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 MARCH 31, 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
-------------------------------------------------------------
(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, 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 MARCH 31, 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
MARCH 31, 2004
TABLE OF CONTENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial Statements 7-12
3
ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
------
March 31, December 31,
2004 2003
------------- -------------
(unaudited)
Current Assets
Cash $ 0 $ 28,393
Accounts receivable, net of allowance
for doubtful accounts $80,000 for
March 31, 2004 and December 31, 2003,
respectively 574,825 446,870
Prepaid expenses 63,032 39,235
------------- -------------
Total Current Assets 637,857 514,498
------------- -------------
Fixed Assets
Furniture and equipment (net) 72,063 91,099
------------- -------------
Total Fixed Assets 72,063 91,099
------------- -------------
Other Assets
Deferred financing costs (net) 624,400 752,873
Deposits 312,104 285,108
------------- -------------
Total Other Assets 936,504 1,037,981
------------- -------------
Total Assets $ 1,646,424 $ 1,643,578
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank overdraft $ 46,138 $ 0
Accounts payable 825,819 939,851
Accrued payroll taxes and penalties 903,505 1,328,138
Accrued liabilities 477,102 504,014
Merchant loss reserve 2,778 2,778
Lines of credit 1,355,611 1,373,049
Capitalized leases 570,368 577,638
Notes payable 430,133 415,000
------------- -------------
Total Current Liabilities 4,611,454 5,140,468
Total Liabilities 4,611,454 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 15,119,197 15,119,197
Accumulated (deficit) (18,104,254) (18,636,114)
------------- -------------
Total Stockholders' (Deficit) (2,965,030) (3,496,890)
------------- -------------
Total liabilities and
Stockholders' Equity $ 1,646,424 $ 1,643,578
============= =============
Refer to notes to the financial statements
4
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
-----------------------------
March 31, March 31,
2004 2003
------------- -------------
Sales, net $ 2,675,779 $ 3,390,275
Cost of sales 1,966,561 2,616,291
------------- -------------
Gross profit 709,218 773,984
Selling expenses 5,961 4,624
General and administrative expenses 352,007 774,595
------------- -------------
Income (loss) from operations 351,250 (5,235)
------------- -------------
Other (Income) Expense
Forgiveness of debt (436,032) 0
Interest income (7,549) (1,943)
Penalties 27,603 2,141
Amortization of deferred financing
costs 128,473 128,473
Miscelleneous expense 45,000 0
Bad Debt 0 36,912
Interest expense 61,895 49,979
------------- -------------
Total Other (Income) Expense (180,610) 215,562
------------- -------------
Income (loss) before income
taxes 531,860 (220,797)
Provision for income taxes 0 0
------------- -------------
Net income (loss) $ 531,860 ($ 220,797)
============= =============
Net income (loss) per share
Basic $ 0.03 ($ 0.01)
Weighted average number of shares
Basic 18,971,230 24,163,965
Refer to notes to the financial statements
5
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
-----------------
March 31, March 31,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 531,860 ($220,797)
Adjustments to reconcile net income (loss) to net
cash used or provided by operating activities:
Amortization 128,473 128,473
Depreciation 19,036 52,131
Increase in receivables (127,955) (23,167)
Decrease (increase) in other
current assets (4,555) 91,775
Increase in clearing account (26,996) 0
Decrease (increase) in prepaid expenses (19,242) 744
(Decrease) increase in accounts
payable and accrued expenses (140,943) 75,045
Decrease in accrued payroll taxes (424,634) (69,003)
Increase in bank overdraft 46,138 0
------------ ------------
Total adjustments (550,678) 255,998
------------ ------------
Net cash provided by (used) in
operations (18,818) 35,201
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital leases (7,270) (5,999)
Payments on line of credit (17,438) (46,877)
Increase in notes payable 15,133 0
------------ ------------
Net cash (used in)
financing activities (9,575) (52,876)
------------ ------------
Net change in cash (28,393) (17,675)
------------ ------------
Cash at beginning of period 28,393 35,961
------------ ------------
Cash at end of period $ 0 $ 18,286
============ ============
Refer to notes to the financial statements
6
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 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.
7
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 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.
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.
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 March 31, 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. The Company believes these claims were settled by the
June 26, 2002 Settlement and in any event, believes the sums due are
substantially less than claimed. The Company continues to fight these
actions vigorously. These cases have been consolidated with the case of
Bentley v. Barber, et al (see below) and are scheduled to go to trial
on July 25, 2004
8
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 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. We are vigorously defending against
this claim. The total amount of any potential judgment for the value of
the equipment has been accrued.
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. The Company denies both that it has breached the prior
settlement agreement and that the plaintiffs are entitled to the relief
they seek. Plaintiffs are not seeking monetary damages from the
Company, though they are seeking court costs and attorney fees. The
Company is fighting this action vigorously. No trial date has been set.
9
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 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 for breach of contract, breach of fiduciary duty,
misappropriation of trade secret, recovery of personal property,
imposition of a constructive trust, unfair competition in violation of
Business and Profession Code Section 17200, conversion, unfair business
practices, and usurpation of corporate opportunity. On several
occasions, Plaintiff also sought provisional remedies with the Court,
including multiple applications for preliminary injunction and the
appointment of a receiver. To date, none of Plaintiff's requests for
provisional relief have been granted. On June 26, 2002, the parties to
the action executed a Settlement Agreement. Plaintiff purported to
rescind the Settlement Agreement in early December 2002. Plaintiff
thereafter filed an ex parte application for temporary restraining
order, which the court denied on December 24, 2002. The Court set a
hearing for Plaintiff's application for preliminary injunction in late
January 2003. Plaintiff thereafter continued the hearing on the
application for preliminary injunction on several occasions.
Ultimately, after Defendant's opposition to the preliminary injunction
request was filed; Plaintiff took his application for preliminary
injunction off calendar completely. A number of depositions and law and
motion were conducted during January and February 2003. On July 3, 2003
in a special meeting of the Board of Directors, the Directors received,
reviewed and considered the report of the findings of the Special
Litigation Committee ("the Committee").
The Committee was formed in January 2003 for the purpose of
investigating the allegations contained within the shareholder
derivative action known as BENTLEY v. BARBER (" the Bentley matter").
Based on its investigation, which included the review of thousands of
pages of documents, 1,200 pages of transcripts of depositions, reviews
of the declarations of ten witnesses, and interviews of the Plaintiff,
and his representatives, as well as of at least fifteen other
witnesses, the Committee met on July 2, 2003 and unanimously agreed and
found as follows:
1) The action was previously settled, after both the plaintiff
and the court in the Bentley matter concluded the settlement
agreement was in the best interests of the Company, so that
the Committee likewise concludes that the best interests of
the company are served by a dismissal of the action and the
enforcement of the settlement agreement previously approved by
the court:
2) That the allegations raised in the Bentley matter are without
merit;
10
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
NOTE C - LITIGATION AND CONTINGENCIES (CONTINUED)
----------------------------------------
3) That it is not in the Company's interests to pursue the
litigation, as the costs of prosecuting the litigation far
exceed any possible recovery to the Company, particularly
given the possible indemnity obligations of the Company;
4) The balance of the Company's corporate interests, including
its need to maintain its relationship with Chase, the need for
and ability to focus on obtaining new accounts, the need to
apply the Company's resources, management, and assets to the
payment and resolution of outstanding debts and the need to
repair the Company's reputation that has been damaged by this
litigation, warrants dismissal of the action, regardless of
the merits of the Bentley matter; and
5) The Company has new management and has carefully reviewed the
subject matter of the litigation and the accounting of the
assets of the Company and the handling of related party
transactions.
Based on the findings of the Committee, the Directors determined it to
be in the best interests of the company to cause the Bentley matter to
be dismissed. On July 3, 2003, the company's attorneys filed a motion
for summary judgment with the Orange County Superior Court, the motion
contends that: there is no merit to the charges, the suit is not being
prosecuted for the benefit of the shareholders or the company, but is a
vendetta by the a shareholder brought for its own purposes and that the
burdens of litigation are largely responsible for the fall in the
corporation's stock price since the case was filed. On July 3, 2003,
the Company's attorneys concurrently filed a motion for an indefinite
stay in discovery pending judgment on the motion for summary judgment.
On July 25, 2003, the court granted the Company's request for stay
pending ruling on the motion for summary judgment. On September 18,
2003, the Court denied the summary judgment motion, finding that there
were triable issues of material fact as to the Committee's
investigation. As of this writing, the Court has not entered a formal
order on this motion. The Company believes the Court's ruling is
incorrect and plans to seek further review once the written order is
issued. The Court's ruling also ended the stay of proceedings which had
been in effect since July 25, and the case - along with the Bentley
Promissory Note cases (see above), with which it has been consolidated
- is now set for trial on July 26, 2004. The Company continues to
fight this action vigorously. The Company has recorded no liability for
the potential of an adverse outcome of the action.
11
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
NOTE D - PAYROLL TAXES
-------------
The IRS has 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 has 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 three months ended March 31, 2004 the Company made a
settlement with the IRS for claims against the Company and its
subsidiary Processing Source International. (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 March 31, 2004, the following related party
relationships existed between the Company, its shareholders, officers
and directors:
MBS, partially owned by William P. 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 three months ended March 31, 2004, the Company settled debt
in excess of $1,510,000. The settlements included outstanding IRS
claims against the Company and its subsidiary Processing Source
International, Inc. and funds necessary to settle an approximate
$800,000 legal judgment obligation to Roycap, Inc.
NOTE F - SUBSEQUENT EVENT
----------------
In April the Company concluded a funding agreement with MBS that calls
for the sale and Exchange of certain e-commerce accounts and related
billing software and host server, in exchange for $545,000. 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.
12
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 three months ended March 31, 2004 compared with the three months ended
March 31, 2003.
Revenues for the three months ended March 31, 2004 decreased to
$2,675,779 from $3,390,275 for the three months ended March 31, 2003. The
decrease of $714,496, 21% is due primarily to the decreased revenues associated
with credit card processing which resulted in an overall decrease in sales.
Cost of sales for the three months ended March 31, 2004 decreased to
$1,966,561 from $2,616,291 for the three months ended March 31, 2003. The
decrease of $649,730 or 25%, resulted primarily from lowered agent residual
expenses and more attention focused on the profitability of each merchant's
relationship.
Selling and marketing expenses for the three months ended March 31, 2004
$5,961 remained about the same as the $4,624 for the three months ended March
31, 2003.
General and administrative expenses for the three months ended March 31,
2004 decreased to $352,007 from $774,595 for the three months ended March 31,
2003. The decrease of $422,000, or (55%), resulted primarily from a decrease of
salaries and wages, occupancy costs, reversal of allowance for doubtful accounts
Chase clearing and other operating efficiencies realized through the
consolidation of two offices into one.
Interest expense, net, for the three months ended March 31, 2004 was
$61,895, as compared to $49,979 for the three months ended March 31, 2003. The
increase resulted primarily from the Company's continued interest charges on
indebtedness and borrowing costs.
Other (Income) Expense, net of Interest expense was $(242,505) for the
three months ended March 31, 2004, as compared to $165,583 for the three months
ended March 31, 2003. The increase in income of $418,088 resulted primarily from
the forgiveness of debt income $436,032 occurring in the first three months of
March 31, 2004, as compared to the three months ended March 31, 2003.
Net income for the three months ended March 31, 2004 $531,860, as compared
to a loss of ($220,797) for the three months ended March 31, 2003. The
difference, a gain of $752,657 is due to the forgiveness of debt and reduction
of general and administrative expenses due to increased efficiency in
operations.
13
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
The Company had an overdraft of $46,138 at March 31, 2004, as compared to
cash of $28,393 at December 31, 2003.
The Company had negative working capital at March 31, 2004. We believe that
cash generated from operations will not be sufficient to fund the current and
anticipated cash requirements. Subsequent to March 31, 2004 the Company sold off
a book of business (merchant portfolio) in order to pay down IRS claims against
it subsidiary Processing Source International, Inc. and Roycap settlement.
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 March 31, 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. The Company believes these claims were settled by the
June 26, 2002 Settlement and in any event, believes the sums due are
substantially less than claimed. The Company continues to fight these
actions vigorously. These cases have been consolidated with the case of
Bentley v. Barber, et al (see below) and are scheduled to go to trial
on July 25, 2004
14
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. We are vigorously defending against
this claim. The total amount of any potential judgment for the value of
the equipment has been accrued.
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. The Company denies both that it has breached the prior
settlement agreement and that the plaintiffs are entitled to the relief
they seek. Plaintiffs are not seeking monetary damages from the
Company, though they are seeking court costs and attorney fees. The
Company is fighting this action vigorously. No trial date has been set.
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 for breach of contract, breach of fiduciary duty,
misappropriation of trade secret, recovery of personal property,
imposition of a constructive trust, unfair competition in violation of
Business and Profession Code Section 17200, conversion, unfair business
practices, and usurpation of corporate opportunity. On several
occasions, Plaintiff also sought provisional remedies with the Court,
including multiple applications for preliminary injunction and the
appointment of a receiver. To date, none of Plaintiff's requests for
provisional relief have been granted. On June 26, 2002, the parties to
the action executed a Settlement Agreement. Plaintiff purported to
rescind the Settlement Agreement in early December 2002. Plaintiff
thereafter filed an ex parte application for temporary restraining
order, which the court denied on December 24, 2002. The Court set a
hearing for Plaintiff's application for preliminary injunction in late
January 2003. Plaintiff thereafter continued the hearing on the
application for preliminary injunction on several occasions.
Ultimately, after Defendant's opposition to the preliminary injunction
request was filed; Plaintiff took his application for preliminary
injunction off calendar completely. A number of depositions and law and
motion were conducted during January and February 2003. On July 3, 2003
in a special meeting of the Board of Directors, the Directors received,
reviewed and considered the report of the findings of the Special
Litigation Committee ("the Committee").
15
The Committee was formed in January 2003 for the purpose of
investigating the allegations contained within the shareholder
derivative action known as BENTLEY v. BARBER (" the Bentley matter").
Based on its investigation, which included the review of thousands of
pages of documents, 1,200 pages of transcripts of depositions, reviews
of the declarations of ten witnesses, and interviews of the Plaintiff,
and his representatives, as well as of at least fifteen other
witnesses, the Committee met on July 2, 2003 and unanimously agreed and
found as follows:
1) The action was previously settled, after both the plaintiff
and the court in the Bentley matter concluded the settlement
agreement was in the best interests of the Company, so that
the Committee likewise concludes that the best interests of
the company are served by a dismissal of the action and the
enforcement of the settlement agreement previously approved by
the court:
2) That the allegations raised in the Bentley matter are without
merit;
3) That it is not in the Company's interests to pursue the
litigation, as the costs of prosecuting the litigation far
exceed any possible recovery to the Company, particularly
given the possible indemnity obligations of the Company;
4) The balance of the Company's corporate interests, including
its need to maintain its relationship with Chase, the need for
and ability to focus on obtaining new accounts, the need to
apply the Company's resources, management, and assets to the
payment and resolution of outstanding debts and the need to
repair the Company's reputation that has been damaged by this
litigation, warrants dismissal of the action, regardless of
the merits of the Bentley matter; and
5) The Company has new management and has carefully reviewed the
subject matter of the litigation and the accounting of the
assets of the Company and the handling of related party
transactions.
Based on the findings of the Committee, the Directors determined it to
be in the best interests of the company to cause the Bentley matter to
be dismissed. On July 3, 2003, the company's attorneys filed a motion
for summary judgment with the Orange County Superior Court, the motion
contends that: there is no merit to the charges, the suit is not being
prosecuted for the benefit of the shareholders or the company, but is a
vendetta by the a shareholder brought for its own purposes and that the
burdens of litigation are largely responsible for the fall in the
corporation's stock price since the case was filed. On July 3, 2003,
the Company's attorneys concurrently filed a motion for an indefinite
stay in discovery pending judgment on the motion for summary judgment.
On July 25, 2003, the court granted the Company's request for stay
pending ruling on the motion for summary judgment. On September 18,
2003, the Court denied the summary judgment motion, finding that there
were triable issues of material fact as to the Committee's
investigation. As of this writing, the Court has not entered a formal
order on this motion. The Company believes the Court's ruling is
incorrect and plans to seek further review once the written order is
issued. The Court's ruling also ended the stay of proceedings which had
been in effect since July 25, and the case - along with the Bentley
Promissory Note cases (see above), with which it has been consolidated
- is now set for trial on July 26, 2004. The Company continues to
fight this action vigorously. The Company has recorded no liability for
the potential of an adverse outcome of the action.
16
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,
2003.
ITEM 5. OTHER INFORMATION
None.
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
----------------------------------
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
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 Form 8-K.
8-K filed February 10, 2004 Item 5. Other events and regulation FD
disclosure
8-K filed March 26, 2004 Item 5. Other events and regulation FD
disclosure
8-K filed March 29, 2004 Item 5. Other events and regulation FD
disclosure
17
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: May 17, 2004 ACCESSPOINT CORPORATION
By /S/ WILLIAM R. BARBER
------------------------------
William R. Barber,
Chief Executive Officer, Chief
Officer and President
18
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 May 17, 2004
-----------------------
Gene Valentine
/S/ JOE BYERS Director May 17, 2004
-----------------------
Joe Byers
/S/ MIKE SAVAGE Director May 17, 2004
-----------------------
Mike Savage
/S/ WILLIAM R. BARBER Director May 17, 2004
-----------------------
William R. Barber
19