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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 12, 2000
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ACCESSPOINT CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
J.S.J. CAPITAL III, INC
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(Prior Name of Corporation Pre-Merger)
Nevada 000-29217 84-1522581
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation Pre-Merger) Identification Number
Pre-Merger)
Nevada 33-0679477
(State or Other Jurisdiction of (I.R.S. Employer Identification Number
Incorporation Post-Merger) Post-Merger)
38 Executive Park
Suite 350
Irvine, CA 92614
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(New Address)
(949)852-8526
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(Registrant's Telephone Number)
J.S.J CAPITAL III, INC.
1529 SPRUCE ST., STE. 10
BOULDER, CO 80302
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of April 12, 2000 between the registrant, J.S.J. Capital, III, Inc., a
Nevada corporation ("J.S.J.") and the registrant's parent corporation,
Accesspoint Corporation, a Nevada corporation ("Accesspoint"), all the
outstanding shares of common stock of J.S.J. were exchanged for an equal number
of shares of common stock of Accesspoint which were then cancelled and returned
to the authorized but unissued shares of Accesspoint in a merger transaction in
which Accesspoint was the surviving corporation. Pursuant to the merger J.S.J.
was the disappearing corporation and Accesspoint as the surviving corporation
has elected 12g-3 successor issuer status. The merger was accomplished pursuant
to Section 92A.180 of the Nevada Revised Statues pertaining to the merger of
subsidiary corporations into parent corporations.
The Merger Agreement was adopted by the unanimous consent of the Board
of Directors of both Accesspoint and J.S.J on April 11, 2000. No approval of the
shareholders of Accesspoint was required under applicable state corporate law.
No other approval of the owners of any constituent corporation was required
under applicable state corporate law. Accesspoint and J.S.J. complied in all
respects with the provisions of Nevada Revised Statute 92A.180 pertaining to the
merger of subsidiary corporations into parent corporations.
Prior to the merger, J.S.J. had 672,000 shares of common stock outstanding which
shares were owned by Accesspoint and, pursuant to the merger, exchanged for
672,000 shares of common stock of Accesspoint and immediately cancelled and
returned to the authorized but unissued shares of Accesspoint.
Prior to the effectiveness of the Merger Agreement, Accesspoint had an
aggregate of 14,964,182, shares of common stock, par value $.001, issued and
outstanding, and no shares of preferred stock outstanding, $.001 par value. Upon
effectiveness of the merger, the number of shares of common stock issued and
outstanding remained unchanged.
The officers of Accesspoint continue as officers of Accesspoint
subsequent to the Exchange Agreement. See "Management" below. The officers,
directors, and by-laws of Accesspoint will continue without change.
A copy of the Merger Agreement is attached hereto as an exhibit. The
foregoing description is modified by such reference.
The following table sets forth certain information as of December 31,
1999 with respect to (i) the beneficial ownership of the Common Stock of the
Company by each beneficial owner of more than 5% of the outstanding shares of
Common Stock of the Company, each director, each executive officer and all
executive officers and directors of the Company as a group, (ii) the number of
shares of Common Stock owned by each such person and group and (iii) the percent
of the Company's Common Stock so owned. Share ownership is based upon 14,831,727
shares of common stock outstanding on December 31, 1999.
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Security Ownership of Certain
Beneficial Owners and Management
(1) (2) (3) (4) (5)
Title of Name of Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner of Beneficial Class
Ownership
Common Tom M. Djokovich(1) 23332 Vista Carillo
Laguna Niguel, CA 92677 9,558,906 (2) 64.4%
Common (James W.) Bentley Family 26482 Valpariso
Trust,(3) Mission Viejo, CA 92691 3,525,785 (4) 23.8%
dated June 20, 1995
& Bentley Family Trust "C"
Common Alfred Urcuyo(5) 22729 Baltar St.
West Hills, CA 91304 116,910 (6) .78%
Common Dan M. Baer 11842 Percheron Road 28,954 (7) .19%
Garden Grove, CA 92643
Common George Taggart 3279 Coastal Oak 95,000 (8) .64%
Simi Valley, CA 93065
Common David Vargha 447 Appleton Rd. 35,000 (9) .24%
Simi Valley, CA 93065
Common All Directors & Executive N/A 13,360,555 90.1%
(1) Owned in conjunction with Tamara A. Djokovich.
(2) Includes the right to acquire within 60 days 2,163,793 shares of common
voting stock from options, warrants, rights, conversion privileges or
similar obligations.
(3) Benefiting James W. Bentley and Mary Ann Bentley. Includes the right to
acquire within 60 days 993,725 shares of common voting stock from options,
warrants, rights, conversion privileges or similar obligations.
(4) Includes the right to acquire within 60 days 415,980 shares of common voting
stock from options, warrants, rights, conversion privileges or similar
obligations.
(5) Alfred Urcuyo is employed by Processing Source International, Inc., a wholly
owned subsidiary of the Company.
(6) Includes the right to acquire within 60 days 0 shares of common voting stock
from options, warrants, rights, conversion privileges or similar
obligations.
(7) Includes the right to acquire within 60 days 14,048 shares of common voting
stock from options, warrants, rights, conversion privileges or similar
obligations.
(8) Includes the right to acquire within 60 days 5,000 shares of common voting
stock from options, warrants, rights, conversion privileges or similar
obligations.
(9) Includes the right to acquire within 60 days 5,000 shares of common voting
stock from options, warrants, rights, conversion privileges or similar
obligations.
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THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
A. GENERAL
Accesspoint Corporation ("Accesspoint" or the "Company") is engaged in
the business of developing Internet based financial transaction processing
systems. The Company provides these systems in the form of Web-based electronic
commerce ("e-commerce") software and services to small and midsize businesses.
The Company is an Internet infrastructure company that provides transaction
engines that power e-commerce. Rather than offer its core products and services
directly to the merchant community, the Company wholesales its solutions through
larger business organizations, including transaction processors, banks, merchant
bankcard service companies and other business service providers.
The Company provides bundled, feature-rich, completely Internet Web
based and hosted e-commerce software and services and merchant bankcard
processing solutions at reasonable prices. The Company's core products are
Merchant Manager and Transaction Manager. The software and services of the
Company allow businesses to construct merchant web sites, which reside on the
Company's server computers and offer products and services and process payments
on the Internet without buying expensive computer server equipment and
committing the other financial resources necessary to implement a full-scale
Internet commerce infrastructure. The Company licenses its e-commerce software
in conjunction with its hosting services.
The Company is able to provide merchant account services, credit card
processing, electronic check payment, and other bankcard financial related
services through its wholly owned subsidiary, Processing Source International
Inc., ("PSI").
In addition to its e-commerce services, the Company also provides, as a
historical part of its business, web site design and Internet connectivity (ISP)
services. The Company stopped actively marketing ISP services in January 1997.
The Company's core software and services are delivered through the Internet. The
Internet, as is now widely known, is a collection of networks connecting
millions of public and private computers around the world.
The Company's executive offices are located at 38 Executive Park, Suite
350, Irvine, California 92614, telephone number (949) 852-8526.
The Company's fiscal year end is December 31.
B. BACKGROUND
The predecessor of the Company, also named Accesspoint Corporation, was
incorporated in Nevada on October 11, 1995. Reference to Accesspoint Corporation
herein refers to the historical Accesspoint Corporation, a Nevada company,
unless the context otherwise requires. On March 19, 1999 Accesspoint Corporation
merged with Yamahama's, Inc., a Nevada corporation incorporated on June 16,
1997.
C. BUSINESS STRATEGY
The Company's marketing strategy is to create a favorable environment in
which to distribute its transaction engines to businesses. The Company intends
to enhance, promote and support the fact that the Company is the premiere
provider of bundled, feature-rich, Web-based e-commerce and merchant bankcard
processing solutions at affordable prices that allow business users to take
advantage of profit opportunities using the Internet.
A number of factors, including the following, have combined to produce
rapid growth in the number of Internet users:
- The proliferation of communication-enable person computers
- The availability of easy-to-use web browsers and graphical user
software
- The wide accessibility of an increasingly robust network
infrastructure
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The World-Wide-Web (Web) is a network of graphic rich pages, which are
interconnected by hyperlinks over the Internet. The Web is accessed through easy
to use graphical software called a Web browser. A user can view Web pages in a
Web browser. A simple mouse click on a hyperlink embedded in a Web page takes
the viewer to the linked page. The linked page may reside on a computer in a
different part of the world and may contain its own embedded hyperlinks. The Web
utilizes the Internet computer network and in some regard has become almost
synonymous with the Internet. The company takes advantage of the graphical
powers and ease of use of the Web and Web Browsers to provide its software and
services.
Rather than offer transaction engines directly to the merchant
community, the Company offers master distribution licenses to transaction
processors, banks, merchant bankcard service companies, insurance companies and
other business service providers. The Company is developing a marketing and
sales strategy designed to create market awareness for its core products,
Merchant Manager and Transaction Manager, and to license these e-commerce
solutions to prospective customers in its target market segments through master
distributors.
The Company's distribution strategy is also designed to allow the
Company to distribute its core products through major credit card processing
companies. The Company offers substantial marketing credits for volume
commitments from its master distributors. The Company collects a monthly
transaction servicing fee that falls well within normal acceptable industry fee
standards for normal processing services. Merchants pay total fees equal to
existing industry standards for credit card processing, while at the same time
receiving the benefits of Internet commerce
Master distributors typically offer merchants the Company's core product
along with a merchant bankcard processing account. Merchants then pay only
typical merchant bankcard servicing fees for this bundled service.
The Company recently acquired PSI, a merchant bankcard processor based
in Canoga Park, CA. PSI is a merchant bankcard services provider. PSI is
currently establishing an in house processing division complete with both
merchant account underwriting and risk management capabilities. PSI is also a
master distributor of the Company's solutions, and has provided the Company with
valuable access channels to the processing industry. Acquiring PSI was a
significant step in implementing the next stage of the Company's strategic
business development plans.
D. PRINCIPAL PRODUCTS AND SERVICES
Merchant Manager Enterprise
Merchant Manager Enterprise is a comprehensive entirely Web based
enterprise-class e-commerce solution that enables any business to establish a
presence on the Internet with minimal investment and overhead. Simple web
browser based administration tools provide businesses with an interface for
controlling their entire on-line business. A typical business need not invest in
new hardware because Merchant Manager Enterprise comes complete with a
transaction gateway, hosting service, e-mail, technical support, and a full
suite of tools necessary to rapidly implement and maintain a commercial presence
on the Internet.
The Merchant Manager Enterprise tool set is extensive. Merchant Manager
Enterprise tools provide such business management and development features as
content creation and management (web page and web catalog creation), business
accounts management, point of sale (POS) accounting and inventory control, order
processing, marketing tools, data base management, and transaction processing
(both cash and non-cash forms of payment).
Using the Merchant Manager Enterprise systems allows merchants to either
establish a new business on the Web or extend their current traditional business
efforts onto the Web. As a networked product, Merchant Manager Enterprise allows
a typical business to integrate the features of Merchant Manager Enterprise with
many existing legacy software systems.
Transaction Manager
The Transaction Manager system was built by extracting technology from
the Merchant Manager Enterprise system. Transaction Manager employs the
transaction processing gateway from the Merchant Manager Enterprise system which
is combined with other features extracted from the Merchant Manager Enterprise
such as order process and tracking features, automated invoicing, and a
universal shopping system. The universal shopping system allows companies to
quickly and easily e-commerce enable their static web sites.
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Transaction Manager provides full online transaction processing
functionality with features such as online customer credit card authorizations,
Level III purchase card, EFT/ACH authorizations, secure P.O's, batched
transactions, fraud detection and prevention, and full transaction reports.
Transaction Manager can be integrated into virtually any Internet storefront.
Just as with Merchant Manager, no hardware or software purchases are required
and Transaction Manager can be used with virtually any platform.
Merchant Manager
Merchant Manager is designed to make the Merchant Manager Enterprise
system accessible to those who find the Merchant Manager Enterprise to be more
than they need. Using a structured, logical flow for site creation, the Merchant
Manager interface lets anyone create a complete on-line store in minutes. While
Merchant Manager includes many of the tools utilized by Merchant Manager
Enterprises, it emphasizes simplicity and ease of use while still addressing the
basic needs of managing an online business.
Custom Application Programming
The Company also provides custom application programming. The Company
has created custom application programming interfaces ("API") for use by its
customers and distributors in implementing the Company's products and e-commerce
solutions. In most instances, the API's become the shared property of the
Company and its customer or distributor. The Company provides API development
services on a fee basis.
E. THE INDUSTRY AND MARKET
In developing and offering its products and services, the Company
participates in the Internet economy and is highly dependent on the future
growth of the Internet. The Company has targeted the market for e-commerce
products and services and intends to capture significant revenues from the
growth of Internet-based transactions and e-commerce.
The Company feels that the consumer online and Internet services
industry is now in the early stage of an evolution that is embracing both
consumers and businesses worldwide. The Company feels that the Internet is
moving closer to a mass market. A study by International Data Corp. (IDC),
projects that the number of Web users in the U.S. will increase to approximately
136 million in 2002. Studies project that the number of Web users outside the
U.S. will increase even more rapidly.
In 1999, the Pew Research Center reported that over the prior three
years, the number of Americans who own computers had grown to 43% from 36%, and
the percentage using the Internet and e-mail has increased even more. Now, 41%
of Americans go online -- up from just 14% in 1995. As the online population
expands, there are signs that the Internet -- used by a relatively small and
elite group several years ago -- is beginning to reach a broader cross-section
of the public.
Businesses have begun using the Internet as a fourth channel --
supplementing face-to-face, mail and phone commerce with electronic shopping
ordering. By eliminating many of the costs involved in executing routine
commercial transactions, such as simple banking services and retail purchases,
the Internet is rapidly providing individuals and organizations with a new
medium for conducting business.
Trade catalogs of industrial parts, office supplies, electrical
components and health-related goods have been a mainstay of business trade.
However, traditional paper-based catalogs are expensive to produce and ship,
limited in number of products offered, the same for all customers and difficult
to change. The Internet enables dynamic catalogs to spring to life, even for
products that are ordered in regard to bid-oriented contracts.
According to IDC, the worldwide market for Internet-related services is
expected to increase from $4.5 billion in 1997 to $43.6 billion in 2002. IDC
states that this rapid progress is largely a result of the rush to implement e-
commerce Web sites. E-commerce is a rapidly growing business platform that
provides the potential for a global marketplace for large and small
corporations.
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Businesses are increasingly recognizing the need to take advantage of
the Internet by establishing Web sites that provide information about them and
their products and services. As a result, high performance and reliable Web site
hosting services have become critical for many businesses and many of these
businesses are seeking to outsource these functions in order to ensure
reliability, high performance, scalability, sophisticated monitoring and expert
management. The Company's products and services are designed to provide
solutions for outsourcing these critical business functions.
IDC estimates that Web hosting revenues generated by small to midsize
businesses in the U.S. will grow from $217 million in 1997 to over $3.4 billion
in 2000. Only approximately 10% of all small businesses have Web sites,
according to IDC. However, IDC expects small to midsize businesses to generate
most of the growth in the Web hosting market, and to account for 95% of the
total estimated Web hosting market in the U.S. by 2000. Many of these businesses
find an outsourced Web hosting solution effective because they lack the
technological expertise, IT resources, capital or ability to bear the time-to-
market risks required to install, maintain and monitor their own Web servers and
Internet connectivity.
The Company believes that the small business growth engine that's
fueling the current eight-year U.S. expansion will get a boost from the
Internet. As of the end of 1999, it is estimated that less than 10% of all small
businesses promoted themselves on the Internet, and less than 3% had e-commerce
capabilities. As more small businesses develop an online presence, e-commerce
demand and opportunities are expected to increase as should the opportunities
for the Company's products and services.
F. COMPETITION
The markets in which the Company operates are extremely competitive and
can be significantly influenced by the marketing and pricing decisions of the
larger industry participants. There are few barriers to entry, and the Company
expects that competition will continue to intensify in the future. The Company's
current and prospective competitors include many large companies that have
substantially greater market presence and financial, technical, marketing and
other resources than the Company. Since the Internet service industry emerged,
the number of competitors has grown to over 5,000 in the U.S. alone. The Company
expects competition in these markets to intensify.
The following companies compete in the e-commerce market and generally
provide boxed solutions that require customer integration and hosting services:
Low End (less than $10,000, limited features and limited integration to
back-end systems).
- Internet Business Breakthrough - a lowest priced product,
Internet Business Breakthrough allows a business to build a commerce enabled Web
site. This product is targeted for small business and provides a limited number
of functions.
- Intershop Communications - Intershop Online 2.0 is a Web based
product designed for creating and managing a single online catalog on the
Internet. The company provides a leasing program to reduce the monthly expense
for customers.
- INEX Corporation - INEX provides a suite of Internet Commerce
applications that allow organizations to conduct business over the Web.
Businesses have the option of hosting a Web online catalog locally or remotely
through an Internet Service Provider. INEX Commerce Court is designed for small
to midsize businesses and includes a back-end management system.
- Mercantec, Inc. - Mercantec has developed SoftCart 3.2, an open
retail electronic commerce software package that allows merchants to use their
existing infrastructures. SoftCart 3.2 works with existing Web development
tools, databases, order fulfillment and accounting systems.
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- Virtual Spin - Formerly known as Cartalog, Virtual Spin Internet
Store is a browser-based product that allows a business to build, edit, and
manage an Internet Storefront from a common browser. Using a simple user
interface, the business can build an Internet Store within an hour.
- Yahoo! Store - with the Yahoo! Store businesses use a browser to
create a site that is hosted on the Yahoo! Web server. With the
basic service, a business can build a store and have up to 50 items
for sale. Yahoo! Store is a Web based, hosted solution.
Mid-Range $(10,000 -$25,000, medium level of features and
medium level of back-end integration)
- BroadVision - BroadVision's One-to-One Commerce is a turnkey
WebAp Internet commerce production system for businesses selling products to
other businesses. BroadVision also offers One- to-One Financial, a system that
allows financial institutions to deploy secure and personalized financial
services via the Web.
- Commerce One - Commerce One solutions connect the buyer
enterprise to diverse supplier systems, providing a real-time transaction
capability to both buyers and suppliers. With a single application, the buyer
can interactively check prices and inventory, place orders and reconcile order
exceptions in real time, automating functions traditionally performed by the
supplier's customer service staff. Multiple supplier inventories can be viewed
accurately from the user's desktop, creating one virtual, real-time "warehouse".
High End (more than $25,000, high level of features and high
level of integration to back-end systems)
- Pandesic - A company jointly owed by Intel and SAP, Pandesic
provides an e-commerce solution that automates the full range of back-end
business processes for Web based commerce. Pandesic features include automated
accounting and inventory balancing, real-time payments and dynamic financial
reporting, warehousing and inventory management, customer profiling, financial
accounting, catalog management, security and online catalog and Web page design.
- IBM - IBM will make virtually anything a business desires. The
only limitations are time and money.
"Free" E-commerce Sites
The following companies offer some form of "free" e-commerce site
service to businesses, usually as a lead-in to promote additional or premium pay
services:
- Bigstep.com
Business model: Sponsorships, premium services
Offerings: Hosting, site building and management, catalog, credit card
processing, mailing-list management, site traffic and buying trend analysis. Is
not believed to offer export order and payment information to account system or
mailing list management.
- eCongo.com
Business model: Sponsorships, premium services, selling stand-alone service
Offerings: Hosting, site building and management, catalog, credit card
processing, banner exchange with other merchants, site traffic and buying trend
analysis. Is not believed to offer export order and payment information to
account system or mailing list management.
- freemerchant.com
Business model: Partnerships with vendors who want to reach small-business
audience Offerings: Hosting, site building and management, catalog, credit-card
processing, export order and payment information to account system, banner
exchange with other merchants, mailing list management, site traffic and buying
trend analysis.
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Competitive Analysis
The major strengths of the Company's competitors include their simple
existence in the marketplace. Many of the competitors have longer operating
histories and greater installed bases of products than the Company. Some of the
competitors, such as IBM, Pandesic and BroadVision have substantially greater
resources available for marketing and further product development than does the
Company. Some of the competitors, such as IBM, Pandesic and INEX offer
substantially more integration to back-end systems than does the Company.
The major weaknesses of the Company's competitors are varied. Some, such
as IBM, Pandesic and BroadVision are expensive and require the customer to make
a major commitment of time and resources to fully integrate e-commerce. Other
competitors such as Internet Business Breakthrough and iNet do not supply
systems that, in the opinion of the Company, are sufficiently robust to meet the
needs of businesses in the market segment targeted by the Company. Most
competitors do not provide the level of service offered by the Company. In most
comparisons, the Accesspoint e-commerce solution provides more features and has
superior performance over competitive products, relative to cost. In most cases,
the number of differences is substantial. No other competitor's products provide
the same capabilities in a situation where a customer requires rapid deployment
of an e-commerce system, limited interruption of back-end systems and a
reasonable cost.
Company Strengths
In terms of product/service strength, the Company has several distinct
advantages over the competition. First is its approach to service. Rather than
purchase new hardware and software, a business may engage in e-commerce
immediately by using the fully hosted Accesspoint e- commerce solution. The
business will have its own customized online catalog or dynamic catalog to
present to its customers. Its customers may order and payment can be made by
credit card, all without adding personnel. True database marketing becomes
possible. The business is not required to replace its existing back-end systems.
Secondly, the Company provides integrated transaction engines that
support multiple payment type and processor platforms. This ensures that
businesses will have seamless and secure transaction processing abilities across
multiple platforms.
Other product strengths include the Company's approach to software
development. The Accesspoint e-commerce system was designed to provide
businesses with maximum Internet flexibility. The Accesspoint e-commerce system
modular DST architecture, based on Internet standards such as HTML, SSL, VRML,
ASP, JAVA, C++, Active X, COM, ODBC and CORBA provide a very cost-effective path
for growth and scalability.
Since the Accesspoint e-commerce system is based on the Company's Web
server infrastructure, the cost to produce and deliver software upgrades is
extremely low. Customers receive software upgrades as soon as they become
available. Legacy systems application programming and interfacing (APIs) and
various service application upgrades of features can be provided to all
customers quickly and efficiently, thereby reducing the complexities and
dynamics of customer integration.
Company Weaknesses
While there are some weaknesses inherent in the Company's products, the
only notable marketplace disadvantage is the added time and expense required if
a business insists that the Accesspoint e-commerce system be fully integrated
into the business' back-end systems. Because there is so much diversity in
back-end systems, no single e-commerce software product will automatically link
to all existing order entry and inventory management modules. Full integration
requires either replacing the back-end systems or substantially customizing the
e-commerce system to work automatically with the existing back-end systems. Both
approaches can be costly. However, the Company's DST service technology provides
customers who choose to fully integrate into their back-end systems with a more
cost effective and rapid time-to-market solution that can continuously be
adapted to the evolving business model.
Most small to midsize businesses are not prepared to proceed with
costly e-commerce systems. The Company believes that most business
will accept something less than full integration as an intermediate solution
to gain the benefits associated with e-commerce. Nevertheless,
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competitors that have designed e-commerce systems to integrate with specific
back-end systems or customize their e-commerce systems to integrate with
existing back-end systems will find some success in the Company's target market
segment.
G. RESEARCH AND DEVELOPMENT - NEW PRODUCTS
The Company plans to continually develop new products and services and
enhance existing products and services. Consistent with its focus on merchant
business needs, the Company intends to further address the market for
transaction processing services. In response to the demonstrated needs of the
Company's market, new products and services being developed in the near future
include:
EFT/ACH Web Based Processing
The Company is currently in the final stages of beta testing of its
on-line bill presentment and Electronic Funds Transfer (EFT) projects. It is
anticipated that upon certification of the EFT project utilizing the Automated
Clearing House (ACH) network, the Company's merchants/clients will be able to
accept payment by check over the Internet.
Integrating electronic funds transfer into the Company's Transaction
Manager and Merchant Manager Enterprise products will provide the Company's
customers with the ability to access the growing market for non-credit
card-based Internet transactions. Both the business- to-business and
business-to-consumer market segments clearly indicate that on-line payment by
check is an option that continues to grow in acceptance and thus the Company is
responding quickly to facilitate its implementation.
Paymentech High Speed Internet-Based Credit Card Processing
The Company is currently in the development stages of its high- speed
Internet based transaction processing program for certification with Paymentech
into their Salem, NH and Tampa, FL platforms. Paymentech's Salem platform is
believed to be among the most advanced payment processing systems, hosting
clients such as AOL, Amazon.com and eBay. The programs in development are
expected to provide secure high speed processing support for credit card, Level
III Purchase Card and ACH transactions, as well as improved fraud prevention
capabilities.
When completed, this certification is anticipated to bring the Company's
transaction services network closer to supporting the largest number of
completely Web based transaction engine platforms in the industry.
Processing Terminal Web Integration
The Company is currently in the beta stage of development of an
integrated terminal based point of sale system. When completed this service is
expected to allow brick and mortar merchants to accept and process their card
present transactions using local terminal based equipment which would be
processed via the Company's Web based gateway. Advantages to merchants in this
processing model include the use of a single merchant account capable of
processing both card present and Web based transactions, a common point of
integration that captures both retail and Web based point of sale orders for
inventory and accounting management, and the centralization of business data and
processes that can provide more efficient access to critical business
information and greater controls for standardization of the business processes.
Wireless Access and Mobile Computing Protocols
The Company is currently modifying the content and transaction
management programs of it's Transaction Manager and Merchant Manager services to
provide automated support for several wireless and mobile computing protocols
such as Wireless Access Protocol (WAP), Web Clipping browser protocols, Wireless
Markup Language (WML) technologies, and secure messaging features.
The Company anticipates broad acceptance for these types of inexpensive
yet highly effective wireless network computing services.
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It is expected that many businesses will adopt and require the integration of
these types of services to both empower and better manage a dispersed and highly
mobile work force. By continuing to provide the most comprehensive support for
transaction processing and mobile computing services, the Company is positioning
itself to capitalize on the growing number of businesses seeking to adopt the
use of these technologies.
Equifax Trusted Authentication Services
The Company foresees a growing trend in the need for Web based trusted
authentication services as an integrated feature set of its award winning
product line. The Company is currently developing systems that provide point of
payment authentication service that verify the identities of payment issuers for
both consumer and business based transactions. These systems will employ credit
and financial data base services provided by Equifax Secure, a leading provider
of consumer and business based credit and financial reporting services.
Trading Manager
The Company is currently developing Trading Manager, a new transaction
engine that is intended to bring buyers and sellers together for online trading.
Trading Manager will be a standardized Web-based platform for small and medium
sized businesses, as well as corporate purchasing departments, to buy and sell
products in secure, online open and private marketplaces. The Company plans to
charge business customers a processing fee for each transaction. Trading Manager
features will include quote and proposal functions, auction and reverse auction
capabilities, transaction processing, secure payment, content management,
catalog management, account management, as well as full business logic
capabilities.
H. EMPLOYEES
The Company currently has 41 full time employees working at its Irvine,
CA location. The Company employs 13 employees in administration/management
positions and 28 employees in engineering / technical and support capacities.
The Company currently has 2 part time employees. PSI employs no part-time
employees. The Company's subsidiary PSI currently has 26 full time employees.
PSI employs 10 employees in administrative/management positions and 16 employees
in sales positions.
The Company expects to hire up to a total of 36 more employees in 2000,
filling management, sales, engineering/technical and support staff positions.
None of the Company's employees are represented by a labor union or are subject
to a collective bargaining agreement, nor has the Company experienced any work
stoppage.
The company has written employment agreements with 10
employees, including Tom M. Djokovich, Al Urcuyo, George Taggart,
David Vargha and Richard B. Anderson.
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
REGISTRATION STATEMENT, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THEM.
A. SUMMARY OF FINANCIAL DATA
The following summary financial data should be read together with this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements included elsewhere in this Registration
Statement.
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Statement of Operations(10)
Years Ended December 31,
1999 1998
------------ ------------
Revenues .................................... $ 2,479,770 $ 1,341,283
Cost of sales and services .................. 426,902 248,670
Selling and marketing ....................... 603,461 547,427
General and administrative .................. 2,879,103 833,713
Depreciation ................................ 161,071 (36,467)
Profit (loss) from operations ............... (1,590,767) (324,994)
Interest expense, net ....................... 72,603 62,233
Extraordinary expense ....................... 169,875 --
Income taxes paid ........................... 1,600 800
------------ ------------
Net profit (loss) ........................... $ (1,834,845) $ (388,027)
============ ============
Net loss per Common Share:
Basic: .............................. $ (0.12) $ (0.03)
Diluted: ............................ $ (0.12) $ (0.03)
Weighted average number of Common Shares:
Basic: .............................. 14,704,000 14,576,000
Diluted: ............................ 14,704,000 14,576,000
Consolidated Balance Sheet(11)
Years Ended, December 31,
-----------------------------
1999 1998
----------- -----------
Cash .................................... $ 54,348 $ 7,284
Accounts receivable ..................... 560,845 70,510
Other current assets .................... 33,317 3,279
Fixed assets, net(12).................... 452,259 226,758
Other assets ............................ 32,337 7,283
----------- -----------
Total assets .......................... 1,133,106 315,114
=========== ===========
Total current liabilities ............... 1,035,322 719,227
Long term liabilities ................... 378,925 65,528
----------- -----------
Total liabilities ..................... 1,414,247 784,755
----------- -----------
Common stock ............................ 14,832 14,576
Additional paid in capital .............. 2,315,265 292,176
Retained earnings (deficit) ............. (2,611,238) (776,393)
----------- -----------
Total shareholders' equity (deficit) .. (281,141) (469,614)
----------- -----------
Total liabilities and
stockholders' equity .................. $ 1,133,106 $ 315,114
=========== ===========
(10) For the fiscal years ended, 1999 and 1998, other than capital raised
pursuant to stock sales, the Company has had no operations and no revenue prior
to the merger with the Company's predecessor, Accesspoint Corporation. However,
the Company's predecessor, Accesspoint Corporation has had prior revenue. The
merger has been treated as a pooling transaction for accounting purposes.
(11) For the fiscal years ended, 1999 and 1998, other than capital raised
pursuant to stock sales, the Company has had no operations and no revenue prior
to the merger with the Company's predecessor, Accesspoint Corporation.
(12) Net accumulated depreciation of $344,329 and $183,760 in 1999 and
1998, respectively.
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B. OVERVIEW
The Company's primary software products consists of Merchant Manager
Enterprise, a complete and secure fully hosted e-commerce solution for small to
midsize businesses, which provides an on-line store, catalog and credit card
processing abilities; Transaction Manager, an on-line credit card processing
solution for small to midsize businesses; and Merchant Manager, hosted
e-commerce solution providing a simple to learn and simple to use set of tools
derived from Merchant Manager Enterprise. The Company provides hosting services
in conjunction with its software products.
The Company has incurred losses since the inception of its operations.
At December 31, 1999, the Company had an accumulated deficit of $(2,611,238). To
date, the Company has relied substantially on private placement offerings of
debt and equity to offset its losses and to fund its ongoing operations,
research and development programs and business activities.
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C. RESULTS OF OPERATIONS
Year Ended, December 31, 1999 Compared With Year Ended,
December 31, 1998
Revenues for the year ended, December 31, 1999 increased to $2,479,770
from $1,341,283 for the year ended, December 31, 1998. The increase of
$1,138,487, or 84.9% resulted primarily from the acquisition of PSI and the
increased sales of the Company's products and services by PSI. The increase can
also be attributed to marketing efforts in the development of wholesale sales
channels and master distributors.
Cost of sales for the year ended, December 31, 1999 increased to
$426,902 from $248,670 for the year ended, December 31, 1998. The increase of
$178,232 or 71.7% resulted primarily from the expansion of the Company's network
infrastructure and additional connectivity charges needed to service its
customers and clients.
Selling and marketing expenses for the year ended, December 31, 1999
increased to $603,461 from $547,427 for the year ended, December 31, 1998. This
increase of $56,034, or 10.2% resulted primarily from trade show expenses,
advertising consulting costs, printing costs for brochure and promotional
materials, and web site development costs.
General and administrative expenses for the year ended, December 31,
1999 increased to $3,040,174 from $870,180 for the year ended, December 31,
1998. The increase of $2,169,994, or 249.4% resulted primarily from a increase
in legal and accounting expenses, an increase in total payroll expense of
$976,736 from $457,297 in 1998 to $1,434,033 in 1999, and an increase in travel
expenses primarily due to business development needs. Depreciation expense also
increased in the amount of $124,604 from $36,467 in 1998 to $161,071 in 1999
because of the increase in fixed assets.
Interest expense, net, for the year ended, December 31, 1999 was
$72,603, as compared to $62,233 for the year ended, December 31, 1998. The
increase of $10,370, or 16.7% in interest expense resulted primarily from the
addition of computer equipment financed under capital lease agreements.
Extraordinary expense for the year ended, December 31, 1999 was
$169,875, as compared to $0 for the year ended, December 31, 1998. The increase
of $169,875, or 100.0% was a direct result of payment of a settlement amount
under a lawsuit. PSI vigorously contested the action and concluded that it was
in the best interests of PSI to resolve the matter without incurring further
attorney's fees. The expense was a one-time charge.
Net loss for the year ended, December 31, 1999 and the year ended,
December 31, 1998 was $(1,834,845) and $(388,027), respectively.
D. Liquidity and Capital Resources
Working capital (deficit) at December 31, 1999 was $(386,812) as compared to
$(638,154) at December 31, 1998.
The Company has funded its operations and working capital needs through a series
of private equity and debt offerings including Regulation D private placements
and loans.
Cash and cash equivalents at December 31, 1999 were $54,348, an increase of
$47,064 from December 31, 1998. During the year ended, December 31, 1999, the
Company used $1,820,110 net cash in operating activities as compared to using
$153,480, for the year ended, December 31, 1998. This increase of cash used in
operations of $1,666,630 was primarily the result of the increase in the net
loss for 1999.
During the year ended, December 31, 1999, the Company used $28,844 for investing
activities as compared to $0, for the year ended, December 31, 1998. The
increased use of cash for investing activities resulted from an increase in the
acquisition of fixed assets.
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During the year ended, December 31, 1999, the Company generated net cash
of $1,896,018 from financing activities as compared to $314,244 for the year
ended, December 31, 1998. The increase of $1,581,774 resulted from funds raised
in a Regulation D, Rule 504, private placement of common stock.
The Company currently leases office space on a short-term ten-month
sub-lease basis and could be required to move after the expiration of the ten-
month period in June 2000. The Company may attempt to re-negotiate a longer-
term lease at its present location. The major capital expenditures the Company
could incur if it needed to move would be related to relocation of office
computers, local area network hardware, office telephony and office equipment
and furniture. However, the Company houses its Internet computer servers and
Internet network equipment and components at the Exodus Communications Center
located in Irvine, CA. The Company does not anticipate a foreseeable need to
re-locate its Internet computer servers, Internet network equipment and
components.
The Company had, at December 31, 1999, working capital of $(386,812).
The Company believes that cash generated from operations will not be totally
sufficient to fund its current and anticipated cash requirements. The Company
believes that it has sufficient capital to fund it capital needs through
approximately January 2000. The Company plans to obtain additional financing
from equity and debt placements prior to the end of January 2000. The Company
does not believe that its current operational plans for the next twelve months
will be curtailed or delayed because of the lack of sufficient financing. The
Company has been able to raise capital in a series of equity and debt offerings
in the past. While there can be no assurances that the Company will be able to
obtain such additional financing, on terms acceptable to the Company and at the
times required by the Company, or at all, the Company believes that sufficient
capital can be raised in the foreseeable future.
E. Net Operating Loss
For federal income tax purposes, the Company has net operating loss
carryforwards of approximately $237,985 as of December 31, 1998 and $1,792,605,
as of December 31, 1999. These carryforwards expire in the years 2009 and 2018,
respectively. The use of such net operating loss carryforwards to offset taxable
income, if achieved, may be subject to specified annual limitations (see "Risks
of Our Business Limitations on Net Operating Loss Carry Forward")
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
A. DIRECTORS AND EXECUTIVE OFFICERS
The following table and text sets forth the names and ages of all
directors and executive officers of the Company and the key management personnel
as of December 31, 1999. The Board of Directors of the Company is comprised of
only one class. All of the directors will serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
stockholders. Except as otherwise noted, there are no family relationships among
directors and executive officers. Also provided is a brief description of the
business experience of each director and executive officer and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
Directors & Executive Officers
Name Age Position
---- --- --------
Tom M. Djokovich 42 Chairman of the Board of Directors,
Chief Executive Officer, Secretary
James W. Bentley 53 President, Director
Tamara A. Djokovich 36 Treasurer, Director
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Alfred Urcuyo 36 Office of the President, Director
Mark Deo 43 Director
George Taggart 49 Chief Operating Officer
Dave Vargha 38 Vice President of Business Development
Key Management Personnel
Name Age Position
---- --- --------
Dan M. Baer 40 Vice President of Network Engineering
Kyle Waltz 26 Vice President of Software Engineering
Richard B. Anderson 30 Controller
Travis Williams 32 Director of Customer Care
Tom Maresh 29 Director of Technical Services
Mary Ann Bentley 49 Vice President and Operations Manager
B. BACKGROUND AND EXPERIENCE - DIRECTORS AND EXECUTIVE OFFICERS
Tom M. Djokovich, Chairman and CEO
Mr. Djokovich is the founder of the Company and served as Chairman of
the Board and Chief Executive Officer from inception until October 1997. Tom M.
Djokovich is married to Tamara A. Djokovich who serves as a Director of the
Company. Mr. Djokovich was elected to the Board of Directors on March 19, 1999
and his term expires at the next election of Directors. Prior to establishing
the Company, Mr. Djokovich was the owner and operator of TMD Construction and
Development, a real estate construction and development management company he
founded in 1979. TMD provided commercial, industrial and custom residential
construction services as a licensed contractor in California, including
effective cost management of multimillion-dollar projects incorporating hundreds
of employees, subcontractors and international materials acquisition. Mr.
Djokovich was responsible for the direct management of projects, operations and
client development. In 1994, the concrete industry awarded Mr. Djokovich their
highest recognition for "Best Custom Home Project" in their national and
international competitions. Mr. Djokovich has also provided construction
management and real estate deposition services as a court appointed receiver,
consulting on 15 projects to date.
James W. Bentley
Mr. Bentley serves as the Company's President and as a member of the
Company's Board of Directors. James W. Bentley is married to Mary Ann Bentley
who serves as the Company's Operations Manager and Vice President. Mr. Bentley
was elected to the Board of Directors on March 19, 1999 and his term expires at
the next election of Directors. Mr.Bentley also serves as Chairman of the Board
for Bentley Simonson, an independent oil and gas production and exploration
company he co- founded in 1987. Prior to joining the Company, Mr. Bentley was a
consulting engineer for Little Chemical Company, a specialty chemical company,
from 1992 to 1996. In 1992, Mr. Bentley founded Bentley Marine Video, a
technology company which supplied the U.S. military with computer hardware,
underwater video and night vision technology, where his flagship product
received the Testers Choice Award from Scuba Diver Magazine. Bentley Marine
Video was recently sold by Mr. Bentley.
In 1988,
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Mr. Bentley co-founded Quest Marine Video, a manufacturer of underwater video
equipment, serving as its Chairman of the Board and Chief Executive Officer
until its sale in 1992. In 1971, Mr. Bentley founded Bentley Ranches, Inc., a
50,000-acre cattle ranch with interests in cattle, hay and timber, serving as
its President until its sale in 1993. From 1963 to 1970, Mr. Bentley helped his
father launch Bentley Laboratories, a medical device manufacturer, which went
public in 1969 and was subsequently sold to American Hospital and Supply in
1980.
Tamara A. Djokovich
Mrs. Djokovich was elected to the Board of Directors on March 19, 1999
and her term expires at the next election of Directors. Tamara A. Djokovich is
married to Tom M. Djokovich who serves as a Chairman of the Board of Directors,
Chief Executive Officer and Secretary of the Company. Mrs. Djokovich currently
serves as the Assistant City Attorney for the City of Santa Ana, working
primarily with the Public Works Agency, specializing in construction law and
solid waste law. From 1991 to 1994, Mrs. Djokovich served as General Counsel for
the Central Orange County Fixed Guideway Agency. Prior to working for the City
of Santa Ana, Mrs. Djokovich was an Associate Attorney for the Law Offices of
Bowie, Arneson, Kadi & Dixon, where she represented various water and school
districts throughout Southern California. Mrs. Djokovich holds a Bachelor's
Degree from the University of California, Irvine, and a Law Degree from Western
State University.
Alfred Urcuyo
Mr. Urcuyo was elected to the Board of Directors on March 19, 1999 and
his term expires at the next election of Directors. Mr. Urcuyo is a successful
entrepreneur and business executive. In 1999, Mr. Urcuyo founded Processing
Source International (PSI) to provide merchants with fully integrated,
one-stop-shop e-commerce solutions. He successfully negotiated strategic
alliances with Internet companies such as Sage Networks, IdeaCenter and Las
Vegas Internet. Prior to founding PSI, Mr. Urcuyo, recognizing the tremendous
market opportunities in the transaction processing industry, founded Cardservice
America as an independent agent of Cardservice International. In the first year,
his company produced the second highest sales of debit transactions in the
nation for Cardservice International. In 1997, Mr. Urcuyo founded Home Loan
Mortgage and within one year, he successfully sold the business. In 1996, Mr.
Urcuyo founded Marketplace Consulting, Inc. Marketplace Consulting served
several major clients, such as Peter Foy & Associates, whose client list
includes J.D. Power & Associates, Dewey Pest Control, and Hughes Supermarkets.
In 1992, Mr. Urcuyo joined Southern California Construction Consultants as
General/Sales Manager. He recruited a sales staff of over 60 people and helped
build a successful home improvement company. In 1988, Mr. Urcuyo entered into a
distribution agreement with Multi-Flavor, a small manufacturer of yogurt
machines. Over the next four years, he built a successful national sales
distribution organization and increased sales over 600%. Prior to Multi- Flavor,
Mr. Urcuyo joined Poolsaver, an Anthony Industry company, where he set several
sales records and was offered the position of General Manager for the Northern
California Division.
Mark Deo
Mr. Deo serves as a member of the Company's Board of Directors. Mr. Deo
was elected to the Board of Directors on March 19, 1999 and his term expires at
the next election of Directors. Mr. Deo also has served as a consultant to the
Company since June 1998. He is the founder and senior partner in I.T.
Advertising, a full service marketing and management firm founded in 1991. Mr.
Deo assists clients in strategic planning and direction in both marketing and
management. In addition he was senior VP of The Elite Group, an international
marketing and management consulting group. With the Elite Group, Mr. Deo led
the consulting relationship for American Express and consulted the Yamaha
Corporation in their Hamamatsu offices. Mr. Deo is also a dual course
instructor for Dale Carnegie training worldwide.
George Taggart
Mr. Taggart brings over 20 years of professional sales experience
to the Company. In 1998, Mr. Taggart assisted in establishing Cardservice
America as a premier agent office for Cardservice International. He was
responsible for company personnel, including sales force and
administrative staff. He was also responsible for shaping company's
direction, vision and its implementation. Mr. Taggart helped establish the
company as the number two office for debit sales corporate wide, and
helped maintain Cardservice America within the top 20 agent
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office out of 200 offices nationwide in the last quarter. Prior to Cardservice
America, Mr. Taggart was employed with Applied Graphics Technologies, who
provided Digital Imaging at amusement parks, theme restaurants, movie premiers
and entertainment gatherings. He was hired in as Manager, Nationwide Sales for
their Amusematte Division, where his primary responsibilities included
marketing, collaterals and management of their sales force.
Dave Vargha
Mr. Vargha brings to the Company over 15 years of extensive sales
management expertise. Mr. Vargha, previously an employee of
Processing Source International (PSI), who helped in the formation of PSI,
recently became an employee of the Company as Vice President of
Business Development. Prior to PSI, Mr. Vargha was acting Chief
Financial Officer and Vice President of Operations for Cardservice
America, a merchant bankcard sales organization. From 1994 to 1997,
Mr. Vargha started and ran his own painting and home improvement
business, Home Improvement Specialists. Mr. Vargha holds a Bachelor's
Degree from the University of California, Santa Barbara.
C. BACKGROUND AND EXPERIENCE - KEY MANAGEMENT
Dan M. Baer, Vice President, Network Engineering
Mr. Baer joined the Company as Vice President, Network Engineering in October
1997. Prior to joining the Company, Mr. Baer co- founded InfoQuick, Inc., an
Internet information service company, serving as Director of Research and
Development and principal network engineer. From 1989 to 1996, Mr. Baer served
as Assistant Manager of Software Design for the Canon Corporation, providing
management and software development services and was the principal designer for
several patents on firmware. From 1987 to 1989, he was a staff engineer in the
advanced product development group for Epson America. From 1983 to 1987, Mr.
Baer was a software engineer with Star Micronics Research Laboratories. During
his career, Mr. Baer has also served as a consultant for various companies in
the areas of network design and software development. Mr. Baer has patented
commercial messaging technology for the Internet.
Kyle Waltz, Vice President, Software Engineering
Mr. Waltz Senior joined the Company as Senior Programmer in
June 1996. Since that time, he has established himself as a team leader
and an integral part in the development of the Merchant Manager system.
Mr. Waltz has extensive knowledge and background in the areas of
HTML, DHTML, ASP, COM, data base programming and various
programming languages necessary for product development within the
Company's core group of business offerings. Mr. Waltz has successfully
completed courses in Object Oriented C++, Visual Basic, Data Structures
and ADA.
Richard B. Anderson
Mr. Anderson brings over six years of senior accounting and
financial experience to Accesspoint. Prior to joining the Company, he
held a senior financial position for Rainmaker Systems, Inc., where he was
an integral part in their Initial Public Offering due diligence process
associated with the filing of their S-1 document with the Securities and
Exchange Commission. Mr. Anderson has extensive experience in both
financial reporting and analysis. Prior to working for Rainmaker Systems,
he was a Financial Analyst for Computer Marketplace, Inc. Mr. Anderson
received his Bachelor's Degree in Finance from Arizona State University.
Travis Williams
Mr. Williams came to Accesspoint from AT&T Wireless Services where he
had been a Customer Care Supervisor in a state-of-the-art call center of 400
employees for nearly five years. While with AT&T, Mr. Williams completed
extensive courses and training in the management of customer relation services.
He also worked in customer service management for Nintendo of America for
several years. Mr. Williams holds an MBA from the University of Phoenix.
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Tom Maresh
Mr. Maresh has been employed by the Company for over three
years and is directly responsible for the development of the Company's
technical service expertise. During his tenure with the Company, Mr.
Maresh developed technical support systems credited for reducing support
incident duration and increased accuracy of the Company's technical
knowledge base. Mr. Maresh posses an extensive knowledge of various
aspects of Internet and network services and assists in the training
programs for all new Company support personnel. Mr. Maresh holds a
Bachelor's Degree in Psychology from the University of California at
Santa Cruz.
Mary Ann Bentley, Vice President and Operations Manager
Mary Ann Bentley is married to James W. Bentley, the Company's President. Prior
to joining the Company, Mrs. Bentley served as the accounting manager and
inventory control manager for Bentley Marine Video, an underwater video
technology company, from 1992 to 1997. In 1982, Mrs. Bentley went back to school
and earned a nursing degree in 1986. From 1971 to 1981, Mrs. Bentley served as
the accounting manager for Bentley Ranches, a 50,000-acre cattle ranch with
interest in cattle, hay and timber. While on the ranch, Mrs. Bentley was very
active in the community by earning an EMT I (emergency medical technician),
volunteering as an ambulance driver, and organizing and acting as president of
the cooperative preschool in the ranching community.
E. BOARD OF ADVISORS
The Board of Advisors advises the Company's management team, with
respect to technological and commercial issues concerning the Company's areas of
interest. The Company's practice has been, and is expected to continue to be, to
consult with members of the Board of Advisors on an individual basis as needed.
All of the members of the Board of Advisors have entered into confidentiality
agreements with the Company, and subject to this constraint, the Board of
Advisors are entitled to accept employment with, or provide consulting services
to others, including competitors or potential competitors of the Company.
Toby Parrish
Mr. Parrish is the Vice President of Industry Services for Equifax Inc.
an e-commerce corporation that delivers authentication, e-commerce consulting,
digital certificates, PKI, and encryption solutions to numerous technology,
Internet, telecommunications, insurance, and on-line auction companies. Prior to
Equifax Inc., Mr. Parrish was with Epoch Internet, the nations largest privately
held Internet backbone provider as the Director of Network Operations and
Customer Service, responsible for e- commerce consulting, mergers and
acquisitions, product inventions, development process review, deal reviews,
account management, project management, telecom, network operations,
firewall/security and customer engineering. Prior to Epoch Internet, Mr. Parrish
was with The Walt Disney Company as the Sr. Manager of end user computing and
Financial Systems support group, managing employees on six continents
responsible for defining and implementing the information services support
strategy for the Consumer Products Division and it's 20,000 employees.
Supporting legal, finance, records, books, domestic/international video, human
resources, classics, stores, information systems, and executive. Prior to The
Walt Disney Company, Mr. Parrish was with Bugle Boy Industries as the Manager of
Information Services Support managing a quality team of support professionals
responsible for defining and implementing support strategies for Bugle Boy
Industries 260-store retail division and its 3,500 employees. Areas of
functional focus include call center, POS, credit card processing, MIS, desktop
support, LAN/WAN, sales audit, loss prevention, P&L, end user help desk, quality
assurance, project management, telecom, and data entry. Mr. Parrish has 15 years
of in-depth operations experience within multiple cultures, platforms,
professions, and a proven ability to lead teams of experienced professionals
that provide sales, e-commerce, internet, financial and technical services from
start-ups to large corporations where Internet, I.S., and financial services are
critically important.
Greg S. Tolleson, CPA
Mr. Tolleson is the managing partner of Tolleson & Associates, an
accountancy firm providing consulting, accounting and income taxation services
to over three hundred clients in varied businesses, including numerous
technology and telecommunications companies. Prior to forming Tolleson &
Associates, Mr. Tolleson spent eleven years with the international accounting
firm of Deloitte & Touche, LLP, providing consulting, accounting and income tax
services for a variety of clients ranging from small businesses and wealthy
individuals to multinational
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corporations. Mr. Tolleson was a designated specialist in the area of hi-
tech companies as well as the lead specialist for the Orange County office
in the taxation of international operations. Mr. Tolleson holds a Masters
Degree in income taxation. He is also a member of the American Institute
of Certified Public Accountants and the California Society of Certified
Public Accountants.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation earned
during the Company's last three fiscal years by its Chief Executive Officer and
other covered persons:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Name and Principal Year Salary Bonus Other Restricted Securities LTIP All other
Position ($) ($) ($) Stock Under- Payouts compen-
Award(s) lying ($) sation
($) Options ($)
(#)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Tom M. Djokovich, 1999(13) $ 150,000 $ 50,000 $ 55,153 $ 0 1,932,693 $ 0 $ 0
CEO, Chairman of
Board of Directors 1998(14) 65,430 0 54,570 0 0 0 0
1997(15) 58,400 0 61,600 0 231,100 0 0
James W. Bentley,
President, Director 1999(16) 0 0 0 0 0 0 0
1998 0 0 0 0 855,065 0 0
1997 0 0 0 0 138,660 0 0
Alfred Urcuyo,Office
of the President 1999 128,881 0 0 0 1,424,530 0 0
1998 77,212 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
George Taggart,Chief
Operations Officer 1999 97,417 0 0 0 315,000 0 0
1998 33,500 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
David Vargha,Vice
President of Business
Development 1999 104,443 0 0 157,500 315,000 0 0
1998 60,071 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
(13) Bonus compensation represents a 25% deferral in compensation at the
election of Executive. Other compensation represents amounts paid to
Executive for deferred compensation from prior periods.
(14) Other compensation represents amounts deferred at election of Executive.
(15) Other compensation represents amounts deferred at election of Executive.
(16) James W. Bentley, President and a Director of the company does not have
Employment Agreement with the Company, nor was he compensated as the
President nor as a Director in each of the last three (3) Fiscal years.
Included in Securities Underlying Options are options issued to the Bentley
Family 1995 Trust and the Bentley Family Trust "C" in the amounts of
415,980 and 577,745, respectively, where James W. Bentley is a beneficiary.
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A. INDIVIDUAL EXECUTIVE COMPENSATION
Tom M. Djokovich
Tom M. Djokovich is CEO and Chairman of the Board of Directors of the
Company. The Company entered into an employment Agreement with Tom M. Djokovich
dated January 4, 1999. The term of the Agreement shall be for a period of three
(3) years and shall commence on the date of execution and shall continue to and
including December 31, 2001. The Employment Agreement provides for a base annual
salary of $200,000 and other benefits. The base salary may be increased in an
amount to be determined by the Board of Directors of the Company. Such increase
amount may be an amount equal to the compensation then in effect multiplied by a
fraction of not less then ten (10%) percent. The adjustments cannot reduce the
base salary. The employment agreement also provides for the deferral of up to
25% of Mr. Djokovich's base salary for the first two (2) years without the prior
approval of Mr. Djokovich. Furthermore, at any time during the balance of the
term of the Agreement, the Company may defer up to $1,500 monthly of the Base
Salary without Mr. Djokovich's consent. In such case, salary deferred will be
exchanged for a note payable equal to the amount of salary deferred, and will
accrue interest at a rate of eight (8%) percent per annum, and shall be due and
payable within twelve (12) months of the execution of the note and/or
immediately upon termination of the agreement. Mr. Djokovich and the Company may
negotiate and mutually agree to repay any outstanding note payable in shares or
options for shares of Common Stock in lieu of cash. The Employment Agreement
provides for the payment of cash bonuses based on the gross revenue attainment
of the Company during the term of each full fiscal year.
The Employment Agreement with Mr. Djokovich also provides for non-cash
compensation. In addition to the cash compensation set forth above, the Company
has granted, to Mr. Djokovich an option to purchase 50,000 shares of the
Company's Common Stock per year during the term of the Agreement, with an
exercise price of $2.00 each, which vest at the rate of 1/12th (4,166.66) per
month during the first and each subsequent year of the Agreement. The options
shall be exercisable for a period of five (5) years from the grant date (January
4, 1999) and shall carry the same registration rights granted to members of
Company's executive management team.
James W. Bentley
James W. Bentley is President and a Director of the Company. The
Company did not enter into an Employment Agreement with James W. Bentley.
The Company does not compensate James W. Bentley as the President nor as a
Director. Furthermore, Mr. Bentley does not have a stock option agreement
with the Company.
Alfred Urcuyo
Alfred Urcuyo is President and Chief Executive Officer of Processing
Source International, Inc. (PSI), a wholly owned subsidiary of the Company, and
holds the Office of the President and serves as a Director of the Company. PSI
entered into an employment Agreement with Alfred Urcuyo on July 30,1999. The
term of the Agreement shall be for a period of five (5) years and shall commence
on the date of execution and shall continue to and including July 30, 2004. The
Employment Agreement provides for an annual salary of $134,484 and other
benefits. The base salary may be increased in an amount to be determined by the
Board of Directors of the Company. It is proposed that such increase amount be
an amount equal to the compensation then in effect multiplied by a fraction of
not less then seven (7%) percent. The Employment Agreement provides for the
payment of cash bonuses based on the gross revenue attainment of the Company
during the term of each full fiscal year.
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22
The Employment Agreement with Mr. Urcuyo also provides for non- cash
compensation. In addition to the cash compensation set forth above, the Company
granted to Mr. Urcuyo an option to purchase 19,530 shares of the Company's
Common Stock per year during the term of the Agreement, with an exercise price
of $3.00 each, which vest at a rate of 1/12th of 19,530 (1,627.50) per month
during the first and each subsequent year of this Agreement. The options are
exercisable for a period of five (5) years from the grant date and carry the
same registration rights granted to members of PSI's and the Company's executive
management team.
George Taggart
George Taggart is, as of December 31, 1999, Chief Operations Officer of
Processing Source International, Inc. (PSI), a wholly owned subsidiary of the
Company. PSI entered into an employment Agreement with George Taggart on July
30, 1999. The term of the Agreement shall be for a period of four (4) years and
shall commence on the date of execution and shall continue to and including July
30, 2003.
The Employment Agreement provides for an annual salary of $101,652 and other
benefits. The base salary may be increased in an amount to be determined by the
Board of Directors of the Company. It is proposed that such increase amount be
an amount equal to the compensation then in effect multiplied by a fraction of
not less then seven (7%) percent. The Employment Agreement provides for the
payment of cash bonuses based on the gross revenue attainment of the Company
during the term of each full fiscal year.
The Employment Agreement with Mr. Taggart also provides for non- cash
compensation. In addition to the cash compensation set forth above, the PSI and
the Company granted to Mr. Taggart an option to purchase 15,000 shares of the
Company's Common Stock per year during the term of the Agreement, with an
exercise price of $3.00 each, which vest at a rate of 1/12th of 15,000 (1,250)
per month during the first and each subsequent year of this Agreement. The
options are exercisable for a period of five (5) years from the grant date and
carry the same registration rights granted to members of PSI's and the Company's
executive management team.
David Vargha
David Vargha is, as of December 31, 1999, Vice President of Business
Development of Processing Source International, Inc. (PSI), a wholly owned
subsidiary of the Company. PSI entered into an employment Agreement with David
Vargha on July 30, 1999. The term of the Agreement shall be for a period of four
(4) years and shall commence on the date of execution and shall continue to and
including July 30, 2003. The Employment Agreement provides for an annual salary
of $108,984 and other benefits. The base salary may be increased in an amount to
be determined by the Board of Directors of the Company. It is proposed that such
increase amount be an amount equal to the compensation then in effect multiplied
by a fraction of not less then seven (7%) percent. The Employment Agreement
provides for the payment of cash bonuses based on the gross revenue attainment
of the Company during the term of each full fiscal year.
The Employment Agreement with Mr. Vargha also provides for non- cash
compensation. In addition to the cash compensation set forth above, the PSI and
the Company granted to Mr. Vargha an option to purchase 15,000 shares of the
Company's Common Stock per year during the term of the Agreement, with an
exercise price of $3.00 each, which vest at a rate of 1/12th of 15,000 (1,250)
per month during the first and each subsequent year of this Agreement. The
options are exercisable for a period of five (5) years from the grant date and
carry the same registration rights granted to members of PSI's and the Company's
executive management team.
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23
The following table sets forth information on grants of stock options by
the Company to the Named Executive Officers during its last completed fiscal
year:
OPTION GRANTS IN LAST FISCAL YEAR
[Individual Grants]
Name Number of Percent of
Securities Total Options Exercise Market Expiration
Underlying Granted to Price Price Date
Options Granted Employees in $(/Sh) $(/Sh)
(#) Fiscal Year
(a) (b) (c) (d) (e) (f)
Tom M. Djokovich,
CEO, Chairman of
Board of Directors 1,882,693 45.2% $ 0.35 $ 0.00 02/25/04
50,000 1.2% $ 0.35 $ 0.00 01/03/04
James W. Bentley,
President, Director 0 0.0% $ 0.00 $ 0.00 N/A
Alfred Urcuyo, Office
of the President 5,000 0.1% $ 5.25 $ 5.25 03/31/04
19,530 0.4% $ 5.12 $ 5.12 08/29/04
1,400,000 33.6% $ 3.00 $ 5.12 08/29/04
George Taggart, Chief
Operations Officer 15,000 0.4% $ 5.12 $ 5.12 08/29/04
300,000 5.6% $ 3.00 $ 5.12 08/29/04
David Vargha,
Vice President of
Business Development 15,000 0.4% $ 5.12 $ 5.12 08/29/04
300,000 7.2% $ 3.00 $ 5.12 08/29/04
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The following table sets forth information regarding exercise of stock options
by the Named Executive Officers during its last completed fiscal year. No
options were exercised by the Named Executive Officers during 1999:
AGGREGATE OPTIONS EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Name Shares
Acquired Value Number of Securities Value of unexercised
on Realized Underlying Unexercised In-the-Money Options
Exercise ($) Options at FY-End (#) at FY-End($)(17)
(#)
Exercisable Unexercisable Exercisable Unexercisable
(a) (b) (c) (d) (e)
Tom M. Djokovich,
CEO, Chairman of
Board of Directors 0 $ 0.00 231,100 0 $ 954,443 $ 0.00
0 $ 0.00 1,882,693 0 $ 7,813,176 $ 0.00
0 $ 0.00 50,000 0 $ 125,000 $ 0.00
James W. Bentley,
President, Director 0 $ 0.00 138,660 0 $ 579,599 $ 0.00
0 $ 0.00 277,320 0 $ 1,150,878 $ 0.00
0 $ 0.00 115,550 0 $ 462,200 $ 0.00
0 $ 0.00 154,065 0 $ 636,288 $ 0.00
0 $ 0.00 154,065 0 $ 636,288 $ 0.00
0 $ 0.00 154,065 0 $ 636,288 $ 0.00
Alfred Urcuyo,
Office of the President 0 $ 0.00 0 5,000 $ 0.00 $ 0.00
0 $ 0.00 6,510 13,020 $ 0.00 $ 0.00
0 $ 0.00 0 1,400,000 $ 0.00 $ 2,100,000
George Taggart,
Chief Operations Officer 0 $ 0.00 5,000 10,000 $ 0.00 $ 0.00
0 $ 0.00 0 300,000 $ 0.00 $ 450,000
David Vargha,
Vice President of
Business Development 0 $ 0.00 5,000 10,000 $ 0.00 $ 0.00
0 $ 0.00 0 300,000 $ 0.00 $ 450,000
(17) Based on the closing stock price of $4.50 at December 31, 1999.
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The following table sets forth information regarding each award made to
the Named Executive Officers by the Company of stock options under any Long-Term
Incentive Plan during its last completed fiscal year:
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
Name Number of Performance Estimated Future Payouts Under
Shares, Units of Other Non-Stock Price-Based Plans
or Other Period Until
Rights (#) Maturation or Threshold Target Maximum
Payout ($ or #) ($ or #) ($ or #)
(a) (b) (c) (d) (e) (f)
Tom M. Djokovich, CEO, Chairman of
Board of Directors 0 N/A N/A N/A N/A
James W. Bentley,
President, Director 0 N/A N/A N/A N/A
Alfred Urcuyo,
Office of the President 210,000 12 Mos. $0 $0 210,000
(18) 385,000 24 Mos. $0 $0 385,000
805,000 36 Mos. $0 $0 805,000
George Taggart,
Chief Operations Officer 45,000 12 Mos. $0 $0 45,000
(19) 82,000 24 Mos. $0 $0 82,000
172,000 36 Mos. $0 $0 172,000
David Vargha,
Vice President of
Business Development 45,000 12 Mos. $0 $0 45,000
(20) 82,000 24 Mos. $0 $0 82,000
172,500 36 Mos. $0 $0 172,500
(18) Mr. Urcuyo has been granted by the Company, Options to purchase an
aggregate of up to 1,400,000 shares of the Company's Common Stock. These Options
conditionally vest upon the attainment of certain earnings and revenue
milestones as set forth herein. Upon revenue attainment of $5,000,000, 210,000
Options will conditionally vest, upon revenue attainment of $16,000,000, 385,000
Options will conditionally vest, and upon revenue attainment of $50,000,000, the
remaining 805,000 Options will conditionally vest. The revenue levels must be
attained within the following time periods: $5,000,000 in twelve (12) months,
$16,000,000 in twenty-four (24) months, and $50,000,000 in thirty-six (36)
months. If the revenue levels are not so attained within the stated times, the
number of options available for conditional vesting shall decrease at a rate of
ten percent (10%) of the then remaining amounts of options available for
conditional vesting each calendar month, prorated on the basis of number of days
in each calendar month. Twenty-five percent (25%) of the then conditionally
vested Options fully vest upon the expiration of thirty (30) days after the date
of conditional vesting, thereafter, the conditionally vested Options fully vest
at the rate of 1/11 of the amount of remaining conditionally vested Options
available for final vesting per month, prorated over a thirty (30) day month.
(19) Mr. Taggart has been granted by the Company, Options to purchase an
aggregate of up to 300,000 shares of the Company's Common Stock. These Options
conditionally vest upon the attainment of certain earnings and revenue
milestones as set forth herein. Upon revenue attainment of $5,000,000, 45,000
Options will conditionally vest, upon revenue attainment of $16,000,000, 82,500
Options will conditionally vest, and upon revenue attainment of $50,000,000, the
remaining 172,500 Options will conditionally vest. The revenue levels must be
attained within the following time periods: $5,000,000 in twelve (12) months,
$16,000,000 in twenty-four (24) months, and $50,000,000 in thirty-six (36)
months. If the revenue levels are not so attained within the stated times, the
number of options available for conditional vesting shall decrease at a rate of
ten percent (10%) of the then remaining amounts of options available for
conditional vesting each calendar month, prorated on the basis of number of days
in each calendar month. Twenty-five percent (25%) of the then conditionally
vested Options fully vest upon the expiration of thirty (30) days after the date
of conditional vesting, thereafter, the conditionally vested Options fully vest
at the rate of 1/11 of the amount of remaining conditionally vested Options
available for final vesting per month, prorated over a thirty (30) day month.
(20) Mr. Vargha has been granted by the Company, Options to purchase an
aggregate of up to 300,000 shares of the Company's Common Stock.
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26
These Options conditionally vest upon the attainment of certain earnings and
revenue milestones as set forth herein.
Upon revenue attainment of $5,000,000, 45,000 Options will conditionally vest,
upon revenue attainment of $16,000,000, 82,500 Options will conditionally vest,
and upon revenue attainment of $50,000,000, the remaining 172,500 Options will
conditionally vest. The revenue levels must be attained within the following
time periods: $5,000,000 in twelve (12) months, $16,000,000 in twenty-four (24)
months, and $50,000,000 in thirty-six (36) months. If the revenue levels are not
so attained within the stated times, the number of options available for
conditional vesting shall decrease at a rate of ten percent (10%) of the then
remaining amounts of options available for conditional vesting each calendar
month, prorated on the basis of number of days in each calendar month.
Twenty-five percent (25%) of the then conditionally vested Options fully vest
upon the expiration of thirty (30) days after the date of conditional vesting,
thereafter, the conditionally vested Options fully vest at the rate of 1/11 of
the amount of remaining conditionally vested Options available for final vesting
per month, prorated over a thirty (30) day month.
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B. 1999 STOCK INCENTIVE PLAN
A total of 7,000,000 shares of the Company's Common Stock have been
reserved for issuance under the Company's 1999 Stock Incentive Plan (the "1999
Plan") which was adopted in March 1999. At December 31, 1999, options to acquire
a total of 5,608,293 shares of Common Stock had been granted under the 1999 Plan
to employees and non-employees, of which 0 have expired because of employee
termination, and all remaining options issuable thereunder were available for
future grant.
The 1999 Plan provides for the grant to employees of the Company (or any
Parent or Subsidiary), of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance award, or any combination of the foregoing (collectively, "Awards").
Participation in the 1999 Plan is open to all employees, officers, directors and
consultants of the Company, or of any Affiliate of the Company, as may be
selected by the Administrator from time to time.
The 1999 Plan is administered by the Board of Directors or such
committee or committees as the Board may, from time to time, appoint to
administer the 1999 Plan ("Administrator"). The 1999 Plan currently administered
by the Board of Directors. The Administrator selects the eligible persons to
whom Awards may be granted and the type of Award to be granted and determines,
as applicable, the number of shares to be subject to each Award, the exercise
price and the vesting. In making such determination, the Administrator takes
into account the grantees' present and potential contributions to the success of
the Company and other relevant factors.
The exercise price of all incentive stock options granted under the 1999
Plan must be at least equal to the fair market value of the shares of Common
Stock on the date of grant. The 1999 Plan is not a qualified deferred
compensation plan under Section 401(a) of the Code and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
Options granted under the 1999 Plan vest pursuant to terms determined by the
Administrator.
Under the 1999 Plan, restricted or unrestricted shares of Common Stock
may be granted to eligible participants pursuant to terms determined by the
Administrator. As a condition precedent to the grant of any award un the 1999
Plan or the exercise pursuant to such an award or to the delivery of
certificates for shares issued pursuant to any award, the Administrator may
require the grantee or the grantee's successor or permitted transferee, as the
case may be, to become a party to a stock restriction agreement of the Company
is such form as the Administrator may require.
Stock appreciation rights ("SARs") may be granted to eligible
participants. An SAR entitles the grantee to receive, subject to the provisions
of the plan and any grant agreement, a payment having an aggregate value equal
to the product of (i) the excess of (A) the fair market value on the exercise
date of one share of Common Stock over (B) the base price per share specified in
the grant agreement, times (ii) the number of shares specified in the SAR, or
portion thereof, which is exercised. Payment upon exercise of a SAR may be made
by the Company in Common Stock or cash, or any combination of Common Stock or
cash at the discretion of the Administrator.
The Administrator may from time to time grant Awards to eligible
participants denominated in stock-equivalent units ("phantom stock") in such
amounts and on such terms and conditions as the Administer may determine. An
Award of phantom stock may be settled in Common Stock, cash, or in a combination
of Common Stock or cash at the discretion of the Administrator. Except as
otherwise provided in the applicable grant agreement, a phantom stock grantee
does not have the rights of a stockholder with respect to any phantom stock
units solely as a result of a grant of
a phantom stock unit Award.
Under the 1999 Plan, the Administrator may, in its discretion, grant
performance Awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance goals may be
based on the Company's or an affiliates operating income or one or more other
business criteria selected by the Administrator that apply to an individual or
group of individuals, a business unit, or the Company or an affiliate as a
whole, over such performance period as the Administrator may designate.
Performance Awards may be paid by the delivery of Common Stock or cash, or any
combination of Common Stock or cash at the discretion of the Administrator.
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28
Under the 1999 Plan, if any change is made in the Company's
capitalization, by reason of a sock dividend, spin-off, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator may, it its discretion, make appropriate
adjustments to the maximum number and kind of shares reserved for issuance or
with respect to which Awards may be granted under the 1999 Plan and to the
number, kind and price of shares covered by outstanding Awards. The
Administrator may reduce the number of shares subject to Awards or provide or
mandate alternative settlement methods.
The 1999 Plan provides that Awards may be granted from time to time in
substitution for awards held by employees or directors of entities who become or
are about to become employees or directors of the Company or an affiliate of the
Company as a result of a merger or consolidation of the employing entity with
the Company or an affiliate, or the acquisition by the Company or an affiliate
of the assets or stock of the employing entity. The terms and conditions of any
substitute Awards granted may vary from the terms and conditions set forth in
the 1999 Plan to the extent that the Administrator may deem appropriate at the
time to conform the substitute Awards to the provisions of the awards for which
they were substituted.
C. OUTSTANDING OPTIONS
As of December 31, 1999, the Company had 5,608,293 options issued and
outstanding. Of the 5,608,293 outstanding options, 3,882,693 non-qualified and
1,650,359 qualified options were issued to employees to purchase shares of its
Common Stock under its 1999 Plan. In addition to options granted to employees,
the Company had issued 75,241 qualified options to consultants and non-employee
Directors. Of the 5,608,293 options issued, 0 options expited when employees'
employment with the Company terminated.
D. COMPENSATION OF DIRECTORS
The Company provides Directors with options to purchase 5,000 shares of common
stock for each calendar year of service as a Director. The Company provides
compensation to Directors of the Company, who are also officers or employees of
the Company, for services rendered as officers or employees of the Company. Only
Tom M. Djokovich, James W. Bentley are Directors of the Company who are also
officers and employees of the Company.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock, as of April 10, 2000, consists
of 30,000,000 shares divided into 25,000,000 shares of Common Stock, par value
$0.001 per share and 5,000,000 shares of Preferred Stock, par value $0.001 per
share. There were 14,964,182 Common Shares issued and outstanding as of April
10, 2000. The Company had issued no Preferred Stock as of December 31, 1999.
Common Stock have equal voting rights and, when validly issued and
outstanding, are entitled to one vote per share in all matters to be voted upon
by shareholders. The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully-paid and
non-assessable shares. Cumulative voting in the election of directors is not
permitted, which means that the holders of a majority of the issued and
outstanding shares of Common Stock represented at any meeting at which a quorum
is present will be able to elect the entire Board of Directors if they so choose
and, in such event, the holders of the remaining shares of Common Stock will not
be able to elect any directors. In the event of liquidation of the Company, each
shareholder is entitled to receive a proportionate share of the Company's assets
available for distribution to shareholders after the payment of liabilities and
after distribution in full of preferential amounts, if any. All shares of the
Company's Common Stock issued and outstanding are fully-paid and nonassessable.
Holders of the Common Stock are entitled to share pro rata in dividends and
distributions with respect to the Common Stock, as may be declared by the Board
of Directors out of funds legally available therefore.
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29
MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is quoted on the Over-The-Counter
Bulletin Board System.
As of December 31, 1999, the Company had approximately 181 shareholders of
record of its Common Stock. The Company's common stock is quoted on the
over-the-counter bulletin board system (OTC-BB) under the symbol "ASAP." The
table below reflects the high and the low bid and ask quotations for each of
the Company's fiscal quarters for the last two fiscal years. The prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission and do not
necessarily represent actual transactions.
1999
--------------
HIGH LOW
------ ------
1st Quarter $ 5.75 $ 5.25
2nd Quarter $ 6.88 $ 4.62
3rd Quarter $ 6.00 $ 4.62
4th Quarter $ 6.12 $ 4.44
1998
---------------
HIGH LOW
------ ------
1st Quarter N/A N/A
2nd Quarter N/A N/A
3rd Quarter N/A N/A
4th Quarter N/A N/A
C. Number of Holders
As of April 10, 1999, there were approximately 200 shareholders holding
Common Stock.
D. Dividends
The payment of dividends is within the discretion of the Board of
Directors of the Company. The Company currently intends to retain all earnings,
if any, in the foreseeable future for use in the development of the Company's
business. The Company has not paid dividends since inception. It is not
anticipated that any dividends will be paid in the foreseeable future and there
can be no assurance that dividends can or will ever be paid. The payment of
dividends is contingent upon future earnings, if any, the Company's financial
condition and capital requirements, general business conditions and other
factors.
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30
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except for acts or omissions which involve intentional misconduct, fraud
or known violation of law or for the payment of dividends in violation of Nevada
Revised Statutes, there shall be no personal liability of a director or officer
to the Company, or its stockholders for damages for breach of fiduciary duty as
a director or officer. The Company may indemnify any person for expenses
incurred, including attorneys fees, in connection with their good faith acts if
they reasonably believe such acts are in and not opposed to the best interests
of the Company and for acts for which the person had no reason to believe his or
her conduct was unlawful. The Company may indemnify the officers and directors
for expenses incurred in defending a civil or criminal action, suit or
proceeding as they are incurred in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount of such expenses if it is ultimately
determined by a court of competent jurisdiction in which the action or suit is
brought determined that such person is fairly and reasonably entitled to
indemnification for such expenses which the court deems proper.
A. STATUTES REGARDING INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
So far as permitted by the Nevada Business Corporation Act, the Company
may indemnify its directors and officers against expenses and liabilities they
incur to defend, settle or satisfy any civil or criminal action brought against
them on account of their being or having been Company directors or officers
unless, in any such action, they are adjudged to have acted with gross
negligence or to have engaged in willful misconduct.
Section 78.751(1) of the Nevada Revised Statutes ("NRS") authorizes a
Nevada corporation to indemnify any director, officer, employee, or corporate
agent "who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation" due to his or her corporate role. Section 78.751(1) extends
this protection "against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful."
Section 78.751(2) of the NRS also authorizes indemnification of the
reasonable defense or settlement expenses of a corporate director, officer,
employee or agent who is sued, or is threatened with a suit, by or in the right
of the corporation. The party must have been acting in good faith and with the
reasonable belief that his of her actions were not opposed to the corporation's
best interests. Unless the court rules that the party is reasonable entitled to
indemnification, the party seeking indemnification must not have been found
liable to the corporation.
To the extent that a corporate director, officer, employee, or agent is
successful on the merits or otherwise in defending any action or proceeding
referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of the NRS
requires that he or she be indemnified "against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the defense."
Section 78.751(4) of the NRS limits indemnification under Section
78.751(1) and 78.751(2) to situations in which either (i) the stockholders; (ii)
the majority of a disinterested quorum of directors; or (iii) independent legal
counsel determine that indemnification is proper under the circumstances.
Pursuant to Section 78.175(5) of the NRS, the corporation may advance an
officer's or director's expenses incurred in defending any action or proceeding
upon receipt of an undertaking. Section 78.751(6)(a) provides that the rights to
indemnification and advancement of expenses shall not be deemed exclusive of any
other rights under any bylaw, agreement, stockholder vote or vote of
disinterested directors. Section 78.751(6)(b) extends the rights to
indemnification and advancement of expenses to former directors, officers,
employees and agents, as well as their heirs, executors, and administrators.
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31
Regardless of whether a director, officer, employee or agent has the
right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his or her behalf against liability resulting from his or
her corporate role.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing, the Company has been informed that in the opinion of
the U.S. Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
B. ARTICLES OF INCORPORATION
Article Twelve of the Articles of Incorporation provides that "No
director or officer of the Corporation shall be personally liable to the
Corporation or any of its stockholders for damages for breach of fiduciary duty
as a director or officer involving any act or omission of any such director or
officer; provided however, that the foregoing provision shall not eliminate or
limit the liability or a director or officer (i) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or (ii) the
payment of dividends in violation of Section 78.300 of the Nevada Revised
Statues. Any repeal or modification of this Article by the stockholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director or officer of the Corporation
for acts of omissions prior to such repeal or modification.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Upon execution of the Merger Agreement and accomplishment of the merger,
pursuant to Rule 12g-3(a) of the General Rules and Regulations of the Securities
and Exchange Commission, Accesspoint became the successor issuer to J.S.J. for
reporting purposes under the Securities Exchange Act of 1934 and elected to
report under the Act effective April 12, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial statements.
The audited financial statements of Accesspoint for the fiscal year ended
December 31, 1999 are included herein. In addition, pro forma financial
statements reflecting the combined financial statements of Accesspoint and
J.S.J. at December 31, 1999 are included herein.
(b) Exhibits
Exhibit No. Description
- ----------- --------------
10.1 Articles of Merger
10.2 Agreement and Plan of Merger
31
32
Financial Statements
Index to Financial Statements................................F-1
Independent Auditors' Report.................................F-2
Balance Sheets...............................................F-3
Statements of Operations and Comprehensive Income (Loss).....F-4
Statements of Cash Flows.....................................F-5
Statements of Shareholders Equity............................F-6
Notes to Financial Statements................................F-7
Notes to Financial Statements(Continued).................... F-8 thru F-18
Independent Auditor's Report - Pro Forma Financials..........F-19
Notes to Pro Forma Financial Statements......................F-20
Pro Forma Balance Sheet (Unaudited)..........................F-21
Pro Forma Statement of Operations (Unaudited)................F-22
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
F-1
33
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Accesspoint Corporation
Irvine, California
Members of the Board:
We have audited the accompanying consolidated balance sheets of
Accesspoint Corporation and its subsidiary ("the Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
O to the consolidated financial statements, the Company has suffered recurring
losses and cash shortages. These issues raise substantial doubt about its
ability to continue as a going concern. The consolidated financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
March 14, 2000
Los Angeles, California
F-2
34
ACCESSPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
------------ ------------
Current Assets
Cash and cash equivalents $ 54,348 $ 7,284
Accounts receivable, net 560,845 70,510
Inventory 14,007 3,279
Other receivables 731 0
Prepaid expenses 18,579 0
------------ ------------
Total Current Assets 648,510 81,073
------------ ------------
Fixed Assets
Furniture and equipment (net) 452,259 226,758
------------ ------------
Total Fixed Assets 452,259 226,758
------------ ------------
Other Assets
Deposits 29,856 6,896
Intangibles, net 2,481 387
------------ ------------
Total Other Assets 32,337 7,283
------------ ------------
Total Assets $ 1,133,106 $ 315,114
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 646,011 $ 205,926
Deferred compensation 155,720 201,157
Deferred revenue 7,854 5,505
Current portion, capitalized leases 125,737 44,639
Current portion, notes payable 100,000 262,000
------------ ------------
Total Current Liabilities 1,035,322 719,227
Capital Lease obligations,
net of current portion 278,925 65,528
Notes payable, net of current portion 100,000 0
------------ ------------
Total Liabilities 1,414,247 784,755
------------ ------------
Stockholders' Equity
Common stock, $.001 par value,
20,000,000 shares authorized,
14,832,000 and 14,576,000 issued and
outstanding, respectively $ 14,832 $ 14,576
Additional paid in capital $ 2,315,265 $ 292,176
Retained deficit $ (2,611,238) $ (776,393)
------------ ------------
Total Stockholders' Equity $ (281,141) $ (469,641)
------------ ------------
Total Liabilities and
Stockholders' Equity $ 1,133,106 $ 315,114
============ ============
Accountant's report and notes are an integral part of these financial
statements.
F-3
35
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1999 AND 1998
1999 1998
------------ ------------
Sales, net $ 2,479,770 $ 1,341,283
Cost of sales 426,902 248,670
------------ ------------
Gross profit $ 2,052,868 $ 1,092,613
Selling expenses 603,461 547,427
General and administrative expenses 3,040,174 870,180
------------ ------------
Income (loss) from operations (1,590,767) (324,994)
------------ ------------
Other (Income) Expense
Interest income (8,269) 0
Interest expense 80,872 62,233
------------ ------------
Total Other (Income) Expense 72,603 62,233
------------ ------------
Income (loss) before extraordinary
expense and income taxes (1,663,370) (387,227)
Extraordinary expense, net of income tax effect of $0
Legal settlement 169,875 0
------------ ------------
Income (loss) before income taxes (1,833,245) (387,227)
Provison for income taxes 1,600 800
Net income (loss) $ (1,834,845) $ (388,027)
============ ============
Net loss per share (basic and diluted)
Basic $ (0.12) $ (0.03)
Diluted $ (0.12) $ (0.03)
Weighted average number of shares
Basic 14,704,000 14,576,000
Diluted 14,704,000 14,576,000
Extraordinary expense per share
Basic $ 0.01 $ 0.00
Diluted $ 0.01 $ 0.00
Accountant's report and notes are an integral part of these financial
statements.
F-4
36
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $(1,834,845) $ (388,027)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization 503 239
Depreciation 160,568 36,228
Decrease (Increase) in receivables (490,335) (67,135)
Decrease (Increase) in inventory (10,728) (3,279)
Decrease (Increase) in other receivables (731) 0
Decrease (Increase) in prepaid expenses (18,579) 0
Decrease (Increase) in deposits (22,960) (5,310)
(Decrease) Increase in accounts payable
and accrued expenses 440,085 71,208
(Decrease) Increase in deferred compensation (45,436) 201,157
(Decrease) Increase in deferred revenue 2,349 1,439
----------- -----------
Total Adjustments 14,736 234,547
----------- -----------
Net cash used in operations $(1,820,110) $ (153,480)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangibles (2,597) 0
Purchase of furniture and equipment (26,247) 0
----------- -----------
Net cash used in investing activities (28,844) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debt 100,000 119,944
Payments on capital leases (102,781) 0
Payments on long term debt (162,000) 0
Sale of stock 2,060,799 194,300
----------- -----------
Net cash provided by financing activities 1,896,018 314,244
----------- -----------
Net change in cash and cash equivalents 47,064 160,764
----------- -----------
Cash and cash equivalents at beginning of year 7,284 5,112
----------- -----------
Cash and cash equivalents at end of year $ 54,348 $ 7,284
=========== ===========
Supplemental cash flows disclosures:
Income tax payments $ 1,600 $ 800
----------- -----------
Interest payments $ 80,346 $ 62,233
----------- -----------
Non cash investing and financing
Addition of equipment on capital leases $ 359,822 $ 77,169
----------- -----------
Accountant's report and notes are an integral part of these financial
statements.
F-5
37
ACCESSPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Retained (deficits)
Balance at beginning of year $ (776,393) $ (388,366)
Net income (loss) (1,834,845) (388,027)
----------- -----------
Balance at end of year (2,611,238) (776,393)
----------- -----------
Common stock, par value $.001
thousands of shares)
Balance at beginning of year 14,576 25,000
Common stock issued in reverse acquisition 0 (10,940)
Common stock issued 256 516
----------- -----------
Balance at end of year 14,832 14,576
----------- -----------
Additional paid in capital
Balance at beginning of year 292,176 97,376
Sale of common stock 2,023,089 194,800
----------- -----------
Balance at end of year 2,315,265 292,176
----------- -----------
Total stockholders' equity at end of year $ (281,141) $ (469,641)
=========== ===========
Accountant's report and notes are an integral part of these financial
statements.
F-6
38
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note A - Nature of Activities
Incorporated in the State of Nevada, Accesspoint Corporation ("the
Company") is a "C" Corporation as organized under the Internal Revenue
Code. The Company is a regional Internet access provider, offering a
wide range of Internet services to businesses and individuals in
Southern California. These services include Internet access, Internet
telephony and faxing, web site design and hosting services.
The Company focuses on providing turnkey electronic commerce
(e-commerce) services to small and midsize business. As a result, the
Company developed Merchant Manager*, a complete and secure e-commerce
and merchant banking solution for small businesses seeking to engage in
business-to-business and business-to-consumer e-commerce.
The Company also developed Transaction Manager* for small and midsize
businesses who need transaction processing capabilities.
The Company's mission is to provide innovative, practical, top- quality
and fast time to market e-commerce products and services that save time
and improve the way people transact business. The Company believes its
first responsibility is to the customers who use its products and
services.
Through its acquisition of Processing Source International, Inc. ("PSI")
in 1999, the Company is also a provider of merchant credit card accounts
and a full service credit card processing company. Servicing both retail
and Internet merchants, PSI also sells and leases an e-commerce product
as well as credit card terminals.
Note B - Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue from Internet access, web hosting and
related services, on a prepaid basis. Customers can prepay for monthly,
quarterly or annual service. Prepaid access is recorded as a liability
in the form of deferred revenue and recognized as revenue is earned in
future periods.
Revenue from software and hardware sales and services are recognized as
products are shipped, downloaded, or used.
The Company reports income and expenses on the accrual basis for both
financial and income tax reporting purposes.
F-7
39
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note B - Summary of Significant Accounting Policies (continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the
Yamahamas, Inc. (subsequently renamed Accesspoint Corporation),
Accesspoint Corporation (subsequently dissolved) and its wholly owned
subsidiary PSI. All material intercompany accounts and transactions have
been eliminated in consolidation.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things,
intense competition in the Internet industry in general and the
provisions of Internet access specifically, other risks associated with
the Internet industry, financing, liquidity requirements, rapidly
changing technology, limited operating history, and the volatility of
public markets.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include collectibility of
accounts receivable, accounts payable, sales returns and recoverability
of long-term assets.
Allowance for Doubtful Accounts
The Company has made an allowance for doubtful accounts for trade
receivables.
Fixed Assets
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets, or the remaining term of the lease, as
follows:
Furniture and Fixtures 5 years
Equipment 5 years
Hardware and Software 3 years
Inventory
Inventory is valued at the lower of cost or market; cost is determined
on the weighted average method. As of December 31, 1999 and 1998,
inventory consisted only of finished goods.
F-8
40
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note B - Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
initial maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which subject the Company to credit risk, consist
primarily of cash equivalents and trade accounts receivable.
Concentration of credit risk with respect to trade accounts receivable
are generally diversified to the large number of entities comprising the
Company's customer base and their geographic dispersion. The Company
actively evaluates the creditworthiness of the customers with which it
conducts business.
Advertising
Advertising costs are expensed in the year incurred.
Earnings Per Share
Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each
period. Earnings per share are computed using the treasury stock method.
The options to purchase common shares are considered to be outstanding
for all periods presented but are not calculated as part of the earnings
per share.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and complies
with the disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") 123, "Accounting for Stock-Based Compensation." Under
APB 25, compensation cost is recognized over the vesting period based on
the difference, if any, on the date of grant between the fair value of
the Company's stock and the amount an employee must pay to acquire the
stock.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. If the estimated future cash flows (undiscounted
and without interest charges) from the use of an asset are less than the
carrying value, a write-down would be recorded to reduce the related
asset to its estimated fair value. There have been no such impairments
to date.
F-9
41
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note C - Business Combinations
In March 1999 the Company completed a reverse acquisition by Yamahamas,
Inc. (a Nevada Corporation), with Yamahamas as the surviving
corporation. The separate existence of Accesspoint ceased as of the date
of completion of the acquisition. A total of 2,271,763 common shares
were exchanged in a 1:4.62 ratio. All issued and outstanding shares of
Accesspoint Corporation were converted into the right to receive shares
of Yamahamas, Inc. upon completion of the acquisition. Subsequent to the
completion of the reverse acquisition, Yamahamas, Inc. changed its name
to Accesspoint Corporation and trades on the NASDAQ Bulletin Board
Market under the symbol ASAP.
The transaction has been accounted for as a reverse acquisition. The
transaction is a merger of a private operating company (old Accesspoint)
into a non-operating public shell corporation with nominal assets. The
owners of old Accesspoint obtained operating control of the combined
company after the transaction.
In July 1999, the Company acquired PSI by exchanging 516,062 shares of
its Common stock for all the issued and outstanding Common stock of PSI.
The acquisition has been accounted for as a pooling-of-interests under
the APB No. 16. Accordingly, all prior period consolidated financial
statements presented have been restated to include the combined results
of operations, financial position and cash flows of PSI as though it has
always been a part of the Company.
The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements are as
follows:
1999 1998
----------- -----------
Sales
Accesspoint $ 764,508 $ 525,932
PSI 1,868,005 815,351
Eliminations (152,743) 0
----------- -----------
Combined $ 2,479,770 $ 1,341,283
----------- -----------
Net Income (loss)
Accesspoint $(1,432,185) $ (421,650)
PSI (402,660) 33,623
----------- -----------
Combined $(1,834,845) $ (388,027)
----------- -----------
F-10
42
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note D - Cash
The Company maintains its cash balances at a bank located in Anaheim,
California. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. As of December 31, 1999 and 1998, there were
no uninsured portion of the balances held at the bank.
Note E - Fixed Assets
Fixed assets consist of the following:
1999 1998
--------- ---------
Furniture and fixtures $ 20,011 $ 20,011
Office equipment 93,709 30,559
Computer hardware and software 682,868 359,948
--------- ---------
796,588 410,518
Accumulated depreciation (344,329) (183,760)
--------- ---------
Total $ 452,259 $ 226,758
========= =========
At December 31, 1999 and 1998 included in fixed assets are costs of
$321,353 and $124,387, respectively, of assets recorded under capital
leases.
For the years ended December 31, 1999 and 1998, included in accumulated
depreciation are $116,931 and $28,726, recorded on assets under capital
leases, respectively.
Note F- Commitments and Contingencies
Capital Leases - The Company leases certain machinery and equipment
under capital leases. Future minimum rental payments, under capital
leases are:
2000 $ 125,737
2001 127,525
2002 117,448
2003 30,444
2004 3,508
F-11
43
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note F- Commitments and Contingencies (continued)
Operating Leases - The Company leases certain of its facilities and
equipment under non-cancelable operating leases. Future minimum rental
payments, under leases that have initial or remaining non-cancelable
lease terms in excess of one year are:
2000 $ 156,154
2001 35,464
2002 4,080
2003 4,080
2004 4,080
Rent expense for the years ended December 31, 1999 and 1998 was $157,524
and $22,494, respectively.
The Company has entered into certain employment agreements as follows
for the retention of key employees:
Dated January 4, 1999 the Company entered into an employment agreement
for the services of Tom M. Djokovich as Chief Executive Officer at a
base salary of two hundred thousand dollars $(200,000) per annum,
increasing by at least ten percent per annum for the duration of the
agreement. The agreement also calls for the payment of cash bonuses
based on revenue and net income, and the granting of stock options to
purchase fifty thousand (50,000) shares of the Company stock per year
for the duration of the agreement at an exercise price of $5.25 per
share. The agreement terminates on December 31, 2001.
Dated March 22, 1999 the Company entered into an employment agreement
for the services of Kyle J. Waltz as Vice President of Software
Engineering,. The base salary of sixty one thousand one hundred dollars
$(61,100) per annum, increasing by at least seven percent per annum. The
agreement calls for the granting of stock options to purchase common
stock of fifteen thousand shares at $5.25 per share. The agreement
terminates March 21, 2000.
Dated March 22, 1999 the Company entered into an employment agreement
for the service of Thomas C. Maresh as Technical Information Manager at
a base salary of forty thousand dollars $(40,000) per annum, increasing
by at least seven percent per annum. The agreement calls for the
granting of options to purchase fifteen thousand shares of common stock
at $5.25 per share. The agreement terminates March 21, 2000.
F-12
44
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note G- Litigation
In October 1997, the Company filed suit in Superior Court of the State
of California County of Orange against Steven Son Van Le, an individual,
SVL Holding Corporation, a corporation, Medical Center Hospital, Inc., a
corporation, (collectively, "the Defendants") alleging breach of
contract and breach of implied covenant of good faith and fair dealing,
and demanding return of shares issued in advance for services to be
rendered. The Defendants countersued also alleging breach of contract
and breach of implied covenant of good faith and fair dealing. In
September 1998 all parties agreed to a settlement agreement calling for
mutual release and dismissal of both complaints upon performance by the
Company. The settlement agreement requires the payment of thirty
thousand dollars $(30,000) by the Company in exchange for the return of
all shares aforementioned issued to the defendants. In 1999, the terms
of this settlement agreement were fulfilled.
In February 1999, the Company's subsidiary, PSI ("Defendant"), was sued
by Cardservice International, Inc. ("Plaintiff") in the Superior Court
of the State of California, County of Los Angeles for breach of contract
and breach of implied covenant of good faith and fair dealing. In April
1999 Defendant cross-complained alleging breach of contract and related
damages. In June 1999, Defendant settled both complaints by entering
into a settlement agreement and mutual general release ("Agreement").
The Agreement calls for the payment by Defendant of $169,875 in order to
bring all actions to a close. The terms of the Agreement call for the
payment of $95,000 by June 15, 1999 and payments of $6,514 for twelve
months. In 1999, the terms of the Agreement were satisfied. Pursuant to
certain terms of the Agreement, Defendant is permanently enjoined and
restrained from disclosing or disseminating to others or using for their
own benefit the client lists of Plaintiff.
F-13
45
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note H - Employee Stock Options and Benefit Plans
In March 1999, the Company's stockholders approved the Accesspoint
Corporation 1999 Stock Incentive Plan ("the Plan") which superseded and
incorporated, in all respects, the Accesspoint Corporation 1997 Stock
Option Plan. Under the Plan, incentive or non-statutory stock options
may be granted to employees, directors, and consultants. The options,
option prices, vesting provisions, dates of grant and number of shares
granted under the plans are determined primarily by the Board of
Directors or the committee authorized by the Board of Directors to
administer such plans. The Plan also permits payment for options
exercised in shares of the Company's common stock and the granting of
incentive stock options.
The Company applies APB 25 and related interpretations in accounting for
its plans. Accordingly, compensation cost is recognized for the Plan in
its results of operations in those instances wherein options were
granted at a price below the prevailing market price on the date of
grant. For the years ended December 31, 1999 and 1998, there were no
instances of option grants, which would require the recognition of
compensation expense. Outstanding options have 1- to 5-year terms.
In 1999 and 1998, had the Company recorded a charge for the fair value
of options granted consistent with SFAS 123, there would have been
charges in the amounts of $669,846 and $19,980, respectively to net
income. Assuming full dilution, the effect on net income per share would
have been, $(.04) and $(.00) per share, respectively.
F-14
46
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note H - Employee Stock Options and Benefit Plans (continued)
The fair value of each option grant for the Company's plans is estimated
on the date of the grant using the Black-Scholes option pricing model,
with the following weighted average assumptions used for grants in 1999:
Risk-free interest rate 4.25%
Expected option lives 3.52 years
Expected volatility 45%
Expected dividend yield 0.0%
A summary of the status of the Company stock option plans at December 31, 1999
as follows:
Weighted Average
(thousands of shares) Shares Exercise Price
Outstanding at beginning
of year 1,369 $ 1.20
Granted 4,239 1.73
Exercised -0- N/A
Canceled -0- N/A
----------
Outstanding at year-end 5,608
==========
Options exercisable at year-end 2,244,435
Weighted average fair value of options
granted during the year $ 1.39
The following table summarizes information about fixed stock options
outstanding at December 31, 1999.
Weighted Average
Number Remaining
Range of Outstanding Years of
Exercise Prices (thousands) Contractual Life
- --------------- ----------- ------------------
$ .35- .50 3,339,112 2.6 years
$3.00-3.99 2,113,334 4.6 years
$4.00-4.99 10,000 4.5 years
$5.00-5.99 143,600 4.9 years
$6.00 2,050 4.5 years
F-15
47
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note I - Debt
At December 31, 1999 and 1998, the Company had notes payable outstanding
in the aggregate amount of $200,000 and $262,000, respectively . Payable
as follows:
1999 1998
-------- ---------
Payable to a Trust of a related party,
9% per annum, Due on demand $100,000 $ 100,000
Payable to a Trust of a related party,
Variable interest (9.5% at December 31, 1998)
Due October 31, 1999 -0- 50,000
Payable to a Corporation, 20% per annum
Due October 31, 1999 -0- 60,000
Payable to a Trust of a related party,
12% per annum, Due on demand -0- 10,000
Payable to an Individual, 12% per annum,
Due August 10, 1999 -0- 25,000
Payable to a Corporation, 8% per annum,
Due December 6, 2002 100,000 -0-
-------- ---------
Payable to an individual, no interest,
Due upon demand -0- 17,000
TOTAL 200,000 262,000
Less Current portion 100,000 (262,000)
-------- ---------
TOTAL (Less Current) $100,000 $ 0
======== =========
F-16
48
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note J - Compensated Absences
Employees can earn annual vacation leave at the rate of five (5) days
per year for the first year. Upon completion of the first year of
employment, employees can earn annual vacation leave at the rate of ten
(10) days per year for years two through seven. Upon completion of the
eighth year of employment, employees can earn annual vacation leave at
the rate of fifteen (15) days per year. At termination, employees are
paid for any accumulated annual vacation leave. As of December 31, 1999
and 1998 the total vacation liability totaled $23,123 and $5,835,
respectively.
Note K - Subsequent Events
Subsequent to the year ended December 31, 1999, the Company received a
loan from a Corporation in the amount of $155,000, 8% per annum, due on
demand, to be used for general operating purposes.
Subsequent to the year ended December 31, 1999, the Company issued
81,000 shares of Common Stock to a Corporation, such shares were issued
in accordance with Regulation S of the Securities Exchange Act of 1934,
for consideration of $375,040.
Note L - Related Party Transactions
Throughout the history of the Company, certain members of the Board of
Directors, members of the immediate family of management, and general
management have made loans to the Company to cover operating expenses or
operating deficiencies.
Note M - Income Taxes
Total Federal and State income tax expense for the years ended December
31, 1999 and 1998 amounted to $1,600 and $800, respectively. These
represent the minimum annual tax liability under California tax code. No
future benefit for the realization of an operating loss carry-forward,
in the form of an asset, has been recognized due to the ongoing nature
of the losses and the potential inability for the Company to ever
realize their benefit. For the years ended December 31, 1999 and 1998,
there is no difference between the federal statutory tax rate and the
effective tax rate. At years ended December 31, 1999 and 1998 the
Company had available net operating loss carry- forwards of $1,792,600
and $780,500 respectively, after adjusting for limitation, to be offset
against future taxable income. The operating loss carry forwards will
expire at various dates through the year 2014.
F-17
49
ACCESSPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Note N - Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
deposits and accounts payable approximate their fair value because of
the short maturity of those instruments.
The carrying amounts of the Company's long-term debt and capital lease
obligations approximate their fair value because of the short maturity
and/or interest rates which are comparable to those currently available
to the Company on obligations with similar terms.
Note O - Going Concern
The Company has suffered recurring losses and cash deficiencies. These
issues may raise substantial concern about its ability to continue as a
going concern.
Management has prepared the following statement in order to address
these and other concerns:
The Company has made substantial investments in infrastructure to
provide service to its currently growing and anticipated future customer
base. The Company has made a substantial investment in fixed assets.
These investments in infrastructure and fixed assets have in part
contributed to the Company's losses and cash shortage.
The company has experienced an increase in gross revenue for the year
ended December 31, 1999 as compared to the year ended December 31, 1998
in excess of 80%. This increase is due in part to the Company's success
in its marketing efforts. The Company acquired a bankcard services
provider in 1999 as a wholly owned subsidiary. The Company anticipates
that this combined business interest will provide a synergistic
opportunity for business expansion and increased revenues in the first
full year of combination. Accordingly, the Company feels that it will be
able to increase revenues in 2000.
In the near term, the Company is currently engaged in substantial
capital formation efforts. The Company is in discussions for the
placement of a combination of debt or equity in an amount or amounts
sufficient to fund the amount or amounts of the Company's projected
deficits in the current year.
F-18
50
To the Board of Directors
Accesspoint Corporation
We have compiled the accompanying condensed consolidated pro forma
balance sheet of Accesspoint Corporation and JSJ Capital III, Inc. as of
December 31, 1999 and the related condensed consolidated statement of operations
and retained earnings for the year then ended.
The accompanying presentation and this report were prepared solely for
the purpose of inclusion in the Company's filing of Form 8K with the Securities
and Exchange Commission and should not be used for any other purpose.
A compilation is limited to presenting in the form of pro forma
financial statement information that is the representation of management and
does not include evaluation of the support for the assumptions underlying the
pro forma transactions. We have not examined the accompanying pro forma
financial statements and, accordingly, do not express an opinion or any other
form of assurance on them.
April 11, 2000
Los Angeles, California
F-19
51
ACCESSPOINT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1999
ASSETS
Accesspoint JSJ Capital Pro Forma Pro Forma
Adjustments Combined
----------- ----------- ----------- -----------
Current Assets
Cash and cash equivalents $ 54,348 $ 30 $ 54,378
Accounts receivable, net 560,845 0 $ 560,845
Inventory 14,007 0 $ 14,007
Other receivables 731 0 $ 731
Prepaid expenses 18,579 0 $ 18,579
----------- ----------- ----------- -----------
Total Current Assets 648,510 30 0 648,540
----------- ----------- ----------- -----------
Fixed Assets
Furniture and equipment (net) 452,259 0 $ 452,259
----------- ----------- ----------- -----------
Total Fixed Assets 452,259 0 0 $ 452,259
----------- ----------- ----------- -----------
Other Assets
Deposits 29,856 0 $ 29,856
Intangibles, net 2,481 0 $ 2,481
----------- ----------- ----------- -----------
Total Other Assets 32,337 0 0 $ 32,337
----------- ----------- ----------- -----------
Total Assets $ 1,133,106 $ 30 $ 0 $ 1,133,136
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 646,011 $ 0 $ 646,011
Deferred compensation 155,720 0 155,720
Deferred revenue 7,854 0 7,854
Current portion, capitalized leases 125,737 0 125,737
Current portion, notes payable 100,000 7,500 107,500
----------- ----------- ----------- -----------
Total Current Liabilities 1,035,322 7,500 0 1,042,822
----------- ----------- ----------- -----------
Capital Lease obligations,
net of current portion 278,925 0 278,925
Notes payable, net of current portion 100,000 0 100,000
----------- ----------- ----------- -----------
Total Liabilities 1,414,247 7,500 0 1,421,747
----------- ----------- ----------- -----------
Stockholders' Equity
Common stock, $.001 par value, 20,000,000
shares authorized, 14,832,000
issued and outstanding 14,832 67 (67) 14,832
Additional paid in capital 2,315,265 233 (233) 2,315,265
Retained deficit (2,611,238) (1,770) 300 (2,612,708)
----------- ----------- ----------- -----------
Total Stockholders' Equity (281,141) (1,470) 0 (282,611)
----------- ----------- ----------- -----------
Total Liabilities and Stockholders'
Equity $ 1,133,106 $ 6,030 $ 0 $ 1,139,136
=========== =========== =========== ===========
F-20
52
ACCESSPOINT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1999
Accesspoint JSJ Capital Pro Forma Pro Forma
Adjustments Combined
------------ ------------ ------------ ------------
Sales, net $ 2,479,770 $ 0 $ 0 $ 2,479,770
Cost of sales 426,902 0 426,902
------------ ------------ ------------ ------------
Gross profit 2,052,868 0 0 2,052,868
Selling expenses 603,461 0 603,461
General and administrative expenses 3,040,174 1,500 3,041,674
Income (loss) from operations (1,590,767) (1,500) 0 (1,592,267)
------------ ------------ ------------ ------------
Other (Income) Expense
Interest income (8,269) 0 (8,269)
Interest expense 80,872 0 80,872
------------ ------------ ------------ ------------
Total Other (Income) Expense 72,603 0 0 72,603
------------ ------------ ------------ ------------
Income (loss) before extraordinary
expense and income taxes (1,663,370) (1,500) 0 (1,664,870)
Extraordinary expense, net of income
tax effect of $0
Legal settlement 169,875 0 0 169,875
------------ ------------ ------------ ------------
Income (loss) before income taxes (1,833,245) (1,500) 0 (1,834,745)
Provison for income taxes 1,600 0 0 1,600
------------ ------------ ------------ ------------
Net income (loss) $ (1,834,845) $ (1,500) $ 0 $ (1,836,345)
============ ============ ============ ============
Net loss per share (basic and diluted)
Basic $ (0.12) $ (0.00) $ 0.00 $ (0.12)
Diluted $ (0.12) $ (0.00) $ 0.00 $ (0.12)
Weighted average number of shares
Basic 14,704,000 672,000 (672,000) 14,704,000
Diluted 14,704,000 672,000 (672,000) 14,704,000
Extraordinary expense per share
Basic $ 0.01 $ 0.00 $ 0.00 $ 0.01
Diluted $ 0.01 $ 0.00 $ 0.00 $ 0.01
F-21
53
ACCESSPOINT CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1999
Note A - Pro Forma Financial Information
The following pro forma adjustments reflect Accesspoint Corporation's
purchase of JSJ Capital III, Inc. as if the transaction had occurred as
of December 31, 1999.
Operations of JSJ Capital III, Inc. for the two months ended December
31, 1999 are included in the pro forma financial statements. Its last
fiscal audit was completed as of October 31, 1999. Pro forma balance
sheets of each company are included as of December 31, 1999.
F-22
54
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, Accesspoint Corporation has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 17, 2000 By: /s/ James W. Bentley III
---------------------------------
James W. Bentley III,
President and Director
By: /s/ Tom M. Djokovich
----------------------------------
Tom M. Djokovich,
Chief Executive Officer, Secretary
and Director
F-23
55
EXHIBIT INDEX
Exhibit No. Description
- ----------- --------------
10.1 Articles of Merger
10.2 Agreement and Plan of Merger