<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission file number: 33-11059-A
TELESERVICES INTERNET GROUP INC.
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(Exact name of small business issuer as specified in it charter)
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FLORIDA 59-2773602
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
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100 SECOND AVENUE SOUTH, SUITE 1000, ST. PETERSBURG, FLORIDA 33701
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(Address of principal executive offices)
(727) 895-4410
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(issuer's telephone number)
TELESERVICES INTERNATIONAL GROUP INC.
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(Former name, former address and former fiscal year,
if changed since last report)
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 such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: AS OF AUGUST 11, 1999, OF THE
ISSUER'S COMMON STOCK, $.0001 PAR VALUE, THERE WERE 123,920,164 SHARES
OUTSTANDING.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE> 2
TELESERVICES INTERNET GROUP INC.
INDEX
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PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
TeleServices Internet Group Inc. and Subsidiaries
Consolidated Balance Sheets 3
June 30, 1999 (Unaudited) and
December 31, 1998
Unaudited Consolidated Statements of Operations 4
Three and six months ended
June 30, 1999 and
June 30, 1998
Unaudited Consolidated Statements of Cash Flows 5
Six Months ended
June 30, 1999 and
June 30, 1998
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION 12
SIGNATURE PAGE 15
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2
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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JUNE 30, 1999 DEC. 31, 1998
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(Audited)
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ASSETS
Current Assets:
Cash, restricted $ 30,000 $ 80,000
Accounts receivable, net of allowance for
Doubtful accounts of $25,159 62,477 80,530
Accounts receivable, other 497,612
Prepaid expenses 809,065
Other current assets 87,825 159,441
------------ ------------
Total Current Assets 1,486,979 319,971
Equipment, net of accumulated depreciation of
$275,219 (Note 5) 612,960 481,577
Investment in Affiliate (Note 2) 380,986
Other Assets 38,355 25,000
------------ ------------
Total Assets 2,138,294 1,207,534
============ ============
LIABILITIES AND STOCKHOLDER'S (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses (Notes 2) $ 2,831,610 $ 6,638,702
Loans payable, stockholder (Note 6) 671,579 1,351,095
Capital leases payable, current portion (Note 4) 0 18,790
Notes payable (Notes 8) 226,564 328,673
Convertible Debentures (Note 9) 1,151,928 875,000
------------ ------------
Total Liabilities 4,881,681 9,212,261
------------ ------------
Commitments and Contingencies (See Notes)
Stockholders' (Deficit):
Preferred Stock, $.001 par value
10,000,000 shares authorized
None Issued and Outstanding (Note 7)
Common Stock $.0001 par value,
100,000,000 shares authorized, 90,762,734 issued and
outstanding; 21,747,672 due to be issued under
conversion obligations 11,251 6,498
Additional Paid-in Capital 33,854,461 30,002,411
Treasury Stock, 13,130 shares at cost (125,000) (125,000)
Accumulated (deficit) (36,484,100) (37,888,635)
------------ ------------
Total Stockholders' (Deficit) (2,743,387) (8,004,726)
------------ ------------
Total Liabilities and Stockholder's (Deficit) $ 2,138,294 $ 1,207,534
============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
3
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended June 30, 1999 and 1998
(Unaudited)
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TWELVE MONTHS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ENDED
1999 1998 1999 1998 DEC. 31, 1998
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(AUDITED)
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Total Revenues $ 164,910 $ 43,226 $ 267,211 $ 137,637 $ 143,472
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Salaries & Contract Services 744,746 2,093,044 1,454,835 2,713,269 4,676,008
Payroll taxes and benefits 118,063 82,465 196,300 160,702 349,547
Rent 83,903 66,321 123,288 154,137 316,383
Telephone 102,841 60,601 241,027 132,840 222,126
Travel and entertainment 82,249 68,552 169,496 85,243 98,641
Advertising and promotion 39,476 -- 56,843 -- 80,868
Depreciation and amortization 55,439 26,909 89,902 26,909 183,307
Other expenses 474,851 722,859 853,162 1,421,236 4,027,993
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 1,701,569 3,120,751 3,184,854 4,694,336 9,954,873
------------ ------------ ------------ ------------ ------------
Net (loss) from operations (1,536,659) (3,077,525) (2,917,643) (4,556,699) (9,811,401)
Other income (expenses)
Interest Income 818 2,691 2,664 5,206 9,832
Interest (expense) (37,008) (62,901) (60,188) (81,137) (576,867)
------------ ------------ ------------ ------------ ------------
Loss from continuing operations $ (1,572,849) $ (3,137,735) $ (2,975,167) $ (4,632,629) $(10,378,435)
============ ============ ============ ============ ============
Discontinued Operations
Loss from Operations of VSI -- (528,266) (161,988) (1,060,758) (1,443,816)
Gain on Bankruptcy of VSI -- 4,541,689 -- --
------------ ------------ ------------ ------------ ------------
Total Discontinued Operations -- (528,266) 4,379,701 (1,060,758) (1,443,816)
Net Income (Loss) $ (1,572,849) $ (3,666,001) $ 1,404,534 $ (5,693,387) $(11,822,251)
============ ============ ============ ============ ============
Net (loss) per share: $ (0.018) $ (0.089) $ 0.018 $ (0.148) $ (0.234)
============ ============ ============ ============ ============
Weighted Averages Shares Outstanding 88,563,334 40,967,256 80,055,041 38,559,489 50,470,972
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
4
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
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TWELVE MONTHS
SIX MONTHS ENDED JUNE 30, ENDED
1999 1998 DEC. 31, 1998
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Cash flows from operating activities: (Audited)
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Net (loss) $ (2,975,167) $ (4,632,629) $(10,378,435)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Net gain from sale of affiliated business (325,323)
Decrease (increase) in accounts receivable 8,442 (47,354) 82,118
Decrease (increase) in prepaid marketing expense (809,065)
Depreciation and amortization 89,902 356,629 183,307
Increase in accounts payable and accrued expenses 876,247 697,074 1,000,105
Other 58,261 (213,355) (116,116)
------------ ------------ ------------
Net cash (used in) operating activities: (3,076,703) (3,839,635) (9,229,021)
------------ ------------ ------------
Cash flows from investing activities:
(Acquisition) disposal of property and equipment (221,285) (1,076,144) (14,924)
(Acquisition) disposal of new business 706,309 (380,986)
------------ ------------ ------------
Net cash (used in) investing activities 485,024 (1,076,144) (395,910)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from (repayment of) Loans from stockholders 320,484 3,285,765 1,291,780
Acquisition of Treasury stock -- (125,000) (125,000)
Issuance of common stock 166,400 911,444 9,136,450
Sale of convertible debentures 2,064,000 -- 875,000
Proceeds from (repayment of) leases payable (18,790) (49,277) (82,978)
Repayment of notes payable (102,109) (12,539) (121,506)
Increase in cash collateral 50,000 (20,000) 95,000
------------ ------------ ------------
Net cash provided by financing activities: 2,479,984 3,990,393 11,068,747
------------ ------------ ------------
Increase (decrease) in cash (111,695) (925,386) 1,443,816
Cash, beginning of period -- -- --
Non-cash transactions and discontinued operations 111,695 998,732 (1,443,816)
Cash, end of period $ 0 $ 73,346 $ 0
============ ============ ============
Schedule of non-cash operating, financing and
Investing activities and discontinued operations:
Net (loss) from discontinued operations (161,988) (1,060,758) (1,443,816)
Net gain on disposal of discontinued operations (141,649)
Repayment of stockholder loan (1,000,000) (2,061,824)
Issuance of common stock 3,690,404 4,121,314
Stock subscription receivable (488,000)
Conversion of debentures into common stock (1,787,072)
------------ ------------ ------------
Increase (decrease) in non-cash items $ 111,695 $ 998,732 $ (1,443,816)
============ ============ ============
Interest paid $ 60,188 $ 81,137 $ 576,867
============ ============ ============
Income taxes paid $ -- $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
5
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TELESERVICES INTERNET GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(1) Organization and Operations:
TeleServices Internet Group Inc. (TSIG), was incorporated under the
laws of the State of Florida on October 1, 1986 (originally as Dynasty
Capital Corporation). 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 assumed control of TSIG after the
business combination. Prior to the transaction, TSIG was an inactive
public shell corporation with no net assets.
VSI was incorporated 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. On March 5, 1999, VSI filed a
voluntary petition for relief under Chapter 7 of the United States
Bankruptcy Code for the Middle District of Florida, Tampa Division.
American International Travel Agency, Inc. (AIT), a wholly-owned
subsidiary of TSIG, was incorporated under the laws of the State of
Florida on September 27, 1977 to provide retail travel services. AIT
was acquired by VSI on December 6, 1996. The ownership of AIT was
subsequently transferred from VSI to TSIG on December 3, 1998 for the
assumption of the debts of AIT.
My MusicCard Company (MMC, formerly Compact Connection, Inc.), a
Delaware corporation, was incorporated on April 17, 1998, as a
wholly-owned subsidiary of TSIG for the purpose of establishing an
internet-based discount retail music CD and cassette tape business.
My Card, Inc., a Delaware corporation, was incorporated on February 11,
1999, as a wholly-owned subsidiary of TSIG for the purpose of
establishing additional internet-based retail business using the
business concept developed for MMC.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements of TSIG and subsidiaries
(the Company) include the accounts of TSIG and AIT for the
entire six-month periods ended June 30, 1999 and 1998, the
accounts of VSI for the entire quarter of 1998 and through
March 5, 1999 and the accounts of MMC for 1999 only. All
intercompany accounts and transactions have been eliminated in
the consolidation.
(b) 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 June 30, 1999 the Company had no uninsured cash
balances, but at various times throughout the reporting
period, the balance exceeded the insured limit.
(c) Income Tax
The Company has net operating loss carryovers totaling
approximately $36,500,000 at June 30, 1999 which expire in
various years through 2013. The Company has deferred tax
assets of approximately $5,500,000 at December 31, 1998
related to loss carryovers but due to the uncertainty of the
Company's ability to utilize these carryovers, a valuation
allowance of the total $5,500,000 has been provided.
Therefore, as of June 30, 1999, 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.
6
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TELESERVICES INTERNET GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(d) 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.
(e) Per Share Information
The per share information is computed based upon the weighted
average shares outstanding.
(f) 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(d).
The ultimate resolution of the reasonableness of the related
assumptions cannot presently be determined. Actual results
could differ from the Company's estimates.
(g) Bad Debts
An allowance for uncollectible accounts has been provided
based on the Company's past collection history.
(h) Advertising and Promotion Costs
Advertising and promotion costs are generally expensed as
incurred. However, during the fiscal year, the Company made
payments to a marketing company for the preparation of
materials to be used in a marketing and promotion program to
be implemented in the third quarter of 1999. These costs,
totaling $667,000 at June 30, 1999, are included as a deferred
asset on the balance sheet.
(i) 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.
(j) Restricted Cash
Included in cash on March 31, 1999 is $30,000 being held in
certificates of deposit as collateral for operating licenses.
(k) Gain on Sale or Liquidation of Investment in Affiliate
On March 5, 1999, VSI filed a voluntary petition for relief
under Chapter 7 of the United States Bankruptcy Code for the
Middle District of Florida, Tampa Division. The Company
realized a net gain of $4,542,000 while writing off a total of
approximately $4,700,000 in liabilities. A provision was made
for the assumption of $605,000 in liabilities of VSI which
were guaranteed by the Company. These liabilities consist of
the trust portion of unpaid federal payroll withholding taxes
and a bank loan.
7
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TELESERVICES INTERNET GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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 a
working capital deficit. Management is attempting to raise additional
capital. 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:
Year ending December 31
1999 $ 349,822
2000 $ 307,353
2001 $ 278,702
2002 $ 158,468
(5) Property and Equipment
The Company's property and equipment as of June 30, 1999 is summarized
as follows:
Furniture, fixtures and office equipment $ 13,529
Telephone equipment 388,748
Computer equipment and software 485,902
----------
888,179
Accumulated depreciation (275,219)
----------
$ 612,960
==========
(6) Related Party Transactions
A stockholder of the Company has made various demand loans to the
Company for expansion and operating capital. As of June 30, 1999 loans
payable to a stockholder totaled $671,579, accruing interest at 11% per
annum. The loan is payable on demand and is uncollateralized.
(7) 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.
8
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TELESERVICES INTERNET GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(8) Notes Payable
The Company entered into a stock repurchase agreement with former
shareholders in 1998 for a total of $125,000, of which $96,000 is
remaining to be paid. Additionally, a provision of $130,000 was made
for a bank loan owed by VSI that is guaranteed by the Company.
(9) Debentures Payable
In November, 1998, the Company authorized the issuance of $2,000,000 of
convertible debentures. As of June 30, 1999, $2,939,000 was received as
proceeds from the issuance of the debentures. The terms of the
debentures include interest at 8% per annum and are due and payable one
year from issuance. The debentures are convertible at the option of the
holder into common stock of the Company at 70% of the market price of
the common stock based upon the average bid price for the five days
immediately preceding the date of conversion. As of June 30, a total of
$1,787,072 in debentures, along with $32,135 in accrued interest, had
been converted into a total of 33,970,608 shares of common stock,
leaving a balance of $1,151,928 in debentures not yet converted.
(10) 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.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Total revenues from continuing operations for the three months ended
June 30, 1999, were $164,910, representing a 282% increase from comparable
revenues of $43,226 for the three months ended June 30, 1998. Operating expenses
experienced a 45% decrease to $1,701,569 from a total of $3,120,751, resulting
in an operating loss of $1,536,659 for the three months ended June 30, 1999
versus a loss of $3,077,525 for the same period in 1998, a 50% improvement. The
decrease in total operating expenses is a continuation of the improved results
from the elimination of the Visitors Services' travel-related operation.
Salaries and related expenses have been substantially reduced, a trend that is
expected to continue into the quarter ended September, 1999.
For the six months ended June 30, 1999, as compared to the same period
in 1998, revenues increased to $267,211 from $137,637, a 94 percent improvement;
operating expenses decreased to $3,184,854 from $4,694,336, a 32 percent
improvement; and the operating loss declined to $2,917,643 from $4,556,699, a 36
percent improvement. The results from discontinued operations were a net loss of
$161,988 compared to a loss of $1,060,758 for the comparable period in 1998.
Combined with the net gain on the disposal of the discontinued operation of
$4,541,689, the overall combined net gain for the six-month period was
$1,404,534.
During the reporting period, the Company's management determined that
the greatest revenue and growth opportunity is to be found in its My MusicCard
program. The decision was made, in part, due to the delays in implementing the
program to provide bilingual teleservcies for the "Loyalty and Rewards" program
of The Signature Group, a leader in the direct marketing industry, which has
experienced delays in developing its Loyalty and Rewards program with its own
client base. The Company's contract with The Signature Group is currently on
hold and there is no certainty as to when or how it will be developed in the
future.
The Online Services Division, which was established in February, 1999,
was terminated in May. This operation did not provide a complementary fit with
the overall operation of the Company and it was determined that the long-term
profit opportunity was not significant enough to divert Company resources away
from its other opportunities at this time. The initial staff that had been
employed for this division left the Company during the reporting period.
The focus of the My MusicCard program is the sale of a discount card,
primarily $10.00 for a 20-unit card, that entitles the holder to purchase music
compact discs or cassette tapes at a deep-discount price, generally $10.99 for
most CDs. The Company sells the music cards through its internet site
(www.mymusiccard.com) as a fundraising vehicle for not-for-profit organizations
and as a corporate promotional vehicle. The revenues derived from the card sales
are divided with the fundraising organization or corporation and the Company
fills the orders for music product either through a drop-ship supplier or by
purchasing the product and shipping to customers directly by the Company.
During the reporting period, the Company continued to develop new
not-for-profit and corporate marketing opportunities. On the not-for-profit
side, the Company has made significant inroads into school fundraising
activities. The Company, through the services of Lifetime Learning Systems,
Inc., a leading provider of school fundraising programs, has developed a program
for schools and has made initial contact with more than 102,000 schools with a
complete program packet and follow-up letter. Additionally, the Company has
entered into agreements with the 4H Clubs of America and the Future Business
Leaders of America, both of which are school-based youth organizations. The
Company has also entered into an agreement with Nettaxi, Inc., a premier
internet community and portal website that has more than 80 million monthly page
views, to offer the My MusicCard program to Nettaxi's members.
Although no assurances can be given, management believes that the
promotional affiliations that have been and continue to be developed have the
potential to substantially increase the sales of both the My MusicCard discount
card and the music CDs.
Limited Working Capital; Financial Instability
As of June 30, 1999, the Company had a negative stockholder's equity of
$2,743,387, an accumulated deficit of $36,484,100, and a working capital deficit
of $3,394,700. The Company has frequently failed to make timely payments to its
trade and other creditors. At June 30, 1999, the Company had more than $600,000
in past due trade accounts payable, which has affected the Company's ability to
purchase necessary goods and services in a timely manner. The Company is also
delinquent in its payments of federal payroll tax liability, totaling $498,000
at June 30, 1999 (down to $433,000 at August 12, 1999). The Internal Revenue
Service has filed a lien on the Company's assets for a total of $262,000 for the
fourth quarter 1998 liability.
10
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Financing Activities
To obtain financing, the Company offered convertible debentures
pursuant to a private placement which commenced in November 1998 and concluded
on April 28, 1999. The debentures bear interest at the rate of 8%, mature on
October 31, 1999 (unless extended), and are convertible into shares of common
stock at a 30% discount to the average bid price for the five days prior to the
date of conversion (certain debenture holders are entitled to further discounts
due to delays in implementing their registration rights).
As of June 30, 1999, convertible debentures totaling $2,939,000 in
principal amount had been sold, and a total of $1,787,072 in debentures, along
with $32,135 in accrued interest, had been converted into a total of 33,970,608
shares of common stock.
The Company is currently pursuing other sources for additional debt or
equity financing.
Other Matters
Various factors affecting the Company's operations raise doubt as to
the Company's ability to continue as a going concern. There can be no assurance
that the Company will be able to continue as a going concern or achieve material
revenues or profitable operations. The Company 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 Company.
The Year 2000 issue is the result of computer programs that use two
digits rather than four to define the applicable year. The Company has been
evaluating its state of readiness with respect to the Year 2000 issue on a
continuing basis. An inventory of the Company's computer systems has determined
that only one system currently in use is non-compliant, specifically an employee
time-clock system, which is being replaced by a new software application. All
computer hardware is Year 2000 compliant and each outside software manufacturer
has been contacted to verify Year 2000 readiness. It has been determined that no
software will need to be replaced, but some may require minor intervention in
the form of software patches. The Company has performed successful tests to
ensure Year 2000 compliance on its major systems. The Company can make no
assurances regarding the impact of the Year 2000 issue on its business as a
result of acts or omissions not within its control, such as acts or omissions of
non-affiliated parties with whom the Company does business.
The financial statements include all adjustments which in the opinion
of and to the best of management's knowledge are necessary to make the financial
statements not misleading.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially for those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earning or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management of Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business. Forward looking statements are beyond the ability of
the Company to control and in many cases the Company cannot predict what factors
would cause results to differ materially from those indicated by the forward
looking statements.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
Lawsuit Settled. On June 8, 1999, a lawsuit pending in Circuit Court
for Pinellas County, Florida was dismissed after a court-approved settlement in
the case. The lawsuit originated on February 9, 1998, when Robert P. Gordon, who
is an officer and director of the Company, individually filed a lawsuit against
Felcrest Trading Ltd. ("Felcrest"). On October 23, 1998, Felcrest filed a third
party complaint against the Company, VSI (the Company's subsidiary), and current
and former officers and directors of the Company and VSI and other third
parties. Pursuant to the settlement, the Company issued an aggregate of
4,402,923 shares of its common stock to Felcrest and the former officers and
directors who had indemnification claims against the Company for the legal fees
they incurred, while Mr. Gordon returned 4,402,923 of his shares to the Company
for cancellation. Consequently, there was no increase in the outstanding shares
of common stock as a result of the settlement. The issuance by the Company was
exempt from registration pursuant to Section 3(a)(10) of the Securities Act of
1933.
On June 17, 1999, the Company and Robert P. Gordon, individually and as
an officer of the Company, were named as defendants, among others, in an amended
complaint field by Miles and Rosalie Lerman in United States District Court for
the District of New Jersey. The Lerman's claim that their broker-dealers (also
named as defendants) made unauthorized transactions in their accounts in "high
risk penny stocks," including the common stock of the Company, that resulted in
losses in excess of $2,000,000. The complaint seeks recovery of actual and
consequential damages, costs and attorneys fees, and other forms of equitable
relief from all defendants. The Company believes that the Company and Mr. Gordon
should not have been included as defendants in this action and intends to file a
motion to dismiss the claims against them.
ITEM 2. Changes in Securities:
As a result of a Special Shareholders on July 8, 1999, the Company's
shareholders authorized the following changes to the Articles of Incorporation
of the Company: 1). change the name of the Company from TeleServices
International Group Inc. to TeleServices Internet Group Inc.; and 2) increase
the number of shares of Common Stock authorized for issuance from 100,000,000 to
300,000,000. Articles of Amendment to the Articles of Incorporation reflecting
these changes were filed with the Florida Secretary of State and made effective
on July 12, 1999.
In the short term, the increase in authorized capital was necessary for
the Company to meet its current commitments, to allow the Company to raise
additional capital, and to attract and retain talented employees, consultants
and directors.
In the longer term, the increase in authorized share capital could be
used to secure permanent financing or to make strategic acquisitions. This
increase was also necessary to allow the Company to consider a share dividend or
rights offering to shareholders in the future.
ITEM 3. Defaults Upon Senior Securities: None.
ITEM 4. Submissions of Matters to a Vote of Security Holders:
No matters were submitted to a vote of security holders during the
quarter ended June 30, 1999. However, subsequent to the end of the quarter, the
Company held a Special Shareholders on July 8, 1999. Proxies were solicited by
management. A quorum was present. The matters voted upon and the result thereof
are as follows:
1. Proposal to amend the Company's Articles of Incorporation to
change the name of the Company from TeleServices International Group Inc.
to TeleServices Internet Group Inc.:
For Against Abstain
---------- ------- -------
33,037,514 202,505 51,500
2. Proposal to amend the Company's Articles of Incorporation to increase the
number of shares of Common Stock authorized for issuance from 100,000,000 to
300,000,000:
For Against Abstain
---------- --------- -------
31,093,384 2,027,735 170,400
12
<PAGE> 13
Articles of Amendment to the Articles of Incorporation reflecting these changes
were filed with the Florida Secretary of State and made effective on July 12,
1999.
ITEM 5. Other Information:
FILING OF REGISTRATION STATEMENTS ON FORM SB-2
On May 7, 1999, the Company filed a Registration Statement on Form SB-2
(Registration No. 333-78077) to register up to 50,346,890 shares of the
Company's common stock to be sold by certain selling securityholders, including
up to 48,822,640 shares that the selling securityholders have acquired or may
acquire upon conversion of convertible debentures and 1,524,250 shares that they
may acquire upon exercise of warrants.
On July 29, 1999, the Company filed a second Registration Statement on
Form SB-2 (Registration No. 333-84021) to register up to an additional
40,948,039 shares of the Company's common stock for resale by the selling
securityholders.
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit No. Description
----------- -----------
3.6 Bylaws as restated April 22, 1999. (Incorporated by
reference to Exhibit 3.6 of the Company's Form SB-2,
(file no. 333-78077), filed May 7, 1999).
3.7 Articles of Incorporation, as amended on July 12,
1999 and currently in effect. (Incorporated by
reference to Exhibit 3.7 of the Company's Current
Report on Form 8-K dated July 8, 1999 and filed July
13, 1999).
4.3 Form of Debenture Purchase Agreement for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.3 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
4.4 Form of 8% Convertible Debenture for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.4 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
4.5 Form of Registration Rights Agreement for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.5 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
4.6 Form of Escrow Agreement for private placement which
commenced in November 1998. (Incorporated by
reference to Exhibit 4.6 of the Company's Form
10-KSB for the fiscal year ended December 31, 1998,
filed March 31, 1999).
4.7 Form of Common Stock Purchase Warrant for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.7 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
10.1 TeleServices International Group Inc. (formerly
Visitors Services International Corp.) Employee
Benefit and Consulting Services Compensation Plan
(the "TSIG Plan"). (Incorporated by referenced to
Exhibit 10.1 to the Company's Post-Effective
Amendment No. 1 to the Registration Statement on
Form S-8 (file no. 333-14271) filed February 19,
1997).
13
<PAGE> 14
10.3 TeleServices Stock Option Plan (the "TeleServices
Plan"). (Incorporated by reference to Exhibit 10.3
the registration statement filed on Form S-8 for the
TeleServices Stock Option Plan, Registration No.
333-52271, filed May 8, 1998).
10.5 Revolving Credit Loan Agreement and Revolving Credit
Master Note between the Company and Robert P.
Gordon, each dated April 23, 1998. (Incorporated by
referenced to Exhibit 10.5 to the Company's Form
10-QSB for the quarter ended March 31, 1998, filed
on May 20, 1998).
10.7 Visitors Services, Inc. Employee Benefit and
Consulting Services Compensation Plan (the "VSI
Plan"), as restated March 15, 1999. (Incorporated by
referenced to Exhibit 10.7 to the Company's
Registration Statement on Form S-8 (file no.
333-74561) filed March 17, 1999).
10.9 Employment Agreement between the Company and Robert
P. Gordon dated December 4, 1998. (Incorporated by
reference to Exhibit 10.9 of the Company's Form
10-KSB for the fiscal year ended December 31, 1998,
filed March 31, 1999).
10.12 Consulting Agreement between the Company and Paul W.
Henry dated April 9, 1998. (Incorporated by
reference to Exhibit 10.12 of the Company's Form
SB-2, (file no. 333-78077), filed May 7, 1999).
27 Financial Data Schedule. (Filed herewith).
(b) Reports on Form 8-K.
On June 23, 1999, the Company filed a Current Report on Form 8-K
regarding 1) announcement of a shareholders meeting, 2) a reorganization of
business operations and a change in management, and 3) settlement of a lawsuit.
On July 14, 1999, the Company filed a Current Report on Form 8-K
regarding the results of the shareholders meeting and the changes authorize to
be made to the Company's Articles of Incorporation.
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELESERVICES INTERNET GROUP INC.
Dated: August 13, 1999 /s/ ROBERT P. GORDON
-----------------------------------------
Robert P. Gordon, Chairman
/s/ ANTHONY PETERSON
-----------------------------------------
Anthony Peterson, Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
----------- -----------
3.6 Bylaws as restated April 22, 1999. (Incorporated by
reference to Exhibit 3.6 of the Company's Form SB-2,
(file no. 333-78077), filed May 7, 1999).
3.7 Articles of Incorporation, as amended on July 12,
1999 and currently in effect. (Incorporated by
reference to Exhibit 3.7 of the Company's Current
Report on Form 8-K dated July 8, 1999 and filed July
13, 1999).
4.3 Form of Debenture Purchase Agreement for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.3 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
4.4 Form of 8% Convertible Debenture for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.4 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
4.5 Form of Registration Rights Agreement for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.5 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
4.6 Form of Escrow Agreement for private placement which
commenced in November 1998. (Incorporated by
reference to Exhibit 4.6 of the Company's Form
10-KSB for the fiscal year ended December 31, 1998,
filed March 31, 1999).
4.7 Form of Common Stock Purchase Warrant for private
placement which commenced in November 1998.
(Incorporated by reference to Exhibit 4.7 of the
Company's Form 10-KSB for the fiscal year ended
December 31, 1998, filed March 31, 1999).
10.1 TeleServices International Group Inc. (formerly
Visitors Services International Corp.) Employee
Benefit and Consulting Services Compensation Plan
(the "TSIG Plan"). (Incorporated by referenced to
Exhibit 10.1 to the Company's Post-Effective
Amendment No. 1 to the Registration Statement on
Form S-8 (file no. 333-14271) filed February 19,
1997).
10.3 TeleServices Stock Option Plan (the "TeleServices
Plan"). (Incorporated by reference to Exhibit 10.3
the registration statement filed on Form S-8 for the
TeleServices Stock Option Plan, Registration No.
333-52271, filed May 8, 1998).
10.5 Revolving Credit Loan Agreement and Revolving Credit
Master Note between the Company and Robert P.
Gordon, each dated April 23, 1998. (Incorporated by
referenced to Exhibit 10.5 to the Company's Form
10-QSB for the quarter ended March 31, 1998, filed
on May 20, 1998).
10.7 Visitors Services, Inc. Employee Benefit and
Consulting Services Compensation Plan (the "VSI
Plan"), as restated March 15, 1999. (Incorporated by
referenced to Exhibit 10.7 to the Company's
Registration Statement on Form S-8 (file no.
333-74561) filed March 17, 1999).
<PAGE> 17
10.9 Employment Agreement between the Company and Robert
P. Gordon dated December 4, 1998. (Incorporated by
reference to Exhibit 10.9 of the Company's Form
10-KSB for the fiscal year ended December 31, 1998,
filed March 31, 1999).
10.12 Consulting Agreement between the Company and Paul W.
Henry dated April 9, 1998. (Incorporated by
reference to Exhibit 10.12 of the Company's Form
SB-2, (file no. 333-78077), filed May 7, 1999).
27 Financial Data Schedule. (Filed herewith).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 30,000
<SECURITIES> 0
<RECEIVABLES> 585,248
<ALLOWANCES> (25,159)
<INVENTORY> 87,825
<CURRENT-ASSETS> 1,486,979
<PP&E> 888,179
<DEPRECIATION> (275,219)
<TOTAL-ASSETS> 2,138,294
<CURRENT-LIABILITIES> 4,881,681
<BONDS> 0
0
0
<COMMON> 11,251
<OTHER-SE> (2,754,638)
<TOTAL-LIABILITY-AND-EQUITY> 2,138,294
<SALES> 46,992
<TOTAL-REVENUES> 267,211
<CGS> 29,353
<TOTAL-COSTS> 531,183
<OTHER-EXPENSES> 2,598,478
<LOSS-PROVISION> 25,840
<INTEREST-EXPENSE> 57,524
<INCOME-PRETAX> (2,975,167)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,975,167)
<DISCONTINUED> (161,988)
<EXTRAORDINARY> 4,541,689
<CHANGES> 0
<NET-INCOME> 1,404,534
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.00
</TABLE>
