Registration No. 333-______
As filed with the Securities and Exchange Commission on September 25, 2001
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form SB-2
Registration Statement Under the Securities Act of 1933
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Access Power, Inc.
Florida 4813 59-342098
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
10033 Sawgrass Drive West Glenn A. Smith Jan M. Davidson
Suite 100 10033 Sawgrass Drive West, Suite 100 Kilpatrick Stockton LLP
Ponte Vedra Beach, Florida 32082 Ponte Vedra Beach, Florida 32082 1100 Peachtree Street, Suite 2800
(904) 273-2980 (904) 273-2980 Atlanta, Georgia 30309
(Address and telephone number of (Name, address, and telephone number of (404) 815-6500
principal executive offices agent for service) (404) 815-6555 (facsimile)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434
check the following box. /_/
============================ ========================= ======================= =================== ================================
Title of Each Class of Amount to be Registered Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price per Aggregate Registration Fee
Share Offering Price
---------------------------- ------------------------- ----------------------- ------------------- --------------------------------
Common Stock, $.001 par 9,181,550 $0.25(1) $247,038.75 0 (3)
value
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Common Stock, $.001 par Up to 300,000,000(1) $0.25(1)(2) $7,500,000 0 (3)
value
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933 and based on the average
of the high and low price per share of Access Power, Inc. common stock as quoted
on the OTC electronic bulletin board on September 18, 2001, $.025
(2) Although we have used the average of the high and low price per share
of Access Power, Inc. common stock as quoted on the OTC electronic bulletin
board on September 18, 2001 as required by Rule 457(c) of the Securities Act of
1933, the actual price per share of the common stock to be issued to Grandview
will vary based on the volume-weighted average daily price of our common stock
during the request periods provided for in the amended and restated investment
agreement described in this registration statement The purchase price will be
equal to 88% of the average of the lowest three closing bid prices for each
trading day within such request periods. This agreement allows for requests to
be made every 11 trading days over the 18-month period of the investment
agreement for amounts up to $500,000 per request for an aggregate of up to
$10,000,000, of which $1,149,171 has already been sold to Grandview under the
investment agreement and shares were registered under a separate Registration
Statement on Form SB-2, Commission File No. 333-51836.
(3) Pursuant to Rule 457 the required fees, an aggregate of $2,492.50, are
being offset by $3,612.97, the fee paid in connection with the Registrant's Form
SB-2 registration statement, Commission File No. 333-58502, filed on April 6,
2001 (but withdrawn on June 20, 2001, and which later offset the fee paid in
connection with the Form SB-2, Commission File No. 333-63368, filed June 20,
2001, withdrawn on September 14, 2001.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
309,881,550 Shares of Common Stock
ACCESS POWER, INC.
The registration statement of which this prospectus forms a part
registers for resale an aggregate of up to 309,881,550 shares of Access Power,
Inc. common stock by selling shareholders identified on page 30. Of this amount,
5,465,550 have been issued by us, up to 300,000,000 shares will be issued by us
through an investment agreement with Grandview Court, LLC and 4,416,000 will be
issued by us upon exercise of options to purchase common stock and common stock
purchase warrants.
Bid and asked prices for our common stock are quoted, and the last sale
is reported, on the over-the-counter electronic bulletin board maintained by the
National Association of Securities Dealers under the symbol "ACCR." On September
18, 2001, the last bid price of the common stock as reported was $0.31.
Grandview is deemed to be, and the selling shareholders and any
participating broker-dealers may be deemed to be, "underwriters" within the
meaning of the Securities Act of 1933, and any commissions or discounts given to
any such broker-dealer be regarded as underwriting commissions or discounts
under the Securities Act of 1933.
An investment in shares of our common stock or warrants involves
significant risk. We urge you to carefully consider the risk factors beginning
on page 8, along with the rest of this prospectus, before you make your
investment decision. Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is _______, 2001
SUMMARY
General
Access Power, Inc. was incorporated to offer Internet-based
communications products and services in the United States and international
markets. We were one of the first companies to offer a way to transmit voice and
multi-media communications over the Internet, a service that is commonly
referred to as Internet protocol telephony.
Products and Services
Our voice-over-Internet service integrates traditional telephone
functions with advanced Internet-based communications technology. Our customers
are able to communicate long distance using the Internet, a less costly
alternative to traditional long distance telephone lines. Our service allows
customers to make calls from a personal computer or a telephone. Currently,
calls can be placed from anywhere in the world to telephones in the United
States and 47 countries.
On December 2, 1999, we released our e-button(TM) service. Using
e-button, consumers viewing a company's web site can dial up a designated
representative of that company, usually someone providing sales or support
services, by clicking on the e-button icon. Our e-button software can provide
electronic commerce benefits to any company with a traditional call center.
We launched FreeWebCall.com(TM) on August 1, 2000, which provides
customers with PC-to-phone calling and free PC-to-PC calling. The network
supports PC-to-phone calls from anywhere in the world to telephones in the
United States and 47 countries. PC-to-PC calling is a global service. Originally
our FreeWebCall.com PC-to-phone service provided free calls to anywhere in the
United States, Canada and the UK and we sold advertisements to support the
business. In April 2001, due to a declining Internet advertising market, we
changed to a pay service. We also added countries outside the United States to
our PC-to-phone service. In addition, we earn revenue through FreeWebCall.com by
selling advertisements and displaying them to our customers while they view
certain pages at the FreeWebCall site. Additional revenue results from
commissions earned as a result of selling various products and services provided
by other companies that are promoted at FreeWebCall.com to subscribers and site
visitors.
Access Power Advanced Communications(R), e-button(TM),
FreeWebCall.com(TM), and Net.Caller(TM) are our trademarks. All other trademarks
and trade names referred to in this prospectus are the property of their
respective owners.
Business Goal and Strategies
Our goal is to become one of the world's leading providers of
international Internet telephony products and services. To achieve this goal, we
plan to expand our Internet telephony network by using new technology as it is
developed and integrating those developments with our own technology. We plan to
expand our customer base by providing free Internet telephony products and
services through FreeWebCall.com, mainly with free PC-to-PC calling combined
with pay services for domestic and international PC-to phone calling.
Market
Our market includes residential and commercial users of Internet
telephone products and services throughout the world as well as all Internet
users.
Executive Offices
Our principal executive offices are located at 10033 Sawgrass Drive
West, Suite 100, Ponte Vedra Beach, Florida, 32082, and our telephone number is
(904) 273-2980.
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The Offering
Common stock offered by selling shareholders........ Up to 309,881,550 shares
Common stock to be outstanding after the offering... 410,244,887 shares (1), (2)
OTC Bulletin Board symbol........................... "ACCR"
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(1) 1,021,000 exercisable warrants give the holder the right to purchase
from us one share of our common stock for per share prices ranging from
$0.42 to $2.20.
(2) Assumes the exercise of all outstanding warrants and options and the
sale of 300,000,000 shares of common stock under the investment
agreement. This number does not include shares issuable to Grandview
under the investment agreement as penalties or all the shares issuable
to Grandview under the investment agreement.
Equity Line of Credit
We signed an amended and restated investment agreement with Grandview
Court, LLC, a Cayman Islands limited liability company, on September 19, 2001,
for the future issuance and purchase of shares of our common stock. The
investment agreement establishes what is sometimes referred to as an equity line
of credit.
Under the equity line of credit, we can request up to $10 million from
Grandview over an 18-month period in return for shares of our common stock. Once
every 11 trading days, we may request between $20,000 and $500,000 in cash from
Grandview. The maximum amount that we can actually request at any one time will
be determined by a discount to the volume-weighted average daily price of our
common stock for the 30 days prior to our request and certain conditions and
limitations. The per share price Grandview pays for our common stock includes a
discount of 12 percent based on the average of the lowest three closing bid
prices over a ten day period. We will receive the amount we request minus a
further discount of five percent of the total paid to us by Grandview per draw
down, less an escrow agent fee per request. The number of shares we can issue to
Grandview is limited by a provision in the investment agreement that prevents us
from issuing shares to Grandview to the extent that Grandview would own more
than 4.99% of our outstanding common stock. We have previously issued 23,534,500
shares of common stock to Grandview for an aggregate of $1,149,171.
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SUMMARY FINANCIAL DATA
The summary financial data set forth in the table below is derived from
our unaudited financial statements for the six months ended June 30, 2001 and
2000 and our audited financial statements for the year ended December 31, 2000
and 1999. The financial statements are included in this prospectus at page F-1.
This financial data represents historical information that is not necessarily
indicative of future results. We urge you to read carefully Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements and notes thereto, and other financial data included
elsewhere in this prospectus.
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 31, DECEMBER 31,
2001 2000 2000 1999
------------------------------- ----------------------------------
Revenue:
Product sales $ -- $ -- $ -- $ 9,450
Services 17,359 254,167 341,370 170,601
------------ ------------ ---------- ------------
Total revenue 17,359 254,167 341,370 180,051
------------ ------------ ---------- ------------
Costs and expenses:
Cost of services 373,281 572,914 1,438,776 328,378
Cost of sales -- -- -- 2,955
Product development and marketing 431,676 833,957 1,279,330 687,359
General and administrative 918,220 1,152,259 2,504,206 1,642,134
------------ ------------ ---------- ------------
Total costs and expenses 1,723,177 2,559,120 5,222,312 2,660,826
------------ ------------ ---------- ------------
Loss from operations (1,705,818) (2,304,953) (4,880,942) (2,480,775)
Other income (expense):
Other income 5,293 -- 82 --
Interest expense (including amortization (16,290)
of debt discount) (224,481) (38,112) (106,195)
Loss on disposal of assets -- -- -- (6,880)
------------ ------------ ---------- ------------
Total other income (expense) (219,188) (38,112) (106,113) (23,170)
------------ ------------ ---------- -------------
Net loss before cumulative effect of
change in accounting principle $ (1,925,006) $ (2,343,065) (4,987,055) (2,505,945)
Cumulative effect of change in
accounting principle -- -- (2,250,000) --
------------ ------------ ---------- --------------
Net loss $ (1,925,006) $ (2,343,065) $(7,237,055) (2,503,945)
============ ============ ========== ===============
Net loss per share $ (0.02) $ (0.07) $ (0.16) (0.10)
============ ============ ========== ===============
Weighted average number of shares 81,470,723 37,639,055 46,408,006 25,174,029
============ ============ ========== ===============
Balance Sheet Data June 30, 2001
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Cash and cash equivalents $ 10,820
Working capital (1,469,662)
Total assets 1,299,228
Long-term debt, less current portion -
Shareholders' equity (deficit) (912,365)
4
RISK FACTORS
An investment in our common stock involves a significant degree of
risk. You should not invest in our common stock unless you can afford to lose
your entire investment. You should consider carefully the following risk factors
and other information in this prospectus before deciding to invest in our common
stock.
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We have only limited operating history upon which you can analyze our potential
profitability.
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We have limited operating history upon which you can judge our
potential for success. We have been in existence since October 1996, and we have
had minimal revenue since our inception. Our prospects must be considered in
light of the risks, expenses, and difficulties frequently encountered by
companies in an early stage of development, particularly companies in new and
rapidly evolving industries. As an Internet based industry, and specifically an
Internet based communications company with limited history, we have had to
modify our business offering. We expect to have to continue altering our product
and service offerings in order to compete in the fast changing environment in
which we operate. In August 2000 we changed from a flat rate pricing model and
began offering free PC-to-phone as FreeWebCall.com. FreeWebCall.com generated
revenues by displaying advertising and offering various products and services
for commissions; however, we were adversely affected by the declining Internet
advertising market. As a result, we changed our PC-to-phone offering to a pay
service in April 2001. One of the risks of our limited history is our ability to
quickly and appropriately develop our product and service offerings in the midst
of developing technologies and a fast changing business environment.
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We are not profitable, and we do not expect to become profitable in the near
future, and you may lose your investment.
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We have incurred net losses in every fiscal period since our inception
in October of 1996. We anticipate that we will experience net losses for each
quarterly period of operation in the next year. We must sell equity securities
under the equity line or otherwise in order to develop and implement our
business plan during the next year.
As of June 30, 2001, we had an accumulated deficit of approximately
($14,163,085). We incurred net losses of ($2,343,065) for the six months ended
June 30, 2001. Net losses have increased for each fiscal year since 1996 and
this trend may continue. We may not become profitable. If we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis. We expect to increase our advertising costs as a
result of our marketing efforts for FreeWebCall.com, for which we will need to
generate additional revenues. If our marketing expenses and efforts result in
business growth, we will be required to increase expenditures in other areas.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations.
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You may not recover all or any part of your investment if we do not become
profitable.
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You may not recover all or any part of your investment in our common
stock. Our profitability will depend on our ability, among other things, to
establish a niche in the Internet industry and substantially increase our
customer base by establishing and increasing market acceptance of our
technology, products, and services. In order to develop and implement our
business plan during the next year we depend on the sale of equity securities.
Our profitability will also depend upon expanding the deployment of our network
and successfully marketing and supporting our products and services. There can
be no assurance that we will be able to achieve or sustain significant sales or
profitability in the future. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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Sales of our common stock in the public market, including the shares offered by
this prospectus, could reduce the value of your investment due to the very
significant market overhang.
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The sale of shares of our common stock in the public market could cause
a reduction in the market price of our common stock. This prospectus covers
309,881,550 shares or over 300% of our issued and outstanding common stock at
September 18, 2001. As of September 18, 2001, we had 93,027,261 common shares
issued and outstanding. Any substantial sale of our common stock may result in
the reduction of its market price, and as a result, a reduction in the value of
your
5
investment. Under the investment agreement with Grandview, the amount of common
stock to be issued to Grandview is based on a discount to the market price of
our common stock subsequent to the time of draw down under the equity line of
credit. The issuance of some or all of the shares of common stock under the
investment agreement could result in dilution of the per share value of our
common stock held by current shareholders. The lower the average of the closing
bid price of our common stock at the time of draw down, the greater the number
of shares of common stock that will be issued. This causes a substantial risk of
dilution, which exerts downward pressure on the stock price. Moreover, the
perceived risk of dilution may cause shareholders to sell their shares, which
would contribute to the downward movement in the stock price of our common
stock. The tables below show proceeds the number of shares that could be issued
under the equity line and our outstanding convertible debentures, based on the
per share sales price in the equity line or the debentures, as the case may be.
Issuance of Shares to Grandview under the Equity Line
Market Price of $0.02
|---------------------------------------------------------------------------------------------------|
| As Adjusted |
|---------------------------------------------------------------------------------------------------|
| 100% of market price 75% of market price 50% of market price 25% of market price |
| ------------------------ ------------------------ ------------------------- ----------------------|
Sale Price | $ 0.0166 0.01245 0.00830 0.00415 |
---------- | |
| |
| --------------------------------------------------------------------------------------------------|
Shares Issued | Amount of Funds Received |
------------- | --------------------------------------------------------------------------------------------------|
| |
200,000,000(1) | $3,320,000 $2,490,000 $1,660,000 $ 830,000 |
300,000,000(2) | $4,980,000 $3,735,000 $2,490,000 $1,245,000 |
------------------------ ------------------------ ------------------------- ----------------------
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(1) Shares indicated would equal over 200% of the currently outstanding shares.
(2) Shares indicated would equal over 300% of the currently outstanding shares.
The equity line provides for the issuance of up to $10 million in common stock,
$1.1 million of which has been received. Due to limitations in the number of
shares of common stock authorized, the Company will be unable to issue more than
an aggregate of 400,000,000 additional shares (400% of the currently outstanding
shares). If the Debentures are converted, the Company's ability to sell shares
under the equity line will be limited accordingly.
Conversion of Convertible Debentures
Current Market Price of $0.02
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| As Adjusted |
|----------------------------------------------------------------------------------------------------|
| 100% of market price 75% of market price 50% of market price 25% of market price |
|------------------------- ------------------------ ------------------------- -----------------------|
Conversion Price | 0.01600 0.01200 0.00800 0.00400 |
---------------- | |
| |
|----------------------------------------------------------------------------------------------------|
$ Converted | Shares Issued(1) |
----------- |----------------------------------------------------------------------------------------------------|
$1,895,000 | 118,437,500 157,916,667 236,875,000 473,750,000 |
------------------------- ------------------------ ------------------------- -----------------------
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(1) Indicated shares exceed 100%, 150%, 200% and 450%, respectively, of the
currently outstanding shares.
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The issuance of shares under our equity line of credit may cause significant
dilution to our shareholders and may have an adverse impact on the market price
of our common stock.
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The resale of the common stock that we may issue under our equity line
of credit would increase the number of our publicly traded shares, which could
depress the market price of our common stock. Moreover, as all the shares we may
issue under the equity line would be available for immediate resale, the mere
prospect of our sales under the equity line could depress the market price for
our common stock. The shares of our common stock issuable under the equity line
facility will be sold to the purchaser at 88% of the average of the lowest three
closing bid prices during the ten days immediately subsequent to our request.
The issuance of shares under the equity line will therefore dilute the equity
interest of our existing shareholders and could have an adverse impact on the
market price of our common stock. The dilution may cause our shareholders to
sell their shares, which would contribute to a downward movement in the stock
price of our common stock.
6
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Several of our officers are registering for sale a substantial number of their
shares of our common stock, and such officers' desires to sell shares may result
in conflicts of interest.
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Glenn A. Smith, our Chief Executive Officer and President is
registering for sale 34% of the shares he currently owns. Tod Smith, our Chief
Technology Officer and General Counsel, is registering for sale 39% of the
shares he currently owns. Maurice J. Matovich, our Chief Operations Officer, is
registering for sale 61% of the shares he currently owns. Howard L. Kaskel, our
Chief Financial Officer, is registering for sale 100% of the shares he currently
owns. Conflicts of interest could arise as a result of the desire of these
officers to sell shares of common stock.
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If consumers do not accept our services or products, or any service or product
developed by us in the future, as a less expensive, quality alternative to
traditional telephone service, we may not become profitable, and your investment
may be materially adversely affected.
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Broad acceptance of our technology, products, and services is critical
to our success and ability to generate revenue. The markets for our technology,
products, and services are rapidly evolving because our products and services
are new and based on emerging technologies. In addition we are attempting to
discern our niche in the Internet telephony industry. Typically, demand and
market acceptance for recently introduced technology and products are subject to
a high level of uncertainty. There can be no assurance that we will develop a
niche in the Internet industry, manage to keep pace with changing conditions or
that we will be successful in obtaining market acceptance of our technology,
products, and services. If consumers perceive our network to offer lower quality
voice transmissions compared to traditional long-distance services, our services
may not be accepted by consumers. In addition, consumers may not be willing to
use the PC, headsets, handsets, microphones, speakers, video cameras, or other
equipment that may be required for some of our services. See Business. If enough
consumers do not accept paying for our PC-to-phone service we may not gain
sufficient subscribers for FreeWebCall.com to become profitable.
Our PC-to-phone service requires that customers pay per minute rates
for our service. Rates differ based on which country they call. If sufficient
numbers of customers are not willing to pay our rates, we will not generate a
satisfactory revenue stream or be able to generate profits.
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We depend on the acceptance and growth of the Internet and the development of IP
telephone services into a standard way of communicating. Without such acceptance
and growth our business will not be profitable and your investment could
diminish in value.
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The Internet and Internet telephone services as a communications
mechanism are new and undeveloped. In order for our business to grow, we depend
on technical developments for consumers by third parties. We depend on
improvements to the Internet, including but not limited to, the infrastructure
provided by network and service operators and connections provided by network
and internet service providers. We depend on these interrelated systems being
offered at a price and of a quality such that more consumers will use the
Internet. Additionally, Internet telephony customers require software and
equipment to communicate. For our business to grow we depend on the development
and improvement of the equipment and related software that consumers use. The
equipment includes the PC and peripherals such as headsets, handsets,
microphones, speakers, and cameras. The developments will have to be of such a
quality that consumers will be willing to purchase the various products and
services and use them to communicate over our network.
7
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Our success depends on our ability to develop and construct the required
network, products, and services.
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The communications industry is a network of separate but interrelated
companies. We rely on suppliers of various technologies, but also have to
provide certain developments of our own that allows our basic network, products,
and services to work within the industry system. Our reliance on other vendors
and our ability to coordinate third party solutions with those we may need to
create ourselves is a significant risk. If we fail to affiliate with appropriate
vendors or customize such applications in ways that our customers find useful,
we will not be successful, and you could lose your investment in our common
stock.
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If consumers do not accept viewing banner advertisements when using
Internet-based telecommunications, we may not gain sufficient subscribers to
FreeWebCall.com to become profitable.
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Consumer acceptance of our revenue model that includes selling and
displaying advertising banners is critical to our ability to become profitable.
If consumers do not agree to view banner ads while using our telecommunications
services, we may not be able to generate profits. Additionally, because a
portion of our projected profits is based upon the consumer "clicking" upon an
advertisement that scrolls across the screen while using our FreeWebCall.com
service, we may not become profitable if consumers do not view our advertising
affiliates as desirable. Without these revenue streams, our business would be
adversely affected.
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The introduction of more technologically advanced products and services by our
competitors could decrease our profitability and adversely affect your
investment.
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The introduction of technologically superior products and services by
our competitors may make our products and services less marketable or subject to
downward price pressures, which may decrease our profitability. The Internet and
telecommunications markets are characterized by evolving industry standards and
specifications. We may have to expend substantial time and money to adapt our
technology, products, and services to this rapid technological change. A
critical factor in our growth and competitiveness will be our ability to
anticipate changes in technology and industry standards, including the
successful development of products and services in a cost effective and timely
manner. To successfully adapt we will have to be aware of the changes in the
marketplace and may have to hire the personnel who can develop what becomes
necessary. Necessary developments may include the core calling software
application or customer data management applications to better serve the
marketplace. There can be no assurance that we will successfully develop
enhanced or new products and services, that any enhanced or new products and
services will achieve market acceptance, that we will be able to adapt our
products and services to comply with new standards or specifications, or that
the introduction of new products or services by others will not render our
technology, products, and services obsolete. See Business.
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The telecommunications business is highly competitive, and we may not be able to
compete successfully.
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Our profitability will depend on our ability to compete successfully in
the highly competitive telecommunications business. We expect this competition
to persist, intensify, and increase in the future. Many of our current and
potential competitors have longer operating histories, greater name recognition,
larger customer bases, more services and products, and significantly greater
financial, technical, and marketing resources than we do. These competitors may
be existing or potential strategic partners with other competitors. We will
compete with Internet telecommunications providers as well as traditional long
distance telephone carriers for our customer base. Many companies offer products
and services like ours, and many of these companies have a substantial presence
in this market. These products may allow telecommunication over the Internet
between parties using a PC and a telephone and between parties using telephones.
Some of our competitors route voice traffic worldwide over the Internet. In
addition, major long distance providers and other companies have entered or plan
to enter the market for Internet telephony. These companies are larger than we
are and have substantially greater financial, distribution, and marketing
resources than we do. We may not be able to compete successfully in this market.
Prices for long distance calls have decreased substantially over the
last few years, and this decline is expected to continue in all of the markets
where we do business or expect to do business. In addition, many of our markets
and expected future markets have deregulated or are in the process of
deregulating telephone services. Customers in many of
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these markets are not familiar with our technology, products, or services and
may be reluctant to use new telecommunications providers. Our target customers
may be reluctant to entrust their telecommunications needs to new and unproved
operators or may switch to other service providers as a result of price
competition. See Changes in Pricing Standards... below.
Competition for FreeWebCall.com and e-button customers is primarily
based on the type and quality of services offered, customer services, and brand
recognition. We price our services at a discount to the prices charged by
traditional long distance carriers. We have no control over the prices set by
the traditional carriers or our other competitors. There is no assurance that
some of our larger competitors will not use their substantial financial
resources to cause severe price competition. Any significant price competition
could decrease or eliminate our ability to compete successfully and our
profitability. In addition, our competitors may be able to provide potential
customers with a broader range of services than we can due to regulatory
restrictions. See Business -- Competition and Supervision and Regulation.
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Departures of our key personnel or directors may harm our ability to operate
successfully.
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If we lose the services of our Board of Directors or executive
officers, we may not be able to grow or operate profitably. Our continued
success is substantially dependent upon the efforts of our directors and
executive officers, in particular Glenn A. Smith, our Chief Executive Officer.
We have no employment agreements in effect, with the exception of an agreement
with Howard L. Kaskel, our Chief Financial Officer, and we have no plans to
enter into any additional employment agreements in the future. Our future
success depends on our ability to attract and retain highly qualified technical
personnel. Competition for qualified personnel is intense, and there can be no
assurance that we will be able to attract or retain qualified personnel in the
future.
--------------------------------------------------------------------------------
Our service quality will be harmed if our system cannot handle a large volume of
simultaneous calls, and our results of operations would thereby suffer.
--------------------------------------------------------------------------------
Our inability to handle a large number of simultaneous calls could
cause our service quality to suffer which could result in customer losses. A key
component of our profitability will be the addition and retention of customers.
A byproduct of this component will be increased call volume on our network. It
is crucial to our ability to provide quality services for our system to handle a
large volume of calls. If we cannot effectively manage our customers' use of our
systems, customers may not perceive our service as a high-quality alternative to
traditional long-distance telephone service. This potential inability to handle
growth effectively may decrease our profitability. Internet communications
trends are still being developed but market conditions may be such that groups
of users may migrate from a company that is changing its service to us,
resulting in an unpredictably large influx of customers and usage that we are
unable to handle. See Our Inability to Predict Traffic Volume...below.
--------------------------------------------------------------------------------
Poor Internet service quality could prevent customer acceptance and use of our
products and service as well as the ability of our products to function
properly.
--------------------------------------------------------------------------------
Inferior Internet service quality and availability may cause our
services and products to fail or may result in poor customer perception of our
products and services, either of which would inhibit our ability to build or
maintain a sufficient customer base to stay profitable. Some Internet service
providers do not have the capability to handle more than the current level of
Internet traffic, a sudden increase in traffic volume may result in poor service
availability. If customers cannot reach the Internet, or it takes an
unreasonable amount of time to reach the Internet, the quality of their
experience using our service is negatively impacted and they may decide it is
more convenient to use traditional telecommunication technology or the Internet
technology of one of our better serviced competitors.
--------------------------------------------------------------------------------
Our inability to predict traffic volume on the Internet may add extra expense to
our business operations.
--------------------------------------------------------------------------------
Large fluctuations in Internet traffic volume may obligate us to pay
additional contractual charges for our Internet service. A decrease in Internet
traffic volume may obligate us to pay for leased Internet service capacity
without adequate corresponding revenues. An unexpected increase in traffic
volume may require us to obtain transmission capacity through more expensive
means. If we are unable to accurately project our needs for leased capacity in
the future, such inability may increase our operating costs and, therefore,
decrease our profitability.
9
--------------------------------------------------------------------------------
Our dependence on other communications carriers may add extra expense to our
business operations.
--------------------------------------------------------------------------------
Our dependence on other communications carriers, and our inability to
control their price structure or ability to provide quality service, may cause
us to pay higher prices than expected for access to the transmission facilities
through which we provide our services. We do not own any intranational or local
exchange transmission facilities in the areas where we provide services. We do
not intend to construct or acquire any local exchange transmission facilities in
the future. Consequently, we lease intranational and local exchange transmission
facilities to connect all of the telephone calls made by our customers, and
there is no assurance that the prices and nature of such facilities will not
fluctuate. Furthermore, we may not be able to meet the minimum volume
commitments on some of our leases, especially those that are long-term, which
may result in "under-utilization" charges. See Our inability to predict traffic
volume . . . above. We are also vulnerable to service interruptions and poor
transmission quality from leased lines. The deterioration or termination of our
relationship with one or more of our carrier vendors could have a material
adverse effect upon our business, financial condition, and results of
operations.
Our dependence on international carriers makes us vulnerable to
additional costs. In some countries, the intranational exchange transmission
facility is owned by the national telephone company. If the lack of competitive
alternatives forces us to enter into contracts with the national provider, we
may have to pay much higher rates for use of the transmission facilities, if we
are allowed to lease them at all.
--------------------------------------------------------------------------------
If third parties use our intellectual property without authorization, our
products and services may be damaged.
--------------------------------------------------------------------------------
Third parties may obtain and use our intellectual property without
authorization and, as a result, may damage our products and services. Our
intellectual property, including copyrights, service marks, trademarks, trade
secrets, and other intellectual property, is critical to our success. We rely on
trademark and copyright law, trade secret protection, and confidentiality
agreements with our employees, customers, partners, and others to protect our
intellectual property rights. These precautions may be ineffective, or the
validity, enforceability, and scope of protection of intellectual property in
Internet-related industries may not be adequate to protect our interests.
Furthermore, the laws of some foreign countries are uncertain, evolving, or do
not protect intellectual property rights to the same extent as do the laws of
the United States. See Business -- Intellectual Property.
--------------------------------------------------------------------------------
Defending against intellectual property infringement claims could be expensive
and could disrupt our business.
--------------------------------------------------------------------------------
If third parties file lawsuits against us for allegedly infringing upon
their intellectual property rights, our business could be disrupted and we could
incur substantial legal fees. We cannot be certain that our products do not or
will not infringe upon valid patents, trademarks, copyrights, or other
intellectual property rights held by third parties. Defending against
third-party infringement claims, regardless of their merit, could be expensive
and time consuming. Successful infringement claims against us may result in
substantial monetary liability or may materially disrupt the conduct of our
business. See Business -- Intellectual Property.
--------------------------------------------------------------------------------
Our stock price may be highly volatile and subject to wide fluctuations due to
many factors, including a substantial market overhang.
--------------------------------------------------------------------------------
The market price of our common stock may be highly volatile and subject
to wide fluctuations in response to quarterly variations in operating results,
losses of significant customers, announcements of technological innovations,
services, or affiliations or new products by us or our competitors, changes in
financial estimates by securities analysts, lack of market acceptance of our
products and services, or other events or factors, including the risk factors
described herein. In addition, the stock market in general, and the technology
stocks in particular, experience significant price and volume fluctuations that
are often unrelated to a company's operating performance. As with any public
company, we may be subject to securities class action litigation following
periods of volatility in the market price of our securities which could result
in substantial costs and a diversion of management's attention and resources.
Additionally, the sale of a substantial number of shares of common
stock, or even the potential of sales, in the public market following this
offering could deflate the market price for the common stock and make it more
difficult for
10
us to raise additional capital through the sale of our common stock. Assuming
the exercise of warrants and stock options, we will have a total of 410,244,887
shares of common stock outstanding at the time of this offering, giving effect
to the shares offered hereby. The shares offered hereby constitute more than
three times the number of shares of our common stock outstanding prior to this
offering.
Shares in the amount of up to the 309,881,550 offered hereby will be
freely tradable without restrictions under the federal securities laws.
Substantially all of the outstanding shares of the Company are freely tradable.
All of the remaining shares are "restricted securities" as that term is defined
by Rule 144 promulgated under the Securities Act of 1933, and will be eligible
for sale in compliance with Rule 144 after they have been held for one year.
There can be no assurance that an active trading market for the common stock
will be sustained after this offering. See Shares Eligible for Future Sale.
--------------------------------------------------------------------------------
Our directors and officers may be able to control or significantly influence us
due to their concentrated stock ownership.
--------------------------------------------------------------------------------
Our directors and officers may be able to use their stockholdings to
influence our business, policies, and affairs, including the ability to
significantly influence the election of directors and other matters requiring
shareholder approval by simple majority vote. As of September 18, 2001, our
directors and officers, in the aggregate and including exercisable stock
options, own beneficially 12,770,950 shares of common stock, although a
substantial portion are registered for resale pursuant to the registration
statement of which the prospectus forms part.
--------------------------------------------------------------------------------
If our employees and affiliates exercise their stock options and other rights to
acquire common stock, your proportionate interest will be diluted and we may not
be able to raise additional capital on the most favorable terms.
--------------------------------------------------------------------------------
Our directors, officers, employees, or affiliates may exercise stock
options or conversion rights to purchase common stock which would result in the
dilution of your proportionate interest in us. Our directors, officers,
employees, and affiliates will have the opportunity to profit from any rise in
the market value of the common stock or any increase in our net worth. Holders
of our convertible debentures and warrants have rights to acquire a substantial
and indeterminable number of shares of common stock, and the common stock
underlying certain of those rights is being registered for resale to the public
under federal law. Additionally, if the holders of the convertible debentures
exercise their conversion rights immediately after a significant decrease in the
market price of the common stock, shareholders could suffer substantial
dilution, because the conversion rate is inversely proportional to the recent
average market price.
The exercise of the options or conversion rights also could adversely
affect the terms on which we can obtain additional capital. For example, the
holders of stock options or conversion rights could exercise them when we could
obtain capital by offering additional securities on terms more favorable to us
than those provided for by the rights. The stock options or conversion rights
may be exercisable at prices below the market price for the common stock. See
Executive Compensation.
In addition, we currently anticipate that our available cash resources
from the investment agreement with Grandview Court, LLC will be sufficient to
meet our anticipated working capital and capital expenditure requirements for at
least the next 12 months. If our capital expenditure requirements are greater
than the financing available under the investment agreement, we may need to
raise additional capital. The investment agreement restricts us from raising
investment capital from third parties at a discount to market price during the
term of the investment agreement. If we need capital, but are unable to make a
request under the investment agreement for any reason, we will need to
separately negotiate with Grandview to lift those restrictions so we can obtain
the capital from other sources.
We may not be able to obtain additional financing on terms favorable to
us, if at all. If adequate funds are not available or are not available on terms
favorable to us, we may not be able to effectively execute our business plan.
--------------------------------------------------------------------------------
Your investment may have limited liquidity if an active trading market does not
develop or continue.
--------------------------------------------------------------------------------
Your purchase of our common stock may not be a liquid investment
because our securities trade over the counter
11
with quotes on the OTC electronic bulletin board. You should consider carefully
the limited liquidity of your investment before purchasing any shares of our
common stock. We have no obligation and no plans to apply for quotation of our
common stock on The NASDAQ Stock Market or for listing of our common stock on
any national securities exchange. Factors such as our limited earnings history,
the absence of a reasonable expectation of dividends in the near future, and the
fact that our common stock will not be listed mean that there can be no
assurance that an active and liquid market for our common stock will exist at
any time, that a market can be sustained, or that investors in the common stock
will be able to resell their shares. In addition, the free transferability of
the common stock will depend on the securities laws of the various states in
which it is proposed that a sale of the common stock be made.
--------------------------------------------------------------------------------
We do not plan to pay dividends.
--------------------------------------------------------------------------------
We will not be able to pay dividends until we recover any losses that
we may have incurred and we become profitable. We intend to retain our earnings
to finance growth and expansion and for general corporate purposes. Any future
declaration and payment of dividends on the common stock will depend upon our
earnings and financial condition, liquidity and capital requirements, the
general economic and regulatory climate, our ability to service any equity or
debt obligations senior to the common stock, and other factors deemed relevant
by our Board of Directors. Holders of our preferred stock have the right to
dividends declared with respect to the common stock on an as-converted basis.
--------------------------------------------------------------------------------
Government regulation may impair our profitability and restrict our growth.
--------------------------------------------------------------------------------
State and federal telecommunications and penny stock regulations could
limit our ability to achieve profitability and to grow. These changes may be
retroactively applied and are not within our control. Telecommunications
companies are subject to regulation by the Federal Communications Commission.
Conventional telephone companies are currently pushing the FCC to regulate
providers of computer software products that enable voice transmission over the
Internet, arguing that these companies are operating as common carriers. If this
argument is successful, we will be subject to various regulatory requirements
and fees. The FCC has advised Congress that it may, in the future, regulate
Internet protocol telephony services as basic telecommunications services.
Conventional telephone companies are also lobbying Congress to impose tariffs
that would impact customer use of our products and services. In addition,
several states are studying the imposition of access charges for Internet
telephony providers.
In addition to telecommunications regulation, the growing popularity
and use of the Internet has led to increased regulation of communication and
commerce over the Internet. The United States and other countries have enacted
laws to regulate user privacy, pricing, and the characteristics and quality of
Internet products and services. We are unable to predict the impact, if any,
that future legislation, legal decisions, or regulations concerning the Internet
may have on our business, financial condition, or results of operations.
We are subject to additional regulation by the Securities and Exchange
Commission under its rules regulating broker-dealer practices in connection with
transactions in "penny stocks." This type of regulation may reduce the level of
trading activity or your ability to sell the common stock. Penny stocks
generally are equity securities with a price of less than $5.00 that are not
registered on certain national securities exchanges or quoted on the NASDAQ
system. The penny stock rules require a broker-dealer, prior to a transaction in
a regulated penny stock, to deliver a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer must also provide information concerning
his compensation for the penny stock purchase, current prices of the penny
stock, and a special written determination that the penny stock is a suitable
investment for the purchaser. See Business -- Regulation.
--------------------------------------------------------------------------------
You should not rely on historical results of operations as indications of our
future performance.
--------------------------------------------------------------------------------
Our historical results of operations are not accurate indications of
our future performance. Our annual and quarterly results of operations fluctuate
significantly due to, among other factors, the volume of revenues generated by
our strategic partners from sales of products and services incorporating our
technology or products, the mix of distribution channels used by us, the timing
of new product announcements and releases by us and our competitors, and general
economic conditions. There can be no assurance that our future revenues and
profits will exceed our past performance. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
12
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus under the captions Summary,
Risk Factors, Management's Discussion and Analysis of Financial Condition and
Results of Operations, Business, and elsewhere in this prospectus are
"forward-looking statements." Forward-looking statements include, among other
things, statements about the competitiveness of the telecommunications industry,
our plans and objectives for future operations, the likelihood of our success in
developing and expanding our business, potential regulatory obligations, and
other statements that are not historical facts. The forward-looking statements
included herein are based upon a number of assumptions and estimates, which are
inherently subject to significant uncertainties, many of which are beyond our
control. When used in this prospectus, the words "anticipate," "believe,"
"estimate," or similar expressions generally identify forward-looking
statements. Because forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by the forward-looking statements. These factors
include, among other things, the risks set forth in the Risk Factors section.
13
CAPITALIZATION
The following table shows our short-term debt, long-term debt, and
capitalization as of June 30, 2001, and pro forma as adjusted to reflect:
(1) conversion subsequent to June 30, 2001 of $20,000 of debentures to
purchase common stock into 1,072,585 shares of our common stock ;
(2) the exercise of 10,113,000 common stock options at various per share
prices ranging from $0.11 to $1.00;
(3) the exercise of warrants to purchase 1,021,000 shares of common stock
by an investor at per share prices ranging between $0.42 and $2.20;
(4) the issuance under the equity line of 300,000,000 shares of common
stock for $5,478,000 at a rate based on a $0.022 per share market
price;
(5) the exercise of warrants to purchase common stock for 4,089,251 shares
at a per share price of $0.054; and
(6) the exercise of warrants to purchase common stock for 1,074,375 shares
at a per share price of $0.079.
(7) the exercise of warrants to purchase common stock for 100,000 shares
at $0.08 and 100,000 shares at $0.12.
For purposes of the pro forma capitalization table, we have assumed
that items (2), (3), (4), (5),(6) and (7) have occurred because each must occur
if the shares are to be sold by the selling shareholder. See Principal and
Selling Shareholders. We have no control over the conversion and exercise of
these debentures, options, and warrants and are unable to determine how many
shares will be issued under the equity line. This table should be read in
conjunction with our financial statements and the related notes thereto
contained elsewhere in this prospectus.
June 30, 2001
------------------------------------------------
(dollar amounts in thousands) Pro Forma
Actual As Adjusted
----------------------- --------------------
Long-term obligations......................................... $ - $ -
Common Stock, $0.001 par value, authorized 500,000,000 shares,
issued and outstanding 91,954,676 and 410,244,887 shares as
adjusted 91,953 410,245
Notes receivable, stockholders................................ (362,860) (362,860)
Preferred Stock, $0.001 par value, authorized 10,000,000 shares,
issued and outstanding none 2001 and 2000..............
Additional paid-in capital.................................... 13,521,627 22,877,623
Deficit accumulated during the development stage.............. (14,163,085) (14,163,085)
----------------------- --------------------
Total shareholders' equity................................ (912,365) 8,761,923
----------------------- --------------------
Total capitalization................................. $ (912,365) $ 8,263,924
======================= ====================
DIVIDEND POLICY
We have not declared or paid any cash dividend on our common stock in
the past, and the board of directors intends to continue a policy of retaining
future earnings to finance our growth and for general corporate purposes.
Therefore, we do not anticipate paying any cash dividends on our common stock in
the future.
14
BUSINESS
We were incorporated in 1996 to offer Internet-based communications
products and services in the United States and international markets. We were
one of the first companies to offer a way to transmit voice and multi-media
communications over the Internet, a service commonly referred to as Internet
protocol telephony. Our voice-over-Internet service integrates traditional
telephone functions with advanced Internet-based communications technology.
--------------------------------------------------------------------------------
Industry Background
--------------------------------------------------------------------------------
Historically, long distance telephone services have been offered
through public switched telephone networks using traditional telephone lines, a
well-established and quality service. In recent years, however, the Internet's
developing technologies, unprecedented popularity, and commercialization have
accelerated the integration of technologies involving computers and telephones.
This commercial integration has led to a new sector in the communications
industry, generally referred to as computer telephony or Internet telephony,
that has developed a less expensive and more workable method of
telecommunication over the Internet. Companies that offer Internet telephony
services and products are generally referred to as Internet telephony service
providers. Because the global marketplace is becoming familiar with the Internet
and its value as a communications mechanism, companies have invested millions of
dollars to develop new and enhanced applications to improve the service quality
and lower implementation costs of Internet telephony.
Internet telephone services are superior to traditional long distance
telephone services in several ways. First, voice and message traffic through
Internet telephony systems is less expensive than traditional telephone systems
because Internet telephony services are not subject to the tariffs affecting
traditional telephone services. Also, the Internet protocol telephony network
routes transmissions using packetized switching that is less expensive to deploy
and allows for more efficient use of the capacity that exists in the
communications infrastructure. Second, Internet protocol telephone services have
superior capability than traditional telecommunications technology for
innovative features such as interactive document and data sharing and
multi-media data transmissions.
New applications of voice-over-Internet services are being developed
every day. The cost of computer processing is decreasing and customer demand is
increasing. Internet telephone systems are more economical, have more features,
and may become more reliable than traditional telephone services, and may allow
companies to communicate better with their customers, employees, and vendors.
--------------------------------------------------------------------------------
The Access Power Solution
--------------------------------------------------------------------------------
We are developing our Internet-based telephony network, Access Power
Advanced Communications(R), and services, FreeWebCall.com(TM) and e-button(TM),
to provide a domestic and international communications network that allows
customers to place calls through the Internet using traditional telephones and
PCs. Unlike traditional switch-based telephone systems, we use the Internet as
the backbone to complete the long distance connection, thereby eliminating the
tariff fees associated with long distance carriers and providing a less costly
alternative to traditional long distance telephone lines.
--------------------------------------------------------------------------------
Products And Services
--------------------------------------------------------------------------------
Access Power Advanced Communications integrates traditional telephone
functions with advanced Internet-based communications technology. This service
enables users to communicate over the Internet from a PC to a telephone with a
significant reduction in costs over traditional telephone services. Through this
service, a user can place long distance telephone calls from a PC anywhere in
the world over the Internet to telephones in any area where Access Power
terminates calls. Currently, we have such service available for calls to
telephones in the United States and 47 countries.
Our FreeWebCall.com customers' experience is supported by a standards
based solution featuring Microsoft's NetMeeting software and Cisco Systems
hardware.
15
--------------------------------------------------------------------------------
Freewebcall.Com(TM)
--------------------------------------------------------------------------------
FreeWebCall.com was launched August 1, 2000. It is a sponsor-subsidized
Internet Protocol telephone service whose subscribers enjoy low cost calling
from their Windows-based PC to any telephone in the United States and several
other countries. Additional features to allow our subscribers to make free
PC-to-PC calls, and engage in text chat, file sharing, program sharing, and
whiteboard collaboration. We plan to implement video capabilities this year.
FreeWebCall.com customers register for service and log-in to use the service at
the FreeWebCall.com website.
--------------------------------------------------------------------------------
E-Button(TM)
--------------------------------------------------------------------------------
The e-button software provides electronic commerce benefits to any
company with a traditional call-center. This technology allows consumers viewing
a company's web site to click the e-button icon, which will instantly dial a
designated representative of that company, usually someone providing sales or
support services. This technology allows corporate customers to voice-activate
their Website, providing faster and more effective sales, customer service, or
technical support. We are redesigning e-button to integrate certain FreeWebCall
features. The modifications will require a company owning a site using e-button
to pre-pay for the service while the company's customer will still be able to
contact the company for free using e-button.
--------------------------------------------------------------------------------
Strategy
--------------------------------------------------------------------------------
We believe a significant commercial opportunity is emerging from the
application of Internet-based products and services to the transmission of
voice, video, and facsimile through the use of packetized Internet protocol
networks. Access Power's objective is to be one of the world's leading providers
of international Internet protocol telephone products and services. Our strategy
to achieve that objective includes the provision of free and low cost Internet
telephone services and by selling Internet telephone products through
FreeWebCall.com, the exploitation of new technology including FreeWebCall.com
and e-button; and the continued development of enhanced products and services
that utilize our international Internet protocol telephone network. Some sales
may be offered on or through links on the Accesspower.com website. We intend to
capitalize on our officers' and principal employees' extensive backgrounds to
develop unique services that differentiate us from our competitors and that
enhance our customers' communications experience.
--------------------------------------------------------------------------------
Enhance FreeWebCall.Com(TM)
--------------------------------------------------------------------------------
FreeWebCall.com provides free PC-to-PC and low cost PC-to-phone long
distance service to consumers. FreeWebCall.com revenue is generated by charging
per minute rates, displaying advertising at the site and by receiving
commissions on the sale of the products and services of other companies that are
advertised and promoted on the FreeWebCall.com website. Subscribers call from
their Windows-based PCs to other windows-based PCs or to regular telephones.
Recently, technology was added that allows our subscribers to participate in
text chat, file sharing, program sharing, and whiteboard collaboration. We are
working on adding video capabilities.
--------------------------------------------------------------------------------
Leverage The Low Operating Costs Of Our Network
--------------------------------------------------------------------------------
Internet protocol telephone calls are treated as data communications
and are not subject to the expensive access fees to which standard long-distance
calls are subjected. This is especially significant when it comes to
international calls, where extra fees can be a significant addition to the cost
of a call. Our technology enables us to offer international calling at reduced
costs to customers.
We believe that the future of telecommunications is in the value of the
enhanced services a provider offers and that long-distance telephone services as
we know them today will become a low-priced commodity. We believe that this
premise will propel Internet telephone services into the mainstream of
communications. Internet telephone services by definition operate within
computers, a medium that allows for the development of sophisticated user
applications that will differentiate Internet protocol telephony from
traditional telephony systems.
16
--------------------------------------------------------------------------------
Customer Service
--------------------------------------------------------------------------------
We believe customer service is one of our greatest strengths. Our
customer service organization's leadership team consists of professionals who
have managed customer care for demanding companies.
Access Power's operations and customer service includes a call center
and e-mail response as well as the mailing of correspondence. The call handling
customer support systems have been developed in-house and reside on our Website.
The representative and the customer may jointly access our home page for
information on topics of interest.
--------------------------------------------------------------------------------
Sales And Marketing
--------------------------------------------------------------------------------
Our market includes consumer and commercial users of advanced
communications products and services and users of the Internet. We consider the
developing Internet telephone products and services to be an advancement over
what traditional telecommunications services offer and may provide in the
future. From the user's prospective these advances include the use of the PC as
a voice and video communications tool. Advanced functionality includes the
current technical capability allowing a customer to place a PC-to-phone call to
one person and simultaneously process an instant message text chat with another
person. Additional features consist of PC-to-PC collaboration tools allowing
text chat, file sharing, program sharing and whiteboard collaboration.
Our current sales initiative is directed toward customer acquisition
for our FreeWebCall.com service. Our subscribers have been and will continue to
be generated mainly by associations with banner advertisement aggregators,
marketing associations, marketing affiliations, and word of mouth. Word of mouth
has become more advanced and involved with the emergence of the Internet and we
intend to establish a marketing program whereby customers can easily advise
other potential customers via e-mails about our service.
The target market for our PC-to-phone service is the worldwide Internet
user base. Nua Ltd. estimates that the number of worldwide users on-line will
increase from approximately 98 million in 1997 to approximately 350 million by
2005. Neilsen Net Ratings measurements found that approximately 144 million
people surfed the Web from home in July 2000, 35% more than the same period in
1999. The same study showed that from July 1999 to July 2000 the time people
spent on the Internet increased by 26%. The International Telecommunications
Union reports that during 2000, the 1.5 billion telephone users worldwide
transmitted one in 33 of their global phone calls using the Internet. The ITU
estimates that by 2004, 40% of calls will be web-based.
E-button is sold to businesses that have a Website and call center.
According to Yahoo!, as of August 23, 2001, there were over 676,000
business-oriented Websites worldwide. Some of these businesses also have a call
center for customer service, sales, or technical support. We aim to capture a
significant portion of this business market for sales of the e-button(TM)
product.
--------------------------------------------------------------------------------
Employees
--------------------------------------------------------------------------------
As of September 18, 2001 the Company retained 7 full time employees.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and notes
thereto and the other financial information included elsewhere in this document.
PLAN OF OPERATION
Overview
--------
Access Power, Inc. was formed in 1996 to offer Internet-based
communications products and services in the U.S. and international markets. We
are creating a network of Internet telephony gateway servers and Internet
protocol and public switched telephone network circuits to provide voice and
multimedia communications services, more commonly referred to as Internet
protocol telephony.
From our inception, we have devoted most of our efforts to technical
analysis, development, procurement, implementation, testing, and the
establishment of the corporate and technical policies and procedures necessary
to support our business requirements. We are a development stage operation.
Our Internet protocol telephony gateway network allows us to offer
competitively-priced call rates while providing premium communications features.
Our current products and services are based primarily on PC-to-phone
communications. The PC-to-phone service is done through our FreeWebCall.com
service. Customers anywhere in the world can use a PC to place calls to
telephones in the United States and 47 other countries. Customers order the
service at our FreeWebCall.com web site and pre-pay on-line using a credit card
or by mailing in a check or money order. Upon receipt of payment and account
activation, the customer receives his or her codes via e-mail allowing him or
her to use the service and place calls. The customer's PC-to-phone calls are
charged to his or her account at a per minute rate based on where they are
calling. Paying PC-to-phone customers are also eligible to use the free PC-to-PC
calling service. Customers can sign up for only the PC-to-PC service which
includes the collaboration features of text chat, file, document and whiteboard
sharing. The service is also supported by advertising and product offerings from
various providers. The offerings are in the form of banner ads displayed to site
visitors and customers of FreeWebCall.com. Depending on the particular
arrangement we receive payments for the advertising impressions that are
displayed or sales commissions for purchases originating from our sites.
While in our start-up and current development stages, we tested and
introduced certain products and services, new to both the communications
industry and us. In order to be competitive in our market place, we followed
industry leaders by offering free services subsidized by Internet advertising.
As the Internet advertising industry declined in both revenue and inventory, our
revenue declined accordingly. We have since changed our business model to a pay
service and are rebuilding our base of subscribers. To date, we have not
realized revenues from sales of any products or services in amounts necessary to
support all of our cash operating needs. We do not expect to become profitable
within the next 24 months.
Expansion Plans
---------------
We believe we must expand our gateway network capacity and our customer
base to achieve profitability. This expansion will be done in conjunction with
the implementation of developments that will add further value to the customers
of our services. Some of the developments will be low cost to us but intended to
enhance the existing user experience within the free or low cost to consumer
sponsor based model. We expect to add communication service offerings that will
increase customer value and grow revenues. We are also working with various
advertisers and suppliers to continue maximizing the opportunities presented by
our site activity.
18
Marketing
---------
Our current marketing focus is on FreeWebCall.com subscriber
acquisition and the leveraging of the resultant activity by adding value to the
subscriber experience and promoting or reselling various products and services.
Subscriber acquisition is occurring primarily through developing relationships
with on-line link distributors who display our advertisements at selected
web-sites. The links refer Internet users to our site to join and become a
member. Service revenue is generated by members who purchase our PC-to-phone
service. Additional revenue is generated by displaying ad impressions or from
sales commissions through marketing associations with suppliers of various
products and services that are strategically promoted on our web site pages.
TWELVE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1999
Revenues and Costs of Revenues
------------------------------
Total revenues for the twelve months ended December 31, 2000 increased
$161,319 or 89.6% due to the increased marketing of our Net.Caller product that
offered flat rate calling to any telephone in a number of countries from any PC
worldwide. During the twelve months ended December 31, 2000, we changed our
revenue model from charging a flat rate per month to a free service to our
subscribers, supported by advertising sponsors. We received over 500,000
subscriptions to this free service; however, with the internet industry-wide
reduction in advertising revenue on both revenue per impression and total
available advertising, this became an unprofitable model. During the year ended
December 31, 2000, revenue declined as we changed to the sponsor-based model due
to the decline in advertising revenue. On April 23, 2001, we cancelled the
subscriptions of all subscribers to our free service and began offering PC to
Phone long distance calling on a various cost per minute basis. We also began
offering free PC-to-PC calling. Both PC to Phone and PC-to-PC calls are in part
supported by advertising revenue.
Our direct cost of revenue consists primarily of network costs of
carrying our customers' PC to Phone traffic on leased networks. As a percentage
of revenue, we expect direct cost of revenue in the near term to decrease as we
have changed our model to charge on a per-minute basis. Longer term, our direct
cost of revenue will increase, as there is then a decline in per-minute charges
to our customers. We incur no variable costs on PC-to-PC calls. Cost of services
increased $1,110,298 to $1,438,776 in 2000 as we promoted initially our
Net.Caller flat rate product and then our FreeWebCall sponsor based product.
Expenses
--------
Product development and marketing expenses were $1,279,330 in 2000
compared to $687,359 in 1999, an increase of $591,971 or 86.1%. Advertising and
public relations associated with product marketing accounted for $449,060 of the
increase. Depreciation and amortization expenses increased $62,494. General and
administrative expenses were $2,504,206 in 2000 compared to $1,642,134 in 1999,
and increase of $862,072 or 52.5%. Payroll, contract labor, and office staffing
expenses accounted for $484,028 of the increase. Finders' fees increased
$243,566 to $350,000 from $106,444, due to the increase in financing activities
in 2000 compared to 1999, and the write off of receivables deemed not
collectible accounted for $179,139 of the general and administrative increase.
TWELVE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1998
Revenues and Costs of Revenues
------------------------------
Total revenues for the twelve months ended December 31, 1999 decreased
$87,899 or 32.8%. Revenues from services provided increased 218.7% from $53,519
to $170,601 due to increased marketing of the company's new flat rate services.
Product sales decreased 95.6% from $214,431 to $9,450 due to the initial fees
received related to our Canadian venture ($24,000), the sale of equipment to
that venture ($188,092) in 1998, compared to sales of solely software and
service in 1999. The Canadian venture has since been terminated by mutual
agreement of the parties.
Our direct cost of revenue consists primarily of network costs of
carrying our customers' PC to Phone traffic on leased networks. Direct cost of
services increased $292,078 in 1999 to $328,378 from $36,300 as we developed and
19
marketed our Net.Caller product.
Expenses
--------
Product development and marketing expenses were $687,359 in 1999
compared to $695,372 in 1998. General and administrative expenses increased
$435,929 or 33.1%. Professional fees for marketing and equity financing
increased $701,666 from $206,680 to $908,348 or 339.5%. These expenses were
slightly offset by lower payroll of $88,775, lower travel of $37,258 and lower
temporary help of $13,506 in 1999 compared to 1998.
PERIOD ENDED JUNE 30, 2001 COMPARED TO PERIOD ENDED JUNE 30, 2000
Revenues and Costs of Revenues
------------------------------
Revenues decreased $99,104 from $108,556 in the three months ended
June 30, 2001 compared to the previous year. Revenues decreased $236,808 from
$254,167 in the six months ended June 30, 2001 compared to the previous year.
Fee for service, advertising revenue and sales commissions accounted for the
revenue in 2001 compared to only fee for service in 2000. Because its Internet
advertising model did not generate sufficient revenue, the Company re-instituted
fees for its FreeWebCall.com service on April 25, 2001 in addition to
advertising sponsored service.
Expenses
--------
Our direct cost of revenue consists primarily of network costs of
carrying our customers' PC to Phone traffic on leased networks. As a percentage
of revenue we expect direct cost of revenue to initially in the near term to
decrease as we have changed our model to charge on a per-minute basis. Longer
term our direct cost of revenue will then increase, as there is then a decline
in per-minute charges to our customers. We incur no variable costs on PC-to-PC
calls. Cost of Services decreased $231,059 from $278,843 in the three months
ended June 30, 2001 compared to the previous year. Cost of Services decreased
$199,633 to $373,281 in the six months ended June 30, 2001. These decreases
represent the lower usage by FreeWebCall customers in 2001 compared to
Net.Caller customers in the previous year. Product development and marketing
expenses were $157,251 a decrease of $318,204 or 67% in the three months ended
June 30, 2001 compared to the previous year. Advertising, promotion and investor
relations expenditures decreased $322,181 from $383,981 to $61,800 during the
three months ended June 30,2001 compared to the previous year. Depreciation and
amortization expenses increased by $25,575 representing our expenditure during
fiscal year 2000 in new gateway server hardware and software. For the six months
ended June 30, 2002 product development and marketing expenses decreased
$402,281 or 48% to $431,676. Advertising, promotion and investor relations
decreased $274,384 to $149,703 in the six months ended June 30, 2001. Gateway
expenses decreased $81,963 in the six months ended June 30, 2001 compared to the
previous year. General and administrative expenses were $359,432 a decrease of
$148,940 or 29%. Salaries & wages decreased $103,510 and leased employee expense
decreased $33,156 in the three months ended June 30, 2001 compared to the
previous year. For the six months ended June 30, 2001 general and administrative
expenses decreased $234,029 or 20%. Finders fees decreased $171,866 of this
decrease and legal fees decreased $48,723 both representing lower financings in
the six months ended June 30, 2001 compared to the previous year.
PERIOD ENDED JUNE 30, 2000 COMPARED TO PERIOD ENDED JUNE 30, 1999
Revenues and Costs of Revenues
------------------------------
Revenues increased $95,306 from $13,250 to $108,556 in the three months
ended June 30, 2000 compared to the same period in 1999. Revenues increased
$226,367 to $254,167 from $27,800 in the six months ended June 30, 2000 compared
to the prior year. These increases were the result of sales of our Net.Caller
flat rate service which we began to offer in April 1999. Software sales
decreased from $1,550 to zero and $8,400 to zero in the three and six months
periods ended June 30,2000 compared to the prior year because we concentrated on
providing our Net.Caller service instead of reselling software.
20
Expenses
--------
Our direct cost of revenue consists primarily of network costs of
carrying our customers' PC to Phone traffic on leased networks. As a percentage
of revenue we expect direct cost of revenue to initially in the near term to
decrease as we have changed our model to charge on a per-minute basis. Longer
term our direct cost of revenue will then increase, as there is then a decline
in per-minute charges to our customers. We incur no variable costs on PC-to-PC
calls. Cost of Services increased $238,253 to $278,843 in the three months ended
June 30, 2000. For the six months ended June 30, 2000 Cost of Services increased
$521,674. These increases represent increased usage of our Net.Caller service
which was introduced in April 1999. Product development and marketing expenses
were $475,455 for the three months ended June 30, 2000 an increase of $97,791,
or 25.6%, from $377,664 in the prior year. Marketing and public/investor
relations represented $147,742 of this increase. For the six months ended June
30,2000, product development and marketing increased $229,244, or 37.9%, to
$833,957. Marketing and public/investor relations represented $226,758 of this
increase. General and administrative expenses increased $223,383, or 78%, to
$508,372 in the three months ended June 30, 2000 from $284,989 for the same
period in the prior year. Payroll and outside staffing services represented
$205,909 of this increase. For the six months ended June 30,2000, general and
administrative expenses increased $605,966, or 111%, to $1,152,249. Payroll and
outside staffing represented $231,744 of this increase and finder's fees on the
capital raises accounted for $350,000 of the increase.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the
proceeds from the issuance of equity securities and loans from stockholders and
others. To date, we have raised approximately $4,340,000 from the sale of common
stock and preferred stock, and have borrowed approximately $3,958,000 from
investors and stockholders. Funds from these sources have been used as working
capital to fund the build-out of our network and for internal operations,
including the purchases of capital equipment.
We generated negative cash flow from operating activities for the
period from inception (October 10, 1996) through June 30, 2001. We realized
negative cash from operating activities for the six months ended June 30, 2001,
of ($1,557,567) compared to negative cash from operating activities of
($2,529,229). Investing activities for the period from inception through June
30, 2001 consisted primarily of equipment purchases to build out the network.
Investing activities in the six months ended June 30, 2001, were $158,833
compared to ($209,041) during the six months ended June 30, 2000. The timing and
amount of our capital requirements will depend on a number of factors, including
demand for our products and services and the availability of opportunities for
international expansion through affiliations and other business relationships.
The timing and amount of our capital requirements will depend on a
number of factors, including demand for our products and services. Without
sufficient sales of equity securities through an equity line with an underwriter
or other sales of securities, we will not be able to execute our business plan
through December 31, 2001.
We raised $75,000 in January 1999 from the sales of a total of 75
shares of Series A Preferred Stock for $1,000 per share. In connection with one
of these sales, we also issued 27,777 shares of common stock as a finder's fee
and recognized expense of $7,500 and an increase to capital stock of the same
amount. We received $150,000 as a good faith deposit with the letter of intent
and issued 1,500,000 shares of common stock in return to the investor.
We issued 512,000 shares of common stock in exchange for a debt
repayment and the interest due thereon in April 1999.
We issued 2,630,000 shares of common stock upon the exercise of
employee stock options for $1,257,100 in June 1999. We issued $1,000,000 of 6%
convertible debentures in September of 1999 and $200,000 of 6% convertible
debentures in December of 1999.
We issued $800,000 of 6% convertible debentures in January of 2000,
$2,500,000 of 6% convertible debentures in February of 2000, $200,000 of 6%
convertible debentures in August of 2000, and $100,000 of 6% convertible
21
debentures in September of 2000.
We issued 19,237,000 shares of common stock in January 2001 and
4,297,500 shares of common stock in February 2001, both for cash. We issued
650,000 shares of common stock in March 2001 in settlement of a lawsuit.
Our financing activities for the six months ended June 30, 2001,
provided a net total of $1,394,102. Cash at the end of that period was $10,820.
As of September 18, 2001, we had cash of $12,000 and working capital of
($1,373,000).
22
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of August 7,
2001 are as follows:
Name Age Position
---- --- --------
Glenn A. Smith 45 President, Chief Executive Officer, and Director
Tod R. Smith 40 Chief Technology Officer, General Counsel, and Director
Maurice J. Matovich 42 Chief Operations Officer and Director
Howard Kaskel 55 Chief Financial Officer
Glenn A. Smith has served as our President, Chief Executive Officer,
and a director since our formation in 1996. He has over twenty years experience
in developing interactive systems and Internet-based businesses and services.
From 1992 to 1996, Mr. Smith was self-employed as a developer of advanced
computer telephony systems and services.
Tod R. Smith has served as our Chief Technology Officer and General
Counsel since 1998 and as a director since 1997. Mr. Smith worked at AT&T as a
Technical Staff member specializing in computer consulting and the development
of software from 1988 to 1998.
Maurice Matovich has served as our Chief Operating Officer since 1998
and as a director since 1997. Mr. Matovich served as a manager at AT&T where he
specialized in high-tech operations management, client relations, and
shareholder relations from 1984 to 1997.
Howard Kaskel has served as our Chief Financial Officer since 1998. Mr.
Kaskel also is currently a limited partner with Tatum CFO Partners, LLP, a
partnership of career chief financial officers. From 1996 to 1997, Mr. Kaskel
served as the Chief Financial Officer of DeFalco Advertising and as the Chief
Financial Officer of Pinnacle Site Development Inc. until joining us in 1998. He
was a partner at Kaskel, Solowiei & Associates, a financial consulting firm,
from 1993 to 1996, where he advised companies regarding acquisitions,
divestitures, and business planning.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual
compensation for services in all capacities to us for the year ended December
31, 2000 with respect to the Chief Executive Officer and the Chief Financial
Officer:
Annual Compensation Long-Term Compensation Awards
------------------------------------ --------- -------------------------------- --------------------------------------
Name and Principal Position Year Salary Securities Underlying Options (#)
------------------------------------ --------- -------------------------------- --------------------------------------
Glenn A. Smith, 2000 $96,000 4,650,000
Chief Executive Officer 1999 $96,000 4,700,000
1998 $96,000 100,000
Howard L. Kaskel, 2000 $108,000 1,093,000
Chief Financial Officer 1999 $113,750 1,205,500
1998 $35,750 --
23
STOCK OPTIONS
The following table summarizes certain information regarding options to
purchase common stock granted to the Chief Executive Officer during the year
ended December 31, 2000. We did not grant any stock appreciation rights in 2000.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
----------------------------------------------------------------------------------------------------------------------
Number of Securities Percent of Total Options/ Exercise or Base
Underlying Options/ SARS Granted to Employees Price
Name SARs Granted (#) in Fiscal Year ($/Sh) Expiration Date
------------------------- ----------------------- --------------------------- -------------------- -------------------
Glenn A. Smith 250,000 24.81% $ 0.51 05/10/10
Howard L. Kaskel 187,500 18.61% $ 0.51 05/10/10
The following table summarizes the number and value of unexercised
options held by the Chief Executive Officer as of December 31, 2000. The Chief
Executive Officer did not exercise any options in the year ended December 31,
2000.
Fiscal Year-End Option Values
---------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised in-the-Money Option/
Underlying Unexercised SARs at Fiscal Year-End ($)
Options/SARS At Exercisable/
Fiscal Year-End (#) Exercisable/ Unexercisable
Name Unexercisable
------------------------------- --------------------------------------- ---------------------------------------------
Glenn A. Smith 200,000 /0 (1)
4,100,000 /0 (1)
100,000 /0 (1)
250,000 /0 (1)
Howard L. Kaskel 150,000 /0 (1)
518,000 /0 (1)
232,000 /0 (1)
37,500 /0 (1)
187,500 /0 (1)
(1) At December 31, 2000 there were no unexercised stock options that were
in-the-money.
EMPLOYMENT AGREEMENTS
We entered into an amended employment agreement with Howard L. Kaskel
on June 29, 2001. The agreement provides that Mr. Kaskel will serve as our Chief
Financial Officer on a part-time basis (two days per week) for $7,200 per month
which includes a base salary of $6,000 and a retainer of $1,200 for Tatum CFO
Partners, LLP, of which Mr. Kaskel is a partner. Additional days are paid at the
rate of $1,200 per day. There is no cap on the additional salary that could be
payable. The agreement is terminable by us upon thirty days written notice with
all payments required pursuant to the agreement to be paid on or before the
termination date. We do not have employment agreements with any other of our
executive officers.
If the agreement is cancelled after six months of employment, Mr.
Kaskel and Tatum will receive $6,000 and $1,200, respectively. If it is
cancelled after 12 months, Mr. Kaskel and Tatum will receive $12,000 and $2,400,
respectively. For every additional six months' employment, Mr. Kaskel and Tatum
will receive and additional month's salary and fee, up to a maximum of six
months.
DIRECTOR COMPENSATION
The directors have not received compensation for their duties as
members of the board of directors, and we have no current plans to compensate
directors for serving on the board in the future.
24
STOCK INCENTIVE PLAN
In June of 1997, we adopted our Stock Incentive Plan to provide
selected employees and affiliates rendering services to us or our affiliates an
opportunity to purchase our common stock. The Stock Incentive Plan promotes our
success and enhances our value by linking the personal interests of participants
to those of our shareholders and by providing participants with an incentive for
outstanding performance. Awards under the Stock Incentive Plan may be structured
as "incentive stock options" as defined in Section 422 of the Internal Revenue
Code of 1986, for employees or as non-qualified stock options for any
participant. The aggregate number of shares of common stock with respect to
which incentive stock options may be granted pursuant to the Stock Incentive
Plan cannot exceed 2,500,000 shares.
Incentive stock options are subject to certain limitations, including
the requirement that such options be granted with an exercise price no less than
the fair market value of the common stock at the date of grant and that the
value of stock with respect to which the options are exercisable by a
participant for the first time in any year may not exceed $100,000, based on the
fair market value of the stock at the date of grant. In addition, incentive
stock options may not be granted to employees who own more than ten percent of
the combined voting power of all classes of our voting stock, unless the option
price is at least 110% of the fair market value of the common stock subject to
the option and unless the option is exercisable for no more than five years from
the grant date.
The compensation committee of our board of directors has discretion to
set the terms and conditions of options, including the term, exercise price, and
vesting conditions, if any; to determine whether the option is an incentive
stock option or a non-qualified stock option; to select the persons who receive
such grants; and to interpret and administer the Stock Incentive Plan.
As of the date of this prospectus, options to purchase an aggregate of
10,113,000 shares of common stock have been granted under the Stock Incentive
Plan and were outstanding, including options for 4,650,000 shares of common
stock issued to Glenn A. Smith and options for 1,093,000 shares of common stock
issued to Howard L. Kaskel. Mr. Smith's options have an exercise price of $0.11
per share for 4,100,000 shares, $0.54 per share for 100,000 shares, $0.22 per
share for 200,000 shares and $0.51 per share for 250,000. Mr. Kaskel's options
have an exercise price of $0.22 per share for 150,000 shares, $0.11 per share
for 518,000 shares, $0.54 per share for 37,500 shares, and $0.51 per share for
187,500 shares.
RELATED PARTY TRANSACTIONS
On September 30, 1999, we entered into Share Exchange Agreements with
our executive officers whereby the officers were issued one share of Series B
Convertible Preferred Stock for each one thousand shares of common stock
presented. Glenn Smith, Tod Smith, Maurice Matovich, and Howard Kaskel received
2,662, 640, 450, and 200 shares of Series B Convertible Preferred Stock,
respectively. In January of 2000, the Series B Convertible Preferred Stock was
converted back to common stock.
25
CERTAIN MARKET INFORMATION
Price Range of Common Stock
Our common stock is traded over-the-counter and quoted on the OTC
electronic bulletin board under the symbol "ACCR" on a limited and sometimes
sporadic basis. Quoting began in December of 1997. The reported high and low bid
prices for the common stock are shown below for the indicated periods through
September 19, 2001. The prices presented are bid prices that represent prices
between broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the broker-dealer. The prices do not necessarily reflect actual
transactions. As of March 16, 2001, there were approximately 314 shareholders of
record of our common stock.
Bid
---
Low High
--- ----
1998
----
First Quarter $0.81 $1.38
Second Quarter $1.38 $4.06
Third Quarter $0.53 $2.19
Fourth Quarter $0.22 $0.75
1999
----
First Quarter $0.08 $0.33
Second Quarter $0.12 $1.56
Third Quarter $0.30 $0.79
Fourth Quarter $0.20 $0.97
2000
----
First Quarter $0.37 $3.47
Second Quarter $0.43 $1.43
Third Quarter $0.22 $0.47
Fourth Quarter $0.09 $0.29
2001
----
First Quarter $0.05 $0.13
Second Quarter $0.03 $0.05
Third Quarter (through September 19, 2001) $0.02 $0.03
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by
Grandview that it has obtained under the investment agreement. We will receive,
however, the sale price of any common stock purchased by Grandview under the
investment agreement.
We will not receive any of the proceeds from the sale of shares by the
other selling shareholders. We will receive, however, $4,248,241 if all
outstanding warrants and options to purchase common stock are exercised by the
selling shareholders. We expect to use the proceeds of any such sales for
general working capital purposes.
26
PRINCIPAL AND SELLING SHAREHOLDERS
Overview
--------
The number of shares we are registering for resale by Grandview Court,
LLC is based in part on our good faith estimate of the number of shares we will
issue to Grandview under the investment agreement. The number of shares we are
registering for issuance under the investment agreement may be higher than the
number we actually issue under the investment agreement. The remaining shares we
are registering are based upon shares held by, or underlying convertible
securities held by, the other selling shareholders.
Grandview is engaged in the business of investing in publicly traded
equity securities for its own account. Grandview's principal offices are located
in the Cayman Islands. Other than the shares registered hereunder, Grandview
does not own any of our securities as of the date of this prospectus, and it has
no other commitments or arrangements to purchase or sell any of our securities
other than its obligation to purchase common shares under the investment
agreement. There are no business relationships between Grandview and us other
than as contemplated in the investment agreement. Grandview's managers will be
solely responsible for making investment decisions with regard to the common
stock purchased by Grandview from us.
This prospectus covers 1,021,000 shares of common stock held by Bamboo
Investors LLC pursuant to presently exercisable warrants to purchase common
stock. The decision to sell our common stock will be made by Bamboo's officers
and board of managers.
The table below sets forth certain information regarding the beneficial
ownership of the common stock, as of September 18, 2001, by (i) each person
known to us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, (ii) each of our directors, our Chief Executive Officer and our
Chief Financial Officer, (iii) all directors and executive officers as a group,
and (iv) the selling shareholders.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated, we believe each person
possesses sole voting and investment power with respect to all of the shares of
common stock owned by such person, subject to community property laws where
applicable. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership of any
other person.
27
Shares Beneficially Owned Shares Beneficially
Prior to the Offering Owned After the Offering
----------------------------------------------- --------------------------
Number of Shares
Beneficial Owner Number Percentage to be Sold Number Percentage
---------------- ------ ---------- ---------- ------ ----------
Glenn A. Smith(1) 7,056,500 7.3% 2,406,500 4,650,000 1.2%
Tod Smith(2) 2,540,000 2.8% 1,000,000 1,540,000 *
Maurice J. Matovich(3) 2,069,050 2.3% 1,269,050 800,000 *
Howard L. Kaskel(4) 1,105,400 1.2% 1,093,000 12,400 *
Bamboo Investors LLC(5) 119,458,500 56.2% 1,021,000 118,437,500 22.7%
Grandview Court, LLC(6) 300,000,000 76.3% 300,000,000 - -
Keith Alan St.Cyr 650,000 * 650,000 - -
Tatum CFO Partners, LLP(7) 547,000 * 547,000 - -
William Thayer(8) 75,000 * 75,000 - -
Randy Heaps(9) 60,000 * 60,000 - -
James R. Schnorf 50,000 * 50,000 - -
Eric Dulles(10) 4,000 * 4,000 - -
Kim Saldutti(11) 3,000 * 3,000 - -
Doreen Sabina(12) 3,000 * 3,000 - -
Madison and Wall (13) 1,700,000 1.8% 1,700,000 - -
All directors and executive officers as a group 12,770,950 12.5% 5,768,550 7,002,400 1.7%
(4 persons) (1) (2)(3)(4)
--------------------
*Less than 1%.
(1) Includes 10,400 shares of common stock held for a minor child and
4,050,000 shares subject to presently exercisable options. Mr. Smith is
our Chief Executive Officer and President, and is a director.
(2) Includes 1,900,000 shares subject to presently exercisable options,
360,000 of which are offered for sale hereby. Mr. Smith is our Chief
Technology Officer and General Counsel, and is a director.
(3) Includes 1,800,000 shares subject to presently exercisable options,
1,000,000 of which are offered for sale hereby. Mr. Matovich is our
Chief Operations Officer and a director.
(4) Includes 1,093,000 shares subject to presently exercisable options. Mr.
Kaskel is our Chief Financial Officer and is also a partner of Tatum
CFO Partners, LLP.
(5) Includes (i) 1,021,000 shares of common stock issuable upon exercise of
presently exercisable warrants and (ii) 118,437,500 shares issuable
upon conversion of certain convertible debentures that the holder may
acquire pursuant to its exercise of a special warrant based upon the
three day average share price of $0.037.
(6) Includes shares issuable in the future under the investment agreement
that are registered pursuant to the registration statement of which
this prospectus is a part. The number of shares issuable will be
determined by a formula described under Investment Agreement
(7) Includes 547,000 shares subject to presently exercisable options.
(8) Includes 75,000 shares subject to presently exercisable options. Mr.
Thayer was our vice-president of sales until January 2000.
(9) Includes 60,000 shares subject to presently exercisable options. Mr.
Heaps performed work for us as an independent contractor.
(10) Includes 4,000 shares subject to presently exercisable options. Mr.
Dullas performed work for us as an independent a contractor.
(11) Includes 3,000 shares subject to presently exercisable options. Ms.
Saldutti is the wife of Mr. Ralph Saldutti. Mr. Saldutti performed work
for us as an independent contractor.
(12) Includes 3,000 shares subject to presently exercisable options. Ms.
Sabina performed work for us as an independent contractor.
(13) Includes 1,500,000 shares issued in lieu of cash in connection with
investor relations services. Also includes 200,000 shares subject to
presently exercisable warrants.
The actual number of shares of common stock deemed to be beneficially
owned by Bamboo and Grandview cannot be determined at this time and could be
materially less or more than this estimated number depending on the future
market price of our common stock.
28
PLAN OF DISTRIBUTION
General
-------
Grandview is offering the shares of our common stock for its account as
a statutory underwriter, and not for our account. We will not receive any
proceeds from the resale of our common stock by Grandview. Grandview will be
offering for sale up to 300,000,000 shares of our common stock acquired by it
pursuant to the terms of the investment agreement more fully described below and
the warrants we issued to it in connection with the investment agreement.
Grandview has agreed to be named as a statutory underwriter within the meaning
of the Securities Act of 1933 in connection with such sales of our common stock
to it and will be acting as an underwriter in its resales of our common stock
under this prospectus. Grandview has, prior to any sales, agreed not to effect
any offers or sales of our common stock in any manner other than as specified in
this prospectus and not to purchase or induce others to purchase shares of our
common stock in violation of any applicable state and federal securities laws,
rules, and regulations and the rules and regulations governing the OTC
electronic bulletin board.
To permit Grandview to resell the shares of our common stock issued to
it under the investment agreement, we agreed to register those shares and to
maintain that registration. Therefore, we have agreed with Grandview that we
will prepare and file such amendments and supplements to the registration
statement and the prospectus as may be necessary in accordance with the
Securities Act of 1933 and the rules and regulations promulgated thereunder to
keep it effective until the earlier of (i) the date as of which Grandview may
sell all of the securities it holds without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act or (ii) the date on which (A) Grandview has sold
all the common stock required to be registered under the investment agreement;
or (B) Grandview has no right to acquire any additional shares of common stock
under the investment agreement.
Grandview is subject to the applicable provisions of the Exchange Act
of 1934, including without limitations, Rule 10b-5 thereunder. Under applicable
rules and regulations under the Exchange Act, any person engaged in a
distribution of shares of our common stock may not simultaneously engage in
market making activities with respect to such securities for a period beginning
when such person becomes a distribution participant and ending upon such
person's completion of participation in a distribution, including stabilization
activities in the common shares to effect covering transactions, to impose
penalty bids, or to effect passive market making bids. In connection with the
transactions in our common stock, we also will be subject to applicable
provisions of the Exchange Act and the rules and regulations promulgated
thereunder, including, without limitations, the rule set forth above. These
restrictions may affect the marketability of the shares of our common stock
owned by Grandview.
All the selling security holders have advised us that, prior to the
date of this prospectus, they have not made any agreement or arrangement with
any underwriters, brokers, or dealers regarding the distribution and resale of
the shares or warrants. If we are notified by a selling security holder that any
material arrangement has been entered into with an underwriter for the sale of
their shares or warrants, then, to the extent required under the Securities Act
of 1933 or the rules of the Securities and Exchange Commission, a supplemental
prospectus will be filed to disclose the following information as we believe
appropriate: (i) the name of the participating underwriter; (ii) the number of
the shares or warrants involved; (iii) the price at which such shares or
warrants are to be sold, the commissions to be paid, or discounts or concessions
to be allowed to such underwriter; and (iv) other facts material to the
transaction.
Neither the shares nor warrants have been registered for sale by the
selling security holders under the securities laws of any state as of the date
of this prospectus. Brokers or dealers effecting transactions in these
securities should confirm the registration thereof under the securities laws of
the states in which transactions occur or the existence of any exemption from
registration.
We expect that the selling security holders will sell their securities
covered by this prospectus through customary brokerage channels, either through
broker-dealers acting as agents or brokers for the seller, or through
broker-dealers acting as principals, who may then resell the securities in the
over-the-counter market, or at private sale or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The selling security holders may effect such
transactions by selling the securities to or through broker-dealers, and such
broker-dealers may receive compensation in the form of concessions or
commissions from the selling security holders
29
and/or the purchasers of the securities for whom they may act as agent (and thus
compensation may be in excess of customary commissions). The selling security
holders and any broker-dealers that participate with the selling security
holders in the distribution of shares may be deemed to be underwriters and
commissions received by them and any profit on the resale of securities
positioned by them might be deemed to be underwriting discounts and commissions
under the Securities Act. There can be no assurance that any of the selling
security holders will sell any or all of the common stock or warrants offered by
them hereunder.
Sales of the securities on the OTC electronic bulletin board or other
trading system may be by means of one or more of the following:
(i) a block trade in which a broker or dealer will attempt to sell
the securities as agent, but may position and resell a portion
of the block as principal to facilitate the transaction;
(ii) purchases by a dealer as principal and resale by such dealer
for its account pursuant to this prospectus; and
(iii) ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. From time to
time the selling shareholders may engage in short sales, short sales against the
box, puts and calls, and other hedging transactions in our securities, and may
sell and deliver their shares of our common stock in connection with such
transactions or in settlement of securities loans. In addition, from time to
time a selling shareholder may pledge its shares pursuant to the margin
provisions of its customer agreements with its broker-dealer. Upon delivery of
such shares or a default by a selling shareholder, the broker-dealer or
financial institution may offer and sell such pledged shares from time to time.
The selling security holders are not restricted as to the price or
prices at which they may sell their share of common stock or warranties. Sales
of such securities at less than market prices may depress the market price of
our common stock. Moreover, the selling security holders are not restricted as
to the number of shares or warrants that may be sold at any one time.
The selling security holders will pay all commissions and their own
expenses, if any, associated with the sale of our common stock, other than the
expenses associated with preparing this prospectus and the registration
statement of which it is a part. We have agreed to pay such expenses of
Grandview as set forth in the table below.
On September 18, 2001, the closing price for our common stock was $0.31
and the average daily trading volume for the last 30 trading days ended
September 18, 2001 was 277,360. If this market price and average trading volume
remained constant over the 18-month period of the investment agreement, each
request would be for a minimum of $20,000. Under this example, we would issue
39,430,449 shares to Grandview at $0.0182 per share, a 17% discount to the
volume-weighted average daily bid price of our common stock, provided that we do
not exceed the limit contained in the investment agreement or Grandview's total
beneficial ownership of common stock described below, and we have enough
authorized shares. Presuming we issue all 39,430,449 shares issuable under the
investment agreement based on the closing price and volume of our common stock
at September 18, 2001 and that we do not exceed the limit contained in the
investment agreement or Grandview's total beneficial ownership of common stock
described below and we have enough authorized shares, we will pay underwriting
compensation to and expenses for Grandview, and other offering expenses as
follows:
Underwriting Compensation and Expenses
Per Share Total
--------- -----
Discount to Grandview (17%) $.00374 $147,469.88
Expenses payable on behalf of Grandview
Escrow fees(1) .0009 36,000.00
--- ------ -----------
Total $.00464 $183,469.88
====== ===========
30
(1) Assumes the highest fee payable to the escrow agent at the closing of each
request for cash from Grandview. This fee will range from $500 to $1,000,
depending upon the amount of the request.
We have advised the selling security holders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to sales in the market of the common stock offered hereby. We have also
advised the selling security holders of the requirement for the delivery of this
prospectus in connection with resale's of the securities.
Registration Rights of Grandview
--------------------------------
We granted registration rights to Grandview to enable it to sell the
shares of our common stock that it purchases under the investment agreement. In
connection with such registration, we will have no obligation to:
o assist or cooperate with Grandview in the offering or
disposition of such shares;
o indemnify or hold harmless the holders of any such
shares (other than Grandview) or any underwriter
designated by such holders; or
o obtain a commitment from an underwriter relative to
the sale of any such shares.
We will assume no obligation or responsibility whatsoever to determine
a method of disposition for such shares or to otherwise include such shares
within the confines of any registered offering other than the registration
statement of which this prospectus forms a part.
Registration Rights of other Selling Shareholders
-------------------------------------------------
We granted registration rights to certain of the remaining selling
shareholders that are similar to the ones granted to Grandview to enable them to
sell the shares of our common stock. In connection with any such registration,
we will have no obligation to:
o assist or cooperate with the selling shareholders in
the offering or disposition of such shares;
o indemnify or hold harmless the holders of any such
shares (other than Bamboo Investors, LLC) or any
underwriter designated by such holders;
o obtain a commitment from an underwriter relative to
the sale of any such shares; or
o include such shares within any underwritten offering
we do.
We will assume no obligation or responsibility whatsoever to determine
a method of disposition for such shares or to otherwise include such shares
within the confines of any registered offering other than the registration
statement of which this prospectus forms a part.
31
INVESTMENT AGREEMENT
Overview
--------
We entered into an investment agreement with Grandview Court, LLC, a
Cayman Islands limited liability company, on November 13, 2000, for the future
issuance and purchase of shares of our common stock, which was amended and
restated on June 12, 2001 and September 19, 2001. The investment agreement
establishes what is sometimes termed an equity line of credit.
In general, the agreement operates like this: the investor, Grandview,
has committed to provide us up to $10 million as requested by us over an
18-month period in return for common stock we issue to Grandview. Once every 11
trading days, we may request between $20,000 and $500,000. The maximum amount we
actually can request will be determined by multiplying 500% times the
volume-weighted average daily price of our common stock and the average trading
volume for the 30 trading days prior to our request.
We use the formulas in the investment agreement to determine the number
of shares we will issue to Grandview in return for the requested money. The
formulas for determining the actual request amounts, the number of shares we
issue to Grandview, and the price per share paid by Grandview are described
below. The aggregate total of all requests cannot exceed $10 million. For the
ten trading days preceding our request and the period between our request and
Grandview's payment, the volume weighted average price of our stock must be at
least $20,000. We are under no obligation to make a request during any period.
The per share dollar amount Grandview pays for our common stock for
each request includes a 12 percent discount to the average of the three lowest
closing bid prices during the ten day period after our request, weighted by
trading volume. Subject to the conditions of the investment agreement, Grandview
has agreed to provide to us the amount of the request less a further discount of
five percent of the total paid by Grandview to us per draw down, less an escrow
agent fee of between $500 and $1,000, depending upon the amount of the request,
in exchange for shares of our common stock.
Our agreement with Madison and Wall, an investor relations firm that
introduced an investment banker to us, who in turn introduced Grandview to us,
obligates us to pay to Madison and Wall cash in an amount equal to 3% of the
purchase price, less fees, that we receive from the issuance of shares of common
stock to Grandview pursuant to each request for cash under the investment
agreement.
The investment agreement does not permit us to request funds if the
issuance of shares of common stock to Grandview pursuant to the request would
result in Grandview owning more than 4.99% of our outstanding common stock on
the request date.
We have previously issued 23,534,500 shares of common stock to
Grandview for an aggregate of $1,149,171. The shares were issued as follows:
Date Number of Shares Price
---- ---------------- -----
1/21/01 2,222,222 $0.045
1/19/01 17,014,778 $0.045
2/12/01 4,297,500 $0.0657
-------------
23,534,500
The Request Procedure and the Stock Purchases
---------------------------------------------
We may make a request for cash by faxing a notice to Grandview that
states the amount we wish to request.
32
Amount of the Request
---------------------
No request can exceed the lesser of $500,000 and the capped amount that
is equal to 500% of the average trading volume times the volume weighted average
price for the 30 trading days immediately preceding our request, which must be
at least $20,000.
Price of Shares
---------------
Grandview will purchase our common stock at 88% of the average of the
lowest three closing bid prices during the ten days immediately subsequent to
our request.
Necessary Conditions Before Grandview is Obligated to Purchase our Shares
-------------------------------------------------------------------------
The following are some of the conditions that must be satisfied before
Grandview is obligated to purchase the shares of common stock that we wish to
sell from time to time:
o A registration statement for the shares must be declared
effective by the Securities and Exchange Commission and must
remain effective and available for making resales of the
common shares purchased by Grandview;
o Our common stock must remain listed on the OTC electronic
bulletin board or must be listed on another stock exchange or
on NASDAQ;
o We must not have merged or consolidated with or into another
company or transferred all or substantially all of our assets
to another company, nor must a purchase, tender, or exchange
offer have been made to, and accepted by, the holders of more
than 30% of our voting stock;
o We must be in compliance with our obligations under the
investment agreement and related agreements, and we must not
be in breach of, or in default under, any material provision
of the investment agreement or related agreements.
o There can be no material adverse change in our business,
operations, properties, prospects, or financial condition;
o No injunction may be issued, or action commenced by a
governmental authority, prohibiting the purchase or the
issuance of our common stock;
o No statute, rule, regulation, executive order, decree, ruling,
or injunction may be in effect which prohibits consummation of
the transactions contemplated by the investment agreement;
o No litigation or proceeding or any investigation by any
governmental authority can be pending or threatened against us
or Grandview seeking to restrain, prevent, or change the
transactions contemplated by the investment agreement or
seeking damages in connection with such transactions; and
o We may not have filed for protection from creditors.
Restrictions on Future Financings
---------------------------------
The investment agreement limits our ability to raise money by selling
our securities for cash at a discount to the market price. Pursuant to the
investment agreement, for a period of one year after the date of this
prospectus, we may not, without the prior consent of Grandview, offer, sell,
grant any option to purchase, or otherwise dispose of any of our common stock or
securities convertible into common stock at a price that is less than the market
price of our common stock at the time of such issuance. If we need additional
financing, Grandview has a right of first refusal to provide the financing to
us. If Grandview does not wish to provide the
33
financing to us, we may obtain the financing through the disposition of our
common stock or securities convertible into common stock to a third party. There
are exceptions to this limitation in the following situations:
o Shares, options, or warrants issued pursuant to our stock
option plan;
o Shares issued upon the exercise of any currently outstanding
warrants or options and upon conversion of any currently
outstanding convertible debenture;
o Shares issued in connection with the capitalization or
creation of a joint venture with a strategic partner;
o Shares issued in connection with an acquisition by us of
another company; and
o Shares issued in a bona fide public offering by us of our
securities.
Costs and Fees Associated with the Transaction
----------------------------------------------
At the closing of the transaction on November 13, 2000, we delivered
the requisite opinion of counsel to Grandview and paid the escrow agent, Joseph
LaRocco, P.C., $15,000 for his legal, administrative, and escrow costs. In
addition, each time we issue common stock to Grandview in return for cash, we
will pay Mr. LaRocco an escrow agent fee of between $500 and $1,000, depending
upon the amount of money we request from Grandview. Finally, pursuant to our
agreement with Madison and Wall, we will pay to Madison and Wall an amount equal
to 3% of the purchase price, less fees, that we receive from the issuance of
shares of common stock to Grandview pursuant to each request for cash under the
investment agreement, as described above.
Termination of the Stock Purchase Agreement
-------------------------------------------
The investment agreement will automatically terminate upon the earlier
of the date that:
o Grandview has purchased an aggregate of $10,000,000 of our
common stock;
o Is 18 months after the effective date of this registration
statement.
o We file for protection from creditors;
o We issue or sell any equity securities or securities
convertible into or exchangeable for equity securities without
the prior written consent of Grandview if the primary purpose
of such issuance or sale is the raising of capital;
o Trading in our common stock is suspended by the Securities and
Exchange Commission or the OTC electronic bulletin board for a
period of five consecutive trading days;
o We suffer a material adverse change in our business,
operations, properties, or financial condition;
o The resale of our common stock by Grandview ceases to be
registered under the Securities Act of 1933; or
o Our common shares are delisted from the OTC electronic
bulletin board unless such delisting is in connection with the
listing of such shares on a comparable stock exchange or The
NASDAQ Stock Market.
34
Indemnification of Grandview
----------------------------
Grandview is entitled to customary indemnification from us for any
losses or liabilities suffered by it based upon material misstatements or
omissions from the registration statement and the prospectus, except as they
relate to information supplied by Grandview to us for inclusion in the
registration statement and prospectus.
We are entitled to indemnification from Grandview for any losses or
liabilities suffered by us as a result of any misrepresentation or breach of any
representation or warranty made by Grandview in the investment agreement or
related agreements.
SHARES ELIGIBLE FOR FUTURE SALE
Through the date of this prospectus, there has been only limited
over-the-counter trading of our common stock by certain market makers who have
registered to enter quotes on the common stock on the OTC electronic bulletin
board. We have no plans to list the common stock on The NASDAQ National Market
System or on any national securities exchange. Sales of substantial amounts of
shares of our common stock in the public market following the offering, or the
perception that such sales could occur, could adversely affect the market price
of the common stock prevailing from time to time and could impair our ability to
raise capital in the future through sales of our equity securities.
Assuming the exercise of options and warrants to purchase 17,017,626
shares and the purchase of 300,000,000 shares from us by Grandview pursuant to
the investment agreement, we will have a total of 410,244,877 shares of common
stock outstanding after this offering. Giving effect to the registration
statement of which this prospectus is part, substantially all of our outstanding
common stock will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by our "affiliates,"
as that term is defined in Rule 144 under the Securities Act of 1933, may
generally only be sold in compliance with Rule 144 described below. The
remaining shares of common stock are "Restricted Securities" as defined in Rule
144. Restricted Securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under the Securities Act,
such as pursuant to Rule 144, which rule is summarized below. We are aware that
some shares have been sold in reliance on Rule 144.
Sales of Restricted Securities
------------------------------
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities, as defined in Rule 144, for at least
one year, including a person who may be deemed our affiliate, is entitled to
sell, within a three-month period, a number of shares of our common stock that
does not exceed the greater of one percent of the then-outstanding shares of
common stock and the average weekly reported trading volume of our common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
subject to certain restrictions relating to manner of sale, notice, and
availability of current public information about us. In addition, under Rule
144(k), a person who is not an affiliate and has not been an affiliate at any
time during the ninety days preceding a sale, and who has beneficially owned
shares for at least two years, would be entitled to sell such shares immediately
following the offering, without regard to the volume limitations, manner of sale
provisions, or notice or other requirements of Rule 144. In meeting the one-and
two-year holding periods described above, the holder of restricted securities
can include the holding periods of a prior owner who is not an affiliate. The
one- and two-year holding periods described above do not begin to run until the
full purchase price or other consideration is paid by the person acquiring the
restricted securities from the issuer or an affiliate.
DESCRIPTION OF CAPITAL STOCK
At a special meeting on March 7, 2001, our shareholders approved an
increase in our authorized capital stock to 500,000,000 shares of common stock,
$0.001 par value, and 10,000,000 shares of preferred stock, $0.001 par value. Of
the preferred stock, 1,200 shares have been designated as Series A Convertible
Preferred Stock and 4,000 shares have been designated as Series B Convertible
Preferred Stock. Of the preferred stock, none is outstanding. The following
summary of our capital stock does not purport to be complete and is qualified in
its entirety by reference to our Amended and Restated Articles of Incorporation
and Amended and Restated Bylaws, which are included as exhibits to the
Registration Statement of which this prospectus forms a part, and the applicable
provisions of the Florida Business
35
Corporation Act.
COMMON STOCK
Holders of common stock are entitled to one vote per share on any issue
submitted to a vote of the shareholders and do not have cumulative voting rights
in the election of directors. The holders of a majority of the outstanding
shares of common stock, along with the holders of any outstanding preferred
stock, voting in an election of directors can elect all of the directors then
standing for election, if they choose to do so. Subject to any outstanding
shares of preferred stock, all shares of common stock are entitled to share
equally in such dividends as our Board of Directors may, in its discretion,
declare out of sources legally available therefor. See Dividend Policy. Upon our
dissolution, liquidation, or winding up, holders of common stock are entitled to
receive on a ratable basis, after payment or provision for payment of all our
debts and liabilities and any preferential amount due with respect to
outstanding shares of preferred stock, if any, all our assets available for
distribution, in cash or in kind. Holders of shares of common stock do not have
preemptive or other subscription rights, conversion or redemption rights, or any
rights to share in any sinking fund. All currently outstanding shares of common
stock are fully paid and non-assessable.
PREFERRED STOCK
Holders of our preferred stock are entitled to vote the number of
shares as is equal to the number of shares of common stock into which the
preferred stock is convertible on the record date for voting or written consent
eligibility. The preferred shareholders have voting rights and powers equal to
the voting rights and powers of the common stock, and do not have cumulative
voting rights in the election of directors. The preferred shareholders do not
have any preference with respect to dividends or other distributions, except for
the liquidation preference described below. Any dividends declared by our Board
of Directors will be made to the holders of common stock and preferred stock pro
rata as if the preferred stock had been converted into common stock on the
record date for the payment of the dividend. See Dividend Policy. Our preferred
shareholders do not have preemptive rights or other subscription rights, or any
rights to share in any sinking fund. The special rights to which the preferred
shareholders are entitled are set forth below.
Series A Preferred Stock
------------------------
Upon our dissolution, liquidation, or winding up, holders of Series A
preferred stock are entitled to receive on a ratable basis, after payment or
provision for payment of all our debts and liabilities, prior to and in
preference to any distribution to our other shareholders, the amount of $1,500
per share. If there are insufficient funds to fulfill this preference, then all
assets or surplus funds will be distributed pro rata to the Series A
shareholders. Any surplus that remains after this distribution is completed
shall be distributed to the Series B preferred shareholders in accordance with
the provisions set forth below and then to the common shareholders. Each share
of Series A preferred stock is convertible into the number of shares of common
stock (rounded to the nearest whole number) equal to $1,000 divided by 65% of
the average market price of the common stock for the five trading days previous
to the date on which the conversion occurs. There are no outstanding shares of
Series A preferred stock.
Series B Preferred Stock
------------------------
Upon our dissolution, liquidation, or winding up, holders of Series B
preferred stock are entitled to receive on a ratable basis, after payment or
provision for payment of all our debts and liabilities including the preference
to any outstanding shares of our Series A preferred stock, prior to and in
preference to any distribution to our common shareholders, the amount of $0.001
per share. If there are insufficient funds to fulfill this preference, then all
assets or surplus funds will be distributed pro rata to the Series B
shareholders. Any surplus that remains after this distribution is completed
shall be distributed pro rata among the common and Series B preferred
shareholders. Each share of Series B preferred stock is convertible into 1,000
fully paid and nonassessable shares of common stock. There are no shares of
Series B preferred stock outstanding.
36
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Our Amended and Restated Bylaws contain certain provisions, described
below, that could delay, defer, or prevent a change in control of us if the
board of directors determines that such a change in control is not in the best
interests of us and our shareholders, and could have the effect of making it
more difficult to acquire us or remove incumbent management.
CLASSIFIED BOARD. Under our Bylaws, our board of directors is divided
into three classes, with staggered terms of three years each. Each year the term
of one class expires. Our Bylaws provide that any director may be removed from
office, but only for cause by an affirmative vote of at least two-thirds of the
outstanding capital stock entitled to vote in the election of directors. Our
Bylaws also provide that any vacancies on the board of directors shall be filled
only by the affirmative vote of a majority of the directors then in office, even
if less than a quorum.
SPECIAL VOTING REQUIREMENTS. Our Bylaws provide that all actions taken
by the shareholders must be taken at an annual or special meeting of the
shareholders or by unanimous written consent. The Bylaws provide that special
meetings of the shareholders may be called only by a majority of the members of
the board of directors. Under our Bylaws, shareholders are required to comply
with advance notice provisions with respect to any proposal submitted for
shareholder vote, including nominations for elections to the board of directors.
Our Bylaws contain provisions requiring the affirmative vote of the holders of
at least two-thirds of the outstanding shares of each class and series of our
capital stock entitled to vote in the election of directors cast at a meeting of
the shareholders for that purpose.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Florida Business
Corporations Act authorizes Florida corporations to indemnify any person who was
or is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation or
other entity, against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation. With respect to any criminal action or proceeding, the party must
have had no reasonable cause to believe his conduct was unlawful. In the case of
an action by or on behalf of a corporation, indemnification may not be made if
the person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of Florida law require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit, or proceeding to which he was a party
by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Florida law is not exclusive,
and is in addition to any other rights granted to officers and directors under
the Articles of Incorporation or Bylaws of the corporation or any agreement
between officers and directors and the corporation. A corporation may purchase
and maintain insurance or furnish similar protection on behalf of any officer or
director against any liability asserted against the officer or director and
incurred by the officer or director in such capacity, or arising out of the
status, as an officer or director, whether or not the corporation would have the
power to indemnify him against such liability under Florida law. Access Power's
Bylaws provide for the indemnification of our directors and executive officers
to the maximum extent permitted by Florida law and for the advancement of
expenses incurred in connection with the defense of any action, suit, or
proceeding that the director or executive officer was a party to by reason of
the fact that he is or was one of our directors or executive officers upon the
receipt of an undertaking to repay such amount, unless it is ultimately
determined that such person is not entitled to indemnification.
Under Florida law, a director is not personally liable for monetary
damages to us or any other person for acts or omissions in his capacity as a
director except in certain limited circumstances such as certain violations of
criminal law and transactions in which the director derived an improper personal
benefit. As a result, shareholders may be unable to recover monetary damages
against directors for actions taken by them, which constitute negligence, or
gross negligence or which are in violation of their fiduciary duties, although
injunctive or other equitable relief may be available. The foregoing provisions
of Florida law and the Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, us.
Such indemnification may be available for liabilities arising in
connection with this offering. Insofar as indemnification for liabilities under
the Securities Act may be permitted to directors, officers, or persons
controlling us pursuant to the foregoing provisions, we have been informed that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
37
AMENDMENTS OF THE ARTICLES AND BYLAWS. Certain provisions of our
Articles and Bylaws, including those pertaining to a classified board, special
meetings of shareholders, removal of directors, and director liability and
indemnification, may be amended only by the affirmative vote of two-thirds of
the shares of our capital stock entitled to vote in the election of directors.
CERTAIN STATUTORY PROVISIONS. The Florida Business Corporations Act
provides for special voting requirements to approve affiliated transactions
unless the transaction falls under one or more enumerated exceptions.
DESCRIPTION OF WARRANTS
Bamboo Investors, LLC is the holder of three separate sets of warrants.
Two sets of warrants were issued in connection with the sale of $2,500,000 of
convertible debentures. The first set of warrants may be exercised to purchase
500,000 shares of common stock. The second set of warrants may be exercised to
purchase an additional $2,500,000 of convertible debentures as well as to
purchase, for a price of $100, another warrant to purchase 500,000 shares of
common stock. All of the common stock warrants entitle the holder to purchase
common stock for $2.20 per share (subject to possible anti-dilution
adjustments). The warrants expire on February 28, 2003, and they are
transferable. The third set of warrants held by Bamboo may be exercised to
purchase 400,000 shares of common stock for $0.42 per share (subject to possible
anti-dilution adjustments). The warrants expire on September 30, 2002, and they
are transferable.
Grandview Court, LLC is the holder of three separate sets of warrants
to purchase a total of 5,888,626 shares of common stock at exercise prices
between $0.054 and $0.0792 per share. The warrants expire between January 12,
2004 and February 12, 2004.
Madison and Wall received warrants to purchase 200,000 shares of common
stock, 100,000 shares of which are exercisable at $0.08 per share and another
100,000 shares are exercisable at $0.12 per share. The warrants expire two years
from the date the underlying shares are registered.
DESCRIPTION OF 6% CONVERTIBLE DEBENTURES
We have sold $3,105,000 of our 6% convertible debentures due February
28, 2002 and have issued a warrant to the same investor to purchase an
additional $1,895,000 of such debentures as well as another warrant to purchase
621,000 shares of common stock. Interest on the debentures is due at maturity,
and it may be paid in shares of common stock at our option. The number of shares
issuable for interest would be determined at the same rate as principal under
the debentures can be converted. Principal and accrued interest under the
debentures may be converted at any time by the holder thereof into a number of
shares equal to the quotient obtained by dividing the amount to be converted by
the applicable conversion price. The applicable conversion price is the lesser
of $2.20 and an amount equal to eighty percent of the average of the three
lowest daily closing bid prices during the twenty-two trading days immediately
preceding the date we are notified of the exercise of the conversion election.
If we fail to register or maintain the registration of the underlying common
stock as provided in a registration rights agreement with the investor, then the
investor may choose any conversion price during the affected period as the
applicable conversion price. If we undergo a change of control, then we will be
obligated to redeem the debentures for 125% of the outstanding principal and
accrued interest.
TRANSFER AGENT
Our Transfer Agent and Registrar is Atlas Stock Transfer & Trust
Company, Salt Lake City, Utah.
LEGAL MATTERS
The validity of the common stock being offered hereby is being passed
upon for us by Kilpatrick Stockton, LLP, Atlanta, Georgia.
EXPERTS
Our audited financial statements appearing in this prospectus and the
Registration Statement have been audited by Parks, Tschopp, Whitcomb & Orr,
independent auditors, as indicated in their report thereon appearing herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
38
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act of 1933 with
respect to the common stock and Warrants offered hereby. As used herein, the
term "Registration Statement" means the initial Registration Statement and any
and all amendments thereto. For further information with respect to us and our
common stock and the warrants, reference is made to the Registration Statement,
of which this prospectus forms a part, including the exhibits and schedules
thereto. Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete and such instance
reference is made to such contract or other document filed with the SEC as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
A copy of the Registration Statement, including the exhibits thereto,
may be inspected without charge at the Public Reference section of the
commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the SEC: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of the Registration Statement and the exhibits and schedules
thereto can be obtained from the Public Reference Section of the SEC upon
payment of prescribed fees, or at its web site at http://www.sec.gov.
We are subject to the reporting requirements of Section 15(d) of the
Securities Exchange Act of 1934, and, in accordance therewith, for a period of
up to one year, we will file periodic reports with the Securities and Exchange
Commission. Such periodic reports will be available for inspection and copying
at the public reference facilities and other regional offices referred to above.
39
ACCESS POWER, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2001:
Balance Sheets as of June 30, 2001 and December 31, 2000 F-2
Statements of Operations for the six months ended June, 2001 and 2000 and the
cumulative period from October 10, 1996 (date of inception) through
June 30, 2000 F-3
Statementof Stockholders' Equity for the years ended December 31, 2000 and 1999
and the period from October 10, 1996 (date of inception) through June
30, 2001 F-4
Statements of Cash Flows for the six months ended June 30, 2001 and the
cumulative period from October 10, 1996 (date of inception) through
June 30, 2000 F-6
Notes To Financial Statements - June 30, 2001 F-7
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2000:
Independent Auditors' Report F-15
Balance Sheets at December 31, 2000 and 1999 F-16
Statements of Operations for the years ended December 31, 2000 and 1999 and the
cumulative period from October 10, 1996 (date of inception) through
December 31, 2000 F-17
Statement of Stockholders' Equity for the years ended December 31, 2000 and 1999
and the period from October 10, 1996 (date of inception) through
December 31, 2000 F-18
Statements of Cash Flows for the years ended December 31, 2000 and 1999 and the
cumulative period from October 10, 1996 (date of inception) through
December 31, 1999 F-19
Notes To Financial Statements - December 31, 2000 and 1999 F-20
F-1
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
As of June 30, 2001 and December 31, 2000
Assets June 30 December 31,
------
2001 2000
---- ----
(unaudited)
Current assets:
Cash $ 10,820 $ 15,452
Certificate of deposit -- 100,000
Accounts receivable 38,035 56,312
Prepaid expenses 693,745 560,993
Inventory --
------------ ------------
Total current assets 742,600 732,757
------------ ------------
Property and equipment, net (note 2) 550,628 721,724
Other assets 6,000 8,000
------------ ------------
Total assets $ 1,299,228 $ 1,462,481
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,212,262 $ 2,154,321
Current portion of long-term debt -- 112,576
------------ ------------
Total current liabilities 2,212,262 2,266,897
------------ ------------
Long-term debt, less current portion (note 3) -- --
Convertible debentures (note 4) -- 210,000
------------ ------------
Total liabilities 2,212,262 2,476,897
------------ ------------
Stockholders' equity:
Common stock, $.001 par value, authorized 500,000,000 and 100,000,000
shares, issued and outstanding 91,954,676 and 53,089,389 shares
at June 30, 2001 and December 31, 2000 91,953 53,087
Notes receivable, stockholders (362,860) (402,315)
Preferred stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding none 2001 and 2000 -- --
Additional paid in capital 13,521,627 11,572,891
Deficit accumulated during the development stage (14,163,085) (12,238,079)
------------ ------------
(912,365) (1,014,416)
------------ ------------
Total liabilities and stockholders' equity $ 1,299,897 $ 1,462,481
============ ============
F-2
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Operation
For the three and six months ended June 30, 2001 and 2000 and the cumulative period
From October 10, 1996 (date of inception) through June 30, 2001
(unaudited
For the period
October 10,
Three months ended Six months ended 1996
June 30, June 30, through
2001 2000 2001 2000 June 30, 2001
------------- ------------- ------------- ------------- --------------
Revenue:
Software/hardware sales $ -- $ -- $ -- $ -- $ 223,881
Telecommunication services 9,452 108,556 17,359 254,167 582,849
------------ ------------ ------------ ------------ ------------
Total revenue 9,452 108,558 17,359 254,167 806,730
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of services 47,784 278,894 373,281 572,914 2,176,735
Cost of sales -- -- -- -- 164,605
Product development and marketing 157,251 475,455 431,676 833,957 3,131,221
General and administrative 359,432 508,372 918,220 1,152,249 6,774,532
------------ ------------ ------------ ------------ ------------
Total costs and expenses 564,467 1,262,670 1,723,177 2,559,120 12,247,093
------------ ------------ ------------ ------------ ------------
Loss from operations (555,015) (1,154,114) (1,705,818) (2,304,953) (11,440,363)
Other income (expense):
Interest income 5,293 -- 5,293 -- 7,673
Interest expense (40,000) (17,501) (224,481) (38,112) (473,515)
Loss on disposal of equipment -- -- -- -- (6,880)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (34,707) (17,501) (219,188) (38,112) (472,722)
------------ ------------ ------------ ------------ ------------
Net loss before cumulative effect of
change in accounting principle (589,722) (1,171,616) (1,925,006) (2,343,065) (11,913,085)
Cumulative effect of change in
accounting principle -- -- -- -- (2,250,000)
------------ ------------ ------------ ------------ ------------
Net loss $ (589,722) $ (1,171,616) $ (1,925,006) $ (2,343,065) $(14,163,085)
============ ============ ============ ============ ============
Loss per share:
Loss before cumulative
effect of change in accounting
principle (0.01) (0.03) (0.02) (0.07) (0.39)
Cumulative effect of change
in accounting principle -- -- -- -- (0.07)
Net Loss (0.01) (0.03) (0.02) (0.07) (0.46)
============ ============ ============ ============ ============
Weighted average number of shares 89,206,064 39,189,807 81,470,723 37,639,055 31,047,327
============ ============ ============ ============ ============
F-3
ACCESS POWER, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the years ended December 31, 2000 and 1999 and the period from
October 10, 1996
(date of inception) through June 30, 2001
Common Stock Preferred Stock
----------------------- ----------------------
Date Shares Amount Shares Amount
---- ------ ------ ------ ------
Common stock issued to founding directors 8,000,000 8,000 -- --
Net loss -- -- -- --
---------- ------- ------- ---------
Balances at December 31, 1996 8,000,000 8,000 -- --
Common stock issued for cash 5/23/97 750,000 750 -- --
Common stock issued for cash 6/30/97 1,000,000 1,000 -- --
Common stock issued for cash 7/97-10/97 1,734,000 1,734 -- --
Stock issuance cost -- -- -- --
Net loss -- -- -- --
---------- ------- ------- ---------
Balances at December 31, 1997 11,484,000 11,484 -- --
Preferred stock issued for cash 5/98 -- -- 1,000 1
Common stock issued as additional interest 2/2/98 50,000 50 -- --
Common stock issued as additional interest 2/19/98 125,000 125 -- --
Common stock issued as finder's fee 2/19/98 75,000 75 -- --
Common stock issued for services 2/98 25,000 25 -- --
Common stock issued for cash 9/24/98 50,000 50 -- --
Preferred stock issued for cash 11/98 -- -- 100 --
Common stock issued for finder's fee 11/98 60,857 61 -- --
Preferred stock issued for cash 12/98 -- -- 25 --
Common stock issued for investment banking fee 12/98 30,000 30 -- --
Conversion of preferred stock to common stock 12/98 425,931 426 (75) --
Net loss -- -- -- --
---------- ------- ------- ---------
Balances at December 31, 1998 12,325,788 12,326 1,050 1
---------- ------- ------- ---------
Common stock issued for cash 6/99 3,745,000 3,745 -- --
Preferred stock issued for cash 1/99 -- -- 75 --
Common stock issued for finder's fee 1/99 25,777 26 -- --
Common stock issued for services 6/99 3,207,950 3,208 -- --
Common stock issued as additional interest 12/99 144,204 144 -- --
Common stock issued to retire debt 4/99 400,000 400 -- --
Common issued on convertible debentures 12/99 2,464,691 2,465 -- --
Common stock converted to preferred 9/99 (3,952,000) (3,952) 3,952 4
Preferred stock converted to common stock 1/99-4/99 12,886,843 12,887 (1,125) (1)
Net loss -- -- -- --
---------- ------- ------- ---------
Balances at December 31, 1999 31,248,253 31,249 3,952 4
========== ======= ======= =========
Preferred stock converted to common stock 1/00 3,952,000 3,952 (3,952) (4)
Common stock issued on exercise of warrants 1/00-2-00 600,000 600 -- --
Common stock issued for cash 1/00-3/00 682,000 682 -- --
Common stock issued for services 9/00-11/00 670,000 670 -- --
Common stock issued on convertible debentures 1/00-12/00 15,540,325 15,540 -- --
Common stock issued as interest 1/00-12/00 396,811 394 -- --
Value of beneficial conversion feature of debentures -- -- -- --
Net loss -- -- -- --
Balances at December 31, 2000 53,089,389 53,087 -- --
Common stock issued for cash 1/01 23,534,500 23,535 -- --
Common stock issued for interest 1/01-3/01 106,101 106 -- --
Common stock issued in settlement of lawsuit 3/01 650,000 650 -- --
Common stock issued on conversion of debentures 1/01-3/01 9,747,923 9,748 -- --
Common stock issued on exercise of employee stock options 1/01 600,000 600 -- --
Stock option exercise reversed 1/01 (200,000) (200) -- --
Value of beneficial conversion feature of debentures
Net loss
---------- ------- ------- ---------
Balances at March 31, 2001 87,527,913 87,526 -- --
========== ======= ======= =========
Common stock issued on conversion of debentures 4/01-6/01 2,926,763 2,927 -- --
Common stock issued for services 5/01 1,500,000 1,500 --
Value of beneficial conversion feature of debentures
Net loss -- --
---------- ------- ------- ---------
Balances at June 30, 2001 91,954,676 91,953
========== ======= ======= =========
F-4
ACCESS POWER, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the years ended December 31, 2000 and 1999 and the period from
October 10, 1996
(date of inception) through June 30, 2001
CONTINUED FROM ABOVE
Additional Paid Accumulated Total
in Stockholders'
Capital Deficit Equity
------- ------- ------
Common stock issued to founding directors (7,200) -- 800
Net loss -- (5,701) (5,701)
--------- ---------- ----------
Balances at December 31, 1996 (7,200) (5,701) (4,901)
Common stock issued for cash 35,000 -- 35,750
Common stock issued for cash 100,000 -- 101,000
Common stock issued for cash 854,573 -- 856,307
Stock issuance cost (75,000) -- (75,000)
Net loss -- (426,438) (426,438)
--------- ---------- ----------
Balances at December 31, 1997 907,373 (432,139) 486,718
Preferred stock issued for cash 999,999 -- 1,000,000
Common stock issued as additional interest 29,950 -- 30,000
Common stock issued as additional interest 84,250 -- 84,375
Common stock issued as finder's fee 24,925 -- 25,000
Common stock issued for services 27,163 -- 27,188
Common stock issued for cash 24,950 -- 25,000
Preferred stock issued for cash 100,000 -- 100,000
Common stock issued for finder's fee 19,817 -- 19,878
Preferred stock issued for cash 25,000 -- 25,000
Common stock issued for investment banking fee 9,970 -- 10,000
Conversion of preferred stock to common stock (426) -- --
Net loss -- (2,064,940) (2,064,940)
--------- ---------- ----------
Balances at December 31, 1998 2,252,971 (2,497,079) (231,781)
--------- ---------- ----------
Common stock issued for cash 1,282,455 -- 1,286,200
Preferred stock issued for cash 75,000 -- 75,000
Common stock issued for finder's fee 6,418 -- 6,444
Common stock issued for services 621,831 -- 625,039
Common stock issued as additional interest 19,837 -- 19,981
Common stock issued to retire debt 49,600 -- 50,000
Common issued on convertible debentures 447,535 -- 450,000
Common stock converted to preferred 3,948 -- --
Preferred stock converted to common stock (12,886) -- --
Net loss -- (2,503,945) (2,503,945)
--------- ---------- ----------
Balances at December 31, 1999 4,746,709 (5,001,024) (223,062)
========= ========== ==========
Preferred stock converted to common stock (3,948) -- --
Common stock issued on exercise of warrants 46,400 -- 47,000
Common stock issued for cash 146,538 -- 147,220
Common stock issued for services 165,530 -- 166,200
Common stock issued on convertible debentures 4,130,560 -- 4,146,100
Common stock issued as interest 91,102 -- 91,496
Value of beneficial conversion feature of debentures 2,250,000 -- 2,250,000
Net loss -- (7,237,055) (7,237,055)
---------- ----------- ----------
Balances at December 31, 2000 11,572,891 (12,238,079) (612,101)
========== =========== ==========
Common stock issued for cash 1,125,636 1,149,171
Common stock issued for interest 4,375 4,481
Common stock issued in settlement of lawsuit 37,700 38,350
Common stock issued on conversion of debentures 390,252 400,000
Common stock issued on exercise of employee stock options 66,000 66,600
Stock option exercise reversed (105,800) (106,000)
Value of beneficial conversion feature of debentures 180,000 180,000
Net loss (1,335,284) (1,335,284)
---------- ----------- ----------
Balances at March 31, 2001 13,271,054 (13,573,363) (214,783)
========== =========== ==========
Common stock issued on conversion of debentures 92,073 95,000
Common stock issued for services 118,500 120,000
Value of beneficial conversion feature of debentures 4,000 40,000
Net loss -- (589,722) (589,722)
---------- ----------- ----------
Balances at June 30, 2001 13,521,627 (14,163,085) (549,505)
========== =========== ========
F-5
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Cash Flows
For the six months ended June 30, 2001 and 2000 and the cumulative period
from October 10, 1996 (date of inception) through June 30, 2001
For the period
October 10, 1996
through June 30,
2001 2000 2001
--------------- --------------- ----------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (1,925,006) $ (2,343,065) $ (14,163,085)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 153,718 102,525 968,257
Loss on disposal of property and equipment - - 33,341
Stock issued for services 158,350 47,000 1,152,474
Stock issued for interest 4,481 26,748 115,958
Cumulative effect of change in accounting principle - - 2,250,000
Beneficial conversion feature of debentures 220,000 - 220,000
Change in operating assets and liabilities: -
Accounts receivable 18,227 (1,648) (145,361)
Accounts payable and accrued expenses (54,635) (209,571) 2,227,439
Other assets (132,752) (151,218) (605,496)
Inventory - - -
--------------- --------------- ----------------
Net cash used in operating activities (1,557,567) (2,529,229) (7,946,473)
--------------- --------------- ----------------
Cash flows from investing activities:
(Purchase) redemption of certificate of deposit 100,000 - -
Proceeds from sale of property and equipment 14,800 - 67,120
Purchase of property and equipment 4,578 (249,441) (1,739,506)
Note receivable, stockholder 39,455 40,400 (362,860)
--------------- --------------- ----------------
Net cash used in investing activities 158,833 (209,041) (2,035,246)
--------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of stock 1,604,102 1,942,217 9,874,479
Proceeds from issuance of notes payable 245,000 3,300,000 5,662,604
Principal payments on notes payable (455,000) (2,171,440) (5,544,541)
--------------- --------------- ----------------
Net cash provided by financing activities 1,394,102 3,070,777 9,992,539
--------------- --------------- ----------------
Net change in cash (4,632) 332,507 10,820
Cash, at beginning of period 15,452 213,885 -
--------------- --------------- ----------------
Cash at end of period $ 10,820 $ 546,392 $ 10,820
=============== =============== ================
F-6
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Nature of development stage operations
--------------------------------------
Access Power, Inc., (API or the Company) was formed on October 10, 1996.
The Company offers Internet Telephony (IT), which will provide advanced
computer telephony solutions to the global consumer market place, with an
emphasis on marketing to consumers.
Operations of the Company through the date of these financial statements
have been devoted primarily to product development and marketing, raising
capital, and administrative activities.
(b) Property and equipment
----------------------
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets, which range from three to five years,
using the straight-line method.
(c) Intangible assets
-----------------
Organization costs are amortized over a five-year period using the
straight-line method and are included in other assets in the accompanying
balance sheet.
The Company reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases
where undiscounted expected future cash flows are less than the carrying
value, an impairment loss is recognized equal to an amount by which the
carrying value exceeds the fair value of assets.
(d) Income taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Changes in tax rates
are recognized in the period that includes the enactment date.
(Continued)
F-7
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(1), Continued
Development stage operations for the period ended June 30, 2001 resulted in
a net operating loss. It is uncertain whether any tax benefit of net
operating loss will be realized in future periods. Accordingly, no income
tax provision has been recognized in the accompanying financial statements.
At June 30, 2001, the Company has net operating loss carryforwards of
approximately $14,100,000, which will expire in years beginning in 2011. A
valuation allowance equal to the tax benefit of the net operating loss has
been established, since it is uncertain that future taxable income will be
realized during the carryforward period. Accordingly, no income tax
provision has been recognized in the accompanying financial statements
(e) Financial Instruments Fair Value, Concentration of Business and Credit
Risks
----------------------------------------------------------------------
The carrying amount reported in the balance sheet for cash, accounts and
notes receivable, accounts payable and accrued expenses approximates fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported in the accompanying balance sheet
for notes payable approximates fair value because the actual interest rates
do not significantly differ from current rates offered for instruments with
similar characteristics. Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist principally of
accounts and notes receivable which amount to approximately $360,000. The
Company performs periodic credit evaluations of its trade customers and
generally does not require collateral. The notes receivable consist
primarily of amounts due from employees from the exercise of stock options.
The notes are due no later than May 1, 2002. Currently, all of the
Company's hardware and software is purchased from one supplier, however,
management believes there are other alternatives to this supplier.
(f) Use of Estimates
----------------
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(Continued)
F-8
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(1), Continued
(g) Cash Flows
----------
For purposes of cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(h) Prepaid Offering Costs
----------------------
Prepaid offering costs represent direct costs and expenses incurred in
connection with the offering of securities. Upon completion of the
offering, such amounts are offset against the proceeds from the offering,
in the event of an offering of equity securities, and capitalized and
amortized using the interest method in the event of an offering of debt
securities.
(i) Revenue Recognition
-------------------
The Company has earned revenues and plans to earn revenue by providing
access to its internet telephony system (access revenue) for long distance
calls placed by the Company's customers and those of other carriers within
the Company's service area (long distance). Access revenue is billed one
month in advance and is recognized when earned. Long distance revenue is
recognized when the service is rendered. Equipment sales were recognized on
delivery of the equipment to the customer.
The Company also earns revenue from business services and electronic
commerce transactions. Business services revenues include fees. License
revenues for enterprise services are recognized under Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2) when persuasive
evidence of an arrangement exists and delivery has occurred, provided the
fee is fixed and determinable, collectibility is probable and the
arrangement does not require significant customization of the software. For
contracts with multiple elements, and for which vendor-specific objective
evidence of fair value for the undelivered elements exists, revenue is
recognized for the delivered elements based upon the residual contract
value as prescribed by Statement of Position No. 98-4, "Modification of SOP
No. 97-2 with Respect to Certain Transactions." Revenues from enterprise
services were not significant for all periods presented. Maintenance
revenues for enterprise services are recognized ratably over the term of
the contract. Revenues from advertising are recognized by the Company
during the period the advertising occurs.
The Company is presently operating in this one business segment and only in
the United States.
(Continued)
F-9
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(1), Continued
(j) Loss Per Common Share
---------------------
Earnings per common share have been computed based upon the weighted
average number of common shares outstanding during the years presented.
Common stock equivalents resulting from the issuance of the stock options
have not been included in the per share calculations because such inclusion
would be anti-dilutive.
(k) Software and Development Costs
------------------------------
The Company capitalizes purchased software which is ready for service and
software development costs incurred from the time technological feasibility
of the software is established until the software is ready for use to
provide services to customers. Research and development costs and other
computer software maintenance costs related to software development are
expensed as incurred. Software cost capitalized through June 30, 2001
amounts to $407,315 and is depreciated over three years.
The carrying value of software and development costs that have been
capitalized is regularly reviewed by the Company, and a loss is recognized
when the net realizable value falls below the unamortized cost.
(l) Stock-Based Compensation
------------------------
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". This
pronouncement establishes financial accounting and reporting standards for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on new fair value accounting rules.
Such treatment is required for non-employee stock-based compensation. The
Company has chosen to continue to account for employee stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No.25, "Accounting for Stock Issued to Employees".
Accordingly, compensation expense for employee stock options or warrants is
measured as the difference between the quoted market price of the Company's
stock at the date of grant and the amount the employee must pay to require
the stock. SFAS 123 requires companies electing to continue using the
intrinsic value method to make certain pro forma disclosures (see Note 6).
(Continued)
F-10
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(1), Continued
(m) Comprehensive Income
--------------------
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." For the
periods ended March 31, 2000 and December 31, 2000, the Company has no
items of comprehensive income.
(n) Recent Accounting Pronouncements
--------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial
statements. The Company adopted SAB 101 in the fourth quarter of fiscal
2000. The adoption of SAB 101 did not have a material effect on the
Company's operations or financial position.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25." Among other
issues, that interpretation clarifies the definition of employees for
purposes of applying Opinion No. 25, the criteria for determining whether
a plan qualifies as a non-compensatory plan, the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award and the accounting for an exchange of stock compensation awards in a
business combination. This interpretation is effective July 1, 2000, but
certain conclusions in the interpretation cover specific events that occur
after either December 15, 1998 or January 12, 2000. To the extent that
this interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date of
July 1, 2000, the effect of applying this interpretation is recognized on
a prospective basis from July 1, 2000. The implementation of this
interpretation does not have a material impact on the Company's financial
statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is required to be adopted in years beginning after June 15,
2000. The Company does not hold derivative instruments or engage in
hedging activities. The Company implemented Statement 133 beginning in the
first quarter of its fiscal year ending December 31, 2001, with no effect
on its financial position, results of operations or cash flows.
(Continued)
F-11
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(2) Property and Equipment
---------------------
Property and equipment consist of the following at June 30, 2001 and December
31, 2000:
2001 2000
---------------- ----------------
Office furniture and equipment $ 101,667 $ 101,667
Computer hardware 838,769 861,821
Computer software 407,315 403,257
---------------- ----------------
1,347,750 1,366,745
Less accumulated depreciation and amortization 797,122 645,021
---------------- ----------------
$ 550,628 $ 721,724
================ ================
(3) Notes Payable
-------------
Notes payable consist of the following at June 30, 2001 and December 31, 2000:
2001 2000
---------- --------
Promissory notes to stockholders bearing interest at
6% - 8% payable on demand. Unsecured $ -- $112,576
---------- --------
112,576
Less current portion 112,576
---------- --------
Long-term debt, less current portion $ -- $ --
========== ========
(4) 6% Convertible Debenture
------------------------
$285,000 of convertible debentures were sold on various dates in January through
June 2001. They are convertible into common stock by dividing each $100,000
debenture by the lower of 80% of the average of the three lowest closing bid
prices during the preceding 22 trading days or 110% of such average price on
February 28, 2000 ($2.20), subject to certain adjustments. As of June 30, 2001
$5,085,000 of the Convertible Debentures had been converted into 30,785,803
common shares including shares converted representing accrued interest to the
conversion dates.
(Continued)
F-12
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(5) 6% Convertible Debenture (Continued)
------------------------------------
In November 2000 the FASB Emerging Issues Task Force reached several conclusions
regarding the accounting for debt and equity securities with beneficial
conversion features, including a consensus requiring the application of the
"accounting conversion price" method, versus the use of the stated conversion
price, to calculate the beneficial conversion feature for such securities.
Accordingly, the Company recorded a $220,000 non-cash expense during the six
months ended June 30, 2001 to account for a beneficial conversion feature
associated with the Debentures.
(6) Commitments
-----------
The Company leases its office space under a non-cancellable operating lease with
a remaining term of one year. Future minimum payments under this lease are as
follows:
Year Amount
---- ------
2001 61,700
2002 43,300
Rent expense for the years ended December 31, 2000 and 1999 amounted to $53,064
and $48,982, respectively.
(7) Stock Options
-------------
In 1997, the Company established an incentive stock option plan (the Plan) to
provide an incentive to key employees of the Company who are in a position to
contribute materially to expanding and improving the Company's profits, to aid
in attracting and retaining employees of outstanding ability and to encourage
ownership of shares by employees. The Plan was amended in March, 1998 to
increase the number of shares available for issuance thereunder from 1,000,000
to 2,500,000 shares. Total options granted through June 30, 2001 amounted to
2,100,500 at an average price of $.33. There were no incentive stock options
granted during the three months ended June 30, 2001.
The Plan is designed to serve as an incentive for retaining qualified and
competent employees. The Company's Board of Directors, or a committee thereof,
administers and interprets the Plan and is authorized, in its discretion, to
grant options thereunder to all eligible employees of the Company, including
officers and directors (whether or not employees) of the Company. The per share
exercise price of options granted under the Plan will not be less than the fair
market value of the common stock on the date of grant. Options granted under the
Plan will be exercisable after the period or periods specified in the option
agreement. The Board may, in its sole discretion, accelerate the date on which
(Continued)
F-13
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
June 30, 2001
(7) Stock Options (Continued)
-------------------------
any option may be exercised. Options granted under the Plan are not exercisable
after the expiration of ten years from the date of grant and are nontransferable
other than by will or by the laws of descent and distribution. The Company
recognizes compensation expense for options granted under the Plans based on the
difference between the quoted market price of the Company's stock at the date of
grant and the amount the employee must pay to acquire the stock. No compensation
cost has been recognized for employee stock options which had been granted to
date. Had compensation cost for the Plans been determined based on the fair
value at the date of grant for awards under those Plans, consistent with the
method prescribed by SFAS 123, the Company's net loss and net loss per share
would have been increased to the pro forma amounts indicated below:
For the period
October 10, 1996
Six Months ended Year ended through
June 30, 2001 December 31, 2000 June 30, 2001
-------------------------- ------------------------- ---------------------------
Pro forma net loss:
As reported $(1,925.006) $(6,987,055) (14,163,085)
Pro forma (1,925,006) (6,987,055) (14,285,846)
Pro forma net loss per share
As reported (0.02) (0.15) (0.46)
Pro forma (0.02) (0.15) (0.46)
The fair value of each option granted under the Plans is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1999 and 1998: no dividend
yield; expected volatility of the underlying stock of 90%, risk-free interest
rate of 4.98% and 5.27%, respectively, covering the related option period; and
expected lives of the options of 10 years based on the related option period.
F-14
Independent Auditors' Report
The Board of Directors
Access Power, Inc.:
We have audited the accompanying balance sheets of Access Power, Inc. (a
development stage company) as of December 31, 2000 and 1999, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended, and the cumulative period from October 10, 1996 (date of inception)
through December 31, 2000. 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 audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Access Power, Inc. (a
development stage company) as of December 31, 2000 and 1999, and the results of
its operations and its cash flows for the years then ended, and the cumulative
period from October 10, 1996 (date of inception) through December 31, 2000, in
conformity with generally accepted accounting principles.
As discussed in note 4 to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible
Instruments in 2000.
/s/ PARKS, TSCHOPP, WHITCOMB & ORR, P.A.
March 13, 2001
Maitland, Florida
F-15
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
December 31, 2000 and 1999
Assets
------
2000 1999
------------ ------------
Current assets:
Cash $ 15,452 213,885
Certificate of deposit 100,000 --
Accounts receivable 56,312 179,410
Prepaid expenses 560,993 263,638
Inventory -- 21,800
------------ ------------
Total current assets 732,757 678,733
------------ ------------
Property and equipment, net (note 2) 721,724 439,656
Other assets 8,000 12,000
------------ ------------
Total assets $ 1,462,481 1,130,389
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 2,154,321 683,011
Current portion of long-term debt (note 3) 112,576 168,956
------------ ------------
Total current liabilities 2,266,897 851,967
------------ ------------
Long-term debt, less current portion (note 3) -- 207,484
Convertible debentures (note 4) 210,000 750,000
------------ ------------
Total liabilities 2,476,897 1,809,451
------------ ------------
Stockholders' equity (notes 4 and 6):
Common stock, $.001 par value, authorized 100,000,000 shares, issued and
outstanding 53,089,389 and 31,248,253 shares
in 2000 and 1999 53,087 31,249
Notes receivable, stockholders (402,315) (456,000)
Preferred stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 0 and 3,952 shares in 2000 and 1999 -- 4
Additional paid in capital 11,572,891 4,746,709
Deficit accumulated during the development stage (12,238,079) (5,001,024)
------------ ------------
(1,014,416) (679,062)
------------ ------------
Commitments (notes 4, 5 and 6)
Total liabilities and stockholders' equity $ 1,462,481 1,130,389
============ ============
See accompanying notes to financial statements.
F-16
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Operations
For the years ended December 31, 2000 and 1999 and the cumulative period
For the period
October 10, 1996
through
2000 1999 December 31, 2000
------------- ---------- -----------------
Revenue:
Product sales $ - 9,450 223,881
Services 341,370 170,601 565,490
------------- ---------- -----------
Total revenue 341,370 180,051 789,371
------------- ---------- -----------
Costs and expenses:
Cost of services 1,438,776 328,378 1,803,454
Cost of sales - 2,955 164,605
Product development and marketing 1,279,330 687,359 2,699,545
General and administrative 2,504,206 1,642,134 5,856,312
------------- ---------- -----------
Total costs and expenses 5,222,312 2,660,826 10,523,916
------------- ---------- -----------
Loss from operations (4,880,942) (2,480,775) (9,734,545)
Other income (expense):
Interest income 82 - 2,380
Interest expense (106,195) (16,290) (249,034)
Loss on disposal of equipment - (6,880) (6,880)
------------- ---------- -----------
Total other income (expense) (106,113) (23,170) (253,534)
Net loss before cumulative effect of change in
accounting principle (4,987,055) (2,505,945) (9,988,079)
Cumulative effect of change in accounting
principle (2,250,000) - (2,000,000)
------------- ---------- -----------
Net loss $ (7,237,055) (2,503,945) (11,988,079)
============= ========== ===========
Loss per share:
Loss before cumulative effect of change in
accounting principle $ (0.11) (0.10) (0.40)
Cumulative effect of change in accounting principle $ (0.05) - (0.09)
------------- ---------- -----------
Net loss $ (0.16) (0.10) (0.49)
============= ========== ===========
Weighted average number of shares 46,408,006 25,174,029 25,139,875
============= ========== ===========
See accompanying notes to financial statements.
F-17
ACCESS POWER, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the years ended December 31, 2000 and 1999 and the period from October 10, 1996
(date of inception) through December 31, 2000
Common Stock Preferred Stock
-------------------------- ----------------------------
Date Shares Amount Shares Amount
----------- -------------------------- ----------------------------
Common stock issued to founding directors 8,000,000 8,000 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1996 8,000,000 8,000 -- --
Common stock issued for cash 5/23/97 750,000 750 -- --
Common stock issued for cash 6/30/97 1,000,000 1,000 -- --
Common stock issued for cash 7/97 - 10/97 1,734,000 1,734 -- --
Stock issuance cost -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1997 11,484,000 11,484 -- --
Preferred stock issued for cash 5/98 -- -- 1,000 1
Common stock issued as additional interest 2/2/98 50,000 50 -- --
Common stock issued as additional interest 2/19/98 125,000 125 -- --
Common stock issued as finder's fee 2/19/98 75,000 75 -- --
Common stock issued for services 2/98 25,000 25 -- --
Common stock issued for cash 9/24/98 50,000 50 -- --
Preferred stock issued for cash 11/98 -- -- 100 --
Common stock issued for finder's fee 11/98 60,857 61 -- --
Preferred stock issued for cash 12/98 -- -- 25 --
Common stock issued for investment banking fee 12/98 30,000 30 -- --
Conversion of preferred stock to common stock 12/98 425,931 426 (75) --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1998 12,325,788 12,326 1,050 1
----------- ----------- ----------- -----------
Common stock issued for cash 6/99 3,745,000 3,745 -- --
Preferred stock issued for cash 1/99 -- -- 75 --
Common stock issued for finder's fee 1/99 25,777 26 -- --
Common stock issued for services 6/99 3,207,950 3,208 -- --
Common stock issued as additional interest 12/99 144,204 144 -- --
Common stock issued to retire debt 4/99 400,000 400 -- --
Common issued on convertible debentures 12/99 2,464,691 2,465 -- --
Common stock converted to preferred 9/99 (3,952,000) (3,952) 3,952 4
Preferred stock converted to common stock 1/99 - 4/99 12,886,843 12,887 (1,125) (1)
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1999 31,248,253 31,249 3,952 4
=========== =========== =========== ===========
Preferred stock converted to common stock 1/00 3,952,000 3,952 (3,952) (4)
Common stock issued on exercise of warrants 1/00-2/00 600,000 600 -- --
Common stock issued for cash 1/00-3/00 682,000 682 -- --
Common stock issued for services 9/00-11/00 670,000 670 -- --
Common stock issued on convertible debentures 1/00-12/00 15,540,325 15,540 -- --
Common stock issued as interest 1/00-12-00 396,811 394 -- --
Value of beneficial conversion feature of debentures -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 2000 53,089,389 53,087 -- --
=========== =========== =========== ===========
ACCESS POWER, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the years ended December 31, 2000 and 1999 and the period from October 10, 1996
(date of inception) through December 31, 2000
second half continued from above
Additional Total
Paid In Accumulated Stockholders'
Capital Deficit Equity
----------- ----------- -------------
Common stock issued to founding directors (7,200) -- 800
Net loss -- (5,701) (5,701)
----------- ----------- -----------
Balances at December 31, 1996 (7,200) (5,701) (4,901)
Common stock issued for cash 35,000 -- 35,750
Common stock issued for cash 100,000 -- 101,000
Common stock issued for cash 854,573 -- 856,307
Stock issuance cost (75,000) -- (75,000)
Net loss -- (426,438) (426,438)
----------- ----------- -----------
Balances at December 31, 1997 907,373 (432,139) 486,718
Preferred stock issued for cash 999,999 -- 1,000,000
Common stock issued as additional interest 29,950 -- 30,000
Common stock issued as additional interest 84,250 -- 84,375
Common stock issued as finder's fee 24,925 -- 25,000
Common stock issued for services 27,163 -- 27,188
Common stock issued for cash 24,950 -- 25,000
Preferred stock issued for cash 100,000 -- 100,000
Common stock issued for finder's fee 19,817 -- 19,878
Preferred stock issued for cash 25,000 -- 25,000
Common stock issued for investment banking fee 9,970 -- 10,000
Conversion of preferred stock to common stock (426) -- --
Net loss -- (2,064,940) (2,064,940)
----------- ----------- -----------
Balances at December 31, 1998 2,252,971 (2,497,079) (231,781)
----------- ----------- -----------
Common stock issued for cash 1,282,455 -- 1,286,200
Preferred stock issued for cash 75,000 -- 75,000
Common stock issued for finder's fee 6,418 -- 6,444
Common stock issued for services 621,831 -- 625,039
Common stock issued as additional interest 19,837 -- 19,981
Common stock issued to retire debt 49,600 -- 50,000
Common issued on convertible debentures 447,535 -- 450,000
Common stock converted to preferred 3,948 -- --
Preferred stock converted to common stock (12,886) -- --
Net loss -- (2,503,945) (2,503,945)
----------- ----------- -----------
Balances at December 31, 1999 4,746,709 (5,001,024) (223,062)
=========== =========== ===========
Preferred stock converted to common stock (3,948) -- --
Common stock issued on exercise of warrants 46,400 -- 47,000
Common stock issued for cash 146,538 -- 147,220
Common stock issued for services 165,530 -- 166,200
Common stock issued on convertible debentures 4,130,560 -- 4,146,100
Common stock issued as interest 91,102 -- 91,496
Value of beneficial conversion feature of debentures 2,250,000 -- 2,250,000
Net loss -- (7,237,055) (6,987,055)
----------- ----------- -----------
Balances at December 31, 2000 11,572,891 (12,238,079) (362,101)
=========== =========== ===========
See accompanying notes to financial statements
F-18
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Cash Flows
Forthe years ended December 31, 2000 and 1999 and the cumulative period
from October 10, 1996 (date of inception) through December 31, 2000
For the period
October 10, 1996
through
2000 1999 December 31, 2000
----------- ----------- -----------------
Cash flows from operating activities:
Net loss $(7,237,055) (2,503,945) (9,988,079)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 261,397 204,323 814,539
Loss on disposal of property and equipment -- 6,880 33,341
Stock issued for services 166,200 631,483 994,124
Stock issued for interest 91,496 19,981 111,477
Cumulative effect of change in accounting principle 2,250,000 -- --
Change in operating assets and liabilities:
Accounts receivable 15,772 (150,265) (163,638)
Accounts payable and accrued expenses 1,471,310 (173,025) 2,282,074
Other assets (185,939) (263,638) (472,744)
Inventory 21,800 (30) --
----------- ----------- -----------
Net cash used in operating activities (3,145,019) (2,228,236) (6,388,906)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of certificate of deposit (100,000) -- (100,000)
Proceeds from sale of property and equipment -- 12,050 52,320
Purchase of property and equipment (543,555) (50,864) (1,744,084)
Note receivable, stockholders 53,685 (425,209) (402,315)
----------- ----------- -----------
Net cash used in investing activities (589,870) (464,023) (2,194,079)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 4,340,320 1,861,200 8,270,377
Proceeds from issuance of notes payable 3,712,576 1,575,000 5,417,601
Principal payments on notes payable (4,516,440) (563,212) (5,089,541)
----------- ----------- -----------
Net cash provided by financing activities 3,536,456 2,872,988 8,598,437
----------- ----------- -----------
Net change in cash (198,433) 180,729 15,452
Cash, at beginning of period 213,885 33,156 --
----------- ----------- -----------
Cash at end of period $ 15,452 213,885 15,452
=========== =========== ===========
See accompanying notes to financial statements.
F-19
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Nature of development stage operations
--------------------------------------
Access Power, Inc., (API or the Company) was formed on October 10,
1996. The Company offers Internet Telephony (IT) which will provide
advanced computer telephony solutions to the global consumer market
place, with an emphasis on marketing to consumers.
Operations of the Company through the date of these financial
statements have been devoted primarily to product development and
marketing, raising capital, and administrative activities.
(b) Property and equipment
----------------------
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the assets which range from three to five
years, using the straight-line method.
The Company reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the estimated
future cash flows expected to result from its use and eventual
disposition. In cases where undiscounted expected future cash flows
are less than the carrying value, an impairment loss is recognized
equal to an amount by which the carrying value exceeds the fair value
of assets.
(c) Intangible assets
-------------------
Organization costs are amortized over a five-year period using the
straight-line method and are included in other assets in the
accompanying balance sheet.
(d) Income taxes
-------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. Changes in tax rates are recognized in the
period that includes the enactment date.
(Continued)
F-20
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(1), Continued
Development stage operations for the period ended December 31, 2000
resulted in a net operating loss. It is uncertain whether any tax
benefit of net operating loss will be realized in future periods.
Accordingly, no income tax provision has been recognized in the
accompanying financial statements. At December 31, 2000, the Company
has net operating loss carryforwards of approximately $9,988,000 which
will expire in years beginning in 2011. A valuation allowance equal to
the tax benefit of the net operating loss has been established, since
it is uncertain that future taxable income will be realized during the
carryforward period. Accordingly, no income tax provision has been
recognized in the accompanying financial statements
(e) Financial Instruments Fair Value, Concentration of Business and
Credit Risks
---------------------------------------------------------------
The carrying amount reported in the balance sheet for cash, accounts
and notes receivable, accounts payable and accrued expenses
approximates fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount reported
in the accompanying balance sheet for notes payable approximates fair
value because the actual interest rates do not significantly differ
from current rates offered for instruments with similar
characteristics. Financial instruments, which potentially subject the
Company to concentrations of credit risk, consist principally of
accounts and notes receivable which amount to approximately $460,000.
The Company performs periodic credit evaluations of its trade
customers and generally does not require collateral. The notes
receivable consist primarily of amounts due from employees from the
exercise of stock options. The notes are due no later than May 1,
2001. Currently, all of the Company's hardware and software is
purchased from one supplier, however, management believes there are
other alternatives to this supplier.
(f) Use of Estimates
----------------
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(Continued)
F-21
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(1), Continued
(g) Cash Flows
----------
For purposes of cash flows, the Company considers all highly liquid
investments with original maturities of three months or less to be
cash equivalents.
(h) Prepaid Offering Costs
----------------------
Prepaid offering costs represent direct costs and expenses incurred in
connection with the offering of securities. Upon completion of the
offering, such amounts are offset against the proceeds from the
offering, in the event of an offering of equity securities, and
capitalized and amortized using the interest method in the event of an
offering of debt securities.
(i) Revenue Recognition
-------------------
The Company has earned revenues and plans to earn revenue by providing
access to its internet telephony system (access revenue) for long
distance calls placed by the Company's customers and those of other
carriers within the Company's service area (long distance). Access
revenue is billed one month in advance and is recognized when earned.
Long distance revenue is recognized when the service is rendered.
Equipment sales were recognized on delivery of the equipment to the
customer.
The Company also earns revenue from business services and electronic
commerce transactions. Business services revenues include fees.
License revenues for enterprise services are recognized under
Statement of Position No. 97-2, "Software Revenue Recognition" (SOP
97-2) when persuasive evidence of an arrangement exists and delivery
has occurred, provided the fee is fixed and determinable,
collectibility is probable and the arrangement does not require
significant customization of the software. For contracts with multiple
elements, and for which vendor-specific objective evidence of fair
value for the undelivered elements exists, revenue is recognized for
the delivered elements based upon the residual contract value as
prescribed by Statement of Position No. 98-4, "Modification of SOP No.
97-2 with Respect to Certain Transactions." Revenues from enterprise
services were not significant for all periods presented. Maintenance
revenues for enterprise services are recognized ratably over the term
of the contract. Revenues from advertising are recognized by the
Company during the period the advertising occurs.
The Company is presently operating in this one business segment and
only in the United States.
(Continued)
F-22
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(1), Continued
(j) Loss Per Common Share
---------------------
Earnings per common share have been computed based upon the weighted
average number of common shares outstanding during the years
presented. Common stock equivalents resulting from the issuance of the
stock options have not been included in the per share calculations
because such inclusion would be anti-dilutive.
(k) Software and Development Costs
------------------------------
The Company capitalizes purchased software which is ready for service
and software development costs incurred from the time technological
feasibility of the software is established until the software is ready
for use to provide services to customers. Research and development
costs and other computer software maintenance costs related to
software development are expensed as incurred. Software cost
capitalized through December 31, 2000 amounts to $403,257 and is
depreciated over three years.
The carrying value of software and development costs that have been
capitalized is regularly reviewed by the Company, and a loss is
recognized when the net realizable value falls below the unamortized
cost.
(l) Stock-Based Compensation
------------------------
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation".
This pronouncement establishes financial accounting and reporting
standards for stock-based compensation. It encourages, but does not
require, companies to recognize compensation expense for grants of
stock, stock options and other equity instruments to employees based
on new fair value accounting rules. Such treatment is required for
non-employee stock-based compensation. The Company has chosen to
continue to account for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No.25, "Accounting for Stock Issued to Employees".
Accordingly, compensation expense for employee stock options or
warrants is measured as the difference between the quoted market price
of the Company's stock at the date of grant and the amount the
employee must pay to require the stock. SFAS 123 requires companies
electing to continue using the intrinsic value method to make certain
pro forma disclosures (see Note 6).
F-23
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(1), Continued
(m) Comprehensive Income
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." For
the years ended December 31, 2000 and 1999, the Company has no items
of comprehensive income.
(n) Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. (SAB 101), "Revenue Recognition in
Financial Statements." SAB 101 summarizes the SEC's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. The Company adopted SAB 101 in the fourth
quarter of fiscal 2000. The adoption of SAB 101 did not have a
material effect on the Company's operations or financial position.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25." Among
other issues, that interpretation clarifies the definition of
employees for purposes of applying Opinion No. 25, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the
accounting consequence of various modifications to the terms of a
previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in
the interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. To the extent that this
interpretation covers events occurring during the period after
December 15, 1998, or January 12, 2000, but before the effective date
of July 1, 2000, the effect of applying this interpretation is
recognized on a prospective basis from July 1, 2000. The
implementation of this interpretation does not have a material impact
on the Company's financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is required to be adopted in years beginning after June
15, 2000. The Company does not hold derivative instruments or engage
in hedging activities. The Company implemented Statement 133 beginning
in the first quarter of its fiscal year ending December 31, 2001, with
no effect on its financial position, results of operations or cash
flows.
F-24
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(2) Property and Equipment
----------------------
Property and equipment consist of the following at December 31:
2000 1999
---------------- ----------------
Office furniture and equipment $ 101,667 59,908
Computer hardware 861,821 485,007
Computer software 403,257 278,769
---------------- ----------------
1,366,745 823,684
Less accumulated depreciation and amortization 645,021 384,028
---------------- ----------------
$ 721,724 439,656
================ ================
(3) Notes Payable
-------------
Notes payable consist of the following at December 31,:
2000 1999
---------------- ---------------
Promissory notes to stockholders bearing interest at 6% - 8%
payable on demand. Unsecured. $ 112,576 26,440
Note payable to vendor bearing interest at 10%, payable in monthly
installments of $18,236 through December, 2001. Note is a result of
the settlement of litigation in which the vendor agreed to reduce
the price of purchased computer hardware by approximately $636,000.
- 350,000
---------------- ---------------
112,576 376,440
Less current portion 112,576 168,956
---------------- ---------------
Long-term debt, less current portion $ - 207,484
================ ===============
(4) 6% Convertible Debenture
------------------------
$1,000,000, $200,000, and $800,000 6% Convertible Debentures were sold
on September 30, 1999, December 30, 1999, and January 18, 2000,
respectively. They are convertible into common stock by dividing each
$100,000 debenture by the lower of 75% of the average of the three
lowest closing bid prices during the preceding 22 trading days or 110%
of such average price on September 30, 1999 ($0.42), subject to
certain adjustments. $2,500,000, $100,000, $100,000, $100,000 6%
Convertible Debentures were sold on February 29, 2000,
F-25
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(4) 6% Convertible Debenture (Continued)
------------------------------------
August 14, August 30 and September 15, 2000, respectively. They are
convertible into common stock by dividing each $100,000 debenture by
the lower of 80% of the average of the three lowest closing bid prices
during the preceding 22 trading days or 110% of such average price on
February 28, 2000 ($2.20), subject to certain adjustments. As of
December 31, 2000, $4,590,000 of the Convertible Debentures had been
converted into 18,005,016 common shares including shares converted
representing accrued interest to the conversion dates.
In November 2000 the FASB Emerging Issues Task Force reached several
conclusions regarding the accounting for debt and equity securities
with beneficial conversion features, including a consensus requiring
the application of the "accounting conversion price" method, versus
the use of the stated conversion price, to calculate the beneficial
conversion feature for such securities. The SEC required companies to
record a cumulative catch-up adjustment in the fourth quarter of
calendar 2000 related to the application of the "accounting conversion
price" method to securities issued after May 21, 1999.
Accordingly, the Company recorded a $2.25 million non-cash expense
during the quarter ended December 31, 2000 to account for a beneficial
conversion feature associated with the Debentures. The Company has
presented the charge in the consolidated statements of operations as a
cumulative effect of a change in accounting principle.
(5) Commitments
-----------
The Company leases its office space under a non-cancellable operating
lease with a remaining term of one year. Future minimum payments under
this lease are as follows:
Year Amount
---- ------
2001 61,700
2002 43,300
Rent expense for the years ended December 31, 2000 and 1999 amounted
to $53,064 and $48,982, respectively.
(6) Stock Options
-------------
In 1997, the Company established an incentive stock option plan (the
Plan) to provide an incentive to key employees of the Company who are
in a position to contribute materially to expanding and improving the
Company's profits, to aid in attracting and retaining employees of
outstanding ability and to encourage ownership of shares by employees.
F-26
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(6) Stock Options (Continued)
-------------------------
The Plan was amended in March, 1998 to increase the number of shares
available for issuance thereunder from 1,000,000 to 2,500,000 shares.
Total options granted through December 31, 2000 amounted to 2,100,500
at an average price of $.33. There were no incentive stock options
granted during 2000.
The Plan is designed to serve as an incentive for retaining qualified
and competent employees. The Company's Board of Directors, or a
committee thereof, administers and interprets the Plan and is
authorized, in its discretion, to grant options thereunder to all
eligible employees of the Company, including officers and directors
(whether or not employees) of the Company. The per share exercise
price of options granted under the Plan will not be less than the fair
market value of the common stock on the date of grant. Options granted
under the Plan will be exercisable after the period or periods
specified in the option agreement. The Board may, in its sole
discretion, accelerate the date on which any option may be exercised.
Options granted under the Plan are not exercisable after the
expiration of ten years from the date of grant and are nontransferable
other than by will or by the laws of descent and distribution. The
Company recognizes compensation expense for options granted under the
Plans based on the difference between the quoted market price of the
Company's stock at the date of grant and the amount the employee must
pay to acquire the stock. No compensation cost has been recognized for
employee stock options which had been granted to date. Had
compensation cost for the Plans been determined based on the fair
value at the date of grant for awards under those Plans, consistent
with the method prescribed by SFAS 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts
indicated below:
For the period
October 10, 1996
Year ended Year ended through
December 31, 2000 December 31, 1999 December 31, 2000
-------------------------- ------------------------- ---------------------------
Pro forma net loss:
As reported $(7,237,055) (2,503,945) ( 12,238,079)
Pro forma (7,237,055) (2,558,934) (12,360,840)
Pro forma net loss per share
As reported (0.15) (0.10) (0.44)
Pro forma (0.15) (0.10) (0.44)
The fair value of each option granted under the Plans is estimated on
the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 1999 and
1998: no dividend yield; expected volatility of the underlying stock
of 90%, risk-free interest rate of 4.98% and 5.27%, respectively,
covering the related option period; and expected lives of the options
of 10 years based on the related option period.
F-27
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2000 and 1999
(7) Selected Financial Data (Unaudited)
---------------------------------
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999, respectively:
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ ------------
2000
----
Net revenues $ 145,611 108,556 66,709 20,494 341,370
Gross profit 145,611 108,556 66,709 20,494 341,370
Net earnings from operations (1,150,839) (1,154,414) (1,227,805) (1,347,884) (4,880,942)
Basic and fully diluted
earnings per share (0.04) (0.03) (0.03) (0.07) (0.16)
Weighted-average number of
shares issued and outstanding 31,688,258 39,189,807 43,971,501 50,292,651 46,408,006
1999
----
Revenues $ 14,550 13,250 51,649 100,602 180,051
Gross profit 12,495 12,665 51,334 100,602 177,096
Net earnings from operations (476,138) (690,578) (545,969) (768,090) (2,480,775)
Basic and fully diluted
earnings per share (0.03) (0.03) (0.02) (0.02) (0.10)
Weighted-average number of
shares issued and outstanding 16,979,668 25,825,159 31,386,691 28,639,358 25,174,029
F-28
============================================================== ==============================================================
No dealer, salesperson, or other person has been 308,181,550 SHARES COMMON STOCK
authorized to give any information or to make any
representations other than those contained in this
prospectus in connection with the offer made by this
prospectus and, if given or made, such information or ACCESS POWER, INC.
representations must not be relied upon as having been
authorized by Access Power, Inc. Neither the delivery of
this prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no __________________
change in the affairs of Access Power, Inc. since the date
hereof or that the information herein is correct as of any PROSPECTUS
time subsequent to the date of this prospectus. This __________________
prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities
offered hereby by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to
do so or to anyone to whom it is unlawful to make such offer
or solicitation.
TABLE OF CONTENTS
Item Page
---- ----
Summary 2
Summary Financial Data..............................4
Risk Factors 5
Cautionary Statement About
Forward-Looking Statements......................13
Capitalization .................................14 __________, 2001
Dividend Policy .................................14
Business 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......................18
Management 23
Certain Market Information.........................26
Use of Proceeds .................................26
Principal and Selling Shareholders.................27
Plan of Distribution...............................28
Investment Agreement...............................32
Shares Eligible for Future Sale....................35
Description of Capital Stock.......................36
Description of Warrants............................38
Description of 6% Convertible
Debentures 38
Transfer Agent .................................38
Legal Matters 38
Experts .................................39
Additional Information.............................39
Index to Financial Statements.....................F-1
============================================================== ==============================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) payable by us
in connection with the issuance and distribution of the shares of common stock.
Securities and Exchange Commission Registration Fee............. $ 0
NASD Filing Fees and Blue Sky Fees and Expenses................. 0
Printing and Engraving Expenses................................. 250
Legal Fees and Expenses......................................... 15,000
Accounting Fees and Expenses.................................... 250
------
Total .............................................. $ 15,500
======
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following provides information of all sales of outstanding stock
which were not registered under the Securities Act of 1933.
On August 4, 1997, we borrowed $200,000 from a bridge lender, an
accredited investor, and issued thereto bridge notes for the principal amount at
an interest rate of 12% percent per annum, payable monthly. In partial
consideration for making such loan, we also issued 100,000 shares of common
stock to the bridge lender. Exemption from registration for this sale is claimed
under Rule 504 of Regulation D, which does not require investors to be
accredited or sophisticated. We sold the shares through officers and directors
and did not use the services of a selling agent.
On February 2, 1998, we borrowed $100,000 from a bridge lender, an
accredited investor, and issued thereto bridge notes for the principal amount at
an interest rate of 1 percent per month simple interest. In partial
consideration for making such loan, we also issued 50,000 shares of common
stock. Exemption from registration for this sale is claimed under Rule 506 of
Regulation D because of the limited number of participants in the transaction
and the relationship of such participants to us. Sales of securities in these
offerings were made only to persons who were "accredited investors" within the
meaning of Rule 501 promulgated under the Securities Act of 1933. We sold the
shares through officers and directors and did not use the services of a selling
agent.
On February 19, 1998, we borrowed $200,000 from a bridge lender, an
accredited investor, and issued thereto bridge notes for the principal amount at
an interest rate of 10% percent per annum, payable monthly. In partial
consideration for making such loan, we also issued 125,000 shares of common
stock to the bridge lender. Exemption from registration for this sale is claimed
under Rule 506 of Regulation D because of the limited number of participants in
the transaction and the relationship of such participants to us. Sales of
securities in these offerings were made only to persons who were "accredited
investors" within the meaning of Rule 501 promulgated under the Securities Act
of 1933. Olympus Capital, Inc. acted as the exclusive placement agent in
connection with the bridge financing and received a finder's fee in the amount
of 75,000 shares of common stock in connection with such sale.
On March 23, 1998, the Inman Company was issued 25,000 warrants in
consideration for providing financial consulting services to us. Exemption from
registration for this sale is claimed under Rule 506 of Regulation D.
In a private placement which was commenced and completed in May, 1998,
we sold 1,000 shares of Preferred Stock, Series A, at an offering price of
$1,000 per share. Exemption from registration for this sale is claimed under
Rule 506 of Regulation D because of the limited number of participants in the
transaction and the relationship of such participants to the Company. Sales of
securities in these offerings were made only to persons who were "accredited
investors" within the meaning of Rule 501 promulgated under the Securities Act
of 1933. In addition, all such participants agreed to acquire their securities
for investment and not with a view to the distribution thereof, and the
certificates representing the securities issued to each such participant
contained a legend to the effect that such securities are not
II-1
registered under the Securities Act of 1933 and may not be transferred except
pursuant to a registration statement which has become effective under the
Securities Act of 1933, or an exemption from such registration requirement. Stop
transfer instructions have been given to the Company's transfer agent with
respect to such securities. The issuance of such securities was not
underwritten, and no commissions or other remuneration were paid or given,
directly or indirectly, in connection with such sales.
We raised $75,000 in January 1999 from the sales of a total of 75
shares of Series A Preferred Stock for $1,000 per share. In connection with one
of these sales, we also issued 27,777 shares of common stock as a finder's fee
and recognized expense of $7,500 and an increase to capital stock of the same
amount. We received $150,000 as a good faith deposit with the letter of intent
and issued 1,500,000 shares of common stock in return to the investor.
On March 4, 1999, we issued 2,100,000 shares of restricted common stock
to Norrstar Advertising, Inc., in consideration for public relations services
rendered to us. Our contract with Norrstar was terminated on September 25, 1999,
and we cancelled 1,810,000 shares of common stock owned by Norrstar. Exemption
from registration for this issuance is claimed under Section 4(2) of the
Securities Act of 1933.
In April of 1999, we issued 512,000 shares of common stock in exchange
for a debt repayment and the interest due on the debt. We issued 2,630,000
shares of common stock upon the exercise of employee stock options for
$1,257,100. In September of 1999, we issued $1,000,000 of 6% convertible
debentures. We issued $200,000 of 6% convertible debentures in December of 1999,
$800,000 of 6% convertible debentures in January of 2000, and $2,500,000 of 6%
convertible debentures in February of 2000. Exemption from registration is
claimed under Section 4(2) of the Securities Act of 1933.
In June of 1999, we issued 20,000 shares of restricted common stock to
Kim DeVigil in consideration for providing public relations services to us.
Exemption from registration for this sale is claimed under Section 4(2) of the
Securities Act of 1933.
On September 30, 1999, we issued $1,000,000 principal amount of our 6%
Convertible Debentures due 2001, warrants to purchase 200,000 shares of our
common stock, and an additional warrant to purchase $1,000,000 principal amount
of our 6% Convertible Debentures due 2001 and 200,000 additional shares of our
common stock to Bamboo Investors LLC, an accredited investor. Bamboo exercised
$200,000 of the warrant to purchase 6% Convertible Debentures in December
1999.Exemption from registration for this sale is claimed under Section 4(2) of
the Securities Act of 1933.
On October 4, 1999, we issued 1,300,000 shares of our restricted common
stock to Northstar Advertising, Inc. in connection with their rendition of
investment public relations services to us. Exemption from registration for this
issuance is claimed under Section 4(2) of the Securities Act of 1933.
In January of 2000, we sold 6% convertible debentures in the amount of
$800,000 and $2,500,000 in February of 2000 to an investor. In addition, the
investor purchased a warrant to purchase an additional $2,500,000 of convertible
debentures on the same terms, of which the investor has exercised and purchased
$385,000 in debentures. Exemption from registration for this issuance is claimed
under Section 4(2) of the Securities Act of 1933.
In September 2000, we issued 620,000 shares of Common Stock to the
Investor Relations consulting firm used by us. Exemption from registration for
this sale is claimed under Rule 506 of Regulation D of the Securities Act of
1933.
In November 2000, we issued 50,000 shares of Common Stock to a
potential investor to reimburse for his due diligence efforts. We decided not to
go forward with this transaction. Exemption from registration for this sale is
claimed under Rule 506 of Regulation D of the Securities Act of 1933.
In November 2000, we entered into an investment agreement and related
documents with Grandview Court, LLC, an accredited investor, as further
described in this registration statement. Pursuant to this investment agreement,
we agreed to sell to the investor $30 million of our common stock in return for
cash. In August 2001, we changed the amount to $10 million. Exemption from
registration for this sale is claimed under Rule 506 of Regulation D of the
Securities Act of 1933.
II-2
We issued 19,237,000 shares of common stock in January 2001 and
4,297,500 shares of common stock in February 2001, to Grandview Court, LLC both
for cash under the terms of the investment agreement.
We issued 650,000 shares of common stock in March 2001 in settlement of
a lawsuit. We issued 1,600,000 in April 2001 as security for an account payable.
We issued 1,500,000 shares in May 2001 to secure obligations under an
investor relations agreement. In September 2001, we agreed to transfer all
rights to the shares to the service provider. We also issued options for 200,000
shares to the provider.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit
Number Description of Exhibit
------------- -----------------------------------------------------------
3.1 Amended Articles of Incorporation of Access Power, Inc.
(filed as Exhibit 3.1 to Access Power, Inc.'s Registration
Statement on Form SB-2, Commission File No. 333-58802 and is
hereby incorporated by reference)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to Access
Power, Inc.'s annual report on Form 10-KSB for the year
ended December 31, 1999 (the "10-K") and is hereby
incorporated by reference)
4.1 Form of common stock Certificate of the Registrant (filed as
Exhibit 4.1 to the 10-K and is hereby incorporated by
reference)
4.2 6% Convertible Debenture due September 30, 2001 (filed as
Exhibit 4.2 to the 10-Q and is hereby incorporated by
reference)
4.3 Warrant to purchase common stock, par value $0.001 per
share, of Access Power, Inc. (filed as Exhibit 4.3 to the
10-Q and is hereby incorporated by reference)
4.4 Warrant to purchase common stock, par value $0.001 per share
of Access Power, Inc. dated November 13, 2000 (filed as
Exhibit 4.4 to Access Power's Registration Statement on Form
SB-2 dated December 20, 2000, Commission File Number
333-51836 (the "2001 SB-2") and is hereby incorporated by
reference).
5.1 Opinion of Kilpatrick Stockton, LLP with respect to the
legality of the securities being registered
10.1 International Master Franchise Agreement between Access
Power, Inc. and Access Power Canada, Inc. (filed as Exhibit
10.1 to Access Power, Inc.'s Registration Statement on Form
SB-2 (File No. 333-65069) (the "1999 SB-2") and is hereby
incorporated by reference)
10.2 Access Power, Inc. Stock Option Plan (filed as Exhibit 10.2
to the 1999 SB-2 and is hereby incorporated by reference)
10.3 Amendment No. 1 to Stock Option Plan (filed as Exhibit 10.3
to the 1999 SB-2 and is hereby incorporated by reference)
10.4(a) Employment Agreement with Howard Kaskel dated July 1, 1998
(filed as Exhibit 10.5 to the 1999 SB-2 and is hereby
incorporated by reference)
II-3
10.4(b) Employment Agreement with Howard Kaskel dated June 29, 2001
(filed as Exhibit 10 to the Form 10-QSB for the quarter
ended June 30, 2001 and is hereby incorporated by reference)
10.5 Agreement to terminate Master Franchise Agreement between
Access Power, Inc. and Access Power Canada, Inc. dated
December 11, 1998 (filed as Exhibit 10.6 to the 1999 SB-2
and is hereby incorporated by reference)
10.6* Internet Telephony Services Agreement dated December 14,
1998, between Access Power, Inc. and Access Universal, Inc.
(filed as Exhibit 10.7 to the 1999 SB-2 and is hereby
incorporated by reference)
10.7 Office Lease Agreement between Douglas Partnerships II, and
Access Power, Inc. dated August 1, 1997 (filed as Exhibit
10.9 to the 1999 SB-2 and is hereby incorporated by
reference)
10.8 Retainer Agreement dated September 23, 1999, among Access
Power, Inc., Tatum CFO Partners, LLP, and Howard Kaskel
(filed as Exhibit 10.1 to the 10-Q and is hereby
incorporated by reference)
10.9 Securities Purchase Agreement dated as of September 30,
1999, among Access Power, Inc., certain shareholders of
Access Power, Inc. named therein, and Bamboo Investors, LLC
(filed as Exhibit 10.2 to the 10-Q and is hereby
incorporated by reference)
10.10 Warrant to purchase 6% Convertible Debentures and common
stock warrants of Access Power, Inc. (filed as Exhibit 10.3
to the 10-Q and is hereby incorporated by reference)
10.11 Registration Rights Agreement, dated as of September 30,
1999, by and among Access Power, Inc. and Bamboo Investors
LLC (filed as Exhibit 10.4 to the 10-Q and is hereby
incorporated by reference)
10.12 Share Exchange Agreement dated as of September 30, 1999
between Access Power, Inc. and each of Glenn Smith, Maurice
Matovich, Howard Kaskel, and Tod Smith (filed as Exhibit
10.5 to the 10-Q and is hereby incorporated by reference)
10.13* Web services agreement as of August 6, 1999, between Access
Power, Inc. and Lycos-Bertelsmann GmbH (filed as Exhibit
10.6 to the 10-Q and is hereby incorporated by reference)
10.14 Consulting Agreement dated as of October 4, 1999 between
Access Power, Inc. and Northstar Advertising, Inc. (filed as
Exhibit 10.7 to the 10-Q and is hereby incorporated by
reference)
10.15 Amended and Restated Investment Agreement between Access
Power, Inc. and Grandview Court, LLC dated as of September
19, 2001.
10.16 Amended and Restated Registration Rights Agreement between
Access Power, Inc. and Grandview Court, LLC dated as of
September 19, 2001.
10.17 Amended and Restated Escrow Agreement between Access Power,
Inc. and Grandview Court, LLC dated as of September 19,
2001.
10.18 Amendment to Lease and Guaranty Agreements between Access
Power, Inc. and Maguire Land Corporation dated April 1, 2000
(filed as Exhibit 10.18 to Access Power, Inc.'s annual
report for the year ended December 31, 2000 and is hereby
incorporated by reference).
10.19 Market Access Program Marketing Agreement between Access
Power, Inc. and Madison and Wall Worldwide, Inc., dated May
30, 2001.
II-4
23.1 Consent of Kilpatrick Stockton, LLP (included in Exhibit
5.1) .
23.2 Consent of Parks, Tschopp, Whitcomb & Orr.
24.1 Power of Attorney (included in Signature Page)
---------------------------
* Certain portions of this exhibit have been omitted pursuant to the grant of a
request for confidential treatment.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of Ponte
Vedra, State of Florida, on the 24th day of September, 2001.
ACCESS POWER, INC.
By: /s/ Glenn A. Smith
Glenn A. Smith
Chief Executive Officer
Each person whose signature appears below hereby constitutes and
appoints Glenn A. Smith and Maurice J. Matovich and either of them, his or her
true and lawful attorneys-in-fact with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign a new registration statement filed to
register additional securities pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and to cause the same to be filed, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to said attorneys-in-fact and agent, full
power and authority to do and perform each and every act and thing whatsoever
requisite or desirable to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all acts and things that said attorneys-in-fact and
agents, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 24th day
of September, 2001, in the capacities indicated.
Signature Position
--------- --------
/s/ Glenn A. Smith Glenn A. Smith, President and Chief Executive Officer
------------------------------------
and Director (Principal Executive Officer)
/s/ Howard L. Kaskel Howard L. Kaskel, Chief Financial Officer (Principal
------------------------------------
Financial and Accounting Officer)
/s/ Tod R. Smith Tod R. Smith, Director
------------------------------------
/s/ Maurice J. Matovich Maurice J. Matovich, Director
------------------------------------
II-6
Exhibit Index
5.1 Opinion of Kilpatrick Stockton LLP
10.15 Amended and Restated Investment Agreement between Access Power, Inc.
and Grandview Court, LLC dated as of September 19, 2001.
10.16 Amended and Restated Registration Rights Agreement between Access
Power, Inc. and Grandview Court, LLC dated as of September 19, 2001.
10.17 Amended and Restated Escrow Agreement between Access Power, Inc. and
Grandview Court, LLC dated as of September 19, 2001.
10.19 Market Access Program Marketing Agreement between Access Power, Inc.
and Madison and Wall Worldwide, Inc., dated May 30, 2001.
23.2 Consent of Parks, Tschopp, Whitcomb & Orr
II-7