of the award has
been accrued.
CIT COMMUNICATIONS CO. ("CIT") - CIT, an equipment lessor, claims that
we defaulted on an equipment lease. A request for entry of default was
submitted on 7/8/04. It is expected that a default judgment against the
Company will be entered soon. The total amount of any potential
judgment for the value of the equipment has been accrued.
FOLEY HOAG - This is a claim against PSI by a Boston law firm which
worked on the MerchantWarehouse.com case for fees it says remain
unpaid. The firm is seeking $48,000 in principal, plus interest, fees
and costs. The firm has advised the Company that it has filed suit in
Massachusetts, but the Company has yet to be served.
GLOBAL ATTORNEYS NETWORK CO. - This is an action filed on behalf of an
equipment lessor on a defaulted lease. In April 2003 the matter was
settled for $16,900. This amount has been accrued. No payments have
been made.
FOSTER TEPPER - This is an action recently brought by a former attorney
for the Company for approximately $63,000 in legal fees, which are
allegedly due and payable. The Company has accrued $37,000 for this
matter. Trial is scheduled to start August 30, 2004
ACCESS HOLDINGS LIMITED PARTNERSHIP - This is a lawsuit brought on
behalf of two holders of Company stock who claim the Company has
violated a prior settlement agreement and that they are therefore
entitled to the return of approximately 4.1 million shares of Company
stock, which they had previously surrendered to the Company per that
agreement. This case has been consolidated with the case of Bentley v.
Barber, et al (see below) and was settled on August 30, 2004.
10
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 31, 2004 AND 2003
NOTE C - LITIGATION AND CONTINGENCIES (CONTINUED)
----------------------------------------
BENTLEY V. WILLIAM R. BARBER, ET AL. - On March 22, 2002, James Bentley
("Plaintiff"), a shareholder of the Company, filed a shareholder
derivative lawsuit against the Company and several individual
defendants. The parties have settled this lawsuit as of August 30,
2004. The settlement amount reached is for $750,000, discountable to
$500,000 if the Company pays Bentleys in strict accordance to the
following schedule: $250,000 paid from the Chase Merchant Services
deposit and $5,000 monthly, beginning August 30, 2004 thru November 30,
2005 with a balloon payment of $170,000 due on December 30, 2005. The
terms of the settlement include the dismissal of all lawsuits related
to the Bentleys, recognition of the $500,000 in promissory notes
payable to Bentleys previously converted in the June 26, 2002
settlement agreement (included in the $750,000 settlement amount), and
in consideration for the forgiveness of the NIS line of credit due to
Ameropa, the Bentleys agree to release any and all security,
restrictions and limitations on their stock and cause the issuance of
52% of the Company's stock to Barber or his designate.
NOTE D - PAYROLL TAXES
-------------
The IRS had made formal demand of amounts due and unpaid for the period
of January 1 - December 31, 2000, including interest and penalties,
from the Company, and had appropriately filed tax liens against all
assets of the Company. The Company filed requests for an "Offer in
Compromise" for all amounts owed by the Company and its subsidiaries.
During the nine months ended September 30, 2004 the Company made a
settlement with the IRS for claims against the Company and its prior
subsidiary Processing Source International (now merged with Accesspoint
Corporation). (See Note E-Related Party Transactions)
NOTE E - RELATED PARTY TRANSACTIONS
--------------------------
The Company has entered into a number of relationships that fit the
definition provided by Statement of Financial Accounting Standards No.
57, "Related Party Disclosures". An entity that can control or
significantly influence the management or operating policies of another
entity to the extent one of the entities may be prevented from pursuing
its own interests. As of September 30, 2004, the following related
party relationships existed between the Company, its shareholders,
officers and directors:
MBS, partially owned by William R. Barber, President and Chief
Executive Officer of the Company and currently a Director of the
Company, is also an agent of the Company and sells the Company's
products and services through its own network of subagents and sales
personnel.
During the nine months ended September 30, 2004, the Company settled
outstanding IRS claims against the Company and its prior subsidiary
Processing Source International. in the amount of approximately
$1,311,000. The funds necessary to settle the claims were obtained in
April when the Company concluded a funding agreement with MBS that
called for the sale and exchange of certain e-commerce accounts and
related billing software and host server, in exchange for $702,000. The
agreement allows the Company to repurchase the assets with stock equal
in value to the purchase price at the Company's discretion within the
first twelve months.
NOTE F - GOING CONCERN
-------------
The accompanying financial statements, which have been prepared in
conformity with Accounting principals generally accepted in the United
States of America, contemplates the continuation of the Company as a
going concern. However, the Company has sustained significant
recurring operating losses, has limited capital resources, and is
involved in several pending lawsuits. Continuation of the Company as a
going concern is contingent upon the ability of the Company to expand
its operations, generate increased revenues, secure additional sources
of financing and sell a portion of the merchant portfolio. However,
there is no assurance that the Company will realize the necessary
capital expansion.
11
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.
RESULTS OF OPERATIONS
----------------------
The nine months ended September 30, 2004 compared with the nine months
ended September 30, 2003.
Revenues for the nine months ended September 30, 2004 decreased to
$6,966,383 from $9,987,193 for the nine months ended September 30, 2003. The
decrease of $3,020,810 30% is due primarily to the decreased revenues associated
with credit card processing which resulted in an overall decrease in sales and
the sale of certain e-commerce accounts and related billing software and host
server.
Cost of sales for the nine months ended September 30, 2004 decreased to
$5,968,609 from $7,681,761 for the nine months ended September 30, 2003. The
decrease of $1,713,152 22%, resulted primarily from lower sales volume off-set
by increased processing fees.
Selling and marketing expenses for the nine months ended September 30, 2004
$7,557 remained about the same as the $9,687 for the nine months ended September
30, 2003. The Company has held selling and marketing expenses down due to it
being known in the market place.
General and administrative expenses for the nine months ended September 30,
2004 decreased to $1,244,378 from $2,109,788 for the nine months ended September
30, 2003. The decrease of $865,410 41% resulted primarily from a decrease of
salaries and wages, occupancy costs, Chase clearing and other operating
efficiencies realized through the consolidation of two offices into one and the
outsourcing of jobs to contractors.
Interest expense, net, for the nine months ended September 30, 2004 was
$78,532, as compared to $207,940 for the nine months ended September 30, 2003.
The decrease resulted primarily from the Company's continued reduction of debt.
Other (Income) Expense, net of Interest expense was ($435,214) for the nine
months ended September 30, 2004, as compared to $320,635 for the nine months
ended September 30, 2003. The increase in income of $755,749 resulted primarily
from the forgiveness of debt income $754,884 and the sale of a book of business
occurring in the first nine months of September 30, 2004, as compared to the
nine months ended September 30, 2003.
Net income for the nine months ended September 30, 2004 was $102,471, as
compared to a loss of ($342,618) for the nine months ended September 30, 2003.
The difference, a gain of $445,089 is due to the forgiveness of debt, the sale
of a book of business and reduction of general and administrative expenses due
to increased efficiency in operations, off-set by lower gross profit.
12
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
The Company had cash overdraft of $19,563 at September 30, 2004, as
compared to cash of $28,393 at December 31, 2003.
The Company had negative working capital at September 30, 2004. We believe
that cash generated from operations will not be sufficient to fund the current
and anticipated cash requirements. During the nine months ended September 30,
2004 the Company sold off a book of business (e-commerce accounts and related
billing software and host server) in order to pay down IRS claims against it and
its previously held subsidiary Processing Source International, Inc. The Company
is continuing its efforts to settle accounts with other creditors.
ITEM 3. CONTROLS AND PROCEDURES.
Our President and Treasurer/Chief Financial Officer (the "Certifying
Officer") is responsible for establishing and maintaining disclosure controls
and procedures and internal controls and procedures for financial reporting for
the Company. The Certifying Officer has designed such disclosure controls and
procedures and internal controls and procedures for financial reporting to
ensure that material information is made known to him, particularly during the
period in which this report was prepared. The Certifying Officer has evaluated
the effectiveness of the Company's disclosure controls and procedures and
internal controls and procedures for financial reporting as of March 31, 2004
and believes that the Company's disclosure controls and procedures and internal
controls and procedures for financial reporting are effective based on the
required evaluation. There have been no significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
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. 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, 2004
the Company has accrued for the liability in full on its Balance Sheet.
No payments have been made.
BENTLEY PROMISSORY NOTES - Various family trusts related to James W.
Bentley, a former Director of the Company, have filed three related
actions seeking to collect in excess of $500,000 in promissory notes
allegedly due. These cases have been consolidated with the case of
Bentley v. Barber, et al (see below) and have been settled as of August
30, 2004.
13
MERCHANTSWAREHOUSE.COM - This is a claim against PSI for breach of an
independent sales agent agreement. The claim is disputed. The matter
was submitted to arbitration and was heard by the arbitrator. The
arbitrator made an interim award of $296,720 and denied the Company's
counterclaim. The Company is directed to pay the agent residuals
according to the terms of the Company's agreement with the agent. The
Company has made all payments to the agent since the date of the award.
On November 7, 2003, Merchantswarehouse.com obtained a judgment
consistent with the arbitrator's award. The Company is presently
assessing the advisability of an appeal. The amount of the award has
been accrued.
CIT COMMUNICATIONS CO. ("CIT") - CIT, an equipment lessor, claims that
we defaulted on an equipment lease. A request for entry of default was
submitted on 7/8/04. It is expected that a default judgment against the
Company will be entered soon. The total amount of any potential
judgment for the value of the equipment has been accrued.
FOLEY HOAG - This is a claim against PSI by a Boston law firm which
worked on the MerchantWarehouse.com case for fees it says remain
unpaid. The firm is seeking $48,000 in principal, plus interest, fees
and costs. The firm has advised the Company that it has filed suit in
Massachusetts, but the Company has yet to be served.
GLOBAL ATTORNEYS NETWORK CO. - This is an action filed on behalf of an
equipment lessor on a defaulted lease. In April 2003 the matter was
settled for $16,900. This amount has been accrued. No payments have
been made.
FOSTER TEPPER - This is an action recently brought by a former attorney
for the Company for approximately $63,000 in legal fees, which are
allegedly due and payable. The Company has accrued $37,000 for this
matter. Trial is scheduled to start August 30, 2004
ACCESS HOLDINGS LIMITED PARTNERSHIP - This is a lawsuit brought on
behalf of two holders of Company stock who claim the Company has
violated a prior settlement agreement and that they are therefore
entitled to the return of approximately 4.1 million shares of Company
stock, which they had previously surrendered, to the Company per that
agreement. This case has been consolidated with the case of Bentley v.
Barber, et al (see below)and was settled August 30, 2004.
BENTLEY V. WILLIAM R. BARBER, ET AL. - On March 22, 2002, James Bentley
("Plaintiff"), a shareholder of the Company, filed a shareholder
derivative lawsuit against the Company and several individual
defendants The parties have settled this lawsuit as of August 30, 2004.
The settlement amount reached is for $750,000, discountable to $500,000
if the Company pays Bentleys in strict accordance to the following
schedule: $250,000 paid from the Chase Merchant Services deposit and
$5,000 monthly, beginning August 30, 2004 thru November 30, 2005 with a
balloon payment of $170,000 due on December 30, 2005. The terms of the
settlement include the dismissal of all lawsuits related to the
Bentleys, recognition of the $500,000 in promissory notes payable to
Bentleys previously converted in the June 26, 2002 settlement agreement
(included in the $750,000 settlement amount), and in consideration for
the forgiveness of the NIS line of credit due to Ameropa, the Bentleys
agree to release any and all security, restrictions and limitations on
their stock and cause the issuance of 52% of the Company's stock to
Barber or his designate.
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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,
2004.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 31 CERTIFICATION OF CHIEF EXECUTIVE
OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
b. Reports on 8-K during the quarter:
1. Item 7.01 filed 8/30/04
2. Item 8.01 filed 8/30/04
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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 hereunto duly authorized.
Dated: November 22, 2004 ACCESSPOINT CORPORATION
By /S/ Gene Valentine
------------------------------
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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/ GENE VALENTINE Chairman of the Board of Directors November 22, 2004
-----------------------
Gene Valentine
/S/ JOE BYERS Director November 22, 2004
-----------------------
Joe Byers
/S/ MIKE SAVAGE Director November 22, 2004
-----------------------
Mike Savage
Director November 22, 2004
-----------------------
17