SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
/ / Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number ___-_____
Access Power, Inc.
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(Name of Small Business Issuer in its Charter)
Florida 59-3420985
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10033 Sawgrass Dr., W, Ponte Vedra Beach, FL 32082
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (904) 273-2980
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / / No /X/
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year. $267,950
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock as of a
specified date within the past 60 days: As of April 5, 1999 there
were 23,007,236 shares of Common Stock outstanding held
by non-affiliates of the issuer, with an aggregate value of $5,176,628
(based upon a value of $.225 per share, the average bid
and asked price of the Common Stock on April 5, 1999)
At April 5, 1999, there were issued and outstanding 27,370,536
shares of Common Stock.
Transitional Small Business Disclosure Format (check one): Yes / / No /x/
DOCUMENTS INCORPORATED BY REFERENCE
None.
1<PAGE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Access Power, Inc. was formed to offer Internet-based
communications products and services to the global marketplace. The
Company is one of the first companies to offer a means for voice and
multi-media communications over the Internet, a service which is
commonly referred to as Internet Protocol telephony or IP telephony.
The Company believes that from its early start in this field it is a
leader in the U.S. in the deployment of IP telephony gateways and in
the offering of associated enhanced communications services. Access
Power currently has deployed its IP telephony servers in ten major
metropolitan service areas in the U.S., and it plans continued
expansion in the U.S. and abroad in 1999 to the extent it is
financially able to do so. See "Management's Discussion and
Analysis." Additional international expansion will be pursued via
joint venture and other business arrangements throughout South
America, Europe, Africa and the Pacific Rim.
INDUSTRY BACKGROUND
Long distance telephone services have historically been offered
through public switched telephone networks (PSTN) mainly utilizing
lines established for that purpose. Although those systems are well
established in the US and many other parts of the world and the
service provided is usually of good quality, voice and message traffic
through those systems is subject to tariffs, and the technology
driving those systems does not have nearly the capability for the
innovative features potentially available through IP telephony. With
the advent of the Internet and its increasing popularity, however, the
stage is being set to permit the commercial development of an
alternative means of telecommunication using the connectivity of the
Internet to provide a new and cheaper pathway. With the development
of Internet Telephony software for the personal computer and the
gateway servers the industry now has a viable means to provide
workable products in this field.
The emergence of the World Wide Web and the commercialization of
the Internet defined the potential for and has led to ever increasing
developments in the convergence of technologies involving computers
and telephones. The convergence that formed computer telephony
integration (CTI) in the 1980's has led to a new sector in the
communications industry, and is generally referred to as computer
telephony (CT) or Internet Telephony (IT). The global marketplace is
quickly becoming familiar with the Internet and its value as a
communications mechanism, to date mainly with text graphics. Service
providers are expanding the Internet and users are demanding enhanced
services including voice, audio and video transmissions.
In the early 1990's applications allowing standard commercial
transmission of voice and audio using Internet protocols became
available enabling multi-media PC users to converse over the Internet.
This decade many companies have invested millions of dollars to
continue developing the applications that have improved the service
quality and lowered the implementation costs. The result has been the
emergence of a new communications sector, the Internet Telephony
Services Provider (ITSP), of which the Company was an early entrant.
1<PAGE>
THE ACCESS POWER SOLUTION
The Company is developing its Internet-based telephony service,
Access Power Advanced Communications ("APAC"), to provide a domestic
and international communications network allowing customers to place
calls through the Internet using traditional terminal equipment.
Unlike traditional long-distance telephone systems which use switch
based systems, the Company uses the Internet as the backbone to
complete the long distance connection. This eliminates the fees
associated with long distance carriers. The service allows users to
place long distance calls from their PC to an enabled PC for free, or
from their PC to a regular telephone at a significantly reduced cost
when compared to traditional long distance services. APAC customers
can take advantage of the cost savings associated with the Internet-
based telephony service even without a PC by placing a regular
telephone to regular telephone call through the Company's network of
gateway servers.
In addition to the cost savings associated with Internet
telephony, the Company's customers have the ability to use services
that are not available using the traditional public switched telephone
network. Such services include interactive document and data sharing
and multi-media data transmissions including video capability.
Accordingly, regional and multinational corporations can utilize a
single network integrating voice and data transmissions and realize
low cost interoffice communication through IP telephony.
The Company is committed to establishing a worldwide network of
gateway servers to provide for its alternative long distance service.
The gateway servers deployed by the Company at strategic locations
serve as a bridge for communications traffic to or from customers
in those geographic locations between the public switched telephone
network or a private branch exchange (PBX) and the Internet. The
gateway server converts voice transmission to data packets, using less
bandwidth and eliminating separate voice network costs.
Communications traffic from or to standard telephone equipment (such
as in phone-to-phone and PC to phone calling) involves local telephone
pathways and, for those destinations not currently served by a local
gateway server, traditional long distance lines (usually through a
wholesale arrangement) at each end with the Internet as the pathway in
between.
STRATEGY
The Company believes 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 (IP) networks and corporate intranets.
The Company's objective is to be one of the world's leading providers
of international IP telephony products and services. The Company's
strategy to achieve that objective includes the expansion of its
international IP telephony gateway network through joint venture
partnerships and other business relationships in the targeted regions;
the leveraging of the network and its inherent low operating costs to
provide discount retail and wholesale international calling services;
the exploitation of new technology including e-button to penetrate
the international corporate market; and the continued development of
enhanced products and services that utilize the Company's
international IP telephony gateway server network.
2<PAGE>
EXPANSION OF INTERNATIONAL IP TELEPHONY GATEWAY NETWORK
In August 1998, the Company entered into nonexclusive
distributorship agreements with independent distributors in Denmark
and China to market and sell the Company's products and services in
those countries. The agreements extend for one year with automatic
one-year renewals. They may be terminated upon 30 days notice after
the first year. The products and services offered consist of the PC
Client Dialer Product, gateway access at a per minute amount and
additional programming services on an hourly basis.
In November 1998, the Company entered into an agreement with a
Texas corporation, Access Universal, Inc., to provide that business
with Internet telephony services through December 31, 2001. The
Company and Access Universal anticipate that their business
relationship will begin to become active in 1999, at which time they
intend to commence developing a business to process Internet Protocol
communications traffic between the U.S. and the Pacific Rim, beginning
with calling card generated traffic of 1,000,000 minutes per month
expecting to increase an additional 2,000,000 minutes per month within
six months of operation.
LEVERAGE THE LOW OPERATING COSTS OF THE COMPANY'S NETWORK
IP telephony calls are treated as data communications and are not
subject to expensive access fees like standard long-distance calls.
This is especially significant when it comes to international calls,
where extra fees can be a significant addition to the cost of a call.
The Company's technology will enable it to offer international calling
at reduced costs to customers. The Company anticipates that joint
ventures and other business relationships it intends to create
overseas will focus on marketing and selling the Company's services in
the international market.
The Company feels that the future of telecommunications is in the
value of the enhanced services a provider offers and that long-
distance telephony as we know it today will become a low-priced
commodity. This is the very premise that the Company feels will
propel IP telephony into the mainstream of communications. IP
telephony by definition operates within computers, a medium which
allows for the development of sophisticated user applications that
will differentiate IP telephony from traditional telephony systems.
This cost structure of the Company's IP telephony network also
allows the Company to offer wholesale rates at prices below standard
telephony carriers. Targeted clients of Access Power wholesale
carrier services are international telephone companies wishing to
terminate calls in the United States and domestic and foreign prepaid
services companies. The domestic prepaid market is one of the fastest
growing markets of the telecommunications industry and is served by
over 400 providers. The Company believes that a majority of these
providers are small to mid-sized resellers without telephony
infrastructure, which, therefore, are likely to be incurring high
network costs. Access Power believes it is well positioned to offer
low cost carrier services to such providers.
3<PAGE>
EXPLOIT E-BUTTON AND CONTINUE DEVELOPING ENHANCED SERVICES THAT
UTILIZE THE COMPANY'S NETWORK
The Company is a re-seller of certain third-party software which
it markets to its customers under the product name "e-button." The
Company believes this product is the best of its kind available in the
marketplace today. Its size is small and thus quick to download and
install and easy to use. See " Products and Services; e-button."
PRODUCTS AND SERVICES
In 1997 the Company became one of the first Internet Telephony
Service Providers (ITSP) in the world. It determined that network
expansion would best be accomplished by the Company's own deployment
of server hardware and through international joint venture or other
business arrangements aimed at expanding the Company's network.
The Company placed the first Access Power Internet telephony
gateway server on the market in August 1997. A gateway connects data
networks such as the Internet and corporate intranets to the public
telephone networks. The server has the capacity for twenty four lines
and can handle over 300,000 minutes of talk time per month. The
Company currently has ten such gateway servers, or 240 lines of
capacity, deployed, and it anticipates increasing the number of lines
installed in the near future by it or future business partners in the
United States and other international markets.
The Company's voice-over-IP service (known as Access Power
Advanced Communications (APAC)) integrates traditional functions with
advanced Internet-based communications technology. APAC enables users
to connect over the Internet from a personal computer to a regular
telephone or from a regular telephone to another regular telephone
with a significant reduction in costs over that of traditional
telephony. Through this service, a user anywhere in the world can
place long distance telephone calls from its personal computer over
the Internet to telephones in any area where Access Power provides
gateway service. Currently, the Company has such service available
for calls to telephones in ten metropolitan cities in the states of
Arizona, Florida, Texas and Utah. Calls to other locations may be
made through the Company's services, but regular long-distance
services will be necessary to complete the call from the location of
one of the Company's gateway servers, and the cost to the user is
slightly higher. At this time, telephone to telephone calls may only
be originated at locations near to one of the Company's gateways
through a local call to the server.
Voice-over-IP service is a significant development in the highly
attractive and growing Internet industry. New applications are being
developed every day. The cost of computer processing is decreasing
and customer demand is increasing. IP systems are more economical,
have more features and may become more reliable than traditional
mechanisms. They will allow companies to act faster and close the gap
between themselves and their customers, employees and vendors.
To complement its service, the Company offers its customers two
third-party software products: Internet Phone and net.caller(TM). Either
software package enables customers to complete long distance
communications using their personal computers (multi-media configured,
with a microphone and sound system).
4<PAGE>
PHONE-TO-PHONE
The Company offers domestic long distance from its ten service
areas covering a population of over 10 million people to a regular
telephone anywhere in the United States. The Company plans to broaden
its services geographically in the United States as well as add
international calling destinations over time. Customers can register
for the service on the Company's Web site or call the Company office
and provide the required credit information. Customers pay a one-time
activation fee and are assigned a password. To use the service from
within one of the Company's service areas, the customer simply dials
the gateway from a telephone (a local call number), enters the
password, and then dials in the long distance number in the usual way.
Customers are not required to own computer equipment of any kind nor
do they need their own Internet access to use Access Power's phone-to-
phone service. The Company's phone-to-phone rates currently are 7
cents per minute to destinations anywhere in the United States.
Billing is performed at the end of each month by charging the
customer's credit card.
PC-TO-PHONE
The Company's PC-to-phone service offers customers the ability to
call a regular telephone utilizing software installed on their multi-
media personal computer. To initiate the service, a customer
registers on the Company's Web site and downloads either net.caller or
Internet Phone software.
INTERNET PHONE
Internet Phone functions just like a traditional telephone, but uses
software as the dialing mechanism. The software installation is
simple and once completed enables users to engage in long distance
voice communications between multi-media personal computers anywhere
in the world for only the cost of the software plus the user's
standard Internet access fee. More importantly, the software also
enables users to place calls from their PCs to any regular telephone
(PC-to-phone).
Upon installation of Internet Phone software, the PC user may simply
dial up his or her local Internet Service Provider (ISP), Internet Phone is
displayed on the monitor, and the user may proceed to join PC-to-PC
community chat rooms, create private rooms, dial directly to another
PC, or call a regular telephone using the APAC network. For some
customers, Internet Phone could pay for itself within the first month of
usage through the avoidance of traditional long distance charges.
There are currently no access or tariff charges other than the monthly
charge from an Internet Service Provider (ISP). Internet Phone and the
power of the gateway allow customers to do many things that simply
cannot be accomplished using PSTN.
5<PAGE>
Internet Phone has the following features:
* Allows customers to communicate with users of traditional
telephone equipment through the APAC network;
* Call waiting, muting, holding, blocking, identification, and
screening;
* Full-duplex capabilities that enable real-time, two-way
conversations with Internet Phone users worldwide;
* Voice Mail;
* Conference calling.
* Direct calling allows the option of bypassing chat rooms to
speak directly with an individual; and
* Automatic Voice Activation that optimizes voice transmission
quality automatically.
Internet Phone also includes a video component that allows users to
communicate face-to-face.
NET.CALLER(TM)
Net.caller is a software product that is being built as a
modified or simpler Internet Phone by VocalTec Communications, the owner
and developer of both software programs. It is designed for the Company's
customers who only need the basic PC-to-phone use. The Company provides this
product free of charge to encourage customers to activate and use the Company's
gateway service.
E-BUTTON(TM)
The application of e-button software may differentiate Access
Power from many communications companies. Having e-button on their
Web site offers tremendous electronic commerce benefits to any company
with a traditional call-center. This technology allows consumers
using their multi-media PC to view a company's Web site to click the
e-button icon which (once installed on the consumer's PC) instantly
dials a designated representative of that company, usually someone
providing sales or support services. Access Power believes e-button
is the most advanced product of its kind. Its size is small
and thus able to be quickly installed and easy to use. It is
downloaded and installed upon the first attempt to use it.
CUSTOMER SERVICE
The Company believes customer service is one of the Company's
greatest strengths. The customer service organization's leadership
team consists of proven professionals who have managed customer care
for some of the most demanding companies in the world. The Company's
sophisticated database and account tracking allows true "one-to-one"
service fulfillment and customer communication.
The Company has contracted with VocalTec to provide technical
support for the Internet Phone. The Company's operations and customer
service includes a call center and e-mail response, as well as the
mailing of correspondence.
6<PAGE>
In its customer service operations the Company has employed a
service representative who operates from a remote location to assist
with customer service inquiries. The call handling customer support
systems are being developed to reside on the Company's Web site. All
that a trained representative needs to deliver customer support is a
PC Internet connection and password. Calls to a 1-800 number will be
sent to the appropriate customer service representatives. The
representative and the customer may jointly access the Company home
page for information on topics of interest. The Company believes it
can reduce its costs through the use of such off-site representations.
Access Power has simplified the traditional telephone billing
process. Customers are not charged normal business services or
monthly fees. They are billed only when they use the service to place
calls, and then only for the minutes they have accumulated throughout
the month. Itemized billing or usage statements are available to
customers via the Company's Web site, and written invoices are
available upon request.
CUSTOMERS
While in its technical development and deployment stage, the
Company has done minimal marketing. It has acquired approximately
2,000 customers mostly through the Company's Web site. The Company
intends to focus its marketing efforts in the future on wholesale
customers.
COMPETITION
The Company has nearly two years of experience building and fine-
tuning one of the largest IP telephony networks in the United States.
Because of the experience it has gained to date, the Company believes
it has the ability to deploy its technology at a faster rate and with
less missteps than new entrants. The Company has basic billing
capabilities in place and has already begun to develop more
sophisticated billing capabilities to accommodate the more complex
commercial transactions in which it intends to engage. It also
already has in place, network management tools and a secure Web site
capable of taking new account orders in real-time.
The Company believes its competitive strength will lie in being
first to market with IP telephony services. It also believes it is
likely to move faster than a giant telephone company. The opportunity
to fully develop the market and establish momentum to capture market
share means, however, that the Company has to aggressively build its
customer base now. The Company's network must be expanded in order to
handle higher volumes of traffic. Dependency on traditional long
distance telephone lines to complete calls must be reduced to protect
margins. Customer acquisition programs need to be further developed
to grow the customer base.
Competition for the Company may be direct, such as other
companies that offer IP telephony services, or indirect, such as
companies that offer traditional or other alternative long distance
telephony services.
DIRECT COMPETITION
Most companies currently offering IP telephony to their customers
are either small start-up companies, or Internet Service Providers
(ISP) looking for enhanced services primarily designed to help
customer retention in support of their core business.
7
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The Company believes that today the most developed Internet
Telephony Service Providers are IDT Corporation's Net2Phone
(www.net2phone.com) and RSL Communications, Ltd.'s Delta Three
(www.deltathree.com). Both IDT and RSL are current long distance
companies who have committed to IP telephony as an important element
of their future business. IDT is also a domestic ISP. The Company
believes that both companies are generating the bulk of their IP
revenues from the PC-to-phone market with minimal networks built
to support the same. Both companies seem to rely heavily on their
traditional PSTN long distance business to make the limited PC-to-phone
market viable.
The rest of the direct competition appears not nearly as
developed, but ITXC Corp. (www.itxc.com) is a competitor worthy of
mention.
The ITXC business model is to become a clearinghouse for ITSPs
all over the world that wish to become a global provider without
having to build out their own worldwide network. This means that ITXC
accepts calls originating from one ITSP, performs the routing, and
terminates the call on another participating ITSP network. ITXC's
business model has up to three different companies splitting consumer
revenue: the originating ITSP, the terminating ITSP and ITXC itself.
Access Power deems it more important to develop its own global
network, rather than join the ITXC program, so it can protect its
margins and maintain the assets of the network.
INDIRECT COMPETITION
All companies delivering long distance telephony through
traditional or other means are indirect competitors of Access Power,
at least for phone-to-phone and PC-to-phone services. Traditional
long distance telephone companies have the embedded customer base that
Access Power does not yet have, and they have the global network or
other arrangements for global access, and currently are in a better
position than Access Power for offering and delivering phone-to-phone
service. They may have difficulty competing on price with traditional
systems where Access Power service is available, however, and they
cannot in their traditional long distance service offer the full array
of enhanced services that Access Power can offer. Over time, they may
be unable to compete from a price standpoint, because IP telephony is
a cheaper technology and can support commodity pricing. More and more
indirect competitors will become direct competitors once they have
deployed IP telephony. This is the trend, and it is projected to
continue as long distance prices are forced down and IP telephony
becomes more fully developed.
The list of potential indirect competitors is immense, with
thousands of long distance companies, including resellers and calling
card distributors.
FUTURE COMPETITION
The most substantial competitors of Access Power are those
looming on the horizon. AT&T, the world's largest long distance
company has recently announced IP telephony trials in three U.S.
markets: Atlanta, San Francisco and Boston. They offer the service
at 8.5 cents per minutes to anywhere in the U.S. from any one of the
trial cities. If this trial is successful, AT&T will likely build out
their IP network and expand.
8<PAGE>
WorldCom, Inc. is a global business telecommunications company
and a potentially large provider of IP telephony. Operating in more
than 50 countries, the company is a provider of facilities-based and
fully integrated local, long distance, international and Internet
services. WorldCom would appear to have the total solution available
at its fingertips with ownership of MCI Telecommunications, Inc. and
UUNET Technologies. They have the network and they have the
customers.
All of the U.S. RBOCs (Regional Bell Operating Companies) have
either announced IP telephony testing or the Company expects they will
do so soon. IP telephony is a way to become a long distance carrier
without having to face FCC regulations. RBOCs also have the embedded
customer base, albeit regional in many cases, and generally have the
network to support IP telephony.
Qwest Communications International, Inc. (www.quest.com) is a
global communications company building a high-capacity, fiber optic,
Internet Protocol-based network designed to deliver the new generation
of multi-media, data and voice communications services and
applications. Slated for completion in the second quarter of 1999,
the Qwest domestic network will span 18,449 miles in 130 cities.
Internationally, Qwest is extending its network 1,400 miles into
Mexico, and has secured a significant amount of transatlantic capacity
enabling data and voice transmission between North America and Europe.
Qwest is a looming competitor. Currently offering high-speed
Internet access to 15 U.S. cities, and a stated future direction to
provide video conferencing, whiteboarding, multicasting, as well as
dedicated and virtual network applications, this company is in
position to be a dominant force in IP telephony and enhanced IP
services.
SALES AND MARKETING
Access Power's market includes residential and business users of
advanced communications products and services. The services include
phone-to-phone communications, personal computer (PC) to phone
communications and PC-to-PC calling. For phone-to-phone and PC-to-
phone service, customers pay an activation fee and a per minute
charge. Access Power's current pricing for service is very
competitive and the Company is poised to balance new product
introductions with consumer demands and expectations. After a small
start up cost, the Company's long distance customers currently pay 9
cents per minute for PC-to-phone calling, or $10 per month of unlimited
usage, and 7 cents per minute for phone-to-phone calling. For PC-to-PC calling,
customers initially purchase software from the Company but experience no
additional costs associated with long distance communications.
The Company's marketing strategy involves promoting advanced
Internet-based telecommunications products and services to both
businesses and consumers using market-specific sales methods developed
by the Company. The primary target market for these products and
services are the millions of consumers and business owners, from small
businesses to corporations, using the Internet.
Marketing will be accomplished through print advertising and
standard publicity methods as well as through Internet web sites.
Direct selling may be performed by direct mail campaigns, including e-
mail distributions. The Company may work with high technology
marketing firms to acquire customers through direct selling to
corporations, through trade show participation and through special
promotions.
9<PAGE>
The extent to which the Company is able to offer low
communication transmission rates affords the Company the opportunity
to enter the wholesale arena as well as the retail market. The
Company can offer telecommunications resellers bulk traffic rates at
highly competitive prices. By building partnerships and affiliations
with international resident partners, the Company will be able to
control its own network while benefiting from the regional awareness
and marketing of its partners.
ACCESS POWER MARKETING STRATEGY
The Company targets each of its products to a specific market.
The e-button will be sold to the business market that has a Web
site and call center. According to Internet research of which the
Company is aware, as of June 30, 1998 there were over 346,000
businesses worldwide who have a Web site. Many of these businesses
also have a call center for customer service, sales, or technical
support. The Company aims to capture a significant portion of this
business market for sales of the e-button product.
The target market for the Company's PC-to-phone and phone-to-
phone service is the small office and home office market. According
to the Bureau of Labor Statistics (BLS), there were more than 21
million persons who did some work at home as part of their primary job
as of May 1997. Nearly 9 out of l0 of these workers are in "white-
collar" occupations and 60% used a computer for the work they did at
home. The Company believes these are the early adopters of the
Company's technology, and they will be the primary targets of marketing
campaigns. An ancillary market for Access Power phone-to-phone
service is the large, long-distance telephony consumer market.
ELECTRONIC COMMERCE (E-COMMERCE) AND INTERNET TELEPHONY
One of the key indicators for the Company's growth may be the
development of the Internet and Internet commerce. The Company
believes that by most measurements the Internet has grown at a rapid
pace over the last several years, and the Company believes commercial
transactions on the Web have steadily increased as well over that time
period.
E-button will create new options for the way Internet users
conduct commerce, i.e., by providing less costly, more sophisticated
communications support. The Company has established a Web site for
its own e-commerce. Customers simply provide credit card information
to order products and services.
Using the World Wide Web maximizes the Company's ability to sell
its products and services 24 hours a day, 365 days a year, while
minimizing the need for direct sales contact. Currently, the
Company's customers come to the Company's Web site through Internet
search engines and Internet hyperlinks. Transactions transpire and
payment is procured online, which in the end reduces the ultimate cost
of the sale. With the Web site as a storefront, overall sales
expenses of the Company are decreased.
10<PAGE>
END USER MARKET
The personal computer user is generally higher than average in
income and education, younger, white collar, and considered
"independent" and a "trendsetter." The most sought-after segment in
this group is the "digital citizen," that is, those "super connected"
with a PC, Internet access, and at least one other personal
telecommunications device (e.g., pager, cellular telephone, laptop,
etc.). The Company believes based on its research that this is a
group committed to communicating on the Internet. Of the 40 million
people that have ready access to the Internet, according to
International Telecommunications Union's WORLD TELECOMMUNICATIONS
DEVELOPMENT REPORT 1997, the Company believes over 15 million are
these digital citizens.
THE SMALL OFFICE/HOME OFFICE MARKET
The Company believes the Small Office/Home Office (SOHO) market
segment accounts for a significant portion of new company formations.
The Company also believes that the evolution of "work life" will
continue to grow the SOHO market as corporations attempt to reduce
operating costs and improve productivity with telecommuting and
"virtual offices." The Company feels self-employment will continue to
grow as a result of downsizing and outsourcing and as individuals
become less dependent on traditional career paths. The changing
workplace demands rapid telecommunications advancement with the SOHO
segment believed to be currently using the Internet in large numbers.
INTERNATIONAL MARKETS
International opportunities are especially attractive for Access
Power. International growth of the Internet is believed to have
surpassed that of the United States, and by the year 2001, it is
projected that the international market will comprise a majority of
Internet telephony usage. Internet telephony's cost savings through
the avoidance of "settlement fees" will fuel this rapid expansion.
(Settlement fees are tariffs that foreign telephone companies charge
for access to their domestic networks.) The Company believes that the
biggest near-term revenue opportunities exist in the international
markets. A June 22, 1998 report, issued by Datamonitor, a global
strategic market analysis company, indicates that the international
voice market in particular presents a huge opportunity for Internet
telephony service providers. Profit margins are high for these
services. The report also indicates that IP telephony will account for
over l0 percent of international telephony traffic in Europe and the
U.S. by the year 2002.
EMPLOYEES
As of April 5, 1999 the Company retained ten full time
employees.
11<PAGE>
ITEM 2. PROPERTY
The Company headquarters, executive offices and customer service
center are located in facilities consisting of approximately 1,800
square feet in a 13,500 square foot office building in Ponte Vedra
Beach, Florida. The three-year lease on the space started September
1997 and includes two successive extension options and first right of
refusal on 2,000 square feet of vacant contiguous space. The Company
will pay approximately $3000 per month rent under this lease during
1999. The Company believes the office space is adequate for its
current needs and could easily be replaced with other suitable
accommodations.
The Company maintains its server hardware through co-location
arrangements with local exchange carriers at locations where the
Company desires to maintain a gateway. These facilities must be
climate controlled and offer the necessary telephone and electrical
power services, but the Company believes such facilities are generally
available from more than one source.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year covered by this
report.
12<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter and quoted
on the Bulletin Board under the symbol "ACCR" on a limited and
sometimes sporadic basis. Quoting began in December 1997. The
reported high and low bid prices for the Common Stock are shown below
for the period through December 31, 1998. The prices presented are
bid prices which 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, 1999 there were approximately 268
stockholders of record of the 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 $0.91
1999
First Quarter $0.08 $0.33
The following provides information of all sales of outstanding
stock which were not registered under the Securities Act of 1933 (the
"Act").
In connection with the Registrant's organizational activities,
8,000,000 shares of common stock were issued to founders and officers,
including Glenn A. Smith, Michael L. Pitts, Tod R. Smith and Maurice J.
Matovich on April 25, 1997 in connection with the organization of the Company.
The founders provided nominal consideration for these shares and the
shares had little, if any, value at the time of organization.
Exemption from registration is claimed under Section 4(2) of the Act.
On May 23, 1997 the Company undertook a private offering and sold
750,000 shares of common stock for $35,000. Exemption from
registration is claimed under Rule 504 of Regulation D, which does not
require investors to be accredited or sophisticated. The Company sold
the shares through officers and directors and did not use the services
of a selling agent.
13<PAGE>
From June 6, 1997 to June 30, 1997 the Company undertook a
private offering and sold 1,000,000 shares of common stock for
$100,000. Exemption from registration is claimed under Rule 504 of
Regulation D, which does not require investors to be accredited or
sophisticated. The Company sold the shares through officers and
directors and did not use the services of a selling agent.
From July 1, 1997 to October 1, 1997 the Company undertook a
private offering and sold 1,728,000 shares of common stock for
$864,000. Exemption from registration is claimed under Rule 504 of
Regulation D, which does not require investors to be accredited or
sophisticated. The Company sold the shares through officers and
directors and did not use the services of a selling agent.
On August 4, 1997 the Company borrowed $200,000 from Olympus
Capital, Inc., an investor the Company believed to be accredited, and
issued thereto a note for the principal amount at an interest rate of
12% percent per annum, payable monthly. In partial consideration for
making such loan, the Company also issued 100,000 shares of common
stock to the lender. The note was paid off in October 1997.
Exemption from registration for this sale is claimed under Section
4(2) of the Act. The Company sold the shares through officers and
directors and did not use the services of a selling agent.
On February 2, 1998 the Company borrowed $100,000 from
Subramanian Sundaresan, an investor the Company believed to be
accredited, and issued thereto a note for the principal amount at an
interest rate of 1 percent per month simple interest. The note is due
upon the Company closing a financing of at least $3 million. In
partial consideration for making such loan, the Company also issued
50,000 shares of common stock to the lender. Exemption II-1 from
registration for this sale is claimed under Section 4(2) of the Act.
The Company sold the shares through officers and directors and did not
use the services of a selling agent.
On February 19, 1998 the Company borrowed $200,000 from Ethel and
Hyman Schwartz, accredited investors, and issued thereto a note for
the principal amount at an interest rate of 10% percent per annum,
payable monthly. In partial consideration for making such loan, the
Company also issued 125,000 shares of common stock to the lenders.
The note was paid off in May 1998. Exemption from registration for
this sale is claimed under Section 4(2) of the Act. Olympus Capital,
Inc. acted as the exclusive placement agent in connection with the
financing and received a finder's fee in the amount of 75,000 shares
of common stock in connection with such sale. The Company believes
Olympus Capital, Inc. was an accredited investor.
On March 23, 1998 the Inman Company was issued 25,000 shares of
common stock in consideration for providing financial consulting
services to the Company. The Company believes the Inman Company was
an accredited investor. The services provided by the Inman Company
included writing a private placement memorandum for future offerings,
so the investor had become fully informed about the Company.
Exemption from registration for this sale is claimed under Section
4(2) of the Act.
14<PAGE>
In a private placement which commenced in May, 1998 and concluded
the same month, the Company sold 1,000 shares of its Series A
Convertible Preferred Stock, (the "Series A Preferred Stock"), 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.
In November 1998 the Company sold 100 shares of Series A
Preferred Stock at an offering price of $1000 per share to
Chesterfield Capital Resources Ltd. The Company claims an exemption
from registration under Section 4(2) of the Act for this offer and
sale. The securities were offered and sold to one investor who the
Company believes is an accredited investor. In connection with this
transaction and at the same time, the Company also issued 60,587
shares of Common Stock to Ethel Schwartz, an existing stockholder of
the Company, as payment of a finder's fee. The Company believes that
stockholder is an accredited investor, and the Company claims an
exemption from registration under Section 4(2) of the Act for this
transaction.
On December 1, 1998 First Florida Capital Corporation was issued
15,000 shares of common stock and Harold Berliner was issued 15,000
shares of common stock, in consideration for their combined efforts
providing financial consulting services to the Company. Services
provided by the parties included writing materials for the Company for
future offerings so both investors became fully informed about the
Company. The Company believes both First Florida Capital Corporation
and Mr. Berliner are accredited investors, and the Company claims an
exemption from registration under Section 4(2) of the Act in
connection with these transactions.
In December 1998 the Company sold 25 shares of Series A Preferred
Stock at an offering price of $1000 per share to John Monsky. The
securities were offered and sold to one investor who the Company
believes is an accredited investor. In connection with this
transaction and at the same time, the Company paid $2,000 to Robert
Monsky, as payment of a finder's fee. The Company believes Mr. John
Monsky is an accredited investor, and the Company claims an exemption
from registration under Section 4(2) of the Act for this transaction.
The investor was provided a copy of the SB-2 registration statement, as
amended.
In January 1999 the Company sold 50 shares of Series A Preferred
Stock at an offering price of $1000 per share to T. Wayne Davis. The
Company claims an exemption from registration under Section 4(2) of
the Act for this offer and sale. The securities were offered and sold
to one investor who the Company believes is an accredited investor.
In connection with this transaction and at the same time, the Company
also issued 28,846 shares of Common Stock to Robert Monsky, as payment
of a finder's fee. The Company believes that Mr. Robert Monsky is an
accredited investor, and the Company claims an exemption from
registration under Section 4(2) of the Act for this transaction. In
each case the investor was provided a copy of this registration
statement, as amended.
15<PAGE>
In January 1999 the Company sold 25 shares of Series A Preferred
Stock at an offering price of $1000 per share to Robert Monsky. The
Company claims an exemption from registration under Section 4(2) of
the Act for this offer and sale. The securities were offered and sold
to one investor who the Company believes is an accredited investor.
Mr. Monsky had just recently been issued Common Stock as a finder's
fee and had a copy of this registration statement, as amended.
In April 1999 the Company sold 1,500,000 shares of common stock
for $150,000 to One Stop Communications, Inc. under the terms of a
letter of intent between the Company and One Stop. The Company believes
One Stop is controlled by a sophisticated investor. One Stop had
access to the information about the Company contained in its resale
prospectus which is part of an effective registration on Form SB-2.
The Company claims an exemption from registration of the sale of the
securities under Section 4(2) of the Act.
All such participants in the above offerings 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
were not registered under the Act and could not be transferred except
pursuant to a registration statement which has become effective under
the Act, or an exemption from such registration requirement. The issuance
of such securities was not underwritten.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION
INCLUDED ELSEWHERE IN THIS 10-KSB.
PLAN OF OPERATION
OVERVIEW
Access Power, Inc. was formed in 1996 to offer Internet-based
communications products and services in the U.S. and international
markets. The Company is creating a network of Internet gateway
servers to provide voice and multimedia communications services, more
commonly referred to as Internet Protocol telephony or IP telephony.
Access Power has deployed its servers in ten major metropolitan
service areas in the U.S., and it has plans for continued expansion
throughout 1999.
From its inception the Company has devoted most of its efforts to
technical analysis, development, procurement, implementation and
testing, and the establishment of the corporate and technical policies
and procedures necessary to support its business requirements. The
Company is a development stage operation.
Access Power's IP telephony gateway network allows the Company to
offer competitive call rates while providing premium communications
features. Access Power products and services are based on Personal
Computer ("PC")-to-PC, PC-to-Phone, and Phone-to-Phone communications.
Customers anywhere in the world can use their PC and software from the
Company to place unlimited calls to telephones anywhere in the United
States for $10 per month. In addition, customers in one of the
16<PAGE>
Company's service areas can make a call with their telephone through
the Company's service to another telephone anywhere in the United
States for 7 cents a minute and to most countries in Central and South
America for 50 cents a minute without the need for personal Internet
access. The Company charges $20 for account activation. Similar,
low-cost pricing models are being developed for other international
markets.
The Company is a reseller of third-party PC telephone software
called Internet Phone, and it is having a software product called "e-
button" developed for marketing to companies with Web sites. The e-
button is an icon residing on a Web site that connects a consumer
browsing a Web page to a company's call center. This technology
allows corporate customers to voice-activate their Web site,
connecting consumers directly with sales departments, customer service
or technical support.
While in its start-up and current development stages the Company
tested and preliminarily introduced certain products and services new
to both the Company and the communications industry. To date, the
Company has not realized revenues from sales of any products or
services in amounts necessary to support all of its cash operating
needs. Without additional outside funding, the Company will be unable
to carry out any of its expansion or marketing plans, and it may be
unable to continue operations.
EXPANSION PLANS
The Company believes it must expand its gateway network and its
customer base to achieve profitability. During the next twelve
months, the Company intends to add ten more gateway servers in the
U.S. market, expanding its presence to twenty cities. The Company
purchased sufficient equipment in June 1998 to bring those sites on
line and pursue international expansion. The Company still owes in
excess of $1,000,000 for this equipment. The new U.S. sites will
increase the Company's U.S. capacity by 288 lines to 428 lines. It is
anticipated that the additional capacity will permit significant
growth in the volume of traffic handled by the Company's network, and
a commensurate increase in revenues.
The Company intends to expand its network internationally through
joint ventures and other business relationships. Such expansion will
increase the Company's revenues without causing the Company to incur
significant capital expenditures. By selling the hardware and
software necessary for creating networks in other countries or regions
to its business partners, and through royalty or other fees from
international traffic realized through the international business
expansion, the Company expects to derive significant additional
revenues over the next year from international operations.
SOFTWARE SALES
To date, the Company has realized only small revenues from the
resale of software to its customers, and it does not expect such sales
to become a significant source of profit in the future. During the
next year, however, the Company does intend to begin marketing the e-
button software, and it expects to realize a fair amount of revenues
from those sales.
17<PAGE>
MARKETING
The Company has not yet engaged in any significant effort to
market its products and services. Over the next twelve months, the
Company intends to implement a comprehensive public relations and
marketing campaign along with establishing arrangements with
communications brokers or agents. Public relations and certain
marketing is expected to cost $50,000 and stock with a present fair
market value of $400,000 to $500,000. International communications
agents or brokers are delivering wholesale traffic to the Company and
will be compensated on a commission basis. Without the benefit of
significant marketing to date, the Company already has attracted over
2000 customers to its service just from the Company's Web site order
process, test market newspaper ads and word of mouth.
RAISING CAPITAL
The Company does not currently have the funds to remain in
operation or the capital to fund its current expansion and marketing
plans for the next twelve months. The Company anticipates that by the
end of that period it will be able to fund its operations from the
recurring revenue generated from network usage. To the extent such
recurring revenues fall short of the projected needs, the Company
would have to seek additional sources of outside funding.
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO PRIOR PERIODS
REVENUES AND COSTS OF REVENUES. The Company realized no revenues
from its inception through the end of fiscal year 1997. Through the
twelve months ended December 31, 1998, revenues increased by $267,950
due to the initial fees received related to the Company's Canadian
venture ($24,000), the sale of equipment to that venture ($188,092),
and other sales and services ($55,858). The Canadian venture has
since been terminated by mutual agreement of the parties.
EXPENSES. Product development and marketing expenses were
$731,672 for the twelve months ended December 31, 1998; an increase
of more than 2,100% over such expenses for the twelve months ended
December 31, 1997. General and administrative expenses increased
$924,080 or 236% from $391,250 for the twelve months ended December
31, 1997, as the administrative structure was developed to serve
customers being solicited. Payroll expense was the major portion of
this increase as it totaled $525,471, an increase of $351,471 or 200%,
from the twelve months ended December 31, 1997 total of $174,000.
Professional fees increased $205,616 from $59,023 for the twelve
months ended December 31, 1997 to $262,639 for the twelve months ended
December 31, 1998 primarily due to increased fees relating to equity
financing.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations
through the proceeds from the issuance of equity securities and loans
from stockholders. To date, the Company has raised approximately
$2,150,000 from the sale of common stock and preferred stock, and it
has borrowed approximately $310,000 from investors and stockholders.
Funds from these sources have been used as working capital to fund the
build-out of the Company's network and for internal operations,
including the purchases of capital equipment.
18<PAGE>
The Company generated negative cash flow from operating
activities for the period from inception (October 10, 1996) through
December 31, 1997. The Company realized lesser negative cash from
operating activities for the twelve months ended December 31, 1998 due
to the sale of the franchise and equipment to APC.
Investing activities for the period from inception through
December 31, 1997 consisted primarily of equipment purchases to build
out the initial network. Investing activities in 1998 increased by
260% over the twelve months ended December 31, 1997 due to the
replacement of the network infrastructure with new technology. The
Company currently has no commitment for capital expenditures, but a
significant amount would be expended if the Company were to pursue its
expansion plans.
The timing and amount of the Company's capital requirements will
depend on a number of factors, including demand for the Company's
products and services and the availability of opportunities for
international expansion through joint ventures or other business
relationships.
The Company expects to invest approximately $2,000,000 over the
next twelve months in capital equipment for network expansion, if it
can raise at least that amount through the sale of equity or debt
securities. The Company has recently signed a letter of intent for $6
to $10 million of such financing but there can be no assurance that it
will be able to raise that amount or any part of it during that time
period. Other methods of meeting the anticipated capital equipment
program needs include obtaining available equipment vendor lease
programs and leveraging private placement financing by securing
subsequent financing from institutions including commercial banks and
equipment leasing companies. The Company has been in discussions with
several such firms. The Company is also performing cost benefit
analyses to ensure that any existing under-utilized equipment is made
available for redeployment to delay the need to acquire new equipment.
The Company raised $100,000 in November 1998 from the sale of 100
shares of Series A Preferred Stock for $1,000 per share. In
connection with this sale the Company also issued 60,587 shares of
common stock as a finder's fee and recognized expense of $19,878 and
an increase in capital stock of a like amount. The Company secured
the services of an investment banker during December 1998. In order
to retain the services and conserve cash the Company issued 30,000
shares of stock and recognized an expenses of $10,000 and an increase
to capital stock of the same amount.
The Company raised $25,000 in December 1998 from the sale of 25
shares of Series A Preferred Stock for $1,000 per share. In
connection with this sale, the Company also paid a professional
services fee of $2,000 in cash.
The Company 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, the Company also issued 27,777
shares of common stock as a finders fee and recognized expense of
$7,500 and an increase to capital stock of the same amount. The
Company received $150,000 as a good faith deposit with the
aforementioned letter of intent and issued 1,500,000 shares of common
stock in return to the investor.
19<PAGE>
The Company has taken steps to reduce the monthly negative cash
flow ("burn rate") and lessen the impact of the negative working
capital position. The main step has been the reduction of payroll
expenditures, by executives agreeing to defer pay until further
financing is received, by not filling a resigned position and by
reducing hourly pay expenses. The Company's relations with its
vendors are positive and include a strong credit history resulting in
suppliers and vendors assisting the Company in reducing short term
costs and extending payments. Burn rate reduction is also being
achieved with the suspension of certain general activities and
expenses including but not limited to travel, training and public
relations. While the Company believes that its cash used in operating
activities will increase over the next year, near term cash flow
reductions are being considered particularly in the main expense items
of salaries and network management.
The Company's financing activities for the year ended December 31,
1998 provided a net total of $1,260,000. Cash at the end of that
period was $33,156. As of April 7, 1999, the Company had cash of
$135,000 and working capital of ($1,425,000). The Company is
currently expending approximately $125,000 per month, which amount
includes monthly co-location costs or network infrastructure, systems
maintenance and development, payments for equipment, general and
administrative costs. The Company believes that its cash used in
operating activities will increase over the next year. The Company
needs to raise additional funds through public or private financing.
Any additional equity financing may be dilutive to the Company's
existing stockholders, and debt financing, if available, may involve
pledging some or all of the Company's assets and may contain
restrictive covenants with respect to raising future capital and other
financial and operational matters.
The timing and amount of the Company's capital requirements will
depend on a number of factors, including demand for the Company's
products and services and the availability of opportunities for
international expansion through joint ventures or other business
relationships.
YEAR 2000
Since its inception and as a development stage company the
Company has implemented solutions to the year 2000 problem as it has
built its systems solutions and developed its policies and procedures
for both technical and administrative purposes.
The Company believes it is in a high state of readiness regarding
year 2000 and is at minimal risk. Costs associated with year 2000
solutions are incorporated in all the Company's computer
administrative information systems and technical development.
As standard operating procedure the Company inquires as to the
readiness of any customers and suppliers in handling potential year
2000 problems.
The Company does not foresee substantial direct or indirect costs
associated with its implementation or any affiliates implementation of
year 2000 solutions.
20<PAGE>
There are no assurances that the Company and all of its key
suppliers, customers or third parties upon which it relies will
completely address and solve the potential problem and by not doing so
could result in an adverse material effect on the company, its
financial condition or results on operations.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and the independent auditor's report
are included in this report beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CENTRAL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE NET
The executive officers and directors of the Company and their ages
as of March 29, 1999 are as follows:
Name Age Position
---- --- --------
Glenn A. Smith 43 President, Chief Executive Officer
and Director
Tod R. Smith 37 Chief Technology Officer, General
Counsel and Director
Maurice J. Matovich 39 Chief Operations Officer and Director
Howard L. Kaskel 53 Chief Financial Officer
Glenn A. Smith has served as the President, Chief Executive
Officer and a director of Access Power, Inc. since the Company's
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 Chief Technology Officer, General
Counsel since 1998 and a director of the Company 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 Chief Operating Officer since 1998
and a director for Access Power since 1997. Mr. Matovich served as a
manager at AT&T where he specialized in high-tech operations
management, client relations and stockholder relations from 1984-1997.
Howard L. Kaskel has served as the Chief Financial Officer for
Access Power since 1998. Mr. Kaskel also is currently a limited
partner with Tatum CFO Partners, LLP, a partnership of career chief
financial officers. Mr. Kaskel has been devoting his full time to the
Company. Mr. Kaskel served as the Chief Financial Officer of DeFalco
Advertising from 1996 to 1997 and as the Chief Financial Officer of
Pinnacle Site Development Inc. 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
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
annual compensation for services in all capacities to the Company for
the year ended December 31, 1998 with respect to the Chief Executive
Officer:
22
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
------------
Annual Compensation Securities
Name and ------------------- Underlying
Principal Position Salary Options(#)
------------------ ------ ----------
<S> <C> <C>
Glenn A. Smith, Chief
Executive Officer $96,000 100,000
(/TABLE>
Stock Options
The following table summarizes certain information regarding
options to purchase Common Stock granted to the Chief Executive
Officer during the year ended December 31, 1998. The Company did not
grant any stock appreciation rights in 1998.
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number Of Percent Of
Securities Total Options/
Underlying SARs Granted Exercise Or
Options/SARs To Employees Base Price
Name Granted (#) In Fiscal Year ($/Sh) Expiration Date
---- ----------- -------------- ---------- ---------------
<S> <C> <C> <C> <C>
Glenn A. Smith 100,000 13% $0.11 6/16/02
The following table summarizes the number and value of
unexercised options held by the Chief Executive Officer as of December 31,
1998. The Chief Executive Officer did not exercise any options in the year
December 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR-END
OPTION VALUES
Number Of Securities
Underlying Unexercised Value of Unexercised
Options/SARs At In-The-Money Options/
FY-End (#) SARs At FY-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
Glenn A. Smith 200,000 /0 $118,000/01 <F1>
<FN>
<F1>This value has been calculated based on the average of the last bid
and asked price of the Common Stock as quoted on the Bulletin Board on
December 31, 1998.
</FN>
(/TABLE>
23<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Howard
Kaskel. The agreement provides that Mr. Kaskel will serve as Chief
Financial Officer of the Company on a part-time basis (three days per
week) for a base salary of $6,000 per month. Additional days are paid
at the rate of $500 per day. The agreement is terminable by the
Company upon thirty (30) days written notice with all payments
required pursuant to the agreement to be paid on or before the
termination date. The Company does not have employment agreements
with any other of its executive officers.
DIRECTORS COMPENSATION
The directors have not received compensation for their duties as such,
and the Company has no current plans to compensate directors for
serving on the Board in the future.
STOCK INCENTIVE PLAN
In June, 1997, the Company adopted its Stock Incentive Plan (the
"Plan") to provide selected employees and affiliates providing
services to the Company or its affiliates an opportunity to purchase
Common Stock of the Company. The Plan promotes the success and
enhances the value of the Company by linking the personal interests of
participants to those of the Company's stockholders, and by providing
participants with an incentive for outstanding performance. Awards
under the Plan may be structured as "incentive stock options" (ISOs)
as defined in Section 422 of the Internal Revenue Code of 1986, as
amended ("IRC"), for employees or as non-qualified stock options for
any participant.
The Plan, as amended, provides that the aggregate number of shares of
Common Stock with respect to which options may be granted pursuant to
the Plan shall not exceed 2,500,000 shares.
ISOs are subject to certain limitations prescribed by the IRC,
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
ISOs are exercisable by a participant for the first time in any year
under the terms of the Plan (and any other incentive stock option
plans of the Company and its subsidiaries) may not exceed $100,000,
based on the fair market value of the stock at the date of grant. In
addition, ISOs may not be granted to employees who own more than 10%
of the combined voting power of all classes of voting stock of the
Company, 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 the Board of Directors of the Company
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 ISO or a non-qualified stock option, to
select the persons who receive such grants and to interpret and
administer the Plan.
As of the date of this 10-KSB, options to purchase an aggregate of
1,288,500 shares of Common Stock have been granted under the Plan and
were outstanding, including options for 400,000 shares of Common Stock
issued to Glenn A. Smith. Mr. Smith's options have an exercise price
of $0.11 per share for 100,000 shares and $1.00 per share for 100,000
shares and $0.22 per share for 200,000 shares.
24<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock as of April 5,
1999, by (i) each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the issued and
outstanding shares of Common Stock, (ii) each of the Company's
directors and executive officers and (iii) all directors and executive
officers as a group:
</TABLE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Shares
Beneficial Owner* Beneficial Owner Outstanding**
------------------- -------------------- -----------------
<S> <C> <C>
Glenn A. Smith, CEO<F1> 7,191,400 23.3%
Tod Smith, CTO <F4> 2,090,000 7.5%
Maurice Matovich, COO <F4> 1,829,000 6.6%
Howard L. Kaskel, CFO <F8> 940,500 3.4%
Michael Pitts<F2> 2,152,800 8.1%
Ponte Vedra Beach, FL
Norrstar Advertising 2,100,000 7.9%
Daytona Beach, FL
Olympus Capital <F5><F6> 3,261,465 11.8%
Ponce Inlet, FL
All Directors and Executive 12,050,900 34.7%
Officers as a Group (4 persons) <F7>
____________________
*Unless otherwise indicated, the beneficial owner's address is the
same as the Company's principal office.
**Percentages calculated on the basis of the amount of outstanding
shares plus, for each person, any shares that person has the right to
acquire within 60 days pursuant to options or other rights.
<F1> Includes 91,200 shares of Common Stock held for minor children and
4,415,000 shares subject to presently exercisable options.
<F2> Mr. Pitts is the former Chief Financial Officer of the Company. He no
longer has any day-to-day involvement with the Company.
<F3> Includes 20,000 shares of Common Stock held in a custodial account for
a minor child.
<F4> Includes 1,450,000 shares subject to presently exercisable options.
Shares of Common Stock issuable upon conversion of all shares of
<F5> Preferred Stock held by such stockholder based upon a five-day average
share price of $0.137.
<F6> Olympus Capital, Inc. is an investment banking firm that has assisted
the Company in the past in its raising of capital. None of the
Company's officers, directors or affiliates is affiliated with Olympus
Capital, Inc. or its owner, James W. Spratt, III.
<F7> Includes an aggregate of 8,252,500 shares of Common Stock subject to
presently exercisable options.
<F8> Includes 937,500 shares subject to presently exercisable options.
</FN>
(/TABLE>
25<PAGE>
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13.EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
(a) Exhibits. The exhibits filed as part of this Annual report on
--------
Form 10-KSB are as listed below. All exhibits are incorporated by
reference to the indicated exhibit to the Company's registration of
its Common Stock on Form 10-SB, as amended.
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <C>
3.1 Amended and Restated Articles of Incorporation of the Registrant (filed as
Exhibit 3.1 of the Company's Registration Statement on Form SB-2 (File No. 333-
65069) is hereby incorporated by reference)
3.1.1 Amendment to the Articles of Incorporation filed on November 23, 1998 (filed as
Exhibit 3.1.1 of the Company's Registration Statement on Form SB-2 (File No.
333-65069) is hereby incorporated by reference)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 of the Company's Registration
Statement on Form SB-2 (File No. 333-65069) is hereby incorporated by
reference)
4.1 Form of Common Stock Certificate of the Registrant (filed as Exhibit 4.1 of the
Company's Registration Statement on Form SB-2 (File No. 333-65069) is hereby
incorporated by reference)
10.1 International Master Franchise Agreement between Access Power, Inc. and Access
Power Canada, Inc. (filed as Exhibit 10.1 of the Company's Registration
Statement on Form SB-2 (File No. 333-65069) is hereby incorporated by
reference)
10.2 Access Power, Inc. Stock Option Plan (filed as Exhibit 10.2 of the Company's
Registration Statement on Form SB-2 (File No. 333-65069) is hereby incorporated
by reference)
10.3 Amendment No. 1 to Stock Option Plan (filed as Exhibit 10.3 of the Company's
Registration Statement on Form SB-2 (File No. 333-65069) is hereby incorporated
by reference)
10.4 Purchase and Sale Agreement between Access Power, Inc. and Netspeak Corporation
dated as of June 17, 1998 (filed as Exhibit 10.4 of the Company's Registration
Statement on Form SB-2 (File No. 333-65069) is hereby incorporated by
reference)
10.5 Employment Agreement with Howard Kaskel dated July 1, 1998 (filed as Exhibit 10.5
of the Company's Registration Statement on Form SB-2 (File No. 333-65069) is
hereby incorporated by reference)
10.6 Agreement to terminate Master Franchise Agreement between Access Power, Inc. and
Access Power Canada, Inc. dated December 11, 1998 (filed as Exhibit 10.6 of the
Company's Registration Statement on Form SB-2 (File No. 333-65069) is hereby
incorporated by reference)
26<PAGE>
10.7 Internet Telephony Services Agreement dated December 14, 1998, between Access
Power, Inc. and Access Universal, Inc. (filed as Exhibit 10.7 of the Company's
Registration Statement on Form SB-2 (File No. 333-65069) is hereby incorporated
by reference)
10.8 Internet Telephony Services Agreement dated October 2, 1998 between Access Power,
Inc. and Ldt Net Com, Inc. (filed as Exhibit 10.8 of the Company's Registration
Statement on Form SB-2 (File No. 333-65069) is hereby incorporated by
reference)
10.9 Office Lease Agreement between Douglas Partnerships II, and Access Power, Inc.
dated August 1, 1997 (filed as Exhibit 10.9 of the Company's Registration
Statement on Form SB-2 (File No. 333-65069) is hereby incorporated by
reference)
10.10 Mutual Dissolution Agreement between Access Power, Inc., and LDT NET COM, INC.,
dated February 18, 1999
27.1 Financial Date Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
--------------------
last quarter of the period covered by this report.
27
<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . F-1
Financial Statements:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations . . . . . . . . . . . . . . . . . F-3
Statements of Stockholders' Equity . . . . . . . . . . . . F-4
Statements of Cash Flows . . . . . . . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . . F-6
<PAGE>
<PAGE>
PARKS, TSCHOPP, WHITCOMB & ORR, P.A.
Certified Public Accountants
2600 Maitland Center Parkway
Suite 330
Maitland, Florida 32751
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, 1998 and 1997, 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, 1998. 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 audit.
We conducted our audit 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, 1998 and
1997, 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, 1998, in conformity with
generally accepted accounting principles.
/s/ Parks, Tschopp, Whitcomb & Orr, P.A.
Maitland, Florida
March 23, 1999
F-1<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
December 31, 1998 and 1997
</TABLE>
<TABLE>
<CAPTION>
Assets
------
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 33,156 54,086
Accounts receivable 29,145 9,596
Notes receivable, stockholder 30,791 24,096
Inventory 21,770 30,000
---------- ----------
Total current assets 114,862 117,778
---------- ----------
Property and equipment, net (note 2) 1,131,471 362,592
Other assets 16,000 16,834
---------- ----------
Total assets $1,262,333 497,204
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $1,373,978 350
Notes payable (note 3) 120,136 10,136
---------- ----------
Total current liabilities 1,494,114 10,486
========== ==========
Stockholders' equity:
Common stock, $.001 par value, authorized 40,000,000
issued and outstanding 12,325,788 and 11,484,000 shares
in 1998 and 1997 12,326 11,484
Preferred stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 1,050 shares in 1998 1 -
Additional paid in capital 2,252,971 907,373
Deficit accumulated during the development stage (2,497,079) (432,139)
---------- ----------
Total stockholders' equity (231,781) 486,718
---------- ----------
Commitments (notes 3 and 4)
Total liabilities and stockholders' equity $1,262,333 497,204
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
<TABLE>
<CAPTION>
Statements of Operations
For the years ended December 31, 1998 and 1997 and the cumulative period
from October 10, 1996 (date of inception) through December 31, 1998
For the period
October 10, 1996
through
1998 1997 December 31, 1998
------------- ------------ ------------------
<S> <C> <C> <C>
Revenue:
Product sales $ 214,431 - 214,431
Services 53,519 - 53,519
------------ ------------ -----------
Total revenue 267,950 - 267,950
------------ ------------ -----------
Costs and expenses:
Cost of sales 161,650 - 161,650
Product development and marketing 731,672 34,636 769,156
General and administrative 1,315,600 391,520 1,709,973
------------ ------------ -----------
Total costs and expenses 2,208,922 426,156 2,640,779
------------ ------------ -----------
Other income (expense):
Interest income 407 1,888 2,295
Interest expense (124,375) (2,170) (126,545)
------------ ------------ -----------
Total other income (expense) (123,968) (282) (124,250)
Net loss $(2,064,940) (426,438) (2,497,079)
=========== ============ ===========
Net loss per share $ (0.18) (0.04) (0.24)
=========== ============ ===========
Weighted average number of shares 11,776,511 9,742,000 10,473,815
=========== ============ ===========
(/TABLE>
See accompanying notes to financial statements.
F-3<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the years ended December 31, 1998 and 1997 and the period from October 10, 1996
(date of inception) through December 31, 1998
Common Stock Preferred stock Additional Total
------------------ --------------- Paid in Accumulated Stockholders'
Date Shares Amount Shares Amount Capital Deficit Equity
---- ------ ------ ------ ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued to founding directors 8,000,000 8,000 - - (7,200) - 800
Net loss - - - - - (5,701) (5,701)
---------- ------ ------ ------ -------- --------- -----------
Balances at December 31, 1996 8,000,000 8,000 - - (7,200) (5,701) (4,901)
Common stock issued for cash 5/23/97 750,000 750 - - 35,000 - 35,750
Common stock issued for cash 6/30/97 1,000,000 1,000 - - 100,000 - 101,000
Common stock issued for cash 7/97 - 10/97 1,734,000 1,734 - - 854,573 - 856,307
Stock issuance cost - - - - (75,000) - (75,000)
Net loss - - - - - (426,438) (426,438)
---------- ------ ------ ------ -------- --------- -----------
Balances at December 31, 1997 11,484,000 11,484 - - 907,373 (432,139) 486,718
Preferred stock issued for cash 5/98 - - 1,000 1 999,999 - 1,000,000
Common stock issued as additional interest 2/2/98 50,000 50 - - 29,950 - 30,000
Common stock issued as additional interest 2/19/98 125,000 125 - - 84,250 - 84,375
Common stock issued as finder's fee 2/19/98 75,000 75 - - 24,925 - 25,000
Common stock issued for services 2/98 25,000 25 - - 27,163 - 27,188
Common stock issued for cash 9/24/98 50,000 50 - - 24,950 - 25,000
Preferred stock issued for cash 11/98 - - 100 - 100,000 - 100,000
Common stock issued for finder's fee 11/98 60,857 61 - - 19,817 - 19,878
Preferred stock issued for cash 12/98 - - 25 - 25,000 - 25,000
Common stock issued for investment banking
fee 12/98 30,000 30 - - 9,970 - 10,000
Conversion of preferred stock to common stock 12/98 425,931 426 (75) - (426) - -
Net loss - - - - - (2,064,940) (2,064,940)
---------- ------ ------ ------ --------- ---------- ----------
Balances at December 31, 1998 12,325,788 12,326 1,050 1 2,252,971 (2,497,079) (231,781)
========== ====== ======= ====== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Cash Flows
For the years ended December 31, 1998 and 1997 and the cumulative period
from October 10, 1996 (date of inception) through December 31, 1998
<TABLE>
<CAPTION>
For the period
October 10, 1996
through
1998 1997 December 31, 1998
------------ ---------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,064,940) (426,438) (2,497,079)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 321,806 26,757 348,819
Loss on disposal of property and equipment 26,461 - 26,461
Stock issued for services 196,441 - 196,441
Change in operating assets and
Accounts receivable (19,549) (9,596) (29,145)
Accounts payable and accrued 1,373,628 350 1,373,978
Other assets (3,166) (20,000) (23,166)
8,230 (30,000) (21,770)
----------- --------- ----------
Net cash used in operating (161,089) (458,927) (625,461)
----------- --------- ----------
Cash flows from investing activities:
Proceeds from sale of property and 40,270 - 40,270
Purchase of property and equipment (1,153,416) (376,154) (1,539,855)
Note receivable, stockholder (6,695) (19,001) (30,791)
----------- --------- ----------
Net cash used in investing (1,119,841) (395,155) (1,530,376)
----------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock 1,150,000 918,057 2,068,857
Proceeds from issuance of notes payable 110,000 - 130,025
Principal payments on notes payable - (9,889) (9,889)
----------- --------- ----------
Net cash provided by financing 1,260,000 908,168 2,188,993
----------- --------- ----------
Net change in cash (20,930) 54,086 33,156
Cash, at beginning of period 54,086 - -
----------- --------- ----------
Cash at end of period $ 33,156 54,086 33,156
=========== ========= ==========
(/TABLE>
See accompanying notes to financial statements.
F-5<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(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
international carriers and 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.
(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-6
<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(1), Continued
Development stage operations for the period ended December 31, 1998
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, 1998, the
Company has net operating loss carryforwards of approximately
$2,497,000, 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 note receivable which amounts
to approximately $30,000. The Company performs periodic credit
evaluations of its trade customers and generally does not require
collateral. 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.
(g) Cash Flows
----------
For purposes of cash flows, the Company considers all highly liquid
debt instruments with original maturities of three months or less
to be cash equivalents.
F-7
<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(1), Continued
(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 principal sources of revenues are expected to be internet
telephone charges which will be recognized as incurred. The
Company is presently operating in this one business segment and
only in the United States.
(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 not have a material
effect on earnings per common share.
(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.
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.
(Continued)
F-8
<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(1), Continued
(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 5).
(m) Preferred Stock
---------------
The Company's redeemable convertible preferred stock has the
following provisions:
* The shares shall be redeemable, at the option of the of the
Company, at a stated redemption price of $1,500 per
share.
* Each share of preferred stock is convertible into that
number of shares of the Company calculated by dividing
$1,000 by the lower of 65% of the average closing bid
price of the Company for the five trading days prior to
conversion or 75% of the closing bid price on the first
day the funds from the preferred stock offering are
available.
F-9
<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(2) Property and Equipment
----------------------
</TABLE>
<TABLE>
<CAPTION>
Property and equipment consist of the following at December 31,:
1998 1997
---- ----
<S> <S> <C> <C>
Office furniture and equipment $ 59,908 52,842
Computer hardware 1,172,339 131,811
Computer software 227,905 231,786
----------- ----------
1,460,152 416,439
Less accumulated depreciation and amortization 328,681 23,847
----------- ----------
$ 1,131,471 392,592
=========== ==========
(3) Notes Payable
-------------
Notes payable consist of the following at December 31,:
1998 1997
---- ----
Promissory notes to stockholders bearing interest at 6%
payable on demand. Unsecured. $ 20,136 10,136
Note payable to individual, bearing interest at 12%,
payable upon capital financing of the Company in
excess of $3,000,000. 100,000 -
----------- ----------
$ 120,136 10,136
=========== ==========
</TABLE>
(4) Commitments
The Company leases its office space under a non-cancellable operating lease
with a remaining term of two years. Future minimum payments under
this lease are as follows:
Year Amount
---- ------
1999 36,270
2000 21,500
Rent expense for the years ended December 31, 1998 and 1997 amounted to
$50,817 and 15,183, respectively.
F-10
<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(5) 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 December 31, 1998 amounted to 1,288,500,
(647,500 and 641,000 in 1998 and 1997, respectively) at an average
price of $.62.
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:
<TABLE>
<CAPTION>
For the period
October 10, 1996
Year ended Year ended through
December 31, 1998 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Pro forma net loss:
As reported $ (2,064,940) (426,438) (2,497,079)
Pro forma (2,132,712) (432,950) (2,564,851)
Pro forma net loss per share
As reported (0.18) (0.04) (0.24)
Pro forma (0.18) (0.04) (0.25)
</TABLE>
(Continued)
F-11<PAGE>
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(5) Continued
---------
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 1998 and
1997: no dividend yield; expected volatility of the underlying stock
of 90% and 0.5%, respectively; risk-free interest rate of 5.27% and
5.45%, respectively, covering the related option period; and expected
lives of the options of 10 years based on the related option period.
F-12
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACCESS POWER, INC.
By: /s/ Glenn A. Smith
Glenn A. Smith, Chief Executive Officer
Date: 4/15/99
In accordance with the Exchange Act, this Report has been signed
below by the following persons on behalf of the Company in the
capacities set forth and on the dates indicated.
<TABLE>
<CAPTION>
Signature Position Date
--------- -------- ----
<S> <S> <C>
/s/ Glenn A. Smith President and Chief 4/15/99
Glenn A. Smith Executive Officer and Director
(principal executive officer)
/s/ Howard Kaskel Chief Financial Officer 4/15/99
Howard Kaskel (principal financial and
accounting officer)
/s/ Tod R. Smith Director 4/15/99
Tod R. Smith
/s/ Maurice J. Matovich Director 4/15/99
Maurice J. Matovich
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- -----------
10.10 Mutual Dissolution Agreement between Access
Power, Inc., and LDT NET COM, INC., dated February 18, 1999
27.1 Financial Date Schedule (for SEC use only)
</TABLE>
MUTUAL DISSOLUTION
AGREEMENT
Between
ACCESS POWER, INC.,
a Florida corporation
and
LDT NET COM, INC
a Florida corporation
Dated: February 18, 1999
1
<PAGE>
MUTUAL DISSOLUTION
AGREEMENT
THIS MUTUAL DISSOLUTION AGREEMENT is signed on February 18, 1999, between
ACCESS POWER, INC., (hereinafter API) a Florida corporation and LDT NET COM,
Inc., (hereinafter LDT) a Florida corporation.
Whereas there exist contracts and agreements between API and LDT;
Whereas each party recognizes that it is in the best interest of the parties
to revoke said contracts and agreements;
Now, therefore, the parties hereto agree as follows:
1. Dissolution
As of February 18, 1999 (Effective Date) all rights and obligations
resulting from the all understandings, agreements, and contracts
between API and LDT, except as otherwise specifically provided herein,
are no longer applicable to either party to this Agreement. As of the
Effective Date, all understandings, agreements, and contracts contrary
to this Agreement between the parties are repealed and this Agreement
shall take their place.
2. Amounts Owed
As of the Effective Date and by agreement of the parties hereto,
neither party owes the other party any sums of money related to
activities associated with the establishment of, operation of, or the
dissolution of any existing understandings, agreements, and contracts.
3. Waiver of Claims
Neither party shall be liable to the other party under any and all
causes of action with regard to activities undertaken or not undertaken
prior to the Effective Date of this Agreement, regardless of whether
any obligation was undertaken by either party in reliance upon an
understanding, agreement or contracts.
By executing this Agreement, both parties forever release and discharge
the other party and its affiliates, its Designees, franchise sales
brokers, if any, or other agents, and their respective officers,
directors, representatives, employees and agents, from any and all
claims of any kind, whether presently known or unknown, in law or in
equity, which may exist as of the Effective Date relating to, in
connection with, or arising under this Agreement or any prior
understanding, agreement, or contract between the parties.
4. Confidentiality
Neither party shall, for a period of 2 (two) years from the Effective
Date, either directly or indirectly, divulge, disclose, or communicate
to any person or firm, any confidential information of any kind
concerning any matters affecting or relating to the business of the
other party or its affiliates, which such party may have acquired in
the course of or as incident to its involvement with the other party
prior to the Effective Date.
For the purposes of this section, confidential information shall mean
any oral or written information and data of a confidential nature,
including but not limited to proprietary, technical, development,
marketing, sales, operating, performance, cost, know-how, business and
process information, agreements, lists, reports, computer programming
techniques, and all record bearing media containing or disclosing such
information and techniques, which has been or will be disclosed by one
party to the other party under this agreement or any prior
communication between the parties hereto.
2<PAGE>
5. Proprietary Marks and Property
Each party agrees not to infringe upon or attempt to take, in any
territory, any proprietary mark belonging to the other. Neither party
shall, directly or indirectly, commit an act of infringement or contest
or aid in contesting the validity or right of the Proprietary Property
of the other, or take any other action in derogation of such rights.
6. Third Party Beneficiaries
Nothing in this Agreement, whether express or implied, is intended to
confer any rights or remedies under or by reason of this Agreement on
any persons other than the parties and their respective personal
representatives, other legal representatives, heirs, successors and
permitted assigns. Further, nothing in this Agreement is intended to
relieve or discharge the obligation or liability of any third party to
any party to this Agreement.
7. Arbitration
Any disputes related to this Agreement shall be arbitrated under the
commercial arbitration rules of the American Arbitration Association,
with a single arbiter. Any arbitration proceedings shall take place in
Duval county in Florida.
Any judgment upon an arbitration award may be entered in any court
having competent jurisdiction and shall be binding, final and
non-appealable. Both parties waive to the fullest extent permitted by
law, any right to or claim for any punitive or exemplary damages
against the other and agree that in the event of a dispute between them
each shall be limited to the recovery of any actual damages sustained
by it.
In the event either party fails to appear at any properly noticed
arbitration proceeding, an award may be entered against such party by
default or otherwise notwithstanding such failure to appear.
Each party shall be responsible for its own costs in pursuing or
defending an arbitration proceeding under this Agreement.
The only exception to the obligation to arbitrate herein shall be with
respect to claims relating to the Proprietary Property of either party
or requests for restraining orders, injunctions or other procedures in
a court of competent jurisdiction to obtain specific performance when
deemed necessary by such court to preserve the status quo or prevent
irreparable injury pending resolution by arbitration of the actual
dispute between the parties.
8. Entirety
This Agreement represents the entire understanding and agreement
between the parties with respect to the subject matter of this
Agreement, and supersedes all other negotiations, understandings and
representations, if any, made by and between the parties. No
representations, inducements, promise or agreements, oral or otherwise,
if any, not embodied in this Agreement shall be of any force and
effect.
This Agreement shall remain valid and in effect to the fullest extent
possible between the two parties with respect to the subject matter
hereof and to the extent the provisions hereof are not superseded by
subsequent agreements between the two parties.
9. Non-Enforcement
A party's failure at any time to enforce any of the provisions of this
Agreement or any right with respect thereto, will not be construed to
be a waiver of such provision or right, nor to affect the validity of
this Agreement. The exercise or non-exercise by a party of any right
under the terms or covenants herein shall not preclude or prejudice the
exercising thereafter of the same or other rights under this Agreement.
10. Severability
If any provision of this Agreement is contrary to, prohibited by, or
deemed invalid under applicable law or regulation, such provision shall
be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder of this Agreement shall not be
invalidated thereby and shall be given full force and effect so far as
possible.
3<PAGE>
11. Governing Law and Jurisdiction
Unless otherwise required under specific laws of the United States,
this Agreement shall be governed by, construed, and enforced in
accordance with the laws of the State of Florida.
12. Modifications and Future Agreements
This agreement may only be modified in writing, signed by duly
authorized representatives of the each party hereto. Nothing herein is
intended to prevent any future agreements from being made between the
parties.
13. Notices
All notices, requests, consents and other communications required or
permitted under this Agreement shall be in writing and shall be hand
delivered by messenger or courier service, or mailed (airmail if
international) by registered or certified mail (postage prepaid),
return receipt requested, addressed to:
If to API: If to LDT:
Access Power, Inc. LDT Net Com, Inc.
Suite 100 679 Third Street South
10033 Sawgrass Drive West Jacksonville Beach, FL 32250
Ponte Vedra Beach, FL 32082
Attn: Glenn Smith, President Attn: Paul Rosenbloom,
or to such other address as a party may designate by notice complying
with the terms of this Section.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement.
LDT NET COM, INC.
By: /s/ Paul S. Rosenbloom
Paul S. Rosenbloom, Vice President
ACCESS POWER, INC.
By: /s/ Glenn Smith
Glenn Smith, President
4
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<ARTICLE> 5
<CIK> 0001041588
<NAME> ACCESS POWER, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 33,156
<SECURITIES> 0
<RECEIVABLES> 59,936
<ALLOWANCES> 0
<INVENTORY> 21770
<CURRENT-ASSETS> 114,862
<PP&E> 1,460,152
<DEPRECIATION> (328,681)
<TOTAL-ASSETS> 1,262,333
<CURRENT-LIABILITIES> 1,494,114
<BONDS> 0
0
1
<COMMON> 12,326
<OTHER-SE> (243,108)
<TOTAL-LIABILITY-AND-EQUITY> 1,262,333
<SALES> 267,950
<TOTAL-REVENUES> 267,950
<CGS> 161,650
<TOTAL-COSTS> 2,208,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,968
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,064,940)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
