SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999
Transition Report Under Section 13 or 15(d) of
The Exchange Act For the Transition Period from _______ to ________
Commission File Number 000-____________
Access Power, Inc.
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(Exact Name of Small Business Issuer as Specified 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
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (904) 273-2980
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
At August 4, 1999, there were issued and outstanding 31,153,358 shares
of Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
As of June 30, 1999 and December 31, 1998
Assets June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 13,017 $ 33,156
Accounts receivable 50,620 29,145
Notes receivable 537,700 30,791
Inventory 19,130 21,770
----------- -----------
Total current assets 620,467 114,862
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Property and equipment, net 990,226 1,131,471
Other assets 14,000 16,000
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Total assets $ 1,624,693 $ 1,262,333
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,702,867 $ 1,373,978
Unearned revenue 9,580
Notes payable 135,440 120,136
----------- -----------
Total current liabilities 1,847,887 1,494,114
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Stockholders' equity:
Common stock, $.001 par value, authorized 40,000,000 shares,
issued and outstanding 30,753,358 and 12,325,788 shares
in 1999 and 1998 30,754 12,326
Preferred stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 0 and 1,050 shares in 1999 and 1998 -- 1
Additional paid in capital 3,421,227 2,252,971
Deficit accumulated during the development stage (3,675,175) (2,497,079)
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Total stockholders' equity (223,194) (231,781)
----------- -----------
Total liabilities and stockholders' equity $ 1,624,693 $ 1,262,333
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</TABLE>
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<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Cash Flows
For the six months ended June 30, 1999 and 1998 and the
cumulative period from October 10, 1996 (date of inception)
through June 30, 1999
(unaudited)
For the period
Six months ended June 30, October 10, 1996
1999 1998 through
June 30, 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,178,096) $ (931,045) $(3,675,175)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 162,817 80,738 511,636
Loss on disposal of property and equipment 6,880 -- 33,341
Stock issued for services 264,983 52,188 347,049
Stock issued for interest 14,000 114,375 128,375
Change in operating assets and liabilities:
Accounts receivable (21,475) (193,196) (50,620)
Accounts payable and accrued expenses 328,889 1,079,674 1,702,867
Deferred Revenue 9,580 -- 9,580
Other assets -- -- (23,166)
Inventory 2,640 (30,000) (19,130)
----------- ----------- -----------
Net cash used in operating activities (409,782) 172,733 (1,035,243)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 10,050 -- 50,320
Purchase of property and equipment (36,502) (1,132,694) (1,576,357)
Note receivable (506,909) -- (537,700)
----------- ----------- -----------
Net cash used in investing activities (533,361) (1,132,694) (2,063,737)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 907,700 1,000,000 2,976,557
Proceeds from issuance of notes payable 72,804 300,000 202,829
Principal payments on notes payable (57,500) (200,000) (67,389)
----------- ----------- -----------
Net cash provided by financing activities 923,004 1,100,000 3,111,997
----------- ----------- -----------
Net change in cash (20,139) 140,039 13,017
-----------
Cash, at beginning of period 33,156 54,086 --
----------- ----------- -----------
Cash at end of period $ 13,017 $ 194,125 $ 13,017
=========== =========== ===========
</TABLE>
3
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<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Operations
For the three months and six months ended June 30, 1999 and
1998 and the cumulative period from October 10, 1996
(date of inception) through June 30, 1999
(unaudited)
For the period
October 10, 1996
Three months ended June 30, Six months ended June 30, through
1999 1998 1999 1998 June 30, 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software/hardware sales $ 1,550 $ 212,442 $ 8,400 $ 212,442 $ 222,831
Telecommunication services 11,700 9,689 19,400 12,784 72,919
------------ ------------ ------------ ------------ ------------
Total revenue 13,250 222,131 27,800 225,226 295,750
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 585 152,920 2,640 152,920 164,290
Product development and marketing 418,254 255,916 645,593 371,874 1,414,749
General and administrative 284,989 272,615 546,283 517,509 2,256,256
------------ ------------ ------------ ------------ ------------
Total costs and expenses 703,828 681,451 1,194,516 1,042,303 3,835,295
------------ ------------ ------------ ------------ ------------
Other income (expense):
Other income (expense) -- 372 (6,880) 407 2,295
Interest expense (3,248) 1,667 (4,500) (114,375) (137,925)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (3,248) 1,295 (11,380) (113,968) (135,630)
------------ ------------ ------------ ------------ ------------
Net loss $ (693,826) $ (458,025) $ (1,178,096) $ (931,045) $ (3,675,175)
============ ============ ============ ============ ============
Net loss per share $ (0.03) $ (0.04) $ (0.06) $ (0.08) $ (0.23)
============ ============ ============ ============ ============
Weighted average number of shares 25,825,159 11,286,667 20,457,552 11,759,000 16,125,847
============ ============ ============ ============ ============
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed and omitted pursuant to such rules and
regulations, although management believes the disclosures are adequate to make
the information presented not misleading. These interim financial statements
should be read in conjunction with the Company's annual report and most recent
financial statements included in its report on Form 10-KSB for the year ended
December 31, 1998 filed with the Securities Exchange Commission. The interim
financial information included herein is unaudited; however, such information
reflects all the adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results of operations and cash flows for the interim periods. The results of
operations for the six months ended June 30, 1999 are not necessarily indicative
of the results to be expected for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
appearing elsewhere in this report.
PLAN OF OPERATION
Overview
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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.
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From its inception the Company has devoted most of its efforts to
technical analysis, development, procurement, implementation and testing, and
the establishment of the corporate and technical policies and procedures
necessary to support its business requirements. The Company is a development
stage operation.
Access Power's IP telephony gateway network allows the Company to offer
competitive call rates while providing premium communications features. Access
Power products and services are based on Personal Computer ("PC")-to-PC,
PC-to-Phone, and Phone-to-Phone communications. Customers anywhere in the world
can use their PC and software from the Company to place unlimited calls to
telephones anywhere in the United States, Canada and Puerto Rico for $10 per
month. In addition, customers in one of the 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 29 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.
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Software Sales
- --------------
To date, the Company has realized only small revenues from the resale
of software to its customers, and it does not expect such sales to become a
significant source of profit in the future. During the next year, however, the
Company does intend to begin marketing the e-button software, and it expects to
realize a fair amount of revenues from those sales.
Marketing
- ---------
The Company has recently begun its effort to market its products and
services. The Company has implemented a comprehensive public relations and
marketing campaign along with establishing arrangements with communications
brokers or agents. The Company has incurred expenses of approximately $335,000,
payable $15,000 in cash and the balance in shares of common stock and warrants
to purchase common stock, for public relations and certain marketing services
for the next twelve months. 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 2,000 customers to its service just from the
Company's Web site order process, affiliate program, 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.
PERIOD ENDED JUNE 30, 1999 COMPARED TO PERIOD ENDED JUNE 30, 1998
Revenues and Costs of Revenues. The Company realized $212,442 in
--------------------------------
revenues from the sale of hardware and software in the three months ended June
30, 1998 compared to software sales of $1,150 in the three months ended June 30,
1999 and $8,400 during the six months ended June 30, 1999. The revenue generated
from sale of services increased $2,011 from $9,689 during the three months ended
June 30, 1998 to $11,700 during the three months ended June 30, 1999. The
revenue generated from sale of services increased $6,616 from $12,784 during the
six months ended June 30, 1998 to $19,400 during the six months ended June 30,
1999.
Expenses. Product development and marketing expenses were $418,254 for
--------
the three months ended June 30, 1999; an increase of $162,338 or almost 63% over
such expenses for the three months ended June 30, 1998. Public relations fees
related to the introduction of Net.Caller(TM) and stockbroker relations
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increased $204,100. For the six months ended June 30, 1999 product development
and marketing expenses increased $273,719 or almost 74%. Professional fees as
noted previously accounted for $221,600 of this increase. General and
administrative expenses increased $12,374 or 5% from $272,615 for the three
months ended June 30, 1998. Legal and professional fees increased $28,941 to
$85,695. Travel expenses decreased $15,049 to $2,691. Sales taxes were reduced
to zero from $3,963 during the three months ended June 30, 1998. During the six
months ended June 30, 1999 general and administrative expenses increase $28,774
or almost 6% to $546,283. Payroll increased $33,354 to $219,487, partially
offset by a reduction in temporary help of $9,705 to $450.
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 $2,782,700 from the sale of common
stock and preferred stock, and it has borrowed approximately $400,000 from
investors and stockholders. Funds from these sources have been used as working
capital to fund the build-out of the Company's network and for internal
operations, including the purchases of capital equipment.
The Company generated negative cash flow from operating activities for
the period from inception (October 10, 1996) through June 30, 1999. The Company
realized negative cash from operating activities for the six months ended June
30, 1999 of $409,782 compared to positive cash from operating activities of
$172,733 primarily due to the operating loss increase of $247,051. Investing
activities for the period from inception through June 30, 1999 consisted
primarily of equipment purchases to build out the initial network. Investing
activities in the six months ended June 30, 1999 were $36,502 compared to
$1,132,694 during the six months ended June 30, 1998.
The timing and amount of the Company's capital requirements will depend
on a number of factors, including demand for the Company's products and services
and the availability of opportunities for international expansion through joint
ventures or other business relationships.
The Company expects to invest approximately $325,000 over the next
twelve months in capital equipment for network expansion. The Company is
performing ongoing cost benefit analysis to ensure that any existing under
utilized equipment is made available for redeployment to prolong the necessity
to acquire new equipment.
The Company raised $75,000 in January 1999 from the sale of 75 shares
of Series A Preferred Stock for $1,000 per share.
The Company received $150,000 and issued 1,500,000 shares of common
stock to an investor in March 1999.
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The Company issued 512,000 shares of common stock in April 1999 to pay
down certain debt and accrued interest.
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 six months ended June 30,
1999 provided a net total of $923,004. Cash at the end of that period was
$13,017. As of August 4, 1999, the Company had cash of $33,000 and working
capital of ($1,220,000). 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, and
general and administrative costs.
The timing and amount of the Company's capital requirements will depend
on a number of factors, including demand for the Company's products and services
and the availability of opportunities for international expansion through 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.
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.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The Company
cautions that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's ability to obtain financing on acceptable terms
to finance the Company's operations and growth strategy, acceptance of the
Company's technology and services in the market place, telecommunications
industry trends towards solutions not addressed by the Company's business,
increasing competition in the information technology services market, the
ability to hire, train and retain sufficient qualified personnel, and the
ability to develop and implement operational and financial systems to manage the
Company's growth.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1999 the Company issued 2,100,000 shares of common stock and
warrants to purchase an additional 1,010,000 shares of common stock to Norstarr
Advertising, Inc. for one year of public and broker relations services. The
Company claims an exemption from registration under Section 4(2) of the Act for
this offer and sale.
In April 1999 the Company sold 1,500,000 shares of common stock for
$150,000 to One Stop Communications, Inc. The Company claims an exemption from
registration under Section 4(2) of the Act for this offer and sale. The
securities were offered and sold to one investor who the Company believed was an
accredited investor.
In April 1999 the Company issued 512,000 shares of common stock in
partial payment of $64,000 of principal and accrued interest of certain
indebtedness of the Company. The Company claims an exemption from registration
under Section 4(2) of the Act for this offer and sale.
In June 1999 the Company issued 20,000 shares of common stock to Kim
DeVigil for public relations services. The Company claims an exemption from
registration under Section 4(2) of the Act for this offer and sale.
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Sales of securities in the above offerings for which an exemption under
Section 4(2) is claimed which were not made to persons who were "accredited
investors" within the meaning of Rule 501 promulgated under the Act were made to
persons who the Company believes were sophisticated investors. In addition, all
such participants agreed to acquire their securities for investment and not with
a view to the distribution thereof, and the certificates representing the
securities issued to each such participant contained a legend to the effect that
such securities 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. All of the above investors had available to
them the Company's current resale registration statement on Form SB-2 and Ms.
DeVigil also had available to her the Company's Form-10KSB.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) No Reports on Form 8-K were filed during this period
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ACCESS POWER, INC.
By: /s/ Glenn A. Smith Date: August 13, 1999
----------------------------------------
Glenn A. Smith
President
/s/ Howard Kaskel Date: August 13, 1999
- ------------------------------------
Howard Kaskel
Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001041588
<NAME> ACCESS POWER, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,017
<SECURITIES> 0
<RECEIVABLES> 588,320
<ALLOWANCES> 0
<INVENTORY> 19,130
<CURRENT-ASSETS> 620,467
<PP&E> 1,485,604
<DEPRECIATION> 495,378
<TOTAL-ASSETS> 1,624,693
<CURRENT-LIABILITIES> 184,787
<BONDS> 0
0
0
<COMMON> 30,754
<OTHER-SE> (253,948)
<TOTAL-LIABILITY-AND-EQUITY> 1,624,693
<SALES> 13,250
<TOTAL-REVENUES> 13,250
<CGS> 585
<TOTAL-COSTS> 703,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,248
<INCOME-PRETAX> (693,826)
<INCOME-TAX> 0
<INCOME-CONTINUING> (693,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (693,826)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
