UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ______________ to ________________
Commission File Number: 000-32849
AccuPoll Holding Corp.
----------------------
(Exact name of small business issuer as specified in its charter)
Nevada 11-2751630
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15101 Red Hill Ave # 220, Tustin, Ca 92780
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(Address of principal executive offices)
(949) 200-4000
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
--- ---
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
147,477,284 shares of common stock
as of December 31, 2003
PART I FINANCIAL INFORMATION
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ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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ASSETS
December 31,
2003 June 30,
(Unaudited) 2003
------------ ------------
CURRENT ASSETS
Cash $ 5,839 $ --
Accounts receivable, net 66,876 --
Inventories 96,945 144,206
Common stock subscribed 750,000
Prepaid expenses 47,807 2,500
------------- ------------
TOTAL CURRENT ASSETS 967,467 146,706
Property and equipment, net 34,383 --
Capitalized software development costs 2,220,379 1,403,899
Goodwill 2,542,752 --
Available for sale securities 4,478,315 --
Other assets 3,494 --
------------- ------------
TOTAL ASSETS $ 10,246,790 $ 1,550,605
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,526,773 $ 931,503
Related party payables 1,389,450 872,940
Deferred revenue 143,848 --
Line of credit 280,000 --
Convertible subordinated debt 500,000 --
Convertible debt, net of discount 1,533,686 --
Notes payable 15,006 --
Notes payable to related parties 211,493 175,000
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TOTAL CURRENT LIABILITIES 5,600,256 1,979,443
------------- ------------
Put liability related to warrant issuances 163,760 113,750
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Convertible Series A preferred stock,
$0.01 par value, 80,000 shares authorized,
80,000 and 71,529 shares issued and
outstanding, respectively (liquidation
preference of zero) 800 715
Common stock, par value of $0.001,
600,000,000 shares authorized;
147,477,284 and 112,945,963 shares
issued and outstanding, respectively 147,477 112,946
Additional paid in capital 16,250,356 7,253,898
Accumulated deficit (11,915,859) (7,910,147)
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TOTAL STOCKHOLDERS' EQUITY 4,482,774 (542,588)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,246,790 $ 1,550,605
============= ============
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Page F-1 See notes to these condensed consolidated financial statements
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ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Month Periods Ended December 31, 2003 and 2002
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December 31, December 31,
2003 2003
(Unaudited) (Unaudited)
------------- ------------
NET SALES $ 361,232 $ --
COST OF SALES 142,503 --
------------- ------------
GROSS PROFIT 218,729 --
OPERATING EXPENSES
General and administrative 809,606 1,506,914
Professional fees 21,542 90,344
Salaries and related 262,761 66,355
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1,093,909 1,663,613
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OPERATING LOSS (875,180) (1,663,613)
INTEREST EXPENSE 1,809,509 20,000
------------- ------------
NET LOSS $ (2,684,689) $(1,683,613)
============= ============
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.02) $ (0.02)
============= ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 135,473,636 105,573,045
============= ============
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Page F-2 See notes to these condensed consolidated financial statements
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ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Month Periods Ended December 31, 2003 and 2002
- -------------------------------------------------------------------------------
December 31, December 31,
2003 2002
(Unaudited) (Unaudited)
------------- ------------
NET SALES $ 361,232 $ --
COST OF SALES 142,503 --
------------- ------------
GROSS PROFIT 218,729 --
OPERATING EXPENSES
General and administrative 1,693,372 2,090,954
Professional fees 53,066 173,874
Salaries and related 350,088 137,424
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2,096,526 2,402,252
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OPERATING LOSS (1,877,797) (2,402,252)
INTEREST EXPENSE, NET 2,127,915 20,000
------------- ------------
NET LOSS $ (4,005,712) $(2,422,252)
============= ============
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.03) $ (0.02)
============= ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 126,105,261 104,556,788
============= ============
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Page F-3 See notes to these condensed consolidated financial statements
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ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended December 31, 2003 and 2002
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Cash flows from operating activities: 2003 2002
(Unaudited) (Unaudited)
------------- -------------
Net loss $ (4,005,712) $ (2,422,252)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,209 --
Amortization of estimated fair market value of warrants
granted and beneficial conversion feature in connection
with the issuance of convertible notes payable 1,533,686 20,000
Amortization of beneficial conversion feature in connection
with the issuance of subordinated convertible notes 500,000 --
Estimated fair market value of options and warrants
granted for services 168,000 965,000
Vesting of previously issued stock options 136,545 --
Estimated fair market value of common stock issued for services 34,980 229,025
Changes in operating assets and liabilities:
Accounts receivable 122,286 --
Inventories (1,609) --
Prepaid expenses and other assets (37,765) (2,500)
Accounts payable and accrued expenses 38,809 104,491
Related party payables 516,510 362,550
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Net cash used in operating activities (990,061) (743,686)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (8,959) --
Increase in capitalized software development costs (816,480) (270,260)
Proceeds from repayment of note receivable -- 300,000
Cash of acquired Company 2,368 --
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Net cash (used in) provided by investing activities (823,071) 29,740
------------- -------------
Cash flows from financing activities:
Proceeds from the issuance of notes payable to related parties 91,493 --
Principal payments on notes payable to related parties (55,000) --
Proceeds from issuance of convertible subordinated debt 500,000 --
Proceeds from issuance of convertible notes payable 390,000 --
Proceeds from the issuance of notes payable 7,496 50,000
Proceeds from the issuance of common stock, net of commissions 25,000 139,815
Net increase in line of credit 75,000 --
Proceeds from issuance of common stock upon exercise of
warrants, net of commissions 784,982 345,048
------------- -------------
Net cash provided by financing activities 1,818,971 534,863
------------- -------------
Net increase (decrease) in cash 5,839 (179,083)
Cash at beginning of period -- 287,159
------------- -------------
Cash at end of period $ 5,839 $ 108,076
============= =============
Supplemental disclosure of non-cash financing and operating activities
See accompanying notes to the condensed consolidated financial statements for
additional information relating to non-cash investing and financing activities.
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Page F-4 See notes to these condensed consolidated financial statements
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 1: BASIS OF REPORTING
The accompanying condensed consolidated financial statements have been prepared
in accordance with SEC regulations for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. The unaudited condensed consolidated financial
statements should, therefore, be read in conjunction with the consolidated
financial statements and notes thereto in the Form 10-KSB annual report of the
Company, as amended, for the year ended June 30, 2003. In the opinion of
management, all adjustments (consisting of normal and recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for the three and six month periods ended December 31, 2003 are not
necessarily indicative of the results that may be expected for the entire fiscal
year.
As a result of the acquisition discussed in Note 9, the Company ceased to be a
development stage enterprise during the three months ended December 31, 2003.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, AccuPoll, Inc. and Z Prompt, Inc. All
significant inter-company balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
AccuPoll Holding Corp. (the "Company"), a Nevada Corporation, does business
through its wholly owned subsidiaries, AccuPoll, Inc. and Z Prompt, Inc.
AccuPoll, Inc. is engaged in the design and development of an intuitive
touch-screen interface (the "Voting System") that provides a polling place
electronic voting solution that is completely confidential, reliable, accurate,
immediate, secure and auditable. While maintaining and preserving the current
voter experience, the Company adds the ability to accurately capture in
electronic form a voter's true intent, while simultaneously preserving the
legally binding vote - the official paper ballot. The Voting System has the
ability to simultaneously produce two different electronic audit trails
(recorded on both the polling place administrative work station and the local
voting station), in addition to generating a printed-paper ballot. The Company
completed a reverse merger with a publicly traded company in May 2002 and trades
on the Over-The-Counter Bulletin Board under the symbol "ACUP.OB."
Z Prompt, Inc. provides a number of standard service programs, as well as
customized programs, to fit the special needs of its customers. Z Prompt, Inc.
offers services such as on-site hardware service, installation and training,
inventory management and preventive maintenance.
Due to the acquisition of an operating subsidiary, Z Prompt, Inc., in October
2003, as described below, the Company emerged from the development stage.
Page F-5
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 1: BASIS OF REPORTING (continued)
STOCK-BASED COMPENSATION
As of December 31, 2003, the Company has not adopted a stock-based employee
compensation plan. The Company accounts for stock-based compensation to
employees under the recognition and measurement principles of APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related Interpretations. The
Company did not incur any stock-based employee compensation cost for the three
months ended December 31, 2003 and 2002 under APB Opinion No. 25. The following
table illustrates the effect on net income and loss per common share if the
Company had applied the fair value recognition provisions of FASB Statement No.
123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net loss available to common $(2,684,689) $(1,683,613) $(4,005,712) $(2,422,252)
stockholders, as reported
Pro forma compensation expense (355,000) (150,000) (700,000) (295,000)
----------- ----------- ----------- -----------
Pro forma net loss available to
common stockholders $(3,039,689) $(1,833,613) $(4,705,712) $(2,717,252)
=========== =========== =========== ===========
Loss per share, as reported
Basic and diluted $ (0.02) $ (0.02) $ (0.03) $ (0.02)
=========== =========== =========== ===========
Loss per share, pro forma
Basic and diluted $ (0.02) $ (0.02) $ (0.04) $ (0.03)
=========== =========== =========== ===========
BENEFICIAL CONVERSION FEATURE
The convertible feature of convertible notes payable and subordinated
convertible note payable provide for a rate of conversion that is below market
value. Such feature is normally characterized as a "beneficial conversion
feature" ("BCF"). Pursuant to Emerging Issues Task Force Issue No. 98-5 ("EITF
98-5"), "Accounting For Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratio" and Emerging Issues Task
Force Issue No. 00-27,"Application of EITF Issue No. 98-5 To Certain Convertible
Instruments," the relative fair values of the BCFs have been recorded in the
condensed consolidated financial statements as a discount from the face amount
of the respective debt instrument. The BCFs related to the attached warrants
will be amortized over the life of the notes and the BCF related to the notes
will be expensed in accordance with the terms of conversion.
Page F-6
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 1: BASIS OF REPORTING (continued)
INVENTORIES
Inventories are stated at the lower of cost or market and consist entirely of
finished goods. Cost is determined on a weighted average basis that approximates
the first-in, first-out basis. Market is determined by comparison with recent
purchases or net realizable value. Such net realizable value is based on
management's forecast for sales of the Company's products or services in the
ensuing years. The industry in which the Company operates is characterized by
technological advancement and change. Should demand for the Company's products
prove to be significantly less than anticipated, the ultimate realizable value
of the Company's inventories could be substantially less than the amount shown
in the accompanying condensed consolidated balance sheets.
REVENUE RECOGNITION
The Company records sales when goods are shipped to the customer or upon the
completion of the service. Amounts received prior to the completion of the
earning process, such as maintenance contracts paid in advance, are included in
deferred revenues in the accompanying condensed consolidated financial
statements.
The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin
101 ("SAB 101"), as amended, "REVENUE RECOGNITION," which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosures related to revenue recognition
policies in financial statements filed with the SEC. Management of the Company
believes that its revenue recognition policy conforms to SAB 101.
MARKETABLE SECURITIES
The Company classifies its investments in marketable securities as
"available-for-sale" in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). The Company does not have any investments
classified as "trading" or "held to maturity."
Available-for-sale securities are carried at fair value with the unrealized gain
or loss, net of tax, reported in other comprehensive income. The fair value of
investment securities was determined by and independent valuation (see Note 8).
Page F-7
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 1: BASIS OF REPORTING (continued)
GOODWILL
Goodwill represents the excess purchase price over the fair value of net assets
acquired. The Company has applied the provisions of Statement of Financial
Accounting Standards No. 142, ("SFAS 142"), "Goodwill and Other Intangible
Assets," in accounting for goodwill. SFAS 142 requires that goodwill and other
intangible assets that have indefinite lives not be amortized but instead be
tested at least annually for impairment, or more frequently when events or
changes in circumstances indicate that the asset might be impaired. For
indefinite lived intangible assets, impairment is tested by comparing the
carrying value of the asset to the fair value of the reporting unit to which
they are assigned. The Company recorded no impairments to its goodwill during
the period ended December 31, 2003.
IMPAIRMENT OF LONG LIVED ASSETS
The Company periodically evaluates the carrying value of its long-lived assets
under the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets, and supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Effects of
the Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," for the disposal of a segment
of a business (as previously defined in that Opinion). SFAS No. 144 also amends
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation of a subsidiary of which control is
likely to be temporary.
SFAS No. 144 requires impairment losses to be recorded on long-lived assets used
in operations, including amortizable intangible assets when indicators of
impairment are present. Indicators of impairment include an economic downturn or
a change in the assessment of future operations. In the event a condition is
identified that may indicate an impairment issue, an assessment is performed
using a variety of methodologies, including analysis of undiscounted future cash
flows, estimates of sales proceeds and independent appraisals. If such assets
are impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds the estimated fair market value of the
assets. Assets to be disposed of are reported at the lower of the carrying value
or estimated fair market value, less cost to sell. At December 31, 2003, the
Company feels that no impairment charges are necessary.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period condensed consolidated
financial statements to conform to current year presentation.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
is effective (except for certain mandatorily redeemable noncontrolling interests
in limited-life subsidiaries) for financial instruments entered into or modified
after May 31, 2003. Otherwise, this pronouncement is effective for public
companies at the beginning of the first interim period beginning after June 15,
2003. The Company adopted SFAS No. 150 on the aforementioned effective dates.
The adoption of this pronouncement did not have a material impact on the
Company's results of operations or financial condition.
Page F-8
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB 51," as
amended. The primary objectives of FIN No. 46 are to provide guidance on the
identification of entities for which control is achieved through means other
than voting rights (variable interest entities or "VIEs"), and how to determine
when and which business enterprise should consolidate the VIE. This new model
for consolidation applies to an entity for which either: (a) the equity
investors do not have a controlling financial interest; or (b) the equity
investment at risk is insufficient to finance that entity's activities without
receiving additional subordinated financial support from other parties. In
addition, FIN No. 46 requires that both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE make additional
disclosures. As amended in December 2003, the effective dates of FIN No. 46
("FIN No. 46R") for public entities that are not small business issuers are as
follows: (a) For interests in special-purpose entities: the first period ended
after December 15, 2003; and (b) For all other types of VIEs: periods ending
after March 15, 2004.
As disclosed in the notes to the Company's June 30, 2003 consolidated financial
statements previously filed with the Securities and Exchange Commission ("SEC")
in amended Form 10-KSB, the Company is associated with Web Tools International,
Inc. ("WTI"). Because of common ownership between the Company and WTI and other
factors discussed in FIN No. 46R, the Company has determined that (a) WTI is a
VIE and (b) the Company is its primary beneficiary. Therefore, the accounts of
WTI will be consolidated in the Company's March 31, 2004 condensed consolidated
interim financial statements.
Approximately 98% of WTI's unaudited revenues for the six months ended December
31, 2003 was derived from the Company's purchase of services from WTI.
Condensed, unaudited balance sheet information of WTI as of December 31, 2003 is
presented below.
Current assets $ 1,400,000
===============
Total assets $ 1,410,000
===============
Current liabilities $ 545,600
===============
Total stockholders' equity $ 864,400
===============
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the SEC did not or are not believed by management to have a
material impact on the Company's present or future consolidated financial
statements.
Page F-9
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 3: CAPITALIZED SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86
"Accounting for the Costs of Computer Software to be Sold Leased or Otherwise
Marketed," the Company capitalizes certain costs related to the development of
new software products or the enhancement of existing software products for sale
or license. These costs are capitalized from the point in time that
technological feasibility has been established, as evidenced by a working model
or detailed working program design to the point in time that the product is
available for general release to customers. Capitalized development costs will
be amortized on a straight-line basis over the estimated economic lives of the
products (no longer than three years), beginning with the general product
release to customers. Research and development costs incurred prior to
establishing technological feasibility and costs incurred subsequent to general
product release to customers are charged to expense as incurred. The Company
periodically evaluates whether events or circumstances have occurred that
indicate that the remaining useful lives of the capitalized software development
costs should be revised or that the remaining balance of such assets may not be
recoverable.
At December 31, 2003, management believes that no revisions to the remaining
useful lives or write-down of capitalized software development costs are
required. Since the product has not been released to customers, the amounts
included in the accompanying condensed consolidated balance sheet have no
related amortization.
The product is currently undergoing federal certification testing. Federal
certification testing is expected to by completed in February 2004. Once federal
certification has been obtained, the product will be a saleable product in the
United States. However, additional state level certifications may be required in
order to sell the voting system in certain states.
NOTE 4: LINE OF CREDIT
The Company has a revolving line of credit agreement (the "Line") with a
financial institution that matures in August 2004, as amended. The Line bears
interest at 5% per annum. The terms of the Line provide for borrowings of up to
$280,000. At December 31, 2003, the Company's outstanding borrowings totaled
$280,000.
Page F-10
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 5: CONVERTIBLE SUBORDINATED CONVERTIBLE DEBT
In July 2003, the Company borrowed $500,000 under a subordinated convertible
note payable, (the "Subordinated Convertible Note"), which bears interest at 7%
per annum. All borrowings and accrued interest were due in January 2004. In
February 2004, the Subordinated Convertible Note was converted into common stock
of the Company at $0.30 per share, in accordance with the terms of the
agreement.
A beneficial conversion feature of $500,000 was recorded during the period ended
September 30, 2003 and is presented as a debt discount to the Subordinated
Convertible Note. Such discount is being amortized to interest expense over the
term of the Subordinated Convertible Note. The outstanding balance of the
Subordinated Convertible Note at December 31, 2003 was $458,333, net of a
$41,667 debt discount.
NOTE 6: CONVERTIBLE NOTES PAYABLE
$1,250,000 CONVERTIBLE DEBENTURE
In November 2003, the Company borrowed an additional $40,000 under the existing
convertible debenture. All borrowings are due in June 2004, as amended (see
below), with monthly interest payments on the outstanding balance. The
Convertible Note A may be converted into common stock of the Company at the
lesser of: (a) $0.06 per share or (b) 50% of the averaged three lowest closing
prices of the Company's common stock for the 20 trading days immediately
preceding the conversion date, at any time at the option of the noteholder, as
defined.
In November 2003, the Company granted a warrant to purchase 6,000,000 shares of
the Company's restricted common stock at an exercise price of $0.06 per share in
connection with a deferral of the maturity date of an existing convertible
instrument to June 2004 and an increase to the available borrowings to
$1,250,000. The warrants vested upon grant and expire in October 2008.
The Company recorded the relative fair value of the warrant, which approximated
$40,000, as a debt discount. Such discount will be amortized to interest expense
over the term of the convertible debenture. The total outstanding balance of the
convertible debenture, as amended at December 31, 2003, including prior
borrowings, was $183,686, net of an unamortized debt discount of $106,314.
Page F-11
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 6: CONVERTIBLE NOTES PAYABLE (continued)
$5,000,000 CONVERTIBLE DEBENTURES
In November 2003, the Company entered into a Security Agreement and Secured
Convertible Note. Pursuant to the agreements, the Company received a $5.0
million revolving credit facility, as amended, in the form of two seven-month
Convertible Notes secured by a security interest in substantially all of the
Company's assets. There are no restrictions on the borrowings on the Convertible
Note.
The Convertible Note Holder has the right to convert all or any portion of the
outstanding principal amount and/or accrued interest and fees due and payable
into shares of the Company's restricted common stock at the lesser of: (a) $0.06
per share or (b) 50% of the averaged three lowest closing prices of the
Company's common stock for he 20 trading days immediately preceding the
conversion date, at any time at the option of the Convertible Note Holder, as
defined.
During the three month period ended December 31, 2003, the Company borrowed
$1,200,000 in connection with the purchase of common stock of Material
Technologies, Inc. and $150,000 for working capital purposes. The Company
recorded the beneficial conversion feature, which totaled $1,350,000, as
interest expense in the accompanying condensed consolidated financial statements
based on the conversion provisions of the debenture.
NOTE 7: COMMITMENTS AND CONTINGENCIES
In November 2002, the Company entered into a Location Incentives Agreement (the
"Agreement") with the Amarillo Economic Development Corporation ("AEDC") to
establish the Company's customer service center and voting machine repair
operations in Amarillo, Texas. According to the terms of the agreement, the AEDC
will pay the Company $250,000 upon the Company's execution of a lease for
facilities in Amarillo. The funds advanced under this agreement are to be used
solely for the operations in Amarillo. If the Company does not meet certain
minimum employment requirements, as defined, it would be required to repay all
amounts advanced. In connection with the Agreement, the Company granted warrants
to purchase 250,000 shares of the Company's restricted Common Stock at an
exercise price of $1.04 per share, valued at approximately $205,000 (based on
the Black-Scholes pricing model), which was expensed upon issuance. In January
2003, the Company received the $250,000 and has included such amount in accounts
payable and accrued expenses in the accompanying condensed consolidated balance
sheet, as the Company has yet to fulfill its obligations related to the
agreement.
Page F-12
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 7: COMMITMENTS AND CONTINGENCIES (continued)
During the year ended June 30, 2003, the Company granted warrants to purchase
250,000 shares of the Company's restricted common stock at an exercise price of
$0.91 per share valued at $206,000 (based on the Black-Scholes pricing model) to
a consultant for services rendered, which has been expensed in the consolidated
statement of operations for the year ended June 30, 2003. In connection with the
issuance, the warrant holder may cause the Company to re-purchase any warrants
not previously exercised by the warrant holder on or after June 2006 for $0.46
per share. Accordingly, a related liability of $113,750 has been recorded in the
accompanying consolidated balance sheet, representing the Company's re-purchase
liability.
In July 2003, the Company granted warrants to purchase 300,000 shares of the
Company's restricted common stock at an exercise price of $0.90 per share valued
at $168,000 (based on the Black-Scholes pricing model) to a consultant for
services rendered, which has been expensed in the condensed consolidated
statement of operations for the period ended September 30, 2003. In connection
with the issuance, the warrant holder may cause the Company to re-purchase any
warrants not previously exercised by the warrant holder on or after July 15,
2006 for approximately $0.17 per share. Accordingly, a related liability of
$50,010 has been recorded in the accompanying condensed consolidated balance
sheet, representing the Company's re-purchase liability.
In November 2003, the Company executed a non-binding letter of intent to
purchase a Company that provides consulting, software, support and services to
the election industry throughout the United States of America.
NOTE 8: STOCKHOLDERS' EQUITY
PREFERRED STOCK
In December 2003, the Company issued 8,471 shares of Series A preferred stock
and $1,200,000 of convertible notes payable (see Note 5) for 3,325,000 shares of
free trading common stock of Material Technologies, Inc., a publicly traded
company on the Over-The-Counter Bulletin Board under the symbol "MTNA." The
Company obtained an independent valuation of the common stock received, which
approximated $4,478,000. The Company obtained the common stock of Material
Technologies, Inc. in order to gain access to capital through the potential
subsequent sales of such stock. However, the Company has not determined the
marketability of such shares or the need to liquidate such shares in the near
term and has included the value as available for sale securities in the
accompanying condensed consolidated balance sheet as of December 31, 2003. As of
the date of this filing, the Company has not sold any of the common shares.
Page F-13
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 8: STOCKHOLDERS' EQUITY (continued)
COMMON STOCK
In December 2003, the Company issued 6,250,000 shares of restricted common stock
for $750,000, which was collected in January 2004 and is presented as common
stock subscription receivable in the accompanying condensed consolidated
financial statements.
During the three-month period ended December 31, 2003, the Company issued 5,000
shares of restricted common stock valued at $2,050 (estimated based on the
market price per share on the date of grant) to a consultant for services
rendered.
During the three-month period ended December 31, 2003, the Company issued
933,125 shares of restricted common stock in connection with the cashless
exercise of warrants.
During the three-month period ended December 31, 2003, the Company issued
2,710,008 shares of restricted common stock in connection with the exercise of
warrants for $732,213.
During the three-month period ended December 31, 2003, the Company issued 30,000
shares of restricted common stock in connection with proceeds received in a
prior period.
In October 2003, the Company issued 7,741,936 shares of restricted common stock
as collateral for potential cash borrowings approximating $1,600,000 ("Secured
Note"), less applicable commissions. The Secured Note will accrue interest at
5.5%, will require quarterly interest only payments through maturity and matures
two years from receipt of proceeds. As of the date of this filing, the Company
has not received any proceeds or paid any related commissions.
STOCK OPTIONS AND WARRANTS
As discussed in Note 6, in November 2003, the Company granted warrants to
purchase 6,000,000 shares of the Company's restricted common stock at an
exercise price of $0.06 per share, valued at $39,800 (the pro-rata value based
on the Black-Scholes pricing model and the related borrowings) in connection
with the amendment of a convertible note payable. The Company recorded the value
as a debt discount. Such discount will be amortized to interest expense over the
term of the related debenture. The warrants vested upon grant and expire in
October 2008.
During the three months ended December 31, 2003, the Company granted warrants to
purchase an aggregate of 13,290,986 shares of the Company's restricted Common
Stock at exercise prices ranging from $0.12 to $1.35 per share in connection
with equity fund raising activities. These warrants vested upon grant and are
exercisable through December 2008. Such warrants were issued in connection with
equity fund raising activities, and accordingly, there was no related expense
recorded in the accompanying consolidated financial statements.
Page F-14
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 9: ACQUISITION
On April 9, 2003, the Company entered into an agreement with Z Prompt, Inc. ("Z
Prompt"), a California corporation. The Company purchased all of the outstanding
capital stock of Z Prompt from its stockholders in exchange for 8,000,000
restricted shares of the common stock of the Company. The primary reasons for
the acquisition were to acquire a nation-wide network of qualified computer
hardware technicians, which could assist with the maintenance of the AccuPoll
Ballot Buddy product, and specifically it's integrated printer.
Additionally, the Company is required to settle an outstanding promissory note
of Z Prompt in the principal amount of approximately $400,000 that was held by a
former stockholder of Z Prompt, in exchange for 533,000 shares of restricted
common stock of the Company.
The shares issued for Z Prompt were valued at $1,813,262 ($0.2125 per share)
based on an independent valuation. Among other factors, the valuation utilized
information from recent issuances of the Company's common stock for fund raising
activities.
The agreement between AccuPoll and the Z Prompt stockholders provided that the
agreement may be rescinded at the discretion of the Z Prompt shareholders if the
electronic voting system of AccuPoll was not certified by Wyle Labs by September
30, 2003; such certification was obtained on October 31, 2003. Accordingly, the
Z Prompt acquisition has been recorded in the accompanying December 31, 2003
condensed consolidated financial statements as of October 31, 2003.
Z Prompt provides hardware maintenance and technology support services primarily
to mid- range to Fortune 1000 companies and to state and local governments. Z
Prompt endeavors to provide same day service to its customers and emphasizes
quality professional service through its experienced technicians.
The purchase price was allocated to the business acquired based on the relative
fair values of the assets acquired and liabilities assumed, as follows:
Assets $ 183,329
Goodwill 2,542,752
Liabilities (912,819)
------------
$ 1,813,262
============
The above allocation of the purchase price may be subject to adjustment during
the allocation period, which generally ends no later than one year after
consummation of the business combination.
Page F-15
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 9: ACQUISITION (continued)
The results of operations of Z Prompt are included in the accompanying condensed
consolidated financial statements from November 1, 2003. The following proforma
summary presents condensed consolidated results of operations as if Z Prompt had
been acquired as of the beginning of the three and six month periods ended
December 31, 2003:
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-----------------------------------------------------
2003 2002 2003 2002
---------- ---------- ---------- -----------
Net Sales $ 531,349 $ 364,248 $1,165,881 $ 712,135
========== ========== ========== ===========
Net Loss $2,819,061 $1,960,148 $4,171,520 $ 2,828,001
========== ========== ========== ===========
Loss per common share $ (0.02) $ (0.02) $ (0.03) $ (0.03)
========== ========== ========== ===========
The above amounts are based upon certain assumptions and estimates, which the
Company believes are reasonable. The pro forma results of operations do not
purport to be indicative of the results which would have been obtained had the
business combination occurred as of July 1, 2003 or which may be obtained in the
future.
NOTE 10: GOING CONCERN CONSIDERATIONS
The condensed consolidated financial statements are presented on the basis that
the Company is a going concern which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business over a
reasonable length of time. The Company has incurred significant operating losses
and has used cash in its operations since inception. Most of this cash was
consumed in the development of software and systems infrastructure, and in
organization development and staffing. Additional funding went towards
investment in and protection of intellectual property and towards investment
advisory fees and commissions related to fundraising. At December 31, 2003, the
Company had a deficit in working capital approximating $4,633,000. In addition,
the Company experienced a loss from operations for the three months ended
December 31, 2003, approximating $2,500,000, and an accumulated deficit
approximating $11,691,000 at such date.
Page F-16
ACCUPOLL HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(UNAUDITED)
NOTE 11: SUBSEQUENT EVENTS
NOTE PAYABLE
In January 2004, the Company issued a convertible note payable, secured by
substantially all of the assets of the Company, for $250,000, bearing interest
at 7% per annum. All borrowings are due on or before June 30, 2004. The
Convertible Note may be converted into common stock of the Company at $0.12 per
share at any time at the option of the noteholder, as defined.
Page F-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IN ADDITION TO HISTORICAL INFORMATION, MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS, INCLUDING, BUT
NOT LIMITED TO, THOSE RELATED TO THE GROWTH AND STRATEGIES, FUTURE OPERATING
RESULTS AND FINANCIAL POSITION AS WELL AS ECONOMIC AND MARKET EVENTS AND TRENDS
OF THE COMPANY. ALL FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY, INCLUDING
SUCH STATEMENTS HEREIN, INCLUDE MATERIAL RISKS AND UNCERTAINTIES AND ARE SUBJECT
TO CHANGE BASED ON FACTORS BEYOND THE CONTROL OF THE COMPANY. ACCORDINGLY, THE
COMPANY'S ACTUAL RESULTS AND FINANCIAL POSITION COULD DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENT AS A RESULT OF
VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION FACTORS DESCRIBED IN THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION REGARDING RISKS AFFECTING
THE COMPANY'S FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
The following discussion of the Company's financial condition and results of
operations should be read in connection with the Company's condensed
consolidated financial statements and notes thereto appearing elsewhere herein.
Factors that could cause or contribute to differences from the condensed
consolidated financial statements include, but are not limited to, risks and
uncertainties related to the need for additional funds, the growth of its
operations and the ability of the Company to operate profitably after its
development stage is completed.
1
GENERAL
The Company has generated minimal revenues from its operations since the
inception in August 2001. Additionally, even after the launch of the Company's
Ballot Buddy products and services, there can be no assurance that the Company
will generate positive cash flow and there can be no assurances as to the level
of revenues that the Company achieves from its planned operations. During the
quarter, the Company has reported revenue approximating $360,000 through
Z Prompt, Inc., a wholly-owned subsidiary.
Plan of Operations
- ------------------
The initial concept and design and development of the AccuPoll DRE
polling place electronic voting system was begun in November 2000 by Dennis
Vadura and Frank Wiebe, the CEO and President of Web Tools International. In
August 2001, the CEO and President of Web Tools International decided to form a
company for the AccuPoll product in order to facilitate the raising of private
equity investment. AccuPoll, Inc. was incorporated in the State of Delaware in
August 2001 with the CEO and President of Web Tools International also the CEO
and President of AccuPoll, Inc. respectively. The CEO and President of AccuPoll,
Inc. decided to enter into a contract with Web Tools International to continue
the development of the AccuPoll DRE polling place voting system since AccuPoll,
Inc. had no developers on staff to continue the development, and Web Tools
International had developers that were available and knowledgeable in the design
and development of the product. In connection with the formation of AccuPoll,
Inc., Web Tools International was reimbursed all R&D related expenses incurred.
AccuPoll Holding Corp. is working to bring a new electronic voting
system to the elections marketplace. The AccuPoll DRE polling place electronic
voting system is currently undergoing federal certification testing. Federal
certification testing is expected to by completed February, 2004. Once federal
certification has been obtained, the AccuPoll DRE polling place electronic
voting system will be a saleable product in the United States. However,
additional state level certifications may be required in order to sell the
voting system in certain states. The expected first sale of the AccuPoll DRE
polling place voting system is the second calendar quarter 2004.
In accordance with SFAS 86, the cost of purchased computer software to
be sold, leased or otherwise marketed that has no alternative future use shall
be accounted for the same as the costs incurred to develop such software
internally, as specified. Per SFAS 86, all costs incurred to establish the
technological feasibility are research and development costs. In accordance with
this provision, the Company has expensed approximately $175,000 of R&D related
expenses from inception through September 2001. The costs that were expensed
related to the creation a working model from the white paper created by the
founders, mainly related to the labor of the technicians and programmers, with a
small portion being related to various computer components. The Company reached
technological feasibility, a working model, in September 2001, which was the
product's first independent usage. Costs incurred subsequent to September 2001
have been capitalized.
A significant factor of the Company's success will depend on its
ability to obtain government contracts, primarily through the counties in the
United States to replace their current voting systems with the touch-screen
voting solutions provided by the Company.
2
On April 9, 2003 AccuPoll entered into binding agreements to acquire all assets,
liabilities, and stock of Z Prompt, Inc. a California Corporation. The stock
purchase agreement between AccuPoll and Z Prompt allowed the shareholders of Z
Prompt to withdraw from the Transaction if the AccuPoll voting product has not
been certified by Wyle Labs on or before September 30, 2003. At September 30,
2003, The AccuPoll voting product had not been certified by Wyle Labs.
Subsequently, on October 31, 2003, the Company obtained acceptance of it's
in-precinct voting system review from Wyle Labs. Prior to such date, the
shareholders of Z Prompt did not exercise their right to withdraw from the
merger transaction. For accounting purposes, the transaction was recorded in the
accompanying financial statements as of October 31, 2003.
Selected Financial Data Comparisons
- -----------------------------------
Net Sales for the quarter ended December 31, 2003 were $361,232.
Professional Fees for the quarter ended December 31, 2002 were $0. The change in
net Sales resulted from the consolidation of the Company's wholly owned
subsidiary, Z Prompt, Inc. for the months of November 2003 and December 2003.
Net Sales for the six months ended December 31, 2003 were $361,232. Net sales
for the six months ended December 31, 2002 were $0. The Change in Net Sales
resulted from the consolidation of the Company's wholly owned subsidiary,
Z Prompt, Inc. for the months of November 2003 and December 2003.
Cost of goods sold for the quarter ended December 31, 2003 were
$142,503. Cost of goods sold for the quarter ended December 31, 2002 were $0.
The Change in Cost of goods sold resulted from the consolidation of the
Company's wholly owned subsidiary, Z Prompt, Inc. for the months of November
2003 and December 2003. Cost of goods sold for the six months ended December
31, 2003 were $142,503. Cost of goods sold for the six months ended December 31,
2002 were $0. The Change in Cost of goods sold resulted from the consolidation
of the Company's wholly owned subsidiary, Z Prompt, Inc. for the months of
November 2003 and December 2003.
General and Administrative expenses for the quarter ended December 31,
2003 were $809,606, a decrease of 46% from General and Administrative Expenses
for the quarter ended December 31, 2002, of $1,506,914. The primary contributor
to the decrease is due to non-cash expenses for stock based compensation, which
is due to options and/or warrants which are in the money, that are granted to
employees and consultants to the Company. General and Administrative expenses
for the six months ended December 31, 2003 were $1,693,372, a decrease of 19%
from General and Administrative Expenses for the six months ended December 31,
2002, of $2,090,954. The primary contributor to the decrease is due to non-cash
expenses for stock based compensation, which is due to options and/or warrants
which are in the money, that are granted to employees and consultants to the
Company.
3
Professional Fees for the quarter ended December 31, 2003 were $21,542.
Professional Fees for the quarter ended December 31, 2002 were $90,344, A
decrease of 76.16%. Professional Fees for the six months ended December 31, 2003
were $53,066. Professional Fees for the six months ended December 31, 2002 were
$173,874, A decrease of 69.5%.
Salaries for the quarter ended December 31, 2003 were $262,761.
Salaries for the quarter ended December 31, 2002 were $66,355, An increase of
296%. The increase in salaries is primarily due to increased head-count, and the
consolidation of the Company's wholly owned subsidiary Z Prompt, Inc. for the
months of November 2003 and December 2003. Salaries for the six months ended
December 31, 2003 were $350,088. Salaries for the six months ended December 31,
2002 were $137,424, An increase of 154.8%. The increase in salaries is primarily
due to increased head-count, and the consolidation of the Company's wholly owned
subsidiary Z Prompt, Inc. for the months of November 2003 and December 2003.
Interest Expenses for the quarter ended December 31, 2003 were
$1,809,509, as compared to Interest Expenses for the quarter ended December 31,
2002 of $20,000, an increase of 8,948%. The primary reason for such an increase
is related to the non-cash beneficial conversion charge relating to convertible
notes payable issued by the Company during the quarter ended December 31, 2003,
that have conversion features that are at prices below market. Interest Expenses
for the six months ended December 31, 2003 were $2,127,915, as compared to
Interest Expenses for the six months ended December 31, 2002 of $20,000, an
increase of 10,540%. The primary reason for such an increase is related to the
non-cash beneficial conversion charge relating to securities issued by the
Company during the six months ended December 31, 2003, that have conversion
features that are at prices below market.
Liquidity and Capital Resources
- -------------------------------
Since inception through December 31, 2003, the Company has raised gross
proceeds approximating $4,500,000 from the sale of restricted Common Stock and
convertible notes payable.
In November 2003, the Company secured a $5 million dollar revolving
credit facility, in the form of two seven-month convertible notes. As of
December 31, 2003, $1,350,000 of the credit facility has been used.
The Company's cash was approximately $5,839 at December 31, 2003.
The management of the Company believes that the Company may generate
significant revenues in the next few months due to anticipated certification of
the Ballot Buddy product and the acquisition of Z Prompt, Inc. However, there is
no operating history for the Ballot Buddy and therefore market acceptance cannot
be assured or reasonably estimated. As a result, the Company's success will
largely depend on its ability to secure additional funding through the sale of
its Common Stock and/or the sale of other debt or equity securities. There can
be no assurance, however, that the Company will be able to consummate debt or
equity financing in a timely manner, or on a basis favorable to the Company, at
all.
4
Capital Expenditures
- --------------------
The Management of the Company anticipates certain capital expenditures
related to developing and testing subsequent versions of the voting system
hardware and software. The Company estimates such capital expenditures for
hardware to be $500,000 and an additional $500,000 for software. The Company
will be reliant on future fund raising in order to pay for development and
testing of these subsequent versions.
Going Concern
- -------------
The Company's independent certified public accountants have stated in
form 10-KSB, as filed with the Securities and Exchange Commission, that the
Company was in the development stage since it began operations in August 2001
through October 31, 2003 (date of acquisition of Z Prompt, Inc.), has not
generated any revenues from its Ballot Buddy product and there is no assurance
of any future revenues. These conditions, among others raise substantial doubt
about the Company's ability to continue as a going concern.
Inflation
- ---------
Management believes that inflation has not had a material effect on the
Company's results of operations.
Need for Additional Financing
- -----------------------------
The Company will require substantial additional financing to complete the
capitalization of its business plan. The additional financing will be used
primarily for payment of past due liabilities and for the establishment and
implementation of marketing programs. The Company can give no assurance that it
will successfully negotiate or obtain additional financing, or that it will
obtain financing on terms favorable or acceptable to it. The Company's ability
to obtain additional capital depends on market conditions, the global economy
and other factors outside its control. If the Company does not obtain adequate
financing or such financing is not available on acceptable terms, the Company's
ability to satisfy its liabilities, finance its expansion, develop or enhance
products and services or respond to competitive pressures would be significantly
limited. The Company's failure to secure necessary financing could have a
material adverse effect on its business, prospects, financial condition and
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Changes in United States interest rates would affect the interest
earned on the Company's cash and cash equivalents. Based on the Company's
overall interest rate exposure at December 31, 2003, a near-term change in
interest rates, based on historical movements, would not materially affect the
fair value of interest rate sensitive instruments. The Company's debt
instruments have fixed interest rates and terms and, therefore, a significant
change in interest rates would not have a material adverse effect on the
Company's financial position or results of operations.
5
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the 34
Act) as of a date (the "Evaluation Date") within 90 days prior to the filing
date of this report. Based upon that evaluation, the CEO and CFO concluded that,
as of December 31, 2003, our disclosure controls and procedures were effective
in timely alerting them to the material information relating to us (or our
consolidated subsidiaries) required to be included in our periodic filings with
the SEC. Based on their most recent evaluation as of the Evaluation Date, the
CEO and the CFO have also concluded that there are no significant deficiencies
in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information, and such officers have
identified no material weaknesses in internal controls.
There were no significant changes made in our internal control over financial
reporting during the quarter ended December 31, 2003 that are reasonably likely
to significantly affect these controls. Thus, no corrective actions with regard
to significant deficiencies or material weaknesses were necessary.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 2003, the Company was served with a lawsuit filed in the
Supreme Court of New York, County of New York, by Stern & Co Communications LLC,
d/b/a Stern & Co. Stern alleged that the Company had breached a contract with
them by failing to tender payment in full for services rendered. Stern was
seeking to recover damages in the amount of $35,000, and a warrant to purchase
36,000 shares of the Company's common stock. In November, 2003, the parties
executed a stipulation of settlement pursuant to which the Company has agreed to
issue to Stern a total of 15,000 shares of common stock and a warrant to
purchase 15,000 share of common stock, to have an exercise price equal to the
stock price upon the date of issuance.
In October, 2003, the Company, and its wholly-owned subsidiary, Z
Prompt, Inc., were served with a lawsuit by Paul Musco, the former President of
Z Prompt, which was filed in Superior Court of California, County of Orange. Mr.
Musco is alleging that the Company and/or Z Prompt have breached various
agreements, including a breach of a promissory note and his employment
agreement. He is seeking damages in the approximate aggregate amount of
$500,000. The Company intends to vigorously defend these claims. In December
2003, the Company filed a cross-complaint against Mr. Musco.
In October, 2003, the Company, Z Prompt and certain individuals were
served with a lawsuit filed by Nathalie Luu, a former employee of Z Prompt,
which was filed Superior Court of California, County of Orange. Ms. Luu, who was
an accounting clerk at Z Prompt, is seeking unspecified damages based on claims
of intentional infliction of emotional distress and unlawful retaliation. The
Company believes the claims are without merit and intends to defend them
vigorously.
6
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company issued the following unregistered securities during the
three month period ended December 31, 2003.
PREFERRED STOCK
In December 2003, the Company issued 8,471 shares of Series A preferred
stock and $1,200,000 of convertible notes payable for 3,325,000 shares of free
trading common stock of Material Technologies, Inc., a publicly traded company
on the Over-The-Counter Bulletin Board under the symbol "MTNA." The Company
obtained an independent valuation of the common stock received, which
approximated $4,478,000. The Series A Preferred Stock converts at a fixed rate
of 1,000 shares of common stock for each share of preferred stock. The Series A
Preferred Stock was issued in reliance upon section 4(2) under the Securities
Act of 1933 as amended.
COMMON STOCK
In December 2003, the Company issued 112,000 shares of restricted Common Stock
for cash totaling $39,200 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In October 2003, the Company issued 150,000 shares of restricted Common Stock
for cash totaling $37,500 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In October 2003, the Company issued 50,000 shares of restricted Common Stock for
cash totaling $12,500 in reliance upon Regulation S under the Securities Act of
1933 as amended.
In October 2003, the Company issued 100,000 shares of restricted Common Stock
for cash totaling $25,000 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In October 2003, the Company issued 992,000 shares of restricted Common Stock
for cash totaling $242,842 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In October 2003, the Company issued 150,000 shares of restricted Common Stock
for cash totaling $37,500 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In December 2003, the Company issued 256,008 shares of restricted Common Stock
for cash totaling $62,671 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In October 2003, the Company issued 400,000 shares of restricted Common Stock
for cash totaling $100,000 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In December 2003, the Company issued 500,000 shares of restricted Common Stock
for cash totaling $175,000 in reliance upon Regulation S under the Securities
Act of 1933 as amended.
In November 2003, the Company issued 30,000 shares of restricted Common Stock
for cash totaling $3,672 in reliance upon Regulation S under the Securities Act
of 1933 as amended.
7
In December 2003, the Company issued 6,250,000 shares of restricted Common Stock
for cash totaling $750,000 in reliance upon Section 4(2) of the Securities Act
of 1933 as amended.
In October 2003, the Company issued 530,000 shares of Restricted Common Stock in
Connection With a net-exercise transaction by a consultant, in reliance upon
Section 4(2) of the Securities Act of 1933 as amended.
In October 2003, the Company issued 403,125 shares of Restricted Common Stock in
Connection With a net-exercise transaction by a consultant, in reliance upon
Section 4(2) of the Securities Act of 1933 as amended.
In December 2003, the Company issued 5,000 shares of Restricted Common Stock in
Connection With a settlement agreement with a consultant, in reliance upon
Section 4(2) of the Securities Act of 1933 as amended.
In October 2003, the Company issued 7,741,936 shares of restricted common stock
as collateral for potential cash borrowings approximating $1,600,000 ("Secured
Note"), less applicable commissions. The Secured Note will accrue interest at
5.5%, will require quarterly interest only payments through maturity and matures
two years from receipt of proceeds. As of the date of this filing, the Company
has not received any proceeds or paid any related commissions. The Stock was
issued in reliance upon Section 4(2) of the Securities Act of 1933 as amended.
STOCK OPTIONS AND WARRANTS
In October 2003, the Company granted warrants to purchase 500,000 shares of the
Company's restricted Common Stock at an exercise price of $.35 per share. These
warrants vested upon grant and are exercisable through October 2008 in reliance
upon Regulation S under the Securities Act of 1933 as amended.
In October 2003, the Company granted warrants to purchase 992,000 shares of the
Company's restricted Common Stock at an exercise price of $.24 per share. These
warrants vested upon grant and are exercisable through October 2008 in reliance
upon Regulation S under the Securities Act of 1933 as amended.
In October 2003, the Company granted warrants to purchase 256,008 shares of the
Company's restricted Common Stock at an exercise price of $.24 per share. These
warrants vested upon grant and are exercisable through October 2008 in reliance
upon Regulation S under the Securities Act of 1933 as amended.
In December 2003, the Company granted warrants to purchase 992,000 shares of the
Company's restricted Common Stock at an exercise price of $.24 per share. These
warrants vested upon grant and are exercisable through December 2008 in reliance
upon Regulation S under the Securities Act of 1933 as amended.
In December 2003, the Company granted warrants to purchase 256,008 shares of the
Company's restricted Common Stock at an exercise price of $.24 per share. These
warrants vested upon grant and are exercisable through December 2008 in reliance
upon Regulation S under the Securities Act of 1933 as amended.
In December 2003, the Company granted warrants to purchase 112,000 shares of the
Company's restricted Common Stock at an exercise price of $.35 per share. These
warrants vested upon grant and are exercisable through December 2008 in reliance
upon Regulation S under the Securities Act of 1933 as amended.
In October 2003, the Company granted warrants to purchase 1,125,000 shares of
the Company's restricted Common Stock at an exercise price of $.12 per share.
These warrants vested upon grant and are exercisable through October 2008 in
reliance upon Regulation S under the Securities Act of 1933 as amended.
In December 2003, the Company granted warrants to purchase 15,000 shares of the
Company's restricted Common Stock at an exercise price of $.18 per share. These
warrants vested upon grant and are exercisable through December 2008 in reliance
upon Section 4(2) of the Securities Act of 1933 as amended.
8
In October 2003, the Company granted warrants to purchase 1,000,000 shares of
the Company's restricted Common Stock at an exercise price of $.06 per share.
These warrants vested upon grant and are exercisable through October 2008 in
reliance upon Section 4(2) of the Securities Act of 1933 as amended.
In October 2003, the Company granted warrants to purchase 5,000,000 shares of
the Company's restricted Common Stock at an exercise price of $.06 per share.
These warrants vested upon grant and are exercisable through October 2008 in
reliance upon Section 4(2) of the Securities Act of 1933 as amended.
In December 2003, the Company granted warrants to purchase 2,264,492 shares of
the Company's restricted Common Stock at an exercise price of $1.55 per share.
These warrants vested upon grant and are exercisable through December 2008 in
reliance upon Section 4(2) of the Securities Act of 1933 as amended.
In December 2003, the Company granted warrants to purchase 6,793,478 shares of
the Company's restricted Common Stock at an exercise price of $1.55 per share.
These warrants vested upon grant and are exercisable through December 2008 in
reliance upon Section 4(2) of the Securities Act of 1933 as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Reports on Form 8-K:
(2) Exhibits
31.1 Certification of Dennis Vadura
31.2 Certification of Craig A. Hewitt
32.1 Certification of Dennis Vadura
32.2 Certification of Craig A. Hewitt
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
February 23, 2004
AccuPoll Holding Corp.
By: /s/ Dennis Vadura By: /s/ Craig A. Hewitt
- ------------------------------- --------------------------------
Dennis Vadura Craig A. Hewitt, Chief Financial
Chairman of the Board, President Officer and principal financial
and Chief Executive Officer and accounting officer
9