UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 June 30, 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 Identification No.)
incorporation or organization)
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:
Outstanding as of
Class August 15, 2000
----- ---------------
Class A Voting and Participating Common Stock,
par value $.0001 13,012,098
Class B Convertible Voting and Nonparticipating
Common Stock, par value $.0001 3,900,568
Transitional Small Business Disclosure Format (Check One): Yes[__] No [X]
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
FORM 10-QSB
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
JUNE 30, 2000 AND DECEMBER 31, 1999
UNAUDITED
2000 1999
----------- -----------
ASSETS
Current assets:
Accounts receivable, net $ 353,665 $ 596,990
Inventory 585,307 446,920
Notes receivable 237,500 --
Prepaid expenses 101,606 27,354
----------- -----------
Total current assets 1,278,078 1,071,264
Property and equipment - net 94,429 59,525
Advances to related companies 174,012 200,338
Deferred finance costs, net 616,458 279,125
Intangibles, net 88,037 97,011
----------- -----------
TOTAL ASSETS $ 2,251,014 $ 1,707,263
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank indebtedness $ 438,248 $ 694,212
Accounts payable and accrued liabilities 911,174 1,049,789
Deferred revenue 119,921 162,745
Customers' deposits 102,645 398,788
Loan payable -- 100,000
Obligation under capital leases - current portion 12,000 19,569
----------- -----------
Total current liabilities 1,583,988 2,425,103
Debentures payable, net of discount of $ 470,121 1,329,879 605,375
Obligation under capital leases, net of
current portion 13,429 14,932
----------- -----------
Total liabilities 2,927,296 3,045,410
----------- -----------
Stockholders' deficit:
Capital stock 1,717 1,496
Additional paid in capital 4,860,920 3,445,736
Cumulative translation adjustment (9,458) 99,605
Accumulated deficit (5,529,461) (4,884,984)
----------- -----------
Total stockholders' deficit (676,282) (1,338,147)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,251,014 $ 1,707,263
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales $ 898,111 $ 752,480 $ 2,201,975 $ 2,874,619
Cost of sales 200,421 283,885 955,229 1,608,721
------------ ------------ ------------ ------------
Gross profit 697,690 468,595 1,246,746 1,265,898
------------ ------------ ------------ ------------
Expenses:
Wages and salaries 327,032 289,425 750,902 656,292
Subcontract costs 98,505 76,908 203,809 322,796
Management salaries 33,181 59,787 96,728 100,104
Automobile 45,694 38,397 97,173 97,695
Sales commissions 1,729 32,482 16,149 86,222
Professional fees 63,345 16,655 75,711 26,000
Office and general 29,487 10,344 112,951 62,847
Employee benefits 43,460 25,685 88,445 80,740
Advertising and promotion 24,600 13,256 47,301 58,940
Telephone 22,340 16,007 40,356 37,756
Premises lease cost 31,353 8,062 57,952 37,000
Bank charges and interest 100,506 34,231 181,038 50,123
Insurance 4,348 6,000 13,558 15,000
Amortization of deferred
Finance costs 46,646 -- 93,292 --
Depreciation and
Amortization 7,581 10,480 15,858 16,700
------------ ------------ ------------ ------------
879,807 637,719 1,891,223 1,648,215
------------ ------------ ------------ ------------
NET LOSS $ (182,117) $ (169,124) $ (644,477) $ (382,317)
============ ============ ============ ============
Weighted average common
shares outstanding 15,335,805 14,960,000 15,335,805 14,960,000
BASIC AND FULLY DILUTED
LOSS PER SHARE (0.01) (0.01) (0.04) (0.03)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
UNAUDITED
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $ (644,477) $ (382,317)
Adjustments for items not affecting cash:
Depreciation and amortization 161,779 16,700
Changes in assets and liabilities:
Accounts receivable 243,325 280,940
Inventory (138,387) (35,672)
Prepaid expenses 748 (3,000)
Deferred finance costs (40,000)
Accounts payable and accrued
liabilities (138,616) (120,692)
Customers' deposits (296,143) 160,940
Deferred revenue (42,824) (174,675)
----------- -----------
Net cash used by operating activities (894,595) (257,776)
----------- -----------
Cash flows from investing activities:
Purchase of capital assets (41,238) (2,436)
----------- -----------
Net cash used by investing activities (41,238) (2,436)
----------- -----------
Cash flows from financing activities:
Issuance of capital stock and warrants 308,605 --
Advances from related companies 26,326 27,000
Obligations under capital leases (9,072) (2,200)
Bank indebtedness (255,964) 140,000
Repayment of demand loan (100,000) --
Proceeds from issue of debentures 1,075,000 --
----------- -----------
Net cash provided by financing
activities 1,044,895 164,800
----------- -----------
Effect of exchange rate changes on cash (109,062) 95,412
----------- -----------
Increase in cash -- --
Cash - beginning -- --
----------- -----------
CASH - ENDING $ -- $ --
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 43,771 $ 50,123
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
Stock issued in exchange for notes receivable $ 237,500 $ --
=========== ===========
Deferred finance costs paid with warrants and stock $ 390,625 $ --
=========== ===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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
JUNE 30, 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
JUNE 30, 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 June 30, 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 six months ended June 30,
2000 is $155,015.
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS
At June 30, 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 11,678,666 (2000) Class A common shares,
9,460,000 (1999) par value $.0001 1,167 946
30,000,000 5,500,000 Class B common shares,
par value $.0001 550 550
------ ------
$1,717 $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
JUNE 30, 2000 AND 1999
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
The following comprises the warrants outstanding or committed to be issued
at June 30, 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
120,000 $ 82,500 $0.25 December, 2001
515,000 $643,500 $0.25 February, 2002
600,000 $150,000 $0.25 March, 2002
---------
1,546,328
=========
</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 six months ended June 30, 2000, the Company issued the following
warrants in connection with the issuance 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 June 30, 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 June 30, 2000. In addition 652,000 shares
were issued on the exercise of warrants for proceeds of $153,603 and
566,666 shares were issued on the exercise of options for proceeds of
$155,002. During June the company issued 950,000 shares on the exercise of
options in exchange for notes receivable of $$237,500. The notes are non
interest bearing and are due within 90 days of registration of the shares
becoming free trading.
9
<PAGE>
TELEFFICIENCY HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 5 - CAPITAL STOCK, OPTIONS AND WARRANTS (CONTINUED)
At June 30, 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>
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
---------
1,318,000
Consultants 75,000 01/01/2000 Immediate $1.00 12/31/2000
50,000 01/01/2000 Immediate $0.75 12/31/2000
Officers 433,334 01/04/2000 Immediate $0.75 01/04/2002
---------
1,876,334
=========
</TABLE>
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.
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 June 30, 2000
(Second Quarter Fiscal Year 2000) to the three months ended June 30, 1999
(Second Quarter Fiscal Year 1999)
For the three months ended June 30, 2000 the Company had a net loss of
$182,117 compared to a net loss of $169,124 for the three months ended June
30,1999. Of the $182,117 loss, $133,303 is attributable to interest expense and
amortization of financing costs on the debentures issued in the last quarter of
1999 and the first quarter of 2000.
Total revenue for the three months ended June 30, 2000 was $898,111
compared with $752,480 for the same period in 1999. The increase in sales is due
to the Company's decision to focus on higher margin business in 2000 and provide
complete network solutions for customers and the associated recurring sales.
The cost of sales is comprised almost entirely of the costs of the products
and services sold by the Company. For the three months ended June 30, 2000, the
Company's cost of sales decreased by $83,464 or 29% from $283,885 for the same
period in 1999.
Operating expenses in the three months ended June 30, 2000 increased by
$242,088 to $879,807 from $637,719 for the same period in 1999. Included in
expenses for the three months ended June 30, 2000 is interest of $86,657 and
amortization of financing costs of $46,646 on the debentures. Eliminating such
debenture interest expense, and amortization the expenses for the three months
ended June 30, 2000 were $745,504, an increase of $107,785 or 17% from expenses
for the same period in 1999.
Gross profit for the three months ended June 30, 2000 was $697,690 an
increase of $229,095 or 48% from $468,595 for the same period in 1999. The
increase 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
June 30, 2000 subcontract costs increased by $21,597 or 22% from $76,908 for the
same period in 1999. This increase is due to the increased sales volume during
the period. Wages and salaries have increased by $6,854 or 2% in the three month
period ended June 30, 2000 from $321,907 for the same period in 1999. For the
three months ended June 30, 2000 professional fees increased by $46,690 or 280%
to $63,345 from $16,655 for the same period in 1999. This increase is due to
professional fees incurred in 2000 in connection with the preparation of
financial statements and documentation required as a precondition to the
Company's qualification on the NASD.OTC.
For the six months ended June 30, 2000 the Company had negative cash flow
from operating activities of $894,595 compared to a negative cash flow of
$257,776 for the six months ended June 30, 1999. The negative cash flow for the
six month period ended June 30, 2000 is primarily attributable to the net use of
cash in operating activities. Investing activities were nominal.
11
<PAGE>
The Company financed negative cash flow through additional borrowings and
loan receivable repayments. During the six months ended June 30, 2000 the
Company received proceeds of $1,075,000 from the sale of 13% Debentures due
March 31, 2002 (the "Debentures") and the company received $308,605 from the
exercise of stock options and warrants. 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 $255,964 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 $138,616 in our payables and accrued liabilities for the six months
ended June 30, 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 $243,325 or 41% from $596,990 at
December 31, 1999 to $353,665 at June 30, 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 six months ending June 30, 2000
through borrowings under a CDN$705,000 (approximately US$475,100 at the June 30,
2000 exchange rate) line of credit with the Royal Bank of Canada (the "Bank Line
Of Credit"), the offering of $1,800,000 aggregate principal amount of Debentures
and the proceeds of $308,615 from the exercise of stock options and warrants.
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 June 30, 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.
During the six months ending June 30, 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.
12
<PAGE>
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 June 30, 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
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4(2) and the rules and regulations promulgated thereunder as a transaction by an
issuer not involving any public offering.
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.
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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: August 18, 2000 TELEFFICIENCY HOLDING CORPORATION
/s/ Michael Brunet
-------------------------
Michael Brunet, President
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