SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/x/ Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999
/ / Transition Report Under Section 13 or 15(d) of
The Exchange Act For the Transition Period from ____________ to ____________
Commission File Number 000-____________
ACCESS POWER, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
FLORIDA 59-3420985
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10033 SAWGRASS DR., W, PONTE VEDRA BEACH, FL 32082
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (904) 273-2980
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes / X / No / /
At October 20, 1999, there were issued and outstanding 28,741,358
shares of Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes / / No / X /
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION --------------------- Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed and omitted
pursuant to such rules and regulations, although management believes the
disclosures are adequate to make the information presented not misleading. These
interim financial statements should be read in conjunction with the Company's
annual report and most recent financial statements included in its report on
Form 10-KSB for the year ended December 31, 1998 filed with the Securities and
Exchange Commission. The interim financial information included herein is
unaudited; however, such information reflects all the adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results of operations and cash flows for the
interim periods. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
2
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
As of September 30, 1999 and December 31, 1998
Assets 30-Sep December 31,
------ 1999 1998
---- ----
(unaudited)
Current assets:
Cash $ 885,191 $ 33,156
Accounts receivable 97,022 29,145
Notes receivable 458,200 30,791
Prepaid expenses 151,138 --
Inventory 18,815 21,770
----------- -----------
Total current assets 1,610,366 114,862
----------- -----------
Property and equipment, net 922,174 1,131,471
Other assets 13,000 16,000
----------- -----------
Total assets $ 2,545,540 $ 1,262,333
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 1,760,364 $ 1,373,978
Unearned revenue 21,490 --
Notes payable 62,500 120,136
----------- -----------
Total current liabilities 1,844,354 1,494,114
----------- -----------
6% Convertible Debenture 1,000,000 --
----------- -----------
Stockholders' equity:
Common stock, $.001 par value, authorized 40,000,000 shares,
issued and outstanding 27,451,358 and 12,325,788 shares
in 1999 and 1998 27,452 12,326
Preferred stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 3,952 and 1,050 shares in 1999 and 1998 4 1
Additional paid in capital 3,898,025 2,252,971
Deficit accumulated during the development stage (4,224,295) (2,497,079)
----------- -----------
Total stockholders' equity (298,814) (231,781)
----------- -----------
=========== ===========
Total liabilities and stockholders' equity $ 2,545,540 $ 1,262,333
=========== ===========
3
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Cash Flows
For the nine months ended September 30, 1999
and 1998 and the cumulative period from
October 10, 1996 (date of inception)
through September 30, 1999
For the period
October 10, 1996
1999 1998 through
(unaudited) September 30, 1999
----------- --------------- ------------------
Cash flows from operating activities:
Net loss $(1,727,216) $(1,594,748) $(4,224,295)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 244,229 210,287 593,048
Loss on disposal of property and equipment 6,880 33,341
Stock issued for services 234,983 50,625 317,049
Stock issued for interest 14,000 114,375 128,375
Change in operating assets and liabilities:
Accounts receivable (67,877) (20,147) (97,022)
Accounts payable and accrued expenses 386,386 1,224,316 1,760,364
Deferred Revenue 21,490 -- 21,490
Other assets (151,138) -- (174,304)
Inventory 2,955 (30,000) (18,815)
----------- ----------- -----------
Net cash used in operating activities (1,035,308) (45,292) (1,660,769)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 10,050 -- 50,320
Purchase of property and equipment (48,862) (1,103,891) (1,588,717)
Note receivable (427,409) (999) (458,200)
----------- ----------- -----------
Net cash used in investing activities (466,221) (1,104,890) (1,996,597)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 1,411,200 1,025,000 3,480,057
Proceeds from issuance of notes payable 1,072,804 300,000 1,202,829
Principal payments on notes payable (130,440) (200,000) (140,329)
----------- ----------- -----------
Net cash provided by financing activities 2,353,564 1,125,000 4,542,557
----------- ----------- -----------
Net change in cash 852,035 (25,182) 885,191
Cash, at beginning of period 33,156 54,086 --
----------- ----------- -----------
Cash at end of period $ 885,191 $ 28,904 $ 885,191
=========== =========== ===========
4
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Operations
For the three months and six months ended September 30, 1999 and 1998 and the cumulative period
from October 10, 1996 (date of inception) through September 30, 1999
(unaudited)
For the period
October 10, 1996
Three months ended September 3, Nine months ended September 30, through
1999 1998 1999 1998 September 30, 1999
------------------------------- ------------------------------- ------------------
Revenue:
Software/hardware sales $ 1,050 $ - $ 9,450 $ 212,092 $ 223,881
Telcommunication services 50,599 29,305 69,999 42,089 123,518
------------ ------------ ------------ ------------ ------------
Total revenue 51,649 29,305 79,449 254,181 347,399
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 315 -- 2,955 152,920 164,605
Product development and marketing 205,444 338,659 851,037 710,533 1,620,193
General and administrative 391,859 350,665 938,142 868,174 2,648,115
------------ ------------ ------------ ------------ ------------
Total costs and expenses 597,618 689,324 1,792,134 1,731,627 4,432,913
------------ ------------ ------------ ------------ ------------
Other income (expense):
Other income (expense) (318) (0) (7,198) 407 1,977
Interest expense (2,833) (3,333) (7,333) (117,708) (140,758)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (3,151) (3,334) (14,531) (117,302) (138,781)
------------ ------------ ------------ ------------ ------------
Net loss $ (549,120) $ (663,353) $ (1,727,216) $ (1,594,748) $ (4,224,295)
============ ============ ============ ============ ============
Net loss per share $ (0.02) $ (0.06) $ (0.07) $ (0.14) $ (0.28)
============ ============ ============ ============ ============
Weighted average number of shares 31,386,691 11,759,000 24,126,030 11,619,463 15,137,504
============ ============ ============ ============ ============
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS REPORT.
PLAN OF OPERATION
Overview
- --------
Access Power, Inc. was formed in 1996 to offer Internet-based
communications products and services in the U.S. and international markets. The
Company has created a network of Internet telephony gateway servers and IP and
PSTN (Public Switched Telephone Network) circuits to provide voice and
multimedia communications services, more commonly referred to as Internet
Protocol telephony or IP telephony.
From its inception the Company has devoted most of its efforts to
technical analysis, development, procurement, implementation and testing, and
the establishment of the corporate and technical policies and procedures
necessary to support its business requirements. The Company is a development
stage operation.
Access Power's IP telephony gateway network allows the Company to offer
competitive call rates while providing premium communications features. Access
Power products and services are based on Personal Computer ("PC")-to-PC,
PC-to-Phone, and Phone-to-Phone communications. Customers anywhere in the world
can use their PC and software from the Company to place unlimited calls to
telephones anywhere in the United States, Canada and Puerto Rico for $10 per
month. In addition, customers in the United States can make unlimited calls with
their telephone to another telephone anywhere in the continental United States
for $49 per month and call anywhere in Alaska, Hawaii, Canada, and the United
Kingdom for 7 cents per minute. Calls to over fifty other countries are 29 cents
per minute.
6
The Company is a reseller of third party PC telephone software called
Internet Phone, and it is having a software product called "e-button" developed
for marketing to companies with Web sites. The e-button is an icon residing on a
Web site that connects a consumer browsing a Web page to a company's call
center. This technology allows corporate customers to voice-activate their Web
site, connecting consumers directly with sales departments, customer service or
technical support.
While in its start-up and current development stages the Company tested
and preliminarily introduced certain products and services new to both the
Company and the communications industry. To date, the Company has not realized
revenues from sales of any products or services in amounts necessary to support
all of its cash operating needs.
Expansion Plans
- ---------------
The Company believes it must expand its gateway network capacity and
its customer base to achieve profitability.
The Company intends to expand its network and customer base
internationally through affiliates and other business relationships, such as the
relationship defined by the Lycos-Bertelsmann agreement. Such expansion will
increase the Company's revenues without causing the Company to incur significant
capital expenditures.
Software Sales
- --------------
To date, the Company has realized only small revenues from the resale
of software to its customers, and it does not expect such sales to become a
significant source of profit in the future. During the next year, however, the
Company does intend to begin marketing the e-button software, and it expects to
realize a fair amount of revenues from those sales.
Marketing
- ---------
The Company has recently begun its effort to market its products and
services. The Company has implemented a public relations and marketing campaign
along with establishing arrangements with web-based communications portals.
Public relations and certain marketing is expected to cost $50,000 and stock
with a market value of approximately $600,000.
Raising Capital
- ---------------
The Company has recently sold 6% convertible debentures in the face
amount of $1,000,000. In addition, the investor purchased a warrant to purchase
an additional $1,000,000 of debentures on the same terms. The Company is of the
opinion that if the warrant is exercised then the aggregate proceeds would be
sufficient to fund the Company for the next twelve months while it deploys its
domestic and international networks.
7
PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO PERIOD ENDED SEPTEMBER 30, 1998
REVENUES AND COSTS OF REVENUES. The Company realized no revenue from
the sale of hardware and software in the three months ended September 30, 1998
compared to software sales of $1,050 in the three months ended September 30,
1999 and $9,450 during the nine months ended September 30, 1999 compared to
$212,092 during the previous year. The revenue generated from sale of services
increased $21,294 from $29,305 during the three months ended September 30, 1998
to $50,599 during the three months ended September 30, 1999. The revenue
generated from sale of services increased $ 27,910 from $42,089 during the nine
months ended September 30, 1998 to $69,999 during the nine months ended
September 30, 1999.
EXPENSES. Product development and marketing expenses were $205,444 for
the three months ended September 30, 1999; a decrease of $133,215, or over 39%
of such expenses, from the three months ended September 30, 1998. Depreciation
and amortization expense decreased $39,100, professional fees decreased $30,000,
travel decreased $8,245 and advertising decreased $7,671. For the nine months
ended September 30, 1999 product development and marketing expenses increased
$141,504 or almost 20%. Professional fees for public relations accounted for
$155,000 of this increase. General and administrative expenses increased
$41,194, or 12%, from $350,665 for the three months ended September 30, 1998.
Legal and professional fees increased $20,000. Finder's fees increased $100,000.
Payroll expense decreased $86,082. During the nine months ended September 30,
1999 general and administrative expenses increased $68,968 or 8% to $938,142 of
which finder's fees increased $81,444.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through
the proceeds from the issuance of equity securities and loans from stockholders
and others. To date, the Company has raised approximately $2,782,700 from the
sale of common stock and preferred stock, and it has borrowed approximately
$1,400,000 from investors and stockholders. Funds from these sources have been
used as working capital to fund the build-out of the Company's network and for
internal operations, including the purchases of capital equipment.
The Company generated negative cash flow from operating activities for
the period from inception (October 10, 1996) through September 30, 1999. The
Company realized negative cash from operating activities for the nine months
ended September 30, 1999 of ($1,035,308) compared to negative cash from
operating activities of ($45,292) primarily due to faster payment being required
by vendors than previously. Investing activities for the period from inception
through September 30, 1999 consisted primarily of equipment purchases to build
out the initial network. Investing activities in the nine months ended September
30, 1999 were $466,221 compared to $1,104,890 during the nine months ended
September 30, 1998.
The timing and amount of the Company's capital requirements will depend
on a number of factors, including demand for the Company's products and services
and the availability of opportunities for international expansion through
affiliations and other business relationships.
8
The Company expects to invest approximately $1,000,000 over the next
twelve months in capital equipment and software for network expansion. The
Company is performing ongoing cost benefit analysis to ensure that any existing
under utilized equipment is made available for redeployment to prolong the
necessity to acquire new equipment.
The Company raised $75,000 in January 1999 from the sale of 75 shares
of Series A Preferred Stock for $1,000 per share.
The Company received $150,000 and issued 1,500,000 shares of common
stock to an investor in March 1999.
The Company issued 512,000 shares of common stock in exchange for a
debt repayment and the interest due thereon in April 1999.
The Company issued 1,295,000 shares of common stock upon the exercise
of employee stock options for $632,700.
The Company issued $1,000,000 of 6% convertible debentures in September
1999.
The Company has taken steps to reduce the monthly negative cash flow
("burn rate") and lessen the impact of the negative working capital position.
The main step has been the reduction of payroll expenditures, by executives
agreeing to defer pay until further financing is received. The Company's
relations with its current vendors are positive and include a strong credit
history resulting in suppliers and vendors assisting the Company in reducing
short term costs and extending payments. Burn rate reduction is also being
achieved with the suspension of certain general activities and expenses
including but not limited to travel, training and public relations. While the
Company believes that its cash used in operating activities will increase over
the next year, near term cash flow reductions are being considered particularly
in the main expense items of salaries and network management.
The Company's financing activities for the nine months ended September
30, 1999 provided a net total of $2,353,564. Cash at the end of that period was
$885,191. As of October 25, 1999, the Company had cash of $395,000 and working
capital of ($423,800). The Company is currently expending approximately $125,000
per month, which amount includes monthly co-location costs or network
infrastructure, systems maintenance and development, payments for equipment and
general and administrative costs.
The timing and amount of the Company's capital requirements will depend
on a number of factors, including demand for the Company's products and services
and the availability of opportunities for international expansion through
business relationships.
9
YEAR 2000
Since its inception and as a development stage company the Company has
implemented solutions to the year 2000 problem as it has built its systems
solutions and developed its policies and procedures for both technical and
administrative purposes.
The Company believes it is in a high state of readiness regarding year
2000 and is at minimal risk. Costs associated with year 2000 solutions are
incorporated in all the Company's computer administrative information systems
and technical development.
As standard operating procedure the Company inquires as to the
readiness of any customers and suppliers in handling potential year 2000
problems.
The Company does not foresee substantial direct or indirect costs
associated with its implementation or any affiliates implementation of year 2000
solutions.
There are no assurances that the Company and all of its key suppliers,
customers or third parties upon which it relies will completely address and
solve the potential problem and by not doing so could result in an adverse
material effect on the company, its financial condition or results on
operations.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The Company
cautions that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's ability to obtain financing on acceptable terms
to finance the Company's operations and growth strategy, acceptance of the
Company's technology and services in the market place, telecommunications
industry trends towards solutions not addressed by the Company's business,
increasing competition in the information technology services market, the
ability to hire, train and retain sufficient qualified personnel, and the
ability to develop and implement operational and financial systems to manage the
Company's growth.
10
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 1999 the Company issued $1,000,000 of 6% convertible
debentures to Bamboo Investors, LLC, an investment fund managed by WEC Asset
Management, LLC, as well as a warrant to purchase 200,000 shares of common stock
and a special warrant to purchase an additional $1,000,000 of 6% convertible
debentures coupled with a warrant to purchase 200,000 shares of common stock.
The Company claims an exemption from registration under Section 4(2) of the Act
for this offer and sale. The securities were offered and sold to one investor
who the Company believed was an accredited investor. The investor agreed to
acquire the securities for investment and not with a view to their distribution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Filed With This Report
(a) 3.1 Amended Articles of Incorporation of Access Power,
Inc.
4.1 6% Convertible Debenture due September 30, 2001
4.2 Warrant to purchase common stock, par value $.001 per
share, of Access Power, Inc.
10.1 Retainer Agreement dated September 23, 1999, among
Access Power, Inc., Tatum CFO Partners, LLP and
Howard Kaskel
10.2 Securities Purchase Agreement dated as of September
30, 1999, among Access Power, Inc., certain
stockholders of Access Power, Inc. named therein and
Bamboo Investors, LLC
10.3 Warrant to purchase 6% Convertible Debentures and
common stock warrants of Access Power, Inc.
10.4 Registration Rights Agreement, dated as of September
30, 1999, by and among Access Power, Inc. and Bamboo
Investors LLC
10.5 Share Exchange Agreement dated as of September 30,
1999 between Access Power, Inc. and each of Glenn
Smith, and schedule of additional agreements
10.6 Web services agreement as of August 6, 1999 between
Access Power, Inc. and Lycos-Bertelsmann GmbH*
10.7 Consulting Agreement dated as of October 4, 1999
between Access Power, Inc. and Northstar Advertising,
Inc.
27 Financial Data Schedule.
------------------
*Certain portions of this exhibit have been omitted pursuant to a
request for confidential treatment.
(b) No Reports on Form 8-K were filed during this period.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCESS POWER, INC.
By: /S/ GLENN A. SMITH Date: October 29, 1999
----------------------------------------
Glenn A. Smith
President
/S/ HOWARD L. KASKEL Date: October 29, 1999
- ------------------------------------
Howard L. Kaskel
Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
3.1 Amended Articles of Incorporation of Access Power,
Inc.
4.1 6% Convertible Debenture due September 30, 2001
4.2 Warrant to purchase common stock, par value $.001 per
share, of Access Power, Inc.
10.1 Retainer Agreement dated September 23, 1999, among
Access Power, Inc., Tatum CFO Partners, LLP and
Howard Kaskel
10.2 Securities Purchase Agreement dated as of September
30, 1999, among Access Power, Inc., certain
stockholders of Access Power, Inc. named therein and
Bamboo Investors, LLC
10.3 Warrant to purchase 6% Convertible Debentures and
common stock warrants of Access Power, Inc.
10.4 Registration Rights Agreement, dated as of September
30, 1999, by and among Access Power, Inc. and Bamboo
Investors LLC
10.5 Share Exchange Agreement dated as of September 30,
1999 between Access Power, Inc. and each of Glenn
Smith, and schedule of additional agreements
10.6 Web services agreement as of August 6, 1999 between
Access Power, Inc. and Lycos-Bertelsmann GmbH*
10.7 Consulting Agreement dated as of October 4, 1999
between Access Power, Inc. and Northstar Advertising,
Inc.
27 Financial Data Schedule.