U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the QUARTERLY PERIOD ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ________________________
Commission File Number: 000-29217
ACCESSPOINT CORPORATION
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(Name of Small Business Issuer in its Charter)
Nevada 95-4721385
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3030 S. VALLEY BLVD. SUITE 190
LAS VEGAS, NEVADA, 89102 89102
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(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 June
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 JUNE 30, 2004
TABLE OF CONTENTS
Forward-Looking Statements
PART I
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Controls and Procedures 12
PART II
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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
JUNE 30, 2004
TABLE OF CONTENTS
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-10
3
ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
(unaudited)
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ASSETS
-------
Current Assets
Cash $ 115,195 $ 28,393
Accounts receivable, net of allowance
for doubtful accounts $0 for
June 30, 2004 and $80,000 for
December 31, 2003, respectively 314,318 446,870
Prepaid expenses -- 39,235
------------- -------------
Total Current Assets 429,513 514,498
------------- -------------
Fixed Assets
Furniture and equipment, net 12,772 91,099
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Total Fixed Assets 12,772 91,099
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Other Assets
Deferred financing costs, net 495,928 752,873
Deposits 287,659 285,108
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Total Other Assets 783,587 1,037,981
------------- -------------
Total Assets $ 1,225,872 $ 1,643,578
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable 863,491 939,851
Accrued payroll taxes and penalties 17,371 1,328,138
Accrued liabilities 475,855 504,014
Merchant loss reserve 2,778 2,778
Lines of credit 1,364,699 1,373,049
Capitalized leases 547,574 577,638
Notes payable 165,000 415,000
Financing obligations 617,251 --
Related party payables 321,428 --
------------- -------------
Total Current Liabilities 4,375,447 5,140,468
Total Liabilities 4,375,447 5,140,468
------------- -------------
Stockholders' Equity
Preferred Stock, $.001 par value,
5,000,000 shares authorized, 1,055,600
shares issued and outstanding at
June 30, 2004 and December 31, 2003,
respectively 1,056 1,056
Common stock, $.001 par value,
25,000,000 shares authorized, 18,971,230
issued and outstanding at June 30, 2004
and December 31, 2003, respectively 18,971 18,971
Additional paid in capital 15,119,197 15,119,197
Accumulated (deficit) (18,288,799) (18,636,114)
------------- -------------
Total Stockholders' (Deficit) (3,149,575) (3,496,890)
------------- -------------
Total Liabilities and
Stockholders' Equity $ 1,225,872 $ 1,643,578
============= =============
Refer to notes to the financial statements
4
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the six For the six For the three For the three
months ended months ended months ended months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
---------------- ---------------- ---------------- ----------------
Sales, net $ 4,963,226 $ 6,780,179 $ 2,287,447 $ 3,389,904
Cost of sales 4,233,652 5,147,265 2,222,091 2,530,974
---------------- ---------------- ---------------- ----------------
Gross profit 729,574 1,632,914 65,356 858,930
Selling expenses 6,541 4,624 580 --
General and administrative
expenses 881,857 1,509,205 529,850 697,824
---------------- ---------------- ---------------- ----------------
Income (loss) from operations (158,824) 119,085 (465,074) 161,106
Other (Income) Expense
Sale of book of business (85,000) -- (85,000) --
Forgiveness of debt (754,884) -- (318,852) --
Interest income (22,546) (2,496) (14,997) (553)
Other income (1,007) -- (1,007) --
Penalties 29,337 5,310 1,734 3,169
Amortization of deferred
financing costs 256,946 256,945 128,473 128,472
Lawsuit settlement 2,000 -- 2,000 --
Interest expense 69,015 94,347 7,120 44,368
---------------- ---------------- ---------------- ----------------
Total Other (Income) Expense (506,139) 354,106 (280,529) 175,456
---------------- ---------------- ---------------- ----------------
Income (loss) before income
taxes 347,315 (235,021) (184,545) (14,350)
Provision for income taxes -- -- -- --
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 347,315 $ (235,021) $ (184,545) $ (14,350)
================ ================ ================ ================
Net income (loss) per share-
Basic and Diluted $ 0.02 $ (0.01) $ (0.01) $ (0.00)
================ ================ ================ ================
Weighted average number of shares-
Basic and Diluted 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 CASH FLOWS
(UNAUDITED)
Six Months Ended
-----------------
June 30, June 30,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 347,315 $ (235,021)
Adjustments to reconcile net income (loss) to net
cash used or provided by operating activities:
Amortization 256,946 256,945
Depreciation 38,072 104,283
(Increase) decrease in receivables 132,552 (76,906)
Decrease in other current assets -- 40,803
Increase in clearing account (2,551) --
Decrease in prepaid expenses 39,235 1,488
Decrease in accounts payable and
accrued expenses (104,517) (164,294)
Decrease in accrued payroll taxes (1,310,767) (74,100)
Increase in merchants loss reserve -- 13,163
Increase in accrued liabilities -- 91,467
------------ ------------
Total adjustments (951,030) 192,849
------------ ------------
Net cash provided by (used) in
operations (603,715) (42,172)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Disposition of fixed assets 40,252 --
----------- -----------
Net cash provided by investing
activities 40,252 --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from related parties 321,428 --
Proceeds from financing obligations 617,251 --
Payments on capital leases (30,064) (5,000)
Increase in (payments) on
line of credit (8,350) 36,658
Decrease in notes payable (250,000) --
------------ ------------
Net cash provided (used in)
financing activities 650,265 31,658
------------ ------------
Net change in cash 86,802 (10,514)
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Cash at beginning of period 28,393 35,961
------------ ------------
Cash at end of period $ 115,195 $ 25,447
============ ============
Refer to notes to the financial statements
6
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 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.
7
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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. In July 2004, the Company dissolved
Processing Source International Inc. (PSI), its wholly owned
subsidiary. This had no effect on the income for any of the periods
presented.
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 - GOING CONCERN
-------------
The accompanying financial statements, which have been prepared in
conformity with accounting principles 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 raising significant doubts as to the Company's
ability to continue as a going concern. 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. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
NOTE D - 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 June 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. 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
beginning on January 3, 2005. The parties are negotiating a global
settlement of all of the consolidated cases
8
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
NOTE D - 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
consistant 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. 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. This
case has been consolidated with the case of Bentley v. Barber, et al
(see below) and is scheduled for trial beginning on Ja nuary3,2005.
The parties are negotiating a global settlement of all of the
consolidated cases.
9
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 31, 2004 AND 2003
NOTE D - 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. The parties are currently in
negotiations to settle this claim and the other cases with which the
Bentley case had been consolidated, including the Access Holdings
matter and the Bentley Promissory Notes case, discussed above. In light
of these negotiations, a stay of proceedings is in effect until August
27, 2004. Trial is currently scheduled for January 3, 2005. The Company
has recorded no liability for the potential of an adverse outcome of
the action.
NOTE E - 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 six months ended June 30, 2004 the Company made a settlement
with the IRS for claims against the Company and its prior subsidiary
Processing Source International and recorded a forgiveness of debt of
$754,883 (See Note F-Related Party Transactions).
NOTE F - 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 June 30, 2004, the following related party
relationships existed between the Company, its shareholders, officers
and directors:
MBS, majority owned by William R. Barber, Secretary 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 six months ended June 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 in
exchange for $382,118. The agreement for the sale of e-commerce
accounts for $382,118 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. The sale has been recorded as a
financing obligation on the financial statements at June 30, 2004.
During the six months ended June 30, 2004, the Company sold
miscellaneous merchant accounts to MBS in exchange for $15,133. The
sale agreement allows the Company to repurchase the assets at a 20%
price premium. This sale has been recorded as a financing obligation on
the financial statements at June 30, 2004.
The company has entered into several merchant portfolio sales
agreements with unrelated third parties for a total sales price of
$305,000, in which MBS is the seller acting as the legal agent for the
Company. These agreements allow the buyers to sell back the portfolios
for a price equal to the sales price less all prior residual payments
received from the portfolios for up to twelve months after the purchase
date. Additionally, any increase in the volume and residual growth of
the portfolios would serve as cause for price negotiations above the
original sales price. As of June 30, 2004, agreements totaling $85,000
have passed the twelve month period without being repurchased and,
therefore, have been recorded as a sale of a book of business. The
remaining agreements have been recorded as financing obligations in the
financial statements at June 30, 2004.
As of April 1, 2004 the Company completed an agreement with 2C
Processor USA, LLC (2CP) to manage its business for the period April 1,
2004 through April 1, 2005 at a fee of $65,000 per month. In addition,
any net profits of 2CP will be assigned to the Company in exchange
for stock. For the six months ended June 30, 2004 there had been no
assignable profits.
10
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 six months ended June 30, 2004 compared with the six months ended
June 30, 2003.
Revenues for the six months ended June 30, 2004 decreased to $4,963,226
from $6,780,179 for the six months ended June 30, 2003. The decrease of
$1,817,000 27% 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 six months ended June 30, 2004 decreased to
$4,233,652 from $5,147,265 for the six months ended June 30, 2003. The decrease
of $913,000 18%, resulted primarily from lower sales volume off-set by increased
processing fees.
Selling and marketing expenses for the six months ended June 30, 2004
$6,541 remained about the same as the $4,624 for the six months ended June 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 six months ended June 30,
2004 decreased to $881,857 from $1,509,205 for the six months ended June 30,
2003. The decrease of $627,000 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 six months ended June 30, 2004 was
$46,469, as compared to $91,851 for the six months ended June 30, 2003. The
decrease resulted primarily from the Company's continued reduction of debt.
Other (Income) Expense, net of interest income and expense was
($552,608) for the six months ended June 30, 2004, as compared to $262,255 for
the six months ended June 30, 2003. The increase in income of $814,863 resulted
primarily from the forgiveness of debt income $754,884 and the sale of a book of
business occurring in the first six months of June 30, 2004, as compared to the
six months ended June 30, 2003.
Net income for the six months ended June 30, 2004 was $347,315, as
compared to a loss of ($235,021) for the six months ended June 30, 2003. The
difference, a gain of $582,336 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.
11
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
The Company had cash of $115,195 at June 30, 2004, as compared to cash
of $28,393 at December 31, 2003.
The Company had negative working capital at June 30, 2004. We believe
that cash generated from operations will not be sufficient to fund the current
and anticipated cash requirements. During the six months ended June 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 effors 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 June 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. 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
beginning on January 3,2005.Thepartiesarenegotiatingaglobal
settlement of all of the consolidated cases.
12
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. 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. This
case has been consolidated with the case of Bentley v. Barber, et al
(see below)and is scheduled for trial beginning on Jan uary3,2005.The
parties are negotiating a global settlement of all of the consolidated
cases. .
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. The parties are currently in
negotiations to settle this claim and the other cases with which the
Bentley case had been consolidated, including the Access Holdings
matter and the Bentley Promissory Notes case, discussed above. In light
of these negotiations, a stay of proceedings is in effect until August
27, 2004. Trial is currently scheduled for January 3, 2005. The Company
has recorded no liability for the potential of an adverse outcome of
the action.
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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 June 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 5 filed 4/8/04
2. Item 5 filed 5/28/04
14
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: August 17, 2004 ACCESSPOINT CORPORATION
By /S/ WILLIAM R. BARBER
------------------------------
William R. Barber,
Chief Executive Officer, Chief
Officer and President
15
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 August 17, 2004
-----------------------
Gene Valentine
/S/ JOE BYERS Director August 17, 2004
-----------------------
Joe Byers
/S/ MIKE SAVAGE Director August 17, 2004
-----------------------
Mike Savage
/S/ WILLIAM R. BARBER Director August 17, 2004
-----------------------
William R. Barber
16