UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 0-29581
TELEFFICIENCY HOLDING CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 98-0188197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5155 Spectrum Way, Bldg. 30, Mississauga, Ontario Canada L4W 5A1
(Address of principal executive offices)
(416) 324-3030
(Issuer's telephone number)
n/a
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [__] No [__]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Outstanding as of
Class May 15, 2000
----- ------------
<S> <C>
Class A Voting and Participating Common Stock, par value $.0001 10,979,949
Class B Convertible Voting and Nonparticipating Common Stock, par value $.0001 3,980,051
</TABLE>
Transitional Small Business Disclosure Format (Check One): Yes[__] No [X]
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
FORM 10-QSB/A
INDEX
Page
----
PART I FINANCIAL INFORMATION.................................................3
Item 1. Financial Statements:.................................................3
Consolidated Balance Sheets...........................................3
Consolidated Statements of Operations.................................4
Consolidated Statements of Cash Flows.................................5
Notes to Consolidated Financial Statements............................6
Item 2. Management's Discussion and Analysis or Plan of Operation............11
PART II OTHER INFORMATION....................................................14
Item 1. Legal Proceedings....................................................14
Item 2. Changes in Securities................................................14
Item 3. Defaults Upon Senior Securities......................................15
Item 4. Submission of Matters to a Vote of Security Holders..................15
Item 5. Other Information....................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................15
SIGNATURE PAGE ...............................................................16
FINANCIAL DATA SCHEDULE.......................................................17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TELEFFICIENCY HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
UNAUDITED
2000 1999
----------- -----------
ASSETS
Current assets:
Accounts receivable, net $ 533,922 $ 596,990
Inventory 464,438 446,920
Prepaid expenses 102,285 27,354
----------- -----------
Total current assets 1,100,645 1,071,264
Property and equipment - net 91,785 59,525
Advances to related companies 199,878 200,338
Deferred finance costs, net 663,104 279,125
Intangibles, net 93,394 97,011
----------- -----------
TOTAL ASSETS $ 2,148,806 $ 1,707,263
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank indebtedness $ 605,732 $ 694,212
Accounts payable and accrued liabilities 893,555 1,049,789
Deferred revenue 150,625 162,745
Customers' deposits 253,799 398,788
Loan payable -- 100,000
Obligation under capital leases - current portion 12,000 19,569
----------- -----------
Total current liabilities 1,915,711 2,425,103
Debentures payable, net of discount of $ 501,246 1,298,754 605,375
Obligation under capital leases, net of
current portion 17,533 14,932
----------- -----------
Total liabilities 3,231,998 3,045,410
----------- -----------
Stockholders' deficit:
Capital stock 1,512 1,496
Additional paid in capital 4,333,698 3,445,736
Cumulative translation adjustment (71,058) 99,605
Accumulated deficit (5,347,344) (4,884,984)
----------- -----------
Total stockholders' deficit (1,083,192) (1,338,147)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,148,806 $ 1,707,263
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
2000 1999
----------- -----------
Sales $ 1,303,864 $ 2,122,139
Cost of sales 754,808 1,324,836
----------- -----------
Gross profit 549,056 797,303
----------- -----------
Expenses:
Wages and salaries 423,870 366,867
Subcontract costs 105,304 245,888
Management salaries 63,547 40,317
Automobile 51,479 59,298
Sales commissions 14,420 53,740
Professional fees 59,012 9,345
Office and general 83,464 52,503
Employee benefits 44,985 35,055
Advertising and promotion 22,701 65,684
Telephone 18,016 21,749
Premises lease cost 26,599 28,938
Bank charges and interest 80,532 15,892
Insurance 9,210 9,000
Depreciation and amortization 8,277 6,220
----------- -----------
1,011,416 1,010,496
----------- -----------
NET LOSS $ (462,360) $ (213,193)
=========== ===========
NET LOSS PER SHARE $ (0.03) $ (0.01)
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (462,360) $ (213,193)
Adjustments for items not affecting cash:
Depreciation and amortization 76,427 6,220
Changes in assets and liabilities:
Accounts receivable 63,068 260,389
Inventory (17,518) (27,970)
Prepaid expenses 69 (4,234)
Deferred finance costs (40,000)
Accounts payable and accrued
liabilities (156,235) (179,796)
Customers' deposits 174,789 152,576
Deferred revenue (331,898) (183,544)
----------- -----------
Net cash used by
operating activities (693,658) (189,552)
----------- -----------
Cash flows from investing activities:
Purchase of capital assets (36,920) (2,436)
----------- -----------
Net cash used by investing activities (36,920) (2,436)
----------- -----------
Cash flows from financing activities:
Issuance of capital stock and warrants 19,228
Advances from related companies 460 25,390
Obligations under capital leases (4,968) (1,105)
Bank indebtedness (88,480) 123,296
Repayment of demand loan (100,000)
Proceeds from issue of debentures 1,075,000
----------- -----------
Net cash provided by financing
activities 901,240 147,581
----------- -----------
Effect of exchange rate changes on cash (170,662) 44,407
----------- -----------
Increase in cash -- --
Cash - beginning -- --
----------- -----------
CASH - ENDING $ -- $ --
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 43,771 $ 15,892
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
=========== ===========
Deferred finance costs paid with warrants and stock $ 390,625 $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
UNAUDITED
NOTE 1 The financial information included herein is unaudited; however, such
information reflects all adjustments, consisting solely of normal
recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the periods indicated. Certain
information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the
Company's Annual Report for the twelve months ended December 31, 1999.
NOTE 2 - NATURE OF BUSINESS
The Company operates in one industry segment and is engaged in the
sales, installation and service of telephone systems throughout Canada.
Substantially all of the Company's net assets are within Canada.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The financial statements are prepared in accordance with US GAAP.
The consolidated financial statements include the accounts of the
Company and its subsidiaries after eliminating all intercompany
accounts and transactions.
Translation of foreign currencies
The Company uses the local currency as the functional currency and
translates all assets and liabilities at year-end exchange rates, all
income and expense accounts at average rates and records adjustments
resulting from the translation in a separate component of equity.
Inventory
Inventory is valued at the lower of cost and net realizable value. Cost
is determined on a first-in first-out basis. At March 31, 2000
inventory is comprised entirely of component parts.
Property and equipment
Property and equipment are recorded at cost. Depreciation is calculated
using the declining balance method over the useful life of the assets.
Furniture and fixtures and other equipment are depreciated over seven
years. Computer equipment under capital lease is depreciated over the
life of the lease, 2 to 5 years, and included in depreciation expense.
Leasehold improvements are amortized on the straight-line basis over
the term of the leased premises, three years and six months. The
original lease expired on December 31, 1999 with the improvements fully
amortized. However, the lease was renewed for an additional six months.
6
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangibles
The excess of the cost of a prior acquisition of a Canadian company
over the fair value of the assets acquired, and is being amortized over
10 years using the straight-line basis.
During 1999 the Company purchased the customer lists of two small
companies engaged in the sales and servicing of telephone systems in
Canada. The consideration for the purchases was cash of $74,232. The
cost of these acquisitions has been included in intangibles on the
accompanying consolidated balance sheets. The cost is being amortized
over 10 years using the straight-line basis.
Deferred financing
Deferred finance costs represent costs incurred in conjunction with the
issue of debentures. Such costs will be amortized over the life of the
debentures, three years, on a straight-line basis.
Revenue recognition
Revenue is recognized upon shipment of product or upon completion of
installation, if required. Installation is generally over a short
period of one to several days. Accordingly, no material amounts of work
in process exist at any point in time. Service contracts are sold for
one year periods. The terms of the contracts require payment in
advance. Revenues for service contracts are amortized on a
straight-line basis over the life of the contract. Product warranty
costs, including Company labor, where necessary, are reimbursed by the
manufacturer. Accordingly, no amount is provided for warranty costs.
The Company has not experienced material amounts of sales returns, as
the majority of sales are under contracts covered by product warranty,
discussed above.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates and assumptions.
Financial instruments
The Company's financial instruments consist of accounts receivable,
advances to related companies, bank indebtedness, accounts payable and
accrued liabilities, obligations under capital leases and debentures
payable. Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximate their carrying values, unless
otherwise noted.
7
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. Deferred income taxes are
provided on material temporary differences between book and tax bases
of assets and liabilities when such differences arise. As of March 31,
2000, there are no material differences between the book and tax bases
of the Company's assets and liabilities. Deferred taxes are also
recognized for operating losses available to offset future income
taxes. A valuation allowance is provided if it is more likely than not
that the Company will not realize the benefits of a deferred tax asset.
NOTE 4 - DEBENTURES PAYABLE
In December 1999, the Company offered for sale up to 18 units each
consisting of $100,000 principal amount of Series A 13% debentures due
December 31, 2002 and a warrant to purchase up to 30,000 shares of the
Company's Class A common stock at a price of $0.25 per share. Each unit
was offered for $100,000. Interest is payable annually in arrears
commencing December 31, 2000. The debentures are redeemable, prior to
maturity, at a price of 105% of the principal amount, limiting the
Company's exposure to interest rate risk. As of March 31, 2000, the
Company sold 18 units, receiving $1,800,000. At the time of sale, the
stock price exceeded the warrant exercise price. Accordingly, $522,750
was attributable to warrants based on the excess of the stock price at
issuance date over the warrant exercise price. The debentures were
recorded at a discounted value of $1,277,250. The discount will be
amortized over the life of the debentures using the interest method
with effective interest rates of 20.9% to 35.6%. Interest expense
attributable to them for the three months ended March 31, 2000 is
$68,358.
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS
At March 31, 2000 and December 31, 1999 capital stock is comprised as
follows:
<TABLE>
<CAPTION>
Authorized Issued 2000 1999
---------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
5,000,000 Preferenced shares,
par value $.0001 $ -- $ --
115,000,000 9,624,500 (2000) Class A common shares,
9,460,000 (1999) par value $.0001 962 946
30,000,000 5,500,000 Class B common shares,
par value $.0001 550 550
------ ------
$1,512 $1,496
====== ======
</TABLE>
Class A common shares are voting and participating. Class B common
shares are voting and non-participating and may be exchanged to obtain
Class A common shares after a restriction period.
8
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
The following comprises the warrants outstanding or committed to be
issued at March 31, 2000, each for one share of Class A common stock:
<TABLE>
<CAPTION>
Number of Warrants Value Exercise Price Expiration Date
------------------ ----- -------------- ---------------
<S> <C> <C> <C>
165,000 N/A - Issued with 165,000 $1.00 May, 2000
CL A shares
146,328 N/A - Issued with $6.21 - $8.97 December, 2001
146,328 CL A shares
507,500 $279,125 $0.25 December, 2001
150,000 $ 82,500 $0.25 December, 2001
515,000 $643,500 $0.25 February, 2002
600,000 $150,000 $0.25 March, 2002
---------
2,083,828
=========
</TABLE>
These warrants have been excluded from the calculation of loss per
share since the assumed exercise would decrease the loss per share and,
therefore, are anti-dilutive.
The value assigned to warrants granted is based upon the fair value of
the services given or the estimated value of the warrants, at the date
of issue.
During the three months ended March 31, 2000, the Company issued the
following warrants in connection with the issuances of debentures:
Number of Warrants Value Exercise Price Expiration Date
------------------ ----- -------------- ---------------
322,500 $403,125 $0.25 February 2002
192,500 $240,625 $0.25 February 2002
The estimated fair value is based upon the February 2000 end of month
close price of the underlying shares as quoted by market sources,
approximately $1.50 per share less the exercise price. Based on prior
experience, this method approximates the results that would have been
achieved under the Black-Scholes model. The $403,125 was deducted from
the face value of the debentures as a discount. The $240,625 was added
to the deferred financing costs and is being amortized over the terms
of the debentures.
During March, 2000, the Company issued 600,000 warrants exercisable at
$0.25 and expiring March 2002. The value assigned of $150,000 is based
on the value of services to be performed. The value is included in
deferred finance costs at March 31, 2000.
During the period the Company issued 50,000 shares in exchange for
services to be performed. The services have a value of $75,000. Such
value is included in prepaid expenses at March 31, 2000. In addition
114,500 shares were issued on the exercise of warrants for proceeds of
$19,228.
9
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
At March 31, 2000 the Company had issued the following options:
<TABLE>
<CAPTION>
Number of
Issued To Options Grant Date Date Exercisable Exercise Price Expiration
--------- ------- ---------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Officers 500,000* 10/21/1999 Immediate $0.21 10/21/2004
Employees 497,000 11/09/1999 Immediate $0.37 01/01/2002
100,000 10/15/1999 Immediate $0.15 10/15/2000
200,000 06/30/1999 Immediate $0.05 06/30/2001
300,000 06/17/1999 07/01/1999 $0.05 07/01/2004
221,000 06/17/1999 01/31/2000 $0.50 01/31/2005
---------
1,818,000
Consultants 75,000 01/01/2000 Immediate $1.00 12/31/2000
50,000 01/01/2000 Immediate $0.75 12/31/2000
Officers 500,000 01/04/2000 Immediate $0.75 01/04/2002
---------
2,443,000
=========
</TABLE>
* Subsequently exercised.
NOTE 6 - NET LOSS PER SHARE
Net consolidated loss per share has been computed by dividing the net
consolidated loss applicable to common shareholders by the weighted
average number of shares of common stock outstanding during the
respective years (15,124,500 in 2000 and 14,960,000 in 1999). The
effect of the exercise of the stock warrants and options referred to in
Note 5 is not dilutive since they would reduce the loss per share.
10
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
RESULTS OF OPERATIONS - Comparison of the three months ended March 31, 2000
(First Quarter Fiscal Year 2000) to the three months ended March 31, 1999 (First
Quarter Fiscal Year 1999)
For the three months ended March 31, 2000 the Company had a net loss of
$462,360 compared to a net loss of $213,193 for the three months ended March 31,
1999. The increase in net loss is due to management's decision to focus on
higher margin business.
Total revenue for the three months ended March 31, 2000 was $1,303,864
compared with $2,122,139 for the same period in 1999. The decline in sales is
due to the Company's decision to focus on higher margin business in 2000 and
provide complete solutions for customers. In 1999 a portion of the Company's
sales were to the wholesale market. While this provided the Company with
significant sales volume, the margins were small and administration costs were
high. Providing complete solutions for customers enables the Company to achieve
higher margins.
The cost of sales is comprised almost entirely of the costs of the products
sold by the Company. For the three months ended March 31, 2000, the Company's
cost of sales decreased by $570,028 or 43% from $1,324,836 for the same period
in 1999. This decrease is due to the abandonment of the wholesale business by
the Company.
Operating expenses in the three months ended March 31, 2000 increased by
$920 to $1,011,416 from $1,010,496 for the same period in 1999. Included in
expenses for the three months ended March 31, 2000 is interest of $68,358 on the
debentures. Eliminating such debenture interest expense, the expenses for the
three months ended March 31, 2000 were $943,058, a decrease of $67,438 or 6%
from expenses for the same period in 1999.
Gross profit for the three months ended March 31, 2000 was $549,056, a
decrease of $248,247 or 31% from $797,303 for the same period in 1999. The
decrease in gross profit is due to the Company's decision to focus on higher
margin business in 2000 and to provide complete solutions for customers.
Individual expense categories fluctuate from year to year depending on the
mix of business the Company completes in the year. For the three months ended
March 31, 2000 subcontract costs decreased by $140,584 or 57% from $245,888 for
the same period in 1999. This decrease is due to the Company's decision to use
employees instead of subcontractors for systems installations during the period.
Wages and salaries have increased by $57,003 or 16% in the three month period
ended March 31, 2000 from $366,867 for the same period in 1999. The majority of
this increase is attributable to the substitution of employees for
subcontractors. For the three months ended March 31, 2000 professional fees
increased by $49,667 or 503% to $59,012 from $9,345 for the same period in 1999.
This increase is due to professional fees incurred in 2000 in connection
11
<PAGE>
with the preparation of financial statements and documentation required as a
precondition to the Company's qualification on the NASD.OTC.
For the three months ended March 31, 2000 the Company had negative cash
flow from operating activities of $693,658 compared to a negative cash flow of
$189,552 for the three months ended March 31, 1999. The negative cash flow for
the three month period ended March 31, 2000 is primarily attributable to the net
use of cash in operating activities. Investing activities were nominal.
The Company financed negative cash flow through additional borrowings and
loan receivable repayments. During the three months ended March 31, 2000 the
Company received proceeds of $1,075,000 from the sale of 13% Debentures due
March 31, 2002 (the "Debentures"). The Company repaid $100,000 of the Loan
Payable from the Debenture offering proceeds and the balance of the proceeds
were used in operations. In addition, the Company repaid $88,480 of its Bank
Line of Credit with the Royal Bank of Canada.
A significant proportion of the Company's cash flow requirement for
operating activities arises from inventory, accounts receivable as well as for a
reduction of $156,234 in our payables and accrued liabilities for the three
months ended March 31, 2000 as compared to the same period in 1999. The Company
typically requires payment for new products in cash upon delivery or within 30
days. Payment terms tend to be given by the Company in connection with sales of
larger systems and sales to national accounts or larger companies. Other sales
are typically made against cash.
Accounts receivable were reduced by $63,068 or 10.5% from $596,990 at
December 31, 1999 to $533,922 at March 31, 2000. The reduction in accounts
receivable is largely attributable to management and staff focusing on
collections of aged accounts to provide the Company with better cash flow.
The Company met its cash needs in the three months ending March 31, 2000
through borrowings under a CDN$705,000 (approximately US$486,380 at the March
31, 2000 exchange rate) line of credit with the Royal Bank of Canada (the "Bank
Line Of Credit") and the offering of $1,800,000 aggregate principal amount of
Debentures. The Bank Line of Credit provides for demand loans and is secured by
substantially all of the Company's assets. Interest on borrowings is at the
prime rate plus 2%. The Company can borrow against the Bank Line of Credit if
needed, assuming there is no breach of the covenants (which include requirement
for minimum working capital and net worth, limit management salaries, and
require that the aggregate principal amount outstanding at any time under the
credit agreement not exceed the "Borrowing base" which is based on inventory and
receivables) set forth in the credit agreement. The Company has been in default
with the net worth covenant as at March 31, 2000. However, the Royal Bank of
Canada has not declared an event of default under the Bank Line of Credit or
required outstanding loans to be repaid.
12
<PAGE>
During the three months ending March 31, 2000, the Company received
proceeds of $1,075,000 from the sale of the Debentures as the balance of the
total offering of an aggregate principal amount of $1,800,000. The Company used
$100,000 of the proceeds to repay part of the demand loan and the balance of the
proceeds was used for working capital.
On or about September 29, 1999 the Company entered into an agreement with
Cascade International Capital Corporation ("Cascade"), pursuant to which Cascade
will assist the Company in obtaining an acquisition financing commitment of
$60,000,000. To date, no such commitment has been obtained.
Liquidity and Capital Resources
To date, the Company has met its cash needs from:
* The Bank Line of Credit;
* The issuance of capital stock and warrants; and
* Advances from related companies.
In February 2000, the Company completed its offering of an aggregate
principal amount of $1,800,000 of 13% Debentures due March 31, 2002.
The Company believes that the implementation of its growth strategy will
result in greater working capital needs. The Company expects that such needs
will arise as a result of increased sales, giving risk to proportionate
increases in accounts receivable. In addition, the Company expects that the
amount of its account receivables as a percentage of its total revenues will
increase if, as anticipated, the Company increases the proportion of its sales
attributable to larger telecommunication systems and national accounts.
At March 31, 2000, the Company did not have any material commitments for
capital expenditures. The Company currently anticipates that its available cash
resources and credit facilities, will be sufficient to meet its presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months, including the payment of $234,000 in interest due in 2001.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no legal proceedings against the Company and the Company is
unaware of such proceedings contemplated against it.
Item 2. Changes in Securities.
During December 1999 through February 2000, the Company offered and sold,
through Shepherd Financial Group, LLC, 3 Hawthorn Parkway, Vernon Hills,
Illinois, 18 units at a price of $100,000 per unit consisting of (i) $100,000
principal amount of the Company's Series A 13% Debentures due December 31, 2002
and (ii) a stock purchase warrant entitling the holder thereof to purchase up to
30,000 shares of Class A Common Stock at an exercise price of $0.25 per share
(the "Debenture Units"). The Company sold 7.25 Debenture Units as at December
31, 1999 (receiving $725,000 in gross proceeds) and the remaining 10.75
Debenture Units during the first quarter of 2000 (receiving $1,075,000 in gross
proceeds). In connection with the offer and sale of the 18 Debenture Units, the
Company agreed to pay Shepherd Financial Group, LLC a placement fee calculated
as follows: (i) for every Debenture Unit sold, up to a maximum of 10 Debenture
Units, a warrant to purchase up to 70,000 shares of Class A Common Stock at a
price of $0.25 per share for a period of 2 years following the closing date; and
(ii) for every Debenture Unit sold in excess of 10 Debenture Units, a cash
payment equal to 5% ($5,000 per Debenture Unit) of the proceeds received by the
Company from the sale of any Debenture Unit in excess of 10 Debenture Units. The
Company believes that the transactions were exempt from registration under the
Act, pursuant to Section 4(2) and the rules and regulations promulgated
thereunder as a transaction by an issuer not involving any public offering.
On January 1, 2000, in consideration of services to be rendered to the
Company in connection with the development of an in-house public relations
group, the Company granted consultants 50,000 shares of Class A Common Stock;
75,000 options to purchase Class A Common Stock with an exercise price of $1.00
and an expiration date of December 31, 2000; and 50,000 options to purchase
Class A Common Stock with an exercise price of $0.75 and an expiration date of
December 31, 2000. The Company believes that the transaction was exempt from
registration under the Act, pursuant to Section 4(2) and the rules and
regulations promulgated thereunder as a transaction by an issuer not involving
any public offering.
On March 9, 2000 in consideration of services to be rendered to the Company
in connection with assisting the Company to obtain financing commitments, the
Company issued a consultant 600,000 warrants to purchase shares of the Company's
Class A Common Stock at a price of $0.25 per share. The Company believes that
the transaction was exempt from registration under the Act, pursuant to Section
4(2) and the rules and regulations promulgated thereunder as a transaction by an
issuer not involving any public offering.
14
<PAGE>
All such shares are "restricted securities," as that term is defined in the
rules and regulations promulgated under the Securities Act subject to certain
restrictions regarding resale. Certificates evidencing all of the
above-referenced securities have been stamped with a restrictive legend and will
be subject to stop transfer orders.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Financial Data Schedule
(b) There were no reports on Form 8-K filed by the Company during the
quarter.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: June 2, 2000 TELEFFICIENCY HOLDING CORPORATION
/s/ Michael Brunet
-------------------------
Michael Brunet, President
16
