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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: ______________ to ______________
Commission file number: 33-11059-A
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TELESERVICES INTERNATIONAL GROUP INC.
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(Name of small business issuer as specified in its charter)
FLORIDA 59-2773602
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
100 SECOND AVENUE SOUTH, SUITE 1000, ST. PETERSBURG, FLORIDA 33701
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 895-4410
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Securities registered under Section 12(b) of the Exchange Act: NONE
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Securities registered under Section 12(g) of the Exchange Act: NONE
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,365,042
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As of March 31, 1998, the aggregate market value of the voting stock held
by non-affiliates, approximately 27,780,283 shares of Common Stock, $.0001 par
value, was approximately $6,111,662 based on an average of the bid and ask
prices of approximately $.22 per share of Common Stock on such date.
The number of shares outstanding of the issuer's Common Stock, $.0001 par
value, as of March 31, 1998 was 34,574,919 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format (check one):
Yes [ ]; No [X]
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PART I
Item 1. Description of Business.
History of the Company
TeleServices International Group Inc. (formerly Visitors Services
International Corp. and Dynasty Capital Corporation) (the "Registrant", the
"Company" or "TSIG") was a development stage enterprise formed under the laws of
the State of Florida to evaluate, structure and complete a business combination
in the form of a merger with, or acquisition of, prospects consisting of private
companies, partnerships or sole proprietorships. The Registrant had no business
operations and no intention of engaging in an active business prior to a
business combination with another enterprise.
The Registrant's past activities were limited to organizational matters
and the Registrant entered into letters of intent with two private business
entities, neither of which resulted in the completion of a business combination.
The Registrant sold 2,500,000 units of $.0001 par value Common Stock ("Common
Stock") at $.02 per unit, for total proceeds of $50,000 in a public offering
which closed on June 8, 1987. The Company was formed for the purpose of seeking
potential business opportunities in the form of the acquisition of an existing
business that has profit potential.
Acquisition of Visitors Services International Corp., formerly Visitors
Services, Inc.
On September 26, 1996, Registrant executed an Agreement and Plan of
Reorganization ("Agreement") with Visitors Services International Corp.,
formerly Visitors Services, Inc. ("VSI"), and certain Stockholders of VSI,
pursuant to which a minimum of 80% of the issued and outstanding shares of VSI
were to be exchanged on a one share for one share basis for shares of restricted
stock of the Registrant, after the Registrant effect a 14.4 to 1 reverse stock
split of the shares outstanding before the date of the Agreement from 10,801,000
shares down to 750,093 shares (in lieu of any fractional shares created as a
result of the reverse stock split, each holder of a fractional share was issued
one additional whole share). The Closing Date of the Agreement was September 27,
1996, when the Registrant's reverse stock split was effected and certain
Stockholders of VSI holding at least 80% of the outstanding shares of VSI
executed the Agreement. The "Exchange Offer" has been extended to the remaining
shareholders of VSI, who have, as extended, until January 20, 1997, to accept
the offer. The offering is being made in accordance with Rule 506 of Regulation
D of the Securities Act of 1933, as amended, or such other appropriate and
available exemption(s). By virtue of the reorganization, VSI becomes a
subsidiary of the Registrant. The transactions contemplated by the Agreement are
referred to as the "Reorganization."
Pursuant to the Agreement and Plan of Reorganization, on the Closing
Date the Registrant's Officers and Directors resigned and designees of VSI were
appointed to the vacated positions. Earnest Mathis resigned as President,
Treasurer and a Director; and Gary J. McAdam resigned as Vice President,
Secretary and a Director. Robert P. Gordon, Paul W. Henry and Steve McLean were
appointed Officers and Directors - See Item 9 below. Mr. Gordon, by virtue of
the transaction, became a controlling shareholder of the Registrant.
Overview - The Company
The Registrant operates through its subsidiary, Visitors Services
International Corp., formerly Visitors Services, Inc. VSI was formed under the
laws of the State of Florida in November 1992 as a teleservices company
specializing in the travel and tourism segment, providing automated hotel and
airline reservation services on an outsourced basis. VSI's customers include
Convention and Visitors Bureaus ("CVB"), ski resorts, airlines, and golf
schools. VSI provides a computerized reservation system and incentive-motivated,
multi-lingual destination counselors who are accessible to leisure travelers via
specific toll-free telephone lines operating 24 hours a day, 365 days a year.
The Company is pursuing other opportunities in the travel and tourism
market. This includes tour operators, airline overflow, and direct response
travel related television advertising. The Company will also consider
opportunities in the general teleservices market.
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Recent Developments
Acquisition of American International Travel Agency, Inc.
On December 6, 1996, VSI entered into a Stock Purchase Agreement (the
"SPA") with Phoenix Information Systems Corp. ("Phoenix") to acquire all the
capital stock of American International Travel Agency, Inc. ("American") from
Phoenix in exchange for 31,579 shares of Common Stock of Phoenix owned by VSI.
This transaction was closed on December 6, 1996, subject to certain rescission
rights described below. The consideration paid was based upon arms-length
negotiations between VSI and Phoenix and a fair market evaluation. Management
believes entering into this SPA will provide the following benefits to VSI: (i)
access to the major travel agency computerized reservation systems world-wide,
and (ii) the ability to issue airline tickets.
Acquisition of Assets of Global Reservation Systems, Inc.
On December 23, 1996, VSI entered into an Asset Purchase Agreement (the
"APA") with Global Reservation Systems, Inc. ("GRS"), a Colorado corporation, to
acquire all of GRS's interests in, to and under any asset, used in connection
with GRS's business of answering toll-free telephone numbers advertised by
contracted marketing organizations, providing information to callers of such
toll-free telephone numbers, making reservations with lodging properties and
attractions and providing advertising effectiveness statistics to such
contracted marketing organizations of every kind, nature and description. As
partial consideration for the acquired assets, VSI will assume trade payables up
to a maximum amount equal to $200,000; liabilities associated with various Trade
License Agreements; rent payment obligations of $1,250 a month for twelve
months; and all obligations and liabilities arising out of events occurring on
or after December 23, 1996, related to VSI's ownership of the acquired assets or
its conduct of the GRS Operations. As additional consideration for the acquired
assets, VSI will cause its corporate parent, TSIG, to grant each year to GRS
45,000 shares of TSIG common stock, par value $.0001 per share, for fiscal years
1997, 1998 and 1999, if and only if, (i) the Net Operating Income attributable
to the acquired assets for fiscal years 1997, 1998 and 1999 equals or exceeds
60% of the projected Net Operating Income for fiscal 1997, 1998 and 1999; and
(ii) the Net Operating Income is not less than 10% of the Total Adjusted Gross
Revenue as projected for fiscal years 1997, 1998 and 1999. Certain roll over
provisions are in place if the required Net Operating Income is not attained in
the prior fiscal year. The consideration paid was based upon arms-length
negotiations between VSI and GRS and a fair market evaluation.
GRS was incorporated in the State of Colorado to provide retail leisure
travel services. Included in the APA are all trade names, names under which GRS
operates, trademarks, service mark, patent or copyright and any application for
any of the foregoing used by GRS and which are material in the conduct of its
business, including: Global Reservation Systems, Inc., Colorado Reservation
Service, Illinois Reservation Service, Utah Reservation Service, Michigan
Reservation Service, Georgia Reservation Service and Chicago Plus Reservation.
Acquisition of assets of International Reservation Services, Limited ("IRSL")
The Registrant, through a subsidiary corporation, Visitors Services,
Inc. ("VSI"), acquired and took possession of all the assets of International
Reservation Services, Limited ("IRSL") on January 21, 1997, to utilize all such
assets to operate the former business of IRSL as the business of VSI. VSI
acquired these assets from IRSL as a result of a bankruptcy proceeding of IRSL.
IRSL filed a voluntary petition for relief under Chapter 11 of Title
11, USC, in the United States Bankruptcy Court - District of Connecticut, case
number 96-51396, on August 21, 1996. VSI was granted first priority lien on
IRSL's assets, by replacing U.S. Transportation Systems, Inc. ("USTS") as senior
lender to IRSL, when VSI paid to USTS the amount of $388,737.25, on January 20,
1997. Pursuant to Section 9-505 of the Uniform Commercial Code, VSI took
possession and title to all of IRSL's assets, free and clear of liens, claims
and encumbrances on January 21, 1997 in accordance with the Court's Order dated
January 17, 1997, which Order permitted VSI to act as a "Replacement Lender" in
the bankruptcy proceeding by paying the debts owed by IRSL to USTS and thereby
succeeding to all right, title, and interest of USTS in and to any and all
claims against IRSL and any and all collateral securing such claims and
succeeding to all the rights of USTS, including the right to take immediate
possession of all assets. VSI also paid $184,000 to the Connecticut Department
of Development ("DED") on January 20, 1997, to remove the DED's secured claim
lien on IRSL assets.
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The funds paid by the Registrant in this acquisition were loaned to the
Registrant by Robert P. Gordon, who is the Chairman and majority shareholder of
the Registrant.
The assets of IRSL consist primarily of equipment, account receivables,
customer contracts and the rights to approximately one hundred "800" telephone
numbers. The Registrant intends to utilize all such assets to operate the former
business of IRSL as the business of VSI. The business, which began in 1992, is
as a destination database marketing service company, specializing in the
provision of a centralized nationwide lodging reservation service and other
travel related services. The business acts as a "transparent" service provider
appearing to customers calling on dedicated 800 telephone numbers as the
regional tourism agency, hospitality association, or commercial tourism
organization that it has contracted with to provide the central reservation
service for. The business provides the booking service seven days a week,
twenty-four hours a day, and all reservation requests are responded to with live
agents. Revenues from the business are derived from a booking fee paid by the
lodging properties for completed stays. The business also books airline tickets
for travelers making lodging reservations, as well as auto rentals.
Acquisition and Disposition of GuaranTEE Time, Inc. ("GTT")
The "Registrant acquired all of the outstanding capital stock of
GuaranTEE Time, Inc. ("GTT") on February 24, 1997, in exchange for restricted
common stock of the Registrant. Initially 100,000 shares of the Registrant were
issued to the selling shareholders of GTT in exchange for their 100% interest in
GTT.
GTT was founded in 1995 with the idea of providing automated tee-time
scheduling for daily-fee golf courses and their customers. The strategy was to
provide the courses in a given area with a computerized tee-sheet and then
connect these courses via a local network that would allow golfers to schedule a
tee-time at any participating course by calling one centralized number. In March
1996, GTT started their first local network with nine participating golf courses
in Milwaukee, Wisconsin. GTT's business plan called for setting up ten of these
local networks (regions) by 1998. In 1996 the company also began development of
a Point of Sale software module to compliment the tee-sheet software. GTT's
business strategy is to offer a nationwide tee-time scheduling service through
combined use of their proprietary tee scheduling software and a centralized 800
number.
The Registrant disposed of substantially all of the assets of GTT on
October 3, 1997, following a sale by GTT (as seller) to Guarantee Time
Acquisitions, Inc., an unaffiliated third-party (the "Buyer").
Consideration received by the Registrant and GTT in the transaction
consisted of the following: $30,000 in earnest money plus $436,012 in cash;
Buyer's promissory note in the amount of $150,000; Buyer's assumption of certain
payments aggregating $35,000; and Buyer's assumption of certain liabilities, up
to an aggregate of $433,000. The $150,000 promissory note does not bear
interest, is secured by a commercial "Standby Letter of Credit," and is payable
as follows: $100,000 due and payable by April 2, 1998; and $50,000 due and
payable on October 2, 1998.
The Registrant and GTT agreed not to compete with the Buyer for a
period of three years in the business of tee-time reservation services. The
Registrant intends to change the name of GuaranTEE Time, Inc. to TSIG
Development Corp.
In connection with the transaction, the Registrant granted to Buyer an
option to purchase 50,000 shares of restricted common stock of the Registrant,
at an exercise price of $1.00, on or before September 30, 2000.
As part of the original acquisition agreement, the Registrant agreed
that up to an additional 500,000 shares of restricted common stock of the
Registrant may be issued to the selling shareholders of GTT over the next three
years if GTT's net income exceeds certain projections over that period of time.
As a result of the sale of assets, because the original selling shareholders of
GTT have been precluded from receiving additional shares, the Registrant is
currently negotiating settlement of this matter with the original selling
shareholders of GTT.
VSI's Telecommunication System
VSI's Destination Service Center is equipped with a sophisticated
Lucent Definity Enterprise Communications Server, which provides call
sequencing, distribution, and quality-of-answer statistics appropriate
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to meet the needs of any VSI destination marketing partner. Once a call enters
the ECS, it is directed either to an available Destination Counselor, or to our
Lucent Intuity Conversant IVR, which collects additional information from the
caller and then directs the call based on the caller's individual needs--whether
to leave messages requesting a mail response, play custom pre-recorded
information about the destination the caller is interested in, or route the call
to a live Destination Counselor. VSI's staffing is based on the goal of
answering all live-counselor calls within 25 seconds after the caller is routed
to a counseling group. Proper scheduling and accurate, history-based
forecasting, utilizing data provided by our Destination Marketing partners, are
an integral part of ensuring that VSI meets this goal.
VSI uses both Hertz Technologies (an AT&T re-seller) and Frontier
Communications as their primary long distance carriers. Via Hertz, VSI has
access to toll-free services around the world, and Frontier has demonstrated
it's phenomenal ability to quickly turn around installation times, routing
changes, and service issues. Their billing analysis software, ExpressView 3.0,
is a superior tool for preparing inbound geographic detail analysis for our
Destination Marketing partners.
VSI is currently working towards the implementation of Lucent's Expert
Agent Selection ACD software with our current switching platform. This software
will allow VSI to custom tailor a Destination Counselor's profile in the ACD
system by linking specific skills and knowledge areas to their profile. The
software also will allow VSI to link a "skills needed" profile with specific
inbound calls, and then match the inbound call to the Destination Counselor best
able to assist that caller. This will be a powerful tool with which VSI will be
able to further enhance the service we provide our Destination Marketing
partners.
Management intends to link VSI's reservations system software to the
world-wide travel agency networks, known as CRS's (computerized reservations
systems) to generate additional revenue. Such a link would allow any travel
agent serviced by the CRS to seek information concerning CVB participating
properties and to book reservations for their clients at any participating CVB
property in the VSI system. Such bookings that would be booked as "tour
products" are typically booked through travel agency CRS's, except that the data
source is the VSI system. However, VSI does not have an agreement to link its
system with any of the travel agency CRS's, and VSI can give no assurances that
any such agreement could be negotiated on terms that would be satisfactory to
VSI, if at all.
Trademarks
The Registrant's subsidiary, VSI, applied for federal registration of
the trademark "Visitors Services, Inc. - VSI" which application was approved on
February 27, 1996.
The Registrant's subsidiary, AIT applied for federal registration of
the trademark "AIT - American International Travel Agency, Inc." and is awaiting
approval.
The Registrant applied for federal registration of the trademark "TSI -
TeleServices International Group Inc." and is awaiting approval.
Employees
As of the date hereof, the Registrant and its subsidiaries currently
employ 132 individuals, of which 129 are full time employees.
Competition
Companies with greater financial resources and experience could acquire
or develop the necessary reservations software and then obtain contracts with
one or more CVB's and enter into direct competition with the Registrant and its
subsidiaries. Furthermore, the Registrant and its subsidiaries face competition
from those that are now booking accommodations, including, but not limited to:
the hotels, inns, and condominium and apartment owners themselves and their
appointed sales agents; as well as travel agents and tour operators who book
accommodations directly and not through the CVB's toll-free number. No
assurances can be given that the operations of the Registrant and its
subsidiaries will be profitable.
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Item 2. Description of Property.
The Registrant owns no property; all of its facilities are leased. Its
corporate headquarters are housed in approximately 16,000 square feet of
commercial space at 100 Second Avenue South, St. Petersburg, Florida, along with
VSI's primary call center. The Registrant has no real estate related
investments.
Item 3. Legal Proceedings.
The Registrant is not a party to any pending material legal proceeding;
however; the Registrant's subsidiaries, are involved in the following legal
proceedings:
1. Call Management Systems, Inc. filed a lawsuit against the
Registrant's subsidiaries, Visitors Services International Corp. ("VSIC") and
American International Travel Agency, Inc. ("AIT"), in Chancery Court of Sevier
County, State of Tennessee on March 12, 1998, claiming approximately $60,000 for
alleged breaches of the contract among the parties wherein VSIC and AIT provided
travel related call management services.
2. Clarity Consulting, Inc. filed a lawsuit against the Registrant's
subsidiary, VSIC, in the Circuit Court of Cook County, Illinois on January 15,
1998, claiming approximately $550,000 for alleged breaches of the contract
between the parties regarding the development of certain software for use by
VSIC.
3. Valley Forge Convention & Visitors Bureau filed a lawsuit against
the Registrant's subsidiary, VSIC (under its prior name, Visitors Services,
Inc.), in the Court of Common Please of Montgomery County, Pennsylvania on March
17, 1998, claiming approximately $430,000 for alleged breaches of the contract
between the parties wherein VSIC provided travel related call management
services.
4. Boehringer Ingelheim Pharmaceuticals, Inc. filed a lawsuit against
the Registrant's subsidiary, VSIC (under its prior name, Visitors Services,
Inc.), and Ray Wilson, an officer of the Registrant, in Superior Court, Judicial
District of Danbury, Connecticut on December 9, 1997, claiming approximately
$96,000 for alleged amounts due for use of office space under an alleged verbal
agreement.
5. Harley-Davidson Motor Company filed a lawsuit against the
Registrant's subsidiary, VSIC, in the Circuit Court, Milwaukee County, State of
Wisconsin, on February 2, 1998, seeking a Declaratory Judgment to terminate the
contract between the parties VSIC provided travel related call management
services, and claiming unspecified damages.
6. Camino Real Associates, Inc. filed a lawsuit against the
Registrant's subsidiary, VSIC, (under its prior name, Visitors Services, Inc.)
and Roger Bruhn, an officer of VSIC, in Colorado in June 20, 1997, claiming to
be owed approximately $100,000 under a Trade Licensing Agreement that VSIC
assumed when it acquired the assets of Global Reservation Systems, Inc. A
default judgment was entered against the defendants on January 8, 1998.
The Registrant's subsidiaries are also involved in several
miscellaneous legal proceedings, with total claims against the subsidiaries
aggregating approximately $50,000.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information
The Registrant completed a public offering of its Common Stock on June
8, 1987. Since the Registrant's inception in 1987 through May 17, 1995, there
had been no publicly traded market for the Registrant's Common Stock in the
Over-The-Counter market or otherwise. On May 18, 1995, the Registrant's shares
were listed on the OTC Bulletin Board System with no reported quote. The Common
Stock is currently traded under the symbol "TSIG." There is no assurance that
the Common Stock will continue to be listed or that any liquidity exists for the
Registrant's shareholders.
The range of high and low bid quotations for the Registrant's Common
Stock for the quarterly periods within the two most recent fiscal years, as
reported by the National Quotation Bureau, is set forth in the following table:
<TABLE>
<CAPTION>
Low Bid High Bid
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<S> <C> <C>
1st Qtr. 1996 $ .01 $ .01
2nd Qtr. 1996 $ .01 $ .01
3rd Qtr. 1996 $ .01 $ .01
4th Qtr. 1996 $ .01 $ 2.75
1st Qtr. 1997 $ 2.25 $ 3.25
2nd Qtr. 1997 $ 2.00 $ 3.25
3rd Qtr. 1997 $ 1.9375 $ 2.8125
4th Qtr. 1997 $ .24 $ 2.25
</TABLE>
The quotations reflect inter-dealer prices, without mark-up, mark-down
or commission and may not represent actual transactions.
(b) Holders
As of March 31, 1998, there were approximately 147 holders of record of
the Registrant's Common Stock (this number does not include beneficial owners
who hold shares at broker/dealers in "street-name").
(c) Dividends
The Registrant has paid no cash dividends on its Common Stock and
management does not anticipate that such dividends will be paid in the
foreseeable future.
(d) Recent Sales of Unregistered Securities.
On February 24, 1997, the Registrant acquired all of the outstanding
common stock of GuaranTEE Time, Inc. "(GTT") in exchange for shares of
restricted Common Stock of the Registrant. The Registrant issued 100,000 shares
of restricted Common Stock to the selling shareholders of GTT. The Registrant
believes that this transaction is exempt from registration pursuant to Section
4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933. The
transaction was reported on Form 8-K dated March 11, 1997.
On September 26, 1996, the Registrant executed an Agreement and Plan of
Reorganization ("Agreement") with Visitors Services, Inc. ("VSI"), and certain
Stockholders of VSI, pursuant to which a minimum of 80% of the issued and
outstanding shares of VSI were to be exchanged on a one share for one share
basis for shares of restricted stock of the Registrant. Pursuant to the
Agreement, the Registrant issued a total 15,220,295 shares of common stock of
the Registrant to the following persons in exchange for their controlling
interest (over 80%) in VSI: Robert P. Gordon, 11,585,472 shares; Elizabeth
Gordon (wife of Robert P. Gordon), 1,409,857 shares; Mr. and Mrs. Gordon,
jointly, 48,750 shares; Heaven International, Inc. (formerly Harvest
International of America,
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Inc.) (a corporation controlled by Robert P. Gordon), 362,010 shares; and James
F. Gordon (brother of Robert P. Gordon). The "Exchange Offer" was completed in
1997, which resulted in the Registrant owning 100% of VSI. A total of 19,446,647
shares of common stock of the Registrant were issued pursuant to the
transaction. No underwriters were used and no commissions were paid. The
Registrant believes that this transaction is exempt from registration pursuant
to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933.
The transaction was reported on Form 8-K dated September 30, 1996.
In October of 1996, the Registrant raised $843,750.75 in cash through a
private placement of its common stock. The Registrant sold 1,124,999 shares of
common stock, par value $.0001 per share, at a cash purchase price of $0.75 per
share. Stephen G. McLean, an Officer of both the Registrant and VSI and a
Director of the Registrant, purchased 33,333 shares; Paul W. Henry, an Officer
and Director of the Registrant and a Director of VSI, purchased 50,000 shares,
which includes 15,000 shares in the name of his minor son; the R.P. Gordon
Children Family Trust, a trust benefiting the minor children of Robert P. Gordon
(Mr. Gordon has no control over and disclaims any interest in the trust,
beneficial of otherwise) purchased 333,333 shares; Robert J Conrads, a Director
of VSI, purchased 400,000 shares; Michael Gordon, brother of Robert P. Gordon,
purchased 33,333 shares; Samuel Jacobs, an Officer of VSI, purchased 33,333
shares; Russell R. Uhlmann, Jr., an Officer of VSI, purchased 33,333 shares.
1,814,206 shares; and the balance of 208,334 shares were purchased by four other
persons. No underwriters were used and no commissions were paid. All purchasers
are accredited investors, and the Registrant believes that this private
placement is exempt from registration pursuant to Sections 4(2) and/or 4(6) of
the Securities Act of 1933. All shares are restricted securities under the Act.
Prior to the reorganization described above, the Registrant's
subsidiary, VSI raised cash of $1,050,000 through a private placement of 700,000
shares of VSI stock (equivalent to $1.50 per share) between January 24, 1996 and
July 15, 1996. VSI, raised cash of $1,200,000 through a private placement of
1,200,000 shares of VSI common stock (equivalent to $1.00 per share) between
January 26, 1995 and June 26, 1995. Both private placements were made by VSI in
reliance on Section 4(2) and/or Rule 506 of the Securities Act of 1933. All
shares of common stock of VSI were converted into shares of restricted common
stock of the Registrant pursuant to the reorganization with the Registrant and
the terms of the Exchange Offer.
Item 6 . Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Planned principal operations of the Registrant commenced as of
September 30, 1996. The financial statements of the Registrant have been
prepared on a consolidated basis to reflect the acquisition of VSI.
Total revenues for the fiscal year ended December 31, 1997, were
$2,365,042. This represents a 198% increase over revenues for the fiscal year
ended September 30, 1996. However, operating expenses for fiscal 1997 were
$20,407,784, a 347% increase over operating expenses of $4,565,094 for fiscal
1996. In fiscal 1997, there was an increase in most expense categories, in
particular salaries and payroll taxes, contract services and telephone expenses,
driven primarily by additional personnel and associated overhead costs necessary
to support the overall growth of the Registrant's operations.
For fiscal 1997, the Registrant sustained a net loss of approximately
$18,042,742, compared to a net loss of $3,773,145 for fiscal 1996. The increase
in net loss is primarily attributable to the large increase in operating
expenses in fiscal 1997 as compared to fiscal 1996, minimally offset by the
increase in revenues in fiscal 1997 as compared to fiscal 1996. These losses are
expected to continue for a presently undetermined time.
Sales and Revenues
The Registrant's sales and revenues are derived from VSI. VSI has
derived revenues generally from (1) per call fee for visitor guide requests and
informational calls, (2) booking fees paid by the hotel or lodging properties
for each booked and used reservation provided by VSI, (3) transaction fees
between $1.00 to $2.50 per ticket sold for the Arts, Attractions, Events or
Sport Teams for which tickets are sold by VSI, (4) subscription fees charged to
the properties and for information services to attractions and events.
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Limited Working Capital; Financial Instability
As of December 31, 1997, the Registrant had a negative stockholder's
equity of $5,193,925, an accumulated deficit of $26,066,383, and a working
capital deficit of $5,597,256.
Various factors affecting the Registrant's operations raise doubt as to
the Registrant's ability to continue as a going concern. There can be no
assurance that the Registrant will be able to continue as a going concern or
achieve material revenues or profitable operations. The Registrant is dependent
upon sufficient cash flow from operations to meet its short-term and long term
liquidity needs. The Registrant requires additional financing. In this event, no
assurances can be given that such financing will be available in the amount
required or, if available, that it can be on terms satisfactory to the
Registrant.
Item 7. Financial Statements and Supplementary Data.
The information required by Item 7 and an index thereto commences on
page F-1, which pages follow this page.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
As a result of the transaction reported in the Registrant's Form 8-K
dated September 30, 1996, and the resulting change in control of the Registrant,
the Registrant's former principal independent accountant, Larry Legel, CPA, was
dismissed on October 17, 1996. The new principal independent accountant is
Schumacher & Associates, Inc.
The former accountant's report on the financial statements for either
of the past two fiscal years, contained a "going concern" qualification, but did
not contain an adverse opinion or disclaimer of opinion, and was not qualified
or modified as to uncertainty, audit scope or accounting principles.
The replacement of Larry Legel, CPA, was approved by the Board of
directors of the Registrant on October 17, 1996.
There were no disagreements with the former accountant on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The firm of Schumacher & Associates, Inc., was engaged as the new
certifying accountants on October 17, 1996.
There were no consultations within the purview of Rule 304(a)(iv) of
Regulation S-B with the new accounting firm of Schumacher & Associates, Inc.
Letters addressed to the Securities and Exchange Commission from both
the former accountant and the new accountant stating their agreement with the
disclosures were included as exhibits on the Form 8-K dated October 17, 1996.
9
<PAGE> 10
TELESERVICES INTERNATIONAL GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
December 31, 1996
December 31, 1997
F1
<PAGE> 11
Contents
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Reports of Independent Certified Public Accountants F3
Consolidated Financial Statements:
Consolidated Balance Sheet F4
Consolidated Statements of Operations F5
Consolidated Statements of Cash Flows F6
Consolidated Statement of Changes in Stockholders' Equity (Deficit) F7
Notes to Consolidated Financial Statements F8
</TABLE>
F2
<PAGE> 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
TeleServices International Group Inc.
We have audited the accompanying consolidated balance sheet of TeleServices
International Group Inc. as of December 31, 1997, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
year then ended, for the three month period ended December 31, 1996 and for the
year ended September 30, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TeleServices
International Group Inc. as of December 31, 1997, and the results of its
operations, its changes in stockholders' equity (deficit) and its cash flows for
the year then ended, for the three month period ended December 31, 1996 and for
the year ended September 30, 1996, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
accompanying financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency. These conditions raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 East Arapahoe Road, T-II, #110
Englewood, CO 80112
April 10,1998
F3
<PAGE> 13
TeleServices International Group Inc.
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash, restricted (Note 2) $ 175,000
Accounts receivable, net of allowance for
doubtful accounts of $352,890 162,648
Other Current Assets 38,886
------------
Total current assets 376,534
Equipment, net of accumulated depreciation of
$1,127,116 (Note 5) 649,960
Other assets 29,440
------------
Total assets $ 1,055,934
============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Outstanding checks in excess of amounts reported by banks $ 142,382
Accounts payable and accrued expenses (Notes 6,10 and 12) 5,496,215
Loans payable, stockholders (Note 7) 59,315
Capital leases payable, current portion (Note 4) 59,838
Notes payable, current portion (Note 9) 216,040
------------
Total current liabilities 5,973,790
Notes payable, net of current portion (Note 9) 234,139
Capital leases payable, net of current portion
(Note 4) 41,930
------------
Total liabilities 6,249,859
------------
Commitments and Contingencies (Notes 1,2,3,4,6,7,9,10,11,12,13, and 14) --
Stockholders' (deficit):
Preferred stock, $.001 par value
10,000,000 shares authorized
None issued and outstanding (Note 8) --
Common stock, $.0001 par value,
100,000,000 shares authorized,
30,155,947 shares issued and outstanding 3,016
Additional paid-in capital 20,869,442
Accumulated (deficit) (26,066,383)
------------
Total stockholders' (deficit) (5,193,925)
------------
Total liabilities and stockholders' (deficit) $ 1,055,934
============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F4
<PAGE> 14
TeleServices International Group Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Three Months Year
Ended Ended Ended
December 31 December 31 September 30
1997 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total Revenues $ 2,365,042 $ 256,734 $ 791,949
------------ ------------ ------------
Operating Expenses:
Salaries and contract services 10,171,693 966,151 2,431,561
Payroll taxes 586,444 121,366 231,219
Rent 402,887 65,363 145,040
Telephone 1,075,429 241,749 534,757
Travel and entertainment 840,817 310,252 330,752
Advertising and promotion 133,402 238,186 87,023
Depreciation and amortization 966,991 100,625 192,836
Other expenses (Note 6) 6,230,121 259,547 611,906
------------ ------------ ------------
Total operating expenses 20,407,784 2,303,239 4,565,094
------------ ------------ ------------
Net (loss) from operations (18,042,742) (2,046,505) (3,773,145)
Other income (expenses):
Interest income 31,897 7,887 7,796
Interest (expense) (206,451) (22,898) (93,768)
Gain on disposition of securities -- 74,171 --
------------ ------------ ------------
Net (loss) $(18,217,296) $ (1,987,345) $ (3,859,117)
============ ============ ============
Net (loss) per share $ (.70) $ (.10) $ (.22)
============ ============ ============
Weighted Average Shares Outstanding 26,107,902 19,015,122 17,673,901
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F5
<PAGE> 15
TeleServices International Group Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Three Months Year
Ended Ended Ended
December 31 December 31 September 30
1997 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $(18,217,296) $ (1,987,345) $ (3,859,117)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Decrease in accounts receivable 103,846 129,547 (179,392)
Depreciation and Amortization 966,991 100,625 192,836
Increase in accounts payable and accrued expenses 4,484,325 545,380 1,156,180
Other 86,233 (308,630) (33,032)
------------ ------------ ------------
Net cash (used in)
operating activities (12,575,901) (1,520,423) (2,722,525)
------------ ------------ ------------
Cash flows from investing activities:
(Acquisition) of equipment (754,417) (140,233) (885,619)
------------ ------------ ------------
Net cash (used in)
investing activities (754,417) (140,233) (885,619)
------------ ------------ ------------
Cash flows from financing activities:
(Repayment of) leases payable (11,052) (4,651)
Cash proceeds from (repayment of) loans from stockholders (353,344) 218,681 (48,915)
Issuance of common stock 13,622,335 1,549,875 3,277,373
Proceeds from notes payable -- -- 485,196
(Repayment of) notes payable (21,753) (35,483) (13,264)
------------ ------------ ------------
Net cash provided by
financing activities 13,236,186 1,728,422 3,653,766
------------ ------------ ------------
Increase (decrease) in cash (94,132) 67,766 45,622
Cash, beginning of period 269,132 201,366 155,744
------------ ------------ ------------
Cash, end of period $ 175,000 $ 269,132 $ 201,366
============ ============ ============
Interest paid $ 206,451 $ 22,898 $ 21,066
============ ============ ============
Income taxes paid $ -- $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F6
<PAGE> 16
TeleServices International Group Inc.
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
From September 30, 1995 through December 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 15,507,944 $ 1,551 $ 2,320,739 $ (2,002,625) $ 319,665
Issuance of common stock 3,581,820 358 3,355,015 -- 3,355,373
(Note 7)
Reorganization (Note 1) 750,093 75 (75) -- --
Minority interests shares
not exchanged as of
September 30, 1996 (Note 1) (3,869,469) (387) 387 -- --
Net (loss) year ended
September 30, 1996 -- -- -- (3,859,117) (3,859,117)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 15,970,388 1597 5,676,066 (5,861,742) (184,079)
Minority interest shares exchanged 3,869,469 387 (387) -- --
(Note 1)
Issuance of Common Stock 2,219,999 222 1,572,238 -- 1,572,460
Net (loss) three months ended
December 31, 1996 -- -- -- (1,987,345) (1,987,345)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 22,059,856 2,206 7,247,917 (7,849,087) (598,964)
Issuance of Common Stock 8,096,091 810 13,621,525 -- 13,622,335
(Note 7)
Net (loss) year ended
December 31, 1997 -- -- -- (18,217,296) (18,217,296)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 30,155,947 $ 3,016 $ 20,869,442 $(26,066,383) $ (5,193,925)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F7
<PAGE> 17
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(1) Organization and Operations:
TeleServices International Group Inc. (TSIG), formerly Dynasty Capital
Corporation (Dynasty), was formed under the laws of the State of
Florida on October 1, 1986. TSIG issued common stock for 100% of the
issued and outstanding common stock of Visitors Services, Inc. (VSI).
This transaction was accounted for as a reverse acquisition since the
former controlling shareholders of VSI control TSIG after the business
combination. Prior to the transaction TSIG was an inactive public shell
corporation with no net assets. Since Dynasty had no net monetary
assets at the time of the business combination, par value of these
shares was transferred from additional paid-in capital to common stock
VSI was formed under the laws of the State of Florida in November 1992
to provide automated reservations and information services specifically
designed to support the special needs of convention and visitors
bureaus and other organizations.
American International Travel Agency, Inc. was acquired from Phoenix
Information Systems Corp. (Phoenix), and related party on December 6,
1996 in exchange for 31,579 shares of Phoenix Systems and related
party. The Company had a cost basis of $15,829 in the shares of
Phoenix. The market value of the shares was $90,000 at the time of the
transaction, resulting in a gain of $74,171 to the Company. The
transaction was accounted for as a purchase.
(2) Summary of Significant Accounting Policies
(a) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade accounts receivable. The Company grants
credit to various business and entities, in the U.S.A. The Company
does not require collateral for its accounts receivable. The
Company maintains its cash balance in one financial institution
located in Florida. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At December 31, 1997 the
Company's uninsured cash balances were approximately $83,257.
F8
<PAGE> 18
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(2) Summary of Significant Accounting Policies, Continued
(b) Income Tax
The Company has net operating loss carryovers totaling
approximately $26,000,000 at December 31, 1997 which expire in
various years through 2012. The Company has deferred tax assets of
approximately $1,300,000 at December 31, 1997 related to loss
carryovers but due to the uncertainty of the Company's ability to
utilize these carryovers, a valuation allowance of the total
$1,300,000 has been provided. Therefore, as of December 31, 1997
the Company's financial statements do not include any provision for
deferred tax assets. A change in ownership of more than 50% of the
Company could reduce or eliminate the Company's ability to utilize
these loss carryovers.
(c) Equipment - Equipment is carried at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets ranging from 3
to 5 years.
(d) Per Share Information
The per share information is computed based upon the weighted
average shares outstanding.
(e) Use of Estimates in the Preparation of Financial Statements
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 at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
periods. Significant assumptions in the accompanying financial
statements relate to the Company's ability to continue as a going
concern as described in note 3 and estimated useful lives of
equipment as disclosed in note 2(c). The ultimate resolution of the
reasonableness of the related assumptions cannot presently be
determined. Actual results could differ from the Company's
estimates.
F9
<PAGE> 19
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(2) Summary of Significant Accounting Policies, Continued
(f) Bad Debts
An allowance for uncollectible accounts has been provided based on
the Company's past collection history.
(g) Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred.
(h) Geographic Area of Operations
The Company provides services to customers in the U.S.A. The
potential for severe financial impact can result from negative
effects of economic conditions within the market or geographic
area. Since the Company's business is principally in one area and
in one industry, this concentration of operations results in an
associated risk and uncertainty.
(i) Stock Split
Effective January 16, 1996 the Company effected a 1.065 to 1
forward stock split. All shares and per share amounts referred to
have been adjusted retroactively.
(j) Restricted Cash
Included in cash on December 31, 1997 is $175,000 being held in
separate certificates of deposit as collateral for notes payable.
(3) Basis of Presentation - Going Concern
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained recurring operating losses since its inception and has
working capital deficit. Management is attempting to raise additional
capital and attempting to complete a business combination.
F10
<PAGE> 20
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(3) Basis of Presentation - Going Concern, Continued
In view of these matters, realization of certain assets in the
accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
meet its financial requirements, raise additional capital, and the
success of its future operations. Management believes that its ability
to raise additional capital provides the opportunity for the Company to
continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
(4) Lease Commitments
In September, 1995 the Company entered into an operating lease
agreement for its office facilities for a term of seven years.
Minimum future rental payments under operating leases with terms
greater than one year are summarized as follows:
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1998 $ 244,141
1999 $ 252,418
2000 $ 261,114
2001 $ 268,970
2002 $ 273,112
</TABLE>
The Company entered into a capital finance lease agreement covering its
telephone equipment. Under the terms of the agreement which commenced in
September, 1995 the Company is making aggregate lease payments over a three year
period of $185,196, which includes deferred interest of approximately $27,000.
The Company made a down payment of approximately $82,000 at the beginning of the
lease period. At the end of the lease period, the equipment will be owned by the
Company for a nominal charge of $1.00. The Company has accounted for this
transaction as a capital lease. At December 31, 1997 the Company's financial
statements included equipment leased through capital leases in the amount of
approximately $240,000 with accumulated depreciation of approximately $170,000.
F11
<PAGE> 21
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(4) Lease Commitments, Continued
Total future minimum lease payments under this capital lease are
summarized as follows:
<TABLE>
<S> <C>
Year ending December 31, 1998 $ 66,119
Year ending December 31, 1999 46,332
Amount representing interest (10,683)
---------
Net after interest reduction 101,768
Current portion 59,838
---------
Noncurrent portion $ 41,930
=========
</TABLE>
(5) Equipment
The company's equipment as of December 31, 1997 is summarized as
follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment $ 487,793
Telephone equipment 911,433
Computer equipment and software 834,945
Leasehold improvements 42,905
Allowance for idle and excess capacity equipment (500,000)
-----------
1,777,076
Accumulated depreciation (1,127,116)
-----------
$ 649,960
===========
</TABLE>
(6) Other Expenses
In addition to normal other operating expenses, other expenses include
the following:
<TABLE>
<S> <C>
Provision for litigation contingencies $1,277,250
Loss on special event contract 1,100,158
Write off of goodwill 801,665
Provision for severance pay 272,808
Provision for idle and over capacity equipment 500,000
----------
$3,951,881
==========
</TABLE>
F12
<PAGE> 22
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(7) Related Party Transactions
The stockholders of the Company have made various demand loans to the
Company for expansion and operating capital. During the year ended
September 30, 1996 the stockholders converted $2,250,000 into 2,798,750
shares of the common stock of the Company. During the three month
period ended December 31, 1996 the stockholders converted $329,965 into
440,000 shares of Common Stock. During the year ended December 31, 1997
the stockholders converted $9,797,635 into 7,410,878 shares of Common
Stock.
As of December 31, 1997 loans payable to a stockholder totaled $59,315.
The loan from the stockholder accrues interest at 11% per annum. The
loan is payable on demand and is uncollateralized. Included in other
current assets is $30,866 of advances to the same stockholder.
The Company has an aggregate of 16,056,161 options outstanding to
various employees, officers and related parties at purchase prices
ranging from $.30 to $3.50 per share. While some of these options are
fully vested, the majority of options vest over periods of up to three
years. These options expire at various dates through 2002. The above
referenced securities are restricted securities under the Securities
Act of 1933, as amended.
(8) Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred
stock, having a par value of $.001 each. The preferred stock may be
issued in a series from time to time with such designation, rights,
preferences and limitations as the Board of Directors of the Company
may determine by resolution.
F13
<PAGE> 23
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(9) Notes Payable
The Company has notes payable, principally to a bank, of approximately
$450,179 at December 31, 1997, collateralized by $175,000 of
certificates of deposit and certain furniture and equipment. Of this
amount $50,000 was due and payable as of December 31, 1997. The
remaining notes payable are payable in monthly payments totaling
approximately $22,000, with interest at an approximate weighted average
of 10% per annum.
The majority of the notes payable are personally guaranteed by a
stockholder of the Company.
Maturities of the notes payable are summarized as follows:
<TABLE>
<CAPTION>
Years ending December 31:
<S> <C>
1998 $216,040
1999 234,139
--------
Total $450,179
========
</TABLE>
(10) Severance Pay Commitments
The Company has entered into various contracts for services, ranging in
terms from two to four years, as of December 31, 1997 which provide for
continued payment if the person is terminated prior to the end of the
contract period. Total commitments for severance on these contracts
amount to approximately $724,750 for employees still employed by the
Company as of December 31, 1997. In addition, accrued expenses as of
December 31, 1997 include $272,808 related to severance requirements
for former employees.
F14
<PAGE> 24
TELESERVICES INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996 and September 30, 1996
(11) Subsequent Events
The Company has, subsequent to December 31, 1997, signed a letter of
intent related to a possible business combination. This potential
combination letter of intent includes various commitments by the
Company but is subject to various contingencies.
(12) Litigation
The Company is a party to numerous litigation and threatened litigation
matters related to alleged nonperformance of contracts and nonpayment
of various obligations. Contingencies exist with respect to these
matters. The ultimate costs, if any, related to these matters cannot
presently be determined. The financial statements as of December 31,
1997 include a $1,277,250 provision for estimated potential costs
related to these matters.
(13) Creditor Delinquencies
The Company is materially delinquent on payment of various creditor
obligations including various obligations to the Internal Revenue
Service. Failure to pay these balances due could result in the
inability of the Company to continue in business.
(14) Fourth Quarter Adjustments
The Company recognized as expenses various previously unrecorded
accruals for potential litigation matters and various other accrued
expenses and provisions for losses, which were recorded in the fourth
quarter. These fourth quarter material adjustments totaled
approximately $6,000,000.
F15
<PAGE> 25
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
DIRECTORS OF THE REGISTRANT
The Registrant has a Board of Directors (the "Board") which is
comprised of three members. Each director holds office until the next annual
meeting of Shareholders or until a successor is elected or appointed. Each
executive officer serves at the pleasure of the Board of Directors. The members
of the Board of Directors of the Registrant their respective positions (if any)
are as follows:
<TABLE>
<CAPTION>
Director of
Name Position with Company Company Since
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Robert P. Gordon Chairman, Director September 1996
Stephen G. McLean Chief Executive Officer, Director September 1996
Paul W. Henry Secretary, Treasurer, Director September 1996
</TABLE>
ROBERT P. GORDON, 47, has served as the Chairman and a Director of the
Registrant since September 26, 1996. Mr. Gordon founded the Registrant's
subsidiary, VSI, in 1992 to meet the demanding requirements of the domestic
tourism industry. As founder and chairman of Phoenix Information Systems Corp.
("Phoenix"), a firm that invested ten years and millions of dollars to develop
an airline and hotel reservation system for international markets, Mr. Gordon
recognized that sophisticated automated destination system software could be
programmed to exceed the specifications of any domestic or international
hospitality and tourism marketing program currently in use. Mr. Gordon is
chairman of Heaven International, Inc. (formerly Harvest International of
America, Inc.), a company engaged in the development of global tourism. Mr.
Gordon has a BA in Philosophy and Biology from New York University, where he
also did his graduate studies.
STEPHEN G. MCLEAN, 43, has served as Chief Executive Officer and a
Director of the Registrant since September 26, 1996. Mr. McLean first joined the
Registrant's subsidiary, VSI, in early 1996 as Chief Executive Officer and
became a Director of VSI in January 1997. Previously, he was Corporate Vice
President-Worldwide Marketing for Indigo NV, an innovative, high-technology
printing and marketing communications company. At Indigo, Mr. McLean was
responsible for the domestic and foreign marketing strategy of one of the
fastest growing publicly traded companies in the United States. Mr. McLean was
also instrumental in formulating and implementing the successful launch strategy
for the E-Print 1000, the world's first digital offset printing press. Prior to
joining Indigo, Mr. McLean held various executive positions at Scitex America
Corporation, including Vice President-Strategic Planning, Vice
President-Marketing and Vice President-National Division. The division
penetrated the major account segments of the printing and publishing industry.
Mr. McLean holds B.S. and J.D. degrees from Suffolk University in Boston as well
as an MBA from Northeastern University. He is a member of the Massachusetts Bar.
PAUL W. HENRY, 50, has served as Secretary, Treasurer and a Director of
the Registrant since September 26, 1996. Mr. Henry first joined the Registrant's
subsidiary, VSI, as a Director on March 1, 1996. Mr. Henry has been Secretary
and a Director of Phoenix Information Systems Corp. and Phoenix Systems Group,
Inc. since April 1992. During the past ten years, Mr. Henry has been an
independent financial consultant. From 1991 to 1992, he was retained by Essex
Investment Management Company, an institutional money management firm. From 1988
to 1991, Mr. Henry was retained by the Caithness Corporation, a natural
resources development company. From 1988 to 1989 he was an advisor to Veronex
Resources, an international oil and gas exploration company. From 1987 to 1989,
Mr. Henry served as a consultant to Heaven International, Inc. Mr. Henry has a
B.A. in Economics from Yale University, and an MBA from Northeastern University.
11
<PAGE> 26
OFFICERS OF THE REGISTRANT
Each executive officer serves at the pleasure of the Board of
Directors. The executive officers of the Registrant and their respective
positions are as follows:
ROBERT P. GORDON serves as Chairman of the Registrant.
STEPHEN G. MCLEAN serves as Chief Executive Officer of the Registrant.
PAUL W. HENRY serves as Secretary/Treasurer of the Registrant.
RAYMOND P. WILSON, 43, Chief Financial Officer ("CFO") for the
Registrant, joined the Registrant in January 1997. Mr. Wilson has over 18 years
of multifaceted experience in management of high growth companies. Prior to
joining VSI, he spent 11 years with Scitex America Corporation where he served
as Treasurer, CFO, Vice President of Customer Support, and most recent, as Vice
President of Marketing and Business Operations. During this time, Mr. Wilson was
a key member of the management team which completed a business turnaround and
grew Scitex to over $700 million in annual revenues on a worldwide basis. Prior
to joining Scitex, Mr. Wilson was the Director of Finance and Administration for
Lexidata Corporation, a high tech manufacturer. Mr. Wilson joined this start up
in 1979 and was instrumental in growing the company to over $30 million in
annual revenues in less than three years. Mr. Wilson holds a B.A. in Accounting,
and an MBA from Bentley College in Waltham, Massachusetts.
OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT'S SUBSIDIARIES
ROBERT J. CONRADS, 51, has served as a Director of VSI since March 1,
1996. Mr. Conrads has been a Director of Phoenix Information Systems Corp. since
March 1, 1995 and is currently Managing Partner of Voyager Capital Group, an
investment and advisory services firm. From 1994 until January 1997, Mr. Conrads
served as Executive Vice President, Chief Financial Officer and member of the
Supervisory Board of Indigo, N.V., and President of Indigo America, Inc.,
developers of the Indigo E-Print 1000, the world's first digital offset color
press. From 1987 to 1993, Mr. Conrads was Managing Director of The First Boston
Corporation and headed that firm's Investment Banking Technology Group based in
New York. During his career in the investment banking industry, Mr. Conrads was
involved in the execution of several strategic alliances, M&A and financing
transactions with technology based companies in the US and abroad. Prior to
entering the investment banking industry, Mr. Conrads was with McKinsey & Co.
for twelve years where he was a Director and headed that firm's Electronics
Industry Practice. He has also conducted research in atomic and molecular
physics for the US Atomic Energy Commission and the National Science Foundation.
Mr. Conrads holds B.S. and M.S. degrees in Physics from Georgia Institute of
Technology and an MBA from Harvard University.
KEVIN N. BLAYNE, 33, serves as Vice President and General Manager. Mr.
Blayne brings over 8 years of management experience in all areas of Sales and
Marketing and has demonstrated skill managing organizations through explosive
periods of growth. Most recently, he was Director of Marketing for Indigo
America, an innovative, high-technology printing and marketing communications
company. At Indigo, Mr. Blayne managed the marketing operations including:
customer business development, market intelligence, product management,
alternative channels and new product development. Prior to Indigo, Mr. Blayne
spent three years with Scitex America Corp. in various sales and marketing
positions. Mr. Blayne holds a BS in Computer Science and Business Administration
from the University of Maine, and is working towards the completion of his MBA.
ROGER BRUHN, 50, Vice President Operations, is responsible for the day
to day operations of the VSI Call Centers. Mr. Bruhn has fifteen years
experience operating marketing and reservation organizations. His early career
was in the development and management of income producing real estate. He has
managed assets for financial institutions such as Bankers Trust Company, the
Federal Deposit Insurance Corporation, and Resolution Trust Corporation. In
1982, faced with low extremely soft market conditions, he established a new
organization devoted solely to increasing occupancy levels in properties managed
by his company. This company's concept was simple: "Make it easy for the
consumer to locate and buy rooms." Within three years, other asset managers
began to contract with him to increase occupancy levels in their properties. In
1992, at the request of the Colorado Hotel and Lodging Association, he
established a statewide central lodging reservation service in Colorado. By
1996, this service had expanded to five states. Mr. Bruhn joined VSI in late
1996. Mr. Bruhn attended the University of
12
<PAGE> 27
Colorado where he majored in Business.
RUSSELL R. UHLMANN, JR., 45, joined VSI in 1996 as Vice President
Sales. He brings more than 19 years of successful experience in managing sales
and customer support organizations. Most recently, Mr. Uhlmann was the National
Account Manager for Gerber System Corporation, a $100 million NYSE company
providing technology solutions to the highly service-oriented graphic arts
market. In this role, Mr. Uhlmann assumed complete responsibility for the
customer satisfaction and business renewal of corporate accounts generating
millions of dollars in annual revenues. Mr. Uhlmann has also held the following
positions: Vice President Sales and Service, Worldwide Manager of Sales and
Distribution, and National Sales and Support Manager. In each of these
positions, Mr. Uhlmann had total responsibility for customer satisfaction
including pre- and post-sales support, customer training, and customer
evaluations. Mr. Uhlmann has been trained and certified in IS09001
business/customer satisfaction procedures. Mr. Uhlmann has a B.S. in Finance
from Auburn University and did graduate studies at Emory University.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
On September 30, 1994, the Securities and Exchange Commission issued an
Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of
1933 (the "1933 Act") and Section 21C of the Securities Exchange Act of 1934
(the "1934 Act"), Making Findings and Imposing a Cease and Desist Order against
Harvest International of America, Inc. ("Harvest"), a privately held
corporation, and Robert P. Gordon. The findings and remedial sanctions imposed
by the Order were in accordance with Offers of Settlement dated July 24, 1994
submitted by Harvest and Mr. Gordon, which the S.E.C. accepted. Without
admitting or denying liability, Harvest and Mr. Gordon consented to the Cease
and Desist Order alleging violations of Section 17(a) of the 1933 Act and
Section 10(b) and Rule 10b-5 of the 1934 Act by reason of alleged
misrepresentations in 1990 and 1991 in connection with the offer or sale of
Harvest non-interest bearing promissory notes convertible into common stock of
the predecessors of Phoenix Information Systems Corp. and one of its
subsidiaries and which common stock was to have been issued and registered
within 30 or 60 days from the dates of the various notes. Harvest is now known
as Heaven International, Inc.
In December 1997, Phoenix Information Systems Corp. ("Phoenix")
declared bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. At that time,
Robert P. Gordon, Paul W. Henry and Robert J. Conrads were directors of Phoenix,
and Mr. Gordon and Mr. Henry were also officers of Phoenix.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Because the Registrant does not have any class of equity securities
registered under Section 12 of the Securities Exchange Act of 1934, compliance
with Section 16(a) is not required.
Item 10. Executive Compensation.
The following information discloses all plan and non-plan compensation
awarded to, earned by, or paid to the Registrant's Chief Executive Officer and
each of the four highest paid executive officers of the Registrant and/or its
subsidiaries.
On August 26, 1997 the Board of Directors of the Registrant elected to
change the Registrant's annual accounting period from one ending on September 30
of each year to a fiscal year ending on December 31 of each year, resulting in a
transition period between October 1, 1996 and December 31, 1996. The figures set
forth in the tables below have been restated for prior years on the basis of the
new year end.
Summary Compensation Table
The following table sets forth all compensation, including bonuses,
stock option awards and other payments, paid or accrued by the Registrant and/or
its subsidiaries during each of the fiscal years ended December 31, 1997, 1996
and 1995, to or for the Registrant's Chief Executive Officer and each of the
other executive officers of the Registrant and/or its subsidiaries whose total
annual salary and bonus exceeded $100,000 for the fiscal year ended 1997.
13
<PAGE> 28
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------
(a) (b) (c) (d) (e)
Name Year Other
and Ended Annual
Principal December Salary Bonus Compensation
Position 31 ($) ($) ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen G. McLean, 1997 $180,000 -0- -0-
CEO, Director 1996 $110,000 -0- -0-
1995 -0- -0- -0-
Robert P. Gordon, 1997 $158,247 $ 35,000 -0-
Chairman, Director 1996 $ 60,000 -0- -0-
1995 -0- -0- -0-
Raymond P. Wilson, 1997 $ 60,000 $ 40,000 -0-
Chief Financial Officer 1996 -0- -0- -0-
1995 -0- -0- -0-
Kevin N. Blayne, 1997 $120,000 -0- -0-
Vice President 1996 $ 8,250 -0- -0-
1995 -0- -0- -0-
Russell R. Uhlmann, 1997 $100,000 -0- -0-
Vice President 1996 $ 40,000 -0- -0-
1995 -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------------------
Awards Payouts
---------------------------------------------------
(a) (b) (f) (g) (h) (i)
Name Year Restricted
and Ended Stock Shares LTIP All Other
Principal December Award(s) Underlying Payouts Compensation
Position 31 ($) Options (1) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stephen G. McLean, 1997 -0- -0- -0- -0-
CEO, Director 1996 -0- 975,000 -0- -0-
1995 -0- -0- -0- -0-
Robert P. Gordon, 1997 -0- 15,000,000 -0- -0-
Chairman, Director 1996 -0- 2,220,000 -0- -0-
1995 -0- -0- -0- -0-
Raymond P. Wilson, 1997 -0- 300,000 -0- -0-
Chief Financial Officer 1996 -0- -0- -0- -0-
1995 -0- -0- -0- -0-
Kevin N. Blayne, 1997 -0- 265,000 -0- -0-
Vice President 1996 -0- 175,000- -0- -0-
1995 -0- -0- -0- -0-
Russell R. Uhlmann, 1997 -0- 175,000 -0- -0-
Vice President 1996 -0- 175,000 -0- -0-
1995 -0- -0- -0- -0-
</TABLE>
(1) 1997 option figures include repriced options previously granted and
not previously yet exercised. See details in notes to the following table for
Option/SAR Grants In Last Fiscal Year.
14
<PAGE> 29
Option/SAR Grants in Last Fiscal Year
The information provided in the table below provides information with
respect to individual grants of stock options during fiscal 1997 to each of the
executive officers named in the Summary Compensation Table above. The Registrant
did not grant any stock appreciation rights during 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
% of Total
Number of Options/SARS
Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year (1) ($/Sh) Date
- ---------------------------------- ------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Robert P. Gordon 7,000,000 28.00% $ .30 12/31/02
364,488 1.46% $ 1.65 09/30/00
500,000 2.00% $ 1.25 09/30/00
666,560 2.67% $ .50 09/30/00
659,830 2.64% $ .30 09/30/00
2,809,122 11.24% $ .30 09/30/00
1,000,000 4.00% $ 2.25 02/28/99
500,000 2.00% $ 2.00 06/30/00
1,500,000 6.00% $ 2.00 08/31/00
Stephen G. McLean 500,000 2.00% $ .30 01/31/00
225,000 .90% $ .30 10/03/99
250,000 1.00% $ .30 03/31/02
Raymond P. Wilson 70,000 .28% $ .30 12/31/00
180,000 .72% $ .30 12/31/00
50,000 .20% $ .30 03/30/02
Kevin N. Blayne 150,000 .60% $ .30 12/31/00
25,000 .10% $ .30 10/03/99
40,000 .16% $ .30 12/31/00
50,000 .20% $ .30 12/31/00
Russell R. Uhlmann 150,000 .60% $ .30 08/01/99
25,000 .10% $ .30 10/03/99
</TABLE>
Notes:
(1) The percentage of total options granted in the fiscal year is based
upon all options granted to (16,455,440) and repriced (8,544,710) for
eligible participants (which includes officers, directors, employees,
consultants and advisors) under each of the Registrant's employee stock
option plans in fiscal 1997 (not all options granted during 1997
remained outstanding as of December 31, 1997).
Robert P. Gordon:
o 7,000,000 options were granted on December 8, 1997, with an original
exercise price of $.30 per share. The options are fully vested.
o 364,488 options were granted on September 22, 1997, with an original
exercise price of $2.00 per
15
<PAGE> 30
share, repriced to $1.65 on October 15, 1997. All options were
exercised in 1997.
o 500,000 options were granted on September 22, 1997, with an original
exercise price of $2.00 per share, repriced to $1.25 on October 22,
1997. All options were exercised in 1997.
o 666,560 options were granted on September 22, 1997, with an original
exercise price of $2.00 per share, repriced to $.50 on December 8,
1997. All options were exercised in 1997.
o 659,830 options were granted on September 22, 1997, with an original
exercise price of $2.00 per share, repriced to $.30 on December 30,
1997. All options were exercised in 1997.
o 2,809,122 options were granted on September 22, 1997, with an
original exercise price of $2.00 per share, repriced to $.30 on
December 30, 1997. The options are fully vested.
o 1,000,000 options were granted on February 28, 1997, with an
exercise price of $2.25 per share. All options were exercised in
1997.
o 500,000 options were granted on June 12, 1997, with an exercise
price of $2.25 per share. All options were exercised in 1997.
o 1,500,000 options were granted on August 8, 1997, with an exercise
price of $2.00 per share. All options were exercised in 1997.
Stephen G. McLean:
o Reflects repricing of 500,000 options were granted on January 24,
1996, with an original exercise price of $1.50 per share, repriced
to $.30 per share on December 30, 1997. 356,000 options were vested
as of December 31, 1997, and continue to vest at the rate of 12,000
per month.
o Reflects repricing of 225,000 options were granted on October 4,
1996, with an original exercise price of $.75 per share, repriced to
$.30 per share on December 30, 1997. The options are fully vested.
o 250,000 options were granted on October 15, 1997, with an original
exercise price of $1.50 per share, repriced to $.30 per share on
December 30, 1997. The options vest at the rate of 13,888 options
per month starting January 24, 1999.
Raymond P. Wilson:
o 70,000 options were granted on January 1, 1997, with an original
exercise price of $2.50 per share, repriced to $.30 per share on
December 30, 1997. The options are fully vested.
o 180,000 options were granted on January 1, 1997, with an original
exercise price of $3.00 per share, repriced to $.30 per share on
December 30, 1997. 60,000 options were vested as of December 31,
1997, and continue to vest at the rate of 10,000 per month.
o 50,000 options were granted on March 31, 1997, with an original
exercise price of $3.50 per share, repriced to $.30 per share on
December 30, 1997. 16,667 options were vested as of December 31,
1997, and continue to vest at the rate of 2,778 per month.
Kevin N. Blayne:
o Reflects repricing of 150,000 options granted on October 10, 1996,
with an original exercise price of $1.50 per share, repriced to $.30
per share on December 30, 1997. 50,000 options were vested as of
December 31, 1997, and continue to vest at the rate of 8,333 per
month.
o Reflects repricing of 25,000 options granted on October 4, 1996,
with an original exercise price of $.75 per share, repriced to $.30
per share on December 30, 1997. The options are fully vested.
o 40,000 options were granted on March 31, 1997, with an original
exercise price of $3.50 per share, repriced to $.30 per share on
December 30, 1997. 13,333 options were vested as of December 31,
1997, and continue to vest at the rate of 2,222 per month.
o 50,000 options were granted on April 29, 1997, original exercise
price of $3.50 per share, repriced to $.30 per share on December 30,
1997. 16,667 options were vested as of December 31, 1997, and
continue to vest at the rate of 2,778 per month.
Russell R. Uhlmann:
o Reflects repricing of 150,000 options granted on July 1, 1996, with
an original exercise price of $1.50 per share, repriced to $.30 per
share on December 30, 1997. 100,000 options are vested as of
December 31, 1997, and 50,000 are scheduled to vest on July 1, 1998.
16
<PAGE> 31
o Reflects repricing of 25,000 options granted on October 4, 1996,
with an original exercise price of $.75 per share, repriced to $.30
per share on December 30, 1997. The options are fully vested.
The Board of Directors may, in its discretion, adjust the terms of the
outstanding options, including reducing the exercise price to a price not less
than the current market price on the date of such adjustment.
Subsequent to December 31, 1997, on January 27, 1998, the remaining
9,809,122 options held by Robert P. Gordon were repriced to $.20.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The information provided in the table below provides information with
respect to each exercise of stock option during fiscal 1996 by the executive
officers named in the Summary Compensation Table and the fiscal year end value
of unexercised options.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Securities Underlying In-the-Money
Unexercised Options/SARs at
Shares Value Options/SARs at FY-End($)
Acquired on Realized FY-End (#)
Name Exercise (#) ($)(1)
Exercisable/ Exercisable/
Unexercisable Unexercisable(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert P. Gordon 7,410,878 $4,191,250 9,809,122/-0- N/A
Stephen G. McLean -0- -0- 481,000/494,000 N/A
Raymond P. Wilson -0- -0- 146,667/153,333 N/A
Kevin N. Blayne -0- -0- 105,000/160,000 N/A
Russell R. Uhlmann -0- -0- 75,000/100,000 N/A
</TABLE>
(1) The aggregate dollar values in columns (c) and (e) are
calculated by determining the difference between the fair
market value (based on the low bid quotations reported by the
National Quotation Bureau) of the Common Stock underlying the
options and the exercise price for the options at exercise or
fiscal year end, respectively. None of the unexercised options
held by the named executives were In-The-Money at December 31,
1997.
Long-Term Incentive Plans ("LTIP") - Awards in Last Fiscal Year
This table has been omitted, as no executive officers named in the
Summary Compensation Table above received any awards pursuant to any LTIP during
fiscal 1997.
Compensation of Directors.
No compensation was paid by the Registrant to its Directors for any
service provided as a director during the fiscal year covered by this report.
There are no formal or informal understandings or arrangements relating to
compensation; however, Directors may be reimbursed for all reasonable expenses
incurred by them in conducting the Registrant's business. These expenses would
include out-of-pocket expenses for such items as travel, telephone, postage, and
federal express charges.
17
<PAGE> 32
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
The Registrant's Board of Directors has complete discretion as to the
appropriateness of (a) key-man life insurance, (b) obtaining officer and
director liability insurance, (c) employment contracts with and compensation of
executive officers and directors, (d) indemnification contracts, and (e)
incentive plan to award executive officers and key employees.
The Registrant and/or its subsidiary, VSI, have the following
agreements in effect:
Pursuant to an employment agreement dated January 15, 1997, the
Registrant engaged Robert P. Gordon to serve as Chairman (an officer position)
for a term of five years commencing January 1, 1997, and continuing until
December 31, 2001, unless otherwise terminated pursuant to the terms thereof.
Pursuant to the agreement, Mr. Gordon will be paid $15,000 per month effective
January 1, 1997. In addition, Mr. Gordon received a signing bonus of $35,000.
Mr. Gordon is also entitled to the following: major medical health benefits
equivalent to that provided to other officers; indemnification from any claim or
law suit which may be asserted against him when acting as an officer of the
Registrant provided that said indemnification is not in violation of any federal
or state law or rule or regulation of the Securities and Exchange Commission.
The agreement also contains certain provisions with respect to disability,
termination, confidentiality and non-competition.
Pursuant to an employment agreement dated January 24, 1996, as amended
on October 15, 1997, the Registrant employed Mr. Steve McLean as Chief Executive
Officer for a term commencing on February 1, 1996 and continuing until March 31,
2002, unless otherwise terminated pursuant to the terms thereof. Pursuant to the
terms of the agreement, Mr. McLean will be paid a base salary at the rate of
$10,000.00 per month, for the first year, $12,083.00 per month, for the second
year until October 13, $16,500.00 per month until October 1998, and $18,000.00
per month thereafter. In addition, Mr. McLean is entitled to a bonus each year
based on performance. Mr. McLean is also entitled to the following: major
medical health benefits equivalent to that provided to other officers;
indemnification from any claim or law suit which may be asserted against him
when acting as an officer for VSI provided that said indemnification is not in
violation of any federal or state law or rule or regulation of the Securities
and Exchange Commission; and options to purchase 750,000 shares of Common Stock.
The options are subject to certain anti- dilution provisions. The agreement also
contains certain provisions with respect to disability, termination,
confidentiality and non-competition.
Pursuant to a consulting agreement dated January 1, 1997, VSI engaged
Raymond P. Wilson as Chief Financial Officer of VSI for a term of three years
commencing on January 1, 1997, and ending on December 31, 1999, unless otherwise
terminated pursuant to the terms thereof. Pursuant to the terms of this
agreement, Mr. Wilson will be paid a base fee of $5,000 per month for the first
year, such amount to be increased by five percent in each of the next two years.
In addition, Mr. Wilson will receive a bonus based on continued engagement of
$12,000 per quarter during the term of the agreement. Mr. Wilson is also
entitled to the following: major medical health benefits equivalent to that
provided to other officers; indemnification from any claim or law suit which may
be asserted against him when acting as an officer for VSI provided that said
indemnification is not in violation of any federal or state law or rule or
regulation of the Securities and Exchange Commission. The employment agreement
also contains certain provisions with respect to disability, termination,
confidentiality and non-competition, and options to purchase 300,000 shares of
Common Stock of the Registrant.
Pursuant to a consulting agreement dated July 1, 1996, as amended on
March 21, 1997, VSI engaged Russel Uhlmann as Vice President of Sales of VSI for
a term of two years ending on June 30, 1998, unless otherwise terminated
pursuant to the terms thereof. Pursuant to the terms of this agreement, Mr.
Uhlmann will be paid a base salary of $6,666.67 per month, increased to
$8,333.33 on April 1, 1997. In addition, Mr. Uhlmann is entitled to an incentive
bonus based on sales. Mr. Uhlmann is also entitled to the following: major
medical health benefits equivalent to that provided to other officers;
indemnification from any claim or law suit which may be asserted against him
when acting as an officer for VSI provided that said indemnification is not in
violation of any federal or state law or rule or regulation of the Securities
and Exchange Commission. The employment agreement also contains certain
provisions with respect to disability, termination, confidentiality and
non-competition, and options to purchase 150,000 shares of Common Stock as
detailed above.
Pursuant to an agreement to serve as a Director of VSI dated September
4, 1995, VSI granted to Mr. Paul W. Henry options to purchase 153,360 shares of
VSI's common stock at $.94 per share. The five year options shall
18
<PAGE> 33
expire on February 28, 2001, and they shall vest for the benefit of Mr. Henry as
follows: options to acquire 4,260 shares shall vest on the first day of each
month for 36 months, commencing on March 1, 1996. On December 30, 1997, the
exercise price was reduced to $.30 per share. Upon exercise, shares of Common
Stock of the Registrant will be issued, rather than shares of VSI.
Pursuant to a consulting agreement with VSI, dated September 4, 1995,
VSI granted to Mr. Robert J. Conrads, a Director, 230,040 shares of VSI's common
stock. The shares shall vest for the benefit of Mr. Conrads as follows: 6,290
shares shall vest on the first day of each month for 36 months, commencing on
March 1, 1996. Pursuant to the Reorganization, these shares were exchanged for
restricted shares of the Registrant's Common Stock rather than shares of VSI's
common stock. Furthermore, on October 2, 1996, Mr. Conrads entered into a
consulting agreement with the Registrant. Pursuant to the terms of the agreement
with the Registrant, Mr. Conrads was granted options to acquire 900,000 shares
of restricted Common Stock of the Registrant. The options vest at the rate
300,000 per year commencing December 1, 1996, are exercisable at an exercise
price of $1.00 per share, and expire January 31, 2002. The exercise price of the
options, as repriced on December 30, 1997, is $.30 per share.
The Registrant's Board of Directors is responsible for reviewing and
determining the annual salary and other compensation of the executive officers
and key employees of the Registrant and its subsidiaries. The goals of the
Registrant are to align compensation with business objectives and performance
and to enable the Registrant and its subsidiaries to attract, retain and reward
executive officers and other key employees who contribute to the long-term
success of the company. The Registrant and its subsidiaries provide base
salaries to its executive officers and key employees sufficient to provide
motivation to achieve certain operating goals. Although salaries are not
specifically tied into performance, incentive bonuses are available to certain
executive officers and key employees. In the future, executive compensation may
include without limitation cash bonuses, stock option grants and stock reward
grants. In addition, the Registrant may set up a pension plan or similar
retirement plans.
Employee Benefit and Consulting Services Compensation Plans.
The Registrant currently has in effect three separate Employee Benefit
and Consulting Services Compensation Plans: 1) The "Visitors Services
International Corp. Employee Benefit and Consulting Services Compensation Plan"
(the "VSI Plan"); 2) the "TeleServices International Group Inc. Employee Benefit
and Consulting Services Compensation Plan" (the "TSIG Plan"); and 3) the
"TeleServices Employee Benefit and Consulting Services Compensation Plan" (the
"TeleServices Plan"). The VSI Plan covers 10,000,000 shares of common stock, the
TSIG Plan covers 10,000,000 shares of common stock, and the TeleServices Plan
covers 20,000,000 shares of common stock. All shares covered by both the VSI
Plan and the TSIG Plan have been registered on four separate Form S-8
registration statements. The shares underlying the TeleServices Plan have not
been registered.
Under all plans the Registrant may issue shares of common stock and/or
grant options to purchase common stock to qualified consultants, advisors,
officers, directors and employees of the Registrant and its subsidiaries. The
purpose the plans are to promote the best interests of the Registrant and its
stockholders by providing a means of non-cash remuneration to eligible
participants who contribute to operating progress of the Registrant. The plans
are administered by the Registrant's Board of Directors or a committee thereof
which has the discretion to determine from time to time the eligible
participants to receive an award; the number of shares of stock issuable
directly or to be granted pursuant to option; the price at which the option may
be exercised or the price per share in cash or cancellation of fees or other
payment which the Registrant or its subsidiaries are liable if a direct issue of
stock and all other terms on which each option shall be granted.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of the date of this report, the
stock ownership of each person known by the Registrant to be the beneficial
owner of five percent or more of the Registrant's Common Stock, each Officer and
Director individually and all Directors and Officers of the Registrant and/or
VSI as a group. No other class of voting securities is outstanding. Each person
is believed to have sole voting and investment power over the shares except as
noted.
19
<PAGE> 34
<TABLE>
<CAPTION>
===============================================================================================================
Amount and Nature of
Name and Address of Beneficial Owner (1) Beneficial Ownership(1)(2) Percent of Class (3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert P. Gordon (4) 13,005,330 31.28%
- ---------------------------------------------------------------------------------------------------------------
Stephen G. McLean (5) 686,333 1.95%
- ---------------------------------------------------------------------------------------------------------------
Paul W. Henry (6) 210,020 *
- ---------------------------------------------------------------------------------------------------------------
Raymond P. Wilson (7) 223,335 *
- ---------------------------------------------------------------------------------------------------------------
Kevin N. Blayne (8) 218,331 *
- ---------------------------------------------------------------------------------------------------------------
Russell R. Uhlmann, Jr. (9) 75,000 *
- ---------------------------------------------------------------------------------------------------------------
Roger Bruhn (10) 25,000 *
- ---------------------------------------------------------------------------------------------------------------
Robert J. Conrads (11) 1,597,640 4.50%
- ---------------------------------------------------------------------------------------------------------------
Includes all officers and directors of the 16,040,989 36.61%
Registrant and VSI as a group (7 persons)
===============================================================================================================
</TABLE>
- -----------------------
* Represents less than one percent.
(1) Unless otherwise indicated, all shares are directly beneficially owned
and investing power is held by the persons named. The address of each
person is 100 Second Avenue South, City Center, Suite 1000, St.
Petersburg, Florida 33701.
(2) Includes the amount of shares each person or group has the right to
acquire within 60 days pursuant to options, warrants, conversion
privileges or other rights.
(3) Based upon 34,574,919 shares issued and outstanding, plus the amount of
shares each person or group has the right to acquire within 60 days
pursuant to options, warrants, conversion privileges or other rights.
(4) Robert P. Gordon may be deemed to be a founder of the Registrant.
Robert P. Gordon individually owns 3,534,713 shares; Elizabeth K.
Gordon, his wife, individually owns 1,409,857, and they jointly own
698,750 shares. Also included are 362,010 shares owned by Heaven
International, Inc., which is controlled by Robert P. Gordon. Also
included are options to purchase 7,000,000 shares.
(5) Stephen G. McLean is CEO and a Director of the Registrant. Included in
the table are 33,333 shares owned by Mr. McLean; and options that have
vested or will be vested within the next 60 days to purchase 653,000
shares.
(6) Paul W. Henry is Secretary, Treasurer and a Director of the Registrant.
Included in the table are 35,000 shares owned by Mr. Henry; 15,000
shares in a custodian account for his minor son (which is controlled by
Mr. Henry, who disclaims any beneficial ownership thereof); and options
that have vested or will be vested within the next 60 days to purchase
160,020 shares.
(7) Raymond P. Wilson is Chief Financial Officer of the Registrant.
Included in the table are options that have vested or will be vested
within the next 60 days to purchase 223,335 shares.
(8) Kevin N. Blayne is a Vice President of the Registrant's subsidiary.
Included in the table are 33,333 shares owned by Mr. Blayne; and
options that have vested or will be vested within the next 60 days to
purchase 184,998 shares.
(9) Russell R. Uhlmann is a Vice President of the Registrant's subsidiary.
Included in the table are options that have vested or will be vested
within the next 60 days to purchase 75,000 shares.
20
<PAGE> 35
(10) Roger Bruhn is a Vice President of the Registrant's subsidiary.
Included in the table are options that have vested or will be vested
within the next 60 days to purchase 25,000 shares.
(11) Robert J. Conrads is a director of the Registrant's subsidiary, VSI,
and a Consultant to the Registrant, but he is not an Officer or
Director of the Registrant. Included in the table are 506,500 shares
owned by Mr. Conrads; 166,140 shares that have vested or will be vested
within the next 60 days (vesting at the rate of 6,390 shares per month,
out of a total of 230,040 shares); and vested options to purchase
925,000 shares.
Item 12. Certain Relationships and Related Transactions.
The Registrant acquired a controlling interest in VSI from certain
shareholders of VSI in September of 1996, and is in the process of completing an
Exchange Offer with the remaining shareholders of VSI. Pursuant to the
acquisition of VSI, the Registrant issued shares of common stock of the
Registrant to the following persons in exchange for their controlling interest
(over 80%) in VSI: Robert P. Gordon, 11,585,472 shares; Elizabeth Gordon (wife
of Robert P. Gordon), 1,409,857 shares; Mr. and Mrs. Gordon, jointly, 48,750
shares; Harvest International of America, Inc. (a corporation controlled by
Robert P. Gordon), 362,010 shares; and James F. Gordon (brother of Robert P.
Gordon), 1,814,206 shares. The reorganization was reported on Form 8-K dated
September 30, 1996. All shares are restricted securities under the Securities
Act of 1933, as amended.
In October of 1996, the Registrant raised $843,750.75 through a private
placement of its common stock. The Registrant sold 1,124,999 shares of common
stock, par value $.0001 per share, at a cash purchase price of $0.75 per share.
Stephen G. McLean, an Officer of both the Registrant and VSI and a Director of
the Registrant, purchased 33,333 shares; Paul W. Henry, an Officer and Director
of the Registrant and a Director of VSI, purchased 50,000 shares, which includes
15,000 shares in the name of his minor son; the R.P. Gordon Children Family
Trust, a trust benefiting the minor children of Robert P. Gordon (Mr. Gordon has
no control over and disclaims any interest in the trust, beneficial of
otherwise) purchased 333,333 shares; Robert J Conrads, a Director of VSI,
purchased 400,000 shares; Michael Gordon, brother of Robert P. Gordon, purchased
33,333 shares; Samuel Jacobs, a former officer of VSI, purchased 33,333 shares;
and Russell R. Uhlmann, Jr., an Officer of VSI, purchased 33,333 shares. All
shares are restricted securities under the Securities Act of 1933, as amended.
VSI was indebted to Robert P. Gordon in the amount of approximately
$1,829,965 in principal for funds loaned to VSI, plus accrued interest. Robert
P. Gordon agreed to convert his debt into shares of restricted common stock of
VSI, in whole or in part, at the rate of $.75 per share. On September 26, 1996,
2,000,000 shares of restricted stock of VSI were issued to Robert P. Gordon for
his conversion of $1,500,000 in principal owed to him by VSI. On October 15,
1996, 439,953 shares of restricted stock of VSI were issued to Robert P. Gordon
for his conversion of the remaining principal balance of $329,965 owed to him by
VSI (all shares of common stock of VSI have been converted into shares of
restricted common stock of the Registrant pursuant to the Reorganization and the
Exchange Offer).
21
<PAGE> 36
Item 13. Exhibits and Reports on Form 8-K.
(a) List of Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
2.1 Agreement and Plan of Reorganization between Dynasty Capital Corporation and Visitors Services,
Inc., dated September 26, 1996. (2)
3.3 Bylaws as restated October 18, 1996 (3)
3.5 Articles of Incorporation, as amended and currently in effect. (4)
10.1 TeleServices International Group Inc. (formerly Visitors Services International Corp.) Employee
Benefit and Consulting Services Compensation Plan (the "TSIG Plan"). (5)
10.2 Visitors Services International Corp. (formerly Visitors Services, Inc.) Employee Benefit and
Consulting Services Compensation Plan (the "VSI Plan"). (6)
16.1 Letter on change in certifying accountant from Larry Legel, CPA. (7)
16.2 Letter on change in certifying accountant from Schumacher & Associates, Inc. (8)
21.2 List of Subsidiaries of the Registrant. (1)
27 Financial Data Schedule. (1)
</TABLE>
- --------------------------
(1) Filed herewith.
(2) Incorporated by reference to Exhibit 2.1 to the Registrant's Form
8-K dated and filed on September 30, 1996.
(3) Incorporated by referenced to Exhibit 3.3 to the Registrant's Form
8-K dated October 17, 1996, and filed on October 23, 1996
(4) Incorporated by referenced to Exhibit 3.5 to the Company's Form
10-QSB for the quarter ended March 31, 1997, and filed on May 15,
1997.
(5) Incorporated by referenced to Exhibit 10.1 to the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 (file no. 333-14271) filed February 19, 1997.
(6) Incorporated by referenced to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8 (file no. 333-22093) filed
February 20, 1997
(7) Incorporated by referenced to Exhibit 16.1 to the Registrant's Form
8-K dated October 17, 1996, and filed on October 23, 1996
(8) Incorporated by referenced to Exhibit 16.2 to the Registrant's Form
8-K dated October 17, 1996, and filed on October 23, 1996
(b) Reports on Form 8-K.
None.
22
<PAGE> 37
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TELESERVICES INTERNATIONAL GROUP INC.
Dated: April 15, 1998 /s/ Raymond P. Wilson
----------------------------------------
Raymond P. Wilson,
Chief Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Robert P. Gordon Chairman and April 15, 1998
- -------------------- Director
Robert P. Gordon
/s/ Stephen G. McLean Chief Executive Officer and April 15, 1998
- --------------------- Director
Stephen G. McLean
/s/ Paul W. Henry Secretary, Treasurer, and April 15, 1998
- ----------------- Director
Paul W. Henry
</TABLE>
23
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
<S> <C>
2.1 Agreement and Plan of Reorganization between Dynasty Capital Corporation and Visitors Services,
Inc., dated September 26, 1996. (2)
3.3 Bylaws as restated October 18, 1996 (3)
3.5 Articles of Incorporation, as amended and currently in effect. (4)
10.1 TeleServices International Group Inc. (formerly Visitors Services International Corp.) Employee
Benefit and Consulting Services Compensation Plan (the "TSIG Plan"). (5)
10.2 Visitors Services International Corp. (formerly Visitors Services, Inc.) Employee Benefit and
Consulting Services Compensation Plan (the "VSI Plan"). (6)
16.1 Letter on change in certifying accountant from Larry Legel, CPA. (7)
16.2 Letter on change in certifying accountant from Schumacher & Associates, Inc. (8)
21.2 List of Subsidiaries of the Registrant. (1)
27 Financial Data Schedule. (1)
</TABLE>
- --------------------------
(1) Filed herewith.
(2) Incorporated by reference to Exhibit 2.1 to the Registrant's Form
8-K dated and filed on September 30, 1996.
(3) Incorporated by referenced to Exhibit 3.3 to the Registrant's Form
8-K dated October 17, 1996, and filed on October 23, 1996
(4) Incorporated by referenced to Exhibit 3.5 to the Company's Form
10-QSB for the quarter ended March 31, 1997, and filed on May 15,
1997.
(5) Incorporated by referenced to Exhibit 10.1 to the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 (file no. 333-14271) filed February 19, 1997.
(6) Incorporated by referenced to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8 (file no. 333-22093) filed
February 20, 1997
(7) Incorporated by referenced to Exhibit 16.1 to the Registrant's Form
8-K dated October 17, 1996, and filed on October 23, 1996
(8) Incorporated by referenced to Exhibit 16.2 to the Registrant's Form
8-K dated October 17, 1996, and filed on October 23, 1996
<PAGE> 1
Exhibit 21.2
LIST OF SUBSIDIARIES OF THE REGISTRANT:
1. Visitors Services International Corp., formerly Visitors Services, Inc., is a
wholly-owned subsidiary of the Registrant, incorporated under the laws of the
State of Florida, and also does business under the names of VSIC and VSI.
2. American International Travel Agency, Inc., is a wholly-owned subsidiary of
Visitors Services International Corp., incorporated under the laws of the State
of Florida, and also does business under the name of AIT.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 175,000
<SECURITIES> 0
<RECEIVABLES> 515,538
<ALLOWANCES> (352,890)
<INVENTORY> 0
<CURRENT-ASSETS> 376,534
<PP&E> 1,777,076
<DEPRECIATION> (1,127,116)
<TOTAL-ASSETS> 1,055,934
<CURRENT-LIABILITIES> 5,973,790
<BONDS> 276,069
0
0
<COMMON> 3,016
<OTHER-SE> (5,196,941)
<TOTAL-LIABILITY-AND-EQUITY> 1,055,934
<SALES> 0
<TOTAL-REVENUES> 2,365,042
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,407,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,451
<INCOME-PRETAX> (18,217,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,217,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,217,296)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> 0
</TABLE>
