<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 September 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)
FLORIDA 59-2773602
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 SECOND AVENUE SOUTH, SUITE 1000, ST. PETERSBURG, FLORIDA 33701
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(Address of principal executive offices)
(727) 895-4410
---------------------------------------
(issuer's telephone number)
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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 NOVEMBER 12, 1999, OF
THE ISSUER'S COMMON STOCK, $.0001 PAR VALUE, THERE WERE 164,562,056 SHARES
OUTSTANDING.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE> 2
TELESERVICES INTERNET GROUP INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
TeleServices Internet Group Inc. and Subsidiaries
Consolidated Balance Sheets 3
September 30, 1999 (Unaudited) and
December 31, 1998
Unaudited Consolidated Statements of Operations 4
Three and nine months ended
September 30, 1999 and
September 30, 1998
Unaudited Consolidated Statements of Cash Flows 5
Nine Months ended
September 30, 1999 and
September 30, 1998
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II. OTHER INFORMATION 15
SIGNATURE PAGE 18
</TABLE>
2
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash, restricted $ 30,000 $ 80,000
Accounts receivable, net of allowance for
doubtful accounts 32,285 80,530
Accounts receivable, other 18,129
Prepaid expenses 918,385
Other current assets 96,626 159,441
------------ ------------
Total Current Assets 1,095,426 319,971
Equipment, net of accumulated depreciation of
$344,876 (Note 5) 631,146 481,577
Investment in Affiliate (Note 2) 380,986
Other Assets 6,955 25,000
------------ ------------
Total Assets 1,733,527 1,207,534
============ ============
LIABILITIES AND STOCKHOLDER'S (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses (Notes 2) $ 3,060,879 $ 6,638,702
Loans payable, stockholder (Note 6) 651,291 1,351,095
Capital leases payable, current portion (Note 4) 0 18,790
Notes payable (Notes 8) 293,814 328,673
Convertible Debentures (Note 9) 593,479 875,000
------------ ------------
Total Liabilities 4,599,462 9,212,261
------------ ------------
Commitments and Contingencies (See Notes)
Stockholders' (Deficit):
Preferred Stock, $.001 par value
10,000,000 shares authorized, 220,000 issued
and outstanding (Note 7) 220
Common Stock $.0001 par value,
300,000,000 shares authorized; 144,619,286 issued and
outstanding; 19,398,506 due to be issued under conversion
obligations 15,162 6,498
Additional Paid-in Capital 35,329,913 30,002,411
Treasury Stock, 13,130 shares at cost (125,000) (125,000)
Accumulated (deficit) (38,086,230) (37,888,635)
------------ ------------
Total Stockholders' (Deficit) (2,865,935) (8,004,726)
------------ ------------
Total Liabilities and Stockholder's (Deficit) $ 1,733,527 $ 1,207,534
============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
3
<PAGE> 4
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and nine months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
TWELVE MONTHS
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ENDED
1999 1998 1999 1998 DEC. 31, 1998
-------------- -------------- -------------- -------------- --------------
(AUDITED)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 55,980 $ 9,904 $ 323,191 $ 147,541 $ 143,472
-------------- -------------- -------------- -------------- --------------
Operating Expenses:
Salaries & Contract Services 486,709 894,079 1,941,544 3,607,348 4,676,008
Payroll taxes and benefits 103,531 62,565 299,831 223,267 349,547
Rent 85,159 66,155 208,447 220,292 316,383
Telephone 74,911 46,669 315,938 179,509 222,126
Travel and entertainment 35,512 (15,818) 205,008 69,425 98,641
Advertising and promotion 25,856 4,784 82,699 4,784 80,868
Depreciation and amortization 69,657 78,454 159,560 105,363 183,307
Other expenses 718,325 (404,689) 1,571,488 1,016,547 4,027,993
-------------- -------------- -------------- -------------- --------------
Total Operating Expenses 1,599,661 732,198 4,784,515 5,426,534 9,954,873
-------------- -------------- -------------- -------------- --------------
Net (loss) from operations (1,543,681) (722,295) (4,461,324) (5,278,994) (9,811,401)
Other income (expenses)
Interest Income 431 4,118 3,095 9,325 9,832
Interest (expense) (58,879) (67,358) (119,067) (148,494) (576,867)
-------------- -------------- -------------- -------------- --------------
Loss from continuing operations $ (1,602,130) $ (785,534) $ (4,577,297) $ (5,418,163) $ (10,378,435)
============== ============== ============== ============== ==============
Discontinued Operations
Loss from Operations of VSI -- (113,714) (161,988) (1,174,472) (1,443,816)
Gain on Bankruptcy of VSI -- 4,541,689 -- --
-------------- -------------- -------------- -------------- --------------
Total Discontinued Operations -- (113,714) 4,379,701 (1,174,472) (1,443,816)
Net Income (Loss) $ (1,602,130) $ (899,248) $ (197,596) $ (6,592,635) $ (11,822,251)
============== ============== ============== ============== ==============
Net (loss) per share: $ (0.013) $ (0.017) $ (0.002) $ (0.158) $ (0.234)
============== ============== ============== ============== ==============
Weighted Averages Shares Outstanding 127,922,239 51,772,835 98,500,977 41,767,049 50,470,972
============== ============== ============== ============== ==============
</TABLE>
4
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS
NINE MONTHS ENDED SEPTEMBER 30, ENDED
1999 1998 DEC. 31, 1998
------------- -------------- -------------
Cash flows from operating activities: (Audited)
<S> <C> <C> <C>
Net (loss) $ (4,577,297) $ (5,418,163) $(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 38,116 (622,243) 82,118
Decrease (increase) in prepaid marketing expense (918,385) (28,495)
Depreciation and amortization 159,560 105,363 183,307
Increase in accounts payable and accrued expenses 1,105,516 497,318 1,000,105
Other 80,860 (282,153) (116,116)
------------ ------------ ------------
Net cash (used in) operating activities: (4,436,954) (5,748,373) (9,229,021)
------------ ------------ ------------
Cash flows from investing activities:
(Acquisition) disposal of property and equipment (309,129) (1,180,353) (14,924)
(Acquisition) disposal of new business 706,309 (416,687) (380,986)
------------ ------------ ------------
Net cash (used in) investing activities 397,180 (1,597,040) (395,910)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from (repayment of) Loans from stockholders 300,196 4,353,465 1,291,780
Acquisition of Treasury stock -- (125,000) (125,000)
Issuance of common stock 166,400 540,000 9,136,450
Sale of convertible preferred stock 440,000
Sale of convertible debentures 2,502,000 -- 875,000
Proceeds from (repayment of) leases payable (18,790) (68,127) (82,978)
Repayment of notes payable (34,859) (90,605) (121,506)
Increase in cash collateral 50,000 95,000 95,000
------------ ------------ ------------
Net cash provided by financing activities: 3,404,946 4,704,734 11,068,747
------------ ------------ ------------
Increase (decrease) in cash (634,828) (2,640,679) 1,443,816
Cash, beginning of period -- -- --
Non-cash transactions and discontinued operations 634,829 2,640,679 (1,443,816)
Cash, end of period $ 0 $ 0 $ 0
============ ============ ============
Schedule of non-cash operating, financing and
Investing activities and discontinued operations:
Net (loss) from discontinued operations (161,988) (1,174,472) (1,443,816)
Net gain on disposal of discontinued operations (141,649)
Repayment of stockholder loan (1,000,000) (2,661,824)
Issuance of common stock 4,729,987 6,476,975
Stock subscription receivable (8,000)
Conversion of debentures into common stock (2,783,521)
------------ ------------ ------------
Increase (decrease) in non-cash items $ 634,829 $ 2,640,679 $ (1,443,816)
============ ============ ============
Interest paid $ 119,067 $ 148,494 $ 576,867
============ ============ ============
Income taxes paid $ -- $ -- $ --
============ ============ ============
</TABLE>
5
<PAGE> 6
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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. 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.
6
<PAGE> 7
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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
nine-month periods ended September 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 September 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
$38,000,000 at September 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 September 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.
(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.
7
<PAGE> 8
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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 fourth
quarter of 1999. These costs, totaling $855,000 at September 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 September 30, 1999 is $30,000 being held in
certificates of deposit as collateral for operating licenses.
8
<PAGE> 9
TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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.
(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:
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1999 $ 349,822
2000 $ 307,353
2001 $ 278,702
2002 $ 158,468
</TABLE>
9
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(5) Property and Equipment
The Company's property and equipment as of September 30, 1999 is summarized as
follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment $ 47,525
Telephone equipment 441,248
Computer equipment and software 487,249
----------
976,022
Accumulated depreciation (344,876)
----------
$ 631,146
==========
</TABLE>
(6) Related Party Transactions
A stockholder of the Company has made various demand loans to the Company for
expansion and operating capital. As of September 30, 1999 loans payable to a
stockholder totaled $651,291, accruing interest at 11% per annum, plus $175,000
in unpaid accrued interest. 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. As of September
30, 1999, a total of 220,000 shares had been issued.
(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, of which 112,000 remains unpaid.
(9) Debentures Payable
In November, 1998, the Company authorized the issuance of $2,000,000 of
convertible debentures. As of September 30, 1999, $3,377,000 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 September 30, a total of $2,783,521 in debentures,
along with $50,331 in accrued interest, had been converted into a total of
63,679,488 shares of common stock, leaving a balance of $593,478 not yet
converted.
10
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TELESERVICES INTERNET GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Total revenues from continuing operations, which consist primarily of
the MusicCard program, for the three months ended September 30, 1999, were
$55,980, representing a 465 percent increase from revenues of $9,904 for the
three months ended September 30, 1998. Operating expenses for the reporting
period totaled $1,599,661, which in comparison to the prior year total of
$732,198, is a 118 percent increase. The resultant operating loss of $1,543,681
for 1999 compares to a loss of $722,295 in 1998, a 121 percent increase.
However, the 1998 figures reflect an adjustment which decreased the expense
total by approximately $1.2 million. On a comparative basis, excluding the
prior-year adjustments, the operating loss for 1999 is approximately $330,000
less than the same period in 1998, a continuation of the improvements resulting
from the elimination of the Visitors Services' travel-related operation.
For the nine months ended September 30, 1999, revenues increased to
$323,191 from $147,541 for the same period in 1998, a 119 percent improvement;
operating expenses decreased to $4,784,515 from $5,426,534, a 12 percent
improvement; and the operating loss declined to $4,461,324 from $5,278,994, a
15 percent improvement. The results from discontinued operations were a net
loss of $161,988 compared to a loss of $1,174,472 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 loss for the nine-month period was
$197,596.
Operating Plan
Earlier in the fiscal year, the Company's management determined that
the greatest revenue and growth opportunity is to be found in its My MusicCard
program. 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 deep-discount prices, generally $10.99 for
most CDs. The Company sells the music cards through its internet site
(www.mymusiccard.com) to the public retail market. However, the primary focus
is the sale of the music card 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.
The Company then fills the orders for music product either through a drop-ship
supplier or by purchasing the product and shipping to customers from the
Company's Irvine, California, location.
During the reporting period, the Company continued to develop new
not-for-profit and corporate partnerships. 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 fundraising 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 marketing agreements with Nettaxi, Inc., a
premier internet community and portal website, and iCanBuy.com, the leader in
online teen and kid shopping, to offer its My MusicCard program to their
members. iCanBuy also offers a means of online purchasing for kids and teens
with parental approval, which will enhance the Company's ability to market the
MusicCard program in the school-based programs. Management believes that each
of the preceding promotional affiliations has the potential to substantially
increase sales of both the My MusicCard discount card and the music CDs in the
latter part of the fiscal year and the first quarter of 2000. However, there is
no method of predicting the results of the programs and no assurance that these
programs will generate revenues sufficient to meet the Company's current
expense levels.
Certain agreements previously entered into and announced by the
Company have proven to be unfeasible. These agreements include those with
Hydrogen Media, Inc., which would have enabled the Company to promote its
products through PalaceNet.com, the web site for the Palace of Auburn Hills,
and USA Volleyball, the governing body for amateur volleyball, which intended
to use the MusicCard as a fundraising tool. Moreover, the Company's intention
to market the services of EOCnet.com, a provider of eBusiness solutions,
through an exclusive sales representative agreement has been terminated by
mutual agreement.
In addition to the My MusicCard program, the Company is developing a
new program, My PhotoCard. Similar to the music card concept, the Company will
sell a discount card that offers the purchaser discounted film processing and
free film. For instance, a $10.00 discount card would entitle the holder to get
up to 10 rolls of Kodak 24-exposure film plus Kodak film processing for a
discounted price, generally $7.99 each for the combination including shipping
and handling. This price is lower than that offered for discount film
developing at most drug and other retail stores. The exposed film is sent by
the customer to the Company's Southern California location for order
processing. The film processing lab is nearby and the film can be turned around
in 24 hours, after which the prints and a new roll of film are mailed back to
the customer.
12
<PAGE> 13
The initial sales development of the PhotoCard program has been
through the sale of distributorships. However, the Company is now evaluating
several methods of distribution through retail outlets and fundraising and
corporate programs, similar to those used for the MusicCard program.
Limited Working Capital; Financial Instability
At September 30, 1999, the Company had negative shareholders' equity
of $2,865,935, an accumulated deficit of $38,086,230, and a working capital
deficit of $3,504,036. The Company has frequently failed to make timely
payments to its trade and other creditors. At September 30, 1999, the Company
had more than $1,400,000 in past due trade and other 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 its federal
payroll tax liability, including penalties and interest, totaling $526,000 at
September 30 and $561,000 at November 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 and is currently seeking immediate collection of $38,000
for the 4th quarter 1998 and the 1st quarter 1999 for subsidiary accounts (My
MusicCard Company). In addition, the Company is assuming the liability for the
trust portion of payroll taxes totaling $475,000, which was not paid by VSI at
the time of its bankruptcy filing.
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 November 12,
1999 convertible debentures totaling $3,477,000 in principal amount had been
sold, and a total of $3,387,000 in debentures, along with $72,332 in accrued
interest, had been converted into a total of 83,386,158 shares of common stock,
leaving a principal balance of $90,000 not converted. In connection with the
offering, shares of common stock were placed in escrow, of which 6,691,836
shares remain in escrow and are not considered issued or outstanding unless and
until released in connection with future conversions.
Beginning in August, 1999, the Company initiated a financing through
the sale of convertible preferred stock priced at $2.00 per share. The
preferred shares bear a preferred dividend rate of 10% and are convertible into
shares of common stock at a price of $.05 per share and an equal number of
warrants for the purchase additional shares of common share at an exercise
price of $.20. As of September 30, preferred stock totaling $440,000 had been
sold. Subsequent to the end of the quarter, an additional $180,000 has been
sold as of the reporting date.
The Company is currently pursuing other sources for additional debt or
equity financing. No assurances can be given that the Company will be
successful in obtaining additional financing and, if obtained, that such
financing will be on terms satisfactory to the Company.
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 and no assurances can be given that such financing will be available
in the amount required or, if available, that it can be obtained with terms
satisfactory to the Company.
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.
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 all hardware and software currently in use is compliant. 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.
13
<PAGE> 14
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 from 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 or
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.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings:
During the quarter ended September 30, 1999, there were no material
developments in any legal proceedings previously reported on the Form 10-KSB
for the year ended December 31, 1999 or on the Forms 10-QSB for the quarters
ended March 31, 1999 and June 30, 1999.
ITEM 2. Changes in Securities:
A. As a result of a Special Shareholders Meeting held 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.
B. To obtain financing, the Company began selling shares of Series A
Convertible Preferred Stock pursuant to a private placement which commenced in
August 1999. Upon closing of the offering the Articles of Incorporation will be
amended to rescind the existing Designation of Rights and Preferences of Series
A Convertible Preferred Stock and replace it with a revised designation which
will reflect the total number of shares sold and provide that each share of
Series A Convertible Preferred Stock 1) has a stated rate of $2.00, 2) has a
liquidation preference of $2.00, bears interest at the rate of 10% per annum,
payable in cash or in shares of restricted common stock, 4) is convertible into
shares of restricted common stock at a conversion rate of $.05 per share and an
equal number of 5-year warrants for the purchase additional shares of common
share at an exercise price of $.20; is generally non-voting; redeemable by the
Company if the Company's common stock trades above $1.00. Purchasers are also
entitled to registration rights whereby the exercise price of the warrants
issuable upon conversion for the Series A Convertible Preferred Stock may be
reduced to $.05 per share in the event that the shares issuable upon conversion
for the Series A Convertible Preferred Stock and upon exercise of the warrants
are not registered for resale within 120 days after the close of the offering.
As of September 30, 1999, an aggregate of 220,000 shares of Series A
Convertible Preferred Stock totaling $440,000 had been sold. Subsequent to the
end of the quarter, an additional 90,000 shares ($180,000) has been sold as of
the date of filing of this report. All purchasers are accredited investors, and
the Company believes that this private placement is exempt from registration
pursuant to Sections 4(2), 4(6) and/or Rule 506 of the Securities Act of 1933.
ITEM 3. Defaults Upon Senior Securities: None.
ITEM 4. Submissions of Matters to a Vote of Security Holders:
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
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.
15
<PAGE> 16
ITEM 5. Other Information:
A. On August 17, 1999, the Company entered into a six month agreement
with Joseph F. Morgan for financial management services. Pursuant to the
agreement, the Company agreed to pay a fee of $90,000 and granted Mr. Morgan an
option to purchase 35 million shares of common stock at $.10 per share for a
period of three years, half of which shall not vest unless the agreement is
extended for an additional six-month extended term. The agreement includes
"piggyback" registration rights and provides that if the underlying shares are
not registered within six months, the exercise price may be reduced down to
$.05 per share.
B. On August 20, 1999, the Company entered into an agreement with Titan
Gulf Partners, Ltd. for business management services in connection with
business development in the European Union markets for the "myCard" programs.
Pursuant to the agreement, the Company issued 15 million registered shares of
common stock as compensation of services, 10 million of which are being held in
escrow until services are completed and are not considered outstanding.
C. On August 25, 1999, the Registrant adopted the TSIG.com 1999 Stock
Plan, which covers the issuance of up to 25,000,000 shares, either directly or
pursuant to options, to eligible employees, directors, officers, consultants
and advisor of the Company. The purpose of this Plan is to promote the best
interest of the Company, and its stockholders by providing a means of non-cash
remuneration to selected eligible participants.
D. On September 8, 1999, the Company filed a Registration Statement on
Form S-8 (Registration No. 333-86751) to register the 25,000,000 shares of
common stock of the Company covered under the TSIG.com 1999 Stock Plan.
E. Effective October 1, 1999, Frank P. Ragano, Major General, U.S. Army
(Ret.), became a director of the Company. Mr. Ragano has served as a director
of Skylynx Communications, Inc. since 1998 and as its chairman since 1999. Mr.
Ragano was, until earlier this year, President and CEO of CMS, Inc., a wholly
owned subsidiary of Daimler-Benz GmbH. He graduated with a B.S. degree from
Duquesne University in 1950 and later graduated with a Master of Business
Administration (MBA) from Syracuse University, New York. After a well-decorated
career in the military, Mr. Ragano retired from active Army service and became
Vice-President of the American Defense Preparedness Association and Chairman
and CEO of BEI Defense Systems Company.
Pursuant to his Agreement to Serve as a Director, Mr. Ragano was
granted options to acquire 900,000 shares of the Company's common stock at an
exercise price per share equal to $.05. The options vest (and become
exercisable at the time they vest), subject to termination of the agreement, on
a quarterly basis on the last day of each quarter. All options expire on
December 31, 2004.
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).
16
<PAGE> 17
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).
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).
10.13 TSIG.com Stock Plan dated August 25, 1999. (Incorporated by
referenced to Exhibit 10.13 to the Company's Registration
Statement on Form S-8 (file no. 333-86751) filed September 8,
1999).
27 Financial Data Schedule. (Filed herewith).
(b) Reports on Form 8-K.
On July 14, 1999, the Company filed a Current Report on Form 8-K
regarding the results of the shareholders meeting and the changes authorized to
be made to the Company's Articles of Incorporation.
17
<PAGE> 18
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: November 12, 1999 /s/ Robert P. Gordon
-----------------------------------------
Robert P. Gordon, Chairman
/s/ Anthony Peterson
-----------------------------------------
Anthony Peterson, Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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).
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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 30,000
<SECURITIES> 0
<RECEIVABLES> 50,414
<ALLOWANCES> 0
<INVENTORY> 96,626
<CURRENT-ASSETS> 1,095,426
<PP&E> 976,022
<DEPRECIATION> (344,876)
<TOTAL-ASSETS> 1,733,527
<CURRENT-LIABILITIES> 4,599,462
<BONDS> 0
0
220
<COMMON> 15,162
<OTHER-SE> (2,881,317)
<TOTAL-LIABILITY-AND-EQUITY> 1,733,527
<SALES> 65,644
<TOTAL-REVENUES> 323,191
<CGS> 55,845
<TOTAL-COSTS> 818,953
<OTHER-EXPENSES> 3,962,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,067
<INCOME-PRETAX> (4,461,324)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,461,324)
<DISCONTINUED> (161,988)
<EXTRAORDINARY> 4,541,689
<CHANGES> 0
<NET-INCOME> (197,596)
<EPS-BASIC> (.002)
<EPS-DILUTED> 0
</TABLE>
