Registration No. 333-90093
As filed with the Securities and Exchange Commission on December 6, 1999.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
Registration Statement Under the Securities Act of 1933
AMENDMENT NO. 1
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ACCESS POWER, INC.
(Name of small business issuer)
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FLORIDA 4813 59-3420985
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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10033 SAWGRASS DRIVE WEST, SUITE 100
PONTE VEDRA BEACH, FLORIDA 32082
(904) 273-2980
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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GLENN A. SMITH
10033 SAWGRASS DRIVE WEST, SUITE 100
PONTE VEDRA BEACH, FLORIDA 32082
(904) 273-2980
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies to:
DENNIS J. STOCKWELL
KILPATRICK STOCKTON LLP
1100 PEACHTREE STREET, SUITE 2800
ATLANTA, GEORGIA 30309
(404) 815-6500
(404) 815-6555 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
check the following box. / /
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CALCULATION OF REGISTRATION FEE
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| | | |
TITLE OF EACH CLASS OF | AMOUNT TO BE | PROPOSED MAXIMUM | PROPOSED MAXIMUM | AMOUNT OF
SECURITIES TO BE REGISTERED | REGISTERED | OFFERING PRICE PER | AGGREGATE OFFERING |REGISTRATION FEE
| | SHARE<F1> | PRICE><F1> |
- -------------------------------------|-----------------------|---------------------|--------------------|----------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value | 15,900,000<F1><F3>| | | <F2>
=============================================================|=====================|====================|================
Warrants to Purchase Common Stock | 400,000<F1> | | | $ <F2>
=========================================================================================================================
Common Stock, $.001 par value | 2,014,855<F3><F6> $ 0.365<F4> | $ 735,422<F4> | $ 194.15
=============================================================|=====================|====================|================
Common Stock, $.001 par value | 100,000<F5><F6>| $ 0.42<F5> | $ 42,000<F5> | $ 11.09
=========================================================================================================================
<FN>
<F1> Included in the initial filing of this registration statement.
<F2> Previously paid in connection with the initial filing of this
registration statement.
<F3> Includes in sum 5,629,321 shares issuable upon conversion of
outstanding 6% Convertible Debentures of the registrant and 5,629,321 shares
issuable upon the conversion of additional 6% Convertible Debentures (9,467,456
of which shares were included in the initial filing of this registration
statement), which additional debentures are themselves issuable upon exercise of
a special warrant. The number of shares registered for issuance upon conversion
of the debentures is an estimate based upon the conversion formula applied as of
a recent date.
<F4> Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act and based on the average of
the high and low price per share of Access Power, Inc. common stock as quoted on
the OTC Bulletin Board on December 1, 1999.
<F5> Common stock issuable upon exercise of outstanding warrants with an
exercise price of $0.42 per share.
<F6> An indeterminate number of additional shares of common stock are
registered hereunder in accordance with Rule 416 under the Securities Act that
may be issued as provided in the 6% Convertible Debentures and warrants in the
event that the provisions against dilution in such instruments become operative.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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18,014,855 SHARES OF COMMON STOCK
400,000 WARRANTS TO PURCHASE COMMON STOCK
[OBJECT OMITTED - Logo]
ACCESS POWER, INC.
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The shares of common stock, par value $.001 per share, and warrants to purchase
shares of common stock of Access Power, Inc. being offered under this prospectus
are being offered for sale by some of our stockholders. We will not receive any
of the proceeds from the sale of these shares or warrants. There are, however,
900,000 shares issuable upon the exercise of issued and outstanding warrants to
purchase our common stock and approximately 12,578,616 shares issuable upon
conversion of certain debentures, half of which debentures are currently
outstanding and half of which may be purchased pursuant to an outstanding
warrant to purchase such debentures. If the common stock warrants are exercised,
then we will receive $215,000. If the warrant to purchase debentures is
exercised, then we will receive $1,000,000 from the sale of those debentures. If
all of the debentures are then converted, then at least $2,000,000 of
indebtedness will be converted to equity, provided, however, that at the date of
this prospectus debentures exercisable for 1,319,974 shares of common stock
(approximately $210,000) may not be exercised until our stockholders approve an
increase in our authorized stock. We will pay certain of the legal and other
expenses of this offering, estimated to be $40,000.
The selling stockholders will bear the cost of any brokerage
commissions or discounts or other selling expenses incurred in connection with
the sale of their shares or warrants. The price and the commissions, if any,
paid in connection with any sale may be privately negotiated, may be based on
then prevailing market prices, and may vary from transaction to transaction and,
as a result, are not currently known. See "Plan of Distribution."
Our common stock is traded over the counter. Bid and asked prices are
quoted, and the last sale is reported, on the over-the-counter electronic
bulletin board maintained by the National Association of Securities Dealers (the
"Bulletin Board") under the symbol "ACCR." On December 1, 1999, the last bid
price of the common stock as reported was $0.37.
The selling stockholders and any participating broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions or discounts given to any such broker-dealer may be regarded
as underwriting commissions or discounts under the Securities Act of 1933. We
have not registered the shares or warrants for sale by the selling stockholders
under the securities laws of any state as of the date of this prospectus.
Brokers or dealers effecting transactions in the shares or warrants should
confirm the registration of these securities under the securities laws of the
states in which transactions occur or the existence of an exemption from
registration.
AN INVESTMENT IN SHARES OF OUR COMMON STOCK OR WARRANTS INVOLVES
SIGNIFICANT RISK. WE URGE YOU TO CAREFULLY CONSIDER THE RISK FACTORS BEGINNING
ON PAGE 6, ALONG WITH THE REST OF THIS PROSPECTUS, BEFORE YOU MAKE YOUR
INVESTMENT DECISION.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is December 10, 1999
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SUMMARY
YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS BEFORE INVESTING IN THE
COMMON STOCK.
In General
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Access Power, Inc. was incorporated to offer Internet-based
communications products and services in the United States and international
markets. We were one of the first companies to offer a way to transmit voice and
multi-media communications over the Internet, a service which is commonly
referred to as Internet protocol telephony.
Products and Services
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Our voice-over-Internet service integrates traditional telephone
functions with advanced Internet-based communications technology. Our technology
offers users new and less expensive ways to communicate long distance over the
Internet without dependence on traditional long distance telephone lines. Calls
can be made to regular telephones or personal computers from either a PC or a
regular telephone. Calls from a PC to a telephone can be originated from
anywhere in the world over the Internet to one of our servers, and then through
traditional telephone lines to a regular telephone anywhere in the United
States, Canada, and Puerto Rico. Telephone-to-telephone calls may be originated
from anywhere in the United States and may terminate anywhere in North America,
Puerto Rico, Brazil, Chile, Columbia, Venezuela, Costa Rica, Aruba, the Bahamas,
the Dominican Republic, the United Kingdom, Bermuda, British Virgin Islands,
Cayman Islands, U.S. Virgin Islands, twenty-seven European countries, and
thirteen countries in Africa, Asia, and the Middle East. In addition to cost
savings, Internet telephony permits services that are not available through
traditional long distance networks, such as interactive document and data
sharing and multi-media data transmissions.
On April 12, 1999, we began selling a flat-rate unlimited usage
PC-to-telephone service under the tradename Net.Caller(TM). Net.Caller
PC-to-Phone customers download free software from our web site to their PC. This
software allows them to use their PC to call from anywhere in the world to a
regular telephone in the United States, Canada, or Puerto Rico. On November 23,
1999 we expanded the Net.Caller PC-to-Phone service to include twelve European
countries.
On September 1, 1999, we began selling a flat-rate, unlimited usage
telephone-to-telephone service under the tradename Net.Caller(TM)
Phone-to-Phone. Net.Caller Phone-to-Phone customers place calls using
traditional telephony equipment. Calls may be placed from anywhere in the United
States to anywhere in the continental United States. Calls made to areas outside
of the continental United States are billed on a per minute usage basis.
Additionally, we sell a PC telephone software package called Internet
Phone for Access Power through our web site. Internet Phone is made by VocalTec
Communications Inc. and can be used in two ways. First, customers use the
software to obtain PC-to-PC communication service for free. Second, customers
can combine the software with Net.Caller PC-to-Phone service, a less expensive
communication alternative to traditional long distance telecommunication.
We are currently developing and plan to market e-button(TM) software.
This software will enable a web site viewer to be immediately connected by
telephone with the web site owner's call center. The e-button software and
service was released December 2, 1999.
We have entered into agreements with several companies to expand our
products and services into Europe, the Philippines, Southeast Asia, and Africa.
We intend to pursue additional international expansion via joint ventures and
other business arrangements throughout South America, Africa, and the Pacific
Rim.
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Business Goal and Strategies
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Our goal is to become one of the world's leading providers of
international Internet telephony products and services. To achieve this goal, we
plan to expand our Internet telephony gateway network by utilizing new
technology as it is developed. We plan to expand our customer base by continuing
to provide discount retail and wholesale international calling services.
Market
- ------
Our market includes residential and commercial users of advanced
communications products and services. Our ability to offer low communication
transmission rates and new Internet protocol telephony-based services provides
us an opportunity to enter the wholesale arena as well as the retail market.
Executive Offices
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Our principal executive offices are located at 10033 Sawgrass Drive
West, Suite 100, Ponte Vedra Beach, Florida, 32082, and our telephone number is
(904) 273-2980.
The Offering
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Common stock offered by selling stockholders.............. 18,014,855 shares <F1>
Warrants offered by selling stockholders.................. 400,000 warrants<F2>
Common stock to be outstanding after the offering......... 40,000,000 shares <F1> <F3>
OTC Bulletin Board symbol................................. "ACCR"
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<FN>
<F1> The offered shares include (i) 5,629,321 shares of common stock that may
be acquired by holders of our 6% Convertible Debentures upon conversion
thereof, based on a three-day average market price of $0.212 per share,
for the period ended December 1, 1999, but subject to adjustment for the
applicable average market price at the time of conversion under the
conversion formula (see "Description of 6% Convertible Debenture"); (ii)
200,000 shares of common stock that may be acquired by holders of
outstanding warrants; (iii) 5,629,321 shares of common stock that may be
acquired by holders of an outstanding warrant for the purchase of (1)
$1,000,000 of our 6% Convertible Debentures upon conversion thereof,
based the formula price described above, but subject to adjustment for
the applicable average market price at the time of conversion and (2) a
warrant for 200,000 shares of our common stock; and (iv) 600,000 shares
of common stock that may be acquired by holders of other outstanding
warrants.
<F2> Each warrant gives the holder the right to purchase from us one share of
our common stock for $0.42.
<F3> Assumes the exercise of all outstanding warrants, conversion of all
outstanging debentures and conversion of all shares of outstanding Series
B Convertible Preferred Stock into common stock. Does not include
outstanding options to purchase 10,030,000 shares of common stock (having
a weighted average exercise price of $0.2173 per share).
</FN>
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3
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SUMMARY FINANCIAL DATA
The summary financial data set forth in the table below is derived from
our audited financial statements for the year ended December 31, 1998. The
audited financial statements are included in this prospectus at page F-1. The
summary financial data for the nine months ended September 30, 1998 and 1999,
and as of September 30, 1999, are derived from unaudited financial statements
which are included in this prospectus at page F-10. We believe these financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of our financial condition and
results of operations. This financial data represents historical information
that is not necessarily indicative of future results. We urge you to read
carefully the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section which begins on page 24, the financial statements
and notes thereto, and other financial data included elsewhere in this
prospectus.
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YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30,
DECEMBER 31,
1998 1998 1999
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STATEMENT OF OPERATIONS DATA
Revenues
Product Sales 214,431 212,092 9,450
Services 53,519 42,089 69,999
------------ ------------ -------------
Total revenues 267,950 254,181 79,449
Cost of revenues
Product Sales 161,650 152,920 2,955
Services -- -- --
------------ ------------ -------------
Total cost of revenues 161,650 152,920 2,955
Gross margin 106,300 101,261 76,544
Total operating expenses 2,047,272 1,578,707 1,789,179
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Income (loss) from operations (1,940,972) (1,477,446) (1,712,635)
Other expense, net (123,968) (117,302) (14,531)
------------ ------------ -------------
Income (loss) before income taxes (2,064,940) (1,594,748) (1,727,216)
Income tax expense -- -- --
------------ ------------ -------------
Net income (loss) $ (2,064,940 $ (1,594,748) $ (1,727,216)
============ ============ ============
Income (loss) per share $ (0.18) $ (0.14) $ (0.07)
============ ============ ============
Weighted average shares outstanding 11,776,511 11,619,463 24,126,030
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September 30, 1999
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(Unaudited)
BALANCE SHEET DATA
Cash and cash equivalents $885,191
Working capital (233,988)
Total assets 2,545,540
Long-term debt, less current portion 0
Stockholders' equity (deficit) (298,814)
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Access Power Advanced Communications(TM), e-button(TM), and
Net.Caller(TM) are our trademarks. All other trademarks and trade names referred
to in this prospectus are the property of their respective owners.
4
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF
RISK. YOU SHOULD NOT INVEST IN OUR COMMON STOCK UNLESS YOU CAN AFFORD TO LOSE
YOUR ENTIRE INVESTMENT. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS
AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON
STOCK. YOU SHOULD ALSO CAREFULLY READ THE CAUTIONARY STATEMENT FOLLOWING THE
"RISK FACTORS" SECTION REGARDING OUR USE OF FORWARD-LOOKING STATEMENTS.
We have only limited operating history upon which you can analyze our potential
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pofitability.
- --------------
We have limited operating history upon which you can judge our
potential for success. We have existed for a relatively short period of time and
we have had minimal revenue in the past. Our prospects must be considered in
light of the risks, expenses, and difficulties frequently encountered by
companies in an early stage of development, particularly companies in new and
rapidly evolving industries.
You may not recover all or any part of your investment if we do not become
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profitable.
- -----------
If we are ultimately unsuccessful, you may not recover all or any part
of your investment in our common stock. Our profitability will depend on our
ability, among other things, to substantially increase our customer base by
establishing and increasing market acceptance of our technology, products, and
services. Our profitability will also depend upon expanding the deployment of
our network and successfully marketing and supporting our products and services.
There can be no assurance that we will be able to achieve or sustain significant
sales or profitability in the future. See "Management's Discussion and Analysis
of Financial Condition and Plan of Operations".
If consumers do not accept our product, or any product developed by us in the
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future, as a less expensive, quality alternative to traditional telephone
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service, we may not become profitable.
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Broad acceptance of our technology, products, and services is critical
to our success and ability to generate revenues. The markets for our technology,
products, and services have only recently begun to develop and are rapidly
evolving because our products and services are new and based on emerging
technologies. Typically, demand and market acceptance for recently introduced
technology and products are subject to a high level of uncertainty. There can be
no assurance that we will be successful in obtaining market acceptance of our
technology, products, and services. The lower quality of voice transmissions
through our network compared to traditional long-distance services will be a
factor in consumer acceptance of our services. See "Proposed Business of Access
Power".
The introduction of more technologically advanced products and services by our
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competitors could decrease our profitability.
- ---------------------------------------------
The introduction of technologically superior products and services by
our competitors may make our products and services less marketable or subject to
downward price pressures, thus decreasing our profitability. The Internet and
telecommunications markets, including the market for voice transmission over
packetized data networks, are characterized by evolving industry standards and
specifications. We may have to expend substantial time and money to adapt our
technology, products, and services to this rapid technological change. A
critical factor in our growth and competitiveness will be our ability to
anticipate changes in technology and industry standards, including the
successful development of products and services in a cost effective and timely
manner. There can be no assurance that we will successfully develop enhanced or
new products and services, that any enhanced or new products and services will
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achieve market acceptance, that we will be able to adapt our products and
services to comply with new standards or specifications, or that the
introduction of new products or services by others will not render our
technology, products, and services obsolete. See "Proposed Business of Access
Power".
The telecommunications business is highly competitive and we may not be able to
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compete successfully.
- ---------------------
Our profitability will depend on our ability to compete successfully in
the highly competitive telecommunications business. We expect this competition
to persist, intensify, and increase in the future. Many of our current and
potential competitors have longer operating histories, greater name recognition,
larger customer bases, more services and products, and significantly greater
financial, technical, and marketing resources than we do. These competitors may
be existing or potential strategic partners with other competitors. We will
compete with Internet telecommunications providers as well as traditional long
distance telephone carriers for our customer base. Many companies offer products
and services like ours, and many of these companies have a substantial presence
in this market. These products may allow telecommunication over the Internet
between parties using a PC and a telephone and between two parties using
telephones. Other competitors of ours route voice traffic worldwide over the
Internet. In addition, major long distance providers and other companies have
entered or plan to enter the market for Internet telephony. These companies are
larger than we are and have substantially greater financial, distribution, and
marketing resources than we do. We may not be able to compete successfully in
this market.
Prices for long distance calls have decreased substantially over the
last few years, and this decline is expected to continue in all of the markets
where we do business or expect to do business. In addition, many of our markets
and expected future markets have deregulated or are in the process of
deregulating telephone services. Customers in many of these markets are not
familiar with our technology, products, and services and may be reluctant to use
new telecommunications providers. In particular, our target customers, small and
medium-sized businesses, may be reluctant to entrust their telecommunications
needs to new and unproved operators or may switch to other service providers as
a result of price competition.
Competition for customers in the target market is primarily on the
basis of price, the type and quality of services offered, and customer service.
We price our services at a discount to the prices charged by traditional long
distance carriers, and we have no control over the prices set by the traditional
carriers or our other competitors. There is no assurance that some of our larger
competitors will not use their substantial financial resources to cause severe
price competition. Any significant price competition could decrease or eliminate
our ability to compete successfully and our profitability. In addition, our
competitors may be able to provide potential customers with a broader range of
services than we can due to regulatory restrictions. See "Proposed Business of
Access Power -- Competition" and "Supervision and Regulation".
Departures of our key personnel or directors may harm our ability to operate
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successfully.
- -------------
If we lose the services of our Board of Directors or executive
officers, we may not be able to grow or operate profitably. Our continued
success is substantially dependent upon the efforts of our directors and
executive officers, in particular Glenn A. Smith, our Chief Executive Officer.
We have no employment agreements in effect, with the exception of an agreement
with Howard L. Kaskel, our Chief Financial Officer, and we have no plans to
enter into any employment agreements in the near future. Our future success
depends on our ability to attract and retain highly qualified technical
personnel. Competition for qualified personnel is intense, and there can be no
assurance that we will be able to attract or retain qualified personnel in the
future.
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Our service quality will be harmed if our system cannot handle a large volume of
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simultaneous calls.
- -------------------
Our inability to handle a large number of simultaneous calls will cause
our service quality to suffer which could result in customer losses. A key
component of our profitability will be the addition and retention of customers.
A byproduct of this component will be increased call volume on our network. It
is crucial to our ability to provide quality services for our system to handle a
large volume of calls. If we cannot effectively manage our customers' use of our
systems, customers may not perceive our service as a high-quality alternative to
the traditional long-distance telephone service.
Poor internet service quality could prevent customer acceptance and use of our
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products and service as well as the ability of our products to function
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properly.
- ---------
Inferior Internet service quality and availability may cause our
services and products to fail, or may result in poor customer perception of our
products and services, either of which would inhibit our ability to build or
maintain a sufficient customer base to stay profitable. Some Internet service
providers do not have the capability to handle more than the current level of
Internet traffic, and a sudden increase in traffic volume may result in poor
service availability. If customers cannot reach the Internet, or it takes an
unreasonable amount of time to reach the Internet, they may decide it is more
convenient to use traditional telecommunication technology or the Internet
technology of one of our better serviced competitors.
Our inability to predict traffic volume on the internet may add extra expense to
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our business operations.
- ------------------------
Large fluctuations in Internet traffic volume may obligate us to pay
additional contractual charges for our Internet service. A decrease in Internet
traffic volume may obligate us to pay for leased Internet service capacity
without adequate corresponding revenues. An unexpected increase in traffic
volume may require us to obtain transmission capacity through more expensive
means. If we are unable to accurately project our needs for leased capacity in
the future, such inability may increase our operating costs and, therefore,
decrease our profitability.
Our dependence on other communications carriers may add extra expense to our
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business operations.
- --------------------
Our dependence on other communications carriers, and our inability to
control their price structure or ability to provide quality service, may cause
us to pay higher prices than expected for access to the transmission facilities
through which we provide our services. We do not own any intranational or local
exchange transmission facilities in the areas where we intend to provide
services. We do not intend to construct or acquire any local exchange
transmission facilities in the future. Consequently, we lease intranational and
local exchange transmission facilities to connect all of the telephone calls
made by our customers, and there is no assurance that the prices and nature of
such facilities will not fluctuate. Furthermore, we may not be able to meet the
minimum volume commitments on some of our leases, especially those that are
long-term, which may result in "under-utilization" charges. See "Inability to
predict traffic volume" above. We are also vulnerable to service interruptions
and poor transmission quality from leased lines. The deterioration or
termination of our relationship with one or more of our carrier vendors could
have a material adverse effect upon our business, financial condition, and
results of operations.
Our dependence on international carriers makes us vulnerable to
additional costs. In some countries, the intranational exchange transmission
facility is owned by the national telephone company. If the lack of competitive
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<PAGE>
alternatives forces us to enter into contracts with the national provider, we
may have to pay much higher rates for use of the transmission facilities, if we
are allowed to lease them at all.
Changes in pricing standards would decrease our profitability.
- --------------------------------------------------------------
If the telecommunications industry changes its standard pricing
structure to eliminate charges based on the distance a call is carried, our
profitability may be decreased. The advantage of Internet telephony is that it
is less expensive than traditional long distance telephone service in many
markets. Currently, the price for long distance service has been declining. If
this decline continues, we may lose our competitive advantage over traditional
telephone service. Additionally, excess international transmission capacity has
kept the marginal cost of carrying an additional international call low for
certain traditional long distance carriers. Industry observers have predicted
that these low marginal costs may result in significant pricing pressures and
that, within the next few years, there may be no charges based on the distance a
call is carried. If this type of pricing were to become prevalent in our service
markets, it would likely decrease our profitability.
If third parties use our intellectual property without authorization, our
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products and services may be damaged.
- -------------------------------------
Third parties may obtain and use our intellectual property without
authorization and, as a result, may damage our products and services. Our
intellectual property, including copyrights, service marks, trademarks, trade
secrets, and other intellectual property, is critical to our success. We rely on
trademark and copyright law, trade secret protection, and confidentiality
agreements with our employees, customers, partners, and others to protect our
intellectual property rights. These precautions may be ineffective, or the
validity, enforceability, and scope of protection of intellectual property in
Internet-related industries may not be adequate to protect our interests.
Furthermore, the laws of some foreign countries are uncertain, evolving, or do
not protect intellectual property rights to the same extent as do the laws of
the United States.
Defending against intellectual property infringement claims could be expensive
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and could disrupt our business.
- -------------------------------
If third parties file lawsuits against us for allegedly infringing upon
their intellectual property rights, our business could be disrupted and we could
incur substantial legal fees. We cannot be certain that our products do not or
will not infringe upon valid patents, trademarks, copyrights, or other
intellectual property rights held by third parties. Defending against
third-party infringement claims, regardless of their merit, could be expensive
and time consuming. Successful infringement claims against us may result in
substantial monetary liability or may materially disrupt the conduct of our
business. See "Business -- Intellectual Property."
If we cannot develop strategic alliances with marketing partners, we may not be
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able to develop a sufficient customer base.
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Our marketing strategy and, therefore, our performance, depends on our
ability to develop strategic alliances with marketing partners and, to a lesser
extent, on in-house marketing. We may not be able to develop these alliances
and, if we are able to develop them, the partners may not be able to effectively
promote our technology, products, and services. We have established a
significant business relationship with only one entity outside the United
States. We may not be successful in developing any future strategic alliances.
We have limited experience in obtaining the necessary personnel, offices,
8
<PAGE>
regulatory authorization, and leases and agreements with the intranational
telecommunications carriers in the countries where we seek to establish
strategic alliances.
We may not be able to manage our growth, which may impede our profitability.
- ----------------------------------------------------------------------------
If we cannot manage our growth effectively, we may experience decreased
profitability or may not become profitable at all. Our future profitability
depends on the expansion of our customer base. If we cannot effectively control
and utilize our expansion of products and services, the quality of those
products and services may suffer and, as a result, we may not be able to retain
or attract customers.
Our lack of experience in the small office and home office market may inhibit
- --------------------------------------------------------------------------------
market acceptance of our products and services.
- -----------------------------------------------
Market acceptance of our technology, products, and services is critical
to our success and ability to generate revenues. We intend to market our
products to the small office and home office market and to institutions
throughout the United States. Our principal employees have had substantial
experience in other endeavors, but that is no assurance that we will be
successful in obtaining market acceptance of our products and services.
Our ability to pay dividends is limited.
- ----------------------------------------
We will not be able to pay dividends until we recover any losses that
we may have incurred and we become profitable. We intend to retain our earnings
to finance growth and expansion and for general corporate purposes. Any future
declaration and payment of dividends on the common stock will depend upon our
earnings and financial condition, liquidity and capital requirements, the
general economic and regulatory climate, our ability to service any equity or
debt obligations senior to the common stock, and other factors deemed relevant
by our Board of Directors. Holders of our preferred stock have the right to
dividends declared with respect to the common stock on an as-converted basis.
Our directors and officers may be able to control or significantly influence us
- --------------------------------------------------------------------------------
due to their concentrated stock ownership.
- ------------------------------------------
Our directors and officers may be able to use their stockholdings to
influence our business, policies, and affairs, including the ability to
significantly influence the election of directors and other matters requiring
stockholder approval by simple majority vote. Our directors and officers, in the
aggregate and including stock options, own beneficially 12,835,200 shares of
common stock, or of our outstanding shares, and this will not be affected by
this offering.
If our employees and affiliates exercise their stock options and other rights to
- --------------------------------------------------------------------------------
acquire common stock, your proportionate interest will be diluted and we may not
- --------------------------------------------------------------------------------
be able to raise additional capital on the most favorable terms.
- ----------------------------------------------------------------
Our directors, officers, employees, or affiliates may exercise stock
options or conversion rights to purchase common stock which would result in the
dilution of your proportionate interest in us. Our directors, officers,
employees, and affiliates will have the opportunity to profit from any rise in
the market value of the common stock or any increase in our net worth. Holders
of our convertible debentures and warrants have rights to acquire a substantial
and indeterminate number of shares of common stock, and the common stock
underlying those rights is being registered for resale to the public under
federal law. Additionally, if the holders of the convertible debentures exercise
their conversion right immediately after a significant decrease in the market
price of the common stock, stockholders could suffer substantial dilution,
because the conversion rate is inversely proportional to the recent average
market price.
The exercise of the options or conversion rights also could adversely
affect the terms on which we can obtain additional capital. For example, the
holders of stock options or conversion rights could exercise them when we could
obtain capital by offering additional securities on terms more favorable to us
than those provided for by the rights. The stock options or conversion rights
may be exercisable at prices below the market price for the common stock on
October 18, 1999. See "Executive Compensation".
Your investment may have limited liquidity if an active trading market does not
- --------------------------------------------------------------------------------
develop or continue.
- --------------------
Your purchase of our common stock may not be a liquid investment
because our securities trade over the counter with quotes on the Bulletin Board.
You should consider carefully the limited liquidity of your investment before
purchasing any shares of our common stock. We have no obligation and no plans to
apply for quotation of our common stock on the Nasdaq Stock Market or for
listing of our common stock on any national securities exchange. Factors such as
our limited earnings history, the absence of a reasonable expectation of
dividends in the near future, and the fact that our common stock will not be
listed mean that there can be no assurance that an active and liquid market for
our common stock will exist at any time, that a market can be sustained, or that
investors in the common stock will be able to resell their shares. In addition,
the free transferability of the common stock will depend on the securities laws
of the various states in which it is proposed that a sale of the common stock be
made.
Our Stock Price May be Highly Volatile and Subject to Wide Fluctuations.
- ------------------------------------------------------------------------
The market price of our common stock may be highly volatile and subject
to wide fluctuations in response to quarterly variations in operating results,
losses of significant customers, announcements of technological innovations or
new products by us or our competitors, changes in financial estimates by
securities analysts, lack of market acceptance of our products and services, or
other events or factors, including the risk factors described herein. In
addition, the stock market in general, and the technology stocks in particular,
experience significant price and volume fluctuations that are often unrelated to
a company's operating performance. As with any public company, we may be subject
to securities class action litigation following periods of volatility in the
market price of our securities which could result in substantial costs and a
diversion of management's attention and resources.
Additionally, the sale of a substantial number of shares of common
stock, or even the potential of sales, in the public market following this
offering could deflate the market price for the common stock and make it more
difficult for us to raise additional capital through the sale of our common
stock. As of December 1, 1999, we had 28,741,358 shares of common stock
outstanding. Shares in the amount of up to the 18,014,855 offered hereby will be
freely tradable without restrictions under the federal securities laws. An
additional 3,578,000 shares sold under an exemption from registration provided
by Rule 504 promulgated under the Securities Act of 1933 and 10,000,000 shares
9
<PAGE>
registered under an SB-2 effective on February 16, 1999, are freely tradable.
All of the remaining shares are "restricted securities" as that term is defined
by Rule 144 promulgated under the Securities Act of 1933, and will be eligible
for sale in compliance with Rule 144 after they have been held for one year.
There can be no assurance that an active trading market for the common stock
will develop or be sustained after this offering. See "Shares Eligible for
Future Sale".
Government Regulation May Impair Our Profitability and Restrict Our Growth.
- ---------------------------------------------------------------------------
State and federal telecommunications and penny stock regulations could
limit our ability to achieve profitability and to grow. These changes may be
retroactively applied and are not within our control. Telecommunications
companies are subject to regulation by the Federal Communications Commission.
Conventional telephone companies are currently pushing the FCC to regulate
providers of computer software products that enable voice transmission over the
Internet, arguing that these companies are operating as common carriers. If this
argument is successful, we will be subject to various regulatory requirements
and fees. The FCC has advised Congress that it may, in the future, regulate
Internet protocol telephony services as basic telecommunications services.
Conventional telephone companies are also lobbying Congress to impose tariffs
that would impact customer use of our products and services. In addition,
several states are studying the imposition of access charges for Internet
telephony providers.
In addition to telecommunications regulation, the growing popularity
and use of the Internet has led to increased regulation of communication and
commerce over the Internet. The United States and other countries have enacted
laws to regulate user privacy, pricing, and the characteristics and quality of
Internet products and services. We are unable to predict the impact, if any,
that future legislation, legal decisions, or regulations concerning the Internet
may have on our business, financial condition, or results of operations.
We are subject to additional regulation by the Securities and Exchange
Commission under its rules regulating broker-dealer practices in connection with
transactions in "penny stocks," and this type of regulation may reduce the level
of trading activity or your ability to sell the common stock. Penny stocks
generally are equity securities with a price of less than $5.00 that are not
registered on certain national securities exchanges or quoted on the NASDAQ
system. The penny stock rules require a broker-dealer, prior to a transaction in
a regulated penny stock, to deliver a standardized risk disclosure document that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer must also provide information concerning
his compensation for the penny stock purchase, current prices of the penny
stock, and a special written determination that the penny stock is a suitable
investment for the purchaser. See "Business -- Regulation".
You Should Not Rely On Historical Results of Operations as Indications of Our
- --------------------------------------------------------------------------------
Future Performance.
- -------------------
Our historical results of operations are not accurate indications of
our future performance. Our annual and quarterly results of operations fluctuate
significantly due to, among other factors, the volume of revenues generated by
our strategic partners from sales of products and services incorporating our
technology or products, the mix of distribution channels used by us, the timing
of new product announcements and releases by us and our competitors, and general
economic conditions. There can be no assurance that our future revenues and
profits will exceed our past performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
10
<PAGE>
Our computer systems, or those of our strategic partners, service providers,
- --------------------------------------------------------------------------------
suppliers, or customers, may not operate properly on year 2000-sensitive dates.
- -------------------------------------------------------------------------------
The year 2000 problem, if not corrected, could significantly disrupt
our operations. We are particularly sensitive to these disruptions because we
are heavily dependent on complex computer systems for most phases of our
operations. Our partners, service providers, suppliers, and customers are also
heavily dependent on computer systems. If any of our customers suffer a computer
system failure due to year 2000 problem, they may not be able to use some of our
services.
The year 2000 issue common to most companies concerns the inability of
certain software and databases to recognize the year 2000 and other year
2000-sensitive dates. These disruptions could include events ranging from
electrical or water failure to computer systems failure, with any of these
events potentially resulting in a cessation of our activities until the problem
is resolved. A failure of any of our current systems, the failure to implement
or integrate new systems without difficulty, if at all, the failure of any new
systems, or the failure to upgrade systems as necessary could have a material
adverse effect on our financial condition and results of operations. We are
reviewing our computer systems and operations to identify and determine the
extent to which any systems will be vulnerable to potential errors and failures
as a result of the year 2000 problem. See "Information Systems and the Year
2000".
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus under the captions "Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Plan of Operations," "Proposed Business of Access Power," and elsewhere in this
prospectus are "forward-looking statements." Forward-looking statements include,
among other things, statements about the competitiveness of the
telecommunications industry, our plans and objectives for future operations, the
likelihood of our success in developing and expanding our business, potential
regulatory obligations, and other statements that are not historical facts. The
forward-looking statements included herein are based upon a number of
assumptions and estimates, which are inherently subject to significant
uncertainties, many of which are beyond our control. When used in this
prospectus, the words "anticipate," "believe," "estimate," or similar
expressions generally identify forward-looking statements. Because
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements. These factors include,
among other things, the risks set forth in the "Risk Factors" section beginning
on page 6.
11
<PAGE>
CAPITALIZATION
The following table shows our short-term debt, long-term debt, and
capitalization as of September 30, 1999, and pro forma as adjusted to reflect
(1) the issuance on September 30, 1999, of 6% convertible debentures with a face
amount of $1,000,000, (2) the conversion subsequent to September 30, 1999, of
the 6% convertible debentures at a conversion rate based on a $0.212 market
price for the common stock (average of the lowest three bids during the
twenty-two business days before conversion) into shares of common stock, (3) the
exercise of a warrant to purchase 200,000 shares of common stock at an exercise
price of $0. 42 per share, and (4) the issuance of shares of common stock
subsequent to September 30, 1999. This table should be read in conjunction with
our Financial Statements and the related Notes thereto contained elsewhere in
this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------
ACTUAL PRO FORMA
AS ADJUSTED
-----------------------------
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations <F1>............................................................. $ 93,068 $ 93,068
----------- -----------
Long-term obligations, less current portion <F1>................................ $ 1,000,000
Stockholders' equity:
Preferred Stock, par value $0.001 per share,
10,000,000 shares authorized; 3,952 shares of Series B
preferred stock issued and outstanding; 3,952 shares of
Series B preferred stock issued and outstanding as
adjusted ..................................................................... 4 4
Common stock, par value $ 0.001 per share,
40,000,000 shares authorized; 27,451,358 shares
issued and outstanding; 40,000,000 shares issued
and outstanding, as adjusted ................................................. 27,452 40,000
Additional paid-in capital ..................................................... 3,898,025 4,578,095
Retained earnings (deficit) .................................................... (4,224,295) (4,224,295)
----------- -----------
Total stockholders' equity (deficiency) .................................... (298,814) 393,804
----------- -----------
Total capitalization ...................................................... $ 794,254 $ 486,872
=========== ===========
<FN>
<F1> See Note 3 of Notes to Interim Financial Statements for additional
information relating to our debt.
</FN>
</TABLE>
DIVIDEND POLICY
We have not declared or paid any cash dividend on our common stock in
the past, and the Board of Directors intends to continue a policy of retaining
future earnings to finance our growth and for general corporate purposes.
Therefore, we do not anticipate paying any cash dividends on common stock in the
future.
12
<PAGE>
CERTAIN MARKET INFORMATION
PRICE RANGE OF COMMON STOCK
Our 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 of 1997. The reported high and low bid prices for the common
stock are shown below for the indicated periods through September 30, 1999. The
prices presented are bid prices that represent prices between broker-dealers and
do not include retail mark-ups and mark-downs or any commission to the
broker-dealer. The prices do not necessarily reflect actual transactions. As of
September 1, 1999, there were approximately 294 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 $0.75
1999
- ----
First Quarter $0.08 $0.33
Second Quarter $0.12 $1.56
Third Quarter $0.30 $0.79
BUSINESS
We were incorporated in 1996 to offer Internet-based communications
products and services in the United States and international markets. We were
one of the first companies to offer a way to transmit voice and multi-media
communications over the Internet, a service commonly referred to as Internet
protocol telephony. Our voice-over-Internet service integrates traditional
telephone functions with advanced Internet-based communications technology. Our
technology offers users new and less expensive ways to communicate long distance
over the Internet without dependence on traditional long distance telephone
lines. Calls can be made to regular telephones or personal computers from either
a PC or a regular telephone. Calls from a PC to a telephone can be originated
from anywhere in the world over the Internet to one of our servers, and then
through traditional telephone lines to a regular telephone anywhere in the
United States, Canada, Puerto Rico, the United Kingdom, France, Germany, Italy,
Spain, Belgium, Denmark, Switzerland, the Netherlands, Sweden, Ireland and
Luxembourg. Telephone-to-telephone calls may be originated from anywhere in the
United States and terminate anywhere in North America, Puerto Rico, Brazil,
Chile, Columbia, Venezuela, Costa Rica, Aruba, the Bahamas, the Dominican
Republic, United Kingdom, Bermuda, British Virgin Islands, Cayman Islands, U.S.
Virgin Islands, twenty-seven European countries, and thirteen countries in
Africa, Asia, and the Middle East. See "Management's Discussion and Analysis".
Industry Background
-------------------
Historically, long distance telephone services have been offered
through public switched telephone networks utilizing traditional telephone
lines, a well-established and generally good quality service. In recent years,
however, the Internet's developing technology, unprecedented popularity, and
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<PAGE>
commercialization have accelerated the integration of technologies involving
computers and telephones. This commercial integration has led to a new sector in
the communications industry, generally referred to as computer telephony or
Internet telephony, which has developed a less expensive and more workable
method of telecommunication over the Internet. This alternative to traditional
telephone communication was developed from applications introduced in the early
1990s allowing standard commercial transmission of voice and audio using
Internet protocols. This technology enables multi-media personal computer users
to converse over the Internet. Companies that offer Internet telephony services
and products are generally referred to as Internet telephony service providers.
The global marketplace is quickly becoming familiar with the Internet and its
value as a communications mechanism. Service providers are expanding the
Internet and users are demanding enhanced services including voice, audio, and
video transmissions. Companies have invested millions of dollars to develop new
and enhanced applications to improve the service quality and lower
implementation costs.
The Internet protocol telephony technology is superior to traditional
long distance telephone services in several ways. First, voice and message
traffic through traditional telephone systems is subject to tariffs, making
traditional telecommunication more expensive than Internet telephony. Second,
Internet protocol telephony has superior capability than traditional
telecommunications technology for innovative features such as interactive
document and data sharing and multi-media data transmissions.
Voice-over-Internet protocol service is a significant development in
the growing Internet industry. New applications are being developed every day.
The cost of computer processing is decreasing and customer demand is increasing.
Internet protocol 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.
The Access Power Solution
- -------------------------
We are developing our Internet-based telephony network, Access Power
Advanced Communications(TM),and service, Net.Caller(TM), to provide a domestic
and international communications network that allows customers to place calls
through the Internet using traditional terminal equipment and PCs. Unlike
traditional long-distance telephone systems that use switch based systems, we
use the Internet as the backbone to complete the long distance connection. This
eliminates the fees associated with long distance carriers, because
Internet-based communication is not subject to tariffs. Our 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 lower cost than traditional
long distance services. Advanced Communications 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-telephone call through our
network of gateway servers.
In addition to the cost savings associated with Internet telephony, our
customers have the ability to use services that are not available from
traditional public switched telephone networks. Such services include
voice-enabled websites, interactive document and data sharing, and multi-media
data transmissions, including video capability. Accordingly, regional and
multinational corporations can use a single network to integrate voice and data
transmissions, thus realizing low cost interoffice communication through
Internet protocol telephony.
We are committed to establishing a worldwide network to provide
alternative long distance service and new Internet protocol telephony-based
services. Our gateway servers which are deployed at strategic geographic
locations will serve as a bridge for communications traffic to or from customers
in those geographic locations between the public switched telephone network 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
14
<PAGE>
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.
Products and Services
- ---------------------
Our voice-over-Internet protocol network, Access Power Advanced
Communications(TM), integrates traditional telephone functions with advanced
Internet-based communications technology. This service enables users to
communicate over the Internet from a PC 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 can place long
distance telephone calls from a PC anywhere in the world over the Internet to
telephones in any area where Access Power terminates calls. Currently, we have
such service available for calls to telephones in the United States, Canada, and
Puerto Rico. At this time, telephone-to-telephone calls may be originated from
anywhere in the United States and can be terminated anywhere in North America
and over fifty foreign countries.
To complement our service, we offer our customers two third-party
software products: Internet Phone for Access Power and Net.Caller(TM). Either
software package will enable customers to complete long distance communications
using PCs that are multi-media configured, with a microphone and sound system.
The Internet Phone for Access Power is a multi-featured software package and
Net.Caller(TM) is a more basic calling utility that can be downloaded free of
charge from our web site.
Phone-to-Phone
We offer long distance service from anywhere in the United States to a
regular telephone anywhere in North America and over 50 foreign countries.
Customers can register for the service on our web site or call our office and
provide the required credit information, after which they are assigned a
password. To use the service from within one of our service areas, the customer
simply dials the gateway from a telephone (a local call number), enters the
password, and then dials 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 our Phone-to-Phone service. Billing is performed at
the beginning of each month by charging the customer's credit card. We charge
our Net.Caller Phone-to-Phone customers a flat rate of $49.00 per month for
unlimited usage for calls made to anywhere in the continental United States. Our
customers pay a per-minute fee for calls made to other areas.
Personal Computer-to-Phone
Access Power's PC-to-phone service offers customers the ability to call
a regular telephone utilizing software installed on their multi-media PC. To
initiate the service, a customer registers on our web site and downloads either
Net.Caller or Internet Phone for Access Power software.
Net.Caller(TM)
Net.Caller software is a product that has been developed as a modified or more
simple version of Internet Phone by VocalTec, the owner and developer of both
software programs. It is designed for our customers who only need the basic
PC-to-phone use. Net.Caller software is free of charge and can be downloaded
from our web site from anywhere in the world. Net.Caller customers pay a flat
rate of $10 per month for unlimited calls to the United States, Canada and
Puerto Rico or a flat rate of $20 per month for unlimited calls to the United
States, Canada, Puerto Rico and twelve European countries, Customers submit an
15
<PAGE>
order form to us including payment or credit card information for billing. When
the order is processed, we e-mail or mail a confirmation letter including
activation codes for the customer to enter into the Net.Caller software that
they downloaded from our web site.
Internet Phone for Access Power
The Internet Phone for Access Power functions like a traditional
telephone, but uses software as the dialing mechanism. The software installation
is simple and enables users to engage in long distance voice communications
between multi-media PCs anywhere in the world. The only cost to the user is 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.
The software is simple to use. The customer dials his local Internet
service provider and, upon connecting to the Internet, the software will cause
an icon to appear on the monitor. The user may double click on the icon to
proceed to join PC-to-PC community chat rooms, create private rooms, dial
directly to another PC, or call a regular telephone using the Advanced
Communications network. There are currently no access or tariff charges other
than the monthly charge from the user's Internet service provider.
The Internet Phone for Access Power has the following features:
o allows customers to communicate with users of traditional
telephone equipment through the Advanced Communications network;
o call waiting, muting, holding, identification, and screening;
o full-duplex capabilities that enable real-time, two-way
conversations with Internet Phone users worldwide;
o voice mail;
o conference calling;
o direct calling allows the option of bypassing chat rooms to speak
directly with an individual; and o live motion video (no
additional hardware is required to receive video).
e-button(TM)
The e-button software provides tremendous electronic commerce benefits
to any company with a traditional call-center. This technology allows consumers
viewing a company's web site to click the e-button icon which will instantly
dial a designated representative of that company, usually someone providing
sales or support services. The software is a browser plug-in that is quickly and
automatically downloaded and installed upon the first attempt to use it.
Strategy
- --------
We believe a significant commercial opportunity is emerging from the application
of Internet-based products and services to the transmission of voice, video, and
facsimile through the use of packetized Internet protocol networks. Access
Power's objective is to be one of the world's leading providers of international
Internet protocol telephony products and services. Our strategy to achieve that
objective includes the expansion of our international Internet protocol
telephony 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
Net.Caller and e-button; and the continued development of enhanced products
16
<PAGE>
and services that utilize our international Internet protocol telephony network.
We intend to capitalize on our officers' and principal employees' extensive
backgrounds to develop unique services that differentiate us from our
competitors and that enhance our customers' communications experience.
Net.Caller
In April of 1999, we introduced our Net.Caller PC-to-Phone telephony
service. Customers can use the Internet Phone for Access Power software,
VocalTec's Internet Phone 5 software, or our free Net.Caller software to utilize
the Net.Caller service. Customers need a multi media personal computer and
Internet connection to use the service. Customers from anywhere in the world can
place calls to a regular telephone in the United States, Canada or Puerto Rico.
Customers pay $10.00 per month for unlimited usage. Customers pay $20 per month
for unlimited usage to call the United States, Canada, Puerto Rico, the United
Kingdom, France, Germany, Italy, Spain, Belgium, Denmark, Switzerland, the
Netherlands, Sweden, Ireland and Luxembourg.
On September 1, 1999, we began selling a flat-rate unlimited usage
telephone-to-telephone service under the tradename Net.Caller(TM)
Phone-to-Phone. Net.Caller Phone-to-Phone customers place calls using
traditional telephony equipment. Calls may be placed from anywhere in the United
States to anywhere in the continental United States. Calls made to areas outside
of the continental U.S. are billed on a per minute usage basis.
The Net.Caller service is primarily being marketed from our web site.
We are also enacting an aggregated marketing strategy by providing banner
advertisements to other web sites through the Net.Caller Affiliate Program.
Companies with web sites join the program and we provide them with a banner ad
exposing the Net.Caller service to people who are viewing the particular web
site. When the person viewing the banner clicks on the ad they are provided with
information and an opportunity to order the service. When Access Power acquires
a customer as a direct result of the affiliate web site banner ad the Company
pays the affiliate a commission.
Expand Net.Caller Service to International Markets
We have entered an agreement with Lycos-Bertelsmann GmbH that
designates us as a premier partner of Lycos. Lycos-Bertlesmann will be promoting
the sale of Net.Caller to it's Pan-European customer base through the strategic
placement of banner ads, promotional buttons, text links, and other hyperlinks
on highly active Lycos web pages.
Leverage the Low Operating Costs of Our Network
Internet protocol 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. Our technology will
enable us to offer international calling at reduced costs to customers. We
anticipate that joint ventures and other business relationships we intend to
create overseas will focus on marketing and selling our services in the
international market.
We feel 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. We believe that this premise will
propel Internet telephony into the mainstream of communications. Internet
telephony by definition operates within computers, a medium that allows for the
development of sophisticated user applications that will differentiate Internet
protocol telephony from traditional telephony systems.
17
<PAGE>
The cost structure of our Internet telephony network also allows us to
offer wholesale rates at prices below standard telephony carriers. Targeted
clients of our wholesale carrier services are web-based communications portals
and international telephone companies wishing to expand their service offerings
to their customer base. We believe we are well-positioned to offer low cost
carrier services to such providers.
Exploit Net.Caller and the e-button
We offer PC-to-Phone service whereby calls can be originated from a
multi-media PC from anywhere in the world and terminate in the United States,
Canada, Puerto Rico or any of twelve western European countries. We intend to
extend the areas to which customers using the Net.Caller service can place
calls.
Our strategy includes re-selling certain third-party software that we
intend to market to our customers under the trademarked "e-button" name. We
believe this product is the best of its kind available in the marketplace today.
Its small size makes it quick to download, and the software installs
automatically.
Customer Service
- ----------------
We believe customer service is one of our greatest strengths. Our
customer service organization's leadership team consists of proven professionals
who have managed customer care for demanding companies. Our sophisticated
database and account tracking allows true "one-to-one" service fulfillment and
customer communication.
Access Power's operations and customer service includes a call center
and e-mail response as well as the mailing of correspondence. The call handling
customer support systems have been developed in-house and reside on our web
site, allowing customers to access individual usage details and frequently asked
questions and answers. The representative and the customer may jointly access
our home page for information on topics of interest. Additionally, we have
contracted with VocalTec to provide technical support for the Internet Phone for
Access Power.
We have simplified the traditional telephone billing process. Our
customers are primarily charged a flat rate for unlimited usage. Itemized
billing or usage statements are available to customers via our web site, and
written invoices are available upon request.
Competition
- -----------
We have nearly three years of experience building and fine-tuning one
of the first Internet protocol telephony networks in the United States. Because
of our experience, we believe that we have the ability to deploy our technology
at a faster rate and with less missteps than other Internet telephony companies.
We have basic billing capabilities in place and are developing more
sophisticated billing capabilities to accommodate the more complex commercial
transactions in which we intend to engage. We have network management tools and
a secure web site capable of taking new account orders in real-time.
We believe our competitive strength lies in being first to market with
Internet protocol telephony services. We also believe we are likely to move
faster than a giant telephone company. We believe that our status as a
developmental company with low overhead allows us to offer highly competitive
prices to consumers, such as the Net.Caller PC-to-Phone service cost of $10 per
18
<PAGE>
month for unlimited usage. To fully develop the market and establish momentum to
capture market share, we have to aggressively build our customer base now. We
must expand our network so that it can handle higher volumes of traffic, and we
might reduce dependency on traditional long distance telephone lines to complete
calls to protect margins. To grow our customer base, we believe we also need to
further develop our customer acquisition programs, such as the arrangement that
the Lycos-Bertelsmann agreement provides.
We may face direct competition, such as other companies that offer
Internet protocol telephony services, or indirect competition, such as companies
that offer traditional or other alternative long distance telephony services.
Most companies currently offering Internet protocol telephony to their
customers are either small start-up companies or Internet service providers
looking for enhanced services primarily designed to maximize customer retention
in support of their core business.
We believe that the most developed Internet telephony service providers
in today's market are Net2Phone, Inc. (www.net2phone.com) and Delta Three
(www.deltathree.com). Net2Phone and Delta Three were spawned from established
long distance companies who were committed to Internet protocol telephony as an
important element of their future business. Both companies seem to rely heavily
on their ties to the traditional long distance business to make the personal
computer-to-phone market viable. Net2Phone conducted a significant public
offering of its common stock this year.
Additional direct competitors include ICG Communications, IPVoice.com,
iBasis, and ITXC. All of these companies route voice traffic worldwide over the
Internet.
Sales and Marketing
- -------------------
Our market includes residential and business users of advanced
communications products and services. The services include phone-to-phone,
PC-to-phone, and PC-to-PC communications. Access Power's current pricing for
service is very competitive and we are poised to balance new product
introductions with consumer demands and expectations.
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. Currently the sales initiative is directed
toward Net.Caller PC-to-Phone service customers. Our marketing efforts focus on
aggregating a strong community of affiliates who display one of the Net.Caller
banner ads on their web site soliciting the viewer to order Net.Caller. We pay
the affiliate a commission based on customers who order Net.Caller from the
affiliate's web site.
The extent to which we are able to offer low communication transmission
rates affords us the opportunity to enter the wholesale arena as well as the
retail market. By building partnerships and affiliations with international
resident partners, we will be able to control our own network while benefiting
from the regional awareness and marketing of our partners.
The target market for our PC-to-Phone service is the worldwide Internet
user base. Nua Ltd. estimates that the number of worldwide users on-line will
increase from approximately 98 million in 1997 to approximately 350 million by
2005. The broader ancillary target for the phone-to-phone service is traditional
phone users.
e-button will be sold to businesses that have a web site and call
center. According to Yahoo!, as of October 27, 1999, there were over 518,000
business-oriented webpages worldwide. Many of these businesses also have a call
19
<PAGE>
center for customer service, sales, or technical support. We aim to capture a
significant portion of this business market for sales of the e-button product.
Electronic Commerce and Internet Telephony
- ------------------------------------------
One of the key indicators for our growth may be the development of the
Internet and electronic commerce. The Internet has grown at a rapid pace over
the last several years, and we believe commercial transactions on the Internet
have steadily increased over that time period. According to International Data
Corporation, Internet users purchased over $50 billion worth of products and
services during 1998. ActivMedia estimates that the amount of Internet-generated
revenue will increase to approximately $1.2 trillion in 2002.
e-button will create new options for the way Internet users conduct
commerce by providing less costly, more sophisticated communications support.
According to Nua Ltd., twenty-four percent of American companies sold their
goods and services on-line in 1998, and that statistic is projected to more than
double to fifty-six percent during 1999. The Association of National Advertisers
says that as of mid-1999, forty-four percent of United States companies are
selling on-line. We have established a web site for our own e-commerce.
Customers simply provide credit card information to order products and services.
Using the World Wide Web maximizes our ability to sell our products and
services twenty-four hours a day, 365 days a year, while minimizing the need for
direct sales contact. Currently, our customers come to our web site through
Internet search engines and Internet hyperlinks. Transactions transpire and
payment is procured on-line, reducing the ultimate cost of the sale. With the
web site as our storefront, our overall sales expenses of ours are decreased.
According to a February of 1999 Piper Jaffray report, revenue estimates
in the services segment of the Internet telephony industry were $119 million
during 1998 and are expected to be $8.6 billion in 2003, a compounded annual
growth rate of 168% between 1997 and 2003.
End User Market
- ---------------
The personal computer user is generally higher than average in income
and education, younger, 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.). We
believe, based on our research, that this is a group committed to communicating
on the Internet. A Nielson NetRatings report states that during June of 1999,
the United States home Internet audience totaled 105.3 million, and Mediamark
Research Inc. indicates that 64 million United States adults are regular (once a
month) Internet users. The United States Department of Commerce reports that 80
million Americans and 200 million people worldwide are connected to the
Internet. The International Data Corporation and Gartner Group reported that
second quarter of 1999 global PC sales grew over the same period in 1998 by
approximately twenty-seven percent to more than 25 million units.
The Small Office/Home Office Market
We believe the small office and home office market segment accounts for
a significant portion of new company formations. We also believe that the
evolution of "work life" will continue to expand the small office and home
office market as corporations attempt to reduce operating costs and improve
productivity with telecommuting and "virtual offices." We feel 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, and the small office and
20
<PAGE>
home office segment is believed to be currently using the Internet in large
numbers. The International Data Corporation states that the small office and
home office market purchased $51.1 billion on high-tech goods during 1998.
International Markets
International opportunities are especially attractive to us.
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 play a
part in this rapid expansion. Settlement fees are tariffs that foreign telephone
companies charge for access to their domestic networks. We believe that the
biggest near-term revenue opportunities exist in the international markets. A
June 22, 1998, report 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 Internet protocol
telephony will account for over ten percent of international telephony traffic
in Europe and the U.S. by the year 2002. Telegeography, an industry research
firm, estimates that the international long distance service market will reach
$79 billion by 2001.
Facilities
- ----------
Our 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. We entered into a
three-year lease in September of 1997 which includes two successive extension
options and first right of refusal on 2,000 square feet of vacant contiguous
space. Access Power will pay approximately $3,000 per month rent under this
lease during 1999. We believe the office space is adequate for our current needs
and could easily be replaced with other suitable accommodations.
We maintain our server hardware through co-location arrangements with
local exchange carriers at locations where we desire to maintain equipment.
These facilities must be climate controlled and offer the necessary telephone
and electrical power services, but we believe such facilities are generally
available from more than one source.
Employees
- ---------
As of September 30, 1999, we engaged ten full time employees.
Litigation
- ----------
On October 20, 1999, NetSpeak Corporation filed suit against Access
Power, Inc. and Glenn Smith, its President, in the Circuit Court of Palm Beach
County, Florida, seeking damages in excess of $15,000 in connection with an
alleged breach by the Company of its payment obligations under a Purchase and
Sale Agreement between the Company and NetSpeak Corporation for the provision of
goods and services by NetSpeak Corporation to the Company. Mr. Smith is joined
as a defendant under a Guaranty Agreement in connection with this transaction.
NetSpeak Corporation is seeking payment of approximately $1,086,000 plus
interest from August 17, 1998. The Company and Mr. Smith intend to vigorously
defend against these claims. The costs of defending against this suit could be
harmful to the Company's financial condition. A judgment against the Company in
the amount claimed, if the Company were to be unsuccessful in its defense, at
this time would have a material adverse effect on the Company and its financial
condition.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES
THERETO AND THE OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
21
<PAGE>
Plan of Operation
- -----------------
Overview
Access Power, Inc. was formed in 1996 to offer Internet-based
communications products and services in the U.S. and international markets. We
are creating a network of Internet telephony gateway servers and Internet
protocol and public switched telephone network circuits to provide voice and
multimedia communications services, more commonly referred to as Internet
protocol telephony.
From our inception, we have devoted most of our efforts to technical
analysis, development, procurement, implementation, testing, and the
establishment of the corporate and technical policies and procedures necessary
to support our business requirements. We are a development stage operation.
Our Internet protocol telephony gateway network allows us to offer
competitive call rates while providing premium communications features. Access
Power products and services are based on PC-to-PC, PC-to-Phone, and
Phone-to-Phone communications. Customers anywhere in the world can use a PC and
software obtained from us to place unlimited calls to telephones anywhere in the
United States, Canada, and Puerto Rico for $10 per month or $20 per month to
those countries as well as twelve European countries. In addition, customers in
the United States can make unlimited calls with their telephone to another
telephone anywhere in the continental United States for $49 per month and call
anywhere in Alaska, Hawaii, Canada, and the United Kingdom for 7 cents per
minute. Calls to over fifty other countries are 29 cents per minute.
We are a reseller of third party PC telephone software called Internet
Phone, and "e-button." 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 our start-up and current development stages, we tested and
preliminarily introduced certain products and services new to both us and the
communications industry. To date, we have not realized revenues from sales of
any products or services in amounts necessary to support all of our cash
operating needs.
Expansion Plans
We believe we must expand our gateway network capacity and our customer
base to achieve profitability.
We intend to expand our network and customer base internationally
through affiliates and other business relationships, such as the relationship
defined by the Lycos-Bertelsmann agreement. Such expansion will increase our
revenues without causing us to incur significant capital expenditures.
Software Sales
To date, we have realized only small revenues from the resale of
software to our customers, and we do not expect such sales to become a
significant source of profit in the future. During the next year, however, we
intend to begin marketing the e-button software, and we expect to realize a fair
amount of revenues from those sales.
22
<PAGE>
Marketing
We have recently begun our effort to market our products and services.
We have implemented a public relations and marketing campaign along with
establishing arrangements with web-based communications portals. Public
relations and certain marketing is expected to cost $15,000 in cash and stock
with a market value of approximately $320,000.
Raising Capital
We have recently sold 6% convertible debentures in the face amount of
$1,000,000 to an investor. In addition, the investor purchased a warrant to
purchase an additional $1,000,000 of debentures on the same terms. We are of the
opinion that if the warrant is exercised then the aggregate proceeds would be
sufficient to fund us for the next twelve months while we deploy our domestic
and international networks.
TWELVE MONTHS ENDED DECEMBER 31, 1998, COMPARED TO PRIOR PERIODS
Revenues and Costs of Revenues. We realized no revenues from our
-------------------------------
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 our 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 $174,000
at the twelve months ended December 31, 1997. 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.
PERIOD ENDED SEPTEMBER 30, 1999, COMPARED TO PERIOD ENDED SEPTEMBER 30, 1998
Revenues and Costs of Revenues. We realized no revenue from the sale of
------------------------------
hardware and software in the three months ended September 30, 1998, compared to
software sales of $1,050 in the three months ended September 30, 1999, and
$9,450 during the nine months ended September 30, 1999, compared to $212,092
during the previous year. The revenue generated from sale of services increased
$21,294 from $29,305 during the three months ended September 30, 1998, to
$50,599 during the three months ended September 30, 1999. The revenue generated
from sale of services increased $ 27,910 from $42,089 during the nine months
ended September 30, 1998, to $69,999 during the nine months ended September 30,
1999.
Expenses. Product development and marketing expenses were $205,444 for
--------
the three months ended September 30, 1999; a decrease of $ 133,215 or over 39%
of such expenses from the three months ended September 30, 1998. Depreciation
and amortization expense decreased $39,100, professional fees decreased $30,000.
For the nine months ended September 30, 1999, product development and marketing
expenses increased $141,504 or almost 20%. Professional fees for public
relations accounted for $155,000 of this increase. General and administrative
expenses increased $41,194 or 12% from $350,665 for the three months ended
September 30, 1998. Legal and professional fees increased $20,000. Finder's fees
23
<PAGE>
increased $100,000. Payroll expense decreased $86,082. During the nine months
ended September 30, 1999, general and administrative expenses increased $68,968
or 8% to $938,142 of which finder's fees increased $81,444.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the
proceeds from the issuance of equity securities and loans from stockholders and
others. To date, we have raised approximately $2,782,700 from the sale of common
stock and preferred stock, and have borrowed approximately $1,400,000 from
investors and stockholders. Funds from these sources have been used as working
capital to fund the build-out of our network and for internal operations,
including the purchases of capital equipment.
We generated negative cash flow from operating activities for the
period from inception (October 10, 1996) through September 30, 1999. We realized
negative cash from operating activities for the nine months ended September 30,
1999, of ($1,035,308) compared to negative cash from operating activities of
($45,292) primarily due to faster payment being required by vendors than
previously. Investing activities for the period from inception through September
30, 1999, consisted primarily of equipment purchases to build out the initial
network. Investing activities in the nine months ended September 30, 1999, were
$466,221 compared to $1,104,890 during the nine months ended September 30, 1998.
The timing and amount of our capital requirements will depend on a
number of factors, including demand for our products and services and the
availability of opportunities for international expansion through affiliations
and other business relationships.
We expect to invest approximately $1,000,000 over the next twelve
months in capital equipment and software for network expansion. We are
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.
We 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 we
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. We secured
the services of an investment banker during December 1998. To retain the
services and conserve cash, we issued 30,000 shares of stock and recognized an
expenses of $10,000 and an increase to capital stock of the same amount.
We 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.
We raised $75,000 in January 1999 from the sales of a total of 75
shares of Series A Preferred Stock for $1,000 per share. In connection with one
of these sales, we also issued 27,777 shares of common stock as a finders fee
and recognized expense of $7,500 and an increase to capital stock of the same
amount. We received $150,000 as a good faith deposit with the letter of intent
and issued 1,500,000 shares of common stock in return to the investor.
We issued 512,000 shares of common stock in exchange for a debt
repayment and the interest due thereon in April 1999.
24
<PAGE>
We issued 1,295,000 shares of common stock upon the exercise of
employee stock options for $632,700.
We issued $1,000,000 of 6% convertible debentures in September of 1999.
We have 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. Our relations with our vendors
are positive and include a strong credit history resulting in suppliers and
vendors assisting us 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 we believe that our 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.
Our financing activities for the nine months ended September 30, 1999,
provided a net total of $2,353,564. Cash at the end of that period was $885,191.
As of October 25, 1999, we had cash of $395,000 and working capital of
($423,800). We are 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.
We need to raise additional funds through public or private financing.
Any additional equity financing may be dilutive to our existing stockholders,
and debt financing, if available, may involve pledging some or all of our assets
and may contain restrictive covenants with respect to raising future capital and
other financial and operational matters. The timing and amount of our capital
requirements will depend on a number of factors, including demand for our
products and services and the availability of opportunities for international
expansion through joint ventures or other business relationships.
INFORMATION SYSTEMS AND THE YEAR 2000
The Year 2000 Problem.
The year 2000 issue confronting us and our suppliers, customers,
customers' suppliers, and competitors centers on the inability of computer
systems to recognize the year 2000 and other year 2000-sensitive dates. Many
existing computer programs and systems originally were programmed with six-digit
dates that provided only two digits to identify the calendar year in the date
field. As the year 2000 approaches, these programs and computers will recognize
"00" as the year 1900 rather than the year 2000. Like telecommunications product
and service providers, our operations may be affected significantly by the year
2000 issue because our products and services significantly depend upon and
center around computer systems. Software, hardware, and equipment, both within
and outside of our direct control, and third parties with whom we electronically
or operationally interface are likely to be affected. These third parties
include customers and third party suppliers providing data processing,
information systems management, computer system maintenance, and computer system
components. If computer systems are not able to identify the year 2000, many
computer applications could fail or create incorrect results. In addition, under
certain circumstances, failure to address adequately the year 2000 issue could
adversely affect the viability of our suppliers, creditors, and customers. If
not adequately addressed, the year 2000 issue could ultimately have a
significant adverse impact on our products, services, and competitive condition
and, in turn, our financial condition and results of operations.
25
<PAGE>
Our Readiness.
Since our inception, we have implemented solutions to the year 2000
problem as we have built our communication systems and developed our policies
and procedures for both technical and administrative purposes. We believe we are
in a high state of readiness regarding year 2000 and we are at minimal risk. As
standard operating procedure we inquire as to the readiness of any customers and
suppliers in handling potential year 2000 problems.
Resources Allocated.
Costs associated with year 2000 solutions are incorporated in all our
computer administrative information systems and technical development. We do not
foresee substantial direct or indirect costs associated with our implementation
or any affiliates' implementation of year 2000 solutions.
26
<PAGE>
Contingency Plans.
The worst anticipated year 2000 malfunction that we will face is
temporary loss of power and other utilities and interruption of Internet
services. In that case, our preliminary contingency plan will be to attempt to
restore utilities and insure adequate records are available manually to minimize
disruption and inconvenience to our customers. We believe, however, that our
computer software and hardware systems will be substantially year 2000
compliant. There are no assurances that we and all of our key suppliers,
customers, or third parties upon which we rely will completely address and solve
the potential problem and by not doing so could result in an adverse material
effect on the company, our financial condition, or results on operations.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of October 28,
1999, are as follows:
Name Age Position
---- --- --------
Glenn A. Smith 43 President, Chief Executive Officer, and
Director
Tod R. Smith 38 Chief Technology Officer, General
Counsel, and Director
Maurice J. Matovich 40 Chief Operations Officer and Director
Howard Kaskel 53 Chief Financial Officer
GLENN A. SMITH has served as our President, Chief Executive Officer,
and a director since our formation in 1996. He has over twenty years experience
in developing interactive systems and Internet-based businesses and services.
From 1992 to 1996, Mr. Smith was self-employed as a developer of advanced
computer telephony systems and services.
TOD R. SMITH has served as our Chief Technology Officer and General
Counsel since 1998, and as a director since 1997. Mr. Smith worked at AT&T as a
Technical Staff member specializing in computer consulting and the development
of software from 1988 to 1998.
MAURICE MATOVICH has served as our Chief Operating Officer since 1998
and as a director since 1997. Mr. Matovich served as a manager at AT&T where he
specialized in high-tech operations management, client relations, and
stockholder relations from 1984 to 1997.
HOWARD KASKEL has served as our Chief Financial Officer since 1998. Mr.
Kaskel also is currently a limited partner with Tatum CFO Partners, LLP, a
partnership of career chief financial officers. From 1996 to 1997, Mr. Kaskel
served as the Chief Financial Officer of DeFalco Advertising and as the Chief
Financial Officer of Pinnacle Site Development Inc. until joining us in 1998. He
was a partner at Kaskel, Solowiei & Associates, a financial consulting firm,
from 1993 to 1996, where he advised companies regarding acquisitions,
divestitures, and business planning.
27
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual
compensation for services in all capacities to us for the years ended December
31, 1997 and 1998, with respect to our Chief Executive Officer:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
NAME AND COMPENSATION UNDERLYING
PRINCIPAL POSITION YEAR SALARY OPTIONS(#)
------------------ ---- ------ ----------
<S> <C> <C> <C>
Glenn A. Smith, Chief 1997 $96,000 100,000
Executive Officer
1998 $96,000 100,000
</TABLE>
STOCK OPTIONS
The following table summarizes certain information regarding options to
purchase common stock granted to the Chief Executive Officer during the year
ended December 31, 1998. Access Power did not grant any stock appreciation
rights in 1998.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION DATE
NAME GRANTED IN FISCAL YEAR ($/SH) ---------------
---- ------- -------------- ------
<S> <C> <C> <C> <C> <C>
Glenn A. Smith 100,000 20% $0.11 3/23/03
</TABLE>
The following table summarizes the number and value of unexercised
options held by the Chief Executive Officer as of December 31, 1998. The Chief
Executive Officer did not exercise any options in the year ended December 31,
1998.
<TABLE>
FISCAL YEAR-END
OPTION VALUES
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
FY-END (#) SARS AT FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Glenn A. Smith 200,000 /0 $12,000 /0 <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>
28
<PAGE>
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Howard L. Kaskel in
September 1, 1999. The agreement provides that Mr. Kaskel will serve as our
Chief Financial Officer on a part-time basis (four days per week) for $10,800
per month which includes a base salary of $9,000 and a retainer of $1,800 for
Tatum CFO Partners, LLP, of which Mr. Kaskel is a partner. Additional days are
paid at the rate of $660 per day. There is no cap on the additional salary that
could be payable. The average maximum salary per month under the agreement
(including the base salary and additional days) would be approximately $19,380.
The agreement is terminable by us upon thirty days written notice with all
payments required pursuant to the agreement to be paid on or before the
termination date. Access Power does not have employment agreements with any
other of our executive officers.
DIRECTORS COMPENSATION
The directors have not received compensation for their duties as such,
and we have no current plans to compensate directors for serving on the Board in
the future.
STOCK INCENTIVE PLAN
In June, 1997, we adopted our Stock Incentive Plan to provide selected
employees and affiliates rendering services to us or our affiliates an
opportunity to purchase our common stock. The Stock Incentive Plan promotes our
success and enhances our value by linking the personal interests of participants
to those of our stockholders, and by providing participants with an incentive
for outstanding performance. Awards under the Stock Incentive Plan may be
structured as "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, for employees or as non-qualified
stock options for any participant. The aggregate number of shares of common
stock with respect to which options may be granted pursuant to the Stock
Incentive Plan cannot exceed 2,500,000 shares.
Incentive stock options are subject to certain limitations, including
the requirement that such options be granted with an exercise price no less than
the fair market value of the common stock at the date of grant and that the
value of stock with respect to which the options are exercisable by a
participant for the first time in any year may not exceed $100,000, based on the
fair market value of the stock at the date of grant. In addition, incentive
stock options may not be granted to employees who own more than 10% of the
combined voting power of all classes of our voting stock, unless the option
price is at least 110% of the fair market value of the common stock subject to
the option and unless the option is exercisable for no more than five years from
the grant date.
The compensation committee of our Board of Directors has discretion to
set the terms and conditions of options; including the term, exercise price, and
vesting conditions, if any; to determine whether the option is an incentive
stock option or a non-qualified stock option; to select the persons who receive
such grants; and to interpret and administer the Stock Incentive Plan.
As of the date of this prospectus, options to purchase an aggregate of
2,100,500 shares of common stock have been granted under the Stock Incentive
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, $0.54 per share for 100,000 shares, and $0.22 per
share for 200,000 shares.
29
<PAGE>
RELATED PARTY TRANSACTIONS
On September 30, 1999, the Company entered into Share Exchange
Agreements with its executive officers whereby the officers were issued one
share of Series B Convertible Preferred Stock for each one thousand shares of
common stock presented. Glenn Smith, Tod Smith, Maurice Matovich and Howard
Kaskel received 2,662, 640, 450 and 200 shares of Series B Convertible Preferred
Stock, respectively. The exchange freed up authorized common stock to facilitate
financing of the Company.
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of the common stock, as of December 1, 1999, by (i) each person
known to us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, (ii) each of our directors and the Chief Executive Officer,
(iii) all directors and executive officers as a group, and (iv) the selling
stockholders. Unless otherwise indicated, each of the stockholders listed below
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
Shares Beneficially Owned Prior Shares Beneficially
to the Offering Owned After the Offering <F6>
Number
of Shares
Beneficial Owner Number Percent to be Sold Number Percent
- ---------------- ------ ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Glenn A. Smith <F1> 7,327,700 20.5% 0 7,327,700 20.5%
Tod R. Smith <F2> 2,290,000 7.4% 0 2,290,000 7.4%
Maurice Matovich<F3> 2,100,000 6.8% 0 2,100,000 6.8%
Jimmy Dean Dowda 200,000 * 200,000 - -
Olympus Capital, Inc. 578,114 2.0% 578,114 - -
Hyman & Ethel Schwartz 274,386 1.0% 274,386 - -
Arnold Zousmer 169,741 * 169,741 - -
John T. Mitchell 100,000 * 100,000 - -
Bruce R. Knox 200,000 * 200,000 - -
Subramanian Sundaresan 562,000 2.0% 562,000 - -
Chesterfield Capital Resources Ltd. 736,080 2.6% 736,080 - -
Agricola Coco Bonh, S.A. 200,000 * 200,000 - -
T. Wayne Davis 25,945 * 25,945 - -
Kimberly DeVigil 20,000 * 20,000 - -
Roy E. Leinster 200,000 * 200,000 - -
Northstar Advertising 1,300,000 4.5% 1,300,000 - -
Anthony Naples 50,000 * 50,000 - -
Bamboo Investors LLC<F4> 11,258,642 28.2% 11,258,642 - -
The Inman Company<F5> 500,000 1.7% 500,000 - -
Paul Revere Capital Corp. 100,000 * 100,000 - -
Harold Berliner 15,000 * 15,000 - -
One Stop Communications 1,500,000 5.2% 1,500,000 - -
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A 11,820,842 29.6% 0 11,820,842 29.6%
GROUP (4 PERSONS)<F1> <F2> <F3>
- --------------------
*Less than 1%.
<FN>
<F1> Includes 10,400 shares of common stock held for a minor child, 4,415,000
shares subject to presently exercisable options and 2,662,000 shares
issuable upon conversion of 2,662 shares of Series B Convertible
Preferred Stock.
<F2> Includes 1,650,000 shares subject to presently exercisable options and
640,000 shares issuable upon conversion of 640 shares of Series B
Convertible Preferred Stock.
<F3> Includes 1,650,000 shares subject to presently exercisable options and
450,000 shares issuable upon conversion of 450 shares of Series B
Convertible Preferred Stock.
<F4> Shares of common stock issuable upon conversion of debentures held by
such stockholder (or which could be purchased pursuant to the exercise of
a warrant) based upon a three day average shares price of $0.212. The
number of shares to be sold is subject to adjustment to reflect the
effect of the market price of the common stock at the time of conversion.
Does not include an additional 1,719,974 shares issuable upon conversion
of all of the debentures and 400,000 shares subject to an exercisable
warrant, all of which shares exceed the number of shares of common stock
currently authorized for the Company.
<F5> Includes 500,000 shares subject to an exercisable warrant.
<F6> Assuming the Company's authorized common stock is not increased to permit
the full exercise of options.
</FN>
</TABLE>
30
<PAGE>
The actual number of shares of common stock deemed to be beneficially
owned by and offered by Bamboo Investors LLC cannot be determined at this time
and could be materially less or more than this estimated number depending on the
future market price of our common stock . Under the registration statement of
which this prospectus is a part, we have registered an additional number of
shares of our common stock that we may be required to issue upon conversion of
the debentures and the warrants held by Bamboo Investors LLC, Paul Revere
Capital Corp. and The Inman Company as a result of any stock split, stock
dividend or similar transaction involving our common stock.
SELLING WARRANT HOLDERS
Bamboo Investors LLC is the holder of transferable warrants to purchase
200,000 shares of common stock. It also holds a warrant to purchase additional
transferable warrants to purchase 200,000 shares of common stock. See
"Description of Warrants." All of these transferable warrants may be sold under
the registration statement of which this prospectus is apart.
PLAN OF DISTRIBUTION
The selling security holders have advised us that, prior to the date of
this prospectus, they have not made any agreement or arrangement with any
underwriters, brokers, or dealers regarding the distribution and resale of the
shares or warrants. If we are notified by a selling security holder that any
material arrangement has been entered into with an underwriter for the sale of
their shares or warrants, then, to the extent required under the Securities Act
of 1933 or the rules of the Securities and Exchange Commission, a supplemental
prospectus will be filed to disclose such of the following information as we
believe appropriate: (i) the name of the participating underwriter; (ii) the
number of the shares or warrants involved; (iii) the price at which such shares
or warrants are to be sold, the commissions to be paid or discounts or
concessions to be allowed to such underwriter; and (iv) other facts material to
the transaction.
Neither the shares nor warrants have been registered for sale by the
selling security holders under the securities laws of any state as of the date
of this prospectus. Brokers or dealers effecting transactions in these
securities should confirm the registration thereof under the securities laws of
the states in which transactions occur or the existence of any exemption from
registration.
We expect that the selling security holders will sell their securities
covered by this prospectus through customary brokerage channels, either through
broker-dealers acting as agents or brokers for the seller, or through
broker-dealers acting as principals, who may then resell the securities in the
over-the-counter market, or at private sale or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, or at negotiated prices. The selling security holders may effect such
transactions by selling the securities to or through broker-dealers, and such
broker-dealers may receive compensation in the form of concessions or
commissions from the selling security holders and/or the purchasers of the
securities for whom they may act as agent (which compensation may be in excess
of customary commissions). The selling security holders and any broker-dealers
that participate with the selling security holders in the distribution of shares
may be deemed to be underwriters and commissions received by them and any profit
on the resale of securities positioned by them might be deemed to be
underwriting discounts and commissions under the Securities Act. There can be no
assurance that any of the selling security holders will sell any or all of the
common stock or warrants offered by them hereunder.
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<PAGE>
Sales of the securities on the OTC Bulletin Board or other trading
system may be by means of one or more of the following:
(i) a block trade in which a broker or dealer will attempt to sell the
securities as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
(ii) purchases by a dealer as principal and resale by such dealer for
its account pursuant to this prospectus; and
(iii) ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling security holders
may arrange for other brokers or dealers to participate. From time to time the
selling shareholders may engage in short sales, short sales against the box,
puts and calls, and other hedging transactions in our securities, and may sell
and deliver their shares of our common stock in connection with such
transactions or in settlement of securities loans. In addition, from time to
time a selling shareholder may pledge its shares pursuant to the margin
provisions of its customer agreements with its broker-dealer. Upon delivery of
such shares or a default by a selling shareholder, the broker-dealer or
financial institution may offer and sell such pledged shares from time to time.
The selling security holders are not restricted as to the price or
prices at which they may sell their share of common stock or warranties. Sales
of such securities at less than market prices may depress the market price of
our common stock. Moreover, the selling security holders are not restricted as
to the number of shares or warrants that may be sold at any one time.
We have advised the selling security holders that the anti-manipulative
rules under the Securities Exchange Act of 1934, including Regulation M, may
apply to sales in the market of the common stock offered hereby. We have also
advised the selling security holders of the requirement for the delivery of this
prospectus in connection with resales of the securities.
SHARES ELIGIBLE FOR FUTURE SALE
Through the date of this prospectus, there has been only limited
over-the-counter trading of our common stock by certain market makers who have
registered to enter quotes on the common stock on the Bulletin Board. We have no
plans to list the common stock on NASDAQ or on any securities exchange. Sales of
substantial amounts of shares of our common stock in the public market following
the offering, or the perception that such sales could occur, could adversely
affect the market price of the common stock prevailing from time to time and
could impair our ability to raise capital in the future through sales of our
equity securities.
Assuming conversion of the 6% Convertible Debentures, we will have a
total of 40,000,000 shares of common stock outstanding at the time of this
offering.(1) Shares in the amount of up to 18,014,855 registered for sale by the
selling stockholders, if sold under this registration, 10,000,000 shares sold by
selling stockholders in a previous registration and 3,578,000 shares of common
stock previously sold by us pursuant to an exemption under Regulation 504 will,
after the offering, be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act of
1933, may generally only be sold in compliance with Rule 144 described below.
The remaining shares of common stock are "Restricted Securities" as defined in
Rule 144. Restricted Securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under the
Securities Act, such as pursuant to Rule 144, which rule is summarized below.
- -----------------
(1) Assumes the conversion of debentures into 11,258,642 shares of common stock
based on a conversion rate, as set forth in the formula described in "6%
Convertible Debenture" below, and an average market price of common stock at
$0.212.
32
<PAGE>
SALES OF RESTRICTED SECURITIES
In general, under Rule 144 as currently in affect, a person who has
beneficially owned restricted securities, as defined in Rule 144, for at least
one year, including a person who may be deemed our affiliate, is entitled to
sell, within a three-month period, a number of shares of our common stock that
does not exceed the greater of one percent of the then-outstanding shares of
common stock (approximately 391,000 shares on a diluted basis) and the average
weekly reported trading volume of our common stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are subject to certain
restrictions relating to manner of sale, notice, and availability of current
public information about us. In addition, under Rule 144(k), a person who is not
an affiliate and has not been an affiliate at any time during the ninety days
preceding a sale, and who has beneficially owned shares for at least two years,
would be entitled to sell such shares immediately following the offering,
without regard to the volume limitations, manner of sale provisions, or notice
or other requirements of Rule 144. In meeting the one-and two-year holding
periods described above, the holder of restricted securities can include the
holding periods of a prior owner who is not an affiliate. The one-and two-year
holding periods described above do not begin to run until the full purchase
price or other consideration is paid by the person acquiring the restricted
securities from the issuer or/an affiliate.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common
stock, $0.001 par value, and 10,000,000 shares of preferred stock, $0.001 par
value. Of the preferred stock 1,200 shares have been designated as Series A
Convertible Preferred Stock and 4,000 shares have been designated as Series B
Convertible Preferred Stock. Of the preferred stock, only 3,952 shares of Series
B Convertible Preferred Stock are outstanding. The following summary of our
capital stock does not purport to be complete and is qualified in its entirety
by reference to our Articles of Incorporation, as amended and restated, and
Bylaws, as amended and restated, that are included as exhibits to the
Registration Statement of which this prospectus forms a part, and the applicable
provisions of the Florida Business Corporation Act.
COMMON STOCK
Holders of common stock are entitled to one vote per share on any issue
submitted to a vote of the stockholders and do not have cumulative voting rights
in the election of directors. The holders of a majority of the outstanding
shares of common stock, along with the holders of any outstanding preferred
stock, voting in an election of directors can elect all of the directors then
standing for election, if they choose to do so. Subject to any outstanding
shares of preferred stock, all shares of common stock are entitled to share
equally in such dividends as our Board of Directors may, in its discretion,
declare out of sources legally available therefor. See "Dividend Policy". Upon
our dissolution, liquidation, or winding up, holders of common stock are
entitled to receive on a ratable basis, after payment or provision for payment
of all our debts and liabilities and any preferential amount due with respect to
outstanding shares of preferred stock, if any, all our assets available for
distribution, in cash or in kind. Holders of shares of common stock do not have
preemptive or other subscription rights, conversion or redemption rights, or any
rights to share in any sinking fund. All currently outstanding shares of common
stock are fully paid and nonassessable.
33
<PAGE>
PREFERRED STOCK
Holders of our preferred stock are entitled to vote the number of
shares as is equal to the number of shares of common stock into which the
preferred stock is convertible on the record date for voting or written consent
eligibility. The preferred stockholders have voting rights and powers equal to
the voting rights and powers of the common stock, and do not have cumulative
voting rights in the election of directors. Therefore, the holders of a majority
of the outstanding shares of common stock and the preferred stock voting in an
election of directors can elect all of the directors then standing for election,
if they choose to do so. The preferred stockholders do not have any preference
with respect to dividends or other distributions, except for the liquidation
preference described below. Any dividends declared by our Board of Directors
will be made to the holders of common stock and preferred stock pro rata as if
the preferred stock had been converted into common stock on the record date for
the payment of the dividend. See "Dividend Policy". Our preferred stockholders
do not have preemptive rights or other subscription rights, or any rights to
share in any sinking fund. The special rights to which the preferred
stockholders are entitled are set forth below.
Series a Preferred Stock
Upon our dissolution, liquidation, or winding up, holders of Series A
preferred stock are entitled to receive on a ratable basis, after payment or
provision for payment of all our debts and liabilities, prior to and in
preference to any distribution to our other stockholders, the amount of $1,500
per share. If there are insufficient funds to fulfill this preference, then all
assets or surplus funds will be distributed pro rata to the Series A
stockholders. Any surplus that remains after this distribution is completed
shall be distributed to the Series B preferred stockholders in accordance with
the provisions set forth below and then to the common stockholders. Each share
of Series A preferred stock is convertible into the number of shares of common
stock (rounded to the nearest whole number) equal to $1,000 divided by 65% of
the average market price of the common stock for the five trading days previous
to the date on which the conversion occurs. There are no outstanding shares of
Series A preferred stock.
Series B Preferred Stock.
Upon our dissolution, liquidation, or winding up, holders of Series B
preferred stock are entitled to receive on a ratable basis, after payment or
provision for payment of all our debts and liabilities including the preference
to any outstanding shares of our Series A preferred stock, prior to and in
preference to any distribution to our common stockholders, the amount of $0.001
per share. If there are insufficient funds to fulfill this preference, then all
assets or surplus funds will be distributed pro rata to the Series B
stockholders. Any surplus that remains after this distribution is completed
shall be distributed pro rata among the common and Series B preferred
stockholders. Each share of Series B preferred stock is convertible into 1,000
fully paid and nonassessable shares of common stock. There are currently 3,952
shares of Series B preferred stock outstanding, all of which are fully paid and
nonassessable.
DESCRIPTION OF WARRANTS
In connection with our sale of $1,000,000 of our 6% Convertible
Debentures we issued the investor warrants to purchase 200,000 shares of Common
Stock. The investor also received a special warrant which it may exercise to
purchase an additional $1,000,000 of our 6% Convertible Debentures as well as
another warrant to purchase 200,000 shares of Common Stock. The purchase price
34
<PAGE>
of the additional common stock warrants is $100. All of the Common Stock
warrants entitle the holder to purchase Common Stock for $0.42 per share
(subject to possible anti-dilution adjustments). The warrants expire on
September 30, 2002, and they are transferable. These are the warrants covered by
this Prospectus, 200,000 of which are owned by a Selling Stockholder, and
200,000 of which the Selling Stockholder may purchase from the Company.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Our Amended and Restated Bylaws ("Bylaws") contain certain provisions,
described below, that could delay, defer, or prevent a change in control of us
if the Board of Directors determines that such a change in control is not in the
best interests of us and our stockholders, and could have the effect of making
it more difficult to acquire us or remove incumbent management.
Classified Board. Under our Bylaws, our Board of Directors is divided
----------------
into three classes, with staggered terms of three years each. Each year the term
of one class expires. Our Bylaws provide that any director may be removed from
office, but only for cause by an affirmative vote of at least two-thirds of the
outstanding capital stock entitled to vote in the election of directors. Our
Bylaws also provide that any vacancies on the Board of Directors shall be filled
only by the affirmative vote of a majority of the directors then in office, even
if less than a quorum.
Special Voting Requirements. Our Bylaws provide that all actions taken
---------------------------
by the stockholders must be taken at an annual or special meeting of the
stockholders or by unanimous written consent. The Bylaws provide that special
meetings of the stockholders may be called only by a majority of the members of
the Board of Directors. Under our Bylaws, stockholders are required to comply
with advance notice provisions with respect to any proposal submitted for
stockholder vote, including nominations for elections to the Board of Directors.
Our Bylaws contain provisions requiring the affirmative vote of the holders of
at least two-thirds of the outstanding shares of each class and series of our
capital stock entitled to vote in the election of directors cast at a meeting of
the stockholders for that purpose.
Indemnification and Limitation of Liability. The Florida Business
-----------------------------------------------
Corporations Act authorizes Florida corporations to indemnify any person who was
or is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation or
other entity, against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation. With respect to any criminal action or proceeding, the party must
have had no reasonable cause to believe his conduct was unlawful. In the case of
an action by or on behalf of a corporation, indemnification may not be made if
the person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of Florida law require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit, or proceeding to which he was a party
by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Florida law is not exclusive,
and is in addition to any other rights granted to officers and directors under
the Articles of Incorporation or Bylaws of the corporation or any agreement
between officers and directors and the corporation. A corporation may purchase
and maintain insurance or furnish similar protection on behalf of any officer or
director against any liability asserted against the officer or director and
incurred by the officer or director in such capacity, or arising out of the
35
<PAGE>
status, as an officer or director, whether or not the corporation would have the
power to indemnify him against such liability under Florida law. Access Power's
Bylaws provide for the indemnification of our directors and executive officers
to the maximum extent permitted by Florida law and for the advancement of
expenses incurred in connection with the defense of any action, suit, or
proceeding that the director or executive officer was a party to by reason of
the fact that he is or was one of our directors or executive officers upon the
receipt of an undertaking to repay such amount, unless it is ultimately
determined that such person is not entitled to indemnification.
Under Florida law, a director is not personally liable for monetary
damages to us or any other person for acts or omissions in his capacity as a
director except in certain limited circumstances such as certain violations of
criminal law and transactions in which the director derived an improper person
benefit. As a result, stockholders may be unable to recover monetary damages
against directors for actions taken by them, which constitute negligence, or
gross negligence or which are in violation of their fiduciary duties, although
injunctive or other equitable relief may be available. The foregoing provisions
of Florida law and the Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, us.
Such indemnification may be available for liabilities arising in
connection with this offering. Insofar as indemnification for liabilities under
the Securities Act may be permitted to directors, officers, or persons
controlling us pursuant to the foregoing provisions, we have been informed that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Amendments of the Articles and Bylaws. Certain provisions of our
-----------------------------------------
Articles and Bylaws, including those pertaining to a classified board, special
meetings of stockholders, removal of directors, and director liability and
indemnification, may be amended only by the affirmative vote of two-thirds of
the shares of our capital stock entitled to vote in the election of directors.
CERTAIN STATUTORY PROVISIONS
The Florida Business Corporations Act provides for special voting
requirements to approve affiliated transactions unless the transaction falls
under one or more enumerated exceptions.
TRANSFER AGENT
Our Transfer Agent and Registrar is Atlas Stock Transfer & Trust
Company, Salt Lake City, Utah.
DESCRIPTION OF 6% CONVERTIBLE DEBENTURES
The Company has sold $1,000,000 of its 6% Convertible Debentures due
September 30, 2001 ("Debentures"), and it has issued a warrant to the same
investor to purchase an additional $1,000,000 of such Debentures. Interest on
the Debentures is due at maturity, and it may be paid in shares of Common Stock
at the option of the Company. The number of shares issuable for interest would
be determined at the same rate as principal under the Debentures can be
converted. Principal and accrued interest under the Debentures may be converted
at any time by the holder thereof into a number of shares equal to the quotient
obtained by dividing the amount to be converted by the applicable conversion
price. The applicable conversion price is the lesser of $0.42 and an amount
equal to seventy-five percent (75%) of the average of the three lowest daily
closing bid prices during the twenty-two trading days immediately preceding the
36
<PAGE>
date the Company is notified of the exercise of the conversion election. If the
Company fails to register or maintain the registration of the underlying Common
Stock as provided in a registration rights agreement with the investor, then the
investor may choose any conversion price during the affected period as the
applicable conversion price. If the Company undergoes a change of control, then
it will be obligated to redeem the Debentures for 125% of the outstanding
principal and accrued interest.
LEGAL MATTERS
The validity of the common stock being offered hereby is being passed
upon for us by L. Van Stillman, Boca Raton, Florida.
EXPERTS
The financial statements of the Company at December 31, 1998, and for
the year ended December 31, 1998, and the period from our inception appearing in
this prospectus and the Registration Statement have been audited by Parks,
Tschopp, Whitcomb & Orr, independent auditors, as indicated in their report
thereon appearing herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to the
common stock and Warrants offered hereby. As used herein, the term "Registration
Statement" means the initial Registration Statement and any and all amendments
thereto. This prospectus, which is a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to us and our common
stock and the Warrants, reference is made to the Registration Statement,
including the exhibits and schedules thereto. Statements contained in this
prospectus concerning the contents of any contract or any other document are not
necessarily complete and such instance reference is made to such contract or
other document filed with the SEC as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference.
A copy of the Registration Statement, including the exhibits thereto,
may be inspected without charge at the Public Reference section of the
commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the SEC: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of the Registration Statement and the exhibits and schedules
thereto can be obtained from the Public Reference Section of the SEC upon
payment of prescribed fees, or at its web site at http://www.sec.gov.
We are subject to the reporting requirements of Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, for a period of up to one year, we will file periodic
reports with the Securities and Exchange Commission. Such periodic reports will
be available for inspection and copying at the public reference facilities and
other regional offices referred to above.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants......................................... F-2
Financial Statements:
Years Ended December 31, 1998 and 1997
Balance Sheets at December 31, 1998 and 1997.............................. F-3
Statements of Operations for the years ended December 31, 1998 and 1997
and for the period
October 10, 1996 (date of inception) through
December 31, 1998...................................................... F-4
Statements of Stockholders' Equity For the years ended
December 31, 1998 and 1997, and for the period from October 10, 1996
(date of inception) through December 31, 1998.......................... F-5
Statements of Cash Flows For the years ended
December 31, 1998 and 1997 and for the period from
October 10, 1996 (date of inception) through
December 31, 1998...................................................... F-6
Notes to Financial Statements from October 10, 1996
(date of inception) to December 31, 1998............................... F-7
Quarter Ended September 30, 1999 (Unaudited):
Balance Sheets at September 30, 1999 and December 31, 1998................ F-13
Statement of Operations For the nine months ended
September 30, 1999 and 1998 and the cumulative period from
October 10, 1996 (date of inception) through September 30, 1999........ F-14
Statement of Stockholders' Equity For the period
from October 10, 1996 (date of inception)
through September 30, 1999............................................. F-15
Statement of Cash Flows For the nine months ended
September 30, 1999 and 1998 and the cumulative period from
October 10, 1996 (date of inception) through
September 30, 1999..................................................... F-16
Notes to Interim Financial Statements..................................... F-17
<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 sheet of Access Power, Inc. (a
development stage company) as of December 31, 1997, and the related statements
of operations, stockholders' equity, and cash flows for the year then ended, the
period from October 10, 1996 (date of inception) through December 31, 1996, and
the cumulative period from October 10, 1996 (date of inception) through December
31, 1997. These financial statements are the responsibility of our 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 audit provides 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, 1997, and the results of its
operations and its cash flows for the year ended, the period from October 10,
1996 (date of inception) through December 31,1996, and the cumulative period
from October 10, 1996 (date of inception) through December 31, 1997, in
conformity with generally accepted accounting principles.
PARKS, TSCHOPP, WHITCOMB & ORR, P.A.
March 23, 1999
Maitland, Florida
F-2
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
December 31, 1998 and 1997
<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-3
<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-4
<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-5
<PAGE>
<TABLE>
<CAPTION>
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
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-6
<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-7
<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-8
<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-9
<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-10
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998
(2) Property and Equipment
----------------------
<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-11
<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-12
<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>
<TABLE>
ACCESS POWER, INC.
(A Development Stage Company)
Balance Sheets
As of September 30, 1999 and December 31, 1998
<CAPTION>
Assets 30-Sep December 31,
------ 1999 1998
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 885,191 $ 33,156
Accounts receivable 97,022 29,145
Notes receivable 458,200 30,791
Prepaid expenses 151,138 --
Inventory 18,815 21,770
----------- -----------
Total current assets 1,610,366 114,862
----------- -----------
Property and equipment, net 922,174 1,131,471
Other assets 13,000 16,000
----------- -----------
Total assets $ 2,545,540 $ 1,262,333
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 1,760,364 $ 1,373,978
Unearned revenue 21,490 --
Notes payable 62,500 120,136
----------- -----------
Total current liabilities 1,844,354 1,494,114
----------- -----------
6% Convertible Debenture 1,000,000 --
----------- -----------
Stockholders' equity:
Common stock, $.001 par value, authorized 40,000,000 shares,
issued and outstanding 27,451,358 and 12,325,788 shares
in 1999 and 1998 27,452 12,326
Preferred stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 3,952 and 1,050 shares in 1999 and 1998 4 1
Additional paid in capital 3,898,025 2,252,971
Deficit accumulated during the development stage (4,224,295) (2,497,079)
----------- -----------
Total stockholders' equity (298,814) (231,781)
----------- -----------
=========== ===========
Total liabilities and stockholders' equity $ 2,545,540 $ 1,262,333
=========== ===========
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Operations
For the three months and nine months ended September 30, 1999 and 1998 and the cumulative period
from October 10, 1996 (date of inception) through September 30, 1999
(unaudited)
For the period
October 10, 1996
Three months ended September 3, Nine months ended September 30, through
1999 1998 1999 1998 September 30, 1999
------------------------------- ------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software/hardware sales $ 1,050 $ - $ 9,450 $ 212,092 $ 223,881
Telcommunication services 50,599 29,305 69,999 42,089 123,518
------------ ------------ ------------ ------------ ------------
Total revenue 51,649 29,305 79,449 254,181 347,399
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 315 -- 2,955 152,920 164,605
Product development and marketing 205,444 338,659 851,037 710,533 1,620,193
General and administrative 391,859 350,665 938,142 868,174 2,648,115
------------ ------------ ------------ ------------ ------------
Total costs and expenses 597,618 689,324 1,792,134 1,731,627 4,432,913
------------ ------------ ------------ ------------ ------------
Other income (expense):
Other income (expense) (318) (0) (7,198) 407 1,977
Interest expense (2,833) (3,333) (7,333) (117,708) (140,758)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (3,151) (3,334) (14,531) (117,302) (138,781)
------------ ------------ ------------ ------------ ------------
Net loss $ (549,120) $ (663,353) $ (1,727,216) $ (1,594,748) $ (4,224,295)
============ ============ ============ ============ ============
Net loss per share $ (0.02) $ (0.06) $ (0.07) $ (0.14) $ (0.28)
============ ============ ============ ============ ============
Weighted average number of shares 31,386,691 11,759,000 24,126,030 11,619,463 15,137,504
============ ============ ============ ============ ============
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the period from October 10, 1996
(date of inception) through September 30, 1999
Common Stock Preferred Stock
----------------------- -------------------------
Date Shares Amount Shares Amount
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Common stock issued to founding directors 8,000,000 8,000 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1996 8,000,000 8,000 -- --
Common stock issued for cash 5/23/97 750,000 750 -- --
Common stock issued for cash 6/30/97 1,000,000 1,000 -- --
Common stock issued for cash 7/97 - 10/97 1,734,000 1,734 -- --
Stock issuance cost -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1997 11,484,000 11,484 -- --
Preferred stock issued for cash 5/98 -- -- 1,000 1
Common stock issued as additional interest 2/2/98 50,000 50 -- --
Common stock issued as additional interest 2/19/98 125,000 125 -- --
Common stock issued as finder's fee 2/19/98 75,000 75 -- --
Common stock issued for services 2/98 25,000 25 -- --
Common stock issued for cash 9/24/98 50,000 50 -- --
Preferred stock issued for cash 11/98 -- -- 100 --
Common stock issued for finder's fee 11/98 60,857 61 -- --
Preferred stock issued for cash 12/98 -- -- 25 --
Common stock issued for investment banking
fee 12/98 30,000 30 -- --
Conversion of preferred stock to common stock 12/98 425,931 426 (75) --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at December 31, 1998 12,325,788 12,326 1,050 1
Preferred Stock issued for cash 1/99 75 75,000 75,000
Common Stock issued for finders fee 1/99 25,777 26 6,418 6,444
Common Stock issued for services 3/99 2,100,000 2,100 207,900 210,000
Conversion of preferred stock to common stock 1/99 727,213 727 (100) (727)
Conversion of preferred stock to common stock 2/99 560,662 561 (75) (561)
Conversion of preferred stock to common stock 3/99 8,019,035 8,019 (675) (1)
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balances at March 31, 1999 23,758,475 23,759 275 --
Common stock issued for interest payment 4/99 112,000 112 13,888 14,000
Common stock issued in exchange for debt repayment 4/99 400,000 400 49,600 50,000
Common stock issued for cash 4/99 1,500,000 1,500 -- --
Conversion of preferred stock to common stock 4/99 3,579,933 3,580 (275) --
Common stock issued for services 4/99 87,950 88 36,851 36,939
Common stock issued on exercise of employee stock
options 5/99 & 6/99 1,295,000 1,295 631,405 632,700
Common stock issued for services 6/99 20,000 20 11,580 11,600
Net loss -- -- -- --
----------- ----------- ----------- ----------
Balances at June 30, 1999 30,753,358 30,754 -- --
Common stock issued on exercise of employee stock options 7/99 & 8/99 950,000 950 502,550 503,500
Common stock cancelled previously issued for services 9/99 (300,000) (300) (29,700) (30,000)
Conversion of common to preferred 9/99 (3,952,000) (3,952) 3,952 4
Net loss -- -- -- --
----------- ----------- ----------- ----------
Balances at September 30, 1999 27,451,358 27,452 3,952 4
=========== =========== =========== ==========
</TABLE>
[REMAINDER OF OVER-WIDE TABLE]
<TABLE>
<CAPTION>
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Equity
------- ------- ------
<S> <C> <C> <C> <C>
Common stock issued to founding directors (7,200) -- 800
Net loss -- (5,701) (5,701)
---------- ---------- ----------
Balances at December 31, 1996 (7,200) (5,701) (4,901)
Common stock issued for cash 35,000 -- 35,750
Common stock issued for cash 100,000 -- 101,000
Common stock issued for cash 854,573 -- 856,307
Stock issuance cost (75,000) -- (75,000)
Net loss -- (426,438) (426,438)
---------- ---------- ----------
Balances at December 31, 1997 907,373 (432,139) 486,718
Preferred stock issued for cash 999,999 -- 1,000,000
Common stock issued as additional interest 29,950 -- 30,000
Common stock issued as additional interest 84,250 -- 84,375
Common stock issued as finder's fee 24,925 -- 25,000
Common stock issued for services 27,163 -- 27,188
Common stock issued for cash 24,950 -- 25,000
Preferred stock issued for cash 100,000 -- 100,000
Common stock issued for finder's fee 19,817 -- 19,878
Preferred stock issued for cash 25,000 -- 25,000
Common stock issued for investment banking
fee 9,970 -- 10,000
Conversion of preferred stock to common stock (426) -- --
Net loss -- (2,064,940) (2,064,940)
---------- ---------- ----------
Balances at December 31, 1998 2,252,971 (2,497,079) (231,781)
Preferred Stock issued for cash
Common Stock issued for finders fee
Common Stock issued for services
Conversion of preferred stock to common stock --
Conversion of preferred stock to common stock --
Conversion of preferred stock to common stock (8,018) --
Net loss -- (484,270) (484,270)
---------- ---------- ----------
Balances at March 31, 1999 2,532,983 (2,981,349) (424,607)
Common stock issued for interest payment
Common stock issued in exchange for debt repayment
Common stock issued for cash 148,500 150,000
Conversion of preferred stock to common stock (3,580) --
Common stock issued for services
Common stock issued on exercise of employee stock options
Common stock issued for services
Net loss -- (693,826) (693,826)
---------- ---------- ----------
Balances at June 30, 1999 3,421,227 (3,675,175) (223,194)
Common stock issued on exercise of employee stock options
Common stock cancelled previously issued for services
Conversion of common to preferred 3,948 (0)
Net loss -- (549,120) (549,120)
---------- ---------- ----------
Balances at September 30, 1999 3,898,025 (4,224,295) (298,814)
========== ========== ==========
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
ACCESS POWER, INC.
(A Development Stage Company)
Statements of Cash Flows
For the nine months ended September 30, 1999
and 1998 and the cumulative period from
October 10, 1996 (date of inception)
through September 30, 1999
For the period
October 10, 1996
1999 1998 through
(unaudited) September 30, 1999
----------- --------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,727,216) $(1,594,748) $(4,224,295)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 244,229 210,287 593,048
Loss on disposal of property and equipment 6,880 33,341
Stock issued for services 234,983 50,625 317,049
Stock issued for interest 14,000 114,375 128,375
Change in operating assets and liabilities:
Accounts receivable (67,877) (20,147) (97,022)
Accounts payable and accrued expenses 386,386 1,224,316 1,760,364
Deferred Revenue 21,490 -- 21,490
Other assets (151,138) -- (174,304)
2,955 (30,000) (18,815)
Inventory
----------- ----------- -----------
Net cash used in operating activities (1,035,308) (45,292) (1,660,769)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 10,050 -- 50,320
Purchase of property and equipment (48,862) (1,103,891) (1,588,717)
Note receivable (427,409) (999) (458,200)
----------- ----------- -----------
Net cash used in investing activities (466,221) (1,104,890) (1,996,597)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 1,411,200 1,025,000 3,480,057
Proceeds from issuance of notes payable 1,072,804 300,000 1,202,829
Principal payments on notes payable (130,440) (200,000) (140,329)
----------- ----------- -----------
Net cash provided by financing activities 2,353,564 1,125,000 4,542,557
----------- ----------- -----------
Net change in cash 852,035 (25,182) 885,191
Cash, at beginning of period 33,156 54,086 --
----------- ----------- -----------
Cash at end of period $ 885,191 $ 28,904 $ 885,191
=========== =========== ===========
</TABLE>
F-16
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Nature of development stage operations
--------------------------------------
Access Power, Inc., (API or the Company) was formed on October 10,
1996. The Company offers Internet Telephony (IT) which will
provide advanced computer telephony solutions to the global
consumer market place, with an emphasis on marketing to
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-17
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(1), Continued
Development stage operations for the period ended September 30,
1999 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 September 30, 1999,
the Company has net operating loss carryforwards of approximately
$4,224,000, 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 $555,000. The Company performs periodic
credit evaluations of its trade customers and generally does not
require collateral. The notes receivable consist primarily of
amounts due from employees from the exercise of stock options. The
amounts are due on these notes on the earlier of the sales of the
stock received on the exercise or May 1, 2000. Currently, all of
the Company's hardware and software is purchased from two
suppliers, however, management believes there are other
alternatives to these suppliers.
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-18
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(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
periods 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 Company regularly reviews the carrying value of software and
development costs that have been capitalized, and a loss is
recognized when the net realizable value falls below the
unamortized cost.
(Continued)
F-19
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(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 6).
(m) Preferred Stock
---------------
The Company's convertible preferred stock has the following
provisions:
o Each share of preferred stock is convertible into 1,000
shares of common stock under certain conditions pursuant
to the purchase agreement with the investor in the 6%
Convertible Debenture.
F-20
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(1) Property and Equipment
----------------------
Property and equipment consist of the following at September 30 and
December 31,:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Office furniture and equipment $ 59,908 $ 59,908
Computer hardware 1,150,419 1,172,339
Computer software 278,769 227,905
---------- -----------
1,489,096 1,460,152
Less accumulated depreciation and amortization 566,922 328,681
---------- -----------
$ 922,174 $ 1,131,471
========== ===========
</TABLE>
(3) Notes Payable
-------------
<TABLE>
<CAPTION>
Notes payable consist of the following at September 30 and December 31,:
1999 1998
---------- ---------
<S> <C> <C>
Promissory notes to stockholders bearing interest at 6% and 8%
payable on demand. Unsecured. $ 12,500 $ 20,136
Note payable to stockholder, bearing interest at 12%, payable upon
capital financing of the Company in excess of $3,000,000. 50,000 100,000
---------- =========
$ 62,500 $ 120,136
========== =========
</TABLE>
(4) 6% Convertible Debenture
------------------------
$1,000,000 of 6% Convertible Debentures were sold on September 30, 1999.
They are convertible into common stock by dividing each $100,000 debenture
by the lower of 75% of the average of the three lowest closing bid prices
during the preceding 22 trading days or 125% of such average price on
September 30, 1999 ($0.42), subject to certain adjustments.
F-21
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(5) Commitments
-----------
The Company leases its office space under a non-cancelable operating lease
with a remaining term of two years. Future minimum payments under this
lease are as follows:
Year Amount
---- ------
1999 9,068
2000 21,500
Rent expense for the periods ended September 30, 1999 and December 31,
1998 amounted to $39,043 and $50,817 respectively.
(6) Stock Options
-------------
In 1997, the Company established an incentive stock option plan (the Plan)
to provide an incentive to key employees of the Company who are in a
position to contribute materially to expanding and improving the Company's
profits, to aid in attracting and retaining employees of outstanding
ability and to encourage ownership of shares by employees. 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 September 30, 1999 amounted to 2,100,500, at an average
price of $0.33.
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
that 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,
F-22
<PAGE>
ACCESS POWER, INC.
(A Development Stage Company)
Notes to Financial Statements
September 30, 1999
(6) Continued
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
Nine months ended Year ended through
September 30, 1999 December 31, 1998 September 30, 1999
------------------------- ------------------------- -----------------------
<S> <C> <C> <C>
Pro forma net loss:
As reported $(1,727,216) $ (2,064,940) $ (4,224,295)
Pro forma (1,768,457) (2,132,712) (4,389,292)
Pro forma net loss per share
As reported (0.07) (0.18) (0.28)
Pro forma (0.07) (0.18) (0.29)
</TABLE>
The fair value of each option granted under the Plans is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1999 and 1998: no dividend
yield; expected volatility of the underlying stock of 90%; risk-free interest
rate of 4.98% and 5.27%, respectively, covering the related option period; and
expected lives of the options of 10 years based on the related option period.
F-23
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
<C> <S>
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN 18,014,855 SHARES
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY COMMON STOCK
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS 400,000 COMMON STOCK WARRANTS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ACCESS POWER, INC. NEITHER THE DELIVERY OF ACCESS POWER, INC.
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ACCESS POWER, INC. SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY __________________
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A PROSPECTUS
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES __________________
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
TABLE OF CONTENTS
ITEM PAGE
Summary ........................................... 2
Summary Financial Data............................... 4 December 10, 1999
Risk Factors ........................................ 5
Capitalization .....................................12
Dividend Policy .....................................12
Certain Market Information...........................13
Business ...........................................13
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............21
Management .........................................27
Principal and selling stockholders...................30
Selling Warrantholders ..............................31
Plan of Distribution ................................31
Shares Eligible for Future Sale......................32
Description of Capital Stock.........................33
Description of Warrants..............................34
Description of 6% Convertible Debentures ............36
Legal Matters ......................................37
Experts .............................................37
Additional Information...............................37
Index to Financial Statements........................F-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) payable by us
in connection with the issuance and distribution of the shares of common stock.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee............................. 1,547.00
NASD Filing Fees and Blue Sky Fees and Expenses................................. 5,000.00
Printing and Engraving Expenses................................................. 1,000.00
Legal Fees and Expenses......................................................... 20,000.00
----------
Total .............................................................. 27,547.00
==========
</TABLE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
Exhibit
NO. DESCRIPTION OF EXHIBIT
3.1 ................. Amended Articles of Incorporation of Access
Power, Inc. (filed as Exhibit 3.1 of Access
Power, Inc.'s quarterly report on Form
10-QSB for the quarter ended September 30,
1999, is hereby incorporated by reference)
3.2 ................. Bylaws of the Registrant (filed as Exhibit
3.2 of Access Power, Inc.'s annual report on
Form 10-KSB for the year ended December 31,
1999, is hereby incorporated by reference)
4.1 ................. Form of common stock Certificate of the
Registrant (filed as Exhibit 4.1 of Access
Power, Inc.'s annual report on Form 10-KSB
for the year ended December 31, 1999, is
hereby incorporated by reference)
4.2 ................. 6% Convertible Debenture due September 30,
2001(filed as Exhibit 4.2 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
4.3 ................. Warrant to purchase common stock, par value
$.001 per share, of Access Power, Inc.
(filed as Exhibit 4.3 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
5.1 ................. Opinion of L. Van Stillman with respect to
the legality of the securities being
registered
10.1 ................. International Master Franchise Agreement
between Access Power, Inc. and Access Power
Canada, Inc. (filed as Exhibit 10.1 of
Access Power, Inc.'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 Access Power, Inc.'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 Access Power, Inc.'s
Registration Statement on Form SB-2 (File
No. 333-65069) is hereby incorporated by
reference)
II-1
<PAGE>
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 Access Power, Inc.'s Registration
Statement on Form SB-2 (File No. 333-65069)
is hereby incorporated by reference)
10.5 ................. Agreement with Howard Kaskel dated July 1,
1998 (filed as Exhibit 10.5 of Access Power,
Inc.'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 Access Power,
Inc.'s Registration Statement on Form SB-2
(File No. 333-65069) is hereby incorporated
by reference)
10.7* ................. Internet Telephony Services Agreement dated
December 14, 1998, between Access Power,
Inc. and Access Universal, Inc. (filed as
Exhibit 10.7 of Access Power, Inc.'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 Access Power, Inc.'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 Access Power, Inc.'s Registration
Statement on Form SB-2 (File No. 333-65069)
is hereby incorporated by reference)
10.10 ................. Retainer Agreement dated September 23, 1999,
among Acces Power, Inc., Tatum CFO Partners,
LLP, and Howard Kaskel (filed as Exhibit
10.1 of Access Power, Inc.'s quarterly
report on Form 10-QSB for the quarter ended
September 30, 1999, is hereby incorporated
by reference)
10.11 ................. Securities Purchase Agreement dated as of
September 30, 1999, among Access Power,
Inc., certain stockholders of Access Power,
Inc. named therein, and Bamboo Investors,
LLC(filed as Exhibit 10.2 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
II-3
<PAGE>
10.12 ................. Warrant to purchase 6% Convertible
Debentures and common stock warrants of
Access Power, Inc. (filed as Exhibit 10.3 of
Access Power, Inc.'s quarterly report on
Form 10-QSB for the quarter ended September
30, 1999, is hereby incorporated by
reference)
10.13 ................. Registration Rights Agreement, dated as of
September 30, 1999, by and among Access
Power, Inc. and Bamboo Investors LLC (filed
as Exhibit 10.4 of Access Power, Inc.'s
quarterly report on Form 10-QSB for the
quarter ended September 30, 1999, is hereby
incorporated by reference)
10.14 ................. Share Exchange Agreement dated as of
September 30, 1999 between Access Power,
Inc. and each of Glenn Smith, Maurice
Matovich, Howard Kaskel, and Tod Smith
(filed as Exhibit 10.5 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
10.15* ................. Web services agreement as of August 6, 1999,
between Access Power, Inc. and
Lycos-Bertelsmann GmbH (filed as Exhibit
10.6 of Access Power, Inc.'s quarterly
report on Form 10-Q for the quarter ended
September 30, 1999, is hereby incorporated
by reference)
10.16 ................. Consulting Agreement dated as of October 4,
1999 between Access Power, Inc. and
Northstar Advertising, Inc. (filed as
Exhibit 10.7 of Access Power, Inc.'s
quarterly report on Form 10-Q for the
quarter ended September 30, 1999, is hereby
incorporated by reference)
23.1 ................. Consent of L. Van Stillman, (included in
Exhibit 5.1).
23.2 ................. Consent of Parks, Tschopp, Whitcomb & Orr,
dated November 1, 1999.**
* Certain portions of this exhibit have been omitted pursuant to the
grant of a request for confidential treatment.
** Previously filed.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
city of Ponte Vedra, State of Florida, on the 7th day of December, 1999.
ACCESS POWER, INC.
By: /s/ Glenn Smith
Glenn Smith
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed by the following persons on
the 7th day of December, 1999, in the capacities indicated.
SIGNATURE POSITION
/s/ Glenn A. Smith Glenn A. Smith, President and
- --------------------------- Chief Executive Officer and
Director (Principal Executive
Officer)
* Howard Kaskel, Chief Financial
- ---------------------------- Officer (Principal Financial
and Accounting Officer)
* Tod R. Smith, Director
- ----------------------------
/s/ Maurice J. Matovich Maurice J. Matovich, Director
- ----------------------------
* By Power of Attorney
/s/ Glenn A. Smith
Glenn A. Smith
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
3.1 ................. Amended Articles of Incorporation of Access
Power, Inc. (filed as Exhibit 3.1 of Access
Power, Inc.'s quarterly report on Form
10-QSB for the quarter ended September 30,
1999, is hereby incorporated by reference)
3.2 ................. Bylaws of the Registrant (filed as Exhibit
3.2 of Access Power, Inc.'s annual report on
Form 10-KSB for the year ended December 31,
1999, is hereby incorporated by reference)
4.1 ................. Form of common stock Certificate of the
Registrant (filed as Exhibit 4.1 of Access
Power, Inc.'s annual report on Form 10-KSB
for the year ended December 31, 1999, is
hereby incorporated by reference)
4.2 ................. 6% Convertible Debenture due September 30,
2001(filed as Exhibit 4.2 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
4.3 ................. Warrant to purchase common stock, par value
$.001 per share, of Access Power, Inc.
(filed as Exhibit 4.3 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
5.1 ................. Opinion of L. Van Stillman with respect to
the legality of the securities being
registered
10.1 ................. International Master Franchise Agreement
between Access Power, Inc. and Access Power
Canada, Inc. (filed as Exhibit 10.1 of
Access Power, Inc.'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 Access Power, Inc.'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 Access Power, Inc.'s
Registration Statement on Form SB-2 (File
No. 333-65069) is hereby incorporated by
reference)
<PAGE>
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 Access Power, Inc.'s Registration
Statement on Form SB-2 (File No. 333-65069)
is hereby incorporated by reference)
10.5 ................. Agreement with Howard Kaskel dated July 1,
1998 (filed as Exhibit 10.5 of Access Power,
Inc.'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 Access Power,
Inc.'s Registration Statement on Form SB-2
(File No. 333-65069) is hereby incorporated
by reference)
10.7* ................. Internet Telephony Services Agreement dated
December 14, 1998, between Access Power,
Inc. and Access Universal, Inc. (filed as
Exhibit 10.7 of Access Power, Inc.'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 Access Power, Inc.'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 Access Power, Inc.'s Registration
Statement on Form SB-2 (File No. 333-65069)
is hereby incorporated by reference)
10.10 ................. Retainer Agreement dated September 23, 1999,
among Acces Power, Inc., Tatum CFO Partners,
LLP, and Howard Kaskel (filed as Exhibit
10.1 of Access Power, Inc.'s quarterly
report on Form 10-QSB for the quarter ended
September 30, 1999, is hereby incorporated
by reference)
10.11 ................. Securities Purchase Agreement dated as of
September 30, 1999, among Access Power,
Inc., certain stockholders of Access Power,
Inc. named therein, and Bamboo Investors,
LLC(filed as Exhibit 10.2 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
<PAGE>
10.12 ................. Warrant to purchase 6% Convertible
Debentures and common stock warrants of
Access Power, Inc. (filed as Exhibit 10.3 of
Access Power, Inc.'s quarterly report on
Form 10-QSB for the quarter ended September
30, 1999, is hereby incorporated by
reference)
10.13 ................. Registration Rights Agreement, dated as of
September 30, 1999, by and among Access
Power, Inc. and Bamboo Investors LLC (filed
as Exhibit 10.4 of Access Power, Inc.'s
quarterly report on Form 10-QSB for the
quarter ended September 30, 1999, is hereby
incorporated by reference)
10.14 ................. Share Exchange Agreement dated as of
September 30, 1999 between Access Power,
Inc. and each of Glenn Smith, Maurice
Matovich, Howard Kaskel, and Tod Smith
(filed as Exhibit 10.5 of Access Power,
Inc.'s quarterly report on Form 10-QSB for
the quarter ended September 30, 1999, is
hereby incorporated by reference)
10.15* ................. Web services agreement as of August 6, 1999,
between Access Power, Inc. and
Lycos-Bertelsmann GmbH (filed as Exhibit
10.6 of Access Power, Inc.'s quarterly
report on Form 10-Q for the quarter ended
September 30, 1999, is hereby incorporated
by reference)
10.16 ................. Consulting Agreement dated as of October 4,
1999 between Access Power, Inc. and
Northstar Advertising, Inc. (filed as
Exhibit 10.7 of Access Power, Inc.'s
quarterly report on Form 10-Q for the
quarter ended September 30, 1999, is hereby
incorporated by reference)
23.1 ................. Consent of L. Van Stillman, (included in
Exhibit 5.1).
23.2 ................. Consent of Parks, Tschopp, Whitcomb & Orr,
dated November 1, 1999**
* Certain portions of this exhibit have been omitted pursuant to the
grant of a request for confidential treatment.
** Previously filed.
L. VAN STILLMAN, P.A.
1177 GEORGE BUSH BOULEVARD, SUITE 308
ATTORNEY-AT-LAW Delray Beach, Florida 33483
TELEPHONE (561) 330-9903
L. VAN STILLMAN FACSIMILE (561) 330-9116
ADMITTED IN FLORIDA AND PENNSYLVANIA E-MAIL [email protected]
December 7, 1999
Access Power, Inc.
10033 Sawgrass Drive West
Suite 100
Ponte Vedra Beach, FL 32082
RE: ACCESS POWER, INC.
REGISTRATION STATEMENT SB-2 (FILE NO. 333-90093)
Gentlemen:
At your request, I have examined the Registration Statement on Form
SB-2 (the "Registration Statement") filed by Access Power, Inc. (the "Company"),
a Florida corporation, with the Securities and Exchange Commission with respect
to the registration under the Securities Act of 1933, as amended, of 18,014,855
shares of Common Stock, par value $0.001 per share, of the Company (the "Common
Stock") and 400,000 Warrants to purchase common stock (the "Warrants"), to be
sold by certain selling shareholders of the Company, as identified in the
Registration Statement.
As your corporate counsel, and in connection with the preparation of
this opinion, I have examined the originals or copies of such documents,
corporate records, certificates of public officials and officers of the Company,
and other instruments related to the authorization and issuance of the Common
Stock, as I deemed relevant or necessary for the opinion expressed herein. Based
upon the foregoing, it is my opinion that the shares of Common Stock to be sold
by the selling shareholders will, when sold, be legally issued, fully paid, and
nonassessable and that the Company has the power, and has properly issued the
400,000 Warrants.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of my name in the "Legal
Matters" section of the Registration Statement, including the Prospectus
constituting a part thereof, and any amendments thereto.
Very truly yours,
LAW OFFICE OF L. VAN STILLMAN, P.A.
/s/ L. Van Stillman
L. Van Stillman, Esq.
LVS:kni
